Elevate Your Equity

Ep 83 - How Some Construction Skill & Persistence Creates 9-to-5 Exits with Christa & Johnny Nelson

April 26, 2022 Derek Clifford Season 2 Episode 83
Elevate Your Equity
Ep 83 - How Some Construction Skill & Persistence Creates 9-to-5 Exits with Christa & Johnny Nelson
Show Notes Transcript

There are fewer directly translatable skills than having construction knowledge that will allow entry into the real estate game. Construction and rehabs / renovations are where a large amount of value is added, meaning sweat / earned equity. Johnny & Crista Nelson join us to talk about all things construction, while working together as a spousal team. This couple share the secrets of their success, including:

• Red flags when looking for contractors
• Rules of thumb for rehab costs or unit turns
• How looping in your spouse into construction and management is one of the best things you can do
• Setting budgets and tracking with your contractor
• Tips for the long-distance investor in managing rehabs out-of-state


Johnny and Christa Nelson are the Co-Founders of Arctos Capital, which is a private real estate investment firm investing in North Dakota, Oklahoma, and Minnesota. Johnny acts as the Asset Manager and Christa is the Chief People Officer for their firm. Prior to their activities in real estate investing, Johnny was a Mechanical Engineer in the medical, additive and power industry, and also acted as a GC, while Christa worked in Fortune 100 companies in Hospitality and Financial Services.

Reach out to them here:
https://www.linkedin.com/in/johnnynelson/
https://www.linkedin.com/in/christa-nelson-84b73510a/
https://www.meetup.com/The-Real-Estate-InvestHER-Meetup-Minneapolis-MN/
https://www.instagram.com/the_nelsonconnection/
https://28parkmpls.com/
Email: Arctoscapital@gmail.com

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Derek Clifford:

Hello, everyone and welcome to the Elevate your equity podcast where we as passive income investors with a special emphasis on married professional couples, deconstruct first class investors and entrepreneurs to achieve repeatable, long lasting and practical change toward a life of location, time and financial freedom. And today, we've got a power couple on the show. We've got Johnny and Crystal Nelson. They are the co founders of Arktos capital, which is a private real estate investment firm investing in North Dakota, Oklahoma and Minnesota. Johnny acts as the asset manager and Krista is the Chief People Officer for their firm and prior to their activities in real estate investing. Johnny was a mechanical engineer in the medical additive and power industry and also acted as a general contractor. While Krista worked in 14 100. Companies in hospitality and financial services sector. And I know there's a lot more behind that background. So what I'd like to do is just get into the show and ask how you guys are doing. How are you Kristen, Johnny,

Christa Nelson:

doing great. Thank you for asking. Yeah,

Johnny Nelson:

thanks for that wonderful and warm, probably a little too, too. too generous. Welcome there, guys. Thanks for you know, thanks for allowing us to be here and we're excited to share a little bit of knowledge that we gained in the past really a year with you know, and of course you know, previous experience with your audience. Absolutely. We're

Derek Clifford:

excited to get right into it. So first thing is very apparent, is that Johnny, you and Krista are working together in the real estate realm. You've co founded the company together and you both have active roles in it. So that's where we are right now. But why don't we go ahead and start early on? How did this whole passion with real estate investing begin? Either with you Krista or with you, Johnny or maybe with both of you?

Johnny Nelson:

I'll take that. I think it was it was me that first overheard a college at one of our one of my engineering jobs. It was a cubicle right next door. And this is a kind of mid 2018. And he said, um, house hacking, and I hadn't heard the term or knew what that meant at all house hacking. It's not too unfamiliar of a story but a lot of us start there and kind of get get some momentum and some ideas in that space and we were little I just bought my first house ever in my life and 2017 So this whole idea or the house hacking and then I just had never thought about you know, buying a duplex and renting it out and that type of thing. So that got me really just motivated and and kind of just that's the that's kind of the genesis there. The root of a lot of things from there.

Christa Nelson:

And I'll jump in I was not on board to start with. Tom, you told me like I'm interested in investing in real estate and I'm like, what? Why did we work so hard to you know, get our corporate jobs? You know, we were finally like seeing velocity in our corporate careers. And we both decided to do our master's degree before we got married. So it was shortly after we got married. He sat me down for that conversation. And I'm like, what? Why? Yeah. What? Actually, yeah, eventually I came around and like he said he had the first house. And then the next thing we did was I bought a duplex in my name, and we continued our house hacking journey with that.

Sophie:

So Johnny, can you break down that conversation especially for you know, couples or husbands or wives that are trying to introduce the conversation that a topic and how did you guys you know, navigate that conversation and find your way to working together?

Johnny Nelson:

That is a fascinating and long conversation long conversations

Christa Nelson:

over the course of years. Yeah,

Johnny Nelson:

there was that point, guys, you know, we had to actually deconstruct a bit. I'm maybe more just personality wise and maybe a more passionate maybe there's their sides of me that are maybe a little more have impetuous and, you know, like kind of a go getter. They're just that you know, none of us can not create, you know, create that are not good that just kind of like who we are like our height or something. That's what I think. And so that kind of snap my attention and my kind of excitement of that, you know, I snap to that. And Krista had had grown up and house and she could speak to that if we get to this but that, you know, money management, all those kinds of things was not a priority. And then when she was able to succeed in the corporate life, she of course they know they really drill into you know, 401k and get a good job and all those kinds of things. I know that story has been told a lot. But I had to really address that fundamental way of thinking. Again, this is the question is how, you know, how can I align what I'm seeing with what she's saying? And then can we get to this other state, you know, if it's to be for us, can we get to another place? So that was how that kind of we had to step through that. And that was probably a month long process until she finally was able to see and read some of the things that I was saying. And in what practical point I'll wrap it up just once I, Krista and that is, be sure your spouse is consuming some of the same media and books and interviewing some of these talking to some of these people that you are so you're not like you know, six months ahead of them and they don't have they have no idea what's going on.

Christa Nelson:

Yeah, no, Johnny summarized it really well. And I think a lot of it for me was I had some limiting beliefs that I had to work through. But when I sat down and really started to crunch the numbers and look at our financials and start to see the ability and the opportunity to have that financial freedom by having our own rentals, and that was when we were small scale, REITs single family duplexes, things of that nature. I started to see the compounding of that money, and just how it could work for us and I'm like, oh my goodness, we might be on to something. So I started to get excited about it when I was able to see the financials in one year. You know, I just calculated like, our gross rent collected and it was even before this 44 unit deal that we closed on and it well exceeded what I was making kind of mid career. And I'm like, that's a really good salary like yes, you have expenses, you know, tie it into that and taxes all this stuff that's gonna take away a little bit from that money. But still it it really hit me like this is a way to move forward and have that time freedom.

Derek Clifford:

Yeah, very good. I think that that's an excellent way to begin. Sounds like you guys independently studied this real estate stuff, and then eventually came together to the same conclusion independently, which is definitely unique spin. Was there anything before that happened? Like, I know, there was like a month long period Johnny, you were mentioning where there's a little bit of disagreement there. Right? And then eventually you know, Krista was able to kind of, like, get into that with you. Um, what was Was there any like pre conversations behind this that took place about where you guys want to go vision wise?

Johnny Nelson:

No, it was probably a bit disjointed. You know, at first it was like, we're gonna do real estate and this is cool. And you know, we're in Minneapolis and there's a lot of things going on. Yeah. And then like and then then later became like, then then after he joined and we this is jumping, kind of like skipping maybe a year, year and a half ahead. And then we started learning about you know, like mindset and you know, more deliberate goal setting and some other things that that are kind of crucial for this type of relationship and path of life. And then that those competitions kind of happen after the fact.

Derek Clifford:

Interesting. So, would you guys recommend the path that you guys took in jumping in with the course material so to speak, right away? Or do you think that it would be better to start with division first, I'm curious, your guys's take on that.

Christa Nelson:

Yeah, I think it's different for every relationship. I'm not gonna sugarcoat it. We definitely butted heads about things, especially in the beginning. And you know, Johnny, thankfully, with his construction background, we were putting in a ton of sweat equity on our first deals. We were just like, you know, working our 40 hour week jobs and doing all we could really in our free time, which let me just say live in flips are very stressful. It's not for everybody like us. Yeah, I mean, that could potentially break up a marriage if you did it for too long, I think. But it it was, we were able to commit ourselves and work together and it improved our communication. It caused us to have to align ourselves more talk about our goals more, and just talk about the business every day. I know that's not for everybody. But for us, it worked. And the more we talked about it, the more we became aligned, and we just kind of I don't know, I don't want to say struggled through it. But we pushed through it. And then about a year and a half ago, we started really educating ourselves in the multifamily space. And I would say at that point, we both knew enough about real estate where we could have we could have an informed conversation together before taking this next step. So I think there was a bit of a transformation in our journey. When we started it was kind of like Johnny had this wild idea, like let's do this. I'm like, Okay, I'll try anything once but reluctant and then by the time we were ready to make the large step into the multifamily and education space, which was also a bit of a financial investment for us just for the education piece. We did talk about that more. And definitely we're both on board before we took that step. So I hope that explains it better.

Derek Clifford:

No, it does. It does. And I appreciate you guys giving us the insight behind some of these, I would say intimate details of what was happening, you know, behind the scenes and and I think that you guys said it beautifully that it was a kind of a quick like a dirty process, you know, like a process that just happened organically and there's no real real like, you know, flow to it at all. Sometimes it gets messy right in the beginning.

Sophie:

I think you guys described it. You guys pretty much described our story as well. So we're getting into the investing process. And I'm just curious to Johnny and Krista. How are you

Derek Clifford:

are Oh, sorry about that. You want to ask that again? I'm sorry. I accidentally hit the wrong button.

Sophie:

Okay, sorry, guys. So Johnny and Krista, how are you guys able to leverage your skills from your corporate jobs into this new venture?

Johnny Nelson:

That's a question. I think it's fun. And that really emerged and I'll I'll let Chris have follow up with her, her part of that, that part really emerged. So that was after we got you know, besides just like, I'm gonna say on the store, we're gonna like paint this wall. You know, that's, that's that's pretty, you know, that's pretty hard and it's not you know, not to to incite for you can't really scale that. But after we got the 40 unit under contract and the 44 You know, under contract my partner I Mac we we know what your underwriting and sourcing and this and that and we were Chris and I were doing some some tours together but it was mainly me, me me doing it. And she didn't really know her role yet. I didn't know her role and like, what are we doing and like maybe you do look up Retama and help me underwrite and it was real messy and real. I'm just not real, not real defined. And then after some time, when we saw how much there was to do, it was like, there is vastly more here to do than can be done by three people. So we're gonna have to, you know, just take what we can and manage it. So I just focus on what I could do and that was the like I said construction or whatever. We're gonna talk about that perhaps later, construction and some other things and then Krista and her role can emerge all the different things she was really good at. So I'll Chris, I'll let you take up that part.

Christa Nelson:

Yeah, absolutely. I would say I am grateful that I spent time in corporate America and working for these very large companies with very solid systems in place, because it taught me just the foundational skills like follow up organization, how to talk to people how to be respectful and professional with people all throughout the spectrum of real estate, right, whether that's your resident all the way to someone that might be an investor with you right. We all know we have difficult conversations in this space. Absolutely. But to Johnny's point. Yeah, my role when we first got this 44 unit deal under contract was not the most clear because my background is HR. I've been an employee relations consultant. I've done employment investigations. I've done a lot of things in human resources. But I'd say my passion is people right and relating with people and also integrating systems that are going to help the business. But what we did find with this 44 unit deal is after the underwriting after the loi, we still and the offer was accepted. Right, we're under contract, and we have a ton of work to do. 40 units of this building were brand new, there was no marketing plan in place. There was no website, the address didn't even exist on Google. So those are the things that I jumped into, you know, the things that you can't think and analyze forever. You just kind of have to do it. You know, I got the Google address set up. I started working with a website design company. I started our marketing plan and what that looks like. And then of course, we ran into some things with the affordability space that we didn't anticipate. And our property management group that we hired at that time, unfortunately told us they didn't really want to deal with that. piece of it. So I had to just dig into that part of the deal. And understand it because no one else on the team did and and it was a big part of our deal. So just the little things like that. But I would say managing the people in the processes was where I came in and coming from a corporate environment. Absolutely. It helped me with that.

Derek Clifford:

Yeah, you know, I couldn't agree with you more there, Krista because in my experience, I've done the exact same thing. I worked as a project manager for a long time and kind of also in the construction realm because I was involved in like creating all of the plans up front to construction and then during construction and then afterwards for close out. And I would say that like learning how to treat people respectfully, and learning what incentivizes people, right, to either act the way that you expect them to act or the act that needs to be to act. The way they need to act in order to get the project done on time. I think that's a really important skill. And something that we probably going to explore a little bit more on Johnny side as well as we talk about construction. Because that is a very tricky piece. And I can totally relate with your you know how you how you learned a lot those people's skills from corporate world and how it actually translated into success over in real estate. So thank you for that.

Johnny Nelson:

Yeah, so exciting. So exciting. To see that emerge. I think that's probably the I mean, that I'm kind of, I'm kind of actually joyful about it because yeah, it was like I'm really hoping we can work together just kind of a high level like really wanting us to work together. And I think we can do it. I know we're both smart and ambitious and we can do these things. But where that you know, where each puzzle piece fit together. It was very unclear initially and then all sudden emerge and it was then it was like so strong and so you know, very synergistic and it was really exciting to see both of us just you know, find that

Derek Clifford:

very cool. Well, let's let's explore that just a little bit more if you don't mind. I know Krista, you're about to say something, but I'm pretty sure you'll you'll be able to add on to it here with this question. So we're gonna head into doing construction because I know that you know, for this show, we really want to give our listeners practical tools about how to do things in a specific knowledge set for each for each property that they're taking on and, and for what roles they want to take on. So let's talk a little bit about how looping your spouse into the construction process may give some advantages, because I know you know Johnny, you come from a general contractor background you have mechanical engineering, like that's just the way that you think. But were there any strengths or any points in time were you able to draw from crystals wisdom or from her insight in the construction process as a whole?

Johnny Nelson:

I was able I was able to draw? So if I make the question, what kind of wisdom and knowledge and personality Could I ask her and consult with her and there was a lot of those those times we just had to just chat with each other. Never like so. Let's get specific here. The builder right at the end was just not performing. He wasn't wrapping it up. He wasn't you know, putting the hardware and he wasn't getting the last paint on hanging the doors all those final things that you know the building is not you know, you can rent it out and dust those things you're done anyway, construction space knows exactly what I'm talking about. And then so it was getting pretty chippy with the builder. So it got you know, we had a meeting Radek works in multiple meetings, multiple messages meetings and then I got a little probably too aggressive with the builder and he was in his personality is that when he does when he's slighted is that a large child he was shout he was shouting and he stormed out of the room and that was it was really got kind of ugly and constantly multiple times for that. I was like you know, I don't like the conflict but I will get loud and aggressive with somebody if I have to. I feel like I need to progress. They really helped me through that. So again, back to what is the question? What can I rely on in the construction space? Okay, you have like two basically apes you know yelling at each other you know I mean I probably more sophisticated if the other guy that's my own opinion but you know then again you need somebody maybe a cooler head your your wife to counsel you okay, like maybe say these things. Don't send that message like that multiple multiple times like that.

Christa Nelson:

We we had a moment in time where I felt like I was Johnny's HR advisor, which was like one of my prior roles. You know, the managers can just call in it's a hotline of should I do this? Well, no, not if you want to get fired, that kind of thing, or get terminated. Or written up for that. But yeah, we did have one meeting in particular was in August, and we had been in the inspection process since July. And unfortunately the builder had started another project midway through, you know, finishing the build. So that took away from it. But exactly what Johnny said, I think we were able to even each other out in those moments. If he was worried that he was maybe being a little too reactionary or something in a message or an email he'd asked me to just take a look at it. I wasn't doing that for every communication, but we're all human right? Sometimes you just need a sounding board. So I think that's that's that was a strength in our marriage at that point. And I would say in the very intense meeting, I definitely stepped in as kind of like a neutral third party like Jonny kind of had to give the tough messages and kind of be bad cop and I was kind of the good cop in that meeting, which I think like worked really well. Otherwise, the meeting probably would have ended in a yelling match or something.

Johnny Nelson:

So he was willing he was willing to walk away, he's willing to cancel the deal. So it was it was close. I mean, I know probably we've all seen some of those situations or heard about them, but he was willing to just walk away and you know, just you know, have it fall through. Yeah,

Derek Clifford:

you know, it's it's it's funny you guys because we keep forgetting that when we're so wrapped up in the real estate business or in any business in general. That really what's behind it is just people and personalities. And so sometimes, you know, we forget that there's that lens that we're looking at through to work with our partners with our vendors, with our investors with everyone, but there's personalities there that we have to keep in mind. Right. So I think that's fascinating.

Johnny Nelson:

So true. Derek so true.

Christa Nelson:

Intention can change people's personalities. Yes, in part deed tensions and stress Absolutely. Like this person is great, great to deal with, like 95% of the time but get them in a stressful or time pressure situation and things change. And of course, they knew that we weren't happy with the progress so that didn't help. But managing through that absolutely is key.

Derek Clifford:

Yeah. Yeah, I think that keeping things together. coming to an agreement with people and leveling things out a little bit is definitely worth its trouble. And unfortunately, some people don't have those skills. And so that's why I think it's really important to leverage the knowledge and wisdom and maybe even the cool headedness or the perspective of your spouse in a situation like this. So I think this is why we're spending so much time on it because again, it's another reason why we implore people if they're going to do business with real estate, which is a people based business, that you got to have someone on your side like your spouse that can help you in places like this where maybe you have a blind spot, or you don't know what you're doing. And you don't even know it right. You don't know what you don't know. So I think that that's really really cool.

Johnny Nelson:

For sure helps you to balance out your own thinking and you know, you're up maybe I was upset and I was upset a lot and I was like and then I might go back to your own personality recognize like what do I like to see and what is my strengths, weaknesses. I like to see things done at a high level. You know, again, that that builder and engineer background I think like fast and efficient and done really well and high quality and when I don't say that I just burn up. So you have to use fantastic to your point directly. You can rely on somebody to you know, make your message neutral versus, you know, overly spicy

Derek Clifford:

Yes, of course, sometimes taking the emotion out of the message will help it just it depends on the person you're working with. And that comes with time right to know that person's personality. Now, what I want to do is I want to shift gears, we're still gonna stay in construction, but I want to ask you guys, and this is to both of you, right? What are some of the biggest red flags that you can identify when you start looking for contractors to work with in the beginning?

Johnny Nelson:

Biggest red flags is probably their, their own process and their own system, and how the what kind of what kind of crew they're running. And we have kind of a this is basically this is like a general statement across the business of the construction space. And that is the high price and especially in today's market and you know last couple years in today's market and you have the high price folks in general, running or Willie a really well polished crew, excellent processes and systems and other things. And then our perspective. They were like we didn't you know, just the money was super tight. So we're trying to do it on the cheap and we got burned again and again. So that's kind of like, you know, and this many many people have said this, yeah, maybe you think I guess I thought like, well, I could, you know, with my construction background, I can just like force it through and get it done. This is like our own project. This is not this project but other projects this summer related to this. And that is you know that that trying to go cheap and is actually cost you in the long run.

Christa Nelson:

Yeah. And that was you know, that was an earlier in our real estate journey when we're like well, we have to watch costs somehow. So maybe this is one way to watch costs. Because we like to use really good materials and it's hard. We also learned that through our journey like when do you stop you know, you have to stop on some projects like we've had a few duplexes from the early 1900s And you you have to stop you can't do everything. But to Johnny's point. Yeah, we definitely learned the hard way unfortunately on a couple of projects that you know, trying to look for that value is in the long run, not really a value.

Sophie:

Understood. Can you guys share some rough rules of thumb for like we have costs or unit turns that you've learned along the way that really worked well for for you guys?

Johnny Nelson:

Yeah, I'm sure we probably we can like do a deep deep dive. Alright. 1000 square foot apartment. We humming it around. Yeah. So like something that we've we've done in here in the Minneapolis and it's it's definitely regional too. So we were doing like down to the basically minus the minus down to the studs, but but everything else we're going like, you know, maybe 40k and that was with us doing a lot of the work. So that where did that number come from? That number can give some encouragement to people out there starting as we were, maybe you don't have a lot of capital, we don't necessarily have a lot of capital. And if you maybe have the you have the time, but you don't have the money as people say and you can get something done you know, new flooring, new new fixtures, new cabinets and things like that. That's that's the price is you know, it's the price that we came in on a couple of several units that we that we did. So that's a that's a miniapp a 40k. Minneapolis number. You leave the sheetrock on the walls and everything else gets painted and new flooring and cabinets and things like that.

Christa Nelson:

New appliances,

Derek Clifford:

new appliances, awesome. Yeah. And so how much of that would you guys say is material versus labor? Just out of curiosity?

Johnny Nelson:

Probably so that's so then you're if you're paying yourself or not, of course that price would go up. So the percentage probably was about probably a third labor and two thirds materials.

Derek Clifford:

Hmm. Got it. And this is for like a kind of this, this high level flip right? Like this is something that you're trying to do to either you know, reposition the entire asset from the inside. So that you have a high paying tenant coming in, like kind of a B type or B plus A minus type tenant. Right?

Johnny Nelson:

Exactly. Exactly. Yeah, that's, that's something you just, you know, that there Chris's point earlier is like, well, we have to, you know, put the brakes on ourselves. Like, you know, we're gonna live here we want this to look nice and what the high paying tenant and how far do you go? And that is that is that target class and it's really like we're living in our one of our places right now. And with with fully with the intention to rent it out, as soon as we you know, make our next move. And we like living in that kind of space. So, you know, we kind of do it for ourselves, but we know that also the kind of tenant it's going to attract. So it seems to as far as the avatar that we're targeting, we know what it is and you know where to take it. Got it.

Christa Nelson:

And we've done well with that model. Like right now we live in Northeast Minneapolis. It's a relatively older area of Minneapolis a lot of the houses are early 1900 builds, but what we did was we got some duplexes that were quite distressed early 1900s And we went in and just added a lot of forced appreciation, and, you know, make making things modern, everybody loves new LVP and shiny appliances, granite countertops, some people might say like, Well, why would you put a granite countertop in that unit? But it I think it paid off for us, you know, so we definitely took see assets and then were able to raise the rents more than we would typically and you know more to like a minus type acid even though the acid is quite old. It's still a 1900s build house. But for whatever reason, in Northeast Minneapolis where we live, the duplexes they do really well. We never have any issues filling our duplex units. Excellent to live in them.

Derek Clifford:

Yeah. And that's because you guys are doing all this work upfront, right and you guys have a plan and a budget and that leads me to my next My next question is, I know that early on during the inspection process when you're looking at houses to potentially purchase either through a wholesaler or through an agent or wherever your sources or if you have direct mail campaigns, whatever set up when you guys are doing your inspection. I know that a very important part of that is to walk the job with your contractor during inspection. So can you guys talk us through a little bit about how you guys build scope and then how you guys are working with the contractor to build the budget. Like what does that conversation look like for you guys?

Johnny Nelson:

Well, that the conversation Derek is pretty easy when you're the same person. You're the investor and the contractor. Correct? And inspector, yeah, and so that's that's a you know, it's one of those secret powers or, you know, the extra little you know, that you know, pissing you can bring to your own projects and like because a lot of people do need to rely on the contractor and you establish good relationship and they need, you know, maybe maybe the inspector or someone else. And then you know, so all kinds there's a lot of personalities and think professions are disciplines to manage there. It's very simple. And it's probably it's a little bit cheating probably like well, whatever, you know, it's you know, that's that doesn't apply to me. But if you do have the skills, and you do have the the ability to also think as an investor things. That's probably the part that I had to grow into. So as a engineer whatever builder had to grow into the investor space, somebody else may be an investor and they might have to grow into the builder space. But yeah, to that point that to the original question is simply saying the things that I that need to be replaced. So you start with the foundation, you look at the roof, look at the siding, all the things that are gonna keep the house from rotting away and serious damage, and then then decide on the quality of finish and how many you know, basically, you start pricing things out, oh, I all the flooring must be replaced. I see the new cabinet cabinets can be it'd be done. I'm going to leave this bedroom, that type of thing. And that's kind of just how the scope of work. They're just kind of grows from there and start putting pricing on things.

Derek Clifford:

Yeah, Could you could you expand a little bit more on like the negotiation between like so if you had to give advice to someone who maybe doesn't have the skills that you have Johnny like what could some of these investors start looking out for as the scopes being built? And maybe that's to both you and Krista as well.

Johnny Nelson:

How to Sell how to how to kind of how

Derek Clifford:

would you advise Yeah, how would you advise like, you know, someone who doesn't have the construction background or maybe isn't even there. Maybe they're not even in the same city because they're investing from far away? What advice would you give them for that situation?

Johnny Nelson:

I would have to take myself outside of my normal methodology and things I've heard and seen other people do, actually we did a flip, flip and back in North Dakota, and that's that was actually we hired a general contractor. There. So you have to commit to spending a lot of time on the phone, and also visiting the property initially and interviewing people and also continually following up and having trips, potentially have some had some trips back as well. So that's the way I think, you know, like you look at like David Greene's book, you know, flip whatever his book was flipped, and that's kind of his model. That's how he started, you know, bigger pockets was, you know, flipping houses and other states. So he developed that model pretty pretty well. And then so yeah, so that that's what I would recommend is not don't try to like be better at because you're not going to do the work anyway. And you're not gonna become proficient and know quickly enough how to become a builder and a carpenter and all these things. Eventually you can learn and that might happen organically. But if you if you've already identified the property, then that's too late to start learning how to lay flooring and hang cabinets and you're probably not gonna do it anyway. It's just gonna be impractical,

Derek Clifford:

right? I mean, what's gonna be your best use of time, right? Like once you have like, once you've got that identified and as long as you can keep the scope reined in and start to get to know some of the terminology. Eventually, it's diminishing level of return right for what it is that you want to do or what you have skills that you're leveraging to get yourself into a higher place with your business. Right and not focusing on the construction aspect.

Johnny Nelson:

Absolutely. So yeah, connections, contacting, interviewing, learn to interview good or well, and then I think that's that will lead to a relatively decent amount of success. And then you hopefully there's a you attract you, you develop the kind of the right people and develop a trust.

Derek Clifford:

Yeah, absolutely. Maybe, Krista, do you have any extra, you know, advice here or maybe anything that you've seen from a process standpoint that might be able to help from a practical point of view?

Christa Nelson:

Yeah, absolutely. So what Johnny said when we did that out of state flip, it was four and a half, five hour drive for us. So just a couple things that worked and Johnny did a great job managing this but we let the contractor know that we were going to have frequent follow ups with him. Let him know up front you know, what our expectations were, what our timeline what our budget was, and we just we really did just follow up with him quite frequently. We had weekly meetings at the very least sometimes daily meetings. And luckily, as far as like sourcing the materials and things of that nature, we had some relationships that we could leverage in North Dakota, which Johnny worked really well with that so, you know, if the contractor was giving us too high of a price, we kind of tried to sub things out or you know, make a few concessions with the materials that we were using just based on those relationships. But I would just say you know, setting expectations clearly upfront, following up and sticking to your plan to follow up because if you're canceling meetings, not getting in touch with the contractor, they're just they're not going to take it as seriously anymore. And then of course, when the job is done, inspecting the job and really having like a candid conversation with that contractor. So my knowledge in that space is not as in depth as Johnny's but if I had to break it down, those were the things that worked for us. Yeah, that's

Derek Clifford:

awesome advice. I just have to add something here too. I had a situation Gianni in which we were not doing what you guys have both advised. And our contractor for a property where no one was local. We had just a property manager who was local but wasn't involved because it was such a heavy lift from the beginning. Yes, the contractor that we had hired off the street, which is already a bad sign. was sending us photos for rehab draws from other units that he was doing.

Johnny Nelson:

I thought you're gonna go there. I was like, Don't go there. Don't go there and you went there.

Derek Clifford:

So what was happening? What was happening is we were buying material, and he was like using the material for other jobs where the other clients were paying him straight out just like we were from time and material. Right. And so he was taking pictures of his other units and sending us progress as if that was ours. Yes. And I don't know how many people he was doing that for but then he ended up skipping town once we found out what was going on. So it's just interesting that you guys that are listening to this. Please take Johnny and Chris's advice seriously because it can turn a seemingly good job into kind of a nightmare which is what we experienced on ours.

Sophie:

Yeah. So for our listeners, just to prevent them from experiencing that nightmare. Johnny Preston, do you have any tips or systems that you use to track all these costs and just to you know, to keep on top of everything that's going on, especially when you have multiple projects going on?

Johnny Nelson:

Yeah, sophisticated for frankly, spreadsheets and I know others say this as well. And this was a year maybe into our, our journey, and not having come from like the accounting or the business background necessarily. So like, you know, obviously when you're working for corporate, you know, you have accountants and they're doing whatever the hell they're doing, but I couldn't get my paycheck and you know, that's not your thing. And that's what this also needs. Also, you're the accountant, you're the CPA, you're the project manager, all these things. So yeah, just a spreadsheet and I you know, basically he was keeping the builder is actually pretty good for keeping track of the cost and what it was being spent that type of thing. So definitely, we're able to lean on him. But your question is like, or maybe like Derek's point, like, yeah, he could not be keeping maybe the builder was not trying to be happy, fraudulent, but just keeping really poor record of the costs that were done. And I'll just yeah so I don't have any, like, direct answer to that because I just like, you know, taking pictures of all the receipts, scanning it stessa or, you know, uploading it to some, you know, digital portal or saving every seat on with a board of the big nail in it. There's lots of, I guess that's there's kind of like maybe just some things you just would just kind of you know, Ida on and come up with.

Derek Clifford:

Yeah, that makes a lot of sense. And, you know, just last question here before we move on, because you know, we could talk about this all day, but I want to make sure that you the listeners and us were able to move on with the rest of our day, right but I want to ask you guys, what type of contract structure do you guys usually like to do? Like, do you have like an initial draw, and then it's done per line item and then there's like a final punch list where that happens. You could in general, could you guys like help walk us through what you guys normally do for your construction projects.

Johnny Nelson:

That's also that's a better interesting question. I know the people that do a lot of flips have a much more refined process. And again, with me being having a construction background and simply just doing all I basically I'm just I'm the GC and I have I know everything that's going on, and I have my scope of work, and I have my costs that I want to see and I'm keeping the keeping track of all the supplies from Home Depot or wherever I'm sourcing the material, and I just have all the subs I just like the subs are doing. I just have them like okay, you guys, you're doing the window, here's the cost. Here's what you need to do. Here's that here's the hours here's here's the breakout. So just just kind of imagine managing the subs. So yeah, definitely not a definitely not something I could point to is like a sophisticated system for either a flipper or per job. But that's again, that's me. You know, if we go back to you know, different things could help there for people so if you go back to a Robert Kiyosaki, he's you know, the you know, the you know, you want to be a technician, his his breakout of that with technician, you know, investor a business person. Absolutely. Being a technician getting there doing everything. If you want us to get legacy wealth and lasting, lasting value in our lives. That's really not the path. So it's cool that you can do it's cool that, you know, that whatever, that I could do it or whatever, I felt kind of good about it and doing this and that, but long term, I guess I can counsel the listeners to, you know, do less of that.

Derek Clifford:

Got it. Yeah. And, you know, Krista, do you have any advice because now I want to just really quickly adjust this over to multifamily. I know that there's a lot of skills that both you and Johnny can can use from Johnny's like GC mindset GC background for doing unit turns. I know that sometimes like we end up like relying on our property managers to do turns in multifamily. But is there anything maybe that you can add to this from your perspective about like watching processes and helping Johnny with unit turns or do you guys have anything set up for that type of work?

Christa Nelson:

Yeah, absolutely. Well, with our most recent deal, it's been interesting because 40 of the units are brand new. Right? So we are really hoping that there's not much to do for turn, at least for the first three to four years. But I think one thing that stood out to us is our property managers. They gave us some really high quotes for just simple things, like painting. So my suggestion is to just trust your gut, and I always get three quotes, especially with that type of thing. They were quoting us a little bit high on some of the handyman services just really simple things to like, light bulb changes and things of that nature, not like fixing huge components or anything. So just trust your gut, get multiple quotes and communicate with your property managers like what your expectations are for for the cost of a turn. Jonny I'm trying to remember we got some just really high quotes for just painting the units, like Didn't they say like $2,000 to paint a unit or something for a turn. And it the numbers just don't make sense there. So just be careful and eventually, like, you know, check, check the references, obviously. But if you don't feel comfortable with what your Pm is suggesting, it's okay to bring on a sub or someone else that you can find to do the work.

Derek Clifford:

And that comes from getting the multiple quotes. And one thing I would also add to to this and maybe John you can confirm or refute this is that when you have a contractor come on board, try to imagine in your mind's eye, how much the material is going to cost like you can go to Home Depot, you can see that and then divide out how much of that labor component is at a reasonable hourly rate with however many people you think it's going to take to do the work like try to figure out what the man hour cost is your you're going to pay, right? So if it's like a $2,000 job, and it's only 200 bucks in paint or 300 bucks in paint because you're just painting like a living room or just a one bedroom apartment, and then you're ending up paying like 40 or 50 hours worth of painting. Something's not right there. Right, you know, with that with that labor component.

Johnny Nelson:

That's a that's a great mental shortcut there. Derek when as adjusters you're, you're kind of you're you're constantly you're kind of like an animal in a new environment and you're scared and like your people trying to take advantage of you and you're kind of looking around and you're, you know, you're you're kind of on your guard. And we are opposite to that to that idea that we should absolutely developed some basic gut checks and some simple rules of thumb, which you've asked about for a couple times. Is that type of like approach when you're coming up to it and that's something that like, for example, that I have to divorce myself on because like I know more in more detail, why something should cost and some other things, but from an investor's perspective, many maybe don't have that. So also and then you can also gauge so the one other metric that you're looking for, there is the time, so materials, and then then you say well, they're going to be like, you know, you know, 4000 or whatever 5000 hours worth of work and then you ask him how long it's going to be. So then there you've gauged your other multiplier, right. So first, you know, so it's this time, you know the materials plus time times an hourly rate, and you can that you can kind of deduce that from help when they're gonna be done. And then you can really dial that in like, oh my god, they're making like, you know, $110 an hour or because they just don't, right. They just told me that it's gonna take them two days, you know that that's a astonishing rate of money.

Derek Clifford:

Yeah, exactly. And unless the situation is well, they said they're going to get it done in two days. And it's but still, I guess it's the number of hours like how quick it needs to get done, how many crew members are there and then what that extra built in multiplier for profit is I think that's a pretty cool, yeah, definitely a good way to think about it. Awesome. Cool. All right. Cool. Well, thank you guys. This is awesome. Have a lot of great knowledge and expertise here that we're able to draw from and pass on to our listeners. So we're going to head into the final segment of the show, which is called the Rapid Round. Okay. And it's the same five questions that we ask every one of our guests and they're meant to be answered in about 30 seconds or less. And it's pretty obvious whether or not it's it's generally for each of you. So 111 answer for each person. So are you guys ready?

Johnny Nelson:

So ready?

Derek Clifford:

Alright. I'll read the odd number one and Sophie can read that even one but number one is what book has had the biggest impact on each of you, and why outside of the rich dad or the Bible because we get those all the time?

Christa Nelson:

Absolutely. For me recently, and I have to say recently, I think one that has shifted my mindset is who not how and really talking about, okay, you need to get away from doing everything yourself. You need to even if it's painful, rip off the band aid start developing those systems, get some sort of system of organization in place, and find the right people always be thinking about building your team and who the right people for your team is. We're still working on that. It's a work in progress for Johnny and myself and just looking into the future, who is who are the right people to put on our team but I think we that is a growth area for us in the last like three to four months, and it's something that will probably be lifelong. But that book has made a huge impact for me lately.

Derek Clifford:

Excellent, good answer.

Johnny Nelson:

For me, a book I read a couple years ago and that is the book by Nassim Taleb, anti fragile. I am big on decision making. I really enjoy the the process of decision making and how to think and how to understand the world and the things around me. And I really appreciate his philosophy and His ways of approaching things and I've read it like I said, he's written a number of books. And the one that I probably his best work so far is the concept of are the concepts he lays out in the book anti fragile.

Derek Clifford:

Yeah, love it. And for those who don't know what that is, just think black swan events. Those are really really big things. And I would encourage the listeners to find out what that means. Anyway. It's good teaser. Yeah, it is.

Christa Nelson:

I remember Johnny talking about that. Now. I'm like, oh, that sounds dramatic. I should put that on my list. That's awesome.

Sophie:

Absolutely. All right, guys. Next question is if people wanted to emulate your success, what is the first actionable thing that they could do to follow in your footsteps?

Christa Nelson:

I'd say education. For me education, I think about starting our journey in 2018. I knew very little about investing in this type of investment. I knew a lot of like what corporate America tells you to invest in like your buy house w two 401k All that kind of stuff. But education. I still have ways a ways to go. I think I I've committed to learning something new every day. But I think if you can commit yourself to that, it's it's not going to be overwhelming and you would be very surprised at the progress that you can make and I would say for me education, learning something every day, you know, related to real estate and investing.

Johnny Nelson:

Alright, we're gonna have a public middle spat here and I'm gonna counter slightly my wife here. I'm kidding. I would I would say the proclivity or the sense of basically taking action, having a propensity for taking action, and an absolutely you kind of season or kind of like, maybe blunt the front edge of that action with with education, but I definitely would like you know, maybe it's like an eighth education in seven days taking some action. That's how I would say that and then maybe that just our different personalities how we feel like we should, you know, step in or grow into something. But for me that is that taking like, even though you don't know the next step, and but it's exciting and there's something that you feel called to take a small step in that direction, and then you will then understand just by being in that space, where to take the next step.

Derek Clifford:

Yeah, you know, John, sometimes you don't know what you don't know. But at the same time, Krista, you've got to understand to cover your downside risk, so completely agree with both those perspectives. They've got to be in balance.

Sophie:

And I would say to that, it's what's nice is that when couples like you know one presses on the gas and when pressed on the brakes, like you have both components that actually makes for such a synergistic and complementary, powerful, powerful, powerful combo. Yeah, definitely.

Christa Nelson:

Absolutely. And I think there is a danger in not taking enough action if you are if you're so focused on needing to know all the answers, but I will say we've had to just jump in and figure things out like educate as you go can also be strategy. So absolutely,

Derek Clifford:

sure. Yeah, definitely. All right, number three, you guys what is one tool process or hack in the last three months that's helped you save time and or effort and it's okay, we can edit out the dead air it's like

Christa Nelson:

racking my brain. You go first Gianni on it.

Johnny Nelson:

I like leveraging asana and then also some CRM tools. Those aren't I know that's not groundbreaking groundbreaker but groundbreaking or that novel, a lot of people are using that but basically taking it up you know, deploying it or employing it for our own selves and seeing how effective that can be. That's been pretty exciting and very effective.

Christa Nelson:

As far as our hack or improving our processes, I see it as an area of an improve of improvement for myself personally, I I do find myself doing things manually that I should not be doing so that I'll just say that's an area that I can definitely grow into. I am still educating myself on the best way. You know we've talked about potentially getting a VA or things of that nature. But what I can say is, I guess specifically if I think about Airbnb, we do some short term rentals. So I've I've tried to educate myself more on how to automate that system. And I think they have added some automation tools that have made things easier to so I'm trying to get more comfortable with their technology, and like automating the check in messages and syncing calendars and things of that nature that that has been helpful, but I'll say it's a work in progress.

Derek Clifford:

No worries. It's all good. Thank you very much for sharing that being vulnerable there. Appreciate that.

Sophie:

And next question is if the people that you know how to describe you with one word, what would that word be?

Johnny Nelson:

Hardworking, determined and persistent for myself. That was three words,

Derek Clifford:

but they sent around the same theme so

Johnny Nelson:

that Thank you, sir.

Derek Clifford:

And for you, Christa,

Christa Nelson:

for me, I would say dedicated um, I think I'm someone where people can really count on me. So just that steadfastness or dedicated when I commit to something, I, I commit. And I think that sometimes we can struggle with shiny object syndrome. Right? Like, oh, this is really hard. I'm gonna I'm going to shift my focus to this, but, you know, dedication in the moment, is something that has served me well. And I think if you're able to show up, the first step is showing up right 80% of getting something done is just showing up. So sometimes that can be the dedication that that you need to get started. But it also means showing up for yourself right and taking that time to just better yourself. So I would say dedicated,

Derek Clifford:

excellent All right. Number five last question is What small thing do most people not know about you?

Johnny Nelson:

We like to swing dance that's kind of speaking for both of us, but with your like to swing now. I love jazz music.

Derek Clifford:

Nice, I think that covers it. That's pretty great. I love it. Cool. Cool. Well, you guys, thank you so much for coming on the show. It was a pleasure having you here and thanks for sharing all of your wisdom and you know all these all these great little nuggets of of these pearls of wisdom we got that we got to commend you guys for so thank you guys for working on yourselves and sharing all of your your knowledge with us. And before we go, why don't you guys tell us how the listeners can find out more about what you guys do or what's what's going on in your world right now.

Johnny Nelson:

Would that thank you for allowing me the opportunity to be on your show and sharing the things we've learned many wise people have showed us the way you know their ways and we've just taken those things and incorporated it so it's a shared knowledge and it's really nice to be able to share with others as well. Your audience as well. Basically our email would be Arktos capital. It's aarC. TLS, CA p itl@gmail.com. And also I'm quite active on LinkedIn and those probably are the best ways to connect with us.

Christa Nelson:

Yeah, absolutely. And I second that I'm active on social media you can find us at the Nelson connection if you like Instagram, we've got links to our latest property. You can check out our latest project. It's 28 Park mpls.com. You can see our most recent project that we're really proud of there. But also for me, I recently took over the Minneapolis invest her chapter meetup. So if you jump onto meetup.com You can find us there. I'm revitalizing the group I just added some happy hours and events. And of course everyone is welcome but the group is I would say a little bit more tailored to helping women investing in real estate and looking for that financial freedom. So I can send you the link afterwards. But that's one way to find me and I'd love to connect in person. I really do prefer that versus social media. Or even a zoom call, quite honestly. So we're we're pretty available. Just reach out. We're always happy to talk

Derek Clifford:

all right, well, thank you guys so much for coming on the show and once again it was been a pleasure having you on so thanks for for hopping on with us.

Christa Nelson:

Take care thank you both. It was fun.

Derek Clifford:

For sure. And for everyone that's listening on the show. Thank you guys for listening to the very end. We really appreciate you and please we'd like you to like subscribe or comment wherever you're watching or listening to the content. And you know this is all towards that objective of appeasing the algorithm Gods so that we can get ourselves further up that list we get exposure to more people and then have the opportunity to bring on more fantastic guests like Krista and Johnny here. So thank you for listening. And we will see you next time and so for now, this is Derek and this is Sophie we are signing off for the day. Thanks everyone. Take care. Bye.