Jermome Myers – Multifamily Real Estate Investing

[00:00:00.000] – Speaker 1
You have found Authentic Business Adventures, the business program that brings you the struggle stories and triumphant successes of business owners across the land. Downloadable audio episodes of the Authentic Business Adventures program can be found at drawincustomers.com and hit that podcast link. We’re locally underwritten by the Bank of Sun Prairie. My name is James Kademan, entrepreneur, author, speaker, and helpful coach to small business owners across the country. And today we’re welcoming/preparing to learn from Jerome Myer’s, owner of the Myer’s Method. So, Jerome, how are you doing today?

[00:00:33.990] – Speaker 1
Amazing. James, how are you, my brother?

[00:00:36.100] – Speaker 2
Man, I’m doing better. When people answer like that, I love it.

[00:00:39.970] – Speaker 1
It’s so good to be with you. Thanks for having me.

[00:00:42.580] – Speaker 2
Yeah, thanks for being on the show. You got to tell me, what is the Myer’s Method?

[00:00:48.310] – Speaker 1
Yeah. So there’s a couple of different little model things we have going on. So Myer’s Method is really our approach to buying multifamily properties. And so it’s a four step process that we use in order to find fun, fix and then flip deals so that people who are out there, who are interested in getting into this space, have a proven system that they can utilize in order to be successful in those transactions. I think a lot of us, we just think real estate is buying a widget and then selling that widget for more. And what I found is you actually got to run a business in order to make money in multifamily. For me, that has been pretty helpful because when I got into the space, I didn’t have a method. I was just goofing around, trying to explore and figure it out through podcast and YouTube.

[00:01:41.050] – Speaker 2
All right. And how did you get into the real estate business?

[00:01:45.550] – Speaker 1
Long convoluted story, but the interest started when I was a sophomore in college. Me and my buddy, Doran, were sitting on the stoop, and we were doing a little bit of math. I was paying 395. I had two roommates on the same thing. He lived in an apartment downstairs and similar situation happening. But when we multiplied it across the complex, the guy that owned the property was making about $700,000 a year and we never saw him or talked to him. And for me, I was like, who? He’s figured out how to decouple his time for money. Now, I didn’t know him. I never saw him. I never talked to him. So I couldn’t go ask him, Hey, how did you do that? And I’m the son of a soldier and a stay at home mom, so we didn’t have people with multimillion dollar real estate portfolio who’s coming over to the house. I had a little conundrum there. How could I get the information I needed in order to be successful at this thing that I knew I was interested in but didn’t know a whole lot about or have any real exposure to?

[00:02:44.740] – Speaker 2
All right. How did you end up doing that?

[00:02:49.390] – Speaker 1
Well, I did what everybody else does. I got good grades and then I got a good job and I started on the American dream. After over a decade in industry, I realized I didn’t like where I was heading. I was looking in the mirror, I didn’t really enjoy myself. I was being asked to do things that I didn’t agree with. I exited corporate America after building a pretty big division for Fortune 550. I said, Well, I got some experience, I got some credentials now. I got some credit. I got some money. Let me go to the bank and see if I can borrow some money to go buy one of these apartment buildings. It can’t be that hard. I bought multiple houses at that point. When I walked in, they said, Why would we give you a million dollars? I was baffled because I thought they were in the business of loan and money. What I realized is they are in the business of loaning money to proven operators with great business plans. I was neither. I thought I had a business plan, but I didn’t know what I was doing. I had no experience in actually executing that type of business plan on that size property.

[00:04:00.550] – Speaker 1
I was high risk and they were not totally uninterested in lending. At first I thought it was just that bank so I went to another one and then another. By the time I got to the 10th one, I realized I was the one who didn’t really understand what was going on. I pivoted, started doing some fixin’ and flips, and I got connected with the guy who was going to do a deal that I tried to do earlier on my own. We partnered on that deal. Because my name ended up in the paper from that one, things changed. Banks were more interested in having conversations with me. We continued to go down this path of growing a portfolio and helping other people figure out how to get this thing done as well.

[00:04:44.520] – Speaker 2
All right. How big of a property are we talking? Your first one that you try to get.

[00:04:49.140] – Speaker 1
The first one was 23 units. So it was 23 units with the purchase price of about 1.3 million.

[00:04:56.850] – Speaker 2
Okay, that’s a big first bite, I guess is where that goes.

[00:05:02.460] – Speaker 1
Well, for some people, they would say it’s really small. And so it’s just a function of what your frame is. There’s a lot of educators in the real estate space who will tell you, Hey, don’t buy property on 100 units. For most markets, that’s going to be something that’s north of eight million at this point. And they say you can do that with no money, no credit, no experience of your own. And to your point, I think it’s really difficult to go from owning a single family home to an eight million dollars property and run that successfully. And so what we teach through our methodology is to get people to do those smaller bites. And so we look to get people to do a deal between half a million and 1.5 million on their first go around with a group of their friends, and that will give them some track record. We call it getting tuna in the boat. I don’t know if any of your listeners have been deep sea fishing or not, but when we go out deep sea fishing, when we come back in, there’s people lined up on the dock and they want to see what we caught.

[00:06:00.890] – Speaker 1
And so the skipper and the first mate, they lay all the fish out and everybody’s like, oh, man, I got a pretty good take. And for those captains that consistently bring boats back with people with fish, their boat stays full. The ones that come back empty don’t. And so that’s the same thing with your investing strategy or your investing experience. We want people to go out, find a great deal, make money with that deal, come back, show people they made that money so that more people will go out. E ventually, they get a bigger boat and maybe they don’t go fishing for tuna. Maybe they go fishing for sard fish and then marlins and then whales and then sharks. You continue to get bigger and bigger fish in the boat and you also have a bigger boat that’s actually equipped to take on that. I like to pick with people and say, Hey, don’t go out there and try to capture Moby Dick on your first fishing expedition because it could sink your boat.

[00:07:01.270] – Speaker 2
Yeah. Build upon your success instead of trying to get the biggest one right away. This reminds me of a guy that I met because I had a buddy that or have a buddy that pours basements. And he was called out to a guy that had an old college house that he’s renting out, first rental that he had, then it’s cinder block basement, a lot of rain, cinder block basement wall caves in. So he called my buddy out there, just contact of contact thing. My buddy’s like, There’s no way I’m taking this job. But I want to look at it. So we go out there and we can see the driveway caved into this house. There’s a shared driveway between these two old houses, typical college house, just dive. This guy was first rental and he’s like, I don’t know what I got to do. My buddy’s like, You got to get your tenants into the hotel because your tenants pay you monthly rent for a place to live. They can’t live here until you get this fixed. And he’s like, I got to pay for their hotel? And so it’s funny because it seems to me like he didn’t realize the promises that were being made that he had to keep.

[00:08:06.180] – Speaker 2
So I think if someone getting a 23 unit off the bat first promise, they are property rich but way cash poor if they had to lay down down payment for that place. And if they have a bad day, fire, flood, whatever, they’re in a world of hurt, terrible place to be in.

[00:08:23.570] – Speaker 1
Plus, most of those projects you’re going to get into early in your career are going to be construction projects. And so if you don’t know how to budget properly, it’s not like a rehab where you’re buying one of each of the things. In concept, you’re going to buy 23 of the things. And so if your number is off by $1,000 on something you’re buying 23 times, it can add up quickly. And that’s if it’s only a thousand. Imagine if you’re off by 5,000.

[00:08:55.230] – Speaker 2
Interesting. So what made you decide to go down the corporate avenue and get the job versus chasing the apartment?

[00:09:02.220] – Speaker 1
I didn’t know what I didn’t know. There was a path that was laid out and I felt like, well, I can go do that because I just follow the yellow brick road. I didn’t know how to venture off into the wilderness and try to figure this thing out. Again, my family was one that was single income from a revenue standpoint. So what was I going to do? Go ask my dad to invest in my million dollar property? I know a lot of people that have that as an option, but that wasn’t one for me.

[00:09:37.210] – Speaker 2
I’m right there with you. So when did you flip where you’re like, hey, I got to get in this real estate investing game and figure it out. Was it the time that you had a little bit of extra income so that you could make your own down payments?

[00:09:52.310] – Speaker 1
It was more so when I decided to blow my life up for lack of a better way of describing it. Part of my traumatic experience as a corporate leader, I was employee number two in the division that I spoke about earlier, and we went from 2 to 175 employees between January and September. I’m responsible for the P&L, I’m responsible for project delivery. By the end of the year, we had about $20 million in revenue. And I get a phone call on December 24, and I go something like this, Hey, Jerome, we’re going to lay half of this team off. What do you mean? We’re going to lay half of the team off. I don’t understand what you… Why are you asking me what I mean? I said, Well, we talked about this for the past few weeks and it’s not the right answer. Yeah, I’m not calling to negotiate with you or barter with you. I’m calling to let you know what we’re going to do. I said, It’s not the right answer. We’ve done so much. We’ve accomplished so many things. We’ve made 30 % profit margin. Why would we do something like that?

[00:10:59.460] – Speaker 1
Hey, Jerome, this isn’t a discussion. I’m just informing you of a decision. I was like, Well, yeah, I get it, but that still isn’t the right answer. The conversation ended with, Hey, it’s 4 59 on Christmas Eve. I’m going to go spend the rest of the year with my family. I’ll talk to you next year. T hat didn’t sit well with me. But I was a good corporate employee, so you do what your boss tells you to do. I didn’t sleep, I didn’t eat. I try to do everything I could to take what could have been a subjective process and make it objective. W e did have some dead weight that probably shouldn’t have been part of the team anymore, but there were some really good folks who were negatively impacted by this decision. That bothered me at my core. I was like, Man, I’m never going to do that again. I’m never going to let somebody else dictate to me what the right answer is for the business that I’m running. Fast forward to Thanksgiving of the following year, and I stand up in front of the team and I say, Hey, guys, look, don’t spend all your money on Black Friday.

[00:12:04.190] – Speaker 1
I don’t know what’s going to happen between now and the end of the year. I want to make sure that you have some runway in case anything unfortunate happens. It was in that moment that I realized that I lost all of my credibility. I don’t know that as a leader. I said, you know what? The last time I said I didn’t have a choice, but I do. I no longer want to participate in what I call the system or the matrix or the construct at this point. I decided to go get that dream off the shelf that I had in college and try to pursue it. Now, of course, we already talked about the banks not being super supportive in the beginning. Things have changed a little bit now, but that was the hurdle. And so it was just a crash landing into something else because I was trying to get away from what I consider to be a traumatic experience.

[00:12:51.890] – Speaker 2
All right. So at the time that you make the switch, you’re married, you have family, you mentioned. Yes. One income and you go to your wife and you’re like, Hey, funny story. I’m going.

[00:13:03.960] – Speaker 1
To leave. No, I’m done. It’s not funny. I’m not doing this anymore.

[00:13:09.450] – Speaker 2
All right. And how did she react?

[00:13:12.520] – Speaker 1
She didn’t like it very much. The first question that everybody asked when somebody says they’re going to leave is, How are we going to get insurance?

[00:13:25.010] – Speaker 2
All right.

[00:13:27.060] – Speaker 1
How are we going to get insurance? The marketplace, can we move on to something more important? I think that’s what a lot of people miss. This conversation, when you’re making a change like that, it doesn’t just impact you, it impacts all those around you. Your mental health may not be a more important priority than their physical comfort. That can be a really difficult conversation if you don’t handle it well and if you don’t have a really solid plan with a proven track record and some experience. They may literally think you’re insane for trying to go down the path that you’re going down. But again, if you’ve got a stimulus that is more painful than the pain of going off and exploring the unknown.

[00:14:23.220] – Speaker 2
It’s.

[00:14:23.570] – Speaker 1
Highly likely that you’ll continue down the path to get to some type of sanity.

[00:14:29.520] – Speaker 2
Got you. All right. So things worked out in the end or as it go along, I suppose. Yeah.

[00:14:36.130] – Speaker 1
I mean, at the end of the day, I’m successfully unemployed. I’ve been unemployed since I left and I don’t ever have an intention of going back.

[00:14:46.410] – Speaker 2
Nice. So the first few deals, you mentioned that they were essentially fix it, flip it things.

[00:14:53.190] – Speaker 1
Well, our process has flip on the back side, and you will always fix the deal. But flip can be anything from selling it to refinancing it. It’s always our ambition to buy a property where you can refinance the capital that you put into the deal initially. And that way you can take that and go do another deal and your returns go to infinity if you don’t have any cash in the deal when it’s a rental. That’s always our ambition. We are in the process of selling a couple of them now. One we bought for about 55 a door. We’re going to sell those for about 165 a door. I think that’s going to happen before the end of this month. We’re really excited about that. We got a couple of others where we’re having conversations. That is the process that we’ve gone through and the one that we teach folks who come through our 11 week course to take. Because at the end of the day, you can do a single family fix and flip and you can pay, like I did, all of the money upfront with the hope that you get to a close and to get more money back than you put out into the deal.

[00:16:07.100] – Speaker 1
But it’s really depressing when you got to pay debt service, you got to pay all the contractors, and you have no idea when you’re actually going to get to a close. The beauty of the multifamily real estate is you can do these renovations incrementally and those incremental adjustments or renovations allow other people to pay that mortgage for you while you’re going through and doing your construction project.

[00:16:34.400] – Speaker 2
Got you. The deals when you first started, were you having to lay down 20 % or more?

[00:16:42.550] – Speaker 1
Yeah. W e’d leverage everything 80 % and then bring 20 % and then you want to have close close liquidity of at least 10 % of the loan amount. T hen in addition to that, whatever renovation money you have, you want to fund that as well. All right. For.

[00:17:00.830] – Speaker 2
People to get started in this game, essentially they need at least 30 % of whatever deal that they’re going after. Is that close?

[00:17:10.050] – Speaker 1
Yeah. B y committee, you as the person who finds the deal doesn’t have to have all 30 %. But between you and a small group of friends or partners or associates, you can fund that jointly, and then you all commit to operating the property together. With apartments, multifamily properties, a lot of people talk syndication, which is the process of getting people to invest passively in your deal and you as a general partner will be responsible for operating that thing and providing a return. I don’t teach people to do that because I think when you’re getting started, it’s highly unlikely that you’re going to be strong at marketing for dollars and being able to be a strong operator. What I want people to do is go and work with pre existing relationships and form a joint venture where everybody’s active participant in the ownership and operation of the property. And through that, whatever scrapes you get on your knees and so on, you do that with people and you’re all doing that together versus just waiting for a person to come in and figure everything out. It’s got it. Those folks who do that, again, they get some tuna in the boat.

[00:18:34.090] – Speaker 1
They have this experience. And when you do that with one of these smaller deals, it’s going to be the hardest property you ever operate. From there, you can go get bigger properties, you can get stronger property management, etc. But you’ll have that experience of being able to say, Hey, we bought a property, we redid the roof, the siding, the parking lots, all the landscaping, took walls out on the first floor, jack hammer concrete slab so that we can put in bathrooms on the first floor, etc. It’s a really strong narrative and demonstrates the experience that you and your team actually have. I think that experience, that deal story is what makes more people comfortable putting money into deals with you.

[00:19:22.030] – Speaker 2
Got you. I want to talk about debt service because I feel like in the real estate game, this is head trash that I’ve had to get over. I don’t like debt, but I understand that on the flip side, debt is a tool. And as long as you have that debt and it’s making you money, there’s value to debt. So talk to me about just debt service and your feelings or what you teach people about debt.

[00:19:48.980] – Speaker 1
Yeah. So you’ll get a kick out of this. So when I was a kid, and I don’t know if you guys have Pizza Hut where you are, but as a kid, we had Pizza Hut. And my mom would get me a personal pan pizza every time I finished reading a book for whatever that book club thing. Book it.

[00:20:06.980] – Speaker 2
Yeah.

[00:20:07.620] – Speaker 1
Right. And so I would get a personal pan pizza. And there was one day when I got this personal pan pizza, I’m walking around in the backyard and I had two German Shepherd mixes and they bumped my box. I had one piece in my hand and I had the other three slices in the box. They bumped my hand, pizza fell on the ground. And so I wasn’t going to put this one down because I knew I didn’t want to lose this one. But I reached down and the dogs both get a slice because I had two. They each get a slice and I got one left in my box and it’s got dirt on it but I brush it off. I pick up my box and I finish eating the piece I have. Well, the two pieces that the dog ate, those are your expenses. The piece that I had in my mouth, that’s your profit. The piece that was in the box that was all dirty, that’s your debt service. What we teach people to do is try to get your debt so that it’s 25 % of your collected income. Then you have 50 % that you can allocate to your expenses.

[00:21:13.840] – Speaker 1
Done well, you’ll have 25 % of the collected revenue that’s available for you as profit. If you can structure your deal that way, you’re very well positioned to be successful. What you find with a lot of people, especially when they are used to single family rentals, is they want to put as much debt on the thing as possible. When you do that, you just don’t have any cash flow. There is nothing coming from the property because it’s being put into debt service. Debt is your friend. It allows you to get revenue and it allows you to control the equity. Let’s say we buy a million dollars property and the down payment or what we’re forced to bring to the deal is 25 %. We end up with a mortgage of $750,000. If we do things right, let’s say that we’re able to increase the value of that property by half a million dollars. So we go from 1 million to 1.5 million. When it’s all said and done, that half a million dollars is ours. And we were able to create that half a million dollars by only investing $250,000. That’s truly the power of the debt.

[00:22:24.660] – Speaker 1
If you bought that property a million dollars in cash, your return to get that $500,000 is a whole lot smaller on a percentage basis because you would take the half a million divided by a million, so 50 % return, versus having 250,000 allocated to the deal and dividing that into or dividing the half a million by the 250, which is a multiple of two or a 200 % return. So you’re able to harness that debt in order to grow the equity. Then you still get those… If you structure the debt, you still will have cash flow. And so the beauty of the commercial lending is most banks are looking for at least 1.25 in debt service coverage ratio. And so what that means is they want your net operating income, so that’s income after you pay all of your operating expenses, to be 25 % greater than whatever your mortgage payment would be. Now, the mortgage doesn’t include interest, it includes interest, but it doesn’t include taxes or insurance. Those would be operating expenses. And so for you, the listeners out there, let’s call it million dollars, the debt, let’s call it $6,000. So 25 % of that, I think, would be $1500, if I’m not mistaken.

[00:23:50.090] – Speaker 1
So if you’ve got a $6,000 note, you need to make $7,500 a month of net operating income before you pay your debt. Then what that would leave for you is $1500 a month in cash flow on the low side for that property. And that, for a lot of people, would be pretty exciting. Got you.

[00:24:12.040] – Speaker 2
Yeah, I bet it would. I bet it would. That is cool. So is it tough to get banks? I guess it sounds to me like you must have multiple deals going on at the same time. So the percentages all look good, but do banks ever get excited when you get so many deals out there or so much debt to revenue thing? What do banks look for?

[00:24:34.920] – Speaker 1
Yeah. So what they’re looking for is every deal is positive on the debt service coverage ratio. They also do a global cash flow analysis. And so they want to see how are all of your deals performing in aggregate. If I’ve got a deal where I’m doing construction and it’s not cash flowing yet, it’s going to be a negative. If I got a deal that’s fully standardized, we’ve got 90 plus % occupancy, the debt service coverage ratio is 1.4, a really heft number. The higher the number after the decimal point, the better you’re doing. If it’s up above there, then they add it all up and it’s like, Okay, so your total debt service coverage ratio for all of the properties that you’re involved in is this. Does that meet our criteria, especially when we add in this new deal? They’re risk averse. They’re looking to do everything they can to mitigate the risk. And so if your overall portfolio isn’t where they would like for it to be, then they do things like reduce the amount of money that they put into the deal. And so they might not give you 80 % of the purchase price of the property.

[00:25:51.030] – Speaker 1
Maybe they’ll only give you 65 %.

[00:25:53.790] – Speaker 2
All right. From a tenant standpoint, let’s talk about, I mean, these rentals. So are you managing the property or do you outsource the management to another management company or something like that?

[00:26:05.890] – Speaker 1
Yeah. So we manage the property manager. If you think about Robert Kiyosaki’s cash flow quadrant, a lot of the educators will tell employees to become investors. So you got the E, the S, the B, the I. S is self employee, B is business owner, the I is investor. And so people are taking their earn income, putting it into investments. The issue with investments is the majority of them, especially if they have any assets to back them, are going to give you a return of less than 10 %. That is not really going to do a whole lot for you in the short term if you’re trying to figure out how to get free. What I encourage people to do is go from employee to business owner. So in the world of real estate, that means that you’re active, you’re a real estate professional, you’re a real estate entrepreneur. So you’re doing things with your sweat in order to create equity for yourself in these various projects. So what we really look for is for the business to be operated by a manager, and then you be the owner of that business and manage the manager.

[00:27:16.880] – Speaker 1
We will always have a property manager in place. Once you get to a certain level, it makes sense to be vertically integrated, but you got to have a concentration of units in a single area before you actually spend the time managing it because the management isn’t typically a profit center. In fact, it’s a lost leader that you use for the convenience of having control over the resources versus being beholden to your third party contractor or outsourced service manager.

[00:27:53.020] – Speaker 2
You raise interesting point for perfect segue here. I want to talk about locations. Do you concentrate your portfolio more or less in the same location, or do you have properties all over the country or world?

[00:28:08.860] – Speaker 1
No, I am very simplistic in my approach. And so I buy one city now. We bought our first property in Richmond, Virginia. And then after we created our relationships with the banks, we came to Greensboro, North Carolina, and that’s the only place that we have been buying properties.

[00:28:29.050] – Speaker 2
All right. So let’s talk about the real estate market because real estate market has been going up, interest rates changed a little bit, but is it tougher to find deals now than it was a few years ago or even 10 years ago?

[00:28:42.600] – Speaker 1
I think it’s really difficult to find deals that make sense. Cap rates, which is the capitalization rate, is the way that you compare commercial real estate deals, one asset to the other, have compressed. Then a compressed cap rate means that the valuation goes up. Higher valuation means that your return on invested capital typically goes down. And so the tolerance that people have for a lower % return deal is shrunk. So being able to allocate the capital in a way where you can get a return on that capital is tough. And I think owners, the sellers of these property are a little more educated than they’ve been in the past. And they’ve got a lot of people reaching out looking for opportunities to partner with them to sell the deal for them. So they’re aware of what things are trading for. And the more education in a marketplace makes it a little more difficult for folks like me who are looking to grab equity in the transaction to find that equity.

[00:29:56.260] – Speaker 2
So I guess what do you do when it’s a tougher market like this? You just sit tight and wait, build your cash reserves. When you find a deal, you can make a move, or do you just sacrifice some profit and buy properties?

[00:30:09.580] – Speaker 1
Yeah. So sacrifice and profit is difficult because I truly believe that you need to have a buffer. I think you need to have some squishy in there. T hat’s a technical term, by the way, because I’m an engineer. You got to have some squishy in there because there are going to be things that you don’t expect to happen. Every time you buy one of these properties, you’re buying a wild animal and you have no true understanding of how it’s going to behave. It’s my belief that you just keep looking until you find a deal that actually meets your criteria. That criteria is set before you go looking because if you do it the other way around, you can get committed to a deal that you should not buy. At the end of the day, when you’re evaluating a business and that’s what each one of these properties are for us, you are doing a math problem. There is no emotion in the math. And if you deviate from the math, it’s likely that your emotions will get the best of you. And you’re going to have some really negative emotions on the backside because you knew that you shouldn’t have done what you did.

[00:31:26.820] – Speaker 2
Fair. That brings us to brokers. Do you use brokers or do you try to avoid properties before they get a broker on there? Tell me how or if you use brokers on either end of the deal.

[00:31:38.660] – Speaker 1
I found that for my buying criteria, a broker is not going to be the source of that deal, especially not in this market. We’ve got to get direct to seller. We’ve got to find somebody’s got some pain. Maybe they weren’t able to evict people during COVID. Maybe some folks still aren’t paying. Maybe their cash reserve is strapped. Maybe their net worth is tied up in the property and they need to liquidate or unlock that in order to get to the money that’s there because the property isn’t cash flowing the way it used to. Maybe they’ve got deferred maintenance or capital expenses that they need to take care of and they don’t know where they’re going to get that from. And so if we can come in and solve those types of problems for property owners, then we are able to, I think, be rewarded for that. T hat’s what we really look forward to.

[00:32:35.960] – Speaker 2
Fair. So finding properties like that has to be tough because then they’re probably not on the market. Are you cold reaching out to people or do you just have enough contacts and feelers out in that area that you get wind of stuff like this before it hits the market? It’s a.

[00:32:51.840] – Speaker 1
Combination of the two. But if we hear about it from somebody else, then they probably already tried to buy it. Now, there are situations where people will bring us stuff that’s too big for them to do. There’s value in being a little further ahead on the journey than what other people are. But at the end of the day, I think for us, we want to be the people who have the direct relationship with the person who’s selling the deal.

[00:33:23.400] – Speaker 2
All right, nice. I guess what you are teaching people is it to buy rental property and then hold on to it and just essentially make passive income? Yeah.

[00:33:35.410] – Speaker 1
So it’s a combination. We want to own and operate those buildings, execute some value add, which is typically construction, renovations, refinance that, and then go buy another deal with the money that you invested in this deal. And then once you get your net operating income to a place that we call a trigger, then you want to be able to take that to market, harvest the equity that you have there, roll it into a bigger deal. And for the folks who are trying to exit corporate America, replace income and some of the other things that you hear, it’s pretty important that you have a sizable investment in the real estate market. You’re not going to get free by investing $100,000 in real estate. That’s not going to produce enough income for you. We want people to do smaller deal, do another smaller deal, maybe do one more. And by the time they do that, we believe that they should be able to create enough equity for themselves that they can roll into a larger asset. Higher quality returns may be a little bit lower, but because they have so much money invested and predictability because they’ve got a higher quality tenant base, that they’re able to say, Hey, I’m able to replace my expenses with the income that I got from this asset.

[00:34:59.390] – Speaker 2
All right, nice. I don’t know what your area is like. I imagine it’s the same. We have fancy apartment buildings going up everywhere. And we’re not talking eightplexes or 12plexes. They’re like 300 p lexes, and they’re fancy, and they are everywhere, even on campus, which blows my mind because when I was going to college, your college house was a dump. I don’t know how these kids afford it. But tell me, how do you compete with some of these guys? They must be just crazy investors throwing lots of cash at these buildings. How do you compete with them?

[00:35:36.670] – Speaker 1
Well, we don’t. There are people who want Primo and they pay a different price point. But here’s the thing. There’s a workforce housing crisis in our country. I noticed that I didn’t use the word affordable. There’s a workforce housing crisis. Those folks that are making median income with their small family, they’re not going to go live in that product because it’s going to take too much of their income. Majority of apartment complexes require that a person makes three X in their paycheck that they would pay in rent. That’s the rough crude math that they use. The folks that are making $50,000 or less a year, they need a place to live. They’re the people who make the world go round. We get pretty excited about being able to serve those folks. We don’t need to serve the people making $100,000 a year who are willing to put, I don’t know what that number is, 3, 4, 5, $000 a month in rent.

[00:36:44.080] – Speaker 2
Yeah. All right. How, I guess, would have been some of the challenges that you’ve run into throughout the time that you started this business and up to now?

[00:36:53.780] – Speaker 1
I think I’ve made all the mistakes, underestimating construction budgets. My favorite one, and I think this is one all of your listeners, regardless of what type of real estate they’re doing, can learn from, is not having the utilities on when you do the physical inspection of the property.

[00:37:12.170] – Speaker 2
When that.

[00:37:13.360] – Speaker 1
Happens, whether it’s water or electricity, those will be the two easiest ones because they’re always required, crazy things can happen. In one instance, we had a pipe that was broken in between a toilet and a shower, and then because the water wasn’t on, we didn’t know that. Then when we went to turn the water on, when we’re getting ready to do our renovations, we realized that water was rushing down the stairs because this was the second floor bathroom. It greeted us as we walked through the door. Since this was a townhome unit, the water also went into the unit next door. So you really want to know what you’re getting into. And if there’s infrastructure issues in the property that you’re buying, you want that taken care of by the previous property owner.

[00:38:08.020] – Speaker 2
What are some of the things that you put when you’re working out a deal with someone? What are some of the inventive ways that you use to make sure a deal goes well or to make sure that you’re covered so you’re not buying too big of a headache? Are there certain things that you come up with that maybe just aren’t typical boiler plate stuff? I don’t know.

[00:38:26.690] – Speaker 1
If it’s typical boiler plate or not, but I do know that it’s not common practice anymore. And so we buy based on actuals. People will put a proforma together, say they’re going to make this an income, they’re going to make up expenses, and then they’re going to go show that to somebody and try to sell them on it. And we don’t do that. It’s great that the properties could rent for $1100. Well, if it did, if it could, why isn’t it? That’s the first question that we always ask. And we have been humbled by some of our properties. You can come in and you can say, Oh, yeah, the operator isn’t very good, or the property manager isn’t doing what they’re supposed to do. They’re sleep at the will. But this person is on the property for a long time. Even if they’re selfmanaged and property owners know this thing for a long time, they probably know something about that property that you don’t. When you come in with this air of what I call arrogance, I can do it better than you. You don’t know what you’re doing. I think these properties can show you, if you’re not careful, that you’re not as smart as you think you are.

[00:39:46.940] – Speaker 2
Okay. Look what I can do.

[00:39:49.900] – Speaker 1
Well, and it’s a common thing. We come in confident. I call it unconsciously incompetent or overconfident. Those things can burn you. Not can, they do. I’ve watched a lot of people get in situations where they didn’t desire to be because they thought that they could do more than what they actually could.

[00:40:15.890] – Speaker 2
All right. So if I’m a person and I got my corporate gig, I guess, what would you recommend to be the first step to start down the road of getting into real estate investing? Yeah. Get as.

[00:40:31.200] – Speaker 1
Much unsecured credit as possible. You can do that through credit cards. You can do that through credit lines. You can do that through whatever means actually makes sense to you. But get as much as you can based on your income. A few hundred thousand dollars is never a bad idea. And it’s not because you plan to go use all that. But if something happens, your ability to grab cash is really, really, really important. And the bank is not going to give you more money because you made a mistake or you had this unforeseen thing pop up. The beautiful thing about real estate is if you have enough money to make it through, you can usually get out without taking the loss. But the operative word is through. You got to have enough to get through.

[00:41:20.250] – Speaker 2
When you’re drowning is a terrible time to go shopping for a life jacket, right? They’re not.

[00:41:24.820] – Speaker 1
Going to give it to you. They’re just going to watch you.

[00:41:28.020] – Speaker 2
Fair. Totally fair. That is interesting. What do you see being the future for your business over the course of the next, let’s say, five years, even though we don’t necessarily know what’s going to happen in five years. It’s been a rough few years back here.

[00:41:42.690] – Speaker 1
I wish that my crystal ball on COVID was right because I said it was going to last two weeks. Not very good at predictions, but what I will say is we’re in the process of building some stuff here in Greensboro, much larger than what we’ve bought in the past, and we want to continue to do that. We have a desire to be one of the larger housing providers in this market. Nice. We’ll continue to selectively purchase assets and look for the opportunities to develop things. Got you.

[00:42:15.270] – Speaker 2
Very cool. I want to ask you about the help that you have. Do you have employees helping you with stuff like this? Oh, for sure.

[00:42:22.190] – Speaker 1
We’ve got people all over the place. Okay.

[00:42:24.750] – Speaker 2
And tell me about finding employees for stuff like this. Is it tough? Is it challenging? Are they work from home? Are they in your office?

[00:42:33.060] – Speaker 1
Yeah, everything’s distributed. I mean, with our third party property manager, they do office physically in a place and dispatch from there. But yeah, in general, from my perspective, there really isn’t a whole lot of need for marketplace. All you really need is a computer and a laptop and a phone these days, and you can get the vast majority of things done. We really like the concept of distributed workforce and the ability to work from where you’re most comfortable.

[00:43:06.440] – Speaker 2
Nice. Are most of your employees local or are they all over the place? Distributed. Yeah, we.

[00:43:12.140] – Speaker 1
Distribute the workforce because we just want the people with the best ideas and the most commitment.

[00:43:19.520] – Speaker 2
It’s been tough to find people?

[00:43:21.880] – Speaker 1
It’s interesting. We usually find people from other people, and so folks are disgruntled or dissatisfied because they thought they were on this ride that was going to go to the moon and they find out that it never left the launching pad. They usually want to come over and hang out with us because they see the trajectory, they see the growth, and they see the consistency and our outcomes.

[00:43:47.200] – Speaker 2
Nice. Very cool. Well, I appreciate you being on the show, Jerome. Is there any bit of information that you’d like to share with the audience, I guess, before we close up here?

[00:43:56.070] – Speaker 1
If they’ve got any interest in multifamily investing, hop over to JeromeMyers.Co. We’ve got a couple of different free guides you can get. One is the five mistakes every multifamily investor should avoid. And the other is these things that you can bring to the market that don’t require money in order for you to get started and do your first deal. Nice. I think those things are pretty valuable for anybody who’s curious about this asset class and being able.

[00:44:28.030] – Speaker 2
To invest.

[00:44:28.720] – Speaker 1
There well. Sure. Can you tell us that website one more time?

[00:44:32.440] – Speaker 1
JeromeMyers.Co. Awesome.

[00:44:34.820] – Speaker 1
And Myers is M-Y-E-R-S. That’s correct.

[00:44:38.330] – Speaker 1
Thank you.

[00:44:40.940] – Speaker 2
Nice. I appreciate you being on the show, Jerome. James, thanks for having me, man. This was outstanding. This is cool.

[00:44:46.820] – Speaker 2
I love talking to real estate investors, especially the successful ones, because they don’t seem too stressed. And it’s interesting because you’re talking about big numbers here. It’s flowing big numbers, but it just reminds me again in business when you start out in business, I always say if you have a problem with 100 bucks with your own person when you have a job, you’re going to have a bigger problem when you have $10,000 in your pocket and you got to make all these expenses. Now, with real estate, you’re adding commas to those numbers. So it’s cool. Fun. Very fun.

[00:45:22.100] – Speaker 1
It can be or it can break you because the stress is there. And that was one thing I learned early on in the teaching process is if you don’t have a solid foundation, the story you told about the building caving in. If you don’t have a solid foundation, adding hundreds of thousands or millions of dollars of debt on top of that. That’s what you want to do or disaster.

[00:45:45.830] – Speaker 2
Fair. Totally fair. Awesome. Well, thank you, Jerome.

[00:45:49.650] – Speaker 1
Thanks for having me, man.

[00:45:51.370] – Speaker 2
This has been Authentic Business Adventures, the business program that brings you the struggle stories and triumphant successes of business owners across the land. We are underwritten locally by the Bank of Sun Prairie. If you’re listening or watching this on the web, if you can do us a huge favor, give us a big old thumbs up, subscribe, and of course, comment below. Let us know about your real estate successes or failures. Those are fun too. My name is James Kademan and Authentic Business Adventures is brought to you by Calls on Call, offering call answering and receptionist services for service businesses across the country on the web at callsoncall.com. As well as Draw In Customers Business Coaching, offering business coaching services for entrepreneurs looking for growth on the web at drawincustomers.com. And of course, The Bold Business Book, a book for the entrepreneur in all of us available wherever fine books are sold. We’d like to thank you, our wonderful listeners, as well as our guest, Jerome Myers of the Myers Method. Jerome, can you tell us that website one more time?

[00:46:44.500] – Speaker 1
JeromeMyers.Co. Perfect.

[00:46:46.740] – Speaker 2
I love it. Past episodes can be found morning, noon, and night. Podcast link, found at drawincustomers.com. Thank you for listening. I want you to stay awesome and do nothing else. Enjoy your business.