How can a recent college graduate get into real estate from his coffee table and build it into a giant business? And then after selling out to a public company start from scratch and do it again? In this episode we’re going to discuss how you can get into real estate with no capital and no experience, and how that’s done every day by average people who only have in common the desire to make money. If you think that “starting from scratch and making it big” is just a fake concept from infomercials, then here are two real stories that may change your mind.
Episode 3: How I Creatively Got Into Real Estate (Twice) Transcript
The old ad for Lay's potato chips was, they taste so good they bet you can't eat just one. Well, in the case of real estate, I couldn't eat just one either. That's why I've been in real estate in two entirely different segments. This is Frank Rolfe with the Commercial Real Estate Mastery podcast. We're going to talk about how I got into real estate twice and what I've learned from starting from scratch two different times. The first time, I just got out of college. I got out a year ahead of my class by taking extra classes and summer school. So it was back in 1982, and I was going to apply to get an MBA. Back then, in the early 80s, if you wanted to get into a really good business school, part of your application needed to be a discussion of a business that you had started and operated. I didn't have a business I had ever started and operated. I never had a lemonade stand or any of those things, and I had a year of time on my hands. So I decided to start a business for a year, and then I would go ahead and sell it off or shut it down and put that on my business school application, and that would be that.
I'll talk to a lot of parents and adults and say, "Okay, what would you start for one year?" A lot of the ideas were really, really stupid. People said, "Oh, I'd start a sandwich shop or something like that, which would take a lot of real estate lease payment and a lot of equipment." I wanted something I could get into with basically nothing because it was just for show. And then someone said, well, you know, I've heard about the billboard industry. That might be something that would be good for you, and I checked into it, and yeah, that looked about right. No cost at all, no CapEx required, no licenses, really nothing. So, okay, I said I'll start the billboard business. So that's how I jumped into it. It was nothing more than just an idea. And by the end of my first year, I had three billboards, and I had a whole bunch more pending. So I said to myself, you know what, I won't go apply to college yet. I'll do this another year until I get those done, and you can guess where that went. I just kept doing it over and over again.
And then 14 years later, I was the largest private owner of billboards in the United States in the market of Dallas-Fort Worth, and I sold out to a public company. So that was the first time I got in the business. Basically, it started completely random, but I gave it my all. I learned what I was doing. I kept doing it. I gained in volume, and lo and behold, 14 years later, I was able to sell it to what is now Clear Channel Outdoor for millions of dollars. Now, many people would probably have quit then and said, no, I think once is enough. Let's just go into semi-retirement or do something different. But I thought, no, you know what, now that I understand how real estate works, I'm going to go out there and do it a second time. So what did I do? At the same time I sold that billboard company, I started checking out other forms of real estate, and I built two billboards on an old, old beat-up trailer park in Dallas called Glenhaven, and I called the owner and said, hey, I'm kind of curious about Glenhaven, how that works. I'm looking for a new direction for my life, and the guy said, hey, I'll tell you what I'll do.
I'll sell you Glenhaven right now for 400 grand. You put down $10,000, and I'll carry a note for $390,000 at a low interest rate. And I thought, you know what, I'll go ahead and do this, because even though I don't know anything about trailer parks, I do know a good deal when I see it, and how in the world would a guy let me buy a property with only 2.5% down? And I knew there was a trick to it, so I said, so how's it doing? He said, oh, it's losing two grand a month. And I said, oh, okay, great. But I was able to rapidly extinguish the $2,000 loss, and then it was making money. And as I kept doing it, I realized, you know what, this is my new thing. I will be a trailer park guy. So I bought another, and another, and another, and then I later merged with my partner Dave Reynolds, and we built up what ultimately became probably the fifth largest mobile home park portfolio in the U.S. So once again, I had started from scratch, no idea at all.
Kind of just fell into it, realized how it worked, and then just really worked and ramped up the volume. So what are my lessons learned from doing real estate not once but twice? Number one, you've got to look for opportunities all around you constantly. And when you see something, you've got to totally just jump into it. A lot of people ponder too much. There's so much indecision, they can't make any forward progress. You have to trust your gut. Everyone as an adult has learned a lot as far as how things work out, opportunities lost, things you shouldn't get into from things you should get into, and real estate is no different. And when you see a niche or an opportunity and you think, wait, this is really attractive looking to me, then just do something about it. If I had told the guy when he said, well, I'll sell you Glenhaven for $10,000 down, then I said, well, let me ponder that. He might have found another buyer. Or if I had decided, well, I don't really know if I want to do it, it's trailer parks and everything, what a different direction my life would have taken. It would never have been nearly as good if I had said no or simply lost that deal by being too passive.
So always look around for you for opportunities, and when you see them, get into them. Also, don't be afraid to try new things as long as you have your downside mitigated. Now, let's think about that for a minute. Let's start with the billboard business. When I got in the billboard business, I didn't really have any downside. I didn't have to buy any equipment or do anything. I didn't have to go and rack up a whole lot of educational debt to get a license to be in the billboard business. So I didn't really have any downside. If things had not worked out, wouldn't have lost any money, wouldn't have made any money, but I wouldn't have felt too foolish. And the same was true of the trailer park business. All I had to gamble originally was $10,000. That was it. Because the debt that I had was called non-recourse. And non-recourse debt means if you default on the note, they can't come after you for the deficiency. It is by far the best lending you can get on the planet Earth. So as a result, all I really had to lose on Glenhaven was
$10,000. If I could not cure that $2,000 a month negative, then I could have walked the deal, given it back to him. All I would have been out would have been $10,000 plus $2,000 loss a month for a couple months, maybe $14,000. But that was very limited. If I bought that thing in another structure, if I bought that for $400,000 cash, and it went bad, I would have been out $400,000. You can see the issue. So it's always a good idea to try new things out as long as you have your downside covered. You don't want to try out new things if you don't have an ability to mitigate the debt, because if it all comes crashing down, your life could in fact be truly ruined.
Now I followed that same model in every mobile home park I bought in the early days. I used outrageously low amounts down and leverage that was always non-recourse. My second deal after that one I bought for $65,000 with only $5,000 down. And over the last 30 years we've done no less than 12 deals with $0 down. But that's the key. If you're going to try new stuff, you've got to mitigate your risk. Also, and this is very true when it comes to the trailer park business, don't listen to other people. When I got into the billboard business, people told me it was stupid, a waste of my time, but I didn't listen to anybody. It fit the need I had, which is to come up with a business school application resume piece.
So I really didn't even think of that thing originally as a business. But as it grew over time, people said, oh, you ought to sell that thing off and get into a real business. They had all kinds of ideas. Or maybe, hey, go be a lawyer or something like that. But I didn't listen to anybody. I just did it in my own way. I didn't criticize them. I didn't say, oh, your idea is stupid, but it didn't really register with me. But when I got in the trailer park business is when things got really, really strange because everyone was very aggressive saying, "Oh, don't do that. You'll get killed. That's a nasty business. It's a horrible thing to be involved in. Don't do it." I remember I met with a banker that I'd known for many, many years, and he was like, "Oh, no, don't buy a mobile home park. Are you crazy?" Where's that banker today? Oh, he's probably sitting at home. He's retired on his little Social Security income from working at the bank. But I didn't let him impact my destiny. I realized that if I was going to do something different, an alternative investing format, I can't listen to other people because they don't understand it.
They're not really experts on it, so their opinion really didn't matter a whole lot to me. Also, you have to understand that you can make more money in commercial real estate than pretty much any other pursuit because when I had the big wad of money from selling the billboard business, I did, in fact, look at businesses for sale from business brokers. Now, what did I learn from looking at that? I learned a lot of those businesses on the front end, well, they look cheaper than real estate because they'd sell them at three times net income, five times net income. Real estate is typically sold more along the lines of five times net income to 10 times net income or even more. But I realized that the real estate, it was a hard asset. I was buying something of intrinsic value. If it didn't work out for me, I didn't like it, I could sell it and very much mitigate my loss. But when you buy a business, if you buy a Waffle House and the business goes bad, which most restaurants do go bad, it's an incredible percent, something like 80% fail in the first five years, you end up with nothing.
All your used equipment, your used booths and silverware, they're not worth anything. So I just learned from looking at all those businesses out there that real estate was really the right place to be, the right place for me to be and probably the right place for you to be. This is Frank Rolfe with the Commercial Real Estate Mastery Podcast. Hope you enjoyed this. Talk to you again soon.