Jay Helms (02:21):
I kind of sit back, I’m like, all right, we had this baby coming, what the heck am I going to do? My wife and I had always had an interest in real estate investing, flipping. That was a sexy thing to do because we would sit down. We’re pretty much home bodies. I’m very much of an introverted personality and she is to. And so when we’re sitting at home and not really doing a whole lot, just kind of waiting for that baby to finish cooking and can come out, we’re watching HGTV and we’re seeing all these things and we’re like, “Let’s do some real estate investing. Let’s do it.”

Jay Helms (02:49):
And as we explored those options, we were living paycheck to paycheck. That’s another piece that kind of drove toward this, or I think why Rich Dad Poor Dad spoke to me so clearly is because I was the poor dad. I was about to be the poor dad, because I had dreams of climbing the corporate ladder. I never wanted to be a president. I didn’t really want to be at that level, but I wanted to be a VP, at least, which I know that sounds kind of weird probably for most people. You think about it. Most presidents or most vice presidents probably want to be president one day, but I didn’t. I didn’t want to do that. I wanted to just be the guy, be the operations guy, the guy behind the scenes that could do everything, because the president, to me, got way too much attention.

Jay Helms (03:26):
So we started looking into real estate and Googling, how do people get wealthy? I came from a very middle class upbringing. My dad retired as a Lieutenant at the local fire department and my mom retired as an office manager for a doctor’s office. Neither one went to college. That was pretty much their entire career. 20, 30 years of service in those two positions. So very middle-class upbringing. Reading through that book, Rich Dad Poor Dad, I was like, this is explaining it to our family. This is my poor dad. He’s doing the best he could. He grew up, his parents grew up in the depression. They had certain things to think about, “Hey, when you save money, you only pay for it in cash.” Like to this day, he still does not have a credit card. He doesn’t have a checking account. He pays for it in cash.

Jay Helms (04:09):
It’s just one of those things. It was a mindset shift of having that aha moment. There is a better way to do this and it’s through real estate investing. And once I tapped into that, I was like, okay, how do you get into real estate investing? We don’t have money. We’re living paycheck to paycheck. Now, at the time I was making six figures. When you think, wow, you’re making six figures, you should be doing pretty good. Well, no. We weren’t budgeting. For some reason, we had three cars at the time; my work car, her car, and I had a Jeep because that’s the most unrealistic vehicle ever. I mean, it’s a brick with a parachute on it. It’s a Funville.

Jay Helms (04:42):
We just looked at kind of what we were doing and then we looked at people who were successful at what we wanted to do and were like, “All right, our lifestyles don’t match what their lifestyle do. We got to make some changes.” So that’s kind of how it all began, making that mind shift change.

Jay Helms (04:57):
Now, the next thing was, okay, we don’t have any money. How do we get to where we can invest? Well, as most people start out investing, they’re like, you can wholesale. That’s a quick and easy way. And I’m using air quotes when I say that. It’s a quick and easy way to generate cash so that you can buy rental properties or buy flips or whatnot. I quickly discovered that wholesaling properties is not part of my personality. I was in sales and I was very good at it. I was very good at sales, but I approached it as a relationship. Hey, we’re going to do business for the next 10 years together. I’m not trying to be a pushy car salesman to sell you something that you don’t need. I’m going to be the guy who’s there to service you and provide you what you want to be able to grow your business.

Jay Helms (05:41):
So the wholesaling thing, we tried it, we sent out mailers. The funny thing is we bought a list. We hand wrote letters. My wife wrote them because her penmanship was so much prettier and legible than mine. She hand wrote those. We sent them out and quickly we realized that not only it wasn’t part of our personality, but we had bought the wrong list. People who are upside down on their properties who are not motivated to sell. I mean, they were motivated to sell, but they wanted above retail. I’m like, wait a minute. This is nothing like I hear on podcasts and I read in books. What’s going on?

Jay Helms (06:09):
But yeah, that’s kind of how we got started. We eventually figured out, oh, we do own our own primary home. We can take a HELOC out of that. We had built up some equity in there. We took a HELOC on it and we bought our very first rental property. It was a one bedroom, one bath, 600 square foot foreclosure that we purchased for $23,000. We put nine grand into it and rented right away for 600 bucks a month.

Robert Leonard (06:32):
I was reading through your journey timeline on your website and I noticed that you bought your first property in 2006 and didn’t buy another property until 2014, which is eight years later. Why did you wait before buying another property? What was the catalyst to bring you back to real estate investing?

Jay Helms (06:49):
The one I just told you, if you look on that timeline, the part where we bought that one bedroom, one bath foreclosure was in 2014. So the very first property that I purchased, I don’t talk about it a whole lot because when I do, I have to label it as a false start. Nobody likes to hear about the negative connotations of real estate investing. It’s all sunshine and rainbows. But I bought, in 2006, I was single at the time, it was a three bedroom, two bath, 1958 ranch style home. I don’t think it had seen a coat of paint in over 40 years. I mean, the ovens were brown, that Terra Cotta clay brown. The bathrooms were pink. I bought it at what we now know is the high of the market.

Jay Helms (07:30):
But I moved in and I was all excited about it because I had been watching the HGTV shows at that point in time too and I was like, “Man, I’m pretty handy. I can do all this stuff.” My idea was I was going to live in for a few years and then flip it. But I did this based off of watching TV shows and not really doing any research and just thinking, “Hey, I’m getting this one at a good price and I’ll be able to do some work on it myself and make a pretty quick and easy profit. I’m a single guy. I don’t require a whole lot of things to live. I can live in a construction zone. It’s not a big deal.” Well, we all know what happened starting in 2008. So in 2008, 2009, the company I was working for, we were located in Birmingham, Alabama, at the time. A position came open here on the Gulf Coast where we are now in Pensacola and I was like, all right, I want to do that.

Jay Helms (08:12):
It wasn’t like a position came open. My boss came to me and said, “Hey, if you want to move to the Gulf Coast, now’s your opportunity.” So we did. We did, at that time. We moved down here. We turned that house into a rental because we had finished all the renovations for it. But we were house poor when it came to that. We were getting 1,500 bucks a month for rent and I’m thinking, hell yeah, we’re getting $1,500 of cashflow every month. It was one of those things where no, we were not. I wanted to sell the property the moment we were going to move to Pensacola.

Jay Helms (08:42):
I went to my realtor, who I bought it from. He gave me his spiel, “Look, man, the market’s turned. It’s a buyer’s market. For what you’ve got in it, you’re going to have to be able to bring some cash to closing.” Still living paycheck to paycheck even back then. So it wasn’t going to happen. So we turned it into a rental thinking, all right, we’re just going to generate some cashflow. We got settled in Pensacola. And then the more we started looking at things and realizing, we’re not generating any cash flow. If we actually properly calculate this for cashflow, this property is costing us 300 bucks a month to keep. How do we get out of this?

Jay Helms (09:13):
So every February from the day we moved, I made a call to my realtor and said, “Hey, is it time to put it on the market yet?” “No.” For years, he would say, “No, no, no, no, no.” Again, we didn’t have the money to bring a closing. So finally he said, if you can list it today, then we will probably be able to get out of it where you put into it.

Jay Helms (09:31):
Now granted, every month that we held on to it, we were losing 300 bucks a month. So I was pretty excited that when we closed on it, we got out of it what I bought it for. I still lost money on the deal, but it took that eight years to recover from that. We did have somebody, the renter was paying our mortgage down even though we were contributing 300 bucks a month toward it, even though we didn’t know it. So we had bought another house in the process and that’s where the home equity line of credit was coming in and that sort of thing. So again, we were house poor and I hate that dip that happened for those eight years of us investing or trying to invest. So I am very cautious of what’s going on in the market now because it reminds me a lot of what happened back in 2006 and 2007.

Robert Leonard (10:18):
Why was that property negative cashflow?

Jay Helms (10:21):
Well, it was in a class A neighborhood. It wasn’t a class A property because it was built in 1958, but it was in A class neighborhood. It was one of those things where the area just didn’t command the rent to be able to support everything. I’ve always looked at class A properties and/or class A neighborhoods, you’re buying for appreciation. And then as you scale it down, class C and class D, you’re buying for cashflow. So I tried to justify this. I was like, well, we might be losing 300 bucks a month, but if it appreciates over three grand a year, then we’re at least breaking even, and that was not happening at the time. It just wasn’t.

Robert Leonard (11:00):
So was the mortgage $300 more than what you were able to demand in rent?

Jay Helms (11:04):
Well, it wasn’t just the mortgage. The way I calculate cashflow is, a little acronym that I came up with is TRIMVC. So taxes, repairs, insurance, maintenance, vacancy, and capital expense. So you add up all those numbers and it came out to be negative.

Robert Leonard (11:21):
I noticed that in 2014, you also started an LLC for your investing. And then you went on to acquire a few more properties that were less than four units. When I first started investing, I thought that I’d only buy real estate in an LLC. And then I actually tried to do it and I faced a ton of roadblocks, so I ended up deciding not to go that route. How was your experience using an LLC to invest? Did you pay all cash for the deals, you didn’t need to worry about financing with an LLC, or how did you get around that?

Jay Helms (11:52):
I had a similar experience to you and is funny. I created the LLC, again, listening to podcast and things and trying to learn how to grow. Most folks that I heard was like, “Start an LLC today regardless of what you use it for,” because the bank, if they’re going to make you any sort of loan, they’ll want to see that you’ve been established for awhile. I was like, “Okay, that sounds good. That doesn’t sound too terrible.” But the only property that’s ever been in that LLC’s name was that very first one that we were able to pay cash for with a HELOC. And even then, we didn’t know what we were doing, so we bought it in our name.

Jay Helms (12:25):
And then like two weeks later, I called my attorney, I was like, “Oh, I meant to put this in the LLC name. How do we do this?” And he was like, “Well, here in Florida, if you have a mortgage on the property, it has to be titled in whoever holds the mortgage. Do you have a mortgage?” I was like, “No. We paid cash for it.” And he goes, “Okay, well, good. Well, then we just do a quick claim deed, declaim it from yourself to the LLC. It’s going to cost you $100.” “Sounds good. Let’s do that.” But that is the only property that we’ve ever held in that LLC. The rest of them have been on our personal name, and then we just have a pretty substantial umbrella policy on top of the standard policies that we get for all our properties.

Robert Leonard (13:01):
I laughed a little when I was doing my research and I saw that because I was like, “I bet he had the same experience that I did.” It sounds like you did. I ended up doing the exact same thing. Everything’s in my personal name or with my business partner. And then we ended up just getting an umbrella policy that’s quite large and it’s pretty inexpensive. It’s pretty affordable to get that type of insurance and it covers you great. And so for anybody that’s listening that might be wondering, what are these guys talking about in terms of an LLC, I’ll break it down really quick for you. But basically if you’re buying a property that’s less than four units, banks consider that residential and they typically, 99.9% of banks won’t lend to an LLC on a residential property. That’s why you have a hard time using an LLC to buy these types of properties because you can’t get financing.

Robert Leonard (13:44):
If it’s over four units, if you’re buying five units or up, you can typically get a loan to an LLC because it’s commercial debt. You have to go through their commercial lending department. Typically they’ll lend to an LLC with no issues. You get a different loan. You get a different amortization schedule, typically it’s over 20 years. Sometimes there’s balloons, things like that, but you typically can get financing for an LLC in that case. So that’s what we’re talking about here.

Robert Leonard (14:05):
Now, I want to talk about, in my opinion, one of the most underrated and overlooked ways to get capital for real estate deals, and that’s through an SDIRA. It could be your own, it could be somebody else’s. Tell us a bit about your experience buying your third and fourth properties with an SDIRA.

Jay Helms (14:23):
I said earlier I was impressed with how you’ve put together the podcast, but man, your research is amazing. I’m sitting here trying to think of where is that even placed, but you’re correct. Our third and four properties were done with a self-directed IRA. I’ll say that you have to have a self-directed IRA custodian to be able to do this. And as somebody who manages that money for you and those assets, when you do that, you cannot manage the property yourself. It has to be a third party manager. And it was an interesting process. It’s very important to explore custodians because there are several of them out there. I have transitioned from the one I had before and it’s a night and day difference to who I use now. I use Quest Trust right now because it’s just night and day difference based off of service.

Jay Helms (15:10):
And that’s important because one of the things, and these properties were inexpensive. I was attracted to the price tag. It was like 20,000 bucks for, it was two mobile homes. I think it was 25,000 for two mobile homes. I was like, “All right, let’s float this out there. Let’s see what happens.” And again, we were trying to invest for cashflow. Here’s the one thing I don’t like about self-directed IRA money, because I look at that as monopoly money. To me, it’s not a real, tangible asset until 20 years down the road. So I’m a little more risky with that. And I don’t like that about myself because I’m like, okay, well, I can’t get access to it. It’s locked up. It’s one of those things where I feel like if I make a bad investment decision, I’ll be able to recover it later. And possibly I’m not even had to worry about using that money for retirement.

Jay Helms (15:54):
I’m not advising anybody to do this. I’m just saying this is my downfall. A matter of fact, the only two times investing in general that I’ve ever lost money is when I use my self-directed IRA. Minus the first purchase, my fault start. But the self-directed IRA process, as long as you have the right custodian from purchase to sell, it’s amazing. You don’t have to worry. You yourself control your money and where it can go. But it’s pretty amazing to be able to do that. And I was able to fund that self-directed IRA from previous employers.

Jay Helms (16:26):
I had transition jobs over and over. Not too much. I think there were two or three employees. And luckily when we got acquired, that retirement account, they didn’t transfer those over to sit with the previous entity, so we were able to transfer that in. But yeah, I enjoy it. It allows me to be a little bit more risky than I normally would. I would say if you were looking to do that, how I would recommend Quest Trust. They used to be a sponsor of my podcast, but we’ve moved on to other sponsors. So I’m saying that without having any sort of affiliation with them currently, just because they do such an amazing job.

Robert Leonard (17:02):
Like Jay said, you can use your own SDIRAs to fund real estate deals. But what you can also do is you can tap into other people’s SDIRAs. So if you’re an investor that’s looking to raise money, there’s millions and millions of people that have IRA money. It might not be in an SDIRA yet, but they can move it to an SDIRA. If they’re interested in using it for real estate, that’s a huge way that you can tap into outside capital, other people’s money, to fund your deals. If you’re just hearing SDIRAs, self-directed IRAs, for the first time, we did an episode back on episode 28, did an hour deep dive into everything all about them. So definitely go check that episode out. Back in August, 2016, you bought your first tax deed auction property. First, tell us, what is a tax deed auction property and how do they work?

Jay Helms (17:49):
It depends on your state’s statues. Florida is a tax deed state, meaning that if somebody doesn’t pay their property taxes, then their property will go up for a tax lien. And basically me or you or anybody else can go on the website and we can bid on the lien on the property. And if you win on that lien, then the owner has to pay you, I forget what the percentage is. I think it’s like 18%. So you pay off their taxes for that year, and then the owner has to pay you 18% of whatever that you paid off for them. So it’s a real easy way to make some money. But then once the tax lien is never satisfied, then it goes over to what’s called a tax deed auction.

Jay Helms (18:32):
So if you come in and after several years of somebody not paying their property taxes and they go into tax lien, you have one or multiple people who have one tax liens on that property. Then after a few years, it’s going to go over to a tax deed auction. The tax deed auction basically says if you win the purchase at the auction, then the property is yours, free and clear. I know states vary differently on how this works, so you need to check into your state statutes on how that works. But in Florida, if you own the tax deed, then you own the property.

Jay Helms (19:02):
In this particular incident, I saw the property. You go to the website, it’s all online. You go to the website and you can see the addresses and whatnot. You can do your due diligence. I didn’t do a whole lot of due diligence when I did this. Now, I drove by the property. It looked like it was abandoned and I was like, okay, this just needs cleaning up. It’ll be fine. We purchased it for 7,000 bucks. This is where it gets fun though. I purchased it for 7,000 bucks. And then one night my wife and I are driving around and we go by the property and I was like, “Hey, here’s what we just bought.” She was like, “What?” Because it was rough. It looked like somebody had just made a landfill out of the property. It was just bad.

Jay Helms (19:40):
But there was lights on inside of it, because it was nighttime. Now we can see that there’s lights on it. And I was like, “What? Somebody’s living there. There’s lights on it.” It was in kind of a rough neighborhood. The street was trying to turn around and just wasn’t in the best neighborhood, so I didn’t stop. But I called my lawyer and I said, “Hey, here’s what I’ve done.” I said, “I bought this property at a tax deed auction. I was driving by the other night and the lights were on. I thought until this time it was an abandoned house because it looked abandoned. It looked like that broken down warehouse where everybody who walked by saw broken window, they also picked up a rock and threw it and broke out a window.” I mean, it was just trash.

Jay Helms (20:16):
He poked fun of me and laughed. He goes, “Okay, don’t ever do this again.” He goes, “If you want to buy something on a tax deed, first thing you need to do is send me the address. We’ll pull a title search on it and we’ll figure this out.” He goes, “Let me go pull a title for you and see what you got going on,” because there could have been additional liens on that property that I would have been responsible for if the tax deed purchase didn’t take care of that. Luckily that was not the case.

Jay Helms (20:40):
We talk about finding out interesting stuff. The reason why this particular property went into tax deed auction is the owner passed away. The house was probated to his son. Well, his son was actually in prison. Didn’t have any other family members, no wife or anything like that. But then I was like, if his son is in prison and nobody’s taking care of the property, then who’s living in it? Long story short, this guy who was living in it was squatting there. Apparently when you get called and get the power and utility is turned on, you don’t have to prove that you should be in a residence. He was just squatting. Outstanding individual, not really. What I mean by that is later on, I discovered that he was stealing his mom’s disability check to cook meth in the backyard.

Jay Helms (21:23):
This is what I was dealing with. And I was like, “What have I gotten myself into?” I was like, “How do I get this guy out?” Hit my lawyer again, make a call to my lawyer and he’s, again, making fun of me, “Look what you got yourself into.” He said, “You need to get the guy under contract, because if you can get him under a lease, we can evict him. Evictions are a lot less expensive than getting out somebody who’s squatting, because he could actually say, ‘Well, hey, I’ve been here for so many years, blah, blah, blah.’ It’s a lot more expensive. You’re going to save several thousand dollars if you can get them under a lease.”

Jay Helms (21:52):
I said, “Okay, well how do I do that, because it’s not the best part of town and I don’t want go knocking on the door, strapped and say, ‘Hey look, you’re on my property. Get out.'” He goes, “No, no, no, no.” He goes, “You don’t do that.” He goes, “Send him a registered letter and tell him that you’re the new owner of the property and that you need to get him under lease so that you can start recouping your investment. And make sure you do it as a month to month lease because chances are, he’s not going to pay.” That’s exactly what we did. I sent him a registered letter, registered because that means that when he signs for it, I get the notification back that, hey, he actually signed for it, because I didn’t have a way of getting ahold of this guy unless I went and knocked on the door and I was a little afraid to do that.

Jay Helms (22:30):
So he called me, we connected. He signed the lease. He paid his first month rent in cash, thanks to his mom’s disability checks, who was not living at the property. She was in a home somewhere. Month one goes by. He’s fine. Month two, there is no payment. There is no communication between the two of us. So I sent him an eviction notice and that starts the whole eviction process. He was gone within 30 days. I thought that property looked pretty bad before, he absolutely demolished it when he left.

Jay Helms (23:03):
The property was actually a mobile home and there was a brick structure built around it to add two more bedrooms. But we ended up just demolishing the entire thing. We demolished the mobile home. We demolished the brick pavers. It costed us about $40,000 to demolish everything, get everything cleaned up and pull up a newer mobile home in. Once we did that, we got right around 600 bucks a month in rent. We held on to that. And here’s the good thing, the kind of silver lining for that is every time I went over there to that house in dealing with all this and trying to figure it out, there was always at least three or four kids riding their bikes up and down the streets.

Jay Helms (23:38):
I’m sitting here thinking, “Men, they’re exposed to this crap right here. There’s no sense of pride of ownership from this guy. He’s just kind of floating through.” And then once we figured out, okay, he was actually cooking meth in the backyard, because we found all this stuff once we evicted him. I was like, so this is no longer about making money. This is about getting the scum out of this neighborhood so these kids are not exposed to this. But all in all, we were into about 40 grand.

Jay Helms (24:01):
And then one of the things my attorney advised me to do, circling back to tax, if there’s any liens on the property or whatnot, he’s like, “Look, if you can hold onto this property for three or four years,” he said, “In Florida, there is a adverse possession law.” I think is what it’s called. No, it’s not adverse possession. It’s called something else. But basically if the ownership changes hands and people have liens on it and they don’t come to you within a three-year period of time, then they no longer can come to you after that. It satisfies everything. And then you can get a clear title on it and then you can sell it if you want to sell it later.

Jay Helms (24:33):
So that’s exactly what we did. We held onto that property for three years, we rented it out for three years. My annuity paid cash for all this because it was going to be super cheap to begin with. And then afterwards, we just kind of kept adding to that bill of ownership. So this year, cashflow is amazing. The people who moved in there, I think they were the only tenants that we had in those three years. And my property manager, who was not a very good one, by the way, they decided that they were no longer going to manage mobile homes.

Jay Helms (25:01):
So when mobile home leases came up for renewal, they were going to turn those properties back over to the owners, no longer manage them. Man, I do not want to manage properties. I’ve been there before, done that. It’s not in my wheelhouse, don’t want to do that. So they turned it back. They were letting me know how we were going to turn it back over to you. I was like, all right, I’m going to sell this thing, but I’m going to do it on a financing because I love the cashflow. I put it up on Facebook marketplace. What I thought was a ridiculous price, we were going to sell it for 60,000 and it was going to be a 30 year amortization on a 10 year note at five and a half percent.

Jay Helms (25:35):
So over the next 10 years, we’ll actually get close to a little over 70 for it. But every month we get the same amount of cashflow, but we don’t have to worry about maintenance, we don’t have to worry about anything on tenants. When I put it on Facebook marketplace, I promise you, I got over 200 requests to be able to get it. I was like, “Maybe I’m not charging enough. I thought I was going to be doing really well.” But we’ve got a guy who bought it. He moved in just a couple of months ago and it’s working out well. Will I do another tax deed auction? I’ve always told myself no because of that. But I have found myself drifting back to the tax deed website in the last couple of months. So we’ll see.

Robert Leonard (26:15):
It’s too funny that we’re having this conversation because I hadn’t really heard of the tax deed opportunity really until just the other day I came across the video on Facebook. Somebody was talking about it in one of the Facebook groups, real estate Facebook groups that I’m a part of. Somebody was talking about it and I started to look into it and I was like, wow, you can acquire properties for a couple hundred bucks to a couple thousand dollars depending on what lien is. And so I started to get interested in it, my business partner and I have actually been looking into it over the last couple of weeks. We haven’t done anything. We’ve just kind of been researching. It’s only been two, three weeks, but nonetheless, it’s a timely conversation for us to have so that I can get educated on it as well before I make a decision.

Jay Helms (26:53):
Well, if anything, do your title searches before you purchase anything so you know you have a clearer picture of what you may be getting into. And I say that jokingly, because if I would have went to my attorney and said, “Hey, look, I’m thinking about doing this.” He would have given me the title report. I wouldn’t have done it. This dude’s in prison. What happens if he gets out and he wants to come to me and get his property back and all this. I was like, I don’t want to mess with this guy. But we just did it. And again, it was one of those things where, financially, it works out for the better. The neighborhood is also a much cleaner, more respectable place. It literally was the worst house on the block. But knowing now what I should have known then, I probably would have done it.

Robert Leonard (27:34):
That’s good for me to know before I get started. You had done just six deals and then you GPed a 42 unit apartment syndication. And for those who don’t know, tell us what a syndication is and what it means to be the GP.

Jay Helms (27:48):
A GP is a guy who manages the asset. He’s not the property manager, although he could be, but he’s not the day-to-day property manager for an apartment complex, but he is the guy who is involved in the deal as some form of fashion, whether it’s finding the deal, helping raise money to close. A syndication is one of those things where a collaboration of people come together to fund the purchase of an asset. You have general partners and you have limited partners. The general partners are the guys who decide what happens with the property day-to-day. Do we renovate this unit to a certain degree? We are the guys who will manage the property managers. The limited partners are the guys who basically just provide the money.

Jay Helms (28:30):
They’re like, all right, I trust you. I’m going to give you a set amount of money with the anticipation that it’s going to come back and it’s going to come back with friends. The general partner is just simply that, is somebody who is going to go find a deal and put it together and then go talk to his network to see who’s interested in participating. It seemed like everywhere I looked and everywhere I turned, that was the natural progression for real estate investors. We started out with single family. You go buy some small multi-families, those two to four units. And then the next step up is apartment complexes.

Jay Helms (29:02):
I had met a guy. He and I had very similar ambitions and we found a deal. Thank God he was an extrovert and he would network with anybody and everybody. He found the deal and he had to talk me into staying in it because when we found this property, it was 50% occupied and it was a retiring landlord. He was in his mid-70s. He was the onsite maintenance guy. He was the onsite leasing agent. He didn’t even live in the city. He traveled there during the week. And then on the weekend, he’d go back home to where his wife lived. So the property was just in disarray.

Jay Helms (29:39):
He overpaid for it. I think he bought it for, I think it was like 1.5. And then we purchased it for 700,000. And then we put little over 200, I think it was closer to 300 in it. Yeah, it was 330 in it. We got it up to right at 90% occupancy. We actually converted a couple of the units into Airbnbs and those well outperformed just a normal occupied unit. Average rent was around 520 and the Airbnb units were producing about 2 to $3,000 a month in cashflow. It was just amazing because of where the property was. It was in a very tertiary market. I mean, this is a one red light, one school kind of town. There was nothing like that around.

Jay Helms (30:24):
It was in an oil and gas industry area where workers would come in from out of town. And if they wanted to spend the night, they would have to drive an hour and actually find a hotel room. It worked out pretty well for that. And I’m excited to report that we bought that one in September of 2017. We just went full cycle on it, we closed it, we sold it in December, just a few weeks ago, and we were able to provide our investors, they basically doubled their money. It was a little over 50% return for them. So it was pretty exciting.

Robert Leonard (30:56):
Yeah. That’s an awesome deal. How did you know you were ready having only done six deals before? I think you downplayed GPs a little bit. I think GPs have a bigger role than I might’ve seen, so how’d you know you were ready?

Jay Helms (31:06):
I didn’t. There were plenty of times where I wanted to walk away from this deal and my partner was like, “No, man, there’s something here. We just got to keep at it,” because it was a huge undertaking. The things that we discovered, we would walk through and we walked through every unit. But the things that we discovered after that were just amazing. I mean, one of the things that we found out after we closed when they’re doing renovations is we kept seeing these bees congregate outside one of these units. Apparently there’s a beehive in there. We had to call, I don’t know what they’re called, a beekeeper to come in and remove it all. And he starts removing sheet rock from the ceiling and he keeps removing sheet rock and he keeps removing sheet rock.

Jay Helms (31:44):
There was this comb of this beehive was about five feet long and it was at least 11 inches tall. It was dark honey. The guy, the beekeeper said that beehive is at least five years old. I was like, “How do you know this?” He goes, “The older the hive, the darker the honey gets, blah, blah, blah.” And he goes, “You can still eat it.” So what we did is when they cleared that out, they got the queen bee out and transported her or whatever, but we got the honey and we took some of the honey back and I jarred it up and I printed out some stickers of our logo that we had rebranded the property to. We put in these little Mason jars and we gave it to our investors and said, “Here is your first distribution.” And we jokingly said, “It also may be the most expensive jar of honey you’ve ever purchased in your life.”

Jay Helms (32:28):
But we ran into things like that. One of the things during due diligence, you always want to ask for utility bills and things of that nature. Well, dealing with mom and pops who own these properties and manage these properties, their book keeping is absolutely horrible. My kid keeps better log of what he does during the day than these guys do with their money. And it’s amazing because you will ask, okay, where’s the water bill for the last six months? “Well, we don’t have them. Yeah, we’re not going to get them for you.” Come to find out, the reason why they didn’t want to give us to them is because there was a massive leak on that property. And you go back and you look in the water bills they did give us from a year ago leading up until six months when we were doing our due diligence, that water bill kept going up, up, up and up, and we’re thinking, “What in the world is going on?”

Jay Helms (33:13):
And then when it got transferred to our name, we had underwrote, okay, it’s 1,000 bucks for water for that property. We got our first bill and it was like four grand. Okay, something’s going on. So we had our property manager walk every unit that was empty and we found a couple of units where people were evicted or whatnot. And before they left, they turned the bathtubs on full blast and just left because they were not responsible for the water bill. They felt like this is the way they were going to get back at the owner for being evicted. There were units and he didn’t take care of that. He didn’t go in and try to remove anything or get anything out of it because, well, he was at 50% occupancy. He could care less. He just lost the drive.

Jay Helms (33:57):
Of course he was 70 years old. I mean, I can’t imagine trying to do everything he was doing at 70. I mean, I couldn’t imagine doing that. So little things like that, we were able to get the water bill back down. And then we were also able to implement what was called RUBS, which is ratio utility billing system, where we were able to bill back that water to those tenants. So it was a good turnaround, but we kept discovering things like that over and over and over again. Long answer to your question of when did I know I was ready, I don’t know that I’m ready. Back to the acquisition, the acquisition was extremely painful. It made me always realize, all right, I’m not in control of my financial future. And if I were to be fired and let go tomorrow, what would I do? How would I provide for my family?

Jay Helms (34:41):
So the pain, the stress and anxiety of thinking about that is kind of what drove me to take those risks. Also, having a very encouraging partner to say, man, we can do this. This makes total sense. It’s one of those things where I wouldn’t be where I’m at today without that support group.

Robert Leonard (34:58):
After you had done that, I think you might’ve got scared away because you haven’t GPed anything since then, or at least my research didn’t say that. You’ve gone to the LP side, been on two syndications as an LP. Is that what made you go that route, were you just done being a GP?

Jay Helms (35:13):
No, absolutely not. I am very conservative when it comes to underwriting deals because I know I’m going to go raise money. I know it’s the people’s money, like I’m going to invest in the deal as well, but also other people’s money is going to be invested in as well. I do not want to be the guy who ever has to make a capital call or raise some things or do additional raises, or at worst lose somebody’s money. Right now in the multifamily space, at least in the last year or so, it has become the wild wild west. I see syndications happening. I’ve built my network up enough to know some of these bigger guys who are doing this. I’m humble enough to say, “Look, man, I see what you’re doing. I see this opportunity. I don’t understand how you’re making this happen.”

Jay Helms (35:57):
They’re like, “Well, we are getting five years of interest only mortgage and there’s going to be a ballooning and we’re expecting that we’re going to be able to do some value add and increase rents. We also believe that cap rates are going to continue to compress.” The way you value a multifamily is the net operating income divided by the cap rate. So think of it as a golf’s cap rate is like your golf score. The lower the number, the better the golfer you are. So the lower number on a cap rate, the more valuable your property is going to be. When we bought the 42 unit, it was a class C in a class B neighborhood and it traded at an eight cap. Well, today, when we sold it, it traded at close to a five and a half cap. I would not be part of that deal.

Jay Helms (36:41):
I’m seeing that everywhere. I’m looking all over the place, all over Florida, anywhere near within five or six hour driving range from where I sit today and people are paying ridiculous prices for these properties. I look at the long game. I’m more concerned about the long game than what’s going to happen tomorrow, and there’s just those very speculative what these guys are doing now. And I think there’s going to be a lot of syndicators dead in a couple of years. When they try to refinance their properties, they’re going to be hurting because they’re not going to be able to do that. They haven’t paid anything on the equity side of their note because they’re getting just interest only. They’re only paying interest only.

Jay Helms (37:20):
And so, if cap rates don’t compress, meaning that they go lower, so your property goes up more in value, if the rents don’t increase and you’re not paying anything down on the mortgage, then you’re going to be in a position where you’re already going to be stuck. You’re going to have to refinance because in five years, when that interest only mortgage is up, you’re going to have to refinance. You’re probably going to get it at a much higher interest rate, which touches into your cashflow to your investors cap rates. I think the demand, a lot of people are talking about the demand versus the supply in multifamily right now. I think the demand is going to drop off as well. Your supply is going to go up, so things aren’t going to be trading as expensive as they are now. So your cap rate is going to go up.

Jay Helms (38:02):
I try to, with any investment, I look at have a tripod of criteria. And when I look at the multifamily space now, I see a tripod of investing criteria that are not going to support something in a few years. So I’m kind of sitting back and I’m looking at properties and I’m changing my strategy just a little bit. We’ve gotten away from looking at multifamily as much. Deals still come to my inbox and I’ll look at them. And if I underwrite them, I’m going to submit an offer. I feel like if I’ve done the work, that I’m going to actually submit the offer. Brokers don’t typically like me right now because I make offers based on what it works for me, and it’s not used to what they’re seeing in people that are paying double price for it.

Jay Helms (38:42):
My idea, where I feel like we’re headed, is that in a few years, these multi-families are going to be at a reasonable price again and you’re going to be able to get them at a reasonable price. What do we do in the meantime. We’re switching strategies. We’re looking into trying to flip some properties this year. Something we can get in and out. I feel like later this year, once all the moratoriums are released and the CARES Act have expired for people who have applied for forbearance, there’s going to be a flood of single family homes coming onto the market, which is going to decrease the demand, or increase the supply, which is going to affect the demand. And we’re going to be able to scoop some up, I wouldn’t say pennies on the dollar, but at a huge discount.

Robert Leonard (39:22):
I tend to agree with your analysis of the syndication market. I think a lot of investors are overpaying. I’m not as syndicator myself. I’m not involved in any syndications, but from a little bit that I’ve read about it and syndicators that I have talked to, I have quite a few people in my network that are syndicators that I’ve talked to. One of the things that somebody told me, and this isn’t going to be the reason that people you know are overpaying, but somebody I spoke with is a syndicator from another country and he said, “I totally understand why you think people are overpaying, but you need to think about it from the perspective of international people that are buying.” He said, “A five cap is fine for them. That sounds amazing. Or four cap sounds amazing to somebody who’s in London who can only get a one cap or a two cap.” And so for them it sounds like a great deal.

Robert Leonard (40:06):
And so you just got to keep that in mind is that you’re not only just competing with people in the US, you’re competing with people internationally and globally, especially once you get into that syndication size. You don’t have to worry about it so much on the one to four unit, but when you get into syndications, it’s a different ball game.

Jay Helms (40:19):
It is. And on the single family side, what kind of pushed me away from looking for those properties is we kept running into California money, because out in California, you can’t buy as much. You’re not going to cashflow as much. So they’re much happier buying a property here that is going to cashflow a half a percent or 0.75% to where out there they can’t get that. They’re buying for appreciation. And if it’s not going to appreciate, then… Or like I was from that very first property I bought in 2006. I hate it for the guys who are running at this with blinders and it’s a hot new toy and whatnot. Because there was a gentleman the other day who I talked to, he was all excited about this deal. He had found a syndication, he was going to be a limited partner, whatnot, and they closed on it and he was bragging about it and posting about it.

Jay Helms (41:07):
And I was like, “Hey, I am curious, because I’m seeing this everywhere. How is the loan structured for this deal?” And he was like, “Well, I actually don’t know.” I told him what I just talked with you about about the tripod of scariness, the speculative piece of it. I was like, “Let me ask you this. Did they pitch you on that they think cap rates are going to further compress?” “Yes.” “Okay. Is it going to be a light value add?” I think value add is one of the most overused terms of 2020. And they’re like, “Yes, it’s going to be a value add.” I was like, “Okay, is the loan structure where it’s interest only payments?” And he was like, “Well, I don’t know.”

Jay Helms (41:40):
If it is, I kind of dropped that bomb on him and I could just tell that he did not like that and I think he was a little worried, which it was not my intent to make him worried about his investment, but I hope it works out for him because he’s an extremely nice guy, but it’s just one of those things where I think everybody now, the secret is out on multifamily and everybody’s trying to run to it and grab it. It’s just like the latest fad and there’s going to be a lot of people that are sparked on it, I’m afraid. I could be wrong. I’ve been wrong before.

Robert Leonard (42:11):
I tend to agree. And then you add in the commercial layer of real estate and what that could potentially lead to. So it’s going to be an interesting year for the next one to five years to see what happens with the market. I don’t know if it’ll necessarily be like ’07, ’08, ’09, just because I think some of the financial products are different, but we’ll see.

Jay Helms (42:27):
Absolutely. And I think the government will step in whenever they’re lobbied to to do whatever’s interest who best fits their needs.

Robert Leonard (42:36):
Yeah. I tend to agree. Jay, for those listening that are interested in learning more and might want to connect with you, where’s the best place for them to go.

Jay Helms (42:45):
The landing page is W2capitalist.com. And then if you want to, if you want to reach out to me individually, my email is j@w2capitalist.com. That’s the landing page. I’m focused on helping parents to eliminate that stress and anxiety that comes with financially providing for your family, and making people realize that they can work with W2 and be successful at their W2 and also invest in real estate. That way, once you build up those multiple streams of income, you never worry about being acquired or fired or laid off. So, W2capitalist.com is where I hang out.

Robert Leonard (43:18):
I’ll be sure to put a link to that in the show notes below so everybody can go check that out and connect with Jay if they’re interested. Jay, thanks so much.

Jay Helms (43:26):
Absolutely, Robert. Again, man, impressed by what you have going on here, and I appreciate you having me on.

Robert Leonard (43:32):
All right, guys. That’s all I had for this week’s episode of Real Estate Investing. I’ll see you again next week.

Outro (43:38):
Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires by The Investor’s Podcast Network. Every Wednesday, we teach you about Bitcoin, and every Saturday, we study billionaires and the financial markets. To access our show notes, transcripts, or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.