032 Buying Over 500 Units Long-Distance with Gino Barbaro

Gino Barbaro is from New York City, which is not an easy place to invest in real estate in. Gino has bought properties in New York and bought properties in other states as well. In fact, with his partners Gino has over 50 rental property units! On this episode of the InvestFourMore Podcast I talk to Gino about how he has bought so many units while living in New York City.

How did Gino get his start investing in real estate?

Gino has always been am entrepreneur, but not with real estate. He has been a restaurant owner in New York for many years. Gino knew that owning a restaurant would not provide the lifestyle or passive income he desired. There was too much active management and many ups and downs. Gino discovered real estate and knew that was path he wanted to take in order to provide passive income. He started buying properties in New York, but quickly realized it was very tough to cash flow anywhere in the city or outlying areas, because real estate prices were and are so high.

Gino’s first adventure outside the city was buying a duplex in Rochester, New York. He loved the cash flow the property provided, but did not love how far away the property was or the high taxes and low appreciation potential.

How did Gino start investing in long-distance properties with a partner?

Over the years Gino met Jake Stenziano, and they hit it off immediately. Gino and Jake started to invest together in long-distance properties. They knew they did not want to start small, but big. So they looked at multifamily apartment complexes. Jake was able to move to the Southern part of the country to be the hands on investor and Gino stayed in New York. Gino and Jake were able to buy a 25 unit property and they were just getting started.

Why do Gino and Jake like multifamily properties?

Gino and Jake were attracted to Multifamily properties because of the economies of scale with a big property. They could buy large complexes in one transaction, instead of purchasing multiple single family or smaller properties with many different transactions. In the areas that Jake and Gino were investing in, the multifamily buildings also had better returns than single family properties.

How did they form their real estate partnership?

After buying the 25 unit complex, Jake and Gino bought a 136 unit complex and now own over 500 units. From the beginning they have been very careful about their partnership. They have always had everything in writing, they have always paid each other for jobs they have always been clear on what each partners responsibility is. Jake has been more hands on with management and finding properties. So he has been paid for managing the properties and finding them. It is very important that each partner knows what their role and compensation is.

How can you contact Jake and Gino?

Jake and Gino have their own podcast and website where they talk about their journey with real estate. JakeandGino.com is the best place to reach them and I was recently on their podcast, so make sure you listen to that show!

[0:00:57] MF: Hey everyone, it’s Mark Ferguson with InvestFourMore. Welcome to another episode of the InvestFourMore Real Estate Podcast. I am super excited. I have a really great guest on for the show, Gino Barbaro, who has over 500 units of rental properties right now. Super successful investor. He also has a website, jakeandgino.com. Unfortunately, Jake can’t be here today but Gino can fill his shoes. Gino, thank you so much for being on the show. How are you doing?

[0:01:25] GB: I’m doing great Mark, how are you?

[0:01:27] MF: I’m doing really good, I’m always excited to talk to investors and especially investors who have seen as much success as you and finding out how you got there, what you learned along the way and any advice you have for the listeners so thank you for being on the show.

[0:01:41] GB: My pleasure.

[0:01:42] MF: So, you’ve been investing in real estate for about 15 years, what first drew you to real estate and what were you doing at that time?

[0:01:52] GB: Well, I was fortunate. I had two parents that were entrepreneurs. My dad owned a restaurant, got into the restaurant business with him and they always had real estate as a side gig but they never thought big, big. They thought, “You know, let me own the building that I have the restaurant in. Let me own maybe one or two properties.”

You know the economy 20, 30 years ago was a little bit different where you didn’t need that kind of passive income. If you had a great business, small business, you could do really well. So that was my introduction so I loved it. In the restaurant business as you know, when it snows you’re not getting paid but in rental business, you’re getting paid every day of the month. So that was my paradigm shift into how I got into real estate.

[0:02:28] MF: Okay, very cool. It’s funny, I had another guest who was in the restaurant business as well and he said, “Yeah, a completely different businesses,” but they both use real estate but besides that, that’s about the only similarity between the two.

[0:02:43] GB: You know Mark, there is one similarity. It’s with every other kind of business. It’s really tenant or customer driven. You really have to take care of your tenants or your customer coming into the place of business. So when you have that mindset as a business owner and you look at the income and the expense of your business that’s what really helps out if you’re a business owner getting into real estate. I found that to be really helpful for me.

[0:03:03] MF: Yeah, I know. That makes sense and I think, like you said, just about any business if you take care of your customers or your clients, you can build on it, be successful, build for the long term so that’s great advice. So when you first got interested in real estate, what were you doing? We’re you doing another job, did you have your own business, what were you up to?

[0:03:23] GB: Well, what happened was I started my restaurant business about 20 years ago. I got out of college back in ’92 which everyone knows real estate was a down turn. You’ve kind of be stunk, I couldn’t find a job, so I went to work for AIG as re-insurance accounting and as I like to say, that’s about as much fun as watching paint drying on a wall. That’s how boring that job was.

So I was stuck going Manhattan commuting for about a year. I was just stuck in the ride and I said, “I’ve got to get out of this.” I ended up going into the restaurant business. I loved it. It was great but it was that real estate thing that just kept holding me and pulling me. So I decided back about 15 years ago, I bought my first rental property with my brother and I was hooked.

I just loved it. I love the fact that you go collect rents, just advertise the property, you get that capital appreciation that holds. I saw the big picture but I was still in the restaurant so it was very difficult to juggle two things. Fast forward about five years ago, I met Jake at the restaurant. He was doing a lot of catering with my brother and myself.

I said, “Jake, what are your plans for the future?” He says, “I’m going down to Knoxville, Tennessee. I’m going to explore Glasgow Smith clients but I want to do real estate”. I said, “You know, let’s just keep in touch because the New York market is difficult up here to cash flow.” It’s hard to make money in this market.

So when Jake started about five years ago down there, got in touch and like Jake likes to say, the first two years we’re doing it, we got rejection after rejection. We had no portfolio, we had no credibility. Three years ago in February, we bought our first property, a 26 unit property which Jake likes to call a “crack den”. It was a distress property but we saw.

When you are a newbie, you just don’t see the impossibilities. You see the possibilities. That’s what’s great about being something new to something. You just see the possibilities and that property was our launch into the business. 25 little units there, little cottages and everything, we bought it for $600,000, 10% owner financing, 10% bank financing.

We had a great real estate agent who guided us along the way and the rest is history. Three years later, we’re just cranking out. Jake quit his job doing real estate full time and me, in two months, I’ll be moving down to Jacksonville, Florida in two months and I’ll be doing real estate full time myself.

[0:05:25] MF: Wow, congratulations.

[0:05:27] GB: Thank you.

[0:05:27] MF: That’s quite a whirlwind.

[0:05:29] GB: It really is. It really is a whirlwind and you just have to seize the moment and it’s scary. I’m not going to lie to you. You go around but if you have that drive or if you have that emotion and you want to do it, I think anybody can do it if they really put their mind to it.

[0:05:42] MF: Right, that’s great stuff. I’m curious, you said you started investing in New York quite a while or you said you bought your first rental property, was that in New York your first one?

[0:05:51] GB: Yes, it was. It was 2002. I remember the dates because I bought that first property. It was a three family property and the little story behind that, I have spoken to you about how we make mistakes in a previous podcast. I made a mistake in that property. I bought it and it was a three family. Now, I’m going through the town now to get the fourth apartment legalized.

It was a three family but we had bought it as a four and back in the day, no one did any CO’s. No one did any kind of searches, so no one said anything. Now, I’m paying the price. I am trying to refi the property. I am trying to get the four unit legalized so that was the first property that I bought with my brother. It was great. It was a nice little three unit property.

[0:06:27] MF: Now, I have a lot of people from New York, they run into the same problem. You just can’t cash flow in New York because prices are so high. Was the market different back then? Have you seen the market progress or it has been difficult?

[0:06:39] GB: Yes. No, I think back then 50 years ago I think the big problem of New York is the insurance and the taxes. The taxes are very high. Property taxes and the property and the per unit cost if you’re going to spend a $100,000 per unit in New York, you might get a $1,000 a month for rental income in that unit.

Down in Knoxville, what I see down there is we can spend 40,000 a door or per unit and we can get $600 to 650 per month. So you can see the leaving balance there. You’re getting more income and you’re paying less per door. The other thing is that property taxes are so much cheaper down in Knoxville. The insurance is so much cheaper down in Knoxville.

The labor cost is so much cheaper in the south whereas oppose to where we are, it makes a huge difference and the other problem is now that I’m going through all these hoops to get the property up to speck or make it legalized, it’s a big expense. You have to take out building permits, it cost $3,000 to do. Any kind of job, it costs prohibitory expensive up here to do business.

[0:07:38] MF: Right, not hat makes sense and I know New York, New Jersey, Illinois, all those places have super high taxes. So give me for the same $100,000 property in New York versus Knoxville, what do you think the tax difference is?

[0:07:53] GB: We bought our property, a 136 units two years ago, the tax base on that property was around $40,000. I’ve got a property in New York which is worth a $1.2 million and the tax base on that is about $30,000. So you could see that it’s just so out of whack here, it’s crazy and part of the problem is, a lot of these states that you mentioned, they tend to be a little more liberal. They tend to be less business friendly.

New York you mentioned, New Jersey you mentioned, Illinois you mentioned, a lot of these states tend to have liberal policies against businesses and a lot of investors have to be weary of that and where they’re going to market. They have to look for job broke which is extremely important. They have to look for tax bases and tax rates, that’s extremely important.

Go look at your Chamber of Commerce and see what they’re trying to do. See how they’re trying to get businesses there. I’m moving to Florida because it’s such a business friendly state. There’s no state income tax there and have UTR number explained that allows you to identify individual Tax payers within their system. They want businesses and people to move down there. That’s what you have to look for when you’re investing in real estate.

[0:08:53] MF: That’s great advice and one thing that obviously is not a very liberal state but Texas has high taxes too but then, they have no income tax. They make up certain areas so it’s great if you live there but if you’re investing there and you don’t live there, it’s not so great. So yeah, there are many things you have to consider.

[0:09:11] GB: Well Mark, how is Texas as far as job growth? In a lot of their markets they do have that really good job growth. So when you take those things in consideration, I always look at the rental rates, how are rental rates rising so if you have big growth, 2% year over year for at least two years, we’ve got people coming into the market. Your rental rates will be rising. So that’s one thing to take into consideration when looking into a market also.

[0:09:33] MF: Yeah, for sure. There are so many different things. Yeah, I would avoid any place that is losing population, losing job growth.

[0:09:41] GB: Yes, definitely like New York.

[0:09:43] MF: Yeah, so how many properties do you have in New York right now? How many units?

[0:09:48] GB: Right now, I’ve got a three family. We own a restaurant business here that has also three units above it which is great. It just carries the mortgage and basically the restaurant is there functioning as a business of itself which is awesome. The restaurant business downstairs, paying rent to my mom who owns the building and she’s got three units upstairs.

Then I have a commercial building in New York that I am actually trying to sell because I am moving down south. That’s about 18,000 square feet. It’s got retail component, industrial component and it’s got offices upstairs.

[0:10:19] MF: Okay, wow. So before we get too far into some other topics, what were the biggest differences you saw between the commercial and the residential investments?

[0:10:30] GB: Right now, I just don’t like commercial. I think commercials can be very difficult going forward only because of the Internet. I mean it’s 15% that I think of internet sales, 15% of what’s being sold in retail right now and it’s growing tremendously every year. I think a lot of the big box stores although they’ll still be there, I think what’s going to happen is they’re going to be taking less and less space.

The Home Depots in the world, the Best Buys, they’re going to be shrinking down and consolidating. So there’s going to be less demand out there. There’s going to be more supply out there. I’m a little worried about commercial. Jake likes to say that you can’t live in the Internet that’s why I love the apartments. You have to rent an apartment.

You have to be able to live somewhere so if you can pick a great market, I think there’s less risk. You always try to avoid your down side risk so I think that’s why we like apartments. Industrials is funny because industrial is the whim of the market. I had a lot of contractors when the economy is good, these guys are looking for rent but when your timing is bad, they’re out of there so you’re going to have some vacancy.

[0:11:25] MF: Right, no that makes sense and that’s always been my biggest hang up with doing any commercial myself. You can have those long even five year, 10 year leases but then if someone breaks the lease there, if they’re gone, they can take you a year or two to find a new tenant when you’re just sitting there.

[0:11:41] GB: That’s right and what happens, there are so many examples, Circuit City. You have a lot of these companies that they’re never even got a business and let me tell you, when they got out  business of they go real quick. It doesn’t take forever. Look at companies like Sears. They used to be anchor stores.

Now, you have a Sears in the mall, they’re basically dead and you’ve got to have a lot of capital behind you to do commercial. You really want to be in a location with eight anchor tenants that will work. Anything else, I think it’s a little bit more risky.

[0:12:06] MF: Right and you’re probably paying for those eight locations and those eight tenants.

[0:12:10] GB: That’s right.

[0:12:11] MF: You’re not getting nearly as high as the cap rate because of the secure investment as well.

[0:12:16] GB: That’s right and that’s one of the other things. I think you and me are on the same page. We want to create wealth, we want to generate passive income. Those investments are more a bit like real estate investment trust where their cap rates are two and three. They already have the wealth. They are trying to preserve the wealth.

They are trying to give a simple rate of return. A small rate like you said, two three cap rate, the guys are happy, those assets are going to go up in capital appreciation. They are not going to catch with that well so I try to stay away from those types of properties. I want both. I want that cap appreciation and I want to generate that passive income and that’s why we invest in the VMC properties.

Those properties or the A properties, I tend to stay away from them. Hopefully, the next time we talk to you Mark in the next few months, I’ll have that money where I don’t have to create the wealth. I can just sit on it but right now, we’re trying to create it right now.

[0:13:02] MF: Yeah, I know that makes perfect sense and here in Colorado, we’ve had the highest appreciating market in the country the last year and we’ve also seen a ton of those institutional investors move in buying those big residential and commercial properties and like you said, they don’t care about cash flow. They’re just parking cash trying to keep the status quo and it really makes it hard for the smaller investors to get a good deal. That’s one reason why I do the single family myself.

[0:13:29] GB: And that’s one of the important things that I think all listeners should really focus in on. When you get into the business, pick a niche. Just become strong in something like you do the single families, you’re really strong at that. We do apartments, we do something called mama and papa corns where they’re just basically defer maintenance.

A lot of issues in the properties, that’s where we really focus on. I think those guys, their reeds and that’s where they focus on. They do really well. Once you really nail your niche, move onto another niche and as far as you’re saying with these institutional guys, they know where the money is flowing, they know where the jobs are flowing. If you follow them, they know markets are hot, you can really make a lot of money by following where these institutional money is going.

[0:14:07] MF: Right but you’re going to pay a lot.

[0:14:09] GB: You are, yes.

[0:14:11] MF: There you go. So when you are in New York, you saw it’s obviously difficult to cash flow in the area, how did you start investing in different areas of the country? What were your first steps?

[0:14:20] GB: Well my first step, believe it or not, I went to do a coaching program. I wanted to start coaching with Rich Dad, Poor Dad. Did it for six months, I ended up in Rochester, New York which is the cash flow capital of the world. It does not appreciate at all but let me give you some quick numbers. I bought a duplex for $34,000. Each unit was giving me $600 a month in rent.

So I paid and I put another $4,000 into the property, so I’m into this property for about $40,000 and its cash flowing and its grossing $1,200 a month. The taxes were high up there and for a $40,000 home, the taxes were about $2,500 but that’s New York for you. It’s difficult that’s why people up there can’t buy property, they can buy homes.

So you started accumulating these homes, they’re almost tradable. So if $40,000 was making $1,200 a month, which comes out to about $14,000 a year. So you can see after three years, that house is basically paid off but that property 10 years later is still worth $40,000. That’s the only issue with Rochester so I love the model of cash flowing and I got into the whole property management thing with hiring a property manager, I like that model.

They’re a little expensive, they’re 12% of the gross rents but there’s a lot of work involved when it comes to dealing with these duplexes because the tenants management intensive. You really have to stay on top of them. There is a lot of work involved so that was my first foray into out of my market. I said the only fun place where I can really cash flow and really make some money and hold those on for a few years.

Then like I said, I met Jake and Jake went down south and everything was just very easy for me to go down south and invest with him. We bought properties together. We formal all seasons and he manages the properties.

[0:15:55] MF: Very cool. When you decided to invest in Rochester, did you do much research or was that where the coaching program was telling you to invest? How did you pick that area?

[0:16:05] GB: I did actually and the coaching program really helped out. I just advise everyone who is going to do a life altering, life changing extent of their life, they really should get into coaching. They really should find a mentor, find a coach just to learn about the whole process and it might take you six months before you buy a property or a year.

That’s okay because you’re going to be committing a big chunk of your money into doing something. It’s like buying a car. People do more research buying a car than they do getting into a job or something. You really have to research and make sure it’s for you. Start small. I started small, I started one small investment of $40,000.

If I didn’t like it, I could have sold it. I would have lost a few thousand dollars but I liked it. So from then, I started coaching with Dave Lindorff, did his coaching program and his coaching program is they teach you how to search for markets. They teach you about all the parameters you’re supposed to look for in the market and that was really, really helpful for me.

[0:16:54] MF: Very cool. So what was the first step that you and Jake took to investing in the southern part of the country?

[0:17:01] GB: We just went onto LoopNet, believe it or not and started looking at properties. You know that Loop Net is a little difficult sometimes, they don’t have a lot of deals but every now and then, you will find a deal on that but more importantly, you will find brokers on there. So we found brokers on there and we started calling brokers.

We started pitching in their ideas. Some of them said, “You guys are nuts. You’re never going to do it”. Some of them said, “You know what? Let’s see”. So one of the brokers brought us this 25 unit deal. It had been on the market for a few years and it had something that you need to make a deal in real estate. It was a motivated seller.

The sellers were older and they were just motivated to sell and they had the price and property listed at $750,000 and our broker said, “They will come down,” so they did come down to $600 and looking back at it now, we could have probably gone here for less but at least we got our feet wet and that’s how we started. We started on Loop Net and started calling brokers. We used the broker’s script, telling them exactly what we’re looking for and that’s how we started.

[0:17:58] MF: Very nice. Now, how are you financing these properties at the time?

[0:18:01] GB: Like I said, we had gotten and 80% bank loan. The sellers were willing to hold 10% as the down payment and we came up with 10% as the down payment. So I will never forget it. It was $27,000 for Jake, my brother and myself and we were thrilled. It was awesome. We had a $600,000 property and you have $90,000 for closing cost. You are controlling the $600,000 asset with $90,000. It was great. It was just a lot of fun.

[0:18:29] MF: Yeah. That’s awesome and you said some of these properties were just stressed that you buy and it needs some work, was that one of those? Did you have to go through and renovate with friends?

[0:18:36] GB: Yes. It was really funny. I will tell you the story. They had such bad bookkeeping. It was a weekly rental, believe it or not. We actually ended up changing it into a monthly rental. So weekly rentals are great. You get more money but you also get bed bugs, tough tenants, they weren’t doing any kind of screenings so they had no systems in place.

You don’t know who lives in what apartments. So Jake, when we did the closing, knocked on doors, asking people how much they’re paying in rent and what are the straight deposits are and three years ago, we’re just finishing up to deferred maintenance. Now, we just refinanced the property about two months ago. The property came out and the property was appraised at $800,000.

[0:19:15] MF: Oh nice.

[0:19:16] GB: Yeah, we were able to pull out all of our money and then some, put some of it’s net into CapEx and just got off the phone with Jake this morning, we are finishing up a couple of rooms out there and finishing up the painting in our six-plex. So it looks really pristine, it looks really great. It took a couple of years. A room wasn’t built in a day and a lot of us forget about that.

It took three years but you could see the payoff of one little tiny property. It’s the momentum that gets you going. Once you get that first property, if you’re hooked, you’re hooked. You will find a way to get the next property. I trust you will.

[0:19:46] MF: Right, that’s great. So how did that progress from buying that first one to obviously, you’ve been very successful in the last couple of years, was it buying bigger properties or more properties? How has that worked out?

[0:19:57] GB: Well, what happened was that Jake got hooked more than I did because he started collecting rents and he said, “Wow, these people are paying me money. I can’t believe it.” So he saw the big picture. He’s like, “This is awesome.” When you’re a W2 employee, you’re used to getting a paycheck but when you’re actually going and collecting money from people, it’s a different feeling.

So Jake said, “We’ve got to continue with this,” so I said, “Okay but you know what? I don’t know where to get the money.” I had a friend up in the restaurant business who wanted to become a partner. He is a money guy and he said, “You know what? I am looking to do other investments,” so we’re looking and looking and we found another deal in Loop Net about six months later.

It was a 36 unit property. All one bedrooms, all brick, great. Same kind of deal though a little bit distressed. A little bit for maintenance outside. This was an out of state seller. We got the property, we bought the 36 unit with all four of us and we put 20% down. Dealing with the community bank. The property was priced at $850,000 so it was reasonable.

We could afford it but our money was starting to run out but we got this deal. So now, we have two properties under our belt and I said, “This is awesome.” Both properties have cash flow nicely, fast forward six months from that so it’s a year from the first acquisition, we find this 136 unit property and we didn’t decide if we want to go big or smaller.

We just saw an opportunity that showed up and this thing was on Loop Net for $6.7 million. I will never forget it and we’re like, “This is way out of our league.” And it had gone for years and years and years. It was owned by a doctor and his wife and their brother. The same kind of thing, motivated seller want to sell and Mark, I just went for the chance.

I said, “Jake, this thing isn’t really worth that kind of money. It’s worth in the low fours.” I offered $3.7 million and I thought the doctor was going to laugh at me and this is one lesson for your whole crew that’s listening out there, just ask. You’ll never know until you ask somebody. You’ll never know what someone else’s motivation is.

I thought the guy was going to laugh. I thought they were going to laugh the offer. He actually came down to $4.4 million from his offer price in one shot. So I was like, “Jake, we’re in business. This is awesome.” We ended up settling at $4.075 million dollars. A little haggling back and forth. We had a real estate broker taking note for part of his commission.

We did everything we could to get this deal. I mean I beg, borrowed and stole money to get into this deal and that’s what happened. It was great.

[0:22:15] MF: Wow, that’s a great story and I think there’s a really good lesson there too. It’s weird. I don’t understand it but some sellers will put a price on a property and they won’t lower it. They’ll just leave it there even though they will take less and you saw that house had been on the market for years. You can’t just go to every seller and offer them 50% of what it’s worth.

That doesn’t work but if you see signs, if you see certain properties that, “Hey, why is this for sale for two years?” Or, “What’s going on here?” there are definitely opportunities out there where you can make those low offers and make things work.

[0:22:47] GB: That’s right and Mark, part of the problem is that a lot of people when they negotiate, they don’t listen. They talk. Negotiation is 80% listening and 20% talking. So I knew the motivation of the seller. I knew he wanted to get out. I knew it was a family situation, they don’t want to be there. I knew he didn’t really need the money.

It was becoming a nuisance to him so the motivation for this guy to get out, it was why this deal worked. I’m not telling everyone out there that you’re going to get a big property by just throwing number out. You have to be smart about it because you don’t want to get the reputation of just putting in offers and just saying — low balling on people but you really want to know why this guy is selling.

So the motivation was there so that’s why this deal worked and that’s what you have to look for. You can’t go to realty or retail property that’s in an A market and start throwing low ball offers. That’s not going to work but when you negotiate, you listen to what’s going on and that’s why a broker is crucial to have on your team because he should know a lot of this information.

Our broker knew the dynamics of what was going on and he said, “You know what? That’s not a crazy offer in this type of environment. Let’s try it.”

[0:23:42] MF: That’s great. Great advice. What challenges did you find going from 30 unit properties to 136 unit property? Was it similar or were there some definite changes in it?

[0:23:54] GB: Well, you’ve got to scale up the business and part of the thing is simple things like collecting checks. You are collecting 136 checks now and you’ve got to get a full time managers on board. We’ve got a full time manager. The first year and a half, Jake was doing the running around, doing a lot of the work himself.

To scale up the business, we had to hire and the fabulous thing about these big properties is believe it or not, it might be a little scary, it’s a whole paradigm shift, everyone out there is saying, “I can’t do that. I can’t do that. I’ve got to stay small,” believe it or not, if you go big, sometimes it’s a little bit easier because you can hire full time maintenance crew.

You can start building systems, you can start saying, “Okay, I’ve got this full time maintenance guy, he can do the work.. I’ve got a full time manager, the staff, the office,” so that was part of our problem. It was just the whole shift of can we go bigger? Can we hire enough people? Can we do the bookkeeping? Can we take care of all these maintenance calls? And you know what? We struggled for a few months but you’ll figure it out.

[0:24:44] MF: That’s great and I hear that all the time. I have a team of 10 that helped me with my flips, my rentals, my real estate sales and people say, “Well, I don’t want to get that big. I don’t want all those hassles. I just want to stay small,” but I can tell you, I am so much happier with the team. They can help me and do this stuff I don’t like doing than I was doing it all myself. It is so much less stressful and I love it.

[0:25:07] GB: Yeah, well Mark what you’re doing is you’re working on your business. You are not working in the business and it’s tough for me because when I had the restaurant. I had that one store, I am working every day, I’m working in the business. I am doing all the ordering, I am doing everything, I am doing the cooking but you can’t grow at that point. You’re just basically collecting the paycheck.

What you’re doing right now is you’re actually building a business. You are putting systems in there. You are able to grow and it’s the same thing with real estate. You are able to grow bigger so for that 136 units, about a year later, this past July or August, we closed on 281 units so you can see the progression.

We went from 25 to 36 to 136 then we bought a little 20 unit property between and then we bought 281 so the progression is there. I’m not saying you start with a huge property but don’t be averse with the idea that you go big because anybody can do it and if you don’t know how to do it, get out there and get coached and just listen to people who are doing it because it’s a big, big wakeup call.

We’ll start cash flowing with this numbers, you can get into cost segregation of what you can do with your taxes, there is so many advantages to getting big, believe it or not.

[0:26:14] MF: Yeah, I know. That’s great and I’m curious too with one aspect of your business and how you set things up, it’s you, Jake and then your brother too who’s investing. How has it worked working together with two other people? How did you set that up? Have you had any problems with it? Are there tips you have for people who might want to invest with partners?

[0:26:34] GB: Well definitely. Partners, I think partners are fantastic in a couple of aspects. The first thing is you have to get somebody who has similar and yet dissimilar skill sets. Me and Jake are pretty similar. We’re really motivated. We get on calls, we do what we have to do. What’s great about it is, if he has a problem he calls me and bounces an idea off.

Ideas are money so you have more people in the mix. You have a bigger team, those ideas create money. When we started each entity we have is in its own LLC and we’re in the process of creating a series of LLC that encapsulates all of these properties. One bank statement, one whole idea but it takes time to get to that stage but each individual property that we had was its own LLC.

It has its own operating agreement, it has its own rules and its own laws. That’s just for our own protection and for each of the partner’s protection. You have to be on the same page. Me and you, I don’t think we’d be good partners because you like to fix and flip and I like to buy and hold so I don’t think our partnership will work in that aspect so you have to be in the same page as your partner.

If your partner likes to go out there fixing and flipping and you’re like, “Wait, I want to keep this properties,” that partnership is not going to work. It’s going to be a lot of stress so be in the same page. Me and Jake wanted to get out of corporate America and I wanted to get into real estate full time. So we had the same vision, same goal set. We just wanted to generate that passive income and that’s why this partnership clicked.

[0:27:52] MF: Very cool, yeah and I do hold too but I don’t know if we’d be good partners.

[0:27:57] GB: Yeah, I just made that as example because a lot of guys get into business with other guys and they’re like, “What are you doing?” You really have to, we have a credibility book. We put something together. Before we started, we created our own mission statement. Every business should have their own mission statement.  “What do you want to do and our two things was generate passive income and create wealth and that’s our mantra and that’s where we stood by.

[0:28:21] MF: That’s great and I don’t have partners right now mostly because maybe I am a control freak and I like to make my own decisions but when you guys did you partnership, did you put everything in writing from the beginning? Did it evolved? Did you have contingency set up if one of you wants to get out of the business? How did you handle that side of it?

[0:28:40] GB: We do. We start from the very beginning. We have to have an operating agreement from the very beginning because you want to make sure that everyone has their own specific jobs. Jake is basically managing so he gets the percentage of the revenue to manage. That’s part of his job. He gets an acquisition fee when he’s finding properties.

Sometimes, he will get an acquisition fee for putting the deal together because you know these deals take a lot of work, a lot of energy. He is actually closing on a 156 units. We just got the deals signed. He is actually there today. We are having problems that were difficult. He has to go to a lawyer today, at 2 o’clock and do a signing.

We’ve been working on this deal since August so all the time and effort that goes into a deal, he’s meeting the title agent, talking to the broker, the inspector is getting lined up, there is a lot of stuff going on so you have to spell that all out from the very beginning. Handshakes are great and my work with family but I would never do something like that.

I’ve made that mistake before, been there done that, get everything in writing. Make sure everyone knows what they’re supposed to do. Make sure you know the percentages, how much everyone has to put into the deal and you will save yourself a lot of headache in the long run.

[0:29:44] MF: Yeah. That’s great advice and I would advise even with family, always get in writing not just because of people being shady or changing the deal but sometimes you forget. If you work for somebody for three years and then you decide to sell it’s like, “Wait, did we agree on 30 or was it 35?”

[0:29:59] GB: That’s right.

[0:30:00] MF: It’s easy to forget those things even though you think there is no way you ever would in the beginning. It can happen. That’s great and I love the idea of paying Jake or whoever is doing a job for that job, not just saying, “Oh we’re 50/50 partners” because then it gets confusing. People say, “Well, I’m doing more work than you, why am I getting paid the same amount?”

I love that, for example, you have a real estate agent on your team, pay them a commission when they get a deal. Don’t just say it’s all split even and you don’t get paid, I like that.

[0:30:30] GB: That’s right. Well, you know because you’re managing a property. It’s a really hard business and if you’re not out there managing your own properties, you’re managing the manager. So that’s a lot of headaches, that’s a lot of work. If Jake’s not doing it, we’ve got to pay a manager company to do it. So I would rather have Jake making the money. Your hands aren’t there. You’re doing the job, so you can’t really control it. So he’s worth every penny to pay him.

[0:30:53] MF: That’s really great. What do you think has been your biggest challenge in building this business and growing into what you have right now?

[0:31:04] GB: Well, a couple of challenges. First thing is you have to find the time when you’re working full time. I am working, the restaurant is about 50 hours a week for me. So coming home and educating myself, have any confidence to get into these deals to say, “Am I making the right decision, am I doing something wrong? I just can’t see it.”

When you see a deal that’s been on the market for four years and you’re like, what’s going on here, why aren’t they buying? To have that confidence to say yeah, I can get bigger and I should get bigger, that’s what we’re here for, we’re here to create and to do great things in this life and sometimes you get hung up on that.

The other thing is fear, everyone’s got fear, everyone’s fear of the unknown. Have you ever done this before? I never put on 136 unit property but you know what? You have to take that leap of faith and what’s the worst thing that could have happened? I bought it and I end up selling it a year later, I lose money, it’s only money, you just can make money but when the opportunities are there, you got to take a hold of them.

[0:31:57.8] MF: That’s great advice. From building these huge portfolio, billions partnership, you and Jake started a website as well. Jakeandgino.com, how did that evolve?

[0:32:10.1] GB: You know what? I go by the mantra, “Learn, do and yeah.” You’re learning all the stuff, one to acquire these properties, they start doing it and all of a sudden, it’s great, you start doing it, you get out there, you never thought you could do it and all of a sudden from that doing part, you said to yourself, I want to get back and best way to get back is to teach, talk about it and by you teaching about it, believe it or not, you’ll learn so much more.

I mean, we wrote a book called Wheelbarrow Profits about three months ago, we self-publish it. It took us about a year to write that book but what happened was, he came up with this framework and it really helps us with the investing aspect of it, our framework is buy right, manage right and finance right. It’s great. When we go to a bank, we give them our book, we give them our credibility book, we give them our book.

That’s our business model, that’s our business plan. It gives me a lot of credibility to say, hey listen, “This is what we’re doing, this is what we’re buying this property.” That’s how we got into Jake and Gino, I just started hashing out what our plan was and just start writing one page a day and all of a sudden, six months later you got a book.

[0:33:09.4] MF: That’s great and I would attest to the exact same thing happened with me when I started my blog. I thought I knew pretty much everything about real estate, being an agent for so long, my father was an agent and then I started my blog to try and teach other people and I realized how much I didn’t know when I started researching and writing.

Wow, there’s a lot out there that I had no idea about. Yeah, it did, it was a huge self-teaching tool for myself, not just teaching others but learning so many different strategies and different ways to do things.

[0:33:37.5] GB: You know? The other cool thing is? The other cool thing is maybe on this call right now, you get to meet so many awesome people, you get to talk to so many different people, you get so many different ideas throwing your way, you think you have all these units, 1,700 units. We haven’t done that many deals, I’m sure you do more deals in a year than what we’ve done in the last three or four. You see so many different strategies and you learn so many different things by teaching and talking to other people It makes it all worth, it really does.

[0:34:02.6] MF: Yeah, you’re right, that’s a huge benefit as well, I’ve talked to a lot of great people, interviewed a lot of great people and there’s many people behind the scenes I’ve talked to as well that people don’t realize. And just speaking of that, looking for places to invest across the country, it’s always interesting hearing what you guys are buying what you guys are doing and speaking of that, you said, Florida is where you want to go. What’s drawing you to Florida right now?

[0:34:26.4] GB: A, the weather. Because I know you’re from Colorado so you get a lot of snow and I’m from New York and the weather last year is just brutal. B, I just want to get off out of the restaurant industry, I just want to have a clean break. C, I think the market down in Florida in Jacksonville specifically, it’s still emerging. A lot of the southern Florida markets have already emerged, Orlando, a lot of institutions there.

Jacksonville is the biggest city in Florida, land wise and population wise but these institutions really aren’t there hardcore. And I mean lot of people say the low hanging fruit is gone and the real estate, low hanging fruit is usually gone unless you’re talking 09, 2010. Low hanging fruit has been gone for so many — for the last three or four years but you just have to know how to identify what the low hanging fruit to you is.

I love the market there, the job growth is great, I just love the way that it’s family friendly, the state — I’ve already met a bunch of people down there, I just love the whole area.

[0:35:20.4] MF: Cool, are you looking to buy the same thing, large multi-unit complexes down there?

[0:35:25.3] GB: That’s what we’re looking to do, we’re looking to replicate the whole process and I’ve been telling Jake I’m investing his chops. I say Jake, “You got the management aspect of it yet, I don’t have that management aspect, we’ve got to build a franchisable model for me to have all these systems in place from how does a leasing agent answer the call to how do you rent a unit, how you show unit, how you move the tenant in, that’s one of my fears.

Me going down because I haven’t done it yet but we would like to replicate the same exact model, where we’re trying to B and C assets under market, rents on the market, there’s no ratio, there’s no rubs installed, a lot of these value place, we want to replicate the same thing in the Florida Market.

[0:36:02.8] MF: That’s great, I’ve had my eye on the Florida market too but I keep…

[0:36:07.0] GB: Specifically where?

[0:36:08.2] MF: I haven’t decided yet, there’s different. I mean, Orlando, I’ve heard Pensacola is interesting but I’m looking more than single family play not the apartment play. Florida reminds me a lot of Colorado three or four years ago before we went crazy with our boom. I don’t know, I’m not saying Florida will Boom like we have but just the prices, to rent ratios are just so much better than they are here right now.

[0:36:28.6] GB: They’re awesome, the recreation are awesome, you get a 40, $50,000 apartment and rent it for $1,700 bucks a month. To me, you’ll never do that in New York, that’s just awesome down in Florida.

[0:36:39.3] MF: Right, then in Florida, there’s many places in the Midwest where you can get those numbers too but like you said, Florida is growing, Florida’s got awesome weather, the taxes are good, there’s some other things going for it as well besides just the rent ratios. Very cool.

All right, so I think those were all the questions I had for you, do you have any parting advice for someone who is looking to invest kind of like how you have if they’re in New York, if they’re in San Francisco and just cannot cash flow in an area where they are at? What do you think their first step should be if they’re looking to invest in a different area?

[0:37:12.0] GB: Well, the first step I think is make sure you want to be in real estate. It’s not easy, it’s not hard, it is what you make it I think. Just make sure you want to devote the time, the energy and the money to doing it. Once you jump that hurdle which most of you on this call probably already did? The second thing is to really pick a niche, pick what you want to do.

I don’t think there’s any right or wrong answer, you want to wholesale properties, that’s fine, you want to buy and hold, that’s fine, you want to fix and flip, that’s fine, you want to master lease, I think that’s great. Whatever your strategy is, really learn your strategy from the inside and out. Go on Bigger Pockets, go on my site, go on Mark’s site, there’s so many guys out there that are teaching this stuff. Learn your niche.

After you learn your niche, it’s time to jump in the pool, don’t put your little pinkie in the pool. Jump in the pool, whether the pool is big or the pool is small, just jump in and try it and then once you try it, you’ve got your education, you try it, you learn. How do you take — I always give this example, how long does it take a baby to learn how to walk? You’re going to have to tell a baby, I’m only going to give you eight months to learn how to walk.

That baby’s going to take forever to learn how to walk and that’s why babies end up walking because we let them try and fail and try and fail. What happens is, people might try and then after the first failure, “Okay listen, I can’t do this thing.” You’re not going to get it on the first or second or third try. I didn’t, you just have to be persistent and just learn from your mistakes. If something’s not working, just change a course, learn to do it long and just continue.


[0:38:37.2] MF: That’s great advice and many of the very successful investors I’ve interviewed and talked to, they did not just jump out of the gate, killing it, making a ton of money, they fail, they had to rethink their strategies but they learned while they’re doing that, they learned how to do it the right way, they just kept pushing forward.

[0:38:54.6] GB: Well Mark, I like what you did. You’re a real estate agent, I think if people want to get in to the real estate business I think they should become agents, I’m an agent in New York. I wanted to become an agent just because — not because the license, I’ve given up commissions, I don’t really strive for the commissions but it’s more for the education, more for the relationship between buyer and seller.

I want to learn all of that stuff and you’re immersing yourself in the culture, you’re going to a job, a place of business where this stuff is all going on, you’re surrounding yourself in that environment and from that environment you’ll be able to go out.

[0:39:24.0] MF: Yeah, that’s great advice. I get a lot of questions about, should I get my license if I just want to invest in rental properties or fix and flips and people have never bought a house before, never done anything. I always tell them, like you said before. First, you want to make sure if you actually like this investing things.

At least buy a property or get involved in real estate somehow before you go off and get your license and jump in to it but then if you do like it then yeah, for sure, getting your license is a huge advantage for — saving commissions is great but then being able to find deals as well is really big advantage for having your license.

[0:40:00.4] GB: Mark, what do you think about the credibility aspect too? Mark Ferguson Licensed agent or Mark Ferguson investor or investor agent? I think that having that agent behind your name gives you a little bit of credibility, it gives you the end, when you go to real estate investment club, and you’re an agent also. I think it’s just another feather on your cap, not that you need it per se but I think the education from it studying for the exam and being in that environment really helps.

[0:40:24.0] MF: Yes, I think that does add credibility as well and many investors are worried, if they’re buying off market properties or doing direct mail that they have to disclose that they’re an agent but I think it’s an advantage that you can say you’re an agent like you said because people have a higher trust factor, they can look you up online, see your license, see your website, see that you’re not just some guy off the street, trying to buy their house for a penny. I think it helps your credibility and if you’re worried about being ethical then you’re in the wrong business.

[0:40:56.2] GB: We can go there, that’s another whole show right Mark?

[0:40:58.1] MF: Right. Very cool, well, great job. You know, I really appreciate you being on, I think that’s all I had, what is the best way to reach you or Jake if someone wants to learn more about what you’re doing, getting involved with you guys and possibly do coaching?

[0:41:13.6] GB: Guys, quickest way and easiest way is to just go on to our websites, it’s Jakeandgino.com. Visit us, we’ve got a lot of products out there, we’ve got products on Newdanny.com. We can go on, we’ve created a couple of video courses on there also. Just go out there and just crush it.

[0:41:31.0] MF: Very cool. Well I appreciate it, great job, lots of good information on it. The show, I learned a lot myself so I’m glad that your other people are looking at Florida too. Of course there’s a big difference between looking at a place and actually making the jump to investing there. There’s a lot of work to be done still.

[0:41:48.7] GB: That’s right.

[0:41:50.8] MF: Great, well thank you for being on the show, I’m sure we’ll talk soon and yeah, have a great rest of the week.

[0:41:55.7] GB: Thanks Mark.

[0:41:57.7] MF: All right, take care.


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