← Success Story with Scott D. Clary
Success Story with Scott D. Clary
Lessons - How I Built a $700M Real Estate Portfolio Serving The 1% | Jonathan Campau - Luxury Hospitality Pioneer
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- [00:00]
A
In this Lessons episode, discover how strategic use of lease options and distressed assets can unlock high value real estate deals. Learn how to structure contracts that protect upside while limiting risk. Understand the hidden dangers of cross collateralization and explore how creative negotiation turns short term plays into long term success. So this is something that I'm interested in. Just again we're sort of going through the mechanics of your business. But the options, the options are always key in these like rent to own scenarios. So putting options on this for acquisition, for purchase really is that sort of like the play that you've always used for since Kansas to luxury properties in Miami to now like some of the hotels? Exact same. So it's not just when you work on this deal with the owner or the landlord. It's not just, it's not just I want a sublease. It's always sublease. But then with the option.
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B
Yeah, because if I say to you, can I rent your house? If you were a landlord, can I rent your house and turn it into a commercial enterprise, turn into a hotel? You're going to say no. But if I say I want to buy your house in two years, it's a different contract than just a lease with the option to sublease. Yeah. So I'm now coming to you saying I want to buy this house. And you're like, well it's not for sale. You know, I want, I want, it's, let's say it's, it's worth a million. I was like okay, I'll give you a million one. And you're like I'm, it's not for sale. I'll give you a million too. What's your cost? I can see what you paid for. So I know what your mortgage is. You paid 600k for the house, let's say and I know your mortgage probably around 4,000amonth. So I'm going to start offering you at your mortgage cost. 4,000. That's where, that's the starting point.
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A
I understand.
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B
Okay, so I'll pay you 1.3 and I'll pay you 6,000amonth. I told you it's not for sale. I'll give you 6,500 and I'll pay 1.4 million. Why would you do that? Well, I need five years to get it there. Now the terms, the levers start to move. The lever is not now a two year contract. We're on a five year contract. Because you, I need to get you one point. I need the prop. I need time for the property to.
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A
Appreciate and they know that just with the market, the property is going to appreciate, but they're assuming that you can have outsized appreciation because of the work you're going to put into, plus also the fact that you're going to draw revenue from it. So that's going to actually help.
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B
They're hoping I, I, I default.
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A
They are hoping you default, yeah.
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B
That's the game on this, on the, on the landlord side. On the landlord side. If you came to me and I'm the landlord and you made this offer, I would make sure that it's, that the, the, the deck is kind of.
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A
Stacked in your favor.
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B
Stacked in my favor to make sure that you're putting a lot down. You're renovating my asset and if you miss the payment on the third day, I'm taking your assets, which I have a great story about this actually, but.
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A
Dull, I mean, what, what, what?
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B
This wasn't on a Rent to own. This is on my house that I, I bought on Flamingo. It was a, this is crazy, this is a crazy story. I bought this house, it was $10.2 million and it was a normal contract, like put down the money to buy it and had it. My idea was that I was going to sell this house. I thought, I bought it off market so I thought that I could get it, I could flip it for 14 million in like 90 days. Didn't work, didn't, didn't pan out. So I had a, the loan that I used on it. This is crazy. The loan that I had on it, I had only a 12 month term loan on it because again, I had only anticipated being in the deal for 12 months. So I go to the closing table to purchase it and my lender is like, hey, they knew I had other assets. He's like, hey, we're going to need an extra, I forget what the dollar amount was. We need an extra $800,000 down in order for you to close. I'm like, how are you telling me this today? Like that's crazy. He's like, well we have an option. You can we see you have this other property over here. We'll go ahead and pay off your loan on that other house. You have a million 5 in equity on that house. We'll pay off that house and we'll now hold the note here. And that's just basically what's called cross collateral. So we're going to cross collateralize your two properties. And I'm like, well that doesn't sound great, but I don't. Why would they do that to you because they can. Because I have no option. They know I'll do it. I have, I'm at the closing table and I've already put down 5,500k to purchase the property in that I'm way past my due diligence. So that's now in the seller's pocket. I, there's no like collecting that back. If I say, you know, I don't want this property anymore, let me leave, it's gone. And they know that. The bank knows that. And the bank knows I have another asset with equity, other, other assets with equity. So the easiest thing is for them to just reach into my pocket and say, hey, I want to take the loan on that property and have all the equity on that property. We need 30, we need 30% down rather than 20% down. So now I have to be, you know, three and change down on this property. Anyway, it is what it is. I cross collateralized two properties go to the, the closing table. Twelve months later, I sold the house to Lindsey Vaughn. She's a Olympian gold medalist. I don't know if you know, Lindsay is, but she, she bought the house and she, the offer comes in from, from Lindsay and they, they're set for like a 45 day close. They put their money, they're past their due diligence. I've already been down the road where she's in, right?
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A
Yeah.
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B
So I'm, I'm now in the seller's position and they're at their 45 worst. My loan is only a 12 month loan. Okay, so my loan is a 12 month loan. And, and my lender is saying, hey, I want you to renew for another two years. I'm like, well of course you do. You know. And he's like, he's like, yeah, I don't want you to, you know, he didn' say I don't want you to sell. But he in, in less words, you know, he's like negotiating with me with you can, I'll renew your loan two points higher than you currently are, but you need to pay another $200,000 down to renew the loan. And I'm like, that's crazy. That's robbery.
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A
But he knows that you don't have a choice.
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B
If I can't sell in my 12 month period, I have to renew. So this is like, let's just, I don't know the exact dates or whatever, but it was a Thursday. I remember that it was a Thursday. Thanks, man. So the, so the banker, he's like, it's a Thursday. And he calls me, he's like, Johnny, he's like, have you decided if you're going to extend the loan with me? I said, no, I have a closing. As you know, it's supposed to close on Monday. And he says, you, I said, they're supposed to close on Monday. And he goes, I want to be very clear with you. Let me just be very clear. And he gets closer on the phone with me and he's like, I, he's like, if you do not close on Monday, I will take both of your homes. They will be mine. I want to be very clear with you. And I have a $2.75 million property over here and a $10.5 million property over here. And he's going to take them both, right? Because I can't one day. And I was like, you won't just give me an extra two days. And he said, let me repeat myself. And he goes through over it again. Okay, So I hang up, I call, I'm like, this guy that you've done business with before, never did business with.
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A
This guy before or again.
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B
No, I would never do business with him again. But I learned a great lesson from it. So I, so I, I, so then Lindsay's attorney calls me. This is Friday. This is Friday morning. No, this is. Okay, so our. So the closing on the bank was Monday. My loan was over on Monday. The closing with the house was Friday. Right. So the before the Monday. So, so it's the next morning, Friday morning. The lawyer calls me, hey, Johnny. With my attorney. And my, and Larry's on the phone. Of course, you know, Larry's always right there like, and he's like, what do you, he's like, hey, listen, we're going to need another 30 day extension. And I said, let me be very clear with you. Like, if you do not close today, I will keep Lindsay's $500,000. There will be no extension. This house will not be for sale. He will. She will never purchase this house. I will hold this home. I want to be very clear. We are closing today. There is no extensions. And they hung up. I hung up. Everyone hung up. I'm like turned around, I look at Hallie, I'm like, oh my God. Like both homes are in the balance right now.
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A
And you didn't, you didn't think that if you told them what was going on it would have helped your case?
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B
No, then they would have waited for me to default and bought them from him at a discount. Oh shit. For sure. You can't let your cards Be shown. They would have been, oh yeah, he's in a weak spot. We'll see you Tuesday. You know, like that's what, that's how that played out. That's how I would have played it out if I was on their end. So yeah, I learned once that generally I'm a forgiving very like give everybody lots of opportunity. Sure. Extend, extend, extend. And then, and then, you know, in this case I was like, heat was here and the fire was there. It was like, no, I'm, I'm. I had to push back in the same, the same tone.
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A
What happened?
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B
The wire cleared Friday and I sent it to my lender and paid him off and, and got all of my. Everything was done by Monday. Cashed out. Both properties. Both properties sold. I forgot that's this. The second detail was there was two closings. I had another buyer for the other property and we had teed them up to both close on that same Friday because with cross collateral you can't sell one without the other. So we had multiple times. We had a buyer for this one but not that one, and buyer for that one, but not this one. And I kept trying to deleverage the properties from each other. So there's, there's some wisdom. Don't cross collateralize assets. That's.
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A
Why was this. I was going to. You know, he obviously would never say this that, that lender, but it sounds like he knew that if you cross collateralize it's going to be harder.
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Very hard.
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He knows that there's a real good chance that he can milk you for.
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His anything and take both.
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A
Yeah, take both. Or force you to renegotiate and renew at two points plus another $200,000. And you can't say because you can't sell the properties simultaneously.
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B
Yeah. So they, we did it. He knew that.
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A
He was like to a degree, you over.
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B
He had planned it from the beginning.
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A
Yeah, I can see that when someone gets into this game, someone's gonna listen to the story, the big shit. Okay, well that's scary as hell. How do you avoid that?
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B
I didn't belong buying a $10 million property to begin with. I shouldn't have gotten into that type of property where that I should have if, you know, 2, 3, 4, 5 million dollar properties is my comfort zone. And this one was, oh, a 10 million dollar property. I can flip it in 90 days because it's worth 14. There was another property that just sold for 14 on the same block, same square footage, same lot size. I was like, okay, I can, I can get probably 14. So that was the plan was to, you know, get in and get out. So just don't bite off more than you can chew. That's where you, that's where you, you lose.
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A
You're saying that, but now I know you deal with like ultra luxury and hotels and all that. So what was your thought process after that? Because that was obviously like a little bit of trauma, a little bit of stress that worked out. But then you think about how you've progressed since then. Now you do ultra luxury and you do high end and you do, I think like what, 30 to 40 million dollar plus property. So what was the point when you decided to get into that?
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B
Into hotels?
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A
Yeah. And right now you still just do two to $3 million homes, but you also do hotels.
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B
No, I, no, no, that's not true.
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A
I know. So I'm asking, so what was the move?
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B
I mean I'm going to buy good deals. So whether if it's 2 or 3 million or it's 4 or 5 or 6, maybe the one I'm going to close on next month is, should appraise over 5 million. We should get our appraisal back this week. Um, it just, I, how can it. Cash flow and what's the future value of the property? You know, you don't want to necessarily be buying. I think I see a lot of people say real estate didn't work for them because they got in and got out and they got burned or they didn't really make a profit. And it's because, you know, real estate's not a, a game to get in, get in and get out of. It's a get in and, and let the property appreciate and get all of that depreciation every year and let your tenants pay it down. So 2 million or 5 million or 20 million. The property price isn't the main focus for me. I'm in the hospitality game. I'm in the hospitality business. So for me what's important is that I can earn money in the villa or the hotel and it's in a, in a prime location, prime, you know, waterfront for, for homes. Most of the homes are waterfront for hotels. They're all for mine. They're currently, they're all on South Beach.
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A
Yeah. And then that's. So that's when you moved into hotels.
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B
So last I got into hotels actually just one year ago. But my, when I was a kid, my grandmother used to take me traveling all the time and she'd always get me whatever the presidential suite is in the hotel And I felt like Kevin McAllister with a big cheese pizza. And I would have a. I would stay in the presidential suites. My grandma would get her own suite and. And I would. She would always let me buy the robes. And like, just. I. I did this every summer, like from middle school all the way until I graduated high school. I always traveled with my grandma for a week every summer. And, and I said, and I used to say, I want to manage a hotel. And my grandma would say, someday you'll own your own hotel. Don't worry. You'll own your own house. You'll own your own hotel. And that's why I wanted to go into hotel management. And my dad said, no, you can't go into hotel management. And, and so last year I was just. Just had a. An agent who works with. Works now he's with our company. But at that time, he, he's just an agent I know here in Miami, David, and, and he's great. I really like David. He's very genuine person. And he's like, Johnny, I got these hotels, and he's just hitting me with. And I get deals all day long from people texting me, deals all day long of, you should buy this building, you should do this, you should do that. So I was like, a hotel. I kind of like hotels. This is a cheap one. This was a 7 million. It's like $7.5 million property. Collins. He's like, I have this property. This owner's in a bad situation. I was like, oh, I speak more. He's like, I like these deals. That's where you find good deals. Yeah, no, I have a distressed seller. He needs to get out of this property. He'll do a, he'll do a. A contract on it. You should, you know, look, like, come and look at it. And I was like, all right, let's go look at it. So I go and I look at the property, and I'm like, man, this is. It's only a 17 room space with a retail space in the front.
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A
Hotel.
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Yeah, a little boutique hotel on Collins. And so I went and toured the property and I was like, I like this. Yeah, I think I can do this. And I'm looking at how they were, and I asked how, how much revenue. He's like, oh, it does like, it does. Like, I hate when someone says that because now, you know, they're BSing, you know, it does like 7,70,000amonth. And I'm like, okay. And I'm like running the numbers in my head, like, okay, I think you.
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Account for the factor.
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B
So and, and I was in January and February. So I was that, you know, that was in February of last year. And so I was like, yeah, I would try it. Let's, let's do it. I'll just make an offer. I'll pay you first. You know, the rental amount was 35,000 per month. I was like, I'll just give you first, first, last, first, first and second month deposit. But I want two months free because I'm going to pump money into the property. And they agreed. So for 70,000 I took keys of a $7.5 million property.
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A
Thanks for tuning in. If you found this valuable, don't forget to hit that subscribe button so you never miss an episode. And if you want to dive deeper into this conversation, check out the links in the description to watch the full episode. See you in the next one.