MCFA 4 | Real Estate Property Management

 

It takes time, dedication, and commitment to make it big in real estate, and that’s just the reality of it. A lot of times, people don’t look beyond the sale, and that is where property management comes into play. Realtor, investor, and the Co-owner of TGY Investment Group, Tony Angotti, shares his unconventional entry into the world of real estate with Athena Paquette Cormier in this episode. He explains the details of his transactions as examples for those who want to get into the business. With his experience and knowledge, Tony takes the time to answer the questions of newcomers in the industry. He talks about what happens after the sale and how it’s like to live in the world of real estate.

Listen to the podcast here:

Property Management: What Comes After Buying With Tony Angotti

We meet with Tony Angotti. He’s a realtor and an investor in the Pittsburgh, Pennsylvania area. We’re going to have a little bit of a chat and then open it up to Q&A. Tony, thank you for joining us here.

Thank you for having me.

Why don’t you start telling us a little bit about yourself, your background and who you are before we jump into the nuts and bolts of investing? Where did you grow up? Did you grow up in that area?

I grew up in Pittsburgh. I grew up in the south of the Downtown area in a neighborhood called Dormont. It’s a middle-class type neighborhood. The only time I’ve been out of Pittsburgh was for college. I went to college in Northwestern Pennsylvania and I went to graduate school in North Carolina.

Did you come from a big family or a small family?

I have one brother and then my mom and dad. It’s fairly small for the most part.

What did your parents do for a living? Were they highly educated? Were they in trades? What was your background?

My mom’s a nurse and she’s still a nurse. She loves nursing. She’s done all kinds of different types of hospitals and everything like that. My dad’s always been in some form of maintenance. He was a maintenance person for hospital equipment for a while and then as his career went on, he slowed down on that end. He’s a maintenance person for a company that has a lot of commercial office rental property. They have a lot of office buildings. He maintains 2 or 3 buildings.

Did you get your affinity or your interest or aptitude from him? It sounds like he’s able to fix things and a lot of people are not able to fix things. Did you tail him around learning or did he teach you about fixing?

We always joke that when I was growing up, there’s no way we could have predicted that I would have gotten into this, sciences and that thing through school and college even. I’ve learned a lot from him since I started getting into real estate investing doing a lot of the work. I’ve learned from him since then. He always laughs and he’s like, “There’s no way I would have ever thought that you’d be swinging your hammer.”

Are you single or married? Do you have kids? What’s your family life like?

I’m married and have no kids yet. We hit full financial independence hopefully.

Can you tell us a little bit about your educational background? You mentioned you went to college and did a Master’s. What was your major? What was your interest in there and your higher education?

I was in College Admissions as an undergraduate job. I always used to joke that when people go to college, they only know that five jobs exist. There’s a doctor, lawyer, teacher, business person, and whatever your parents do. When I went to college, I thought I would do that. I majored in Biology and did some shadowing. I realized I didn’t want to be a doctor, still like science. When I graduated, I thought I’d go maybe do a PhD, but I wasn’t sold yet. I did my Master’s in Biology. That was my education. I’m not doing much of that anymore, but that’s what I went to school for.

When people go to college, only five jobs exist - doctor, lawyer, teacher, business person, and whatever your parents do. Click To Tweet

Did you have jobs during school that had to do with biology or you just ran through school and then went and got a job?

During college, I worked for the Admissions Department. I interviewed prospective students and talked to them trying to do some selling the college more or less. I worked as a lab assistant in my research advisor’s lab for undergraduate and then in graduate school, I had a stipend as a researcher for my lab.

Once you graduated, what kind of job did you get?

From doing my Master’s, I realized I didn’t want to go the PhD route because I didn’t want to stay in school for eight more years if you count postdoc. I had my student debt from undergraduate. Thankfully, I didn’t have any debt from graduate school because the stipend and everything covered that. The STEM fields that’s fairly common. When I left, I decided I wanted to pay down my student loans, so I went into laboratory sales. I sold laboratory supplies and laboratory packaging. I did that for three years while I lived at my friend’s house and helped him pay half his mortgage. It’s cheap, so I paid down my student loans. I was making a lot of money, but the travel was horrible. I was all over the country every day of the week other than the weekend. After about three years, I used my degree and I went into quality for a local pharmaceutical company. I did quality control and quality assurance. Eventually, I became a realtor, which is an interesting transition.

In quality control and quality assurance, what were you doing in that capacity?

We had a biotechnology company. We did regenerative medicine type stuff. In quality control, I was a microbiologist so I did a lot of the monitoring for the cleanroom and did a lot of the reports and all that thing. I moved into quality assurance, which was a desk job. For that, the title was facility systems and equipment specialists. Anything that any of those departments did, I reviewed and had it prepared for auditors and all that stuff.

Did you buy real estate first or did you become a realtor first?

I bought real estate first. I started as an investor. I wasn’t super keen on my job. I was looking for ways to get out. Real estate seemed like a good way out at the time. I didn’t want to pay rent anymore. We bought the first duplex that we lived in on the same street as my mom’s house. That was the first.

You bought that duplex to live in. Do you remember how much you paid for it?

We paid $155,000.

How much was the rent on the other side of your unit?

Both units were vacant. The one unit though was at Fannie and Freddie’s first look period. We got the first opportunity to bid which was helpful for us because it’s in-demand property. The thing we liked about it was the one unit was much ready to go other than a couple of small things. The unit we were going to live in was beat up. We were able to get a renter in there 1 or 2 months after we bought it for $1,145. The garage is in the back too. There are two detached garages. We rented those for $100 each. On my contract, there’s a deal for $50 but that’s a side note.

You’re working as a quality control guy. Did you meet a realtor? Did you read a book? What inspired you to go sign up as a realtor?

We worked with a realtor to buy our first place and he did a good job as a realtor. He worked with investors so he was somewhat familiar, but he wasn’t an investor himself. Outside of helping with the transaction and learning from somebody else, I didn’t get that value out of it that I thought maybe I could get. Instead of even trying to find somebody else, I thought, “I’ll get my license. It’ll be easier to get into properties and commission on my own sale.” I started and got it just to buy my own properties. I’m active on the BiggerPockets site. I’m sure a lot of people are probably familiar with that website.

From being on there and being in an investor community, people knew I had my license. They started asking me if I could help them find places. I said, “Fine.” I’m doing it part-time. I got a lot of out of state clients because I didn’t have to schedule a time to meet with them. I could go after work or during lunch or whatever. My job was such that I could still answer a phone call and things. There was definitely a grind for sure.

MCFA 4 | Real Estate Property Management

Real Estate Property Management: You’ll realize it’s getting crazy when you stop knowing the tenants’ names.

 

You were maintaining your full-time job, answering calls in the middle of the day or at lunch, and then in the evening.

It was like driving to work, I would talk to people. At lunch and driving home, I would talk to people. I’d sneak and see in houses before and after work. It was quite the time but that first year, I did twenty houses as an agent. When I looked at my income at the end of the year, I’m making more money selling houses outside of my full-time job than I am at my full-time job. That’s where I made the decision to do the realtor full time.

That was an a-ha moment. That’s a big leap though because what’s to say that you didn’t have beginner’s luck or something. That took guts for you to do that. You had some doubt there, I would think.

I wrote a post when I finally quit my job. I never posted it, but I wrote something to capture what I was thinking at the time. Before I quit, in your head, you think that your bank account is going to go to zero. Everything’s going to blow up but it’s quite the opposite. I feel like more opportunities open up whenever I finally pulled the trigger.

You’re not squeezing it in. Now you have a chance to look around and see the opportunity as opposed to handling what you can because you’ve got that opportunity squeezed in. That’s a few years ago that you quit your job.

I put in my notice and I told them that I was quitting probably in March. I had done maybe somewhere between 12 and 15 homes as a realtor. I noticed there was no balance in my life and then I read The 4-Hour Workweek by Tim Ferriss. Initially, I tried to negotiate remote work and they granted my request. I worked from home and they kept pushing back when I was going to leave. Eventually, I stopped working from home altogether and then I did a little over 40 house transactions.

Freeing up that time did help with your production. I don’t know how you would have done 40 and had a full-time job. Your full-time job would have paid for the assistant to do or the other realtor you hire. It makes no sense but people do it. You also amassed a lot of rental properties. You bought your first duplex to live in. Luckily, you still had the job and good tax returns to qualify for a good loan. Can you tell us a little bit about the path you went down? How did you amass the other properties? How many do you own?

It’s 38 units over nine properties.

That’s not bad in 2.5 years.

The way we did it was the first one, we house hacked. We lived in one unit and rented the other unit with an owner occupant mortgage. In the second place, we rinsed and repeated. We did our year occupancy requirement and moved to the next one. That same year, one of my clients at the time, his transaction terminated and then he asked me if I wanted to work with them as partners. We bought a single-family house together that we fixed up, refinanced most the money out and then we did that. The year after, my plan was I was going to use my W-2 income one last time before I quit to qualify. At that time, I had used owner-occupied mortgages with the local bank, but I hadn’t used my FHA loan yet. We bought a duplex with an FHA loan, which was cool because I got the 6% seller assistance and then my 3% commission too. We essentially got into that house for almost free.

Almost free or it almost sounds like you got paid to buy it.

I may have made a little bit of money. I don’t even remember exactly. I couldn’t turn it down. Right after that, I put in my notice. Around that time, two other clients I had that were good customers of mine. They asked me if I wanted to start buying commercial properties. We then started buying small apartment buildings. At the beginning of that year, I had five and then over the course of that year, we bought two five-unit buildings, two ten-unit buildings, a single-family home, and a duplex. A lot of it was through the help of partners. At the time, we did every type of structuring. We did seller finance and commercial loans. We got private loans from people that we knew. We did refinance our money out stuff. There’s a lot of learning and good progress too.

That’s a lot of activity. I remember one year, I refinance my house and I refinance several of my buildings, it seems like you’re constantly giving paperwork and you’re not sure which loan you signed for. It’s getting a little crazy.

I managed the properties. That my part in the partnership, but I realized it got crazy when I stopped knowing the tenant’s names. When I stopped knowing, “This person is in this unit.” That’s when I start to build a team too.

If I understand you right, when it’s a handful, you know everyone by name and then you grew so fast that you didn’t know anyone by name anymore.

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I don’t know what they look like other than when we went through the inspection. That’s probably the last time I’ve seen them.

You bought a duplex, a house then a duplex and that’s how you had the five units at the beginning of 2018. By the end of 2018, you had 30 doors amongst four other buildings. You mentioned you are managing your own properties.

I still do. Our goal has always been to hire it out. What we’re doing is my wife’s transitioning from not helping much at all to starting to take on some of the property management tasks as well. We’re working towards having our own in-house team to help take care of stuff.

When I talked to you last time, you had the goal of having an in-house property manager by the first quarter, which sounds like you’re pushing it off to have a little bit more sanity and planning involved.

We had more systems developed before we bring somebody off.

I want to backtrack a little bit to the partnership aspect. Did you say you had the same partnership with the same person with all those properties? Did you take in different partners on different deals?

I have two partnerships. Three of the properties are with my one partner from Hawaii. Those are his and we have three properties together. I have another partnership with two people from California. Our partnerships are always divided up where anything that needs to be done in person, I do it. Anything that can be done on the computer, they take care of it.

Is it a legal partnership like an LLC or you have all your roles written out? How do you document your partnership?

The partnership is an LLC. We all have our ownership and a lot of the stuff in the LLC is fairly general. That way, it takes care of things like, “What happens if so and so dies? How much ownership is here?” All that stuff. The actual nuts and bolts of what people do, we have an ongoing operational document. It says, “This is what everybody does.” I have that all signed and official because it changes from time to time. I would have the lawyer revised changes and everything like that. The LLC takes care of the general operating document that takes care of what everybody does.

Do you have a different LLC for each? Does the property have an organization that owns it and then your partnership has a different organization?

The properties that we did with my partner’s money, those are in one LLC. My Hawaii guy and I have an LLC and we own the properties there. There’s not an LLC for every property. That portfolio is in there. The guys from California and I have the same deal. The stuff that we bought with their money, those properties are in one LLC, but we took on some private money investors. We put that property that we purchased in its own new LLC. Thinking about developing it as we grow. It’s taking a smaller number of properties putting them in LLCs but not doing one for every property. Even having this many, my accounting bill is way higher than I would have anticipated. I’m trying to minimize some complications.

Why don’t you give us an example of the nuts and bolts? I don’t know if we should pick a property for you to talk about or maybe let’s start a big picture. Tell us a little bit about the Pittsburgh market. What’s it like? Who are the employers? What are the demographics? Who was there? All that stuff.

Whenever people think of Pittsburgh, they think of like the steel city industrial town that it used to be known as. Since that time, a lot had changed even from when I was in high school. Even from then, Downtown was a place where people went to work and that was it. You went to work and you went home, and that was it. Even Downtown now, you see the city becoming almost like a younger vibe I suppose. There are more restaurants downtown Pittsburgh. It strangely becomes a foodie city in its own way, which you would never have predicted. I never would have thought when I was in high school. It was like you can get to how many different pizza places you want to go to. That’s what it was back then.

What you see a lot is the city developing away from that former industrial towns and becoming more of a technology town. Still one of the bigger employers is the medical center. It’s called UPMC, University of Pittsburgh Medical Center. They’re putting $2 billion into developing hi-tech hospital facilities. The way they pitch it is they want to become the Silicon Valley of medical technology. That’s why they’re investing so much money so they have a big employee base. You also see based on Carnegie Mellon. Carnegie Mellon is one of the local universities. They have a strong robotics program. There are a lot of tech companies here. You see like Uber, Ford and different companies that are developing self-driving vehicles. They’re setting up shop here to take advantage of the university graduates that are coming out of those programs.

MCFA 4 | Real Estate Property Management

Real Estate Property Management: A lot of the properties that you see on LoopNet or through the commercial brokers are usually too expensive to be worth it.

 

You still have U.S. Steel. It still has a presence here. They still exist. You have some other companies like PPG Paints and things like that. Once you get outside of Allegheny County, which is when you think of Pittsburgh, it is a sprawling city. It’s not compact. It spreads out into a lot of different neighborhoods and suburbs. Once you get outside of what I’d consider greater Pittsburgh area, then you get into a lot of the natural gas, coal and all that stuff. There are some of those things further out.

Demographicswise, is it a young crowd, an older crowd or is it more depending on the area of the city?

It depends on the area of the city for sure. Pittsburgh has an older population and population growth is relatively flat, but it’s an affordable city. If you’re thinking of coming here, we show up a bunch of the lists that are the best places for Millennials to live.

Because it’s affordable. 

The average house or the median house is $168,000. It’s easy to afford that, but you can still find houses under $100,000 too like starter homes. It’s good for younger people to be able to afford a good life for the most part but there are still a lot of older people in the town.

What’s the average income? Do you know your average income for your area?

The median household income is around $48,000. Split that, that would be $24,000. That would be about the average income per person. When I thought about that, I looked at what that would be in other cities. If you look at the cost of living, $48,000 is about $56,000 in Los Angeles money and it’s about $63,000 San Francisco money. That’s how you can equate what people can afford.

We have nothing that someone who makes that money could afford in the big cities. That’s a big difference. San Francisco rents something on average $3,600 a month for one-bedroom and something like that. It’s out there.

It’s not the same here.

Could you walk us through what are the opportunities in singlefamilies versus apartment buildings? What are the different price point opportunities? A lot of people hear about the 1% rule. The idea that the monthly rent should be 1% of whatever price you’re going to pay or that’s a fast and dirty way to see if you should even start with that property. What I noticed in Florida, it’s probably more like 1.3% that you should get because of the higher insurance and higher tax bills for commercial property and so on. Every area has probably more a different number. What would you say for Pittsburgh? Do you have a fast and dirty rule like that that you use?

It’s because the taxes in Allegheny County are a bit higher. They’re anywhere between 2% and 3% of their property value. You’re usually looking at a 1.2% to 1.4% rule occasionally. That differs from neighborhood to neighborhood because we have many school districts in Pittsburgh and that’s where your biggest tax is going to be. In our market, it’s not one tax. There are three separate taxes so you have your county, your municipal tax and then your school district tax. The school district is always the one that kills you. 

That’s important to know. Is it all on one bill or do you get billed by the different agencies or entities?

Three different bills and they can reassess individually too.

Is the school district a voter thing? Does the population vote for increases? Is it the school board that decides, raises it and then doesn’t get reelected if they do something bad?

That would differ from municipality to municipality. The school district can decide to reassess you though. It’s not just one large scale reassessment. It can trigger property sales.

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Do you have any weather-related insurance problems like flood insurance and hurricane insurance or any natural disaster insurance?

There’s nothing with the weather. Some properties, if they’re by rivers or something like that, sometimes they’ll get into flood zone items. Overall, there’s no giant weather concern. The only concern that you have with insurance is usually because of the age of our homes, they’re old. It’s common to find houses older than 100 years old. Most houses I run into are older than 50 years old so you get into a lot of different property conditions related items that may or may not cause an issue with your insurance company.

There are a lot of brick buildings.

All the brick ones are usually early 1900s.

Choose one of your deals and maybe using actual examples would be good. Could you tell us maybe about 1 of the 10unit buildings that you bought? What were the price points and the gross rents? How did you put the deal together? What financing? Walk us through the story? How did you find it? Was it on the MLS?

This deal is a ten-unit building in a C-class area. There’s not a lot of crime. It’s a lower-middle-income type area. I found this from a guy that I used to work with. I was talking to him before I quit. He asked me why I was quitting and I said, “I’m doing real estate now.” He said, “I had this ten-year building that my dad built that I’m sick of dealing with.” I found it through networking that way. After getting to talking to him, the market rent for that area is around $700 for the two-bedroom units that he had. He was only running them for between $400 and $450 a unit. There was a lot of room to increase the rents in the building.

He wasn’t trying to get rich on it. He was trying to not manage it anymore. I did as if it’s an income though so I told him, “If I buy your building from you, do you want to stay on as a handyman?” He was the maintenance guy at my company and he said, “Sure.” He does little repairs here and there. He mows the lawn, so I got a built-in sweeper. We started out and he wanted $300,000 for it. I showed him that it is the current rents and expenses. We probably weren’t going to be able to get a regular bank loan because his debt service coverage ratio wasn’t that great. He was going to do $200,000 as the sale price on a bank loan and then he would do $50,000 over 20 years as a principal only payment in the second position.

He carried it back.

Yes. When I approached him about the second position thing, initially he said, “I don’t want to be in the second position.” I said, “The bank’s going to be in the first position and if you think the building’s worth what you’re selling it to me, then you should have no problem being the second position.” We went to a community bank that I had already worked with on some of the smaller deals that we had done on the single-family houses and I presented them with the deal. They worked with us to get it done. We ended up doing a twenty-year commercial loan on it with five-year adjustment periods. The loan is fixed for the first five years and it adjusts for the next five-year period after that. Our interest rate to start is 5.5% for this.

Because it’s the C-class, they charge you a little higher interest rate.

That’s in line with the commercial rates that I’ve seen since it’s not like a conforming loan.

It’s a small loan, banks don’t like small loans too much. If I understood you right, he wanted $300,000 and you got him to agree to $200,000?

Yeah, $200,000 sale price, but it’s like $250,000 because the $50,000 of it is over twenty years.

How much down payment did you put?

We did 25% on the bank loan and nothing to him. That was $50,000.

MCFA 4 | Real Estate Property Management

Real Estate Property Management: If your inventory is longer than six months, that’s a buyer’s market. If you’re less than six months, that’s a seller’s market.

 

You put $50,000 in. That’s pretty good. Were all of them two-bedroom units?

Yes, they averaged about $425. Off the bat, we were getting about $4,250 and then it did all their own utilities. We didn’t have any utility expenses. The weird yet nice thing about this property is in Pittsburgh since it gets cold, a lot of times on apartment buildings if there’s only one furnace, you’re paying the heat bill. Even if they have their own furnaces, you’re maintaining the furnaces. This property had radiant heat in the ceiling so there’s no maintenance furnace. It’s electric heat but it works way better than the baseboards that you see in a lot of the buildings.

It sounds like your cashflowing already well and you have a lot of upside to it.

We bought that in June or maybe a little bit earlier in 2018.

Do you charge for management? A lot of people who partner like this, the guy who’s boots on the ground gets 40% of the cashflow and the investor gets 60% or 70/30. What arrangement do you have with your investors?

My partner’s money that goes into it, we structure as unrecorded. He gets paid back. It’s not recorded but we pay it back with some interest and that goes into his basis on the property. We’re technically 50/50 and then I charge 5% of the rent. Any cashflow after that, we split 50/50. The money and time that we put in are accounted for in those expenses.

That’s a fair deal. You’re being fair with your investors. Maybe we could talk about a smaller unit. Your ten-unit that you mentioned, how far is it from you? Is it in the center of Pittsburgh? Is it on the outskirts? What area is it in?

It’s probably more on the outskirts. It’s way out of my normal geographic range for something I buy, but the numbers we’re good on it that I could not buy it. At this point, we’ve got all those tenants that are at $400 up to $600 and then we renovated two units. Those two units are at $750. It’s paying off a lot. That one building makes up for a lot of potential single-family houses.

It’s 10 times, so you’ll be getting $6,000 to $7,000 gross. For that neighborhood, what do you think the cap rate is? I don’t know if you’ve been making some improvements but by raising the rents, how much do you think you raised the value of the property? Do you do 8 caps, 10 caps or 6 caps?

That area is probably a nine cap. From raising the rents and renovating those two units, we improve the value of the building by about $260,000 based on the cap rate of the year. We’ve done some other things to reduce the expenses that we had. I had to dig into the numbers to see how we add value there, but we swapped out the trash contract that we had. We removed the expensive pest control contract that he had that was unnecessary.

That’s an affordable price point for a lot of investors too. That’s encouraging. We always wonder, what can you do with $50,000? Here in California, you can’t do a whole lot with $50,000. Tell us a little bit about the single-family you bought. I’m not a big single-family person. I do apartment buildings mostly but I’m always interested to hear why you would buy a single-family. Can you walk us through those numbers maybe?

I have a single-family home that we did. The word forward is that we’re investing like buy, rehab, rent, refinance and repeat. That strategy seems to work best on at least in our market, in single-family homes where the after-repair value is much more predictable than small multifamily or on five-plus-unit buildings where it’s based more on a cap rate. That strategy is awkward when you get to four-unit buildings because you’re limited in the comps that might show up. It’s like rolling of the dice. We talked about single-family homes to try to employ that strategy.

There’s a wholesaler that I knew and we found a house for $58,000. It was the cost of it. It needed about $15,000 on repairs. Our actual budget came in a little bit lower than that because at the time, I did some of the cosmetic work to it. If we had paid contractors, we would have come in around $15,000. The $58,000 was including the wholesale fee so the actual purchase price was maybe $50,000. He took $8,000 time and fee on it. The house from the comps was worth around $105,000 to $110,000. That’s where we were on that.

We started that process out with a hard money lender. My wife and I were in Europe at the time, two days before the closing. It’s a good time to not be in the country, I suppose. Two days before closing, the hard money lender said, “We’re not going to fund the deal.” The reason they didn’t fund the deal was that when it was a national hard money lender and wasn’t a local one. When they looked at the list of our improvements, the purchase price and the appraisal that they got showed, it wasn’t worth $100,000 to $105,000. I didn’t have to send them all the comps and go through that process.

I was at the airport in Paris at the time and my partner is in Hawaii. We were in the opposite way. I emailed him and said, “If this falls through, that’s fine. We’re out $500 on our deposit. There’s nothing we can do.” I got an email an hour later that said, “Don’t worry about it. I handled it.” I was like, “What do you mean you handled it?” We landed in Pittsburgh and the next day it was closing. I called him up and I said, “That’s cool as you handled it, but what did you do?” There’s 0% interest credit card aggregators. He had a year of 0% interest and had the money from doing that program to buy the house. I wouldn’t recommend this because that’s way beyond what I would personally do. I talked to him and I was like, “We don’t need to buy this house that bad.” He said, “I’m cool with it.” We ended up going through the renovations on it. That took maybe 2 or 3 months, somewhere in there. We put a tenant in for $1,050 and they paid all the utilities on it. Eventually, they got a pet so they’re paying us $1,100 and they’ve been there for their second lease. It’s a little longer than two years.

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This is a deal you did in 2017.

Yes, single-family house.

You’re into it for $73,000plus and maybe some fees for the loan. Your guy came up with the money but you would have fees for the loan, but you figured you were going to hold it.

The plan was to refinance it. When we did refinance it, we got around $90,000 on the refi as a loan.

It must have appraised more than $105,000. Do you remember how much it was appraised for? It’s interesting that the hard money lender didn’t agree with the value and you got a higher value.

Part of it was because we went with a commercial loan and the property was generating income then.

Do you think in your market that you’re in a buyer’s market or seller’s market?

It’s definitely a seller’s market. It’s harder to find deals. The way that I look at it as an agent is in the absorption rate. If all the inventory on the market is sold, how long would it take to sell? We’re at around 2.25 months of inventory. When you look at that, six months is considered a bounce market for most people. If you’re longer than six months, that’s a buyer’s market. If you’re less than six months, that’s a seller’s market. If you’re five and you consider six bounce, that’s a strong seller’s market.

On the multifamilies, do they list those on regular MLS? Do you see agents listing them on the regular MLS? Is it harder for you to find deals that you have to go to LoopNet? Do you have to be part of a commercial realtor like mastermind groups? How do you find your deals when they’re multifamily?

Smaller multifamily with 2 to 4 units gets listed on the MLS like single-family homes. They go on the MLS that way. Anything five units and larger, a lot of times it’s through networking. We send a lot of mail out to owners. A lot of the properties that you see on LoopNet or through the commercial brokers or stuff like that are usually too expensive to be worth it to me. A lot of them are typically a little bit more on the turnkey side. I like to do a lot more value-add investing. We do value-add properties. We’re doing a lot of networking and direct mail to find the opportunities.

Can you describe to the people reading and the students here, what do you mean when you say valueadd and why are you looking for that?

The value-add would be improving the property so that it generates more revenue so that the expenses can come down dramatically. Some examples of that would be the ten-unit property that we talked about where he had them all rented solo. When I talked to him and asked him how he was marketing them, he said the only way he was marketing units was in the newspaper. I saw that as a big opportunity because I was like, “Who reads the newspaper to find a rental holiday?” Looking at the spread between current rents and median projected rents, I knew there was a lot of room to add value to the building in the form of property value. The more revenue you generate, the higher your property value goes up based on the cap rate, but then also on cashflow too because we’d be making a lot more.

I looked for a lot of those opportunities where the landlords are maybe not managing the property the way that they should be. A lot of the places that you see that end up being good deals, that’s the result. The landlord gets lazy. They don’t increase their rents for a while and they’re not updating the units so the units can’t command higher rents. There are some other examples of value-add and they’re not managing their expenses well. Maybe they’re paying all the utilities on the building and then their water bill might be super high. By installing more water-efficient devices, you can bring that bill down a lot. We look for those opportunities.

Do you have rent control where the government limits how much you can raise rents? I’m assuming not by the description of your ten-unit. If not, are there any rumors about your government looking at that? Are there towns around you? Is Pennsylvania got some areas where there’s rent control? What’s the status of that?

We don’t have rent control and I haven’t heard anything on the radar about getting there. We’re still not to the point where it’s expensive that they’ve even thought about doing some of that stuff. We do have some landlord organizations too that if anytime something like that even comes up. Usually, there’s a big fight about it.

You mentioned wholesalers earlier, how many wholesalers do you work with and what do you look for them to do to bring to you? How far along should they have negotiated the deal? What do you look for in a wholesaler?

I work with a ton of different wholesalers because I’m an agent. I’m trying to get as many deals in front of my buyers as I possibly can. The wholesalers that I work with most often, I build a relationship with a lot of them. We’ll sit down and talk a lot. I’m looking for them to bring me sometimes deals that don’t work for their typical base. A lot of the wholesalers are looking for deals for flippers. They’re looking for that 70% rule. Your people are familiar with that.

Why don’t you walk us through that?

If you look at the after-repair value of a property, a lot of flippers will say 70% of that minus the repairs are what you should buy the building for. A lot of these wholesalers are looking for these deals to sell to their flippers. When I’ve talked to a lot of the wholesalers, I said, “I know you’re throwing a lot of these properties away,” because flippers don’t want to have to evict tenants. Flippers don’t want to deal with tenants and if you’re renting your property out, you don’t need to have the 70% rule all the time. Sometimes it can work if it’s not there.

A lot of stuff that I buy from wholesalers myself, I’m trying to build that relationship with them. They send me some of the deals that might not meet their typical buyer. I have maybe 4 or 5 who trust me enough where they’ll bring me before they even have a contract. They’ll go to me and they’ll say, “This guy is at this price. Talk to him and see where he is.” They know that I’m not going to cut them out of it because that’s not the reputation that I’ve tried to build. I’ve tried to let them know like, “I’m not going to go around you,” because in real estate, I feel like your reputation is everything. It’s not worth ruining that to make a little bit of money.

Typically, how the wholesalers get paid? Is there a general rule or is it like if the profit is there, they can get it?

It’s all over the map. If their profit is there, they can get it. I’ve seen people get $2,000 assignment fees and I’ve seen people get $80,000 assignment fees. The way I look at it as an investor is it doesn’t matter to me what they make as long as I’m making the money that I want to be making. Most wholesaler opportunities are in single-family homes. Most of the wholesalers I engage are for clients more so than myself because I’ve definitely moved as an investor in some of the larger unit building.

What’s the eviction process there?

Unless you modify it in your lease, you post a ten-day notice after they haven’t paid, and then you can file your eviction paperwork. You send it to the municipal court and then from there, you’ll get assigned a court date within fifteen days from when you submit your letter to the court. They have a hearing and then the tenant has an additional 10 to 15 days to leave. If they don’t leave, then you show up at that fifteen-day mark with the constable and the constable removes them and changes the locks.

Have you had to do that a lot?

I’ve only had to do it myself once for a property that I managed. We inherited a tenant that went down the wrong path. That was the first one that I had to do. For my own personal properties, I’ve usually done the Cash for Keys. The first part of the eviction process is incredibly expensive because you can either have your property manager or if your local, go represent yourself. If the tenant is savvy and knows the process, then they can appeal that initial court. It goes downtown and it takes longer. That’s when you get into lawyer fees and all that stuff. That’s when it becomes more of a mess. Typically, I’ll tell them, “I’ll give you your security deposit back in full. Don’t wreck the building and just leave.”

Do you feel like you have the ability to talk to people like that?

I probably wouldn’t still be self-managing if I didn’t. I’m probably fairer than I need to be with the good ones because I want to keep them. I’m within the rules but I’m firm and fair with the bad ones too. In some property management, I do a couple of buildings for other people. Those are a little bit more challenging to manage than your own because you don’t have as much flexibility and Cash for Keys and that stuff.

Unless you’re clear upfront with people that if you feel you need to do this or that, are they going to give you a leeway to do that? What do you think is the quality that makes for a good investor?

It’s a weird way to phrase it, but I always say that you have to be smartly stupid in a weird way. You have to be able to think about all the different factors and you have to understand all the risks. You have to run the numbers well. At the same time, where the stupid part comes in is you need to understand the risks, control for them and still pull the trigger. You need to be decisive enough to move quickly, especially in the market that we have because the good deals go fast that if you’re not decisive in what you’re doing, then it’s hard to make it.

As far as long-distance investing goes, speed can be difficult. If you’re working with someone here in California, like you have some investors in California, you see a deal come up, do you make the offer on behalf of the LLC and then talk to your partner? Although you’re doing a lot of off-market deals. How do you guys make decisions quickly when there’s a time zone difference?

A lot of my own properties are off-market. We do have more time than typical because we’re the only ones there. With my out of state buyers that I work with as an agent, a lot of them are building trust with the person. When I go being an investor, I give them my opinion on what the property needs and how much it may cost to do it. Once they go under contract, they should get a contractor to verify the cost, pictures, video, and all that stuff. We give them the whole report on the properties. After you’ve looked at a few with different people, the people that I work with do feel comfortable putting in a fairly quick offer. I tell them, “If you’re not interested, let me know fast. If you are interested, let me know fast.”

What do you think is the biggest mistake that investors make?

It’s probably over-estimating rental values and under-estimating repairs.

Do you have any mentors that you go to whether it’s online or someone face-to-face or maybe on a podcast? Who would you say inspires you to reach your goals?

One of the things that I do is I run a small investors group in Pittsburgh. We have a networking group. As far as motivation and stuff, it’s going there once a month. It provides a lot of motivation because of a lot of times in your circle of people, you’re the only one doing it. You may have other investor friends but most of all your family is not doing it. A lot of your non-investor friends aren’t doing it. It’s easy to feel like you’re in your own little bubble. By going and stuff like that, it provides a lot of support and motivation. As far as mentors, I have a few. When I started, I talked to people who I wanted to be and I said, “What can I do to provide value to you for free? I can help you however.”

My first mentor was another agent. I ran her social media pages for free so that I could ask her questions. She’s also an investor so I learned a lot about investing from her. Eventually, I went over to a real estate team where the person who ran the team has a ton of rental properties and does a lot of flips. If you look at it that way, I was giving him part of my commission to have access to him. Eventually, he formed a boutique brokerage. I work for that brokerage, so I still have access to go to Alex, it’s his name, if I ever need something like that.

In real estate, your reputation is everything. It's not worth ruining that to make a little bit of money. Click To Tweet

When issues come up, he helps you to troubleshoot them because he’s got more properties and seeing more problems. He’s probably older than you, I suspect.

Yeah. He’s good to bounce ideas off. We’ve done a deal before together. That was good too.

Where do you see your real estate business going in the big picture?

We want to have 200 units with my one partnership. I want to have 40 units of my own without partners and all the other companies we want to generate the numbers $8,000 in total cashflow with that partnership. The reason we want 200 units is that when we look at how much revenue we’d be bringing in on our average deals, that will allow us to hire our own handyman, in-house property manager or an admin. As owners, we can step back and focus on building the business more rather than working within it. Our structure is we want to build it to the point where if the owners wanted to take a six-month vacation, you could take a six-month vacation as long as you bring your computer with you.

I want to open it up to questions for people who have questions here. Star always has great questions. I’m sure Star is going to ask us something.

It’s nice to meet you and a great story. Athena, thank you for putting this together. The first question is what do you think about turnkey for someone who’s starting?

Turnkey is a fine way to learn a little bit about the business but since a lot of the work and the value add has been done, it prevents a lot of lessons too. The turnkey place is fine if you’re looking to invest and maybe don’t have time to build a team in a certain market or don’t want a lot of the stress that goes into things. By doing a property not turnkey on your own, you learn so much. Even if you are still buying turnkey, you know the right questions to ask about what’s gone into the property.

I’m looking completely outside of California. It’s ridiculous here, even in the desert. Ghost towns are selling for millions of dollars. For someone just starting out on a wavy self-employed photographer income, I feel like it’s more feasible. You’re saying that wholesalers do single-families. What’s a good way to find multifamily units? I would like to start off with multifamily and not single.

Whichever market you’re looking at. I have people that I work with looking at all kinds of different markets. What it comes down to is finding either an agent or a property manager or somebody in the market that you’re looking at that’s investing themselves too. Whenever you have somebody that’s also investing, you get their team along with them. They’re there and they’re working with different people already. If you find that agent in Columbus, Nashville or wherever you’re looking, then that person can help you do some of the properties that aren’t necessarily turnkey. If you are going to do turnkey, vet the turnkey provider well. Turnkey is a general term for even when people consider it. I’ve talked to some turnkey companies and they tell me that they’re doing $40,000 properties in B and C-class areas. I know from doing properties, I don’t know what area they’re doing renovation and everything else for $40,000 total. The vetting would be important too.

What are some other good sites? I’ve only been looking at LoopNet and stuff like that. I’m not a real estate agent. I don’t have access to MLS or stuff like that. You’re saying more networking to find more multifamily units and stuff and agents.

On your end, whatever market you’re targeting, I would talk to private property managers and agents. You’ll find agents that have maybe a more multifamily focus. With the internet, it becomes easier to find people based on their reviews. You can look up their past sales as long as they’re posting them historically. A lot of times too, property managers are all the ones managing those units. If you go online in a particular market, find some property that might be for sale on LoopNet. It might be 30 units where you can look up for the property manager of that building. You can talk to the manager and see if they might be selling. Almost all property managers also have some sales teams associated with them.

What’s the average cost for property management? I’ve been looking in Texas, Tennessee, Pittsburgh and Ohio. I was looking a little in Florida. Is it a percentage of the rents normally?

I can only speak to my market. In my market, it’s usually going to range between 8% and 12% of the rents. The nicer area properties are going to be on the floor. The worse the area, the higher maintenance the tenants are, it’s going to be on a 12% range. Typically, what you’re going to pay is anywhere between 50% to 100% of the first month’s rent for the lease-up. When they find a new tenant, you’re going to pay that. You’d have renewal fees if a tenant renewed their lease. Those differ from property management company to property management company. The other important thing with the property management companies is seeing how they charge for their maintenance and stuff like that to see if they’re up charging you on maintenance activities. Even though the monthly percentage of the rents might be 8% to 12%, you want to go through all of their costs because it could spiral out of control if they’re charging you up charges for maintenance, up charges for this and up charges for that. You want to get their whole fee structure.

The whole fee structure and for legal too. If they’re filing and doing stuff, they would be charging for that.

The bigger property management companies will usually have an attorney on some retainer so that they can go to that person like that’s their attorney. Your legal charges that you’ll usually pay, at least in my market are going to be any eviction filings or stuff like that you’ll pay for. There aren’t too many other legal fees that I see. It’s usually if there’s an action that the landlord takes to go against the tenant. That’s when you pay legal fees usually.

How do you market units for rent?

The place that I have the most luck with has been Facebook. Facebook’s been super useful and the other nice thing about marketing on Facebook is every time somebody reaches out, you can click on their profile. You can immediately see pictures of them if they look like a drunk or a regular person. You can already see who they are. There are a lot of community groups for Facebook too. Certain neighborhoods will have their own community group. If you post in that community group, even if you’re not finding the exact tenant, you’re hitting all these people that know people looking for rentals in their area. Outside of Facebook, I use Zillow, which congregates their listings to three different places. Besides Cozy post listings out, I get a lot of leads from Zumper. It’s a rental site. Also Apartments.com. I post to everything and most accounts are free.

Eric has a question.

Tony, great story and background information. I had a quick question for you in regards to when you do the valueadd and you get into the renovations. Have you found that it’s more about and ended up connecting with a construction firm that you work with on a regular basis since you are pushing a lot of properties? Do you do a lot of work yourself or you’re just going out to bid in a bid situation?

At this point, I don’t do that much of the work myself anymore. There are too many units for me to do that. It helps that I have done that because I know what goes into it. I can tell if the contractors what they’re telling me is realistic or not. If they tell me one task is going to take 10 hours and it would take me 10 hours, then it’s like, “What do you mean?” If it takes me on skilled labor hours to do it and you’re supposed to be professional, then there’s something up there. At this point, I have maybe 3 or 4 of each type of trade people. For myself, I’ll usually sub out all the subcontractors and I project manage them a little bit. When I work with clients doing it, I have 3 or 4 different general contractors that I use where they’ll do that four people. Personally, I do a lot of project management and subcontracting for myself. I have a long list of people available because everybody’s schedules are different.

How did you get your collective group of people that you work with?

Trial and error and a lot of talking to other investors. Also, talking to the contractors I did use. When I find a good contractor, I would ask them. My electrician is one of my favorite contractors. I’ve asked him like, “I need a roofer. Who would you use for your house?” or, “I need a plumber, who would you use for your house?” A lot of it was asking for recommendations from other people that are investing and then also trial and error, being quick to not use people anymore. Most of my contractors, when they’re new, I start them out on a small task. I give them something that’s minor and simple and see how they perform on that. I scale them up in jobs that they do to get a better idea. Even if they steal money from me at first, which I’ve never had happened, but if they did, they’d only be stealing $300 versus walking away from $10,000 upfront.

MCFA 4 | Real Estate Property Management

Real Estate Property Management: Turnkey is a fine way to learn a little bit about the business, but since a lot of the work and the value add has been done, it prevents a lot of lessons, too.

 

Do you never use Yelp or anything like that? 

At first, I did but I don’t do that anymore. A lot of the people that I get on those sites like Thumbtack, Yelp or HomeAdvisor, are the more retail contractors. They’re not familiar with working with investors as much. The prices are usually way too high for me to be able to make any money. Other than maybe your specialty contractors like HVAC, plumbing, electrical or general jobs, people are usually too expensive for me.

How long does it take for you to rent out the units?

It usually only takes 1 to 2 weeks for me to rent them. The reason why it doesn’t take that much time is that my wife is a photographer. All the units that we do, we’re always updating them. I don’t have any units that are not updated. They’re all painted and they’re all nice. They’re all redone if we buy it and then I get free professional photography so that helps. They market well that way.

You show the property well which helps. I appreciate you hanging with us, Tony, and being thorough. If someone wanted to get ahold of you to see sample properties, to get a feel for what you’re talking about and what’s available in the market out there. Even if they wanted to make a go see trip, if you’re open to those, how would they get ahold of you to learn more about Pittsburgh?

Probably the easiest way would be my email, Tony@412Agent.com.

Do you have a website as well? 

It’s www.412Agent.com and then you can also find me on Facebook by my same name as a realtor. I’m on LinkedIn with the same name and on Instagram, and on BiggerPockets if anybody’s on there.

Thanks for joining us, Tony. I look forward to having you back and updating your story soon and learn more about Pittsburgh. I appreciate it. A friend had introduced us and she had an unpleasant experience with turnkey. She was glad to have met you. I’m glad she introduced us and learn more about you. Thank you for joining us.

Thank you for having me.

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About Tony Angotti

MCFA 4 | Real Estate Property ManagementMy biggest goal is to be more than just MLS access.

I was first an investor and now consider myself an investor advocate and agent. My goal is to help YOU achieve your goals. I am happy to represent investors as an agent, negotiate the best price for buyers and sellers, or to just meet up to discuss real estate investing. I pride myself in having no ulterior motives and believing in the Zig Ziglar phrase that, “you will get all you want in life if you help enough people get what they want.”

Each client relationship that I have begins with a thorough needs analysis that helps to define your property buying or selling criteria and establish a thorough market analysis based on that. I am skilled in property analysis and will explain many of the indicators of a profitable investment.

Too many agents take you through the transaction, but then leave you there. I aim to help you succeed throughout your homeownership process by providing you with support and guidance even after the transaction is closed.

MY MISSION STATEMENT:

My philosophy is simple: your goals are my goals. I personally pledge to be in constant communication, help you understand the whole real estate transaction, provide you with the highest level of ethics and commitment, and make sure that you have the tools to handle your home or investment long after closing.

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