Having a combined knowledge of the complexities of real estate and law can give any person a considerable business advantage. That’s exactly what real estate lawyer and author Flavia Berys did, and now she has established herself as one of the most trusted names in the legal side of the industry. She joins Chris Seveney and Jamie Bateman to share her expertise and experiences, from her favorite real estate property, dealing with LLC properties, finding the proper balance between passion and profession, and more. Flavia also goes deep into the services she provides, discussing how business assets can be protected from lawsuits.
Listen to the podcast here:
Flavia Berys: Exploring The Professional Work Of A Real Estate Lawyer
We have a special guest out on the West Coast from Southern California. We have Flavia Berys who is an author, attorney, real estate broker, business consultant, and that’s just peeling the first layer of the onion back off of some of the things she can provide. Flavia, how are you?
I’m doing great. Thanks for having me on the show. This is exciting.
I was on her show. It was fun and entertaining. I was like, “Flavia, you have to come on our show as well.” From that perspective, why don’t you tell us about yourself and what your enjoyments and passion is in real estate?
The list would be shorter if I tell you what I’m not into in real estate. My dad was a real estate developer. I don’t know if it gets baked into you from birth or from growing up and hearing all the adventures. My dad would show us blueprints, plans and ideas that they had for some innovative things they were doing. This is all in South America. Not even here in the States. He did some development in Florida and different places. I grew up loving real estate but didn’t know that would become my career. At first, I thought I wanted to be in publishing because I’m a writer. I love to write. I was an English major in college and I assumed that there were these great jobs out there for writers where I would be a novelist or something of that sort.
That’s when you’re idealistic and you are a Liberal Arts college student at UCLA, which is a liberal school too. Once I graduated, I realized like, “I have to find a job.” My first job was as a copywriter. I was able to make money from being a writer, but I quickly realized it wasn’t enough. I didn’t want to write for other people and put their words into advertisements and things. I wanted to be an entrepreneur, do my own thing, and get into the business. I was in publishing for a while. I published one of those free magazines that have articles in it. You can pick it up at the grocery store and drugstore at the time. I did that for about two years, which taught me a lot.
First of all, it taught me that if your expenses are the same as your revenues, it’s not the business for you no matter how fun it is or how much you’re enjoying it. I quickly realized I need to try some other things, go in different directions. I ended up doing graphic arts for a little while and ended up deciding, “I’m going to do what my dad always said I should do,” which is go to law school. I went to law school. I enjoyed being a law student for the academics of it, all the theory and the philosophical stuff. I found it fascinating, but I gravitated towards all the real estate stuff. The real estate classes, contracts classes, the agency class I found fascinating. It was my path from the beginning. I ended up doing what I always knew I would do, which is working with developers, being an entrepreneur myself and being a real estate investor.
From writer to an attorney to real estate investor. What’s your favorite type of real estate investment? Do you fix and flip, buy and hold? What’s your preference?
You get this too because we are both in real estate. You’ll have people who are not in real estate say to you, “I want to get into real estate. I’ve heard real estate is the way to build a family legacy and wealth. It’s a way to diversify. I shouldn’t be in the stock market or put money in my IRA or 401(k). You know real estate. What should I do?” We look at these people and we’re like, “It’s a blank canvas free.” There are many different ways that you can be involved in real estate. Don’t you almost wish we could have a two-hour webinar where we go through and educate people who’ve never heard of any of this stuff?If your expenses are the same as your revenues, it's not really the business for you, no matter how much you're enjoying it. Click To Tweet
It’s like, “Here is what this is. Fix and flip, that’s a thing that people do. Here’s the thing and it’s called buy and hold. What do people mean when they say that?” It would take a good two hours to go into all of it. What I like best is single-family home rentals and not everyone is a fan. Some people are like, “No. Please. I’d rather own a duplex or a fourplex.” I love having that little square on the checkerboard that is like my land or my property like I’m responsible for providing a home for the tenants that live on that land. It has a yard and has its own little parcel. I dig that. I like that more than maybe being a passive investor in apartment syndication. Other people are like, “No. Apartment syndication all the way. I want to put my money in. I want to get my check every month and I don’t even care what the thing looks like,” which is perfectly valid too.
I don’t consider them real estate investors in that sense, because, for me, I have to roll up my sleeves. I come from the commercial real estate, general contracting side. I’ve done some fix and flip/most of my fix and flips I’ve ext and held. I did the BiggerPockets BRRRR strategy of fixing it up, rent it out, get my money back out. My wife and I built our single-family house. We did a new construction thing. I agree. I like single-families. I stumbled upon notes and it’s like, “This is great because it’s what fits everyone’s preference because it is not a one size fits all based on your lifestyle and what you’re good at and kids, family, spouses.” You’re in San Diego, which is a hot market. Jamie and I are in the Washington, DC area. Jamie and I are trying to get a property that needs rehab. By the time it hits the market, it’s already sold before we could even consider driving out to it. We have to either look elsewhere or in other markets. That’s how I gravitated notes. Jamie can tell his story though.
I love that fact about real estate and note investing, which is a niche within real estate investing. It’s the fact that you can do whatever you want. There are many different options. It’s not one size fits all even within single-family or multifamily. There are all these niches which I think can lead to issues for people as well because they get shiny object syndrome and don’t stay focused enough to get good at anything or don’t know where to start. I love the single-family space as well. I think notes work well with that. Chris and I have done one episode on the top ten reasons to invest in mortgage notes and then we did the next one on the top ten reasons not to invest in mortgage notes or not to get involved. Everything has pros and cons.
You’ve got to fit what works for you, in your lifestyle and your goals. One thing I found interesting with what you said was people talk about, “Do what you love, and then you’ll love what you do. Follow your passions.” That can be good advice on some level, but I also think following the money can help you love what you do in some sense. An interesting dynamic there, I wonder if you can touch on that. I’m not saying you’re chasing the money and only the money, but I think if you only follow your hobbies and passion, you might end up hating them. If you do follow where you can be profitable, you can still find something within that niche that you enjoy, but you’re also making money. Would you agree with that?
It’s almost misleading, especially when people tell young people in college or high school like, “Follow your dreams, follow your passion. It will all come together and you’ll find a way to make a living from something you’re super passionate about where you wake up in the morning like, ‘I can’t wait to go to work.’” I wouldn’t tell if a seventeen-year-old came to me and they’re like, “I’m about to be an adult. My parents already told me they’re kicking me out. I have to make a living. What should I do? Here are the five things I’m passionate about. I love playing video games. I love walking my dog along the beach.” Those are passions. Those are the things we truly do for fun.
I’ll give you a perfect example. If the person said to me, “I love walking my dog on the beach. I’m thinking maybe I should be a professional dog walker.” Maybe they could. I know someone who is a professional dog walker and they do quite well, but they took it in the entrepreneurial route rather than just walking a few people’s dogs. They built like a whole dog-walking company and they have 30 dog walkers. Now, do they ever walk a dog? No, they walk their own dog and maybe they’re filling in for people. Now it’s all the pressures of being a business owner. Being a business owner isn’t being a dog walker. It’s different things. I’m not sure they got what they thought they were getting.
I’d rather tell people, “Find a job that doesn’t have to be your passion, your hobby, your ultimate love. It can be a job that you’re good at, that you fit well with, that you find contentment within a sense of ‘job well done’ at the end of the day, and that the challenges keep it interesting.” I’m big on finding a job that doesn’t make you take an antacid every night or a bottle of wine every night. Find a job that’s not super stressful because stress kills your health. It pops out in other ways. Someone has a backache and it’s stress or they start getting migraines and it’s stress. If you can find a job that’s not too stressful that you’re good at, that makes you good money and then take that money and do all your passions and hobbies and things.
Whether you’re an entrepreneur or not, there’s always stress in different aspects, but it’s somewhat self-induced versus working for someone else. I want to hop back quickly too because of your rental portfolio. In San Diego, in the area you invest with high-end rentals, I’m guessing it’s more investing on appreciation and cashflow or maybe a little bit of cashflow. The numbers don’t look that great compared to other parts of the country. We always see that debate of, “I’d rather have a rental that cashflow is $500 a month.” At the end of the day, it’s got zero appreciation than if you bought something a few years ago in San Diego, it’s like, “You’re making that $500 a month. Come see me in seven years and let’s see who’s doing better at that point in time.” That long game and long play, I’m curious about your strategy from that perspective.
To give you an example, we sold one condo here in San Diego, a small two-bedroom condo in a mid-rise building. That translated into seven single-family homes and other markets without putting an extra dollar and only maybe a few dollars here and there for some loan costs. It’s interesting, the differential in prices. San Diego is a great market to buy into if either you have a great plan for Airbnb or some corporate housing because that’s where you can do well on rents and then the rents will cashflow. The flip side is that the City of San Diego is proposing a lot of different restrictions and regulations on Airbnb that is going to put a damper on that.
Who knows what’ll happen? If they pass what they’re proposing to pass, it’s going to be a lot harder for an investor to come in and have a portfolio of Airbnbs unless it’s in specifically zoned areas. There are good play and strategy there. Rental housing near the military bases in general, you’re never going to have a vacancy because there’s so much moving in and out, and there’s always a need for housing. That’s almost always going to be a slam dunk as far as a rental. The prices don’t always work, as you say for cashflow. The best bet in San Diego is to at least try to break even on carrying costs versus rents and then wait for rents to go up because rents go up over time, rents never come down. Rents didn’t even come down during the last recession. They barely dipped. At least here in San Diego, they stayed constant even when the home values dipped.
Are they staying constant? I’m curious because I’m seeing even in the DC market, a lot of Class A stuff has taken a big hit because they had a lot of supply come on the market in the last few years. They’re about a 7% dip, which is substantial when the average rent is about $2,600. It’s close to $200 a month.
San Diego hasn’t, but areas like San Francisco have seen a 50% drop in rents. That is a factor of what we’re living through now, which is COVID, telecommuting, and companies allowing people to move to less expensive markets and still keep their job in a city like San Francisco where housing is extremely expensive. A lot of those jobs were lost. A lot of companies in the Bay Area had layoffs, but I don’t think you’re seeing the rent dipping in other coastal California cities. For the most part, Los Angeles wasn’t dependent on these tech companies. They do have a small area called Silicon Beach in Santa Monica. Silicon Mountain is the next big tech area and that’s over in the Reno Valley, at the base of the Lake Tahoe mountain area.
In San Diego, another smart move is a fix and flip in San Diego is fantastic and it’s hard to find something to buy. You can’t be looking on the MLS. For those kinds of opportunities, you have to knock on the door of a distressed property and see if you can try to get in touch with the owner and buy it directly from an owner. “Your house looks terrible, but we’re interested. We’ll buy it.” There’s a good market for that. It’s good for multifamily and for house hacking, especially for a military who can buy with a VA $0 down loan. San Diego is fantastic because you get shipped here. This is where you have to live for 2 or 3 years. It’s great that you can buy a 1 to 4-unit. It’s harder to find the 3 and 4 units. It’s easier maybe to find a duplex, but $0 down, you get in with a VA loan. They are in low-interest rates. If you rent out the other units, you can sometimes live housing cost-free. At the end of it, you’ve got a nice rental for yourself.
I never thought of with the VA and stuff. It’s an interesting theory. I also wanted to touch base as well because you are a small business lawyer as well, and do stuff regarding helping entrepreneurs and real estate investors. What are some of the things that you do to assist these small businesses and entrepreneurs? What are some of the services that you provide?
It’s different buckets. You have your real estate investors and the legal work that they need is a lot of times entity formation and corporate governance, which is the work you do to maintain an LLC or a corporation, an S corp, or whatever entity works best for them, the actual purchase and sale contracts. I had to draft an indemnity letter. I had to help someone with a settlement agreement over a dispute about the property that changed hands. I’m a transactional lawyer. Almost everything I do involves the writing I always thought I would do. It’s all like contracts, documents, and reading. I’m sure if I wasn’t a lawyer, I wouldn’t need glasses yet.
There are deals to be made and disputes to be mediated. I don’t do litigation. If anything reaches that litigation stage, it gets referred out to a litigator and then I stay involved supervising the matter, but letting someone else be the one to duke it out in court. You’ll find that most lawyers tend not to be a generalist and they tend to focus either on transactional or litigation, but not as often focusing on both equally. Unless maybe they’re in a small market and as a small-town lawyer, and they’re the one shop in town. They do it all in that case.When you follow your passion, be sure that you can make it profitable along the way as well. Click To Tweet
One thing I always hear people complain about, I’m curious about your opinion, and you’re not providing legal advice to anyone out there. She’s an attorney, but not your attorney. We’ll start with that. People always complain about the $800 every year for the California LLC and trying to find ways around that. Part of it is like, it’s $800, but if you’re looking at buying a few hundred thousand dollars property or $800 drop in the bucket. I was curious because I hear people try and do some crazy stuff about setting something up in Delaware as some type of statutory trusts or all these other random things that seem extremely complex and difficult. I’m curious if you’ve been through that or you tell people, “You’ve got to suck it up and pay the $800.”
It’s a fascinating question because California is unique in this regard. Before we get to that entity and jurisdiction selection, there’s one other thing and this is like a public service announcement because in all the Facebook groups I look in, I see people asking this question. I see the worst advice from the law offices of Facebook posters. It’s called the law offices of random Facebook commenters because there’s some terrible advice. The one that I see a lot is someone will say, “I want to transfer my property into an LLC. Can I pull something off of Google and do that myself?” Readers, if you’re thinking of transferring a property you already own into an LLC, please speak to somebody that’s super knowledgeable in real estate, whether it’s a real estate agent that you trust or a lawyer would be your best bet.
If you have someone that you can go to, at least get and do it right. Here in California if you were to do that, there are many issues. The first is if the property is financed, you can’t do this without the lender being completely in the know and consenting to it. Sometimes even using the documents that they mandate for it. You can completely mess up the title on your home by doing it incorrectly and filing the paperwork incorrectly because now there’s this defective deed or quitclaim deed on the title that later needs to be figured out. If the original people that put this document together and signed it and recorded it aren’t around anymore, it gets messy. I know that because I’ve helped try to unravel that mess.
It has to be done technically correctly. If you’re not an expert in that or someone experienced in that, or you don’t know which escrow company uses the title company, you can create some messes for yourself. There are also tax implications. In California, there’s a transfer from a human to an LLC. It’s a taxable event unless you have this magic language in the deed and the beneficial interest doesn’t change, like the ownership. There are all these little nuances. You better know what you’re doing. If you’re going to be doing that, please don’t go to Google and pull off a quitclaim deed. Try to fill it out if you are not sure if you did it right, and then run to the County recorder’s office, pay your $20, record it, and then hope for the best or think you’re protected.
Another thing is people think if the property is in an LLC, “I am no longer able to be sued.” That is not true. Let’s say I own a property and it’s in an LLC, but then I’m the one on-site taking applications and showing the property to people and I say to somebody, “I don’t like to rent to people with kids at this showing.” I can be sued. Having title held in an LLC will not stop them from suing me for fair housing violations. It’s not always as perfect shield. I’m not anybody’s lawyer here. If you’re considering forming a Delaware, LLC, or Nevada, or Wyoming is always a big favorite so that you can operate something in California, beware.
It’s worse than Big Brother. Some people don’t even understand how California found out about it when they get the nasty gram from the Franchise Tax Board saying, “Where’s your $800? The secretary of state wants you to register with them as a foreign LLC.” You’re going to end up paying double the registration fees. You’re going to have to be in both the home state for the LLC and registered in California. California will come after their $800 and they are ruthless. They were impossible to get ahold of. If you ever make a mistake, you’ll stay on hold for six hours trying to fix that mistake.
Most attorneys I use when people talk about entity formation stuff used to say, “Yes, Delaware long ago was great for LLCs because of the laws that were shaped. Nowadays, every state has caught up in most instances. There’s not much benefit.” I know people pick like Wyoming because your name is hidden, but monitoring is like, that’s great that they don’t know who you are, but the minute they sue you, they’re going to find out who owns the entity at some point in time or like, “We’re in the note business. People set up all these LLCs or all these trusts and all this stuff.”
I’m like, “The minute you have to foreclose, you have to sign something that says you hold the physical note and you’re the owner of the note. You have to sign a name on behalf of the trust. Eventually, someone wants to find out who you are nowadays.” It’s not super hard. Most people, “I don’t have hundreds of millions of dollars,” and these people who start setting up all these LLCs are like, “I don’t own any property. This is my first one. I want to spend $10,000 getting all this stuff set up because this is what I read on Facebook Attorneys of America.” I sit there, put my head down, and want to cry.
The other thing is you get advice from people on Facebook and other places that it’s so black and white. When they give the advice, it’s like, “You should never use an LLC. You should always use a trust.” It’s like, you don’t even know the situation at all.
“Set up your LLC for tax purposes.” An LLC is a pass-through entity and it goes on the schedule of your own tax return.
A lot of people say, “I need an asset protection lawyer. What is asset protection law?” Here’s the thing that’s sobering. The law is not designed to be friendly to people trying to hide their assets because the law wants justice and the right thing to happen. If somebody owes somebody money legitimately, then there are many mechanisms for how to get that money from that person as far as liability protection or asset protection. The law has only developed a very few rules about it. We do allow people to have the separation where there are business debts, but they’re not your personal debt because you own the business. To not be complicated, let’s say, if you own an LLC and the LLC owes somebody money, chances are they can go after the LLC for the money, but it is a lot harder to come after you, the owner of the LLC for that money.
There are these little gates and they are somewhat of a shield, but it’s almost never going to be this perfect bulletproof plan and people are like, “Please put together a plan for me that makes me completely bulletproof. I don’t want anyone to ever be able to take anything of mine no matter what happens.” The best answer is not in a Dell, LLC with a series of LLC or all these things that people are trying to do. That’s not the best strategy. This is not legal advice for your particular situation, whoever you might be. That’s like, “I’m going to go do whatever she’s about to say.” For the most part, it’s an insurance strategy that is something you need to look at so that you have adequate insurance rather than relying on how you’ve set up your LLC org chart or scheme to try to insulate yourself.
Even if your LLC is completely anonymous in the records of Wyoming, the minute that you would get sued because you hit someone with your car, in that lawsuit, they’re going to say, “You must divulge every single asset you own. Do you own any LLC interests in any other state?” You would be perjuring yourself if you say no. Of course, you’re going to say yes. The anonymity helps you when attorneys do a preliminary search to see if you’re worth suing. There is a benefit to all these things that people want to do. There is sometimes a benefit to forming an LLC in Wyoming or Nevada, but it’s not going to be this bulletproof answer that people think it is.
I look at it as home security as a quick analogy. There’s no perfect solution to be 100% secure in your home. At the end of the day, a loud barking dog and some good lighting, exterior lighting are good, and this all depends on where you live. If somebody wants to break into your home, they can do it. If you want to put up some hurdles and make it more difficult, does that make sense?
The barking dog thing, there is some alarm that doesn’t own it. I remember when I was looking at some security systems and I saw it online. It’s a motion-activated barking dog. If somebody goes near your front door, from inside your house, it’s like a deep-throated Rottweiler type of dog, barking right on the other side of the door. You don’t need a dog. You might get a dog sound. Let’s go with your analogy. If I say to you, “I want a secure house as possible.” You would never tell me, “All you need is the most amazing locks on all your doors. You can ignore cameras, lighting, dog, and signage.”
You’d never say the contrary like, “You don’t even have to lock your doors as long as you have good security cameras.” You would tell people, “Let’s do a little of everything that’s available to us. Let’s put on good locks. Let’s have some good lighting on the exterior. Let’s make sure we trim the bushes near the windows. Let’s have some motion detection type of cameras. It doesn’t hurt to have a dog or maybe even put up a sign that says, beware of the dog even if you don’t have a dog. Dissuade some people.”The law is not designed to be friendly to people trying to hide their assets because it wants justice. Click To Tweet
You would tell people to be holistic, not to go too crazy on any one of those, and not to rely on any one of those. It’s the same thing. If you’re going to run a business, you need to pay attention like, “What’s your insurance protection? How have you set up your insurance? Does it cover as well as possible? What is your entity structure? Did you set something up thoughtfully, methodically, and strategically? How do you do business?” There are some ways to do business that are way riskier than others. There are some types of business where if you do it a certain way, you’re much more likely to be sued than if you do it a different way. There are operational issues that reduce your risk.
Operationally is you can’t avoid being sued, but you can avoid losing a lawsuit. Some people are like, “You can’t avoid being sued.” It’s like, “Yes, that’s true, but you can avoid losing the lawsuit.” It goes back to the operational standpoint of you put a good team in place. You use an attorney to create all your documents, forms, and everything else and use common sense. If you don’t know, don’t guess, use professionals who are licensed or experienced in that aspect of what they do. It’s risk mitigation from that perspective that you want to mitigate a lot of these risks from that perspective.
It can be so expensive. I had someone call me and said, “We got this nasty gram from the city, they want us to take down the wall that we built. We spent like $50,000 on this brick decorative wall thing around our property.” The gateway question is like, “Did you have permits? When was this built?” They are like, “No. We didn’t want to get permits because we wouldn’t have to hire an architect. That was going to be expensive.” I’m like, “Taking down the wall is more expensive than the architect.”
Down the street from me, there’s a house that came on the market and it’s a 3,000 square foot house on an acre that on a normal day should be seven figures. It’s on the market. It says like, “Almost finished for $500,000.” I’m like, “The land alone is what it should be worth.” I’m reading the comments. I know the county codes very well because we built our house. All of a sudden I’m looking, there’s a stream that runs through the property and they built this house in the ground up on this property without getting a flood cert or a building permit to build this thing. It’s in for approval and they kept building it, thinking they were going to get it approved, but it’s in a flood zone.
We have RPA which is Resource Protection Areas. It’s going to be 100 feet from the wetlands. Did you open the front door to this place? If you were drunk, you’re going to fall down into the stream. That’s how close it is. I joked because my sister-in-law is looking for a house in this area and I said, “You always wanted waterfront. Here you go.” It goes to show and the hard money lenders are taking a bath on this one because he’s the one that owns it now, but the person bought it for $450,000 a lot, and then you’ll put several hundred grand into this thing. They have to give it away and I’m not even sure they’ll be able to sell it because it’s going to what your point exactly like being cheap upfront and not doing what’s right. It’s going to come back and burn them.
You’re going to make an offer on that one, Chris?
I shouldn’t say that. Let me do a little more due diligence.
If you’ve always wanted a houseboat.
If you can get it for cheap and use it as a rental because I don’t think anyone would want to own it, but this area is with Amazon coming 5 miles from where I am and the high DOD presence where I’m located, rentals are at a premium, especially short-term for 6 months to 1 year. I’m like, “That would be a decent rental.” It can’t exclude it, but one man’s trash, another man’s treasure.
Flavia, I was curious if you could speak to your own personal investment, portfolio, strategy, and what you’ve done so far and where you’re headed in the future?
My first real estate venture was when I was a college student that rented a big multi-room apartment and then subleased all the rooms to friends. That was my venture into that. At that time, I knew somebody who rented a big gorgeous house in Malibu right across the street from the beach and live there for free because he rented all the rooms out to different Malibu college students and other people too. He had converted the basement and garage into his suite, and rented all the rooms upstairs. I remember I was like, “This is brilliant.”
I didn’t end up doing that myself, but that was my first light bulb moment of like, “Real estate is cool. There are many different ways to work it.” Because I knew that real estate was important, as I was graduating from college, I was like, “I’m not going to be a renter. I’m going to buy something.” I bought this teeny tiny one-bedroom, one-bath condo, 604 square feet. I could even tell you exactly what I paid for it. I was driven by there many times over the years. It’s here in San Diego. It’s almost under a freeway overpass and you could hear the freeway all the time.
I used to think to myself, “It’s interesting.” To me, it’s like the ocean now. I don’t even notice it. That was my first little purchase. From there, I moved on to a bigger two-bedroom place, rented the one-bedroom. That’s how you do it. You build your ladder slowly. It becomes almost exponential like you can start small with one property, and then if you play things right, it’s not like you grow slowly. You can sometimes leverage or there will be a big appreciation bump, and you’ll sell it at the right moment. You can reinvest into several properties and play markets against each other. You can sell in one market when it’s high and buy in another market that hasn’t yet reached its peak and time things that way.
We started here locally in San Diego, owning some condos, a townhouse, within my family, and 1031 exchange. For anyone who’s not into that technique or doesn’t know what it is, it means if you sell one property, but you had some profits or some gain and you don’t want to pay taxes on it, you can reinvest in a strict way into other real estates so that you don’t have to pay the taxes yet. The taxes get deferred. A lot of people think that the taxes disappear. You defer them, but there are some like long-term strategies you can do with estate planning and stuff. At the time that we did all the 1031 exchanges, it was maybe four or so properties in San Diego that exchanged into fourteen single-family homes across the country, which was even Steven like the 4 for the 14. It’s like four shared condo type of places for fourteen standalone single-family homes. The differences in markets are crazy.
Those are turnkey properties?
In the Midwest and towards the South, we had to do everything very quickly because it’s a 1031 exchange. We’re going to do a two-sentence primer. You have 45 days to figure out what properties you’re going to buy after you close on the property or relinquishing. You have to close within six months, which for some of these turnkeys, you do cut it close because some of them are still under construction when you go under contract. It all ended up working out good because we’re in many different markets. I’ve had the experience of being the client of many property management companies, different ones, in different markets. I myself do property management. We do it here in San Diego. It’s interesting to be a property manager, but also to be a client of property managers, because I think that makes me a great property manager.If you're thinking of transferring a property you own into an LLC, speak to a real estate agent or your lawyer first. Click To Tweet
All the things I love about certain property managers, I can implement in my own company, but then I’m also exposed to many different wrong ways to do it. We’ve already had to let go of one property management company, but the person we replaced them with is the best one in the group now. You have to be vigilant and take care of your portfolio and know the people that are taking care of your things. You have to stay on top of it. Having full-service management when you’re a long-distance landlord is key because you need someone local and someone on the ground to take care of your properties. When I hear people are trying to do it long-distance, I don’t see the benefit in it financially or stress level-wise or even liability-wise.
We hear so many stories that are like, “I hired this contractor.” All of a sudden it’s like, they’re sending you pictures of a property that’s not even yours and there are many schemes. I know, Jamie, you know somebody that was caught up in one of those and it’s from a long distance. I have some rentals. One up in the Pittsburgh area that got through my note investing, that it was more beneficial to keep it. I liked the way the house looked, which you shouldn’t make decisions based off pretty houses or whatnot.
Sometimes it’s more business, “I wanted cashflows,” which do very well. It was one of those things where I would not have kept it and I’ve looked at other markets to keep properties, but I can’t find a good property manager. I’m like, “If I can’t find somebody who doesn’t return a call within a specific time period or two days, I want nothing to do with you because I know that’s how you’re going to manage my property and it’s going to be more stress and then trying sell it will be a nightmare.” For me, it’s better off getting rid of it early on.
That is a key piece of a buy and hold rental success. My wife and I self-managed for several years and we did some rehabs like Chris, the BRRRR method, and then about almost a few years ago, we hired a property manager locally for 6 of our 7 Maryland rentals. He’s great. It’s a small company. It’s 2 or 3 employees in total, but he manages about 100 properties. He also does construction. Now that we have a rental in Florida that before was a note. We’re buying another rental in Florida. I’ve got another property management company down there and the two property management companies we have could not be more different. They could be, but they’re very different. I liked them both. It’s been interesting for us to see what you’re talking about, Flavia, as far as I’m not a property manager, but I did self-manage for a while. I am now able to compare the two management companies against each other. It’s critical to have that in place especially from a distance for sure.
I’ll give you one example. There was one property that had a turnover. It’s done and gotten a lot of work in the last turnover. It was odd that it needed so much work again a year later and the management company gave us a five-figure estimate on repairs. We were like, “That can’t be right.” We said, “Can we get at least two other estimates?” I was like, “No. This is great. You should go with this.” It’s started to feel a kickback situation or something’s going on here and then they’ve got one other estimate that was like triple, almost like making fun of us. I was like, “That’s impossible. That can’t even be a real estimate. The first one was out of line, but triple? That’s very odd.”
We switched property management companies and the new property manager got someone to go out and give an estimate and the estimate was completely reasonable and normal, fixed it up, and leased it out. I don’t know if that other property management company was running a scam or what was going on. They were at least being negligent and not very good. You have to stay on top of it and you can’t be passive and accept like, “They must be the experts. This must be how it is.” You have to be prudent and stay involved, even if you’re hands-off. Even if you’re not there physically, you still need to keep your finger on the pulse.
An example, I had a property where they cut the grass in this property. They want $3,000 to cut the grass because it was a property that was vacant and grass had grown to it. It was like 1 foot tall, but I get the number and it’s like, “It’s going to be $3,000.” I’m like, “$3,000 to cut the grass?” I call up a local landscaper and it was $200.
That is what it costs. Even if you’re not local, you have an idea of what it is. The longer you do it, the longer you’re in real estate in general, or the longer your landlord, the more you know, because the more you’ve seen and the more you’ve lived through and experienced, particularly in my case, because I do this for other people. I see it from that side. We didn’t sell all of our San Diego rentals. We kept the few in the markets that I thought would continue to appreciate, but when we sold some of them, I thought that we were topping out in most of San Diego. I was wrong. It continued to go up.
As we start to wrap up this episode, two questions we’d like to ask. You’ve already given me a lot of things. Everyone always hears the real fun stories and all this stuff, but Jamie and I like to share something crazy that’s happened. I know also you’re an attorney, you’ve got to be careful for some of the stuff you can share, but has there been something that you had an experience that exemplifies like, “This isn’t all, wine and cheese, and toasting each other and living a lovely life of the real estate?” Is there something like that that happened?
There’s a property that we found. I’ve been looking at it for years and like, “I wish I owned that. I like that one.” It’s underutilized. It’s a vacation rental over a retail storefront in a beach town. I was like, “I love that property.” Every time I go to that beach and I walk around, I see the little sad faded vacation rental sign. I’m like, “They need to make that sign a little brighter. How come they’re not sweeping out? That’s the worst patio furniture I’ve ever seen? How can they be doing well with that Airbnb if they’re not putting love into it?” I’ve always wanted that property and it went on the market.
We keep thinking that the market is going to drop in 2021. I don’t have a crystal ball. I can’t say it will for sure. I have my predictions. I think 2021 is going to be a good time to be an investor. I don’t want to buy anything or do make any moves in 2020 unless I’m selling something. I’d rather wait until 2021 and pick up some great deals. I saw it go on the market. It’s top of the market pricing. I was like, “Too bad.” When they’re selling it, it’s at the top of the market, the property I’ve always wanted. I talked to a lender because now the price is probably going to come down since it’s sat on the market.
It’s one of those things where the lending world is interesting. It’s a mixed-use property. I could have qualified for an SBA loan if I wanted to operate my brokerage or law firm out of the retail space for a while, except for the residential overhangs enough that the 50% threshold isn’t met because it has to be 50% for the business. The other 50% could be residential or some other use. It would not qualify for an SBA loan, which would have been great because that’s 10% or 15% down.
Pick a closet on the upper floor and turn into retail stores.
There was an argument of like, “What about if the one-car garage that belongs to the residential is used for commercial storage?” The SBA is government. They’re not all about getting creative and letting you make arguments. It either is or it isn’t. On the tax roll, It shows how it is and that’s it. The configuration is the configuration. I talked to my favorite lender and I’m like, “What about the mixed-use like owner-occupied because it’s a residential unit? I know someone who could live there and they would want to buy this because I even want to broker it. It’s not necessarily for me to buy it.”
They were like, “No, because we can only go to $720 as the conforming limit for mixed-use San Diego. If it was pure residential, we could go to like $2 million, but it’s mixed-use so we don’t go above for the conforming.” I’ve struck out. Looking at the pro forma for the rental performance, the owner has not done well with the property so it’s not performing that well. It wouldn’t cover the debt service. It would be in the red. A lender doing a pure commercial loan is not going to lend on it because the numbers won’t work. The agent calls me and says, “We got a cash offer.” I was like, “I’m out.”
We’ve had our eyes set on a property for a few years now. It’s not on the market yet. I’m glad it’s not because if it was on the market, I wouldn’t pay the price they’re going to want for it. They mentioned that they’re not going to put it on the market until later part of 2021, and I’m like, “Perfect because I’m hoping by that time, the world gets back to some normalcy and then inventory hits the market again and price right up there brings things back down to normal.”Being cheap can be expensive in the long run. Click To Tweet
I’ve struck out, but I hope you make that one go all the way. That sounds great.
I’m looking at it right now because it’s my neighbor’s house. I joked to my wife like, “I want to conquer my neighborhood.” We’ll see. Jamie, any final thoughts as we wrap up this episode?
This has been great. You’ve got a lot of different experiences and different things you brought to the table. I’ve enjoyed this.
I’m a real estate nerd and I love it all. I get to do what I do in my own investing, but as a real estate lawyer, seeing what everyone else is out there doing is amazing. Helping clients solve all of their different problems in real estate, whether it’s someone who’s into syndications or fix and flips or all of that, it’s a very vast, interesting, and exciting world out there in real estate. If anyone is reading this episode, but you’re not actively involved in real estate, what’s holding you back? There’s a lot to be done. There’s a lot to be had and there’s room for everybody.
There’s room for everyone and there’s a lot to learn upfront. It’s not like you start buying something. There’s a lot of education that you need to learn before you get into that business well.
We’re all always learning the whole time.
Find a mentor, learn, and get in the game because it’s a long game. Real estate is not getting rich quick. Even the people flipping are generally trying to build a ladder and they’re not going to do as well on their first one as they will later when they’ve had a few under their belt. Get in early. If someone is seventeen and wants to get into real estate, I would do a happy dance because if you start buying real estate at age eighteen, you will do great. You will secure your retirement.
Flavia, thank you very much for joining us on this episode. Thank you for coming on. As always, everyone, go out and do some good deeds. Thank you.
- Flavia Berys – LinkedIn
About Flavia Berys
Flavia Berys is an attorney, real estate broker, and business consultant based out of Southern California.
Flavia has worked for one of the largest global law firms, involved in large-scale legal matters for Fortune 500 companies and other high-profile clients.
She teaches as an adjunct law professor and as an instructor at a local college.
She also works in the sports entertainment field as a consultant to pro-level entertainment & cheerleading squads. She is the author of Professional Cheerleading Audition Secrets: How To Become an Arena Cheerleader for NFL®, NBA®, and Other Pro Cheer Teams (Available on Amazon at http://amzn.to/VOAEmg).
She is the original creator of POM FIT™, CARDIO KICKLINE™, POM POM ABS™, and the POM POM FITNESS™ workouts, and is the founder of PRO CHEER LIFE™. Online classes are available at www.procheerlife.com.
Prior to and during law school, Flavia worked as a marketing consultant, cheerleading and dance team director, notary public signing agent, real estate broker, event and wedding planner, and magazine editor.
Her wide array of professional experience enables her to serve her clients with a rare form
of resourcefulness, empathy and creativity.
In her spare time, Flavia enjoys horse polo, rock climbing, yoga,
aerial circus arts, motorcycles, reading, and dancing.
Love the show? Subscribe, rate, review, and share!
Join the Good Deeds Note Investing movement today: