Converting a Prison into Apartments??? w/ Matt Lumberjack Landlord

I think the best analogy I can give people is, you know, that they're buying the second one and their nose is still around water level. There is a high likelihood that any pressure gets put on your shoulders or your head, you're under.

Welcome back to another episode of Multifamily Strategy, the podcast. I'm Christian Osgood, your host. I'm joined today by Matt, the Lumberjack Landlord, great friend of mine, one of the best investors I know. Can't say enough good things about him. So I've been extremely excited about this episode and we are stoked to bring him to you, Matt. Welcome to the pod.

Oh man, super excited to be here. Doesn't get any better than this, right, dude?

So a little background on Matt, and I'll let you tell your story, but Matt is recently retired after a long time being very frugal and high income with a high income spouse, on top of being one of the best investors I've ever known. He's built a huge portfolio. Uh, Matt has made it to what we call Very rich. Well done. Technical term. No, no, the rules for being rich, at least in our book, multifamily strategy, you have to have equity, you have to have cash flow, and you have to have cash. You have to have all 3 resource pools at the same time before you're rich. Now, if you've heard my backstory at all, I usually don't have cash. I'm still building my portfolio. I do not count as rich. Matt counts as rich. If we're wondering what the metric is, that is the metric. Matt has made it. And we're interviewing winners here. Goal of the podcast, by the way, this entire thing, we want to bring the owner meeting to you. It's the most valuable thing you can do. So, I'm meeting the best owners I can around the country. Matt, you qualify on every metric that could possibly matter. So, thank you for joining us.

My pleasure.

Matt, give us a little bit of your backstory. We're going to talk about where you're at today. Let's hear a little bit about where you started, the first deal that you did, and then, you know, just give me some of the path to— like, where did you start and why was it important that you started?

Yeah, so where I started— uh, thanks again for having Christian, and looking forward to it. Um, where I started was I started as a 9th grade dropout. Um, so everyone in every room is more educated than I am, and if you aren't, then we should probably go get a soda. And, uh, but yeah, it was, um, it was really out of necessity. You know, I had gotten a job and ostracized from my family because I wasn't going to go to college, and I told them I wasn't going to go to college. In fact, I told them I wasn't going to finish high school. And then just realized it was all about the grind, right? I was working 3, 4 different jobs. I mean, it was just nonstop. And then got into tech as a telemarketer. My first contract I signed was for $18,500 a year, plus a whopping $2 bonus per lead. And so, yeah, yeah, massive. Yeah. And so that's how I broke in. But then, you know, being in tech, everybody was always talking about the market. And this is, you know, 1998. I get into tech in 1998, 1997 and start working in tech. And then the whole reason real estate became a thing was because my mom was an agent growing up and she was a single mom. And so I used to spend my Saturdays in the car. Going on showings with her. And this was when real estate agents used to take around their, their, their clients in their car, you know, before what it was now where it's like they take them separately, but— or they drive their own. But got into the stock market, got my clock cleaned in the dot-com bomb and went from every single penny that I'd saved up for, you know, a year, year and a half. And I was living frugally then too. I was living with a buddy. Paying $250 a month for a room and lost it all. I lost like $30,000 in the stock market. And I was like, okay, feel like it's rigged. I'm never going to live in Manhattan. I'm never going to be in those boardrooms so I can find out what the, you know, non-insider trading move is. And so then I started looking at it and saying, I got to get into something. I need a place to live, number one. Number two is I got to get into something that, that I feel like I can learn, I can get better at than others can get. And most importantly is It's a necessity, you know, something that's required. And so then I started looking at it and saying, you know what, it might make the most sense to start buying real estate. And so I bought— one of my biggest life lessons was I bought a condo. That was a huge mistake. I bought it on the water, just outside of Boston, looking at the ocean. And within 6 months of buying the place, so I I literally was like, I can't afford this place on my own, so I'm going to buy it and I'm going to have a roommate under lease. Put somebody, one of my buddies, got him under lease and then I could afford to buy it. And they would count my income plus his rental income because he was a roommate. So they were willing to count that right away. Bought the place, moved in, and then about 6 months later I got hit with a special assessment. The special assessment was $83,000 on a $350,000 condo.

I've never shared the story. That's exactly where I started. I did a condo with a roommate. It was a fixer-upper I bought for— I mean, I bought for less than I bought it for, like $180,000. But we got partway through, I got a $60,000 special assessment on a condo I bought for $180,000. I'm like, what the hell is this?

I was like, I called the condo association. And I was just like, hey, so I can appreciate that you're like handing out bills to people. Let me just help you understand something. I'm 23 or 22. I don't have $80,000. It's not gonna happen, guys. It's not gonna happen. So you're gonna have to figure out what that's gonna look like. So after having that kind of bitter pill in my mouth, I was like, all right, we're going to get out of this and get into a single-family home. Thankfully, we'd had some appreciation then, just a little bit, not a ton, but we'd had enough appreciation there where I could get out of it and basically not have to write a check to sell it. And that was the goal. So that's what I did. I got out of it, I sold it, and I bought a single-family house. And then I got roommates and the plan worked a little bit better there. But the thing that I didn't like about it was, okay, well, as a roommate moves out, you know, we get another one in here, but then it's a couple of months lag in between getting the right person and, you know, does that really fit? And it was like, yeah, you know, I mean, I kind of have deemed, you know, living with roommates and when you own the property, I've kind of deemed that a super hack, you know, that's kind of a super hack. And so I was just like, you know what, this— I don't love this, but it's fine. I'm not home a ton. So this kind of works out. Then I changed jobs and was living at home, working at home, and everyone was around all the time. And so I was like, okay, we definitely got to change this. So I then started looking at how do I buy real estate? And, you know, other investment properties. But at that point, you didn't have a 5% down mortgage that you get on a small multifamily. You know, it was a bigger investment. And so the only way that we could do that was I'd saved up a bunch of money again because I don't spend money. I drive— even now today, I drive an '06 Yukon with 180-something thousand miles on it. I don't, but can. And just looked at the market. And then the biggest mistake that I made, I Again, I picked the wrong market.

Now, where did you, where did you buy for that first one? Manchester, New Hampshire. Manchester, New Hampshire. Okay. And what makes that the wrong market?

So it was the largest populous market, most populous market that there was in the state. It was a little over 100,000 people. The problem was, is the building stock was almost all old, really old, like 1800s, early 1900s old. It was also a very rough area. It was a very rough area. And so the quality of housing wasn't there. I can promise you the quality of tenant wasn't there. And so that was what the biggest issue was. And after I bought into it and I kind of bought some stuff that was kind of like fixer-upper and fixed it up and I still couldn't get a great tenant.. And so I still knew that it was the right thing, but I just languished there. And then the, the next biggest stupid tax that I got was I got a lead order on one of my buildings. Ah, it's not something that's very common outside of New England. But in New England, it's a very common thing. I mean, that it happens to— there's about 300 houses a year that get hit with a lead order in New Hampshire. And the funny thing is, is that there's probably about 33,000 properties that have an issue, that have a tenant that could be susceptible to a lead issue.

So for those unfamiliar, what, what does a lead order look like? Like you're the landlord, you have no idea what this is. It's coming in. What, what actually happens?

You get an— you get an email or a letter from the state saying that somebody was flagged for high lead levels in your— in one of the apartments that you own. And I was lucky enough for that to happen to me in '08.

Aha, a perfect time for things to happen in real estate.

I was like, oh man, this is bad. This is really bad. And so I start doing my research. And I'm like, oh my word, this, this is crazy.. And, you know, whether you agree with it or not, it's the law of the land and you're going to have to figure it out. You got to find a solution. And so I think that was one of the biggest challenges. One of the biggest challenges was finding a solution. So I looked all over the place and I literally just said to the, to the state, I said, I'm probably just going to give you the house. I'm just going to have to declare bankruptcy. I said, I don't have the $45,000 that you're telling me this is going to cost. You know, one of the things that we do in the course that we— that I made was I teach people how to get through a lead order because it's very expensive, it's very technical, and you need to be able to hold the state reps accountable for what they're doing and what they're saying. And in our state, coincidentally, there were only 5 contractors certified to do abatement.

Really? Yeah, that sounds difficult to work with for the whole state. Granted, your states are a lot smaller than they are on the West Coast.

1.3 million people. But you still got 300 buildings a year and you have 5 contractors bidding on those 300 buildings.

I'd imagine business is very good if you're one of those 5 guys.

Almost as if you could name your price.

What do you do as an investor when that comes up? So you mentioned 2 things. You had an HOA issue, a special assessment. Assessing that kills your deal. You have a state that comes in and says, hey, guess what? Bonus expense. Realistically, you wouldn't have underwritten for that. You would not have expected, hey, of the millions of people here, I'm going to be one of the 300, right?

Yeah. I mean, if you do the math, right, 33,000 units with people that could potentially have a lead issue and you've got 300 a year that they hit. Well, what's the math?

That's 1%. Yeah. And that's something that you probably don't factor for. So when the unexpected happens, because it's happened to you multiple times. Yep. I mean, what do you do? Did you declare bankruptcy? Did you find a workaround? Like, what does it actually look like?

So I think the key is, and I engage them, I just said, I think I'm just going to give you the house and everybody, everybody can become homeless. That's my option. That's, that's the only option. You painted me in a corner. I don't have $80,000 or $50,000 to fix this. I have no options. I can't get a loan on the building. It's '08, in case you hadn't heard. The entire, you know, real estate economy has collapsed. There's nothing here I can do. And so I said, I said, is there any sort of a program or grants or anything like that? And then they mentioned, oh, you can actually— there is a— there are a couple grants and there are some, you know, ways that you can take out a loan against the property. And they basically would do an interest an interest, a 0% interest loan on the property. But now I have a second position on the property. And so they allowed me to do that. It was the project ended up costing for 3 units and ended up costing about $80,000. And that's work that I could do today with my crews. I could do that work for about $20,000. It's about a 4x.

It's about a 4x cost. Wow. And that comes down to, you have contractors who can name their price. That's usually what's going to happen.

Yep, absolutely. Yeah. And so they said they could do it in 90 days, it took a year. And insurance doesn't cover lost rent for such a thing. So the one of the sticky rules with a lead order is that you actually have to pay for your tenant's rent wherever they end up. And they have to pay you rent, but if they stop paying you rent, you can't evict them.

Ah, double-edged. Sounds like, that sounds like Washington State.

Yeah, it's a, it's a win for them and a loss for me and a loss for me and a win for them. So that was, that was the biggest challenging, most challenging part. And it was, you know, thankfully we had some people that just basically DQ'd out of the process, stopped paying rent, and then we're just like, you know what, I'm just gonna move somewhere else. I was like, thank God. And then they moved somewhere else. And then, you know, my— the, the lead guys got access to it and they stripped it and they redid it. And at the end of the day, I bought the property right, but I didn't buy it so right that I had room for a 20% increase in costs of what I paid for it to then make the numbers work for rent. Yeah. At the end of the day. So even though it was at 0%, the challenge was I was like, all right, I know someday when I sell this, I'm basically not going to get a dime of my money back.

What does your portfolio look like today? We've talked a lot about the beginning and issues that came up as you were building, and we'll dive deeper into that. But where are you at right now today? Unit count, most exciting projects. Talk a little bit about what your business looks like after you made it.

Only slightly different. So, so 20 years later, it's 145 units, 51 buildings. You know, from the finance side, you know, no partners, no equity partners, no partners' partners. I— my name's on— my name's on all the mortgages. Well, through a trust. So we put everything in a trust and then we just max out our, our insurance and we basically do a hybrid insure-self-insure model where we have very high deductibles, you know, and that keeps our rates in half. We've been doing that strategy for probably— I came up with that strategy about 6 years ago, and we've saved about $500,000 in actual cash on real estate coverage, on insurance real estate coverage. We saved about $500,000.

There we go. And I copied your strategy on that. You're actually the one who told me to adjust my deductibles. But for the listener who's hearing this for the first time, why do we have such high deductibles in real estate? How does that save you money, and why is it worth the, 'cause stuff does happen. We've already brought up in this, in this call, sometimes you do have to utilize insurance. Why such high deductibles?

Yeah. I mean, I think at the end of the day, you know, you have to look at, you know, are you gonna be an owner-operator? And if you are gonna be that owner-operator, you know, the more, the more you're in the business, the more relationships you have, the more contacts you have, you know, you can do things for a fraction of the price of an insurance company. And so it really comes down to if you have the strategy of, Managing your assets properly by taking care of them and upkeeping them and, you know, making sure that when you get calls about a leak here or a dangerous situation there, when you prove that you address them quickly and when you do address them quickly, then your exposure to a claim is much lower. And quite frankly, you know, if you look at the math and you say, well, if I'm having a $2,000 or $1,000— a lot of people have a $1,000 deductible because they have no idea what they're doing. So they have a $1,000 deductible. They have $300,000, $500,000 coverage. I would, I would argue that you need $500,000, $1 million coverage. The problem is, is that $300,000, $500,000 coverage and a $1,000 deductible, you're probably paying double or triple what I'm paying. And so the idea is to keep your costs lower, but also make sure that you have a partner in the deal because the insurance company is really going to care.. And quite frankly, if it's a project under $20,000, I can probably do it for $8,000. You know, if the insurance company sees it as $20,000, I can probably do it for $7,000 or $8,000. And so why would I file that claim? Because very often what people find that actually then file those claims, the insurance company makes up for it across your portfolio for the next 3 to 5 years.

It's, it's big. So now, could someone mitigate that by switching insurance? Does that insurance company, if you go from one to another, or does that claim just follow you no matter where you go?

Follows you. Yep. The claim follows you. But also, not only does the fact that you had a claim against you follow you, but now that you're changing companies, a lot of times they're going to introduce a new premium as well, or you'll get an introductory rate that might be less than the one that you're leaving. But then year 2, they're going to get you. So you're going to have to move it again and move it again and move it again. And so you're still moving it with a claim. You're still moving it with a claim that probably stays on your record or on your, on your, report about your insurance probably stays on there for about 5 years, depending on which company you're working with. Can be 3, 5, it can be 7 as well. And so, yeah, it puts you at a significant disadvantage. So from that perspective, I have insurance for the purpose that most people should have insurance, which is massive loss.

And even then, insurance might not cover you. I've had total loss of building from water damage on a project that was under construction insurance. Oh my word. And there's nothing you can do.

It's—

they're like, hey, if the roof's over 20 years old and your pipes freeze, no insurance company in the world will cover that. And so just don't let your pipes freeze while you're doing this. And of course we had a frozen pipe and it cascading issues. Uh, and that's just part of the game. So it's important to know when you're doing this, even with insurance, they may or may not cover the things that you would think they would cover. Like if my pipes burst and water destroys my building, will you cover that? Sure won't.

Like, oh, fantastic. They're super nice to you so long as you're paying your bill and you're not making any claims. And it's funny how that works.

Yeah, it's amazing. As soon as you don't have to spend money, but you pay them.

Exactly. As soon as you file a claim, let the games begin. And then it's gonna be constantly them trying to say, well, you didn't live up to this part of the agreement or that part of the agreement, or here was an issue, or we found, you know, something completely unrelated. We found a dog on the property that actually we don't qualify for. What are we talking about? That, that's 3 units down and it has nothing to do with the unit that had the issue. Yeah. You know, so it's there. They're looking every single possible way that they can possibly get out of it. And they also recognize that you're likely not going to sue them because they have plenty of lawyers.

And you said 145 units is what you're at right now. And one of those is a prison you're converting, right? Is that, is that counting?

Okay.

I'm going to— we're going to talk about that later, too, because that's exciting. Yeah. I want to hear the updates on that. As you are building this, so you went from a condo— let's go even further back. You went from dropping out in 9th grade to working low-income jobs to eventually you got a high-income job. You have this huge portfolio. What things did you do to get from, hey, I got my first few houses and I made my first few sets of mistakes, to I have 51 buildings 145 units. What are the practical steps that you took along that journey? You say you're talking to someone who has their first few duplexes. How do you go from I'm a beginner to I have no partners, I have a ton of real estate?

I think it's, um, for me it's a general premise of curating an experience for tenants. You know, I want to acquire, I want to stabilize, and then I want to optimize. And I think so often landlords stop at stabilize, and that's where I beat them every time because I bring it to optimize. So they're willing, they're saying, oh, well, yeah, the market's, you know, 8% and I'm making 12, like I'm crushing it. And I'm like, well, congratulations, I'm at 23, 23% return. Well, why are the returns so great? Certainly time has something to do with it. Buying when many others were running has something to do with it, but also having a fairly conservative strategy of I'm going to buy the next one, but I'm not going to be, you know, basically water almost over my nose. Before I buy the next one. I mean, it's a different deal when you can do what your strategy is, which is, you know, potentially bringing on an equity partner, you know, or talking to the seller and getting seller financing and then getting favorable terms and then getting a no down payment. Like, that's magic, right? That's, that's what you're amazing at. And so that's the magic that you use to acquire more assets without actually any— without largely any risk. Very, very low risk profile. And so for me, you know, how do you go from 3 to 50? It's slow and steady wins the race. I did it in 22 years, not in 3 years. I do have other people that are investors in my market that I know I'll be buying some of their assets in the next 24 months because they grew too quickly. They never really stabilized. They certainly didn't optimize. But really, the idea is you acquisition, then stabilization, then optimization. You need to get tenants into the experience, you know, making sure that they're good quality tenants that pay their rent on time. And then over time have other plans of saying, okay, I'm gonna have to do the roof there, I'm gonna have to do the heating system there. In the turnover of the next set of tenants there, I'm gonna redo all the windows because they're older and really dialing it in. And then when you really get into the weeds on optimization, now you're talking about, you know, toilets and low-flow showerheads and on-demand hot water heaters and 95% AFUE boilers and really getting nuts, um, the type of insulation that you use. But you can really get into the weeds on that stuff. But that's how people like, ah, so, so what, so you made an extra 1.5%? I said, 1.5%, 1.5%, 1.5%, 1.5%. And I was like, so you're right, I only made 1.5% on that one decision, but I just made 7.5% on the cumulative 5. That's what optimization looks like. And that's really one of the things that we teach in the course is how to understand how to get from stable to optimized and making sure that, like you guys say, like you say all the time, Christian, you know, how do you get to buy real estate?

And more importantly, how can you keep it? I mean, that's what it comes down to, right? You buy cash flow and you make sure you fix your variables so it continues the cash flow. And then you optimize and you increase that cash flow again and again and again. And the market will do some of that. But if you as a landlord come in, I think you worded it perfectly. You're curating the experience for your tenants. Absolutely. They're coming into your brand and your apartments and they want to be part of that. And they're always getting better. You probably— I'm imagining you have very low turnover compared to your competition.

Yeah, we're in the 90s. You know, the, the, the reason any year that we've dipped into like an 80% renewal rate has been because we had a couple of years that were 70%, but it was because we had so much acquisition.

Yep.

And we wanted to work with those tenants. But so often the reason that the landlord sold us the property was because the tenants were bad. And very often it's like, you know, this is the chain or this is the sliding, sliding slope that many people go down, which is, you know, I want to keep my rents fair and reasonable. Okay, great. Cool. No problem. That's a good thing. That's very admirable. And then a year later, I want to keep my rents fair and reasonable. So I didn't raise the rent. And what it really is, is they're really cowards and they're too afraid to ask for a rent increase. That's what it really is. They're not altruistic, they're cowards. And, and that's a rude thing to say. And welcome to the Lumberjack Landlord. And so, you know, the, the other fact of the matter is, is that people don't want to have those difficult conversations. And so you've got, you know, amazing concepts like Dion talks with his binder strategy, which is amazing. But you find a lot of landlords that what ends up happening is 5 years later, the tenant goes, you know what, I'm sick and tired of this. I'm leaving. This place is a dump. They've made more money every single year. They're ready to go rent a nicer place. And you're like, why are you leaving? You say, because the place sucks. I want to like, I want a nice place to live. And then the landlord's been stuck with having underserved himself and the business. And so they paid a low rate for 5 years. He doesn't have the money to fix the roof. He doesn't have the money to fix the doors. He doesn't have the money to, you know, upgrade the, upgrade the heating system. He doesn't have the money to do that. And then where are you at? Now you're trying to rent out a dingy, dumpy, gross, 17-time painted unit. To the next person who is also going to be a low entry tenant. And where are you at then? Then you have zero ability to curate a good experience. You could actually command some sort of a premium for. And the funny thing is, is I think that slumlords, while I hate them and I don't like their business model, there's a reason that they exist, right? There's a reason they exist. It's because somebody needed a house and that's all they could afford. The problem is, is that that number in the last couple of years has gone up so much. Because there's no, there's no inventory. And so they're truly the bottom of the rising tide, but it's still lifting all boats. They're just both, they're just, they're both the worst. So I think that that's really the challenge is curating that experience for your tenants, and making sure that, hey, if you continue to want to see things improved, I need to increase the rent, my taxes go up every year, my water bill goes up every year, my sewer bill goes up every year, all those rates constantly they go up, they never go down.

You mentioned something that you're going to be buying from people who expanded too fast. Oh, yeah.

What does expanding too fast look like? I think, I think the best analogy I can give people is, you know, that they're, they're buying, they're buying the second one, and their nose is still around water level. There is a high likelihood that any pressure gets put on your shoulders or your head and you're under, you know, people that buy for appreciation. Like, sweet Lord, don't buy for appreciation. That, that is the, that is the wrong approach in my mind. I think that there's— you can do it when you have a large enough portfolio. You can do it when you can. One of the things that you and I really agree on is when you see the, when you see the path, right? You were asked a question on your livestream last night. When you see the path from a 120 DSCR loan or a 125 DSCR loan, when you see that path to 150, okay, now it's okay. But when you're at a 1 DSCR and you see the path to 120 or 125, no, no, that's just, that's just lazy. That's just lazy. If you can buy at 1 and see your way to 175, well, now that's a gamble.

That's just a gamble and you just need to have the reserves to do it. With appreciation, unless you're in a market like Detroit— Yeah. Appreciation is what's going to make you rich in real estate. But you get there by buying for cash flow. You don't factor for the appreciation. You don't bank on the appreciation. You don't know what the market's going to do. All you know is that over a long period of time, you will have appreciation. Because like you said earlier, things get more expensive. And we're going to keep printing money. Appreciation will multiply the money. It's always happened.— you completely throw that out and you just go, "Okay. I'm buying an asset with a liability." If you're using debt. If you have a bunch of cash, you can play the game a little differently. But if you're most of us, you're buying an asset with a liability that is smaller than the asset that you're buying. That's what you're doing. I'm buying more income with a lower expense than the income I'm buying. I'm fixing my terms and I'm going to get paid to wait for appreciation. That's basically the game. We're all just getting paid to wait for appreciation. Matt, how many years has it been that you've been investing in real estate? Like 22, 22.

There you go. 22 years. And I own none of the assets that I started with because that's the other thing is you do have to exit. You do have to exit out of some of those assets that you've built up capital and equity in to then utilize that to get a one-to-many. And a one-to-many is I sold one and I bought 4 others. You know, I did a million-dollar challenge with some other investor buddies of mine.. And the idea was buy something for a quarter million bucks, something that was value-add, and it couldn't be like a $500,000 project you needed to do. It needed to be value-add, $250,000, and you had a $50,000 budget to fix it up. And I did that. And in one year I sold that thing for $550,000 because I bought the right asset, sold it for $550,000 and had, you know, $300,000 in profit and took that $300,000 and went out and bought $1.1 million worth of real estate.

So I won the Million Dollar Challenge. There you go. God, that's a fun challenge.

That would be a small project for what I enjoy doing, but that would be fun.

Yeah. That's like you'd have to do it at like a million to $5 million or something like that. Yeah. Yeah. We're doing a hotel flip right now that is going actually very well, which is great. We're in budget and everything's moving along, but a $1.6 million purchase price. I got $1.8 million of debt on it though. You know, effectively, that's my purchase price as far as our numbers are concerned. Uh, looks like we're going to be able to sell it for about $2.5 million. It'll probably appraise around $3 million, but I'm like, that's $600,000 in like 6 months. Like, these projects are super fun. They're in every city. You can find stuff like this anywhere. And I found that you have more opportunity in the mid-sized stuff because you just have less players trying to buy the same thing. You had mentioned earlier, like, you buy when other people stop. I look for asset classes that let— just less competition just means you have more room for margin is what I have found consistently through all real estate. Which brings me to your prison conversion. I don't know a lot of buyers of prisons. Me either. That's a really exciting project. Talk to me about how that came up, what the vision is for it, and where you're at with that project.

Yeah. So one of the strategies that we have is we look at old dilapidated buildings that our cities own. Cities need cash. Yes, they do. And if you have a building, the city does, it's a liability to them. You know, they have to send workers there, they have to check up on it. They have to make sure that, you know, it hasn't been broken into and you don't have, you know, squatters or anything of the like. And so one of the things that we always look at and we always talk to our towns are is, hey, what buildings do you have that you might be taking back on a tax lien or that you already own that is no longer in use? And we talked to them about that. And in this particular case, it was, it was an old police station. It was perfectly located in a downtown area, been vacant for years. They had just finished the environmental on it. They'd spent about $150 grand on the environmental. And so that cost them an absolute fortune, you know, to do the environmental, $153,000, because at the end of the day, they look at it as a liability. And so they want to partner with a, with a, you know, developer that's going to do the right thing for the community in that type of a building. And so we went to them out of the gate saying, hey, here's our plan. And they loved our plan. We wanted to do, you know, disabled veterans housing. We wanted to do an indoor playground for kids. In the wintertime, it gets really cold here and kids can't go outside for 3 or 4 months. So we wanted to do that kind of cool stuff and, and a nice little kind of eatery downtown where there aren't a whole lot of, you know, food options. So they love the idea. And I said, great. The cool thing is now you just have to sell it to me.. And so we had to go through that process. And basically we brought— I presented my offer to the town. They hired an agent, they put it out to bid to hire an agent. I said to the agent, I said, I want this deal. I'm going to make it the best. And it's the best thing for the city. And I already invest in the city and they can see the other projects that I've done. You know, we've got a track record. And so we were able to get that building. It's 8,000 square feet. We were able to get the building for $200 grand. Wow. Yeah. And all gutted. No, no EPA, no environmental. It's 100% clean brick building with I-joist—

with steel I-joists.

Just that building's not going anywhere.

No, that building is fortified. It is ready. That's fantastic. How far through the project are you? Is it— are you about to lease up?

Where's the project at today? Great question. So I bought it in September. And it took until February—

I took until March 18 to get my permits.

Aha. So work has just gone underway. Just begun. So we are— I post daily on Lumberjack Landlord on the Instagram, post daily progress that we're making there. So we're resheeting all the floors, and then we're doing metal studs. And we're kind of going through that process now. And Next week we have a fire suppression meeting and all these other fun things that we have to do for a building of this size. But yeah, we finally started the work. And so my stated goal to the city was I'm going to finish this project faster than you guys got me permits. Oh, there we go.

Yeah, which is why they love working with me. So fun, man. Prison into indoor playground. That is, that's gonna be quite the, quite the conversion. Everyone should definitely check it out there. Well, we ask 2 questions in every pod. You've already answered some of the stupid tax, but we're gonna get to that one. The first thing I want to know is, so you've done a ton. You've built quite the empire with no partners in not that much time. I mean, a 22-year investing career, that's pretty quick to get the amount of real estate that you have in the position that you're in. What is the thing that you are the best in the world at?

What is the thing that makes Matt, Matt, that allowed you to build the business that you did? I think chaos management, the ability to manage chaos. It's, you know, when not, not anything really goes your way in real estate investing. So it's a matter of creating, creating processes, being willing to pivot, not being steelheaded about or ironheaded about certain things. It really comes down to How do I buy it? How do I stabilize it? How do I optimize it? And then what, what processes and efficiencies can I create around that that allow me to keep it and reduce the amount of drag that I have from asset to asset so I can buy the next one? You know, we self-manage. I have one full-time person that helps me, but until 6 weeks ago, I had a, I had a 50-hour-a-week executive job. So I think the superpower is, yep, you have to be able to manage, manage chaos. You have to be able to learn how to pivot, and you have to understand that the core mission is acquisition, stabilization, optimization, and then creating systems and processes around that where the right thing happens based on your systems and processes. That way you're only making minor tweaks as opposed to having major wholesale changes having to be consistently made.

The reason people don't buy real estate, I think the number one reason is that they are too stressed about all the things that can happen. And what you just said nails it on the head. Most of those things are going to happen at some point when you buy real estate. Things will go wrong and some of them will go catastrophically wrong. Yep. Chaos management. The question I have is how do you handle the stress, that gut-wrenching, like, oh my goodness, are we declaring bankruptcy this month or are we going to find a way through this? How do you handle that, especially now in your position as, you know, you're, you're a father, you're a husband. How do you handle the stress of having that much business?

Um, I think, you know, um, not to get corny, but I think, you know, probably a little bit of faith has, uh, you know, plays, plays a role in it for sure. Um, you know, recognizing that all you can do is your best and that the, the only outcome that's guaranteed is that you're gonna get an outcome. So, you work to do your very best. You recognize that you're not perfect. You recognize you're going to make mistakes. As the years go on, you're, you got to be humble and recognize that you can learn from everybody. You know, you're 15 years younger than me and have done things that I've never done. And I think that, you know, that's why I watch you and I try and learn from you. And I watch from a lot of different investors because I always want to be learning about different angles. Like if you, if you have 15 different angles that you can do a deal based on, well, then you're going to constantly have deals in front of you that you can select from. If you're only buying out of MLS, I've got bad news, the market is going to dictate what you, what you can and can't do. And so I think it's, you know, I think, you know, handling that stress, it really comes down to always being well-intentioned, always trying to do the right thing. Recognizing that you don't know everything, recognizing you're gonna give it your best. And at the end of the day, there was nothing I could do about the let order. It was just, okay, you know, hey guy, I'm really sorry this happened. Let's understand it and figure out how we can put this together. And I think people also heard on the other end of the line that I wasn't joking. I was very serious. I said, I'm probably gonna have to file bankruptcy and I'm just gonna have to give you back the building and you're just gonna have to figure it out. I said, and I don't want that to happen, being transparent, I don't want that to happen., but why make it adversarial? It's not like that person on the other side of the phone has any power whatsoever to do anything. It's like yelling at a cashier or yelling at a waitress. What's the point? They don't own the problem. They didn't cook your food. They didn't screw up the steak. Somebody back in the kitchen did, and they have the covering of that kitchen door. So I think it's just being well-intentioned. And I think it's also recognizing you don't know everything. Usually, um, high success people, their toughest critics themselves. And so usually you're giving yourself the worst of it over what anybody else is doing. And recognize too that, hey, you know what, whatever, there's nothing— worrying is not going to add a moment, a moment of value to my day or to my life. So worry— I'm kind of the wrong guy.

I just, just as what it is, you do your best and you figure it out from there. That is the mark of almost every successful investor. You just realize you can only play with the pieces you have. I think stress and worry and all that stuff make sense if you're trying to survive, like being eaten as a hunter-gatherer. As you get into business, a lot of the emotion things do not help you at all. The way that you feel doing business does not dictate your actions, and the people who can stomach that are typically the ones who end up owning a lot of real estate or otherwise having a very successful business. I think that stress management thing, is that something that you learned or is that something you're born with?

I think it's something that you can learn. I mean, I was a teenager with a panic disorder, you know, so, um, uh, you know, I think that based on, based on that being the occurrence, I think that it is something you can learn. You just recognize Listen, I'm going to be here tomorrow. This isn't the thing that ends me. And that's why I get so sad when somebody makes the decision to take their future into their hands in a negative way. I promise it's not that bad. It's just not that bad. It's not that bad.

You'll be okay. It's not that bad. I have very successful friends who have gone through bankruptcies or other total complete failure. And you still make it through and you're alive another day and you just keep building. Now, the design of the portfolio is to not lose it. That is kind of the premise of the whole thing. Buy it and don't lose it. But if you do, those are the pieces and then you just keep pressing forward with the pieces that you have. You learn something. I love that mentality. Speaking of the highest stupid tax you had to pay, talking about managing stress, for all the problems that have happened in the portfolio, while you're learning how to play the game, what was the highest stupid tax that Matt had to pay? This could be monetary, it could be emotional, but what was the highest tax in playing the real estate game?

I mean, it's tough to narrow it down to just one. I mean, you know, it's, you know, not understanding how, how bad a lead order could be was really bad. Not understanding how dangerous investing in a property in an HOA was really bad. You know, people doing what was expected and not inspected. The thing that I always preach with my guys is people do what's inspected, not expected. And so if they don't think that you're coming around and looking and taking a look at it, that you are going to get less than quality work and they're not going to make you a priority. So I think, you know, the stupid tax continues to work its way into any person's business. And I think the idea is, is okay, I've learned the lesson. And, you know, now we mitigate that. And so, but lead orders, you can't really do a whole lot about where we are, you know, I think investing in an HOA, I think, yeah, I think my biggest ones are ones that I was, was something I just didn't know, and it came back to get me. And so I think people should, you know, measure 3 times and cut once. And I think that a lot of times, you know, never do a deal for the sake of doing a deal. Do a deal because you have conviction that you're going to actually make the asset a quality asset.

Yeah. And that goes back to not being emotional, right? Just don't be emotional about the deal. The deal that you found isn't the deal that you have to close. On the same token, one problem in your deal isn't necessarily a reason why it's going to be too scary and you have to back out. Look at the deal for what the deal is, and if the deal makes sense, close the deal. And if it doesn't make sense, find another deal. It is that simple. People get very emotional about real estate, especially when you're new. And you know, at the end of the day, it's an investment. It shouldn't be any more emotional than buying a stock. It's just, hey, I think this is going to work. I have good reason for why I think it's going to work, and I have a plan to do it. That's why you would close a property. If it's, hey, I've been— I'm in Matt's mentorship group and I haven't bought anything yet in my first 3 months, I better close this next deal. That is the wrong reason to buy a piece of real estate.

Wrong. It's just wrong. Yeah, I love the students that get in, right? And I'm like, how much real estate do you own?

None. I love it. I love it. And your course focuses a lot on real estate management, right? It's more than— more so than acquisition. So people who own no real estate going like, okay, I go, I want to learn how to manage this real estate that I don't own yet. What does that look like for a new student who doesn't own anything, who's taking a class on how to run their real estate?

What does that look like for you mentoring them? So you buy in this amount of time and you manage in this amount of time, and my hand's perfectly off— purposely off screen, right? You just— it's, it's, it's 10x, it's 20x, right? And so what it really looks like is, hey, when you're shopping, here's how you make a compelling offer. You know, here's when you get the tenants. Here's the first thing you're going to do. I mean, literally the name of the course is Oh Shit, I'm a Landlord. Now What? That's how I felt at the closing table. I was like, I don't have— I don't have keys to all the units. What am I doing? I didn't even have keys. Like a stopper. I had no idea what that was, you know? And so really it's just managing and guiding them through the process of, okay, when you finally do that buy, You're gonna have to engage the tenant. You're gonna have to engage the city. You're gonna have to, you know, look at what repairs need to— you know, have you talked to other plumbers saying, hey, I'm gonna be— I'm looking at purchasing some properties, was wondering if when that right property does come up, if I could have you come in and take a look at the plumbing and the heating system? The biggest mistake that newbies make is that they actually take the word for some of these guys who took 5-day courses and being inspectors You know what an absolute joke that is? What an absolute joke. 5 days and you know everything you need to know about inspecting a building? No. So I bring the experts. I bring my plumber, I bring, you know, my, uh, my electrician, and I'm just like, hey, listen, I need you to come by because any work that you're going to get out of this deal, I want to know now. And so I don't even hire inspectors. I hire the guys who actually do my work.. And so that way, when they're coming in, they're looking at it and going, yeah, this is going to be a problem, or you need to upgrade this, or this isn't code. You know, that way I know going into it. And then it's not a matter of, well, it was in the inspector's report. I'll usually have like an overall, like, general purpose guy. But then I have the plumber's stuff go through there, and they're there for an hour. So I might pay for my plumber for an hour and $125, my electrician for $100, and then the inspector for $500 or $600. And so I might be $800 in, but I'd rather know right then and there. That I've got a $10,000 electrical problem or a $3,000 plumbing problem. And in all likelihood, from a negotiation perspective, it's not coming from an inspector, it's coming from a plumber or from an electrician.

And so it carries a lot more weight when I'm actually negotiating the deal as well. And that is the best way to do it. If you have— especially if you're doing these value-add projects, like, get the actual professionals in there, get actual quotes, and you'll notice that your numbers change a lot on your deal when you do this. You don't want to be surprised after you close. You want to have that surprise during due diligence, which is why we push so hard on great due diligence once you're under contract. I mean, if it looks good, go ahead and get it under contract. You verify everything during due diligence, and the more you do in that period, the more consistent your deal is going to be. And that is the goal— eliminate variables every single time. Variables are what kill you. Stack the deck in your favor. Matt, this has been a really fun episode. Again, the goal of this podcast is just to connect people with other owners who are farther in the game. You are farther in the game than most will ever get. So when we're looking at all the things that you've done, the things that you've done wrong, things you've done right, if you can learn a few of these things, save yourself a few hundred dollars, a few hundred thousand dollars, you know, save yourself that $80,000 penalty on your $360,000 condo by just not buying condos. Like, if you got nothing out of this, like even that right there, you're like, wow, Condos off the list. I'm a better investor than I was before I listened to this. We launch this every single week. We have new investors. Follow this anywhere that you follow podcasts— on Spotify, on the YouTube channel Multifamily Strategy. At some point, Apple will accept this, so at some point, Apple Podcasts. But listen to these weekly. Matt, if someone wants to find you online, I know you have YouTube, Instagram, you have your course.

Where would someone go to find you if they want to learn more from you? Lumberjack Landlord on YouTube. We like to give back to the community and to the next generation of investors, and so we do a live stream every Sunday for between 90 minutes and 2 hours, and we just answer questions, and that's how we help people. And then if they feel like they need more time or they feel like they've got a deal that they really want to better understand, then you can step up into the course. Course. Or if you feel like you're a decent landlord and you're okay at stabilizing but you're not getting to optimization, again, that's what the course is there to help for. So I like giving back and spending an hour and a half to 2 hours just answering people's questions Sundays on my live stream on my YouTube channel. And then, uh, project updates is where we do a lot of stuff on Instagram, just saying, hey, here's what it looked like, here's what it is, and here's what we did.

There we go. And Matt has helped me on Section 8 questions, on partnership questions, on insurance questions, on about any question I have on real estate. Uh, Matt has been a mentor for me in a lot of the things that I have done personally. So it's a huge privilege to have you on the channel. Everyone give him a follow, especially on YouTube, because I think that is just the best possible place to follow him. Uh, Matt's not kidding. He shares everything there. So check him out, YouTube, Lumberjack Landlord. This has been another episode of the Multifamily Strategy Podcast. We will see you on the next episode.