How To Become A Realtor-Investor & Get Out Of The Daily Hamster Wheel

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Real estate has many moving parts and it takes a lot to make sure everything s going smoothly In this episode Justin Brennan of The Brennan Pohle Group joins us to discuss how he and his team are running a tight ship and successfully scaling their business He goes in-depth on doing proper due diligence and managing worksites and contractors 00 01 – 05 59 Don t Go Big Too Soon Justin s background and his team s measured approach to investing Setting up operations and logistics in advance Careful due diligence before doing deals 06 00 – 14 29 Properly Managing Contractors Spending time talking to contractors and visiting their worksites Understanding their software billing and supply chain The importance of having a foreman on site Don t hire cheap contractors Considerations before paying contractors in advance 14 30 – 15 22 Closing Segment Reach out to Justin Links Below Final Words Tweetable Quotes Don t go big too soon despite what you know Some people say you re going to make mistakes just don t make big ones – Justin Brennan Nobody s going to watch your money like you re going to watch your money You can t expect people to watch your money like you re going to watch it because they re not getting paid your money – Justin Brennan —————————————————————————– Connect with Justin Head over to The Brennan Pohle Group website or follow him on LinkedIn Connect with me I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns Facebook LinkedIn Like subscribe and leave us a review on Apple Podcasts Spotify Google Podcasts or whatever platform you listen on Thank you for tuning in Email me sam brickeninvestmentgroup com Want to read the full show notes of the episode Check it out below Justin Brennan 00 00 Nobody s gonna watch your money like you re gonna watch your money and you can t expect people to watch your money like you re gonna watch it Because they re not getting paid your money So for you to say Oh I expect them to like work harder do this well okay well then give them a piece of the equity and maybe they will But yeah no one s gonna work the way you re gonna work No one s gonna protect your money or your investors money the way that you are either Intro 00 18 Welcome to the How to Scale Commercial Real Estate Show Whether you are an active or passive investor we ll teach you how to scale your real estate investing business into something big Sam Wilson 00 30 Justin Brennan is the CEO and multifamily investor of the Brennan Pohle Group They own over 500 units He s also a real estate broker Justin welcome to the show Justin Brennan 00 39 Thanks for having me on man I appreciate it Sam Wilson 00 41 Hey man the pleasure is mine There s three questions I ask every guest who comes on the show in 90 seconds or less can you tell me where did you start Where are you now How did you get there Justin Brennan 00 50 Well we started in 2010 was the first investment we bought in that was 100 000 condo in the midst of the financial crisis in Murrieta California of all places which is actually the heart of the financial crisis right in Riverside County The irony in that and then that kind of grew from a single condo investment rental property into two to four-unit deals then we got into five to 10 then 20 to 50 And then now we re into the 90 plus 100 plus unit space and then you re starting to hit those 200 unit deals Sam Wilson 01 21 Got it I love that it sounds like you guys have taken a very measured approach to your investing What have been some of the things you feel like you ve done really well Justin Brennan 01 30 The logistics of setting up operations especially from going in state to out of state investing you know we kind of mastered the different size of deals not getting too big too fast You know you hear from some syndicators and guys saying I ll just go big go big and you know I get it I get the thought in theory they re accurate But the thing they re missing is that first of all they never started big So I don t know how they say that Number two there s more zeros in the big stuff and more big mistakes you re gonna make because you re gonna make mistakes And so I d rather make mistakes with smaller zeros where you can recoup that versus making a mistake that s 100 to 200 to a million-dollar mistake And so managing those mistakes to where they were minimized and learning about along the process to where you know now we re at a point where you learn as you go is a part of that too And now I feel like okay we ve gotten through some of those pains to where I m not going to make the same mistakes twice I mean we re dealing with larger numbers now you re dealing with 30 40 50 million deals or not 2 million right Or 500 000 So big difference Sam Wilson 02 37 Big big difference there When you say you got the logistics of operations figured out What does that mean to you Justin Brennan 02 43 Yeah so when you re going out of state because it was the big thing for us in 2017-18 said okay you know we re in California it s not the cheapest place to live we want to grow So we had to set up operations outside and my business partner Christopher Pohle had ended up purchasing a ranch outside of Austin So that was kind of now second headquarters was outside of Austin s now we had Midwest and then west coast And then going into each market we were interested in primarily Midwest being Kansas City in Missouri we got Oklahoma Texas Alabama stuff like that Tennessee in setting up operations about six to nine months in advance actually pulling in deals And when I say operations I mean property management companies construction crews logistics legal accounting all those things that you re going to deal with from kind of the back office side of things lay of the land good neighborhoods bad neighborhoods where s the development Where s pat the progress Where s the city planning on putting in money Are there railways and other light rail systems all these details that go into where s the market for the market so we don t just go in and start finding deals and then kind of catch tail later It s six to nine months in advance get the lay of the land operations set up so that way when deals start flowing we can execute quickly Sam Wilson 03 57 That sounds very time intensive What is the practical way that you guys have decided to do that without you Justin moving to Nashville Tennessee and going okay let me go spend nine months here and figure out what the city is doing Justin Brennan 04 12 I am flying in there consistently during that six to nine months And spending three four days of time meetings driving neighborhoods learning it So yeah it is time-intensive But it s also avoided us from making really dumb mistakes and getting put into a neighborhood and we re like we shouldn t have bought here Right Right I mean so perfect examples You know every time we re looking at a deal I ll go sit at the property at different times in different days of the week So I ll go in the morning I ll go midday and I ll go in the evening and wait for people to come home from work I ll go on a weekday and weekend typically a Sunday and I say Monday or Tuesday because I just want to see the flow of the area flow the neighborhood when you re getting past normal due diligence and things like that right So you need to understand what you re getting yourself into otherwise you deal with horror stories like I heard recently from a first-time syndicator who bought a property had money backing it was his first bigger deal didn t do proper due diligence got into it thought they were getting a great deal because they had a great basis And on paper the cap rate looks great cash on cash everything looks good on paper then come to find out because of the lack of due diligence there was a lot of deferred maintenance a lot of issues with that property neighborhood not being the best setup And they inherited a lot of delinquencies bad tenants issues and it just turned into a complete And now they ve lost well over a million dollars Well and the guys he ll never do another syndication because he ll never get money again He was backed by good money good people But because he operated so poorly he s basically blackballed No right I say don t go big too soon right Despite what you know some people say you re gonna make mistakes just don t make big ones Sam Wilson 06 00 When you re setting up your back office talking about attorneys title companies all of those you know other than calling your contractors and maybe even going and seeing their work like what else what other due diligence is there really to do until you re ready to send them a deal I mean there s only so many conversations you can have with a contractor like Hey you guys yeah we ve done these three projects Okay cool Well and I get one together I ll call you Justin Brennan 06 24 Yeah exactly You can certainly go and see some of their work That s definitely something you want to take a look at Understanding you know there are foremen who run the jobs What kind of software do they use How do they do billing Who does their supply chain Who s going to order the supplies Is it going to be you as the owner Is it going to be them Yeah How s their labor force We re talking about labor shortages especially these days Right So we re dealing with that you know in foreman on-site you know because a lot of times they re running multiple jobs So okay great So the foreman is going to be here once a day in the mornings in the evenings who s opening up who s locking units Is it our job is it your job is it our maintenance staff Logistically how are we dealing with that Yeah what software are you guys using Are we corresponding through that for just because when you re doing renovations on value add It s an assembly line Right Right And so you have to really manage that correctly So you don t have too many vacancies at a time Too many not available at a time It s like this seesaw assembly line battle between your kind of rental guys and your leasing staff Right And that blending those two together to where you Okay five units a month come vacant How long does it take you to turn those things How long does it take you to market them How long does it take people to get in there where you re collecting checks And I kind of calculate check to check meaning person moves out you re not getting any money once next person give you a check Is it 30 days 60 days fortify like what does that look like Right In timing that up and then layering over-layering Because it s a dance it s not easy to manage that process And it s not a perfect science So having a construction crew that gets that in can help you manage that isn t just all over the place is really really really important Sam Wilson 08 02 Yeah absolutely What about that I guess that the management side of it is there a certain size of construction company You guys always look for where you say Man you ve got to have X number of employees you got to do X number of dollars in volume a year Is there anything like that that goes into that equation on your kind of due diligence Justin Brennan 08 20 Yeah so you should definitely have at least one foreman on-site or an assistant foreman every day And if you re going to run the jobs and if they re leaving for a little bit but they need to pretty much be there constantly in and out every day touching the job site every day And then you re typically going to have two workers per unit is kind of what I ve seen the best flow from a labor force standpoint So if you re going into renting a unit depending on what you re doing to but let s presuming you re doing a pretty good Reno and you re adding washer dryers and some electrical work So there s some rough stuff that has to get done That usually happens first See those guys going in and doing the rough electrical rough plumbing and then that gets done So now coming in behind that as some drywall painting cabinet guys countertops fixtures plumbing electrical fixture type stuff Flooring is usually one of the last items going and stuff like that And then appliances if you re bringing those in So the two guys per unit So if you re doing five units at a time per month right that s 10 dudes on-site every day Yeah Plus your foreman right So Mister contractor can you supply that Yes we can Okay what happens if you don t Right So just working through some of that logistical stuff Because we ve dealt with it right We re the contractor says x And then there s five guys on site And then you start falling behind right Because now you re not catching up to the rental schedule right And then you got to backtrack and all this other stuff So it s not a perfect science Sam Wilson 09 49 No it s not even like you said if they say yeah we can get 10 guys on-site plus a foreman I mean if you re not there when the cat s away the mice will play especially in the Justin Brennan 09 59 And that s where our staff comes on top of that That s why it s so key That s why we don t do any deals under 90 units anymore right Because 90 units is where the economies of scale come in where you have on-site management on-site leasing on-site maintenance on-site everybody And so they re my eyes and ears on it Plus we have cameras right Plus we have me and I m on-site every other week and I ll just show up randomly on purpose right and you just have to listen nobody s gonna watch your money like you re gonna watch your money and you can t expect people to watch your money like you re gonna watch it Because they re not getting paid your money right So for you say Oh I expect them to like work harder Do this well okay well then give them a piece of the equity and maybe they will write that s maybe oh maybe but yeah no one s gonna work the way you re gonna work No one s gonna protect your money or your investors money the way that you are either Sam Wilson 10 49 Have you ever made a bad by Justin Brennan 10 51 Not yet Not knock on wood man No not yet We could have you know we ended up last year having to pull out of a deal that in hindsight was kind of it was weird as a blessing because we were finding things out And then but we had money hard And there was really wasn t there wasn t an out force legally at that point But just so happened there was a fire on one of the properties during escrow which ended up giving us an out legally And then hindsight 2020 you re like gosh that was actually a good decision Because it may have ended up being a bad buy for us at the time you know kind of looking forward now six months later like we got you know a lot going on with this other property at the moment So it would have been put us in a tough spot So that was a little bit of luck But I d say there s no accidents things happen for a reason And there are no accidents The craziest things happen in life Sam Wilson 11 46 But what s a lesson or a mistake you ve made that you feel like you could help someone else not make Justin Brennan 11 52 Don t hire the cheapest contractor I made that mistake once even though I did my due diligence on them right We checked them all out I even tested them like on a small portion of the job first to see if they could execute And they did And I was like okay so you got you got a little 3 000 portion of the job you executed Okay now we re gonna graduate you up to the next stage and then come to find out they re just full of hot air And they took about 17 000 And you know so I mean it wasn t a massive mistake that we couldn t recuperate from it it was a 17 000 mistake But imagine if that was another contractor on a much and that was only on a 30 unit deal I say the mistakes are made Imagine that was a 200-unit deal And that was a 200 000 mistake right Do not ever people know this intuitively but just stick with this Don t ever pay the contractors in advance I mean progress payments you can do a deposit typically maybe 25 But a lot of times you ll get bids come in and they ll say 50 up front and then 50 Upon completion Yeah kiss my you know what right I will pay you a 20 to 25 deposit upfront then we will do progress payments right depending on the length of your job and then you will get the final payment within 30 days of completion Sam Wilson 13 12 Yeah that 25 Upfront is largely contingent upon what they re bringing if they re not bringing any materials and it s all straight labor Correct If it s straight labor I would be really hard-pressed to give them anything Well sure Justin Brennan 13 24 Yeah So the usually the deposits are typically based on materials they re bringing on site roofing or fencing or you know basic stuff then you re typically paying a 25 deposit because there s an on site move for materials Sam Wilson 13 41 Right yeah I get it I was a contractor for way too long I completely understand it Justin Brennan 13 46 And I m a licensed GC So but yeah I would never we just learned that battle And you d have to fight it a bit because they want some more payment up front Because they re either with all due respect not all of them So I don t want to aggregate but a lot of really bad money management So they re floating a job here for job there and money moving here for that here And they can t really manage their money correctly So they re taking money from here to pay some guys over here And you see how that flows And you re not going to use our job as your cash flow or so Sam Wilson 14 15 Right Not only that but also just the risk of them Like you said backing up and walk and you go oh okay well thanks Well that was enjoyable writing you Justin Brennan 14 23 I paid you 50 upfront right Yeah you go deposit but that s specific usually for materials Sam Wilson 14 29 Right Yep that makes a heck of a lot of sense Justin if our listeners want to get in touch with you what s the best way to do that Justin Brennan 14 35 Google me man Justin Brennan on Google That s probably the easiest way to have some stuff pop up or you can go to our website which is brennanpohle com That s B-R-E-N-N-A-N-P-O-H-L-E com And yeah read whatever you want Sam Wilson 14 53 Great Sounds good man Justin thanks for your time today Certainly appreciate it Justin Brennan 14 55 You bet Thank you Sam Wilson 14 56 Hey thanks for listening to the How to Scale Commercial Real Estate Podcast If you can do me a favor and subscribe and leave us a review on Apple Podcasts Spotify Google Podcasts whatever platform it is you use to listen if you can do that for us that would be a fantastic help to the show It helps us both attract new listeners as well as rank higher on those directories so appreciate you listening Thanks so much and hope to catch you on the next episode Click here to visit this podcast episode