JF2384: Scaling Through Trial And Error with Matthew Tortoriello

Matthew started his real estate journey at 16 when he purchased a two-family home with his grandmother’s money. Four years later, he bought another property that was a challenge to manage. That experience taught him a lot of lessons that he applied later in his career.

With two other partners, he acquired a two-family house that he managed and renovated. After buying several more units, getting a construction license, and founding a property management agency, they were still looking for new opportunities. That’s when Matthew met a new investor and future partner who helped them take the business to a new level.

Matthew Tortoriello Real Estate Background:

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Best Ever Tweet:

“Don’t focus on learning everything because you’ll never learn everything. You’ll learn a lot along the way” – Matthew Tortoriello. 

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 Matthew Tortoriello. Matthew, how are you doing today?

Matthew Tortoriello: Good. Thanks for having me on, Theo.

Theo Hicks: Yeah, thank you for taking the time to speak with us today. A little bit about Matthew. He’s a full-time real estate investor, as well as a property manager. He has over 25 years of real estate experience and his current portfolio is at 250 units. He’s also flipped 100 units and has wholesaled over 200 units. He is based in Springfield, Massachusetts. His website is yellowbrick.org. So Matthew, do you mind telling us some more about your background and then what you’re focused on today?

Matthew Tortoriello: Sure. Thanks, Theo. I actually started getting involved in real estate when I was 16 years old. I kind of read Rich Dad Poor Dad, got all excited, and I went and bought a two-family house —  I borrowed money from my grandmother actually– in Pittsfield, Massachusetts. I kind of got my feet wet, where I wanted to learn everything, try to manage it, and fix everything… About a year later, I sold it, and learned a lot of lessons there. What not to do, basically, how not to manage… It was definitely education. I broke even on everything, but it was more of an educational experience.

Then four years later, I got into some multi-families out in Michigan, and to be honest, I lost my shirt there. I hired a property manager because I thought “Alright, now I’m going to hire a manager and learn from the last experience.” Unfortunately, it was hard to manage from afar and I got taken advantage of. Eventually, the four-family got completely robbed – the toilets, the heating system, everything gone. The insurance company refused to pay for it, so I had to take a full loss there, which sucked.

Forward a few more years back in ’07, I said, “Alright, I’m going to try this one more time.” Because I’m a glutton for punishment. I convinced my business partner now –my best friend at the time– Kevin, and also my girlfriend at the time, to buy a two-family. I’ll spend all the time, you guys keep working, we’ll fix it, we’re going to make tons of money. So we bought it two-family in Springfield, Massachusetts, and basically I spent a whole bunch of time — I learned how to renovate everything, I went and got my contractor’s license, we spent many hours renovating that two-family, and then rented it out. We’re like, “Alright.” We refinanced it and pulled out the money. We bought another two-family and did that a few times. We got to a point where we’re like, “Alright, we only have so much money. How do we grow from there?”

While I was actually at a gymnastics class, I was just chatting about what I’m doing and this gentleman who had just sold some property down in Mexico was interested in reinvesting, as well. We got involved together and he started investing. That’s when we kind of started blowing up and putting offers in on a lot of stuff, and kind of growing from there, where we got up to about 500 rental units. We actually had built a management company around it, because we couldn’t find a good management company in the area… So we kind of just figured out, “Alright, we’ve got to put these people here [unintelligible [00:06:26].01] this system there.” In Massachusetts, it’s a very tenant-friendly state, I guess, it’s the best way to say it, so there’s a lot of legal battles you’ve got to fight and a lot of hoops you have to go through to make sure you can get your tenants evicted, if need be, or just everyone paying your rent. So we just had to build systems around it, and how to handle and how to screen your tenants really well.

Over the last couple of years, we’ve actually shifted into doing some more wholesale deals, flipping some houses, as well as selling off some of our portfolio that were not the best-performing, I guess. So now, as Theo said, we’re down to about 250 units we have right now; we’re still wholesaling and flipping about 70 to 80 deals a year. That’s kind of our focus right now.

We’ve also started managing for a few other people, because people have been approaching us over the years, “Hey, could you manage our stuff?” Before, we were like, “No, no, no. We have our own units. We’re not really interested in that.” But we have actually a really great team, we’ve sold off some of our units, so we have the capacity… So we said, Alright. Why not?” We’ve taken on a few management clients. We’re kind of picky and work on being selective on who we’ll manage for, and we just want to make sure that we’re all like-minded.

Other than that, we actually started also a YouTube channel to give back to the community, because we found that it was really pivotal on our growth, was that other landlords in the area were willing to share their knowledge and advice and help us not make the same mistakes they made. So we want to do the same thing for future generations.

Theo Hicks: Great, Matthew. Thank you for sharing that background. So a few follow-up questions… You said you met the guy, Theo, actually, at a gymnastics class. Was it really as simple as just talking about it and then he’s like “Oh, I’m in”, and then the next day he wrote a check? How did that relationship develop? Also secondarily, at that point, how many deals have you guys done?

Matthew Tortoriello: So first, we were on our third deal. That was our third duplex actually. I’d been going to the class for about a year; actually, he was the one who kind of started the adult gymnastics class. I’m just a talkative guy, so I was just sharing what I was doing, just talking about it, how excited I was, and he was very intrigued by my passion, so he asked if I would have lunch with him, and we sat down and we had lunch. I told him a little bit more about what we were doing… And I still didn’t think that we were going to be an investor, or anything like that; it was just more just shooting the breeze with this guy. Then he invited me over and we jumped on his trampoline, we’ve talked more, and then all sudden he’s like, “Well, hey, I just sold some property in Mexico. I’m looking to redeploy some money. Would you guys be interested in having me partner with you?” I’m like, “Well, yeah.” At that point, we were like “How are we going to keep growing?” We didn’t have a huge background with banks and stuff like that, and a huge financial background, so we thought that leveraging his other business as well as his funds would allow us to grow to that next level. So we kind of went from there.

Theo Hicks: So you had three duplexes. How long had you been doing this for, at that point?

Matthew Tortoriello: In that stage of the business, about three to six months.

Theo Hicks: That was really fast.

Matthew Tortoriello: Yeah. We got the first duplex and we got it renovated. I was spending late, late nights until two or three in the morning –I don’t really sleep anyway– just working on it. We got it rented right away as we were renovating it. People kept coming up to us, “Hey, when’s that ready for rent? When does it rent?” So we rented it right away. At that time, we already had a hard money lender lined up, so we just kind of segued into the next one… Therefore it was the BRRR strategy. We BRRRd it or refinanced it with a local bank and just kept rolling it from there. It was kind of a snowball effect for the first three, but then we were like, “How do we keep growing?” Because we could only get so many loans at that time.

Theo Hicks: It’s a good idea of the capability that you had – so you had three duplexes in three to six months… Then once he said, “Hey, I’m going to invest,” and he heard the number, how many deals did you know you’re able to do? Was it pretty easy to find those number of deals, or did you have to change the way you were finding deals at that point?

Matthew Tortoriello: We had actually teamed up with a local realtor. She was the only person in the area that was willing to go into some of these dilapidated buildings. There were just tons of dilapidated buildings in Springfield and the surrounding towns that either had vagrants living in there, a lot of homeless people… It was at some point dangerous, to be honest. So that was a key member that we found.

And once we knew we had the financial backing, basically, we just started shooting offers out. It was about how many properties can we see that were REOs, and running our numbers… Because at that point I had a good idea, I could walk through a property and figure out within a reasonable approximation of how much it’s going to take the rehab. Then we’d just basically throw out a lowball offer to make sure we have plenty of room there.

I think at one point, we were throwing out maybe 80 offers a week at all these different properties. Maybe 10% comeback, we thought, or maybe less. All of sudden, we started getting quite a few back, so we had to kind of cherry-pick the best ones… Because more were coming back that we were saying “Yes, we’ll move forward.”

Theo Hicks: Are these all duplexes?

Matthew Tortoriello: No. We started with duplexes, we bought a bunch of fours and sixes, we even have a couple of 16 family buildings. Then over the last, maybe back in 2015, we started buying quite a few single families – I think we own right now maybe about 30 single-family homes – and rented those out which have been fantastic rentals.

Theo Hicks: What was the thought process? Because usually, people go two, four, six, 16, 32, 100 units… Whereas you kind of went two, four, six, sixteen, and then back to single-family. So what was the thought process behind that?

Matthew Tortoriello: Well, the thought process was at the time we were started going to foreclosure auctions in 2015, and most of the stuff that was foreclosing at that time was a lot of single-families, and we were able to get them really cheap. We got one single-family home for $200. So at that point, it needed maybe $40,000 worth of work. It was a fantastic rental, because a single-family home, we could rent for about $1,500 to $1,600, so the cashflow is fantastic.

But the other thought process was going into more single families was they were less hands-on. We could also hold the tenants more accountable, given the fact that if there was a pest problem, well it’s the tenant. Whereas when we had our 16 family buildings and we had multiple pest problems, even though we were treating quarterly for all our pests, we’d go in front of a judge and the judge would always hold us accountable… At that point, we’re also seeing bedbugs on the rise in the area, so we were having these massive treatments done, that cost $1,000 a unit. So we were trying to figure out a way to combat the extra costs that we were seeing.

Theo Hicks: Another question I have for you… So you mentioned that this time a few years ago you were at 500 units, and now you’re at kind of half… So I’m kind of wondering, what’s the thought process behind knowing when it’s the right time to sell, how much to actually sell, and how much to keep… Just the philosophy or the conversations you have with your partners when it came to selling such a large portion of your portfolio?

Matthew Tortoriello: Well, one of the things was we wanted to pay off some debt we had borrowed, and the prices were going up. But the other thing we were looking at – well, some of our lower cash-flowing properties we could sell, it would take maybe 10 to 15 years in cash flow for what we could get for capital right then, by selling it. We felt that it made more sense, instead of holding it that long term, use that capital to redeploy into maybe lowering debt, or 1031-ing into other properties, or just getting ready to hoard cash a little bit for what we kind of see that might be coming down in the next year or year and a half.

Theo Hicks: Okay. And then going back to this initial investor person, is he still with you? Is he’s still your only investor, or did you raise capital from other people along the way?

Matthew Tortoriello: I think we got up to $4 million in capital that we raised from a couple of other investors… But for the most part, Theo, he is still with us. We’re basically the three partners – it’s Kevin, Theo, and myself. We have teamed up with a couple of other people as far as flipping, but for the most part, we are the primary partners.

Theo Hicks: Okay, Matthew, what is your best real estate investing advice ever?

Matthew Tortoriello: Just get started and don’t focus so much on learning everything, because you’re never going to learn everything, and you’ll learn a lot along the way.

Theo Hicks: And allso start an adult gymnastics class. That’s what I’m going to do, right when we get off. [laughter] Alright, Matthew, are you ready for the Best Ever lightning round?

Matthew Tortoriello: Yes.

Theo Hicks: Alright. First, a quick word from our sponsor.

Break: [00:14:53] – [00:15:15]

Theo Hicks: The first question is, what is the Best Ever book you’ve recently read?

Matthew Tortoriello: I’ve actually been rereading Recession Proof Real Estate Investing by Jay Scott. Just given what’s going on in the economy right now, I kind of want to prepare myself, and he’s a really smart guy.

Theo Hicks: What’s the top takeaway you’ve gotten from that book, that applies to what we’re currently going through with the pandemic and everything?

Matthew Tortoriello: Building up the lines of credit in different ways just to prepare yourself for having a lot of capital to redeploy as things are ready to buy, because banks might be tightening up a little bit.

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

Matthew Tortoriello: I thought about this a little bit. Honestly, if I had to start all over from scratch, I would do something along the lines, maybe, I would focus on a little side hustle, reselling the Home Depot wares, or something like that, where you buy stuff in bulk and then splitting it apart. Once I had enough capital, I would start getting into real estate again.

Theo Hicks: That’s the first time I’ve gotten that as an answer, so thank you for that. So these two questions are going to be related, and kind of the opposite. So we’ll start with, I guess, the negative one first, which is have you ever lost money on a deal? And if you have, how much did you lose and what lessons did you learn?

Matthew Tortoriello: Okay. Yes, we have lost on a few deals. One particularly stands out… We went to an auction down in Wilton, Connecticut, which is about two hours away. [unintelligible [00:16:33].01] it’s the first one we’ve ever done. We lost by the end of it, probably about $200,000. Really, what we learned was to stick in our core area, within an hour of our home base, as well as never negotiate with a buyer that you’ll do work after the fact; just get everything done, set expectations right then, otherwise, it just turns into sometimes a legal battle.

Theo Hicks: Okay, and on a more positive note, what’s the Best Ever deal you’ve done?

Matthew Tortoriello: We bought a two-family for $1.

Theo Hicks: $1?

Matthew Tortoriello: $1. We were part of a receivership program. We actually were the number one receiver in Springfield for numerous years; we did over 50 receiverships. We became a receiver on this two-family, and the bank just wanted nothing to do with it, and they said, “Hey, will you take it off our hands?” I’m like “Sure. We were going to offer them more than that, but they said “Just $1, let’s just get it done.” We’re like, “Sure.”

Theo Hicks: Wow. It’s amazing. What is the Best Ever way you’d like to give back?

Matthew Tortoriello: We actually started a YouTube channel, Two Guys Take on Real Estate. There we’re all about paying it forward for all the lessons we’ve learned over the years. We want everyone else to be able to learn from that.

Theo Hicks: And what was that YouTube channel called again? Two guys paying it forward, you said?

Matthew Tortoriello: Two Guys Take on Real Estate.

Theo Hicks: Two Guys Take on Real Estate. Got it. The last question is what is the Best Ever place to reach you?

Matthew Tortoriello: Besides the YouTube channel, Two Guys Take on Real Estate, you can also reach us on yellowbrick.org.

Theo Hicks: Perfect. Well, thank you, Matthew, for joining us today and providing us with your Best Ever advice. We talked about your progression from starting at 16 years old to some struggles in the beginning, to obviously ultimately now having a solid business with rentals, flipping, and wholesaling properties every year.

We talked about how you raised money for your first deal. I always love to hear stories like that, just kind of really random, just talking about it to everyone you meet and eventually just meeting the right person at the right time, and it seems to have worked out very, very well for you.

We talked about how you found your deals, the types of deals you targeted, and then why you went back down to single-family homes, because of the advantages of it being less hands-on, you could hold tenants more accountable, and your state being a pretty tenant-friendly state… As well as being able to get them for so cheap, like 200 bucks, or I guess the duplex was $1. But still, 200 bucks is pretty cheap for a house.

We also talked about the thought process behind selling off properties, like when do you sell, how do you know when to sell, which property should you sell… Then you gave your Best Ever advice, which is to get started, and then also to not fall into analysis by paralysis in a sense, or just educating yourself to the extreme, and using that as an excuse to not really take any action. I couldn’t agree more on that, Matthew.

Thanks again for joining us today. I really appreciate it. Best Ever listeners, as always, thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

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