Chasing Financial Freedom
Chasing Financial Freedom
Ep 290 | 3 Proven Strategies to Build Your Real Estate Empire Like a Pro
What if you could transform your career and achieve financial freedom without relying on investors or partners? Join us as we explore this fascinating journey with Matthew Pezon, the CEO of Pezon Properties and a former chemical engineer who transitioned into a thriving real estate investor. Matthew shares his inspiring story of moving from the corporate world to owning 200 apartments all on his own. Get ready to uncover valuable insights into his strategic shift from single-family residences to multifamily properties and the critical role of understanding market conditions in his success.
Have you ever wondered how to get started in real estate investment? Learn the essential strategies from Matthew and our own experiences, including the importance of education and a clear investment philosophy. Hear firsthand about leveraging financial resources effectively, with practical examples like purchasing a first single-family property for $15,000. We demystify various investment strategies, such as affordable housing development and infill lot projects, and emphasize the need for thorough research and preparation to navigate the complexities of the real estate world.
Building a solid team is crucial for lifestyle investing, and we discuss how to do just that. From finding the right mentors to establishing core values and avoiding common pitfalls, we share practical advice from years of experience. Matthew also opens up about his commitment to providing free mentorship to aspiring local investors, encouraging listeners to seek guidance. Discover how mentorship, networking, and community resources can break down barriers and make real estate investment accessible to everyone.
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Hey guys, Ryan DeMint from Chasing Financial Freedom podcast. Hope you guys are having a great day. Today on the podcast, we have Matthew Pizzono. Matthew is the CEO of he's on properties.
Speaker 1:Former chemical engineer turned real estate investor, owner of 200 apartments with no investor or partners, fulbright scholar, spanish speaker, husband and father of three young children. Matthew. Welcome to the show, ryan. You're welcome to the show. Right, you're welcome. Sorry that I can't pronounce your name correctly, it's not a problem. So before we get into a little bit of your real estate journey and so forth, can you tell the listeners about yourself?
Speaker 2:Yeah, sure, I'm 36 years old, father of three young children. My wife and I have three under three, and that's why it's what I'm here to do. I love it. I also invest in real estate, and we love traveling and doing different things too. I transitioned into full-time investor and I'm excited to be here to talk about it.
Speaker 1:Cool. So when did you transition from side hustle to full-time? So how did the pandemic hit you when it came to moving from a side hustle to a full-time? Did it delay a little bit? So?
Speaker 2:in the end it actually advanced things and pushed them faster because of all the appreciation that we saw. But then a lot of the ring assistance came into play and things took off from there, so it ended up being a very good thing for us.
Speaker 1:That's awesome. So let's start with how'd you get into the space, what you were doing before, and then what got you motivated to say, okay, I'm leaving corporate America and do this full time Sure.
Speaker 2:I am actually one test away still from becoming a professional engineer. I went to chemical engineering school, graduated in 2010, and I went to work for a big chemicals company and my first boss out of college told me that I was the worst employee he ever had and the company should fire me. I realized that I didn't want one client. I didn't want a customer. I didn't want to be a worker in a large company forever. I just had a bad experience initially and I'm thankful for it today. I was always motivated by success and I just found that I didn't want to be in a corporate environment forever. But it took me 12 years to get out of it after that point, but I did eventually.
Speaker 1:What got you to the point of real estate?
Speaker 2:When you mentioned my Fulbright scholarship, I went to business school in Madrid in 2013. That's where I learned about debt, I learned about equities and I learned about estate and entrepreneurship, and I was fortunate enough to learn about it in a classroom setting. And then I knew, once I got back to the US, I was going to build my own real estate business, because I just understood debt, I understood financing and how rents pay everything off, so that was how I got started.
Speaker 1:Why apartments versus single-family residence?
Speaker 2:So I started with single-family residences and I liked those because they tended to be more for stable families with, say, five, seven years, but eventually they became an affliction. Now you have 50 roofs instead of two roofs, a run-roof and a fence, so it just became a maintenance difficulty also.
Speaker 1:Okay.
Speaker 2:What size of apartments do you currently have? You say you have 200. How's that broken out? They're broken out between two to three units and 12, 15 units, so it's still relatively small multifamily. So is the two to three units more difficult to?
Speaker 1:manage than the larger units. So is the two to three units more difficult to manage than the larger units.
Speaker 2:The nice thing about the two to three units is that a lot of times FHA buyers will purchase them, so I really like them for that reason. There's no real difference in the makeup of the apartments, whether it's three units or 12, other than it's just more dispersed.
Speaker 1:You have four or three units in one unit. So when you say FHA buyers and some people don't understand that what are you referring to with FHA and how that works?
Speaker 2:The house hacking crowd that's looking to get in to live in one unit and have the rents from the other two units pay off with the expenses. Fha buyers can buy up to a four-unit property, so fortunately, I accumulated a lot of those over the years, years and there's a lot of incentives for that first time home buyer.
Speaker 1:Nice. So are you turning over inventory on a consistent basis or are you trying to hold it for a longer period?
Speaker 2:of time. So I purchased properties for eight years and then, as rates started to go up and it was harder to refinance them and pull equity out, yeah, it refinanced. I started to sell. But I've never been a net seller. I've always bought more than I've sold.
Speaker 1:So what got you into selling? Was it because of interest rates? What were you trying to accomplish by selling the properties?
Speaker 2:had accumulated equity, because for many years in my area appreciation was 8%, 10%, 12%, 15% annualized. When rates went up it was more expensive to borrow and the lenders wouldn't get a tie of a loan amount because the property couldn't service all that debt. So the loan amount I could get actually went down while the property value went up. That gap between what the property was worth and what the mortgage could be eventually became so great that it made sense to sell and put the proceeds into the next property. That's what I started to do, because that's what the market told me.
Speaker 1:Are you using any type of tax shelter vehicles at all?
Speaker 2:Just the depreciation on the new purchases.
Speaker 1:Not a 1031 exchange or anything to that extent.
Speaker 2:No, just because over the last. Now it's changing. I think this year it's 60% bonus depreciation as it phases down. But for five years there it didn't make sense to do the 1031 exchange because the replacement property would offset the sold property anyway if you do a bonus depreciation. So it was a de facto 1031 exchange because the replacement property would offset the sold property anyway if you took bonus depreciation. So it was a de facto 1031 exchange without actually doing an exchange.
Speaker 1:When it comes to getting into the space, and you went through learning about debt and so forth why real estate? Why real estate? Specifically multifamily?
Speaker 2:It was a product that I understood. I had paid rent for many years as a tenant myself, and so I understood what it was like on the other side of the table, a tangible asset, something that typically had gone up in value over many years through fluctuations in time. I saw how, without doing much to the property other than minor repairs, that dollar denominated value wouldn't increase. There were other businesses that also have allowed this debt. There's a lot of business leverage debt, but it's not a tangible asset other than a physical thing. I just always understood physical things and I saw that they went over value or over time, and that perturbed me to the space.
Speaker 1:Cool. You talk about getting into the space without any investors or partners. How did you start? And I guess the good question here is if there's people listening that are in your space or want to become a landlord or an investor, how can they start without a partner or investors? That's what.
Speaker 2:I did, I would go around. So all my friends were Friday night, Saturday night, going out, partying, whatever. When I was in my early 20s, I was getting up early on Saturdays meeting with a group of investors in their 40s, 50s and 60s and going around and seeing properties every weekend and I made friends of folks that could show me how to invest in properties and how they were doing things and I just asked a whole lot of questions invested properties and how they were doing things and I just asked a whole lot of questions.
Speaker 1:And when you started, how much capital did you need to get your first property? I needed $15,000 at the time. Okay, was that a multi-family in today's?
Speaker 2:dollars Okay. So was that a duplex, triplex? It was a single family investment property and I had my car paid off and I had 401k money, so I borrowed from my 401k, I refinanced my car and I got a personal loan as well. And I learned from my mentors how banks are looking at loans and how much leverage you can take. And I knew that with my salary I could pay off all the debt and with the time income it would get approved, and so I was able to put money into that property and then I repaired it and then I refinanced it not long thereafter to get my capital back.
Speaker 1:The Burr method Right. If someone is looking to start in today's day and age, where would you suggest they start?
Speaker 2:Before they look at real estate out there, they should look at the real estate between their own ears, and what I mean by that is they should get educated. They should find out why they want to invest, where they want to invest Right, what type of product they want to invest in and what their philosophy is on investing. Everyone wants to jump on Zillow right away and start looking, and they don't even figure out who their team is and why they're investing, what their philosophy is. So start in your head before you get out looking at real estate.
Speaker 1:Education is a big piece and a lot of people don't actually do that. I'm an affordable housing developer, so I buy infill lots and I build ground up and then I sell. I am not in the landlord business. My joke is I don't do tenants, toilets or 2 am phone calls. I want to be the bank, so I'm a lender, I'm a broker, but we're also a private lenders. If we have somebody that wants to buy a property, we can finance them through several different means. It makes more sense for me because I just don't want the headache. So that's just me, it's personal.
Speaker 2:To the affordable housing space. I have a HAP contract, 25 units and it's a lot of administration, a lot of overhead just dealing with the contract and HUD itself. So I can appreciate why you're saying that for the affordable space.
Speaker 1:Yeah, I just it's just so much easier. And then we really partner with local cities and sometimes states, to where they have these infilled lots that have been sitting around doing nothing. And we're looking at a deal now of 20 lots and I'm like, okay, it's not bad, but again there's got to be benefits in that. And then learning between that space I like what you said is getting that space between your ears and educating, because this be a whole different deal, because they want to put, basically, the city is going to pretty much give us the lots and then also, since they haven't been hooked up to any type of utility in probably 10 plus years, they're also going to grandfather that in so we don't have to pay tap fees.
Speaker 1:I'm a little hesitant because I'm a for profit and I have to figure out how that is going to play out, because they're going to say that it's a grant and I'm sure it's going to be taxable. So I need to understand that. So there's the real estate between my ears. I got to do some homework and figure that process out, so we'll see what happens. But if you don't put yourself out there and go after it, you really can't determine what's going to work other than what's on the internet or television and so forth, and people just think it's so easy, and it's not. It is absolutely not that is very true.
Speaker 1:But you hear about it quite frequently when someone says, oh, I'm going to buy this dump of a house, I'm going to fix and flip it and make it all happy and joy. Do you realize there's fire damage in there and how much work you have to do? It's cheaper to knock the dang thing down and build it up.
Speaker 2:Yeah. I lost money on my first flip because I thought it was easy and it wasn't, I didn't flip. I didn't try to flip anything again for seven more years. It was such a bad experience.
Speaker 1:It's not for the faint of heart. I've flipped quite a bit of houses in my time and if you ask me to go back to it again, I never will Give me an infill lot. Give me dirt, give me something where I can make the canvas pretty, and I'll go for it, cause I know the road, the pits there believe me, there's holes in there that you can lose a lot of money on development. But if you've got the right team, like you said, it works Absolutely. So for that, it leads me into my question how did you build yourself a team Because it sounds like you've got a team and what were you looking for? And how did you basically prepare yourself to bring these people on the journey with you to support you? Because ultimately, you don't want to be working in the business, you want to work on the business.
Speaker 2:Yeah, I mean there's a lot there. I'd say first I had to get educated to learn the space and mentors were key. Then, after that, I had to learn what I meant and for me it was always about lifestyle investing where my corporate job and my wife's kids and I could go on vacation and we have a passive investment, mostly positive. I don't believe anything's fully positive, but we could have an asset, we could have a little bit of residual income. So once you figure out what you want to do, then you can figure out where you want to invest if you know your philosophy, and then you figure out your team. To figure out your team, I made a lot of mistakes here, but I would say there has to be a culture fit. You have to be clear on what that culture is and your core values, because you can't create a culture. You can only hire people that embody your values.
Speaker 2:I learned that the hard way and I only realized after I hired them. I hired the wrong people, I built the wrong team and then I had to redo it. I didn't understand how to hire and how to recruit and how to motivate and how to lead. I didn't understand any of those things. So it's really something that you can read about. I worked with a high-level real estate consultant in the space and again coaching mentorship going back to that name, so that's what I'd recommend. On hiring a team.
Speaker 1:I love that and I think those are all great things. But let's say you're starting out. You don't have a large budget. Is there a way that? Would there be a different way that you'd go about starting than what you actually did?
Speaker 2:no, because I worked with mentors who could refer out the best people that, uh, could be good fits. I lost money on my first flip so I could go back and change anything I wanted, because I would have started with that mentor, her, the same mentor community. I would have just vetted the people. I would have understood contractor draw schedules Like no, I'm not going to front you with 55% of the project because that means that they're taking my money to pay off the previous guy for the previous job that they couldn't pay and it's just. Hey, paul, all the things I learned along the way. I would have had it closer. I wouldn't start it with a more jaded mentality. What's the worst? The rose colored glasses? What's the worst that can go wrong? Because all the worst things that can go wrong happen to me. Fortunately I'm not the one to tell the stories, but I would just assume the worst and hope for the best. But you're trying to work with the people.
Speaker 1:Just, and you don't have to share if you don't want to, is how much did you spend on this advisor or mentor when you first started?
Speaker 2:So the mentors were completely free. It was and this was before bigger pockets and anything like that. So actually the knowledge and education is much more abundant than it was when I started. But it was just a local realtor who around a group of individuals who would be the. He was basically a buyer's agent with the people and we'd all go around and look at properties. So there's no fee, which is what I would recommend. I would find a person in your community who's willing to take you under their wing show you properties that you can invest in.
Speaker 1:I wouldn't pay for mentorship Getting started. Was that realtor a? And I'm not. This is no knock, but I deal with a lot of realtors on a daily basis and some of them just don't understand investing, so you found one of the rare ones that actually did.
Speaker 2:Yeah, on 27 properties. At the time, he specialized in investors that purchased properties.
Speaker 1:So, outside of a realtor, who else did you actually use as a mentor when you first started up?
Speaker 2:Other investors, those that were actually doing the thing I wanted to do. I found someone other investors actually doing the thing testfully and I wanted to do, and I took them to print and asked them questions Not someone who was going to tell me about it, but someone who's doing it and I could actually go to their houses.
Speaker 1:That's cool because you can't find that nowadays. It's pretty hard, it's just everyone's a guru. One of the things that I like that I've been going to is local meetups.
Speaker 2:Similar to what you're talking about.
Speaker 1:Yeah, they work very well. There's some great people in there and there's some not so great people, but whatever. But you're connecting and talking to other people and you're basically vetting yourself out. And that's how I've met three or four people in my local market in Arizona here that want to do investing, or they're private lenders or whatever the case is, and they want to buy property or whatever. But it's vetting out the process and getting out in front of people Know better, yeah, and you get to know exactly what that person's made of and what he or she's trying to do, and then you figure out if it works, yes or no, and if it doesn't, great. If it does, you keep trucking.
Speaker 2:Yeah, that's right. And you bring up a good point that there's going to be all different sorts of people. You ask bring up a good point that there's going to be all different sorts of people. You cut them. You ask different questions, see who resonates with you and and go from there. Um, it's, you might be led down the wrong path initially, but then you come back and you just keep figuring it out. But I wouldn't open capital or resources or just take a tip by a property, like really think through and improve your risk analysis. What, what could go wrong, what's the worst that can happen?
Speaker 1:Do I have enough cash, all those things. I like it. It's dark, but it also helps you too, because if you're not prepared for the worst, it's going to come up and bite you, because my first flip didn't lose money, but we barely, I would say we made a couple thousand bucks. It wasn't very much, and that was probably the most stressful part of my life. And I said, man, what am I doing in this business? And we kept on flipping more, not hundreds, but pretty close and then got into building and then building became just it's just a passion. Now, when it comes to really honing your skills, what are you doing on a daily basis, monthly basis, to keep yourself sharp and staying on top of trends in the market?
Speaker 2:Yeah sure, my team and I, we read one book per month that's based on personal development or leadership, and we meet to stop that continuous pursuit of growth, betterment and improvement. I listened to a couple of podcasts that are news-based. I look at what rates are doing for interest rates and I'm looking at supply in my market. I'm looking at the average and median sale Price increases year over year and I'm just looking at those main indicators job creation, population growth versus housing units available, the other piece of rentals and so forth.
Speaker 1:I'm going to ask you the downside, now All the positives have been shared. What are three downsides of being a landlord?
Speaker 2:You have to enforce the rules and it's hard because you might feel that oh no, I shouldn't enforce these because they're going through a difficult time or whatever. I've lost 10, 12 months of rent from a few rentals during COVID and it was just hard. Things can go wrong like that Non-paying residents can be. It could be a challenging business because you're trying to get contractors to fix stuff, You're trying to get things done for the residents and they're upset because the problem isn't solved. But you called around free roofers and they were all no-shows. It could be tricky. I'd say the residents, the contractors and I'd say management in general. Actually doing the work is tough.
Speaker 1:So are you self-managing or do you have property management helping you?
Speaker 2:I've been with third-party management for about six years. I self-managed up until about 15 units myself. Then I did third-party management so I could just keep buying all the apartments and the houses. But now that I've built that acquisition side, I'm going to be bringing back in-house the property management component because it's just become too expensive to outsource as third-party. So the pendulum is shifting back for me to the middle property management component because it's just become too expensive to outsource as third party.
Speaker 1:So the pendulum is shifting back for me to the middle. So you're going to have to hire employees to handle all that.
Speaker 2:I have the main property manager that I'm hiring. I'm doing that now and then from there that person will hire technicians, will hire an assistant overseas to handle a lot of the operational kind of bookkeeping stuff and go from there.
Speaker 1:Nice. What do you think that's going to do for yourself overall, on a day-to-day basis? Is it going to eat up more time, is it going to get better over time, or is it just going to be a status quo and just keep on rolling so?
Speaker 2:initially it's going to be a lift. I'm setting it up now. There's insurance, there's software, legal tax, all that stuff, but it's not too difficult to do just because I've been in business for as long as I have. It takes work but I have that wherewithal. But the end stage will be no net impact to my time, because I'll have a team that I manage with KPIs, indicators, policies, hr procedures, all those things that just govern the activities that we do, and then those employees can perform to our standards or not, and then we deal with either situations. It's not going to be a net impact on me after the next 30 days. My acquisitions team is crushing it. We just closed on 16th it's on Friday and they just signed another deal today. We're about to sign another one tomorrow and I'm I didn't even realize that we had an appointment today. We got an agreement signed, and so it's that's coming.
Speaker 1:That's awesome. That's all the upfront work that you're doing is going to set yourself up for success. Otherwise it just becomes. I call it lost in the sauce, because I've done that before. And if you don't set up those SOPs and put those guidelines in those guard rails, it just doesn't work.
Speaker 2:No, I made that mistake too, I think we all have Good.
Speaker 1:We're getting close here to wrapping up. Just a couple more questions. What would you share as your best tip or trick that you could share with somebody that wants to potentially get in this space?
Speaker 2:mindset is really important and I've heard that and I guess I always will ask what that means, so I'll try to explain it. Um, I was growing up I was afraid of money. Money was something that was lacking. I was afraid of debt. But I learned how to use debt and money are a tool, and so I had paid off all my debts and paid off my student loans. But then, as quickly as I got out of debt, I got into that because I realized the power of leverage. So I would say, not fearing money, not being afraid to make mistakes, but also controlling your risk, because you can expect when you're starting, you can write yourself out if you make mistakes and you can be in the penalty box for a long time. Don't be afraid of risks, but also be prudent in your decision making and really identify those limiting beliefs that have prevented you from investing up until this point and addressing those.
Speaker 1:Before we end are you working with anybody helping, anybody mentoring? If anybody wanted to reach out and talk to you, could they? Yeah sure.
Speaker 2:So I actually do a free, pro bono community service that I do through the Real Estate Lab in Allentown. Basically it's through the real estate lab in Allentown. Basically it's a program where the residents of Allentown can participate and learn how to bridge the wealth gap through real estate, through enterprising activities, as opposed to not being able to have the opportunity that they haven't had in the past because they have been from a disadvantaged group. I try to break down those big things to do for society and try to help people that never would have had an opportunity to invest in real estate. I provide free mentorship here locally, but if you're interested in reaching out, you can find me on my website pezonpropertiescom that's P-E-Z-O-N. Propertiescom and fill out our form and we can connect.
Speaker 1:Nice. I will share that in the notes on the episode. So, sir, thank you for coming on. You found yourself financial freedom through hard work and perseverance, and you found where you're going. So thank you for coming on today. Thank you so much for having me.
