How to Find Profitable Properties and Avoid Investing Mistakes | Joel Kraut

Erika Proctor (00:00)
So I know earlier before we officially started the podcast, I think you had some interesting stories. So I want to start with this. Every investor has a moment where things get hairy. You know, maybe there’s a challenging deal and you have to pivot. Joel, what would you say was a monumental story in your journey that was like that?

Joel Kraut (00:24)
Well, have what unfortunate unique situation where, you know, we had a three family house in on the south side in Newark, New Jersey. We had it rented all three units. Lovely family in the middle. Great lady on the first floor and somebody we probably should have never taken the money from on the third floor. But unfortunately, we were tied up in a lot of jobs. They offer us some cash.

upfront, you know, we could pay a few months of rent and like idiots, we took it. We did not do a good job of vetting the tenant, right? I had a couple of hot water heaters I needed to replace, maybe a furnace or something like that. I don’t remember exactly, but you know, that extra $10,000 in my hand at that moment was going to go right to the contractor and solve a couple of problems for me. Lo and behold, you know, six months into it, shots fired, drive-by shooting.

Unfortunately, they killed the lady who lived on the first floor. She was a nice mom, beautiful lady, two kids, and they were trying to get to the guy on the third floor. So the police came, shut down the building. couldn’t operate the building for about six months before we allowed to re-rent it. Unbelievable harrowing experience. You know, it’s probably like 14 years later and I’m still talking about it. So for you in the new…

in the game, you one of things that I would say to all people as we travel and meet them, you know, it’s absolute dollar cheap. Make sure you really understand the neighborhood well and make sure you’re really comfortable there before you invest your money. Things can happen.

You know, generally there’s A neighborhoods, right? Really beautiful homes and gated communities. B neighborhoods where people want to move to. We start to move down towards C, C minus. Or rental. You get the D, hardcore rental. There’s no real Fs in our business. You go to G, my God. And that was really one of those my God type properties. So that was one of the worst experiences of my life. then for my birthday in January 2007, I got a phone call.

Erika Proctor (04:04)
everyone, welcome to the Real Estate Pro Show. I’m your host, Erika. And today I’m thrilled to be joined by Joel Kraut, who’s been crushing it in the investing space. Our listeners are going to love the advice that you have today. Joel, it’s awesome to have you on the show.

Joel Kraut (04:14)
Thank

Erika, thanks a lot for having us. It’s always a pleasure to be around you guys. Being part of the industry for a long time, meeting great people like yourselves, it’s awesome to be part of the whole group. Thank you.

Erika Proctor (04:32)
Yeah, yeah, the community is amazing. So Joel, give us the rundown. How did you get started in investing? What sparked that journey?

Joel Kraut (04:42)
I mean, for me, I was a trader on Wall Street. We proprietary traded options, futures, things of that nature. If you’ve ever watched the movie, The Big Short, some of those types of derivative products, we were hedging against the housing industry back then as well. So we’re familiar with that. But when I was commuting to work, I would read books, autobiographies of well-known families. And one of the common threads always in those books was these families owned real estate.

And you know, I grew up in the Michael Jordan era and if you want to be like Mike, you got to do what they’re doing. So to me, as I had the small opportunity, that window opened for me, a local friend who had sold me my primary residence came to me. She must have had a deal that blew up on her. She knew what I was doing for a living and thought I had, you know, okay, credit and some money. Would I be interested in buying a small condominium as an investment?

I was really into it. I didn’t really know what I was getting into, but I was excited she was gonna help me hold my hand, take care of things for me, get it rented up. So the usual trials and tribulations were really taken care of for me. And that gave me a beautiful entree into it all. So that’s really how it started for me in 1996.

Erika Proctor (06:42)
Awesome. then Joel, today, where would you say is like the main areas in the market that you are operating in and what kind of properties do you look for?

Joel Kraut (06:51)
So I love single-family homes. I tell this joke on the road all the time, but I grew up like in apartment 13H, but I don’t think anybody ever went to sleep dreaming to live in apartment 13H. The dream in AmErika and for people coming to AmErika is still to own your single-family home. So I personally like to invest in single-family homes. We hold them as long-term rentals. We hold them as lease with an option to buy type properties. And currently we’re operating in five states.

Alabama, Louisiana, Florida, as well as Philadelphia and New Jersey. We’re open to other opportunities as people see fit. You know, we’re willing to join venture with people and partner up. That’s been a great, great avenue for us to be able to have boots on the ground in all five of those locations.

Erika Proctor (07:39)
That is great. And what is your strategy or method for selecting those properties? What are you looking for?

Joel Kraut (07:47)
So I keep it

really simple. I’m a very simple person. I’m looking for at least three bedrooms, one and a half baths, minimally. Depending on the area we’re in, we’re trying to figure out what the sweet spot is in terms of square footage. Let’s say plus or minus 200 square feet at the most. I know sometimes the temptation is to buy a bigger home because it seems cheap.

and thus you can sell it for more based on a dollar per square foot method. But the problem often is you don’t really get much extra value, but what you do get is more expenses in flooring, painting, more windows, larger roof to redo, right? So we’re looking to figure out what that sweet spot is in the local markets. If we’re gonna be buying to hold as rentals,

I still subscribe to the Big Three Method, Wendy’s, Burger King, McDonald’s. I like to drive around the area. I make sure there’s enough fast food. Fast food attracts rental tenants. You don’t see that many.

convertible Bentleys in the fast food lines at McDonald’s, right? But you do see a lot of normal people with three, four, five year old cars, nothing wrong with those cars, but generally a lot of those people are showing you that there’s enough population density there for me to be able to build a business. I don’t want to go to an area and buy one property, even if it’s great, because if I have to fly there later to go look after it, I’m gonna fly, spend 20 minutes at the property and leave. That’s very expensive over time.

But if I can find an area where I can cluster by five, six, seven, eight, 10 properties over a course of let’s say 30 months, now I have a business, right? And I can be efficient with my time and money. I can fly into the area. One of the recent examples is Cleveland, Ohio, right? People from all over the country are descending there. And I can spend the day looking at properties.

Seeing my properties, meeting contractors, meeting the agents, wholesalers, some small banks, get to know some local business people maybe in the supply, right? I need supplies all the time. I don’t want to pay full price at Home Depot. So I love to bring coffee into Home Depot, right? We take a tray full of coffee, we go right to the pro desk and we introduce ourselves to everybody. They always have a coupon.

We always save the request for the coupon to the day we’re buying the kitchens and bathrooms, where we’re gonna spend four to $10,000, right? Not on the day when I’m going in buying some hoses and hardware and I’m only gonna spend three, $400. I don’t wanna waste it then, right? But I’m building goodwill all the time. So there’s a lot of little pieces and nuances that go into these businesses. And you were looking for places where we can build a growth business. It might not be.

the highest level of, ⁓ you know, bootcampism that they teach you all these tricks, but you know, going back to the McDonald’s, Burg King’s Wendy’s, going into local police departments and asking them where not to invest in your local market, you’d be surprised how many civil servants are already investing to supplement their pensions. And they know if they’re walking the beat, so to speak, or driving, they know where they wouldn’t invest their money. That’s good enough reason for me not to invest mine there as well. Same thing in the fire department.

You know, Erika, you go into the fire department, especially a nice young lady like you goes in and just asks a simple question. You know, sir or ma’am, where were the last two arsons in the neighborhood? Well, arsons are premeditated, you know, of crime, right? So I don’t want to invest my money where there are premeditated acts of crime where people are lighting houses on fire and putting them to the ground.

That would be irresponsible for myself with my own money. God forbid you and I had partnered up on a deal and you were kind of relying on my experience to know those types of things and I hadn’t taken the extra step. You go to planning boards, you see who’s coming, right? All the different big box retailers. ⁓

different types of businesses that want to come to an area, have to go to planning boards and apply for approvals for different things. Well, you want to see what’s on the board for the next year, right? You want to get a sense of where you should be in these neighborhoods ahead of time, before it’s publicly exposed, before you see the signs go up. There’s a lot of free, free, easy ways to go do those types of things. And truthfully, I still like to subscribe to those.

Erika Proctor (12:39)
Yeah, yeah, I love that. That’s fantastic advice. And with all those deals that you are doing, are there any systems that you found really, really helpful to, you know, manage all those plates that you have going on?

Joel Kraut (12:54)
Yes, in the old days we would definitely use the spiral notebook, but that’s a little too hard to do anymore. So we’re using Google Sheets so that myself and my partners, wherever they are, we can use an interactive spreadsheet and keep track of everything live. So for instance, when we’re doing a flip, even if you went and bought hardware at Home Depot,

and today it costs $89.73. You can load that into the sheet, I can see that exactly. The sheet will calculate for you day by day how much our carry costs are, if we have utility bills, real estate taxes, insurance payments, all those types of things so we can really keep track of our costs and compare it to what we budgeted going into the job, right? We always want to measure to see where we are, right? We’re gonna have some field changes. It always happens, I don’t care who we are.

you know, I’ve flipped over a hundred houses, I have friends who have flipped a thousand. It happens, okay? None of us are perfect. You open up a wall, depending on what city you’re in and the wall’s 80 years old, that wall’s not gonna look exactly like what you thought it was gonna look like before you opened it. So you’re gonna run into some things. But, where do we have left in the budget where we can economize a little bit? Because we’re gonna have to spend a little more here. And we need to be able to track that well. So, again, we’re using Google Sheets.

a lot of times for that and we are taking advantage for many of you out there that belong to some of these RIAs, the real estate investment organizations. I still use my 2 and 4 % off cards at Home Depot, Sherman Williams, Payne’s, things of that nature because quite frankly over the course of a year that starts to add up to real money and you know I don’t know about you but in today’s market

I know it looks cool on Instagram, everybody’s making $100,000 flipping houses, but it’s not quite that simple and margins are much tighter than they’ve been. You can still make money, you can still find deals, you have to work hard to find them, you have to manage them really well, and you have to pay attention to your dollar. You cannot waste money in today’s world anymore. It just will not allow for it.

Erika Proctor (15:01)
Yeah, yeah, absolutely.

So I know earlier before we officially started the podcast, I think you had some interesting stories. So I want to start start with this. Every investor has a moment where things get hairy. You know, maybe there’s a challenging deal and you have to pivot. Joel, what would you say was a monumental story in your journey that was like that?

Joel Kraut (16:09)
Well, have what unfortunate unique situation where, you know, we had a three family house in on the south side in Newark, New Jersey. We had it rented all three units. Lovely family in the middle. Great lady on the first floor and somebody we probably should have never taken the money from on the third floor. But unfortunately, we were tied up in a lot of jobs. They offer us some cash.

upfront, you know, we could pay a few months of rent and like idiots, we took it. We did not do a good job of vetting the tenant, right? I had a couple of hot water heaters I needed to replace, maybe a furnace or something like that. I don’t remember exactly, but you know, that extra $10,000 in my hand at that moment was going to go right to the contractor and solve a couple of problems for me. Lo and behold, you know, six months into it, shots fired, drive-by shooting.

Unfortunately, they killed the lady who lived on the first floor. She was a nice mom, beautiful lady, two kids, and they were trying to get to the guy on the third floor. So the police came, shut down the building. couldn’t operate the building for about six months before we allowed to re-rent it. Unbelievable harrowing experience. You know, it’s probably like 14 years later and I’m still talking about it. So for you in the new…

in the game, you one of things that I would say to all people as we travel and meet them, you know, it’s absolute dollar cheap. Make sure you really understand the neighborhood well and make sure you’re really comfortable there before you invest your money. Things can happen.

You know, generally there’s A neighborhoods, right? Really beautiful homes and gated communities. B neighborhoods where people want to move to. We start to move down towards C, C minus. Or rental. You get the D, hardcore rental. There’s no real Fs in our business. You go to G, my God. And that was really one of those my God type properties. So that was one of the worst experiences of my life. then for my birthday in January 2007, I got a phone call.

I know.

10 to 7 in the morning from a realtor friend. It’s, ah, maybe he’s just wishing me happy birthday. He’s like, you got to come now. Uh-oh. We had a house burned to the ground. A tenant had not paid their electric bill, which was unbeknownst to us because they took care of their own utilities. So they had electric heaters going and the type where they forgot, fell asleep, had to close on the heater, created a fire and burnt the house down.

So you have this mix of emotions, right? You’re mad, you’re frustrated, but then the human side is you have to go find the people who live there to make sure they’re okay before you just think about insurance, right? Because they’re human and unbelievable where amputations could be if you can’t find everybody. In that case, fortunately we did. That was in Asbury Park, New Jersey.

We learned some lessons about monitoring utilities better. Now we get notifications and back then we started to get notifications when utilities were turned off now. But prior to that we hadn’t. So we learned a lot of lessons the hard way. Hopefully those aren’t lost just on us by ourselves in regret, but things that we can help people look out for going forward. Some of own clients at Burr, we ask them some questions all the time. I’m sure they think we’re annoying.

ask them to try to help them become better landlords, better property owners, better property managers for themselves, and try to help them in that regard. I think together that experience now goes from, oh my god, to useful. And that’s really the goal of what I’m trying to do with all the experiences we have.

Erika Proctor (19:58)
Yeah, absolutely. Wow. And yeah, hopefully with the advice that you’re sharing, someone doesn’t have to make the same, the same mistakes. So it’s, it’s amazing that, you know, be willing to be vulnerable and share that Joel. I also wanted to ask you to on the more positive side, ⁓ I’m sure as you know, relationships are the backbone of this industry for someone who’s new to real estate or investing. What kind of

businesses should they look to partner with? What kind of networking groups and how can they make the most of that?

Joel Kraut (20:35)
Well, I think of real estate investing a little different than a lot of people. I don’t think anybody’s new. The reason is the following. Generally when I’m speaking, you you’re introducing yourself to the crowd and you want to get on neutral footing really quickly and gain their interest. So I always ask the following question. How many people have ever had a problem in their life? The hands go up. How many people have ever solved the problem? There’s always a couple of comedians who put their hands down, but this hand stay up, right? Well, you’re a real estate investor.

And what do I mean? Our job as real estate investors are to find problems, create solutions that could be win-win, present them in a manner with which the seller, owner, person in distress, whatever it is that has the problem, needs your help, and you craft a solution that helps them and gives you an advantageous entry point. That’s really the crux of real estate investing.

from single family to 100 unit buildings. At the core level, that’s what you’re doing. We have found people, a lot of women, professional women who have come across from engineering, project management, home management, people forget. They’re schedulers, they’re logistics operators, right? They move people around all day. They’re budgeters. They shop.

conservatively, so they’re looking for deals and comparing products. These aspects transfer beautifully into real estate investing. It’s just no one has slowed you down to enable you to think that way. Because it’s always like this sophisticated class, you’re to spend $35,000 in a boot camp and my God, and this and that and this. It’s so esoteric. It’s ridiculous. The truth is when you break things down to its most simple level, you can do this. There’s really no reason to be afraid.

you have spent your life to date solving problems. Well, that’s what we’re just gonna attach real estate to it. Matter of fact, if you’re a good problem solver, you can be an excellent long-term investor, right? I mean, that’s the truth. Again, we wanna help people with perspective and show them different ways to think about things such that they can derive success from it.

And I think and believe when you start to do that, you’re really helping people. And for me, that’s really the crux of what I’m trying to do every day and every month. And when we have the opportunity to speak to groups, it’s awesome. It’s what we love to do.

Erika Proctor (23:09)
Yeah, I love the way you put that Joel. Now, what is next on the horizon for you, whether it’s investing or a burlones?

Joel Kraut (23:20)
I mean, for us, it’s an exciting time. We just got back from Dallas. We’ll be on the road once or twice more the rest of this year. But we have a book out, we have a course. It’s very basic, but informational. We are just about ready to launch our first portal program where we sort of change the landscape for people. Everyone’s used to surfing the internet. And when they’re doing that and they find a lender,

The lender always wants information from them before they’ll give up the information the borrower wants, right? We hate that. I don’t like it when someone holds me to it, so we decided not to hold you to it. So with our portal, what’s a little different is without giving us your information, you can get what you want, which is all the pricing, tweak it any way you want, and then, and only then, if you like it, you can then interact with us.

and you’ll be able to send that to us live. So you’re not going to wait for loan officers anymore.

Yes, it’s you know taking advantage of somebody artificial intelligence programs that are out there to be able to incorporate them into our business We have a couple of ⁓ smarter younger people here that help us with programming and whatnot So we’re taking advantage of those opportunities myself by myself. I could never figure that out That’s for sure But I love how simple the portal is because even I can use it and I’m kind of the tester in the office If I can figure it out everyone can figure it out. So that’s worked out well, and we’re really excited

We’re starting to roll that out now as a beta test to some people around the country and we’re looking forward to have that online full tilt coming out of Labor Day. So that’s a big step for us.

Erika Proctor (25:03)
Yeah, that’s really exciting. Joel, before we wrap things up, if someone wants to connect with you, maybe collaborate on a project, or maybe they need help with a loan, what’s the best way for them to reach you?

Joel Kraut (25:16)
Well, they can easily find us at our website. Our website is very simple. It’s burr.com. So B with four R’s dot com. Our office is 732-851-6900. On Instagram, we’re at burr B with four R’s underscore loans. And my personal Instagram is Joel Burr. So we’re pretty easy to find.

You know, we respond to questions online all the time. So my email, my phone number has been out there for like 20 years. There’s nothing left to hide. So just fire away. We’re happy to help you any way we can.

Erika Proctor (25:58)
love it, Joel. Thank you so much for being on the show, dropping all this knowledge. You clearly are a giver in this industry with everything you’re sharing. We really appreciate it.

Joel Kraut (26:08)
Erika, thanks a lot for having us. These are great opportunities for us just to come on and be with great people like yourselves and enjoy and share. So thank you very much. Have a great night.

Erika Proctor (26:18)
Yeah. For everyone tuning in, if you love this episode, make sure that you’re subscribed to the Real Estate Pro Show. We’ve got more conversations coming up with heavy hitters like Joel, who are building incredible businesses in real estate and investing. We’ll see you on the next episode.

Joel Kraut (26:35)
Thank