Welcome back to the Discount Property Investor podcast. Our mission is to share what we have learned from our experience and the experience of others to help you make more money investing like a pro. We want to teach you how to create wealth by investing in real estate, the discount property investor way. To jumpstart your real estate investing career, visit freewholesalecourse.com, the most complete free course on wholesaling real estate ever. Thanks for tuning in.

Mike: Hi guys, welcome back to the discount property investor podcast, your host, Mike Slane joined by co-host David Dodge. David.

David: Hey, guys!

Mike: How are you today?

David: Hey, I'm doing great Mike. Thanks for joining me today, man. I feel like I don't see you every time.

Mike: Well, you know, this whole quarantine, we're all locked down so-

David: That's right, that's right.

Mike: We gotta start getting in the studio more often. We're doing everything remote so like, we have to- sometimes when we have guests from around the country kinda like today. So today we've got a great guest on. We've got-

David:  Jimmy Murray.

Mike: That's right.

David: He's out on Rhode Island, Jimmy is with the Lyon Property Management Group, and Jimmy is an expert at property management but he's also very very versed in wholesaling, rehabbing, fix and flip, rental properties, and the burr strategy. So, all the things that we align with guys. We know here at the discount property investor podcast that we make our money when we buy a deal, and we get paid when we sell a deal, so it all comes down to buying right, hence the name: discount property investor- buying everything at a discount. So, let's welcome our guest today Mister Jimmy Murray. Jimmy, how you doing buddy?

Jimmy: Thanks for having me fellas. I appreciate that intro and you hit the nail on the head. Early on in my investing career, someone told me: hey listen, you make all your money on the buy so negotiate tough up front to provide that protection down the road when you sell.

David: You think we can get this camera farther away?

Mike: Farther away?

David: Yeah, I'm just joking.

All: Hahaha

David: So, Jimmy, you're out on Rhode Island, right?

Jimmy: Correct.

David: Let's talk a little bit about your property management company that you got up there. How many properties are you guys managing at this point in time?

Jimmy: Yup, so right around 600 doors. We work with 78 local investors, oh, I would say about half of the investors we work with are local and the rest around the globe. So, whether it's across the country- at one point, we had a client at Germany, we got a client out in China so very diverse client base, but really they find value in the same things that we do as an investor. So, I think that's really important when- folks listening, if you get to the point that you want to work for the property manager, make sure that you share similar investment philosophy and that's where you're going to have a higher level of success.

David: Okay, very cool. So, you said 600 doors already?

Jimmy: Correct.

David: That's awesome, that's awesome. And you guys got clients local as well as international it sounds like which is very cool. So, let's talk a little bit about the Rhode Island market, I know nothing about that market at all. Is it a good market for rental properties?

Jimmy: Yeah, so I have a close friend that- he jokes that Rhode Island's always the first one, it's a recession in the last one out. So, there's always a way to find that discounted property. Right now, we're getting a ton of traffic with investors coming down for Boston because the cap rates are so suppressed in Boston, that folks are migrating south to find that higher cap rate, but it's actually causing properties to clear the cap rate that local investors shouldn't be purchasing a property out.

David: Let's talk a little bit about that, what kind of cap rates are your customers experiencing? Like, let's talk about the hypothetical Boston customer, right? What kind of cap rates are they experiencing in Boston? And what kind of cap rates are they getting you know, with you guys down in Rhode Island that would you know incentivize them to come to Rhode Island versus to stay in Boston?

Jimmy: Absolutely, so sometimes in Boston, they're actually experiencing negative cap rates. They're banking on a capital appreciation for the money that continues to flow in, but I would say from what I've-

Mike: That's mind boggling.

David: I know, why would anybody do that?

Jimmy: I'm with ya.

Mike: Yeah, one of our whole strategies is: invest for cash flow. The appreciation is just the icing if it even happens.

David: If it even happens, right.

Mike: Jeez.

Jimmy: So there's a lot of international money and development dollars coming into that market where it's more speculative investments that are being made. Now, in the Rhode Island Market, I would say from A neighborhoods that were typically traded to 6 cap to D neighborhoods that trade 12 to 15% cap rate. Those are probably trading at 45% less than where they should, so if you get investors, a hot market is Pawtucket, Rhode Island. I try to correct my Rhode Island accent so I can pronounce that correctly if anybody wanted to google it. We call it the 'Tucket', so if you go into Pawtucket, I would say you should typically buy at a 10 to 12% cap rate. Those deals are clearing at a 6 to 7% cap rate.

David: Basically, if you can provide a positive cap rate, you are going to be offering a better return than somebody in Boston typically.

Jimmy: Which is crazy.

David:  Which is crazy, but you're doing better than that. You're not just providing a positive return, you're giving them, you know, returns 6-8% it sounds like.

Jimmy: Absolutely, yeah.

Mike: Are we primarily single family doors then?

David: That's a great question. Are you managing both?

Jimmy: Yeah, so I'm managing both. I would say 97% is going to be multi-family doors, so it's anywhere from a 3-unit to a 6-unit building. So, Rhode Island really developed our multi-family housing inventory during the Industrial Revolution so they built all the multi-family houses near the mills. They're along the Blackstone River, so people would be able to walk back and forth to work. So it's really that 326 unit inventory, so it's all houses that were built between 1880 to like 1920. Now, there are other areas where there a larger complexes where families have come and they've built monster- 80 to 100 unit deals, but that's really like family money. You're not going to see the syndication trading like you see in the Southeast Market or even in the Midwest, with a newer inventory. So a lot of the multifamily product that we work with is a lot older which would cause you to- you gotta really focus on your capex numbers when you get in to buy that property.

David: Right right, cause you may have to go in and redo a lot of things that are going to be very expensive.

Mike: They're just falling apart, that's old

[Overlapping speech]

David: 150 in some cases, yeah. 

Jimmy: Yeah, so when you pick up- like I have a building was built in 1880 in Lincoln, Rhode Island, and I always advertise it as 'historically charming' right? So, really old and it looks nice but the clawfoot tub's a little beat up in the bathroom.

David: Got it, yeah, definitely, definitely.

Mike: It's interesting.

David: Well, you got quite a big- quite a lot of units under rental or under management, I should say. Let's talk a little bit about your team Jimmy. I'm curious to hear about how many people you got working with you and for you. 600 units is quite a lot of units, that sounds like quite a lot of headaches. How many-

Jimmy: It's all about having the right processes in place, right? So I'll start- I think the business is really split into two segments. So one is the maintenance segment and the other is a management segment. So I run the management segment , so that's more interacting with owners and tenants day to day, really it's the leasing and rent payments, and then my partner Chris, he's going to run the maintenance side of the business where, I think that's the most important piece because if you're going to go to marketing, You're going to look to get you know, at market or above market rents to drive the returns for investors. We got to make sure that we take care of our tenants at the right level. I'm not saying that you go in and gut every single unit and put in granite countertops and stainless-steel appliances, but you got to make sure when they have that maintenance request, we take care of them so that we can get that longer tenancy and hopefully when that tenant goes to look for another unit, we upgrade them within the portfolios. Maybe they earn more money where they want something nicer.

David: Nice, I like that.

Jimmy: The way that our team is broken out, on the maintenance side of the business, we have five full-time maintenance technicians. Three of those folks are going to be focused on turning over units, the other two folks are going to be focused on I call it: 'think and dunk' so that's the- my faucet leaks, I've got a light out, this doesn't work. Those guys are going to be more seasoned and more experienced so we can address those one-sy two-sy issues that tenants have. We also have maintenance-

David: So 5 maintenance guys, 3 for turnovers, 2 for you know, day-to-day stuff.

Jimmy: And then a maintenance coordinator. So the maintenance coordinator is going to be that in between tenants and scheduling the think and dunk guys and making sure that our turnover crews are headed in the right direction, making sure that stuff's getting taken care of in the right manner. We also have a maintenance inspector, so we have a gentleman that goes around. He tours every building on a monthly basis and our owners get a monthly statement that say: hey listen, I walked around the outside, the gutter was hicked out, I fixed that while I was here. By the way the stairs- they're looking a little bit beat up, maybe we can look at some capex to clean up the hallway or maybe a tenant with a whole bunch of junk in the basement, so then I'm going to go out and I got to crack skulls and say: hey, listen, we can't have any tenant presence in the basement. You guys need to take care of this, either use your storage unit or keep it in your unit. On the management sign, it's lighter touch. So I'm the day to day property manager, we do have two showing agents so those guys only get to eat what they kill. So if they go out their commission base with a small residual ask back then I can dive into that I think it's important and then we also have a virtual assistant in the Philippines who is absolutely phenomenal, she's a huge help.

David: What does she do?

Jimmy: So she answers phones with tenants, but she's like the main point of contact and she kind of directs all the attraction. She's also going to enter bills for owners, so we deal with like a lot of utilities payments for owners but if you look at the cost, at least from the running a business perspective, to have a virtual assistant at $1,100 a month for full-time work versus having someone kind of stateside to do that similar work. It allows us to get more leverage on our time and be able to provide the high-quality service for- that clients are looking for.

David: Absolutely. Let's talk a little bit about your leasing process. So you have two guys that eat what they kill, how do they get paid? and you mentioned something about a residual, curious to hear how you got- how you have that structure.

Jimmy: Yep, so this is like one of the big sales closes that I work with or that I delivered a prospective client, so there is no one else in our local area that pays their showing agent residual. It's typically 100% commission, so you think about it, if that showing you just out there and you get an application that I don't know maybe meet your criteria by like 70 to 75% but it’s not a slam dunk tenant, they may be more likely to push through that tenant so that they can earn that income that month. Maybe they gotta cuz they're going to have to put food on the table for the family.

David: I'm glad we're talking about this cuz that is an issue that we face as well too. That's a great point. You know, the people that are in charge of doing the leasing only get paid guys typically, not always- typically if they leased that unit.

Jimmy: Right

David: So, it's in their best interest to get somebody that is-

Mike: A warm body with a check. You just want to put somebody through maybe.

David: A warm body with a check, right.

Jimmy: They have terrible credit, but they make a lot of income.

Mike: Right.

David: And it's in our best interest to get somebody that has a warm body with a check but also good credit and a job.

Mike: Great job.

David: Yeah, so that's why I'm asking Jimmy, I'm curious about you know, how you guys approach this cuz this is- I think this is a challenge that all property managers face as well as all landlords that hire a property management company to do the leasing for them and are also dealing with.

Jimmy: So the way that we pay our showing agents is they'll get 50% of whatever the placement fee is, that's number one. Number two is: if it's a client within an all-inclusive arrangement with us where we handle everything soup to nuts, they're also going to get a residual, so that is a monthly payment for placing a quality tenant So, as long as that tenant stays there and that showing agent is with our team, they get a $5 monthly residual per unit. So, I know it's not a lot, but if you're with us for a year, you're gonna have the opportunity to place 50 tenants. That's the average of what are showing agents place on an annual basis, so you get an extra 250 bucks a month, kind of in perpetuity as long as a tenant stays there or at least an opportunity to place another tenant and have them earn it again. The other big thing is that we guarantee all of our placements for one year, that's how much we believe in our process. No one else does that, so every time we place a tenant on a one-year lease, so that showing agent is betting that that tenant is going to be there for a year, or else if that's tenant leaves in six months, they've got to place another tenant for free. So that really helps us hold our showing agents accountable but also helps us kind of be accountable to our clients as well, to place those great long-term paying tenants.

David: Wow, that's great so you guys offer a guarantee.

Mike: That's really interesting because that's one of my challenges with property management. We have a property manager we use here locally as well. It's one of my challenges is aligning your goals with your property management company. Again, if you don't- if you're not on the same team, you're not on the same team.

David: Right.

Mike: Like if you guys don't have the same goal of hey, we want to keep tenants placed, not: we want to churn the tenant cuz we get an extra 700 bucks every time we [inaudible]. You know, it's just counterproductive to a well-balanced portfolio or well managed portfolio rather.

Jimmy: So, the way that I think about it is: I get into real estate investing to produce residual income, right? So you guys get into real estate investing to produce that residual income. A portion of how I earn my management fee or I would say: the way that we earn a hundred percent of our management fee is if the tenant pays rent, so step 1 in terms of us aligning our interests with yours as the investor, within that management fee, us paying the showing agent a portion of that management fee that we earn, that's not aligning their interests in terms of why we get started investing to begin with, with that residual income. So that's the thought process behind how we came up with that.

Mike: That's great.

David: I love it, man. I love it.

Mike: Yeah, that's really good.

David: Let's switch gears a little bit and talk about some other topics. Let's talk a little bit about house hacking. How to house hack your way to cash flow freedom? as well as how to house hack and stay married? That's one of the things that you had mentioned that you have some good insight on. So, I'm married, I got a wife. How do I go about house hacking and her not leaving my ass?

Jimmy: Yeah so we're gonna have to wipe that second one cuz that's changed, but the first on, I made it through a fair amount of time so house hacking I think is the best tool to build wealth at least when you're young. So, when I bought my first one, I bought my first for family, I had $70,000 in student loans and on a 10-year amortization schedule with the interest that cost me a little over $800 a month so I was making 50 grand a year when I came out of college, paying $800 a month in student loan interest, the car payment, numerous other things. I was still able to buy a 4-unit property. When I came out of college, it was- I graduated in 2010, bought my first multi in 2012, so the market was still kind of in that trough before it started take off again. I think now we're kind of towards the peak of the cycle, there's still some good cash flow to be found out there, you just gotta hunt a little bit longer. So, I talk about my first deal in a joke that you know, sometimes it's better be lucky than to be good, I actually had no idea what I was doing. I had a really great realtor that coached me on what cash flow look like and I think I still own one of the ugliest buildings in Pawtucket, Rhode Island. It's hideous on the outside, it's nice on the inside. I'm all in on that building for 4 units for a 150,000 to provide folks perspective in terms of like a lot of the things that I just said, why it's a great wealth building tool? My mortgage payment when I first bought that property was $1,040 a month. I came and I placed my first tenant, I had two out of four units vacant and the monthly rent at his unit was $900 per month and that's when the light bulb went off. I said: hey, listen, I'm living in one of the units, I'm getting $500 a month in another, and I just placed this guy at nine hundred, I'm already somewhat cash flow positive. Obviously, there's some softer expenses that you factor to the profit and loss statement that I'm not thinking about, but I still had one other unit to rent out, which I rented out for $1,000 a month. So that's what really started getting the wheels turning over like, hey this could be a really great wealth building tool, and its basic arithmetic, right? So if you can add, subtract, divide and multiply, you can buy a multi-family property.

David: Sounds like you got a pretty good deal on that property and it's gonna be a $1,000 mortgage. That's about $150,000 property, rent out units for anywhere between 500 and 1000 bucks, that's-

Mike: Yeah, that's a really good deal.

David: That's a good deal you got there. That's awesome. Very cool.

Jimmy: Yeah, you got to be- like I said, I was lucky in that scenario, but it really set me up and I was able to buy a second one. So, here's when the burr strategy comes into play, so within one year after I had stabilized that property, I had an offer from another investor from the realtor who sold it to me who said: hey listen, I have this client, she just raised 2 million dollars with the capital from a sale. She sold like condos in South Carolina or something, she'd like to buy your building for $215,000 and I was like, wow that sounds really cool. So, imagine this like I'm a 24-year-old kid, I just- I'm a year into real estate, I really don't know what I'm doing and damn you know, around $60,000 sounds really nice before taxes, right? And I you know, I sat back, and I thought about it. I was like, no you know what, I'm in this game for long-term cash flow, so I went back to the bank and I refied out so when I come in, I come in with a product that was similar to FHA that I acquired through a local housing agency. So, when I refied out it put me in non-owner-occupied paper, so non-owner-occupied mortgage. It allowed me to go and buy a second multi-family with three and a half percent down. So, I think one of the key components of a successful real estate investor is getting the proper leverage on your money. So, you figure, I got into that first one for 5% down, get into my second one for three and a half percent down, I have 2 cash flowing assets for less than $15,000 in my pocket essentially, which is just absolutely wild. So, as a newer investor, I think that's one of the things that you really want to focus on is like how do I leverage my money up front to use some of these programs in order to give me more momentum when I start buying another multifamily properties?

David: Oh wow, that's awesome man. So, what took you from, you know, buying these multi families and house hacking into starting a property management company?

Jimmy: Yeah, absolutely. So, after I bought my first one, I was really excited about real estate. I'm thinking all right, what do I do next? So, everybody loves to wholesale right? and everybody knows how to do it really well.

Mike: You know that.

David: That's right.

Jimmy: It took me awhile to figure it out. We're back into wholesaling now and we're having success but, in the beginning, I had no idea. I was an extreme introvert- so I was a financial analyst for a mutual fund company locally based out of Boston, Massachusetts and I didn't really know how to talk to people on the phone because that's not what I did naturally right? But I was really good at cranking the numbers. So, I start sending yellow letters and my phone started ringing, and I still had no idea what I was doing until I heard a phone call from a gentleman out of Attleboro, Massachusetts, and he said: hey listen, I'm going to sell my three family to you, I'm willing to sell it for a hundred fifty thousand, I knew I had a deal. Throughout this process, I was mailing multifamily owners with high equity, I was mailing an inherited list and I was mailing a probate list. I've never gotten so many death threats from that inherited list, it was absolutely wild. They were- made me really second guess what I was doing.

David: Right.

Jimmy: But the right owners I mean, they own those assets free and clear so those are great seller finance opportunities as well. So, it's kind of a good with the bad right? Like it's really scary getting that death threat over the phone when they won't tell you who the hell it is and you're still going to mail that list, and then you know, you got the other side where there's other people that are so thankful that you can help them out of that bad scenario and help them raise capital to essentially, do what they see fit with the money. So during that process, I'm mailing those 3 lists and I realize I'm really good at talking to tired landlords, and then I caught a bad review. I had like the absolute worst manager, she was very difficult, just didn't get along with me and I caught a bad year end review and I walked back to my cubicle and I text my now partner and I'm like: listen we're going to launch a property management company and his text back was: can we grab a beer first?

All: Hahaha.

Jimmy: Just like listen, we're going to get after it. He was working for another local property manager and the rest is really history from there but I think the moral of that story is: along your real estate investing journey, you're going to find it pivot points, so you're going to figure out like what works well and what doesn't, and try to really chase that opportunity in terms of what works well, so you can focus on what you want to and not what's- you don't always have to focus on the painful things. Real estate investing, it isn't- I was going to say real estate investing is difficult, but you got to be able to find your niche kind of through failure. That's how I got to property management.

David: Hell yeah, man. I love it man, I love it. All right, let's talk about rehab strategies and let's see here, it says rehab strategies leverage to attract tenants, what you got on that?

Jimmy: Yeah, so one of the big things that were doing right now, as- we talked about this at the beginning of the podcast but as cap rates kind of came down and we saw where properties were trading in the local market, we found a new opportunity. So, this is another like pivot point. So, we are naturally geared towards buy-and-hold opportunities, that’s what we really like to do so we can grow that long-term, have the monthly cash-flow, but also have that generate long-term wealth from building the equity in each property. Where properties started trading, we realized there was still a margin there where we could rehab them and flip them, and it was actually below 70% LTV on a lot of the deals like we'd like to clear, so we think about that 70% rule that a lot of flippers use. The properties that we're taking down more so recently earned at 60 to 65% kind of rule range, right? so a broader margin of money to be made. So, we're doing is we're taking down between two to four-unit buildings and immediately we're gonna come in on day one and we're going to increase rents. So, we like to buy buildings that have below market rents. When you come in on day one, you can increase those rents to market, so you're gonna have a rehab budget for those units if the tenants decide to move out. If not, now you have a market rent, so it's going to be more appealing to an investor coming in the back side. And in the two to four-unit range, you're going to be targeting an owner-occupied buyer. Hopefully this doesn't sound too terrible but a lot of times they're not as experienced investors so they're gonna be really psyched on that higher cash flow and they may not be thinking about that capex down the road if that tenant were to move out. So, from my perspective, that puts them in a better position to qualify for a mortgage but hey, if I don't have to turn over that unit, that now increases my margin on the back so I want to go to sell it as well, right? Cuz it really helps that net operating income formula work out. So, what we'll do is: we will hopefully, intentionally get a unit vacant and then we'll turn it over, we'll make it really nice and that'll be our own occupied unit and then we'll throw it on the market. So, an example of that is we bought a two-family in North Providence, Rhode Island. We finished the rehab last Friday, we have purchased that building for $175,000. It was a $31,000 rehab withholding cost, interest on a hard money. We're into it for about 220,000. We listed it 279, within two days of being on the market, we had 28 showings with proper social distancing.

David: Wow, a lot of showings man.

Jimmy: 6- we had 6 offers within 4 hours after we wrapped up the showing. We went to highest and best, and we actually put it under contract for 303,000 with 5 back. So essentially, net to seller of 298, we're into it for 220 and that just goes to show you how hot the market is and how we moved into that kind of- we pivoted to the strategy where- it wasn't something that from a cash flow perspective, we wanted to hold but you've got that really solid margin to flip these properties.

David: That's the beautiful thing about real estate guys, is that there's so many different things you can do with real estate. You can buy for cash flow, you can buy for appreciation, you can buy and fix up and flip, you can buy and stabilize, or even get properties to the market rate. You can do lease options, you can do sub-2, I mean there is a million different things that you can do. You can buy on sub 2 and sell on lease option. I mean, there's so many different strategies that we can use to make money in real estate, and it sounds like he is using a lot of these strategies. Speaking of another strategy, let's talk a little bit about a 203k loan for a townhouse rehab that you had, I guess. You had mentioned in our show notes about a 203K. I don't know a lot about a 203k, I know it's a loan that a buyer would get for a property that needs a lot of work, but that's as far as I go on 203k. There's a guy in St. Louis and he specializes in these and if I ever have anything, I go to him, but I don't have this very often. So, let's explain a little bit about the 203k loan and then explain you know, what you- how you had used it on one of your townhouses.

Jimmy: Definitely, so exactly what you said, I think it's really important that if you're going to tackle a renovation project and use a 203k loan to work with a mortgage broker who sells these products frequently, because if they don't, it is going to be a much tougher process for you. So, I reach out to my local network and found a mortgage broker that was familiar with these products. There's really two different types of 203k loans, one is a streamlined 203k so that would be a project that was $35,000 or less. My advice-

David: And that's for the rehab budget, the project itself, not to purchase?

Jimmy: Correct. Yep, so that's for the rehab budget.

David: So does that mean that they basically just give you all the cash up front and then you- it's up to you to manage it?

Jimmy: So, they split it fifty-fifty so you would get 50% up front and the checks going to be made out to the borrowers on the loan as well as the general contractor, so you all have to- it'll be a double or triple towards on the back of check. Anything about 35,000, that goes into- it's not the streamline program, it's the true 203K program and then you can ask for specific draws, but you have to pay for an FHA inspector to go out to ensure that the work has been completed within this-

David: Each time that you want a new draw?

Jimmy: Right. Now, the other big hurdle you have to clear is you gotta find a general contractor that wants to work within the 203K program. A lot of contractors, they don't want to wait for the money.

David: They probably don't want that extra paperwork. Yeah, and that extra pain in the butt. They'll probably charge a little lower to do those- to work in those programs but again, you wanna find one that specializes in it. That's why I mentioned I know a guy, literally one guy here in town, and that's like his niche. He's niched himself into doing the 203K's and he does- I follow him on all different social channels, he does awesome work. I love following him because I love seeing the transformations I mean, some of the transformations that he and his clients are doing are transformations that rehabbers would do you know, to buy, fix and then flip, but they're buying to fix to live. So it's a whole different approach, but I really like it because a lot of the ones- not all but a lot of the ones that they're doing are really historic.

Jimmy: That's really cool.

David: Yeah, and they're going in and they're putting in you know, they're putting in more money into the rehabs in some cases than the rehabber would do right? because it is their home and they're planning on living there. I guess what I'm trying to say though is the transformations that I see him doing and that's just one guy but they're really really neat and he does a good job with them. So it allows the- basically though, to try and sum up 203K, right? It just allows the buyer to buy a property with a loan that they're going to live in, so it's a primary residence loan, but it's a loan that includes additional funding to fix up the house, right? Isn't that the biggest, high-level way to look at it?

Jimmy: Absolutely, and they'll actually over lend on the rehab project, so they will lend up- so if you buy a house for $100,000, let's use round number. They'll lend on the rehab 5% above after appraised value so if you think that that project at a hundred thousand, you're going to be all in for a 100,000 on the backside, they will lend you up to a $105,000 so additional five thousand above that that final appraised value so you can actually over improve it, kind of like you were saying to my historic homes. Like, historic homes are expensive to renovate particularly if you want to stay true to the time period. So, I think it's an amazing program to live in- truly live in the house of your dreams if you want to go through the process.

David: I love it man. So, did you use one of these loans?

Jimmy: I did. So, it was a townhouse conversion, so it's really cool. It was in the city-town in Lincoln, Rhode Island, and it was four units. The houses built in 1880, the third floor was eight bedrooms so basically old day around, you would build a really nice mansion like close to the center of town to kinda show off cuz you don't have to bring your horse and buggy into town, you can just walk. So this is one of those houses where the eight bedrooms up top were actually servants quarters and they still have like all the racks upstairs for drying your clothes. It was like really- it was interesting to see, so when I went through there, it was 4 one-bedroom units, but one of the units was gutted to the drywall essentially, it had rough plumbing and rough electrical though, and then they gutted the entire third floor, so they got rid of all that horsehair plaster, which is absolutely miserable to deal with. I don't know if they have that where you guys are at but it's super heavy and super expensive to get rid of. I'm kind of seeing this blank slate and I told my realtor, I said: hey listen, this is going to be the building we can negotiate down on, which we were able to successfully do but then also, we can turn this into a townhouse-style unit, which is going to give me much higher rent than the backside. Originally when I was kind of thinking about it, I thought hey I'll rehab the one-bedroom, I'll keep it as a one-bedroom until I went to the second floor and I'm like: no, let's see if we can make this happen and we were.

David: How many units were you gonna do?

Jimmy: It was a four-unit building and I just kept it 4 units because there was no second point of egress from that third floor and to get that was going to be super expensive. So, what came into play there and this is something that investors should pay attention to is fire code. So, that building I actually had to do a fire rated wall in between essentially, each half of the building. So, I had to use upgraded drywall to increase the burn time to protect the tenants on either side of the building in case of any type of fire. We also had to upgrade the entrance doors to be specifically like longer time fire-rated doors, so those are some of the things that we really had to pay attention to as we went through this 203k project. Essentially, you know, I'm all into that building for 220,000 and the gross rent roll on a monthly basis is $3,800. So, I just threw out numbers to provide perspective, but that's really like another home run deal, and for my second deal, it's pretty solid.

David: Hell yeah. How long does the 203k processes take from start to finish?

Jimmy: Yeah, so it's going to depend on- it's all going to depend on your rental. So, we actually had some issues with contractors, particularly plumbing contractors. We thought we had a really solid one, we went through like three or four before we finished the project, but it could be as short as 30 days. Mine was 7 months, just because the rehab took a lot longer in terms of getting the right contractors out there and completing the project.

David: Yeah and then having your inspectors come through on the back end and approve everything and what not.

Jimmy: Absolutely.

David: 7 months isn't terrible though for that type of a project. I mean, you're getting a loan for the purchase and the rehab, then you have to follow certain guidelines, you have to have inspectors come through to make sure those guidelines are done and executed the right way. You know, that's really not that crazy of a time frame in my opinion.

Mike: No, it's pretty good.

David: Some of our rehab flips take 4/5 months and we don't even have 203k or inspectors or permit or any of the above.

Mike: Well, we're full time and Jimmy you said this was your second project, right? So, I imagine you working a day job too, right?

Jimmy: Yeah.

Mike: That's great being able to do a 4-unit flip like that.

David: Totally agree.

Mike: Yeah, that's awesome man.

David: That's awesome. Let's talk about- we got a couple more minutes here before we wrap up. Let's talk about that time you almost walked away from a deal for $1,000.

Jimmy: So that was my first deal, right? And that was when I didn't fully understand cash flow, so I've got that- it was a short sale and I was extremely frustrated with a short sale process because we know short sales are very very long or candy. So, my first short sale deal, there was a short sale negotiator in place which helps out and they did have an agreed-upon price, but it still took the bank 7 months to approve it or 6 months then it took us 30 days to close from there, which I heard that that's not always the case if you could all the pieces in line, it should go much more quickly, but maybe there was just-

David: [inaudible] it should though. I mean, who knows? sometimes the bank likes to take their time, you know?

Jimmy: Right.

David: So where does the 1,000 come into play?

Jimmy: We went through the home inspection, and the only big thing that came out of the home inspection was the electrical lining on the outside of the building and the total cost was going to be $1,000 and I told my realtor, I'm like: well, if they're not going to fix that then I'm out. He's like: woah, woah, woah.

All: Hahaha.

Jimmy: He's like: you realize how good of a deal this is when you get it up and running. It's going to be like $10,000 for the cap ex once you get in and then this is just a thousand bucks here and this is going to be like a- so for perspective, I just got it appraised and that building appraised at $330,000, I'm into it for 150 and I almost walked away over that thousand-dollar electrical lining.

David: Let that be a lesson to you right?

Jimmy: The stuff that we know now.

David: The costs in the beginning aren't a big deal at all.

Mike: Well, I would go further and say it's that emotion because Jimmy, you were saying that you were just so fed up with that short sale process and that little thing was gonna set you off the edge.

David: Just one more thing, right? And that's the straw that breaks the camel's back.

Mike: You've got to get that emotion out of it and just remember those numbers which is what you did which is great.

Jimmy: That's it. Yeah, I'm glad my realtor had a come-to-Jesus talk with me, and I'm like alright, I got you. We'll still clear this one.

David: Guys, if you are an investor in the Rhode Island area, you got to check out Jimmy. He is the owner, and he runs the Lyon Property Management Group. Am I saying that right Jimmy?

Jimmy: Yup.

David: Lyon Property Management Group. Jimmy, where can people find you online? Do you guys have a property management website? or where would somebody go to inquire and get more information about you and or your property management assuming that they're already in the Rhode Island area? or maybe you're listening to this podcast and you're in Phoenix or you're in New Jersey or you're in Tampa and you're interested in doing some investing in Rhode Island, where can somebody go and they find more information about you?

Jimmy: Two ways, so one would be to check out our website. It's LyonPropertyGroup.com and it's L-Y-O-N.

David: LyonPropertyGroup.com, L-Y-O-N.

Jimmy: And then the other way is via Instagram, if you want to give me a follow on Instagram. I also run a podcast with a partner and the handle is thecashflowkings.

David: The cash flow kings. Love the name, the cash flow kings. That's the IG handle?

Jimmy: Absolutely.

David: Awesome, and then what's the podcast name? Same thing?

Jimmy: Same thing.

David: Got it. All right cool guys check him out the cash flow kings podcast, the cash flow Kings on Instagram, or you can go direct at LyonPropertyGroup.com. Get more information about Jimmy and his property management company and I'm eager to check out your podcast Jimmy that sounds awesome. Any parting words for our listeners in our viewers today?

Jimmy: Yeah, just keep waking up every day taking action and trying to learn new things and you will be successful for a very long time in this business.

David: Just keep plugging away guys. Consistent, persistent action, Mike knows that that's one of my favorite quotes and that's really the key to success in my opinion. In anything you do just consistent persistent action. Just keep putting one foot in front of the other, you don't have to be a sprinter in this business. This is especially when you're dealing with property, you know, landlord property management, you know, this is a long-term game, this is a marathon not a sprint.

Jimmy: Absolutely.

David: So just keep one foot in front of the other. Guys, don't forget you make your money when you buy, you get paid-

Mike: When you sell.

David: That's right.

Mike: Jimmy, thank you so much for coming on.

David: Alright guys we are signing off. Until next time, I'll see you then.

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