What's up Jump In Nation! We've got another #JumpIn Stories interview, where we profile individuals who have taken the leap and jumped into real estate investing. These investors have taken action (arguably the toughest part), and are doing everything they can to create a life of financial independence.
A quick history about Lionel and myself: we've never met in person. He lives on the East Coast. I live on the West Coast. But, we connected online, have similar goals, similar mindsets, and both invest in the same market (Indianapolis). I've been following Lionel's journey from afar and he's doing some amazing things in the real estate space right now, especially at a young age. Impressed by the action he's taken, I HAD TO connect with him and learn more about his strategies, motivations, and goals. So, without further ado...
Lionel, tell us a little about yourself.
I was born in Brooklyn and raised in Queens, it’s all part of the same city, but we New Yorkers make it a point to identify which borough we represent. I currently live with my girlfriend in Elmhurst, in the works to move to Long Island City with a more favorable commute to and view of the Big Apple. I hold an accounting role in PepsiCo. I always joke with my girlfriend, who works in a hospital as an R.N., that I save numbers while she saves lives. I love photography, driving on winding roads with my Subaru, hanging out at cafés, friends and family gatherings and talking about anything related to real estate or life hacks (credit card reward points, interest savings, househacking etc.). Fun Fact: I am a Leo and my nickname has been “Lion” since childhood.
Where do you invest?
I currently only invest in Indianapolis, Indiana. To be specific, I invest in the east side of Marion County outside of the loop.
Why did you jump into real estate?
My reason for jumping into real estate was a little self-serving, I didn’t have an “Aha” moment. I’ve held a number of different kinds of jobs from school until post-graduation: sales, canvasser, retail, operations and finance/accounting. I’m very aware of the amount of effort that a person puts into something they do whether it’d be as simple as folding a pile of sweaters or as complex as presenting financial statements. However, that work that somebody may have put a lot of pride into could very well be unrecognized at their job. Career advancement in many industries is based on performance and performance is based on recognition. I wanted to find something that was “simple”, where I can have more control over the expected results. Investing in real estate gave me the opportunity create success on my own terms.
What's your investing strategy?
From a rental perspective, I invest in undervalued properties in good outer township areas (with good being subjective) with a potential to add value. The reason why I invest in those types of properties is because I use the BRRR strategy. BRRR is an acronym for Buy, Rehab, Rent, Refinance (and Repeat with an extra “R” if you wish) created by Brandon Turner from BiggerPockets. The main goal of this is to return as much of your initial investment as possible. If you buy lower than market value, you create room for equity from the buy-side. Likewise paired with a good potential to improve the property and build equity you give yourself a better shot at returning all of your original capital to repeat the process. Now that you’ve spent all of your hard-earned cash to buy and repair, how do you get the money back to finish the BRRR? You find a smaller bank who would be willing to do a cash-out refinance for an investment property and pull about 75% of the appraised value out. This example is actually how I purchased my 3rd rental property using the equity from my 1st rental property purchased just about (1) year ago in September 2017.
Why do you invest outside of your local market?
I chose Indianapolis and not NYC because the rent to value ratio still makes sense in good neighborhoods. My current short-term goal isn’t to maximize my “paper” net worth (although I wouldn’t mind!). I invest more for the cash flow which means that I want my money working as hard as it can to bring the best cash return. However, I want to make it clear that I’m not talking about investing in the cheapest areas and making the +2% rule every month (gross rents per month >2% of property value). On the contrary, an Alpha++ city such as NYC can barely scrape a 0.5% ratio on a rental property in a decent area. I only buy properties in areas that I believe will be a good and sustainable long-term hold. All markets are known to have cycles where values of assets will swing. The more cash inflow I have, the more properly hedged I am in the event of a devaluation or recession. And who knows…with the extra income I could possibly pick up MORE undervalued properties in the process.
What's the first step you took to invest in long-distance real estate?
My very long first step was cold calling every single category of this “team” that has yet to be formed, months in advance. As a newbie, I struggled to convey what it really was that I wanted from a professional and vendor. But it was around this time where I was able to find many of the patient and helpful business partners that I work with today.
What's been your worst moment as a real estate investor?
So...fast forward to April of 2018, I’ve been working with my property management team for roughly (7) months for both of my properties. I’ve noticed a few statement discrepancies throughout this time, all of which brought me upside (so I didn’t mind). They have a very strange process where they occasionally carry down prior statement items which have already been cleared. All to say that it wreaks havoc to my bookkeeping process and is also the source of their repeated mistakes.
I kept telling myself, as long as I can make sense of what’s going on and that these accounting errors aren’t negatively impacting me…I’m fine right? (Surprise! Murphy’s Law knocking on the door). A pretty sizeable clearing error finally landed on the wrong side of the statement and now I’m trying to get in touch with them. Several e-mails and plenty of “ring to voicemail” calls later, I get a follow-up email that they’re going to “look into it”. It took nearly a month to get this resolved and needless to say, I was not very happy with the error and the lack of communication. However, there was only one person to blame and that was myself...(can’t say I didn’t see this coming).
What's your greatest takeaway from that moment?
I clearly understood where their mistakes were, but I justified it from the potential upside of this error that I’ve been receiving. Luckily I only had (2) properties signed with them at the time, but what if I’ve owned (20)...could I really spend days every month to sift through their statements to look for errors? Simply put: If there are warning signs, heed them. I’m very happy to say that another group has taken over management of my properties and their attention to detail and work align with my expectations.
How has real estate changed your life?
Real estate has been more of a mental shift than a financial shift in my life. My view of money and wealth has been reshaped ever since last year and I understand what I value the most, getting to F.I. (Financial Independence). I’m trying to live off a set amount and all of the extra will be rolled back into investments.
If you could learn any real estate related skill right now, what would it be?
That skill would have to be, having a better understanding of market conditions from a micro and macro level and knowing how to lever that into my investing. If I can learn that skill and be able to tie it with my deal analysis (which I think I’m pretty decent at), I believe I can supercharge my progress.
If you had an extra $100,000 cash right now, what would you do?
I would probably just throw this $100,000 into my acquisition fund and use cash to successfully BRRR another property.
What's the best book you've read recently? Why?
The best book that I’m still reading is The Miracle Morning. The author explains how getting up early can truly change your life. I’ve always preferred to wake up early but aside from work it would rarely happen on weekends with the week being so hectic (who wouldn’t want to just sleep in?). I found myself with short days where I didn’t feel productive and it was frustrating. My girlfriend was a night shift R.N. for (2) years and recently transitioned into day shifts. I piggybacked off her new schedule and started waking up when she did…at 5:30 a.m. and that’s been my routine ever since. Now I’m finishing things around midday whereas it used to be before midnight. The feeling is great because I have this extra time that I can allocate to family and friends or to think about side gigs or real estate. The tips and tricks that you learn from this book can apply to anything that you do. Sometimes building a good business starts with improving yourself.
What's your end goal?
Honestly I’ve never thought of my end goal. I’d say financial independence from W-2 income would be my long-term goal, but I do not plan to be stagnant after I’ve achieved that milestone. One thing I learned was to keep setting goals and to keep challenging yourself even if it seems like it’s impossible.
What's your greatest piece of real estate advice?
If you have a gut feeling or this itch to do real estate or whatever it is you’re passionate about, don’t wait. One of the best decisions I’ve ever made in my life was when I decided to take action and Jump Into Real Estate.
And there you have it folks! Check out these key takeaways that I just picked up:
THANK YOU Lionel for sharing your story and taking time to connect with Jump In Real Estate and the community. Best of luck, happy investing, and can't wait to see how your journey progresses!