Herve Francois: Another edition of Market Hunter
Thursday with Herve. You know we like to jump into it every week, another guest speaker to talk about
real estate investing in their own backyard, their neighborhood, how they do it, how they
got started and how they can recommend that you get started. Right? We're talking about flipping.
We're talking about multi-family investment, all kind of different real estate strategies. Let's
get it going right now. Herve Francois:
Now look, today we are going to Bronx, New York, one of five boroughs. Out of all five boroughs,
Bronx is one of the biggest. Population of 1.4 million. Got some other stats for you here. Median
income, $41,000. Median rent, $2,100. Median home value, $470,000. Got the headquarters, well
obviously the Bronx bombers, New York Yankees. Right? I mean they're just forever over there,
but you got Montefiore healthcare, Lawrence Hospital centers, Cooperative Home Care, a big
healthcare town in Bronx, New York. Herve Francois:
So, without further ado, I'm going to bring in my main man today with us, Julian Mann
of Bricks & Beams. It might also in the future be called Hudson Valley [inaudible 00:01:09]. Either
way, Julian Mann in the flesh. Tell us a little bit, number one, about how you got started in
real estate. And number two, why did you choose and how did you choose the markets that you
decided to invest in? Julian Mann:
A couple of moons ago, when I came home from college, I was looking for an apartment. I found
spots. I'm from Harlem, born and raised in Harlem. And going back to Harlem, you found that the
rents were just a little too high for me, a kid coming out of college. So, I'm trying to figure
everything out. So, I'm looking on Craigslist, and I had all these hits just across the bridge
over in the South Bronx in the Mott Haven area. Popped in over there, I'm not a Bronx guy myself,
18, 19 years ago, found myself a huge loft, almost 2,000 square feet. I had something like 13 or 15
windows. I was paying 600 bucks at the time. But it was one of those spaces, it was an old
commercial space that they kind of just opened up and turned it into loft space.
Julian Mann: I started off there.
I got to know the owners of the building, the owners of the properties adjacent and around us.
I said to the owners that I had met in the neighborhood, I said, "Hey, listen,
if you're working on a project from scratch, something that you're looking to acquire from
scratch, I'd love to just shadow you and join you from there." One day, I get a call from this
gentleman and he says, "Hey, Julian, if you're serious about it, there's a couple of properties
I'm looking at. I'm looking at working on a 1031 exchange." And I start to learn what that is.
Herve Francois: Right.
Julian Mann: And I go from there. And that was really
the start of it. I was able to kind of just shadow him from the very start of the process. Right?
Herve Francois: Well, right. I mean it's amazing how folks
really get started into this business. And a lot of times it's that. It's shadowing, it's learning,
it's educational, so on and so forth. Right? Kind of just dipping your foot in a pool.
Let's go to the Bronx. Right? I mean because what have you found as a recipe for success?
Julian Mann: One of the best pieces of advice
that I figured out and that I received was that, "Listen, we're not reinventing the wheel here."
Herve Francois: Right, sure.
Julian Mann: You got to have a plan and you
have to stick with it. Right? Herve Francois:
Yeah. Julian Mann:
If you're coming into New York City and you say all of a sudden,
"Oh, okay. I want to just buy whatever I can buy, whatever I can get my hands on it,"-
Herve Francois: Sure.
Julian Mann: ... and you don't have a plan for it,
that's where things start to crumble and fall apart pretty fast. Right? It's not an overnight
success, right? Herve Francois:
Sure, sure. Julian Mann:
It's you have to make it from... From start to finish, you have to figure out that fruition.
If you're talking about long-term investing, if you're talking about something for your family,
all the reasons that you're in real estate is something that you have to
have a plan and a safety net for. And the way I started working with these families,
I had a little nest egg saved up. And I said, "What can I do? What kind of property can I buy
with a hundred grand or so?" And I looked all around the Bronx. And at the time I'm ready to
purchase everything, this was maybe three years ago or so, nothing. You could cast a wide net-
Herve Francois: Right, right.
Julian Mann: ... a hundred grand's not going to do
anything for you. Right? Herve Francois:
Right, right. Julian Mann:
And I just heard some of your numbers at the beginning of the show.
I would argue that those numbers, that was yesterday's numbers. Right?
Herve Francois: Right, always changing.
Julian Mann: Right, right. It's always changing.
And especially in this pandemic frenzy and all that stuff, property values are through the roof.
And so, for me, it was one of those things I said, "What can I do with this little bit of money,
this little nest egg?" Herve Francois:
Right. Julian Mann:
What can I do and actually purchase the whole property? Right? I didn't want to just put in
a little down payment or something like that. I said, "I want to go and own something." Right?
Couldn't find it in the Bronx. Couldn't find it in Westchester. Couldn't find it in White Plains.
It took me all the way up to Newburgh. And I hadn't heard about this city.
Herve Francois: Okay.
Julian Mann: And I went up there. It lit up
like a beacon, all these properties, 30 grand, 40 grand, 20 grand at the time. I said, "No way."
Herve Francois: Newburgh, unlike the Bronx,
small city, like you said. Julian Mann:
Right. Herve Francois:
Population about 28,000. Julian Mann:
Right. Herve Francois:
It's been seeing some nice increase in population over the past few years. What is it specifically
going on in Newburgh that makes it attractive from an investment standpoint, besides the pricing
ability for you to get in? Julian Mann:
And I used to get this story all the time from my parents and some of my friend's parents, "Oh,
we could have bought all these brownstones over here on Lenox. We could have bought all these
brownstones for a dollar over here." Guess what? My parents didn't buy it for a dollar. My friend's
parents didn't buy it for a dollar. Nobody bought these things for a dollar. Right?
Herve Francois: Right.
Julian Mann: Because the neighborhoods were
rough. They were economically screwed up. Crack was a big thing in the '80s and '90s. Right?
Herve Francois: Absolutely.
Julian Mann: So, they didn't want to touch them.
They were boarded up. You had fire. Newburgh, when I pulled into the city, I swear, I'm telling you,
I thought the exact same thing of Brooklyn, of Harlem, of Bronx, of all these historic districts,
all these beautiful brownstones, all of Newburgh are these beautiful Italian brownstones,
just incredible things that you only see now with price tags like $2.4 million and-
Herve Francois: Wow.
Julian Mann: ... $3 million, $1 million for a shell,
things like that. Right? Herve Francois:
Right. Julian Mann:
And so I went up there and I said, "Okay, what's happening in the city? What happened to the city
economically that it's sitting like this? And is there a push? Is there any kind of buzz?"
And what I found was on every single block up there, no matter how rough the block might be,
there was one townhouse that had been fully restored and it lit up like a beacon. It just
changed the neighborhood. Herve Francois:
Wow. Julian Mann:
And now you starting to see two. Now you're starting to see three on the block,
and so on and so on. Herve Francois:
When you started seeing one townhouse after another being renovated, was this individuals
coming in purchasing and renovating those town homes? Or was it businesses? And number two,
were they flipping them around for a quick profit, or were they holding on to them and renting them
out to tenants? Julian Mann:
For the bulk of it, it has been all individuals, people that have come with a bit of a forethought
and they said, "Hey, listen, we can turn this around." Kind of the same thing I'm looking
at. Right? Then, number two, Newburgh isn't a flip city. Right? It isn't one of those things
where you can go in there and put all your time and effort and put in all this restoration-
Herve Francois: Right, right.
Julian Mann: ... and come out of it on the right
side of a flip. It's not that. I tell people that all the time. But what you do have is you have the
rental income. You get it going, you pull your mortgage, your money out, you'll get everything
out of the bank that you put into the project for the most part. But what you do have is the ability
to put in some amazing tenants. Herve Francois:
Right. Julian Mann:
This city is just falling apart, and it's harder and harder to find proper housing. But what you'll
find up there is a great tenant base up there and people looking to take advantage of rehab like
this. It's just bringing back a bit of glory. Herve Francois:
Whichever method you're doing when you are renovating, how far are the renovations going?
Julian Mann: If we just kind of throw some paint
and lipstick on it, what's the benefit? Or are we going to have some problems going forward? That's
the first thing I always ask myself. If it's just lipstick on a pig and the problem is going
to come back tomorrow, let's gut it. And that's exactly what I did when I first went up there on
my properties, full, complete 100% gut rehab. My thinking was I want a property, number one,
that I don't have to worry about going back there week in, week out, or maybe a heating system
failed or electric failed, or this and that. Herve Francois:
Right. Julian Mann:
One of the biggest things, I will rewind to this, the owners that I used to work with,
they used to always say, "Hey, Julian, all right." They'd throw up a posting up on
Zillows and Craigslist and wherever they post it, and they would try and find the quickest
tenant to put in in a one-week period, whoever had the best credit score and all that stuff.
But I said, "Let me handle the leasing. Let me take care of it." I would always take a month.
And you talk about taking your time with it. Herve Francois:
Sure. Julian Mann:
You would interview and meet all these different people. And you'd say, "You know what?
You're the right personality to live next to 4B." Because 4B and this person in 4A,
it meshes, it works. As opposed to- Herve Francois:
You're kind of matchmaking your tenants. You're matchmaking your tenants.
Julian Mann: Well, honestly,
I've had buildings... And I don't work with their properties anymore, but people still call me, "Oh
my God, thank you so much for giving me this." Herve Francois:
Right. Julian Mann:
"I'm moving out now," but that's 10 years later. Right? And they had such a good time, and this,
that and a third. Herve Francois:
Right. Julian Mann:
And those owners, they still call me up, "Julian, you know what? Throughout the pandemic so-and-so
paid all the way through." Herve Francois:
Right. Julian Mann:
"Thank you for picking them all out." So, I think taking that time with the tenants,
taking a holistic view, an overall longer-term view on how you treat tenants and how you treat
the properties and how you build it out for them. It's not just for you and the rental
income coming back in. Julian Mann:
So, to answer your question, full guts, let's take care of it. Let's do it all the right way
the first time. Herve Francois:
If you could put some numbers behind us for the first property that you purchased.
Julian Mann: Once you get it up and running like that, again,
it's a full gut, you've done everything and you know everything that's behind those walls and the
systems and everything, you know it's working the way it should be, go and get yourself a property
management company, a good one. Herve Francois:
Yes, right. Julian Mann:
There's all different kinds of ways to be in real estate. One of them is leasing, renting,
sales, condos, houses. Herve Francois:
[inaudible 00:09:53]. Julian Mann:
The other one is property management. It's ugly.
Herve Francois: Yes.
Julian Mann: It's not for everybody. Right?
Herve Francois: No, it's not.
Julian Mann: And it's not to say
that it's not a great thing. But if you have a team for it and you can put it all together,
then that's your niche. That's what you do. Herve Francois:
Right. Julian Mann:
I did it for a while for these other families. Herve Francois:
Right. Julian Mann:
For me, now that I own it... Right?
Herve Francois: Right.
Julian Mann: Right? Let's give it to the next young man-
Herve Francois: Right.
Julian Mann: ... who has the energy and gusto to
take that call at 2:00 in the morning. Herve Francois:
Right. Julian Mann:
So, I went and bought this property for 70 grand. It was a two-family historic
property in the city of Newburgh. This was a 2019. They said, "Okay, this one's 70 grand."
The reality was that property wasn't worth 70. It was probably worth, honestly, 30 grand,
maybe 40 tops. Okay? Herve Francois:
Wow. Julian Mann:
I'm paying a premium for that 30 grand over it. Herve Francois:
Right. Julian Mann:
But why am I doing it? Right? I go in there, I gut it out. I do all the environmental stuff.
Because I did it from the city, I had to really, and not that I would never do it the right way,
but you have to stick to a certain strict guideline [crosstalk 00:10:53].
Herve Francois: Sure.
Julian Mann: All that asbestos, all
that stuff has to be done right. You have all your environmental permits. The remediation has to be
done a certain way. We go, we do it. I bought that for 70 grand. At the end of the day, I put about,
honestly, at the pandemic prices about 250 into the property. Right? So, we're looking at a price
point of 300 or so. After repair value, my ARB, I'm sitting at 350 or so. There's complete dumps
that have just sold to the left of me, to the property to the left of me and to the right of me
for 250, for 275. Herve Francois:
Complete dumps? Julian Mann:
Complete dumps. Right? Herve Francois:
Wow. Julian Mann:
Complete dumps. Herve Francois:
Okay. Julian Mann:
Complete trash. I forgot to mention this. In buying this from the city, I worked out
a five-year tax abate. Okay? Herve Francois:
Okay. Julian Mann:
So, the property sits at its first assessed value, that's 70 grand when I first bought it.
So, the taxes are only three grand on the property for the first five years.
Herve Francois: Got it.
Julian Mann: All the way up until the 10th year. Because
it's a historic property, I get these tax credits that'll roll and they'll increase by 20% after
the fifth year up until the 10th year where it's then assessed at its full 100% assess value.