Categories: Podcast

257 – Going from 1 to 92 units in 2 years with Jason Lee

Synopsis

Jason has acquired a total of 92 units in just two and a half years of investing in multifamily properties. In this episode, he will share with us how he got there and the challenges and lessons that he has learned along the way.

Key points

How He Started

Jason has worked as a software engineer for six to seven years in the tech industry. He is currently an engineer at DoorDash, where he works on gifting and shipping products, which are some relatively new features that they offer.

He grew up on Long Island and studied at NYU. During his senior year in college in 2014, he was able to purchase his first property, a condo, while working full-time at a startup business with a six-figure income. The apartment was in Queens, New York. He decided to buy a property in that area since he wanted a location close to Manhattan that he could afford.

First Condo

He paid $497,00 for the three-bedroom, two-bathroom duplex condo. It was a penthouse on the fourth level, and you could go up to the fifth level, which had all of the bedrooms.

He didn’t do any research about the HOA at the time, so he was surprised by the special assessment a few months later. He also didn’t know anything about mortgages, so he took out a 15-year loan rather than a 30-year one. All of the difficulties he encountered can be attributed to a lack of knowledge, which resulted in a negative cash flow for the entire holding period of the property. Jason kept the condo for over five years since he believed it was still profitable on paper. He then sold it in 2019 for about $640,000.

HOA Assessment

A special assessment happens when the HOA’s reserves are insufficient to cover special projects that come up. For example, if a major storm hits New York, which damages the roof, and your HOA does not have the funds to fix it, they will assess every member of the HOA based on some formula in the bylaws, which is usually based on square footage. In order for the HOA to do such repairs, you would need to pay that amount.

Kansas Property

Jason reinvested the proceeds from the condo sale in a 24-unit property in Kansas City. When asked why he favored multifamily over single-family property, he said that a couple of instances during his holding time with the condo led him not to want to acquire a single unit.

First, the renter did not pay for over six months, and he had to take him to court. Second, while he was attempting to sell the condo, it remained vacant for about six months, which was painful for Jason since there was no cash flow at that time.

Before he sold the condo, he had already started learning about different markets. He knew he didn’t want to buy a property in New York since it was too tenant-friendly, and he preferred a landlord-friendly environment. After extensive research, he narrowed down his options to Columbus, Ohio, Kansas City, Missouri, and Indianapolis. He met a broker from Kansas City while attending several real estate meetups. They discussed how he just sold a property in New York, plans to do a 1031 exchange, and perhaps collaborate on finding a property to invest in. In the end, they were able to come up with an agreement, and he ended up flying to Kansas City to look for potential properties.

Property in Kansas City

The 24-unit property was not on the list of places that Jason and the broker looked at while touring Kansas City. On his way back to Los Angeles, he happened to be browsing through MLS and came upon the property, which had been advertised about two days before. The property, which has 24 units, was marketed for $840,000. The pricing per unit was quite appealing to Jason, and it is situated near a university. He forwarded it to the broker right away, and he ended up placing a full-price offer on it, which was fortunately approved.

Rehab Budget

Rehab was difficult since there was a lot of student housing being developed in the area. Jason’s property required a large sum of money to be placed in that position. According to him, it would cost around $900,000 to convert it to the level of student housing. He said that he didn’t know how to get a rehab budget, so the entire process was difficult for him.

He and his business partner got down and devised a strategy for the property. They intended to accommodate section eight tenants, which would raise the property’s worth, and then undertake cash-out refinancing to complete the full-scale renovation.

They were unable to carry out their plan and instead sold the property three months later for $1.2 million. They did spend money on renovations, including $60,000 to repair the roof. The investor who bought it did some more renovations and sold it for $2.7 million a year and a half later.

Investing in Multifamily

You’re bound to face several challenges if you’re new to multifamily investment, such as financing since banks don’t prefer dealing with new investors. However, if you work with a good broker, they will not only find you good deals but will also connect you with good people.

Jason currently owns 92 units and feels that he would not have gotten this far without the help of his broker.

Final Advice

According to Jason, the secret to success in real estate investing is just getting started. You won’t know whether real estate investment is right for you until you take the first step.