407: Building a Local Real Estate Empire While Working a Day Job

SHOW NOTES FOR EPISODE 407: BUILDING A LOCAL REAL ESTATE EMPIRE WHILE WORKING A DAY JOB

Did you know that you can create a real estate empire in your own backyard while working a full-time job?  Well, that’s exactly what real estate investor and entrepreneur Jason Pero did.  In today’s podcast, Jason shares how he started out buying local rental properties and ended up amassing a portfolio of 900 units simply by educating himself, finding mentors and understanding the dynamics of multiplication and syndication.

What You Will Learn

• Why you should pour you cash flow right back into your properties while you are still working full-time
• How important vigilant saving is important to growing a real estate portfolio
• Why building a rental empire does not require you to own your own home first
• How starting with small multifamily properties is a faster route to growth
• Why buying more units can be faster and more profitable
• The value of strategic partnerships to success and significant growth
• Why owning your own properties and syndicating can complement your investment portfolio
• Five key advantages of syndication
• Tips for staffing your growing business enterprise

About Our Guest

Jason Pero

Jason Pero was born and raised in Erie, PA and attended college at nearby Westminster. After college, Jason began a sales career in pharmaceutical and medical device sales. He started his real estate investing career in 2001 when he and his wife purchased their first duplex. He built a portfolio of real estate rental properties while working a career as a medical sales representative. He was able to leave his job in 2012 as the portfolio grew to nearly 300 units. Jason balanced the demands of a high pressure sales environment, a young family, and growing a real estate portfolio. Upon leaving his day job Jason continued to build his real estate holdings and currently owns around 900 doors. He is the President of his local landlord Apartment Association and a frequent guest on podcasts and occasional speaker at real estate investing conferences. Jason enjoys coaching and mentoring both seasoned and beginner real estate investors. He continues to grow his real estate business but enjoys spending his free time working out, traveling, relaxing with family and friends, attending sporting events and concerts.

More About Jason

• Didn’t really learn a lot about money when he was growing up
• He had jobs and knew how to make money
• When he got out of college, he knew he didn’t want to work for someone else for the rest of his life
• Reading business books and came across Rich Dad Poor Dad and the Millionaire Next Door
• Created a new mindset and philosophies on how to create wealth and get rich
• Most mentors he encountered said the same thing – most wealth is created through real estate
• Started saving his money
• His wife graduated a year after Jason
• She started working and saving too
• They were renting a place for themselves for $500 a month
• Once they had enough money, they bought their first rental property

Getting Into Real Estate

• Their first purchase was a duplex
• He liked the cash flow (it paid one of his student loans)
• They kept getting better jobs and earning more
• They bought their personal home
• Kept saving and bought more properties
• The next two properties were another duplex and a quadplex
• Looking back, he would have “house hacked” but he didn’t
• Continued buying small multis
• They would take the rental income and put it right back into the business
• By 2005, Jason and his wife had accumulated 23 units
• Jason also got a mentor at that time to help with his real estate education and business
• His mentor was living the kind of life that Jason wanted
• Had first mentor who had 127 units
• His mentor had 56 doors he wanted to sell to Jason for $1.1 million
• The mentor said, if Jason come up with with 10% down, he would carry the paper (25 year note, 6% interest with a 10 year balloon payment)
• Jason’s name went on the deed and his mentor became “the banker”
• Borrowed against his 401K, cashed in some stock, took lines of credit, etc. to come up with the money
• Bought the properties and bought more from him later on
• He eventually bought the rest of his mentor’s portfolio
• He would meet regularly with his friend/mentor to discuss the business and learn more
  • Learned a lot about landlording
  • Learned a lot about investing
  • Helped him to do other owner-finance deals
• Today, Jason and his wife personally own 600 units (500 units outright and 100 with a hard money partner/JV who has a little equity.  In 5 years, they will but the JV out and own all 600 fully)
• They have another 300 in syndication
• The total being 900 doors

Becoming Syndicators

• 10-12 years ago he knew about syndication but it didn’t really click with him until a few years ago
• A series of things happened
  • The podcast world exploded
  • Everyone was referring different podcasts to one another
  • He started to listening to interviews that shed more light on the advantages of syndication
  • He was skeptical at first to have more partners
• 4 or 5 years ago Jason became friends with a local business owner/entrepreneur
  • Owned a potato chip brand
    • Sold it off 10 years ago
  • Still has a farm and quite a few other businesses
  • Also owns real estate and had syndicated a deal in Florida back when he sold his potato chip brand
  • As time went on, Jason and his friend decided they wanted to invest in something together
  • As they became better friends over the years, they began to see what each other’s skill sets and teams were and how they were very complimentary
  • About 2 years ago, they came across an 86-unit property
    • Required a $1.5 million capital raise
    • Either person could have purchased the property themselves but they didn’t want to deplete available capital unless you keep tapping your reserves or re-finance
    • He realized that he didn’t have to tap into reserves, refinance/over-leverage and he could continue paying down his debt by syndicating.  He could:
      • Maintain majority ownership/control of the deal
      • Share in the risk with others
        • Jason and his friend are 50/50 General Partners (GPs)
          • Jason’s friend brings wisdom and experience:
            • Once had 300 employees
            • Excellent experience in scaling businesses
            • Has excellent CFO who runs all his businesses that they share
          • Jason brings
            • Operational experience
            • They have their own property management
      • Provide a great opportunity for family and friends to earn a good return
      • He could grow his portfolio faster and into larger properties
      • If he had a great property that he wanted to hold longer, he could just pay off investors and keep it for himself
  • Several months later, they found their next deal
  • Syndication is not all of their business.  It’s just a part
  • His partner still pursues other business enterprises and entrepreneurial ventures
  • Jason is still buying his own properties in his own name
  • Syndication is another “tool in the tool box”

Strategic Approach

• When he started off, early on, they would buy distressed properties and fix them up/rehab
• Wanted to generate “forced appreciation”
• He also buys more stabilized properties that are more turn-key
  • It’s nice not having to worry about Cap-X early only
  • Rents still can go up over the years
  • It takes a lot of the guess work out
• Today, he still looks for value-add opportunities to boost investor returns and boost equity
• For his personal portfolio:
  • Stays away from the singles and doubles
  • Looking more at 18-20 units and up
  • Buys in areas where he already has other properties
  • Easier to predict what will happen
  • Easier to manage
  • Will sometimes take over 30-40 unit portfolios owned by mom and pop investors for 20 plus years
• Everything he has purchased, so far, is in Erie, Pennsylvania – a tertiary market
• Hasn’t run out of properties to buy
• Has been consistently good returns

Staffing With Growth

• His staff has expanded organically over the last few years
• Started with a property manager and a maintenance team
• When they had 23 units, they just had outside property management
• When he bought his first big deal (the 56 doors), that’s when he hired his first employee – a maintenance person
• As he bought more properties, he knew he needed an in-house property manager
• He has one suburb area where he has around 140 units that’s about 20 miles from his headquarters
  • He put together a staff in that area:
    • Cleaning and maintenance staff
• He has some properties where he has onsite staff (i.e. 200 unit)
  • Property management person and maintenance person
• He has an Operations Manager who acts as head property manager/asset manager
• Other headquarters staff
  • Leasing manager
  • Secretary
  • Office manager
  • Full-time bookkeeper
  • Full-time maintenance staff
• There are days when having employees can be a challenge but when he weighs it out with hiring outside management, it’s worth it
• In the early years, they did everything out of their house but when tenants start showing up at your house, it doesn’t work
• He ended up buying a 6,000 sq ft office building, with 20 parking spaces, to house staff – it only cost $40,000 at an auction
  • Had to put money into it (another $45K)
  • It’s work triple what he wanted
  • He also has tenants that pay 80-90% of costs

Biggest Mistakes

• Hiring good people and building a culture
  • In the beginning he would just hire whoever
    • The wrong person for the team
    • They didn’t know what they were doing
    • Incompetent
  • He lost more money than he knew because of that
  • He realized he had to figure out how to become a better boss and better leader
• Running the properties and business more profitably
  • He was getting too focused on acquiring
  • Should have spent more time analyzing the deals better to understand projected costs and profitability, especially on the smaller properties
    • Would have been twice as profitable
  • Not budgeting the right amount of work to be done early on
    • Self-funding Cap-X (can eat you alive)

Real Life Monopoly

• Really enjoys both buying individual properties and syndicating
• In syndicating, he loves to see people’s faces when they get great returns
• He’s now getting rid of smaller properties and focusing on larger
• Trying to figure out what to sell and what to buy
• He’s also focusing more on geographic areas where they have a lot of properties on building up more of a presence in those areas

Biggest Success

• Leaving his day job to create a business on his own terms
• Real estate is the best business in the world
• You can create whatever reality you want
• Love having the freedom to drive his kids to school everyday
• To do the things we often take for granted

 Advice for Old Dawgs looking at Real Estate Investing  to help in their retirement years

• Real estate is a great way to generate cash flow
• But you need to determine, early on, if you want to deal with the “tenants, toilets and trash” associated with being a landlord
• How do you diversify your income and your investments?
  • Real estate is the best for predictable returns (7-9%), whether through:
    • Syndication
    • Hard money lending
    • Flips
    • Rental income
  • Do your research
  • Carefully vet syndicators/sponsors, people you want to lend to

Current Business

• He’ll be 43 this year
• He enjoys giving back
  • Does some mentoring coaching
    • He enjoys seeing people achieve their goals
• Looking forward to doing non-real estate things too
  • Travel
  • Time with family
• In business:
  • More syndication deals
  • Selling off smaller properties
    • Properties that require less work
    • Good “boots on the ground” to take care of daily stuff
  • Keeping 20-30 properties
    • Build equity
    • Pay them off quicker

Rap-It-Up

• Favorite real estate book: The Real Book of Real Estate by Robert Kiyosaki
• Favorite business book: Principles by Ray Dalio
• Most valuable web site for success (other than your own): FaceBook Groups
• Favorite app: Slack
• Favorite quote: “Either you run the day or the day runs you.” by Jim Rohn
• If you had to start all over, knowing what you know, and you only had $1,000, what would you do to launch your real estate investing business? Use the money to go to a real estate seminar by a good guru.  The energy and shift in mindset would catapult me into great success to build that wealth back in double time.

How to Reach Jason

• email: jasonpero@yahoo.com
• Free 15 minute consultation: calendly.com/jasonpero

DISCLAIMER:  Many of the above strategies take knowledge and have a higher degree of risk.  You need to do your research and/or work with someone who is experienced to reduce your risk.

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Additional Episode Sponsor: Meno Studio – menostudio777@gmail.com