340: Find The Right Property & Increase Its Value with CJ Calio

Welcome to the Wealth Matters podcast where investors come together to better understand how to build passive cash flow and create generational wealth without all the confusing mumbo jumbo. Here's your host and co author of Amazon number one best seller, Alpesh Pamar.

Welcome to Wealth Matters podcast. I am going to talk to someone who has moved from Hawaii to the west coast. I usually see the other way around, but in this case for opportunity CJ decided to move from Hawaii to California or Nevada. You can call because it's right on the border. If you are a newbie when it comes to investing and looking to break into real estate, then CJ is your guy. He's the co founder of WNN Properties and a full time investor in residential and commercial real estate. Welcome cj thanks for having me.

Alpesh. Good to be on.

Absolutely. So we start with this question with all the guests. Tell us something interesting or funny about yourself.

Interesting is I, well, barely graduated high school.

Oh wow.

My GPA was sub 1.8.

Really? Wow, that's crazy.

Yeah.

So. So you are a live example that high school education does matter. But, but even then, if you are, if you know what you are doing, if you are passionate, then you can definitely make it.

Yeah, exactly.

Oh, that's great. So what was your first investment and how did it work out for you?

Yeah, the strange thing is is I wasn't somebody that wanted real estate. It was actually my wife. My wife was the brain, brainchild behind this whole real estate and investing. I was somebody that was against it because I was afraid and it took some time for me to get comfortable with the concept of buying real estate. And specifically in our strategy we focus in on buy and hold in cash flowing markets to produce the streams of income. And our. After a lot of convincing and attending networks and changing my mindset around real estate, I found that I was comfortable enough to give it a go. And we ended up buying a property through a turnkey company out in the Midwest to produce cash flow. And it was a very interesting experience and it's what got us that kickstart, so to speak into real estate.

And when was was in Indianapolis. Yeah, and when was it like?

Oh jeez, nine years ago.

Okay, so that's funny because then I was laughing because I, I got the bug as well back in 2011. But then I sold a property I had in California because it didn't make sense and I found a turnkey operator in Ohio and bought my first property out of State in 2015 and it was a disaster. It Was a disaster. It was really. I lost all the money, but I learned and I continued. I bought more properties from different turnkey provider in Milwaukee and then I just continued to grow. So. Yeah, that's pretty interesting. And after you bought that property, what did you see? Right? How did it work out for you? And. And what did you see? Did you. Do you still own it?

Yeah, we actually just recently offloaded it a year ago. Nice to move into commercial. And it was, we like to say it was our luck first go round because we knew nothing. Right. We. We were new to the game. It was trial by fire, and we happened to get lucky with the first turnkey and it performed for us for almost eight and a half years before we decide to. To part ways with it and scale into a larger property. It was the properties afterwards that taught us exactly. Your story on your initial one is the lessons came on the, on the second, third, and fourth.

Yeah.

Because you know, you don't know what you don't know.

And this is what I tell everyone. Right. A lot of investors come to me and I'm pretty sure to you as well. Right. Oh, what should we do? I want to do this. And after a year, I asked them. They have done nothing. Oh, they're waiting for that blockbuster. The best property ever. The first one. I want to make sure I have cross all the eyes and I mean, dot the I's and cross the t's and whatnot. Right?

Yes.

And I'm like, you are going to get kicked at some point. Right? It's. It's a lesson you. Because, because you don't know what you don't know. And you can't learn everything theoretically. You got to jump in and try it practical. Right. A doctor goes to math school and learn everything. But if he's never going to perform a surgery, of course he will never know what he would, you know, what all he's gonna see. Right. So same thing, you know, if, if you. My first was a disaster. Second was okay. And then after that it just kept working. And I still have issues in between. Right. But you learn as you go now. That's, that's great. So you move, you moved on to commercial. Right. And I, I saw that, you know, you want to talk about finding the right property and increase its value. Value. So which criteria do you focus on to find the right property?

Yeah. So for me, it comes back to my, my vision and my goals for the year. So I set them up early in, in January. What do I want to achieve this year? And it Helps me to build my criteria. We call it a buy box. What does my buy box look like? So in, in, in a situation like for this. Take this year for example. My buy box is commercial properties. My buy box is up to $2 million. My buy box is a distressed or underperforming asset. So I can then reposition it over time to increase the value while still creating some level of cash flow for me. So I practice the burst strategy primarily both in residential and in commercial. And that's how I create or find deals that, that fit the criteria to value add and still get my. What I look for the most is cash flow.

And you mentioned commercial. Is there any specific niche in commercial? Is it mobile home park like I do senior housing, apartment buildings? You know, because you have so much self storage, there are lots of and retail shopping centers, industrial whatnot. Right. So what is your buy box in commercial?

That's a great question. So I'm in traditional commercial looking for office, retail, medical, strip malls, mixed use where there's a combination of residential and commercial spaces and, and government buildings. And currently our portfolio comprises of a mixture of all of those things.

Got it. And how do you find interesting, how do you find government buildings?

It they get thrown up on the mls. So one of our properties is a property downtown where the government basically rents our space to provide support to kids with special needs. And that, that was an asset that I saw value in and I wanted to be a part of that so I could also provide a solution and support for the community as well.

That's a great idea. And of course government, you can't go wrong. They can print money out of thin air. Right. So they'll always.

They can be one of your better tenants. Exactly.

So and you mentioned about in your buy box, do you also have market criteria as well? Like which markets is it all over us? Because I know you moved to west coast so I'm assuming it has to be somewhere in west coast or around West Coast.

We actually have been since Hawaii when we were living in there. And even after moving we've stayed in the Midwest and we have a, a decent sized portfolio in Florida as well. So we're, we're, we're like, we like to stay focused and, and condensed into certain markets where we can become experts and, and build the teams and the trust and the support system that's needed for my style and my strategy. Investing out of state, I get to rely on a lot of team members to fulfill roles that I may not be able to accomplish purely by being so far away from them.

Got it. So right now you are focused on in Florida and Midwest. Are there particular areas in Midwest cities, states?

Kansas City and Kansas City, Missouri.

Oh, okay. Yeah, I love Kansas City, Missouri, of course. It's a great market. So you don't do anything in with Indiana now?

No, it was our test run and what we found in that experience, although it was a great asset, it was nearly impossible for us to build our team because we didn't have the understanding of how to build a team. So it was one of those that we set it in, we just let it perform. We got introduced into markets of Florida and Kansas City with some level of network established. So we got to step up in the process. Versus Indy was purely a turnkey company that said buy this property and that's, that was the extent of it. They washed their hands. We had no real support unless we decided to create the team.

So that's, that's going to be my next question. But I'm glad that you brought up that point. Turnkey is great for people with W2 jobs and you just want to rely on someone. Right. But people like me and you, it becomes harder. And I saw that firsthand as well. In the Milwaukee market as well as the Dev, Iowa market, the Quad Cities market where I bought through turnkey, it was very hard to build a team. Somehow they control everything. You know, if you want to sell, you have to go through them. And it was just, the properties were great, you know, I, I made money, so that was not an issue. But it was hard to scale up because everything you have to do through them. Right. And yeah, so it made it harder. So that's why, you know, even though I like the market, I went with other markets. So that, that's, that's a great point. So my next question is how do you build a team in real estate there?

So I did it through just pure networking and going through meetups and joining like social media groups, Facebook groups, you know, they got those private groups in the markets that, that you're, you're maybe looking to invest in. For us, it was our Kansas City, Kansas City, Missouri market, and Florida market. We got, we got to be very vocal in there to just put ourselves in position of opportunity to interview people. No different than you would if you were in person. Right. Have conversations, compare both team member and your strategies, make sure they're in alignment. And once they're in alignment, you get to be decisive and make a decision and go forward with them to give it a test run. A lot of what I've experienced in the past is hype and talk about and when it came to fulfilling the obligation that we agreed upon with team members, some, some has fallen short off of what they've said. So I got to go through the reps of interview, apply, make a decision, pull the trigger, repeat and you keep going over and over and over until you find the handful that fit you. You know, it's a relationship business. Real estate's really a relationship business. The byproduct is property.

Yes.

And the better I got in cultivating relationships with others and being able to share with my, with them my vision and be open to their feedback, the stronger and closer I got to the team members that were in alignment to it.

Got it. No, that's a, that's a, again a great point. Real estate is all about relationship. It's all about team. Right. So yeah, once you have the portfolio, are you using third party property management or you have hired your own people now because you have a good size portfolio?

Yeah, that's a great question. I still, I still leverage third party. I, I like to keep it clean and separate and, and allow people to be the experts in their forte. I, I love the book who not how by Dan Sullivan talks about staying in your unique capability. Right. And outsourcing or leveraging others who are gifted and skilled in specific arenas. Which frees up my time and ability to get greater at what I'm gifted in. And that's my, my business model, so to speak, is to find the right team members and third party support and outsourcing them and allow them and trust them to do what they're great at.

Oh, totally makes sense. And I come from IT world so I know all about outsourcing because we outsource a lot. Right. And other thing, I learned that by outsourcing not only you are relying on their skills and capabilities, but also a lot of of the connections. They have a lot of software access, they have a lot. I realized that every time I buy a new software subscription it adds to my cost. But a lot of time they already have that software subscription so you don't even have to worry about it. It's part of the package. Right. So you don't have to manage the license as well as pay for it.

Right.

So other question you mentioned about value add, right. So how do you increase the value every time?

See, and, and the guarantee of a value add is subjected to your, your experience and your capabilities. For me, the way I, I like to position stuff. So if I'm Going to talk about say the commercial aspect, it's very different. Or it's contrasted to residential in a sense where residential, you tend to want to do a lot of rehab. Right. Everybody sees flip the house or in the birth strategy, you're doing some level of rehab to increase the value. When you refinance, you have it at a higher price. Well, in commercial that's not necessarily true or at least how I found it to be. What works for me is repositioning tenants. Inputting new tenants at a higher lease rate can essentially increase value instantly by having a longer lease with more income, net income coming in versus having to go in the residential side and force appreciating it through rehab. So there's a difference between the two sides. I straddle and I'll do the rehab on the residential and commercial, it's more of repositioning of an asset.

Got it. Okay. No, that, that's very interesting. And can you share an example on how you would reposition or if you have repositioned some tenants?

Yeah, I'll tell you about the one that I just completed. It's. It was a vacant building, so distressed in a sense, where it's been sitting vacant for years. It was on the listing, MLS listing for several years and nobody really was buying. Multiple price reductions. I saw value is in a good area right on the outskirts of a major strip center. So Home Depot is the anchor anchor tenant in the strip center. And this property sat right on the corner of the major highway at the main intersection. However, it sat vacant and nobody was interested in it. Probably largely in part to the fact it was a large space, 13,000 square feet and it was vacant. We went in, we acquired it all cash and we sat on it, repositioning it. So basically the day after I closed, I threw it on market for lease and it took us about eight, nine months to get enough tenant interest. So somebody executed a lease and now we're finishing off our refinance where we've taken this million dollar asset that is now worth 1 million 800.

Oh, nice. Very, very nice. And then when it took you eight to nine months, you, I'm pretty sure spent some money on the property. Right. Rehabbe. Uh, and did you have to do some kind of ti tenant improvement?

I did very minimal tenant improvements. It was sub 50,000 and we didn't do a thing to the property after we closed it until we had a lease executed, so.

Oh, okay.

I kept it the way it was for the most part until I had a lease executed. Knowing that I'm not going to throw money into an asset until I have an exit in sight. Because the funny thing to alpesh with this property is we've had, we had it vandalized twice before the lease was executed. So it was, it was in our interest to not spend money where it's not necessary until we could fill it. And now that it's actively being rented, it's essentially deterred the, the vandalism because there's people.

Yep.

Right.

And where is it located?

It's in Kansas City. It's in the City of Independence. In Kansas City.

Missouri. Yes. That's Missouri. Yep. That's awesome. So let's talk about real estate investing. What does it take to become a successful real estate investor?

Geez. The. The ability to take feedback in in multiple forms. Coming from a different mindset than what we may have been embedded. Or for me at least what I grew up with education wise did not support me in being successful in real estate. I got to choose to shift the way I think. And my mentor of the past used to tell me mindset is what separates the best from the rest. So as I continue to invest in myself, grow my mindset, listen to podcasts like yours, read books and, and apply it through action, I gained experience. And that's where persistence is going to come into play. And when you're persistent enough, you'll find a way to achieve your goals. You just don't know how long it's going to take. In the beginning. Consistency is what's going to keep you having success once you've acquired what you said you want to do.

That's amazing, man. Hey, let me ask you this because you mentioned that first property worked out and later you got into some trouble. What are some of the mistakes you have made?

Geez. Trusting but not verifying in the very beginning. So like my story was, was a wonderful great turnkey initially. But the next three, we, we just dove in because somebody said, oh, go buy from them. So we did. We didn't do any background check, we didn't read any reviews, we didn't verify leases and tenants in place. Our, our second turnkey property we bought, we should have seen red flags, but we didn't know. We didn't know. We didn't verify. Lease was $300 over market and it was renovated. Okay. When we closed on it, two things happened. We found out that they put in a squatter that was willing to afford to lease because it was during winter and they just wanted a warm place to live with no Intention of paying rent and so forth. Second thing was the sewer line was completely disconnected from the city. We had a cesspool build up in the front yard that we got to address. That was an extra ten thousand dollar cost on top of our down payment when we expected a ready performing asset. See we for went inspections just simply trusting that this turnkey company would be honest and open. And that was probably our biggest lesson that changed our thinking around. Maybe turnkey isn't for me. Maybe I get to be more active and start applying different strategies would lead me to the brrrr. And I'm so grateful for that experience. That tuition I paid for for real life school that shifted my mindset to okay, it's time for me to start being active in this process and not just simply relying on somebody else.

No, I, I totally agree. Some of those mistakes are webinars, right? You got to learn from them and move on. So, so when I'm talking to a lot of investors, some investors mentioned to me, you know, they only care about appreciation, especially if they are investing in the west coast market. I tell them I focus on cash flow. What is the difference between appreciation and cash flow investing strategies? And what do you focus on?

Yeah, I mean it's it. It's such a vast real estate investing, such a vast arena and so many different strategies that you can apply to achieve your goal. And appreciation and cash flow vary in my opinion based off of what your goal is. So from what I see with my fellow investor friends and and others doing the appreciation play is that they want to flip or they're looking to to do some level of wholesale and and quickly tap into cash in a short period of time versus buy and hold. It's a I'm getting the money consistency for a long period of time. And that's usually how I explain it to others who may ask what's the difference between the appreciation play and the cash will play? Do you want cash quick or do you want it over time? And I'm an over time person. I want to have that consistency. I don't want the volatility of the active side where if a market shifts I may be in a world of hurt. If I don't prepare or know my numbers well versus the buy and hold. I can wait out market trends that are not in my favor. I have the ability to stabilize for a longer period of time while waiting for the market to support my exit. Ideally just like my indie Property did for 8 and a half years. Because okay, well I'm getting somebody to pay down my mortgage. I'm getting cash flow and appreciation all at the same time. When do I want to sell? Okay, when it hits this number. And it did. That's the reason why we sold it. We allowed the time to be in our favor, not what the market's doing today.

Right. That's a great point, man. What has been your best deal so far?

Oh, gosh, I'd like to say this commercial one is up there on the list. And on the residential side was two off market duplexes that I got from a wholesaler who was in a bad position. So long story short, they had two, two duplexes. He was asking for way too much money. He was coming up on his due diligence, expiring where his EMD went hard and he put a very hefty EMD down. I offered on it twice before it got to this point. And then he came back to me saying, look man, I'm stuck. I cannot afford to lose my emd. Are you just willing to take over the contract? And I was. And when I took it over and I did the burst strategy, rehabbed it and rented it out, I tripled the value of the property, essentially pulling out all my money and extra to get me into more deals. So it was a pretty sweet, sweet transaction and I got to support him, which he let in the future, provided with me, provided me more opportunities on off market deals.

Nice. What has been your worst deal and what did you learn from it?

Oh, I'd say the worst deal would be one of our first residential burrs. Again, not fully grab, grabbing a hold of and taking captive the lessons from buying from that turnkey without verifying. Well, we didn't verify this contractor we used and everything looked good. The numbers were sweet. It was on the lower side of what I was expecting and they were promising and doing a short period of time. Well, that didn't happen. Long story short, I spent 80% of my rehab bid. Nine months later, rehab was still not complete. I finally got to the point where I was fed up and I needed to get somebody in. I brought my property manager in and he goes, what did you pay? Because there's no work done. I didn't have verifications, I didn't have a contract in place. I had a lot of lessons in that situation that set me up for success with future burrs on residential property. And the blessing behind this story is I was able to offload it and break even. All I had was nine months of lost opportunity, which to me was that was A big, big thing. Nine months I could have been doing multiple more deals and I got to walk away with no money, no financial money lost in that transaction. So that was my biggest, my biggest lesson.

Yeah, it's not too bad. How are you approaching the current real estate market?

Yeah, shifting the way I look at deals and finding solutions to keep deals flowing. You know, one of the things I get asked often right now is what are you doing with the rates being so high? I just adjust my, my buying strategy. I may come in cash, I may come in with other creative ways to get deals done versus expecting that I'm going to come in traditional and be okay with the high rates. I can formulate based on experience, different ways to tackle the same deal.

Got it. No, this was awesome. Thank you so much. Cj, are you ready for fire round?

Sure. Alpesh, bring it.

Would you be changing business or investment strategy because of the current environment?

Like I said, I'm changing the way I approach deals. I tend to come in more cash heavy now than I did before.

Got it. Favorite non fiction book. That could be business, self development, Real.

Estate, who not how. Dan Sullivan.

I love that book. Any tool or website you recommend or you cannot live without.

Ooh, Trello. Trello has been my friend. It's a good platform to keep everything up in a cloud. All information, documents, photos, timelines, due dates, the whole nine yards.

Yeah, we use Trello as well. Any advice for investors?

Yeah, I mean if you change the definition of failure to what mean you have defined it now it's I cannot feel. I can only learn and grow. This is tuition for future success and see it as an investment.

That's a great advice, man. How do you give back?

How do I give back?

Yes.

And I put up networking events, we donate to charity. I'm always looking to support others in their journey. Yeah, that's how I give back.

How can my listeners reach out to you?

Yeah, we got our Instagram page, it's at WN Properties and you can also go to a website. Why not now in real estate.com and claim a free PDF. If you find what we have or what we do is interesting, go and check it out.

This is awesome. Thank you so much CJ for your time.

Thanks Alpesh.

Thanks for listening to the Wealth Matters podcast. If you enjoyed it, please leave us a five star rating on itunes so others can enjoy the show too. Have a great week and happy investing.