BiggerPockets Podcast 087 with Nathan Brooks Transcript

Link to show: BP Podcast 087: How to Thrive After The Collapse of a Real Estate Empire with Nathan Brooks

Josh: This is the BiggerPockets podcast, show 87.

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Josh: What’s going on everybody? This is Josh Dorkin host of the BiggerPockets podcast. Here with the traveling man, the guy who hasn’t been around for weeks and weeks, the guy tracking across America - Mr. Brandon Turner. What’s up dude?

Brandon: It is good to be home. I’m finally back in my office for at least for couple of days.

Josh: Yeah it’s good to have you home. It’s tough when you’re not around.

Brandon: Thanks. I had a good time. I went to Minnesota state fare and family reunion, played at a wedding. Went to see cop chasing a cow down the road in Montana. That was exciting. It’s been good time and I’m back home.

Josh: Deep fried butter?

Brandon: I did not eat deep fried butter this time.

Josh: But you got a big bucket of cookies I saw.

Brandon: I did get bucket of cookies. Sweet Martha’s cookies if you are Minnesota person you know exactly what I’m talking about when I say I would kill someone for them.

Josh: I never got a bucket in my mailbox, I was waiting.

Brandon: Here’s the thing with Sweet Martha’s cookies – they’re not as good 15 minutes after you buy them. You have to eat a whole bucket when they’re hot and amazing.

Josh: Nice.

Brandon: Everyone’s now jealous. Be jealous.

Josh: Today I’m glad you’re back, it’s awesome. I’m excited. Also we kind of have cool announcement we got new team member here on BiggerPockets. I think I might have announced it last week but I’ll say it again we’ve got Alison Leung and she is our community manger now and she’s our lead editor on the blog. She’s awesome so shootout to Alison for being a rock star and taking over lots of duties that Brandon and myself and our good friend Jaron have been helping with. That’s again to Alison. That said we got a really good show today, we really do. Today we are going to hear incredible story of a real estate investor who jumped in quickly, got really excited about real estate, ended up losing everything in the crash. He lost it all, it was tragic, the story was phenomenal and there’s a lot of lessons to be learned so definitely pay attention. The show is truly one of more honest looks at what can go wrong with real estate and its fantastic so definitely pay attention there’s a ton of great tips so please stick around. Before we begin the show we do have a quick message from the show sponsor Pensco. Why don’t you tell us about that Brandon?

Brandon: Did you guys know that right now you can invest your money from old 401k or IRA in wide variety of real estate investment options including residential properties, commercial properties, flips, rolling even debt like mortgaging and tax liens. With Pensco self-directed IRA investing in real estate opportunities is easier than you could ever imagine and Pensco makes it possible. Call Pensco trust today at 866-818-4472 for a free real estate investor’s guide. Or learn more at learn.pensco.com.

Josh: Awesome. They have office here in Denver and have invited me and Scot from the office here. We went down and hang out with those guys and they are pretty cool, definitely good people. It’s good to have them as a sponsor.

Brandon: Trying to rub it in that I’m not there?

Josh: Listen, I’ve tried to make it clear you really want to be here in Denver man. It’s a great place.

Brandon: I just spent two weeks in Midwest I don’t need more than that.

Josh: Enough. Anyway, listen that leads to today’s Quick Tip.

If you are interested in getting your brands message in front of tens of thousands of real estate enthusiasts you can advertise directly here on the BiggerPockets podcast if you are interested in that send an email to advertise@BiggerPockets.com or fill out our form at BiggerPockets.com/advertise. That’s it. Let’s get to this thing. Let’s bring in our guest Nathan Brooks. He’s a full time real estate investor from Roeland Park Kansas. I couldn’t find it on map but its somewhere. He does make both picks and flips and rentals while still working a full time job and like I said earlier his story is really incredible and inspiring so with that, and he is funny by the way.

Brandon: Did you know my song that I was humming?

Josh: The witch, I get it.

Brandon: Making sure you get pop culture.

Josh: I made a reference later on the show. Anyway his story is incredible and why don’t we bring him in? Nathan welcome to the show, it’s great to have you here.

Nathan: Thanks for much guys is a pleasure to be here.

Brandon: We are glad to have you. You’ve been writing on the blog lately and I really love reading your articles every week. It’s like one of my favorite writers and I just get a kick out of it every week. Thank you.

Josh: Why do you guys get a room?

Brandon: I’m just saying people should check it out.

Josh: His articles are really good.

Nathan: Thank you very much. That means a lot and I enjoy writing them.

Brandon: Let’s start at the beginning. How did you get into real estate?

Nathan: I’ve listened to a lot of these podcasts and read a lot of blogs and I think my story runs along the same lines. I really was unintentional investor at the beginning. I wanted to be in real estate but I didn’t necessarily have any idea what I was doing and I literally met a guy sitting in a restaurant who was talking about real estate at a different table who had nothing to do with me walked over, introduced myself and boom a few weeks later I have a business partner.

Josh: You are having lunch with your friends, pals, wife, whatever and then you start listening to conversations of people next to you. That’s kind of nosy man.

Nathan: There are few ways you can look at that but yes.

Josh: You are listening to this guy, he’s talking about real estate. It’s pretty bold. We all listen to conversation around us but to get up and be like “Hey man that’s fascinating” how did that go? I’m just curious because if I did it I would probably get punched in the face.

Brandon: Speaking of that, listening to people, every time I’ve ever eaten lunch or dinner with Josh Dorkin here Josh strikes up super good friendship with people sitting next to us. Last time we went to this Italian restaurant these lady invited us come stay to their house up in Canada. Everywhere we go Josh bu3

Josh: The other Italian restaurant day before was same thing.

Brandon: Back to you.

Nathan: here’s the thing. I can get the life story out of anybody in ten minutes regardless. Approaching part was not scary part. I was what came after that which was “Hey this is great, we became best buds, we had bunch of meetings and first time I bought a house I bought two.” With no money on assumable loan through a local bank and boom I was a real estate investor.

Josh: You walked in, picked up two properties with no idea what you were doing because you were listening to the guy sitting and eating sandwich next to you and now you are like what on earth do I do?

Nathan: Oh, yeah.

Josh: That’s scary isn’t it?

Nathan: It was not necessarily looking back my best move.

Brandon: Let me ask real quickly about the guy you met. He was an older investor I’m assuming? Not your age?

Nathan: Not really. He was couple years older. That strong, fit, athletic, burly. I was fired up man this guy is going to be the meal ticket. This guy’s knows what he’s doing and he’s going to be partner and I’m going to learn this business along with them. However that is not how the story unfolded.

Josh: You got these two properties, you partner with him now how is that partnership setup, how did you guys do this?

Nathan: 50/50. I bought the properties and financed them and he was the construction guy and was going to run the crews, get the rehabs done and so forth.

Josh: Were these flips or buy and hold?

Nathan: They were flips.

Josh: You started with two flip projects at once, never have done anything before?

Nathan: Oh yeah. Almost 400k worth.

Josh: That’s a really bad idea. You’re knee deep into these projects, you’re freaking out, ripping your heart out, going crazy. Walk us through what that experience was like and why anybody listening who has never done a deal should never do what you did?

Nathan: Because as you go a few weeks into this process and this so called business partner begins not showing up, begins not doing the work, begins not answering his telephone then shows up on Friday with his hand out for a wad of cash. That’s not how you do it folks. That’s just stupid. Not only did I get myself into two properties, not did I not have any money in the first place nor did I have any idea what I was doing then I simply was stuck in position where I had no idea how to get out.

Josh: You’re partnered with a guy who flamed out, who basically wasn’t there for you, who is a flake I guess. Let’s just get into that. We don’t have to talk who he is or anything else but for folks listening how could have you avoided that situation?

Nathan: There’s few things. First of all don’t go into business with somebody you don’t know. It’s stupid. Second is once I realized the problem was happening rather than actually getting out of the situation and either selling the houses or just really solving the problem I kept feeding into problem which was paying him, trying to make it work, trying to keep deals together because at the end of the day I thought that we had two great properties and two great deals that I could start with that would help launch my real estate career.

Josh: At some point it may become unavoidable for investor to not work with somebody that they don’t know. Ultimately you are probably not going to be doing deal with your best friend so you are more likely than not working with folks that you’ve got some borderline relationship with. What are the key things you would want know about somebody to insure? Are you going to do a background check, are you going to screen them in any particular way to see that they are not going to screw you over like that?

Nathan: Sure. I guess more so not necessarily not knowing them but have relationship built around maybe other people that you know or personal relationship like trough BiggerPockets for instance. You can vet somebody trough other people that had worked with them or that you know they’ve done deals.

Josh: That’s good. Just because somebody is on BiggerPockets doesn’t mean that they are vetted. I want to point that out to everybody. I’m a person who should be “BiggerPockets is greatest place ever!” and it is, but we don’t vet people. There are plenty people on the site that were not an investigative body we can’t go out and look at everybody who joins the site. You have to do your due diligence on BiggerPockets. BiggerPockets is just miniaturization of the world so to speak and I can’t press upon folks enough that that’s really important. Just because they’re on BiggerPockets doesn’t mean that’s somebody’s trustworthy. Just keep that in mind.

Brandon: We did talk about that also with Mehran Kamari and Dawn Anastasi which we had both on podcast now. They found themselves through BiggerPockets and I asked both of them that question – how did you find a good partner? Both of them had the same answer – they looked for people who were active in the community, people who are engaged, people who are knowledgeable, people who were like showing effort that they were knowing what they were doing. That is the great thing the more you hang around people the more you see how they interact with others the more you can gauge them and decide if you want to work with them and that’s BiggerPockets or in the real world no matter what. Maybe it’s not good idea to jump in first day this guy seems like real estate clearly we are going to be partners. Would you agree Nathan?

Nathan: Believe me I learned my own lesson and it actually got worse after that. The point with that is I could have done a better job and at the end of the day you can find great partner maybe you don’t know but you start smaller, do guy buy two houses, don’t go get two huge projects to do. Start somewhere smaller where you can vet them.

Josh: How did this play out? You said that it got worse – let’s hear it.

Nathan: Not only did we buy those two house but then within the next 18 months or so we bought half a dozen more houses and we owned multiple rentals.

Josh: This is with the same guy?

Nathan: No, I have of course found another investor on Craigslist who had multiple properties for sale. I could always negotiate a deal, it was never a problem. I could negotiate any deal with anything I can always get the deal I want to work the way I wanted to but in this case because the deals weren’t good and I didn’t have background to say “Hey I need to make sure I understand what the deals are” I got into them without really having understanding what I got myself into. Now we own $1,000,000 in real estate and I have this partner failing, I have these properties that are mostly section 8 tenants occupied and literally one of them that I purchased I walked to the house the first day I owned and the tenant, boom, moving out. Another one had mold issues and one had foundation issues and there was a whole mess of things I just royally messed up.

Josh: How soon did these other properties follow the first two and did they follow after you had closed on the first two or where you still rehabbing them when you bought the third and the fourth?

Nathan: We were still rehabbing the first two properties. They all came to succession three or four months later ad then later month or two later.

Josh: There’s this concept its paralysis by analysis. I’m sure everybody listening has heard us talk about it. Paralysis by analysis is you don’t make a move because you’re just frozen by evaluating deal and trying to figure out what to do. I’m going to call you out Nathan, you’re on a show you know what you’re in for Nathan has done complete opposite of paralysis by analysis. Nathan here I tried to come up with something clever but I can’t really coin anything but he’s literally so excited about real estate that he’s just buying stuff and not really prepared for what he’s buying.

Nathan: No idea.

Josh: I was guilty of that early one as well and it’s equally as dangerous as anything else you can do in this industry. In fact I think it might potentially be the worst thing you can possibly do in industry is get so excited and just say “You know what Ill figure it out, let me jump in, let me just keep buying” there is something to figure things out as you go along but I want to press upon folks to be careful and not have ten projects going at once or two projects going at once until you figure out how to do one. I’m not trying to use you as an example but I am because it just works. You’re in this horrible situation, you’ve got all these things happening – how did it play out? Clearly it’s going to blow up in your face, right?

Nathan: It blows up. Everything goes to Hell and hand basket and I literally one by one the banker on the first two properties starts calling note due, I tried to have a deed in foreclosure on one which he agrees to and then subsequently sends a lawsuit filing to my house a week or two later, begins collecting rent illegally from the tenants who I at that point placed in the house because I had no contractor and I had no idea what I was doing. I didn’t really have lease in place with those people living there. I was just trying to pay for cover the monthly mortgage amounts on those houses. The multiple properties one we ended up losing in foreclosure, we had short sale on another house and eventually we literally filed chapter 7 and lost literally every single thing, every piece of property and we spent every dime of cash that we had trying to save them.

Brandon: When was this? Sounds like the crash.

Nathan: This was the crash, yes. 2009 is when we filed.

Josh: You went from nothing to this big portfolio and from the outside everything looks good but the systems weren’t there, the education wasn’t there and the empire was kind of crumbling under your feet. It all fell apart, chapter 7 and now where are you? Mentally are you like “Hey I still love real estate” or are you “Get me the heck away from anything to do with real estate”?

Nathan: There was a period of mourning for sure. I built an empire, I told my wife were going to have this awesome business and I failed. At the end of the day for me we had a decision to make which was do we learn from the mistakes that we just put ourselves trough and do we jump back in and go after it and learn from the mistakes we made or do we go through all that pain and suffering and then do nothing worth the education we just received. For us we jumped back in. Much more that I was excited about than my wife believe me. We jumped into real estate 18 months later with 50% cash down and private money guy who was expensive of course and I had asked 27 times before I got a yes for private money to buy our first property after close bankruptcy.

Josh: That’s serious. I just want to cycle back to one item left on pre-crash so to speak. Clearly this guy was not a great partner to have. The first partner. What was the final straw, what put you over the edge because you put up with a lot of nonsense for a long time? When did he finally get to you?

Nathan: You couldn’t even write this story it’s one of those where literally had taken, I can’t even believe I did all these things, but I put business credit card he had literally taken business credit card which of course I put him on and out of town trip with some person and literally spent additional money, not only tens of thousands of dollars that I paid him over the course of two months trying to get him in and out getting this construction and stuff done. Not only had he cost me tens of thousands of dollars, not only he put more money on this credit card but then started feeling like my life could be in danger or this really or if he’s schizophrenic or I don’t know if he’s bipolar I don’t know what is it about this person that my life is actually in danger at this point and I should really extricate myself from him.

Josh: Sorry you had to go through that. It sounds horrible and I don’t wish that upon you or anyone else who’s listening or anyone else period. That sounds awful and clearly you walked away with few lessons.

Nathan: It was horrible and I think the point of this and I think the reason I am on to talk about it is I want for people to hear the story there’s two things. One – it’s okay to go slower. I know we hear these amazing stories about people who built this incredible businesses and believe me I want to do that and I think you guys share that feeling and we have to understand how to make it sustainable and how to grow with that business. Two – it’s okay to fail, it’s okay to understand where we come from and we can look back on it and as long as we’re learning from it and we’re making a conscious choice to not make those same mistakes.

Brandon: Let’s say hypothetically you could go back in time and do it all over again, knowing what you know now what would you do differently? This time around and people listening to this podcast are just getting started and they’re super excited and they’re in your shoes five years ago. What would you do?

Nathan: Michael Quarles had a line in one of the podcasts he didn’t know what he didn’t know. I didn’t know so looking at those two properties would I have still bought them? Maybe. Maybe I would have but I would have certainly brought in a business partner that I understood – the person and as well as understood their abilities within the deal. In that hypothetical situation there was money to be made and properties looking back were great properties and if it were done right and if it would have run smoothly and the guy wasn’t a crook we would have made money and would probably be telling different story today. But it’s not what happened.

Brandon: I look back at some of my early properties that I have that are some of the first few. I have a property that I worked on for a solid year myself, my five and I, working everyday fixing this thing up, I’ve told this story before and then it set on the market for a year. We ended up selling and breaking even. I lost two years of my life essentially. Couple of other ones that are just bad rental properties that I lose money on every month but I don’t know If I were to go back I don’t think I would change a thing about that. Because the lessons I learned had made me better investor today and have helped me share my story and help other people just like you are doing today. I kind of can resonate with that. It sucks and I wouldn’t want to go tough it again but there is something to say about the lessons you learn from failure.

Nathan: Absolutely. Also even on the rental properties I purchased now are so much different they’re structured differently, I have much less leverage and I have much more cash flow and so to be able to understand what I need to have in reserves and this kind of things versus what I’m bringing in on a consistent basis from rent and really understanding what that looks like and what your business model actually is.

Josh: We’re going to call you to come back in Nathan. You had this tragic beginning and presumably, we haven’t heard the story but presumably things turn around and I want to talk about picking up the pieces after this really tough failure and loss where everything went wrong. You’re at this low point and now let’s start bringing it back up.

First thing that happens, everything went sour, and you talked to your wife you kind of back in that position where you can get that first deal. What did that look like?

Nathan: At the time it was a little rental property in our market here in Kansas City. There’s few different places you can buy at that 2% rule kind of property everybody likes to talk about so we can make good cash flow and we can also get into that property because it wasn’t that expensive. The first property we purchased was $21,000 – three bed one bath, 130 square feet and it rents for $800 a month. Put a couple grand into it. I literally put 50% down so roughly $10,000 and immediately had renter within just a few weeks and I still own that property today and that house is worth $70,000 and we just refinanced it actually and pulled bunch of cash out to buy another property in same neighborhood.

Brandon: Let’s talk about that property a little bit. What kind of property can you buy for 20,000? That seems just crazy low. What kind of tenants do you get, what kind of neighborhood do you get?

Josh: He’s in Kansas, Brandon.

Nathan: Kansas is kind of like Minneapolis our anything else. One of those kind of cities that has a lot of outline areas so yes I do appreciate Kansas joke.

Josh: It wasn’t a joke. I’ve driven through Kansas man that is one of the toughest states in this country to drive across. Talk about wanting to bash your head into a window.

Brandon: You don’t like farms?

Nathan: I thought Ohio was worse.

Josh: You know what Ohio, Illinois is bad it’s just flat with straight and nothing and I’m like “My god get me out of here, get me out of here” or maybe that’s just me.

Brandon: That’s when you listen to the BiggerPockets podcast josh.

Nathan: If you read one of my blogposts you know my wife and I listen to couple of dozen when we have two screaming two children in the car driving to and from Pennsylvania to Kansas. It’s a long drive.

Josh: It’s tough, I’ve done that.

Brandon: What kind of tenants are you getting in the $20,000 property?

Nathan: remembering back to this was still really in the crash time and not the trajectory going higher. We were able to buy now knowing that house is in a really good neighborhood and it’s probably a C property as we call it. There’s not a lot of crime, there some issues here and there but not really any that we dealt with. This particular tenant has a family, there’s several kids, they pay on time and we really have very little problems as far as the actual property is concerned. It’s really pretty good property, pretty good neighborhood. The only caveat to that is that today you certainly can’t buy that house for $21,000. That deal is no longer there.

Brandon: How are you finding properties today? I don’t know if we want to shift to that part of the podcast now but if you can’t buy that one for $21,000 what do you doing today?

Nathan: To be honest there is house on that same street which by the way I thought I was perfect because the street name was Harmony and I love in my life to be able to get back in real estate and the first deal was in a Harmony and it was one of those moments where I felt like stars had aligned and we came back to a place that made sense.

Josh: That’s great.

Nathan: There’s actually a house on that same street that I just missed, unfortunately, because it didn’t get out of investor time or RIA property and but it was $30,000 for two bedroom one bath but I still would have bought it all day long because you can rent houses in that neighborhood so quickly and you get great tenants. That’s kind of a barometer on what they are now.

Brandon: Are you managing your properties now and are you doing only rentals? Are you doing flipping as well and are you managing yourself?

Nathan: Well just got through firing my property manager because they just had done terrible job and there were some disrepair on this property and we unfortunately I didn’t really realize how far gone. For people listening even if you have a property manager doesn’t mean they’re managing anything. You still have to do your due diligence and for me that meant I’m going to by that property at least few times a year and make sure, understand that I’m always checking in with management companies so that they know I’m here I want to know that this property is cared for.

Josh: That’s really good advice. It’s funny I’m going through paperwork right now for property I sold six seven years ago and it’s just going through this weekend as a matter of fact and I looked at the information that my property manager was sending me. I had tenant that was six months behind in rent that was still sitting in the apartment. I cannot believe that they did not do anything and that I didn’t know enough to say you guys need to do something. It’s astounding that looking back that that was even possible. Just because you have management company doesn’t mean they’re doing what are they supposed to be doing and do not allow somebody who is one month, three months, six months, when somebody is late their first month you send them a notice and if they don’t take care of it you get them out. I’m kicking myself in the behind right now seven years later for what I did. I can’t believe it.

Nathan: We learned those lessons and for us now we don’t mess around at all. They’re late and past whatever the lease says, couple days, they get that three day pay-or-quit. That’s it. We don’t mess around and we take care of our properties, they’re beautiful, they rent quickly and they know they have their job and we have our job and they better do theirs.

Josh: how do you make unit stand out above other units in the area? How do you compete against other rental units beyond what you said “Keep your units beautiful” is there anything else you do to stand out in the crowd?

Nathan: I think one of the things in this kinds of neighborhoods there’s a lot of people who don’t care much about their properties and from the get go when they walk into that property it has a little bit nicer features. We actually take time and put money into the bathroom, we take time and put money into the kitchen. Not to the point that we can’t get it back out but that when they walk in they want to live there. We’re going to get top market rent for the area, we’re going to have less vacancy days, less things that break they’re going to say “Hey listen this is nice and if you break it you’re buying it.” We set the expectation at the front.

Josh: Do you find that they do take care of the properties? I did not have great success and found that things are destroyed constantly. With putting in high rent things do you see that they are treated better?

Nathan: I don’t know when we see any of these kinds of things we have our own lightness test on the property means. For these I really have had a lot of better success. It’s not like we do not have section 8 tenants in those properties and I would have called that kind of like D neighborhood. It was terrible and they didn’t care and they didn’t take care of anything, it wasn’t a good situation and that’s not what my business model is now. It’s a better neighborhood than that, it’s better tenant than that so we had a lot of success with that.

Josh: Makes sense.

Brandon: Do you do any flipping now?

Nathan: We do. I tried to take some time everything I look at the deal and every time I think through what the options are the more we understand and more than we can see through what we’ve don’t we can have better idea how to approach the deals. Ones that we are doing right now we actually I had it under contract but then there was far more work that had to be done in the foundation issues and all over my market. You can spend a lot of money very quickly and this particular one the lady owed more money on it than it was worth so she couldn’t really do a short sale for some various reasons so instead her bringing more money out of pocket I told her “Listen I will run this like it was my flip, I will just charge you a flat amount of money” and I told her basically what it would look like, what I would have made and made it very appealing to her so that she could have somebody that she understood would be able to get her out of it. Trough that I still made a great amount of money on the deal. I had no risk, zero, because I don’t own it, I didn’t pay for the contracts, I didn’t pay for the foundation and by the way we literally dug out entire 20 foot long 9 foot deep hole and pushed entire wall up with this deal and a full renovation inside. I was able to save her $15,000 – $20,000 when she sold it because she didn’t have to come out of pocket to pay since she was so far in the hole. There’s a lot of different ways, there’s so many deals out there, ways to structure a deal. Another flip were working on right now is huge project 2400 square foot house with full renovation. It was the cat lady kind of deal and you can smell this house.

Brandon: No jokes Josh.

Josh: It’s like Brandon’s house.

Nathan: From the corner of the street you could smell the house. The doors open.

Josh: Was it hoarding or just cats?

Nathan: It was casts and cigarettes.

Josh: Because they go hand in hand.

Brandon: They do not.

Nathan: Luckily it was not hoarding house. Actually the house that my wife and I bought was a hoarder house and come to find out it took them 17 months to just get house cleared out before they could even sell it. That’s a whole another story.

Josh: You talked about the cat house, the cat lady. She got the cigarettes in hand she’s got cats flying around, she’s throwing them at you as Brandon does.

Nathan: No, no. You don’t understand there are cat pictures every ten feet in this whole house.

Brandon: Because they’re so cute.

Nathan: Cat figurines.

Josh: Just like Brandon’s house. How do you clean it? That’s a question that comes on the forums a lot. Hey I just bought this house, I’ve done everything I cannot get the smell out. What do you do?

Nathan: There are few things you can do. First of all you just get everything out of there. We’re tearing every bit of carpet, there just so much stuff there that’s been collecting that smell you got to get it out. In second there is something we use beside paint and that kind of stuff that you can really obviously in the house like that you are painting everything but there’s also thing we use called Ionizer I believe and you can get it in Home Depot. A lot of times we use it for mold but it cycles the air it really helps actually clean particles out of the air and it does amazing job of going that smell out of spaces like that. For mold or smells or whatever we use that a lot.

Josh: Hopeful any places that have mold, the mold have also been removed. You’re not just running ionizer.

Nathan: No. That’s another lesion learned and people should really make sure they have the compass driving in the right direction that when we buy things like that we built in the budget to fix them. Whether its mold of something else and we do it right and we know we can go to sleep at night that we’ve done a great job and we have great business. When the investors get a bad name I think that’s one of those situations where were band aiding it rather than fixing it. I don’t do that.

Josh: That’s great. It’s really important I harp on it all the time. Listen if one of us go and does a crap job on a rehab or manages their property terribly it reflects poorly upon the rest of us and makes it harder for everybody, it really does. Not only for everybody else but makes it harder for you. If you’re doing great job as investor it’s only going to come back and help you. That’s great advice.

Brandon: How are you finding deals today? What’s your main strategy for finding stuff?

Nathan: I actually just did my first wholesale deal in this flip I’m talking about actually came through a wholesaler. We are buying stuff on MLS still especially in the rentals because rental areas and for a while we were able to pick up some properties that were flips on the market but right now in the KC market anyway almost all those aren’t getting out of investor time period, there’s 15 days or 20 days for owner occupants to buy them and then they’re being picked up. I’m putting a lot of more time and effort into relationship with several wholesalers and trough BiggerPockets actually I’ve connected to quite a few different wholesalers and building that network that we can do trough like BiggerPockets, which is totally awesome guys by the way, I love it and I love spending time on there and the relationships that I gotten from BiggerPockets had already contributed to deals that are coming and financing and all kinds of things. It really is worth the time and effort and by the way you can’t expect to have deals and those sorts of things coming out of BiggerPockets if you don’t put in the time and effort to do it. That’s really important.

Brandon: You wrote a post couple weeks ago called “The art of saying no or how to avoid buying a house that could literally kill somebody” I’m wondering if you could tell us about those. You know not everyone listening to the podcast read that. Talk to us how to say no and also tell us that story about the house.

Josh: Glenda the good witch. He’s in Kansas after all.

Nathan: I knew you would tie that back in. I could see it. First I think being able to look back now being able to hear my story the art of saying no comes very quickly now for me because it was a matter of saying “It is a lot easier to say no and not have to deal with it than it is to say yes and be in the middle of it and really wish you said no” I don’t specifically remember language I used in that blogpost but for me it was matter of saying “Do I understand the deal, does it make sense, does it make money, does it pass the gut test and I really feel good about it and I can sleep tonight knowing that I just bought this house” if it doesn’t pass those things it’s not working and you have to force it to make that deal don’t do it. I think one of the taglines I used was “There’s a deal for everyone but this deal might not be for you”

Josh: I like the gut test by the way. I think people should rely on that more than anything. Rely on the numbers but you got usual intuition and so I love.

Brandon: More importantly it’s your wife’s intuition.

Josh: Yes.

Brandon: Every time my wife’s been like “I really don’t think we should buy this one” I do it anyway and it’s always a mistake.

Josh: If you don’t have a wife or your wife’s intuition is bad just call Brandon’s.

Brandon: Shell tell you what to buy. Let’s talk about the house that can kill someone. What was that story?

Nathan: I posted on Facebook saying I’m buying a house in next 30 days who has a deal. Within 12 hours I had two responses on Facebook so that was cool. I’m like maybe this works. One of them was this house and I did my due diligence, I looked at some coms I had some understanding of what that neighborhood was and its actually close to where I grew up and so I drove there, drove the neighborhood and walked up to the house and from what I heard from the seller was that there was some work that needed to be done. Well I walk in and immediately you kind of cross the threshold into this house and there the first room that you see looks like worst drywall job I’ve ever seen. Like a monkey and a three year old did it together.

They’re going at it and it was a party and when it was done it was like curious George – you don’t know what you’re going to get but they were having fun doing it. Walk not that much further down and you walk into the bathroom, guys, the electrical panel is in the shower. I’m not kidding. You wake up, I’m feeling great you go up to bathroom, you brush your teeth, and you jump into shower and boom you’re standing in the face of water coming at you and electric down. Wrap your brain around that one. I think that’s in the value engineered DIY category. You walk out of there quickly into so called master bedroom and there’s no flooring at all. It’s just OSB-ish and there is no drywall for celling nowhere. Every single joint, it still scares me thinking about it now, I look at the wall and there are literally foundation brackets that you put like in the hose that’s settling in the wall. There’s no lighting other than the piece of Romex coming out of a wall and a lightbulb attached at the end. At this point I’m starting to think about my life insurance policy holder and making sure I had everything lined up correctly. Do I call my wife and tell her I love her? We walk to other side there’s another bedroom, come to find out they put that one too literally bounce like a trampoline and It felt like it was going to come off the side of the house.

The best part of this whole story they had gone and cut a hole into the roof to add the second story on but they obviously didn’t know what they were doing and it rained the day they actually cut the hole in the roof. Not only they did not know what they were doing they had no engendering expertise, they had no contracting expertise, they hadn’t built it correctly and they had all this water damage from having heavens opened up on the house the day they chose to bust the skull off the roof to put a hole in.

Brandon: You didn’t buy it.

Nathan: I did not buy it.

Josh: Was the seller the person that you were dealing where they seller or wholesaler in this one?

Nathan: It was the seller.

Josh: Were they there with you?

Nathan: Yes.

Josh: I don’t know that would have been really hard for me to bite my tongue.

Nathan: I didn’t. Let me tell you what I mean by that and I think it’s important for people to hear. As we know the backside of my story and knowing that we said yes so many times and probably five years ago I would have been gun hoed about doing something like this house and it would have been horrible idea because I wanted to help her and I think it’s important that we understand as investors that were going to situations that are horrible sometimes and these people have no idea how to get out, everybody else has told them no, no real estate agents wants to go into that house and how do we solve the problem? That’s what we’re there for. For her I literally said something like “There’s no way I’m buying this house and I want you to hear me say this I don’t think you should be living in this house either”

Josh: She was living in there?

Nathan: Yes. They were living in this house. I told her immediately I think you should get out of this house right now and I went through couple options which I thought she had which was short sale and I’m not sure what would it sell for if they ever approved it. She owed just a pile of money on this house. Or second I said literally call your bank, mail the keys, throw a party and move out. Get out.

Brandon: I think this is really important story because I know as people always say job of a real estate investor is to solve problems. We are all problem solvers, we like to solve these puzzles and put deals together. I know I’m guilty of that always trying to get every deal fit. I’ve heard it said there is always a price for every property but sometimes there isn’t. Sometimes it is opportunity cost and there is other issues that maybe you could solve this problem if you really put enough work into it but is it really worth it.

Nathan: I totally agree. I think if for instance if I was an investor that all I do is flips and flips in the area and I had general contractor, somebody on my payroll or I have contractor person that I actually partner with on a regular basis that we could go and tear that down but I don’t really do that, that’s not my business model. For me to take that time and learning that whole new process in the midst of all that kind of heralds me back to beginning of my real estate career and saying “No, this is not my moto, this is not what I understand and this is not something that I can spend all this time and energy on in this deal” I don’t think it’s going to make any money anyway so that’s when you move on from it.

Josh: That’s awesome.

Brandon: That is good advice. People need to learn to do that.

Josh: Really quick you are literally just that’s just learning how to say no to bad unworkable deal and it’s not easy for everybody. We hear a lot of people on this show and people talk about this all the time any deal you talk them down and you do it but you looked at your picture and you said “I could probably get them down but I don’t have the pieces in place to deal and mange this deal” and I think that self-evaluation that you didn’t have before the crash and you acquired thereafter is extremely important and again I urge everyone listening to try and develop that intuition, that skill because that’s huge.

Nathan: Also empathy for those people or sympathy. Understanding that these people are living in this house and it’s a terrible situation and so you can just walk out of there but for me I really wanted to at least say I did everyone I could to help her not just in the situation because I couldn’t buy it but because it’s the right thing to do even I didn’t make a dime on it give her some direction and make her feel like she has at least some options to get out.

Brandon: On that topic on helping people no matter what one thing that I find I guess interesting when I started advertising for motivated sellers and whether it was on Facebook or whatever and people started calling me I was really nervous at first to talk to people. I was like I don’t know what am I going to say, I can’t help most of these people, what do I know? What I found was actually really cool is kind of take it from a standpoint of I know more about real estate of any of these people do clearly. Even beginning investor probably knows more about real estate than these people do. I don’t know its kind off odd point here but I just want to encourage people you can help people whether you’re going to get money out of the deal or not. Make it your goal to help a person every single phone call that comes in, every conversation you have try to help that person fix their situation whether you can get anything out of it.

Josh: Why? I agree with you but why would someone do that? Beyond just being a good person there is some value that comes out of it. What comes with that?

Nathan: For me very clearly is more deals. I can say a 100% there are multiple people that I have bought their homes or helped their friends buy their homes who had then called me with another deal. I have this friend, my mother needs to sell of whatever. I believe in karma, I believe in what comes around goes around and that we do the right thing because we know in the end it comes back around to us. Just kind of going back to Brandon also just thinking the fact that trough speaking with sellers you just get better at it. You understand what their needs are and you understand how to listen because that’s everything. If you can’t understand what the problem is you can’t solve it. I’m a huge proponent of having a mentor and for me with mentors in my life can not only talk trough deals but they can do actually role playing and that kind of stuff and understand have a script, look at somebody else’s script, understand where you’re going so at least until you get to the point where you understand what questions to ask and how to go from there that you are able to have a confidence going into that conversation.

Brandon: How do you find somebody that will take you under their wing – a mentor? Without paying 9.97 a month kind of guy. How do you find that?

Nathan: For me my mentor came off Craigslist. I literally called the guy after looking at the ad that he had for a home for sale and I looked at his business and I said “Oh my gosh this is the kind of guy I should have had in the first place” which was bunch of properties under management, had done millions and millions of dollars of flips and had brokerage and had people that worked for him and structure in place clearly that was operating on a scale that could grow. I took him to lunch. From there came not only a mentor, not only somebody that I trusted to run a deal by but he also became a funder and a partner in deals. I knew that I finally established a relationship and trust when he actually called me asking for deal. That was insane. What do you have going on I have funds available let’s do some deals.

Brandon: I love that. We talked about that before but I don’t think we could say that enough about finding a local successful investor you could just partner with and learn from man eventually you never know what will happen. You don’t go into it assuming you are going to do that but I just think it’s just so powerful to do that. I love that you are exact example of what I always harp on about.

Josh: We talk about that in the ultimate beginners guide and for those people who haven’t heard of it or haven’t read it its BiggerPockets.com/ubg and we talk about education and how to get training and how to learn the industry as anybody who knows anything about BiggerPockets knows that this is really one of the big things for me as well. I just don’t see why somebody would need to pay someone in California or New York or Ohio or whatever – a place that you are not. Who’s charging you x amount of dollars, you and ten, 50, 1000, 5000, 10000 people some amount of money for them to train you when you can find somebody local in your area who’s got boots on the ground who can hold your hand, who you could go sit down for coffee with and who you’re not on a clock with.

There’s a big difference between “I get 60 minutes once every two weeks to talk to this guy’s who’s this national guru – he’s on TV or he’s got a course or whatever it is” you don’t have to do that. You can just find that local guy who’s successful and this guys want to find you because if you’re going to be working and you’re going to be helping them out it’s in their interest to find young hard working investors who are excited. You are going to bring them deals, possibly going to partner with them. Find those guys, those guys are going to help you blow your business up and it’s not going to cost you a dime. Maybe it will cost you ten bucks for a hamburger.

Nathan: Money well spent. I think having a mentor depending on what the business model is and that kind of thing if it’s somebody that really does that niche business it’s probably worth paying somebody depending on what it is but if you’re paying big pile of money for some guru guy that you’re not having that personal relationship with to understand and really be invested in your business. Second part too is to and I actually met with somebody off BiggerPockets, had coffee, he bought, it was great and one of the things we were talking about he had potential for a partner and we were talking about things offered in the deal and we are going into details on that and he was kind of questioning his split and I said “Dude you have nothing to offer other than your energy, enthusiasm and willingness to do that” meeting and he’s like “Thanks for putting it into perspective” as new investors we have a lot to learn and so we can take that enthusiasm, we can take opportunity where we can make still great amount of money, this other person is taking all the risk, they’re funding the whole deal, they’re teaching you on the same time and you get education and by the way out of that meeting came some potential from some amazing funding and partnership which was cool.

Josh: That’s great.

Brandon: That’s awesome we could talk about this forever but we have to move on and were going to hit world famous fire round right now.

It’s time for the Fire Round.

Brandon: This questions come straight from BiggerPockets forums which you can get to at BiggerPockets.com/forums.

When is it the right time to take action in real estate? When do you know it’s right time to jump in, you learned enough, you can go make your first deal?

Nathan: I think the time is when you’ve aligned stars. You have some money in reserves, do you have some experience, education, whether its mentor or reading. Maybe you have gone to some seminar or something, fine, I think once you have stars aligned and you have some education and maybes it’s a lot more education and maybe it’s a lot more on mentor side and I think the thing to me after all the things I’ve gone through it was really important to me to have some money in the bank when we bought investments. Because if you don’t have anything to cover the rainy day fund or something that comes up or some issue that was a thing for me that what are you going to do if you don’t have options. Have your game plan, have a business plan, have understanding of what are you actually going to look for buying whether its fix and flip or wholesaler and then go for it.

Josh: What’s your number one secret to wining a negotiation?

Nathan: Know the answers before you ask the questions and you have to be able to understand their motivation and be able to make it a win-win situation. I love Michael Quarles and I love hearing him talk. He has a great point as far as understanding this house needs a lot of repairs doesn’t it? Yes it does. You have to find the ways to the questions that leads to the answers to what you’re trying to accomplish which is to buy a house for the right price because in real estate we make money when we buy not when we sell it. If you can establish your gameplay going into that deal and kind of understanding where you need to go and if the seller understands and they have full picture of what’s going on and why are you offering what you’re offering and that you actually can close. There’s a lot of guys walking there and they’ll talk about bunch of stuff and then they don’t close the deal.

Josh: You’re talking about show 77 with Michael Quarles – the negotiation show. I think he had two shows with us. You can find that at show 77 BiggerPockets.com/show77 and that will get you aces to the Michael Quarles show.

Brandon: How do you find a good lawyer that understands investor mindset?

Nathan: That is a great question. It is vital that attorney understands and probably does real estate. For me it is a matter I literally interviewed bunch of people and I wanted to hear what they’ve done I want to hear if they’re real estate investor themselves or maybe they’ve been in partnership with others. For me I have multiple attorneys I go to and they have specific niches that they work in. One is more contracts, one is more actual kind of court preceding type of attorney if we kind of had to actually file lawsuit against somebody so you have to understand what their strength is and play on their strengths just like anything else – in investor, a deal or whatever.

Josh: What’s the best season of the year to sell real estate?

Nathan: Oh gosh. Any time. Here’s the thing. In this market I’m fired that winters coming because its great time to buy so I know that houses are going to sit longer and people are going to be more motivated because they’re not going to want to pay that gas bill and they don’t what to pay that electric bill and so that’s a great time to buy. Here in the spring or in the summer after schools out a lot of the time is best times are to sell. In our market right now there’s a lot of activity, there’s a lot of great costs for the properties that were flipping in the areas and we generally don’t buy in areas that are not fast turnaround for a flip because we don’t want it sitting there. We have great product that doesn’t last on the market longer than days and weeks.

Brandon: What aspect of the BiggerPockets has helped you the most in your real estate endeavors?

Nathan: I think that a very immediate access to people who know something and that are willing to talk about it. I think that’s part for me for BiggerPockets is understanding there are people with different market, different paradigm, what they’re living, how many deals they’ve done, how much money they’ve made but you are able to tap into whole network of people who care and want to help and for the most part give pretty good advice. Especially once you get few people who are commenting on something it’s not just one person that you can kind of get a feeling of what’s going on so I think that’s a real benefit even for things for me that I haven’t necessarily done before. I’ve used it for that for understanding sub to deal or something like that where you can put it out there and really have a bunch of people who actually done it and can help you get some direction.

Brandon: Let’s move to the last section of our show that we lovingly call…

Famous Four.

What is your favorite real estate book?

Nathan: I have two that I have kept and used for a long time. One is The Millionaire Real Estate Guide to Investing. In that company that the Keller brand they have a bunch of really great books that I really do think are pretty good and that books has been really helpful but more on a macro level. Second book that I have used a whole lot is The Unofficial Guide to Real Estate Investing by Spencer Strauss and Martin Stone.

Brandon: I love that book.

Nathan: I have that book and I think they’re really good with balance with those two books from lot more details and nitty-gritty and that The Unofficial Guide to Real Estate Investing in a more macro view and some marketing skills and that kind of stuff.

Brandon: I love that book. That was one of probably most influential books – Unofficial Guide to Real Estate Investing so people haven’t read it yet definitely get it. It’s actually on our list. Both of books are on our list of the top 22 best real estate books of all times which I will put the link to in the show notes at BiggerPockets.com/show87.

What is your favorite business book? I just stole your question Josh. Deal with it.

Nathan: I’m going to answer this question. I don’t know if you consider it a business book but I was thinking about one book which somebody on this show continues not to read where I really do enjoy it. At some point I’m going to dedicate a whole blog post to just harassing you about this book. I’m not going to use that one, I’m going to say Unlimited Power by Anthony Robbins. I love this book because I love the fact that there are so many different ways to look at people in this book. Understanding the structure how you can actually like anything else if you don’t have internally setup for a deal it doesn’t matter how good the deal is because you’re not prepared for it. There’s so many great things about understanding how to look at people, understanding how to look at deals, understanding how to read people and it is just been a hugely helpful book and I take it almost any time I travel just as a book to dig back into, read trough and look at.

Brandon: A week ago it suddenly occurred to me I never read a Tony Robbins book and I’m like how is that possible? I was on Amazon and was trying to find the best one. Now that you recommended that I’m going to buy that today.

Nathan: It’s a great book. By the way it was a gift from mentor in my life who happens to be real estate attorney, title company owner and it was one of those times for me too, I can’t believe I have read this book but it’s awesome.

Josh: Hobbies – what do you do for fun?

Nathan: I’ve been a professional musician longer than I’ve been a real estate investor so I play guitar, play bass, play piano and sing professionally. I also absolutist love CrossFit and I’m an addict for sure and I just also just completed another triathlon this last weekend as well so I really enjoy that kind of stuff.

Josh: What did you complete a triathlon?

Nathan: A triathlon.

Josh: Oh the sound must have jumped off there. I was like what’s a triathlon?

Nathan: It’s a new sport.

Josh: You CrossFit guys make stuff up as you go along so…

Nathan: We only make stuff up because it sounds that way because other people are afraid to jump in and do it.

Josh: I haven’t had sweat in five ten years.

Brandon: if I had CrossFit gym in my area I would go or anybody who did it but I live in Paddock so whatever.

Nathan: You could build your own little garage to do it.

Josh: Excuses.

Brandon: I’ll come have you coach me someday Nathan.

Nathan: Let’s do it in this great state of Kansas.

Josh: Show 87 - were almost done. Let’s get there.

What do you believe sets apart successful investors from those who give up or never get started or just bail?

Nathan: I think it’s the importance of patience and perseverance. If you don’t have patience understanding the deals and your education and learn your craft then you’re never going to be able to persevere to whether it’s a great deal or it’s a tough deal. For us to be able to have the understanding of what is it is and what isn’t a deal and to grow and our education grow and our philosophy and our business and really understanding what our motto is and doing it over and over and over. Even if you’re in a position where you can’t buy something yet practice and write up a deal and understand the deal and understand what your market is and understand that eventually because you’ve done it over and over again it becomes easier and that you can be actually successful doing it.

Josh: That’s awesome. Where do people find more information about you?

Nathan: They can definitely find me on the BiggerPockets and also I have a website fixfliprentkc.com but they can also connect there.

Josh: Nathan thank you so much for sharing your story we really do appreciate it. I know we’ve dug into some things that were difficult and I know I certainly appreciate willingness to be open about everything. Thank you so much.

Nathan: Absolutely. It’s been a pleasure guys.

Josh: That was Nathan Brooks from somewhere in the middle of America. I think the state Is Kansas I’m not sure that there’s a lot of people living there but if you are one of them please don’t send hate mail. Seriously Nathan was awesome, really appreciate him being so open about his life and what he’s been through. We all go through tough times and I think this great for others to learn from it so we always appreciate when somebody is willing to open up about these things.

Brandon: That is true. Back in our very first podcast we ever did it was on how to lose a million dollars with Marty Boardman. People can listen to that one and this one will be familiar. It’s good to hear those stories. With that let’s get out of here Josh.

Josh: Before we do again quick thanks to our sponsor Pensco. Pensco Trust and you can learn more about them at learn.pensco.com. Definitely check them out. We’ll have a link to them in the show notes as well. Otherwise listen if you haven’t done it you heard Nathan he’s on there, he’s active, and he’s making partners and friends and doing business with people because BiggerPockets is the place to be so if you’re not on BiggerPockets yet jump on. Create an account today it’s free – www.BiggerPockets.com and start engaging, connecting. Otherwise hang out with us on Facebook, on twitter, on G+, on LinkedIn on Pinterest – we’re everywhere. That’s it. Get out there making things happen. Learn, be successful, be kind to others and go walk old lady across the street. Do something cool. I’m josh Dorkin, signing off.

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