I love to involve friends in the blog. I get to catch up with buddies on a professional level while giving them the platform to share their story. Hence my excitement when my friend, Bill Glaab, agreed to do an interview for A Student of the Real Estate Game.
I was at Bill’s wedding this past summer when his best man, his brother, posed a question to the guests: ‘Who here has received a call from Bill seeking an investment in a crazy new idea or business venture,’ sparking most hands to jump up. Bill, a true entrepreneur in every sense, constantly seeks new business opportunities.
After graduating from Hobart College, Bill got a full-time job at SNL Financial as a Corporate Sales Executive. But that’s not what I want to talk about. On the side, Bill purchased a 4-bedroom house near his alma mater which he could rent out to Hobart Students.
Many people dream of making passive investments in real estate, but they don’t really know how to get started and what to expect.
Bill successfully started his own company, Hand in Hand Soap, while managing a small portfolio of student-focused houses. Here’s how he’s pulled it off.
Why were you interested in making a side investment in real estate?
Two main reasons: First, real estate is a relatively safe investment, that is easy to understand and fairly straight forward. With real estate, it is not terribly difficult to know where you stand. You have a solid expectation of your maximum return, and your minimum return. As long as your minimum return, cash flow, is greater than your expenses, you are probably on the right track.
Secondly, I have always seen real estate as a means to an end. I have always wanted to work for myself, and run my own show. With real estate I had a number of options. I could either continue to invest in real estate my entire life, as a career, or I could invest in it over a set period of time as a gateway into other passions or interests. I knew within my first year at SNL Financial (where I worked for 5 1/2 years) that although I would learn a lot as a corporate sales guy, and be able to pay the bills and maybe save a little extra, that the day would come when I would tire and want to move on. My primary reason for investing in real estate was to build a portfolio large enough to be my safety net. The goal over my 5.5 years at SNL, and my 4 years building my portfolio was to eventually be able to have my real estate investments pay for my mortgage at home, and thus eventually allow me to leave my corporate job and pursue something that better interested me, whatever that may be. In April, of 2012 I realized my dream to utilize my real estate investments to have the opportunity to leave the corporate world, and pursue my dreams. My portfolio was large enough to allow me to live mortgage free at my home in Philadelphia, thus giving me the freedom I had been working towards. Real estate got me there.
How did you determine your market focus?
This was the easy part. Being barely 25 years old at the time of my first acquisition, I had saved very little cash, and there was not much in the market that I could afford. I knew I needed to focus on affordable property. Secondly, I knew I needed a market with great margins to eventually reach my goal. Hobart and William Smith Colleges, where I went to school, is in upstate New York: A low income town, filled with wealthy students from New England, with reasonably priced real estate. The college was already charging an arm & leg for room & board, so the students were used to paying higher than market rates regarding to living expenses. Having an inside knowledge of the parts of town students would live, and the parts they would not, I knew I was in prime position to start something great. Surprisingly, not too many local residents take advantage of this opportunity. I think this is because, without having attended school there, they are not as familiar with the way these students think, and what they expect. There is also an extremely limited number of properties in a given radius that would be well suited to student living. I knew where they were.
How did you source and finance the deal?
Having intimate knowledge of the life of an HWS student, I was in prime position to invest. I knew exactly, to the house, where students would live and where they would not. The area was small, compact, and houses did not come up for sale often. Eventually one did, and it was a real “fixer-upper”… but it was cheap. Being just on the edge of where students would be willing to live, I decided to make an offer. The house did need a lot of work, and I put about $15,000 worth of materials into the house, doing all the manual labor myself with a buddy, putting in 7 straight, long 18 hour days.
Back in late 2008, when I purchased this house, the market was in horrible condition. No one was buying homes, which certainly helped me procure a much lower than market price. Secondly, interest rates everywhere were extremely low, and many people were having a hard time making any sort of return with their money. I approached a family member and gave them my pitch. I could offer a nice fat 7% return (much better than their money market was giving them), while offering a very safe, secured investment. It did not matter if I had a student, or local resident, I would have no problem cash flowing the property. If I was able to get students, my return would be even greater. My pitch worked, and I was able to finance 100% of the sales price over a 15 year note.
How many properties do you own (houses/rooms)?
Today I own 4 student rental properties in the area, with a total of 15 bedrooms. They are all located within 1 block.
How were you able to operate the deal remotely? What were the biggest challenges this posed?
At first, operating this deal remotely was a bit more difficult. With everything riding on getting this newly renovated house rented, I spent a few weekends at the property myself, showing students the house with the hopes of getting a signed lease. Once students were in the house, renting it, it was much easier to get the house rented each year, as more often than not, underclassmen friends would want the house for the following year. This is one of the keys to my success. Under this model, the houses almost always rent themselves.
The biggest challenge was growing the business from 1 house, to 4. Properties in the right area rarely come up for sale, and when they do, people are generally fairly interested in them. As such, I had to keep one eye on the market at all times, and be prepared to make a move when something came up. I had to be able to make decisions quickly, and make a move. I purchased my second property about 12 months later, my third house in 18 months, and eventually my 4th property in January 2012. I used the net profit from my first rental house as a down-payment on the 2nd house with a traditional bank loan, and so on with the rest of the properties.
Tell me about the story behind your new company, Hand in Hand Soap?
Hand in Hand is a branded bath and body brand that my wife and I started in early 2011. For every bar of our sustainable suds sold, we donate a bar of soap to a child in the developing world to help reduce water related illnesses. In February of 2012 we flew to Port-au-Prince and handed out over 5,000 bars of soap to orphan children. In October 2012 we delivered over 60,000 bars of soap, in areas of the world such as Haiti, where medical treatment is hard if not impossible to come by.
How do you balance Hand in Hand Soap with you side real estate investment?
I work full time for Hand in Hand. As you could imagine, working full time on a business that you own can be quite time consuming. Luckily, I have set up my real estate business to run basically on its own. The tenants generally pay me just twice a year, semesterly. The tenants manage their own electricity and gas bills (although I do from time to time check to make sure they are current). I have a property manager who manages all four properties, and can generally fix/repair anything that needs to be done. I pay him hourly, and he keeps an eye on all four properties at no cost. I only pay him when things need to be repaired.
So overall, my only duties regarding the real estate are making monthly mortgage payments, and bi-annual tax payments. Other than that, they pretty much run smoothly without much thought from me.
What advice would you give to others looking to get involved in real estate on the side?
There are a number of ways to do this from my perspective. I took the long road, with limited cash, and found an area I thought would be profitable. I build my small portfolio with profits from the business instead of spending the income on myself. Real Estate can have significant short term gains, but generally speaking, this business is about the long haul. It is about planning for the future, planning for growth, and planning for success.
The other way I see as a good way to get involved is to purchase a small portfolio of income properties from someone who is looking to unload. Every person is different, and what is a good time to sell for one, may be a great time to buy for another. If you are the kind of person who has a little more cash to work with, you could easily bypass the long road I took, by purchasing a turn-key operation from someone who is looking to sell. You may not get the same deal price that you would get acquiring properties one at a time, but you would easily make up in years, what you pay upfront in cash/debt. At this point, I use the profits from my investment to pay for my home, and essentially live mortgage-free. However, if I were to put the profits back into equity, I would have no problem paying off the debt in a few short years.
That is one of the main benefits of owning real estate as an investment in my mind. You can use profits to expand and grow, you can use profits to pay down debt and set yourself up for much larger cash flow returns down the road, or you can use the profit to fund other parts of your life, be it personal or business.
Real estate investment is a straight forward way to get ahead. I find myself constantly recommending this to others, although not many have the moxy to take the leap of faith, and dive in. Those who do, and do it smartly, come out ahead.
Bill successfully pulled off his real estate investments because he knew his market, understood the needs of his tenants, and created a system that allowed him to manage the deals remotely.
While financing the first deal, he turned to family and close friends, who above anything else, were investing in Bill as a businessman.
These investments have allowed Bill the financial freedom to do what he’s really passionate about, launch a socially-minded soap company with his wife.
Bill is now looking to sell the properties and move on to his next business venture. If you or anyone you know is interested in buying these deals with significant upside, send me an email or leave a note in the comments and I’ll be sure to connect you and Bill.