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. He has authored three best-selling How To books published by McGraw Hill. Investing in Fixer-Uppers was voted the #1 real estate book in 2003 by the LA Times and Chicago Sun. Start Small, Profit Big in Real Estate advises readers how to develop a plan for building wealth starting from scratch and create enough cashflow to quit their job. Goldmine Houses teaches readers how small apartments and multiple houses called colonies can speed up the wealth process and get you to the finish line in quicker fashion.
Episode Highlights
- What are some of his best-selling books, and how have they helped investors?
- When did he first become involved in real estate, and what got him interested?
- When was his first venture with REOs?
- What did he do to become more handy with construction projects?
- Did he have any early mentors to help him along?
- What strategy did he learn early on that proved very useful?
- When it comes to fixer-uppers, what has been his number one earner?
Episode Notes
Jay originally had a career doing something totally different. It wasn’t until the mid-70s he became interested in real estate, and Bruce asked how this happened. Jay said he moved to Redding in Northern California since he was actually investing in Sacramento around this time. In 1977, he started moving directly into the multiple units and saw a way to benefit a great deal more with them. He had been investing even twenty years before this in Sacramento, mostly REO houses. He had a really good job with the phone company, who is not known for over-paying.
As a result of that, you never build up a lot of money. Buying REOs for small down payments is the game he played for a long time. It dawned on him that when you pay minimum down, you have a rather large debt serve and monthly nut to crack. There’s hardly any cashflow left at the end of the rainbow. You pick some up, rent them, become a landlord, and you almost do this for nothing. You have to have a strong love affair to pursue that course. This was his start in Sacramento, so he has had the fire in the belly for real estate since his 20s. Anybody who sees his picture will think he has distanced himself from that age bracket.
When it comes to REOs, Bruce is a chart person and was thinking they were initiated in the early 80s. However, he found them in the 60s and early 70s, although they may have gone by a different name. They were bank take-backs. Essentially, they were the same thing where the bank took them back if the person was not making their mortgage payments. He would buy one at a time. Jay mentioned the term moonlighting, and he hardly knows anyone in real estate who started out with a bag full of money. You believe you need money to get going, but you really don’t. You need knowledge to get going.
Jay had mentioned having that fire in the belly for a while, and Bruce wondered how he had this. Jay said looking back, even as an 11-year old paperboy he was thinking there must be some way he could earn a few bucks without being out in the heat in the summer and freezing rain in the winter. He thought there had to be a better way, and he knew a couple people who owned real estate and had rentals. He thought this might be a way to do it. However, before he got into this thinking mode, he was always in love with the mountains, pines, hills, trees, all of nature. His first venture into real estate in his 20s was to buy vacant land in the hills surrounding Redding. He was raised in Redding growing up, but then left to spend time in the army before coming back in 1977.
Jay loved being in the mountains and had heard of people who bought 40 acres and made four ten acre parcels out of it, which they then sold. After they paid for the whole 40, the profit was in the next two. He thought this was a good little deal and played with this for a while. He even built a cabin on some of them. He sold them on contracts, had the deed in his name, and wouldn’t transfer until he had put a little money into it. He made monthly payments and thought this would be a nice little gig. He began to study real estate after this. It interested him because he looked around at people, and people who owned real estate always seemed to dress nicer, have a bigger car, and take more vacations.
He was interested in the real estate, and eventually he realized you are a dealer and there are no tax advantages or write-offs. These things were missing in that early plan, and it evolved into him wanting to own improved real estate. He started buying properties, and the kind of properties he could afford were the run-down type since he would sometimes show up on the doorstep being the only one to make an offer. This is quite the advantage for the buyer. You have to be able to do something once you get it, or you could sink like lead in a fish bowl.
Jay did not really have any special training, but he was very handy. He describes himself as the type of carpenter who cuts the board three times and it’s still too short. So what he did was he just kept doing what he did. To learn more about being handy and finishing things was to go out in Sacramento during the time they had great sub divisions being built. He would look at the construction of houses and sub-divisions being built at the framing stage where you can see the wires and pipes. He remembered in his first fix-up jobs how the sink kept gargling. He looked into what the noise was, and he learned you had to have a vent in there. He got one of the plumbers to fix it by telling him he would have to be a genius to handle that job. He told Jay he was missing a vent, showed it to him, and everything. He got pretty handy after this.
Bruce asked Jay next if he had any early mentors. He said he did have an old-timer named Bill Nickerson who was quite famous in the 50s and 60s writing a book on how he turned $1,000 into $1 million. It then went to $1,000 into $2 million during revisions. He explained everything and had several copies. They both became acquainted, and he was always nice about helping. Jay was interested in the investment end, but they became good buddies because they both worked for the phone company. This was despite Jay being in construction and Bill being in marketing. Bill told Jay about his high-paying job and how he would make $3 a day during the Depression.
He started out with his wife Lucille and didn’t know anything when they first started. They became very successful, and Bill would tackle a lot of the same issues Jay had. One funny story was that Lucille, who was much shorter than Bill, would paint the lower part of the wall while Bill would paint the ceiling and upper part on top of her. It was quite the combined effort. The second person Jay met was a real estate broker in Redding. He had been an investor and was one of the smart guys. About every third deal or sale he made, he would take a commission that he would then turn back in to buy a rental. Jay said he was one of those people where if he said the wrong thing or acted like he questioned him, he would hang up on him. He did not want to hear anything out of a smart puppy like him. He would have to call him back and tell him he did not mean it. However, he learned a lot from the guy, particularly in the area of what to buy, what made sense, and how to buy where you were not competing with everybody on the block.
Bruce asked what kind of property this turned out to be, which Jay said were the older rentals. He typically bought economy and lower-end rentals. Redding was a low-income town; so Jay made a little study and felt he wanted to buy rental houses where 80% of those who rent in his town could afford his houses. Therefore, he felt he would always have them rented, and this worked out well with him. These were the lower-income, so this is what they have in Redding. They do not have any big jobs or anything, and everybody worked at the mill in the early years. After the mills shut down, they went to service jobs. The highest-paid job would be City Hall, forestry, or the state. Those people were not his customers, but all the other service type people were. This proved out quite well.
His strategy evolved where it started in Sacramento with the singles. He had 23 houses, and if two were vacant he had to feed the whole mess with his telephone paycheck. He said to himself he had been marketing his tail off and it was not working as well as he hoped. He thought he was going too fast and must have missed a chapter somewhere in the book. The title said he would be rich, and he wasn’t yet. He wondered how you could be rich when you have to feed the property with a paycheck while working for a living. However, he learned how things went.
In the back of his mind, even though he liked his telephone job and the people working there, he thought financially in his life he could do better. He was never afraid to work, or even outwork you. He would go out fixing the houses and be done at midnight. He would even spend his weekends and vacations doing this. He was not afraid to work, but he wanted to make some game somehow. This was what took him time.
Eventually, he ended up buying small groups of the same kind of houses. His number one earner on a ratio basis has been a two-bedroom, one bathroom older house. When he buys them in bunches, he gets the unit price down cheaper. Yet, rents are governed by the market. If you have a nice place that people want with some fences and a yard around it; the fact that you have six houses, he could get them for cheaper. He could fix them up and rent them out at the full retail price for houses of that size. This built up some money; and he found that when you get them run-down and tenants that give the owner trouble, you could get them even cheaper if you can handle the situation.
Another key item Jay was not aware of in the early days that fell into place for him was no bank would loan money on these older junk houses over four units. All the bank forms are designed for 1-4s. You cannot get any financing from a bank; and if you walk in trying to borrow on some of his houses the banker will throw up. The question is what this does. It forces the person who is selling to carry paper. This opened up a whole new ball game for him. He did not know about a lot of these things in the beginning, and it took time to learn.
Apartments fall into the same category as well. Someone asked why he didn’t just buy apartment buildings. He said he doesn’t because he is buying for his customer. It is like a lady who runs a dress shop. She knows that the people in her town like red, so she brings in red dresses. She would be a fool to bring in blue ones. In the same way, young people and seniors are people to whom he rents. People in the middle who are buying homes are not his customers. His business is the rental business.
Tune in next week as Bruce and Jay continue this point and their discussion on the real estate radio show.
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