Jeff Dulmage has been a passionate investor for most of his life. He’s been in the game since before online resources were a thing, conducting his research the old-fashioned way — by reading lots of books. Today, he is a full-time commercial broker at Hartsock Realty based in Lima, OH. In this episode, Jeff shares how he balances being both a broker and investor, the numbers on his recent 26-unit apartment deal, and why it’s a great time to be an investor in Lima.
Balancing His Roles as Broker and Investor
Jeff is adamant about refusing to compete with himself or his other investors. That means he doesn’t buy any of his own listings and chooses to stick with off-market properties or properties listed with another broker. “As a broker, it can be a little touchy to cross over to the other side,” Jeff says. “But I feel like it gives me more knowledge and experience when I’m advising people.”
The Numbers on His 26-Unit Apartment Property Deal
Jeff’s team closed on a downtown Lima property featuring high-end loft apartments in August of 2021. “We are going to do some work to the property, but ultimately, it was a pretty stable scenario out of the gate,” Jeff says. They paid $2.1M for the property, coming out to approximately $75,000 per door. The effective cap rate was between 11% and 12%. The units were already fully renovated and stabilized, with rents above $1,000.
Why It’s a Great Time to Be an Investor in Lima
- According to Jeff, Lima had the third-highest industrial activity of any city of its size in the United States in 2021.
- Lima is a solid manufacturing town with hundreds of companies hiring in the area, and its infrastructure is prepared to support more companies localizing their manufacturing.
- Because of its lower cost of living, people are moving to Lima for more affordable housing now as remote work is becoming more commonplace.
- Jeff says the area is especially great for people interested in making smaller investments. “If you’re looking to invest in single-family houses, you can still cash flow great off of single-family houses in Lima and make great money on them,” he says.
Jeff Dulmage | Real Estate Background
- Full-time commercial agent/broker/team leader at Hartsock Realty, which helps investors find, evaluate, purchase, and manage their properties. He’s also a syndicator and focuses on small to mid-size multifamily (150 units), along with single-family.
- Portfolio:
- GP of 26 units
- LP of 69+ units
- Based in: Lima, OH
- Say hi to him at:
- www.hartsockrealty.com
- Social media: #jdthedealmaker
- Best Ever Book: The Great Reset by Glenn Beck
Greatest lesson: The importance of growing a successful team and having a strong culture in your organization.
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TRANSCRIPT
Slocomb Reed: Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I'm Slocomb Reed and I'm here with Jeff Dulmage. Jeff is joining us from Lima, Ohio. He's a full-time commercial real estate broker with Hartsock Realty, helping investors find, evaluate, purchase and manage properties in Lima, Ohio. He's also an investor himself, owning 125 units individually. He has syndicated a 26-unit deal and he's also a limited partner on other deals. Jeff, can you start us off a little more about your background and what you're currently focused on?
Jeff Dulmage: Sure. I've been probably 22 years, 23 years as an investor. I'm passionate about investing and I have been for almost my entire life. I watched my father and my grandfather invest in properties. My grandfather was more successful than my dad, but I watched and learned things from them, what to do, what not to do, and then just researched a lot of books. Back when I started there wasn't the internet, there weren't BiggerPockets, all these different resources that there are these days, the internet and YouTube and everything else.
I think it's easier to find information today. Back then, you just have to read books, and that's kind of how I got started - I read a ton of books. Rich Dad Poor Dad was in there, that was one of the things that really encouraged me in the early days. About nine years ago I bought this company, it was just a small REO company doing about a million dollars a year and just grown it into what it is today. I've done most of that through serving other investors and helping them scale their businesses.
We also offer property management, so they can purchase stuff here, we can help them manage it, and it's a great win-win for everybody.
Slocomb Reed: Awesome. There are a couple of things that come up when you talk about your background. Looking through my show notes here as well, the first thing I want to ask - 20 to 23 years’ experience as an investor, you have a 125-unit portfolio that you own individually... Why get into syndication and why syndicate a 26-unit deal?
Jeff Dulmage: That's a good question. Kind of been on this path for quite a while, of looking to include more investors with the deals I do, partner with people more; even with some of my employees and some of my other agents, we've done deals together... And just looking at the power of a team and of coming together with more people, I would say in the last three years, it's been my focus. That's really helped us to scale more, as opposed to just building my own portfolio, and focused on that.
So we really do feel like we're going to be syndicating deals in the Midwest going forward, and we're going to hopefully become a syndication player in the years to come here. It's a way for me to also be able to really include the guys on my team in investing. They've helped me underwrite the deals that we're offering on, and that type of thing. So it's a way for us to operate as a team, as opposed to me just doing everything by myself.
Slocomb Reed: That makes a lot of sense. I should have prefaced my question, Jeff... I'm an apartment owner-operator here in Cincinnati, Ohio... From Ohio, so I know how to pronounce Lima. But also, I have the perspective of someone who has built a portfolio that I own without bringing in limited partners, and so that's part of what I'm asking from... A lot of people get into syndication for the sake of scale, and they get into syndication to be able to expand into other markets outside of their hometown. It sounds like you're doing that as well. You were telling me before the recording that you're looking at deals in Cincinnati. I want to get into that, too. But correct me where I'm wrong - syndication gave you the opportunity to bring investment opportunities to people in your life who needed the opportunity to get into real estate investing and needed to be able to do it passively, but also, being a commercial broker who handles acquisitions and management for a community of investors, you had a natural investor base to be able to share opportunities with.
Jeff Dulmage: No question. There is a side of it that people will think that you're competing with them to some extent. One of the things that I worked very hard on is I'm trying not to compete with myself or with my other investors. I won't ever buy any of my own listings; all I buy are off-market type scenarios or something that may be listed with another broker outside of our office. It's a policy that I have in order to protect my investors that hopefully, they trust me, and we're building a business together, and they don't have to try to compete with me.
Yeah, as a broker, it can be a little touchy to cross over to the other side... But it gives me more knowledge and experience when I'm advising people, that "Hey, I do deals myself as well." So ultimately, I feel like everything I do in my life is to try to create win-win relationships and win-win partnerships that which everybody benefits and that nobody's getting hurt. That includes tenants; owners, tenants, and everybody. I feel like we've been successful at doing that and really creating a community of investors, even in this area, that we work together, help one another, and try to move the whole community ahead, not just focus on our own pocketbooks.
Slocomb Reed: Of course. This is a sticking point for me, too. I should have said this as well, I'm also an agent, primarily a residential agent... But I've focused on working with investors, because that's what I am, that's what I know, I'm good at it. And man, that question used to come up a lot. Now that I'm several years into it, Jeff, my clients are just excited to have access to someone with my experience, expertise, market knowledge, my skills, working with my team.
But I used to get that question all the time, "Well, why would I want to compete with you for deals if you're the one who has all the access?" And let me just say out loud now for all of our Best Ever listeners that that question comes from a place of FOMO, fear of missing out. My answer has always been that your focus needs to be on your goals and your investment strategy, and on the buy side, whether or not I'm bringing you deals that hit your targets; if I'm not, go elsewhere. But if you've told me what your goals are and I'm showing you the deals that hit those goals, you should be buying.
Jeff Dulmage: Yeah, absolutely.
Slocomb Reed: But also, to your point, syndication gives you the opportunity to bring those investors in on the deals that you, the local expert with experience, are doing.
Jeff Dulmage: And really, it's different kinds of investors. What we're seeing is that there are those investors who are really hands-off; they don't want to have their hands on real estate, they don't ever want to do really any decision making in regards to their assets. Those are the ones that fit more with an LP-type situation. A lot of the investors that we've helped grow from maybe zero to 10, or 15, or 30, or 200, or 300 properties - those investors, some of them choose to be hands-on, and we're okay with that. Others of them want us to manage for them, and we're okay with that.
But ultimately, what I'm trying to do is build long-term, mutually beneficial relationships with these investors, where they know I have their best interest at heart, and I'm going to be honest with them, I'm going to tell them the straight scoop, I'm not going to candy-coat it, and we're going to help them build a business that's repeatable, and that they can scale.
I had a guy from about 45 minutes from here who contacted me about two years ago. He'd had some really bad experiences with a couple of realtors. And a lot of what we end up doing is trying to make up for problems that were created with other realtors. Well, I ended up helping this guy scale to 10 units in the last couple of years; we manage them for him, it's a win-win. But these are deals, most of these that I probably would have bought myself had he not bought them. But I'm here to work for him, so I'm not going to buy him when I have a client that is interested in the same thing. So I'm always going to give that opportunity to somebody else that I'm working with.
A couple of them were off-market, the rest of them were on market, but they were not high listings. These were other listings for other agents. Anyway, it's pretty cool to be involved in helping somebody do something that they can't do for themselves. That's really what we focus on here. We've worked with hundreds of investors; we probably have about 40 to 45 clients that we manage for, but a lot of the ones that have bought with me manage themselves and we're fine with that, and that's all good.
Slocomb Reed: One more direction, Jeff, I want to take this conversation in. You said that syndication is giving you the opportunity to look outside of Lima, Ohio. Lima is not going to be a well-known city for people outside of our part of the country... And you said that you're looking at deals in Cincinnati, which gives us an acute opportunity to compare a market like Lima to a market like Cincinnati. The two of us have a lot of market knowledge there. But first of all, let's talk about Lima as a market for real estate investors. What does Lima have going for, positive or negative attributes?
Jeff Dulmage: Lima's kind of had a pretty bad rap for a long time; it had some really bad economic scenarios going on for a long time. I've only been involved just in the last 20-23 years. But before that, and had a really bad reputation; and even in the last five to 10 years, that's starting to change. It actually got recognized as the third most industrial activity of any city our size in the United States in the last year. So we have some amazing things happening now.
Our downtown has been revitalized, we have lots of great employers, we have two great hospitals, and we have a lot of great manufacturing here... It's a solid manufacturing town, there's a lot of great jobs, hundreds of companies that are hiring in this area, lots of people that have been moving into the area in the last, say, three years. At least in my opinion, we've seen some growth that way. Just a lot of amazing economic factors happening. And if there was anything that's been missing, it has been the mid to high-level housing.
I would say historically, Lima, mostly what was being built was low and maybe government-subsidized housing. What I focused on, I've done just tons of rehab projects with my guys; I have a crew that fixes that property, and we've focused on single-family, maybe small multifamily... We have a 130-unit we're getting ready to completely renovate. But the bottom line is we've been doing mostly single-family houses, making them really nice, and then getting top rents.
Historically, rents were very, very low as well in this area; they've just gone crazy.
So we have a situation here where we have relatively low-price housing stock, that's definitely going up. But I would say, historically, it's been very, very low. We were one of the lowest-priced markets in the country for many, many years. That is changing, but the bottom line is you can still buy $35,000 to $60,000 houses here, and even cheaper than that, if you're willing to completely renovate them.
But there's a lot of need for somebody to go in and completely renovate a house, and then get $950 to $1100 for rent out of that - that's possible. I would say, more or less, single families in this region are probably $750 to $1500 a month, somewhere in there, for the most part, unless it's a real high-end house. That historically was $500, so rents have definitely increased.
Slocomb Reed: Jeff, let's put some real numbers to this. You recently acquired a 26-unit, that's an apartment building or an apartment property, in Lima. What was the purchase price, what was the effective cap rate on day one, and what are your goals for that property?
Jeff Dulmage: It was a property that was from one of my investors, we purchased it. He completely renovated the whole 26 units. They're all downtown Lima, and there are seven of them that are high-end loft apartments. There's a mixture of different types; it was like 16 townhouses. But anyway, they're all downtown Lima, and I would say the bulk of those were either new or completely renovated; so they're a little bit higher-end. We paid $2.1 million, I think it comes up to like $75,000 a door, but they're all new, they're all renovated, and it was already stabilized. So we didn't have to do a bunch of work to stabilize it.
We are going to be doing some work to the properties, but ultimately, it was a pretty stable scenario out of the gate. We do think there's some upside on some rents, and that type of thing. We turned two of the units into short-term or mid-term rentals for corporate scenarios, and those have been very successful. We're getting some pretty phenomenal rents out of those corporate rentals, which is helping us increase our returns on that deal.
But it's not typically the kind of property I would buy. Normally, I would buy a $30,000 to $50,000 house or less. I've even bought some at $10,000, $20,000, and then my guys go in, we completely renovate it, and I'm getting a 30 to 50 cap type scenario on those kinds of deals. This was not that; this was more of a stable scenario. Our company is managing it, but it's a whole different ballgame, and I think it's going to work as well. So far, so good. We closed on it in August, and it's going well so far, overall; we've had some challenges like anybody does, but it's going in the right direction.
Break: [00:17:33] – [00:19:20]
Slocomb Reed: This is a pretty premium asset for Lima, downtown, townhomes and lofts, 75 a door. At 75 a door, what did the rents look like when you bought it and where did you think they would go?
Jeff Dulmage: The bulk of the rents are above $1000, so those are pretty strong. Those corporate rentals - we're getting like $2800 a month or something like that; so the rents are strong.
Slocomb Reed: So you bought something that was already stabilized... What kind of a return were you projecting for your investors when you bought it?
Jeff Dulmage: I think when we ran our numbers, it was like an 11 or 12 cap, something like that, which these days is hard to find in things that get syndicated, so it's pretty strong.
Slocomb Reed: Yeah. Those are not numbers that anyone on either coast of the United States have heard in a very long time.
Jeff Dulmage: No.
Slocomb Reed: So you bought a stabilized but you bought it at a pretty nice cap rate. So you should have some decent cash flow coming, some potential to increase the income; certainly not a reposition-type property. But to your point, you were creating an opportunity for people who want to invest passively in something that was stable, so that makes a lot of sense. And a 10 or 11 cap day one is phenomenal, especially on an asset [unintelligible 00:20:28.14]
Jeff Dulmage: We did a preferred return for our investors at 9.5, which I don't really see too often with syndications, so that's pretty strong.
Slocomb Reed: I'm hoping our Best Ever listeners are taking notes. You said you recently were underwriting some deals in Cincinnati. Real quick, how many people live in the Lima area?
Jeff Dulmage: The county has about 100,000, more or less. The city of Lima has probably 50,000 to 60,000, but the whole county, it's probably 100,000 to 110,000 at the most.
Slocomb Reed: So the Cincinnati metro area is 20-25 times that size. You were looking at deals in Cincinnati; how did they compare to what you bought in Lima?
Jeff Dulmage: Well, we have a lot to learn in regards to that, but we were just going "Wow, there's just no way you can make this stuff work. That's insane." We haven't really offered on anything yet down there yet, but we evaluated three different properties so far. Not putting offers in, because we're just like, "Yeah, that's just crazy; it's insane compared to Lima." And I'm not saying that we're eventually not going to find a deal, maybe something off-market or whatever, it's just that we were looking mostly at stuff that was on the market. And we all know that by the time something gets on the market, it's probably not a great deal.
Slocomb Reed: The best way I've heard that put, Jeff, is that as soon as a property hits the market, there are other investors with lower return expectations and needs than me who are exposed to it, and can afford to pay more for it. And especially if you're accustomed to a 10 or 11 cap stabilized, even the six and seven caps that you're seeing in Cincinnati with value-add potential to get up to eight, they just don't make as much sense. So I'm from a similar-sized city in Ohio. A lot of my growing up was in Springfield, Ohio. I'm not nearly as familiar with Lima as I am with Springfield, of course.
Jeff Dulmage: They're very similar.
Slocomb Reed: Yeah. Springfield has seen some downtown revitalization, a lot of new development, and a couple of major developments here recently. I know if I were looking to invest in Cincinnati, my opportunity to scale would be capped, because there are not a lot of large apartment buildings in Springfield. Are you seeing that in Lima, that your ability to purchase syndication-size assets or apartment buildings that are of a size where it makes sense to syndicate with the legal costs involved - are you seeing that there are more opportunities in Lima, or is the lack of opportunities in Lima the reason why you're looking elsewhere?
Jeff Dulmage: So we went to the Best Ever Conference with my team...
Slocomb Reed: Oh, I wish I saw you there.
Jeff Dulmage: A month and a half ago, or whatever it was, in February there... And what a phenomenal conference, by the way. It's absolutely life-changing for us; I highly recommend that conference to anybody that's listening. It was a deal changer for us on so many different levels. We met probably north of 50 people that a lot of them we're still in contact with and building relationships with. It was just a tremendous, tremendous event. But anyway, so what I would say is it opened our eyes to look outside of our little tiny market.
We were kind of thinking that we might go 60 to 80 miles of Lima at one point. But coming back from that event, we decided that "Hey, we've got Cincinnati, Dayton, Columbus, Toledo, Fort Wayne, that are within two or three hours of us. Why are we not looking at these bigger markets, where they have so much more multifamily that could be purchased?" So we actually just delivered an LOI on an off-market deal up in Toledo today, so we're definitely making progress. But it took going to a conference like Best Ever to really help us understand the bigger picture I guess, and understand that if we're sitting here waiting for deals in Lima to come, 100-unit deal or 50-unit deals, we're going to be waiting a long time.
Slocomb Reed: I get what you're saying for sure, Jeff, but let me help you pitch cities like Lima and Springfield, Ohio to our Best Ever listeners from all over the country... Because there are a couple of things that cities like yours have going for them right now. Springfield, Ohio, to my amazement, was listed as one of the top 10 hottest real estate markets in the country through COVID. From an investor's perspective, there are a couple of things happening in places like Springfield and Lima on a macro scale that are important to consider.
One of them is that as remote work has become so much more prevalent, commonplace, and accepted by major Fortune 500 employers, a lot of people have sought out more affordable places to live, because where they live geographically has less of an impact on their ability to earn. They moved to a place where their dollar goes further, like Lima or Springfield.
Jeff Dulmage: Exactly.
Slocomb Reed: So there's been increasing demand to live in places like that as a part of what's happening to the changing economy and job market that we see, and the changes in what employment looks like, especially since COVID. Another thing that could be on the horizon... Again, anytime you talk about the future is just speculation. But something that could be on the horizon is as we see global supply chains challenged by the issues that are happening in port cities like Los Angeles, the challenges that COVID has posed... This is been recorded in early April 2022, so the challenges posed by international conflicts that are not in the United States to our supply chains - we are seeing a movement to bring manufacturing and industry back to the United States. Towns like Lima already have the infrastructure to make that possible. If it's not already happening in your backyard, Jeff, there's a good potential that companies that want to bring their manufacturing more local, so that they're less reliant on what we now recognize as a much more fragile global supply chain, Lima is ready to go. Springfield, Ohio is ready to go.
Jeff Dulmage: Yup. We've seen that, and I really feel like our economic development folks in our area are getting it right. We've seen a number of employers move into this area and build plants, and we've got a couple of spec plants that are supposed to be going up here... We've got a whole new industrial development or two that are going in near I-75 at Lima... Those developments will bring jobs, and we're working on the housing piece to support all that.
So it is, it's exciting. The fact is, from an investor perspective, Lima is a real opportunity for people who are looking for smaller investments. If you're just looking for investing in single-family houses, you can still cash-flow great off of single-family houses in Lima, Ohio, and make great money on them. I know of guys making $300 to $700 a month on a single-family house, or more.
Slocomb Reed: Cashflow. Yeah.
Jeff Dulmage: Cashflow after all your expenses. Yeah, it's really a great time, it's a great time to be alive and it's a great time to begin living.
Slocomb Reed: I was on the phone with another Midwest investor yesterday talking about people calling states like Ohio a flyover state. So far as we're concerned, Jeff, they can just keep flying right over and leave all the 10 and 11 caps for us.
Jeff Dulmage: I was on a podcast a couple of weeks ago, [unintelligible 00:28:18.12] I was building my cash flow empire. I'm like, "Yeah, that's fine with me." [laughs]
Slocomb Reed: "You stay in your backyard. I'll keep my 10 and 11 caps for myself, thank you very much. Or, if you want to come to Lima, connect with Jeff, he'll help you." Jeff, are you ready for the Best Ever lightning round?
Jeff Dulmage: Sure.
Slocomb Reed: What is the Best Ever book you've recently read?
Jeff Dulmage: I'm in the middle of The Great Reset by Glenn Beck actually right now. It's very, very interesting. I highly recommend it actually.
Slocomb Reed: What is your Best Ever way to give back?
Jeff Dulmage: I'm really involved in Rotary, and I feel like Rotary has given me a lot of opportunities to give back to my community. We're building an amphitheater in downtown Lima right now, and doing some other things, and they've got some great programs... And Rotary is just a great organization. I highly recommend people get involved in their local community.
Slocomb Reed: What is the Best Ever skill that you've developed through your investing?
Jeff Dulmage: I would say it's being part of a team, building a team, and helping the employees that I've recruited feel like they're a part of a team. I feel like that has been the skill that has really helped me to scale to where I'm at today, and be able to even go beyond here. Really, I would include other investors that have invested with us in the formula, as well as my employees and my agents. We work together as one, and we love one another, we help one another, we care for one another, and we care for each other's families. I feel like that really has probably separated my business from others.
We have a lot of long-term employees here, and we have a Christmas party every year where we give out awards and we really celebrate our people. But even beyond that, throughout the year, we do events to try to really build the team and encourage each other in that, and love one another, really.
Slocomb Reed: Jeff, what is your Best Ever advice?
Jeff Dulmage: I would say to build your team and figure out ways that your community needs you, figure out what your community needs, and then be a part of that solution instead of always complaining about whatever and not doing anything to change it. Lima was put down for decades, that it was a terrible place. Instead of falling into that trap of believing that information, we've just been on the other side of trying to do something different and to build something positive. I feel like we've done that, I feel like we're still just getting started, but we are doing some amazing things in Lima, Ohio. I feel like it's because of that team aspect and it's because we believe something different. We didn't just take what everybody said about Lima as the truth, we created something different.
Slocomb Reed: That's awesome. Last question, Jeff, where can our Best Ever listeners get in touch with you?
Jeff Dulmage: Probably the easiest way is they can find me on LinkedIn, they can find me on BiggerPockets, that actually might be the best place for them to find us. We just signed up for a new scenario with BiggerPockets where we're an agent that they recommend, people who are looking for an investor-friendly agent and so we have that out there. If they look up Lima, Ohio, they'll see us on BiggerPockets there.
Slocomb Reed: Awesome. Well, Jeff, thank you. Again, your contact info, the best ways to connect with you will be included in the show notes. Best Ever listeners, thank you for tuning in. If you've gotten some value from this conversation about Ohio markets and small Ohio markets with Jeff, please leave us a five-star review, subscribe to the show, and share this with a friend who you think we could add value to with this conversation as well. Thank you and have a Best Ever day.
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