Surviving Investment Nightmares: A Landlord’s Story of Rehabs, Unexpected Costs, and Strategic Recovery

Louis Hiza (00:00)
so BHPA, Beacon Hill Property Advisors, we’re performance analytics. so we build custom dashboards and consult real estate investors on the performance of their assets and their portfolio. it was born out of necessity, actually. So I’m a real estate investor myself and had a handful of properties that were not performing and I had to— I had to make some changes. And it involved me deep diving into my own analytics and built myself a dashboard so I could track it and my team could. And it was— it worked so well that I figured, hey, someone else might wanna test this out. And so I started rolling it out to a lot of my property management clients. I run a property management company as well.

Issa Hanna (02:14)
Welcome back to the real estate pro show, everybody. I’m your host, Issa Hanna, and today I have a landlord extraordinaire, somebody who’s decided to turn his knowledge in the rental market into a fledgling software company, two years old, but they’re already making their mark on the world. Ladies and gentlemen, Louis Hiza. Louis, welcome to the show.

Louis Hiza (02:34)
Appreciate it. Thank you very much for having me.

Issa Hanna (02:36)
How you been? Glad to have you. How have you been doing? I know you’ve been working. We ha— you know, we’ve had a— a nice little conversation earlier about your— your new software company. Can you tell us a little bit more about the software aspect? And we’ll get into your rental properties and and management company as well.

Louis Hiza (02:53)
Sure, yeah, appreciate it. So BHPA, Beacon Hill Property Advisors, we’re performance analytics. so we build custom dashboards and consult real estate investors on the performance of their assets and their portfolio. it was born out of necessity, actually. So I’m a real estate investor myself and had a handful of properties that were not performing and I had to— I had to make some changes. And it involved me deep diving into my own analytics and built myself a dashboard so I could track it and my team could. And it was— it worked so well that I figured, hey, someone else might wanna test this out. And so I started rolling it out to a lot of my property management clients. I run a property management company as well. and i— that’s an interesting dynamic in itself when you’re effectively grading your own work, right? The analytics of a— of a portfolio that you manage, you’re kind of the one responsible for those analytics. So— but my— my clients appreciated the transparency and and us looking out for their assets. and the result is is a company now that we’ve onboarding— we’ve onboarded now we are at a hundred and sixty units that we are managing as an asset manager and investors across the country and we build them custom dashboards and meet with most of them on a monthly basis to review analytics and and where their properties are going and specifically what their strategy is and how we can align the portfolio with that strategy.

Issa Hanna (04:21)
Wow. Super helpful software, it seems like. And it was designed with your knowledge, right?

Louis Hiza (04:27)
Yeah, absolutely. Yeah. So the prototype was all— was all, you know, what I needed. This is the— like I said, this was born out of real life. So the metrics that we ended up putting as our template, our baseline metrics, and— and each dashboard we build is custom. So you want to see a certain thing, we can make it happen. but these were all things that I needed to see for my own properties. most of these are multifamily, most of these were value add, buy and hold. So that was a strategy. All of them had big periods of capitalization— capitalization up front. so large rehab projects with, you know, short term debt and lease up periods, so unstabilized assets at acquisition. And— and so with that came a unique set of metrics that I’ve, you know, I put together for my own properties so that I could make sure that they looked how I needed them to look and also how my bank needed them to look and how my partners needed them to look. and so the result is, you know, these aren’t theoretical metrics of here’s probably what you need to look at as a real estate investor. This was my— for my own survival. I needed these, I needed to track them. and so yeah, the result is— is our dashboards that come from a person like myself who’s very analytical and runs a property management company. So I deep dive into the butt— nuts and bolts of real estate investment, you know, the ongoing maintenance of that. and so these metrics are born out of a, you know, a nuts and bolts type operator like myself. I do the unglamorous work. these are the— these are the metrics and the dashboards I need to make sure my stuff is performing.

Issa Hanna (06:49)
Great answer. Great answer, man. Definitely very informative. With that, how did we get started? How did young Lewis get into real estate? Everybody has a good, “I got into real estate this way,” story, gimme or s—

Louis Hiza (07:02)
Yeah, so my father’s a contractor. So I was involved in construction from a young age. I always said if I was a better artist, I’d have been an architect. Really enjoy it. Going through college, I studied physics because I enjoyed the classes and the rigor, but knew that wasn’t in my future. And so real estate was actually— as I graduated college and took my first job in real estate, I— I realized very quickly I needed— I needed to be on my own. I needed to be self-employed. I wasn’t cut out for the corporate life, which no knock to that whatsoever, just wasn’t for me. And real estate was the perfect path, given that I love renovation and I love design. given that it’s a very entrepreneurial space. most of the people I talk to are, you know, these are the guys I’m looking up to in terms of their building a lifestyle more than building a career. and as well, it’s, you know, a heck of a way to build wealth and long term cash flow, wealth, whatever your— your long term financial goals are. It checked all the boxes for me. and so I— I lasted in the corporate world for eight months out of college and quickly pivoted to real estate investing. Started out with a small firm that was doing their own internally capitalized acquisitions, had a pretty big budget to be fair. and so we were buying and selling a lot of stuff. And I was doing all the analytics and and underwriting for them as well as helping build their property management business. and from there I split off of my own. This was probably eight years ago, and have been investing ever since. And you know, I— everything I do, I— I ran a handful of operations. As you guys know, investing in— is itself is an operation. Anyone who tells you real estate’s passive must be invested in REITs because they do not own their own stuff or at least they’re certainly not managing either the property or the asset because it’s a lot of work compared— compared to stocks and bonds, unless you’re a day trader, of course. and so ever since then I’ve been— I’ve been buying and selling, mostly buying. Buy and hold is— is tends to be my strategy. Started a property management business and and now an asset management and software company. so this is what I— this is what I do all day, live and breathe. And that’s what I see myself doing for the next multiple decades. I don’t see any reason to get out.

Issa Hanna (09:25)
Definitely. And— and an analytical guy like you thrives in the real estate world. So that’s what I— I’ve actually noticed about people that are very analytical and detailed is— is that they do very well. Now, real estate’s a great world. Everything’s— you can definitely make life-changing money, generational wealth for your— for you and for your family, but every one of us has a real estate nightmare, an investment nightmare. Give us yours and and how you overcame it?

Louis Hiza (09:53)
Yeah, that’s a great one. So this story— this— this actually ends up being both my nightmare and probably my biggest success story because of the depths we were in. But so probably five years ago, a couple partners and I bought a mixed-use property. This is in the Midwest. It’s a five-story building, 120 years old. Downtown— this downtown— this a small, a small, you know, small city, big town in the Midwest, right on their main strip. Tallest building in their main strip, five stories. It was three stories of residential and two of commercial. And this was out of our comfort zone a bit for a couple reasons. We hadn’t done mixed use before. We hadn’t done this old of a building, which turns out that in itself can be or should be a niche, or should be something you’re very well aware of. We were not. So this is— this is a cautionary tale. We didn’t do our proper due diligence, and I learned a lesson at the time the hard way, now that everything’s worked out, I look back and I learned the lesson the easy way because it could have gone bad. so effectively we— we— when we bought this property, it was— we didn’t buy it for a lot. I think it was four hundred and sixty thousand dollars to close it and we budgeted a couple hundred grand— I don’t remember the exact rehab budget— and— and it was fifty percent occupied. mostly the office space on the first two floors was— was vacant. And there were a handful of large CapEx items that we ignored at acquisition, A, to get the deal done. You know, it’s that c— that trap where y— you know, you see people buying stuff and you say, “Hey, the way to get wealthy is to own more addresses.” And there’s truth to that, but you got to do your due diligence. And we didn’t on this one. those major items, we had elevator at the end of its life, five-story elevator. That’s $160,000 that we just wrapped up. It had an old boiler that serviced to the entire building. This is, you know, covered in asb— asbestos, leaking like a sieve, end of its life, sixty-year-old boiler. let’s see what else. The other— and the other big one was there was a brick facade that covered three stories that was effectively about to crumble, right? It had bad spalling and step cracking. We ignored all these because the cash flow looked great and the exit in five years looked great. And we said, “Maybe all three of these things will hold on for the next couple of years.” the reason I’m telling the story is because none of them did. They all failed within a one-year period, a little less, nine months, all three failed. No elevator, gone. Heat went out in the middle of winter, and and then the city slapped an unsafe building ordinance on us for that crumbling facade and this couple other minor things. And so all of a sudden we were staring at— I mean, the total bill for this was four hundred and eighty grand, something like that, that we weren’t prepared for. So how do you come up with that money? And so that— that was the horror story. That’s the depths, right? You know, personally guaranteeing a short term rehab loan. and you’ve— you’ve under capitalized and own— under budgeted the rehab. And now we’re facing— we either got to do this stuff or sell the building. It’s gonna be hard to sell because we were still at only, I don’t know, 82% occupied. So it wasn’t quite stabilized. The vacant units needed work. We’re gonna have a heck of a time leasing this place without heat or an elevator. and so the— the trajectory of the building was downward. There’s no doubt about it, right? Vacancy was gonna increase, delinquency probably increased, cash flow decrease. and next thing you’re looking at is default, unless you keep pumping your own money into— into the monthly debt obligation. So what we ended up— we— we had a reckoning moment, right? We had no losses up to this time. Everything had gone smoothly now. We had the benefit of riding the kind of post-COVID wave where you couldn’t— kind of couldn’t get hurt as valuations went up and interest rates fell. and so to— for us partners and— and me and my other partner, we were the GPs, we were in charge of the— of the operation and you know, ultimately we pitched our LPs on this. We had to come together and say, “Guys, look, this isn’t working.” and that was probably the toughest conversation I’ve ever had to have because that’s a, you know, you’re talking about not only a failure, but big money, people’s money that is now at risk. And we came up with a new plan. How— what are we gonna do here? Something big needs to happen because trajectory’s not working. We cannot cash flow these renovations. We can’t limp this thing along. And we had the major benefit of buying this thing cheap enough that we had a big cushion in the valuation should our pro forma come to reality, right? And if we stabilize this place, put this CapEx in, here’s what our rent roll is gonna look like. Therefore, here’s what our NOI looks like, and at a seven cap, here’s what we think the value is. We put together a plan, the bank agreed, the appraiser agreed, and we were able to refinance and pull out a hundred percent of what we needed to re— to— to do all these projects, which is— you know, when I said this was me learning a lesson the easy way, that could have been a lot, lot worse. This could have been really bad. And so, I— you know, I don’t take it that for granted, that lesson that we learned, which was old buildings, first and foremost, don’t skimp on your due diligence. My goodness. You know, have more than you need. The other thing is turning a bl— blind eye to a major system in the building, thinking, “Man, I’ll sell this thing in three to five years, hopefully it doesn’t fail.” It’ll probably fail. And if you— if it doesn’t, great, that’s icing on the cake. If it does, you’re prepared for it. And so— moral of the story, we— we pulled out of it. We finished the r— the— the work pretty recently actually and we had the building ninety five percent leased up before the work even finished ’cause we did a big marketing push and— and we actually ended up going to the city as well and getting a big grant. so there’s another big incentive or— or pro tip for people is go talk to your, you know, go to your local redevelopment meetings, meet the mayor, meet the— whoever’s the head of redevelopment, and get to know these people. And there’s a lot of money there. or traditionally has been. and we were able to get grants for a lot of the exterior work. We found cities like you to do exterior work. That’s what they see, that’s what the pedestrian see. and so between a refinance, so reorganizing our debt and some city grants, we capitalize this project a hundred percent without bringing any additional equity to the table. And we’ve got a cash flowing business or property to this day that we will sell because that’s part of our trajectory. We’ve made all our money on the rehab and now returns have plateaued and ROE is actually decreasing as we amortize the loan. but— but we pulled out of that one and learned that one the easy way.

Issa Hanna (17:40)
Definitely could have went, you know, you could have learned the hard way and it could have been money out of your pocket. But once again, because of your knowledge and the way you’re able to— to be so analytical, you came up with such a great plan. you know, were able to refinance and get the money from the bank. You knew you had the equity if you— you know, in the future when you’re ready to sell. And also, what a great idea with the grants. You know, a lot of people don’t go that route. So definitely a lot of knowledge you just shared with us right there. So for viewers at home, make sure you guys take your notes if you get into one of these old properties. because that’s definitely a— the way to go is to fix the exterior, is definitely the grant way. So I’m glad you brought that up. Now you have partners in your rentals, you manage a large portfolio of rentals with your property management company. Can you give our people, maybe they’re just starting, some advice on how to foster these business relationships, grow their networks?

Louis Hiza (18:36)
Yeah, that’s a great question. So in terms of your team, if that’s the network that you’re talking about here, when you’re just starting out, I would say, you know, and maybe I’m biased here, but a property manager is probably your biggest— gonna be your best friend or your biggest weakness. I tell people this all the time: a good property manager can make a bad investment work out, and a bad property manager can make a great property fail. property management is so important because that’s the nuts and bolts, right? This isn’t stocks where you buy it and let it sit on the shelf. These things need to be constantly managed, literally constantly. You know, a lot of your other team members when you’re starting out are kind of one-off. So a lender, you get the deal done, maybe there’s a refinance, but once your work’s done with them, you know, you exchange a couple of emails and that’s that. Start making your mortgage payments. Same with an attorney, same with a realtor. property management’s forever until— well, until you sell the asset, of course. But— and so finding good property management is very important. I would highly encourage people to shop this around. As someone who— I tend to be a little impatient personally, something I’m working on. but when I go to shop around, you know, historically I might call one or two people, get some quotes, and pick the best one and move forward. Property management, you’ve got to do your research. you know, looking at Google Reviews, for example, although bear in mind most of the reviews are either gonna be bought if they’re good or disgruntled tenants if they’re bad, and property management reviews can be— can be a mixed bag on what they produce. But you know, you gotta learn what your prop— what these property managers’ processes are. How do they handle delinquencies? What is their timeline? make sure you take note of that. And then when— if and when you engage this company, make sure they’re sticking to that. You know, if they tell you they’re reaching out to tenants on the fifth of the month because rent is due by the fifth or there’s a five-day grace period, are they actually doing that? A lot of property managers will tell you, “Yeah, late— it’s due on the first and late on the sixth,” and they don’t start reaching out to tenants till the sixth or the seventh. Well, what about the fourth and the fifth? Are you reminding them to pay? these are all little things that if you were to ask a property manager if they’re doing that, the answer is going to be telling on how committed they are to adhering to their own processes. property management’s a mixed bag. It’s one of the most diverse industries in real estate in the sense that, I believe last time I checked— this was I think from Forbes— there are over 300,000 property management companies in the United States. Goes to show that most of these are mom-and-pops. You know, a lot of these are real estate agents who manage 10, 20, 30 units on the side, something like that. And there’s nothing wrong with that, of course. But the point being, you are going to have a significant spectrum of quality. This is not like, you know, your cell phone carrier where there’s four companies and they’re all pretty darn good because they have to be. This is a complete mixed bag. And so make sure you’re doing your research. and on top of that, don’t forget that a property manager’s job really isn’t asset management in the sense that they, you know— if they are looking at future budgets and capital expenditure budgets and staying on top of deferred maintenance, that’s excellent, and they should be, although not all do. what they’re probably not doing is tracking performance. and I don’t just mean ROI. There’s a lot of— a lot of metrics that you should be tracking. Property managers, it’s not really their job to be doing that. And so if you’re re— receiving cash flow statements on a monthly basis, which what you probably are from your property manager, you— all you need to take it the step farther and then analyze that. And and on a monthly basis, tracking your DSCR, tracking your return on equity or equity yield because no one else is doing that for you unless you hire an asset manager. and so you gotta— you gotta complete the picture once you have somebody effectively managing property and producing good property manager metrics such as occupancy and vacancy and cash flow. you gotta take that step further and make sure your— w— your capital’s working efficiently and your bank would be happy if they could see the numbers too.

Issa Hanna (22:34)
Definitely you. The name of the game in the rental business is stay occupied, stay getting paid. The rest of the stuff can be worked out.

Louis Hiza (22:41)
Amen.

Issa Hanna (22:42)
Lewis, if people wanted to get a hold of you, whether they wanted you to manage their properties, they wanna look more into BHPA, you know, maybe they wanna sell you their property if it’s, you know— and— and you— you come up— where can they— yeah, definitely, where can they get a hold of you?

Louis Hiza (22:53)
Yeah. Appreciate it. Yeah. So check us out on bhpropertyadvisors.com. That’s Beacon Hill Property Advisors. You can get a hold of us there. My LinkedIn is a great one, Louis Hiza. And we’re on Facebook, BHPA is get a hold of us there too. I also host a podcast called *Beyond IRR*, where we deep dive into real estate metrics and— and really get into the nuts and bolts of the analytics of prop— property and investment metrics and performance. And otherwise, send us an email, [email protected]. We’d love to talk to you guys about your portfolios. and yeah, if you got deals to sell, we’re always looking. We— we look across the country. As long as the local market looks good, we’re interested.

Issa Hanna (23:40)
Definitely well, definitely look up Lewis, you guys. Lewis, I appreciate— appreciated you sharing your knowledge with us on the show. And I know our viewers are going to get a lot from it. To our viewers, if you guys got a lot and enjoyed this conversation with me and Lewis, make sure to like and subscribe. I talk to people every day who can give us a wide spectrum on this great industry that we all love called real estate. With that, the real estate pros are out.