October 2, 2019

Do the Work Once, Get Paid Forever: John Bogdasarian

John Bogdasarian has been investing in real estate since he was newly out of college and it occurred to him that he was going to have to pay his own rent. This prompted John to buy a single-family home and rent it out to a roommate to largely cover the mortgage. In the years since then, John has become a real estate investment and development professional, as well as the founder of Promanas Group, which now manages more than half a billion dollars in real estate investments and has nine ground-up developments throughout America.

This isn’t a book about flipping though. In his new book, Do the Work Once, Get Paid Forever, John explains to readers why real estate is the most solid and predictably profitable mode of investment. He also walks readers through different types of potential investments, potential risks and rewards, and how to identify a deal sponsor that can lead to prime investment opportunities.

Building Experience

Nikki Van Noy: John, let’s start by giving listeners an idea about your background in real estate?

John Bogdarsarian: Well, essentially, after college, I came back to Ann Arbor, moved in with my parents and spent about six months saving up enough money to buy my own place, because I didn’t want to rent. I had no problem renting up until that point, because my parents paid for that, but once it became my dollars, I didn’t see the reason to pay rent.

I bought a two-bedroom condominium for $50,000 and that was the beginning of my real estate career. I rented out one room to a friend and my net monthly payment was about 300 bucks, and after the tax deduction, I pretty much lived there for free.

That was how I started, and then I lived there for a year, sold it for $65,000, took that money and bought a nicer place, then found a tenant for that place and moved again and bought another place. Then in 1998, I found a portfolio of 16 single-family homes that I bought zero down. It was kind of like an old Carlton sheets program.

I don’t recommend it. I don’t recommend anybody do that, but I was a residential real estate broker at the time. I knew the numbers pretty well and I bought these homes with an 80% loan from the bank at 20% seller second, I had a 3% brokerage fee that I had on the side, and I got a credit for I think it was like $60 or $70,000 for future repairs. I had it pretty well dialed in and had that portfolio up until just a few years ago.

That was the real start on the investing side. At the same time, I was a residential broker selling 100 to 120 homes a year. I had sufficient commission income. Having started with nothing, I didn’t really have a lot of savings to put money down, so my first deal was a zero-down deal, I hate to admit it, but it is true.

Nikki Van Noy: So, you’ve been investing in real estate pretty much for your entire adult life at this point?

John Bogdarsarian: Correct, I only regret not starting earlier, because I go back to Tucson where I went to college and I look at what I could have bought things for there when I was goofing off for four or five years.  Had I been aware back then, I would have probably taken three or four steps further, faster, but then again, you know, that doesn’t really matter. It’s a product of time, anybody who is into real estate knows, or any kind of investing for that matter, it is a product of time and compounding returns. So, my only real regret is not starting a little earlier.

Nikki Van Noy: I want to get into a more general conversation about this, but talking about how young you were when you got started, leads me to think about what you would say to people who are on the opposite end of the spectrum as you are and perhaps they’re older and won’t have the time to see the investment through over the long term as you have. What do you have to say to people in that position?

John Bogdarsarian: Well, actually, I don’t really recommend anybody go down the path I went down, other than if you’re young and you’re just getting out of college. Most of my investors are credited investors, they’re professionals, they’re business owners, they’re older, and who I end up talking to and giving advice to often is their kids. They’ll ask me, “Hey, would you mind talking to little Jimmy, who is graduating from college and doesn’t know what he wants to do with himself?” In that situation, my advice is always along the lines of, “Don’t work for income, work to learn something,” which is what I was doing.

I wanted to learn how to sell, I wanted to learn a process, and that’s why I became a real estate agent. I didn’t really want to be a real estate agent and I abandoned that relatively quickly in my early 30s when I focused on becoming a deal sponsor. But, if you’re older and you have money, you’re at a distinct advantage, and that’s what this book is all about.

You don’t need to have the expertise in real estate, you don’t need to know the deal specifics in real estate in order to make very good returns on real estate. My conversations with the credited investor are the same conversation, and it’s teaching them how to outsource their real estate investing, giving them far better odds of avoiding the mistakes that I made and had to live through and correct throughout my life.

To try and gain 30 years’ experience or 20 or 10 or 5, that’s just not possible. So, I don’t recommend they go out and buy a fixer-upper or a duplex, or try and start figuring out how to flip houses or do real estate developments. I just wouldn’t do that.

It’s been a very, very long road, seeing a lot of things, overcoming a lot of challenges and frankly, mistakes that have been made on deals in order to get to where we are and what we’re doing today.

No Headaches Involved

Nikki Van Noy: It’s an interesting point of view to hear because I feel like flipping houses has become like a pop culture phenomenon in a way these days. You’re saying something different than what a lot of people do.

John Bogdarsarian: It’s interesting that a lot of the advice out there, the books out there, the podcasts and the YouTube stations, all the stuff I see is about how to make money in real estate. Then you realize it’s all do it yourself, or how to get into real estate. I am completely the opposite, that’s the last thing I would advise anybody to do.

It’s almost the reemergence of what happened when I got into the game a long time ago. What got so many people interested in real estate was the Robert Kiyosaki books–the Rich Dad Poor Dad series. I love that first book. That was what rang true to me. I thought, my gosh, if I could just own 20 single-family homes and people were paying me rent, I’d have no problems and I could ride off into the sunshine.

Well, even after owning those for 20 years, the returns weren’t that great. I mean, they were great for me, because I didn’t put any money down, but the reality is, at the end of the day, single-family homes are terrible to own as rental properties unless you can absolutely steal them, because you’ve got a 1,200 square foot house, and you have 1,200 square feet of roof to replace.

But if you have a four-story building and you have 1,200 square foot floor plates with 600 square foot apartments, now you have eight units and you have one 1,200 roof to replace. The economy of scale just doesn’t work for single-family homes, unless you’re able to Airbnb it out and do all kinds of kooky stuff. That just becomes a management nightmare.

I do not recommend that at all, as matter of fact, I would say, a good 30 to 40% of the investors we have now actually participating in our deals have done things like that themselves. They have decided that’s not for them and they’re looking for a better way to invest their capital in real estate without having to deal with the headaches.

Nikki Van Noy: Speaking as someone who rents out a single-family home, I can agree with everything that you just said. I think there’s this notion, that you can just sort of sit and find a tenant and let it sit there and make money, and that is not the reality.

John Bogdarsarian: It can be for a period of time, but you’re right, at some point in time, it’s not going to be the reality.

The Best Way to Go

Nikki Van Noy: Can you share with people your thoughts about real estate, while maybe not the sexiest way of investing, is the best way to go?

John Bogdarsarian: I always like to say the risk is proportionate to knowledge. For me, I don’t feel that real estate is very risky because I’ve gained a lot of knowledge in this space. Some people might feel that way about stocks, but I look at most things as financial products.

Companies don’t go to the stock market anymore to raise capital, they go to the stock market to sell out and get a big payday. If I’m the guy buying, I’m getting sold to, right? I know a lot of people could argue this and say, “Investing in the stock market over X number of years yields X percent return.” I say, “Okay, great. Take your six or eight percent of whatever it’s been for 200 years.”

We’re in a different world right now. Companies with no profitability whatsoever, they’re valued at billions and billions of dollars. I just personally don’t get that. Why would I do that? I’ll boil it down to an example that is so simple to understand that everybody can get. Just drive down the street in your hometown and look at your main street.

If you’re in a decent town and you’ve lived there a while, you can look at a building and you can see that there have been five different businesses in that building over the course of however many years you’ve lived there. This happens everywhere. Main street Ann Arbor is nothing like main street Ann Arbor was 50 years ago. I would hazard to say that there might be no businesses from 50 years ago on main street Ann Arbor that are still there, but the buildings are still there.

Businesses have come and gone. At times, you could have owned Ford motor company stock and you could have been a billionaire on paper, and then you could have been destitute on paper, and maybe it would be worth something again now. But at the end of the day, every business goes under. Real estate can’t.

That’s the simplest example I can give to people is if you own the real estate, you not only have the safest investment, but you’re also hedged to inflation because if things are more expensive, you can charge higher rents. As long as you buy good locations, you manage things with tight controls, owning real estate is by far and away, in my opinion, the simplest, safest and easiest way to go.

Nikki Van Noy: Let’s talk about a worst-case scenario, which in my mind would be something like 2008. What do you have to say to people about waiting out periods where things go under and what that means as a real estate investor?

John Bogdarsarian: Yeah, that was an interesting time. From 2009 through 2014 was when I accumulated more wealth than I ever thought I would in my entire life.

When I talk about real estate as being the safest, the best, I mean, that’s from my perspective, and it’s because it’s what I understand.

If you know how to value a company properly, you may have that same insight. I read a lot of Warren Buffett stuff, I read his shareholder letters, I love his philosophy on things, but he probably did 10 times better than me during 2008 and 2009 when people were absolutely dead panicking because share prices can come back a lot faster than real estate. Real estate’s slow and it’s very methodical, it takes a long time to move in any direction.

With the exception of 2007, when it felt like it went off a cliff. A great example is, I still owned all those single-family homes and I originally bought those homes at a very good price in 1998. And in 2008, they were worth 40% less than I paid for them 10 years earlier.

I got a great price on them 10 years earlier. Did I care? No, not at all, because I wasn’t selling them. They were all fully rented, and the rents didn’t go down at that time, they went up, there was more pressure on rental properties because people were getting foreclosed on, and they needed a place to go. The foreclosures hadn’t made it onto the market and gotten renovated and fixed up yet so, my existing homes didn’t experience any vacancy at all.

What happened was, since I could buy homes for 60 cents on the dollar versus what I paid for them 10 years earlier, and I knew what I could rent them for, I bought a bunch more. I bought eight more for cash. I bought everything in the neighborhood that popped up under a certain threshold and then when the market came back, they’re worth 150% more than I bought them for in 2008.

These were not terribly expensive homes­–these were like $100,000 homes. But, when you can pick them up for $30, $40,000 and you know the value, that knowledge and that experience gives you the opportunity to make the dollars.

Nikki Van Noy: That makes a lot of logical sense. And then, when I stop and think about the people I know who were invested in property and got in trouble in that time, it was people whose interest rates caught up with their mortgage because they had bought in that span of time.

John Bogdarsarian: There were a lot of situations where people were just over-levered on their property. They borrowed 75 or 80% and when the valuations went down, the banks got panicky. Then the regulators came in and their loan was out of compliance, and they told the owner that they needed to come up with a bunch of money, which nobody had.

The fact that we went through this and took advantage of this-take advantage can sound negative–but taking advantage of these situations helps right the ship, it puts everybody back on track.

While I kind of consider myself a little bit of a bottom feeder, at the same time, you’re solving problems, you’re fixing things up, you’re making them better, and that helps the whole market recover.

Outsource Your Real Estate Investing

Nikki Van Noy: Absolutely. Let’s return to this idea of outsourcing real estate and investing? What do you mean by that and what would that look like for the average person?

John Bogdarsarian: This comes down to this whole conversation that I have time and time again with investors. It’s usually the first conversation that I have with the potential accredited investor who is interested in participating in our deals. I have had this conversation so many times and it became rather frustrating.

So, as my good friend Tony Robbins used to say to me, frustration leads to a breakthrough. I always thought that was kind of a funny saying, but I’d realized it to be true. It really helps tune your mind right when you find yourself really frustrated with something. If you really try and link it to a breakthrough, it gets your brain thinking of a solution or an opportunity that can come out of this frustration.

That’s where this book came from. I was getting frustrated having the same conversation and I was seeing people that were focused on deal specifics. If we send a packet out to a couple of thousands of people on our potential investor list, I will inevitably get 15 to 20 inquiries from people and these are people that haven’t invested with us, but they’re on our potential investor list and they will ask a bunch of questions.

I love to talk to people and hear their points in the deal, but there are so focused on the deal itself. So, let’s say it’s a high-rise condominium, like one we just sent out a while ago in Sarasota, Florida. It is an 18 story, $100 million condo complex. So, we sent this out and the questions that we get back are really about the deal itself–the location, the construction quality, the architecture plan–no two people have the same question. They all have one thing they are focused on that they think might be the Achilles heel of this deal, and no two of them are the same.

You get people not investing because they think that price per square footage is too high. Once you address their issue, they may invest, they may not. I don’t really care. It is not a job of convincing, we just present people with an opportunity that we feel is solid and if they do it, great. The point I am trying to illustrate is there is no way on earth anyone has the knowledge, the experience, or the expertise to analyze the deal that I have put out to you.

You can’t do it. I don’t even care if you have as much real estate experience as me unless you have gone to the site, you’ve had the face-to-face appointment with the developer and architect, and you have reviewed this city. There is so much information to building a $100 million high rise in Sarasota. It’s Dropbox folders full of stuff. Then you need an independent appraiser, you need independent reports on our hotels, and we have HVS doing independent third-party market studies.

We do background checks on the developers that we partner with. The due diligence process is extremely extensive. So, what keeps happening is people are looking at the deal itself, and my contention is they are asking all the wrong questions. They should be asking about John Bogdasarian and his team. What deals have you done? Are you putting your own money into this? What is the risk if it doesn’t go well for you?

Why would you stay attached to this if it doesn’t perform? Tell me about the worst thing you have ever experienced in a deal. Tell me about the mistakes you’ve made. Who are you, where do you live? Are you married? Do you have kids? How old are you? These are the questions that I think people need to ask before they invest with someone like myself or anybody in any industry. Do you put your money where your mouth is? Focus more on the person, because look, every deal we have is going to have problems.

We’ve had the craziest things happen. On that boulevard Sarasota deal, we had our lender default on us mid-stream. Just default. “Sorry, we can’t fund your construction draws anymore.” This is a $75 million construction loan. We are $20 million in, and we’ve had eight floors poured into the building, and we can’t get a draw to pay the contractor?

Nobody had ever even heard of this happening before, including the developers in Sarasota. Nobody knew how to fix this problem. That was an absolute nightmare. I had to stop everything I was doing, spend a month and a half, and loan the project $10 million to keep the contractor on-site because if they walk off, it is dead. Then I had to get rid of the previous lender, get his lien off the property, and find a new lender. No new lenders would come into the project mid-stream. So, we were saved by a private debt fund out of New York through some good relationships that we have.

We put the project right back on track. The investors actually got a little opportunity there to make some interest on additional money. There was a bit of an opportunity. I would say with 95% of all developers that project dies, but because we were the money behind it–I wouldn’t say we have unlimited sources of capital, but we don’t have the typical limitation that most people would have because we’ve done well and we have investors that will write $5 and $10 million checks if we need it, as long as they are going to get a very reasonable return and I can explain it to them.

That may be a little more detail than you want to go into. But those types of examples are the reason why, when I look to invest in something, I am far more focused on the team that is behind it, on the advisor that is overseeing it, then I am on whatever it is, whatever widget thing I am investing in.

Nikki Van Noy: It does seem to me like that is the thing that people tend to overlook, and it is the most important when it comes down to it.

John Bogdarsarian: Yeah, I would agree.

Nikki Van Noy: For people who are listening to this and want to get started in investing, what are the top tips or things to think about that you would give to someone just entering in?

John Bogdarsarian: I would say there is a lot of information out there online. There is a lot of information in books. It depends on, I guess, your motivation and what you bring to the table. This book that I just put out is mostly about if you’re in a position in life where you have made money, you have built a nest egg, and now you are just looking for good places to invest. I give tons of questions in there you can ask, and information about the places you can go to find people like me and others that do what I do.

For example, how you could drive around and call signs of developers, and questions you can ask them about their projects. It is fairly well detailed in the book. Is that what you’re asking about? I also get quite a few people that want to know how we do what we do and that is another conversation.

Nikki Van Noy: So, you answered my question in the first part, however, you also know better than I do what people want to know from you. So, let’s go ahead and speak to that.

John Bogdarsarian: Yeah, I would say that deep down inside what people really want to know is that I am trustworthy and that I am going to give it my best effort, that I am going to be transparent in how I operate and that we are going to report well to them. Those are the key things that people want to know when they really get down to it. We do have people that will never get out of their own way in terms of deal analysis.

Everybody has heard the term paralysis by analysis and there is that certain mindset out there. I am susceptible to being this way myself. We say no to 99 out of 100 deals because we just can’t get comfortable with it. And so, my advice back to people is to make sure you are 100% comfortable investing with the people you are investing with and confident that you are going to get their best effort.

That is where it boils down to–I think if our returns didn’t hit projections, fortunately, we really haven’t had any terrible experiences like that, but we certainly have had investments and things where we’ve had to pivot, or they took longer than we originally projected. But as long as I am reporting to them, the returns are there, the deal is solid, and you know it is working out, that’s okay. They know they are getting my best effort. They know if there is an issue, we are rolling our sleeves up.

We are making it happen.

Nikki Van Noy: So, you mentioned a couple of minutes ago that there are a lot of real estate books out there. So, let’s talk a little bit about what you feel sets this book apart from some of the other options available to listeners?

John Bogdarsarian: The book is called Do the Work Once, Get Paid Forever. I used to say that all the time to people, “Here is why you need to buy real estate.” You buy the property, do the work once, then set it up, forget about it, and get paid forever.

It is really at the property level, which was more along the lines of most of the books you see out there today, which are telling you to buy this house, fix it up, rent it out, or buy a duplex, flip this–I mean there are gobs and gobs and gobs of them.

What it’s translated to for me is by doing the work once, you are finding the right people to invest with once. You are spending a little time upfront to find good solid people. You may actually think of it as if you’re shopping for deal sponsors and good investment advisors, just like I am shopping for real estate deals all day long.

It is shopping in the sense that if you are in the market looking for anything–I don’t care if you’re looking for a boat, a car, a house, a piece of real estate, a deal sponsor, a significant other, a life partner, whatever you’re doing, you’re shopping for it. The more you shop, the more you look around, the more you really focus in and do that work once, then the results of that can last forever. Nobody needs to rebuild their relationship with me as an investor. If they have invested in me once, they have my loyalty forever and typically I have theirs. It is very seldom that we have anybody stop investing with us.

If I did my work right upfront then I reap the benefits of a wonderful marriage and a beautiful family for the rest of my life. So, it applies to everything. I had a couple of friends I gave this book to for an early review and the only response I had was, “Could you put more war stories in there of deals and how your team came in and fixed the deal?”

I edited a lot of that out because I really wanted it to be more of a benefit to people, not a book about how we do this or what we have done. I am not the only guy here doing a great job or a decent job. That is not for me to say.

We obviously do a pretty good job, we have built a good business, and have a great reputation. This book is designed to teach you how to go out and find these good people, how to prospect to find good people, and it is applicable to everything in life. It is the one skill I think is absolutely instrumental in leading a wonderful life. Some people do it naturally and they’re not even conscious that they do it. I’ve always referred to it as prospecting, as originally taught by a guy named Mike Ferry, who is one of the top real estate educators in the country, but it applies to everything.

Nikki Van Noy: All right John, is there anything else you want to share with listeners that we haven’t gotten to yet?

John Bogdarsarian: I think at this point people need to read the book. I hope it helps people. I think there is more than $12 worth of information there. I will tell you it was a great experience doing it.

I am not sure I would do it again. I am not a writer, so it was very difficult for me to get my thoughts together and organize them in what I think is a reasonable way. But if anybody ever wants to get a hold of us, or be on our list, or copy what we do, we’re here to help any way we can.