E11 – Marc Savatsky

 
 
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*Intro and outro music are from an original piece by

Carl Zukroff of The Blue Hotel

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You have stumbled onto another episode of Get Your FILL, where we aim for financial independence and long life. The music you were just listening to is an original score written by Carl Zukroff of the band, Blue Hotel. You should definitely check them out when you get a chance. This week, we’re really fortunate to have with us Marc Savatsky. Marc is the founder of a great boutique real estate development company called Choose Boston.
They specialize in condo conversions and I think Marc specializes in finding neighborhoods that are just about to turn amazing. He kind of discovered East Boston, long before a lot of people and he’s now discovered Lynn, so follow his work and see if you can’t discover a great new neighborhood.
Marc’s also the Senior Development Project Manager at New Boston Ventures, where he’s overseen over $150 million in development over the past five years, and Marc is a fellow podcaster.
He’s the co-host of Real Estate Addicts podcast and I will put a link to his podcast, to Choose Boston and to his Instagram account, which is @ChooseBoston. I’ll put all that on to the website. The website is GetYourFILLPodcast.com.
I met Marc a few weeks ago when we were part of a panel discussion at Northeastern University. The Real Estate Investment Club had invited us to come and talk to them about real estate investing, different ways to get around it. They had some questions for us. They’re a great group. And I really enjoyed meeting Marc and loved the answers that he had to his questions so I invited him to join us and I know that you’re gonna really enjoy what he has to tell us today.
Chris: Marc, thanks so much for being part of the show today. I know you are also a podcaster, will you tell me a little bit about your podcast and how you got started with that?
Marc: Absolutely yeah, first really excited to join you today and our podcast is called Real Estate Addicts and I co-host the podcast with my two good friends, Dan Rubin and Ray Hurteau, from HRV Homes and my development company is Choose Boston and the three of us bring a different guest in each week. Someone related to the industry, be it a broker, someone who does debt brokerage or otherwise other developers. It’s usually about 45 minutes and we’re 20 episodes in, and we’ve really enjoyed it.
C: That’s great. So what do you look for in your guests what kind of information are you wanting them to kind of get across to the audience?
M: It’s usually pretty casual conversation, but we start with a background, a little bit of how you got into the industry, maybe what your first project was, and then we go into more current topics, current events, we talk a lot about numbers. We try not to shy away from that wherever possible so we’ll ask what their current renovation costs they’re seeing or otherwise, if there’s a certain cost per door that they’re looking for for entitled projects or unpermitted deals, what the environment is like as far as permitting projects and how they’re finding it.
C: So is it more local folks around the Boston area or do you kinda get anybody who you think can contribute.
M: Yeah, it’s funny, we’ve been very Boston-centric. If we look at our numbers, we have an app that shows us the back end. I’d say that 80% of our listener base is in Boston. We’re trying to grow beyond that. We just brought in the skype capabilities then we had at interior designer from Devon Grace Interiors in Chicago, and that was our most recent episode. So we’re trying to branch out a little beyond Boston. We started with our network and everyone we know is more or less in Boston. And so that’s how our first episode went.
C: I’m willing to bet that I either work with, or I’m related to everybody who’s listening right now. That might not be true, but at least in the beginning. Yeah, ’cause by time your episode airs, is gonna be episode 10 or something so we will be have been under way for a few minutes.
M: You’ll have thousands of listeners.
C: Oh yeah, no doubt. So how did you get started in real estate?
M: I came into it from more of the nuts-and-bolts technical side. I consider myself a builder first and foremost. So I went to school at Purdue University, and I have a degree in construction management, and straight out of school, I went to work for Suffolk Construction, which is the largest general contracting shop in New England certainly and definitely in Boston. And I spent five or six years, and I just… Every time we’d do a project, I’d be sitting across the table from the guys with the checkbook and the developers and I always really admired what they were doing in calling the shots and making the decisions. And I found a development group in the South End about six years ago called New Boston Ventures, and the guys there were good enough to give me a shot, let me be their kind of construction muscle. As I learned the ropes of development and it’s been a really good ride.
C: Yeah, it’s a great way to get started just to find some folks who know things that you don’t know then just absorb as much as you can.
M: Yeah, that’s definitely true and all the while I’ve had my own business and ventures. My first project, which is maybe just a gut renovation of a single family that I lived in with two roommates straight out of school. I just kinda built on that. So at any given time, I have one to two of my own personal projects, residential, value-add plays in the city and that’s been really rewarding too.
C: I was gonna ask you, what’s your investment strategy? And you kinda almost started going into it, so do you wanna elaborate on that.
M: Absolutely, I look for properties that I can add value to typically in Boston. What that’s become a lot of is value-adds vis-a-vis the zoning process, so if I can find a single family and split into two duplexes, or otherwise, if I can add a curb cut and bring parking to the rear of a building or dormer out a roof and make an additional unit in what was otherwise an attic space, dig out a basement. Those are some typical… The formulas that I look to, because again every time, I add a square foot, my build cost might be $200 a square foot and every square foot I sell is $600 a square foot so anywhere that I can add a sellable square foot, I’m winning.
C: Absolutely. Do you keep anything or you selling everything that you’re renovating and developing?
M: I started out doing all rentals/ I would renovate, usually live there and then move, and then hold it as a rental and I did that a number of times in South Boston in a couple more desirable neighborhoods in East Boston, and I thought that was a great way to cut your teeth and learn the ropes. It’s a little bit more forgiving when you have a tenant with their punch list as opposed to a condominium buyer whose expectations are quite discerning for good reason. So, from doing the rentals, I still have those and those are terrific. I kinda cash flow my if-all-else-fails back-up plan… I’ve moved into more of the condominium conversion, that’s a reflection of the market and where we’re at here, it’s a little tougher to make rentals work in a very expensive market, like Boston
C: Absolutely, especially with so many big, full-service buildings going up and people are like, Oh, okay, I can have the gym here. All that stuff, you can’t really do in a smaller sort of a building.
M: Definitely, I’m at a time in my career where I’m not interested in parking money, I’m really trying to grow. And so, condominium flips to me, is almost a deal with the devil. I would much prefer to do buy and hold. I think a lot of the wealthiest guys I know, and people I really look up to, have strong rental portfolios, and I think that’s the way to retire on the beach, but in the interim, it’s a very capital intensive business, so I’m just trying to build that capital base, so I can eventually go back into doing some more rental and long-term stable assets like that.
C: That sounds perfect. So a lot of the folks who are, I guess, you could call it the philosophy of the podcast is for folks who are at a point in their life where they wanna stop working fairly soon, but they have not been able to be smart like you and start young and build up a nice big portfolio. So is there anything in your strategy that you think could be employed by somebody who maybe has $50.000 or less and not a whole ton of time to make enough money to sort of stop working?
M: Yeah, so I think that for one thing, I believe that single=families are kind of a blind spot in the market. I think that oftentimes, first-time home buyers really want the security or perceived security of a condominium – like training wheels on a bicycle. And I think that sophisticated, bigger developers, three units is probably the minimum that they would look at. And so something you can get a nice house with a lot of bedrooms, where that could be a great rental. You can even Airbnb rooms within your house, they call that a house hack – And so if you can find that single family that has a decent amount of space, maybe a little postage-stamp back yard and do some minor cosmetics with it and live in it over time, I think that you can really realize some value to have a nice roof over your head, and when you do go and sell, you’ll take your proceeds with you, largely, tax-free, which is a beautiful thing.
C: So what would you say is your biggest success so far?
M: Probably in terms of absolute dollars, a project I recently finished in East Boston, so this was a surface parking lot previous and I lived down the street from it in a two family that I had renovated and built, and the gentleman who owned it was a postal worker, and had always used this lot as an $80 per month surface parking lot and he’d occasionally put up signs that would say ‘parking space for rent.’ And I’d always call Dominic and say Dominic, are you done renting parking spaces. Can I just buy that land from you? I saved his number, this was a number of years later, just continue to check in with finally said he said, “Alright Marc, come meet me and my wife. We’ll have a coffee in the kitchen and you can present what you’re thinking.” And so I gave him what I think it was a very strong offer, contingent on zoning, which means that we only elect to close if I was successful in acquiring permits, and we ended up getting seven units with six parking spaces, and I built that from start to finish in 11 months. And the building is a huge success, and I think that’s my favorite project.
C: It sounds like it went fantastic, that’s great. How about your biggest lesson? I’m not gonna call it biggest failure, I call with the biggest lesson ’cause everything we do we learn from – something early on where you thought, “Oh gosh, now I’ll write this down. I’ll never do this again.”
M: Yeah, there’s been a lot – one that comes to mind is… So the two family that I was living in down the street from this larger seven-unit project, when I first acquired that it was a bank-owned REO and it was a very competitive bidding situation. I was younger, and I knew enough to know that you should check on the legal occupancy status before you went and closed on a building.
And so I went to the portal for the city of Boston and I looked up the address and its current use for this number on Cottage St said: two family. And so I checked no further, but as it turns out, there’s two Cottage Streets in Boston –one in Roxbury and the others in East Boston – and what I bought was a store with a residential unit above it, according to the records for the city, and so I quickly learned how to navigate through a board of appeals process and change legal use and occupancy classification. And there were certainly some sleepless nights.
C: And that’s so fun, isn’t it? Going and talking to from the city and you’re like: please, you have to do this for me.
M: It was like a scavenger hunt. One thing that they wanted to see… To back up, there’s a group within the building department called the Occupancy Committee, and one thing which can support your petition is if you provide voting records.
So there’s some back room at city hall where you can go in and pull the voting records for that property to demonstrate that two families have been voting in this house since 1970 and so it all came together but not without a lot of stress.
C: And a little detective work there, too. So you talked a little bit earlier about the market and where things are going, what do you think is gonna happen in the next couple of years?
M: How did I know you’re gonna ask me that? I think if you would have asked me that a couple of years ago, I would have said were in the sixth inning and the games coming to a close. But look at where we’re at now. So who knows? I do believe like a lot of people, I think the fundamentals in Boston in the city are very strong. I think the institutions, the jobs, the intellectual capital all underpin the market. And so if the commonwealth of Massachusetts has the flu, we’ll have a common cold. For that reason. I’m not holding chips off the table and we still aggressively acquiring.
What do you think?
C: Well, I do feel like the rental market seems a little saturated, so… That can affect prices, but interest rates just went down a little bit more, so that’s gotta help a little bit.
Plus, I always look at supply and demand, and there’s just a lot of new supply in certain areas, like you say, we’ll have to wait and see ’cause I have a feeling and this is just a feeling that Trump is gonna try to do some things to maybe artificially, maybe realistically, bolster the economy, so he can get reelected.
M: Yeah, I wouldn’t disagree but as far as supply goes, we really have a shortage of housing, especially in the urban areas, and it’s not getting any easier to get permits, unfortunately, so I think we all have some work to do. Boston’s really done a good job, in my opinion, of carrying their weight. But I think that a lot of the surrounding towns and municipalities need to step up to the plate and contribute.
C: Yeah, I guess I’m just seeing, as a real estate agent, seeing some of the rental prices either staying the same or softening a little bit. And that’s what makes me think that people are anxious to move to the newer buildings and maybe they’re not as excited about buildings that are a few years old, and maybe have been painted 17 times or whatever, but none of us knows right?
So talking a little bit about Boston, you’re talking about the… How they’ve been legislating or whatever. They passed some legislation about Airbnb, which could hurt some house hackers. Have any thoughts about that? Are you familiar with that?
M: Yeah, I’m familiar. I think the political reason is obvious, and I’m not surprised in the least that type of legislation is passed. If you think of it and the city counselors and elected officials are elected by their constituents who live in these neighborhoods, and they are all feeling every day, the effects of a housing shortage on their rents and in the prices when they’re searching for new homes and they look out their window and they see out-of-state license plates, and people opening doors to units all around them, in streets and they know that that’s not making for a more affordable housing scene and though a perfectly rational person would say that these tourists coming in bolster our economy and spend tons of dollars at our restaurants and other places, and that that’s a critical part but they don’t vote. And the economists don’t make up the whole voting pool for an elected official.
And so what they’ve done is the new regulation sort of favor folks who are just looking to offset their housing costs by renting a room within their unit for a number of days, no more than 28 out of the year, and they’re sort of thrown the investors out to the sharks and say, This is no longer a model, which we’d like to see you employ. I’ll leave my value judgments, out of it, but I will say that model, if you can put up with the time and the resources required to manage a short-term rental, the pro forma sings as compared to a 12-month lease. Really it’s no comparison. So the trend probably would have continued absent some legislation.
C: It was already a little bit challenging in the city, because most places – a lot of the condo buildings have restrictions against short-term rentals and stuff. So, already it was challenging, but now obviously it’s gonna even be a little bit worse. Mine are in New Hampshire, so I’m not so worried about it.
M: Yeah, yeah, I don’t think they’re gonna crackdown, I think that they value that tourism part of the puzzle.
C: They do, but they get pressure from the hotels, so they’ve actually started charging room and meals tax because the hotels are saying Why should anybody stay with us and pay all this tax? And plus, by the way, New Hampshire, you’re missing out on those tax dollars. So you got a good point, okay, we’ll do it, but it works out fine. Airbnb collects the taxes. So it’s still really easy.
M: How do you find managing Airbnb? One thing folks who do it tell me is that everyone underestimates the effort required to actually scale that business and make it efficient.
C: Well, I don’t mind getting texts at 9 o’clock saying: ‘How do we turn this thing on,’ or whatever, you know me from that perspective, that’s in cool with that. I don’t think that really is work. You definitely have to do the set up, in the beginning, to make it comfortable, to make it obvious. I have little notes on all the cabinets to tell you what’s inside and just kind of give people some guidance ahead of time. And I have great cleaners in place, so they take care if something weird happens.
M; Towels, bedding.
C: That’s all covered. And luckily, I have folks who live quite nearby. So for example, they’ll throw the linens in and then they can swing by easily later and just take them out of the dryer or whatever. So it’s not from that perspective, it’s worked out really well would say is… Obviously, there are surprises. At one point I had some people come, I think that was supposed to be four people I’m sure there were at least 10 because we actually found stuff and the people had been sleeping in the closet, they were just a nightmare, they broke two of the beds.
I don’t know how you do that, actually. But they broke through the mattress to damage the slats in the box spring. So, jumping on the bed, wild sex I’ve no idea.
M: I won’t tell you where my mind was going.
C: But in general, compared to a long-term tenant, they’re just here to have fun, you know, what I mean? They’re not gonna call you and say, “Oh whatever the neighbor’s dog is barking or some kind of crazy thing that somebody who is your long-term tenant might complain about.
You don’t have to worry about things like lead paint, you don’t have to worry about a lot of the restrictions that you would have to worry about in a longer-term residential unit. And most of the people you’re dealing with are happy and… And the other thing, actually if… Have you done Airbnb stuff before, have you worked with them as a company?
M: No, I used to Airbnb one of the rooms in one of my first houses, when I lived there, which is a funny story unto itself.
C: Tell me, tell me.
M: I had an extra bedroom, and I was at work on a Friday, and it was slow so I posted some photos in AirBNB – had not cleared any of this with my wife, and thought I’d have sufficient time to tell her what was going on and sure enough, I got the message; so-and-so will be checking in 5 PM tonight. We had this Dutch economist come and stay with us for three days. And he was a riot. My wife was like, she warmed up to it but I was in the doghouse for a day or two
C: I bet! I had a similar situation ’cause I had bought – I had the single family that I was living in, and I had bought another house, and I had been avoiding going there ’cause it needed a lot of work. So I’m like, “Look you’ve gotta force yourself to get out of here and go to the other house.” So I did the same thing: took the pictures, posted the thing and I woke up the next morning, and same thing, so-and-so is checking in. I’m like s**t, but I had to move out. I’m packing up my clothes and packing up enough stuff so that I could go over to the other house and lived there for like three weeks, the guy stayed. I was like: “Oh no, I’m glad. And yet…” and it forced me to get into that other house and get to work done.
That was funny. But they are great as far as I’ve had – up here, of course, we get lots of weather. I don’t live there, so I’m not… And one of the houses on a dirt road, so it was an ice storm. The people were supposed to check in, they made their way to the house, but then they got there and they were like: we couldn’t even get out of the door, we could even get out of the car because it was so icy in the driveway. Yeah, and I called up my plow guy but they just don’t feel comfortable ’cause of the road and everything. So they called AirBNB and AirBNB put them up in another hotel that was in town. It didn’t cost me anything, well, it cost me, I didn’t get their money. They said: Do you mind if we put them in someplace else? I’m like… No, I’m really grateful. And they paid the difference in the price and so it worked out great. Their customer service is really good.
M: So yeah, that’s a cool story.
C: So what else should I be asking you? What other pearls of wisdom would you like to share?
M: Sure, sure, a question I get a lot as a landlord as I’m sure you do is just… “Should you self-manage your properties or hire a management group? My advice is to manage it yourself. There will be stressful moments like some of the ones you describe, but you’ll figure it out, and you’ll build the team around you, be it a plumber you can rely upon or a roofer and in time that team falls into place and you won’t have given away a fair bit of your profit over time to a third party and you’ll learn a lot.
C: Yeah, I agree, 100%, even if your eventual goal is to have so many units that you can’t manage them all yourself, you don’t know who you need to hire you don’t know what you’re looking for, for qualities and stuff like that, if you don’t, if you’ve never done it yourself. And for the Airbnb piece, it’s all reviews.
That’s one of the reasons I’m so successful up there is because I have all great reviews and I’m a super host, all that kind of stuff, so it’s hard to do that if someone else is managing your property and 10 other people’s. It really is better for me, I think, to have my personality in there and have my input and it’s my priorities but… But a friend of mine lives in… She’s got a house in Midland, Texas, and she’s got a guy who’s a professional manager, and he said… Look, I guarantee you this amount per month, and if it goes over, we’ll split it. So it can work out well from that perspective. too, but I’ve never, I guess I haven’t actually ever worked with a professional manager, maybe they’re fantastic.
M: Earlier on in my career, I had a friend who was an architectural engineer and he promised me the architecture and then the structural side, and we’d split this thing 50/50, and I remember I called my father and he said: “Well Marc, what would an architect cost? What would a structural guy cost you to hire? How much are you gonna make? How much is 50% of that actually be? Do the numbers, Marc. I know that makes you feel warm and your interests are aligned but there’s plenty of professionals out there.” So if that’s a general contractor, if that’s an architect whatever, just think about that you could do precisely one half as many deals per year and make the same amount of money if you’re not giving away 50% of everything you kill.
C: Yeah, unless you absolutely can’t do the deal without this other person, then don’t give it away.
M: I think that at the end of a project, you’re giving away about half to taxes, and then you’re gonna split that again with the partners. You work so hard.
C: Yeah, absolutely, as soon as you introduce another person, you’ve got that whole negotiation process and everything has to be a committee decision that definitely slows things down and can change the project in a way you don’t necessarily like.
M: For a partnership to be successful, you’ve got to assign roles and responsibilities and know what each party’s bringing to the table and if there’s a really good business reason for both of you, you’re the construction guy, he’s the money guy, terrific. But I think a lot of times folks maybe partner because it’s like training wheels on a bicycle and it just makes you feel warm and fuzzy whereas if you just had a little fortitude and went at it alone, you could have been much more successful, looking back ten years and having dragged around a weight with you.
C: Yeah, I agree, I’m trying to think if I’ve done any transactions with partners.
Yes, I did, at one point I bought a commercial building with two partners, and that’s what happened. We each had a different idea of what we were gonna get out of the situation and what was gonna happen and at the end of it, one of the people bought the other two out because it just wasn’t working for any of us really. And then, but live and learn and like you say, live and learn. Alright, anything else that I should be asking you?
M: I think this has been great.
C: Thanks Mark, I really enjoyed talking to you, you know what? I wanna just bring this up that we were on the Northeastern University panel together and what you thought of that whole process, the real estate club, and then their questions and just the whole experience.
M: Yeah, so much fun, first of all. I love doing stuff like that. There were so many guys that were mentors to me, and certainly sent the elevator back down, and any time I have an opportunity like that I always just try to say Yes, I love doing it and there some really good kids there, very inquisitive young minds, It was fun doing it with you. I enjoyed meeting you and some of the other good people there.
C: Yeah, you too, definitely that it’s fun being on a panel. I haven’t had that experience before necessarily, with so many – I would have to call you guys heavy-hitters and successes in the industry, and hearing everybody’s take on things and it’s fun to hear one question, and four completely different takes on it sometimes.
M: Another crazy thing is that occasionally someone stumbles or a deal where they don’t know what to do with it. They’re a year out of Northeastern and they say, I remember Chris or I remember that guy, Marc, he knew about this. What should I do with this half-acre over here? Things like that, never, will never hurt.
C: Oh absolutely, yeah, I hope they call us. Or even for some advice, or we could help them with a transaction or something that would be just the best to actually see that they’re making success and acting on all this information that they received when they were at such an impressionable age.
I love their energy, I just think they’re just so fired up, and there’s so much like we’re gonna be rich, and I just love that whole energy and I wish that when I were young, I would have been smart enough like JT formed the Real Estate Club, like, Wow, I wish I would have thought of that.
M: I’m so cynical now. I admire their optimism.
C: Well, and that’s it. It’s the innocence of never having lost any money in this. When you’re young and you learn to ski because you know you’re never gonna break a limb. Hey, this is so easy!
Once you start to learn that you’re breakable it’s a little harder to learn to ski. It’s the same thing with real estate, I think.
M: Yeah, that’s a really interesting analogy. I think I benefited from some of that when I was just starting out, going to do things and take on projects that I had no business doing, but I found my way through the maze and was better for it, but if I was a little wiser looking back, looking from the outside, I probably would’ve said call the electrician or hit the eject button. But you persevere.
C: And like you say, you’re better on the other end.
M: Yeah, yeah, exactly right. Go off the jump, get off the chair lift, and do it.
C: Yeah, exactly, yeah, thank you so much, Marc, I really appreciated our conversation today.
M: Yeah, thank you for having me on and I look forward to staying in touch and have a good weekend.
C: Yeah, you too. So, your podcast is called, just tell us a little bit more about what about it and where we can find it, and all that good stuff and find you.
M: Absolutely, so Real Estate Addicts is the name of our podcast on Stitcher, iTunes Apple, anywhere you get your podcasts. I’m on Instagram as Choose underscore Boston Choose Boston is the name of my development company and DM me or reach out. I’m always glad to meet up for a coffee or a chat.
C: Awesome, thank you so much. That was great, thank you so much Marc, for being with us today. It was a real treat and it was great meeting you at the Northeastern University panel discussion about real estate investing. That was a fun event.
Check out all the links that we talked about, everything that Marc mentioned, along with his podcast and his Choose Boston website, are all gonna be linked up on my website, which is GetYourFILLPodcast.com and tune in next week when we’re gonna be doing something that I don’t know yet, but it’s gonna be the sunrise-series format so we’ll be going Monday through Saturday with who knows what, except one thing I do know is that Foodie Friday, we have a special, foodie guest for Foodie Friday and he’s gonna teach us how to cook the southern way. Alright, have a fantastic week. See you next week.