Profit with Patience in Real Estate

Mike: Hey, it’s Mike Hambright with FlipNerd.com. Welcome back for another exciting Expert Interview, where I interview successful real estate investing experts and entrepreneurs in our industry to help you learn and grow.
Today, I’m joined by Matt Neisser. He’s a Senior VP for Crestar Group of Companies, which is involved in a number of areas from private equity to real estate investing and development, private lending to the real estate investing community, primarily on the East Coast right now. Crestar actually also happens to be a FlipNerd Expert Interview sponsor, so it’s a treat to have Matt here with us today.
As many of you with a lot of experience know, real estate investing isn’t a sexy business, at least not like it’s portrayed on TV. It can be a great business, but it requires for you to be patient and focused to be successful. That’s what we’re going to talk about today with Matt.
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Hey, Matt. Welcome to the show.
Matt: Hi, Mike. Thank you. I appreciate it.
Mike: Glad to have you here. So, it’s an interesting topic. As you know, a lot of new people think that it’s easy to be successful. I think it’s a lot of the kind of guru education industry. That’s essentially kind of how they recruit people; we’ll just take this boot camp, and everything will be easy from there and money will fall from the sky and you’ll be able to drive a Bentley and all this stuff, but it’s not quite how it works. So it’s going to be interesting to talk today about how we can teach people to stay focused and be patient, and good things will happen. So, I’m glad you’re going to share that with us.
Before we get started, can you tell us a little about you and your background?
Matt: Yeah, sure. My background is really [almost all in 03:06] real estate. I’ve flipped houses myself. I’ve done commercial properties, both office and industrial properties. Our company as a whole owns a number of properties as well, so we understand this space extremely well.
My background is finance and real estate finance effectively. We ventured into the private lending space primarily because of all our expertise in the area.
Mike: Talk about that a little bit, because from what I know of your company, you’ve kind of evolved. You started in one space and kind of evolved, and that’s how a lot of real estate investors are, too. They get in and a lot of people evolve into things like brokerage, property management, lending. There’s a bunch of natural bolt-ons. So maybe talk about – I know that’s how your company evolved, but just kind of that phenomenon for real estate investors.
Matt: I think the key in any investing, and particularly in real estate, is that you have to realize where opportunities are and you have to move with opportunities and be nimble. So when we evaluate opportunities in the space, we looked at the private lending space and realized, I don’t believe a lot of people deliver customer service. So we said, well, I would like to be treated properly. There’s a good opportunity for someone to bring a professional approach to this industry, and the frank answer is be honest and upfront and deliver on what you’re going to do.
That’s primarily why we evolved into this space based on our expertise in real estate. If someone calls in to our company – there’s not one person in our company that hasn’t owned, operated or managed real estate before – we want them to call in and realize, okay, these people are experts in this space. They happen to lend money, but if I tell them my rehab’s going to run $25,000 and it runs over a little bit to $30,000, we’re going to say, of course, it’s real estate; everything doesn’t go as expected, we understand.
So I think that is the key in any investing is to be nimble and to realize where market opportunities are. In this case, with private lending, it was really we thought we could build a professional organization that can deliver and do what they say they can do.
Mike: I think early on for me, there’s a point where I realized that I’m not – I’m in the real estate business, but I realized that I’m actually an opportunist. I have to go where the opportunities are. I think a lot of the more successful real estate investors that I know think that way. Real estate happens to be the vehicle that we use, but at the end of the day, we’re looking for opportunities that we can exploit.
Matt: Exactly.
Mike: So maybe talk a little bit about the importance of, for folks that are new or even folks that have been around for a while, what it takes to be successful. I think a lot of folks don’t realize how many deals you might have to look at to actually make one work and the importance of being patient.
Matt: I think, again, I keep on going back to sort of all investing is we invest in a number of different assets, not just real estate, but generally, being an investor, you have to have patience. You might have to look and spend 20 hours to find that one 30-minute opportunity. In real estate, that equates to you need to have the best deal flow and look at maybe 300 properties, 200 properties. Maybe you’re in a great market where there’s a lot of foreclosures so you have more opportunities and maybe you only have to look at 100. But I think the key part is particularly when people come out of the education courses, they believe that there’s just money hanging on trees everywhere on every real estate deal, and I think the key is that you have to evaluate each property, you have to get in there and kick the tires, look at the property, and that’s going to be very frustrating at first to realize I have to look at 100 properties to find the right one. But in the end, that’s the only way that you’re not going to lose money, and that’s what the key is. If it’s hard to lose money, that means that there’s a lot of upside.
If you think about like a Warren Buffett or anyone like that, that’s what they really sort of talk about is how do you mitigate your downside risk, and then it’s all upside. If things go bad and you break even, you know what? That’s going to happen in this business sometimes.
Mike: I think a lot of people, I’ve said it before, a lot of people that fail in our industry usually defeat themselves. I think they tend to give up. When we coach people in my coaching business, we usually tell them you need to commit to me that you’re not going to get discouraged until you’ve made 100 offers, because it may take 30, 40, 50 to get one. It’s probably not going to take 100, but it’s not going to take 2, either. I think a lot of people get discouraged early on because they realize how difficult it is to generate leads, good leads, and they feel like, well, I’ve made 8 offers and I don’t have anything yet, so this doesn’t work, and they give up.
So talk about the importance of really staying focused.
Matt: I think, again, that’s key in basically if you’re in sales or have a business. Even in our business, we generate a number of leads, and you have to realize that not every one of them is the right opportunity for you.
It’s really about time management. When you look at real estate and you think about looking at new transactions, you have to have sort of a guideline that you put yourself under. It doesn’t have to be 100% that if it doesn’t meet x criteria I’m out; there can be a little bit of gray areas. But I think you need to create, whether that’s a spreadsheet or your own checklists, I think they’re critically important so that when you look at transactions, you can say, I’m going to only look at transactions in these three towns that have margins above 30%. If you have that screen to start, you’re not spinning your wheels on the 50 other hairball deals that come across your desk, and you can truly focus on which properties make sense and fit in your criteria and that you know you can move on very quickly and don’t waste your time.
Mike: I think a lot of, especially newer investors, and even some people that have been around for a while, when you hit a great retail market like it is now, it’s a little harder to buy and people start to throw their fundamentals out the window sometimes. So I think, especially for a lot of newer people, they tend to not go after the opportunity to make more offers, but the few that they have, they try to find a way to make those work, and a lot of times making bad decisions. They start to fall in love with the deal.
Maybe you can share some experience from your background, especially from the lending side, of seeing people that would lead you to believe that they are certain this is an awesome opportunity, and you know, because of your fundamentals, that they’ve kind of misread what it is because they’ve probably fallen in love with the deal.
Matt: I think the biggest – there’s two pieces of it. We always ask – I sort of ask three leading questions. What are you buying it for? What are your repair costs? What do you believe it’s worth when it’s done? Pretty much everyone in the industry asks those three questions when you call in.
What I find is what is it worth when it’s done is probably – everyone in real estate, you have to be optimistic, or you’re not in this business, right?
Mike: Yeah.
Matt: So everyone shoots very high on the ARV piece of it. So always my follow-up question is, how did you determine that value? Are you relying on your real estate agent or are you relying on yourself? Do you know this particular neighborhood? Have you bought in this neighborhood before? That’s what I usually ask. Can you walk me through how you determined your value on his transaction. So that’s usually the first one that’s usually inflated, obviously. Again, optimism in this business, you have to have it.
Mike: Right.
Matt: You’ll get defeated too quickly if you don’t.
The second part would be the construction piece. It’s a similar line of questions. How did you arrive at your construction budget? Did you do an inspection or thorough check on this property? Have you worked with this contractor before? Is this someone that you feel confident in that is really – is there something that you’re missing in the construction budget? There’s always going to be something.
So I think those are the two pieces in this business that – you’ll always overestimate the ARV piece of it and underestimate construction. That’s sort of stating the obvious.
Mike: As a lender yourself, can you share some guidance on people that haven’t – I won’t say it’s just new people, because there’s a lot of people that have really primarily been a wholesaler and have wholesaled a lot of deals. One of the things that I firmly believe is that a lot of wholesalers would be better at their craft if they rehabbed more because they would understand the real cost of things. And if they haven’t, they’re just making broad-brushed assumptions like, well, we could rehab any house for $12 a square foot. It’s like, there could be a lot more to it than that.
Maybe just share, putting your lender hat on, how to advise people to get better at estimating the repair side.
Matt: Again, I’ll go back to a checklist. I see some of my best clients have checklists. I remember reading something quite some time ago that there’s a reason that a surgeon has checklists. A checklist does not mean that you’re not intelligent. A checklist just means that you have a process.
If you go through every single house and you have the same checklist and you look at it, okay, let’s go through the exterior. Does it need new windows? Does it need a new roof? Does the siding look like it needs to be repaired? That’s three simple things. Then you go into the interior, and you have it by room, and you have it by utilities, and you just sort of go through every house and you say, okay, here is a general checklist I evaluate every house by, so you don’t miss that, you know what? I didn’t even check if it had an oil tank. Particularly in certain markets – we have a lot of experience in New Jersey operating and lending, and particularly there, where you have an aging housing stock, you’re going to find oil tanks, and those are the complete ones that throw out – your budget just went through the wall there.
The next thing you know, you thought you had a $20,000 rehab, a quick flip, and you have $30,000 of oil tank removals. So I find it, particularly in Texas and areas like that, and Florida, you don’t have to worry about those type of items, but in markets where you have older housing, I would say environmental – asking, is it on public water and sewer? Are you aware of any oil tanks or below-ground oil tanks? There’s some simple checks you can do in certain states that have public records to check that property to see is there any historical issues with this property. It takes you two seconds to look online and could really save you $20,000 or $30,000.
Mike: That’s good. I’ve even found that people miss some really obvious things that they just don’t think about. You tend to be looking at appliances, flooring by the square foot, whatever it is, but things like removing wallpaper. There’s a bunch of stuff in our business that has a domino effect, right? So if you’re removing wallpaper, then that means you’re probably going to have to retexture, and if you have to retexture a given area, then it’s not going to match the rest of the texture, and the next thing you know, you might be retexturing the whole house. To texture it right, you’re going to want to remove the baseboards, but you’re probably going to destroy the baseboards in the process. So it’s these little things, but they add up to thousands of dollars really fast if you don’t really consider them.
Matt: I come from the commercial real estate background originally, and similar there. In the end what we’d end up doing is putting quarter-inch drywall up on some of the deals because it’d actually be more expensive to remove the wallpaper than it would be to actually put in a new very small piece of drywall exterior.
Mike: From a new person perspective, can you give some tips on – it’s interesting, because I think when people – I know you wear a number of hats, and I keep going back to the lender side because when you have a lender that’s looking at the deal, it’s kind of check and balance there, right? I think a lot of folks think of the lending side of, well, I have to borrow money and pay interest and stuff, but they don’t really look at it as kind of a partner to help be a second set of eyes for you to kind of watch out for you, right?
Matt: I had a transaction this week actually where a gentleman was buying two duplexes as part of a package and he told me the income and expenses on the property. I looked at it very quickly, and I said, this doesn’t add up. There’s something wrong here. I called him and said, are you sure that your expenses are correct on this property? And he said, well, this is what the seller provided. I said, well, remember they are a seller, not your partner or friend. When I looked at it, I said, do you realize you’re basically buying this at a 25% cap rate? Immediately that doesn’t make sense, and I said to him, you have to go back to them, get tax returns down to the property level and get verified expenses. I don’t want to make this loan to you not because I don’t think it will be profitable for us, but I just know something’s wrong here and someone’s misrepresenting something to you.
It has to be a win-win. I want the borrower to make money, I want them to turn the transaction quickly, and we want everyone to have a good experience, so in the end, they come back to us.
If I approve a deal that I think is very slim, I’m going to tell the borrower, hey, can you shave some dollars on this rehab budget? It looks to me like your margins on this deal are pretty light. I just want to make sure we’re all on the same page here. So I think that is important for everyone to be happy at the end of the deal, that’s the key.
Mike: It’s interesting, because I’ve known, in my own experience, even not necessarily lenders, but even a foundation company. We do a lot of foundation work where I’m at. Unfortunately, we have to do a lot of foundation work where I’m at, and we’ve had the vendor that we use actually tell us, do not buy this house; there’s more to it here than what you know, and it was just built improperly and you’re never going to be able to fix this. It’s going to be a liability issue. And at the time, it irritates you, because again, back to the whole topic of I want to do deals, I want to get things done; I thought I was going to make x dollars on it, and then somebody is telling me to not do the deal.
I’ve really found that when you have a partner, whether it’s a lender or a foundation company or anybody else, that kind of keeps you safe. You value that partnership a lot more, because they could have – in every instance, they could have made money on me and I would get stuck holding the bag, but they chose to take more of a long-term approach from a partner standpoint and say, we’re advising you to not do this deal because it’s not what you think it is. There’s more – there’s something missing here, like you said.
Matt: Again, we went into this business because we believe it is a customer service business, although many people don’t approach it that way. The only way you’re going to be successful at this is if people trust you and you can build partnerships with them and they know when I have that next transaction, that person is going to be around and they’re going to be there and realize I’m not trying to take advantage of me from one transaction.
Mike: What other advice would you give to people that are trying to get started or have been around for a while and done some deals, but they’re kind of having a hard time taking it to the next level, and probably have some level of frustration that that deal flow isn’t happening more regularly. What kind of advice would you give?
Matt: I think, again, the patience level there unfortunately sometimes – I’m using the ebbs and flows of transactions, and I think that’s in any transactional business where it probably means you have the right process if every deal doesn’t seem right to you, as it shouldn’t by default. You should have some type of criteria to know what you need to hit in terms of your returns or whatever it may be or to your partners to get what you promised.
I think the key there is developing relationships. I think you really have to have great relationships with real estate brokers and title companies, and you have to, if you’re going to do direct marketing to the end users. I think in any business, it’s key to have good relationships with people and if they know that you’re reliable, they’re going to bring in business to you based on the relationship that you have.
So I do believe it’s – if you’re not seeing enough deal flow, go out there and talk with some more real estate agents. Go talk to some more whatever it may be. Maybe you have to buy some new lists and get out there and pick up some new marketing strategies. So just hang in there, be patient and talk with some more people I think is the answer.
Mike: I think as the market has kind of changed here, REOs were really never a big deal in Texas, at least for me. I bought almost none. I know it’s different in other markets. A lot of that activity is just kind of rolling through the Northeast now, right? It hit a lot of other markets years ago, but I think a lot a people that were successful over years past were able to run their business, buy deals off the MLS or were able to kind of sit behind a computer and run their business, and as this cycle has changed, I think a lot of those folks are either realizing it or not that they have to get out and beat the bushes a lot more. They have to get out and talk to people. You actually have to physically get out and look at stuff and maybe meet directly with sellers and all those things that you didn’t have to do in the past, and I think a market like this flushes people out one way or another, right?
Matt: I agree. If someone says they pulled something off MLS and it’s their first or second deal, I’m very hesitant. What’s the chance that this person found something that the other 500 people on the MLS that were scouring today couldn’t find? If you have more experience, it makes more sense to me. Okay, well, maybe they have some type of other criteria they’re looking on MLS or they know that neighborhood or know they can add a little – some more experienced guys that realize that it’s listed for x on MLS, but I know I can add 500 square feet to it.
So those are the more – I think some of the times it could make sense that you could pull it off the MLS and maybe some people can be a little more creative in what their strategy is. It might not just be adding a kitchen and bath and calling it a day.
Mike: Can you maybe shed some light, as a lender, on how you look at those things, just to kind of help real estate investors where they can – if there’s an opportunity to add on square footage? That’s hard to do in my market, in Dallas, because some really nice neighborhoods sell for $100 to $120 a square foot and the build price is probably not a whole lot less than that. But in markets where houses are selling for $200, $300, $400, $500 a square foot, there is kind of an opportunity to add on. So can you kind of, I guess, in terms of the opportunity that exists, what kind of advice would you give to investors maybe to exploit that, and take into consideration their level of experience to do that, because you’re effectively a builder then.
Matt: Exactly. If someone comes to me and it would be their first five transactions and they’re telling me they’re going to add on, I’d say do you have a lawyer? Do you have an engineer? Do you have all your contractors that have told you and do you have approvals from your town to do so? Have you done all your diligence, or do you just believe that that’s the case? There’s a big difference there.
I have a particular – right now, I’m thinking about a deal we’re working down in Florida. A very high-end market. It’s an existing four or five bedroom house where it’s a little bit undersized for the market. Maybe it’s 2500 square feet to start. This is really a luxury market, you really want 3000 square feet-plus. So he’s adding 500 to 700 square feet, I believe. A very experienced guy. He’s actually done a couple hundred transactions. He knows the city; he’s worked in there before, so I believe in his execution. There that 500 or 700 square feet is going to add another $150,000, $200,000, $300,000 in value to this property. It’s just slightly too small for the end retail buyer there.
Mike: Well, Matt, any kind of final words of wisdom that you would advise people on whether they’re getting started, and kind of the general theme we’ve been talking about here, how to stay patient and how to make deals happen, any kind of guidance?
Matt: Listen, I’m not the one out there doing hundreds of deals a year in terms of executing on buying, so it’s easy for me to say be patient, but it really is key. That is, again, you have to get out there and network, talk to more people, find more transactions, and only execute on the ones that you truly believe are profitable, because at the end of the day, you’re going to spend a lot of time on transactions and have a lot of headaches when that last deal or two that you pushed through that you knew was sort of marginal that you pushed through anyway because you got anxious and you wanted to just do another deal, in the end, it can come back to bite you. In hindsight, it always seems easy that you stretched to make that last deal, but the flip side of that is go out there and find some good transactions and stay positive. It just takes a lot of patience out there. There’s good opportunities. We have a lot of guys who are making a lot of money right now, so I don’t want to add a negative spin on this at all. There’s a lot of people making a lot of money right now, it’s just being able to execute and having a good strategy and a good team.
Mike: Great advice there. So, Matt, can you just take a second and tell us about Crestar, where you lend, and how folks can learn more about you?
Matt: Sure. Crestar Funding, we’re a direct private lender; I’m not brokering your loans. You call in, you make a simple application, and we’ll give you a very quick answer, yea or nay. We tend to work with a little bit more experienced investors than many folks. I’m based out of New York City. We’re headquartered out of Boca Raton, Florida. We lend along the whole East Coast plus Indiana and Ohio currently. We’re expanding quickly, and I think that will be most of the country in the next six months. We have a lot of senior, seasoned professionals on our team that I think differentiates us from many other lenders. So when you call in, you’re going to find someone who truly understands real estate at our company and we’re going to be reliable. We’re going to really – if we tell you we’re going to deliver in 7 days, 10 days, I’m not out there then trying to find money to close your deal. We’ll close it.
Mike: And how do folks find you?
Matt: You can find us at www.crestarfunding.com.
Mike: Well, Matt, thanks for joining us today. I appreciate your time, and I look forward to talking to you again soon.
Matt: Sounds great, Mike. I really, really appreciate coming on. Thank you.
Mike: Awesome. Have a great day.
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