This week Bruce Norris is joined by Jay Decima. Jay is a very experienced investor with nearly 50 years of experience. Since 1977, he has specialized in fixing up ugly houses and small apartment buildings. Jay is also a successful career-changer, having worked for over 20 years for the telephone company before switching to full-time real estate investing in 1979. Today, he spends the majority of his time managing and overseeing his investment houses and training others who wish to pursue this lucrative profession.
In the last segment, Jay brought up something very interesting about how he was buying for his customer. Bruce remembered being an apartment renter for the first 6 months of his married life, and his whole goal was to get out of there. Jay has enforced this and is trying to buy a product which somebody would want to stay in for a long time. Jay’s customers have made him very well-off over the years. The people who paid $400-$600 are now up to $700-$800 in Redding, and this is why they have helped make him very well-off. He owes them a lot. For the apartments, he primarily rents to the young people since these are the people who prefer the apartments. The seniors may get stuffed in there, but they do not necessarily like it. You have lots of restrictions. If he does not see your car parked in its assigned space, he will give you a ticket from the management.
Young singles like the apartments because they have a nice swimming pool and all the amenities including a laundry room. What happens is young get out of the school and go into these apartments since they are easier to get into than a house. The first time a boy and girl meet at the apartments and become serious boyfriend and girlfriend and later married, the woman may want to move out of the apartment right away when she sees all the other girls down at the pool in their bikinis and doesn’t want her significant other tempted. Off they go and rent one of Jay’s little 700 square foot, 2-bedroom, older detached house. It may be a little crooked on the foundation, although no one has ever asked him about that.
He goes back a long way with some of these properties to where they had four-gated metal tin on a pitch roof. He had one girl customer take one look at the roof and ask what kind of roof it was. He told her it was a corrugated tin roof and that they do not make them anymore. He told her it was a really great roof and she would love living there. He even told her how romantic it was when it rained on the roof.
When working with his homes, Jay also thinks about how when a couple has their first kid, they will want a little fenced yard and some privacy. They don’t want to live next door to the singles in the apartment. If you were to watch them, there is almost a trail when you see this happen. They go to the apartments, which are a little cheaper since they can rent a 200 unit apartment under one roof for cheaper. Jay can rent right about at the apartment rents with his older houses since he bought them right, and his older houses will rent 10 to 1. People don’t care how old the place they are living in is as long as it is private, clean, and livable. Jay prefers these types of houses, and so do the rest of the people in the world.
Bruce asked how he usually found the types of properties he bought, whether they were in the MLS or he drove around looking for them. Jay he drove around to find them himself. He even tells people to get away from a computer. Most of these types make money and you sell them as you see them. You will not see many of these in the MLS either. There are fourplexes that can be financed by a bank, and you will see these in the MLS. However, you rarely see these older types. If you have a broker or salesperson working for you, people who sell may come in to the real estate office who are the eyes and ears of the business. You need somebody on your side in a brokerage house to help, but he has initiated most of his things by making trips out in the field and make sketches of properties he wanted to own. They were not for sale; but if they ever were, he wanted to own them. He would draw little boxes on a yellow sheet to represent houses, put the addresses down, and approximate what the rents might be. He would do all of this from the car.
He would be surprised when one of the properties he had a sketch on would come up for sale. He would then do what real estate agents do and write letters. He would not write vast amounts and mail letters to everyone in town. He would only write letters to where he thought he had a chance of striking a deal. What would give him clues was when he would drive around town, and each time out he would see a property going downhill. This could mean more junk cars parked in front of it and more deadbeat tenants looking out the window. These are all signs that property could be out of control. He would go down to the country and look up the property to see who the owners were. He would then get a telephone number and put a bug in their ear.
His gimmick back in his early days was along the lines of his job as a fixer-upper in Redding. You would have your property, for example, on E Street, and he would call the person up telling them there might be something wrong with their property. A lot of times he would warn them about the tenants since he had ones before who just ruined his properties. He would tell them he had his own fix-up crew and asked if he could be of some service to them. This was always how he would introduce himself. Sometimes they would tell him what they really wanted to do was sell it but couldn’t find a buyer. Then he would tell them he was in that same business himself, so maybe they could work together. Usually, the 6-8 unit properties with 2-3 vacancies meant the owner was lucky to pay the debt if it had a mortgage on it. By the time the property management got through with him, there is nothing left and the owner has probably gone negative. This is the kind of deal he approaches, and these people are pretty open to this kind of offer.
Once in a while he will run into one where they say they are interested in seeing what kind of work Jay does and will hire his crew. He actually didn’t like this part, so he would tell them what property he had and tell them to take a look at it. They would then take a look at its features and tell Jay they wanted to do the same thing to their property. Jay would give them an estimate, although it would be about double the cost since he did not want the job since he was looking to buy.
Before, Jay located the type of property that is not easily financed, and now he has located the person who is motivated. Bruce asked how easy it was to convert them to carrying the paper and not getting a big check. Jay started by saying he had all the sellers he needed arising from two situations. The first situation is older owners who own the property many years. He will get word if the owner has either passed away or is too old to manage the property. He will usually get word of this through a broker because they will then contact the bank. An older property going to the bank would represent a commercial-owned; and these are for Trump Tower, not six junkie units out on the street. There is no money here.
The other situation is where a person buys the type of property Jay just mentioned and finds out after 3-4 years he is a lousy landlord and cannot manage it. Management goes with what Jay does; you have to be a good landlord. This is something he absolutely requires and is something you develop over time. These are the two buying situations. Another situation where it is a property going downhill is fairly easy to convert over and make it sell with the seller carrying. It is a matter of whether they like what Jay offers better than what he has today. This is all you have to answer.
Jay said he can do deals that way where he offers them something and will see if extra security is needed on one of these deals. Safety is paramount, especially for the older people. This is something they must have. Jay has to meet with the people; this is not something you can do on a computer or iPhone. People have difficulty getting this through, especially when Jay is trying to teach this himself. You have to get out and talk to people; they want to look into your eye. Jay will not carry paper for you or anybody else unless you sit down at his kitchen table and discuss your finances. He can then size you up and decide if you are an honest person. He is looking for certain vibes from a person, and you cannot do this with an electronic device.
You have to make them safe, and one of the ways Jay does this is to give them additional collateral. This could mean giving them a deed on something they own with a little bit of equity. He can then explain to them that he is not paying them much down and you are carrying the paper for him. However, the deal is if something goes sour he will put a $50,000 trust deed on the nice units where he only owes $40,000 on what is worth $400,000. The people will drive by and confirm how much they are worth. He will give them that deed and draw it up in such a way that after they have been together and he has made his payments faithfully and on time for five years, they will give Jay a partial recon if he needs it. He can generally work well with this, but this takes meeting with them, discussing, and showing them.
Jay said the realtors will ruin this if they get into the mix. What they will ask, particularly the older folks who represent a lot of his buys, is why you should finance Jay’s deal. Jay needs to come in with the money himself while you are moving away. What if something goes wrong or your financial situation changes? You don’t know Jay. This is how they talk, and they are doing this to protect their clients. They do have a fiduciary responsibility to their customer to warn them.
However, Jay will make special deals. He has a set of financial documents, PNLs, and a statement as well as his properties and mortgages. He will tell them if they want to finance with him, he will let them sit at the escrow in the conference room. He will then bring his financials over, and he will have the names of a lot of the private mortgages he pays with their phone numbers. He will tell them they can sit there all day, call anybody they want, and check him out. A lot of times, there will be a situation where the realtor gets back in the mix, and there could be a $100,000 carryback for which he is asking.
The realtor may say you are better off to get the $100 and put it in the bank. Then, they will have it safe. Jay needs to get into the mix and talk to them, and he finds out that what they want is a little extra income. They have a railroad pension and Social Security, but they figure if they put in the $100,000 and draw an extra $700 a month it will fix them up just grand. The realtor will tell them to stick it in the bank into any account where they can draw down. Well, those accounts pay no interest at all. For this reason he likes to meet with them and talk to them.
He will tell them he knows they recommended them putting their money in the bank. Jay asks if they have any idea if they draw $700 a month out how long it will last them. Usually they cannot answer him. He will tell them it will last them roughly twelve years. He tells them if they will let him finance it at 7% and give the same amount of money every month with his deal and them carrying paper, there will be a difference. Jay’s will last almost 27 years; then he will ask them which one they would like. It is a way of dealing, and you have to sit with them and explain this. This is how you do seller financing. Seller financing does not get done just because you wish it did.
Bruce and Jay next went into how he got into education and what he loves about it. He said he put a lot of time into the real estate business. If he can get it down on paper the way he does it with his experiences and blends them together, there could be another round of profits in it for him. This was his thinking. He is getting 100% utilization out of his real estate experience. He does not do it just for himself. If he can make money teaching it and writing books, that is a whole new other arena. He decided to give it a try, and he started doing little seminars back in 1982-1983. His old friend Bill Nickerson was one of his friends who called him to come speak. This was how he really got started. However, he then found he would have to develop some writings and start being able to teach it. Therefore, you have to get it down on paper. He has found this is another total learning experience, which Bruce knows himself.
When you are a teacher, you have to learn and look things up that you may have been winging for a few years. You have to make sure what you are saying is right, so the teacher learns a lot more than the student. He got into it, and it was fascinating to him. When Bruce and Jay spoke over dinner, he was writing something on paper. This is how he writes his books; he handwrites them on yellow pads. In fact, he does not use a computer at all. Now that he has gotten older, he does not do what he doesn’t want to do. He now eats dessert first, and if anything is left it will be the vegetables. He is like a guy who wears both a belt and suspenders since he is not taking any chances. When he writes, he does it long hand and his assistant gets it lined up for him. McGraw-Hill, a huge company across the street from Wall Street gets sent manuscripts from him in a paper bag that was run off a Xerox machine. They helped him by selling a lot of his books.
Thank you for tuning in these two weeks for Jay “Fixer Jay” Decima. You can learn more about Jay and his business at www.fixerjay.com.