Stop Buying Rentals and Start Buying Rental Portfolios (Scale Much Faster)

0:00Brandon Turner:If you want financial freedom faster, you need to stop buying rentals and start buying rental portfolios. Imagine if instead of buying two rental properties, you could buy 10 at a time. How quickly could you replace your income then? Jose Martinez did it in just four years without any experience, special skills, or creative financing. Using a special type of loan that only small banks provide, Jose was able to buy 28 units in only two deals with less than 5 % down. Now he's replaced his income and is full-time in real estate. He went from waiter who spoke no English to owning over 50 rental units.

0:36Brandon Turner:His source for deals? A mentor landlord who showed him the ropes and sold him the properties. Your path to scaling is probably closer than you think, and so is financial freedom.

0:50Brandon Turner:What's going on, everybody? I'm Henry Washington, and today on the podcast, we have an investor story with Jose Martinez from Albany, Georgia. Jose is going to tell us how he went from waiting tables to owning more than 50 rental units in only four years. So let's bring him on. Mr. Jose Martinez, how are you, buddy? I'm doing good. How about you, Mr. Henry? Great, man. I appreciate you being here. I just wanted to start with a little bit about your background. So tell us how you got into this real estate thing. So I came from the Dominican Republic. That was like probably 11 years ago. I used to play baseball.

1:23So that's how I got to the States. I came here, no English. I didn't know basically anybody. I can't directly to a city where I live now, but I was always curious of learning and listening. Podcasts like this, like you guys put out there, which is gold for me and free on top of that. But anyway, so 2022, I bought my first Quaplex. Okay. And from there, man, I just started going. What city are you in? So I'm actually in Albany, Georgia right now.

1:54Brandon Turner:Albany, Georgia. So you come from Dominican Republic to play baseball. You don't know English. Correct. You play some baseball. You pick up the language. And then you're like, hey, this real estate thing sounds interesting. And you decide to start with a quadplex. So tell us about that deal. Where did you just find a quadplex to pick up? Man, I was watching videos from you guys. You know, that bug start going in your head. Like if you buy this many units, you have to make sure it's a real cash flow. It's not cash flow. But on my end, being 100 % honest, I didn't know anything I was doing when I got at Coaplex.

2:30I didn't know anything about interest rate. I didn't know anything about who was my tenants in there. I mean, I just got in it. And my first experience doing an ambition was my first deal. So as soon as I got that deal, I had to do an ambition. And I learned with that, that really, when you put your hands on it, it's really when you start learning. I mean, you'll never be ready if you wait, really. Okay, so you bought this quadplex. How much did you pay for it? So at the time, it was around$330 ,000. The quadplex needed some work. Bought it without even having any contractors. I didn't know anything about fixing or anything like that.

3:07Brandon Turner:That's correct. Okay. And how much money did you end up having to spend on fixing that thing up? I spent right around$20 ,000 fixing this quadplex, making it look better as far as appearance, getting the tenant out, getting the unit ready. It was around that much money I spent. So you paid$330 ,000. You got about$20 ,000 into it. So you're all in it$350 ,000. How much were the rents? So at the time, the rents were like$450 ,000. So I bought a value add without even knowing I had a value add. So really, it's crazy because so far, that's been one of my best deals. Okay. What's it renting for? So right now it's$1 ,195 each unit.

3:47Brandon Turner:I mean, that's pretty good. You're all in for$350. You've got$4 ,800 a month coming in. That sounds like positive cashflow to me. And you bought that deal on the market, albeit it was back in 2022. But still, there's still great deals on the market people can find today. Tell us how you financed that deal. What kind of loan did you get? So at the regular conventional loan, I put, it was like 15 % down, I think I got on that property. For me, it was like a lot of money at the time because I was like, it really empty. You know, I had to go to my bank accounting here or there, pull some money from everywhere.

4:22Brandon Turner:But I was able to buy it and it was 15 % now. You spent about 20 grand on a renovation. Now, did you end up doing some of that work yourself or did you hire it out? How was the process of getting that renovated? I was there when my wife was helping me in cleaning. So yeah, that was, yes. Then I got some friend of mine. I got some construction knowledge and I, Hey man, I need you here. I need to, you know, help me out to do this toilet. You just got to teach me. I want to learn how to do this. And, and it really was, uh, like I said, it was a blast because I was able to get help from close people to actually do some things out.

4:59That's why I ended up spending less money.

5:01Brandon Turner:Okay. Yeah. Cause I was going to say 20 grand seems like not a ton of money to renovate a four unit, but if you're doing a lot of the work yourself and you're calling in favors from friends and paying them in pizza and beer. I guess you can get it done a little bit faster, a little bit cheaper. Okay. Well, it sounds like you went through the real estate investor ringer on your first deal, found something, hustled, put in the sweat equity, put the money down. I mean, that's a solid, I mean, it sounds like a solid base hit or a double. You're making great cash flow right now. So how did you transition from that deal into your next deal?

5:33So from there, it took me a while because I bought real estate just for buying real estate. I was like, like I say, oh, let me see what it is like. So I wasn't even counting on the money that was coming in from the properties. So I was just collecting rents, keeping a little cash flow and just, you know, paying the loan. But then, like I say, everything happened for a reason. I remember I started going to the gym 5 a.m. for some reason. I said, you know what? I want to go to the gym early in the morning. And I remember at the sauna, I met a guy. So this guy owns over 150 properties. And we were just talking.

6:12I was like, man, you know, that's interesting. And the thing is that eventually I see some properties that come on the market. This guy is selling basically his whole portfolio. And I call him and be like, hey, so are you selling properties right now? And he was like, yeah yeah um and i'm i want to buy a duplex i told him he said i know you don't need to buy a duplex buy 10 or 15 houses from me and you know and i'm like there is no way i can do that you know so basically he kind of walked me through he wanted to sell i wanted to buy and he walked me through the process and man i ended up buying 10 houses that was my second deal so i was at 14 doors okay

6:52Brandon Turner:so you bought 10 doors from this guy how did the process go how much did you end up paying for him And like, that's a lot of money. So how did you finance 10 deals? So basically when I got in the state that I, like I mentioned, I played baseball. I went to a school here. I left the school and then I opened a restaurant. So I started doing some restaurant business. So at the time I had like two or three running, but I basically just started saving money. I mean, I didn't know what to do with money. So I just started saving money, saving money. I didn't buy the nice cars and I would just save money, save money, save money.

7:25because eventually I knew something would come over where I wanted to park it. The restaurant business was good, but I don't think that was going to be where I will put my legacy.

7:38Brandon Turner:Okay. Post-baseball, you opened a restaurant, and it's doing so well that you end up opening two more? Yes. So I started doing a couple of mores in the city. Yeah, that's correct. I used to be a waiter. So I worked as a waiter in a Mexican restaurant for a while. So I learned a business in there. then I opened like I said the first restaurant bar kind of sports bar type places and I had three at the time and and yeah I just tried to save money and and do real estate man well that's impressive in itself because the restaurant business is a hard business to get into you got into the restaurant business and and found success which is tough to do so you you pivot this into real estate so what did the what did the finance structure look like did you buy them all individually or was it like, did you buy it with one loan as a package?

8:26Yeah, it was one loan. It was a package deal. The way how teams went there, this guy, which I call it, he's like my mentor in real estate. He introduced me to the bank. He was like, hey, y 'all need to meet this guy. He got something. Y 'all need to talk with him. So I had a meeting. I didn't know banks were like that, where you can sit on a table, talk with the president. Okay, tell me what you do here. So it felt like an interview to a point. I was feeling like, oh my God, am I getting a job or getting a loan? They asked me a lot of questions and I figured that all they wanted to know was that I was serious about this and that I knew what I was doing at the time.

9:04Brandon Turner:Okay. So what was the purchase price for the 10 properties? 1.4 million, something like that. Okay. 1.4 million. You got a loan from the bank. How much down did they require? I put 20 % down. Now that's a big chunk of change. And you had all that saved up from the restaurant business. And every time I put a percent down, like it's like on zero, I went back to zero. It'd be like, oh my gosh, back to zero, back to zero. Okay. And did these properties need any work? No, they were all occupied. They didn't have any property management company. It was a landlord running himself, like all these properties.

9:38So he took great care of it. And yeah, man, I mean, they were all rent. They were all bringing rent in, and I just needed to kind of raise rents to match the return that I was looking for.

9:49Brandon Turner:And at this point, you had four units, but now all of a sudden you're sitting at 14 units. Are these properties, were you managing them yourself? Did you have property management? So I was managing them along with my wife. So, yeah, we were back and forth. Hey, what about this money that you spent? Like, what are you crazy? You spent years. So we went through all that. Yes, we went through all that. And because in the beginning, I wanted each property to look like my house. Like I was like, all right, we got to get in. We got to bring everybody. So then I started learning, you know, I had to get this property.

10:24That doesn't mean that they had to be on bad shape, but you know, that is rental materials that you buy based on, okay, which toilet should I get? Which light features should I get? So yeah, I was spending a lot of money. I wasn't making no cashflow at all in the beginning. but then I learned, okay, this is what I need to do. Like I said, I was handling then myself along with my wife and we ended up learning about these rental softwares to actually manage them now. And yeah, I mean, it makes my life easier to being able to collect rents through there.

11:00Brandon Turner:Are you self-managing still to this day? So I have some help now, but yeah, on day-to-day basis, I'm still around, yeah. All right, I've got a couple more questions for Jose about the mentor relationship that brought him 10 doors. We'll get to that right after the break. As a real estate investor, the last thing I want to do or have time for is to play accountant, banker, and debt collector. But that's what I was doing every weekend, flipping between a bunch of apps, bank statements, and receipts, trying to sort it all out by property and figure out who's late on rent. Then I found Baseline, and it takes all that off my plate.

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15:00Brandon Turner:All right, we're back with Jose Martinez on the BiggerPockets podcast. Jose, so you have a mentor. He sells you 10 properties. What was next? Did you continue to buy more properties or did you continue to foster this mentor relationship or was it kind of a one deal and done thing? No, so we kept talking on my end. I was the lucky guy that he wanted to sell his properties to and help me through the process, you know. So, yeah, basically just got a lot of questions every day, even today's day are calling for a lot. So after that deal, I bought 18 more properties. 18? That's correct. From the same guy?

15:40Brandon Turner:Correct. Yes. He sold you 10 properties. You're happy with those properties. But it wasn't like he sold you 10 properties and fell off the face of the earth. You continue to foster a mentor-mentee relationship. so you you you could call this guy for anything you needed help with and he was he was explaining to you and teaching you how to manage the properties and run a real estate business it sounds like absolutely absolutely the biggest thing i learned while i was doing that with him is to run this as a business you know it's not just buying oh one property you get rents here there so understanding uh that this is a business just like a restaurant sports bar business type So understanding that he helped me put that mentality on me.

16:23And then we put a deal package together again and I purchased 18 more properties. Okay.

16:29Brandon Turner:Before we jump into the 18 more properties, I do want to touch on that because it does sound like, you know, to the average person listening that maybe this guy just wanted to offload a bunch of properties to somebody who was new. But I want people to understand like true mentorship relationships are the best when there is mutual benefit. I think a lot of new people want to find a mentor, but they don't think they have anything of value to add. Or they just expect someone to pour into them and they don't have to give anything in return. And those aren't true relationships. Now, occasionally you'll find somebody who wants to give, give, give to you and you can just take, take, take.

17:13Brandon Turner:But a real relationship is give and take both ways. And so it sounds to me like in this relationship, yes, there was value for him because he sold you properties, right? Correct. But there was a lot of value for you, not just because you were able to build your portfolio, but now you had a mentor you could call on for any questions you had. That's a true relationship. And I'm not saying you got to go buy properties from someone for them to mentor you. But I do want people to think about what value can I bring to somebody? Maybe I can go do work for them. Maybe you can babysit their kids. There's a million things that you can do.

17:49Brandon Turner:It doesn't have to be real estate related, but try to lead with value. That's super cool, man. So how much time passed between when you bought the 10 units and when you were buying the 18? It went like a year or so after. So basically it took me a while because, you know, that was a big thing. That's a big chunk of change. Yes. But remember, and this is when it comes to mentor part. This guy sat down with me and said, look, when you bought these 10 properties from me, this is how much equity you got here. And I was like, what? Is that all the money I have? Yes. So that means that now I understood what type of deal I got, because it wasn't that he gave them away for me, but he could have charged me way more.

18:34And I realized that whenever I went in, we did some appraisals on these properties. So I was like, oh, my goodness. Okay, so now I was able to buy my 18 houses a year after using my 10 houses that I purchased from him before.

18:53Brandon Turner:So I used cross-collateralization. So to summarize, you bought the 10 units, but the guy didn't try to take advantage of you. He sold you the units at a fair price that allowed you to walk into some equity on these properties. So when the opportunity arose to buy the package of 17 houses, you use what's called cross-collateralization. So for those of you who are listening, cross-collateralization is where you pledge equity from existing properties and you use that equity as your down payment, essentially, for the other properties. So because the 17 properties had equity in them, the bank basically gave you a loan and you pledged some of that equity.

19:33Brandon Turner:In other words, they put a second mortgage on some of those other properties to allow you to have access to the funds that you would need as the down payment. So were you able to get into the 17 units without having to touch any of your own personal cash? I had to put really little amount. It was around$40 ,000, something like that I had to put. Again, like we go back to badging it right. We're talking about a year after. It wasn't even like two, three, four, five years. A year after we redo appraisals. and this come to, you know, to have a no equity to buy this 18 more properties. And at the time, I didn't even know that I could do that.

20:13Yeah. That I could actually, you know, use those properties to buy other properties. So this guy set me down and was like, hey, look, this is how much money you have. Keep growing and buy more properties, even if it's not from me. That's what you say. Just you got to keep growing and growing. And that's how I did it.

20:29Brandon Turner:Yeah, cross-collateralization is one of the cool tools that small local banks have at their disposal. Now, not every local community bank will utilize cross-collateralization. You have to call community banks and talk to them and ask them, are you willing to cross-collateralize or are you willing to let me pledge equity in an existing property? So this only works if you own real estate that only has a first mortgage on it. So if you've got real estate with equity, either it's paid off or you have only one mortgage on it. If you're interested in this, you can call local community banks. You want banks that have under$4 billion in assets.

21:12Brandon Turner:Those banks can be a lot more nimble than some of these big banks. But the key to this strategy is exactly what Jose said, is you have to buy a good deal because you're using leverage. You're using borrowed money as a down payment. So if you use borrowed money and buy a bad deal, well, now you've got a first and a second mortgage that you can't pay back and it can put you in financial strain very quickly. So you only want to do this when you know you are buying phenomenal deals that also have a ton of equity in them. That's correct. That's correct. And also what you mentioned regarding the banks.