How are your investments doing these days? On today’s show, Jason Bible brings us a portfolio update as he talks about what it is that they are buying, the kind of deals they are doing, and what they are investing their money in. He explains the cashflow of their properties and highlights their recently bought units in Corpus Christi. Talking about their favorite deal in 2019, Jason shares what made it a bang for the buck. He also notes some networking events he went to where he shares the concept of operationalizing and having cashflow.
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If you guys are interested in our fund, a programming note here. Our real estate fund is not open indefinitely. We’ve only got so many investors and so much capital we can bring into the fund. If you are interested, you need to send us a text message, (281) 401-9008 and say fund in it. I will get you guys in front of our investor relations person. His name is Brian Buhr, we call him B squared. He’ll get you all the information. I’ll give you the high-level overview. It’s a 9% preferred return that we pay quarterly. We also give our investors 10% equity in the deals that we do. Whenever we sell a property, 10% of the equity goes back to the investors plus their 9% preferred return. If these assets are appreciating at about 5% a year, that means our investors should make somewhere between 13% to 15% per year. That’s the high-level version of that. It’s a single-family fund.
A lot of people have asked, especially the first time they’re meeting us, “Jason, what do you guys know about single-family real estate?” Between Rob and I, we’ve flipped and rented wholesale almost 1,000 houses. We know the single-family real estate market extremely well. We didn’t start this fund with, “We’ve only bought ten houses. Now, we’re going to start a fund.” We’ve got a massive amount of experience. In any case, it pays 9% preferred and 10% equity. Brian can help you through the process of accreditation and answering all your questions to make sure this is a good fit for you and it’s a good fit for us. The fund is not going to be open forever and ever. We’re getting close to the cap with the amount of money we can raise in it according to the SEC.
Let’s get into portfolio update. We’ve not done a portfolio update in a while. Let me explain what a portfolio update is. Rob and I share with you all, our fantastic audience, what it is that we’re buying, what it is that we’re investing our money in, what we’re investing the fund’s money in, what kind of deals that we’re doing. Let me share with you a couple of things that we’ve got going on. Back in the early part of January 2020, we contracted an 88-house package, single-family real estate in Harris County and Fort Bend County. This would essentially increase our number of doors by about 50% to 60%, but not quite double. I want to say we’re at 115 to 120 doors and we’ll add 88 to it. It’s a substantial number. Seventy percent to eighty percent more doors, which is good because we always want to buy more real estate. Only about 1/2 to 2/3 of those are actually going to make it into our fund.
Let me explain why. This package is interesting in that some of these houses that the investor is selling to us were bought decades ago. They are now expensive houses. In fact, there’s one in there that if you do new construction, it’s probably close to $1.5 million. There’s some high-end stuff in there that doesn’t make sense for the fund as a rental property. A lot of those properties we’re buying, we’re going to wholesale, or we’re going to flip and then the rest of them are going to end up in our fund. We’re still working on the tranches, but it’s going to be about 40 of them that are going to end up in our fund. A substantial number of those will be in the fund. They’re cashflowing, they’re in fantastic areas. There are few of these things that are in rough areas, rough sides of town that you wouldn’t want to be in. They’re in great areas of town. The cashflow is decent, let me just put it that way. It’s not smoking cashflow. Where the real juices in this portfolio are the appreciation.
We’ll hold on to these properties for five years. The vast majority of them are below the median home price. We’re talking $150,000, $160,000 after repair values. We expect those houses to appreciate to $225,000 to $250,000 within a handful of years. If you can imagine, if we have, let’s say 50 of these in the fund, and they increase in value by let’s say $50,000, that’s $2.5 million in equity literally overnight. It’s a fun deal for us. That’s what we’re doing with the package. One of my favorite deals from 2019 is a deal we did in EaDo. I’ve talked about it before here on the show. It’s nine units. We’re down to six units. The rehab starts with foundations and then the roof. We will begin to do the entire rehab process. At the end of the day, we’re going to be in EaDo for about $50,000 a door. What does that mean? Whether it’s the duplex, triplex, or single-family house, each door with rehab and acquisition is about $50,000. We were looking at rent comps and we ought to get somewhere between $1,100 and $1,200 a month in gross rents.
With those gross rent numbers, I can tell you, I don’t need a calculator to figure out that we’re going to make good money on this deal. It is by far my favorite deal in 2019. I asked Rob, I said, “What’s your favorite deal of 2019?” His favorite deal is a deal that we’re doing. Let’s say it’s on the beach because it is on the beach. He said, “That’s my favorite deal so far of 2019. We’re going to continue to buy assets in that same marketplace through 2020.” He’s like, “By far that’s my favorite. It’s on the beach. It’s gorgeous and all that other stuff.” I was like, “I see that.” That’s what’s on our portfolio. We are looking at some larger commercial assets. I got sent a warehouse. I looked at it, I’m like, “I don’t know. We’re looking at this office building,” but we are doing small apartments. Those assets that are 50 units and below. We’ve got about 30 units down in Corpus Christi. We’re putting it together into syndication. We’re doing the same thing here in Houston.
I’m hot on the trail of a nineteen-unit in Houston and let’s just say a less than 50-unit in another marketplace. I think we’re going to end up getting both. We still think there’s a massive upside in the small apartment space. There are a lot of investors that don’t know how to operationalize it. It’s not easy because you don’t get the economies of scale like you do in a 100-unit apartment complex. There are not many investors below 50 doors in an apartment complex. There’s even fewer that can buy multiples at a time and turn those deals around. My second favorite deal we did is the deal we bought in Kashmir Gardens. A better way to put it is a small house community, not necessarily an apartment complex. We bought thirteen of these things. We’re all in, let’s say $60,000 a door. They appraised it almost $92,000 a door. That particular deal is going to get lumped in with another one that we’re going to build as syndication. That’s our portfolio update. We’re buying small apartments, some commercial stuff and we are always buying a single-family. If you’re a wholesaler out there, your real estate investor wants to liquidate a portfolio, send me a text to (281) 401-9008.
We’re talking about the portfolio and what we’re looking for. I was chatting with our team. When we get on stage, one of the challenges we have is we do so much stuff. We get on stage or if we are networking and someone says, “What do you do?” “I do a little of this. I do a little of that. I own this and that.” Do you know what I do? I just tell people, “I buy real estate. I’m your buyer. I’m the guy that buys stuff. I’ll look at anything.” Before, my previous business partner and I, we were focused on, for the most part, flipping houses. Those houses we were flipping, we’d like to stay below $500,000, $600,000. Above $300,000 and below $600,000, that was a fantastic sweet spot for us. However, now, I’m like, “I’ll buy anything.” If can do two things. One, this should be the classic business answer for everybody, “Can we do it? Can we operationalize that asset?” That’s the term I use.The real juice of the portfolio is the appreciation of properties. Click To Tweet
Operationalizing And Cashflowing An Asset
This is when we went down to Corpus Christi and started buying deals down there. There was no debate, was it a good deal? It’s a great deal, but can I do the rehab? Can I fill the building up? Those were two questions that we were asking ourselves. Because we don’t live down there and at least at the time, we didn’t have that many assets on the ground, meaning people to do stuff for us. We weren’t sure we could answer that question yet. However, let’s replace the word not sure with risk. When I’m not sure about something, meaning there’s more risk, then I pay less for the real estate. That’s the only way it works. Not sure means risk. It means the only way I manage risk in real estate is by paying less for it. When we bought our first eight-unit down in Corpus, I want to say we paid $145,000 for it. There’s not a whole lot of risk in that deal for us.
We did a big rehab, we’re filing lease in that building up. We learned a lot of things through that whole process working down in Corpus. We have to send our own crews down there. There was so little skilled labor because of all the other construction that’s occurring in that marketplace. We have to be a little bit more flexible. What does that mean long-term? People ask us in our mastermind group, “Should we start buying assets in Corpus Christi?” We’re like, “Even at our size, we’re having challenges getting labor down there to finish up rehabs. I don’t recommend you guys going down there, yet until we figure this out.” Once we get it figured out, then I’ll be more than happy to sell you houses down there and apartments. We’re doing well in that marketplace.
The first question I asked myself is, can I operationalize it? The second thing is, does it cashflow? I know that I’m going to make all my money on appreciation. However, I want the cashflow. I still want the cash. If I can operationalize that asset, meaning I can fix it. I can put some bodies in that building, be it as a cashflow. At that point. I’m like, “This is a deal we need to do.” Whenever I talk to somebody like I’ll be at the Super Investor Meeting at the Republic Country Club, the conversation I’m going to have with everybody is they’re going to say, “What do you do?” I’m like, “I buy real estate. I buy a lot of it.” They’ll always ask me for my card and I’m like, “I don’t have a card.” “Here’s my card.” “I don’t want your card either. Let me give you my phone number. Let me give you my email address. I’m not a card guy.”
I actually had a guy who tried to force me a card one time. I’m like, “This is not going to end well for either you and I. Stop it. I don’t want your card.” My truck is full of cards, my kitchen table is full of cards. What I’ve thought about doing is taking everybody’s cards, putting it into a box. When someone asked me for a card, I’ll hand them somebody else’s. I seriously thought about doing that. They’ll go, “This isn’t your card.” I’m like, “I know. I told you I don’t want yours. I didn’t want that guy’s, he gave it to me anyway, so I’m giving it.” If it’s a nice lady and she hands it to me, I’m just not rude enough to say, “I don’t want your card.” I’m like, “Sweetie, I’ll take your card and put it in my pocket,” but if it’s a man, I’m like, “I don’t want your card. Let me just give you my number. Here’s my number.” If there’s some woman, she’s insistent, I’m like, “Fine, I’ll take the card.” That’s a polite Southern gentleman in me.
Maybe that’s what I’ll do from now on. I’ll start taking people’s cards. I’m going to try this. I’m going to take cards, even though I’m going to tell people I don’t want them. When I’m networking with the person next to him, the first guy that handed me a card, I’m going to give his card to the guy standing next to him, the second guy. This would be a fun game. At the end of the night, can I end up with no cards? If I’m collecting cards, and I’m giving them to other people, can I end the night with zero cards? I’m getting excited about that event. That’s what we’ll do. As I’m taking cards, I’m giving them back to other people. They’ll all call each other and then they’re like, “I thought you were the guy that said you are buying stuff. Who are you? Whose card is this? When did we meet? We didn’t meet last night.” This can be a lot of fun.
I’ve got a point where whenever I’m standing in front of somebody, they’ll say, “I’ve got a deal for you.” “Send it to me.” “Can we operationalize it? Can we get it rehabbed to put some bodies in there? Does it cashflow?” If I can answer those two questions, then everything else is a secondary piece of information. If we can’t do one of those two things, we’re not doing the deal. There’s no other information to be had. If I can’t operationalize it and it doesn’t have cashflow, we’re done. It’s that simple. I keep telling people they make real estate so complicated. I’m like, “It’s not easy but it’s simple.” If I could operationalize this thing, if I can fix it and put some bodies in it and it can cashflow, then we have some other questions we need to have asked and answered. Can I operationalize it? Does it produce cash, yes or no? Move to the next step. If those two questions are not answered or the answer is no, then we do not move to the next step. If I can’t fix it and put bodies in it, or it doesn’t produce cash, we’re not doing the deal. It’s got to do both. It’s that simple. There’s no way you can do this business any other way.
This is what it sounds like and I’ll hear it, “Jason, you could buy it subject to even though it doesn’t have any equity in it. You could sell it owner finance with a rep and take an extra 20% because it’s easy to finance. You’ll make $100 a month on the note.” I’m like, “All that sounds complicated. I’m not interested in that. That sounds like we’re playing games.” It’s the joke that Rob and I had about apartment complexes. When you get around some of these apartment syndicators, and they get all excited about washing machines and vending. They’re like, “We’re going to make this much more money because we’re going to put in some washing machines and some vending machines.” I’m like, “Are we operating a vending machine company? Are we in the retail vending space or are we in multifamily?” Don’t get me wrong, those things need to be in your buildings, but I don’t get excited about them. I get excited about increasing rents and reducing expenses.
I go to these networking events, I make things simple for people, “We buy stuff, send me your stuff.” The popular school of thought here is that you need to get specific with people and say, “I only buy 322s and 77084 but I don’t like them unless they’re 87% brick and if the driveway is at least 7.8 feet wide.” I’m like, “Nobody’s going to remember any of that nonsense.” These networking events, they all serve free alcohol at this point. Do you think they’re even going to remember your face tomorrow? You’ve got to make this as simple as possible. “I buy stuff, send me all your stuff.” “Jason, I want to ask you.” “No, I’m not telling you what I buy. I’m not giving you my criteria because 9 times out of 10, you’re going to screw the math up anyway. Send me everything you’ve got.” That’s not arrogance, it’s the brutal truth in this marketplace.
Doing The Math
Most of you don’t do the math right. Ninety-nine percent of you don’t do the math right. That’s actually what this investor survey is telling me. Here’s what’s fascinating to me. We did this event. I spoke about getting free real estate. I said, “One of the ways you can get free real estate is you bring a private lender on board or you can do it with 100% cash.” You can get a short-term loan for two years. You buy that deal that everybody is passing on because it’s “an 80% deal.” The last one I did this was an 83% deal. “That’s not a deal, Jason.” Is it really? Why is it not a deal? Because of the math. No, you don’t know math. That’s the problem. That’s why it’s not a deal for you. It’s a fantastic deal for me because that market is appreciating 10% a year. It’s a great deal for me.
I’m going to buy it at $0.83 on the dollar all-in including rehab. Two years from now, I will be all-in at 65%. Meaning, it’s an 83% deal. I buy it at today’s price, but two years from now, that house is going to be worth 20% more, at least. When I go to refinance that short-term loan, I’ll have no money in the deal. It’s math. People have a problem with the math and the math tells me, on a long enough timeline, you can own real estate for free, but if your timeline is today, that doesn’t work. Let me put it to you in a different term. If any of you guys are into options trading, this is like buying a house with a 30-year mortgage. It’s like a 30-year option on that piece of real estate.Investments are always going to be worth more later than it is now, but with some rare exceptions. Click To Tweet
I go over to Katy, and I buy a beautiful house for $150,000. What do you think that house is going to be worth 30 years from now? It’s probably going to be worth $500,000. Remember, 30 years is a long time. People are like, “What, $500,000?” I’m like, “Yes.” A 7% a year in appreciation means it doubles in price in ten years. The house that you’re buying in Katy at $150,000, it’s appreciating 7% a year. That house in ten years is going to be a $300,000 house. Everybody’s all worried about, “I want to make $1 million in real estate.” I’m like, “Go and buy ten rentals.” “Then what?” I’m like, “Do nothing. Buy ten rentals, fog a mirror for next 5 to 7 years and you just made $1 million.”
We were at the Porsche dealership driving a bunch of cars. It’s one of my favorites to drive. I didn’t take the GT3 out. This dealership actually has a GT2. For those of you guys who are big Porsche guys, in fact, it’s a rare option one. Get it to you for $450,000. It’s a beautiful car. Honestly, I never thought I would see one in person unless I was at a meet. They’re like, “We’ve got one of them upstairs. Do you want to go and look at them?” I’m like, “Yes, I do.” They have a RS 4.0. They didn’t tell me the price but I’m going to guess it’s between $500,000 and $650,000. If you guys are shopping rare Porsches, I know a guy.
We’re driving this beautiful Targa, which is a half convertible. The sales consultants are like, “What do you do?” We start talking about real estate. I said, “It’s simple. If you want to make $1 million in real estate, buy ten rental properties and wait five years.” He said, “That’s it?” I’m like, “Yes, buy ten rentals and wait.” He said, “We get a lot of guys that buy cars in here that also invest in real estate.” I’m like, “I’m not surprised.” He said, “I’ve talked to guys about this before. He said, ‘Sometimes you make money on them. You get a tenant that tear stuff up that kills your profit that year.’” I’m like, “Yes, but where you make money on all this stuff is appreciation.” He goes, “Yes, it makes sense.”
Do you want ten free and clear houses in five years? Buy twenty at retail prices. I’m not even talking about buying stuff at a discount. You want ten free rental properties, free and clear means no mortgage. Buy twenty, wait five years, sell ten and pay off the mortgages on the other ten. In five years, those $150,000-houses are probably worth $225,000. Your net worth is $2.25 million. I’m willing to bet you’re cashflowing about $12,000 to $13,000 a month. That’s not bad at all. All you did is you put in some real hard work for a year or two to buy twenty rental properties. It’s no more difficult than that.
The appreciation model in single-family is even better than multifamily and commercial. One of the fascinating things I see in commercial real estate is they bank on appreciation. That’s how a lot of these deals get done. They know that asset is going to be worth more later than it is now. Statistically, that is true. It’s always going to be worth more later than it is now, with some rare exceptions. A big real estate crash being one of them, but those only happen every 15 to 20 years. One of my favorite things that totally rolled off my tongue one day. For whatever reason, people love to challenge me when I’m on stage, and it’s probably because I’m a guy that doesn’t mind it. “Jason, what happens in the next crash? I’m waiting for the next crash. The next real estate crash is coming.” “2007 is that ex-girlfriend you are not getting back. There will never be a time ever where you will be buying houses in Alief for $25,000 a door. That’s gone. It’s never coming back. Not in our lifetime.”
Will you be able to buy them in the next real estate crash for $75,000? Probably. Probably not. One of the things a lot of people forget in a real estate crash is whenever there’s a real estate crash, there’s a shortage of money. I’ll hear investors say, “There are deals everywhere.” I’m like, “If you can’t raise the money, it’s not a deal.” If you can’t get the money in, that’s part of operationalizing. If you can’t operationalize the asset, if you don’t have the money, you can’t do the deal. It’s that simple. Look at the bloodbath that’s going on in Memorial, Westbury, and Meyerland that are flooded houses. Nobody’s buying those at 50% off. Fifteen percent to twenty percent, sure. If you think you’re going into Meyerland and buying at $35 a square foot. Alief and all these other places are the same way.
Buy Real Estate
Here’s the deal. I will save you from having to spend $100,000 in real estate education. That’s what I spent between all the gurus. Let me give you all of that knowledge, this is $100,000 in real estate education. Six hundred houses and years in this business. July 4th of 2020 will be my seventh year in business. I’m going to wrap all of that experience up into this statement. If you are in Texas, buy real estate that cashflows. It’s all you have to do. It is no more difficult than that. If it cashflows, buy it. If it doesn’t cashflow, don’t buy it. “Jason, what about this?” “No, all you’ve got to do, if it cashflows, buy it.” I could get into all the underlying reasons why that strategy works, but then again, you either accept or reject the premise. The premise is to buy cashflowing real estate. I can give you a million reasons why it is going to be hard to lose money in this business if you’re buying real estate that cashflows. There’s no recession coming.
I look at the political landscape, and Trump wins in 2020. These next several years is going to be like the last several years. I can tell you, the votes are already in. People get nervous around election year. This election is going to blow people away how big they win. I’m not saying that because I’m not the biggest Trump fan, although I do like me some Bloomberg. Sometimes Bloomberg says some crazy stuff, but he’s another guy. He’s a business guy but he’s got some crazy ideas. The reality is, the last years are going to be like the next years. The last years were great. You can sit on the sidelines and wait until a 2007 event, it is not happening in the next years. I can tell you that for certain and even in the next ten.
Is there going to be a recession where the stock market takes a dip and GDP drops to less than 0%, we have negative GDP? Yes, that’s going to happen. It’s going to be part of the natural economic cycle. In Texas, I don’t see a recession coming any time soon. People are moving here every day. It’s amazing, the housing shortage we have. I know some of you guys have got 10, 20, 30 houses that got caught up in the flood that you can’t rent and you can’t Airbnb, but that’s not indicative of the marketplace.
We’re buying this stuff down here, it’s in one day and it’s gone the next. Our buildings once they’re rehabbed are leased in less than 30 days. We’ve got a major housing crisis coming and it’s not a crash. It’s a lack of affordable housing. Let me translate that for you. Affordable housing are the houses that you will buy that cashflow. Buying a house, you’re renting it out, that’s affordable housing. In fact, some of the smartest guys over the last couple of years are doing mobile home parks and RV parks because that is a true affordable housing. I don’t know if I’d be buying mobile home parks because they’re so expensive. Some guy sent me a mobile home park, $100,000 a pad. I’m like, “I don’t think so.” You start looking at the underlying economics and you’re like, “I don’t know, maybe it works.”
Cashflow is the name of the game. That’s the trick. That trick is going to be harder and harder to do because real estate is getting expensive. Somebody put a note on my Facebook feed, “Jason, what development?” Let me tell you how we’re doing development because we’re looking at a couple of projects. If I can get greater than $1 a square foot for rent, and I can develop and build. Remember, development is a little bit different than building. If I can develop and build, including the cost of land for less than $100 a foot, that’s a deal I’m looking at.
Our EaDo deal, if you get on my Facebook page, I shared that area has $1.50 a square foot rents. Is it possible for me to find a large enough parcel of land to do new construction where I’m in for less than $100 afoot? Probably not in that area of town. There are other areas of town I could do that in. Could I buy 3, 4, or 5 acres or even an acre and put up a couple of quadplexes or duplexes and be in for $85, $90 a square foot, and charge $1.25 a square foot in rent? It’s a smart play and here’s why. Your five-year cap X ought to be almost zero because everything is new.
I do look at the development play, but keep in mind it is a little bit longer play. We’ve looked at doing ground-up apartments but between contracting the deal and raising the money, the initial stages of the deal to 100% lease up, you’re looking at somewhere between 2.5 and 3 years. Rob has been no stranger on this show to say that three years and nine months he’s done with real estate, at least the active part of his real estate career. He wants to be passive and by passive, he wants to show up once a month in Houston at my office and say, “Where’s my money?” At that point, he wants to be retired. He’s going to fly in from his house in Colorado and/or from his house in Southern California. He’ll go, “Jason, where’s my money?” Brian and I are going to look at each other go, “We wired to your account like we do all the other investors. Why do you keep flying in town? What are you doing here?” He’ll show up with a Hawaiian shirt on to the networking event.
The reality is you are looking for real estate that cashflows. That’s going to be the trick over the next years because as these assets continue to appreciate at such a rate that they won’t cashflow, at least single-family. Multifamily has to cashflow because otherwise, why would you do it? Unless you’re in Southern California, that’s a whole different market. In the single-family space, the real estate is getting so expensive. Rents are not keeping up with appreciation. Will rents rise? Absolutely, they should rise. My projected rate arise is somewhere between 5% and 7% in leases for single-family. I want to thank you guys so much for reading. If you want to sell us something, if you want to get into our fun, you want to be part of our mastermind (281) 401-9008. Don’t call. Send us a text.
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