187: Helping His Parents Build a Real Estate Retirement Portfolio

SHOW NOTES FOR EPISODE 187: HELPING HIS PARENTS BUILD A REAL ESTATE RETIREMENT PORTFOLIO

Even though Jordan Topal’s full-time job is managing bond portfolios for municipalities and high net worth individuals, his personal investment choice is real estate rental properties.  In this podcast episode, Jordan shares how, as a part-time real estate investor, he is able to exponentially grow his own real estate portfolio for his own early retirement while, at the same time, helping his retired parents to generate enough cash flow to match their pre-retirement income.

What You Will Learn

• The two quick “rules of thumb” that can help you quickly identify good potential rental properties
• Why, even though Jordan’s full-time gig is managing bonds and other financial products, why did he choose real estate is his best investment choice
• The free resource Jordan used to get a quick real estate investing education
• What time of the year is the best time to buy properties with minimal competition?
• A great marketing strategy you can employ when there are less good deals available in your market
• Three questions you can ask a potential property manager that can save you thousands
• 6 tips for newbie investors that will yield BIG profits
• How to work with tenants to really make a difference in their lives

About Our Guest

Jordan Topal

Jordan Topal has been a real estate investor for 6 years in North Carolina, accumulating 16 units for himself and 7 units for his retired parents, all on a part time basis, focusing on small multifamily and single family properties.  His main career is in investment management, with over a decade of experience managing bond portfolios for municipalities and high net worth individuals.  He is a graduate of Campbell University, and now lives in Charlotte, North Carolina with his wife and two daughters (with the youngest one coming in just a few weeks).

More About Jordan

• Went to college for sports
• Became a wealth management major with the hopes to become a financial adviser or financial planner
• Later he realized he was more interested in the investment field
• Read every stock and bond management book he could get a hold of
• This was during the years prior to the financial crisis
• After graduating college, he realized that in order to succeed in the investment world, he had to eat and breathe it – it’s not approach it as passive profession just buying “safe” mutual funds and index funds
• During the financial crisis, he realized that there’s also a lot of mental and emotional volatility that occurs in the market that goes with investing in stocks
• He wanted something that he could better control and generate consistent cash flow on a recurring basis (not just generate meager returns that come  from stock dividends)

Became Interested in Real Estate Investment

• He had seen and heard about real estate investing but didn’t know how to get into it
• Read a book during the financial crisis that said you should specialize in “panics” and that investing during an economic crisis is how many people build wealth
• He heard Steve Schwartzman, CEO of the Blackstone Group (one of the largest investment firms on Wall Street, into hedge funds, private equity and real estate), said that real estate is not only one of the most profitable areas but one of the easiest
• Saw cheap deals in his area but didn’t know how to acquire real estate “the right way” and what constituted a “good deal”
• Began to educate himself
• Wanted to know how to evaluate and find good rental properties
• Went online and found BiggerPockets.com
• Learned about the “2% Rule” – A rule of thumb that says you should buy rental properties where the monthly rent is 2% of the purchase price
• The 50% rule – That 50% of  income should go to expenses
• Started to develop his own spreadsheets to help analyze properties and give him the confidence to look for properties to invest in
• Was able to see hundreds of properties on the MLS (multiple Listing Service) and even visit some that were near by where he lives
• Wanted properties that were “good investments” versus “full-time jobs” – eliminated flips, wholesale deals or properties that would require a lot of rehab (especially structural rehabs)

First Rental Property Investment

• He was living in Raleigh, North Carolina
• Found a house for sale in Raleigh-Durham, North Carolina
• Priced at $35,000
• 4-bedroom, 1-bath (later, before he sold it, converted to a 3/2)
• Already had a tenant in-place paying $650 per month
• Found it a little after Thanksgiving (in November, 2011) so there wasn’t a look of competitors looking at properties
• Negotiated that the seller would cover closing costs and a drainage issue that he found in the inspection
• Only $6,000 down payment
• Closed on it in early 2012
• Cash flowing, after the mortgage, around $200 per month
• Wife was impressed with the process and return

Second Rental Property

• Purchased second rental property 6 months later from the same seller (a builder who was having cash flow issues – looking at getting out of the rental property business)
• 3-bedroom, 1-bath

Helping Parents in Their

• His parents saw how well Jordan was doing with his rental properties and eventually wanted his help to acquire rental properties for them
• Six months after Jordan’s second property purchase, acquired first three rental property units for his parents
• 3 2-bedroom/1-bath townhouse units generating $700 a month rental each, plus a $50 per month HOA (home owner association) fees per unit
• $43,000 each
• If he had to do it over, he would not have purchased these units because of the HOA fees and, as condos/townhouses, you are dependent on your neighbors keeping up their units, which impacts value
• Jordan had to find a property manager (PM) for their properties to make the investment a truly passive investment
• He didn’t want his parents to have to deal with the day-to-day issues of managing a rental property and tenants
• Didn’t know what to ask PMs and looked on BiggerPockets.com again to get good screening questions
• Had to fire a PM firm

Shifting His Buying Strategy

• In the beginning (his first 4 years of investing), he sought out properties on the MLS that required little or no repair
• After 4 years:
  • he had
    • 4 single family homes
    • 1 duplex
  • His parents had 6 single family rentals
• However, in 2015 and 2016, he could no longer find the same deals on the MLS and he knew he had to change his buying strategy
• Started building a strong local team
  • Checked on the MLS – started contacting the brokers who represented the types of properties of interest to him, even if the price was not right, and started developing relationships with these brokers.  He found that some of these brokers were working with big investors and were used to the investor mindset
  • Also found wholesalers in the region
  • Contractors (he got through agents)
• To find the good deals, he decided to market “direct to seller”
  • September 2016
  • Does mailing every couple of months since then
  • This is where he is getting a lot of his current deals
• Also, Jordan developed a database of some of the larger local investors in town and the properties they have owned
  • Included information on
    • Their property managers
    • Their agents
• Recent purchases
  • 3 duplexes from a wholesaler
  • 2 off-market SFR properties for his parents (able to sell one of his parents townhouses and to swap into these properties through a broker)
  • A 6-unit property – 3 duplexes from direct mail campaign
  • Most are already rented out when purchased but $100-150 under market rent
  • To get max rents, he needs to do some rehab (deferred maintenance, updating/upgrading)
  • May have to do some evictions and bigger repairs
• Current buying criteria
  • No longer looking at 2% rule (now most are around 1.5%)
  • Located downtown or within a 10 minute commute from downtown
  • Older properties.  He heard president of Zillow say on a podcast that the best areas for appreciation is growing cities and older neighborhoods, near downtown.  He’s buying houses from the 1920s-1950s
  • “C” Class neighborhoods
  • A couple of years ago, his requirements were:
    • Double-digit cash-on-cash returns (minimum 20%)
    • Total return-on-investment in the 40s, assuming 3-4% appreciation and 80% loan-to-value
    • But today (on his most recent purchase):
      • Low to mid-teens cash-on-cash (at 8.5 cap rate, paying 1.5 rent-to-purchase price)
      • $7,000 rehab per unit (if he does the work)
  • One-bedroom units that rent for less than $500, two-bedrooms that rent for not more than $600 per month, because the replacement costs of repairs and Cap-X can make the expense ratios higher than he wants
  • For his parents:
    • SFRs (2/3-bedroom, $60K, market rents of $900)
    • Not much in deferred maintenance
    • Already has tenants
    • Not a lot of forced appreciation
    • May partner up with then to get larger properties in the future.

Biggest Mistakes

• Not building a team
• Not trying to scale up to find off-market deals to expand horizons and boost deal flow
• Only focused on the MLS
• Would have started sooner establishing key relationships
• Would have done better upgrades to get higher rents
• Would have better vetted property manager
• Would have asked:
  • What type of properties do you currently handle?
  • How do you market?
  • What types of tenants are you currently placing?

Biggest Success

• Bought 4 units in first 4 years
• Have learned how to scale up faster – has bought 13 units in the last 18 months
• Moving away from single family rentals and into multifamily

Advice for Old Dawgs Interested in Real Estate Investing for Retirement

• Make sure you understand what makes a good deal
• Know how much you can pay before you start looking so you don’t loose any money
• Build up a good network
• Meet others who are doing the same thing and succeeding
• Be confident you will do well
• Get a good property manager
  • Compatible personalities
  • Systems are good
  • Communication – good at returning calls
  • Online reporting

Where He’s Going With His Current Business

• Current Holdings:
  • For him – 16 units
  • Parents – 7 units (Are happy with the properties they have.  Current cash flow helps them maintain the lifestyle they had prior to retirement)
• Jordan is selling off his single family properties to buy larger assets
• Talking with family and friends as potential investors in future larger deals
• Small apartments

Maintaining Good Tenant Relations

• As he upgrades and increases rent…
• Some can afford to move and some can’t
• For those who don’t have the funds to move
  • He’ll either keep it the same or only increase it at the rate of inflation
  • Would be willing to help the tenant find another place they can afford that is safe and a nice place to live

Rap it Up

• Favorite real estate book: The Complete Guide to Buying and Selling Apartment Buildings by Steve Berges
• Favorite business book: The Power of Habit by Charles Duhigg
• Most valuable web site for success (other than your own): BiggerPockets.com
• Favorite app: PocketCasts
• Favorite quote: “Do what you can, with what you have, where you are.” – Teddy Roosevelt
• 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? I would create a team to build a funnel of deals. Use the money for direct mailings.

How to Reach Jordan

• Email: TopalProperties@gmail.com

This Episode Brought to You by HealthIQ.com

This episode of the “Old Dawg’s REI Podcast” is sponsored by Health IQ, an insurance company that helps health-conscious people like runners, cyclist, weightlifters and vegetarians get lower rates on their life insurance.  To see if you qualify, get your free quote today at HealthIQ.com/OldDawg or mention the promo code OldDawg when you talk to a Health IQ agent.

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