Transcript of “Investing in Small Markets Backed By Data with Nick and Nathan”
Gabriel Petersen 0:02
All right, we are live. We got Nick and Nathan with us here today. How are you guys doing?
Nick and Nathan 0:09
Good, good. How are you? Doing all doing well.
Gabriel Petersen 0:13
Alright, so to get us started, why don’t you guys let us know who you are, what you’re doing and how you got started in real estate in the first place?
Nick and Nathan 0:21
Yes, I’m Nathan Sanders. I’m a former CPA and now I’m in sales started in real estate because I wanted to diversify my portfolio pretty significantly in real estate is a great way to do that partner with Nick because one day he hit me up and said, Hey, do you want to invest in a
commercial real estate property in Westminster, up in the Denver suburbs? And I said, Yeah, sure, that’d be great.
He said, Yeah, let me talk to some people. nothing came of that. But it kind of started the plant of the seeds of like, what how do we make Want to get this going? Like, do we want to invest in real estate? And how do we do that? So that’s really what happened from the start of it. So perfect. Yeah. And Nick Newby, one of the founders of na, n j. s LLC with Nathan, we got started, like you said before, before I reached out to him, I kind of talked to a handful of people knew some people that were in real estate, thought that it’d be a great opportunity and started realizing that I realized pretty quickly that I was not going to be able to get into anything that I wanted to individually. So I said, well, let’s find all the other people that are like me that have a little bit of cash to risk, but not enough cash to go out and buy, you know, big apartment complex or something like that. So start looking at some crazy ideas like the commercial real estate property that Nathan was talking about. And then, like you said, even though nothing came from that we had some conversations with some people that were like, yeah, this would be a great idea. I really like it. This may not be the right one, but let’s let’s keep looking. And that’s kind of the genesis of how we got started
Gabriel Petersen 2:02
right on. And so you guys are relatively new to the space, correct?
Nick and Nathan 2:06
Yeah, we’ve. So we’ve been operational since for the last two years. We bought two properties just about two years ago. But we’ve gotten really slow, we started out, we took about a year to 18 months before we really even settled on a location to buy them took about six months to go ahead and buy in that location. And now I’ve kind of sat on the properties that we have before we’re now about to start raising funds for our next adventure as well.
Gabriel Petersen 2:32
That is awesome. And we’ll go into this in a second, but I’m actually let’s just do that right now. So you guys got started just a couple years ago. You’re relatively new. You have a few properties already under your belt, you’re looking on to the next thing. Sounds like multifamily is the next next shot.
Nick and Nathan 2:49
Is that about right? Um, we kind of uh,
we’ve gone back and forth right now we have five five total properties through single family Homes a triplex and a four Plex. And we’ve kind of thought about a similar type of mix for the next time about 60% single family 40 ish percent multifamily, because we feel like that gives a good blend of risk to reward kind of following like a typical investment cap m type model, like how do we kind of get enough of a foot into the multifamily pool to take advantage of the high returns, but also have some some structure and some safety for for when things start to hit the fan.
Unknown Speaker 3:34
Gotcha. Okay. So
Gabriel Petersen 3:38
So it sounds like you guys are buying in, in batches essentially. So what is you’ve already bought a few few single families and a few multi families. So what is your bread and butter right now if you just kind of take us through what your what your criteria is what you’re looking for. I know you just touched on it a second ago but just go a little bit deeper into it. How you’re operating your business right now.
Nick and Nathan 4:03
Yeah, so we’re, we’re, it’s kind of a buy and hold strategy. So I mean, we’re not looking for an appreciation play, specifically with this first LLC. That may change down the road. But really the quick and dirty method, the way that we figured it out was like this is worth pursuing in greater detail was if the selling price of the of the property was less than one month, or 1% of one month’s rent. So, if a property was selling for, you know, $70,000, but I could but we could get like 700 700 a month, then it was worth pursuing into greater detail, you know, and then at least seeing what what that held. So
Gabriel Petersen 4:47
you guys are using the 1% rule to identify your potential potential buys. And are you using that for both single family and multi family?
Nick and Nathan 4:57
We did, yeah. For the most part. I’m with with the caveat that we knew that it was easier to get on multifamily properties. And so we kind of use that still as the baseline to focus our search, but then tried to try to expand up from that 1% rule on multi families engaged of this, to kind of settle in on the two properties that we got.
That’s kind of been pretty successful for us so far.
Unknown Speaker 5:28
Gabriel Petersen 5:29
All right. So I want to delve a little bit farther into the nuts and bolts of your business and your your analysis. I know, Nick, you have quite a background in data and analytics, which is which is a good benefit for for the real estate sector for sure. So kind of why don’t why don’t we start out? You know, there’s different there’s different phases to any real estate transaction. And it all starts with finding a lead. How do you guys go about finding the potential properties that you’re going to buy and then how do you what criteria And what how do you analyze those properties?
Nick and Nathan 6:03
Yeah, so to kind of start off with, we, we really kind of focused on where we or our set of investors were already located on to kind of give some initial qualitative over a qualitative review. So even though I’m an analytics guy, I kind of wanted to have some understanding of the markets that we were going into. And then we use that to start to narrow down and look at that kind of 1% rule in those markets. So us being in Denver, the 1% rule really doesn’t ever exist in in Denver at all. Right. So we kind of pretty quickly shifted away from from the Denver area, and then it was really about scraping, scraping Zillow ads, just to see kind of what markets had anything close to the 1% rule. So for a project that was kind of separate from the real estate world, I worked with the client in my my day job scraping Zillow ads for Prices previous sales and then I use the technology to go ahead then and scrape scrape deals for us to try to see like, okay, which deals are going to make, which have rental estimates above 1% that are going to make it worth it for us. And then actually were that was interesting to kind of give us an idea of like where we could focus. But ultimately how we we came upon upon the location Joplin, Missouri where we ended up was really just a friend referral, a friend came up and we were telling him the idea of talking about it in Denver and how there’s no way we can find these metrics anywhere, anywhere around here. And he’s like, Oh, you should come out to drop them. That’ll even make that work easy. And I didn’t believe it until we started looking at the numbers. I was like, every property you’d look at was at least 1% If not, 1.8 1.9 is like crazy. So really, we’d like to have some really cool analytic way of, of getting to more properties. But our first the first note that we cracked was a friend okay. Yeah, yeah.
Gabriel Petersen 8:00
You know, I’ve, you know, I’ve had a number of people on the show and I think every single one of them either their first their second most powerful you know, lead generation tactic has always been networking just building relationships talking to people, eventually you’re gonna find something so worked for you guys to even with those, the powerful brain of the analytics mind. Right? Alright, so that’s how you guys, your first deal came through somebody that you actually knew. And then you went about and you you decided on that deal based on the 1% rule is that right?
Nick and Nathan 8:34
Yeah, so that was kind of what got us into that market. Um, kind of looked through Joplin Missouri. I don’t know if you know about it, but there’s like 60,000 people in the town roughly the same Gotham, Missouri. Joplin, Missouri Joplin. Okay. Yeah, so you may be familiar with a tornado that went through, you know, 10 to 2010 or so. Yeah,
Gabriel Petersen 8:55
no, not sure but
Nick and Nathan 8:57
Some some On the city, but yeah, so that was kind of how we narrowed down the location. That last,
disappeared into the background. So that’s how we kind of narrowed down the location was noticing the whole area has met this one, the 1% rule for us. And then we started narrowing down to the properties that we wanted to look for. And decided that we needed to take a trip out there and start looking at actual properties decide on on which ones we wanted to go ahead and pull the trigger on. And like like we mentioned before, like you said, We bought in batches, so we wanted to, we knew we wanted to buy four to eight total properties and try to get to eight to 12 units total. And that’s kind of where we started.
Gabriel Petersen 9:44
Okay, and I mean the next step once you find a property is you got to finance that property. It sounds like you guys did that. With your with your own capital, is that correct?
Nick and Nathan 9:52
Our own capital and then we also brought in a few investors with us as well. So we have four investors that came along With this and then we finance with their local bank in Joplin as well.
Gabriel Petersen 10:05
It’s great. And you and you mentioned Jonathan, there’s a 60,000 60,000 city is in a bit in a bigger Metro or are you guys? are you guys looking for the smaller metro areas to invest in?
Nick and Nathan 10:18
Yeah, mostly the smaller metro areas. Kind of the criteria for that is the biggest thing is making sure that it’s not one employer. For instance, Bloomington normal has as to two major employers, right, like State Farm is headquartered there, and they’re in the Illinois State university campuses there. To me, that didn’t make sense, right? Because it’s, it’s a firm decides we’re gonna move to Atlanta. Bottom drops out of the housing market. So we look for kind of a more dispersed workforce, from the standpoint that if one company decides to leave, or they go under, you’re not affected. The whole town is not destroyed, right? So Joplin had, at the time we were looking at a medical college, they were just opening up so there was gonna be 400 new residents coming in. And like a dog food plant was opening up. So that was a lot.
Gabriel Petersen 11:14
Yeah, well, hey, Megan somewhere.
Nick and Nathan 11:18
So yeah, it was I mean, it just seemed like there was a dice diverse enough work. workforce that any any one segment goes under, and it’s not gonna affect long term or it’s not gonna affect drastically the housing markets.
Gabriel Petersen 11:37
Yeah, that makes sense. Having a diverse workforce. I have looked at, well, mobile home parks in areas that were pretty much supported by one one industry and it’s a risk, it doesn’t mean that it’s a horrible investment. It just means that you got to go in wide eyes wide open. So
Nick and Nathan 11:53
yeah, there’s, I mean, look at Lordstown right like, five years ago, that would have been a great investment. But now you know, When the Ford plant shuts down, it’s like, that’s, that’s scary for an investor. Look at Detroit.
industry in general, right? Yep. All right. So
Gabriel Petersen 12:14
so that’s what you guys are doing you guys, you’ve you found your your properties, networking, you finance them yourself and you finance them with other, you know, private investors. How about the operations? How are you guys? Are you guys handing that over to property management? Are you guys moderating yourselves? Sounds like it’s out of state for you. So how are you? How are you going about doing that?
Nick and Nathan 12:34
Yes, so since it’s not a state, we do have property managers out there on site. We’ve talked about doing doing some of the property management ourselves, but with it being out of state, it really doesn’t make sense. I think, in future ventures that are closer to the Denver area or closer to where we are, we think we may, we may want to get into that a little bit more. Just because you know, given up a percentage off the top, makes it tough, but it’s also been nice to to be in just A phone call away from from managing everything. So let it a little things get handled, and then we just have to worry about handling the big things. But even then we’ve still been on site every year for the last three years that we’ve that we’ve been buying and owning the properties. So we’re still pretty close to them.
Gabriel Petersen 13:18
That’s great. Yeah, I’m just listening to you guys. I’m pulling two things out of there for one, that 10% property management fee. Totally worth it. I mean, having to having to deal with that every night and day, especially when you’re getting into larger numbers. It can be hard. And then I forgot that second thing. So we’re just gonna move on from that. All right, so we’ve kind of heard about your guys’s business by how you get or how you get leads, how you take them on and then now how you’re operating them. I want to go into a little bit more on the experience side of things. So you know, we all know real estate is it’s a roller coaster, emotionally and financially. You’re going up you’re going down. So kind of tell us go into it. about kind of the low point that you guys have had and what lesson that you kind of pulled from that.
Nick and Nathan 14:06
Yeah, yeah, I mean, I think
I think the lesson is never buy sight unseen. At least don’t play so we were. So we bought I think four we purchased for three multi three single families and one that that triplex and we were riding pretty high. I mean we were we were like all of these are working out. This is great. So we
have a four Plex that
families rented out in like, like,
Unknown Speaker 14:38
yeah, yeah. Really? Like why haven’t we done this sooner? This is amazing.
Nick and Nathan 14:46
So the squad plan is for Plex came up and we were like, Alright, well, let’s, let’s go for it. Like, it looked good. It met the criteria. There are a few like, kind of pulling things. It’s like Ah, you know what? run into a couple of issues with inspection. Big thing was, so we set on a price the appraisal came back lower than the price and then the contract price. So the buyer or the seller dropped it to the appraisal price immediately. And we’re like, you know, he started having that nagging doubt of like, Are we going to steak? And and it it turned out I mean, it’s turned around now but yeah, those first few months were pretty dreadful because i think i think the big thing that sold us on it was out of the out of the four, two, there were two units already rented. So we thought okay, we’re going to cover our debt service, our our utilities, anything that we have there, we’re going to break even on this no matter what, well, immediately, one of the one of the tenants moved out and the other stop paying rent. And so we had to deal with that. In the meantime, there was a look, I think we gone through three water heaters. on that property, we’ve gone and done some some new flooring, we’ve done a couple of refrigerators. So I mean, it was just every, every week, it was like our property managers call and it’s like, I’m not picking up the phone, you can leave a message. This is bad news. So yeah, that was that was pretty. That’s pretty low for a while. So we had to, we’re kind of scraping by on cash. And so we, Nick and I both had to kind of give it alone to the, to the LLC to to float the cache for a little while. So we weren’t. So the lesson you pulled out
Gabriel Petersen 16:41
of that one was do a little bit more. Don’t know don’t buy sight unseen,
Nick and Nathan 16:45
by sight unseen or have. I mean, our realtor was pretty good. So I wouldn’t say, you know, have a realtor that you can trust. But yeah, I mean, just do. do your due diligence to your point earlier, right. Like mean, you want to make sure that’s that it’s there, right. And so
Gabriel Petersen 17:05
when we actually, our group just walked, we were going to buy a 10 unit out in Columbus. And you know, look good on every on paper, it looked really good. We started talking to the tenants and everything. And basically, it turned out that there was going to be high vacancies. And so when, you know, once we purchased it, we were going to have about 60% occupancy, and which meant that it wouldn’t be cash flowing on purchase. Once we, you know, fixed it up, it would be cash flowing, but we just decided, instead of them walk on that one, so we know your pain. We didn’t go through with it, but I know I know what what could have happened. And so I can tell you, they’re
Nick and Nathan 17:43
definitely lesson learned. I mean, it was an expensive lesson, but I mean, it’ll pay it’ll pay back in spades down the road, because now we know, you know, I mean, and you walked away and that’s something that I think comes with experience, right like to be able to look at a deal and just be like, I’m not I’m not doing it, you know, you’re part of us. We’re like, we’re this far invested. Let’s just finish the swing on it. And yeah, that’s a hard thing.
Gabriel Petersen 18:10
Right. So so that’s the bottom. That’s the trough. Obviously, you know, there’s peaks too. So what what keeps you guys going? What? What gets you out of bed? When you’re thinking about doing real estate investing? Why are you guys still going forward with it?
Nick and Nathan 18:24
Yeah, I think probably it’s not even necessarily like the economics are nice right now that we’ve gotten through the trough. That’s obviously a big perk. But I think probably the thing that keeps us going is that when when all of this kind of the bottom of the trough was really hitting it, like December timeframe, we talked to our investors, kind of told them, hey, here’s what 2019 looks like. We think the 20 2020 or 2020 is going to look much better. here’s, here’s our plan. We’re going to go out to the properties and fix them up ourselves to try to really kind of turn it around. And all of our investors are like, cool, sounds good. We’ll come out with you. We’ll come help you help you tear up the floors and fix up floors and paint the balls, whatever we got to do. And I was like, wow, that’s like really cool that that these other investors that were passive were, like, trusted us, they thought it still liked the idea. They felt like it was it was still in, we had still made good plans, even if they hadn’t sorted out and paid off at the point. But the fact that they were kind of on board and said, hey, let’s all go do it. You know, everyone, everyone falls in time. So let’s all pick it up and fix it. I think that’s,
Gabriel Petersen 19:29
I love it. Yeah, for sure. I haven’t heard of that happening before but I you know, having the the passive investors go out and be a little active. that’s a that’s a great story. I love that.
Nick and Nathan 19:38
Yeah. So about a month ago. Nathan, one of the investors were already out in the desert in St. Louis. So they came on down and, and then me and two of the other investors loaded up in the car from Denver and drove 12 hours across Kansas. One, pair up floors and paint and this was fun was a good time. We all had a fun time too. It’s just hanging out. Nice. That’s
Gabriel Petersen 20:01
great. Yeah. And that’s one thing that I feel like a lot of people overlook is that you know, flipping houses, you know, getting getting rentals up and ready. It’s just, it can also just be a lot of fun, especially if you’re dealing with the people you like. I personally enjoyed it, it sounds like you guys do too. So I’m going to switch gears just a little bit here. We’ve talked about your experiences, we’ve talked about, you know, your business, how you’re running it, the nuts and bolts. And so now kind of go into into the personal side of things. So what habit Do you guys think, for yourselves? What is it that that contributes the most to your success, that if somebody else were to pick up the same habit, they would, they would see a measurable impact on their own business?
Nick and Nathan 20:43
Because, you know, it’s really a question. I think that I think one of the, I think it could be a good and a bad habit. And I’ll explain why so good habit, I think is looking at being willing to look at every deal. Um, now I think we get into problems like that like not like the forefront That we were that Nathan just talked about the kind of the trough is looking at every deal and then trying to paint paint every big kind of the problem, but being willing to look at all of them, even if it’s way out of our range. So like, we’ll look at, you know, a 200 unit, multi million dollar apartment and just like run the numbers, look at what it would be like, knowing full well that’s like a that’s not where we’re at right now. But just to go through the process of like, Okay, what would this cost? What’s the value? Whatever we have to put into it? Where who would we have to talk to you to get financing from it? You know, how much would we need to expand our investment group? I think that’s, that’s a big key, at least for our future growth is just to continue to, like, always look at like, what’s any any deal going to look like? Because I think that’ll help us to get to our next level. When we’re ready for that. You have any other ideas? Yeah, no, I think I mean, I went in from my career kind of spanned CPA and taxation into sales, which is kind of a weird transition. But I think the big thing was an open mind and Getting to Yes, like trying to get to, like, how can we make this work? So instead of saying, well, that’ll never work, it’s like, well, how can we make that work? And I mean, to Nick’s point, could be a blessing and a curse. You know, I mean, it’s like, how can we make this one? quad Plex work? It’s like, like this, you know, you put a bunch of money into it, and it’ll start working, eventually, but but it’s like one of those things where it’s, you know, always keep an open mind and always having a, just the way that you can say, How can we get there? Like, how do we get there instead of better or worse?
Gabriel Petersen 22:40
I like it. So basically, practice makes perfect and kind of have a yes attitude when you’re going to things.
Nick and Nathan 22:47
Gabriel Petersen 22:49
All right. So we try to keep these to about 20 to 30 minutes. So we’re running on the tail end of this, this episode here. So you guys need something you guys need things to so somebody were to bring you something, what is it that you would be you would like for them to bring you? Um, you know, network anything like that?
Nick and Nathan 23:10
Yeah, I think, you know, we’re always looking for new markets kind of like we talked about, because we’re kind of looking at this, these tertiary markets and the Joplin is, you know, under 100,000. Kind of smaller areas. It’s hard to know where all those are right. We only knew Joplin because of a friend. Yeah. So I think hearing about, you know, where there’s markets that that other people aren’t interested in. I think that that’s kind of a good place to, for us to start looking. So people are like, Hey, you know, there’s a bunch of deals over in this area. But it’s not something that I’m into, for instance, a friend of mine was doing a bunch of deals in the middle of the middle part of the country, and then started mentioning some cities that he wouldn’t touch but he’s like, Hey, you know, you guys are interested. Toledo has good numbers. They just don’t have the volume that I’m interested in. So take a look here some deals. So I think that that’s, that’s all always helpful. And then obviously just a network of people to continue to get ideas from. Because I think, you know, we kind of have a one way that we’ve that we’ve done this so far, in trying to come up with new ideas like, how do you bring new people in? How do you get different types of investors? ideas in particular would be really cool to learn just from, like, what people have done, what’s successful, what’s not, I mean, just knowing experience, right? Because, I mean, we started this thing, we didn’t have any investor experience, none of our investors had real estate experience besides buying personal property. It was like we’re gonna do it this way. And I mean, hopefully we don’t lose all your money so
you know, but thanks for thanks for trusting us to do so. Yeah.
Unknown Speaker 24:51
Any any any ideas are always are always welcome. ideas and networking, all right,
Gabriel Petersen 24:57
and just kind of piggybacking on that. It’s If somebody did want to reach out to either of you guys, what’s the best way for them to get ahold of you?
Nick and Nathan 25:05
You’re reaching out over LinkedIn, in either of us on LinkedIn. Great. And we love to grab beers and chat or virtually grab beers as the world is right now.
So we’d love to chat.
Gabriel Petersen 25:21
All right, well, Nate, or Nick and Nathan. Thank you guys, both for coming on the show. I can speak for everybody on you know, listening and watching. We appreciated the stories and the wisdom that you shared with us. So thank you for jumping on every listening and watching. If you guys want to get in contact with either of them, check out LinkedIn, it’ll be in the notes, and we look forward to seeing you guys on the next episode. Thanks, good. It’s a pleasure.
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