Becoming A Full Time Real Estate Investor

Host Ben Shelley walks through Ryan and John's journeys toward becoming full-time real estate investors.

(Transcript below.)

Ep. 2 - Becoming A Full Time Real Estate Investor

 

Ben Shelley: [00:00:07] Welcome to the Brick by Brick podcast where we take you from the ground up on all things real estate. I'm your host Ben Shelley. It is once again my honor and pleasure to be joined by Ryan Goldfarb and John Errico. The principals of Liberty Hudson, a real estate company that invests manages and constructs homes all throughout New Jersey. We're going to discuss with our experts how they both transitioned from their day jobs to becoming full-time real estate investors. A lot of people have their hands in many different pots as they begin to invest in real estate, and all of us deal with similar common questions as we navigate our own lives as investors. Can I invest in real estate while still doing my job? How much money do I need to be making as a full time investor before I can transition to real estate full-time? You both successfully made this transition and so now we defer to you for your expertise. John, how about we start with you.

 

John Errico: [00:01:02] Yeah, I think it's a great question. I actually think Ryan and I have a very different approaches to this and how we started. So my background was that - immediately prior to being a full-time real estate investor - I ran technology startups and I had been doing that for a few years. I bought my first place in early 2014 which was a 2-family where I lived in the basement and rented that out. And then I bought a second place about seven blocks away and did the same thing. I lived in a unit then moved to the basement, rented the whole thing out and probably in early 2016 I was up to I think four properties so I had done the same thing three times in North Jersey in Hudson County and then I owned a place in New Haven. And my startup that I'd been working on, I was getting a little bit burned out because I'd been doing that for I'd been in the startup world for four maybe five years and my sort of decision points- so I'm a lawyer by education and I had kind of long ago left the prescribed track for lawyers so anyone that has that has entered that the big law universe may know that there is a kind of you you start in big laws and associate and you work your way hopefully to partner maybe didn't has counselling if you ever get off that track you can't really get back on it it's right at a decision point where I thought wow I could I could keep doing startups which I'm burned out of doing, I could maybe go to a different grad school I get an MBA and do something in you know like a pure business role. But I didn't want to do that and work is already going to school for a very long time to get my law degree.

 

Ben Shelley: [00:02:36] Stacking Degrees.

 

John Errico: [00:02:39] Right. I could get you know a "normal job" which was I really didn't want to do because I've been working for myself for a while or I could really double down on real estate and I gave myself essentially a year to see if I could make it as a real estate investor full time. And that timing for me was a great impetus because I had to figure out Well how do I make money from from what I'm doing right now because I'm making money from rentals and that's great but it's not really enough activity for me to justify doing it full time and it's not up money for me. The opportunity costs of doing it is really high because I could make you know hypothetically a nice salary doing something you know in the traditional world. So I tried really hard to find more deals and make partners with people and investors. I ended up buying I'm not even sure the exact number but it was at least four or five more properties in that period of time getting more rental income and trying to develop alternate streams of income we can maybe go into that a little bit. But after the year was over, I was kind of in a position where you know my wildest dreams hadn't really been achieved but by kind of more more modest or realistic dreams had been achieved where I thought I'm adding value I enjoy what I'm doing I'm making up money for I can sleep well at night and go to my wife who happens to have a very very high paying job and you know be kind of respected as someone that's at least in some capacity a coequal earner to her.

 

Ben Shelley: [00:04:01] She'll love that plug.

 

John Errico: [00:04:02] Yeah, she's great. I love you so much. So this is early 2017 that I mean that I'd been doing it full time since 2016 but in 2017 I was like okay. There's no turning back. I'm going to be full time until I can't do it anymore. That's where am now.

 

Ben Shelley: [00:04:16] Beautiful.

 

Ben Shelley: [00:04:16] And, Ryan, what about you?

 

Ryan Goldfarb: [00:04:18] First and foremost I wanted to say that that's fascinating to hear because I've known John throughout the entirety of all of that, of that playing out, that timeline and I don't know that I knew that in such vivd detail fascinating to hear.

 

John Errico: [00:04:33] The sweat, the blood toil.

 

Ben Shelley: [00:04:35] Because I'm very curious and Ryan and we'll hear about a little bit about this in your story that what's the alternative to breaking point?

 

Ryan Goldfarb: [00:04:42] Critical mass

 

Ben Shelley: [00:04:44] The critical mass this is an inside job we can't get into this right now but what is the critical mass of money you have to be bringing in as an investor to justify taking that big leap. John alluded to that a little bit but Ryan let's hear your backstory.

 

Ryan Goldfarb: [00:04:56] So I graduated from college in 2013 and even prior to that.

 

Ryan Goldfarb: [00:05:02] I knew that I wanted to do real estate. I didn't quite know in what capacity but I think in a perfect world I always had envisioned something entrepreneurial. But I kind of fell into the traditional path that most of my peers were involved with in college and that was you know getting internships lining up jobs accepting jobs and then selling your soul to corporate America for years. So I did that. I worked in real estate finance for a few years specifically on the on the debt side in the multifamily space and a year, six or so months into it, I finally came to the conclusion that it wasn't the path for me and that long term it wasn't really what I was striving towards. So I started looking at other paths and figured know there's there's no real sense in trying to look outside of where I was presently to find something that might be incrementally better. I knew that the only thing I was really gonna make me happy was for me to chart my own course. So I started getting the wheels in motion to to try to find deals locally. I tried to get my feet wet in the North Jersey market which for a variety of reasons seemed to make sense at the time and I ultimately settled on Jersey City. I was a little back and forth between whether I wanted to flip or whether I wanted to buy rentals. Ultimately decided to flip. Bought my first one about nine months after I started looking and it turned out to be a quite an ambitious project for my first undertaking. But I learned a lot from it. It took way longer and cost way more than I expected it to. But nonetheless it was a worthwhile experience and about halfway through that project the time came when I thought that I was ready to do this full time. I wasn't happy where I was. I didn't think that it was the best use of my time and I felt like it was holding me back from being the best real estate investor that I could be. Primarily from a timing standpoint so fairly quickly I made the decision that I was gonna give my notice to leave. I left with, while I was by about halfway through my first flip. Subsequently had a few more deals lined up after that and kind of hit the ground running going full time in real estate investing.

 

Ben Shelley: [00:07:20] Well it's interesting because this kind of picks up on that theme from last show about being proactive taking the bull by the horns really just going Johns is just trying. I mean just doing the work and you kind of learn from there but I'm curious because we talk about becoming a full time real estate investor but that means different things to different people I know where you guys are concerned that incorporates also a little bit of property management but maybe more so the construction part of the business. So I'd be curious just to know from your guy's perspective as you transition to full time real estate investors. How did you think and treat the construction side of the business and how did you approach also incorporating that under your own umbrella. John why don't we start with you.

 

John Errico: [00:07:59] Yeah it's a great question. So something that that Ryan and I do is we we run a general contracting business together called Liberty Hudson construction in North Jersey and that was born I think out of possibly two maybe more primary desires. The first was that we just had a lot of projects that we were doing ourselves flips or renovations for buy and hold stuff. And we'd been using third party contractors a lot. Ryan had a contractor that he'd been using quite frequently. I had kind of like a hodgepodge of handymen and people like that and we were sort of looking at the margins that these people were making because what we've been doing in each you know for you know this point three or four years. So we're pretty familiar with materials costs and labor costs and we're just looking at the margins that people are making we thought well this is this is absurd that these contractors are making so much money on us when we really in some cases know as much as some of our, you know, general contractors these are the people running the business. The second component of it though was really for us to try to make money off of our knowledge and our experience in a way. Something that I don't think either of us really set out to learn but ended up becoming quite knowledgeable and is just the process of doing renovations in a property. So whether it be like the nuts and bolts of renovating a bathroom or a kitchen or the complexity of you know going through inspections or working with the city with different issues. I think both of us have dealt with that to a large extent probably much larger than we want to deal with in some of these properties. So for me it's I think less about the dollars although it's very nice to have money coming in and more about the ability to to add and provide value. So the ability to go to even a third party client like not a project that we're not doing and say like because of my experience and knowledge and expertise I can help you but I can add value to you and make something better for me as a really cool feeling. And then obviously being compensated for it it is is nice because it allows me to keep doing it.

 

Ben Shelley: [00:10:08] Well it's it's interesting. And Ryan I want to hear your opinion on this as well because when John talks about having the background the knowledge the expertise and also the ability to to sort of execute on the practical construction side of the business. I think it's a clear advantage for Liberty Hudson where you know you see other funds who they raise money and they just outsource everything and that's fine if you make smart investments you can still make money. But I think it's in many ways it's it's what sort of distinguishes Liberty Hudson the rest of the competition.

 

Ryan Goldfarb: [00:10:36] Yeah, for sure. I think to touch on John's point I think there are a lot of people who like to call themselves accidental landlords but I think we could coin the phrase accidental contractors as well because I think that encapsulates our journey to to this point and then to your point about that about having everything in-house. I would say the single greatest advantage of that thus far has been the knowledge that we are relying on ourselves and on ourselves alone. We're not beholden to a contractor that we have an agreement with who may or may not be holding up their end of the bargain or who at the very least may not be holding up their end of the bargain to the extent that we would like. You know typically the two biggest variables on that front are going to be timing and cost both of which are in some ways intertwined. I think having a little bit more control over that for our own projects is a huge value add. And then secondly to John's earlier point about being able to add value one way I like to approach any interaction I have with another investor or with a would be seller or anything like that is to think about how I can be of value. And I think there are a lot of investors who go out there and meet with a potential seller and they have one thing on their mind and that's to to buy their property from them and they don't take the time to listen to what their needs are into what their situation is and they're just trying to force their ideal outcome on the seller who may have a different ideal outcome in mind or who may need a little bit of guidance to get to that ideal outcome. So for us I like the fact that we can refer them out to a network of agents who we who we work with one of which is my brother. I like the fact that we can offer them construction services if need be. I like the fact that we can offer them the ability to sell their house all cash quickly and kind of be the outlet that they need for whatever situation therein. And lastly the fact that we have other connections in the industry and we know plenty of other real estate investors who may have a greater appetite for certain types of projects at any given time than we do.

 

John Errico: [00:12:39] Yeah I think that that's a it's an important point and it brings up something to me that I've reflected on a real estate a lot which is that I think for for better for worse most probably for worse is that a lot of people who are involved in the real estate industry particularly on the residential side and the side in which Ryan and I operate I would say are just are just not great at what they do. And I don't say that lightly because I interact with a lot of people but I'm talking from the perspective of landlords for example I've met so many very very bad landlords or property managers from the perspective of real estate brokers real estate agents I've met so many bad brokers and agents we've met so many bad construction guys, contractors there are surprisingly few people in the business I think that do it because they A enjoy it and B want to add value in the way that we're talking about and there are a lot of people that do it because they want to make money fast. And like in any business you can make money fast doing this but the longer term outcomes are going to be are not going to be good. And so you know one reason why Ryan and I found each other work together I think is because we both valued our connection even if we weren't friends or you know weren't hanging out all the time.

 

Ryan Goldfarb: [00:13:56] We're gazing into each other's eyes as you say.

 

Ben Shelley: [00:13:58] Yeah I mean I kind of feel like I'm intruding.

 

John Errico: [00:14:00] It's a little bit intimate actually right of it. But you know we we value to respect each other and we're helpful to each other we didn't feel like we were competitive with each other. We we didn't say like well if Ryan is successful that means I'm not successful. That kind of mentality, while maybe if Ryan and I were looking at the same deal maybe if I won that deal that means I make a little bit more money but it would have meant that I totally foreclosed on the opportunity to work with Ryan. And now years later we're partners and we've done things together already that I think would be far greater than the advantage of getting a single deal over each other night. Personally I think we both try to deal with people that way too. It's never zero sum game it's always you know - a rising tide lifts all all ships sort of mentality.

 

Ben Shelley: [00:14:43] Life is truly a relationship business and I'm witnessing that right here and now. So from a construction background I'd be curious to hear from both of you. What are the kinds of things as general contractors yourselves can you advise people to look out for as they're making that transition and working on their first few projects.

 

Ryan Goldfarb: [00:14:59] First thing I would say is I've heard this before but I don't think it rang true until I realized how it applied to me. Nobody's ever going to care about your project as much as you do and particularly if you're working with a contractor who has a viable business going you're not going to be the guy's only or gal you're not gonna be their only project. And you're going to be competing with other projects for their attention. When there's a fire to put out at another project. That contractor is going to have their attention over there and that is typically going to happen at the expense of your project. I think to John's point earlier there aren't a lot of people who run this as a business or in the way that a "business" should be run. It is often mostly reliant on one person more than on a business where things are segmented and where things are fall on different people shoulders. To that end the one way that anyone who is doing a project can add value is just to care. Just be there. Just watch. Defer to the experts where you can defer to the experts but know that you're gonna be the one who's moving the project along. And at the end of the day, the buck stops with you. And if things aren't moving at the pace that you think they should step in do something about it and grab the bull by the horns.

 

John Errico: [00:16:19] I would say to dovetail on Ryan's point. Something that I learned early on but I keep learning is that there's more than one way to accomplish something. And sometimes contractors and people in real estate will tell you that the way that they do it is the only way that it can be done and that ranges from things as basic as installing cabinets in a house to as as complex as an entire renovation. And we're discovering that all the time everywhere. So when when you encounter a contractor when you approach a project and somebody tells you like this is the way it is I would treat that with a lot of skepticism. And if you were inquisitive enough to try to peel back the onion and figure out the different ways that something can be accomplished you will learn a lot more and you may realize that there are other ways that you can do it more cheaply or more quickly or more efficiently or whatever might be.

 

Ryan Goldfarb: [00:17:13] To that end just to piggyback off that point a little bit I know this is supposed to be one final thing.

 

Ben Shelley: [00:17:18] I love the pinball here.

 

Ryan Goldfarb: [00:17:19] I think the best way to achieve that particularly if you don't know a lot about construction is to recognize the fact that you don't know a lot about construction and to rely on people who do. So if you're going into your first project meet with three electricians before you sign a bid. Meet with three plumbers. Meet with three general contractors. I guarantee you will learn something from each and every one of them. And a lot of it will be the fact that there's not one way to skin a cat. Sorry John I know you have two cats. But you'll learn something and you'll learn that there's not only one way to do it. You'll learn that there are a variety of ways and none of them -- not one single way is going to be the right way. But there may be a better way to do it for a given project given the parameters and given the constraints. And I think the only way to really figure that out is to get a variety of opinions and to talk to the experts and to figure out how they would approach it. And the last thing I'll say is you also will just get a better sense of how an electrician how a plumber how a general contractor, so on and so forth, how each of them think about and approach their craft and over the long haul that's gonna be super valuable.

 

Ben Shelley: [00:18:26] I know I appreciate this. I know the listeners appreciate it and guys thank you for your time and your expertise as always.

 

Ben Shelley: [00:18:41] Thank you for listening to the Brick by Brick podcast where we take you from the ground up on all things real estate. We will continue to bring you the best and brightest the real estate world has to offer as we leave no stone unturned in helping you, the everyday investor. Thanks for listening.