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OfferMarket Podcast, Episode 1: 468 Unit SUPER SIZE House Hack with Stewart Beal

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[00:00:10] - Daniel Sperling-Horowitz: Hello, everyone and welcome to the OfferMarket Podcast. I'm your host, Daniel Sperling-Horowitz and today we are pleased to be joined by Stewart Beal. Stewart is one of the most impressive real estate investors I know, he's a true entrepreneur, and what sets him apart to me is how he gives back to his local communities and to aspiring real estate investors. Stewart is the President of Beal Capital. He's the President of Beal Properties. Stewart is an Eastern Michigan University alum. So go swoops, right, and that's in Ypsilanti if we're pronouncing it correctly.

[00:45] - Daniel Sperling-Horowitz: And, Stewart, it's great to have you on the show.

[00:48] - Stewart Beal: Yeah. Thanks for having me.

[00:50] - Daniel Sperling-Horowitz: So let's jump right into it. How did you get into real estate investing?

[00:56] - Stewart Beal: Yeah. So I grew up in a pretty entrepreneurial family. My father was a contractor, my mother was an attorney and just from a young age, working around the house, working around. We have a Lake house working around the Lake house, pulling weeds, taking out the trash, raking leaves, mowing the lawn, just kind of became ingrained in what I was doing. And so when I was 13, 14, I started mowing my neighbor's lawns around the neighborhood. And then when I was 16, we started that into an official business. And when I was 19, I sold that business for $250,000.

[01:34] - Stewart Beal: I received $50,000 down and $1,482 a month for ten years from the person who bought that business.

[01:45] - Daniel Sperling-Horowitz: That's very impressive. And so did you reinvest it from that point forward? Is that how you got your start in real estate?

[01:53] - Stewart Beal: Yeah. So I wanted to go to Eastern Michigan University. The business school is in downtown, and I started looking at investment properties that are within walking distance because I wanted to do a house hack that I had read about in business magazines and real estate investment books. And so we did what we call a super size house where we bought a five unit property. And I lived in one unit apartment number four and then rented out the other four to other people.

[02:24] - Daniel Sperling-Horowitz: Awesome. House hacking for those of you who are not familiar is an incredibly powerful way to get started in real estate investing. It's essentially having tenants pay your principal, interest, taxes and insurance ("PITI") and hopefully provide some additional cash flow on top of that. So was it a good cash flowing first property for you?

[02:47] - Stewart Beal: Yeah. I still own my property 19 years later. I've done four cash out refinances it has cash flowed through good times and bad. And in the beginning, the first couple of months, it basically did exactly what you're saying. Where I was living rent free. I was doing some of the maintenance myself. So the maintenance costs are reduced. But, yeah, it basically did that. And that's what I recommend for first time investors. If you're not married and don't have kids, you should buy a duplex or triplex, live in one of the units. And if it's a two or three bedroom actually rent the second and third bedroom out to people. So you're living with other people. And then, of course, if it's a duplex or triplex rent those other units to people. And of course, the most simple thing is to buy a three bedroom house and you live in one bedroom and rent two to friends. That's the best way to get started.

[03:46] - Daniel Sperling-Horowitz: Absolutely, house hacking is a beautiful thing. I'm glad you brought that up. So, Stewart, where are you at now in your real estate investing career?

[03:57] - Stewart Beal: Yes. I've been doing this for 19 years now, and I'm invested in 6000 apartments in four, five States. And the way we work is we buy properties ourselves, so we own them 100%. We also sponsor real estate investments through real estate syndications or one-off deals. And then I also invest in other people's real estate syndications. And that's how we get that large figure 6000 units. And Beal Properties, the company I own and manage, which is our property management company, manages 3000 apartments, about half of which we either own or part of our syndications, and the other half we manage for third party individuals. If you bought a single family home, we'd gladly manage it for you.

[04:50] - Daniel Sperling-Horowitz: In terms of geographic focus, can you tell us about your core markets and where you're spending most of your effort?

[04:57] - Stewart Beal: Yes, we just invest and we just manage right now in the state of Michigan, and the city of Toledo, Ohio, which is on the border of Michigan. And if you bought a single family home in Texas or something like that, I would say go hire a local property manager. We focus on just the state of Michigan and one city in Ohio. Primarily, our footprint is a 1 hour radius around Ann Arbor / Ypsilanti where I live, and we manage property in 37 cities within a 1 hour driving distance of our office.

[05:31] - Daniel Sperling-Horowitz: And I know you have an impressive staff. I enjoy following your updates on LinkedIn. Can you tell us all about your team that you've assembled?

[05:40] - Stewart Beal: Yes. We have 62 in house staff members, and then we have about 30 to 40 sub contractors who work for us. Our staff members are pretty robust in terms of we have nine property managers. We have a couple of assistant property managers. We have a four person accounting team that's managing the couple of hundred bank accounts that we manage on behalf of staff. And then we have a robust maintenance staff. And that's really one of our main success. If you are renovating a house, you can't quite get it finished and you want to hire us to manage it. That's a very common thing. Hey, Stewart, I'm about 75% of this project. It's petered out. I can't find any help to finish it. We can actually finish it just in a matter of days, because we can assign our in house renovation crew to it, as opposed to a lot of other property management companies and say, okay, well, we'll have to get bids. Bids are going to take 45 days because everyone's super busy. We'll get back to you. We might be able to put this house on the market in 90 days. If you sign our contract today, we can put on the market today because we can get it done in just a couple of days.

[06:58] - Daniel Sperling-Horowitz: That is very attractive. I would imagine most of your clients are very happy to take you up on having you perform that work in house.

[07:06] - Stewart Beal: Yeah, they like the speed that we can put it on the market and the speed that we can rent it because of our in house capability.

[07:17] - Daniel Sperling-Horowitz: So Stewart, I wanted to touch on the asset classes that you manage. You mentioned single family from our previous conversation and from the introduction here, I know that you're heavily involved in multi-family apartment buildings. Can you tell us a bit about the range of real estate asset classes that you focus on?

[07:38] - Stewart Beal: Yeah, we'll manage anything except for storage, which I don't have experience in. Please do talk to me about storage. I'd love to learn more about it. I'd love to explore that at some point, but we don't manage it today. And we don't manage short term rentals that takes a white glove approach that we don't currently offer. And then we don't manage mobile home parks, that requires the buying and selling of mobile homes. We just don't have the expertise for that. But we manage single family homes. We manage apartments. We manage condo associations, and we manage anything from a single family home up to the largest apartment complex we manage actually has 468 apartments, and everything in between. So we manage a 247 unit. We manage 154 unit. We manage a 90 unit, and then it just goes there in between one and 90, tons of those.

[08:34] - Daniel Sperling-Horowitz: I feel like I have a ton of questions to ask you on the management side, but that could be like another episode together with you. I can't even imagine managing a 500 unit apartment building just briefly. What is that like, in a nutshell?

[08:56] - Stewart Beal: Yeah. So a 468 unit apartment complex has 1500 people living there approximately. And that's larger than a lot of cities in the United States, to be honest. And it requires a nine person staff, an on site staff. So you've got a property manager, you've got an assistant property manager, you've got a maintenance manager, you've got a couple of maintenance techs, and then depending on how you structure the landscaping, you've got a couple of landscaper grounds people. It has a pool, so one of your people have to be trained in a pool. And basically, the property is so large that when you're done trimming the bushes, you have to start trimming the bushes again in a continuous loop, because there's thousands of bushes and trees and things on the property. And the same thing with trash. The second you're done picking up the trash in the morning, you have to start picking up the trash again just because it blows around a little bit. So it's like managing a small city, basically, and you have to have a dedicated staff there to do it.

[10:14] - Daniel Sperling-Horowitz: That's a lot. I never really thought that through and thanks for that feedback. That brings me to the next question that I wanted to cover with you. Can you tell us about about a recent deal, maybe one that you're currently processing, that has some lessons for our listeners?

[10:35] - Stewart Beal: Yeah. Okay. Great. So people ask me how I find off market deals, and they ask me 'Stewart I see you're buying so many deals, how do you find them? I'm on the MLS, I'm on LoopNet, I can't find anything.' We run a five point strategy to find off market deals. The first is letters. I mail letters, I drive around cities and find addresses I'm interested in. I look up who owns them, and I mail them letters. The second is social media strategy and things like we're doing now, people reach out saying, Stuart, I'm interested in selling this property. The third thing is we work with real estate brokers in such a way where they bring us deals before they tell everyone else about them. Because, while I am a real estate broker, I give the real estate brokers their fee. So I don't try to take part of their fee when I'm doing that. And then the fourth thing is constant networking. So I'm constantly networking with owners of real estate. So people all the time ask me, 'Stewart, how are you buying these properties off market?' And I ask them, well, how many conversations did you have with owners of real estate this week? And often the answer is literally zero. And I said, well, how are you going to buy a property from someone if you haven't talked to someone who owns the real estate? And they say 'well that's a really good point.' So the key is networking in those circles, attending all your meetups and your chamber of commerce events and your parties where they give out awards in the local business community, like all those networking events. And then the fifth thing is and this is what's really a beautiful thing is we specialize in buying properties from people that have hired us to manage the properties. And so that gives us a direct link. We already have a great relationship with that person. And we've done that several times. Recently we bought a 37 unit in the city of Dundee. They were losing money on this 37 unit even though they had no debt. Imagine that. Imagine how badly you would have to mismanage your property. So they hired us. They said, we want to let go of the family member that had been assigned to managing this. We started managing it and once we started managing it, they're like, wow, this might actually have some real value. Let's go out and sell it. And I said, Well, don't sell it to anybody, sell it to me. And so we bought it from them. And that's one of our strongest performing properties, right now, it's that 37 unit. You get a better price that way. Those are the five strategies we use to find off market properties. And if you're running them all at the same time, you'll be analyzing more deals than you could ever buy. Absolutely.

[13:22] - Daniel Sperling-Horowitz: I think that's the key to sales just always keep filling and nurturing the funnel. Right.

[13:28] - Daniel Sperling-Horowitz: So that 37 unit apartment building. What did the offer process look like? Do you have sort of a framework for offering on properties that just makes it like a no brainer to work with you. Some people wave contingencies. They make sure they can close extremely quickly. Do you have any go-to strategies there?

[13:52] - Stewart Beal: Yeah. So first of all, we can pay cash when we have to. I am blessed by either having the personal resources or investors that allow us to pay cash when we have to. So we buy a lot of vacant buildings, and that eliminates a lot of our competitors. Right. Because if you buy a vacant building, no one's going to lend you money to buy a vacant building, not a traditional loan anyway. And so we can pay cash. That gets us a lot of deals. I bought a vacant Church. I bought a vacant former Salvation Army. I bought a vacant frat house. I bought a vacant three unit rental property. I bought a vacant seven unit office complex recently, all paying cash. And that gets people comfortable. I mean, we even bought a property three days after signing the purchase agreement with cash. That's the first thing. And then the second thing is we tell our sellers that we're not going to put them through an extremely painful inspection process. I get comfortable with the property before we put it under contract. And then when we inspect, we're not going to nickel and dime them and give them a hard time about a missing faucet here or this garbage disposal doesn't work type of thing. Now, if there's big items, foundation problems, structural problems, roofing problems, we'll talk about it for sure. But we're not going to nickel and dime them. And then the third is execution of closing. I bought 95% of the properties I've put under contract, so we have a very good track record of closing.

[15:25] - Daniel Sperling-Horowitz: That's super helpful insight. Moving along here briefly, what does a typical day look like for you, Stewart?

[15:36] - Stewart Beal: Yeah. So I get up about 7:00 a.m. Get my daughter's ready for school with my wife, and then I come to the office. And basically it's first making sure everyone has arrived at work and is doing what we're trying to do. So that's brief check ins with the property managers to make sure they checked in with the maintenance staff. And the plan for the day is being executed. And then it's emails. I work basically on emails all day. That's the way I like to work. The emails allow you to stay off the phone and the key to business success is staying off the phone for the most part, except if you're meeting someone for the first time and networking for the first time. But I don't talk to residents on the phone for sure that's the number one key in property manager has never speak to a resident on the phone because you'll find that they repeat themselves 19 times and you're on the phone for 23 minutes talking about why the toilet is clogged when you could have just sent an email saying the plumbers on the way.

[16:51] - Daniel Sperling-Horowitz:That's golden feedback.

[16:55] - Stewart Beal: So then late afternoon. I start planning the next day and we work with to-do lists. Basically, short term midterm and long term to-do list so that everyone is on track. And even a property manager, they know what their job is and they don't need a ton of direction. But a lot of these properties need constant improvement. They need short term, mid term, long term plans to be executed. So that's kind of what you're working on with the property managers. It's okay, this property is 100% occupied, everyone's paid their rent, well, let's not just sit back and do nothing. Let's make this property better. So how are we going to do that? Are we replacing the common area carpet? Are we getting quotes to paint the walls? How are we going to improve this property? So just constantly working

[17:41] - Daniel Sperling-Horowitz: Feels like value add is sort of the core to your real estate investing strategy. It sounds like distressed properties. Stabilize them. Add value. Refinance. A lot of people refer to that as the BRRR method. Buy, Rehab, Rent, Refinance. Repeat. Would you say that's the bread and butter for Beal Properties and Beal Capital?

[18:08] - Stewart Beal: Yeah, that's the exact strategy we call it again I said the "super size house hack", it's a super size BRRR method. It's the exact same thing. We bought a 60 unit in Dundee a couple of months ago, and we asked all the existing residents to sign rent increases of 5%. Very fair in this market, where rent is skyrocketing 10% or more. So we offered the existing tenants a good deal. Please sign with us at 5%. A couple said no and moved out. Whether they are moving with their boyfriend. They're buying a house. They're moving out of state for a job. People move out naturally, whether there's a rent increase or not. And we went into those units and put in new flooring, new paint, new appliances, new countertops, no new cabinets, no moving the walls around. No major improvements, but they're big apartments. So the flooring costs quite a bit. And so we ended up putting $3,000 to $3,500 into these units. But we rented them for a $200 a month increase. So we rented an apartment that was renting for $550. We put it on the market for $750, and they were rented in a matter of days. And so we're renting the unit for $2,400 a month more than the last owner did. And that pays back those improvements very quickly, about a 16 to 18 month return on investment type of thing. And so if you do that over 60 units, if you increase your rent over a period of a couple of years by $200 a unit, that's $12,000 a month, not a year, that's $12,000 a month that you've increased. And so when you've increased the rent roll by $12,000 a month, that's $144,000 a year. Or however, the math works out. So that's a very huge increase in the ROI of the building. And so you increase the value.

[20:13] - Daniel Sperling-Horowitz: Then you go to the lender, get it appraised and refinance it, right?

[20:19] - Stewart Beal: Yeah. Exactly.

[20:21] - Daniel Sperling-Horowitz: On that note, have you ever used private capital, like worked with private lenders?

[20:27] - Stewart Beal: Yeah. Well, no, I did use private lending one time, and I did use hard money one time. In the foreclosure crisis, I bought a property and I wanted to cash out refinance, and I couldn't get a bank to do it because the appraisals were coming back poorly. And I did do a cash out refinance with hard money. Two guys out of California. It was successful. It served its purpose.

[20:55] - Daniel Sperling-Horowitz: All right. We're going to bring it home here with an important question, something that I'm excited about. I saw Beal Fund 1, LP. Can you tell our listeners about the fund and how they can invest with you?

[21:11] - Stewart Beal: Yeah. So the way we work with real estate investors is if you are an accredited investor, we ask you to invest in our real estate syndication. The purpose of a real estate syndication is we pool our money together and buy properties that are larger than we can buy by ourselves. So in Beal Fund 1, we have a 60 unit in the city of Monroe, Michigan. We've got a 37 unit in the city of Dundee. We've got a 24 unit in Romulus, right next to Detroit Metro Airport. We've got a couple of properties in Toledo. And if you invest into our syndication, you'll own a piece of all of those properties in a pool. And if you go to, and you can email me we can talk about meeting your real estate investment goals if you want to be a passive investor. Now, if you want to be a hands on investor and do most of the work, you can also work with us. Go out and buy a property in the state of Michigan. Do most of the work, get that sweat equity, get that bang for your buck type improvements that you can make. And then you can hire us and we'll manage the property so you can move on to the next one, too. So we can offer two different things.

[22:25] - Daniel Sperling-Horowitz: Beautiful. I'm excited to follow. It seems like a good, solid opportunity. Now. Last couple of questions, Stewart, what motivates you, what drives you and what do you want to accomplish with your career?

[22:48] - Stewart Beal: Yeah. So I really enjoy working. I enjoy looking back on a day's work and seeing how much is accomplished. I really like buying vacant distressed property and putting it to productive use again. I would say that's my mission. I've done that well over 100 times in the last 19 years, buy a completely vacant property and put it back into productive use. That's really one of my missions. And then the second thing is, I remember when I was young and how I wanted to learn from everyone and get everyone's advice. I remember when I started my lawn care company when I was 13. I called all the lawn care companies in the phone book and got the owners on the phone when I was 13 and asked them questions and several of them met with me. And then when I was 19, I wanted to invest in real estate, I cold emailed an owner, a guy who owns 25,000 apartments, and he actually invited me to his office. And I met with him when I was 19 and asked him all the questions I had. And so I remember those people helping me out. So one of my missions is constant networking, constant giving back and providing value. So if you ask me for a favor, I will guaranteed do it. If you ask me for help, I will give you advice. And I get people reaching out all the time, and that comes back all the time. So we constantly, 'hey, Stewart, I rented from you nine years ago. It went pretty well. I bought my own investment property. Can you manage it?' Or Stewart, you helped me out with this, this guy needs this, can I put you in touch and it works out. And so the best example I can give you is a guy named Steve with Curtis Kitchen And Bath. He did a kitchen project for us in the frat house that we bought, and I asked him to sponsor an event I was doing. It was really important to me. I wanted to have a nice list of sponsors, one to help pay for the event, but two, so that the people coming to the event could see there was some serious professionalism around this event. So Steve said he would sponsor he chipped in some money to fund the event. And then I referred him to a couple of people who hired him to do cabinets. And then the most beautiful thing happened. A guy named Milo and Romulus who owns a 24 unit, hired him to replace the cabinets in one of his apartments. And also let slip to Steve that Milo wanted to sell the property. Steve, as he was driving away and called me 'Stewart, oh my God. I got a hot tip for you a 24 unit directly next to Detroit Metro Airport. This guy wants to sell and he wants to do it now, here's his phone number.' So I called Milo and I had that deal under contract in three days. And so that's kind of how it comes full circle.

[25:37] - Daniel Sperling-Horowitz: Yeah, that's beautiful. I feel like there's so many great takeaways from this conversation, Stewart. And I was going to ask what's the most important lesson that you've learned so far in your real estate investing journey. I don't want to speak for you, but I would say it's pretty hard to beat that lesson that you just shared of paying it forward, and things do come full circle. Do you have anything that you wanted to add on top of that?

[26:04] - Stewart Beal: Yeah. I would just say everything's so negative these days in the news, everything's so negative online all the time. So if you follow me online, you'll see that it's all positive. I just try to spew positivity all the time. Property management is a really tough job. So you'll see me joking sometimes about property management, but I try to do it in a positive way and really just try to keep people focused on how to go about your day in a positive manner. That's what I do. I stay positive all the time. People come at me about all sorts of issues in property management because it could be a negative business, and I just try to resolve it. I don't engage in it. I just keep it positive.

[26:50] - Daniel Sperling-Horowitz: Wonderful. Stuart, thank you very much for joining us on the OfferMarket Podcast. It's been an absolute treat, and I look forward to keeping in touch with you. Wish you all the best personally, professionally, and thanks everyone for tuning in to this episode. And, Stewart, thank you so much.

[27:09] - Stewart Beal: All right. Sounds good. Thank you very much.

More from the OfferMarket Podcast, Episode 2, The Story of Frank, A crash course in real estate wholesaling