Starting From the Bottom: Joel’s Experiences Growing a Young Company

Business Ownership

Joel Worcester

The conundrum that every lofty-goal-setting entrepreneur has to address: how much knowledge and experience do I need to acquire before I jump in and start doing big things to avoid costly mistakes?

Paul, Jesse, and I, like many entrepreneurs, didn’t have the patience or desire to get MBAs, work for a firm for twenty years, and then cautiously wade into the investing arena using our own cash. Fortunately, due to a lack of cash and just enough wisdom and guidance to hold us back, we started comparatively slow. We initially cut our teeth on single-family houses and small multi-plexes (2-12 units). From the end of 2006 through the middle of 2009, the largest property we bought was a 14-plex. These three years were the foundation of our real estate investing education.

Neither I nor my brothers had much business experience or education. Each of us had graduated from college (or dropped out of college) with degrees unrelated to business or real estate investing in 2006. It is hard to say where our ambition originated, but it was evident at an early age and we channeled it through sports. We grew up feeling the financial pressure of our parents, who raised four boys on minimal income from pastorship of a small church (father) and teaching at a private school (mother). When we realized we would not be playing in the NBA, we began to explore other outlets.

Ultimately, we were strongly influenced by Robert Kiyoski\’s Rich Dad Poor Dad philosophy, which advocates seeking business ownership and long-term passive investing above W-2 employment. The idea of putting in a lot of work now for long-term passive benefits in the future resonated deeply with us. The three of us had developed solidarity over the years with similar athletic pursuits and work ethics. We spent thousands of hours together working toward winning a state basketball championship. After high school, we all earned small college basketball scholarships, where we continued our athletic careers. As we finished our respective small college basketball careers, we decided to start a family business.

I distinctly remember sitting down with my brothers and a reputable Realtor in 2006 to analyze an investment property that we were considering trying to buy in Eugene, OR. He had drafted a financial scenario that included approximately a 7% increase in rents per year and approximately 7% of appreciation per year; this was conservative because the market had been increasing by 10% annually over the last few years. Our projected year one cash on cash return (using, we now know, very low expense projections) was $0. So you don’t even have to make money to become rich? It sounded so easy.

Remember, if you can, a time when you could qualify for a no-money-down real estate investment loan based on “stated income”; let me translate: unverified, false income, and put zero money down. In other words, recent college graduates (and a college dropout) with no work experience, no investment experience, and no money could buy real estate without even having to convince a wealthy family member or business connection to provide capital for a purchase. Then came what we would later determine to be a fortunate experience; the seller of the property mentioned above chose not to accept our offer.

So much has changed since then and we have a vastly different approach to underwriting real estate now, but in order to understand how we got started, I think it is important to understand what attracted us to real estate and the environment in which we started our business. The timing of the real estate crash was fortunate to us for a couple of different reasons. First of all, we had just emerged into the real world from fifteen years of an education system that dedicates an alarmingly minuscule amount of effort toward financial education, and from the time of finishing college (end of 2006) to the crash (2007-2008), we did not have much time to learn the industry or to buy real estate, so we had little exposure to the crash.

Secondly, and most importantly, I can only imagine the negative impact that a windfall of appreciation profit would have been to naive, inexperienced real estate investors. Imagine if our first years of real estate investing were shaped by a market where everything goes up in value, where the important factor is just to buy as much as you can, where operating efficiently is secondary and even arguably unnecessary. To think of some of the decisions we might have made and habits we may have developed if we had spent the first few years of our business in that environment makes me nauseous.

The crash years were focused on intense education and activity. Over the next three years, until late 2009, we accumulated approximately 150 rental units consisting of approximately 35 properties. We bought a number of houses and some multi-family, up to a 14-plex. Paul, Jesse, and I experimented between the following responsibilities: low-skill maintenance worker, rehab foreman, property manager, leasing agent, ignorant attorney, closing agent, bookkeeper, ignorant accountant, bird-dogger, eviction specialist, private capital fundraiser, ignorant HR director, oh, and real estate investor, and more.

In addition to taking on alternating responsibilities, we read numerous real estate and business books. The most influential reading we encountered: Rich Dad Poor Dad, Good to Great, The 80/20 Principle, The Slight Edge, Endless Referrals, Who: The A Method for Hiring. We also read many real estate “How To” books. We consulted with mentors and real estate professionals frequently.

These three years were chaotic and unpredictable. We operated at very high levels of stress and uncertainty, worked 60-80 hours per week, and learned an inordinate number of business and life lessons; we had to in order to survive and feed our families. We calculated our pay and we made between $3-$9/hour during these years, as weren\’t making money yet and paid ourselves the bare minimum we needed to survive. In addition to learning the nuts and bolts of transacting real estate, the following are some of the most important lessons we learned, the knowledge of which prepared us to take our business to the next level:

1. Hire Right

We cut a lot of corners when we started out, primarily due to lack of funds and naivete. We really began to progress when we became very diligent and purposeful when hiring and, most importantly, when we began paying more when we identified a candidate that stood out from the competition. This is especially relevant for a company seeking to grow. Team members either move you forward or hold you back; there can be a fine line between the two.

2. Specializing

When my brothers and I were literally fulfilling every necessity of the business, none of our work was very impressive. We began to identify the different strengths (and weaknesses) within our ownership group. Once we be began to adjust our roles narrower and deeper, we became much more productive. This correlates with hiring right as well because you cannot give up responsibilities until a competent person can take them over.

3. Economies of Scale

It took a very similar amount of time to purchase a house as it did to purchase a 10-plex, and we could make ten times the income from the 10-plex. There is obviously more risk involved in a larger property, however, the input/reward potential is also much greater. Focusing on larger properties has paid off well for us.

4. Slowing Down to Speed Up

Jesse has been integral on this point. He has continually emphasized the importance of setting up great systems that make future processes more efficient and productive. We now have detailed systems in place within each sector of our company, which are being continually refined.

5. Run Projections Conservatively

One of the biggest mistakes we made early on was to run tight expense and low vacancy projections. We have changed our formulas and default underwriting numbers hundreds of times in our Excel underwriting template. Do not run your projections based on numbers a Realtor or seller is giving you. Do not run your apartment projections based on how you have run your house rental for the past year. Those are mistakes we have made.

In the middle of 2009 we felt we were ready to scale up. We applied what we had learned from the previous three years and bought our first larger apartment complex. We were successful on our first larger apartment purchase, a 60-unit three-story building in Saint Joseph, MO, and we have continued to focus on buying and operating large apartment communities in the Kansas City Metro since. Our company has evolved greatly since then, but those early years were essential to our knowledge of owning a business and operating an investment. Much of what our business is today is because of the lessons we learned and obstacles we overcame through our first investments.

It has been a pleasure conducting business with Worcester Investments, as they have remitted all payments on time and provided timely documentation for all necessary activities. I still maintain a singular business relationship with Worcester Investments, but would, without hesitation, discuss other business opportunities with them. I highly recommend Worcester Investments and I believe they represent the correct risk/reward opportunity.

- Toby Ream, Imagine Investing

We have worked with the Worcester family and Worcester Investments for over a year and closed multiple transactions together. They have always been very straight forward, accessible, and accommodating with the many information requests and questions that go along with processing a loan. Their knowledge of real estate, especially multi-family, is truly impressive. We welcome the opportunity to work with Worcester Investments for a long time to come!

- John Schorgl & Tom Cohen, Johnson Capital

As a banker who works with many small and mid-size businesses, I certainly feel that Worcester Investments is a step above the rest. You will not find a more professional, well-run organization. They are unparalleled in all aspects of their business, from the execution of their business plan to the planning, acquisition and financing structure. They are extremely thorough and always do their homework. It is truly a pleasure working with them.

- Chris Grossman

Paul and Joel were easy to work with and honest throughout the purchase process. We were able to close the transaction successfully. I look forward to working with them in the future.

- Aaron Mesmer, Block LLC

Worcester Investments has been a great partner and manager. The income our properties have produced has exceeded my expectations. They always follow through on their commitments, and they communicate very well. I consider them true professionals.

- Dr. Stephen Hull

Joel and Worcester Investments are a pleasure to work with. They are tenacious negotiators, tireless researchers and incredibly dependable partners. Whether partnering in real estate purchases or loaning them funds for opportunities, I am always confident that the outcome will be successful.

- Kerrie Johnson

Paul and Joel were easy to work with and honest throughout the purchase process. We were able to close the transaction successfully. I look forward to working with them in the future.

- Aaron Mesmer, Block LLC

I want to take this opportunity to thank you for the business you with Nodaway Valley Bank. The loans we have with you have been maintained in an excellent manner. It is a big asset having Paul manage these investments for you and gives the bank the comfort level we need. I look forward to a long standing relationship.

- Jerry Ingle, Nodaway Valley Bank

The Worcesters are humble, hardworking people who are continually bettering themselves. I am not surprised at the success they are experiencing. I highly recommend any potential business partners, lenders, etc. to work with the Worcesters.

- Joe Isenberg, Brothers Cleaning

The Worcesters are a delight to work with and display exceptional wisdom in real estate investment. We can vouch for their integrity, honesty, and desire to serve more than be served. Most of our investments with WI earns interest that the firm pays in monthly installments, always on time. There is no other opportunity available that can match the returns WI offers and also gives us the sense of security that our funds are in safe hands.

- Stuart & Christine Smith

I've worked closely with Worcester Investments through every aspect of acquisition. I have found WI and its members to be knowledgeable investors who are well equipped to handle all aspects of a real estate transaction. A purchaser of investment property is presented with a number of challenges during the course of a transaction. WI has met every challenge. Worcester Investments and its members are timely, efficient, knowledgeable and a pleasure to work with.

- Robert Smejkal, Oregon State Bar

I have been the Worcesters' accountant for several years. I have found them to be professional, competent and ethical in their business ventures. I would not hesitate to recommend their services to others.

- Gerald Hoots, Hoots, Baker & Wiley PC

I have worked with Worcester Investments on a couple projects. They always paid on time and delivered exactly what was agreed upon. The Worcesters are known for their great integrity. I will gladly work with them again.

- Kevin Pendergast, O’Riley Capital

Over the past few years, we have had the pleasure of working closely with Worcester Investments LLC on a number of real estate transactions. They have a tremendous amount of knowledge regarding the real estate industry in St. Joseph, MO, and are very thorough when it comes to the details of each and every acquisition. They are an asset to our community and we hope to continue doing business with them for many years to come

- Saint Joseph Title & Abstract

I would recommend Paul Worcester as a very good man to do business with. He was very honest, helpful and businesslike in our dealings. He is a man of his word which I appreciate very much.

- Ray LaVaugn

It's my pleasure to recommend the principals of Worcester Investments. The principals have strong knowledge and keen financial strength in the commercial real estate arena to recognize an opportunity to add their value added expertise to a property. I've seen the high results of their efforts and know that their future will be full of successes moving forward.

- Jack Hanrahan, First American Title

I financed Worcester Investments on 3 properties in the Saint Joseph area. They have always paid on time and have been a pleasure to work with. I would recommend them to work with.

- Howard Miller, Spirit Miller Trucking

Gebhardt Family Trust financed a property with Worcester Investments in 2007. Since that time Worcester Investments has made all payments timely. I would recommend doing business with them.

- George Gebhardt, Trustee

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