Jerome has worked on other peoples’ deals, as well as his own. He and Joe will talk specifics on a 23 unit heavy value add deal that Jerome is still working on. What problems has he ran into, how did he find the deal, and how does he plan on going from no tenants to fully leased? Listen in now to find out. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
“I’ve watched people buy bad deals just because they wanted to get a deal” – Jerome Myers
Jerome Myers Real Estate Background:
- Serves as an executive coach, real estate investor, and business strategy consultant at The Myers Development Group
- Asset manager for over 75 units and 75,000 square feet of workforce housing across Virginia and North Carolina
- Hosts the Dreamcatcher podcast
- Based in Greensboro, NC
- Say hi to him at http://d3v3loping.com/
- Best Ever Book: Millionaire Success Habits
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TRANSCRIPTION
Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Jerome Myers. How are you doing, Jerome?
Jerome Myers: Great, Joe. Thanks for having me.
Joe Fairless: My pleasure, nice to have you on the show. A little bit about Jerome – he serves as an executive coach, real estate investor and business strategy consultant at The Myers Development Group. He’s an asset manager for over 75 units and 75,000 square feet of workforce housing across Virginia and North Carolina, and he’s the host of a podcast; it’s called The Dreamcatcher Podcast. He’s based in Greensboro, North Carolina. My mom and stepdad used to live Wilkesboro, NC, so I’ve been to Greensboro many times. With that being said, Jerome, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Jerome Myers: Sure. My formal training is in engineering; I’m a civil engineer, licensed in North Carolina, Virginia, New York and Texas. I got an MBA, and in my last corporate America job I built a 20-million-dollar division in a construction company.
Today we’re focused on small multifamilies, really buying things that are between 20 and 50, but looking to scale that up to 75 to 150 over the next couple of years. Our ambition is to hold 1,000 doors by 2028.
Joe Fairless: Great. You’re an asset manager currently for 75 units, correct?
Jerome Myers: Yes.
Joe Fairless: Okay. Is that your own company, or are you employed by another company?
Jerome Myers: No, that’s my company. We’ve partnered with some old friends.
Joe Fairless: So those are your deals?
Jerome Myers: Yes. We’ve been the lead on two of them, and then we’ve put together the strategy on another one, but it was another person’s contract.
Joe Fairless: Okay. So you’re the general partner on some, and then you’re brought in as an asset manager for others?
Jerome Myers: For one we were hired in/brought in as a partner. So we’re a partner in every deal, we buy in every deal. The first deal that we got in, we didn’t have multifamily experience, so we had to partner with others that did… So we came in as kind of a strategy partner, we also brought some cash to the deal, and then from there we were able to take that experience and roll it into our own deals. We’ve been really focusing on Greensboro, NC since that point.
Joe Fairless: Oh, great. Let’s talk about that first deal, and then we’ll go from there. Tell us about the first deal.
Jerome Myers: The first deal is a 23-unit building in Richmond, VA. It was a heavy value-add. We are spending — I don’t know if I can disclose it, but we’re spending a lot of money there. We’ve purchased that property for 1.3 million, and we’re looking to start leasing that one up this summer. So we’re about 60%-70% through renovations at this point.
Joe Fairless: And you mentioned you helped with the strategy and you brought cash… What’s been your more specific role with that deal?
Jerome Myers: We had to come up with an initial construction strategy; we also were instrumental in the business plan development. We helped create the PowerPoints and present those to the bank, and we also solicited a couple a couple of investors to help fund the down payment.
Joe Fairless: When you created the presentation and did it for the bank, what are some things that you learned through that process?
Jerome Myers: The numbers matter. For this property they didn’t want lipstick on the pig. They really wanted us to come in and improve the property. The previous owner had a ton of deferred maintenance, and the property was just falling into disrepair… So they were looking for somebody to come in and really upfit the units, make them look nice. The area that we bought in is pretty affluent. A lot of the homes are 300k plus, which may sound cheap for some of the markets, but for Richmond, that’s one of the more affluent areas, so we’re taking rents from $695 up over $1,100. We’re hoping for $1,195.
Joe Fairless: Wow. That’s a huge jump. Have you achieved those rent premiums?
Jerome Myers: We pre-leased two units. We ended up deviating from the initial business plan that we set out on. We were going to upgrade units as people’s leases expire, and we’ve cleared out the whole complex and we’re doing everything all at the same time. We’ve already leased up two, so yes, we are getting those rent premiums.
Joe Fairless: So you have no residents living at the property right now.
Jerome Myers: No. It’s a dead asset, which is one of my biggest fears. We haven’t done that on any project afterwards, but this one we’ve got some pretty strong financial partners in the deal, so we’re able to carry the note.
Joe Fairless: Is that the reason why you did it, is because you have the cash to float the property, versus leasing it up as leases expire?
Jerome Myers: We found out after we got into the deal that there were some big plumbing issues. The property wasn’t functioning well enough to keep people there, or trying to keep people there while we went through the construction, so we felt like it was just better to clear it out and be able to get in, hit it really hard with all the trades; it ends up being more efficient.
There’s really two schools of thought on that – some people wanna clear it out, bring everybody in, wham-bam-thank-you-ma’am, get back out. Then there are other people who prefer to turn units as the leases expire. I think I’m more of the school of thought of the latter, but on this project, with the amount of renovations that we’re doing, we’re gonna have basically a brand new property when we get done… So this approach is actually working pretty well for us. Except for the fact that we have to pay a mortgage every month.
Joe Fairless: Yeah, those are details… [laughter] How are you able to remove residents if their leases did not expire?
Jerome Myers: When we buy assets, we’re typically looking for ones where the majority of the residents are month-to-month. That happens a lot with the mom-and-pops that we’ve been running into. They aren’t renewing the leases and they don’t have terms in the leases where there’s a premium for being month-to-month… So we try to come in where either they’re month-to-month, or they expire in those first six months of ownership, so that we can get in and do our thing.
Joe Fairless: That’s the 23-unit… What was the next deal?
Jerome Myers: The next deal was two addresses, but the total deal was 28 units. It was 20 townhome units at one address, and then eight one-bedroom — two side-by-side quads, I guess that’s the best way to describe it, at another address.
Joe Fairless: Okay. Where is that located?
Jerome Myers: In Greensboro, NC.
Joe Fairless: That one’s in Greensboro… How did you come across the 23-unit, by the way?
Jerome Myers: It was on market. The funny story with that is I tried to buy the deal by myself in January, and then I got connected with another group of folks who were interested in the same deal, and eventually we closed it in November of that year. It’s funny how things come full circle.
Joe Fairless: And why didn’t you buy it on your own?
Jerome Myers: I didn’t have the multifamily experience. When I went to the bank, they said “Yeah, this is nice, but what loan have you signed?”
Joe Fairless: The 28 units, that portfolio – how did you find that portfolio?
Jerome Myers: Direct mail.
Joe Fairless: Can you elaborate on your process for direct mail?
Jerome Myers: Yes, we created a letter, sent it out to 50-60 owners, we pulled the list from the city’s GIS/county’s GIS; we got the addresses of the businesses or the owners of the properties, sent out letters to them with our phone number on them, and we got a pretty high response rate. We looked at probably three or four deals out of that mailing, and we were able to close one.
Joe Fairless: What did you write in the letter?
Jerome Myers: We told them that we’re looking to buy properties in their market, we told them what type and size of properties we’re looking to buy, and we told them that we know that it’s not being actively marketed, but there are many reasons why people might sell. In this instance, the owner was ready to retire, so he was willing to divest with the property without going through a broker and all the other rigmarole that a lot of people do when they’re trying to get top dollar for their property.
Joe Fairless: And what was the reason why he went with you all, versus going with a broker?
Jerome Myers: I think it was just ease of sale. He was very confident that we were gonna close from the beginning, and we built rapport; there was never a question in his mind on whether or not we were gonna close. I think he would have spent a whole lot more time marketing and maybe had to make some more investment if he wanted to take it to LoopNet, or CityFeet, CREXi or something like that, in order to get the dollars that he wanted out of the property, after paying the broker.
Joe Fairless: If you wouldn’t mind, please walk us through the interactions that you had with him. Will you tell us a little bit about how that conversation went on the first time you talked to him, when he was calling you, after he received the direct mail piece?
Jerome Myers: I put my phone number on the bottom of the letters and told him to call me if they’re interested… And he did. I answered the phone; he asked if it was me, I confirmed it was, and then he began to tell me a little bit about his property. I asked how soon I could tour it, and then I think it was that day or the next day he and I met on the property. We did a brief tour around the outside. He had a vacant unit, so we went in one of the vacants. Then we discussed what he was looking for out of the property.
I went back to my model, made sure that the numbers worked, and then I submitted an LOI. We negotiated some of the terms of the LOI and then went under contract. From there, we closed it in 75 days.
Joe Fairless: When you were having that initial meeting with him at the property, you said that you talked to him about what he was looking to get for the property… How much was he looking for during that conversation?
Jerome Myers: I think he asked for 860k.
Joe Fairless: He asked for 860k. That’s a very specific amount. And what did you say at that point in time, while you were on-site?
Jerome Myers: I just told him we’d have to look at it, I’d have to look at what he actually collected in rent, because it’s very different what people collect versus what they show on the spreadsheet. I needed to go through and actually do an inspection of each unit to make sure that I understood the condition of the entire property, so that I could make a reasonable offer. But in concept, I thought he was in the right ballpark, so I thought it was okay in concept; he felt good about that, and we kept moving through the process.
Joe Fairless: And just so I’m clear, you mentioned that you needed to see every unit before you could make a counter-offer to him? Did I hear you correctly?
Jerome Myers: That is not what I meant to communicate.
Joe Fairless: Okay, maybe I misheard.
Jerome Myers: I just told him that in concept I thought his price was close to where we could be, but before I got to a final number, whatever the closing number is might not be what that LOI number is… But I just wanted to be transparent with him that we were gonna go through every unit and make sure that the property was in good shape, because we weren’t going to pay for things that were wrong with the property going in. We would ask for some type of credit. I just wanted him to understand that, just because if we agreed on 860k, or 850k, or 840k, whatever we agreed on on that day, that a month later, two months later, when we got down to the wire, if we found out there were issues with the property, that we were gonna be looking for some help from him on those issues.
Joe Fairless: What was the final purchase price?
Jerome Myers: The final purchase price was 840k, and then there was another 10k-15k in closing concessions.
Joe Fairless: Okay. The LOI terms that you initially sent to him, what was the price that you initially proposed to him?
Jerome Myers: I think I sent him 840k.
Joe Fairless: 840k, okay.
Jerome Myers: I’m pretty sure I sent him 840k, yeah. In fact, he brought it up towards the end, when I started asking for closing concessions. He’s like “I asked for 860k, you came in at 840k. You should take that money and apply it to whatever closing concessions.” I was like, “No, we found out new information, so we need to make an adjustment on the deal because of that.”
Joe Fairless: What LOI terms were negotiated during the process?
Jerome Myers: Just the closing date. I think we put in we were gonna close July 31st or so, and he wanted to close at the end of June, so that it’d be a clean break, basically. He’d have the first half of year, I’d have the second half. We kept the 07.31. and said “We’ll close earlier if we can”, and that was gonna be a function of them providing all the documents that we request, the appraisal going as planned, and the bank being ready to fund. And in fact, we closed on July 5th, if I’m not mistaken.
Joe Fairless: And what are some things from an execution standpoint, now that you’ve closed, that you’ve come across from a challenge standpoint?
Jerome Myers: I was probably gonna save this for the end, but make sure when you’re doing your inspection that the utilities are on in every unit. A lot of times the landlords will cut off utilities if the units are vacant, especially in the summertime, because they don’t have the risk of pipes bursting… So one of the units had a broken pipe in it. When we turned the water on when we started renovating it, we found that out after closing. It wasn’t a huge amount of money to get it fixed, but it was something that I should’ve known about.
I think the other thing that’s a big deal is appliances and understanding what condition the appliances are in, because they’re one of the bigger ticket items in the rehab budget. In the past I hadn’t paid attention to it, but as we’ve turned 11 of the 20 units at this property, that thousand dollars for a refrigerator [unintelligible [00:15:57].12] just keeps popping up, and at times it gets frustrating, because I feel like if people were living there, then the appliances were functioning properly, and then all of a sudden, when we get in there and we’re making it ready for the next person, they’re not actually functioning the way that you would expect them to.
Joe Fairless: You had a 23-unit, then a 28-unit portfolio… What was the next one?
Jerome Myers: A 26-unit in Greensboro.
Joe Fairless: And was that direct mail?
Jerome Myers: That was back on LoopNet, believe it or not.
Joe Fairless: Wow. You’ve got a smorgasbord of ways you find deals. One is through a fully-marketed deal, another is through direct mail, and then the third is LoopNet.
Jerome Myers: Yup.
Joe Fairless: So you reached out to the owners directly via LoopNet, or were they represented by a broker?
Jerome Myers: They were represented by a broker, and by far this guy has been the best broker that I’ve worked with thus far in real estate. He’s responsive, he wants things to be done fairly, and he doesn’t mess around with a bunch of nonsense. He just wants to get the deal closed, and make sure that everybody is playing fair ball… So I really enjoyed working with him.
Joe Fairless: What was the purchase price for the 26-unit?
Jerome Myers: 1,375.
Joe Fairless: $1,375?
Jerome Myers: No…
Joe Fairless: [laughs]
Jerome Myers: $1,375,000. [laughter]
Joe Fairless: Ohh… I dared to dream. Okay… And what’s the business plan for this one?
Jerome Myers: This one is something different than what we’ve done. It’s near UNC Greensboro, and they were leasing this property as student housing, even though about 50% of the residents weren’t students. So they were charging basically $420/bedroom, and some of the units, at least 4 of the 26 units only had one person in a bedroom… So you’re getting $420 for a unit that’s $820.
Our business plan is we’re converting from student housing to workforce housing. Also, in that shift, we’re gonna give the utilities back to the residents, and that should drop about $40,000 to $55,000 to the bottom line.
Joe Fairless: How active are you with the 26 units business plan?
Jerome Myers: I’m the asset manager, so I’m on point for everything. We’ve laid the plan out with the property manager. We’re gonna consolidate those four units into two, where only half the unit is leased. We’re gonna put those two units online, and then as leases expire, we’re gonna get folks to migrate to the new leasing program, but if they wanna transition, then that’s okay, too.
The thing that we’re concerned about, or our big risk point in this business plan is in July we have 18 of the 26 leases expiring, so we’ve gotta make sure that our cash coffers are ready to take on the mortgage for a month or two if we have to.
Joe Fairless: Based on your experience, what’s your best real estate investing advice ever?
Jerome Myers: Trust your numbers. If you know how to model and you know what rents are, don’t chase a deal just because you’re close. I’ve watched people buy bad deals just because they wanted to say they had a deal, and then once you buy a deal and you’re too high in your cost basis, there’s no fixing that part of the deal… So make sure you trust your numbers when you’re going into a deal.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Jerome Myers: Yes. Alright, let’s do it. First, a quick word from our Best Ever partners.
Break: [00:19:42].05] to [00:20:41].29]
Joe Fairless: Best ever book you’ve recently read?
Jerome Myers: Millionaire Success Habits by Dean Graziosi.
Joe Fairless: Best ever deal you’ve done?
Jerome Myers: The 26-unit is the best deal we’ve done. We’ve purchased that for $1,375,000, the appraisal came back at $1,750,000.
Joe Fairless: That’s a nice appraisal. I did the 23 units, 28 units and 26 units – does that equal 75, or am I missing another deal?
Jerome Myers: I think it’s a little over 75. I just used round numbers.
Joe Fairless: Alright, cool. What’s a mistake you’ve made on a transaction?
Jerome Myers: I’ve talked about it a little bit before, but it’s not making sure that the utilities are on when you go into a unit. It came up in multiple places. I talked about the busted pipe, but at another property utilities weren’t on, and we weren’t able to check A/C units… So I found out the hard way that the A/C units weren’t working properly. In one instance we replaced two whole systems.
Joe Fairless: Best ever way you like to give back?
Jerome Myers: My family has a full scholarship in North Carolina Agricultural and Technical State University, for engineers. We wanna continue to grow that. And then the other way is through our podcast. I feel like we help a lot of people with that.
Joe Fairless: How can the Best Ever listeners learn more about what you’ve got going on?
Jerome Myers: They could check out our website – it’s d3v3loping.com. They can reach out through the Contact Us form there.
Joe Fairless: Jerome, thank you for being on the show and talking to us about the deals that you’ve done. I love talking about deals and I love getting into the specifics, so thank you for getting into the specifics of the deals and the business plan, and how you found the deals, that’s really interesting. Best Ever listeners, if you wanna find a 28-unit portfolio, put together a direct mail campaign. You got, as you said, 3-4 responses by mailing out to 50-60 owners, and ended up closing on a transaction.
Thank you so much for being on the show, Jerome, talking us through what you’ve done so far. I hope you have a best ever day, and we’ll talk to you soon.
Jerome Myers: You too. Thanks, Joe.
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