JF2253: When A Lay off Becomes an Opportunity With Mark T Hutton

Mark is a Purdue Mechanical Engineer who lost his corp job after 27 years to pursue full-time real estate. He feels that losing his job was the best thing that has ever happened to him because now he is doing what he enjoys doing, he is now known as the “apartment guy” in his community and his wife also has gone full-time in the business too. 

Mark T Hutton  Real Estate Background:

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“Screen your property manager & make sure they have a good vetting process so you will have great tenants” – Mark Hutton

TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners and welcome to the Best Real Estate Investing Advice Ever show. I’m Theo Hicks and today, we’ll be speaking with Mark Hutton.

Mark, how are you doing today?

Mark Hutton: Doing great, Theo. So honored to be on.

Theo Hicks: Oh, absolutely. Thanks for joining us. Looking forward to our conversation. Before we dive into that, a little bit about Mark’s background. He’s a Purdue Mechanical Engineer who left the corporate world after 27 years to pursue real estate full-time. He has 10 plus years of real estate investing experience, with a portfolio that consists of a single-family, multifamily apartments and assisted living facilities. He is based in Cincinnati, Ohio, and you can say hi to him his email address, which is MHutton@mainstreetinvst.com.

So Mark, do you mind telling us a little bit more about your background and what you’re focused on today?

Mark Hutton: Sure, absolutely. So as you said, I’m a mechanical engineer, but I took that degree straight into technical sales. I worked in technical sales primarily in automotive and aerospace for many, many years, calling on customers and frankly, really enjoying the people aspect of that side of the business, using both sides of my brain, I guess. And actually, when it says, “I left the corporate world”, it left me with a layoff, and in hindsight, a better thing couldn’t have happened.

So we had started dabbling in real estate —  well, I was a reluctant landlord back in ‘09, when frankly, I was about to lose my house after a layoff, and obviously the top of ‘09 was not a great time to try to unload a nice big house. So, a realtor came and said, “I’ll rent that.” She did, quickly, and I became a landlord. Sold that a few years later to the residents and didn’t jump back in until 2013. After selling that, I bought my first single-family. I bought a couple more single families with my then-girlfriend, Janet. Then we made some mistakes, found our local REIA club here in Cincinnati, and that opened a ton of doors for us. And that’s when we got introduced to apartments, and how to potentially scale a business and actually turn it into a business. And in between that time is when I got laid off and decided, “Hey, we’re going to try to do this full-time” and we’ve been doing so ever since.

Theo Hicks: So had you been investing in real estate before you left the corporate world?

Mark Hutton: Yes.

Theo Hicks: Okay.

Mark Hutton: Yeah, we had. So my job went away in early 2017. We bought our first house to rehab and hold in 2013. After doing that house, we bought a couple others, and then a fourplex. We learned about apartments through Anthony Chara and his Apartment Mastery Bootcamp; went to that, completely fell in love with both him, the class and the possibilities for us. And from there, we bought our first 13-unit building with students from that group. And it was after that, and on my way to buying a 25-unit that my company let me go. And again, it was a terrific thing. We’re still trying to replace our corporate incomes… My wife was then laid off six months after I was, but we’ve kind of narrowed down all the squirrels, all the things that you can do in real estate, which are multiples, and focus on two things.

I concentrated on the apartment syndication side of our business, and Janet and I developed an assisted living home. And Janet is the administrator and runs that. Here in the Midwest, it’s fairly uncommon to have a residential assisted living home built into a house, but out west, that’s pretty common. So we’re bringing that concept here to Cincinnati and we opened that just this past September.

Theo Hicks: Perfect. Let’s focus on the syndications first, and I’ll ask a few questions on the Assisted Living Center. So you said you did a 13 unit deal and a 25 unit deal. 13 was with that group, and I’m assuming that 25 was on your own. Did you raise money for both of those deals, or was that using your own money and then moving forward you were going to start doing syndications?

Mark Hutton: So the 13 unit, it was just the five members pooling our own money, and we certainly used all our own money in that one. It was a small deal, we only needed to raise 100 grand, and the five of us put that together fairly easily. The 25 unit, we needed to raise 360k, and we did that with our money and a very small group of investors with us. That was still a partnership deal. From there, we branched into syndication. We did our first syndication on a 40 unit property and we bought just a little over a year ago, and we raised 600 for that in a full-on syndication. For the next one we syndicated – we raised just over a million dollars for it.

Theo Hicks: So for the 25 unit deal, who were the investors on that deal? How did you know them? How did you meet them? How did you get them to invest?

Mark Hutton: Most of them were acquaintances from the REIA Group here in Cincinnati. So it was people that we knew and had been talking about our deals and we found this one, and they wanted in and we wanted them in, and formed a partnership. It was six total people, including my wife and I. So my wife and I, and four others, and that’s the way we got started with that one.

Theo Hicks: So you presented the deal at the REIA group, or did people there based off of kind of your conversations know that you were doing apartment deals and that you would need money? I’m curious of how it became a reality. They approach you and say, “Oh, you’re doing this deal. I want to invest”? Do you approach them, or was it something that kind of happened organically over time?

Mark Hutton: Probably a little bit of both. I’m a big mouth, so I talk a lot, and everybody knows that I do apartments. I love being called the “apartment guy” in our local REIA. We have a pretty big REIA with probably nearly 1000 members. So because of my blabbermouth, I guess it comes from my sales background, everybody knows that that’s what I was doing. So when I did stand up in the REIA and say, “Hey, I’m looking at an apartment deal. If you’re looking at potentially investing in one, come and talk to me.” This was before I fully understood some of the SEC implications of doing so… But I didn’t show any numbers, so I was compliant, and then talking to people about it and got them interested in doing the deal. And then we took it down.

After that deal, then we got a bit more serious in raising money and doing the syndication and doing it right. I still found many of the members through networking through the REIA groups, as well as other groups I’m associated with. And in the meantime, I’ve also — because there wasn’t a big apartment focus in our REIA club here in Cincy, I went to the board and said, “I’d like to start an apartments focus group.” And they basically said, “Are you going to volunteer?” I said, “Yeah.” So they allowed me to start an apartments focus group and it quickly became one of the largest groups within the Cincinnati area, which I’m quite proud of. So that allowed me to help teach other people how to do this, even though I was a relatively newbie with just two transactions in and working on a third at the time when we started it. So again, that further networking and further talking to people about what you’re doing.

Theo Hicks: The people at this focus group, were they people who are interested in doing syndications themselves, or are they people who are interested in passive investing in syndications?

Mark Hutton: It was a pretty wide variety of a group. Some were looking for passive investments, many were just curious about what is this commercial multifamily thing, many of them just from a single-family background and, “How is that even possible to go buy a million-dollar property?” Frankly, the same thing I thought four years ago myself, and now we have no problem going and signing million-dollar loans and taking them down. So there was a mixture of people, and again, really the common thread there was everyone was looking for knowledge on how to invest and how to get involved in the commercial segment. And I did my level best to help teach them, and I really found that’s something I really love is teaching as well.

Theo Hicks: So of your investors = let’s kind of break it down here. You started the focus group before or after that first $600,000 full raise?

Mark Hutton: Before that full raise, yes.

Theo Hicks: Before. Okay. So maybe you can give us a breakdown of the $600,000 you raised and maybe the million dollars you raised. What percentage of those people came from the REIA group as a whole and then what percentage of those people either directly came from or indirectly came from that focus group that you created?

Mark Hutton: So because we’ve been pretty active in the REIA club since we joined – and that hasn’t been all that long ago, about three and a half years ago, I guess – I would say three-quarters of them came from the REIA group. No, I guess almost all of them came from the REIA group, because of the apartments focus group is just a subset of the Cincinnati REIA group. But yeah, probably a quarter of them came from getting to know me better and spending more time with me once a month at this focus group. And then the rest came from more the general REIA population.

Theo Hicks: You say you’re pretty heavily involved in the REIA group; in addition to this focus group, what other things are you doing besides just showing up?

Mark Hutton: Well, I do show up and I show up frequently, and I’m always getting engaged. I’m always having conversations with people, seeking out people that have done things I haven’t done, expanding my knowledge in areas way beyond commercial, people doing self-store and mobile homes and Airbnbs and wholesales and flips and all these kinds of things… Because the more broad knowledge you have, the better you can relate to people. So that allowed me to open other doors. And then when they turned the tables back and say, “So what are you doing, Mark?” I say, “Well, I syndicate apartments and I raise money with investors looking for safe avenues for passive investing,” and that opens those doors for me.

In addition to that, I have presented a few times as a speaker at the REIA meetings, and we do have an “Ask the Expert table” I’ve done a couple of times on the commercial apartments. But frankly, the majority of the time has been networking within the club and within their functions.

Theo Hicks: Thanks for sharing that. So let’s transition really quickly to the Assisted Living Center. So obviously, you’re doing both at the same time, but maybe walk us through why you decided to expand into that sector.

Mark Hutton: So Janet and I were pretty involved in the apartment sector, and again, at that point, we had both been laid off, so we were putting all our energies into that. We attended the OREIA conference, which I think it’s one of the largest in the country; it happens to be right here in Cincinnati, The Ohio REIA Real Estate Event, and we listened to a gentleman named Gene Guarino.

Janet’s background is a speech pathologists, a long career in speech therapy, and had worked in nursing homes the last 10 years, and when we heard Gene talk about residential assisted living, coupled with Janet’s woes from working in the big box nursing homes, she looked at me in one minute and we knew that we were going to go do this. This became a very passionate project for Janet. So we’ve taken a parallel path since that time with Janet taking lead on that. And obviously both of us pretty involved in it, and it’s a substantial investment, even in a single-family home… But that’s how we got introduced to that. Also did a boot camp with Gene Guarino out in Arizona, and got started that way. It was actually a two-year-long process from the time we started looking for a suitable home until opening, so it was quite a development process.

Theo Hicks: Perfect. Okay, Mark, what is your best real estate investing advice ever?

Mark Hutton: I would say network, network, network. Talk to everyone that you know, ask questions, find out what they are doing and get involved in what they are doing. And then when the tables turn, you can seek out the things that you’re looking for as well. If you can add value to the conversation, then you’ll become valuable to them and they’ll be more interested in the things you’re doing.

So aside from networking, I’d say just tenacity. We certainly have had some setbacks. The first rehab house we did, we finished it and then a pipe burst, flooded during the winter, froze. We had to rehab it again, but we never stopped. So tenacity and networking I think are my best advice.

Theo Hicks: Okay, Mark, are you ready for the best ever lightning round?

Mark Hutton: Yes, sir.

Theo Hicks: Okay.

Break: [00:15:15] to [00:15:58]

Theo Hicks: Okay, Mark, what is the best ever book you’ve recently read?

Mark Hutton: I’ve reviewed it recently. I’ve read it some time back and it really changed everything I looked about in real estate, which is Debt Millionaire from George Antone. George is a brilliant financial mind anyway, and completely changed my point of view on structuring debt and how to use debt effectively and safely in transactions, even as they get larger and larger.

Theo Hicks: If your business were to collapse today, what would you do next?

Mark Hutton: I think during the process, especially with a focus group, I’ve found that I really enjoy teaching. So if all the properties and everything went away, I would probably continue to do that. I would probably take my knowledge and probably put a new stake in the ground and try to rebuild an apartment business again, because honestly, I truly get excited about it. I truly love it. I might make a little more time for rebuilding my old motorcycles, but I’d certainly get back in the game because, like I say, I’m thoroughly enjoying things.

Theo Hicks: Tell us about a time you lost money on a deal. It might have been that pipe bursting story you told us about earlier. Tell us how much you lost and then what lessons you learned.

Mark Hutton: So after that property – and I lost some money, but nothing that’s substantial – I bought a turnkey rental property. I didn’t know much about turnkey. We didn’t even know what REIA was at that point. We bought a turnkey through a broker, it was in Kansas City. I broke every rule in the book. I looked at pictures, but I never went to see the property personally. I paid full retail, because it was supposed to be rehabbed to a high standard, it was supposed to have great tenants in it at the time of closing. None of that happened. And I still had paid full price for it.

Over the course of three years, I lost money nearly every month I owned it, as the residents trashed it, as the rehabber didn’t fix things that should have been fixed, that I had to fix over time, and crummy property manager that I didn’t get the opportunity to vet, because I just bought them with the deal.

So again, when I finally had the opportunity, I was contractually able to get out from under the property manager and sell the property, I sold it to a wholesaler in Kansas City through their REIA and lost $30,000 on the sale. So I usually summarize it as pretty much lost money every month and then lost 30k at the end. Lesson learned. Never buy a property without putting your human eyeballs on it. Pictures are great, but they cannot tell the whole story that your property managers do; everything we have, even single family — I have right six doors down from where I’m sitting right now, we have professional property managed. But vet your property manager and make sure they’re someone that you can really work with. So go see the property, vet your property manager and make sure your property manager has good vetting processes for the tenants as well. You want your residents to take care of your place. And none of that happened in this deal.

Theo Hicks: Well, let’s talk about the best deal you’ve done; the deal you’ve made the most money on or best in some other form.

Mark Hutton: The best one was when we syndicated and we closed just after Christmas this past year. It was a receivership deal. It’s a very large deal. 239,000 square feet of commercial space. Again, because of networking and getting to know the brokers in the area. One of the brokers is a receiver, and he showed me this shopping mall. And I said, “That’s retail. Go away. I don’t want to talk to you.” So after months of haranguing me, I finally took a look at it.

This property had a $6 million loan on it, it was in receivership, the bank had foreclosed on it, and we were able to get that under contract for just over $2 million, and the $6 million loan vanished. So we’ve picked up almost a quarter-million square feet of commercial space, about 40% occupied, for just over $2 million. That’s the one we raised a little over a million dollars for, because it had a lot of deferred maintenance as you might imagine.

So we’ve only operated that for a few months, but all the tenants there have not missed any payments. They’re all credit tenants. We’re learning about the commercial rental space, because that’s something we weren’t familiar with. I’m more familiar with apartments. But even though it’s only 40% occupied, it’s operating at a terrific cap rate, well into double digits cap rate, and the sky’s the limit as to the ultimate valuation. Our plan is in four years get the value back up to 6 million and then flip it and triple all our investors money and make everyone happy.

Theo Hicks: That is an amazing deal. Alright, Mark. The last question, what’s the best ever place to reach you?

Mark Hutton: To reach me, reach out on my email. As you said before, that’s MHutton@mainstreetinvst.com, and our company is Main Street Investments. It’s at mainstreetinvst.com. And I look forward to talking with you. I really enjoy helping newbies out. I get people calling me all the time, “Hey, I got this deal.” Helping people walk through a deal, walk through numbers, whatever. If I can help them out, I’m always happy to do so.

Theo Hicks: Perfect, Mark. Well, thanks for joining us, and Best Ever listeners, that link to the email will be in the show notes, so you won’t have to mess up and actually put the E in there. But Mark, thanks for joining us. I really enjoyed our conversation, and I would say the biggest takeaway that I got and I’m sure the Best Ever listeners got as well is how you walked us through exactly how you went from doing these smaller single-family deals to going into a coaching program, and from that coaching program you were able to do a 13 unit deal with a bunch of partners for the total raise of 100K, so $20,000 each out of pocket. And then from there, you transitioned to doing a 25 unit deal and this was people that you met at your REIA.

You talked about the power of the REIA group when it comes to raising money, and you mentioned more specifically what you can do at the REIA, you mentioned that everyone there knew that you were the “apartment guy”. And really, whenever you talked to anyone, you’d first ask them questions, get to know what they’re doing, gain information and knowledge from them so that you can in turn relate with more people. And then eventually, when the tables turn and they asked what you’re doing, you kind of have your, “I do apartments. I raise money from passive investors; here’s the benefit of it.” And from there, you were able to raise most of your money from people at the REIA event.

Eventually, you started to give presentations and be in panels there, and then ultimately, you ended up creating your own focus group on apartment specifically. But overall, the concept is to go to REIA every time they have a meeting and be engaged. And the cherry on top would be becoming a speaker and starting your own focus group. But just by going there alone can result in you obviously doing deals, learning more, and also having people that can invest in your deals. And that was essentially your best advice to which was too, which was to network, to make sure you’re asking questions and then get involved in what they’re doing, add value to them and then in turn, you’re valuable to them and you can then seek what it is you want to get.

And then your other piece of best ever advice was tenacity. You gave the example of a pipe bursting, which Best Ever listeners who are loyal know all about my story of my first deal with the pipes bursting, so I can completely relate to you when it comes to pipes bursting and having to work your way through that.

So again, Mark, I really appreciate you joining us. Best Ever listeners, as always, thank you for listening, have a best ever day and we’ll talk to you tomorrow.

Mark Hutton: Thank you. Take care.

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