Episode 32 - REAL ESTATES DARK SIDE (Shocking Confession 😮)

In today’s episode of The BreakThrough, we welcome back a familiar face, Nathan, an experienced real estate investor who’s done it all, from the toughest D-class properties to leveling up into the more lucrative B-class market. Nathan dives deep into the reality of owning D-class properties, the relentless hustle, and why he’s shifting to B-class investments. He shares stories that are both jaw-dropping and relatable for anyone in the real estate game. If you’ve ever wondered if managing properties in difficult neighborhoods is worth it, this episode is for you!

TAKEAWAY 1: The Harsh Reality of D-Class Properties
Nathan opens up about the challenges of managing D-class properties, from tenant issues to constant turnover.D-class properties often require much more work and can lead to burnout quickly.

TAKEAWAY 2: The Transition to B-Class Properties
Nathan explains why he’s shifting his focus to B-class properties, which offer more stability and less emotional strain.B-class investments provide better cash flow with fewer tenant headaches and are more sustainable for long-term wealth building.

TAKEAWAY 3: Vertical Integration for Efficiency
Nathan emphasizes the importance of vertical integration in his real estate business. By managing everything in-house, from maintenance to lawn care, he reduces costs and increases control over the properties.

Real estate investing isn’t for the faint of heart, especially when it comes to D-class properties. Nathan’s candid stories highlight both the challenges and the rewards of this sector, but his pivot to B-class investments shows that a shift in strategy can lead to a more sustainable, less stressful career.

TRANSCRIPT

∎ Teaser / Highlighted Clip

[Nathan Milazzo] (0:00 - 0:40)

Because we have level 1, 2, and 3 terms. Level 1 is like your standard touch-up paint, clean it up, print it. Level 2 is like touch-up paint, so they punch a few holes in the wall, stuff.

And then level 3 is, they left all their belongings there. This is actually very convenient. They'll leave, it literally looks like they still live there.

It's kind of sad, but they'll leave all their belongings in it. I'm talking about everything. And food in the fridge, their power's been off for four days.

There's meat in there, so it smells great in there. And then, you know, full-on flooring, replacement paint, everything. You're looking at, you know, level 1 is probably 500 bucks and less.

Level 2 is 500 to 1,000. Level 3 is 1,000 to 3,000 dollars.

∎ Podcast Intro:

[Stephen Husted] (0:41 - 2:35)

Brace yourself for a wild ride into the unexpected. This ain't your typical success show. I'm here talking to real folks who've been through it all, skipping the fancy business talk for authentic stories.

We're diving into childhood dreams, teenage escapades, and everything in between. No scripts, just the stories that truly mold success. Each episode takes you on a journey through those breakthrough moments that pave their way.

No fluff, just genuine stories. So whether you're chasing dreams or just love a good story, buckle up for wisdom, laughs, and the unexpected. This is the Breakthrough Podcast, where success is a journey, not just some fancy destination.

Don't miss out. Hit the subscribe button now and join our Breakthrough crew. I got some incredible stories to share, and you won't want to miss a single one.

∎ Guest Introduction:

All right, guys. Welcome back to The Breakthrough with Stephen Husted. Today's guest is someone who knows the chaos of real estate all too well.

Nathan Mielazzo. He's a guy who's lived through the trenches of D-class properties. Yeah, the kind that has you thinking, do I really need to bring a nine millimeter with me?

Nathan's learned the hard way, and he's here to share his gritty stories that no one talks about, the crazy tenants, surprise expenses, and the mental toll it takes. But now he's leveling up to B-class properties, chasing bigger returns with fewer headaches. We dive into why he's ditching D-class, what vertically integrated really means for your wallet, and get ready for some brutally honest truths about the ups and downs of investments.

I had him on the podcast a while back, but the episode, the audio came out bad, so we re-shot the podcast, so here we are. Let's get into it.

∎ Podcast Proper:

All right, Nathan.

We're back again.

[Nathan Milazzo] (2:35 - 2:38)

That's right. I hope this time will be interruption-free.

[Stephen Husted] (2:40 - 2:45)

You're going to be, now you're considered my second guest to ever come back on the show.

[Nathan Milazzo] (2:45 - 2:47)

Oh, I'll come on.

[Stephen Husted] (2:48 - 3:12)

Well, you know, and it's funny because when we did that episode, it was so good, and you dropped so much great information, and we did a couple little short form videos out of it, but then the gentleman does editing for our podcast, he's like, his episode, he's moving all around, it's a little bit chaotic.

[Nathan Milazzo] (3:13 - 3:29)

Oh, it's a sneak peek into my life, man. My life is chaos at all times. I mean, low-income apartments will do that on top of, I balance a couple other things, like law care, property management, stuff like that, so we're always chaotic.

So it's actually probably a pretty accurate video of my life, I really like.

[Stephen Husted] (3:29 - 3:55)

Yeah, I would say so. And you know what, that's a good way to kind of, chaotic is a good word. Let me ask you a question.

Do you have little periods of time where it's just kind of your typical day-to-day, maybe they're your day-to-day issues, but then all of a sudden you have a few days that it's like super intense, and it may be happening on multiple properties scenarios, you go through those ones?

[Nathan Milazzo] (3:56 - 4:09)

Oh, yeah, if somebody tells you they don't, they're lying to you. I mean, for a fact, I mean, we have our day-to-day business that runs, but you never know. I mean, I always say when it rains, it pours, you know?

[Stephen Husted] (4:09 - 4:09)

It really does.

[Nathan Milazzo] (4:10 - 4:34)

Oh, yeah, so you can have a fantastic week where you're just like, oh, man, real estate is awesome, this is awesome, and then the next week you're like, oh, my God, this is insane. We're babysitting for adults, this is what we're doing, you know? So, trust me, I'd say the vast majority of it's good, but especially this year, we've had some crazy stuff happen, which I'm sure we'll talk about.

[Stephen Husted] (4:34 - 4:40)

Okay, well, why don't you give the audience a little background on where you're from, what you do?

[Nathan Milazzo] (4:41 - 5:22)

Yeah, so I'm originally from Greenwell Springs, Louisiana, which is southeast Louisiana. I live in Gonzales now, which is in between New Orleans and Baton Rouge. And we're trying to get into more B-class stuff, but we still have some D and C assets.

So, at first, we just did D-class. I just think ghetto, bring a 9mm with you everywhere you go kind of place. That's what we started out with.

Now, we have a few D properties left, but now we have some C and a few B-class actually still. So, and we're vertically integrated for the most part. So, we have a full business that runs the apartments themselves, the maintenance, the slips, the law care, the facilities management, everything.

[Stephen Husted] (5:24 - 5:34)

That seems like a different tone from the first time you jumped on the podcast, right? I don't think you were doing, were you in B-class?

[Nathan Milazzo] (5:35 - 7:09)

No, not at all. And that's the school of hard knocks that got me there. It's just because D-class is great when you get it for cheap and the economy is good.

And then the economy is not so good and the tenants know that. And the problem we have with D-class too is it's not sustainable. I mean, you're really working your ass off for the money you make.

I mean, 100%. And you get burnout quick there. So, we've kind of gotten to the point where we've paid our dues in real estate.

We learned a lot from D-class and I actually recommend a lot of people do D-class at first because you learn a lot and it forces you to kind of be gritty and cutthroat. But I've met a few guys about a year and a half ago that were 40-plus year guys with D-class real estate. And I don't want to be that guy.

Miserable people, their home life is a wreck just because they're just constantly working. They're rich. The guys that I know that do D-class well, they do it very well and they make a lot of money.

We're talking guys that are worth $20-40 million, but it's not the kind of wealth that I want. I want wealth where I'm a hardworking guy, so I'm never going to say that I want to retire or anything like that. But I'm looking for stuff that's not emotionally draining, like return on effort.

Return on effort in D-class is very low. You're going to really work your ass off and you're going to make a little bit of money. You can make good money too, but use it as a stepping stone to get to the better stuff.

[Stephen Husted] (7:09 - 7:22)

I 100% agree. And I'm at that point too. Yeah.

I've been shifting too. I was like, you know, some of my first properties were bought out in East Detroit.

[Nathan Milazzo] (7:24 - 7:24)

And I did it for a reason.

[Stephen Husted] (7:25 - 7:40)

Yeah. And I did it for a reason because I knew it was cheap and I knew that I would learn a lot and there'd be a lot of issues. And I just knew that going into it.

And yes, that's exactly what happened. There was a ton of issues.

[Nathan Milazzo] (7:40 - 8:22)

Right. So for people who are familiar with Baton Rouge or just in South Louisiana in general, I mean, you have New Orleans East, New Orleans East, half the time the police are going to show up there. I mean, you're talking about a crime zone.

And then it's really old, abandoned. I don't know if you've seen the clips on Instagram. It's like what the old abandoned Six Flags is or No Man's Land or whatever.

That's New Orleans East. And then in Baton Rouge, you have what's called Tiger Lane or Bottoms. Bottoms is literally where Lil Boosie Giraffo grew up.

And that's where we have some property still to this day. And it's funny, you know, when I first bought it, I was like, oh, that's pretty cool. Lil Boosie grew up in the apartment complex next to this one.

Nowadays, I could care less. I mean, it is such a nightmare. I mean, there's a reason why Lil Boosie don't live there anymore.

[Stephen Husted] (8:22 - 8:23)

Right.

[Nathan Milazzo] (8:23 - 8:36)

Yeah. So, you know, it's cool at first. You know, you think you're bad ass when you buy these big complexes, but man, when you get into it, you're like, oh, there's a reason why the older, larger investors are laughing at you.

[Stephen Husted] (8:38 - 8:41)

So what did you learn from those years of being in them?

[Nathan Milazzo] (8:42 - 10:55)

Yeah, well, so I'm still in a few, but just, like I said, return on effort. So you're dealing with people who are living there because they have to. So you're not dealing with necessarily financially savvy or even like good people at all.

You see a lot of bad stuff going on. I mean, I have kids. I'm not sure if you have kids, too.

Right. You see a lot of just bad stuff, you know, kids going on there. There's a lot of drug trafficking.

This is it's almost like operating an extended stay hotel. In my opinion, D-Class real estate really isn't even real estate. You're really running like a hotel, seriously.

And your turnover rate is insanely high. And if you're actually like fulfilling your lease and you're holding people with obligations, your turnovers are going to be high. The only way it's not high is if you let people slide and you're not really being a good landlord.

You're just kind of being a slumlord. In those cases, your turnovers aren't as high, but then your clientele stops. You know, so if you're really going to operate a D-Class property like you have in the book, which is like how we do it, your turnover is going to be high just about association, you know, just because you're associating yourself with a class of people who don't care if they if they move into a place in January and get evicted in April.

You know, they're used to moving through these times of the year, you know. And one thing, too, that I found is I'm not really and I'm not saying I'm better than these people, but it's hard for me to relate to their lifestyle because I've never lived like that. You know, we grew up with humble beginnings and, you know, hard working family, but I never was that way, right?

Never in that scenario. So I find myself struggling to relate to their situations. So not really knowing how to like even help them out in certain ways a lot of times, like, you know, like could you know whether it's I mean, could you really help them out?

And a lot of times they don't even want to be helped. They just they want to like the way you look at it is when are you going to evict me and when do I need to be out? I'm going to leave that day and I'm going to leave everything all in that apartment is to be tracked.

You know, and that's really what they care for is like to them, they're like, all right, I'm going to get over on the landlord and, you know, I'm going to get 11 days because in Louisiana, you can evict very fast and it's it's quick.

[Stephen Husted] (10:55 - 10:56)

But to them, right.

[Nathan Milazzo] (10:56 - 11:47)

All right. How can I get 11 days free rent to me and you? It's like, why would we want an eviction on our record?

You know, they don't care about that. They care about like the 11 days they live for free. Right.

And so that's why we don't do deposits. We do move in fees. So like I say, say, for example, you rent 800 bucks, we'll do a five hundred dollar move in fee and that's nonrefundable.

And that goes directly into our CapEx account. So it's already spent in our home. Like, you know, we just so basically say you have 10 apartments and your turnover rate is four a year.

So out of those 10, you have 40 percent. Then you have four people who pay their five hundred dollars deposits or move in fees that go directly to that account to pay for those flips. And since we're vertically integrated, we almost get paid for, but we still come out of pocket, you know, for a lot of terms, especially if they're like level three.

But yeah.

[Stephen Husted] (11:47 - 12:04)

What is vertically integrated mean when it comes to owning apartment complexes? You're doing the property management. What else are you doing?

And is that saving you money? And like, what do you what do you do? Or is it paper losses?

Is it a tax benefit? What is it? Yeah.

What does it do?

[Nathan Milazzo] (12:04 - 14:22)

Well, that's a good question. So, you know, people who are listening here, so you have a business like mine, you need to look at what's actually worth being very integrated. And so to answer your question directly is we have our own property management, our own maintenance, our own HVAC and our own law care in-house.

And the reason why is because we kind of fell into it that way. You know, it's not like we sat down and we're like, all right, we're going to make sure we keep law care. Well, I just so happen to have a law care company that was like, all right, well, it makes sense for me to just do it in-house at cost.

Right. And pay a couple thousand dollars a month for these bigger complexes in the middle of the ghetto. That would normally cost me three times that amount.

So we're able to save money there. And especially with apartments, you don't want to necessarily like cut every expense because then you're then you're like losing quality there, you know. So the question that, you know, a listener needs to ask themselves when they're in this business is, what makes sense to be vertically integrated?

You know, do you have a cousin that has a HVAC business that can do work for you at cost? And that might make sense to bring that in. Or do you have, I don't know, a trash, a door to dumpster service that you know of that your friend has that you can start easily at low cost.

So, you know, I know I'm kind of dancing on the question, but us directly, we have that in-house. But for everybody else, it might not make sense for them to have all that in-house. You know, for us, we kind of have to because of our turnover rate and just what we manage and everything is so dense, like all of our properties are really close to each other.

So it makes sense for us to be vertically integrated. But for some people, it very well might, it might not. But in my opinion, in our market and in the assets we have, if you have third party management, you're getting robbed somewhere, you know.

You know, so it's like it's whether or not you care about stuff like that. I'm super cheap, you know, so like I'm looking at like, all right, nobody's going to screw me over, right. But a lot of times we end up screwing ourselves over, you know, because we bring in stuff that doesn't necessarily make sense.

And that's another thing we learned last year, especially, you know, you have these guys you hire just because you have the guys available, it doesn't mean you have all the work for them, but they still have to get paid or you're going to lose. So they're going to move on. Right.

Yes. And you really have to have enough assets, you know, to make that work for you. That's basically what I'm trying to say.

[Stephen Husted] (14:23 - 14:26)

What was the first asset class you got into?

[Nathan Milazzo] (14:27 - 14:28)

It was D-class.

[Stephen Husted] (14:28 - 14:30)

D-class, apartment complexes.

[Nathan Milazzo] (14:30 - 14:40)

Yeah, apartment complexes. Yeah. In the middle of the ghetto.

I mean, think what you see. I'm sure you have very low income areas in your YouTube, just low income, very low income.

[Stephen Husted] (14:41 - 15:01)

Yeah. I had a lady on my podcast recently and she had bought in like a D-class in like Stockton and she had some wild stories. Oh, yeah.

Oh, we've got them. The way she went into it too is like, you know, I'm going to go in there. I'm going to, you know, I'm going to prove the value.

I'm going to, you know, help with the tenants. I'm going to do this and this and all this stuff. And it went horribly, not that way.

[Nathan Milazzo] (15:01 - 15:05)

Oh, yeah. She learned a lot.

[Stephen Husted] (15:06 - 15:06)

Yeah. Yeah.

[Nathan Milazzo] (15:06 - 16:06)

And that's why I always tell people too, like, especially, you know, you get younger guys, I don't know if it's me, but I tend to attract a lot of like younger guys who are trying to get started. I start charging people too, by the way, but I'm not. But anyway, I always tell them if you're getting a D-class real estate, you have to go into it because it's a good, it's a good entry level thing to do.

Right. Cause it's, it's kind of, kind of sort of low barrier to entry. You're easy to find.

They're always for sale. I mean, for everybody's like me, we're getting burned out of them when they're trying to get rid of it. But it's, it's a good way to cut your teeth on.

But if you go into it, knowing the BS you're going to deal with, then you can do okay, but if you go into it all excited, like, Oh, I'm going to have a business plan I'm going to implement. Is it, I'm a month one, I'm going to do this month two, I'm going to do this month three, I'm going to do this. You're going to lose your ass every single time, every single time, because they're going to go in there and you're going to present the tenants with this great idea and you're going to say, Oh, look at this idiot.

We're going to just take her to the bank. You know? And that's exactly what they're going to do.

They're at 100%.

[Stephen Husted] (16:06 - 16:06)

Yeah.

[Nathan Milazzo] (16:06 - 16:42)

Uh, because I've, I've learned too about low income communities. It's they get together. Like it's like a small community, like a little village.

Right. And it's always, for whatever reason, us against them. It's like they, they, and I wish that we could change that.

We try. We try to kind of, you know, explain to him, Hey, look, you know, we're trying to work together to help you. But they always reverted back to getting together amongst themselves and doing it their way.

You know, like we've even tried doing monthly rent. That was kind of a nightmare and a mistake. I don't recommend doing that.

Uh, what was that? We tried doing weekly rents.

[Stephen Husted] (16:43 - 16:43)

Yeah.

[Nathan Milazzo] (16:43 - 18:30)

Like, you know, if you rent 800 bucks, we would charge you 50 bucks a week on what it would be interest to kind of break it down because one of the excuses you got was, Oh, I'll get paid every week. And I have bills. And if I could pay weekly, well, it's kind of trapped us because as soon as they realize that they can, as soon as you accept one payment, there's a whole 30 days, you can't evict them because they technically paid on their rent.

So they're not as dumb as they make themselves. Like they're, they're actually pretty smart people. They know how the system works.

It's just, uh, you know, finding what really ways are really going to help them and what ways are you trying to help them, but you're actually screwing yourself. That's very important. And it doesn't have to be necessarily like us against them.

It's just, in my experience, uh, we're doing the professional tenants. It's basically, if you've ever heard that term, people who know the insides and ask them how to work the system. Again, they're getting evicted four or five times a year.

Anyway, they know how it works. So, um, you know, and screening, we try doing that with lower income. You kind of have to ease back when you're screening a little bit, just because you want tenants, you know, uh, but what you can be strict on is like you're saying your movement fees and you're kind of like your rule set and having somebody all in sight.

I kind of like your mayor. We always call him. Um, but I'm not by any means saying rent to anybody.

That's not at all what I'm saying. We always check for, you know, sex offenders, criminal background, stuff like that. And we try to get them to where they don't have an eviction in the last year.

But, uh, I just recently found out a few months ago that there's actually a way around that as well. Uh, because after you get evicted, you can appeal the eviction 30 days after you've been already kicked out of the unit and they'll nine times out of 10 just appeal the eviction if you pay a hundred dollars. I didn't know that.

[Stephen Husted] (18:30 - 18:31)

Oh, interesting.

[Nathan Milazzo] (18:32 - 18:59)

Yeah. So you get, so you're already out the apartment, but you'll get it off your record and get it expunged for $120 if you just appeal it. And the thing is, they send the appeal to your office address and it's like, all right, is it worth going to court to try to like prove this person was evicted or you just let them, we just put them in our system and make sure we don't rent them, you know?

Uh, yeah. And that might just be a Louisiana thing, but, uh, it's kind of crazy how stuff like that works.

[Stephen Husted] (18:59 - 19:01)

How many partners do you have?

[Nathan Milazzo] (19:01 - 19:16)

So it's me and two other guys that own multiple properties, but each building, like I have a few buildings I have on my own and then, uh, I have some of my parents and then I have some with just one partner and then I have some other partners that are in management part of it, like investors.

[Stephen Husted] (19:17 - 19:40)

How do you deal with, you know, when you have these issues in this D class, as far as paying rent, like how do you determine your cashflow on a monthly and how you live outside of your investment property? It's like, how does that, do you make enough cashflow that you can have a 20 to 30% vacancy across the board that helps you, like that it doesn't really matter, is that how it's working for you?

[Nathan Milazzo] (19:41 - 21:11)

Yeah. And we have very, very under leveraged for the most part. Uh, but that's another reason why we're getting out of D class is predictability of income, uh, because we always pay ourselves a month after.

So it's not like we're, we're predicting we're going to make that month because there is no prediction. It's, it's, you know, you have great months and you have bad months. So for the low income properties, so say, you know, it's June, we're getting paid for May, you know?

So that's, that's always how, and I think a lot of people do it that way, but, uh, we're paying ourselves in arrears and we're always paying ourselves a lot less than we actually made just to kind of put it back in the property. Like I was saying, because you have moving fees that account for most of the repairs, but, uh, I'd be lying if I told you it covers all of it. And yes, um, we have level one, two and three terms.

Level one is like your standard touch up paint, clean it up, rent it. Level two is like touch up paint. So they punched a few holes in the wall stuff.

And then level three is it left all their belongings there. And this is actually very common. Like they'll leave, it literally looks like they still live there.

And it's kind of sad, but they'll leave all their belongings in it. I'm talking about everything and, uh, food in the fridge, the power's been off for four days. There's meat in there.

So it smells great in there. And then, you know, full on floor and replacement paint, everything you're looking at, you know, level one is probably 500 bucks and less. Level two is 500 to a thousand.

Level three is a thousand to $3,000. Um, so a $500 moving fee is not going to do shit for level three, unfortunately.

[Stephen Husted] (21:12 - 21:16)

It's almost like you're swirling that money around between properties. Yeah, it's kind of...

[Nathan Milazzo] (21:16 - 21:20)

Well, not between properties. No, no. So each property is not part of it as itself.

[Stephen Husted] (21:20 - 21:21)

That's why...

[Nathan Milazzo] (21:21 - 21:29)

Yeah, yeah, yeah. If you did that, you'd be, uh, you'd be in trouble because your good properties, you start suffering because you're bad when you're carrying the bag.

[Stephen Husted] (21:30 - 21:40)

How do you run that with, uh, like, as far as taxes are concerned, like QuickBooks or how you, whatever software, how are you tracking all your, are you tracking them unit by unit or is it property by property and it's..

[Nathan Milazzo] (21:40 - 21:41)

Property by property.

[Stephen Husted] (21:41 - 21:42)

Got it.

[Nathan Milazzo] (21:42 - 21:48)

Yeah. Property by property, we use that polio. So like every property has its own like, like profile, I guess you can call it.

[Stephen Husted] (21:49 - 21:49)

Yeah.

[Nathan Milazzo] (21:49 - 22:24)

So like, um, we, I mean, we run reports like as a company in general, like we want to see what our occupancy is as a company, but as far as like individual buildings, because we do have other apartments in each building, we run them as a complete separate business, complete separate bank accounts, everything, and we have our own management house, but we don't have any escrow accounts that we hold.

We only manage because it's cheaper. So it's not like we have this legit, like, um, office somewhere where, you know, we have a secretary and we have, we have, you know, virtual assistants and everything, but, uh, we run the management company for the purpose of saving money, not for a profit. That makes sense.

[Stephen Husted] (22:24 - 22:38)

Yeah. Who, who takes care of all the banking scenarios within the business? Are you guys doing it as partners or do you have a, do you have a bookkeeper CPA, like managing that whole, because that's like another business in itself.

[Nathan Milazzo] (22:38 - 24:14)

Oh yeah. Oh yeah. So we have a CPA that does our books and everything.

Uh, but we also have, we run off EOS. Uh, so we have L10 meetings and stuff like that, but, uh, so each, each individual building has a weekly meeting. So we have a Monday motivation call of like, all right, last week's good, let's recover and take positivity into the week.

And then Friday follow-up is just like, all right, what did we do wrong, what did we do right this week? Uh, who did well, who did bad, who's getting fired, who's paying. Yeah, yeah, no, I'm serious.

And, and, uh, and so we, we incentivize our employees too. And then we, I want to treat it like a competition. Uh, we, we make it very known like, Hey, look, you know, this person killed it last month.

They got bonus for it. They're the person to beat. Right.

And, uh, I don't know if you ever heard, I forgot how the quote went, but it was like a guy who owned like a steel factory or whatever, and he would just go in the night shift and write the number of steel plates they were putting out on the, on the floor with chalk and he'd go back from the morning shift and say, Hey, last night, the night, the night shift, they did like 10 or whatever, 10 pallets of steel, whatever the hell it is.

And in the morning shift, we just do 11 just because they're like, Oh, we got to beat the night shift. We do exactly the same thing across the board for our properties. Like, Hey, look, last month they hit 96%.

Obviously, uh, they, they killed it last month. Y'all only did 91 or 88 or whatever it is. What's going on.

Right. And, and you're not like, you know, bullying them by any means, accountability challenge, accountability challenge slash like kind of kicking the ass and being like, Hey, look, look, these guys are beaten and we let them up.

[Stephen Husted] (24:15 - 24:15)

Yeah.

[Nathan Milazzo] (24:15 - 25:44)

Uh, and, and we also tell him, Hey, look, they did this in this last month. Maybe you can try that and see if it works. But every building is different.

Uh, and it's even in the same market. Some things work in certain areas and everything like that. But as far as marketing goes, I always challenge everybody here locally.

If you're looking for an apartment from $700 to maybe $1,200 a month in the Baton Rouge area, there's no way you won't see our ads. No way we've got to beat all that. You're already going to lose.

Right. So, and our employees know that. So in our, in our perspective is, is unacceptable to have a certain amount of, you know, tours and leads come in without certain, you know, uh, so they already know there's a threshold and when we don't put up with much, like we, we fire quick, you know?

Uh, so it's, you gotta hit something. You have to do that. Yeah.

Yeah. And again, we have good people. We went through a lot of people because of it.

But if, if, if a property manager is below 85%, they already know they're fired. They already know. So it's, uh, it's, it's a little harsh, but in the business we're in, and again, that's why we're pivoting.

We already have one property and we're hopefully to be able to contact the second one, that's B class, uh, because it's run a little bit different. It's a little bit less cutthroat, a little bit professional. It's a little bit more, uh, predictable, you know, uh, with C class, you're literally turning and, you know, turning and burning every single week.

And it's, again, you're operating an extended stay hotel, uh, and you're, you're working, you know?

[Stephen Husted] (25:45 - 26:03)

Yeah. And sometimes those numbers look really good. The Detroit properties, you know, the cashflow is pretty damn insane, but all it takes is, you know, a couple of issues, three squatters, you know, addiction.

And next, you know, you haven't done anything with one property for a year and all your, you know what I mean?

[Nathan Milazzo] (26:04 - 27:25)

Yeah. But that's why we operate the way we know that. Right.

So that's why we operate the way we do, because we understand that like, it's so easy to fall behind the eight ball. Like it's, you can, you can fall behind. Honestly, I believe that it's, it's actually inevitable if you don't, if you're not operating the way we do, you know, is we're constantly advertising.

We know that next month we're going to have X amount of vacancies. We just know, you know? Uh, so, but yeah, and like, for example, like, and there's, and there's also nuance too.

Like we had a fourplex, uh, in the middle of the ghetto at one time and one tenant, it was a subsidy tenant actually decided, you know what, he's the boss of that building now. So literally he put his, he tied his pitbulls up in the middle of center hall and said, Hey everybody, I run this place now, y'all go pay me rent. And so what happened?

Yeah. He ran off all, all the other tenants, all three of them. Now we have a fourplex with one tenant there.

And so we're all right, well, are we going to evict this idiot? Are we going to keep them and then try to fill it then evict them later? But the answer is you have to evict them because anybody put in there, he's, he's going to run them off too.

So now you have a vacant building. People don't account for that either. So it's, you can go from full and killing it to, to absolutely vacant.

And I know that's an extreme example, but, uh, it happened, you know, and I always tell people if it can't happen, it will, a hundred percent, especially in low income homes.

[Stephen Husted] (27:25 - 27:29)

Oh yeah. He's, he was on, he's on section eight.

[Nathan Milazzo] (27:29 - 27:57)

He's actually VA and we've actually had, we've actually had great experience with VA, they're great guys, but we have had a few clients that are a little bit mentally challenged, a little bit mentally scarred. Uh, I think that was the majority of it on top of, uh, he wasn't necessarily a good person to begin with, but he, uh, oh, but yeah, so that is an extreme example, but it happens, you know, so you have to kind of account for stuff like that and keep the savings account high.

[Stephen Husted] (27:59 - 28:13)

Yeah. It's, it's, you know, I understand the whole D and C class. What do you think the problems are going to be in the B class?

Oh, so I think there's problems in all of them. They're just different.

[Nathan Milazzo] (28:14 - 29:24)

Oh yeah. No, no, no, no. Yeah.

There's different problems. So the problems there is your price per unit, uh, and, and down, especially where I live is insurance. Uh, a lot of institutional debt, believe it or not, does not make sense anymore, uh, on the coast.

Because for example, I have a 90 unit, you know, our 90 unit before we had, you know, local debt or whatever. And then we have, uh, actually our mutual friend, Matt put the debt on it. So we had, uh, I think it's a Fannie Mae loan.

And I think it's like 4.3% interest, which is incredible. Right. But the insurance requirement, so, so we went from paying like $74,000 a year to 110, you know, in that same exact building.

So now you have to count for that. So I feel like there's definitely challenges with B class. It's just more operational at that point.

And you're, you're buried or injuries a lot. Like it's a lot harder to get into them because of the competition. Everybody, there's guys like me and you who, who does a C and D's who are like, all right, yeah, never again.

Right. We know too much. So we're all trying to go out to the same products.

There's a lot more competitive. Uh, but luckily we, you know, we, uh, we had a pretty good pulse on everything that goes on with those assets and we had a pretty good pulse on like, you know, off market deals as well that we can kind of go after.

[Stephen Husted] (29:25 - 29:30)

What is, so, and how's the inventory in that B class scenario?

[Nathan Milazzo] (29:30 - 30:55)

So right now, uh, there's a lot of assumable deadlines out there. Uh, but yeah, a lot. And, but I really think, especially in like South Louisiana, uh, but it's really because of insurance, you know, your insurance, we're actually selling one of our, our defense properties because of that same reason, but we're actually smart with it.

Uh, we put literally good institution with that on it and we levered it actually kind of over leveraged it, but it allows somebody to come in and say, all right, well, I can assume this debt, like a hundred grand, very low barrier entry, right. And it's, it's institutional grade product. So we can get rid of this problem.

We've already made our money, you know, we cashed out refinance three, two pounds, but, but now are, we kind of shot ourself in the foot because we have to do a 10 30 on exchange with no fricking capital to do it. So now I've got to, I got to pull money out of my pocket and buy this other asset, but I'm accomplishing the main goal. The main objective was out of the ghetto.

Right. So, uh, we're actually assume, let somebody assume our debt and somebody to, it's probably, we're going to do well. The property is a fantastic property.

It's just, they, they have a fresh set of goals. They're a fresh set of money. They can come in there and say, all right, this review, they'll sell it in five years, whatever you do with it and move on.

So I think that's what I think B class is fantastic for. You know, I've just done it long enough now where it's not time to take the next step and do something better or not even necessarily better, just something else, different, different class.

[Stephen Husted] (30:55 - 31:10)

Uh, so when you're picking up the B class, what is your objective? Like, are you setting a five, 10 year type, you know, look out on it and try to figure out how you're going to improve the net operating income on it? And what are you doing?

[Nathan Milazzo] (31:10 - 32:12)

Yeah. So, so a lot of times our main, our objective is like a seven and a half, seven years or so. Uh, and the reason for that is because we know that year one and two, or, you know, especially year one is going to be kind of like your test year.

So we're like, all right, what works here? What's the tenant base like, uh, who's late, who's not. Kind of like what's your, what's your, what's your competition doing and stuff like that.

A lot of that, you know, can just be in the market, but your first year, you really get to kind of concrete those, those assumptions. And then, uh, obviously we want to pay down a loan enough and we want to cash flow. So we don't buy deals that don't cash.

We're not speculative at all. You only buy deals that they cash flow. So that's seven year term.

Uh, and we also do cost education because a lot of our appointments are high income guys. So, uh, that's seven years kind of our target kind of like whole time. But Hey, I mean, there's, there's deals that are on today that are probably on for the foreseeable, I mean, for a long time, you know, just because it doesn't make sense to sell them.

It's kind of half the profit. So, uh, it really depends. Yeah.

[Stephen Husted] (32:12 - 32:19)

For those who don't know what cost segregation is, please explain.

[Nathan Milazzo] (32:19 - 33:32)

So you're, you're basically, uh, I know it's kind of a big one, but yeah, yeah. I'm not a cost segregation expert or anything like that. I'm just telling y'all from my experience.

What I know about is accelerated depreciation. And so, you know, you have, you hire a cost segregation engineer to come out and say, all right, well, the life cycle of that light bulb and light switch and whatever times, how many light switches and light bulbs you have across the property is worth this much. So say, and it's at this point in his life cycle and you have somebody come in and say, all right, well, this is how much you can write off per year.

And you're accelerating depreciation for about seven and a half years in those cases. So say your property makes a hundred thousand this year. You can write off most of the time, all of that income you just made.

Plus, so say you had a construction company over here on the right that you own a hundred percent of now you own this apartment complex, but you made a million dollars in the construction business. You can write off the loss on paper against your income over the construction business. So it's, it's a, another tax benefit.

It's how Donald Trump got away with paying like $600 in taxes. You can't let the president, you know, and I really love him. I hate him.

The guy's following the rule book, step by freaking step. That's all he's doing.

[Stephen Husted] (33:32 - 33:35)

I know a lot of people don't think they don't know that, but it's true.

[Nathan Milazzo] (33:36 - 33:45)

Hey, look, they can hate him all they want, but at the same time, he didn't break the law, so that's what we're doing. You know, we're pulling a Donald Trump.

[Stephen Husted] (33:45 - 33:50)

Yeah. He's just capturing, you're capturing all that depreciation in year one and just using it too.

[Nathan Milazzo] (33:50 - 34:42)

You're kind of kicking the count down too, because you have to The warning is it's not going away forever. You're literally just kicking the can down the road and hopefully 1031 is changing and you never know too. They could change the law.

That kind of affects people too. You know, it's to say, for example, you have all this depreciation and you know, you have tax recapture at sale and for whatever reason, say, say some politician changed the law saying, Hey, you can't 1031 exchange anymore. Yeah.

Then you're, then you're screwed. I don't think that's going to change because a lot of politicians have, are taking, are using that benefit of 1031 exchange, but I'm not saying that it cannot, I mean, it can happen. So, yeah, it's by no means a solve all, you know, oh, we're not paying taxes.

Yeah, yeah. But you 100% can get caught in the pants down if you don't do it right.

[Stephen Husted] (34:42 - 34:58)

Yeah, it's absolutely true. What were you doing as a younger, growing up as far as jobs that led you into, because you're, you're, you're a people person, right? You, you manage people, so to speak, right?

What, what were some of your first careers or jobs, let's say, when you were growing up, like, what were you doing?

[Nathan Milazzo] (34:58 - 38:46)

So I only had one, uh, I started a little law care company when you're like 16. And, uh, we grew it and, uh, it was, it's still, the company still exists today. Uh, I no longer own that company more of it, but I do have like a smaller, I guess, company, you can call it, but that cuts our own properties.

Um, but yeah, so that's actually how I got into real estate too, is we were cutting clients, a lot of them, you know, say you're cutting some ladies yard. And she has a bunch of rental property that we cut as well for. And, uh, we actually did very well.

I think we had like $400,000 in gross revenue. And then we were young kids to make it a bunch of money, being stupid, blowing it all, you know, partying on the weekend, doing all this stuff that dumb kids do. But it taught me to, uh, you know, how to sell, you know, and I give incentives to people to use you over the other guy.

As long hair, anybody that's talking about a super low barrier to entry job, that is probably the lowest because you almost have to sell your client on. Hey, you know, one, I'm not a drug head to like, I'm respectable and young and three, I do a good job, but there's nothing stopping or stopping crackhead Fred from coming, you know, doing all the yards you're cutting for $10 less per cut. So you see what I'm saying?

So you have to constantly remind the people follow up. Is that as key with that business? I mean, sending Christmas cards, doing like little incentive things to your client, your clients, because it's 100%, not a necessary business at all.

You know, uh, when times get tough, most people, the person they could as long as, so you, you constantly have to, you know, sell yourself and reassure your client that you're the guy that this is why you're going with me. And so I did that with real estate. And, uh, that's actually how I got my first property is I had such a good rapport from clients that would just vent to me sometimes if I was just like pulling weeds in their flower bed or whatever.

And this little old lady, a little sweet little lady, um, her husband, we were, did a bunch of yards for them. And he had a bunch of four places and he passed away. He was an older gentleman, but it was kind of like out of nowhere and passed away and, uh, and she was like, I don't know what to do because she was very like a homemaker type lady.

You know, she never really paid the bill yet. He just did all that. And, uh, she, she was all worried about, you know, collecting rent and everything.

And she, that's what they lived off of. She was like, Hey, I don't know how I'm going to like live now. Cause my husband's not here to show me how everything works.

And I had, I think I saved up like 2,500 bucks cause I, again, I'll make a good money, but blow it up like you wouldn't believe. And, uh, and so man, I mean, typical early twenties, you know, smoking weed, drinking beer, kind of, kind of guys. So, but anyway, I saved us some money and I gave her that as a down payment.

And I actually was going to buy all 24 units, okay. For 2,500 bucks down. She's going to pay her monthly note.

And she, she actually tried talking me out because she's like, I don't know. It's a lot of work, you know, but my dad actually taught me how to buy an all 24. So I ended up just buying the fourplex and my buddy bought the rest and he still owns, which I kick myself to this day.

And I've talked about a deal, man. Uh, but he still owns the 20. I still own the four.

Uh, it's a great property. I paid two grand down for it. And, um, that's, that's literally how it started.

I mean, I've got a fourplex and a 32 and another 32 and a 10 and 90 and a handful of other ones, and, um, it literally started from lawn care, just, just knowing, you know, just having the knowledge of doing it because I was listening to podcasts while I was cutting grass and, and being relatable and personable and, you know, and being trustworthy to you. Like that was one of the things she didn't even think twice about doing the deal. She was more worried that like I was in over my head because I was just some nice kid that she knew.

You know, so, uh, that to me is why I have the success I have today is because I know how to relate to people and I'm a trustworthy guy. I'm honest. I do what I say I'm going to do.

And, um, that's it, man. It's business principle.

[Stephen Husted] (38:47 - 39:06)

It seems like a perfect segue into real estate, actually, when you were talking about, you know, everything that you needed to know how to do sales, showing up on, you know, showing up on time, being personable, you know, knowing how to talk and, you know, being able to have a conversation and that's a big, big part of it, especially building a relationship.

[Nathan Milazzo] (39:07 - 39:54)

Yeah. And the bar is actually very low. I mean, if you think about it, like, you know, how many, that's one thing where we, I think we kind of stood out to you with multiple properties is how many times have these tenants and these buildings been screwed over by all these homeowners, right?

So we put it to her like, Hey, look, you know, it was very hard and still again, not a perfect system, but they still are a whole tough system, but they don't trust them, they don't trust landlords, right? Just like a lot of, you know, people trying to get their grass cut, you know, who do you guys are just screwing people over looking like, you know, doing landscaping work or just cutting their grass and you know what I mean? So the bar is actually low.

It's just whether or not you have the, and I think it's kind of, you're born with it, but it's also learned is just kind of being personable, honest, and doing good work. I mean, it's not really rocket science. It's just not easy.

Right.

[Stephen Husted] (39:55 - 39:56)

Well, it's a, it's a skill.

[Nathan Milazzo] (39:57 - 40:10)

Yeah. It's a skill. Now I want to sell this to you.

Like it is not hard, but it's not easy. You know, it's just, you have to, there's really no substitute for it. You're going to work your ass off, but at the same time, it's worth it.

[Stephen Husted] (40:10 - 40:17)

You know, what's been going on in your family life and what you've been, what have you been doing lately? What's been going on?

[Nathan Milazzo] (40:18 - 40:53)

Kind of chaotic. Yeah. So my daughter's starting preschool and then my wife was pregnant with my first son.

So, yeah. So, and it's kind of crazy. She's due within a week of my daughter's preschool.

So that should be kind of chaotic. And then my sister is due a week after my wife. So, it's, it's a lot going on right now in family life.

So we're trying to kind of, you know, I want to be there as much as possible. Then again, I have a business suit. So it's like, you know, I'm being pulled in all kinds of directions, but at the end of the day, it's why I do it.

It's for them. So, a lot going on personally right now.

[Stephen Husted] (40:53 - 40:53)

Any traveling?

[Nathan Milazzo] (40:55 - 41:13)

Uh, so we always, we do our normal, uh, few vacations a year or whatever. We, uh, we go to Florida quite a bit. Uh, especially, you know, the Destin area.

We spend a lot of time there. Uh, but as far as like, you know, international, we haven't really gone anywhere lately just because I have a crazy three-year-old and a pregnant wife. So, uh, yeah, it's hard to travel.

[Stephen Husted] (41:13 - 41:14)

Yeah, probably.

[Nathan Milazzo] (41:14 - 41:35)

That's part of the whole, look, my wife and I first got married, even when we were dating, we, we went out of the country a lot. We traveled a lot. But, uh, and I always tell myself, you know what?

We're going to be those guys that travel with kids. We just, we're not there yet. I think our kids are too small.

And like, you know, we did Disney World last year and man, uh, so I think, I think we're good for a while, you know?

[Stephen Husted] (41:36 - 41:38)

Oh, that's a craziness right there.

[Nathan Milazzo] (41:38 - 41:40)

Oh, yeah.

[Stephen Husted] (41:40 - 41:41)

We went to Orlando. Yeah.

[Nathan Milazzo] (41:41 - 41:44)

And the world of lines, man. It's not Disney World. It's the world of lines.

[Stephen Husted] (41:45 - 41:48)

It's crazy. No, no, I can't do it.

[Nathan Milazzo] (41:48 - 42:20)

I wasn't, I wasn't stoked. My wife grew up in a Disney family. They went every single year, which I thought was crazy.

But, uh, I definitely did not grow up in a Disney family, but yeah, I'm good. I'm more of a beach guy. Like I like the Caribbean a lot.

And, um, but it's just being able to get down there. So, uh, Destin, Florida, I'm sure you California guys, not a lot of y'all know, but, uh, Destin, Florida is home to the Bahamas to me. The water's crystal clear.

We're lucky enough that it's four and a half, five hour drive from us. It's not bad at all. And it's beautiful.

[Stephen Husted] (42:20 - 42:32)

You know, uh, good market to invest in. I heard that's what I've been hearing. I don't know if that's changed, but did you bring that up last time that you wanted to get a place out there?

[Nathan Milazzo] (42:32 - 43:45)

Yeah, I almost did it. Uh, yeah, I was going to, you know, I just wasn't able to make sense of it because I was trying to, I was trying to pull the whole David Greene. All right.

Well, if it costs me four grand a year to own, but I'm going to go down there and is it really, you know, and, and the, the appreciation and the long pay down. But you could say that if you're making 50 grand a month, right. But when you're making like 20, it's kind of like, all right, well, is that, is that four grand a year or four grand, you know, it could be more than that.

So that was just me being optimistic. Uh, is it really worth owning at 30 years old? No, you know, in my opinion, it's like, I haven't accomplished enough to really justify having a vacation house.

And this wasn't even a comedy. This was a house. So, uh, I got a little, you know, you get your lifestyle.

I still drive a work truck to this day, uh, just because I'm kind of hard on myself, but like, I always tell myself I haven't deserved, I haven't learned anything to deserve a new truck, you know, and I beat the hell out of it too. So it's like, why, you know, and it allows me, and I don't, my tenants don't know all the properties either. Uh, so that kind of helps me with like blending in and kind of like being relatable, relatable to them.

Cause as soon as you pull up in a nice vehicle, all respect for you is gone. You know?

[Stephen Husted] (43:45 - 43:50)

Oh yeah. Yeah. Yeah.

A lot of money off us.

[Nathan Milazzo] (43:50 - 44:42)

Yeah, you're right. And so, uh, yeah, I'm not going to pay. Let's get together.

It was all my pay. It was going to happen. That's exactly what they did.

We need new cars now. And so, uh, that's kind of, you know, long, kind of a long drug out way of saying it, but you know, I decided not to buy it just cause it was just, we don't need it right now. We're fine.

I have a very nice house. We live on nine acres of land. Uh, I probably had a nicer house than I probably deserve, you know?

Uh, but I got it. This was three years ago now. Uh, so not that long ago.

And we did, I think our initial initial budget for renovation was like 80 grand, but, uh, I think we're in it for like 160 now and we're not even, we're not even like touched the upstairs yet, but just cause it's an old home and, uh, it's a pretty, it's a decent sized house. So it's like everything you do, it's 10 X, right? Uh, yeah.

[Stephen Husted] (44:43 - 44:46)

Yeah. What did you have to do to it? What, what is a big learning lessons from it?

[Nathan Milazzo] (44:46 - 45:51)

Did you have to like do all the rewiring and like- No, no, luckily that was done in 2006, but as far as like the house itself, we completely, I mean, I can just quickly show you if I switch, I don't want to mess it up, but anyway, uh, we, we did the kitchen, we did the living room. So like, I'm talking about like took walls down and like really did it, but we rebuilt it to make it look old and that's a lot more expensive than I thought. So, uh, it's a beautiful house.

I mean, we did the carpet tubs and, uh, I did a six person shower, which I've never put six people in and it was the dumbest thing I could have done, but that's a big purpose. But you have it now. Yeah.

Fantastic. Right. Uh, so yeah, so, uh, we, we, we overdid it for sure.

And, uh, but Hey, you know, it's, I don't really have anything, you know, else that's like a money suck. I, I, I love both, but I've refused to buy a boat yet, you know, just cause I have, I'm not allowing myself. And I guess that's this one.

I'm not allowing myself to buy these things until I get to this point. And, uh, and savings is the bill of my house. So, uh, my whole family thinks I'm nuts, but I live like I'm broke all the time.

[Stephen Husted] (45:53 - 46:07)

Yeah. It's kind of a good thing to, it's a good way to be actually, you know, you know, the time is right to do the things that you want to do as far as like buying the boat that can come in time and you'll just know when that's the right time too.

[Nathan Milazzo] (46:07 - 47:15)

Yeah. And like, you know, uh, my wife's always the one that it's always, you know, she's more about the spender, which is fine. But, uh, I am a little strange sometimes of how cheap I really am, but I call myself frugal, not cheap.

So it's a different, it's a classier way of being cheap, but, uh, you know, it's just at the end of the day, like for how much real estate I have, we're approaching 25 million in assets, uh, and I'm always a crackhead for deals. So like, you know, because I'll tell myself, oh yeah, 2024, we're going to, we're going to just build up cash and hold steady. Well, brokers know what I'm interested in.

They know what I'm buying. So they send me, yeah, they'll get a few drinks in me. You're like, oh yeah, this crackhead will get it, you know, and I go into it.

Like this happened two weeks ago. Uh, this broker called me up. He said, Hey man, let's redraft some drinks.

I said, I don't think I'm going to cash it, let's get a few drinks. And I pulled out of there and told my wife and said, I think I'm going to buy this property. You know, without any, any, any interest at all in buying it, it's just, uh, it makes sense, you know, and, uh, he knew how to get me so.

[Stephen Husted] (47:16 - 47:23)

Yeah. And that, that, that, that, that rush kicked in, you know, you put it like a drug and it's definitely like that. It is, it is.

[Nathan Milazzo] (47:23 - 47:25)

I'm 100% a drug addict. It's a rush.

[Stephen Husted] (47:25 - 47:26)

It's a rush.

[Nathan Milazzo] (47:27 - 48:02)

And it's just like, you know, the comedown is I take over. We call it the invasion period. But, uh, the comedown off the drug is the invasion period.

You have to like upload all the units, all the rent, like meet all the tenants. But Hey, I mean, you got to work too. So, I mean, it's, uh, it's, it's a blast, man.

I really am lucky, you know, uh, you know, to my friends and family, I'm kind of negative sometimes, you know, but I'm overall, in my opinion, optimistic guy, but, uh, I'm really am blessed for where I'm at for my age. And I think I've accomplished a lot, but I guess being in the soup all the time, it's, uh, it's easy to forget.

[Stephen Husted] (48:03 - 48:04)

Yeah. I mean, how old are you now?

[Nathan Milazzo] (48:04 - 48:07)

I'll be, I just turned 29. So I'll be 30.

[Stephen Husted] (48:07 - 48:08)

Oh my gosh. Yeah.

[Nathan Milazzo] (48:08 - 48:09)

Yeah.

[Stephen Husted] (48:09 - 48:14)

Yeah. You better get out of that D-class soon. Yeah, yeah, yeah.

[Nathan Milazzo] (48:14 - 49:07)

And then, yeah, I tell you what, the only supportive wife is if you didn't, I don't know how guys do it without one, because it is such a roller coaster, you know? And we have interns that come in and they're always like, oh man, I can't wait to start my own business because it takes the ceiling off what you can make. Right.

But I always remind them and say, yeah, but it takes the floor too. You know? And then when I say that, they're like, what do you mean?

It's like, I've had several months where we make nothing, you know, especially early on in the days and imagine that you had to put money into your business and on top of that, you didn't make anything. So you had to be disciplined enough to understand, hey, just because you have, you know, 200 grand in the bank and you can easily go by this, you know, yeah, it's great. You can go, you can say, you can go buy this car or whatever, but you can't.

I've had a lot of real world examples, especially this year of guys who've lost buildings, you know?

[Stephen Husted] (49:08 - 49:20)

How are they doing that, Nathan? So let's back up here. So there's money in the bank and what are they doing that they're losing money?

Like what's happening when they're losing a building? What's going on?

[Nathan Milazzo] (49:20 - 49:20)

Yeah.

[Stephen Husted] (49:20 - 49:23)

So a lot of people understand that part. So let's- Yeah.

[Nathan Milazzo] (49:23 - 52:24)

So a lot of it is just a great business. So, you know, and I don't think it's really, it's their fault. Yes, but Canada is not, because nobody expected rates to go up on tax, you know, and so, especially with bridge debt.

I mean, we have a property with bridge debt with that, that we went from making good money to barely nothing and we're just ready to retire now, but we're kind of holding off and everything. But anyway, imagine guys who probably overpaid for properties, which happened a lot two, three years ago, and they put bridge debt on it because they wanted to bring some kind of value out of it to the building. What happened is, let's say you have a million dollar building, right?

And that's, that's on the low end. Let's say you have a million dollar building and in your opinion, it's usually a lot of times it's an okay building as it sits. There's really not a whole lot of value in it per se, but two, three years ago, value ad was a sexy thing to do in real estate, right?

Everybody was doing value ad in real estate. I was doing value ad in real estate, but we were still buying, buying right. Right.

We're still buying on principle, not loose on. So a lot of these guys got a little, they got a little bit excited. You'd go to a conference, everybody would tell him how bad ass they were

Me included, I'll admit it, but their egos got a little inflated. They're like, you know what, we can buy this overpay for it or whatever. And we can do a value ad, put bridge debt on it.

We're going to over-leverage it. We put it at 90% leverage. Again, guilty of it too, but they would over-leverage it.

And then when the rates went up, that took that note and they went from, you know, say the property, the note's 10 grand a month and the property is bringing in 20 grand a month and, you know, all your operating expenses and whatever, but on top of the rates going up, so did insurance, so did property taxes, so did labor, so did everything else. So that $10,000 spread you once had turned into $2,000 and when rates went up, that $2,000 spread went into negative $2,000, negative $3,000, negative $4,000. And you started having to call your investors for cash calls and his investors got tired of doing cash calls and the bank took it back.

You know, and we, so we, we actually, we didn't necessarily lose it, but we had a lease purchase, I think we actually talked about it on the last one. It's a 30 unit lease purchase deal that the seller really couldn't afford to sell it because you've got to do it through the dirt and I'm sure you had me on Facebook and Instagram. You probably saw the pictures and the termite damage was insane.

Literally, it was a pyramid beam building. You've got to do the dirt, put about 200 grand into it. Well, when it came down to actually purchasing the property from the lease purchase, the seller was just unrealistic.

They're like, look, man, we're going to have to renegotiate. The rates are where they are. It's, you know, this is at the end of the day, it's the lease purchase.

So we don't actually own the building, but we invested 200 grand in this building. So it wouldn't budge, whatever, whatever it says building, we just did not exercise the right to purchase it. So here's a $200,000 lesson right there.

You know, so I graduated from Harvard just now, you know, but I'm like, hey, that's freaking stuff, you know? So, yeah.

[Stephen Husted] (52:25 - 52:34)

And you weren't alone either. There's, I mean, we went through everybody. We all went through it one way or another.

It was like, oh, this is, this is good. There's going to be some pain. Oh yeah.

Yeah.

[Nathan Milazzo] (52:34 - 52:42)

I'm just grateful. I'm grateful that my pain was nowhere near like, you know, that was making me feel good actually.

[Stephen Husted] (52:42 - 53:13)

You know, I was one of my partners about that. Like, I'm like, you know, we've had issues. We've figured out a way to, you know, not make that mistake hopefully down the road and how we're going to do that.

And I just knew from hearing other stories from other investors that I'm like, okay, it's not that bad. Keep going. You know, we have some properties that we, that we're taking losses on right now.

Yeah. And it is what it is, but the other ones are doing really great. So it kind of balanced it out and we just, we just sit still until.

[Nathan Milazzo] (53:14 - 55:14)

Yeah. And that's kind of, we kind of pivoted to is that you've actually taken less cashflow now. Like I think we're using this year, I know it's too sad, but we kind of build our capital back a little bit, but we're actually paying ourselves less and trying to build the actual buildings capital back as well, just to like, have a little bit more buffer room to where, you know, the building can kind of fix itself with the needs.

Because I've got a few stories I can tell you really quick too, but you know, back to the whole thing, when it rains it pours, we had two major issues within the same month. Like we were giving back this property 30 units and our 90 unit had a fire. Okay.

A large fire that actually affected 16 units, but guess how many units is our property? 16. Oh, but see, luckily we have, we have business interruption insurance.

We, we got some of that back, but of course they're going to, they're going to do you down and like, you know, we're not making anywhere near what we're making if it was actually running, you know, but there's 16 well-behaved tenants, you know, they're vacant. It's getting paid from the insurance company now. But anyway, and actually that fire.

So here's, here's another thing a lot of investors need to learn. Fine print in your insurance, read the fricking insurance documents because this fire and I have to kind of be careful how I say this because my lawyer is always getting on me. But this gentleman was a subsidy client and overdosed on fentanyl.

And in Louisiana, I'm not sure the law is anywhere else, but if I were to get fentanyl and you die, I get charged with murder because it's how rampant it is down here, it's rampant everywhere, but you know how bad it is. And so those people lit them on fire and are still missing. Okay.

They're, they're said to be in Florida or whatever. But so now it turns into a murder investigation or an arson. And in the fine print of our insurance, it says that, you know, our business interruption insurance does not pay insurance for the life of the investigation, not because of the fire, but because of the investigation.

So it's not like they're not going to pay us, but they're not going to pay us until the investigation is over. That makes sense.

[Stephen Husted] (55:15 - 55:15)

Wow.

[Nathan Milazzo] (55:16 - 56:20)

So that investigation lasted 60 days. That's 60 days for making $0, $0 on a 90 unit apartment complex. So if we wouldn't have had savings, guess what?

You know? So that's why I always say I'm not above anybody who wants their buildings and do this because you're at the end of the day, most investors are one fire or one flood or one stone away from losing all their shit. You know?

So, yeah, I am not here trying to say that I'm better than these people who have lost their buildings, but trust me, we, we got a very good, scary taste of how close we were, you know, but luckily, you know, we're disciplined and we had a lot of savings and I'm just glad to say we lived and invested another day. And I think the saying is now it's like survive till 25. I don't know if you've ever heard of that, but I think that's kind of sort of true, but I'm not banking on it, you know, like our underwriting is for 7% interest, you know, and that's kind of the foreseeable future.

So I guess all that being said, be conservative, you know, and, and really make sure that you got to get to the savings block away.

[Stephen Husted] (56:21 - 56:26)

Yeah. Tuck it away. Prepare for everything and anything.

[Nathan Milazzo] (56:27 - 56:37)

Yeah. If savings didn't happen. Savings is a bill, man.

Like that's what I always say, and sometimes it's hard, you know, but savings is a fricking bill. And if you don't tweet like that, it's, you're going to lose it quick. You know?

[Stephen Husted] (56:38 - 57:10)

Yeah, we went through that. We were in the middle of doing a flip and one of my partners, I told her that, you know, when we get done with this flip, we're allocating a bigger chunk to savings just to have it there. Because we were going through, like I told you earlier, a bunch of issues.

When, you know, rain, it pours. It was like this property got broken into. They stole this, this, and this, this one's got this issue.

This needs this. This is going on here. Next, you know, it's, we got, you know, $30,000 worth of scenarios going on, just like in a couple of days.

[Nathan Milazzo] (57:11 - 58:35)

Oh, yeah. And that's what people don't realize too. Like, that's why I get aggravated to like the conference guys.

Like I forgot what the word for them was. Like they're just always on that conference high. You know, they're like, oh yeah, real estate is all upside.

It's all good, good, good, good. But those same guys most likely have the experiences that me and you have, but that doesn't sell. I mean, that's not sexy.

Yeah. So, and I think real estate really had this bullish run for a long time of like, you know, especially with social media and these guys, but nobody really was talking about like the stuff that can really happen. It's not good.

You know? Uh, I think that's all kind of, you know, they always talked about the upside and like, oh man, inflation's this, and you got to beat inflation. You got a cashflow and all this, but they didn't realize that the good times don't last forever.

You know, uh, and a lot of guys, and I feel like I've been shouting out. Matt has really been my biggest critic on it. Cause he's always like, man, look, we were one of those guys.

We were like, oh man, life's good. Hell yeah. Let's keep going.

Just keep buying. But he kept telling me, he's like, dude, you were one bad deal away from losing the shit, you know? And he kept, kept, you know, and that's very, you know, he's very conservative and very like, if he doesn't meet his boss, he doesn't look at it.

And before I was like, oh yeah, it doesn't make sense. We can make it, you know, we're both going to agree. We can make it, make it make sense.

Right. Yeah. There you go.

[Stephen Husted] (58:35 - 58:36)

You're projecting right there.

[Nathan Milazzo] (58:38 - 59:04)

Yeah. And so look, and now, I mean, I know I'm probably not as optimistic as I was the first time I talked to you, but it's because I've experienced a lot, you know? And, uh, I went from, you know, taking pay cuts, you know, making good, good money.

I'm making good money now too. Man, times were good. And I'm sure, you know, these were great for a while.

And, uh, but those days are coming back to us. It's those days where we come back with experience, you know?

[Stephen Husted] (59:04 - 59:16)

Yeah. It's, it's, it's riding through the cycle and learning from the cycles and keeping that in the back of your memory banks for those days when you can see it coming and going, okay, we need to adjust back because we remember this back in this year.

[Nathan Milazzo] (59:16 - 59:52)

Yep. Or like, hey, my math tells me we should pay, you know, 70 a door for this property, but the guy's really persistent about getting 80. Should we give him 80 or should we say, screw you and go find somebody who'll take 70?

You know, that's, yeah, that's my biggest, to me, that's my biggest weakness. Cause like, I get that deal crack. I'm a crackhead.

I get that deal crack in me and I'm like, I'm like, dude, I really want the deal. But now I'm like, I really think in business, you have to want the deal to like, you know, be motivated to get it, but you don't want it bad enough to already go make a bad decision yet. You have to kind of like, kind of sort of want it, but like not care if you don't get it, I think that's the guy who got all the strength.

[Stephen Husted] (59:53 - 1:01:50)

Absolutely. You know, lately I've been taking some of my real life issues that I got going on, on properties or just scenarios. And I literally just paint that story into Instagram stories, you know, and just, Hey, you should do the, you know, like do, you know, it was a really simple one.

Um, I, we just got done rehabbing a duplex in Kansas city. And one of the units is going to be a midterm rental, uh, for traveling, uh, nurses, doctors. And, and, but we got a family that moved in from Hong Kong.

And for some reason they have, they have, they just had a newborn somewhere in Kansas city. They're going to stay for 30 days and they're flying back. Well, we had some issues with this rehab.

The attic needs to be insulated. The AC is not working good enough and they're having a heat wave there. So we need to act fast to my, uh, stager.

Let me know that she found brown recluse spiders in the bathroom, in the shower. So we needed to, you know, get some spray going in there. And this guy's sensitive.

He's bringing home a newborn and all these different things. So we had to work through it. Then we had issues with, uh, electrical in kitchen where it's old, where we couldn't do a AC window unit in there.

We, we could, but we couldn't run it to an extent, like any type of plugin type scenario. So we ended up running it, uh, a extension cord to the kitchen that just got remodeled to the GFI and it looked clean and it's done and we solved it, but I had to call three AC guys. I had to call three handyman to do it, you know, and we have people, but everybody's busy.

So, you know, I put that scenario out on Instagram and then I put another one, like, Hey, when you have rental properties and your management have three of everybody, you know, just, I mean, just, just those little things so that you're not like, Oh my God, I don't know what to do. Here, here it is. Have these people call to figure it out.

[Nathan Milazzo] (1:01:50 - 1:03:37)

Yeah. Yeah. And that's, that's good advice.

I mean, I don't, I don't have any like education, like, Hey, you should do this. I just post like what I'm doing. Yeah.

I don't know. People always see it. They're like, you know, I'll be, you know, we need the property.

Like, you know, I'm very good at yourself or like removing couches away. Or like, uh, I saw one a few weeks ago, posted it. We're crushed.

Like we put all of our dumpsters and like, uh, you know, we have one big dumpster at one central location with all of our furniture we put in it and we have this pressure thing that comes in, like literally just like crushes all the furniture so you can fit more in it. You know, people were like, Oh man, that's pretty crazy. I didn't know.

It's like, you know, that's required in property management. Well, I mean, it's not required, but it happens. I mean, sometimes you need to call a pressure guy.

Like it's, I say, I like to say like, you have to have people in your, in your rolodex, you know, you have to know, Hey, this month, for whatever reason, we had a bunch of couches and couches take up a bunch of room in our dumpster. We can either dump it twice and pay 1600 bucks or pay 200 bucks to the pressure guy to come and like, literally like destroy the fricking couches and pay the 800 bucks that we always pay him instead of paying it twice, you know? So then I've only spent a 200 bucks more.

So, uh, yeah, little stuff like that. Like if people don't have experience, you don't realize like, Hey, you know, it might be good to have a dumpster pressure guy and your, and your contacts, or it might be good to have the guy with the big, long plumbing snake that, you know, that we don't have, because we have the cast iron pipes, you know, uh, but, and also to how to fix little like pinhole leaks and cast iron, cast iron pipes are a nightmare, but we've had a lot of it in Baton Rouge, kind of hard to avoid. So, you know, it's just little stuff like that. Like you're saying three and everybody, but also a specialist here and there too.

Like a guy who's a yes, man, like you. Yes, man. Yeah.

[Stephen Husted] (1:03:38 - 1:03:42)

Yeah. The one that goes in there and you know, it's, you got confidence. They're going to make a good figure for you.

[Nathan Milazzo] (1:03:43 - 1:04:04)

It's like, it's like a rare situation where a plumbing company is like, I don't want to do it, but I'll just charge the hell out of this guy. But like, you know, it's like a weird request. Like a lot of those weird requests add up a lot, especially in multifamily.

Like there's a lot of weird shit that happens. Yeah. Like we had somebody flush a, uh, like a, uh, hairspray cap, you know, like a little plastic cap down the corridor.

[Stephen Husted] (1:04:05 - 1:04:05)

Yes.

[Nathan Milazzo] (1:04:05 - 1:04:39)

First of all, I don't know how it even fit down there, but it made it all the way past this whole end of the main line. Well, it was so far in the building, like obviously the very, the very center of the building, we couldn't reach it at the clear outline of the street, and we couldn't reach it from under this hole in one of the units. So we have one guy that has this super long snake that I mean, plumbers have it, but they're going to charge you all the way for it, but he's our yes man guy.

Right. He came out and did it for like 200 bucks, you know, but if you were to have to call like Roto-Rooter, they would have charged you $4,000 just to come out there and do that. Oh yes.

[Stephen Husted] (1:04:41 - 1:04:45)

They would have did more than they needed to, but until you need it.

[Nathan Milazzo] (1:04:45 - 1:04:56)

Yeah. They would have the whole concrete busted up. They would have had all kinds of stuff going on and they would have the road closed, literally everything, but our do-it-yourselfer guy did it for a couple hundred bucks, you know?

There you go.

[Stephen Husted] (1:04:57 - 1:05:19)

That's good. Well, I'm glad to catch up with you again. So hopefully this time we're going to, we're going to get it posted and we got good audio and the screen wasn't shaking around, but I remember Angel was like, you need to get Nathan back on because that was a good episode and we did a couple of shorts, but we can't release it.

I'm like, all right, we'll get him back on. Where can the audience find you? Are you on social media?

[Nathan Milazzo] (1:05:20 - 1:05:32)

Yeah. I'm on Instagram and Facebook. Just Nathan Malazzo is N-A-T-H-A-N-M-I-L-A-Z-Z-O.

And I'm posting random stuff, you know, I'm not necessarily like an influencer, but I'll post shit I'm doing on there.

[Stephen Husted] (1:05:33 - 1:05:34)

You show the shit.

[Nathan Milazzo] (1:05:34 - 1:05:58)

All right. I try to be honest. That's one thing I tell myself, I'm trying to show the more negative than good, you know, on there, but I make it fun.

Like, you know, I take the negative and make it kind of fun. Like we get trashed out days, man. My little high school, I got a lot of high school, like interns that come work for us, man, I love making them throw up and that's like a joy of mine.

[Stephen Husted] (1:05:59 - 1:06:03)

I've seen those carpet reveals are pretty scary.

[Nathan Milazzo] (1:06:03 - 1:06:14)

Yeah, you saw us cutting with the kitchen knife in the left behind. We'll do a little dumb shit like that and it's like, we don't necessarily need to use a kitchen knife, but like why not, it's in there. Yeah.

[Stephen Husted] (1:06:14 - 1:06:16)

So just fun stuff. Yeah.

[Nathan Milazzo] (1:06:16 - 1:06:18)

As simple as falling in love and stuff.

[Stephen Husted] (1:06:18 - 1:07:02)

All right. Well, thanks a lot, buddy, for taking the time to jump on today and yeah, I'll be chatting with you soon and keep moving forward, man. Thanks for all the insights today.

Awesome. Thank you. All right, buddy.

Take care.

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