Myers Methods Presents Multifamily Missteps

The Wild Wild West - Ben Wuollet

September 01, 2020 jerome myers
Myers Methods Presents Multifamily Missteps
The Wild Wild West - Ben Wuollet
Myers Methods Presents Multifamily Missteps
The Wild Wild West - Ben Wuollet
Sep 01, 2020
jerome myers

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spk_0:   0:00
in the back of the day. We're getting 20% or higher return on a lot of these deals. Those users is harder to find, and I think that the reason we had such high crime issues was after the crash. The market. There was a lot owners that just didn't care. They were in. There were an asset preservation stage. Um, you know, it was either lose their building or figure out a way to fill it up in cash, flow it. So there's a lot of buildings that they just I did quit doing background checks and let anybody in there and just pay me whatever you can for rent. Well, the challenges that it's a snowball and it's hard to stop

spk_1:   0:34
as an operator, I know other investors are romanticizing multi family investing, and I'm looking to learn from other investors mistakes I know you are, too. You found the right place. Welcome to Myers Methods presents multi family missteps. Everybody and welcome to my His methods presents multi family missteps. I've got bin will let back again. We were chatting. He's telling me about some school stuff that happened at the property, and so you just wanted to jump back on and record real quick episode. So, Ben, let me get this straight. You have bomb squat, squat, squat and 60 police officers. So talk to me about what's going on, man.

spk_0:   1:28
Yeah. So there was a property that we bought it in Tucson, and it was after I think, in the first month of ownership, I was actually down in Tucson. And the constables, they're serving an eviction. They went to open up one of the doors and a super strong chemical smell came out of that unit. And that concept was like, this smells exactly like a meth lab. So And she was actually having difficulty breathing with some of that, that chemical smell. And so she actually called 911 Just like, Hey, this is Constable. So and so I'm here like I'm having struck trouble breathing. Um, I think it might be a meth lab. We'll soon. She said that 2911 Sua showed up. The bomb squad showed up. Fire departments, ambulances, um, has Matt crew. I mean, they're the whole block surrounded, and, you know, I'm not being a math lab. They had a bunch of chemicals in there. So I'm thankful that it wasn't a meth lab. But that property did have a ton of crime. Somebody first bought it. I'm a really There was another problem at the property, and one of the supervisors for the police department came up to me. He goes, you know, So what's your involvement? That I work with the ownership group? Because why did you guys ever buy this property use? This property's been a problem property for years, and nobody has been able to figure it out. And I just told him I said, Hey, this is what we do. This is what we love to Dio were very involved. Just you watch us. And I think that property is getting anywhere from 70 to 100 phone calls a month. 2911 So the cops were there multiple times a day. Now our crime is very low. Most of the stuff that we get is maybe a suspicious person on property that's walking to the property for some, like domestic violence. Um, those are always gonna happen at any property that you own. But we we kicked out drug dealers, um, high level sex offenders there was a prostitution ring in there. Um, you name it, and that property had little bit of everything, and we ended up clearing all those people out. We've turned over roughly 70 or 80% of the resident based there and was

spk_1:   3:37
a complex. Where is

spk_0:   3:38
that? Five units.

spk_1:   3:40
Okay, So did you know that this was the issue before you bought it?

spk_0:   3:46
We knew it was bad, but we didn't know it was that bad, because it's funny when you walk a property. A lot of these criminals, they're actually on their best behavior. We work, you know, you're walking through units. A lot of times they have their stuff cleaned up. They don't have the drug paraphernalia out because, you know, they have random people coming into their units. Most of these people like to work underneath the radar because they don't want to go to jail. And so we want to be like, Okay, you can get a feel. There are some people that were eyeballing us, asked us a lot of questions. You just mark on those units as potential issues. Um, there was definitely some worse people than we knew about, but we've done it before the other property I was telling you about. There was, Ah, condo complex up here in Phoenix, and it's in a neighborhood called Maryvale and 43rd Avenue. And Thomas is to major cross streets. And when you look at the crime map that had the most calls out of any neighborhood in Phoenix and there was a counter, couples were just wanting to help clean it up. So we started buying these condos one at a time. It was 152 unit complex. We ended up owning over almost, uh, it was over 1/3 of the units in there trying to get 1/2 and we actually got the crime to come way down. So that property is getting 203 100 phone calls a month. 2911 And he was shots fired. Um, drugs, crime, prostitution. There was actually a family running, um, guns out of their their active selling guns that had serial numbers were scratched off. So we're buying these units, and what we do is we want is a condo complex. There's many different owners across this whole complex, so we buy a unit or what when we're in contract to purchase it. We had connections at the police department. We'd actually say, Hey, what do you know about this unit? And they would either tell us here we don't have any issues with that unit. Or, um hey, we want to do some undercover work. So then they say, Give us a month or two after you on it. Don't kick him out. Let us go in there and do our undercover work and arrest these people. And, yeah, there was one time there that they want to go do a gun buy, and the undercover actually got surrounded. Um, and another officer showed up. There was, like, 10 people came out of that unit and surrounded the officers and started threatening him yelling at him. So too, do the eviction. We had, um, 10 police officers, plus the sheriff to do the eviction on one unit.

spk_1:   6:19
Wow. So, I mean, how are you guys cleaning this stuff up? Is that the property manager? Is it your company coming in, like, how's how's this all work?

spk_0:   6:30
So when we're done, the really high crime stuff here in Phoenix, we were self managing because they were smaller properties. And so we just go in and you know, we'd collect rent ourselves. We'd do all the background checks to fill up the units because a lot of managers don't like to do that scary stuff, because why would they go do that when they can go manage any other property in town? Um, I think the only way to really get a manager involved in that is to somehow incentivize them instead of paying them just the 4% management fee. Maybe bring him in. It's part owner or do like a compensation package for additional bonus once the properties cleaned up. Because you put yourself in their shoes when they're only making a couple of $1000 a month in their management fee, what's their motivation to do that work? I mean, really, I wouldn't want to do it for that price. Um, but what we do is if we buy a property now like an apartment complex is we're very involved. We told the managers, if there's a a bunch of problems of the property will come there and help with the evictions. Um, you're here in Arizona work the Second Amendment state. Everybody's got guns here, so it's no secret we've gone to the properties and carried firearms because we've kicks that we had to kick some pretty bad people out. Um, and you know, I got a family. I want to go home at night. So, um, there were signs we've had four or five hours from a company all carrying pistols to go to an eviction.

spk_1:   7:56
It's the Wild, Wild West in Arizona, man,

spk_0:   8:00
But, um, our properties now we've scaled back of some of that crime. A lot of the investors don't love that stuff because they viewed as very, very high risk for their capital. The reason we did it in the past, some of these deals were buying. And we're buying these condos that was talking about 43rd and Thomas for an average of around 18,000 per unit. And these were two and three bedroom condos around anywhere from 1000 and 1300 square feet. There were huge suite by effort, 18,000 bucks bucks, and we'd rent him for 800 so the cash flowed really well. Um, but the investors just, you know, in the back of the day, we're getting 20% or higher return on a lot of these deals, those users is harder to find, and I think that the reason we had such high crime issues was after the crash. The market. There was a lot owners I just didn't care. They were in. There were an asset preservation stage. Um, you know, it was either lose their building or figure out a way to fill it up in cash flow it. So there's a lot of buildings that they just It's quit doing background checks and let anybody in there and just pay me whatever you can for rent. Well, the challenges that it's a snowball and it's hard to stop.

spk_1:   9:13
So were you buying in great areas? Just problem properties. Or were you buying them pretty rough areas as well?

spk_0:   9:23
We've done both. We bought rough properties in rough areas. Um, and then we've also bought, you know, the roughest property of Nice Syria used. That's what we've been transitioning to now is going to AA C plus or B minus neighborhood and look for the absolute worst property in that neighborhood because all the other owners already have decent properties. So if you could bring yours up Well, it's a lot easier, um, lease up of the property because the neighborhood's nice. All the other attorney properties are decent. There's no objections for people wanting to live it your property. But if you go into a really rough area and you have the nicest property in that area, the challenge is there's a ceiling on how high you can get for rents and sometimes you might overreach. Have a building just financially. Where you return isn't where he wanted it to be because it costs so much to reap rehab these properties. But the rent just isn't there. So yeah, we say that we want the rough in the diamond. People would see the diamond in the rough. Don't know. We want the rough in the diamond.

spk_1:   10:34
What's so guys? Is your host to Rome? I just want to let you know we lost my methods in the follow 2019 with ambition so inspiring a new breed of multi family, if you are interested in giving in a multi family, are scaling your current business up overcharge website at my methods dot com grabbing free forceps guy. How did you Now let's get back to the o wow! And so did you. You know, in a previous episode we talked about your kind of hybrid model where you've got a property manager and she's kind of like, detached for these. Are you using the same type of model or using a different model?

spk_0:   11:17
So, you know, we were managing all of those remotely because we did a lot of smaller properties when we're doing the really rough stuff. When we first got in multi family, most of our deals were between, like, 6 to 30 units and, um, survived bigger deals. One of the deals in Tucson WAAS a 74 unit. We actually bought that one at 50% occupied. Um, yeah, it's 50% at purchase. We went down to 25 out of her, 25% occupied, so 17 units only out of 74. The reason we had to do that was we don't like to make it that fast. As we talked about the previous episode, there's that value of death. You're paying that mortgage payment every month. But that property we put that in the budget. We were okay with negative cash flow, year one and massive negative cash flow year one, but we I had to get all those people out right away because it was hard to lease up these units. If you have that challenging element at the property, there's a big thing about energy in a neighborhood. Some people think I'm weird for talking about it, but when you walk into a property, you can get a feel of what is the energy? Is it dark and gloomy? And if it is people that wanna live there? Or is it a vibrant is their families? Is your kids running around? That's what we'd like to see. We love renting. The family's good to see the kids in the swimming pool. You see them on the place. I love kids being outside. I've got four kids myself and makes me smile to see people you know, living in properties. And they're happy living there. So that's why we've done those rough properties. Is that transformation of like, Hey, we've made a difference in the neighborhood?

spk_1:   13:03
We talk about this a lot. It's not just about making money. It's about making a community better as well. And you know, if you do it one property area at the time. You know you can make a huge impact on the world. And so it's amazing that you guys have that focus because I don't think there's a whole lot of people in the space that are thinking that way. They're just worried about how much money they can make him pass foot cash flow each month. You know, some of the passive investors don't care about anything. But, you know, how does Erica retirement account looks? Go. This is this is

spk_0:   13:34
this kind of Ah, a challenge, Because you obviously we're all in business to make money. But I think that if you are only in the business to make money, you start to lose your why you started lose the purpose. And I think it becomes monotonous or yeah, you know, it's easy to start making mistakes. Is it all euros chasing money, chasing money, chase money? What about in a time of uncertainty? That's where it's really fun. Like today, people keep asking us, Why don't you guys stress about the market? And I said, you know what I believe will come out of this fine. While we hit 136 months of, you know bad financial times? Maybe. But why not be positive for these times? And then I just know that Hey, we buy these properties. We've made a difference. We could go to bed at night knowing we've done all the right things, and that's all you can ask for.

spk_1:   14:27
That's all you can ask for. And I mean, looking at being able to look yourself in the mirror and say You did the right thing is huge. You didn't have to step on anybody in order to get there so good. I'll see you guys. I think you're doing it the right way for sure.

spk_0:   14:40
Well, there was one other owner and Tucson that we didn't end up buying his building, but we were looking at it, and it was interesting. One of the brokers was getting annoyed because that guy was talking all the residents. There was one that came out his hair. You're the owner, and the guy said, Yep. I am the owner, Uh, what's going on? And they're waas, um, shower, that they had take out some of the tile to fix a valve and the management company that was there never put the year that what board and a tile back up to seal the shower. So that resident put a piece of plastic and taped it because she was concerned that every time she took a shower, she was going to damage the unit. Yes. Well, that's a good resident that, um, she's she cares. She doesn't want it intentionally damage it. Well, the broker made a comment. Oh, man, I hate when this owner talks to all the residents, cause they always point on all the problems on the property and the property. I don't want to point out the problems and Bruce to turn of it, um, the broken says Why did why is their problems? You know, as an owner, I want to know about the problems. I want to know if the management company is taking care of the people living at her property. We walk our properties all the time. And what ask anybody? Was he walking around outside? Yeah. How's it going? How do you like living here? And you know, if there's one thing we can do for you, what would that be? It will make notes. You know, we can't do everything that people ask for, but if we can start just chipping away little by little You Maybe it's Ah, Gate just isn't shutting, right? Well, why don't we fix that gate? I don't live at the property. I don't know all these tiny issues all the time. So we link that feedback from the residents and we invited.

spk_1:   16:19
So how did you guys come to the kind of this philosophy in this approach? Because it's not common.

spk_0:   16:29
Um, I think it goes all the way back to you know, my grandpa telling that to my dad. I remember my dad taking me down to these neighborhoods as a kid. Um, when he was here, when he got in, I was pretty young and he always would remind me. He says, Look at these kids in these poor areas. None of them chose to be born here, But they're here. They're a product of the of the environment. They're all human beings. They all have a beating heart now, the conscience. So why not invest in these neighborhoods and try provide good housing? Two people that are less fortunate just because they don't have money doesn't mean they're not a good human being. In fact, a lot of people. Almost all of them are great, you know? And so I like that reminder of my grandpa would always tell My father is my dad grew up in the bakery business that will let Bakery in Minnesota, and my grandfather would always remind everybody in the business never be too proud to pick up a broom. What he meant by that is, if there's an issue, fix it. If you walk in the property, you see a piece of trash on the ground. Just pick it up, throw it away. Don't go find the maintenance guy to go. Tell him to go pick it up. Pick it up. Don't be too proud. Don't don't say that. I'm the business owner. Everybody else has to do this for me. Now that we're all in this together, I think that's trickles down from Bruce. Is the owner always reminding all the people at bay Curson. He reminds managers Andy Reid's residence. No, he tells them to hit. This is your home. Let's all take care of it.

spk_1:   18:01
That's amazing. I love it. And then the generational story that goes with it is awesome as well. Absolutely. Then any other thoughts you want to share with the listener before we jump off.

spk_0:   18:14
No, I think that's it. I mean, um all right. Lastly, I Well, one thing that we always, um, look under business with his leave. All things better than you found them. It's all ended with that. Everything you do leave all things better than you found them.

spk_1:   18:30
Beautiful. Hey, guys, I really appreciate you listening. If you like what bin and share with you, you can reach out to him on link. Then he's also been kind enough to share his cellphone. And he met with dress this in the show notes until the next time packs with you. Talk to you soon,

spk_0:   18:50
Doctor. Later.

spk_1:   18:52
You made it to this juncture. So you really love what we shared on this episode of Meyer's methods presents multi family. Mr. Do us a favor. Give us a five star rating. Give us a review on share this with somebody who's interested in things