Interview with Russ Haims and Mike O’Rourke

The combined 60 years of experience of Russ Haims of Hampton Properties LLC and Mike O’Rourke of Worcester County Management, Inc. and O’Rourke Construction Services, Inc. was on display, as each have each separately mastered their businesses. Rich Merlino was ecstatic to interview the pair. Under their tutelage, the audience eagerly listened and noted the invaluable advice that these two had to offer.

 

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This is part of the Worcester Rental Real Estate Networking and Training series.

 

Transcript:

60 Years of Experience: Interview with Russ Haims and Mike O’Rourke

[Start 0:00:00]

Rich: Okay, so the guys we have here talking tonight we have Mike O’Rourke, who is on the board of this organization, so let’s give Mike a hand [applause] and Russ Haims, also an investor super experienced, very lucky to have him. He’s a busy guy. Let’s give him a round of applause [applause]. I’m not going to give you their whole story because they’re going to give us their story. We’re going to start off by talking about a group that I think it’s safe to say is on everyone’s list of favorite people, that’s teenagers. Anybody I’ve talked to who’s had the privilege of having one or two or God willing three of these mysterious wonderful creatures say it’s such a good time that the only thing they wish was they could have was 497 more of them simultaneously, of course I’m talking about student housing. Russ Haims, why would you do that yourself?

Russ: You know I’d like to say that I did a long time ago switched to student housing because I realized I started in the ‘80s and took a big hit with the economy. People lost their job and I suffered a big vacancy but friends of mine that had student housing were unscathed by the economics and so it stays kind of recession proof. If they can’t find jobs, they stay in schools. They can’t pay tuition, they get loans, and so it’s kind of a constant demand, so I put up with some with the immaturities and so forth, but I get their parents to co-sign and all that other stuff, so we got third parties sort of influence. That’s why I put up with it.

Rich: Got you. Okay, well –

Russ: But I don’t rent. We have an addendum that says no open parties and if they don’t want that, they should go apply somewhere else, so we’re very strict. We just don’t take the rent and look the other way.

Rich: Got you. Well, we’ll definitely get into more detail about that stuff.

Russ: Okay.

Rich: Another topic that we have to discuss and it goes something like this: imagine you’re sitting in a nice lounge chair on your front lawn. It’s a nice summer day. You’re enjoying the breeze. You’ve got a cold beer in your hand. You see a dump truck at the stop sign in the corner, and it’s a manure truck. You wave the guy down and you say, “Don’t drive off with that. Bring that over here. Back that up.” And the guy dumps it all over your front lawn and it gets all over you and gets in your beer. If anybody is familiar with it knows what I’m talking about: receivership. Mike O’Rourke, why would you do that yourself [laughter]?

Mike: Well, our neighborhoods are rundown, some of them and one of the things that the city is trying to do and really the town at, too, they’re trying to fix up these areas and these houses. A lot of these houses have tenants in there. The banks say I’m not doing nothing. I’m in the process right now of doing a duplex and there’s an owner on one side and the other side, the owner walked away from it, so the owner that’s living there has called the bank for the last 3 or 4 years that there’s leaks in the roof and the house is being flooded. But there is a guy living in there – no bathroom, just coffee cups and beer cans, so basically the courts appointed me, I went in. I got the gentleman out. I had to [unintelligible 0:03:40] the house, and this is one way of getting this back on the tax roll. The bank is taking any, paying the taxes. They’re not paying the water bill. They’re not in Worcester. Their bank is out of Boston, and they really don’t care about the property. Now they’ll tell you well we can’t do nothing because someone still owns the property. The guy that owns it right beside it, he’s had leaks for 5 years going into the house. There were big holes. If the fire department ever went there, they would have gone in right through the roof. I think the bedroom floor is up because you couldn’t walk in the bedroom floors. The water for the last few years rotted everything away, so this was a danger.
Then I talked to the fire department. They can’t put an X on the building because there’s somebody living next door, so they had to warn their employees, the firemen and then we went in and we straightened out massive mold and everything. The only good thing the mold didn’t go into the other person’s side. It stayed to this side, but we had to do the roof. We had to gut the whole house. We had to do mold remediation and the bank still gave me a hard time before I took it over. They wanted to get it back and do the work themselves, but they didn’t come forward for 5 years, and now 4 or 5 years, they didn’t come forward, so why do you want to come forward today? Because the city stepped up to the plate and gave it to somebody.
[0:05:02]

Rich: Well, that sets the tone. Oh, my lord. Okay, so long have you been in real estate and how did you get started, Mike?

Mike: I’ve been in real estate since 1975. I bought my first house in Vernon Hill in 1975. I bought it at June 3rd. It was 2:00 in the morning. I left for Ireland that afternoon and I went away from the house, didn’t think about the house or nothing until by June 28th. Then I came back and met my tenants and got my rent, so that’s really how I got started. My father had a close eye for me, and he had no problem with that. I bought my second one, then I bought my third one, but the bank said you can’t have it. So, I just said why can’t I have it? I’m doing all right. Well they thought I had too many properties and I was too young, so…

Rich: How old were you?

Mike: Eighteen, but I had paper routes. I worked for [unintelligible 0:06:03].

Rich: You put your paper routes on the mortgage application?

Mike: Yeah [laughter]. But I had good jobs as a young kid. I had worked. I shoveled snow. We snow balled. We did everything, so I had money in my pocket. So anyway, we had this bank [unintelligible 0:06:20] a local bank and I had two of my mortgages, so one of the guys said to me, “The reason we’re saying no is we think you’re too young.” So I called up the realtor. I told the realtor that they’re not giving me. She’s okay, so she called the owner of the property and said he can’t buy it they’re giving him a hard time.
So the owner of the building called the president of the bank and said, “Could you have a check for all my money in the morning? I’ll pick it up.”
And he says, “Can I ask you why?”
“Well, I have a person who wants to buy my building and your bank doesn’t want to sell it to him and he’s got great credit.”
So the next thing you know the next morning, I get a call. “Come on down and sign the papers.”

Rich: Wow!

Mike: So it just means that if you got the money, it speaks.

Rich: Can everybody hear Mike okay in the back? Yeah. All right, good. Russ, how long have you been doing this and how did you get started?

Russ: I bought my first property in May of 1985. I was 24, and I just realized I wanted to do something that was going to be my own business. I’ve never had a real job, never had a paycheck. That’s all I’ve ever done. I grew up in an entrepreneurial family, and my father kind of encouraged me. “Look, –” this is before the Internet and so forth, “this is the way it sort of guaranteed wealth and security.” He didn’t say of the headaches that came with it, but he said, “Look, right now, like any other business,” I was a kid, “basically you’re not married,” and I just went on unbridled, but I started off in Fitchburg and Leominster, thus all my gray hair [laughter]. That’s where I started carrying a gun on a regular basis. I don’t do that anymore, but I bought in some of the toughest areas and learned quickly how difficult it can be if you don’t have the right restrictions and the right methods. It became stressful.

Rich: I know a property manager who collects rent in Fitchburg now and he says he straps one on every time he goes out, so I can understand that. So that’s how you guys started. Roughly how many units do you have now? How many do you manage? Do you manage them for other people? Do you manage them for other people? How many have you sold? That was like seven questions. Go.

Russ: All right, I’ll start. Currently I have 114 units that I own. I manage another 23 or so, and I have another 30 in the pipeline I’m due to close on in the next month. But since just 2000 in Worcester, I purchased and renovated 325 units in the city just since 2000. Many have resold owner-occupants, first-time homebuyers things like that. They love that with singles and triple-deckers. I like to renovate. I’ve never built a thing but I’ve renovated a tremendous amount of them, yeah.

Rich: Got you. What kinds of properties do you find that you renovate the most?

Russ: The multi-families. I’ve done some single families, some that stand out like on Salisbury Street, that mansion 251 Salisbury. I’ve gone to the high-rent districts, but it’s mostly the inner cities or the triple-deckers, and I used to sell those to a lot of first-time homebuyers since that was the most affordable option.

Rich: Sure. That’s awesome. That’s how I got started.

Russ: That’s how I started. Yeah.

Rich: I thought I was a genius. I was like I could live on the first floor, rent out the other two floors. My mortgage would get paid. I better hurry up and get one before somebody else figures this out. Apparently like 4,000 other people had already figured that out. How about you, Mike? Same set of questions for you.
[0:09:44]

Mike: I have 200 units, 60 buildings. I have right now five receiverships. I’m one of the largest receivers in Worcester and Worcester County. Some of the towns call me and do it direct. Some of the banks even call me before it goes to court now because they try to avoid the court. Even if they call me direct and we go into court, and they ask the judge. The judge usually appoints me. I did the Albion there when they were having trouble. I did it for I think 3 months; they had no license or anything. I did it. I met with the city, and I was advised right that day if you do it and it works out good, you’ll look like a hero. But if you do it and it comes bad, you’re going to be in trouble. It worked out good.
They were good guys to work for. We straightened it out. We had to bring in the police and have our paid details and cleaning companies and stuff, but we did it and it worked out good. I thought the cleaning company was a local. I try to use all local people if I can to Worcester. I told the cleaning company all I want to smell is bleach. When they started the top floor, come down to the first, I want them to come back again and start over and they did that for a week. I said I don’t want no one complaining. It’s bleach and that’s what we’re going to smell, and that’s where we left it. But they got their license and they’re up and running.

Rich: All right. So you mentioned hiring a lot of people, local people. Do you have employees of your own? How many do you have?

Mike: I have four employees of my own

Rich: Okay.

Mike: And I have three general contractors as subcontractors, then I have a plumber and I have two electricians and they are subcontractors. It’s just if I don’t have work, I don’t have to say, “I’m going to lay you off. Stay home today.” These guys go and get their own jobs. If I call, if it’s an emergency, they’ll come to me within that day even if they do it in the evening. But some day it can wait until tomorrow, they might blow it off until tomorrow, but you know, okay.

Rich: Okay, all right. You have a relationship with these guys. How long have you been with some of these contractors?

Mike: The longest one probably about 15 years.

Rich: Fifteen years?

Mike: Yeah, but I’m always on the lookout to get somebody else get another person on board just in case something was to happen.

Rich: Sure, and they get back to you the same day.

Mike: Yes.

Rich: Because like I’ve struggled with some of them.

Mike: I got their direct phone numbers.

Rich: To hear back like the same quarter?

Mike: [crosstalk 0:12:10] Sometimes they answer right away.

Rich: That’s awesome.

Mike: Yeah.

Rich: Because you give them a lot of business and you developed a relationship with them?

Mike: Right.

Rich: Nice. Okay. You pay the bills, you write the checks?

Mike: [laughter] Yeah, that’s the main thing.

Rich: Okay. How about you, Russ? How many employees do you have? What do they do?

Russ: Sure. I have a fulltime property manager, who happens to be here right now. Taylor Bearden, raise your hand. Right there. Young and intelligent and he gets it, tech-savvy and simplifying my life. We have some other part-time employees that sort of help in the office and help with the tenant relations, so to speak with communications and so forth. We hired a fulltime maintenance person. I was tired of the subs being tied up on other jobs. I said, “Look, even if don’t need someone fulltime, I need someone dedicated to being responsive immediately.” That’s a very important part of our service agreement with our tenants, sort of it’s part of what we’ll talk about later I guess as part of the question.

Rich: Yeah, absolutely.

Russ: And I have a full crew that technically are subs but I keep them busy year-round so that’s a company that has at any given time 8 to 12 people on-site working on different projects constantly.

Rich: Okay. So you both have a sizable group of people–

Russ: Yeah.

Rich: That you can call on even if they’re not employees?

Russ: But you always need choice A, B, and C because you don’t always get that phone call back right away because there’s personal issues or they’re stuck in other jobs. You can’t expect them to just drop what they’re doing.

Rich: For probation officers.

Russ: Right, ex-wives, things like that, child support issues, yeah any of that.

Rich: Got you. Of all these people that you work with who are your employees, who is the dumbest one [laughter] or at least what’s the dumbest thing they’ve done? At least tell us that. I know it’s hard to choose [laughter].

Russ: That’s a deep topic, but I will say this: I’ve learned without giving specifics in this last year having the right people is key to the success of this business. Keeping someone on and tolerating but someone who keeps making the same stupid mistakes is a foolish game which I am guilty of, and I just have relationships with people. I trusted them and yet they kept screwing up and/or harming my relationship with my residents, and I just kept on after the fact I said that was foolish.

Rich: I’ve done that.

Russ: So don’t tolerate repetitive stuff.

Rich: Yeah. How about you, Mike? Do you agree with that?

Mike: Yes. One of my big pet peeves is I was out the other night in the snow, and I go out. I don’t stay home and worry. I go out, be the one to know what’s going on and what they’re doing. But they shoveled the sidewalk this wide.

Rich: So anybody coming by on their pogo stick will have plenty of clearance.

Mike: That’s right. I can’t walk down that sidewalk or I can’t walk over that snow bank, and they don’t know about it. So I’m out in the road with them and I have another guy. Sometimes there’s three of us out there. They work for me regular and we just go out and we take care of it, but I want a good 3-foot sidewalk and I want it all the way up to the front door and the back door.
[0:15:16]

Rich: Sure, and you communicate to the people what your standards are and so that —

Mike: They don’t want me —

Rich: Actually you put your own eyes on it.

Mike: They don’t want to get out of the truck in the morning in there, but I [unintelligible 0:15:28] them the snow. I’ll talk to them.

Rich: Okay. All right, so as long as they can make it look good from the truck.

Mike: That’s it [laughter].

Rich: Got you.

Mike: They’ll be going home with that.

Rich: So we’re going to talk a little bit more about some of the maintenance because Russ brought that up and that’s obviously a huge part of all of our business is taking care of the properties, right? So we’re going to go through this a little bit and then we’ll break it up for some questions. If you have a short-term memory like I have and you want to write down a question, we’ll have plenty of time for all of them, so just make sure you write them down and we’ll definitely get to you, okay? Okay, in general what kind of condition do you look for in a property or what – I think we know what kind of condition you look for. You like bad-condition places, right, for the most part? So tell us about that and in other than that, what else do you look for in a property?

Russ: I usually look for something which I can add value, but not just anywhere. I look at my demographics primarily around the colleges. So I stick within certain radius of the schools. I’ve owned on Vernon Hill, up in Burncoat. I’ve been all over the place, but I’ve kind of found my niche that I feel comfortable with. But as I was driving here, I got kind of distracted and I went up through a neighborhood above Belmont. There’s no parking on some of these houses, so what I look for is I try to look through the eyes of who the end user is if it’s going to be a student, if it’s going to be family. Is there parking? Are the neighboring properties horrible that I may not have any control over? Is the hill too steep to where their cars are going to be spending [unintelligible 0:17:02] up there, so I look for properties as sort of have it all. If it doesn’t have parking, can I put it in? Anything can be fixed as far as the condition of the properties, so it’s a question of does it have the basic things.
I no longer purchase in certain neighborhoods that are riddled with just a mass of difficulties whether it be crime and sort of statistics that we all know about. I used to do that but it’s hard to attract the right tenants in those neighborhoods no matter how pretty you make the place, so I stay away from that.

Rich: Got you. So what are some ways that you – maybe this seems like an obvious question but if you run across a place that didn’t have parking and these places have been here for 100 years without parking.

Russ: Uh-huh.

Rich: How do you solve that one?

Russ: Well, I measure off to the side of the house to the lot line. If there is at least 9 feet, I can put in a legal driveway and if it’s tandem, I don’t like to take up all the green space if there’s any whatsoever. I like to leave a little bit, but you got to get at least a couple of cars off the street. I think you have a better shot at attracting a better-quality tenant. If you don’t, who are you going to get? Not somebody necessarily the good card with a job that cares, so I sort of found that to be a problem. The only time I’ve had that as an exception I have a six-unit with no parking but it’s within two blocks of Clark University and there are foreign students that don’t typically have cars. They don’t care.

Rich: Got you. But for your families that you’re talking about —

Russ: Correct, correct.

Rich: You know the people who have jobs tend to have cars?

Russ: Yes, and you better attend to the snow quickly because they got to get to work, etc. It’s a whole you got to provide the service for that as well, so.

Rich: Got you. So how about you, Mike? What sorts of places – it sounds like properties find you.

Mike: I had to go all around Worcester. I try to stay to Worcester. I do ever wound up in Fitchburg that I have, but I really like to walk away from it.

Rich: Or run away from it?

Mike: If I don’t have a driveway or the house is rundown or it has lead, you could be telling me it’s worth $150,000. Well, I’m not going to pay it. I’m well down under the $100,000 mark. I’ll give you the cheapest price that I’m going to give you and then you take or leave it. But if there’s no parking, it’s no good to me, you know – rental, summertime is the best time to rent. If you rent now in these city streets with the snow, there’s no parking like today, the city was plowing snow today in the city and they were doing tag and tow. Nothing aggravates the tenants more than their car being towed away, so who pays for that? Even the tenants got to pay to get their car back, it’s going to affect your rent some place along the line.

Rich: Absolutely. I mean if and nothing else, it’s going to be in the back of their mind they might want to go live somewhere else.

Mike: Right. If I have a good tenant, I try to move them to other units. Some tenants, we build up good rapports and if they’re nice and they’re taking care of the properties, they might want to go to a newer place after 7 or 8 years, and I take them. I move them to another one of my buildings if I have something they like and I do that. But if I’ve had headaches with you, see you later.
[0:20:22]

Rich: Sorry. I don’t have any other places for you. I wish I did. Something like that?

Mike: That’s it.

Rich: In terms of once you get your hands on an apartment – let’ start with Russ – what kinds of, you mentioned parking, you mentioned some of the exterior things, what sort of things inside the apartment are you looking to do work? What kind of finishes do you use? What do you aim at? I’m sure you have a formula at this point.

Russ: I do and it keeps evolving. I’ll give a specific example of one I’m deep in the middle of right now. Right on Elm Street, right behind the Greek Church, is two 4-story buildings at 113 Elm and 115 Elm, very generic boxes. Funny enough though, they’re historic so I had to go in front of the Historic Board to ask to rip off the aluminum. Of course, they granted that. We are basically pulling out all the kitchens and baths. It was just years and years of bad handyman work at best for all the plumbing, so in order to give new kitchens and bathrooms, we just all the stacks, all the lines, every inch of wiring. There might have been circuit breakers in the basement, but it’s all knob-and-tubes in the walls, so we’ve just learned from the roof down to the foundation structural work, new rubber, new windows.
We put in all new maple kitchens with granite and I’ve tried now for the first time we’re putting in Mitsubishi mini-splits into each unit, so they

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