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In 2008, J Scott and his fiancée, Carol, quit their high-pressure Silicon Valley tech jobs and moved to the East Coast with plans to build new careers that would let them prioritize starting a family. Inspired by HGTV, Carol suggested they try flipping a house while they figured out what came next.
“I could barely swing a hammer, but we were about to get married and I wasn’t going to say no to my future wife,” Scott says.
Over the next eight years, the couple flipped more than 300 homes. Then Scott changed tracks again to focus on multifamily real estate. Today, he invests in large apartment complexes in the Houston area as general partner at Bar Down Investments. He also operates a portfolio of small multifamily and single-family homes in Maryland, Georgia, Florida and North Carolina. Scott has also written several books, including “Recession-Proof Real Estate Investing” and “The Book on Estimating Rehab Costs.”
Scott spoke with Story by J.P. Morgan about why he went from flipping to retaining investment properties, how he keeps up with market trends and the two critical questions he asks before buying a property.
Q: Why did you decide to move into multifamily investing?
A: I was burned out on single-family. It’s hard to flip 30, 40, 50 houses a year.
The thing I love about multifamily is that it’s a team sport. There are things in this business that I’m really good at, and multifamily gives me the opportunity to focus on those things, while letting our other team members focus on the things they’re really good at. I can put my talents to use and I don’t have to stress out over the stuff I’m not good at.
Q: Did you have a mentor in real estate guiding you through the transition?
A: When I was looking to move into multifamily, I reached out to a friend of mine named Ashley Wilson who was buying and syndicating large apartment complexes in Texas and Ohio. I basically said, “I’ll come work for you for a year for free. You’ll have access to my knowledge, my time, my effort, my network, my cash. In return, I’d love for you to mentor me and teach me the business.” It was a good deal for her and a good deal for me.
Over that year, we became even better friends and we realized we worked really well together. We’re now partners in that business, Bar Down Investments.
Q: Tell us about a mistake you learned from.
A: A lot of us like to focus on transactional deals in real estate. It’s great to buy something and sell it at a higher price. But at the end of the day, you become financially free through cash flow, by buying stuff and holding it long-term.
A couple years ago my wife and I sat down and did the math. If we had kept every house we’d ever flipped, we would have about $50 million more in equity than we currently have. Now financially, we couldn’t have afforded to have held every property, but even if we kept, say, one out of five, we’d have $10 million more in equity than we currently do.
Real estate goes up in value over time. It might not go up next week or next year, but it’s going to go up. And when you sell something, you pay taxes on it and you’re not generating cash flow.
If you need the cash, fine, sell some houses. But for every one, or two, or three you sell, keep one. It might sound easier said than done, but if you’re in this business, it shouldn’t be too hard to figure out how to keep one house per year.
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