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Join industry professionals and personal investors from the Roofstock team as they discuss all things remote real estate investment. From time management, deal analysis, property management, financial considerations and scaling your portfolio, to interviews with other industry experts, this is the place to be to master real estate investment.


    • Dec 3, 2021 LATEST EPISODE
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    What you need to know about investing in Houston TX real estate

    Play Episode Listen Later Dec 3, 2021 36:04

    Fred McDaniel is a native Texan and has been involved in many aspects of the Texas real estate industry since 2001. He is a part of the Roofstock Certified Agent Network and focuses on investors the Houston market. In this episode, Fred tells us about the neighborhoods, the prices ranges, geography-specific issues that investors should be on the lookout for, how taxes are assessed, and more. Fred McDaniels contacts: 713-321-9161 --- Transcripts Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor Podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Hey, everyone,   Michael: Welcome to another episode of The Remote Real Estate Investor. I'm Michael Albaum. And today we have with us Fred McDaniel, our certified agent out in the Houston market. And Fred is going to be talking to us today about the market what we need to know as investors and what the price point and returns look like for some of the properties out there that he's seen. So let's get into it.   Fred, well, thanks so much for taking the time out of your busy schedule to hang out with us today and talk to us about the Houston market. Really appreciate you coming on.   Fred: Yeah, thanks for having me.   Michael: So for anyone that's not familiar with you, as an agent, give us a quick elevator pitch on who you are, where you're coming from, and what agency you're with out in the Houston market.   Fred: So I was born in El Paso, Texas, so as far west as you can get in this state, and about 850 miles away from where I am now. Born and raised there, moved around a little bit, went to move to went to high school in Jacksonville, Texas, which is in Far East Texas. And then I went to college at Sam Houston State University in Huntsville, Texas, which is about 45 minutes north of downtown Houston. And since then I kind of fell in love with Houston area stayed in and around here went back and forth between Tyler and in Houston. And then I ended up back in the spring in The Woodlands area. Been here for about 13 years, but on and off for the last 20.   So I I work for Realty One Group Iconic. Great, and I am a broker associate. So you know, I do have the opportunity to mentor newer agents when I bring them on. But you know, I'm not the broker for the agency. But you know, with my experience, I mean, it actually helps me sometimes mentor newer agents because it brings up things that you forget when you've been in the business for a while. So it helps me to educate myself.   Michael: And it seems like Houston is on fire right now. Have you seen it the Houston market shift over the last couple months?   Fred: And I've seen it, I've seen it shift over the last, well, 18 months. Now, I've never seen anything like this and I've been in the business in some capacity. For the last 20 years, I've talked to people that have been in the business for twiice as long as I have never seen anything like this in the Houston market. You know, really, you know, once once the pandemic started, is really when our market just lit on fire. It was crazy how things work out. And you know, one of those things that, you know, in our economy that became a little bit more needed was real estate. And, you know, we had a we had an issue with historic rates being historically low rates, and historically low inventory all at the same time. So that's a perfect storm for increase in prices.   You know, so, though I, it's, it's been wild, it's been fun. And I've seen the inventory go down to such a low level that I think at one point this summer, we were under one month inventory. I think we're back to 1.8 right now, last year, this time was around two and a half months. So theoretically, if no houses were going on the market today, in 1.8 months, there will be no houses left on the market. But you know, it's it is there's still a lot of opportunity, though,   Michael: That's wild. And what would you call a healthy market?   Fred: I would say a healthy market is between two to three months inventory, probably our norm about two half months, on average.   Mark: Yeah, Michael, it's usually about three months. And you know, interesting enough, Fred's backgrounds really interesting, I'd love to see or hear you know, what the background is there because he does come from a single family rental background, when the market was much different, right back in the days when you could probably find properties a little more freely, and he was picking up properties for institutions. So maybe Fred, give us a little background there because I think they'll help connect the dots.   Fred: I'll start back a little bit further. I actually started the mortgage business as a mortgage banker, I still have a mortgage license active, you know, when the economy kind of turned a little bit in 2008 to 10 And you know, backed by the mortgage industry. I started doing a lot of work on foreclosures, you know, selling foreclosures, you you have to pivot yourself and, you know, you've got to evolve sometimes in your own career, you know, selling houses just wasn't necessarily working out great for me at the time to just regular people.   So I got into working with the, with the foreclosures in By doing that, I met a lot of investors, and all these investors were looking to pick up properties to rent, you know, we used to work with a lot of flippers and you know, the market just turned in, when the prices go up, the flips just don't make sense. So, you know, it made me go educate myself and start to learn a lot, I asked a lot of questions from these people. And I picked up some clients that are basically lifetime clients that whenever they see something, they want it, I send them properties regularly to look at and, you know, just kind of becomes a little bit more second nature to you, when you're looking for rental properties. So sometimes it's hard to, you know, describe what exactly I'm looking for, because I know when I see it kind of thing, you know.   Doing that in and learning from them from their own businesses, and how they, how they rent their properties, and what they do. And I also, you know, got in with a couple of other kind of property managers to kind of learn from them as well,   Michael: That's really cool.   Fred: I worked with a company out of Irvine called home union, kind of did similar what Roofstock was doing, I worked as their agent for Houston, and, you know, they, they provided the leads online and their, their clients, and we ran the numbers for them. And we found them houses here, in Houston for rentals, very similar to what Roofstock is doing. Right now. So, you know, my background in that is, is, you know, finding the properties, running the numbers, making sure they were, you know, putting them into, you know, quote, unquote, their portal, showing them to the clients and then talking to the clients and walking through the process. Some of those, you know, we ended up with some institutional buyers in that, from that point to, you know, mostly the individuals.   Michael: Cool. So it sounds like for you, we're very well positioned to identify investment property opportunities out in the Houston market. So I'd love if you can share with everybody, you know, what is it that you look for, before you post a property to Roofstock, that makes a great investment property?   Fred: So what I'm looking for in Houston, I'm typically looking for a house that's new, or when I say newer, built 2000 or later, I'm looking at all the price ranges, honestly, because, you know, the market is so huge, you know, we were talking earlier about the size of the Houston metro areas, it's the size of like I said, the state of Connecticut 7.1 million people. So we have everything, and some of those higher end markets actually makes it, you know, four or five $600,000 houses that can rent for 3000 bucks a month may actually work.   But I'm going to be looking for a newer home, generally, or a home that's been renovated, if it's a little bit older, you know, I'm looking for, when I'm looking at these houses, I'm looking to make sure you know, they don't have purple and orange and pink rooms and things like that. Or if they do if it's just one room, if that can be, you know, remedied easily. You know, maybe that makes sense. But uh, you know, I'm looking to make sure that, you know, a lot of things here, because they're newer, a lot of the older homes are renovated, I'm looking for a more modern look on the inside, you know, a little bit less carpet maybe.   And then I'm looking at, after I look at those individual houses, I'm looking to make sure that the rent prices are pretty steady in that neighborhood. One thing that's key about Houston or the Houston area is there, there's no zoning. So we do have neighborhoods where there's 200,000 range homes right next to a neighborhood that might have four or 500,000 range homes. So when we do our rental comps and we're looking to see what the rents are, we're getting very hyper local, we're getting neighborhood specific, sometimes street specific, you know, we don't want to pull a cop from a, you know, a three bedroom, two bath 2000 square foot house right next to the street over where there could be one that's five bedroom, four baths, that's a 3500 square foot. So you have to be very careful with the cost.   But you know, I am looking for, like I said, I'm looking for a little bit newer, a little bit more modern, maybe less work to be done. Because, you know, in Texas, as you know, our taxes are a little bit higher. So, you know, for the most part, we're not going to get huge cash flow properties here. They might cashflow a little bit, they might breakeven, but you're looking for appreciation, for the most part,   Michael: Okay.   Fred: So I want to make sure that when we do have those that they are, they do have the opportunity to appreciate.   Michael: That's great to know and I think it's so important for everyone to keep in mind that if you are a cash flow heavy investor, that Houston might not be the best place for you because of that fact because the where the price point and where the taxes are. So we're gonna bring up a map here, Fred, and I'm wondering if you can give everyone watching this a rundown of where some neighborhoods that are interesting, interesting investment opportunities that you're seeing.   Fred: Okay, so just looking at the map for people that have never been here or, you know, maybe somebody that doesn't isn't really familiar with Houston. The really cool thing about Houston, one of the things that I like about it is that the roads are right laid out in a radial pattern. So you see that there you see the city of Houston. And there's loop number one, loop number two, and then on the outside loop number three, which, when complete, will actually be the largest loop in the United States. It's called the Grand Parkway.   So generally, I'll tell you where I'm located,   Michael: It's like a tire. Spokes.   Fred: Yeah, looks, the cool thing about it is if you get off on the wrong exit, you can just turn around, you'll get right back on somewhere pretty easily, to get back to where you need to go. But if you're looking at Houston itself, so central Houston, the city of Houston, good do north on Interstate 45, that's where it says Spring in The Woodlands, that's where I'm located my office in my home or in those areas. So obviously, you know, by living in that area, and knowing that area the most, I'm gonna start there, and I kind of radiate out myself, when I start looking at properties.   You know, and I'll tell you, you know, the neighborhood I live in, they're probably 100 realtors that live in my neighborhood. So if you want to know where to where the best places to live, are gonna follow all the realtors. And but you know, we go because we see so many houses, you know, we know, we know the best places to live. But General, in general, if you're looking around, like the city of Houston, and really what we're doing is we're looking at most of the suburbs, because the suburban areas are where we're going to get most of our properties all the way from the north side over to the west side, you know, interstate 45 up and over West on Interstate 10, you're going to have your best opportunities for your rental properties in these areas. And this is where the growth is.   The cool thing about Houston is there, there's just a lot of room to move a lot of room to grow, there's still a lot of land, the developers and builders are building like crazy. So you know, I'm going to follow that you know what like, like that outer loop, that third outer loop that I call the grand Parkway, I'm going to follow that around, for the most part to start looking for my property. So I'm going to Spring I'm going to Tomball going to Cypress and I'm going to Katie, it and I'll go out to the east a little bit as well. But you know, those are going to be my main areas where I'm looking for properties, and we're going to find those, you know, those that are in the sweet spot in you know, now we're talking about the sweet spot, what used to be the sweet spot, or the breadbox would be, you know, under 200,000. Nowadays, those are becoming less than less available.   You know, even in Houston, the prices have increased to the point where, you know, the sweet spot for a rental property, you know, might be a three or four bedroom, two bath home, anywhere from 1800 to 2400 square feet. And they're gonna be in that 250, 200 to 250 range. And generally those are going to rent probably around like anywhere from 1800 to 2000 a month.   Michael: Okay. All right.   Fred: But yeah, I mean, if we're looking at Houston itself, though, I mean, mostly, I'm gonna stay on the outer outer rim of Houston area for properties.   Michael: Okay. Great to know. And do you know, Fred, would you say 7.1 million people in Houston. That's the population.   Fred: Yeah, that's the Houston metro area. So the map you're looking at is basically the Houston metro area. You know, you could even go a little bit further north to fourth, fourth largest city in the nation, I think they've estimated next year for the population to grow. Somewhere around 100,000. I ran some numbers on that. And what I was looking at, and I was looking at some census data as well, the number of people that move to the Houston area per year, it averages out around somewhere around 122 people a day. So that's a huge number. People are coming from all over the world, they're coming from every state, in their being brought in not just like, by oil and gas is what we used to be, you know, used to be what we're known for here, and they still are, that's that's the basic, you know, economic driver here. But you'd be surprise, the medical industry is actually the number one employer that there are the largest medical center in the world here. A lot of people come from other countries to get treated for cancer at our medical center.   So it's really strange that, you know, that's what used to that's what used to drive our economy. And now that's not even the biggest employer. But, you know, like I said, about 122 people per day, you know, they say when you take an account move ins and move outs and births, you know, really adds up more like 250 increase per day.   Michael: How about that?   Fred: The population is growing pretty rapidly.   Michael: And yeah, you touched on kind of the big economic Drivers, any other notable companies that are moving to Houston or based in Houston that would be of interest to someone that doesn't know about the market?   Fred: Yeah, well, I mean, all the oil and gas companies, the big ones, you know, we've got shell, we've got Exxon, then you've got your like oil and gas engineering type companies like Halliburton, KBR. So people may not recognize that there used to be called Kellogg, brown and root. We've got some, you know, companies noted that aren't in those industries like waste management, HP Hewlett Packard is moving their operation here, suppose they're building right now almost complete the beginning of 2022, they should have their actual headquarters here ready to move into.   So in this has got a lot of other types of companies like Igloo coolers, they build all their igloo coolers, the big warehouse, and their headquarters are out in the Katy area we've got about now I drive around a lot. So I'm driving in all different parts of the city, you know, see three brand new Amazon Fulfillment Centers being built right now. There's already one really big one here, central more central Houston. With three that I've seen with my own eyes, there could be four more that I don't know about. In you know, they're just everything that you can think of. That's one of the things I like about Houston is that, you know, I'm kind of a city guy. So I like to be close to everything, you know, pretty much you name it. I can get it here. You know, and that's one of the things I like about about the area.   Mark: Hey, Fred, I got a quick question about like the Houston port, because that's such a hot topic today with like, supply, you know, supply and demand and just the supply chains in general, is the Houston port. Is that really something that's used in notable to the city and driving job growth? Because I know, that's just what's really causing the big mess right now with getting getting these products from around the world, you know, shipped to the United States.   Fred: Yeah, it definitely is. And I can't quote your statistics on or anything. But I know, it's one of the I know, it's one of the busiest ports, you know, North America, but it definitely drives a lot of jobs. I mean, they're, it's centrally located as well, you know, a lot of rail activity comes from there. And a lot of trucking activity comes from there. And I mean, there there are, you know, like I said, I wish I could quote you numbers on on the amount of activity that goes on there and the jobs that it brings, but I mean, it is definitely one of our major employers here in the Houston area.   And then we've got, you know, along with that port. So right along that gulf coast there, we also have a lot of the oil and gas refineries, to I mean, there's there's definitely, when when Houston is affected by say, like a storm and have to shut those things down, your gas prices go up in other parts of the country before they go up here. Because, you know, they've got to get that to California. And they've got to get that to New York and Florida and other places. So that gas when the production stops on those oil and gas refineries, it's going to drive prices up. So you know, there's, there's a lot of incentive for the workers to be here in place to be able to move that product out of the city, or out of this area.   Michael: Yeah, I think I just paid $5 A gallon for diesel out here in California. And maybe you want to cry at the pump. It's brutal. So Fred, you   Fred: That's hard. That's hard.   Michael: Yeah. You touched on something that I want to want to talk about. And that's, you know, if there's a storm affecting the port, what are some natural hazards, or things that people not familiar with Houston should be aware of that are maybe commonplace to Texans out there?   Fred: I get I get to talk about this a lot, especially working with people that aren't from here that are buying houses, they're, you know, they live in other parts of the country, Sue, they sue, you know, number one, you know, we're in hurricane alley. So hurricanes are always you know, going to be a factor, they're going to be a factor for your insurance costs are going to be a factor for the dwelling itself. Now, you know, I kind of tell people, especially if you're from California, you know, we don't have earthquakes here. So, you know, when I start talking about California, you start talking about earthquake scares, scares me to death. Same thing happens when I talk to somebody, especially from from the West Coast may ask about hurricanes. It is scary. I've been through some of these hurricanes, they're scary, but, you know, they're just kind of a fact of life. I mean, we wouldn't be here if they if every single one that came through here devastated the area.   So you know, what comes with those hurricanes is you know, you got your wind storm damage. We don't get a whole lot of like tornado activity, and we really don't get a lot of like hail activity. We get some from time to time. But you know, the major, I guess, natural disaster that we have They're, you know, hurricanes, what that brings the winds, winds and floods. You know, Houston is just, you know, it's a low lying area. So I always tell people, if, if you're concerned about it get flood insurance, not every place floods, sometimes they do, sometimes they don't at any given point, you know, anything could happen anywhere. But you know, there wouldn't be this many people living here, if, you know, we were going to get washed off the face of the Earth every time it rains.   You know, it's not a big concern to me. But I understand where people are coming from when we talk about, you know, those types of disasters, natural disasters, and where they, you know, what really makes the what, where they really factor in as far as like insurance goes.   Michael: That makes total sense, Fred, so it's really not as big a deal as it sounds like maybe other people make it out to be or us Californians make it out to be since we don't have those type of events here. Anything else that people should be aware of that that just kind of commonplace, specific to Houston, maybe like with regard to inspection reports, or?   Fred: When you when you're talking about an inspection report, one of the most common things that I do talk to I make sure I talk to every client about this, even people that are from here, because not everybody always understands, we're sitting on some of the most expansive soil in the United States right here. It's clay based. And when it's dry, man, it contracts. And when it's wet, it expands. Well, the cool thing about that is, you know, somebody way smarter than me years ago, came up with a way of engineering these these slabs that the houses sit on in the buildings all sit on that they have post tension rods and cables. So what they've done is they've engineered these to accept the movement, the natural movement, that that's going to come from these really heavy houses sitting on on these heavy slabs on this expansive soil. And the cool thing about that is that, you know, they just pop an end off, and they can release tension where it needs to have be released, if needed, or they can pull it back together.   So you're going to have cracks in slabs, on almost every home and every building here in this in this area. And Mark can probably speak on that, too. It's similar up in the Dallas area, and all over Texas, we're just sitting on that that type of that type of foundation here. But you know, we have, we were able to explain that to our clients in a way to help them I guess, kind of ease their mind on it, because maybe my own house is going to have that that problem too. So, you know, you know, like I said, there's a solution for that, you know, some of the much older homes may not have have those post tension cables, but they can also come in retrofit those two, there's companies that specialize in that. So even older homes that don't have those, they can drill those in cost a little bit of money on those older homes. But that's another reason why I like try to stay a little bit newer homes, because I know that, you know, the building codes say that they have to make them that way.   And then the other the other issue as far as like, inspections go, this is probably the most common thing that we deal with. For the HVAC unit the AC, you know, this is a hot area. And I mean hot temperature wise, you know, it's these ACS run 10 months out a year, right now at my house, I think it's 80 degrees, maybe a little bit hotter than that right now and conditioner is on. So you're talking about these things getting a workout. So the lifespan on those aren't maybe as high as they would be in some other parts of the country. But they also engineer and they make those to last longer, too, because they know that they have to go the type of air conditioning unit that I have here is not the same type that somebody in Kansas City has, you know, so they we know the furnace and the AC unit are going to run here.   And in almost every inspection report, the inspector is going to they're going to hit that controller and they're going to test you know, they're going to test all the outlets where the air is coming out, they're going to tell you you know what the temperature differential is, almost all the time I asked the sellers, you know, to at least provide a report that they've had it serviced or have it service during the contract period. Because in because they run for so, so long. It's such a high capacity. They should be they should be serviced at least once a year, if not twice a year. But you know, like I said, it's one of those also a fact of life here. I mean.   Michael: Awesome.   Mark: So Fred, I know one more thing about the area's it's it's very moist out there. So in terms of moisture, how do you see that impacting the properties and what do you find on the inspection reports that either scare you in terms of moisture and what doesn't scare you?   Fred: We do have high humidity here and sometimes you'll notice the algae on the siding on the outside of homes especially where you know water runs off of the roof and you know, it rains here a lot too soon. There's going to be places where it looks like mold sometimes and what happen is, if you get an inspector or even a buyer or somebody that doesn't know, they're going to look at that go, that's mold. Well, it's not really mold, it's algae, and it really just needs to be cleaned off. And they can treat it, you know, a chemical or powerwashing or something like that. But it's just a natural part of the outdoors here. I mean, it's going to be on everything that, you know that specifically related to the moisture into the humidity. But it's not mold eating up the house, and in most cases,   Mark: Yeah, that nobody likes to talk about that four letter word, right, we try to avoid it. So we call it moisture, for sure. And in regards to just flooding, I know we talked about that for a little bit, but we didn't talk really about the insurance aspect of it, maybe give the buyers and, you know, listeners, just an idea about what it is that you kind of run, how do you run your numbers? You know, what are the things I look for, you know, where are the flood zones that you stay away from? And when you underwrite properties? Like how do you factor in that risk?   Fred:                                                                            When I when I'm underwriting properties, especially for investors, I'm looking for properties that are not in flood zones. Yeah, it doesn't necessarily mean that a house may not have flooded in some 500 year storm, which is which we had in 2017, with Hurricane Harvey, but I'm going to try to stay away from those and for most of my buyers, now, there are places where their houses in flood zone, but for the most part, these developers and these builders try to build away from there. Now, if you're getting along, you know, I put on my mortgage hat for a second there, if you're getting a loan, and you are on anything, but the X flood zone, which means you're in some type of flood area, you know, the federal government buys that you have flood insurance on that loan. So, you know, that's going to raise your costs. And that's one of the reasons I mean, our margins are pretty thin here, because their taxes are a little bit higher, you know, so we're gonna stay away from any extra cost and flood insurance is going to add a pretty big chunk of you know, cost to that in pretty much take away any kind of returns that that you would get off a rental house.   So, you know, but like, like you said, Mark, I'm looking for houses that are not in the flood zones, and I'm looking at their seller disclosures to see that they haven't flooded before, you know, I'm not talking about you know, somebody's pipes busted in the winter or something like that. And they fix that, you know, that's not a big deal. I'm looking for rising waters, because then we get back to the moisture and the bad four letter word mold. You know, when you have those rising waters that come from flood, they bring in those those particulates and stuff that cause those, those issues in the house. And then they can be those houses can be renovated, they can be rehab, but you know, at the end of the day, how comfortable are you as a as an investor than buying a house that flooded before and I know if it were me, I'm probably not comfortable with that.   Michael: I'm right there with you.   Fred: The good news is Houston is huge. There's houses that have flooded, but there's way more houses that have flooded.   Michael: That's great. Fred, can you give everybody listening, a rundown or an idea of how they should be calculating their property taxes? And how that works in Houston?   Fred: Yeah, the property taxes work. Basically the same all over the state of Texas. You know, we are a high property tax state, you know, we don't have a state income tax. So we kind of give up a little bit, you know, on the real estate taxes, you know, the theory is we're basically paying for some things from real estate taxes in other states might pay for another ways. Number one thing is the schools. You know, we have really good schools here in the state of Texas with public school system, most people send their kids to public school and they're very good schools. So you're paying for basically the school system through your taxes and that's that's the largest amount of what comes out of there.   You know, also your city services and things like that to the taxes are calculated by by each county. So the county appraisal district assessor they assess the value on a house every year. We do every April, I think we get it, we get an invoice in the mail for what the value is going to be this year. Sometimes they go up sometimes they go down sometimes they say the same. lately. I've been seeing more going up. But that's that's a byproduct of the economy right now in the real estate market. So there is a cap for homestead properties. They do cap it off. And then there's a cap that the city and county governments can't go up a certain amount each time. I'm not going to quote those those cap amounts. But you know, generally, if you're buying a house, that's $350,000. Typically they're not assessing that value at the county level at 350. They're probably going to need more like the 275 or less range.   Now sometimes they do Get up, you know, I'll say, in general, the lower the price of the house, the closer you're going to be the value the tax value at that the higher the price a little bit further away. So it gives you some, you know, I guess a little bit of a break and you're not paying, you know, 3% on a $400,000 house that maybe assessed it 350 You know what I mean?   Michael: Okay.   Fred: But yeah, that's what that's how they're calculated. And then they do assess them every year, but they don't always change.   Michael: Got it? And do you know, Fred, does a sale trigger a new assessment? Or is it annual independent of whether a sale happens or not?   Fred: Right? In Texas, the county, the counties aren't allowed to use that data, to use the sales data know, whether they do or not, you know, is kind of up in the air. But their their assessment is done independently, they have an independent appraiser or appraiser in quotes, somebody that works for their appraisal district that assesses those values, and they do an independent each year. I'm told they use Google Maps, you know, to calculate square footage and things like that.   Michael: All right, cool. Well, that's great to know. That's great to know.   Mark: So Fred, you know, real quick, the, you know, the taxes, taxes are high in general, you may have some flood insurance, your insurance may be a little bit higher, you maybe give us a idea about when you talk to investors today, you know, you mentioned there's appreciation, that's the big play, what's the expectation that you see for appreciation, maybe now, going into, like, 2022. So, you know, buyers don't think, Hey, I missed the boat, you know, Texas had huge appreciation, you know, what is it looking like in the near future that you would expect?   Fred: In general, we say, in the Houston area that the market dictates about two to 3% per year, on average. Now, I mean, there's been a big increase over the last 10 years, I think it was like a 92%, or something like that. But you know, we're looking at about two to 3% On average year over year.   And you're gonna always have your pockets, I mean, you're going to have some, sometimes some suburb might blow up. And it just the hot area for right now, going to where I live north of where I live, is like that right now. I mean, in the past, in the recent past has been the west side of town where like Katie, the Katie and cypress areas, but, you know, you'll have your, you know, you'll have your big jobs, that if you average it all out over 10-15 years, it's gonna be generally about a two to 3%.   Now, the good thing, the good news is that, you know, like I said, with all the the number of people that are moving to Houston, they're not just coming from, you know, other places in this country, they're coming internationally, a lot of those people aren't going to buy houses, so they need to rent a house. I mean, they're on, they're on different types of visas. So, you know, they maybe can only be here for a couple of years. A lot of these companies, especially as oil and gas companies, they bring people in from South America, from Eastern Europe. You know, these people are coming in to rent houses, and they keep our keep our rental prices at or above what they are now. So we always have, we always have a good turnover, where those those homes don't sit empty for very long.   Michael: Great, great. Mark. Anything else for Fred before we let him out of here?   Mark: No, I think I think he covered everything that I wanted to hear about Houston. I'm from Dallas. So you know, we didn't talk about sports. So we have the belt. Yeah, absolutely. So yeah, Fred, and I will take that offline. But you know, I think my last point is, you know, you kind of call Texas, this little area called the Texas triangle, which starts in Dallas goes down, I 45. Houston cuts over to San Antonio, and you just have all this growth happening within those areas between Austin and Waco.   There's College Station, there's just so much activity that's happening, kind of that infill of that triangle. So without a Houston without a Dallas without a San Antonio, some of those other big markets, you know, you probably wouldn't have that activity happening. So I think Houston's got a lot going on. It is way bigger than Dallas. So I'd have to say we are the Big D. But Houston is by far, much bigger has a lot of activity. So I'm excited just because, you know, Fred's getting a lot of offer activity right now, especially with being a certified agent as a part of our network. So we love the fact that he can contribute be the local expert and you know, he's he's helping Roofstock grow our business and vice versa for all these buyers that are wanting to work with him and get a little bit more in depth and into the Houston market. So thanks for everything you're doing for a Fred.   Fred: Yeah, no problem. I'm excited. I like talking to all these people, these new people every day.   Michael: Perfect. In that vein If someone listening wants to learn more about the Houston market, what's the best way for someone to get a hold of you?   Fred: They can get a hold of me through Roofstock or they can email me at They can also call me at 713-321-9161.   Michael: Awesome. Prepare for your phone to blow up my friend. Fred, this was great. Thanks. Thanks so much for coming on. Really appreciate you taking the time and I'm sure we'll be chatting soon.   Fred: Yeah, thanks. Thanks for having me guys.   Michael: Alrighty, everyone, that was our episode A big thank you to Fred for coming on. The Houston market sounds to be on fire right now. Which is ironic coming from a California guy because that means different things to us out here on the West Coast. If you enjoyed the episode, feel free to leave us a rating or review whatever it is, Listen, your podcasts and as always, we look forward to seeing the next one. Happy investing

    How Mariusz started with 10K and became a millionaire with microcap stocks

    Play Episode Listen Later Nov 24, 2021 34:53

    Mariusz Skonieczny is the founder of MicroCap Explosions. He is also the author of 11 books on the subject of investing. He graduated Indiana University in 2003 with a finance degree. From 2003 to 2008, he was in the residential and comercial real estate industry as an apprasier and broker. During the 2008/2009 financial crisis, he left the industry to focus exclusively on stock market investing. In 2009, he started with  $10,000. By 2019, his account reached $1 million or 100x since the beginning. By the end of 2021, it reached $7 million. In this episode, Mariusz tells us about his journey, his process and how you can employ this powerful investment strategy.  --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Hey, everyone,   Michael: Welcome to another episode of The Remote Real Estate Investor. I'm Michael Albaum. And today with me, I have Mariusz from Micro Cap Explosions. And he's gonna be talking to us today about how he utilized micro cap stocks to become a millionaire. And what are some things that we as everyday individual investors can look out for to do the same. So let's get into it.   Hey, Mariusz, thank you so much for taking the time and joining me today. I really appreciate you coming on.   Mariusz: Yeah, thank you very much Michael.   Michael: My pleasure. So you've got kind of a unique background and have done quite a lot of things both in real estate and the stock market. So for all the listeners who don't know who you are, can you give us a little bit of a background on? Where did you come from? And what have you done in the real estate and stock market sectors?   Mariusz: Okay, so yeah, it's a little unique. I, I am a full time investor right now full time micro cap investor focused on small companies. So mostly in the stock market, on the secondary exchanges, which I will get into more in a minute. But I started off in real estate. Yes. So I graduated college in 2003. And that was around the time where the Poor Dad Rich Dad books were coming out. And so he kind of got me interested in real estate, I read them and I was like, Yeah, I want to be financially free. But of course, I didn't have any money. So I figured what the best way to start in real estate, it's to kind of learn how to value real estate. Okay.   So I became a real estate appraiser. And I did this residential appraising and then I moved up to commercial real estate and I appraised apartments, office industrial, mobile, home parks, you know, anything associated with income producing properties. And then at some point, I went into the broker side, so I worked in a group under in Marcus Miller chap that sold apartments in the Midwest. And so I worked there a little bit. And then, but during this entire time that I was doing real estate, I was also investing in the stock market, learning about Warren Buffett, and, and when the financial crisis hit in 2008 2009, I, I said to my boss, I'm leaving, I want to go full time into the stock market, because I see opportunities. And, and I didn't really have the passion for real estate the way I did for, for the stock market investing. So I just, you know, left the industry, but there's so many similarities between between them, but that's kind of like, you know, a little shot this summary.   So, from 2009, literally, January 1 2009. That's what I entered the stock market. And so now it's like 12-13 years. So I started it with 10,000. At that point, that was actually from a sale of an apartment. I had a and then so over this 12 year period, that 10,000 I turned it into six, 7 million now over this, you know, 12 year period?   Michael: Holy smokes, have you calculated what that return is, in terms of percentage, it's insane.   Mariusz: You know, I don't really I don't really calculate the percentages, because in the in the hedge fund world, financial world, everybody likes to say, Oh, I do this much. This much return per year, per month, you know, I don't really look at it. I don't compare myself to the market. Because when I do compare myself to the market, that's when you do stupid things like, oh, you know, I need to keep or how did I do this month? It's just like, forget it. I don't care. I really, people are really surprised that I don't look at the market in general and how I do and I really don't I have no idea what the S&P is doing, how much did How would you know what was in the other quarter? Because I am much more patient, I am much better investor, if I just focus on myself my ideas, you know, and if I beat the market, one quarter, or it doesn't matter to me is so yeah. So I couldn't even tell you. I just know, you know, what I started and what I have, and, you know, I don't look at it like that.   Michael: Oh, that's awesome. What a unique perspective. And so you were mentioning that you are a micro cap investor. Can you explain to our listeners what that is?   Mariusz: Okay, when everybody talks about the stock market, they talk about NASDAQ, s&p 500 New York Stock Exchange just CNBC, you turn it on, Apple Tesla Gamestop right. those popular names, that's what they think of the stock market. But people don't realize that there are many, many different exchanges out there, not just NASDAQ, not just New York Stock Exchange. And there are secondary exchanges that cater to maybe smaller companies or venture companies. And, for example, OTC markets in the US, it's not even an exchange, or TSX Venture, Toronto Stock Exchange venture or Canadian stock exchange, or AIM in London, those exchanges a cater to smaller companies that wouldn't qualify to be on NASDAQ, or maybe companies that are international and they want to access North America.   But their secondary exchanges and not many people pay attention to them. And when you're talking about smaller companies, anything between like 100 million market cap? They are they are hated and frowned upon by the financial industry. There are penny stocks don't touch them. They're risky. And that. So those companies don't get a lot of attention. And, and to be fair, I would say yeah, 80 to 90% of these companies trading at these exchanges, I wouldn't touch either because you know, they might be looking for gold or trying to find a cure for this or that or, you know, cannabis or you name it. Yeah, I wouldn't touch those companies.   But among those 10 to 20 of percent of the companies, there are some real, really interesting companies there might be up and coming. But they have they have revenues, they have real customers, but nobody's paying attention to them. Nobody is paying attention to them. And I can take my time, study them, figure out what's going on. And maybe they are on the way to to NASDAQ maybe they are in three years going to upload or whatever, why can get them when nobody's paying attention. And then when they do come on NASDAQ, you know, they're gonna get repriced and I feel like being in that space. I feel like I am, you know, playing a game that's easy to win. Because think about, and it's not that I want to be in the game, I am there because I have very little competition, because what's my competition? Retail, retail investors or institutions? Right? These are the two entities, right?   Well, what's retail doing? Well, they're chasing Tesla, GameStop, Bitcoin, right? Apple, Microsoft, I mean, that's where they're, they're chasing that they're busy. Institutions. Well, institutions are in the game of gathering assets under management, because they get paid a percentage of what they manage. So in order for them to make money, they have to manage lots, lots, lots and lots of money, billions. And if you manage billions, what are you going to go and find this tiny little thing? $10 million? Market cap? No, because you would have to find like, 1000s of those companies, and there is not 1000s Of those, there's maybe a handful of interesting opportunities, but you too big, you're too fat, you have to go after the big ones. So that, so retail is out, institutions are out. And like who is there? Yeah, some mom and pop investors or some micro cap investors, but there's not a lot of them. So right away from the start, I am playing a game where there's barely any competition.   And if I do the, if I play the game, right, if I choose the right companies, if I do the right work, and then then, you know, my chances of winning the game are very high compared to playing where everyone else is playing. What kind of advantage do I have investing in Microsoft when there's 60? Other analysts looking at it? Zero. Can I get on the phone and get to see on the phone? Absolutely no chance. But with the smaller companies, so many times? They don't they don't have any analyst coverage, zero, absolutely zero. And then I can pick up the phone and the CEO will answer the phone. And it will help me and answer the questions that I need answered.   Michael: And so when you're picking up the phone and calling these people, what kind of questions are you answering? I mean, can you give us an idea or someone who's interested in kind of following in your footsteps? What kind of due diligence what kind of research is helpful to do if someone doesn't even know where to begin? If someone's ever invested in as Tesla, you know, how could they go after one of these micro cap companies?   Mariusz: Okay, so first thing, what I'll do is, let's say I'm interested, and that's what I did with, I'll go through every company on the exchange, I'll go like recently, I went to the Canadian stock exchange, and there's only there's only like four 700 companies listed on Canadian Stock Exchange. And, and when I say Canadian stock exchange, people think oh, it's Canadian companies. No, it's not Canadian companies. It's most of the companies like they serve you, us. They have stores or clients in the US, they just trade on Canadian Stock Exchange because the listing fees are so low compared to NASDAQ and they are at the development stage or where they are. They would rather pay $250,000 to be listed there now versus going on NASDAQ and spending million or two, so it's but they might be US companies.   And so I went through every company 700 one by one. And because like I said, 8080 to 90% are something that I'm not interested. So if it's mining or oil and gas, like, No, thank you, or if it's cannabis, no, thank you, or we're gonna find a cure for cancer. Yeah, right? No, no, thank you. So I go go through them, you know, one by one and eliminate the ones that I know I'm not interested. And then from from that 700, I narrowed it down to maybe like 50. And then from that 50, I'm like, okay, these are real companies that have real products, real customers. And then let's say I have, you know, narrowed down to five or, or two.   So, so then at that point, I'm like, Okay, I like these companies. Now, I want to know, what they are about. So of course, I'm going to read what's publicly available. But that's not enough, in my opinion, with the smaller companies, because let's face it smaller, they are riskier, right? So if the industry says it's toxic, and this and that, okay, they're riskier, so I need to do more work. So after reading the public information on these companies, I will get on the phone, and I will call the customers, I will call the customers and say, Hey, why are you using this company? You know, what kind of problems? Is this product solving for you? How does it compare to the competitors, so I'll find out firsthand from the customers why they are using this product.   Now, if the product is good, and the feedback is great, then I know, okay, therefore real, therefore real. And now I understand what's going on. And of course, I will call the management, I will usually talk to the CEO, at few board members, current or past directors, I'll try to go to LinkedIn to find some employees, former employees are good, because they'll tell you all the dirt that you know. So you know, after you, you get on the phone, and you talk to us individuals, you really start to learn the story of is this company really special? Is there something there that I should get involved in? And this is the kind of research that we'll do on these companies?   Michael: That makes total sense? And how do you find out who their customers are and get their contact information? I mean, what does that look like?   Mariusz: Well sometimes it's easier than others, because usually, sometimes they will list in the description of the business, they will list what kind of customers they have. Or sometimes you just know who the customers are, because you can Google them. Or maybe there's not that many players. So it's, you know, there's ways but it's not always the same way. Like for example, recently, I was looking at a company that is in the business of providing software for governmental agencies, to help them manage like health safety for restaurants. So, you know, think of government agency that has to make sure that all the restaurants comply with the regulations?   Well, it's not that hard to get a list of health inspection agencies in the United States. And you just, you know, call one by one and see who who answers the phone.   Michael: Interesting. And then when you're calling the company members themselves, board member CEO, what does that script look like? You say, Hey, I'm a potential investor, I'm interested in buying your stock. What does that look like?   Mariusz: That's pretty much it. You I call them up and I say, Hey, I'm looking at your company. This looks interesting. You know, tell me about it. Me sell me on the idea. Tell me how you got involved in the company. What's your story? You know, is there anything I'm missing here? And any usually, usually successful people, you might think that they're busy, too busy to talk to you, but they're kind of lonely. Like, they're just out there running the company, and someone calls them out of blue. Like, they'll talk to you. And yeah, like, I barely had anyone that didn't want to talk to me, and they'll talk and talk and talk. And then the next thing, you know, you have their cell phone number. So when you have questions, you can just call them and, and you know, it's about like establishing the relationship.   You, you first. It's amazing what you can learn, especially with the small companies. And I'm not saying like you're trying to get some kind of insider information. You're not, you're just trying to learn about it. But come on, you're having a conversation, right? Like, I don't know what you can tell me. He doesn't know what he can tell me. You always learn more than you should.   Michael: Yeah, yeah. No, I that's what I found in my past career. Working as a fire protection engineer, if you ask open ended questions, it's amazing what people will share with you, especially if it's a good conversation, if it's a good working relationship. You're so right. And I think that people don't give other people enough credit for what they might share. So that's, that's a really interesting tip.   Mariusz: Yeah. And you know, when you read about when you read about companies on paper, that they, you know, they tell you what the lawyers allowed them to tell you. And but when you actually phoned somebody up, and you really get to understand the strategy, they're thinking, Where are they going, why are they doing this? It's just, it puts the whole picture together the whole thesis, but by doing those kinds of work,   Michael: It makes total sense. But submersion. Do you square with the fact that you have your own opinions, biases, and then if you're getting the CEO on the phone, I would imagine that most CEOs are convicted, and are semi convincing that their business idea is a great one, and it's going somewhere, Otherwise, they wouldn't be the CEO. So how do you square those two with each other?   Mariusz: So So that's, that's why I'm talking with either individuals, like, you know, the directors or, or the customers, or, or even the competitors. Because like, recently, for example, I call I call this I didn't term this, but it's called a scuttlebutt research by talking to the individuals that so, so we have this company that recently came out on my public channel, Globex, Globex. And what they have is a is a private email and messaging application that like, doesn't do any data mining, no big tech hosted in Switzerland. So you know, everything against, you know, data mining. And so, when I first started researching this company, I sent out an email to my group at micro cap explosions, which is the website that I run.   And I said, Hey, you know, I don't know much about this space, but some of you guys might be in this space. So help me and also, my girlfriend's brother is a security expert. So so I figured I would get some feedback. And oh, my goodness, 20 people give me feedback, any, and you couldn't have two people agree on the same thing. Especially when you get two techies in a room talking about open source is better or closed source is better, or this is like, Oh, my goodness. But that's what you deal with as an investor is like, you get all of these feedbacks, good, bad average. And then you have to decide on your own, from all that feedback from the CEO selling on the company, from this guy telling you this is horrible from this guy telling you it might succeed, you have to make a choice, you have to make a call.   And then from that, what I realized that at some point is like, Okay, I'm not, there's no way I can figure out if the technology is the best, or this or that there's no way. But what I can't figure out is whether people are going to buy the product, and what is going on through the head of the people that are buying the product. And if they're gonna buy the product, if the if it solves their problem. That's all that matters. Because the critics do not generate revenues. It's a customer to generate revenue. So it's like, if nine people are complaining and don't like it, but one that one buys it, will all I have all all the company has to do is find those ones, right? And then and then everything will be fine.   Michael: That's such a great insight. That's such a great insight. So how does someone get started in this if they have a full time job, because they can go invest in REITs passively, they can go invest in the stock market passively. But it sounds like this, there's a little bit more legwork a little bit more research involved. So how does one get started doing this kind of work?   Mariusz: Well, I would say, I would say study businesses. That's number one. Because I'm not really, I don't really care what the company trades. As long as the business is good, the business is going to do well. So study businesses, figure out what businesses work, what is a good business? What is an average business, what is a better business? And start with that. Because if you go, if you go to the secondary exchanges, like you said, if you pick up the phone, every single CEO will sell you, and you will think is the great idea every time. It's like, you know, watching a commercial and buying everything that you see on TV.   So you kind of have to know, you know, you have to know what is good, what has potential, and, you know, probably should probably have some mistakes be under your belt too. But yeah, it definitely, this kind of investing definitely is more, it takes more work, but it's more rewarding at the same time. So like if the best way to passively do it. I'm gonna, you know, plug myself in here is you know, my website I mean, I share that research with my people. So, so they, they get the benefit of my research. And you know, of course they pay me for it. But if you want to do it on your own, you know, study businesses and then go to these secondary exchanges and study to come look at the companies one by one, don't screen. Forget about screening, just look at them one by one, it's like 700 of them, you can look at 700 companies when 90 90% of them are junk and you're just gonna throw them away just after looking at them. So it doesn't take that long, but But it's definitely worth it if you if you want to put in the work.   Michael: Okay. And of that 80 and 90% that you think is junk. I mean, I know you mentioned cannabis oil and gas mining. Are there other sectors that are definite non starters for you or are ones that you think specifically Yes, these are these are you No, always gonna be a go for you.   Mariusz: Well, I like I like to look at, I like to own companies that are there are decent. So in other words, what are good businesses? Well, businesses that have recurring revenues, they're better than the non recurring revenues, because on January you don't start from scratch. So that's that. I like businesses that have some kind of switching costs once a client signs up. They know it's a little bit painful to switch. I like businesses that just kind of like Warren Buffett talks about with Moats. So they have some kind of brand, brand awareness, and maybe that brand is getting better and better and better. Or maybe they have what's called the network effect, as more people use the service more others want to use it like like auctions, you know, you go to auctions, when a lot of people are using the auction, you want to sell it in action when there's a lot of buyers, so, and I like also businesses that are not capital intensive. So in order to grow revenues, it doesn't cost that much.   So that's one of the things that turned me off from real estate is that it's so capital intensive. If you have a four unit apartment building, and you want to grow that revenue, well, you have to buy another apartment building or you have to add units. Yes, you can raise price, of course, you can raise price, but there is limit to it as so it's capital intensive. And yes, you can leverage and borrow and all that. But it's capital intensive. And if you compare it to the company that I talked about Globex, for example, which has an email, messaging, communication, well, they have a server in Switzerland, okay. It doesn't matter, they can have 100,000 people on it or a million people. It doesn't you, they don't have to get another server when they get a million more users. They just, you know, they might at some point need another server, but it's very scalable. And it doesn't cost that much to grow revenues.   So so these are the kinds of businesses that I look for. So I've done it for so long that when I look at a business, I can tell right away, well, is it recurring? Is it a good business? Is it a is it an average or decent business? And so yeah,   Michael: Makes total sense. And you mentioned that real estate is so capital intensive, and I agree, it oftentimes can be, do you see the two asset classes, stock market and real estate as totally separate and mutually exclusive? Or are you finding that it's easy enough to invest in both of them simultaneously?   Mariusz: I'm actually, so I started off in real estate, then I went to the stock market. And now I'm looking back at real estate again, because it has a place in somebody's portfolio, you know, I would like to have I like mobile home parks. And actually, next week, I'm going to California to look at some mobile home parks. Because I would like to create a revenue stream, take some of my profits that I made in the stock market and put it into more like real assets that can generate some income.   And so so it has a place but I think where people go, you know, wrong with this constant debate. And actually, in my first book that I wrote, why are we so clueless about the stock market? There's a chapter real estate versus stocks, which is better? And the answer is there is not that one is better, because stock market is just a vehicle to own own particular businesses. And real estate is also a vehicle to own a business. If you own an apartment building, that's your business, your tenants are your clients, you have expenses, that's your business, and you own it privately. Okay.   Now, in the stock market, you can also own real estate publicly, right, like REITs, you can do that you don't have the same control. But it's the same thing. So people focus so much on it. And I say, it doesn't matter if it's public, or non public focus on the business, you can lose money in real estate, if the tenants don't pay you, especially when you have a lot of debt. So don't think you've saved there. Just focus on good properties, whether it is to flip them or to renovate them, or so many people use different strategies in real estate. So you know, focus on what you do focus on the business and the stock market. There's no such thing as stock market is bad. There's some companies that I wouldn't touch and others I would so I focus on what's good, and not about, you know, how it's being owned. It's just a vehicle.   And, you know, I find it funny, going back to a little bit this whole discussion with micro cap stocks, you know, how the industry is like, stay away, it's, it's a penny stock. So picture, picture owning 100 unit apartment building, or 50, or whatever, you have an apartment building, and it's worth, you know, $2 million, or let's say $10 million. Okay, so, there's so many people out there that have their entire life savings, their entire retirement, owning apartment buildings, that's their retirement, that's their entire life worth of work. That's okay. That's okay to own a $10 million apartment building or portfolio of apartment buildings. But if you put that apartment building into public vehicle that's trading on an exchange now $10 million that's toxic because it's microcap. Now you can't touch it, because you're gonna go bankrupt. Lalala is the same thing.   So how can you say that, you know, $10 million worth of assets in a private ownership, that's a smart thing to do. But if you own a $10 million in a public market through a stock now, that's a penny stock, you're an idiot, you shouldn't touch it. See how crazy and ridiculous this is?   Michael: Yeah. But could it be argued that the penny stock or the stock at really any stock could go to zero versus the real estate? Can I mean, in theory could never actually get to zero?   Mariusz: Well, I mean, if a business fails, you can go to zero. And if your if your tenants stopped paying you guess what the real estate is gonna be there. But your ownership, your equity can go to zero, because the bank can take it away. So don't think you're safe. Just because, you know, a building is still there. Are you going to be the one owning it?   Michael: Right? Now makes total sense. Makes total sense. Mariusz, I'm curious, can you share with us some of your your big wins that you've had in the micro cap, stock picking world? Since you've been? got started?   Mariusz: Yeah, so I'll share with you a big win. And I'll share with you what I'm currently doing for hopefully a future win. So the biggest one I had was a company called Oracle, where I, I bought it for four cents. And today, it's almost $3. And I still hold the shares. So almost 100 times I put like, I think 80,000 into it. And today, it's like six or 7 million just that one position. And I still hold the shares. And so it's kind of interesting, because it has Similarities to real estate, because Oracle is a is a company that owns a copper project. Okay, so it's a real estate. It's, it's, it's a copper project located in Mexico.   And now with all this electric cars, everybody's you know, the developing world is, you know, getting more developed. And so we're consuming more copper, and there's not a lot of copper out there, or the copper supply is not keeping up with the demand. So I found this company in 2017. And what was interesting about it was a special situation because in 2000, that property is called Santa Tomas Copper Project was sold from a gentleman, Mexican gentleman to a crook, the crook bought it for 10 million back then, and never paid for the property. So the Mexican guy wanted to get the property back. But it was it was complicated because it was like in three different jurisdictions Bahamas, Mexico and the United States.   So that company said to him, You know what, we'll we'll get you your property back, we'll pay for the lawyers will win you the property back but in return, we will earn 50% interest in the property. So it took them like 10 years to win the lawsuit. So they won the lawsuit in in Bahamas. And when I got involved, they already won the lawsuit in Bahamas, but they still had to kind of finish the lawsuit and have everything correctly the title registered in Mexico. And and then what was happening in Arizona was that it was crazy because the two parties that were fighting with each other Oracle, Oracle had ownership interest in both parties. Like I kid you not they own both parties. And but what was happening in Arizona was that they were kind of in receivership of that other party. So they were foreclosing on that interest.   And so, so I was looking at a lawsuit and you know, I don't speak Spanish but I speak English. So in Arizona, I was buying the legal documents directly from the courthouse as the court as the lawsuit was going on. So I was like getting documents right away faster than the company faster than the lawyers because the moment is showed up I already got on the phone and I bought the document. So I saw that they were like winning every single step every single step the other party said something to the judge was like nope, you don't know what you're talking about wrong wrong wrong. So I didn't even have the legal experience. But I could tell that like there's no way they were going to lose so So I bought all these shares and of course they won the lawsuit they foreclosed on the property they registered the property in Mexico and and and and nobody was paying attention like I was the only one buying the legal documents the only one studying this it was on the company was trading on TSX Venture so you know toxic exchange know what no one was gonna touch it. They institutions didn't want to look into it because they don't get involved in the legals.   Okay. Well, I got involved and I studied it and it was it was easy. It was simple. And then I even wrote like a 20 page analysis on my website and I was uploading the documents for everybody who wanted to see too See it. So the long story short is, you know, the stock goes up like 100 times, you know, we, in total, the people that were following me, I would say they made like $300 million. Today, today, I get gifts, all kinds of gifts people send me thank you change my life and all this. But it was an example of it of a of a situation where nobody wanted to look at there was no competition, it was so easy, so easy to see when you actually rolled up your sleeves and did some work.   So that was an example of a success. And I still own the shares, because I still think they're going to go much, much higher from here, because now now the situation is a little different, the title is registered. Now they, they are kind of confirming the historical results that were on this property. Because this was not some kind of little dinky property. This was a property that was massive copper deposit that was even used as examples of a good depositing geological books. So I knew I was dealing with something major. But you know, when I was buying the shares, the market cap, or the value of the company was $3 million. I looked at it, and I already knew back then I said, this is worth half a billion dollars. And today, it's even worth more because copper is hot. Everybody's talking about electrification. So not I mean, now it's probably gonna sell for a billion or 2 billion. Who knows? But that's an example of a success story.   Michael: Wow. And how long did the process take from when you bought it at four cents for the stock to get up to $3 a share?   Mariusz: Well, from 2017 to two now. So actually, what was interesting is that it kind of took a dip, because of COVID. So it was like it was on its way to $1. And then the COVID came and it crashed. Because everything crashed, it crashed to like 20 cents. And then the moment COVID COVID recovered and, and copper recovered, it went from like 20 cents to, to over over three bucks. It went to as high as 3.66. And now it pulled back to like 2.60. But, you know, on my watch on my watch, it was almost 100 times, but it was more than 100 times because the lowest stock was was one penny. So it did go to $3. That's like 300 times, but I wasn't I wasn't involved when it was at one penny. I was involved when it was like four.   So So yeah, so that I mean, it's incredible story, but it just shows you that these opportunities exist. And it's kind of like a real estate example, because it's a real estate. It's a property, okay, it's not an apartment, but it's a property.   Michael: Awesome. So now I love your story Mariusz, and I want to let you get out of here. But before I do any final words of wisdom recommendations that you want to share with folks who are listening?   Mariusz: I would just say, Look, just think independently. Think for yourself. Yeah, I know, it's nice to be invested alongside with what everybody else is talking about. But the biggest money is made when you just think for yourself. I always use the example of if you're selling a house, would you like? Or if you buying a house? Would you like to be buying it when there's 100 Other people bidding with you? Or would you be the only one buying it? Right? It's it's obvious and when you're selling your house? When you selling a house? Would you like a lot of people looking at your house? Or would you like one person looking at your house? Again, obvious answer.   So then why do we like up investment opportunities or stocks only when everybody else is looking at them? Flip it. Think for yourself, look for yourself. Buy it when they're not watching and then sell it when they're watching.   Michael: Right, right. Oh, that's so good. That's so good. And if people want to get ahold you want to reach out to you want to learn more about what you're doing in my company's general what's the best way for them to get in touch?   Mariusz: Just visit my website You will find a link to my YouTube channel to my email. That's the best way to get ahold of me.   Michael: Amazing. Rich, thank you so much for taking the time. I really appreciate you coming on and we'll definitely chat soon.   Mariusz: Yeah, thanks a lot.   All right, everyone. That was our episode a big big big thank you to Mariusz, I will definitely be going online to check out his website micro cap explosions. You enjoyed the episode. Leave us a rating or review wherever it is you get your podcasts. And as always look forward to seeing you on the next one. Happy investing

    These are the top 10 cheapest states to buy a house

    Play Episode Listen Later Nov 20, 2021 24:25

    As a real estate investor, you want to find properties where your investment dollar will go the furthest. To help you do that, we compiled a list of the top 10 cheapest states to buy a house in America in 2021. We analyzed data from several sources to find the least expensive states and the most affordable cities in each of them. In this episode, Tom, Michael, and Emil run through the top ten states. They highlight important metrics and discuss what this means for investors.  --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Emil: Hey everyone, welcome back for another episode of the remote real estate investor. My name is Emil Shour and today I'm joined by Tom Schneider and Michael Albaum. In today's episode, we're going to be covering the top 10 cheapest states to buy a house in 2021. So this is from an article off the roofstock blog that I wrote a while ago called the top 25 cheapest ways to buy a house in 2021. We're going to run through some of the numbers like median home value, one year price change five year price change and median rent to give you guys an idea of which markets may be good to target or at least do a deeper dive into So let's hop into this episode   Emil: Alright guys, so this is actually a blog post I helped create on the Roofstock blog, and it's covers the top 25 cheapest states to buy a house. We're going to cover the top 10 And just to give everyone some context, the data here is from Zillow for home values and historic price trends. And that is as of June 2021 So that data is a couple months old but still you know relatively easy for people to kind of compare the top 10 We also have the median rent data is coming from go banking rates and the median rent of a three bedroom place and I'm gonna just run through the top 10 But before I do Tom you look like you have something a burning question…   Tom: I do my mouth is like like half open alright a meal in writing this article states a pretty big area you know a big Is there a reason why it wasn't at like a metro just because like it I think of cheapest I mean you know California is a great example you know you can live in a very expensive area or you can live in a very less expensive area.   Emil: Yes   Tom: Curious. Go ahead.   Emil: Great point Tom. i We don't have an article around the best the cheapest cities I think just because there are so many unique city so look at that it would be very hard to compile the data. So we have cheapest states. I think it's just easier to get 52 data points rather than I don't know 1000s   Tom: Fair fair fair. I think there's I think there's I think there's a middle ground in there as well you know between from from city or whatever to state I dig I'm I'm picking you out a little bit I like I like this let's get into it. Let's get into it.   Emil: Tom just ruined the episode and we'll end it here. So thanks, Tom.   Michael: Timeout you said you said 52 So are we talking territories as well like Guam and Puerto Rico?   Emil: I Have not attended a geography class in quite a long time Michael so I don't even know if I'm correct in saying 52 Or if it's 50.   Michael: 50 states.   Emil: 50 states you know what? I'm just I'm done with this episode. guys. You guys take it from here   Michael: Emil's like enough of this so I don't get fired like enough of this. Just trying to help you out.   Emil: I'm doing you guys a favor. How about that? Alright, so let's let's get into this. I'm curious if you guys can get some states in the top 10 If you had to guess. Pick three each you guys…   Tom: Is Mississippi on the list.   Emil: Ding ding ding Tom one for one.   Tom: All right, Michael, your opportunity to take the lead. Do your two guesses…   Michael: Show me Alabama.   Emil: Alabama? Ding ding ding correct as well. All right, one one here.   Tom: Show me Louisiana.   Emil: Louisiana is a not in the top 10   Michael: Ah, man. All right.   Emil: First incorrect answer. Tom. What do you have?   Tom: I got two guesses here. We're tied one to one. Show me Arkansas.   Emil: Arkansas is ding ding ding in the top 10   Tom: All right. No looking at anything on your on your computer. Michael.   Michael: Keep your hands where I can see them   Tom: Show me Oklahoma.   Emil: Oklahoma in the top 10 Ding ding ding Tom is a liar. For three Mike. Michael you can you can take a consolation swing here and at least try to get two out of three. So   Tom: Earn your blue ribbon or purple.   Michael: That's right. That's right.   Tom: The one they give to the kids.   Michael: Show me, Ohio.   Emil: Ohio is in the top Ding ding ding.   Tom: There you go, Michael.   Emil: Alright, so Michael finishes two out of three. Tom three out of three. Stellar. Perfect.   Michael: Wow. That's what Tom's used to hearing.   Emil: Very impressed, guys.   Tom: That's kind of how I operate. I thrive on positive reinforcement. Thank you Emil.   Emil: You're welcome, alright, let's start at the let's, let's work our way backwards. So we'll, we'll start at 10. And then we'll go to number one and   Michael: Are these in order of pricing.   Emil: 10 being the least cheap. Exactly, yeah. So it's by median home value. So the cheapest will be number one in terms of median home value according to Zillow data. Alright, so number 10. We have well let's just keep this going. Thing number 10 is   Tom: Indiana   Emil: Jesus Tom, Have you have you read this article?   Michael: He memorized the last night before bed.   Tom: No, that's it that's great. That's good. I mean Michael said Ohio Michael said Ohio so I just figured you know someone who's kind of friends with Ohio   Emil: Tom you need to go make a lot of bets today because you're on it. So please just go like buy some alt coins and stocks and whatever today go buy a rental property till you can't miss today. Alright, so Indiana number 10 median home value comes in at 185,805. Our one year price change so looking at one year ago compared to today? Well this is as of June 2021 13.2% Five year price change 45.3% In the median rent on a three bedroom place I think this looks at apartment and a house from go bank rates $1,052   Tom: Some some gross yield there.   Emil: All right. So that's that's Indiana. All right, who's number nine Michael you get first shot.   Michael: And it's not one of the ones we've already named?   Emil: It is one of the ones you named?   Michael: Oh, shoot.   Emil: I'll give you one further, it's the one you it's one you named?   Michael: Oh, man. So I got a 50/50 shot. I'm gonna say Ohio.   Emil: Bing bing bang Ohio coming in at number nine. So our median home value in Ohio $181,756. Or one year price change 14.4%. And our five year price change coming at 45.3%. And median rents on that three bedroom place is $1,024.   Tom: A price change is so crazy. I mean, all those numbers   Michae: That's unbelievable.   Emil: Oh, actually, ooh, this this article has the cheapest lists like three or four cheapest cities within these states to buy a place. So I don't know where that was pulled. Exactly. Let me see if I can find it real quick from this article. So from Yahoo, cheapest place. So it was an article called The cheapest places to buy a home in every state. So that's where this looks at. All right, so Tom, maybe we get some of the stuff you're looking for. So I'll backtrack a little Indiana. The cheapest cities to buy a house are Gary Anderson, Muncie and Richmond. And then for Ohio. We have Youngstown, Warren, Dayton and Marion.   Emil: Alright, so number eight. I'll go ahead and just dive right in Kansas comes in at number eight. Our median home value is $176,898. Our one year price change not as high as number 10 or nine coming in at 11.3%. And our five year price change coming in at 33.8%. Our median rent comes in at $1,050 on a three bedroom place. Our cheapest cities within Kansas are Hutchinson Kansas City, Topeka and Salina.   Michael: Topeka, capital of Kansas.   Tom: You guys all invest pretty in that around that area. Do you guys have an exposure to Kansas? Or you're more of Missouri?   Emil: I'm Missouri.   Michael: I've invested in Kansas City, Kansas doing a flip out there so that's almost getting wrapped up?   Emil: Are you in the Kansas side or the Missouri side?   Michael: On the Kansas side? I'm like fairly certain I double check. Which sounds ridiculous as I'm saying those words.   Emil: Alright, moving on to number seven. I think you guys guessed this one as well. I don't remember who said it   Michael: Probably Tom because I mean he's flawless.   Emil: So it's Alabama who said Alabama?   Tom: I was gonna I was gonna say it I missed out I was gonna I was gonna guess that was the one.   Emil: Oh my god this guy is just he can't miss that.   Michael: That was me. That was me. Michael had Alabama. Yeah. With the second of my, one of two. Yeah.   Emil: All right. So Alabama median home value coming in at $170,184. Our one year price change 11.9%. Our five year price change. We have 34.6% and our median rent on a three bedroom place coming in at $1060 Cheaper cities within Alabama to buy a house are Gadsden Birmingham, Montgomery and Phoenix city or Phenix City   Tom: Another market Michael has some exposure to   Michael: Yep, yeah. Birmingham Alabama   Emil: Birmingham. Number six Michael is another place you invest in so go for it. What do you got here? What state   Michael: Oh,   Emil: We already covered Ohio so what else could it be? Other side of Ohio. Oh, other side of where you invest in Ohio,   Michael: Tennessee? Kentucky? Kentucky like South. I guess it kind of like like,   Emil: Yeah, Cincinnati right south of Cincinnati. Yeah. Toki See, I know what I'm talking about.   Michael: Geography is tough man.   Emil: Alright, Kentucky median home value we got $168,998 our one year price changes 10.8% or five year price change. We have 36.3% and our median rent on a three bedroom place comes in at $1,025. Our cheapest cities to buy a house within Kentucky are Hopkinsville Covington. Owensboro. And bowling green.   Michael: Oh, Convington made the list man. Covington that's where I heavily invest. Yeah, it's   awesome.   Tom: Kind of related talking about like, you know, West's of states are directional. There was this. I think it might have started on Tik Tok. This guy's like, he said, he's at a there's like a music playing in the background. He's like, Okay, here's the situation. And they're playing like, West Virginia. Take me home.   Michael: Country Road, right?   Tom: And he's like, here's the situation. This song is not about West Virginia. It's about the western part of Virginia. And that, like, closes and then opens them just like super hungover the next day. It's like, is there something like that's just like, so perfect about that. Here's the situation. I mean, I hope this stays in the episode because people who've seen this will be like, Yeah, that's   Michael: Really relatable.   Tom: But the western part of Virginia, not West Virginia. Anyways, continue.   Emil: I've seen tic tock videos I've ever actually been on tick tock. It just sounds like a black hole of silly videos.   Tom: Yeah,   Michael: I think that's a fair assessment.   Tom: Yeah, yes. Me too.   Emil: Is there other types of videos? Or is it just silly videos? It's only thing I've seen like silly tick tock video clips.   Tom: I think that's it. But it's funny all like a lot of it does ends up going on to other platforms too. So.   Emil: Right, right. I think I've seen them on YouTube. Anyway, moving on. Number five, we've got Iowa our median home value in Iowa we have $165,955 or one year price change coming in at 6.8%. Five year price change 23.1% And our median rent $1,021. Something interesting that I'm noticing as we climb up the list in cheapness is that the percentage price change so appreciation is getting lower and lower so far.   Tom: Huh? Interesting,   Michael: Seemingly, and also that the median rent is fairly consistent.   Emil: That too, yeah, median rent is hovering around 1000 bucks a little over 1000. All right, cheapest cities within Iowa to buy a house. We got Waterloo, Sioux City, Davenport and Council Bluffs.   Michael: Okay,   Emil: All right. Number four, Oklahoma, which I think you guys I think somebody mentioned   Michael: Tom mentioned   Michael: Tom!   Tom: Windy City, Mr. Three for three   Emil: Windy City. Man somebody is worse that geography than me. All right, Oklahoma. median home value $150,754. One year price change 10.4%. So stepping up a little bit from our Iowa numbers. Five year price change coming in at 29.1% in our median rent on a three bedroom place $1,015 Or cheapest cities to buy a house within Oklahoma or Muskogee, Muskogee Lawton Shawnee and Enid. I probably butchered every single one of those.   Michael: Yeah, if anybody knows the proper pronunciation, please feel free to leave us a comment.   Emil: Spell it phonetically for us. Alright, number number three we get into top three good stuff. All right. I think someone mentioned Arkansas as well or console comes in number   Michael: Tom again.   Tom: Mr. Three for three did.   Emil: Alright Arkansas.   Tom: T for T for short. TFT   Emil: Our median home value on Arkansas $149,120 our one year price change 10.4%. Our five year price change 30% And the median rent falling below $1,000 For the first time $926. Our cheapest cities within Arkansas to buy a house are Pine Bluff. Texarkana North Little Rock and Fort Smith.   Tom: I like Oh, I like all these areas anyways, just having like visited and I don't know,   Michael: Have you visited all those areas?   Tom: I pretty much most of them yeah.   Michael: Like every single one that a meal is listed so far or just physically in Arkansas,   Tom: I haven't I haven't visited a lot in Iowa but I mean, Alabama, I've visited lots of Alabama. I had that. I don't know that we mentioned a weird deal where I played football in college at UC Berkeley at Cal and then I got hurt my senior year and then found a weird loophole that I couldn't play D one because my eligibility was expired, but I found a loophole allow me to play D two. So in the best D two football is like in the south, so I lived in Muscle Shoals, Alabama and we like traveled around a bus and like went to tons of these like spots in Mississippi or Kansas. Arkansas. Yeah. Hello. Ours are in Texarkana. I That's just proving me as a you know, not as a novice if by calling it that anyways, go ahead. Pass the mic.   Emil: Such a west coast dude   Michael: This is the situation this is a podcast is not about Arkansas.   Michael: It's about the western part of Ar…   Emil: Alright, number two, I think you somebody mentioned Mississippi did someone mention Mississippi?   Michael: Yep. TFT did   Tom: TFT, yours truly.   Emil: Median median home value in Mississippi we've got $140,818 One year price change 8.4% Or five year price change 24.7% In our median rent coming in at $989   Tom: This just my last derailing on that on living out there. So I had like mentally prepared for the heat. I was just ready right dog days and it was hot. But I ready. I had mentally said I'm going to sweat a lot. There's going to be kind of hot but I honestly I honestly kind of enjoy it like you know give me a sauna give me whatever steamroom what I was not prepared for is come wintertime it snowed a little bit there. And I was not ready. Yeah, right. It snows there.   Emil: I had no idea it snowed there.   Tom: It's not like feet, but you know, you'll get dustings every once in a while and Alright, number one, go ahead and do it. Interrupting cow, mooo!   Emil: Before you before you come in, we gotta we got to talk about our cheapest place to buy a house within Mississippi. Okay, those are Jackson Greenville Meridian Gulfport, so now.   Michael: All right  All right. All right.   Emil: One. I don't think anyone guessed it. It was West Virginia.   Michael: This is a situation.   Tom: Wait  the western part of Virginia?   Emil: How ironic and perfect could that have been   Michael: That is so good.   Tom: TFT.   Emil: See, you can't miss today I'm telling you. Take every dollar you have and you'll make any investment that you possibly desire to get good day for you. That's West Virginia. Number one. median home value. We're dropping off a bit from number two. So 117,768 is our median home value one year price change at 7.1%. Five year price change 19.3% In our median rent for a three bedroom place, coming in at $912 our cheapest cities within West Virginia to buy a house Bluefield, Clarksburg, Beckley and Huntington. And there you go top 10 cheapest states to buy house in 2021.   Michael: So what are each of your biggest takeaways from this?   Emil: I think I already mentioned mine, I was surprised that the percentage change didn't like, I would think the cheaper the house is, you know, a $5,000 increase on 117,000 versus 160,000 is gonna be a higher percentage. I was expecting the percentage to be higher in price changes when it wasn't so that was surprising to me.   Tom: My surprising is in some of the states it's like they're like It's like bigger cities that are the least expensive one so like Arkansas, like Little Rock is I think might be the capital I love like in like capital cities and just in that there's like kind of like a natural draw for like economy and, and all that kind of stuff. So it's cool in some of these less expensive in some less expensive states like you can buy, you know in that whatever Capitol Corridor, whatnot city or like around the suburbs and still have less expensive so I thought that was an interesting tidbit.   Michael: Nice.   Emil: How about you, Michael?   Michael: MIne was just you could go to the 10 cheapest cities and over the last five years. Get A 20% increase on your value by doing literally nothing. And so it's crazy when we talk about the power of real estate and all of the great benefits that it has, like, if you bought a property there, for 100, grand five years ago, it'd be worth 120 grand today, like, that's unbelievable for the fact that you were getting paid probably that whole time, too, with a tenant in place. So like, it's just, it just speaks volumes to the power of real estate and how the multiple ways that it pays you even in like, less expensive markets is pretty profound   Emil: Ya true.   Tom: Yeah. I think also, Michael and I, we've done a bunch of webinars together, and one of them, we were going through some assumptions around building a passive income flow of $100,000. And within the assumptions, I think we had the purchase price, like somewhere north of $100,000. And like, someone had commented, like, Hey, you can't buy a house for 120,000 or 100 and whatever it is, like, yes, you can like that. You definitely can. And yeah, these are all 10 states in which that is very doable.   Michael: Yeah. And it was funny, I was like, I'm pretty sure I just bought two of them not to like shame that person. But I was like, guy, you just like incorrect with your facts, like I literally just bought two of them. So   Tom: I think it's a good exercise of like, kind of taking blinders off. Like perhaps that is your strategy only to buy in these really large cities. And that's great. And then you know, you can't buy $100,000 house or $150,000 house. But if you know, you're kind of open to moving around and shifting your strategy to meet specific goals, like there, there definitely are markets to do that.   Michael; I think even in some like in some of these bigger markets, and even capital cities, if the median home price is 100, you know, is $300,000, I'm sure you can still find properties for 150k. They just need a bunch of work. So depending on what your investment thesis is, and what you're prepared to do, I think that there are opportunities in every market, you just have to be willing to uncover them or be willing to do what it takes to then profit from those opportunities.   Emil: I've seen that a lot of like, like Midwest cities, like I invest in St. Louis, and there are their homes that sell for a million plus still even in St. Louis, and their homes that sell for 50k. Like there's a huge, huge, huge disparity. You know, one home was probably built 120 years ago and is fully dilapidated and needs need some love and the other one is like a mansion but still like there. You can same city, you can have a huge disparity.   Tom: Hey, guys, I think we're going full circle from the very beginning of the episode, when I was kind of teasing a meal about, Hey, why did you guys do states? Why don't you do like a little bit, you know, not like the largest possible, you know, where even within each city like there's just, you know, really dramatic range. I mean, here in the Bay Area where I live in Northern California, you know, there's much smaller cities like not smaller, but less expensive, right. You know, perhaps Richmond or Vallejo or like Stockton and then you have areas like Piedmont and Menlo Park and all of these spots. So you know, even at every, every level, there's just really dramatic range.   Emil: Yep. But in California there there is definitely no $100,000 properties, that's for sure. Maybe a shed in someone's backyard, but that's about it.   Tom: Working on one right now.   Emil: Are you doing a shed? Are you building an ADU?   Tom: Uh, it's in a level electrical. It won't have a bathroom in it.   Emil: It's made to be like your office like an office area   Tom: Exactly. Office gym 10 by 18 I kind of wish I did it a little bigger like man 12 by 20 would have been like kind of fun but 10 by 18 is still very good it's basically the equivalent of like two rooms in one room so and doing prefab I think I've talked about before but anyways, the long journey and getting it the concrete truck should be coming any any moment now to lay the piers for the foundation of it.   Emil: Alright guys, I'm gonna I'm gonna send this home before we meander as we always do. So if you've made it this far, thank you for watching. Thank you for listening, and we will catch you on the next episode. Happy investing.   Tom: Happy investing.   Michael: Happy investing.

    How Nick Haraden went from single family rentals to multi-unit syndications

    Play Episode Listen Later Nov 19, 2021 36:38

    Nick Haraden and his wife started investing in real estate in early 2020. They quickly acquired multiple homes and hopped directly into a on a 24-unit apartment syndication, all while continuing to add to their single-family portfolio.  In this episode, Nick tells us about his journey, from starting out to where he is now.  Learn more about Nick's company on his website:   --- Transcript   Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: What's up everyone? Welcome to another episode of The Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by an actual old high school buddy of mine, Nick Haraden. And Nick got his start investing in single family homes with Roofstock and is now grown to do some pretty incredible things that he's going to share with all of us today. So without further ado, let's jump into it.   Nick Haraden, man, thank you so much for taking the time and hanging out with me today. I really appreciate it.   Nick: Yeah, absolutely. I'm really happy to be here. I'm really excited.   Michael: I'm, dude me too. And for anyone that doesn't know, and I'm sure most people don't know, Nick and I are actually old buddies from high school. That went our own separate ways for about a decade and now are reconvening talking about real estate.   Nick: Yeah, it's pretty crazy. You know, it's quite a story. So happy to jump into it soon here.   Michael: Yeah, yeah. So So tell everyone cuz I know a little bit more about your background. I think most of our listeners do. So give everybody listening a little bit of idea of what it is that you're doing in real estate now, but also how you got your start?   Nick: Yeah. Well, I'll start kind of from not from the very beginning, but from, you know, a couple years ago,   Michael: I graduated Agora High School.   Nick: Yeah, well, Michael and I, we go back to high school, like Michael said, and super random, we got reconnected through Roofstock, which, you know, we saw we started, you know, our real estate journey about, you know, just right at the start of the pandemic, so two years ago almost and…   Michael: Perfect time to get into real estate.   Nick: Yeah, really. Yeah, it really was, we've grown, you know, so much, which is, you know, just, I'll get to that later. But, you know, my, my wife and I, Molly, you know, we have two kids, Hudson and Dakota, and we work and, you know, we, you know, my wife's a nurse, and you know, I work for Northrop Grumman, and I do contracts for them. And, you know, we didn't want to work our whole lives, right?   We wanted more time with our family, and, you know, everybody that we kind of knew growing up, and, you know, even my family, and everybody's always been in real estate, and, you know, never really clicked in my head, I was just like, Oh, I'm just gonna keep getting promoted, you know, just gonna keep on working harder and working more. And it's like, yeah, well, you know, I don't want to work more I want more time with with my family and travel and go to, you know, plays and sporting events with with my kids. And you know, so it kind of kind of started with that.   And we randomly Molly found Roofstock, through like a friend at work. And she's in there, like, Hey, have you ever looked at Roofstock? And we were like, No, we don't even know what that is, you know, like, well, you know, we bought a property on there. It's really great. They have like, a ton of listings, and you can look at different areas. And she's like, Hey, Nick, you know, we should look into this. I'm like, oh, yeah, this is this is awesome. Like, I could just slide through this and like, try to figure out like, what I like the different areas and like, you know, what the rent potential is and neighborhood ratings and everything like that. And I remember jumping on a call with first time, and we're like, oh, we're scheduling a call with someone to learn more about real estate. And that it's Michael.   It's like, I'm like, Oh, my God, this is Michael from high school. Like, I've no idea. She's like, Okay, I'm just like, do you understand this crazy?   Michael: Wht don't you get it? It's wild.   Nick: Yeah, it's wild. And then, you know, then it clicked in her head, like, Oh, okay. Well, but you know, she doesn't know she didn't. She went to she grew up in San Luis Obispo, which I know,   Michael: Right, right, right.   Nick: Anyways, so, you know, randomly to how we got to like right now. But, you know, I looked through our notes the other day, like randomly, and it was from our first call, and it's like, you should look into bigger pockets. And I'm like, Oh, my God. We really were at day one. And, and then that's how I had to send you a note saying, Oh, my God, you wouldn't even believe like where we're at now.   Michael: I know it's amazing.   Nick: Yeah, it really is crazy. But you know, I was telling you earlier, when we talked last week, I was like, you know, roofstock really made it so we can have our jump off point. I mean, we bought our first two properties on roofstock. And now we have six, six single family rentals. And we have a 24 unit apartment complex, which we syndicated and it's just crazy the steps that we took to get from that point to now. And you know, you were our first contact in that space.   Michael: For better for worse.   Nick: No, it really was for better, I mean, it's like, you know, you're like, This is your rent potential. This is your, you know, you're like explaining, you know, the every step, and it was like, the note the notes were just so funny, and then, you know, we expanded on that and, you know, really, really grew, you know, our business point, you know, I made my own spreadsheet, I, you know, found we, you know, we did a ton of research on different markets, and we use the Roofstock really to kind of get going, because we'd said, oh, yeah, you know, this is the neighborhood rating, this is why it's rated that way. You know, this is the class a little area.   So, you know, we use, like, a lot of people's data, essentially, to make better decisions for ourselves, you know, at one point we're looking at, where's the next Whole Foods going? You know, you know, we were researching all these different, like big companies saying, Oh, where are people moving? where are people going?   And we had, you know, access to some capital at the time from, you know, savings and, you know, different, you know, different vehicles or investing through stock markets that were able to diversify. So we were like saying, Well, do we want to do one one house and just do a big downpayment? Or do we want to spread it around? And at the time, we were like, Oh, we don't really know. But now it's like, yeah, well, you definitely want to, you know, get as many as you can.   So that's kind of like how we started, that's how that's how we ended, you know, today, and the kind of like, the basics of how we started. But, yeah, I mean, it really came down to, you know, finding Roofstock and kind of gone with it, which was, which was awesome. And we still recommend it to the day that people Hey, you want to buy your first property, go on Roofstock see what they got. Do some research that way, you know, just learn the areas and then and then get into more research, you know, but it's, it's, you know, it's so funny how it all kind of comes full circle. So   Michael: It really has, and I definitely remember that conversation too. And I was chatting with Molly and she goes, Oh, my husband's from Agora. And I said, Oh, cool. Where in Agora?. And like, Canaan, I was like, oh, cool, did you go to Agora High. Yeah, when you graduate 2008. I was like, Holy crap, me too! like, it's Michael Albaum I'm like, it's Nick Haraden! It's such a funny throwback.   But talk to me about what that mindset shift was from pre finding roofstock to post, you know, post knowing about rootstock and then to buying that first property. Because I think so many people have the tools, but never end up making the jump. So what allowed you to make that leap?   Nick: Yeah, I think, you know, so like, it's not rocket science, right? You just got to know, you got to know your numbers, you got to have you got to build a little bit of a network, you know, you got to, you got to reach out to people like I, the biggest thing for me was, yes, the mindset was, like, hey, we could do this, it's not that hard. A house isn't scary, you know, like, there's it you know, you have your inspection reports you have, you have all these contingencies that help you, you know, later on the road, you know, you can get more creative, but at the start, I mean, you have a lot of things that protect you.   So, the mindset is really just to get out of your comfort level. And for us, we were very comfortable, you know, we had, we had a, you know, W2 jobs, which I still have, and so she, you know, we're getting or, you know, pay stubs, and but it wasn't enough, you know, you we want to get to the point where we were stopped working, and we can have more time. So, the biggest mindset was saying, you know, let's, let's grow out of this mindset of just saying, you know, next paycheck next paycheck, and get into the fact of saying, you know, let's let's put our money to work and put it to work the best way possible, which we felt was was real estate, you know, the stock market, you have, which has been doing great, but you know, you can't really control it.   Real Estate, you can really control there's so many benefits, but taxes, you know, rental income, someone paying your mortgage leverage, I mean, is on unlimited things that you can do with with real estate, and there's so many outs. And to get to our first one, it was a little scary, because we didn't know we had we hadn't done it yet. But the second that we did the first one, it was like all downhill. I mean, we're just going okay, let's get the next one. Let's get the next one. But we did it in a smart way, you know, like we, you know, the first I think the first one we use the Roofstock calculator, which is great. I then kind of transformed it into something a little bit bigger on my own Excel sheet Excel sheet that could I really used to like dig into, you know, hey, take out you know, first month's rent for your your PM, you know, the different you know, all different types of things, depending on what the house you know, was and how much repairs or whatever it needed.   So the mindset was really just being prepared and being able to, like take that next step and not be too scared to do it. So, you know, we talked to people you know, I talk to people every day because I I'm always trying to help people I'm on these like Facebook boards and messengers and all this stuff saying, you know, people saying like, how did you get, you know, five, six properties in two years and apartment? Well, it just was taking that first step and knowing your numbers, you know, running your numbers, and then taking the time to learn your market and You know, we weren't spread out too too wide, you know, we really focused on, we're focused on St. Louis, Missouri is where all our properties are. Now, we did do like a ton of research on different markets, and I'm open to going to different markets. But now we know our market. And the second something comes up and like a good deal or, you know, we get off market deals. And you know, it just pays so much to just be in one market and be an expert in that that area.   So yes, to go on your first deal. Long story short, was just yeah, you got to just take the leap and have faith and the different processes that are built in for for someone buying a home, it's all you're all there to be protected. You know, you just got to you got to take that next step.   Michael: Yeah, not so good. And if you could think back, turn back the clock, two years to that first property, Nick and Molly, did you have a roadmap that led you to then syndicate apartments? Or were you just like, You know what, let's figure it out. Let's get this one done. And just figure it out as we go.   Michael: Yeah. No, syndications was not even close to my mind. I mean, syndications is brand new to us to be honest, like six months, and at the time, you know, there's so many different podcasts, you know, I listened to The Remote Real Estate Investor podcast, I listened to, you know, bigger pockets, a lot of these other ones that I found, and anytime syndications came up at the beginning, I was like, ah, you know, Skip, wait till the next one. Yeah, it's just like it was it was so complex to me, right, I'll just like, I'm just focused on single family right now. And then you kind of learn that, you know, the bigger the place, the more the more you have protections in place, you have more tenants paying your rent, you have built in vacancies, you have, you know, less roofs, less, HVACs, less front, you know, everything is kind of makes more sense as you grow, which we figured out down the road. And,   Michael: Of course,   Nick: You know, our first property, you know, we were just, you know, the second I remember, you know, sitting outside in my backyard saying, and we did like a little cheers for buying your first property, or, like, you know, this is for, at the time, we only had one kid, we're like, this is gonna be Hudson's either choice to go to college, or he can, you know, I have this property when he gets to that point. So we're, like, you know, this is for this is properties for him,essentially, you know, as we get the cash flow as we go, you know.   So it's, that's kind of how we started with that. And then we grew pretty fast. Because we, you know, I took the time to really just call so many different people in St. Louis, and we met so many awesome people right off the bat. I mean, the property management, property manager that we met was off of Roofstock is one of your guys recommendations. And he's been, they have been awesome, you know, we, the the first person we called was was him. And I went right to the, the guy that owns the company. And he was like, he took the time to talk to us for like, a half hour and without even without even meeting us, you know, like, never met us before anything, and just like, hey, this is what we're doing. You know, we probably asked like, the most basic questions, and he just had so much like, you know, he just gave us the time of day.   And then from that point, we talked to like insurance brokers, we talked to people that were on the ground there that we met through different people, different contractors, and we just like, you know, we learned the area so well, but it just came from just talking to people and picking up the phone and calling you know, it can't descend an email, you can't just send a text, you got to like, actually connect video chat with people as much as I could, to just get like that, that connection going a little bit more. And then from that point, we met a rockstar agent to move after Roofstock We acquired some properties on the MLS and some off off market stuff, but we really found an awesome agent who was able to just, you know, go into these different homes and do video calls with us. He's an investor as well.   So it was really the, you know, the perfect combo with that he's extremely busy, but oh, he's kind of gave us the time. Now, you know, I bought him a golf club. And, you know, like, we're, you know, I know his kids names. He's like, he wants to come out to you know, California and go play 18 holes. You know, and he he gets a ton of off market stuff and he and he brings it to us first he's like, you know, here I have a package which we funny stories I you know, he brought us the package or like 15 homes, which we were like this close to closing on, probably about six months ago.   Michael: Okay.   Nick: And at the last second, the the owners pulled out and there's three owners and they had to all agree and one didn't. But anyways, like the more people we met, the more like opportunities we have, or like off market deals and all this stuff and then to get the syndications finally now, so our newest and greatest baby Dakota, she was born in May and that's that's pretty much the time that we were like, hey, I need another mindset change is I need to I want to be able to grow to the point where you know, we don't have to put in you know, so much money to keep growing you know, we want to syndicate right so we want to raise Capital. We want to find these awesome deals we want to be very active in it on on general partner side. And it's like what can we do to get more creative? Right? We felt like we really had a handle on the single family stuff. I really wanted to get into multifamily, but I couldn't find any decent deals like it's just crazy everywhere for multifamily, you know, duplex, it tries quads. So we found a 24 unit.   And I met a awesome partner, my business partner, his name is Michael as well. And he's from San Diego. Great name a news gray at the time I met him right. We actually met on on Facebook randomly were part of the a couple of like syndication groups, I really want to learn like everything I could about it's like, bought a few books, Joe Fairless, his book, a couple raising capital books, we had never done it.   Michael: Did you go back and listen to all those syndication podcasts?   Nick: I did. Yeah. I went back to all of them. And I was like, oh my god, now I gotta go listen to him. But the thing is, like when when I find something I really want to do I just dive in. And it it really just went really fast. I mean, we start we did our on a website, we started talking to investors, we met our business partner, talk to syndication lawyers, attorneys like everything. And then we found the deal. I mean, we found us and we found an apartment complex that was just it made the most sense, because I already knew the market. It's in St. Louis, we already had people on the ground that we built over two years. And it has some awesome points to this to this apartment complex that I knew would be a great buy for St. Louis because it was very special. It had their own basements, I mean, stuff that you don't really see in a lot of apartments that if you live in St. Louis and Missouri, you know, people love their basements there for storage, extra extra sleeping space. That's not technically legal.   But you know, people use their stores for a lot of different things. And that's what their basement is for. But this this had it it was like the perfect property. And it we found the property so fast. We just we just had the run so hard. I mean, I was up till 2am most nights like cranking away while we have a newborn while Molly just like wants to kill me come down and help with the kids. I'm like, I'm trying I want to you know, try to do this work, kids, syndications. I'm like, trust me, this is gonna be good for us.   Michael: A couple years from now,   Nick: Yeah, I had to I had to treat her to like a nice massage after that. But we really just like dove in, and we raised our capital. And like we did a webinar, we talked to all these investors, we had like 40 people on the call or something. And we raised the capital and under, like, 30 minutes after the call, and people were like, on board, I had friends, family investors, because you know, a lot of people, they just don't they, they want to invest, but they don't know how right? I mean, that's the whole point of Roofstock and your pockets. Like there's so many people out there that just don't know how to do it. And sometimes you need that person that can be like, Hey, I have this awesome deal is a great return for you. Which you know, in apartment complexes, you get the pretty, pretty awesome returns.   And, you know, we had so many people that were like, okay, like, I trust you guys, you know, you guys are seeing like, you know, awesome people, people that already knew already knew that. But you know, it just, it just went from there. And then yeah, we closed on that syndication literally four weeks ago. So yeah, so that's, that's the long long story. Kind of a long story there. That kind of leads us to where we are today with that.   Michael: So and and so did your business partner Michael have any syndication experience?   Nick: Yeah, he did. Definitely more than I did, I was coming from you know, zero. But I was bringing all the contacts all the you know, people on the ground that contractors, the property manager, so he was bringing the business more of the business background so he had a few he went through a few like cycle not cycle the syndication but through, went through a few things with a couple operators that didn't end up closing on the deal. But he went out and like did due diligence and like underwrote a bunch of deals for a couple of different operators. So he had a lot of the background like this is how we do syndication. You know, we need to do a syndication lawyer, we need to, you know, we need to, you know, these are the steps to get the syndication done. And then I had the contacts in St. Louis, that was actually pretty much like a perfect marriage. In that sense.   You know, we we connected I reached out to him and saying, hey, you know, it looks like you know a lot about syndications. I'd love to actually learn more at the time. I was just trying to learn a little bit more about it. And he said, Yeah, well this is the deal where I'm currently working on I can send you the OM for I'm like, Okay, awesome. And then like literally a week later, It's just like stuck in my head. I'm like, oh my god, I could do this. Like, I know I can do it. I love real estate. I love working out issues. I love working out problems. I already know that my market so well, I just sent a message like, hey, if I can find something in St. Louis, like, can we team up? And let's see what we can do.   And he's like, yeah, absolutely. The person I'm working with isn't responding and all this stuff, right? So it was like, it's just our paths crossed at the perfect time, I was on paternity leave. So I was like, I have a little bit more time, but I still have a newborn. So like, kind of not really more time. But, you know, so luckily, it was our second kid and not our first. So you know, we went through the motions a little bit more.   So it just like we crossed paths at the perfect time. And we just it just went so fast. Like I said before, like over the course of literally like two months, we were in the process of like, flying out the St. Louis doing walkthroughs and are like, Oh my God, here we go.   Michael: Off to the races.   Nick: Off to the races. Man.   Michael: That's so cool. So for recommendations for people who are looking to get started syndicating, would you say that they should wait till they have some maternity leave it to take advantage of the opportunity?   Nick: Man, Yeah, it probably is. There's so much work involved is is you really, I mean, I don't think I'd be able to do it if I was working in the office, because right now I'm working remotely, I'm able to flex my time to where I can get more stuff done. I mean, I can, you know, I can do my work, you know, crunch my workout, get that done, and then jump on and do do real estate and fill in meetings as I go. And like my downtimes, I can jump on and do more real estate in this, like, when I'm in the office, I don't think that I could have that time. And I'd probably be still kind of stuck in the rat race.   And I think the pandemic has really, you know, showed us that, hey, first of all, you can work remotely, and you can still do a good job and do everything you want with your regular job and still have time to be with your family or, you know, start a business like we did. And you know, I'm doing better at my, my W2 job than I ever have. Because I know I need to get that done to do real estate.   Michael: Gotta eat your vegetables before you can have dessert.   Nick: Yeah, exactly. And, you know, our goal is to, you know, we want to we want to stop working, you know, stop stop with our W twos. And in the next you know, maybe three, four years, and just, you know, focus on real estate and focus on growing and doing stuff that, you know, I love real estate. So I want to focus on doing something I love and have more time, I know I could I could do this real estate, you know, work from from wherever and you know, make my own time for it. So that's pretty much the goal, the end goal, at least right is to have more time, not necessarily more money, but more time. But we want to get to a point where we do have, you know, the capital coming or the you know, the income coming in, but the goal is ever since the very beginning is to have more time. So that's that's what we're we're focused on.   Michael: Love it. So with that being the goal, what's next for you? And Michael and Molly?   Nick: You know, right now, the single families are just they're easy to get. You know, we get it we have a really good pipeline now in St. Louis. And people are, you know, people in the Midwest, think of California people as people that are make like strong offers, but don't don't capitalize it, right? They say oh, yeah, buy all these properties. And then, you know, it's just like kicking the tire down the road. So now that we've kind of made ourselves known in St. Louis, and the syndication world is very small. And, you know, brokers, you know, we're meeting with brokers meeting, you know, people that can bring us more deals, but they know now like, hey, you know, you have a portfolio here, you have a 24 unit apartment complex, we know that you can close on deals, you know, that really goes a long ways not to mention it goes a ton always with your lender, you know, we use local lender for for lending on the apartment building. But once you've kind of, you know, made yourself known out there, you can really get more access to better deals, more deals, and more qualified deals.   So the next what we want to do next, and I say like, you know, single families are easy to come by right now. It's because, you know, we get a handful of deals that are just, you know, off market stuff that people know like, hey, they can close and whatever days they have the capital for they know what they're doing. They have this track record. So you know, we were still buying single family homes.   Michael: Low hanging fruit   Nick: We Yeah, it's you know, we have a great return. I mean, we shoot for at least a minimum about $350 cash flow, pure cash flow and about an 18 to 20% return. And we're getting that in the markets that were that we're in. Now homes have gone up 35 40% in our market, which makes it tougher, but now we're not finding a ton of stuff on the MLS but like I said, you know, we're getting a lot of off market stuff. So it's hard to say no to the deal while we're waiting for another one, you know, the best time to buy real estate is yesterday, right? So, right. You know, we're trying to like, you know, build and build and still have the capital to get something along or something a little bit bigger.   But with syndications, the beauty of syndications, right is that you can really grow quickly because you have capital from investors that you know, really want a great return as well. So, we're, you know, we're in talks of, you know, talking to people that are pure capital raisers, KPs, which is people that can, like you know, have the bankroll essentially for bigger deals, because in syndications, you know, when you're a general partner, you have to have the, you know, you have to have the bankroll to support the loan. So eventually, you know, I don't have that bankroll.   You know, not a lot of people do. So there's people out there, it's actually quite interesting that just purely as their job is to, like, banker, all these properties. So it's quite interesting. So, you know, we're just learning, we're still learning more, you know, we're trying to get this deal off the ground as well, this first indication, you know, would you you know, we do the all the asset management behind it, everything.   So, you know, I think we're just really trying to make ourselves the best product that we can be as we move forward. We know we don't want to jump into something just to jump into, you know, single family stuff. Yes, we're trying to get stuff as they can. Because we know what a good deal is, we know our market really well. With syndications. It's a little bit different, you know, we don't want to just jump into a deal just for the fee that we're going to get, that's not our goal, right. So we want to actually get a great deal for investors. Not to mention a lot of them in this past deal. Were friends and family, you know, so, you know, we want to make sure we're getting their returns and that's the most important part in syndications is paying out your investors. So yeah, a lot, a lot more, a lot more, you know, a lot more work on the syndication side, a lot more stress, you know, constantly thinking about what's gonna go wrong next.   You know, there's always something you're like, I'm like, going through my mind like, Okay, what's, who's not going to pay next? What's gonna break next, you know, all this stuff. But, you know, we we underwrite really conservatively, and we make sure that we have the reserves, we make sure we have the capex account, kind of everything that goes into it. So that's kind of where we're going next. I mean, we're, you know, we briefly talked about short term rentals.   Another crazy story, we're using the same agent out in the Smokies…   Michael:   I rememver that conversation too, I am chatting with this agent, her their husbands and property managers, like, is it Jen, like, holy crap, it is.   Nick: Yeah, so, so the short term rental side not to get too sidetracked on that, but you know, we're, we want to get to the point, right, where we have enough monthly income coming in where we can kind of you know, break away from our job and short term rental right now, just popping in the Smokies is probably the best place in the whole world for short term rentals. I mean, it's just absolutely amazing. Molly did some did some studying in Tennessee, so she kind of grew up there a little bit gone to the smoky so we have some background in the Smokies. I've never actually personally been but yeah, we're trying to find a short term rental and Smokies you know, just, you know, to be diversified. For one, one thing, and also to just capitalize on this crazy Airbnb market right now. I mean, it's just absolutely exploding. There's so many benefits in the Smokies of the driving distance that we've talked about, you know, it's just, there's a lot of awesome things.   And, yeah, we want to get to that point where, like I said, we have that monthly income coming in, where we can start stepping away from other things and have more time. And, you know, we're, you know, underwriting there. And we really, you know, it's hard to get properties out there. So we want to make sure we do it the right way. So that's, that's kind of what we're, we're kind of focused on right now. That's so exciting.   Michael: So you have done a lot of things, you've got a lot more things on the horizon. What do you turn back? Kind of looking over your shoulder in a rearview mirror? What do you say to people who are just getting started? Who couldn't fathom doing any of the things that you're doing? I mean, what do you say to somebody who's trying to just get started?   Nick: I think that for someone that's just getting started, and we were actually helping a few people right now that are just getting started. One of them is you know, Molly's best friend,   Michael: Trying to put me out of a job at the Roofstock Academy man, take over my coaching role?   Nick: Honestly, she, she's finding properties on Roofstock, I said, look on Roofstock, because you can get so much done there. Like, you know, a lot of people you know, they, they need, you know, they need to learn all this stuff, like cash on cash returns, right, just like you taught us, right. And honestly, like, you know, you taught us a lot of that stuff and and, you know, sure, we probably would have learned it at some point, but you know, it really, you know, you're able to give us that info like right off the bat and then we can really analyze property the right way.   But you know, just telling people like, you know, make sure that you know your numbers, and then don't be scared to just jump in, you know, you have to be able to find a market. That makes sense. So, you know, we, we really do refer people on Roofstock quite a bit, because you guys have so much data on there, and it solves a lot of questions of, is this a good area? Well, you know, Roofstock gives you a pretty good idea. And then, you know, go on all these, you know, Zillow go on, you know,, and you can see like, the crime rates, and you can see, you know, the, what the housing markets done there, how much is supposed to go up what the rent potential is, but also, you know, you need to call people, you know, you find your market and call a property manager and find out all the good and bad areas, you know, just like, you know, you got to put in some sweat equity in this deal, because you can't just find a deal. And then hopefully it makes it happen, real estate's active, right. So you got to as passive as people want it to be, you still got to be there, and you got to make sure you got to manage your property managers, I mean.   So, so first starting off, I think people need to be able to, one, be able to find your resources like Roofstock, or, you know, something that can help people kind of get going, and then have the time and the ability to say, Okay, this is a good deal, not a good deal on your numbers, and then find someone in your market and confirm those things. And then once you do that, you can try to find a good deal.   You know, I think that my background, so I, I recently started in hospitality for you know, right out of college, I was senior sales manager, I was sales managers that a lot of different hotels, I just wanted to keep on getting promoted in Santa Monica and I got a lot of customer service background, though. And then I transitioned to aerospace defense, very random, but I think   Michael: Those seem related.   Nick: Very different, right, right before you know, a couple of like, maybe six months before the pandemic, thankfully, because you know, hotels had a huge downturn during the pandemic. And then now I do contracts for, for for Northrop Grumman. So I do negotiating contracts on behalf of Northrop Grumman with the government. So I think all those things have helped me become a better landlord, because it's a people business, you know, you really have to put in your time with the people to make sure you have the best experience and best best returns possible. I mean, for all our tenants, we write them, you know, not not Christmas cards, but we send them you know, happy New Year cards with like a $20 gift card. Not necessarily saying like, Hey, call us, but just saying like, Hey, thanks for being you know, a great tenant. And, you know, we take care of our agent who's brought us a ton of deals like bottom, a golf club,   Michael: That's great,   Nick: You know, stuff, stuff like that, you know, I stay in contact with a lot of people that have helped us and just say, Thank you, you know, just talk to these people. And, you know, really put in the time to be more people oriented. And I think having my background of customer service that really got me to the point of where I've been able to make all these awesome connections and have the, you know, the network around me to say, like, hey, I can go out and check out your property for you, like, you know, don't worry about it, you know   We flew out to St. Louis, for our inspections for due diligence for this apartment complex. And like three of our property managers showed up to walk through every single unit with us, and we had a contractor come out that I've worked with, and it's like, these people would just came out at 8am on a Thursday with very little notice, and was like, I'm going to walk every apartment with you, I'm going to tell you the rent potential and all of it and it just, you know, they gave, they gave us so much. So much back, that was awesome. And it's just by building these, these relationships, you know, I, I don't treat it as like a transactional feature for all these people. I treat them as people. And   Michael: A novel concept.   Nick: And yeah, and it's, it's, it's interesting, because not everybody does think that way. But I think if you have that mentality of thinking, like, Hey, this is like people that are going to help you grow, you got to treat them, like like your family. And then you got you know, sometimes you got to treat them. Like it's more of like a business, of course. But to get going, you know, you need to make sure that, you know, hey, you're on the right track, you know, you're you're meeting these people, and they're going to help you out a lot more than you think. When you're first meeting them. So, you know, treat them well.   Michael: That's such a good point, Nick. And it's something that I try to tout too, and that relationships matter. This is not an individual or siloed business. And I love the example of those property managers and contractor coming out to meet you because you've you've poured in today. And so now it's coming back to you.   Nick: Yeah, yeah. Mike, my business partner, Michael is like, oh my gosh, this is crazy. I'm just like, Yeah, I mean, you know, this is what happens when you build good relationships. And he has his properties in Wisconsin, so he's not in St. Louis. So he he didn't have the same contacts, obviously. But I was like, Look, you know, I have some awesome people that I've met and I think we can do a great job and that was just you know, at one example,   Michael: So that is awesome, Nick. Well, dude, I'm gonna let you get out of here. But before I do if somebody is interested in investing with you in your syndication, learning more about you, what, what, where should they go? How can we get in touch with you?   Nick: Yeah, you can go or people can reach us a number of different ways. But the best ways to really just jump on our website, it's Or they can email email me at homes@HudsonHall Either one of those works. And you know, there's a ton of, you know, information about syndications and real estate in general on our website, we really took the time to go through it. And people can get a lot more information just through that and then sign up to be on our message board essentially, like for, you know, different deals that are coming out or if they want to schedule a call, whatever it may be happy to jump on a call with anybody as well. So…   Michael: Right on, we'll do thank you so much for coming on and sharing your wisdom and past experience of this. Really appreciate you.   Nick: Yeah, thanks, Michael. Thanks for having me.   Michael: Of course. My pleasure, man. Talk to you soon.   Already, everybody. That was our episode, a big thank you to Nick for coming on the show. Definitely check out his website if you're interested in learning more about him and the syndications that he's working on. As always, if you liked the episode, feel free to leave us a rating or review. They are super helpful for us, and we look forward to seeing the next one. Happy investing  

    How Rachel Richards made enough passive income to retire at 27

    Play Episode Listen Later Nov 17, 2021 31:01

    Rachel Richards is an author and real estate investor that came from humble beginnings and 'retired' at the age of 27. Rachael demistyfies the overwhelming, intimidating and complex world of personal finances to making simple, fun and accessible.   In this episode, Rachel shares her story of how she got started as a financial advisor, lauched into real estate, scaled up to 40 doors and built a diversivied portfolio. Rachel's Site: Rachel's free passive income starter kit: Rachel's Book:  --- Transcript   Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor Podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Rachel: What's up everybody, Michael Albaum here with the remote real estate investor. Today with me I have an amazing guest, Rachel Richards, she is a best selling author, finance guru, real estate investor, former financial advisor, professional speaker just did amazing all around person. And she's gonna talk to us today about all of those topics and more. So let's just jump right into it.   Rachel Richards, thank you so much for taking the time to hang out with me today. I really appreciate you coming on.   Rachel: Yeah, thank you for having me. I'm excited.   Michael: Oh, me too. So I mean, for those of our listeners who don't know you, I know you as a best selling author, finance guru, real estate investor, former financial advisor, professional speaker. I mean, is there anything that you haven't done?   Rachel: Well, I appreciate that you make me sound really good. So I don't know.   Michael: You have seemingly accomplished so much in the financial and real estate space. I would love if you could give our listeners a little bit of background on who you are, what you've done, and then what you're currently doing in real estate.   Rachel: Yeah, for sure. I started as a finance nerd at a pretty young age. I still am a nerd to this day and proud of it. But I grew up in a household where money was always a stressor. And so at a pretty young age, I was motivated to turn things around for myself and become financially independent, and went to college, I became a financial adviser. I'm kind of giving you the high level story. But I read Rich Dad Poor Dad in high school. And that was the first thing that yeah, that turned me on to real estate investing. So I always knew that was going to be my path.   I didn't know about all these other passive income streams yet. And my eyes opened on passive income a little bit later. But I knew real estate investing was one of the key pathways for myself. So I did start investing in real estate with my husband in 2017. I also self published my first book money, honey that year. And we had these two passive income streams, rental income and royalty income. And we focused on growing those as much as we possibly could over the next few years. So fast forward to 2019. So within the span of two years, we had accumulated almost 40 rental doors, six buildings, almost 40 doors, and we've grown our passive income streams, yeah, to over $10,000 per month. So by then I was able to quit my job. We were financially independent. And that is where we are today.   Michael: Oh, my gosh, well, there is a lot to unpack there. That's incredible. So taking a few steps back, do you think that you became a financial advisor because of that angst you were feeling at home. And that's never something you never want to worry about money. So you said if I can get as educated as I can about it, it'll be easier for me.   Rachel: I think there were a few reasons I became a financial advisor. That's definitely one of them. One of them is because my parents were really struggling with money. And I wanted to help them. And for some reason, I felt like I needed to have the credibility of calling myself a financial advisor to finally be like, okay, look, I'm taking over your finances. We're going to get you out of debt. We're going to turn this around, and I'm going to finally manage your money for you.   So I did that. And we did help them and they're doing way better now than they were this was like a decade ago. So that was one of the reasons was to help them. And another reason is because I had the passion for helping people manage their money, I was obsessed with learning about how to invest in the stock market. And the third reason is because I sold Cutco cutlery in college. Have you heard of Cutco knives? By any chance?   Michael: Yeah, I've heard of it. Is that the door to door selling?   Rachel: Yeah, it's like a direct sales company. So it's high quality knives. And of course, when I when I took this job, I had graduated from high school. I was terrified at the idea of taking out student loans because I had read enough books. I knew enough to be hesitant at the thought of that. And I'd seen what student loan debt had done to other people and how crippling it could be. So I was really scared of student loans. I didn't want to take on debt. And my parents were not able to help me pay for college whatsoever. It felt like all my friends I grew up in this really wealthy bubble and I felt like all my friend's parents were paying for their school and good for them, but I was kind of having to pay for it on my own.   So I took this job selling knives. And it was the first time I've been exposed to something where the harder you work, the more money you make. And I knew I could outwork anybody. So I sold knives my mom was less than thrilled about The idea of me selling sharp objects to family and friends, but that's what I did. I sold Cutco. I set sales records, and I paid my way through school and I graduated completely debt free, which is one of my proudest accomplishments. And because of the sales experience, and my passion for helping people with money, I figured becoming a financial adviser was my dream job. And that would be the perfect fit for me. I was wrong about that. But that was my thought at the time.   Michael: Good for you, Rachel. That's incredible. That's really, really incredible. So now you became,   Rachel: Thank you.   Michael: Yeah, you're most welcome. So now you've become a financial advisor, you are looking to help people with money, and their finances. And so I'm curious, where do you see real estate fit into that picture, because I know a lot of financial advisors and a lot of them push products that they make Commission's on or push more passive investments in the stock market. So curious to know how you blended the two for professional level as well as in the personal level, you investing in real estate and seeing how impactful it can be.   Rachel: Yeah, and honestly, that was one of the things that I found disenchanting about the financial advising industry is how financial advisors are incentivized. And they you know, they want you to sell certain products to people that maybe are not in their best fit. So I didn't last very long in that industry, I think I was only a advisor for almost a year, actually. But I always had the dream of becoming financially independent. And so I knew that working in a job where I was trading, my time for money was not the way to become financially independent. So that's where real estate investing made a lot of sense to me, I knew this was something that could be a passive income stream, if I did it the right way. You know, I always tell people, you don't want to have this huge rental portfolio and quit your job to become a full time landlord, right? That's not the goal.   So you have to do this, and you need to have a property manager, that's one thing that will help it become passive. And even with a property manager, there's always going to be an aspect of manage the manager. So it's not going to be perfectly passive. But it is a lot more passive than a nine to five job, or working a sales job or working as a financial advisor.   Michael: Yeah, nice.   Rachel: So it was always my goal to start investing in real estate. And doing that on the side. And my husband, I hadn't met Andrew yet my husband as a financial advisor, but I did meet him later. And together, we wanted to get to this $10,000 A month mark, because I think at the time, our expenses were like $6,000 a month. So it felt like we could cover our expenses and still have a lot of money to save. And just to back up, let me just define what passive income is or the way that I define it. I define passive income as money that is earned with little to no ongoing effort. There are not many things that are truly 100% passive, except for portfolio income.   Most passive income streams will require you to work a few hours a month or a couple hours a week to maintain them. But again, it's a lot more passive than working 40 hours a week as a full time salaried employee.   Michael: Yeah.   Rachel: And the epiphany that we had several years ago, is that once your passive income exceeds your living expenses, you're retired, you're financially independent. So once we realize that it was just this, this constant urge to have enough passive income to cover our living expenses. And even more because we wanted buffer room, we wanted to keep saving money. So that's why we came up with that $10,000 A month goal.   Michael: Love it. Love it. And so you started investing in rental properties in 2017, you said, and two years later, you've got 40 doors under your belt, which is unbelievable. So I'm curious to know, how did you get your start? And what led you or what allowed you to kind of take that first step? Because I think so many of our listeners, and so many beginning investors get plagued by analysis paralysis. So how did you do it?   Rachel: Yeah, that's a great question. And I'm glad you asked when people hear that I went from zero to almost 40 doors and under two years, the first thing they asked me is like, Are you a trust fund, baby. So I always like to clarify right off the bat. I'm not a trust fund baby. I never made six figures actually, from a job or a career. I started off as a financial advisor making $36,000 And my next job I was making $32,000. In my next job I was making $42,000. So by no means was I was making some huge salary to achieve this. We were kind of making average salaries, but working really hard and being frugal and being thrifty in order to accomplish what we accomplish. So always put that out there first. There was a lot of fear, for sure, in that first rental property, and there was a lot of discouraged discouragement along the way. So the first duplex we had been searching for months and months and months to find this first duplex that we invested in. We started looking in early 2016 I think, and I'll back up with a quick story of who was working for at the time.   I was working for this woman who was a very emotionally abusive boss. And I was overqualified for this job, I was underpaid. This is one of the most condescending people I've ever worked with. Like, I just I've never seen an adult person, treat another adult person this way in my life. She regularly made her employees cry. She just made people feel stupid. So it was an awful work experience. Yeah. And there was just this one time where she made me cry. And I was I went to the bathroom to clean up and I just looked at myself in the mirror, I was 23. At the time, I looked at myself in the mirror, and I just decided, I am so sick of this. And I am never going to let another employer treat me this way again. And I'm never going to be financially constrained, again, where I feel trapped in a job, and I can't leave because of finances.   And I remember feeling like I'm so sick of myself, I'm sick of talking about investing in real estate. I'm sick of complaining about this job and not doing anything about it. So it I had this enough is enough moment, where yes, it was a low point for me. But also the silver lining of that is that I finally started to take action. And I finally realized, I'm done with this, I'm going to start taking action, I'm going to get serious, and I'm going to buy my first rental property. And I share that because I think you have to almost have that moment and have that mental jump, where you just decide, okay, I'm going to do this because I'm sick of hearing myself talking about it. Or I'm sick of like living in fear or living in the what ifs or you know, what if I lose money, what if this bad thing happens? What if it doesn't go right? It's like, you just have to take the first step.   So I had that moment, I started to take action, we started to look for rental properties. It took a long time, way longer than I thought. And I think most first time investors experienced this. We put offers on properties. We had a an accepted contract on a property and it fell through. And so there were so many times we're like, this just isn't going to work. And we taught we told ourselves, Well, you know, this works for some people. Clearly, this just isn't meant to be.   Luckily, we got through that. And we kept looking and we didn't let it completely discourage us. And we finally found this duplex. And by then the great news was we'd analyze so many properties that we recognized, this is such a good deal. And we were able to take really quick action, make an offer on the property and close on it. And we were really confident in it because we you know, we made other offers on properties. We'd had accepted contracts, and it was to this day, the best deal we've ever done.   Michael: No way   Rachel: Saw it. We we recognized it. And we we took quick action. Yeah, I mean, the I think we have like a 25% cash on cash ROI or something something. It's at least 25%. So   Michael: That's incredible.   Rachael: That's how we got our first duplex. Yeah, it's crazy. Yeah.   Michael: And so you said that you were facing a lot of headwinds and discouragement and mental hurdles and physical obstacles. How did you and I imagine you're working with your husband at this point, right?   Rachel: Yes.   Michael: How did you know and how, I mean, how did you go about analyzing properties? Was it hey, we've just seen this enough times to kind of know what we're looking for. Did you have a mentor or coach kind of walk you through or somebody more experienced that was able to guide you or were you kind of figuring it out on your own?   So by then, I had taken a couple different jobs in the real estate industry. I partnered with somebody who flipped houses and I learned a lot from him. This job that I'd worked at with this abusive boss, she was a realtor and I was her admin assistant. So I did learn a lot from her as well. I read a lot of books. So one of the best books I read to help me with analyzing rental properties is the book hold by Steve Shader and then the McKissicks, Jim Melinda McKissick. Okay, that was a great book for me to learn how to analyze properties. So I was just kind of going off of what I learned myself to that point and using my own spreadsheets.   Michael: Love it. So you got a kick butt deal. That was your first one down. And then the next just started falling down like bowling pins, and it was a pretty sequential, it sounds like it happened fairly quickly over the span of two years.   Rachel: Yes, it did happen quickly. I'm happy to get into the numbers too, because a lot of people were like, how did you come up with all these down payments if you weren't doing house hacking, because we came up with 20% and down payments, one after the other, which was quick and it was a lot of money. So the first duplex was $100,000. That was the list price. We we had a few advantages going for us that allowed us to save money, first of all, so we both graduated without debt, I sold knives. My husband's a veteran and he used his military benefits for his college.   So we graduate without debt. That was a big advantage because even though we started out not making six figures and I never made six figures my husband did eventually even though We started off not making six figures, we could save a lot a large portion of our salary. Back when I was making 36 grand, I was saving 50% of my income. I was living off something like $1,500 a month.   Michael: Holy smokes.   Rachel: Yeah, in Louisville, Kentucky. I mean, it was very bare bones, I was very, very frugal. So because of that it only took me a few years to save up a decent chunk of money that I could invest into real estate. And then obviously, Louisville, Kentucky is where we invested, it's a great place to invest low cost of living. It's an affordable city. So the duplex we found was 100 grand. So those were some of the advantages that we had. And that's how we came up with the downpayment for that first duplex by 2017, we both had $10,000, we saved and we pulled together to get to the $20,000 downpayment. That's how it started.   Now how we scaled, we did a couple things. First of all, we did not give into lifestyle creep. So those few years leading up to that we were very frugal, we made a lot of sacrifices, we weren't going out to eat with friends, we weren't partying on the weekends. I mean, we were working full time jobs, we were acquiring rental properties. On the weekends, I was starting to write my book in the evenings, we were just working and hustling. It's not like we had these really cool lives or anything. So we made a lot of sacrifices. And after we bought that first property, and we were cash flowing $500 a month in profit, it would have been really easy for us to turn to each other and high five and just decide, wow, now we can really live it up, we have $500 a month, we can increase our quality of life, we could get a new car, we could do whatever.   But we didn't, we decided we're gonna save 100% of this cash flow. And we're gonna reinvest this into the down payment for the next property. So that was one thing we did, we didn't get into lifestyle creep. And the second thing, this is really the key for us. We I had my real estate license, I did not have it for the purpose of having clients. But it was just for my own purposes and representing us as the buyer's agent on the deals. So we would deplete our savings completely to buy the for the downpayment and to buy the property. But then I would be the buyer's agent on the deal, we would represent ourselves. And I would immediately get a commission check back for 1000s of dollars, sometimes it would be 10 grand depending on how much the property was.   So that would be an immediate boost that would help us save for the down payment for the next property. And by then to by 2017, my husband was making six figures. So you think about a 50% savings rate on our combined income. And those other three things that cashflow we kept generating from every successes, successive rental property, the Commission's from the real estate license, we were able to have some very, very fast momentum where we could come up with down payments, one after the other and scale very, very quickly. So that's how we did it.   Michael: That is so cool. That's so cool. Rachel, a question for you kind of about mindset. And how do you square saving so much of your income and being so frugal when it sounds like a lot of your friends and circle may not have been? I mean, it was that hard, like just emotionally to get through?   Rachel: It was definitely challenging. It was definitely challenging. I think from a young age, though I've always had this mindset of, or I always recognize that doing the opposite of what most people do tends to be more successful, I guess I don't know if that's the best way of putting it. But I always was like, I'm going to do the opposite of what most people are doing.   Michael: Yeah.   Rachel: And I was always able to, I guess delay gratification or just keep that motivation in front of me and stay very, very disciplined. So it was difficult. I remember there were times working when I did work in corporate finance eventually. And I remember my coworkers would invite me to lunch. And I always packed my lunch. And so the first few times they invited me out to lunch, I would eat my lunch first and I would join them because I didn't want to miss out, I would want to network and I would want to go to lunch with them because I liked them. And so I would say yeah, I'll go to lunch. And then I would go and just drink water. And so I would explain to them, you know, sometimes I would say I'm just trying to be healthy, or I'm on a diet or sometimes I'd be like, I'm just trying to save money. I would always tell the truth, whichever it was, but…   At first I think they probably thought it was weird. Not that they ever said that. Right? But then they got used to it. And they knew that if they invited me to lunch, I was gonna come and not eat and they were always supportive. And luckily, I've always had very supportive people in my life that helped me along the way. But yeah, I mean, you just have to get used to kind of being the oddball out because it is kind of weird. You're not getting the new car and you're not getting the new house but you know that in the end, you're going to have a lifestyle that's going to be freedom and travel and way different than than what anybody else can experience. until you know that it's going to be worth it. And if you can focus on that, it'll make all those sacrifices in between a lot easier.   Michael: Totally. I forget who said the quote, but it's something to the effect of live like no one now. So you can live like no one else later.   Rachel: Yes. That's a great one.   Michael: Oh, that's awesome. And I totally hear you. Because I mean, coming from a guy who lives in a van with his dog and wife, I totally get the doing the opposite of what everyone else does.   Rachel: Yes, I try to still live by that, especially with investing in the stock market, too.   Michael: Oh, okay. So that's actually a really great segue for something I wanted to chat with you about. So what is your take on the stock market? I mean, is that is that an asset class that you believe in that you invest in to get diversified? Talk to me about that?   Rachel: Yeah, for sure we invest in a stock market. I think the more diversification, the better. So we invest in the stock market, we invest in real estate. And within real estate, we do all kinds of things multifamily self storage, you know, we own direct rental property. And then we have syndications. And then we have REITs, and other types of real estate investments. So I always think the more you can diversify yourself, the safer your portfolio is, stock market investing, I think is an absolute must for everybody. My husband still works a W2 job, even though we're financially independent, he loves his job, he loves what he does. So he has a 401k that we max out every year. And we still have old IRAs that are invested in the stock market.   I am a big believer that what is boring, ends up being sexy in the long term. So we invest mostly in index funds and ETFs. And long term investing, most of the time, I'm not caught up in how the Dow has performed today, or how the S&P is performing or what's going on in the stock market, because I don't look at it. The way I approach the stock market is that it's none of my business. I know that in the long term, it's going to take care of me and that in the long term, the stock market has always gone up, it's going to be volatile, day to day, week to week, month to month, year to year, but over the decades, my money will go up as long as I keep it invested. So I don't think I've ever sold anything I've invested in. And I've started investing at the age of 18. So I'm like 11 years in now.   But that's how I've approached it. I don't invest in crypto, it's not because I don't believe in it. It's just that I haven't had the time to fully educate myself on crypto, and to fully understand it. And if I don't 1,000% understand something, I don't invest in it. It's as simple as that. And I would tell anybody that if you don't understand something completely don't invest in it.   Michael: That's a great tip. That's a great tip. So Rachel, I'm curious to know, because you used to work as a financial advisor, what did you see your really successful clients doing? And where were they investing?   Rachel: Yeah, the I would say the successful clients. I mean, I was a fee only advisor, first of all, so I was advising my clients differently than what other people were doing. I would say that my most successful clients were doing what I told them to do.   Michael: For someone who might not be familiar with the financial advisement world, what is a fee only advisor? And how is that different than some of the other fee structures out there?   Rachel: Yeah, it's really important that clients understand how their financial advisors are being paid. So if you're looking to work with a financial advisor, you definitely need to advocate for yourself and ask, Hey, how are you being paid, what's your pay structure, there's three ways financial advisors are paid. Number one is commission based, that means they're being paid a commission based on the products that they sell to you. That's not a good thing normally, because that means they might be incentivized to push products on you that might not be in your best interest. Number two would be a fee based advisor, which means they could be paid still commission some of the times and fees other times.   And then number three is a fee only advisor. And this is the best way. This would be somebody that is paid, for example, 1% of the assets under management. So they're paid based off of like a fee of your portfolio, or it could be an hourly fee. And this is the one that's the most in alignment with with your values, because the more money you make, the more money they'll make. So that's something you want to ask them, you also want to make sure that they're a fiduciary, that means that they are obligated to act in your best interest and look out for your best interests as your advisor.   Michael: So what you're saying is that there can be licensed and registered financial advisors that are not fiduciaries.   Rachel: Correct.   Michael: That's mind blowing.   Rachel: It is, isn't it and people don't know that. I didn't even know that until I was a financial advisor.   Michael: Wow.   Rachel: And so yeah, there you can have all these certifications and licenses and still not be upheld as somebody that is legally obligated to act in your clients best interests.   Michael: Wow. Okay, well, you have just armed all of our listeners with a Fantastic question. If they're chatting with financial advisors, and it's as simple as argue a fiduciary   Rachel: Mm hmm, that's right.   Michael: That's great. That's great. Okay. And then so getting back to to what you were saying previously about that the most successful clients you had were the ones that listened to your advice, what advice were you giving them?   Rachel: It was, it came down to the same things that I do with my own portfolio, investing in the long term, investing in the, you know, the boring things that I say in quotes, index funds, ETFs. But the thing is, when you invest a lot of your money in the stock market, it can be very scary and emotional. The most successful clients were the ones who did not panic and sell at the wrong time. Because when the stock market's going down, your instinct is to sell and you want to get out and you want to make sure you're not going to lose any more money.   The thing is, though, when the stock market's going down, you don't actually have a loss, right? It's a theoretical loss, you don't actually have a loss until you sell and then you've actually realized that loss, you make that loss real. If you don't sell, the loss isn't real yet. And if you look at the stock market over time, you see that it's always gone up. So if you can just hold out, you just if you can suppress the panic and the fear. And if you can hold out and keep your money in the stock market, even invest more in the stock market, because the stocks are on sale if the stock market has gone down. And if you can just wait that out, it will go back up, it always has in the long run. So the clients that were able to manage their emotions Well, during those times of panic and fear. Those are the ones who did the best in the long run.   Michael: Yeah, that makes total sense. So Rachel, would you say that it's a fair expectation of someone to have have their financial advisor to have the advisor help them manage their emotions and kind of coach them through the highs and the lows of those emotional roller coasters?   Rachel: I think so. Yeah, I think a good financial adviser would do that. And when you're looking for somebody, that's another question to ask. I've seen good financial advisors who set expectations helped manage their clients emotions through the when the markets very volatile. So I think absolutely, and again, this all comes back to the concept of doing the opposite of what everyone else is doing. So when you successfully invest in the stock market, if everyone's hopping on the latest trend and buying the latest crypto, then it could be a signal not to do that. Or if everyone's panicked and selling in the stock market is going down. That could be a signal not to sell. If you do the opposite of what everyone else is doing that can end up being very successful for you.   Michael: Okay, I want to shift gears entirely here and talk about the book that you wrote. Because again, just another notch in your belt, another accolade you have, it's called Money Honey, why did you write it? Who did you write it for? And what can people expect to get out of it if they end up purchasing in a reading it?   Rachel: Well, thank you for asking money, honey was a complete surprise for me because it was it was something I was just doing as a passion project. And when it took off the way it did, I was shocked. But I started writing it in 2017, because I was a former financial advisor and all my family and friends came to me for financial advice, which I loved. And I also began to wonder, well, why aren't they reading books like I did? You know, why aren't they learning on their own? And then I had this aha moment where I realized, oh, yeah, personal finance is boring. It's overwhelming. It's intimidating. It's complex. No wonder, no wonder people don't like to learn about it.   So I thought to myself, How can I make this topic sassy, and simple and fun. And that's where the idea for money honey came from. And the words kind of poured out of me at first, it was something I was really excited to do, just something I felt compelled to do. So I self published the book in September of 2017. And like I said, to my surprise, it just took off immediately. It really resonated with female millennials. And it teaches the basic topics of personal finance, budgeting, savings, stock market, investing, debt, it touches on insurance and taxes as well.   So that is what somebody would get out of it. And it's yeah, like I said, it's done well has over 1100 Amazon reviews now and it just sells more and more every year. So it just blows my mind.   Michael: Right on. And where's the best place for someone to pick up a copy of the book?   Rachel: It's on Amazon, and it's in ebook paperback and audiobook formats.   Michael: Right on, Rachael, this has been so amazing. I really, really appreciate you coming on here. And you're just like a Swiss army knife. Like you just got so many facets to you and so much experience that I love and I know our listeners will love. If people want to learn more about you find out more about your story. Where can they get ahold of that type of stuff?   Rachel: Thank you. I appreciate it. My website is Money Honey, Rachel calm, and my Instagram is money. Honey Rachel and what I would love to do for your listeners is, if anyone wants to download my passive income starter kit, I will give that for free so you can go to to download that.   Michael: Amazing. Thank you so much. We will definitely link to all of that in the show notes here. Who Rachel, thank you again. This has been so much fun and I wish you the best of luck and hope to stay in touch.   Rachel: Thank you so much for having me.   Michael: Already, everybody that was our episode a big big, big thank you to Rachel. It was so much fun as super insightful. We covered a ton of topics. I am definitely gonna be getting a copy of her book here shortly. If you enjoyed the episode, feel free to leave us a rating or review wherever you listen to your episodes. And as always, we look forward to seeing the next one. Happy investing

    How Avery Carl builds long term wealth through short term rentals

    Play Episode Listen Later Nov 12, 2021 28:27

    Avery Carl is a seasoned real estate investor and a co-founder of The Short Term Shop. Avery specializes in connecting investors with short term rentals with the highest ROI potential and then training them to manage their short term rental from their smart phone from anywhere in the world. In this episode, Avery tells us about short-term rental strategy, hot markets, returns, and what you should know about short-term rentals in contrast to long-term rentals.  --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: What's up everyone? Welcome to another episode of The Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by Avery Carl, distinguished author, speaker, investor, agent, mortgage broker, she does it all and she's going to be talking to us today about things you need to be aware of when looking for short term rentals. So let's get right into it.   Avery Carl, thank you so much for taking the time to hang out with me today. I really appreciate you coming on.   Avery: Thank you so much for having me.   Michael: No my pleasure. So I think a lot of our listeners probably already know who you are. You've got quite a bit of notoriety behind you. But for anyone who's not familiar, can you give us a 32nd elevator speech on who you are, where you're come from and what it is you're doing real estate?   Avery: Yes, yes. So my name is Avery Carl, I am the author of Short Term Rental Long Term Wealth of about investing in short term rental properties. I'm a real estate investor, I own 100 doors, but eight of them are short term rentals. And I was able to scale from zero to 100 doors over the course of about five years with a starting salary of $37,000 a year. Because I invested mostly in short terms at the beginning of my portfolio. So since those cash flows so much heavier than long term, I was able to scale much more quickly than if I'd started with traditional long terms.   I also own the Short Term Shop, which is a real estate agency that focuses exclusively on working with short term rental investors where not only do we act as the real estate agents to help them purchase their property. We also teach them everything they need to know about managing their property remotely. We help them get it all set up on the the listing sites and teach them the ropes of remote self management. We've helped about 4500 families, build some generational wealth through real estate investing there. And then I also, own co own The Mortgage Shop, which is basically the mortgage counterpart of the short term shop, we focus mostly on short term rental investors there as well.   Michael: Oh, that's awesome. So you were doing short term rentals before it was cool. It sounds like   Avery: Yeah, oh, just slightly before. Michael: That's awesome. And so what is it, you think that people need to know if they're just getting started in the short term rental business?   Avery: So I think the main thing to know is that it's you don't have to live in the city or even drivable to the city where you're investing, you can't always live in the best place to invest. So getting comfortable with long distance real estate investing, can make sure that you are able to make the most lucrative investment in short term rentals.   Michael: That makes total sense. And what a place to have you on The Remote Real Estate Investor. It's perfect. So how do you evaluate what a short term rental market looks like? Because doing the long term thing, I think is relatively easy. I can go on Zillow, I can go on property manager websites and see okay, what is the rent, the monthly rent versus what are my expenses ballpark? And what is the price? So what is it that you're looking for in a short term rental?   Avery: I'll start by saying there's not necessarily a black and white right or wrong way to do it. There's a certain way that I do it. But there are three types of markets that you can invest in short term rentals. The first one is the Metro market. So like Nashville, Austin, New York, places like that. The second is the big fly-to I call it fly-to vacation rental markets. So these are, these are the markets that people are like saving up all year to take a big vacation to like flying to Aspen flying to Hawaii, places like that.   Michael: Okay. Avery: And then the third type, which is the type that I focus on exclusively with myself and my clients, is the regional drivable vacation rental market. So these are areas that the majority of people that travel to them are traveling between five and eight hours by car like the Smoky Mountains in Tennessee, Panama City Beach, Florida, Big Bear in California, places like that, where people aren't necessarily taking these big, expensive vacations, they're really affordable, and they're really accessible. So that's the type of market that I focus on.   Michael: That makes sense. And I actually just bought my first vacation rental out in the Smokies. And I'm very excited to hear all the all the big news about it.   Avery: Awesome.   Michael: Yeah. So curious to know when I think one of the biggest hurdles or biggest risks that people see with short term rentals is changing jurisdictions, or jurisdictions changing their laws or ordinances. And so what's something that people can do to combat that or to be ahead of that curve when when looking at short term rental markets?   Avery: So choosing the market is really going to be your biggest the biggest thing to get through in terms of getting past that. So I used to have an office in Nashville where we sold short term rentals, I shut it down because Nashville is really really volatile in terms of short term rental regulations. So that's why I focus on the regional drivable vacation rental markets because they're typically areas like take the Smokies, for example. People have been coming to this monkey since the 60s and 70s and staying in cabins rather than hotels. Also, Destin, Florida where I live right now, I'm there where I'm actually reading a really nerdy book about the history of this area.   MIchael: Awesome.   Avery: And there were actually vacation rentals that people rented here in the 20s before they actually even had electricity out here. So these are areas I focus on areas that short term rentals are not a new thing. As of the inception, inception of Airbnb focused on areas that people have been staying in condos, beach houses, cabins in the mountains since well before Airbnb existed. So you run into the problems with the changing of jurisdictions and things like that. It mostly in Metro markets, it does happen in vacation markets as well. But it's mostly Metro markets or areas where people have historically stayed in hotels like Nashville, for example. There were not short term rentals or were not vacation rentals until Airbnb came along. Everybody who came to Nashville up until mid 2000 stayed in hotels, there's also a lot of primary residents because there's a lot of industry outside of tourism in Nashville. So there's a lot of jobs, there's a lot of primary residence.   So the, when, Airbnb came along, and investors started realizing how much money they can make in Metro markets. You know, obviously, a lot of investors moved in, started taking market share away from the hotels started making primary homeowners angry because they're moving into what was previously a quiet neighborhood where people are trying to raise their kids opening up Airbnbs, Nashville is like, you know, the bachelorette party capital of the world, you can see why you might not want that happening next door to where you're trying to raise your kids.   So it's the hotel presence and primary owners, primary residents that kind of come together to make anti short term rental regulations happen so that we stick to those markets where the cities and counties figured this out a long time ago figured out how to monetize it a long time ago. This is the way that it's always been. And the cities and counties are just way too dependent on the income from short term rentals financially to ever really regulate against them.   Michael: That makes so much sense. I love it. So, so something that I like a personal take that I've had on short term rentals is I've always said, Well, I'll invest in a short term rental if it also makes sense as a long term rental because I'm scared of the ordinance or law changing, but it sounds like for you because you've really done your homework. That's not a concern that you have. Is that fair to say?   Avery: Yeah, yeah. So and that's kind of, you know, a pro and a con of vacation markets versus Metro markets as Metro markets, you could convert to a long term, probably if the numbers make sense. But in like in the Smokies or in Destin, or any of our other markets that we that we operate in, there are more short term rentals. And there are people who actually live in those areas, because it's so heavily dependent on tourism, that if something came along and like wiped out all the short term rentals, you probably would not be able to convert to a long term just because there there's not enough people to meet that.   But again, that's these areas have been through decades and decades of economic ups and downs. So they're still tourists coming and they're coming heavy. So, you know, we, we feel pretty confident about it. And then if there was anything that was going to come along and sweep away all the short term rentals, it would have been a global pandemic. And it actually had the opposite effect. So I think we're pretty good. We're feeling pretty good about it.   Michael: Awesome. And you took the words right out of my mouth, I was gonna ask how was it for you? Because you've been involved in this over five years. So through through the pandemic, what did you see in your short term rentals during that time?   Avery: Sure. So short term rentals still, as of 2020, being a little bit of an of a new asset class, when COVID came along. And we had at the time that we had five short term rentals and maybe like 20 or 30 long terms, when COVID happened, we thought, Oh, crap, they're the short term. They're the apartment building investors were right. This is like an early adopter crowd. Right? Great. Well, at least we have our long terms because if somehow if this kills the short terms, we at least have long term. Well, actually, it was the opposite.   So you know, we sat on the couch and watch Tiger King for two weeks and open back then the doors got blown off. We we were getting higher prices per night than we've ever seen. We still are. All of our income has increased in all the markets we invest in across the board, but actually the opposite of what we thought was gonna happen. happen, so we didn't have to worry about the short terms. They're doing great better than they ever have. But we had to worry about our long terms because of the eviction moratorium. So, luckily, we only had one eviction and that person was a problem well before COVID. So we actually came out our entire portfolio came out just fine. Really no change on the long term front, but the short term is just skyrocketed.   Michael: I'm glad to hear it. I had a similar experience with the long terms and I was so thankful for it. So NACA continues. So Avery I'm curious and let me know if it's market dependent. And we can talk kind of market specifics, but I'm curious to know what type of property condo townhome apartment single family cabin do you target for your short term rentals?   Avery: I personally do only single families. Condos work really, really well in beach markets. Nothing wrong with condos. I just prefer single families. Condos don't work so well. In mountain markets. Typically, the tourists and mountain markets are more interested in staying in cabins. I don't I know a lot of people are kind of trying to get into the multifamily short term rental thing to me that's like, that's a hotel guys that's been already done. Like they're like, Oh, we're gonna do multifamily short term rentals. Nobody's ever done this before.   Michael: I'm a genius. Yeah.   Avery: So we stick to this to single families, we have Multis for it in our long term portfolio that we stick to single families mostly.   Michael: Okay, awesome. And so here's like a massive dichotomy between the long term in the short term market, in the long term, there's a price point for single family, which that's not going to cash flow, because you're rents just not going to keep up versus your long, you seem your short term. Does that occur? I mean, is there a spread at which Yeah, I'm just paying too much money for the purchase, that the rental income is not going to support it? Or does that not exist?   Avery: Yeah, sure, there's definitely a limit. But the thing about short terms is like it's, they're more difficult to analyze, because it's always a range of what a property will be able to do. Whereas in long term, it's like, this is the rent, this is going to be the rent all year. And unless you go in and get the property and do all this updates, that's what it's going to be we're short term, that's always kind of a range, because you know, a week, in the second week of February, you're gonna be making way less money than the second week of July. So it just kind of depends.   And then also, there's a range of the income that can make really just based on how you manage the property. So I mean, for example, even if two people own the exact same property right next door to each other long term rentals, they're making the same no matter what short term, even if they manage everything exactly the same. But one person has a two night minimum night stay, and the other person has a five night minimum night stay, the two night minimum night stay person is gonna make more money because they have less poles in their calendar that 1-2-3 and four days long. So even just little tweaks like that can make a difference. Although there there does come a point that like a two bedroom, the most a two bedroom is ever going to make is here. And if the purchase price is here, then it doesn't make sense. So you just have to get a lot of different data points for your analysis.   Michael: Yeah, makes total sense. And so to that end, how do you recommend folks evaluate the properties of potential income from an expense perspective? Because that's something I've seen is massively different than your long term as well. So what do you recommend to folks?   Avery: So I recommend there's a there's several different places you can get data for what for the short term rental performance air DNA is one of them, it's not perfect, it's decent, good enough. Rabbu is another one, Rabbu has some pretty good data. Price Labs, which is actually a pricing manager that you would buy, when you buy a short term rental, you get a subscription to this to help you price your property, it has a function called the market dashboards, which will give you a pretty good data on properties in that market. So I recommend getting data from two or three different sources.   And then as far as expenses and things like that. So in conjunction with looking at the number, numerical data, and the short term shop we read, we preach something called the enemy method, which is where you go in on Airbnb and VRBO. Zoom in on the neighborhood that you're interested in buying in and look at your enemies or your neighbors enemies just kind of tongue in cheek. But then there's a few things you're looking for when you do the enemy method. So a there there are things that the numbers in the data can't tell you like the intangible reasons that the properties are performing the way that they are.   So you're going in, you're looking for outliers, like you know, if you've got a four bedroom that you're looking at, and next door is like a four bedroom dump with terrible pictures, and the host never responds. So it's like way, way, way down on the search results and never get seen. Well that's going to drag the data down, you're going to be able to do better than that one obviously.   Or conversely, if next door is another four bedroom that is just like the craziest four bedroom anybody's ever seen. And it's like celebrities rolling in and out in there and you're like making they're charging a million bucks a night to get to meet these celebrities at your house. Well that's gonna drag the data the other direction. So you're looking for that you're also looking for what you your enemy's cleaning fees are because that's gonna be a big one for you.   And then the rest of it is very similar to as if you were purchasing the house for a primary home like in terms of internet costs, utility costs, things like that, I found that my maintenance costs in short term are less than in my long term rentals, they're more like 1% of my income. Just because you have a cleaner in there who's professionally cleaning two, sometimes three times a week, so nothing ever really falls into that much disrepair if your cleaner is doing their job and you know, letting you know, stuffs happening. Whereas my long terms, you know, they're doing God knows what in there all year, maybe two years, maybe three years, however long they say. And when they when they move out. i   Michael: That's when you find out about it.   Avery: Yeah, paint carpet cabinets, the whole thing.   Michael: Yeah. Okay, that makes a ton of sense. I want to shift gears a little bit here and talk about a topic that's very near and dear to my heart, which is insurance. And so how do you insure these things? Because it's this kind of unique thing that I feel like a lot of insurance companies really haven't wrap their heads around yet.   Avery: Yeah, so you definitely want to get short term rentals, specific Insurance Proper is the biggest name in that space. They're also the most expensive, but they do have pretty comprehensive coverage, like all the way down to covering loss income, if you get bedbugs. Um, some insurance companies are kind of catching on and adding short term rental riders that you can add on. You also want to or I recommend any way of getting a commercial umbrella policy, in addition to short term rental specific, just to make sure that you're totally covered. And I get this question a lot because Airbnb and VRBO do offer a million dollars worth of liability coverage, when you sign up with them. And a lot of people are like, do I need insurance? In addition to that, yes, 100,000% Do not rely only on what Airbnb and VRBO provide, because their goal is to not have to pay bat. So better to be over insured than under. So definitely make sure that you're getting STR specific and a commercial umbrella.   Michael: Okay. And so kind of in that vein, if someone's owning the short term rentals in their personal name, do you think an umbrella a commercial umbrella is still appropriate? Or could they just add it on to their maybe existing Personal Umbrella?   Avery: You could it just kind of depends on your entire financial picture. And really just kind of a number of things. So it's hard to answer. But I would recommend just everything you can get get it no better to have it and not need it than need it and not have it.   Michael: No, I'm right there with you. And it's one of those things like you're only gonna know how much you really needed after a loss or after a claim. And by then it's a little bit too late. So I'm with you. 100%. All right.   And then. So shifting gears here again, how do you purchase these things, and it's so perfect that you you own the mortgage shop. And so, because there are short term lenders out there, but I feel like they're kind of few and far between and if you start talking with your traditional lenders about I'm doing short term rentals, like I don't know, so what are some things that people should be looking for? And what are some products that the mortgage shop offers that people might be able to take advantage of.   Avery: So we have three main products that most people use, a lot of people use that 10% down vacation home loan, that's a conventional product, there are rules that you want to make sure that you are following in regards to doing that meaning you do have to use the property for I think it's about two weeks a year. You are there's nothing nothing out there prohibiting you from renting it on Airbnb and VRBO the rest of the year when you're not using it, but you you know, what you don't want to be doing is skirting the rules and like you know, trying to like syndicate with a bunch of people using 10% downs and like taking equity there and all that don't skirt the rules because you're going to get the product taken away from all of us.   Michael: Don't ruin it for everyone.   Avery: Yeah, if any has caught on to people abusing that for buying like I saw somebody in a Facebook group the other day that was like yeah, that second home loans awesome. I've got two on the same street as me that are both second homes and like that, there's none like they totally like lied, they had to have lied to their loan officer to even get that because one of the main things is it has to be there's not a specific mileage amount that it has to be away from your primary, but a lot of lenders use like 50 miles or 65 miles because it has to make sense you're clearly not vacationing and you so that part that's the kind of thing that will get it taken away from from everyone but if you want to buy a vacation home that you're gonna use for two weeks out of the year and rent it the rest of the year, you can totally do that for 10% down so a lot of people do that.   We also have a 15% down investment mortgage, let me sorry, investment mortgage investment loan that is also conventional. So if you just want to use this is a pure investment 15% down you don't have to worry about all the second home rules you can just do it that goes up to the jumbo limit which I think is like a 725 ish or 750 purchase price on Have a look. And then the biggest one that people have been using lately, is what's called a DSCR loan. So that's a debt service coverage ratio loan, it's kind of a mix between a portfolio and a commercial loan. So it's not conventional. So the interest rates going to be a little bit higher, it is 20% down, but you can close it right in your LLC, it doesn't take into account any of your income or debt or debt to income ratio, all that it counts on to qualify is will the property make the same amount as what the mortgage payment will be on a one to one ratio.   So if the mortgage payment is 2000 bucks a month, all we need to see is that the property will make 2000 bucks a month in income, and then you qualify. So that's a really, really great one, especially for people who maybe have switched from w two income to 1099 income. And they don't have two years to show yet. Or maybe you're out of conventional lows, because you can only have 10. Or maybe you have the downpayment, but your debt to income is a little wonky. So a lot of people are using that DSCR loan just because you can drop it right in your LLC, you can have unlimited finance properties, and it's just a lot easier to deal with and not having to qualify based on your own income.   Michael: Yeah, that's amazing. And so when you say a one to one ratio for the mortgage payment, are you talking principal interest, taxes and insurance as your mortgage payment are truly just principal and interest?   Avery: Principal interest taxes in an insurance? So, um, the way that it works? Like I mean, you wouldn't be buying a property that wouldn't make at the very least, that each month,   Michael: I should hope not,   Avery: Because it's not a good investment. So I've actually had never seen one not go through unless you're buying a really weird remote area where no one has ever short term or long term rented before, then that would be probably a gray area, but in the big vacation markets and Metro markets and things like that. I've never seen one not, you know, not go through.   Michael: Awesome. What a cool product. That's great. And Avery, I'm curious to know, from your experience, where do you most new short term investors go wrong? Where do you where do you seeing them then botch themselves?   Avery: Analysis paralysis, just like anything just like any asset class, all real estate investing? The number one thing that stops people from getting started is analysis, paralysis, and short term is no different.   Michael: Oh, that's great. That's great. And so I'm just curious to know, as well, you mentioned some of the markets that you're currently investing in, and you've got investors and both personal properties. Where is the new hot place.   Avery: Um, so our newest market that we've opened an office in that I'm really excited about, probably the next place that I'm going to buy a short term rental, probably next year is the Crystal Beach, Texas market. It's right, right next door to Galveston, and the returns there are actually higher than the Smokies, which up until now has been our highest return market. It's also one of the most expensive markets, you know, in the Smokies, it's going to be a million dollars for a five bedroom maybe a little bit more. And to get a beach front or like second to your back beach property, you can get a five bedroom like a nice, pretty new five bedroom new construction for like the 700 range.   Michael: Wow.   Avery: So and make almost the same income as the Smokies. So don't quote me on that it's a case by case basis, obviously. But across the board the returns, they're really, really exciting.   Michael: Oh, that's amazing. And when you say returns are high, what are we talking in terms of percentage cash on cash?   Avery: So it depends on what kind of loan you do. Because obviously, if you do a 10%, down vacation how long your cash on cash can be twice the amount of what it would be, if it's 20%. But I mean, you're looking at 30%, like without issue. So depending it depends on what kind of loan you get. But even with a 20% down, like you're looking at some at least 20% cash on cash. So really, really good.   Michael: Oh, that's an that's amazing. That's amazing. So I'm curious to know, too, and I don't want you to give away the secret sauce that that's included in the book, but what are some things that people should be aware of with regard to professional management versus self management.   Avery: So this is something that I I talk about a lot so and and this is not an across the board thing. I 100,000% have managers for my long term. So it's a different game, we're talking about short terms, exclusively here. So um, if you are someone who is trying to use the income from short term rentals to really Bootstrap and boost that income and buy more properties faster, a traditional style property management company is probably not going to be the partner to help you get there.   Managing one short term rental is really only going to take you about 30 minutes per week. And it's not going to be all at once. It's going to be like I'm responding to a notification here responding to notification there. It's really like answering a few text messages a week. You might have to pick up the phone and call a plumber sometimes but it's really not anything, it's not any significant amount of work.   I have eight. And so to give you some perspective, so the traditional Property Management split and short term rental is average 25%. It was actually 40% When I started, but a lot of self managers and stuff have kind of brought, you know, people have had to lower their rates to stay competitive. But even if I had had a 25% manager this year, my properties are on track to hit an $800,000 Gross this year. So if I paid somebody 20% 25% of that, that's $200,000. This year that's like upper management level salary, to do something that I can do straight from my phone, like, is it work? Yes, but it's very easy work considering the $200,000 that I would be paying someone else to do that for me.   So when you look at it that way, it really makes a lot of sense. Once you get to probably about 10 properties, you might want to hire a virtual assistant to kind of help with things. But the way technology is now with channel managers and pricing managers, almost everything is automated, a lot of the things that were not automated when we started are now automated. So there's really no reason why I mean, really, anyone can self manage if they want to.   Michael: That's incredible. Nicely done. Nicely done. Avery, before I let you go here, I want to talk about your book, short term rental long term wealth, what should people expect to find in it when they pick it up?   Avery: So you will find the first half of the book is about how to choose a market, how to analyze a property, how to find the team in that market to help you so agent, mortgage broker, all those people. And then the second half of the book is actually about how to self manage remotely so that you can keep at potentially $200,000 a year to get yourself started so that you can then grow your wealth through short term rental investing.   Michael: Amazing. And people can pick that up on BiggerPockets calm as well as   Avery: Yes, so right now it's on bigger pockets, calm slash STR book, and you can pre order it on Amazon, it will ship November 14. It is also available on Audible right now.   Michael: Amazing. And if people want to take advantage of the short term rental shop, or the mortgage shop, what's the best way for them to get a hold of you and your companies.   Avery: So you want to go to the There's a little box in the middle of the page that says schedule a consultation, hit that button. That's the best way to get started with us. And then for the mortgage shop you want to go to   Michael: Amazing. Every This has been so much fun. So eye opening any final thoughts for folks before I let you out of here?   Avery: I think we've pretty much covered it. Thank you so much for having me.   Michael: Awesome. Well take care and we'll talk soon I'm sure. Thank you alrighty everybody, that was our episode a big big big, big big thank you to Avery This was so much fun. I learned a ton. If you're interested in short term rentals, I definitely recommend picking up Avery's book as well as going back to this episode and giving it another listen. As always, thank you so much for listening, watching, and we look forward to seeing the next one. Happy investing

    How title insurance can provide security against sophisticated scammers

    Play Episode Listen Later Nov 10, 2021 39:15

    Daniel Wold is the acting president of the Americal Land Title Association (ALTA). Founded in 1907, ALTA's mission is to improve the skills and knowledge of providers in the real property transaction, effectively advocate member concerns, and standardize products for industry use.   In this episode, Daniel explains how title insurance works; how it is different than other insurance types; shares about how ALTA combats fraudsters: and informs you about what to look out for to keep your largest assets secure.   --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Michael: Hey, everyone, welcome to another episode of the remote real estate investor. I'm Michael Albaum. And today I'm joined by Dan Wold, president of the American Land Title Association. And he's going to be talking to us today about title insurance. What is it? When do we need it, as well as wire fraud and how to combat it and all of our real estate transactions? So let's get into it.   Hey, Dan, thank you so much for coming on the show and hanging out with me today. I really appreciate it.   Dan: Well, it's my pleasure. And hopefully we can touch on some really important topics today.   Michael: Yes, yes, I'm very much looking forward to it. And right before we started recording here, you and I were chatting about kind of what it is that the American Land Title Association does, and you are the president of, but so I'd love if you could share a little bit with our listeners.   Dan: Well, our governance structure has a board of governors, and this year, I am the well, actually just just incoming president for the upcoming year. And that kind of a real quick primer on title insurance, you know, we basically are involved with land title transfers, and and then ensuring the lien priorities of the of the lenders as well. So we issue owner's title insurance policies, to the consumer that purchases the property. And we like to kind of just boil it down to we protect property interests.   And we also provide peace of mind because we're the ones that sweat the details in relation to all the stuff that goes on in relation to a settlement or closing. And so that the consumer, you know, they run around doing all kinds of things at the last minute, we're there to help them and give them peace of mind.   Michael: It's It's funny, how many things get pushed until the very last minute and most closing, isn't it?   Dan: Yeah, and things pop up. And, you know, we've got so many Lanta professionals around the country that, you know, do this for a living have seen pretty much everything that you can throw at them that they are very capable at, you know, navigating the challenges that could come up in any given closing transaction?   Michael: Well, that's good to know that I'm not I don't have to be the first guinea pig with any of my closings coming up. So that's exciting.   I'm curious, Dan, if you could just elaborate a little bit more on what title insurance is, because I've got to admit, as part of, you know, the head coach and Program Manager with Roofstock Academy. This is a question that I get asked a lot of times by students in the program, so give us a kind of a high level breakdown of just what is it? And why should somebody may be thinking about getting it because it is optional, oftentimes with an all cash deal?   Dan: Well, it is it's a one time charge that occurs, you know, as part of the closing transaction. And essentially what we do, which is interesting and unique about our industry versus other insurance industries, a lot of other insurance industry will use actuarial and then pool risk. What we do is we basically sweat the details, and we research the land property records, and other pertinent information so that when we issue our policy, it will say that you are holding title to that parcel of property or land, and then subjected to only the identified defects or lien rights that might occur.   For example, if you take on a mortgage, to purchase or a deed of trust, you know, depending on the part of the country that you're in, to acquire that property, then that would be shown as an exception to clear title. And what happens then is if there's somebody that comes in and challenges your interest, and if it falls within the scope of the coverage provisions of the policy, then we would defend and then also to the extent that we miss something, then then we would also have an obligation to pay money to recompense the landowner or consumer for the de munition and the like in relation to what we insured and what was the reality that the you know, have in relation to that property.   And so we provide a lot of peace of mind on a one time you know, it's it's your largest purchase for most people in their lifetime. And it gives you peace of mind that if somebody comes comes and challenges it, and there are instances where mistakes are made, and they if you don't acquire it, then you might be able to go back up against the prior owner if you got a warranty deed, but they might not have any money, or you can't pursue them. And so this is a third party that basically has the money to stand behind, essentially, their contractual obligations under the title insurance policy.   Michael: Okay. So if I were to break that down and say it another way, help, help me help keep me on the rails here. So if I'm a buyer, and I want to go buy a piece of property, and I get into contract, and I'm going to the closing table, and I see that line item that says Title Insurance, that I have the option to buy, and I do buy it opt to buy it. Now, six months down the road, somebody comes knocking on my door and says, Excuse me, Mr. Michael, I actually own this property, you don't own it, I could then engage with my title insurance company and say, hey, this person is claiming to have a right to ownership of this property, I clearly own it based on a transaction just went through six months ago. And so the title insurance company is going to help correct any outstanding issues and get this issue resolved.   Dan: Yeah, or we have also a duty to defend if someone Sue's you and claims that they have ownership interests. So there's, you know, multiple indemnification obligations under the policy, including the duty to defend, you know, so basically, you're pretty much spot on as to, to put it in layman's terms, kind of the function of what our product does, and the assurances that we give.   Michael: Okay. And I'm just curious, in your experience, and what type of claims have you seen where somebody can come to an owner and say, Actually, I own the property, and that wasn't picked up during the title search during due diligence phase of that subsequent purchase?   Dan: Well, I think I think another way to think about it, it's not always just a claim against ownership, it could be that there's a missed easement. So that all of a sudden, you got a utility easement in the back of your entire back of your yard. And you were intending to put a swimming pool in there. There's a there's a wide range of defects that could fall within the scope of coverage. And so basically, you know, to the extent that what is revealed in the title insurance policy is the scope of what are the are the diminishes from your your absolute ownership of that property without any third party interest affecting it from an easement or other standpoint, those are also matters that could fall within the scope of coverage and could result in us taking action to remove the defect or providing you with a, you know, a money award in relation to the scope of coverage.   Michael: Interesting, okay. And something that and we always joke on the show that so often these episodes are self serving that the hosts get to ask these questions that we're interested in anyhow, and then the listeners get the benefit of that. But there's something that I'm curious about is often we hear the term chain of title. And if you can keep your name out of the chain of title, if you're going to be using an LLC, there could be advantages to that. But so my question is, is how far down the chain of title? Do you see people run into issues that involve title insurance?   Dan: Well, I would suggest that more frequently than not, you're going to see stuff, that's more current that was missed. And, you know, one of the things to keep in mind, you know, a lot of times errors occur, you know, any any human endeavor, there can be errors. And so searching errors, for example, can give rise to a significant portion of our, our claims, you know, so basically, we would go in, and search, which, you know, there are other things that could arise too, because if they were not recorded properly, in the land tech, or title records, and so forth, there might be something that's sitting out there straight deed or other things.   So there's a whole range of factors that could give rise to a claim whether and then we would look at whether or not it falls under the scope of coverage. And ultimately, at the end of the day, if we have an obligation, we would try to cure the defect, because ultimately, we want consumers to be, you know, happy about their largest purchase, but if we can't cure that defect, then we we could also provide a monetary award in relation to what that policy provides.   Yeah, to circle back to your question. I mean, you could have something that's way back in the in the records. And remember, you know, it's kind of like a chain of title is basically if you look at the real property records, you know, let's say a county, use a county model, you know, they're, they're basically going to show transaction to transaction and the transaction, and you could go back and actually see what kind of history of who owned, you know the property or portion of the property that you have, you know, you know, oftentimes properties will be larger parcels that are subdivided or platted, into a subdivision and then you can go back to that original deed that came before the plat or subdivision occurred.   But ultimately, at the end of the day, you have the ability to search and go back. And that's what we do to determine whether or not there's any issues in relation to clear ownership rights to a piece of property.   Michael: Interesting. I've got another question for Dan, that I think I already know the answer to, but I'm going to ask it anyhow. Is there ever an instance where you'd recommend not getting title insurance?   Dan: You know, from my standpoint, I know that some people elect not to purchase a, you know, owner's title insurance. Partly, sometimes they just are not well educated as to the risks, or just make the value judgment that I'd rather buy a couch instead of, you know, ensuring, ensuring that I have pure ownership or clear ownership pursuant to this policy, to the title and they're willing to roll the dice. But from my standpoint, personally, I would not roll roll the dice with your largest purchase for most people in their lifetimes. And it's a it's a, it's a, it's a one time payment, that gives you peace of mind, and basically provides you recourse in the event that what you thought you were getting is not what you got.   Michael: No, I think that's very well said. And is it something that you can buy after the fact if you decide this year, hey, I'm gonna roll the dice and maybe next year?   Dan: Wow, I'm, yeah, yeah, no, no, we need you to, we need you to, you know, to buy it at the time of purchase. Because it basically is a it's a snapshot in time. That's, you know, basically we look back, and as of the date of closing, you have these rights, and we insure those rights.   Michael: Okay. So for anybody out there listening, that's thinking is on the fence about whether or not to purchase title insurance with their purchase, think long and hard, because it's a one time deal that you can't go back and redo.   Dan: Yeah, and there's lots of lots of horror stories of people that situations where all of a sudden, things emerge, and they've they've lost their their ownership rights, or or even worse, just getting involved with litigation. If it's a covered matter, you know, the lid, the cost of litigation, something that your policy, you know, basically provides you a defense. And that can be very costly.   Michael: To come out of pocket if you don't have that coverage.   Dan: Yeah. Yeah.   Michael: So let's shift gears here entirely, Dan. And I wonder if you could speak to something that I've been hearing a lot about, which is just wire fraud.   Dan: Yeah, wire transfer fraud is basically a real emerging risks that we see and are working really hard as an industry to educate and take the appropriate steps to minimize, you know, the risks that consumers and others have in relation to, you know, wire transfer fraud, utilized as part of the, the Real Property Acquisition. And, you know, we're kind of in a situation now, where that's by far the most prevalent method, for example, for acquiring a piece of property, you you wire, you determine what your net cost is. And then you wire monies to the recipient, as part of the transaction. You know, in the past, we oftentimes used to certify checks and things like that.   And I imagine way back in the day. You probably if you had good funds you might even have had if it would if you went way, way back, maybe maybe there was a cash transaction,   Michael: A suitcase of cash or a duffel bag.   Dan: Yeah, well, but now there's a lot of limitations as to how much what you can do with cash from from a reporting standpoint, things like that, but I'm just thinking, you know, back in the day when, you know, in the 1800s, or something like that, you might a lot of times that was before title insurance as well, but, you know, cash might have been king.   Now, so just understand it's business, email compromised schemes. It's not just this is not just an issue that we have to deal with in relation to the Real estate acquisition it's it's a, it's a broader attack on the manner in which we communicate and transfer funds in today's economy, but we focus it on it primarily from the standpoint of educating so that homeowners or future homeowners don't all of a sudden find out that they've been scammed. And they've now sent their life savings to a scamster, and aren't in a position to basically purchase the house of their dream i because of certain scamming activities.   And just I don't know how much your audience focuses on this, but we look at it a significant amount of time on this topic, as an industry. And so if you went to, bat slash wire transfer,   you could get a lot of information on this. And because it's a public service issue, you don't have to be a member to access that collateral. And we've got a lot of great information on there to educate and also to take steps to protect but if I were to back up just a little bit.   Now, these aren't all the most current pieces of data but ALTA did a the American Land Title Association, we will refer to it I'll slip up and call it ALTA as we go forward. But that's what I'm referring to. We did in 2021, wire fraud and cybercrime survey, dental insurance professionals reported cyber criminals attempted to trick employees to wire funds to fraudulent accounts, and about a third of all real estate and mortgage transactions. Just think about that. That's that.   Michael: Wait, did you say a third of all real estate transactions, there was some attempt at fraud?   Dan: A third. And, you know, wire fraud attempts are on the rise nationwide 76% of title agents report a wire fraud attempts were the same or increase in 2020. And also the FBI, internet crime Compliance Center, it's icy three, I mean, for whatever reason, well, we might reference that that's what that means. Recorded 13,648 prospective homebuyers were defrauded out of 213 million through real estate wire fraud. And this was 2020, which is an increase of 70% 17% from the year before. And obviously, cyber taxes as a whole are also on the rise.   And as a reflection of that during the second quarter of 2021, cyber insurance coverage increased 25.5%. So now, withstanding all of the efforts that we and our broader industry partners are taking to alert people of these challenges. But the cyber criminals and fraudsters also are evolving to go after, you know, basically, the wire transfers in real estate and other business, email compromised schemes. And if we were to kind of look back at this, and what are the techniques that they use, just generally, there's there's concepts like social engineering and PHishing, you know, phishing is not with the pole, you know, it's the pH is right,   Michael: You're not going to catch some salmon.   Dan: Yeah, you're not gonna catch salmon or, or, or bass in this example. But basically, what they'll do is they will use their fraudulent approaches to try to infiltrate, and let's just use a consumer as an example. And a lot of consumers will use unsecured email, trance, you know, trans portals. I'm not going to name them, but we all know what's out there. And so you get so basically, they will find ways to get you to click on things or do other things that allow them to plant kind of their, their their cyber tools into your email account. And then when triggers such as real estate transaction or things like that happen, they start to monitor those transactions. And at the last second, then, they they basically would mimic one of the professional email addresses in the involved with a transaction and get the consumer to then wire funds to the wrong recipient.   And, you know, we're talking some of these people, you know, it could be $500,000, or life savings going to purchase a house or 150 years, a million. And all of a sudden, then when they they to show up for closing, and this is not a laughing matter, but it's just amazing how dangerous this is. But they do show up for closing. And then the title company, say says, Well, we are the or the or the lender or whoever the recipient was going to be for the the wire transfer says we've never seen ever received it.   And so there are certain things that we do as an industry to try to come combat this, this this scourge. So basically, from my standpoint, a couple things that you should keep in mind and your audience should keep in mind is what we do as an industry then is we try to do a lot of consumer education, as well as you know, work with our, you know, the realtors, the bankers and others in the broader industry to coordinate and make sure that we can get ahead of this.   But, you know, we we provide consumer warnings about the dangers of this on websites and communications. And then we send notices to consumers, real estate agents and others, that informs them, the parties to the transaction of the title companies wire instructions, that they will never change during the transaction. So we get that set upfront. Because what happens is, there's always a last second change, that gives rise to the diversion of funds to the illicit party's account. And oftentimes, the fraudsters are overseas. And if you don't catch it quickly, it's it's very difficult to claw it back. So you might have 24 to 48 hours after the illicit ACH transfer occurs to pull that money back.   And so from that standpoint, that's why we advise early on in the transaction that you're not going to get an email from us changing the wire transfer, you know, wire wire fraud Academy, the wire transfer instructions. And so, yeah, there's also a couple other things that we look at. You know, we exchanged no numbers. So for example, what the fraudsters will do is also, so they'll mimic a legitimate email address with a diversion. And then they'll have stuff in there. And they might also, you know, have social engineering and follow the council they know the names and who the husband is all this kind of stuff. So that looks real real. And then they basically say, if you have any questions, contact, and I'm not going to pick on Louise, but why not Louise at such and such a number?   Okay, well, Louise is just basically working with the fraudster. So you call and they and they basically have a pat answer, if you were to call. And so basically, we also then, at the beginning of the transaction, want to set the known numbers that if there's any questions they can call, because if you rely upon the email, the email will also cover that contingency to basically complete the scam. And so they're really quite tricky here.   And a couple things that I would mention here, also. So some of the things that we see, for example, the title insurance professionals put in there, they're basically email signature lines, they'll have things like, I'm just going to read a couple here due to increase fraud. Buyer sellers and lenders should confirm all wiring instructions by phone directly with our office before transferring funds to a previously disclosed phone number. I've got another one here. Warning wire fraud advisory, wire fraud and email hacking phishing attacks are on the increase. If you have been asked for a closing transaction with us and you receive an email containing wire transfer instructions, and then an upper case do not respond to the email. Instead, call your escrow officer close closer immediately using previously known contact information and not information provided in the email.   So we provide quite a bit of education and warnings to consumers. But the challenge is this, you know, consumer, we get everybody educated and we get all these transactions that go smoothly. But then, kind of on a rolling basis, you've got a new group of consumers every three months or so.   Michael: Right, right.   Dan: I mean, it's a rolling new group of consumers. So that is a constant need to educate. There's constantly a new group of people out there that that the fraudsters can go after. And so this is kind of a, you know, like the Greek tragedy pushing the rock up the hill, you know, basically, we're always, we're always on top of this, but there's always risk. And so from that standpoint, you know, I really do think we are going to have to keep combating this, and people need to be aware of it. And that's why it's great that you are doing a podcast that highlights these risks so that consumers and others can pay attention to it.   Michael: Yeah, absolutely. And, and we're happy to do it. And so, Dan, if I'm hearing you correctly, it sounds like that initial communication that you're starting to have with your title or escrow closing officer at the beginning of the transaction, is kind of setting the tone or setting up the proper information, if you will, because that those cyber tools that you're mentioning, really sit and kind of wait and lurk for the transaction to occur.   Dan: Yeah, I've been important to write them to that right spot where all of a sudden, they swoop in, and give you Oh, we're changing, where you need to send the money.   And, and if you recall, you know, the average consumer, you know, they're, it's, it's a complex deal. And they've got all kinds of stuff going on. They're arranging for the moving van, they're, you know, you look at the list of things that they're doing in relation to real real property transaction, and moving from one, you know, whether from one home to another, or from an apartment to a home, excuse me, and the like. They're very busy, and they're very easily distracted. And so that's why we really focus on this. If I could, I would also like to highlight some of the stuff that you should do if you if you do find yourself to be evicted.   Michael: Yeah, absolutely.   Dan: Yeah. So, you know, if you if you do discover that funds are transferred to a fraudulent account, you really need to act quickly. And you should contact the Financial Institution immediately upon discovering the financial or the cumulative fraudulent transfer, and request that the financial institution contact the corresponding financial institution where the fraudulent transfer was sent. Now, you also should contact your local Bureau, federal bureau and you know, FBI office, if the wire is recent, the FBI working with the United States Department of Treasury, Financial Crimes Enforcement Network, we call that FinCEN might be able to help return or freeze those funds. And then you could file a complaint regardless of dollar loss with And so it's really important for consumers to recognize that if they do find that there's fraudulent activity, they need to act. And like I said before, oftentimes, but not always, but oftentimes, you've got foreign actors that are targeting US citizens to try to divert funds. And so the money could flow into that alternative banking account, bank account that, you know, you didn't want to receive the funds, but then they're going to maybe chop that up and send it in multiple directions real quickly. And so it's really hard to claw that back, if it if it gets into multiple transactions and is overseas.   And so that's why you really need to move quickly. And you You oftentimes are able to recover a good portion, or at least some of the funds that were diverted.   Michael: Okay. And how long should a transaction a wire transfer typically take because I've filled out numerous wire transaction orders, and I said, oh, we'll send it at the end of the day or what have you, and then you'll get a confirmation. So how long should people wait before reaching out to the other party and say, Hey, did you get it without freaking out?   Dan: Well, I think one thing to keep in mind is it's really a good idea to to, you know, confirm stuff contemporaneously? I mean, I wouldn't dink around with this From my standpoint, if you wait a couple days, it's too late.   Michael: Right? Right. But so after initiating a wire, and I called my title escrow officer, and it's been an hour and they haven't received it, should I start sweating bullets?   Dan: These things go pretty quickly.   Michael: Okay,   Dan: So I would move quickly, I don't have an exact timeframe, and we could get that to you to follow up. But from my standpoint, you know, I wouldn't wait more than an hour to get confirmation.   Michael: Okay. Okay, that's great. That's great. Any other tips, tricks, advice for folks that they should be aware of things they can do proactively?   Dan: Yeah, I think I think number one, they just don't click on attachments and emails, if you don't know where it's coming from. Because that's, that's a vehicle to get kind of like what they call a Trojan horse, or, you know, and I'm not a, I'm not a tech expert, per se. So I might use the wrong terminology here. But basically, they'll use something that you click on to basically infiltrate your email system, so that the fraudsters are now inside and can kind of monitor what's going on. And so they can do it here. But there's also risks of them being in there, as well to steal identities and other things that could happen in addition to the challenges that we're talking about today.   Now, but I would also say that, you know, the ALTA website has a lot of great information here. And so I would recommend if people want to follow up on this and have any concerns, and that they could go to that website and look at all the tools. So we've created lots of products, to help raise awareness and protect consumers. So there's a rapid response plan, which is a 10 step guide on what to do and who to contact if you've been hit by wire fraud.   There's also the ALTA registry. And this basically is kind of a phonebook for basically title agents, so that banks can basically look at the title agencies that are on the registry, as well as the underwriters. And we could get into kind of the distinction between the insurance side and the agent side of our business. But suffice it to say, say we don't want to necessarily confuse people. But basically, we have agents who will issue the policies on behalf of the insurance entities and some of the insurance entities in some areas will also have direct operations that do that functionality. The registry basically has all of those different entities identified on there, so that a lender can go there, and essentially verify that who they're dealing with is a legitimate operation. So that's a great tool for the lender lending community to basically reduce their risk.   We've also created the Board of Governors for the American Land Title Association also created an information security committee a couple of years ago, and it to basically examine security matters and threats that affect our membership and by extension consumers. And they basically make cyber awareness, prevention, detection and response and recovery methods for the industry.   We also have, on our website, a page dedicated information security, there's federal and state requirements to protect data, there's also ALTA's best practices, which has pillars of appropriate conduct or recommended conduct, which are all designed to basically, you know, move everything in the right direction. And we have webinars, we've done webinars, we've also have videos and other infographics on there about this challenge that's out there. And so it's a it's really a great, great resource to look at, to basically see what the challenges are and what steps you might want to take. And there's some real great practical advice on there on there as well.   And one thing that we have discovered is that for example, the title agencies and and insurance entities that do the kind of the steps up front so that they've trained their people on this risks are less likely to have a loss. And so it's really a great campaign for everybody to pay attention to. And in that regard, I would just mention one more thing here. And that is that the American Land Title Association, helped form a national coalition called the Coalition to Stop real estate wire fraud. And so the goal of that was to raise awareness about the dangers of mortgage closing schemes and wire transfer fraud across the broader spectrum of our broader industry, you know, the lenders, realtors, and so forth that are involved in in the in the greater ecosphere of what we do, and explains how it happens. It provides tips to prevent it and what to do if you've been targeted by fraud. And there's also a video that can be uploaded, if you have an issue or an issue to share your story.   So there's a lot of resources out here. But from my perspective, we are going to have to keep battling this, you know, attack on kind of the entire system, and the attacks that are kind of perpetrated against consumers that may not be aware that those risks are out there. So we have to educate and provide the tools and then also provide practical methods to minimize the likelihood that the fraudsters are successful. And so we're gonna keep battling this this challenge. And I think that your podcast and getting it out to consumers, so that they become aware that this risk is out there. They just need to be aware and be careful if they get involved in a real estate transaction to, to not let this happen to themselves.   Michael: Yeah. Yeah, that's so great. And we will definitely link in the show notes to that went to the author website, because that's great. That's great. Dan, this has been fantastic and super informative. Any final thoughts before we let you out of here?   Dan: Well, I don't want people to be afraid. I mean, homeownership is great.   Michael: Doom and gloom.   Dan: Don't just don't just keep renting all your life, because you're concerned about wire transfer fraud. But if you do decide to purchase or if it's your second or third time of purchasing, you know, real estate, you know, a home and making those life changing events which are so meaningful. You know, basically make sure that you're aware of these risks, take appropriate action to ensure that you do not become a victim of fraud, and listen to your title professionals as well as the broader, you know, realtors, mortgage, mortgagees and OKC, mortgage companies, lenders and so forth, that all have an interest in making sure that you have a great experience and that you aren't a victim of fraud.   Michael: Love it. Love it. Well, Dan, thank you again, for coming on and spending some time with me. I really appreciate it. And I look forward to chatting with you soon.   Dan: I'm glad to have this conversation and appreciate your taking a moment to address these really important topics. Thanks so much.   Michael: My pleasure. Thank you. Alrighty, everyone, that was our episode a big big, big thank you to Dan and the American Land Title Association. super informative. Lots and lots of good info in there. And definitely a great website for a resource to check out as well. Hope you enjoyed the episode. We look forward to seeing you on the next one. And as always, Happy investing  

    Why investing in portfolios might be a good idea, or why not

    Play Episode Listen Later Nov 6, 2021 15:35

    Should you buy a portfolio of homes instead of one at a time? What are the benefits of this? What are the downsides? Why would anyone want to do this and how do you go about doing it? In this episode Tom, with his experience with portfolio acquisitions, leads this weekend wisdom episode to get to the bottom of these questions.  --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Tom: Greetings, and welcome to The Remote Real Estate Investor. On this episode, I'm joined by   Emil: Emil Shour   Michael: and Michael Abaum.   Tom: And on today's episode, we're gonna be talking about portfolio acquisitions as well as portfolio management now, you know, obviously, with a portfolio, it's a little bit more money to get into the game and to buy multiple properties at once. But there are a ton of advantage. So within this episode, we're going to talk a little bit about reasons why some tips and different phases and acquisitions and management, and a little bit in between. Alright, let's get going.   All right, excellent weekend wisdom today. So we're going to be talking about portfolios. And for the conversation, I think I'm going to be really leading a bunch of it and Michael and Emil are going to be peppering some stuff in, but I'm going to talk about my experience in going through a portfolio acquisitions.   I'm going to start by talking about the benefits, and then we're going to go into the specific process some different ways to go about it. So Michael and Emil, I'm gonna I'll start but you guys can feel free to pepper in. So I'll start on the acquisition side, there's some benefit in buying portfolios in that you can deploy more money at once,   Emil: What is a portfolio for people who don't know what a portfolio is   Tom: Excellent hosting Emil. So a portfolio would be considered buying multiple properties at once from the same seller. So Roofstock has some cool features around buying portfolios, just a quick plug for the marketplace. But you know, these what we're going to…   Michael: And selling!   Tom: That's right, and selling so you know, but this, this episode is going to be agnostic to where you do your buying and selling as all of our advice is. But we're gonna be talking about Yeah, specific portfolio related stuff. So any other clarifying questions there for me Emil?   Emil: No, that was it. Continue, I'm sorry to interrupt.   Tom: Okay, so we're gonna start with benefits. So one of them as I was getting going, is the ability to deploy more money at once. Oftentimes, when I'm in acquisition mode, I have a target amount of dollar that I'm trying to spend. And it's much easier to get to a bigger dollar amount in buying multiple homes, right? Pretty, pretty straightforward. But there is for sure, some real benefit to that. The other benefit is, this is somewhat intuitive, it's kind of like going to Costco where you're, you can get a little bit of a discount, I'd say versus just buying individual properties. Oftentimes, when I'm submitting my offer on a property on a portfolio, I'll just sort of put a blanket dollar amount for both of them. And when I'm underwriting them, you know, I'll put in the specific individual numbers. But at a, generally speaking, in making that portfolio acquisition, you're usually to get able to get a little bit more of a discount to the marketplace.   The benefits on the operation side is typically portfolios are in the same market. So I love being able to scale a little bit quicker. In a market, perhaps this could lead to some discounts from the local property manager, because they're managing properties, perhaps even discounts related to the lender, or the lender, and maybe the lender, but the insurance as well. But generally speaking, you're OPEX can could see a benefit or a boon by doing things in a little bit of scale, just because you're able to get a little bit of economies of scales from the vendors, perhaps if you're able to negotiate that.   Michael: And what is OPEX Tom?   Tom: OPEX would be operational expenditure. So perhaps your property management fees all basically blanket for that right. Am I articulating that correctly? Michael?   Michael: Yeah, totally.   Tom: Any other benefits you guys see on the acquisition operation side that I may not have touched? Oh, I see Emil's is raising his hand. Emil!   Emil: I think one benefit to buying a portfolio is that you have less competition. I don't think people are as attracted to portfolios because you know, you have to you have to put more money down you're buying multiple you know, the seller may choose to only sell the portfolio right? I have these three properties. I will not sell them individually. You have to buy all three. So that will create less buyers I think. So if you play that right, you know you're doing I think that can be an advantage to you as the buyer.   Michael: I'm gonna I'm gonna push on you both a little bit. You both now have mentioned needing more money or the portfolio being more expensive but is it always?   Tom: Not necessarily, I think that like the cost per unit should be less, because you're in practice, you're getting a little bit of a discount. So but I mean, if I'm going to buy a super expensive house somewhere, right, I'll be deploying more money doing that, Michael, but yes, Michael.   Emil: Yeah Michael.   Michael: You can't just say my name and then assume you are  making your point.   Tom: That tone, it kind of works. It kind of worked   Emil: You're wrong. Here's why. Michael.   Michael: That's exactly the point that I was hoping to tease out of you guys that, too, by the same type of asset? Yes, of course, with more with more properties in a portfolio, that will be more expensive. But to your exact point, Tom, if you were looking to go buy a $500,000 single family home, or a $300,000 portfolio, I mean, you could do that. So the fact that it's a portfolio doesn't intuitively mean that it will be more expensive, even on $1 per unit basis, or on a just total dollar amount base.   Tom: Yep. Great point. Michael. See, I said your name that time.   Michael: It's not what you say but how you say it.   Emil: Inflection,   Tom: How you say it. So great point, Emil, great point Michael. barrier to entry less buyers. And Michael, you know, there's different ways to spend more capital, anything left here on the benefit side, or she would jump into some kind of tips and tricks along the way?   Michael: When it comes to the financing of portfolios, it can often be done a little bit differently. And so it can be really advantageous, depending on how you're going to finance it, there's something called Portfolio loans, they kind of have a double meaning people refer to them and use them in slightly different capacities, some people will refer to a portfolio loan that remains on the books of the lender, it's held in their own portfolio. And so that's technically a portfolio loan.   But then there are also Portfolio loans that actually spread across a portfolio, a single note across multiple properties inside someone's portfolio, that's also referred to as a portfolio loan. So you just want to understand who's using the term and what and how they're referencing it. But if you go get a portfolio loan, let's say across five properties, you get a single note that encompasses all five properties. That's only one loan. And that's not going to be a Fannie Freddie traditional or conventional loan. So that's not going to use up one of your 10, verses, you go finance those properties individually, if they're all single families, you're going to go use five, five loans of your 10 loan limit.   And so from just a ease of financing perspective, portfolios can be great. And then they also can be easier to cash out refi of or get a line of credit against, because they will often be looking at the total equity as opposed to individual properties. And then you can also Tom, as you mentioned, get savings when it comes to the actual financing costs, because you may only be originating one loan as opposed to five separate individual loans.   Tom: That makes sense, I'll walk through a little bit of my my use case, and then tease out some specific tips and stuff that I thought was effective along the way. So I bought a portfolio out of it Atlanta, it wasn't a big portfolio, it was three homes, but they were all in, you know, fairly nice neighborhoods, I within the offering process, I you know, offered on the three of them and got a little bit of a discount. And the seller was kind enough to let me set them up into unique transactions. So even though I like made the offer negotiation on as of the three of them at once, we are able to close the three of them separately, because I hadn't filled out my 10 loan loan limit. So I had individual loans and individual transactions.   Normally with a portfolio transaction, it would be just, you know, the single transaction to close all three. But in this particular use case that I had, I broke it up just because I wanted to take advantage of that cheaper financing that I had available.   Let's see in so I acquired them three separate transactions after the negotiating on them as individual, excuse me three individual transactions after negotiating them as a portfolio transaction. And then just load them all up with a property management that a company that I'd worked with before that I had a lot of trust in and was just able to kind of quickly scale that group up a little bit more with some more properties.   Some tips in in doing it I had alluded to this a little bit before but you know, really rigorously underwrite each individual property and come up with an appropriate discount. And, you know, with the sort of portfolio transaction, there definitely is something to getting a little bit more of a discount. So I had underwrote, each of them kind of came at a price and then added it all together and then like hair, cut it off another five or 10%. So in use that sort of as a starting place from it, and from the sellers point of view, like you know, who cares on where the dollar amount is going towards each one. I guess in this case, it did matter because we ended up doing individual transactions, but you know, thinking of it all kind of holistically together. The three properties that make up the whole of the portfolio.   Michael: Tom, I'm curious, in that transaction for a due diligence perspective, did you just look at one of the properties and kind of say, Oh, well, it's the same owner. So they're likely going to be in similar condition? Or did you do inspections on all of them? Talk to us about how you did that.   Tom: Yeah, so I did inspections on all of them. And the way that portfolio transactions are set up, there's a lot of flexibility. I've seen portfolio transactions where someone would have maybe, you know, 20 properties, and they're allowed a certain number of kick outs. So depending on the size of the deal you're doing, you can get kind of creative with that. And when I say kick outs, it means, okay, I'm planning to go buy, you know, 18 properties, I'm going to make an offer on these 20. And if two of them don't look very good, I can say, Nope, take that out of the portfolio transaction.   So there's really some flexibility in the way that these contracts can be structured, of doing these portfolio deals, and it's, it's like, oftentimes very much kind of creativity of the buyer and the seller on how they want to get comfortable to make the deal happen.   Michael: That's great.   Tom: What are some other kind of fun portfolio stuff. So I'd mentioned Roofstock has some really cool tools for for buying portfolios, go ahead Emil.   Emil: I keep raising my hand, I'm being very polite today.   Tom: Throw some elbows, Emil,   Michael: Class is in session.   Emil; In trying to remain neutral and unbiased on our podcast, what would you say are the disadvantages of buying a portfolio?   Tom: So downsides of a portfolio would be perhaps you you know, don't do the same rigor and underwriting property and individual property as you would in a portfolio, I could say that could be mitigated by by doing the work right by doing the same level of rigor, but you know, perhaps if it's like a bigger portfolio, maybe 20, homes, 50, homes, whatever, it can be hard to apply the same sort of, you know, level of diligence.   The other one is perhaps if it's in a market that's newer to you, or the property manager, is someone you know, you haven't really established that trust with yet, there could be an issue. And instead of just having, you know, one bad apple, that's going to be two bad apples, that you're managing with that with that property managers. But again, that can be mitigated by being really thorough in the way that you're evaluating your vendors. And, in doing that,   Michael: Another risk to think about is your aggregate risk from a natural catastrophe standpoint. And this is something we looked a lot at in the insurance world is if we have too many properties that we're insuring in this one general area, and there's a fire or a hurricane or a flood, it's going to damage all of those properties. So same thing, same risk to you as an owner operator, if there's a catastrophe in the area, that could affect all of your properties unilaterally. And so that can be problematic. So you just want to be sure that you have kicked butt insurance, sound type policies with great carriers.   Because what we saw happen in 911, to use as an extreme example, is a lot of insurance companies actually went out of business, because they had taken on too much risk in the area. And they just were paying out all these claims. And so after post 911, there are a lot of carriers that just went out of business. And so people think, Oh, I have insurance, that's great. But if the insurance company has taken on too much risk in an area, you could go out of business, which is a pretty scary thing to think about. So highly unlikely to happen. And I don't want people running to their insurance carriers, like Oh, my God, you know, I want to make sure you're still gonna be in business. But just something to think about as an operator getting heavily involved in a particular or singular geographic area.   Tom: Natural disasters, and other ones perhaps or something, if you're buying in a smaller area in something major happens the economy, you know, by by getting more concentrated in an area, there's there's a little more risk of a single point of failure. I would say I mean, that that doesn't keep me up at night. But in in the under the guise of coming up with more reasons why getting geographically dense with the portfolio would be a bad idea. That could be another reason   Michael: Something else is just systematic and habitual issues. So if the owner never cleaned the filters for any of the HVAC or HVACs properties like that might not come up in inspection, but you might start losing all of your furnaces simultaneously across the portfolio. So deferred maintenance, how one property is maintained in a portfolio is likely going to be indicative of how the other properties are maintained. Hence the reason for my prior question, Tom, about the due diligence, I think it is important to evaluate kind of each and every property to verify or nullify that, that assumption.   Tom: 100%. And to piggyback off of that point, perhaps the the seller, the properties are occupied and the tenants weren't screened properly, or perhaps the the previous property manager did a bad job and you're inheriting a hornet's nest of angry tenants. So, again, did I sort of single point of failure in doing that? But like I said, like I think in going through the proper diligence process those risks are can be mitigated quite a bit.   Tom: Awesome. All right, guys. Well, I hope you enjoyed the episode if you could, like subscribe, all that good stuff we always appreciate that. And as always, Happy investing.   Emil: Happy investing.   Michael: Happy investing.

    How to achieve financial independence to retire early with Diania Merriam

    Play Episode Listen Later Nov 3, 2021 36:29

    Diania Merriam is the founder of the EconoMe Conference, a financial independence conference, and the host of the Optimal Finance Daily podcast. At the age of 28, Diania climbed out of $30K of debt in 11 months to begin her journey to financial independence.  In this episode, Diania shares about what it took to reach debt freedom and how she is powering her path to retiring early. This episode is loaded with actionable insights for you to get your finances in order and start building real wealth. --- Transcript   Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to another episode of The Remote Real Estate Investor. I'm Michael Albaum. And today with me, I have Diania Merriam, who's going to be talking to us today about the economy conference that she is the founder of as well as some financial independence tips that she has learned along her life's journey. So without further ado, let's get into it.   Diana, thank you so much for taking the time to come talk personal finance with me today. I really appreciate it.   Thanks for having me.   Michael: No, my pleasure. So you are the founder of a really cool conference called economy.   Diania: Yeah.   Michael: Tell us a little bit about what that is. Because I know it's coming up here in like 30 days, right?   Diania: Yes, we are exactly a month away at the time of this recording. But essentially, economy, the easiest way to describe it is it's like the TED talks of the fire movement. And you guys can't see me. But I'm doing air quotes over here, because we're not associated with TED talks, which is like the easiest way to explain what it is. So we have amazing mainstage speakers that talk about financial independence from a lot of different angles, whether it be really tactical information, or just more inspiring stories. And then we also do a number of breakout sessions to kind of connect you with like minded people. Because as you know, money is such a taboo topic, right? And we don't often get the opportunity to surround ourselves with people that are comfortable talking about this stuff.   So one of the things I like to say about pursuing financial independence is like what's the point of being FI and retiring early if you have no one to hang out with? Right, here's your opportunity to meet your people to meet your tribe.   Michael: Your playmates yeah.   Diania: Exactly. So we've got all these breakout sessions, we do an after party, we do a lot of social activities on the last day of the event. So it's really just an amazing weekend, someone last year describes it as a party about money, which is exactly the vibe I was going for.   It's really, the point of it is inspiration and community around a topic that is so you know, influential for us all?   Michael: Oh, that's awesome. And is I know, this year, it's out in Cincinnati. Is it always in Cincinnati? Or does the location move every year?   Diania: Yes. So we're actually in our second year, because I had the brilliant idea of launching an event based business in the middle of a pandemic.   Actually, our first event was March 7 of 2020. It was one week before everything shut down due to COVID. But I had been planning the event for 20 months. This was like something I could have never anticipated that I would have to navigate. So yeah, we got really lucky on our first event. And this is actually going to be our second and yes, it's at the same venue, which is the University of Cincinnati.   Michael: Awesome, awesome, awesome. So I've got kind of a question for you. And I'm curious, why did you think you were qualified to host and found a conference talking about money? What's your story? Like?   Diania: Yeah, like who the hell do I think I am? I mean, as far as qualifications? Um, that's a great question. I think that I was just someone with a really ambitious idea. That's probably crazy. Most people told me I was crazy. When I when I first came up with this idea, but the reason why I wanted to do this is because figuring out my financial situation completely changed my life. So my background is that, you know, my 20s, I was very focused on my career, living in New York City. I got to my late 20s, about 28. I decided I should probably look at my money situation, like what's going on here, right. And I ran a credit report on myself and realize that I was 30 grand in debt for like no good reason. It was simply living outside my means.   And half of that debt was student loan debt, which doesn't sound too bad until you consider that I got a full academic scholarship to college. Like, the fact that I had any student loan debt is just ridiculous. It still blows my mind. But when you're at that age, and you're completely financially illiterate, you know, someone offers you loans, and you don't really…   Michael: Oh look free money!   Diania: I mean, you Yeah, you just, it's just what you do, right? No one like advised me that maybe that wasn't a great idea. So I found myself in this situation where I'm 30 grand in debt in my late 20s. My 30th birthday is looming. I think it's one of those really reflective birthdays for like, what am I doing with my life?   Michael: Yep, right.   So I came across this article that was sent to me by a friend from Mister Money Mustache. I'm sure you know that blog, right?   Michael: Know him very well, yeah.   Diania: Yes, one of the most popular probably the most popular blogger in the fire movement, which I keep throwing around this word fire. I want to make sure everyone's on the same page stands for financial independence retire early. Right, To me it's a it's a lifestyle movement with a goal of financial freedom. But a lot of people look at it as like a bunch of frugal weirdos and we're all in a cult.   Diania: It's not   Michael: Chanting about money.   Diania: Yeah, exactly. So I discovered Mister Money Mustache. And I like to say that I think the article was something about like, viewing your debt as an emergency. And I like to describe finding that blog as a refreshing punch in the face, because I had never heard anyone talk about money the way that he did. And I just devoured that blog with a spoon. I read like every single article, I got a little obsessive over it.   But it really inspired this very deep mindset shift within me. And I did a complete 180 I got out of that 30 grand of debt and 11 months. And from there, I started saving about 60% of my income. And it completely changed my life. It opened up so many options. That just didn't seem possible for me like that, it allowed me to dream bigger, you know. So one of the things that motivated me to even want to get out of debt is I had this goal to go walk the Camino de Santiago, which is a 500 mile trek across Spain. It just seemed like this ridiculous life adventure that felt so outside my comfort zone. But it's what I wanted to do for my 30th birthday.   So getting out that was kind of a motivator for me to get out of debt. And then when I got back from that trip, so that was in 2017.   Michael: Wait, timeout. So you did it?   Diania: I did it. Yes.   Michael: So when I got back, you just glossed over it! Oh, that's incredible.   Diania: Yeah, it took me 38 days, and it was a wild adventure. absolutely wild. Yeah, I walked with anywhere between 10 to 20 miles a day, with like, 20 pounds on my back, I met incredible people. That's actually I have an arrow tattoo on my wrist,   Michael: Okay.   Diania: And it's because the whole way is marked by arrows. They're like spray painted on trees, or like, carved into these stones. And so every time I would see an arrow, it'd be like a very comforting symbol that I like, wasn't lost.   Michael: Still on the right path.   Diania: So yeah, yeah. So um, when I got to Santiago, which for many people is the finish line, I ended up getting this tattoo. But yeah, that's something that I would have never dreamed would be possible, given my financial situation in my late 20s. And, you know, a lot of the people that I met on the trail were in their 60s or they were at traditional retirement age, they had to like wait to be able to do that. So it just getting my money in order opened up this incredible option.   And I just feel like my getting my finances in order almost allowed me to ask bigger questions like, What do I want to do with my time? What do I want to create? What kind of people do I want to surround myself with? And so getting out of debt was a big milestone in that regard. Walking the Camino was a big milestone. I negotiated a remote working arrangement with my employer. So I moved from New York City to Cincinnati, which people are like, what, why? Why would you do that?   But I will tell you that Cincinnati has everything that you would want out of a big city with like none of the downsides. And the cost of living, you just can't beat it. I mean, I really am marketing Cincinnati as the number one city to pursue financial independence. And a couple things we're doing actually at the economy conference in that regard, like our coffee vendor as a local vendor.   We're doing an urban hike on Sunday morning of the event, a three hour urban hike to show off how amazing Cincinnati is. And then with Roofstock, we are doing a chartered real estate bus tour. It's a two hour tour where we're going to drive you around the amazing neighborhoods in Cincinnati that are really good investments. And we have an expert that owns 42 doors here. He's flipped three dozen houses, and he's going to do some case studies on his best properties.   So if you are interested in low cost of living in an amazing city, you've got to come out to Cincinnati and I feel like I have the authority to say that because I came from New York City that's usually whatever where everyone wants to go.   Michael: Yes.   Diania: Now come to Cincinnati.   Michael: I love it. And I'm gonna second that call to action to get out to Cincinnati. I do a lot of investing out in Cincinnati and across the river in Covington, Kentucky, and I went out to visit a property and I happen to be there actually around this time a little bit later in October and found myself and I think the second largest Beer Fest or Oktoberfest, rather outside of Munich, Germany, and just had an absolute bombing, the food scene. I think they've got the most micro breweries like per capita of maybe any city. Tons of coffee places, Coffee Roasters popping up, it is just a very, very cool city for no one who, for people who haven't been before, so totally love it. Love it. Love it.   Diania: Yeah. Yeah. So, you know, being out here getting back from the Camino, you know, I adopted dog, I buy a house, I find myself a Midwestern gentleman, you know, life is good. Yeah. But I was still kind of asking myself these big questions like, What do I want to do with my time. And so at this point, I'm saving 60% of my income, I'm still, you know, fully employed with the same company that I had worked for nine years in New York City. And I had this idea that you know, what I was asking myself, what would I want to do with my time if I no longer had to work for money?   And I decided I wanted to create this party about money. And a big reason for that is because I had been going to different events, and exposing myself to people that were very, like, growth oriented, their life seems so expansive, and it really helped me broaden my perspective on what's possible in my own life. So for example, one of my favorite events is called World Domination Summit. I know that sounds insane, like who produces that, pinky in the brain?   Michael: Pinky and the brain, yeah, exactly.   Diania: But this event, I mean, as someone as frugal as me, you know, I got out of 30 grand of debt and 11 months, I really brought down my spending in order to do that this event is $700 A ticket. And I will tell you, it is worth every single penny. Because the people that you meet there are just incredible, and they're doing such amazing things. And every time I would leave, I would feel like my life is so full of possibility. I also had gone to events like Camp FI, or Camp Mustache, sense positive. These are kind of rooted in the financial independence community. And it's a way for people to spend a weekend together with like minded people.   Now, I saw an opportunity to create kind of a large scale event. So like Camp FI, Camp Mustache, usually around 60 people for like a weekend at a retreat center. Right? I wanted to do something more like World Domination Summit that's a little bit more grand. It's more of a production. You know, it's more of a show. It has a really strong entertainment element to it. And so I modeled my event really after World Domination Summit, but I brought that price tag way down. I'm actually doing it for $200 A ticket, but it is definitely worth $700 A ticket. I'm not charging enough.   But yeah, it's funny, because this event was supposed to be my early retirement project when I reached FI at 40 years old, but I just got so excited about it. I couldn't wait. I had to do it now. And I'm really glad that I did. Because it's been quite the adventure.   Michael: Oh my god, what a cool story. And next time someone asks, don't gloss over the fact that you hiked 500 miles. That's an amazing feat, among many others. You just mentioned that is so cool. That is so cool.   So I,   Diania: Well thanks so much.   Michael: No, of course, of course, what I'd love to do is kind of get into the meat and potatoes, if you will, of financial independence and just kind of getting your finances or so I think your story where you found yourself in your late 20s is so common for so many people, they don't realize what student loans are, how the payback works, how debt works, how finances work. So what did you do? Other than change your mindset, like brass tacks, what did you do on a daily, weekly, monthly basis? And you were able to pay off 30,000 in debt in 11 months? Because that's that's something no small feat.   Diania: Yeah, I would say big lifestyle changes, right. So when I looked at where I was spending money, then I would say the first thing I did was increase my awareness around my situation, honestly, because a lot of us are just swiping the credit card, we're not paying attention of where our money is going. So I started tracking every single dollar I spent. And I saw that I was spending a ton of money eating out, you know, going out for happy hour. I mean, let's be honest, I had my 20s in New York City, you know, like I was a party animal.   And I think what I obviously like I was very social creature, I mean that's kind of another reason why I'm into these in person events. I'm a very social person, very extroverted. So I was spending so much money going out. And so what I ended up doing, and I think this is really important, when you think about decreasing your expenses, a lot of people look at that as deprivation, they look they think of it as I can't go out anymore. And I saw it as an opportunity to be resourceful and creative, and really to get to the root of what are my values and how do I align my spending with my values in a more efficient way.   So the value for me was spending time with other people, I don't need to remove that from my life, let me just do that a little bit more efficiently. So I started like hosting these elaborate dinner parties in my apartment, where I would like makeup games, I made my apartment more fun than a bar, everybody else would bring the booze, I would cook the food. And you know, I'd always have themes like, I just, I think back on that time, and it was so wild. Like I would tell people, you know, bring a photo from your awkward phase. And then we'd like all pass around these photos around and like make fun of each other or like   Michael: That's so good   Diania: The night was like, was like tonight's the evening of compliments. And it was like a game of who can give the most compliments to other people at the table. And we would like, we would like keep score. I mean, it was just silly, but it scratched my itch for human connection in a really resourceful way. Another thing I did was, you know, rather than buying clothing, I would host these clothing exchanges, all of my more fashionable friends would clean out their closets, I would do like a clothing swap, while sipping mimosas and listening to music in my apartment on a Sunday afternoon, you know, I started to see my, my frugal behaviors is actually far superior than the convenience of swiping a card because I not only got my needs met, but I also got to be creative in the process.   And so I kind of feel like if you're reducing your expenses, and it feels like deprivation, I think that you're not being creative enough about it, I think it can be a really fun thing. And I also think the other piece of it is really understanding that that hedonic treadmill, we're all on when it comes to consumerism, right? We all want, you know, the new shoes and the fancy car and the nice stuff. And I think that I had to really grow a new sense of gratitude for what I have. Now.   If you develop a deep appreciation for what you have now, you're almost combating that desire for more. Right, I think you're combating your consumerist conditioning. And I started to see things that I used to think were a burden, I would just laugh them off as a first world problem. So for example, we all know, the big three, right? And personal finance, when you're reducing your expenses, you want to reduce your housing, transportation and food, those are the things that people spend the most money on. And so I was locked into a lease, you know, or, you know, with my apartment, so I couldn't really do anything about that transportation. I didn't have a car, I was using public transportation. And I had, like, commuter benefits through my job. So I feel like I was optimized there.   But when it came to food, I could I could really have a huge effect there. So I started cooking every meal that I ate. I was bringing lunch every single day making, you know, gourmet breakfast, of like omelets with goat cheese and smoked salmon. I mean, I was eating very well, I'm not talking rice and beans. But for most people, when I would tell them I'm cooking, every meal I am eating, they look at that as such a burden.   And it's like, actually, no, I should be celebrating the fact that I have access to a grocery store that I can get any ingredient I want at any time at that grocery store, right? Like, we are so fortunate and I think if we can shift our mindset and be grateful for how fortunate we are, we're combating that desire for that consumerist convenience. Another thing that really struck me when I was reading Mister Money Mustache is he says that luxury is a weakness. And that really helped me shift my mindset because I realized if I can be happy on very minimal amount of money, that's like a superpower. Right? And I wanted to learn that skill before something externally happened.   So I think self imposed restriction, it has the opportunity to lead to a lot of personal development, when it's externally imposed by a job loss, or like a health scare. I didn't want to try to learn it under those conditions, I think it would have been a lot less fun, you know. And so I think it was really empowering for me to just learn to live on less and enjoy it. I mean, I spent a lot more time reading books from the library and working out and journaling. And I stopped wearing makeup for a long time and got comfortable with my with what my face looks like. I mean, you know, these are all things that you can look at it as deprivation or you can see it as incredible opportunity to grow.   Michael: That's incredible. Total side note. Do you know Wim Hof?   Diania: Yeah.   Michael: Are you a big Wim Hof fan?   Diania: Oh, What a weirdo. Yeah, that guy. My boyfriend does his breathing every morning. It's really obnoxious.   Michael: Oh, that's awesome.   Diania: Yeah, here I'm like huffing and puffing in the living room this morning. So my wife is a huge fan. And I've come on board to the cold plunge thing I totally buy into, but he talks about forcing yourself to be uncomfortable and putting yourself in uncomfortable situations. So when life throws something that you, you can handle it. And that totally sounded very similar to what you're talking about of, hey, do it for yourself. So that way, when life throws you a curveball, you're more than ready.   Diania: Absolutely.   Michael: No, I love that. I love that. But you also did. I mean, you also uprooted your life and move that in New York and to Cincinnati. So yeah, I mean, you said that you were locked into this lease, but it doesn't sound like you renewed that lease, or you stayed in New York much longer after having this revelation.   Diania: Yeah. And, you know, when I was in New York, for about 10 years, I had to move almost every year. I think the longest I stayed in a place was like a year and a half, maybe two years. But it's, you know, you're constantly changing roommates, because no one can afford to live alone. And then the rents will go up like $100 every year. So you're really forced, I was forced even deeper and deeper into the bowels of Brooklyn, you know, and then I ended up, I ended up getting this. The last place I lived. I did live there for two years is the first time I've ever lived alone as an adult.   It was in Sunset Park and I was paying $1,800 a month for this like cockroach infested apartment. That was just Yeah. So when I was making the decision to go walk the Camino and 2017 My I did the Camino in the fall, my lease was up in May of that year. So my landlord wasn't going to let me sublet for those two months. So I knew I was going to have to leave anyway, and find a different situation. And so it was like if I'm gonna move again. And I'm in this situation where I've got no man, no kids, no debt. Let me just go, like, put my big girl pants on and move to the Midwest and try something different, you know?   Michael: Yeah totally.   Diania: Just, I was always intimidated by the idea of like uprooting my life and starting over in a new city. But I had the benefit of I had a really close friend in Cincinnati, who I visited a few times. And so I got the sense of the area. And she was my only connection to Cincinnati isn't like I grew up here. I grew up in New Jersey. I had no other friends or family or anything besides her. And that was really helpful, though, because she was another very social person. So she just dumped me into her friend circle. Oh, and that's kind of how I got going here. Yeah, yeah.   Michael: That's great. That's great. And so now that you are kind of on the other side of the wall, or standing on top of the wall or the mountain, what advice do you have for people? I mean, in addition to the wealth of knowledge you've already shared, what do you what do you see looking forward? And what can you share with people?   Diania: Yeah, um, I would say when you're first starting out, like I'm helping a friend right now who's really deep in debt, who is just starting from scratch, trying to clean up her finances. And when I sit with her in our meetings, it's like, she's just so overcome with shame, and fear. And she's like sweating, as we're talking about this stuff. And I encourage her as well as anyone else in that situation, let your curiosity be bigger than your fear.   Because when it comes to money, it really is all figureoutable. But you have to have the mindset that it's fixable in order for you to be able to kind of face the music and like look at the reality of your situation, so that you can come up with a plan to dig out of it. It's totally possible. But it really all starts with your belief system. So there's a lot of people where I'll tell my story, and they'll say, Well, you could do that. But here are all the reasons why I can't do that.   Michael: Why I can't, right. Yeah.   Diania: And and I think if that's your initial reaction, that's your first thing that you got to tackle. I think you've got to change your belief system to recognize that it is possible and start to get curious about how it could be possible versus just immediately dismissing it. I think that's good advice for when you're first starting out. I think as you move through your financial journey, and you start hitting milestones, like for me, I hit debt freedom. Amazing. Then I had a fully funded emergency fund. Awesome. Then I started fully funding my retirement vehicles to the point where I reached Coast FI, which for those who aren't familiar Coast FI means that I have invested enough in my retirement vehicles that in 30 years because I'm 34 right now, it will grow to what I need for traditional retirement. So in essence, I don't really have to save for traditional retirement anymore. If I didn't care about early retirement and I can kind of take my foot off the gas a little bit because I've hit those certain milestones.   And then, you know, saving to a place where I got my first side hustle so I started hosting this podcast called optimal finance daily, which is a daily show, 10 minutes or less, I'm reading you articles about personal finance. So I like to say that all these amazing personal finance bloggers wrote these great songs, and I get to perform the covers, you know.   Michael: That's great.   Diania: It's, it's a show that's been around for five years, and they were looking for a new host, and I just went for it. And so this is kind of my first, you know, little side hustle income.   So, I would say though, as I've progressed through these milestones, my trajectory and goals for the future have definitely shifted. So I would say, like, be flexible about financial goals, because when I first started this, I thought, What I wanted was to just reach financial independence and retire early. And then as I've gone along through the years, and it's only been, what, six years that I've been on this journey, my desires and goals kind of keep shifting and changing, because the, it's almost like, the universe presents you with opportunities along the way.   And so if you're so laser focused on just reaching financial independence, you may miss out on these opportunities to learn about yourself and learn about what do you want to do with your time? What do you want to create in the world? And who do you want to spend that time with those three questions to me, has become kind of the focus on my path to FI. It's not like I gave up on my goal. But I just I've kind of, I'm not so laser focused on the money piece of it. Because I've realized that money is only as valuable as your clarity on how you're going to use it, and your comfort level with how much is enough.   So if you don't have clarity and comfort around your money, yeah, if you don't have those two pieces, you could be a multimillionaire and still be miserable. Right? I don't want to reach that point. I want to use my financial bandwidth to kind of explore those two things along the way. I also love this quote from Ayn Rand who wrote like The Fountainhead, and she says, money is only a tool, it will take you wherever you want to go. But it won't replace you as the driver.   And I just think for so many of us, we look at money as the goal versus as the tool to use to reach our goals. And that's something that I had to learn in in for myself, because I had always just kind of had money as the goal once I discovered the fire movement.   Michael: Yep. Yeah, no, I'm right there with you. And I always said, I'll figure it out when I get there. But then I realized, oh, there's too many other things to figure out along the way, that having money be the tool is a much better way to go.   Diania: Absolutely. If you're miserable on your path to FI you're likely going to be miserable when you reach FI   Michael: Yeah. Yeah, I think that's so well said. So well said. And so then I'm curious if you can share with everybody, what is it? What is your investment kind of portfolio look like? Is it stocks? Is it bonds is a real estate? How do you see yourself hitting that hitting the hitting FI?   Diania: Yeah, so I went for the Simple Path to Wealth model. And I would say that most of my money is in the tax advantaged accounts of what my 401k So I actually quit my job in January of this year. That's crazy. That was 10 months ago.   Michael: Congratulations that's awesome.   Diania: Yeah. So okay, so little sidebar, that's kind of a really good representation of what I mean about being flexible, because I had just thought that I was going to stay with my employer until I reached financial independence. But things changed, right, I ended up getting this new boss, the dynamic of the company, after nine years of being employed, there changed considerably. And so, you know, the, I kind of felt like the party was over, and the company didn't value me anymore.   And so I could have just put my head down and pushed through it because I have this goal of financial independence. But instead, I decided to kind of take a risk and a bet on myself to see like, Okay, I've got this, but I like to call FU money. So that that's defined as a year to have your expenses liquid. So I had a year in cash, and I had a year in after tax brokerage, which I really don't want to touch the after tax brokerage, but it's almost like my backup plan, my additional layer of a safety net. But that's something that it was almost like the universe presented me an obstacle and an opportunity at the same time. And so that could potentially slow my path down to FI.   Or something could happen. And I could, you know, find a new source of income. I'm exploring like 14 different sources of income right now. And so one of those could blow up and then it could expedite my path to FI. It's almost like I gave up the security of a regular paycheck and opened myself up to the uncertainty. You know, like I had plotted out my whole plan before because it was based on a steady paycheck. And now it's not. So who knows? Maybe I reach FI by 40? Maybe not. But to answer your question directly, um, I have my IRA. Now a traditional IRA, that was a rollover from my 401k. I've got a Roth IRA, and also my HSA   Michael: That is tough to say five times fast.   Diania: Yeah yeah So I have, I would say, the bulk of my money is invested there, and I am like, VTSAX all the way, I just, I'm 100%. In stocks, I don't have any bonds, because I have a very high risk tolerance. But also I don't want to be, I don't want to have to rebalance every year. Right? It just is simpler for me that I don't need to rebalance every year. It's all in a total market index fund, set it and forget it. I also own my home.   Now, for the first two years, I had a roommate who was paying like 95% of the mortgage. So I did a little bit of house hacking. But I did buy this house with the knowing that it would be an amazing rental one day, so I'm living in it for now. And I believe that this will I don't look at it as an investment yet. I think it's going to be once I start renting it out sometime in the future.   But yeah, I would say that my investments are very much so just simple stock portfolio with my retirement vehicles, a property that could become a rental property, I do want to get more into real estate in the future. I will be honest, that is something that has intimidated me so much I should take your course.   Michael: Come to Roofstock Academy, Yeah absolutely!   Diania: Yes, yes. And all of my friends are reaching financial independence so much quicker than me through the real estate strategy. So I'll tell you a fun story. My one of my first events that I went to five events was called Camp Mustache. It's like followers of Mister Money Mustache. And I actually ran a breakout session. That was all attendee case studies. So there were four of us, who basically opened up the books on our finances, here's our income, here's our expenses. Here's where our portfolio stands today, here are the assumptions that we're making. Here's our growth trajectory. Here are some, you know, nuances we want to point out, and we let people like poke holes in our plan, because we're in a room full of   Michael: Vulnerable that is awesome.   Diania: So yeah, it was, it was great. For me, because, you know, I'm figuring all this stuff out on my own reading about stuff. And to be able to, like be in a room of other really smart people, many of which, who have already reached financial independence. And for them to be like, No, you're good. Like, do you don't need to stress about tax loss harvesting, you're fine. You know, like that, that was really reassuring to me to have. So it was almost like, I was always a good student, you know. So it feels like I got the good star that a plus for my teacher.   But what was fascinating about that breakout session is that two of the case studies, were these two guys, that made half my income, literally half my income, but they were on this fast track to FI they were going to reach it and half of my time, because of their real estate strategy. So I really do think like real estate is the way to do it the fastest. I think it's obviously more complex, it can be more labor intensive than just, you know, buying index funds. And, you know, you don't have to plunge a toilet on an index fund in the middle of the night. You know, you don't have to deal with tenants and all that stuff. So I definitely think that index funds strategy is easier. But it I think it is faster if you go with real estate.   Michael: Yeah. And just for everyone listening, how much did we pay you for that plug for real estate?   Diania: Nothing. I mean, it's just me watching all of my friends killing it. And like trying to work up the courage to do it myself.   Michael: Yeah, come on over. We I know a great place for you, we can get you all squared away. Because I couldn't agree more I think it you hit the nail on the head that anybody can go pick a stock and just put their money into it. And they can make money, they can lose money. I think real estate is more complicated. Coach Tom and I want to do their coaches at the Academy just put out a YouTube video talking about how passive real estate investing really is?   And the answer is, it's not for most of us, it's not here to go buy property it's not. So you really need to go learn about what's involved, versus kind of just throwing mud at the wall and seeing what sticks in terms of stock picking. Or you get this collective, you know, collective safety when you're buying the entire market. So I love that. I love that data. This has been so awesome. Thank you so much for hanging out with me. Do you have any final parting wisdom for everybody who's listening?   Diania: Oh, man, I feel like I gave you all my gems, all of my sound bites.   Michael: So then let's go back and re listen to this episode if you're listening at home, and where can people find out more about you and the economy conference?   Diania: Yeah, so if you go to And that's econome with an ME at the end, not an MY, because if you look at the spelling of my name, I really appreciate misspelled words.   Economy, you can read about all our speakers, you can see all the programming we have planned. You can buy tickets there. Again, it's happening in just a month. So it's right around the corner at the University of Cincinnati. And then you can also subscribe to Optimal Finance Daily, which is the daily podcast that I host and you can allow me to serenade you with the sweet sounds of personal finance knowledge.   Michael: Fantastic. Well, thank you again. I definitely look forward to seeing you again. And I will talk to you soon.   Diania: Awesome. Thanks so much, Michael.   Michael: Thanks and talk to you soon. All righty, everybody, that was our episode a big big, big thank you to Diana that was so much fun. One of one of the most fun episodes I think we've recorded in a long time. So a big thank you to her again. There are so many nuggets of wisdom, pearls of joy of gold, whatever the expression is, so definitely go back and give that episode another listen to again, thanks so much for listening. And as always, we look forward to seeing you on the next one. Happy investing

    Real estate investing horror stories with Paul Moore, Heath Silverman, and Michael Albaum

    Play Episode Listen Later Oct 30, 2021 25:13

    When you have been investing in real estate for years, you've probably seen a lot of weird things. In this episode, longtime real estate investors Heath Silverman, Michael Albaum, and Paul Moore each tell one of their real estate investing nightmare scenarios. Not only are these stories spooky, painful, and entertaining in retrospect, but they offer some lessons for investors on what to look out for in their investing journies. --- Transcript   Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey everyone, welcome to another episode of The Remote Real Estate Investor . I'm Michael Albaum. And today we have what has now become known as a tradition on the podcast. We are doing our Halloween Horror Story episode. We did this last year was a lot of fun. We're doing it again this year. So I guess now it's definitely a tradition, we have to do it forward every Halloween going forward. So we have a couple spooky horror stories from some other investors we're gonna be sharing with you. So let's get into it.   All right, Heath, so tell us your spooky Halloween story.   Heath: Yeah, so as a somebody who's been investing in properties now for around 20 years, I've had my share of horror stories, from people dying and buildings to apparent ghosts that are hunting properties while I'm living in them in the middle of a renovation. But the one I'm going to focus on here was was probably I would say the, the scariest thing that happened to me in my early days of investing. So this is back in, I think it was 2004 when I was remodeling a garage on the first single family rental that I was living in and house hacking at the same time, 17 years ago.   When I bought the building, it was a bit rundown, you did a fair amount of work, and is going through, you know, remodel the top floor, found a contractor who was pretty solid, and he had a foreman on the job who I became pretty close with because he was there, you know, all the time, and I was living in the building at the time of the remodel. And once that was done, my very next project that I needed to do was to remodel the detached garage. So it was a detached garage that had some serious water issues, whenever it rained water was like pouring into the walls and there was a fair amount of rot and a significant amount of work needed to be completed.   At the time, some of the bids just came in a bit higher than I would have liked. And I didn't have the bandwidth to move the work forward. So I kind of put it on hold. And I don't know it was like six months later, the guy who was the foreman on the earlier job came by and he said hey, I know you wanted to remodel your garage. And hey, I just got my license. And I'm now a GC and I'm starting, you know, kicking off my own business and looks like you haven't done the work. I was driving bios in the neighborhood, I'd love to bid it, I can do a great job. So I said sure. And we you know, we got the work started.   And this was one of his early jobs as well. He ended up charging me a fair amount up front, I probably paid like 70% of the work, or 70% of the bid upfront before really getting deep into it. And they ended up demoing, he had a couple other guys who he brought on site, they demo the entire garage, garage, knocked out the roof knocked everything out. And next thing I know, they just stopped showing up.   So here I am, you know, in this, in this house that I'm living in, you know, there's just like debris everywhere. We're about to hit the rainy season again. And this whole thing is opened up, there's crap everywhere, they didn't even really have a dumpster and remove anything. They just kind of disappeared. And I didn't really understand what had happened. So I start playing, I'm trying to call him I don't I don't get a response. And I tried to reach out to people who I knew knew him no response. And then finally, a friend of mine said, Hey, if you looked at the newspaper, see what's going on, I think this is your guy. And it turned out that he that the contractor is using ended up being arrested under suspicion of being the 580 sniper.   There's somebody who was sitting on top of a mountain, you know, over the interstate 580 and shooting cars as they drove by. And it turned out that that person had, I believe was driving a white pickup truck. And maybe he matched the description of my contractor. But they ended up finding, you know, my contractor in a white pickup truck with a with a firearm in the vehicle. So this guy matches the description. And they arrested him. And then because they arrested him, they did go into his house. And at his house, they ended up finding some a couple other people living in his house, who maybe one of them had violated parole.   So So these were the guys who were the ones who are doing the work and my place. And they found a whole bunch of bomb making materials. Again, this is this is what's in the news. Right? So, you know, from my perspective, he was just a normal contractor you happen to have a car you have that, you know, it's all fine and and you have to have a lot of pipes and stuff at his house because the contractor does work. But the news blew this thing up into like, yeah, they arrested basically my GC and a couple people he was living with and it was a disaster. And I didn't know what to do. I was like, Hey, how do I move this thing forward that this place is a mess? There's no way I'm getting my money back.   Luckily, I did vet him beforehand and I had worked with him and he was a GC who was licensed and bonded. So I reached out to the Contractor State License Board in California. And then they get for any investor out there either. I recommend do your due diligence before you hire a contractor, make sure they're bonded, make sure they're insured, all that good stuff. So he was all of the above, I reached out and the Contractor State License Board, you know, they gave me all this paperwork. And they're basically like a, you're never supposed to pay more than 10% up front, you really should, you really should have paid all this money up front before the work started. But they went through all the details, you know, did an investigation.   Once again, I can't verify this. But one of the people in the CSLB basically said that they were afraid to go and interview him directly, because he was being held somewhere in jail, and they didn't really want to have to do an interview in jail, to get his side of the story. So in some ways, I think he really got screwed, I think I think it was I never followed up. But I highly doubt that he was the actual person who was doing this, he was a good guy, I worked with him on an earlier project. And when all this came out, he didn't really have an opportunity to defend himself or anything, but the CSLB did their investigation. And they ended up getting refunded for the portion that I paid him that was on incomplete and ended up finishing the work with somebody else.   But that experience going through the process of having my you know, my job abandoned on one of the first bigger jobs that I had ever done before and then hearing the news that he had been arrested for pretty serious and very scary a crime. It was intense and definitely was a that was sort of my first big horror story as a real estate investor.   Pierre: Alright, Mike, what is your horror story?   Michael: Alright, so this horror story involves actually my very first property that I ever purchased way back in the day, which seems like a lifetime and a half ago. So it was my first set of tenants actually, that I ever had in my first property. And I was I bought the property and it was vacant, and it was turnkey, it was ready to go. And I was just hounding my property manager, we gotta get it rented. We got to get it rented, we got to get it rented. And the timing was weird, cuz I think I closed like in November so and in Southern California, the weather isn't amazing as it normally is. So a little bit of a slowdown in the holiday months. And I just kept hounding her and honey, we got to get some we gotta get we gotta get some snow. So terrified. So she says, Okay, I have this, I have this tenants they applied. It's a mother and son. They aren't as qualified as I'd like them to be. There's a little bit a few kind of demerits here and there. But what do you think, as a good get them in there, I don't care. We just got to get someone paying rent. So we got him in there. And that was the beginning of the end.   So fast forward a couple months, I get a phone call from my property manager. The police have been called numerous times on these folks, that when the mom goes to work, the son is partying, when they're both home, the mom is yelling at neighbors making threats to neighbors just like everything you don't want to hear about your tenants doing. So then fast forward a couple of months, and I went on a European vacation with a buddy of mine. And when I landed in Europe, I got a Facebook message from the tenant from the son. And he writes me, he goes, Hey, but you know, your property manager is a criminal. She's doing all these things, she's robbing you blind is that the other thing and I'm like, Oh my god. So keep in mind, I've known this property manager. She's a good family friend. She's kind of who helped me get involved with real estate. My father knew her for forever. So she's just a good like a good human being above and beyond being a great family friend. And so like, there's no way that, you know, my property manager, she's robbing me blind, I think it's just a tenant who's pissed off. And I said, Thank you for letting me know, I appreciate it, please, you know, communicate through the property manager. I'm not trying to get involved here in a much more polite way. I communicated that.   And he was just writing constantly. I don't know I don't know how we got a hold of my contact information. But he somehow figured out who I was found me on Facebook and I started writing in your You're so stupid, she's robbing you blind. She's a criminal. We can't deal with her. She's, she's trying to kick us out. All this sounds like oh, my gosh, all the all the meanwhile, I'm forwarding this to my property manager be like, hey, these people are are bashing your name up and down the street. I don't know who else they're talking to. But like, I know that you're a wonderful person. She goes, oh my god, I'm so pissed. I'll take care of it. So I don't know if I mentioned but they also stopped paying rent. That was that was a caveat to all this. They stopped paying rent.   And so my property manager went to evict them. And then they just weren't leaving. And it was this whole thing. So fast forward a few more weeks, maybe a few more months. My property manager calls me she goes Michael, the house is trashed. There's human fecal matter smeared on the walls as they left the property. So it just like all the bad stuff you hear about, like happened all at once and on my first go at this owning rental property thing. So I said, you know, what do we do? And she goes well, we already kept that we're keeping their deposit obviously. She says you can go after them in small claims court because about $15,000 in damage.   And I was like yes great. Let's do that. So needless to say if anyone has had experiences small claims court they might be laughing to themselves right now thinking Oh, Michael, how naive of you thinking you're going to go get $15,000 from someone in small claims court but we try it anyhow cuz I didn't know any better. And we the judgment, we basically won the judgment. These folks didn't even appear they didn't show up in court. So the date got moved pushed out again. And it didn't show up again. And so basically made our case my property manager went, I paid her for time, we won the judgment. Okay, great, there's a very big difference between winning a judgment and actually collecting on that judgment. So now we have to go find these people.   And, and start to try to collect money for them. So now this person reaches back out to me, again, I can't believe you did this, we don't have any money, we're so poor, this sending their thing. And so I'm like, I just don't even respond to these people. We, my, my property manager finally reaches an agreement with these people. And I think they paid like $3,000 or $4,000, over the course of like two or three years, in increments. And I was like, it's like, you spend so much money on like, buy property manager going to court, and then just the court legal fees and the filing fees.   And it's just such a headache. And it occupies so much mental bandwidth and the money is gone. So it's a sunk cost at that point. But I was just so frustrated, and so mad at myself about these people out myself, because I went against my better judgment. And I really pushed my property manager to get someone in there. And she said, it was against her better judgment, too. But I was so forceful, and so scared that we just got somebody in there, and it ended up costing me big time. So I think the big, big, big takeaway for me is you got to listen to your gut. And if something doesn't feel right, if you're if you're seeing red flags, listen to those things. And and investigate those things further. And don't be so short term sighted. Because that's what cost me in the long run.   Pierre: Yeah, I mean, it's funny that I mean, these stories are really funny when we look back at it. But I'm sure it was a nightmare as you're going through them…   Michael: Yeah, very funny, Pierre!   Pierre: But it's interesting to me that I know this being your first property, it didn't scare you out of going back into more.   Michael: Yeah, it probably should have truth be told, it would have been very easy. And I don't think anyone would have would have knocked me for it or make fun of me or anything of that sort. But I think I was too naive to know that I should walk away. My property manager said, this isn't typical. This is very abnormal. And so let's just try to do better with the next one. And I said, Okay, that sounds good. So, part of me is glad that I, I don't think it really hit me about how frustrating it was.   And part of it too, is that the process took so long. So everyone listening is getting it in a five minute compressed version. But this is happening over months, and even years. And so to get to the end result, I had already done other stuff. I had already made other investments. And so it was it was which I think is great. It made it tougher for me to just walk away from it all saying, oh, man, that sucked. I guess this whole investing thing is is a kaput idea because I was having success with these other investments   Pierre: That makes sense.   Michael: So, again, just word to the wise. Listen, listen to your gut. Keep an eye out for those red flags. Be be aware of what you're getting into a small claims court and just go hard in the paint.   Pierre: Thanks, Mike.   Michael: You got it.   All right, Paul. So take it away with your Halloween Horror Story.   Paul: Man, did I ever tell you guys what my favorite investment was?   Michael: Yeah, I don't think so. No.   Paul: My favorite investment is mobile home parks. I love investing in mobile home parks. I only wish I would have joined Sam Zelle, America's most successful billionaire real estate investor decades ago. In discovering this amazing asset class mobile home parks. Sam Zelle has over 155,000 mobile home park pads in his company and he's a billionaire and he's just it's just an asset class that's been long overlooked and mostly scorned or ignored. I know of people who have mobile home parks they say they used to go to parties and people would say what do you do a mobile home by Okay, where's where's the hors d'oeuvres?   But my least favorite investment on the planet is mobile homes. Mobile homes are my like, I've got three horror stories with mobile homes. I wish I would have quit after the first one because man what a nightmare. And so I'm going to tell you one of those mobile home horror stories today if that's okay with you guys.   Michael: Yeah, it sounds great.   Paul: Yeah, so I was I had a friend I had this idea wouldn't it be cool to renovate some of those like a mobile home and like put it on a lot and you know, set it up and then rent it lease it as a home you know, put a permanent foundation on etc, etc. So I got a double wide and it had been somewhat trashed, it only it was only like three years old. But mobile home tenants aren't always the very best tenants and sometimes they don't take a lot of ownership. They don't take a lot of pride in their place. And so I decided I was going to somehow be smart and do a lease to own on it. So it wouldn't just be a rental.   And so I got this mobile home doublewide and put it about an hour and a half from my house, found a lot there, it already had, well, septic driveway, set it up. And then I started getting friends who were between jobs, I just happen to know a couple people between jobs to start renovating it. Now, I found out something when I tried to build some houses, I found out that it's not smart to build a house if you don't know how to tighten the doorknob on your own house. And that's why I think people, you know, really appreciate companies like Roofstock, you know, who have experts do this kind of stuff for them.   But anyway, I had these couple guys who were doing the renovations, they were driving an hour and a half from Roanoke, Virginia, way down into the sticks of southwest Virginia. And they and for some reason this thing took like a year to renovate. I don't know how you can take a year to renovate a mobile home, but somehow it did. And so we finally got somebody moved in. And we actually made it into a lease to own.   And so it was a couple who had just moved from a state or two away. And they signed a rent to own agreement. And basically it said that they would make payments, rental payments for three years. And then they hopefully their credit would be to the right place where they could just buy the house. I thought, Okay, not bad.   So I was pretty excited about this. And they started making payments. And they made payments for one year, two years, three years. And then they just kept making payments. And so I was kind of hands off busy with my other business, I didn't pay much attention, the payments just kept coming in. And so finally I reached out to the lady. And I said, Hey, you were supposed to close on this, you know, rent to own? And she said, Yeah, we just we couldn't get our credit score to the right place. So do you mind if we just keep renting till we do. And of course, you know, when you got a good tenant who's only missed maybe like one payment in three years. You want to keep them.   So I said, sure. I'll work with you. So this went on your four year, five years, six years seven, year eight. And they had fortunately made a good number of payments, you know, as far as a percentage of what I had in it at that point. But then I didn't I didn't get a payment. And then I missed a second. I missed a third. And I realized, Wait, something's going on. And so I called her. And she said, Yeah, we broke up. And I moved back to Baltimore. And I thought you wouldn't mind, I went ahead and leased it. I sub leased it to a section eight tenant. And I said, you went through the effort of getting a section eight sub lease and you didn't, you didn't call me or anything. She said now she goes, I'm like two states away now. Can you go check on it? And I said, oh boy.   So I got there. And it was like a warzone this place. So I only checked on once or twice in eight years. It was like unbelievable. I don't even know what happened. The people were gone. All the appliances were missing. There were scratches and scrapes all over the wall. And I looked at the evidence on the floor. And let me say it was disgusting. I tell you, I mean, this story, I don't know who was involved. Exactly. But I know it involved a dog or dogs. I know it involved a baby or babies. And I know and involve alcohol, more than likely alcoholics.   And this was it was unbelievable. I don't even know how you could do this much damage to your own enemy. It was like some kind of war criminal camp. And like they just went around for like what would possess somebody who wasn't even paying their rent at all to want to destroy someone else's property? I never met these people. I never knew their name. But I went in there and I calculated you know, okay, so this place was in like not that bad a shape. Eight years ago when it took us a year to renovate it. I think it would probably take 117 years to renovate right now.   So I did the calculations, I actually had a contractor out there. And everybody was just like shaking their head, this is beyond salvaging. And so I ended up paying, I think it was like $1,000 to have it hauled away to the junkyard. And I ended up selling this lot, by the way I was supposed to make $60,000 63,000 maybe when it closed, and I ended up selling the lot for $15,000.   That's my Halloween Horror Story. Like I said, I've had four mobile homes over the years, and three were disasters at almost this scale. And the fourth one was my mom's. But seriously, I really don't like leasing mobile homes, it sounds like a great idea on paper, and even sounds a great idea to get these used mobile homes and push them into a park. If you can find a mobile home park and then sub or you know, lease them to tenants. And then you're the tenant of the park, I actually did that once and had multiple, like it was trashed, this old home was trashed multiple times, we finally hauled it off to the dump as well. And so not a great business, especially if you don't like being a landlord, which I don't.   Pierre: Is there a moral of the story other than don't invest in mobile homes?   Paul: If you're going to manage your own properties, you've got to be intense about it. You've got to you know, give them the impression, you know, I'm not taking any crap from you are not going to you know, you're going to pay on time and in full, I'm going to evict the day you don't I mean, I think that I've come to a conclusion that with real estate, and this is controversial, and I don't think a lot of people are going to like what I'm going to say, but I've concluded that you either need to be fully involved, intensely involved, treat it like a business, actively managing it, or you've got to completely outsource it to an expert.   I think a lot of folks and I talked to investors every week, and I talked to quite a number of investors, who say that when they try to go in and do something on the side, like they tried to build up, like this dentist I was talking about talking to he said, Yeah, I'm building a 20 home portfolio to replace my income. And I'm so excited about replacing it in. And then he took a deep sigh and he said, kind of exhausted talking, talking to painters between oral surgeries and screening tenants in the evening, and I'm getting tired already. And I'm only on house number three.   And I talked to a lot of people like that. And so I think it's really important that you find someone to outsource this type of stuff to if you're focused on either a great career, or hopefully a family or retirement. It's it's hard to juggle that. And I hear frequently people say, Man, this has just become like a second job. And sometimes the returns aren't as what you know, aren't as high as they expected either. So I think it's really important that people find somebody to outsource to if they want to get in real estate or do it full time.   Michael: It's so important for folks that are self managing really look at the the ROI on their time, and what they're actually paying themselves or what they're saving as compared to outsourcing. For me, that 10% That I'm paying every month is like the best 10% I've ever paid to buy back my time.   Paul: Exactly. Totally agree. Yep. That's a really good point.   Michael: Paul, this was great. As always, thank you so much. And we look forward to talking with you soon.   Paul: Man. It's always great to see you guys appreciate you and thanks for having me on again. Happy Halloween.   Pierre: Thanks, Paul.   Michael: Happy Halloween.   Alrighty, everyone, that was our episode. I hope that these stories just provide you with some great fodder and some takeaways. Lessons learned not to scare you away from real estate investing, but rather to help you learn from our mistakes going forward. We hope you enjoyed the episode. We look forward to seeing the next one and as always, Happy investing

    Inspect it like a girl because we look better! w/Pam Pybas

    Play Episode Listen Later Oct 29, 2021 46:17

    Pam Pybas is the owner of Inspect It Like A Girl, a Certified Master Inspector, and a wealth of knowledge for homeowners and property investors. In this episode, Pam shares what she looks for during inspections, explains her rigorous process, and gives tons of tips and tricks for remote investors to keep their investments in top shape. Pam's links: Website: YouTube: Podcast:  --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.    Michael: Hey, everyone, welcome to another episode of The Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by Pam Pybas from inspected like a girl. And Pam is going to be talking to us today about all of the things that she looks for during her investor home inspections and some things and tips and tricks that you can do as an owner, both in your own home and your investment properties to help them last even longer. So let's get into it.   Pam, thank you so much for taking the time and joining me today. I really appreciate you coming on.   Pam: Yeah, my pleasure. Thanks for the invitation.   Michael: Oh my gosh, I'm thrilled to have you here. You're a home inspector and your business is called Inspect it Like A Girl right?   Pam: That's right. Our tagline is inspected like a girl because we look better.   Michael: I love it. I love it. How long have you been? How long? Have you been inspecting homes?   Pam: I started in May of 2003. I'm in? Yeah, we're in Central Mississippi, Tri County area right around Jackson. Yes, Metro. Well, Mississippi didn't have a lot of Metropolitan. Yeah, we Yeah. Anyway, we're super smaller, tiny, teeny, tiny little state. But yeah, I'm in Central Mississippi. I'm from here. So my dad was a contractor. So that's how I got involved in it.   Michael: I was gonna ask okay, so you kind of grew up around construction and the home business.   Pam: I was cleaning job sites when I was in middle school. I was told my dad told me if I wanted dinner, I had to clean up the sawdust.   Michael: It sounds like he ran a tight ship.   Pam: He did. He did. My mom was a painter. And my brother was a finishing carpenter. So we the whole family was.   Michael: The whole family!   Pam: Mhm.   Michael: Oh, how great. Well, one of the reasons I wanted to bring you on today is just to give folks an idea about what to expect out of a home inspection. And I think a lot of things that come up in inspections really catch people off guard, and people make mountains out of molehills. So I would love if you could talk to us today about what are things that you're looking for when you go inspect a home? And what are maybe some things that sound like big things, but maybe really aren't such a big deal?   Pam: That's a great question. Um, you know, the, unfortunately, what's happened in the inspection industry is that the report sometimes is used to beat people up. And it turns into this big war over what we're going to fix and not fix. So I love that question. And especially from an investor perspective, you know, and I've been working with investors a little over 10 years now. And we actually do an investor inspection, which is, you know, my assumption is that investors know how to put the pretty on the pig. But they they're not real sure what, you know, from a general maintenance perspective, what are you going to be your big deals?   So when I'm working with investors, I'm looking at what's going to be your big ticket item. So your roof, what's your, what's the condition of that roof? How much? How much more time do you have with that roof? Now in Central Mississippi, we're going to be different than other parts of the country, because we have these things called hail storms. And   Michael: I've heard of it   Pam: Yeah, it's it's we had, we've had some catastrophic hail storms. And so you know, the condition of your roof, and you just have to remember from an investor perspective, what your insurance is going to cover and the age of that roof. So we just tried to give them, especially when we're dealing with remote folks, we take a ton of photographs, because we want to give you a really good idea of what that roof looks like. And we also we differ from some other inspectors, and that I'm trying to take as many photographs as I can because everything is digital now it's not like you're going to have a book or a thing of paper, it's going to be so we're going to take photographs of the roof all four sides, if we can get to it then we're going to give you a lot of photographs of the attic and what that looks like your access there. And so you know, because the roof could end up being a very expensive fix if you're gonna have to come in and put a new roof on you want your you know, deferred maintenance and all that.   So we're looking at the roof we're looking at you mechanicals, um, if you know how old is your heating air, we don't care much about heat here in Mississippi, we're a little bit   Michael: You've got plenty of it there.   Pam: We got plenty of the hot stuff, but your air conditioner because that's going to be a call of if a tenant gets moved in and they're not comfortable, then you're going to end up with a bunch of phone calls. So we're going to really look at that air conditioning system and how its installed. And I talk about this a lot on my own podcast is that even if you've got a newer system, if the whole system has not been maintained, you could really have some problems from putting a new system in.   So, we tried to, in our inspection, let the investor know, you know, you've got a new system in but your ductwork is old, and it looks like you're starting to get some condensation from that. So you may want to invest a little bit in sealing all that up, so that you don't end up, because I actually just did a, we do consulting work as well. And I had a client who had a tenant in a property, and you know, bless God bless them, just God bless them, all these tenants. But they're not paying attention. You know, and I tell people all the time, they're not, it's not a conspiracy against you. Because they didn't tell you something. The busy, they got kids, they got jobs they got, you know, there's a lot things there's a pandemic going on, and a lot of things going on, right.   So this tenant did not realize that there was mold in the closets, until it was catastrophic. And it was the result of an air conditioning job that got put in that wasn't done well. And so now we've got a problem that could have been fixed, you know, for a couple of $1,000 ended up costing over 80 grand to come in and do a roommate over media, I know drop jaw dropped the jaw,   Michael: Holy smokes, bringing the crane to pick up my job, the floor   Pam: Oh, it was a mess. And, you know, um, we were able to come in and work with this client and the insurance company actually paid. Guyana wrote her a check for 82 Five. Because, it wasn't the the system wasn't put in, right. And so if I could stress anything with your investors is I know property managers will do the spot checks, but what you really want to think about is getting an inspector in there on a yearly basis to make sure you don't end up with a situation where you're, you know, it's a couple $100 To get an inspector to go in there and check things like you know, water air conditioning, you know, water heaters, and, you know, so the other things we check, I don't know, somebody really needs to explain to me why we started putting our water heaters in the attic, helped me understand why somebody out that was a good idea.   Michael: I've never seen that before or heard of that happening. I don't think it's a good idea.   Pam: It's a horrible idea. And they do it a lot here in Mississippi. And one of the reasons that we get away with it in the south is because we don't have freezing temps see so we can throw the stuff or air conditioning systems in our wall. Well, what we found out was if you don't maintain that, and that water heater decides that it wants to go byebye, and then you know you got a rainstorm in your house. Right? Because I don't guarantee you that tenants not gonna go up there and check that pan to make sure there's no water in it.   Michael: No, no. And how are you supposed to exercise the pressure relief valve with it up there?   Pam: Well, then that's such Yes. How?   Michael: Interesting.   Pam: I know, I just it's just beyond me. We move in towards, you know these rental properties. Normally, you're not going to put a tankless water heater in there. That's huge here with our new construction. And Pammi even had one put in at my house built 58. About 15 years ago, I took all that crap out of my attic. And I stuck it I put my water heater tankless water heater on the outside of the house and put my air conditioning unit in a closet and we've lived happily ever after since then. But   Michael: Oh good.   Pam: Yeah, going back to the question. So we're looking at your big ticket items. So you know, your roofs, your mechanicals, your electrical. One of the things that we're seeing with our investors is that and I have a really good friend who owns a lot of investment properties in the Jackson area is she was she had to change insurance companies and she's got now she's got like four or 500 units, okay. And she for whatever reason, and we haven't dinner that the night she said yeah, we had to change insurance companies, and they made us do an inspection Have all the wiring and then they had to now something that she wasn't thinking about or anticipating as far as an expenditure, she's going to have to update all of her older panels. And drop. Yes, hello.   Now, if you've got 10 properties is a lot deeper than 400 properties, and she's not going to have to do them all. But you know, your electrical really needs to be maintained and checked, because the last thing you want is an electrical fire in a in a, you know, a rental house. So we check all that out. You don't have to bring it up to, you know, current building standards, that would be cost prohibitive. But we do need to look at some safety issues and make sure you know, things are safe, I guess. And some of these panels in these older houses have just moved beyond safe, they're just not safe anymore. So electrician needs to go in and check those breakers and make sure that they're popping off when they're supposed to, you know, when that wire overheats, we want that breaker to pop off. So we're looking at that I'm opening that panel up and checking all those wires.   And another thing, one thing that we do, and I remember the first time I saw somebody do this, it's scaring me to death. But we can take the back end of a screwdriver and pull it down, you know, and hit every one of those wires to make sure that they're in that breaker and that the breaker is on they're really, really tight. You'll be surprised how many of them are loose. But you don't need to Don't, don't go out there and do that that's willing that don't go do that, leave to the professional.   And then we're running. We're running water, you know, um, it's one of the things that we see here in Mississippi is we've got a lot of foundation issues on the slabs. And you certainly don't want to purchase a property where you've got a broken sewer line in the slab. And the way that there are some inspectors out there that do sewer scopes, I chose not to do that we work out of little mini coopers and I didn't want to put that equipment inside a car. I also don't want to pick up a toilet. You know, I'm an old lady. I don't want to do that. So you can get…   Michael: Seems reasonable.   Pam: Yeah, I mean, you know, scoping is nasty. I mean, when you scope when you pull it out.   Michael: Yeah, absolutely. It's a bit in the sewer.   Pam: I know, I'd spend the whole day vomiting if I ended it. So we gotta let somebody you know, that's why I never skimp on a plumber, because you just need a good plumber.   Michael: They're in their money.   Pam: Yeah, tell you what, now, daddy always said, shit rolls downhill. So I mean, you just don't leave that to those guys. Or ladies, I actually know some female plumbers, but um, yeah, those are, those are the things that we're going to look like look for an investment property. And then you know, other things like, we want to make sure that we've got a windows that open in bedrooms, and you don't want to have bars on the windows, those type of things that can affect your insurance, whenever you're trying to insure some of these properties. I'm trying to think if there's, you know, foundation, roof, plumbing, electrical, those are really air conditioning, those are big deals, and then we'll get into general maintenance.   So if you've got a lot of rotten wood, you need to go in and take care of it. Because it's rotten wood is like spoiled milk, you can put it back in the refrigerator is still spoil. So that rotten was not going away. You might as well go ahead and invest and getting that fixed and putting some paint on it. And you know, because it'll water you know, water is our biggest enemy of any house. So and the investor could actually think water is my biggest enemy. What do I what do I need to do to make sure that you know the property is not damaged by water? Because once you start that, if it's not rectified, it's just gonna get worse and worse.   Michael: And, Pam, one of the reasons I love being one of the co-hosts of the show is that we always joke we get to ask self serving questions. So in the interest of self service here, I have a question for you about HVAC.   Pam: Okay.   Michael: And I want to know, what are your thoughts on mini splits?   Pam: Love em!   Michael: How come? Low ducting?   Pam: Yeah, there's no yeah, the fewer the parts, the better. They're good and specific applications. The thing you got to be careful with is that if you've got a multi room, your split may not work as well, because you don't have service into you know, specific areas. So, you know, I'm, I'm kind of a nerd I read manuals on stuff. So check your, the manufacturer's specifications on a particular unit on the amount of square footage that it can cover. And then what you can expect if you put in like I've got a real open floorplan here. So I can put I could do if I wanted to do that I worked with a client on doing that in an older property. She had a sunroom that she had added. And it was it never felt right. And so we work to get her the, you know, the mini splits? What are those? Can't think of the name of, Mitsubishi. Got her a couple of mini splits.   She's Yeah, yeah, to put in that. And it really helped. She's kind of had an interesting situation because it was an older house. It's like 100 year old house, and the unit that she had put in, you know, when you start adding air conditioning to these older properties, you better be careful. Because if they're not used to it, and you don't have enough insulation, now, you've created a whole lot of problems with that as well. But I personally love them. But it's just like anything else, you really have to be careful on your application and make sure that you're using it with what the unit was intended for. Like where do you want to put it? You want to put it in rentals? Are you looking at putting it in a bonus room in your house? Or?   Michael: Yeah, thinking about putting it in my in my new primary?   Pam: Okay, yes. And like in a bonus room or something that's kind of split off from everybody else, or you want to do the whole house.   Michael: I'm thinking about doing the whole house. It's an older style Three, two, it's got thin, it's got little insulation in the wall. So I was planning on doing some some spray and insulation in there as well. And then putting a couple multi zoned mini splits.   Pam: You know what's cool about those and I haven't seen there was a guy here in town that I spent some time with that was doing those. Have you seen the ones where you hang them on the wall and their picture? It's, it's it's, yeah, it's like you can have it. It's artwork. And so it's up high. Oh, no, that's awesome.   Michael: That's really cool. I've seen the TVs that are like our artwork, but never heard of mini splits, you know?   Pam: Yeah. Yeah. And I haven't seen this guy was real into the energy efficiency and all that, you know, everything that goes with that. So I thought that is awesome. And they're pretty, you know, the newer ones are quiet. You know, all this is is the updated stuff we would have in motels. Right. Yeah. So in your situation, are you talking to them about maybe one condenser and then the two mini splits inside?   Michael: Yeah, exactly.   Pam: Yeah. That's what we did at this client's house. And she was she's, she loves it. So and if she knew I was alright. She would call me. I wouldn't know if she wasn't happy.   Michael: Yeah. Very good. Okay. Cool. Thank you so much for sharing and thanks, everyone listening for letting me borrow Pam's time here for a minute. I'm also curious to get your thoughts on what are some things that homeowners can do, either in their own homes as owner occupants or in their investment properties, whether they have a management company do it or they do it themselves, that are easy things to fix that are often looked over? Like the one thing that I'm thinking about is exercising that pressure relief valve on the on the hot water heater, right, draining the tank down, filling it up, exercising the pressure relief valve, little stuff like that Tips and Tricks you've picked up over the years that folks can do that are easy, that help extend the life of their ex mechanicals and expensive pieces of equipment.   Pam: Oh, boy, what a great question. I'm checking those GFIs popping those on and off, manufacturer of your ground fault interrupters that are in your bathrooms and kitchen says that you should test those every month. Because what will happen they're made out of plastic and they will freeze. And so you can go around and you can buy the testers or you can just use your finger and pop it on and off. Maybe   Michael: Don't you just use a fork you just stick the fork in there and then yeah, you will you know if it works.   Pam: Yeah, you could do that and curl your hair all at the same time.   Michael: Don't stick forks and electrical outlets!   Pam: Oh, arc faults nail are big. But I don't know that you would have that in a rental. But if you've got them in your personal home, the arc faults in your panels popping those on and off. We do those whenever we do an inspection. Um, I just came in and now my house is older and I redid the weather stripping on my windows and very easy fix. It was a weekend project for me. Um, my windows are older windows. So I found that that and we've been getting some colder winters down here. So I wanted to do that.   Um, I think I have my heating air equipment on a yearly maintenance. So I have them calm and it's so funny because I watch everything they did. I think that's worse. Yeah. I'm like, Okay, tell me what you're doing now. Um, so yeah, I like to know exactly what's going on. And then I'll tell you something and you can go, we've got an Inspect it Like a Girl YouTube channel, I'm in the process of really, really working on that right now.   Michael: Cool.   Pam: Something that people do not think about when it comes to indoor air quality is on an air conditioning system. Now, if you do your mini splits, you're not going to have to deal with this. But in really, for investors, too, it'd be so nice if you would pay attention to this part of the scenario. Air-conditioning works by pulling air in and pushing air out the where the place where it comes in, normally is in the wall. And that's where you would put a filter on, you know, either a monthly or three monthly, you know, three, I've got mine on about two and a half months, and I use those paper filters. What people don't pay attention to is what's behind the filter. If what is behind the filter is disgusting. Why do you have a filter? Michael: Yeah, it filters in the wrong place.   Pam: Yeah, it's just gross. And I've been inspecting for a long time now 1718 years. And I am just amazed at how many times I will go in, pull off the register on the return pull the filter down. And that is disgusting back there. And then I'll go in because we were one of the in, you know, if you're an inspector, this is an awesome idea. You open every single cabinet, and every single built in drawer, because you want to know if those hinges are work, you want to know if there's holes back there, and you're taking pictures of all of that stuff, because you can't see behind stuff. So we open everything and take photographs.   Well, I open up medicine cabinets, and there's all kinds of antihistamines and allergy medication. And if there's a baby in the house, there's all these drops, and I just My heart just breaks for that child, because the occupants have no idea that the house is making them sick. So if you could take that filter down, and look up in there, and if it's gross, get a shop vac or a vacuum cleaner, vacuum it out, now get in there with a rag and some soap. Don't use Clorox people.   Please don't use people think Clorox or water no killing them old. Well, no, you've just made a lot worse. Um, but get you some soap and water, get in there, clean the walls up, then go buy you some great stuff foam and seal all the edges so that the only air that's being pulled into your air conditioning system is coming from the return. Because if the seams where the wall hits the floor, if that's not sealed, you're pulling what I call negative air out of the wall cavity. I've seen it where it's open all the way up to the attic. So now you're not only pulling in nasty air into your air conditioning system, you're pulling attic air into your air conditioning system. So you just set it up to fail for high energy bills.   So sealing up the return is something anybody can do in there. I didn't know it. You know, I mean, I was around construction my entire life had no idea. And then when I got into inspecting houses ran into a guy who was doing this kind of stuff. So we came into my personal home. And I did that and sealed everything up. And I haven't been sick in years.   And then think about this too. And I am a write this book, there was one that came out years ago, our houses are making us sick. And I think air conditioning systems are making us sick. And it is because we're pulling in bad nasty air and distributing it in the house. So if your house is dusty, probably your return is not sealed up well. Because the dust is being redistributed because you're pulling the nastiness from the wall cavity and putting it in the house.   So seal up your return and then another thing and you know if you've watched any of any of the stuff on this pandemic, and they talk about well, when we're all going to be inside is when it's going to get worse. And then in the summertime summer months when we're all outside the numbers kind of went down. Well, what happens is in the wintertime, the flu is a viral type thing. So it's not really we share it with each other, you know, so you really share the flu more whenever whenever it's cold. But there's a higher incidence of people thinking that got the flu in the winter, well, I have a theory that is not the flu. It's carbon monoxide poisoning. Because carbon monoxide poisoning has the very same symptoms as the flu, nausea, headache. It will, diarrhea. I mean is. And if you're if your furnace is back drafting in any way, you know, you go home and you feel like shit. And then you go to work and you feel better. And you're like, Oh, I'm feeling better. And then you go back home and you feel like shit.   Michael: Oh my gosh. So what if it's that is wild.   Pam: I know when that crazy. I'm just so and I, I'll never forget when I was new, you know, a million years ago. You see his hair is real gray. Very gray.   Michael: It's a great!   Pam: Yeah, well, thank you. It's very popular. I'm a kind of a trendsetter with this gray hair.   Michael: I was gonna say yeah, ahead of the times. I love it.   Michael: Yeah, we didn't make this up. We've had this for like, How old am I? I'm 59. And I started graying when I was 30. So it's been a minute. I've had it!   Michael: Love it. Yeah. Love it.   Michael: Um, so when I was a new inspector, what will happen?   Michael: Okay.   Pam: Let me take this to the next step. So furnaces, gas furnaces. If you got too many splits, you're not going to have to worry, you're solving a lot of problems by just using your mini split. But fantastic. Yes, gas furnaces, which are awesome. I mean, they're fine. But if they don't draft right, or if it's an older unit that has a crack in the heat exchanger, then you are literally pumping carbon monoxide into the house. So in the wintertime, and it's not enough to kill you, it just makes you feel like you want to be dead. I mean, it just makes you so sick. When that furnace comes on, and it puts, and I tell everybody carbon monoxide alarms and don't get the I don't like the combo units, you know, if you've got tenants,   Michael: Okay,   Pam: What I like are the ones for carbon monoxide because carbon monoxide is heavy and it will hover and go low. So I like to have them plugged in, in the sleeping areas. And that would be something that your property manager would check on, you know, regularly make sure that they're plugged in and if they've unplugged them, you know, why did you unplug it? Well, because it kept going off. Well. Perhaps that would be something you'd need to tell me.   Pam: Yeah, it's like people taping their breakers open or shut rather because they keep popping off. popping off.   Pam: I'll fix that. Oh,   Pam: I'll fix that. Yeah. That's that's a duct tape. I'm right. Everything.   Michael: Yep, fixes everything.   Pam: So yeah. Oh, God, especially on plumbing. That's my favorite. Um,   Michael: Yes.   Pam: I was in a so when I was new, I was in this house. And it was empty and I turned on the furnace. It was in the middle. It wasn't wintertime. And when the buyer showed up, I was in the front yard puking. I mean, just vomiting and vomiting and vomiting. And I went I went back and I said don't go in the house. And when in my head was killing me and I turn the unit off and aired everything out and I felt better. And so and then, uh, you know, I went into this house one time this Pam's horror stories, and it was a tenant situation. And there were some babies involved that living there and I opened up the mechanical closet in the furnace flue wasn't even connected. I was like, How can these people…?   Michael: Oh my gosh, so is the best way to check for that kind of stuff, just simply having carbon monoxide detection? Or could there be an instance where it could be making you sick, but that's not enough to have the alarm go off?   Pam: It's Yeah, very true. That could definitely happen. So but so here's what   Michael: So what's the best way to check?   Pam: Um, well, having a having it in your bedroom would be a good idea. You can also maybe put one and I've seen this in newer construction will they'll have them next to the unit up in the attic, or they'll have one mounted in the closet. And so now with these smart houses, you can have these detectors that will tell you you know, it just shows up on your phone. Yeah, and let you know, it would probably even monitor your levels to let you know. I'm not as familiar with some of those but I always advocate I've got em in my house. Man even though my water Now is on the outside I put in a tankless gas tankless water heater, it's on the outside wall, so I don't have to worry about that. And my furnace is close to my bedroom but not in my bedroom. So which you can't do, by the way, don't put a furnace. And so that's a big no no for no water heater, it's a big gas water heater in a bedroom either. And people will remodel and they'll do that, or you can't have a bedroom next to a home. Don't have a bedroom next to a garage. You lost your mind.   Michael: Yeah.   Pam: People do it all the time.   Michael: People don't think about that kind of stuff.   Pam: They don't I mean, they don't think about it. And unfortunately, human nature is you don't think about it, too, you have a bad experience   Michael: Until it's too late.   Pam: Yep. Yeah, until it's too late. And so you know, what my job is, as an inspector is to try to give you as much information about the house so that you can maintain that house because it's an investment, it's biggest investment most of us will make. So why not? Why not maintain that. So that that your the return on your investment will be good, because, you know, you'll eventually sell that. And you would like to not have to, you know, give away the farm just because you've got so much deferred maintenance that in order to get the buyer to buy it, you've got to, you know, say well, I'll give you this much. Well, now your profits gone, because you didn't take care of it on a regular basis.   And I say this is just my motto. Now I talk about this on my podcast all the time, the best house is a frequently inspected house. So I personally have I have inspectors working for me, and I have my house inspected every four years. So I know, in my personal home, I mean, I don't just preach that I live that because I want to take care of my investments. Because eventually, you know, Pammi is gonna sell this and go to the country and throw a lawn in the pond and not worry about anything.   Michael: Yeah. That's such a good idea. And I don't know why it never occurred to me to do that before it makes so much sense.   Pam: It does. I mean, it's the worst phone call idea is the client who says, oh, yeah, it's a great house, one owner, they've been there 40 years, and I'm like oh shit, I'll be there for forever.   Michael: Never had an inspection.   Pam: Never had an inspection, Papa's come over, Hey, honey, I'll fix that for you. He was just like, man. Yeah, yeah, there's gonna be a lot going on there. So, you know, I talk, we do a general maintenance inspection. And we've actually started doing quite a few of those, you know, so people can protect that investment and take care of things. And sometimes it's because they've had a bad experience a water heater that blew up or, you know, a storm or.   And another thing I tell people to is a remodel inspection. You hire that contractor and you trust them. But human nature is you're only as good as your worst employee. So if you've got, you know, if you've got somebody that you're trying, and it's not their fault, they didn't really know. But if nobody's watching, you know, you write your last check, and they're gone. And then you get a home inspection in a couple of years, and you've got to pay to fix all the things they didn't do right.   Michael: That is such a good idea. That is such a good idea.   Pam: I'm just full of them Michael, just follow them.   Michael: I can see that. Which, which actually leads me to my next question. I mean, you're only in Central Mississippi, which is a real shame. I wish we could make carbon copies of you and have you everywhere.   Pam: Me too! I've been thinking about that for years!   Michael: Yeah, that's, that's the next great business idea. That way you can go get your line in the water tomorrow.   Pam: That's right.   Michael: And not feel guilty about it.   Pam: That's right.   Michael: How do how do people vet their home inspectors? I mean, are they all created equal? Is there a national standard? What What should people be looking out for?   Pam: No they're not created equal? Just like anybody else, you know, daddy used to always say, You know what they call the guy with the lowest grade passing grade and medical school?   Michael: What's that?   Pam: Doctor.   Michael: Yeah. That's so true. That's so true. Isn't that a scary thought?   Pam: Yeah. Um, I would and I tell I actually talked about this, you want to get online see the best your best friend is Google, or Yelp, or Angie's List? Look at those reviews. And I'm gonna go out on a limb and say something here that makes me not real popular with the real estate community, but I really don't care. Um, I'm not going to use the inspector, my realtor recommends until I vetted that inspector So, you know, because it's the fox watching the henhouse sometimes.   Michael: Yeah, yeah.   Pam: So that your inspector by looking at their credentials, you can go either to well, you just Google it, put that company in there, or just Google home inspectors in your area, and then go through and look and see what do other people who've worked with them have to say about that inspector? Or that company? Let me get rid of this. So that really is the biggest thing to me. And then you may want to look at how long have they been doing it? And what other credentials do they have? Like, right now? Well, I've got a contractor's license, I'm ICC cert International Code Conference certified is to be residential builder license. I've got I'm a member of all kinds of associations, continuing education is kind of a passion from I just love it. I love going to the you know, yeah, we're finally going to have an in person conference. But I love going to these things and sitting down and asking a lot of questions. So see if your inspector is involved in their inspector community. And also, if they're involved in a continuing education, what are they doing to and when was the last ask him, What was the last class you took?   You know, and even I do on our podcast, Fix it 101, Jeff is the contractor on there, he's, and he's Past President of Mississippi Association, or Home Builders Association. And he will say, when you get ready to hire a contractor, ask Him for who they're working with now and get their phone number. And give him a call? How was it? What was your experience? Like? How was your experience? So with the online stuff, now, you can go to Facebook, you can go to all these different things and just ask next door. I love that app. You know, when you put home inspector, you know, who would recommend a home inspector just see what they say, if people have had a good experience, then they'll let you know.   Michael: Oh, yeah.   Pam: And then I want to know how long they're going to be there. That's a really important question. And I tell people all the time, if you want a cheap inspector, we don't sell those here, we don't sell cheap inspection at Inspect it Like a Girl. You know, that's if that's what your budget calls for. And that's what you want to do, you can find somebody out there that will do do a cheap inspection. But a cheap inspection could end up costing you 1000s of dollars. So you want I want to know how long you're going to be there. On average, we are on site twice the amount of time that our competition is.   So we're spending, it takes time to run, for instance, one of the things that we do in a full home inspection on a second floor is I'll go up to the second floor, and I'm running bathtubs up to the overflow. Because guess what? A lot of times they're not connected on your own…   Michael: Right, right.   Pam: All right. So but I don't want to create a rainstorm on the first floor, that makes the sellers kind of mad whenever that happens. So   Michael: I can imagine.   Pam: Yeah, so I have to kind of watch that. And make sure I get it to overflow, and then let it run, you know, maybe two or three minutes more than I'm going to take my thermal camera, go back downstairs and shoot that gun up to where that tub is. And if I have a black spot starting to show up before it comes through the shape rock, then I know that there's a problem there that that takes time. You know, if you're going to be there 30 minutes, what are you doing?   Michael: Yeah, what could you possibly be getting done?   Pam: What could you possibly be getting done, even in a Cabbage Patch house, and that we call cabbage patch patch anywhere from you know, 900 to 1100 1300 square feet, two hours minimum, to, you know, to get all that done? And then we like to ask your inspector, what's their review process. And what I do with my out of town investors is that we do a zoom call, and I take them through the entire report. And I break my reports into repair and general maintenance. So these are some things, these could be some deferred maintenance things. These are things you probably want to take care of right now. And then do they offer what we call a repair check inspection.   So and I do that a lot with my out of town investors because if something's fix, how are you going to know? And so we'll go back and you know, and make sure that everything's done right and regenerate that report with the repairs in there with the photographs. And this is what was done. Oh, So those are a few things that you want to do when you're when you're vetting an inspector, and then just what is there? If do they offer any type of volume discount, and we do that my folks are buying a bunch of properties here, we'll help you out. I'm not gonna, you know, I still have to make a living, I still have to, you know, pay my bills, you know, but if you're going to give me a volume, like we just finished 49 houses for some out of state investors, and we gave them, you know, some discounts on that, to get all those properties done. So I'm trying to think that would be, you know, is that helpful?   Michael: That's extremely helpful. That's extremely helpful. Yeah. Because I think that's one of the issues people run into is there's so many choices, how do you know, analysis paralysis, how do you choose? So this is some really great actionable takeaways that folks can use in the field, when we're looking for folks to inspect the properties.   Pam: And 2 when your remote. Okay, so when I'm dealing with folks, they want to know, they want to make sure that that report is easy to read, they don't want to get lost in the weeds, you know, and that's been something I've worked very well. And maybe it's because I'm female, but my presentation, I want it to be easy. I want a seventh grader to be able to go through that now I can tell you exactly what's going on. So I won't, I want you to be able to read that report and have an idea. And then the repair person, I ain't got time to answer questions from a repair guy that's walking recalls, and he's on the roof. And he wants to know where the nail pop is. Probably I just don't have time to stop what I'm doing. And plus, I don't remember where the nail pop is.   Michael: Go look at the report. Yeah, picture in there.   Pam: There's a photograph with a circle around it. This, you know, so everybody's on the same page about, you know, where everything is. So when you're talking to these inspectors, you know, find out get a sample report. You know, what, what kind of reporting software are you using? And if you get one of those, and it's hard for you to read it. You know, I'm not trying to impress you with my report writing skills and make you think I'm really smart. Because I'm, I'm really not, most of this is common sense. And so I just want to put it in a way that where you can understand it, I'm not going to get real technical, and because I'm just not that smart anyway. But you want to look at the report, you know, so you can read it, and you know what's going on, especially if you're long distance.   Michael: And it's useful.   Pam: Yeah, yeah, you want it to be useful. And then you've got a point of reference. So I know, okay, I've purchased this property, then I've got this report. And then, you know, we really recommend I've been, I've been pitching this idea for a while, is annual inspections. So if we do your inspections, let's say that the 49 that we just did, and they want us to do annuals for them? Well, they've got a baseline on every single house. So let's say they get a tenant in there, that's cooking meth in the back. Well, you know, we're going to go in, and we're going to take a bunch of photographs of all this stuff. And now you can see, well, that wasn't there whenever I bought this.   Michael: Yeah.   Pam: Or the you know, the telltale signs, the you know, all the chlorine under the sink and the hole up at the top. And anyway, that type of stuff. So you just have a baseline for every property, and then you can maintain it and maintain your investment for as long as you want to have it.   Michael: So good. Pam, this has been absolutely fantastic. I want to be very respectful of your time and let you get out of here. But for for those of us for those listening, what is your podcast called? And how can folks get a hold of you if they want to utilize Inspect it Like a Girl services or have more questions about Central Mississippi?   Pam: um, the podcast is Fix it 101. And it's you can download on, you know, Spotify, Apple, whatever, any of those things. And it's run through our local Mississippi Public Broadcasting. So NPR and so you can find it that way as well. We do have a live show on Wednesdays and we've got folks listening from all over. I mean, we get we had an email from Korea. Like really?   Michael: Oh, how cool.   Pam: It was awesome. But you can listen to that. And we're talking about general maintenance stuff. It's not an inspector podcast. It's a you know, how do you maintain and we've got a contractor on there and it's DIY projects and you know, and it's actually quite funny. We have a really good time so Fix it 101.   And then you can if you've got any questions about the central area, you can reach us through our website, We've got an Inspect it Like a Girl YouTube channel, you can email us the web, if you go to our website, it's got a, all our email information in there. And we can help you. We also have an on on a website where you can go on if you're looking at properties and put all that information in and then my office will give you a call and kind of give you an idea of scheduling and pricing. And then if you are going to buy bulk in our area, that would be something that they would then give to me and I would take a look at that. And we'd work out some pricing and scheduling all that kind of stuff.   Michael: Fantastic. Well, Pam, thank you again for taking the time. This was so wonderful, and I'm sure we'll be chatting soon.   Pam: All right, thanks, Michael.   Michael: Alright, everybody that was our episode a big big big thanks to Pam I know I had a blast. Definitely check out her website and YouTube channel Inspect it Like a Girl, or her podcast. And if you liked the episode, feel free to leave us a rating or review wherever you listen your podcasts. We look forward to seeing you on the next one. And as always, Happy investing

    Leveraging the power of the All-In-One loan with CMG Financial

    Play Episode Listen Later Oct 27, 2021 28:28

    The all-in-one loan is a unique product with some very interesting benefits that provide a higher level of efficiency for the homeowner/borrower in paying off their loans.  Justin Macagba and Dave Herbst of CMG Financial join us today to explain how it works, what its benefits are, and who it is a good fit for.  Visit CMG here:  Contact Justin here:  --- Transcript   Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to another episode of The Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by Dave and Justin with CMG Financial, and they're going to be talking to us about a really unique loan product that I had never heard of, but in very intrigued by called the all in one loan, so let's get into it.   All right, Dave, and Justin with CMG financial, thank you so much for taking the time to hang out with me today. I really appreciate it.   Dave: Thanks for having me.   Justin: No problem. Thank you.   Dave: Yeah. Thank you. Appreciate it.     Michael: My pleasure. And so you both are here to talk to us today about something called the all in one mortgage. Is that right?   Dave: Yeah, it's officially trademarked name is called the all-in-one loan. It's a unique mortgage product that we offer nationwide.   Michael: Is this a new product hasn't been around for a while?   Dave: Great question. No, it's not not a new product at all. We we launched this to the market in June of 2005. So over 16 years old now. It is however, sort of a newer concept to you know, most Americans. So it's still you know, day to day kind of feels new, as we talk about it, but it's certainly not a new product for us. And it's often.   Michael: Okay. And so that's twice you've mentioned that it's been launched in the US, was this product modeled after a product in a different country?   Dave: Yeah, absolutely. This type of financing in the way it's engineered, is very similar to mortgage products that are mainstream in other countries, other parts of the world. You know, throughout Western Europe, the UK, specifically, these types of mortgages are called offset loans or offset mortgages. They're also a version of this is also available in Canada, New Zealand, Australia, India, you know, most of the world's largest banks offer some version of this product, but we've been so you know, kind of slow to adopt or embrace innovation in the mortgage industry.   If you think about it, you know, the standard mortgage, 30 year fixed mortgage, or 15 year fixed mortgage, these are products that were developed during the Great Depression era. And they're still the gold standard today. You know, despite all the change and innovation and all the changes in needs, for the for the average American household, we have yet to really kind of push forth innovation in the mortgage industry. This represents certainly, you know, positive change directionally.   Michael: Interesting. And so I had never heard of this product at all until Justin and I were chatting about it in the Roofstock Academy. So Dave, we would love if you could share with everybody, what is it and kind of how does it work? What are the mechanics of it?   Dave: Sure, yeah. Well, the all in one loan, you know, given its brand name, it's a it's two things that are bundled together to two accounts, two financial instruments that are combined together to provide a higher level of efficiency for the homeowner for the borrower. And I mean, that they are able to save money save time, and their money goes further for them.   So let me explain how it's engineered. The mortgage part one of the all in one is the mortgage side and mortgage is powered by a 30 year draw. So first lien position, 30 year draw, home equity line of credit, it's the only one in America that I'm still aware of, there is no other HELOC or mortgage product like it, this allows homeowners to actually finance the purchase of real estate or maybe refinance out of their current mortgage. And it can be used for primary residence second home or investment property, but it also provides them access to their home equity dollars for 30 years without ever having to refinance once in place. But that's not where it stops.   The the other part of the all in one loan is that it comes with a linked checking account that's uniquely engineered, the checking account that's linked with the line of credit is also known as a zero balance or sweep checking account. What that means is anytime you make a deposit, your money automatically sweeps to the mortgage to the line of credit, and it pays down your principal balance that day. So in other words, can you imagine combining your borrowing and your banking needs all in one place, so that your regular everyday cash flow, your money, your idle cash, is always going to pay down your principal balance and that that's a benefit because interest costs are based on your principal balance.   So if you can use the money you have in your possession, right, this moment that you haven't spent yet today, right? Think about your income checks over time, you don't spend all your money all at once. So as your money kind of sits idle, waiting to be spent on groceries tomorrow, maybe a car payment in two weeks. Your Cash is constantly always leveraged against your principal balance which helps you avoid mortgage interest cost over time.   Michael: Interesting. So, so let me just make sure I understand. So if I had an extra I went, I go to the 711 and I find a $20 bill sitting on the ground I can put that into this sweep checking account, and then actually pay down the balance of my mortgage.   Dave: Yeah, I mean, there's a couple things that we know about about average Americans, especially those that are in the market to buy or already own a home. Number one, you need financing. Most Americans need to borrow money in order to actually own real estate. Right. So number two, is that most of us utilize a checking account to manage our income our resources with right pay our bills from the problem with the traditional way we've been doing things forever is that our cash or idle money, the $20, you pick up and find on the street or the $20 You earned from your employer, that that tends to sit around in your checking account securely available for you, but it's not earning you anything, it's not earning you any measurable amount of interest. It's just sitting there waiting money spent on things that you need in the future.   On the on the other side of that coin, you have a mortgage and your mortgage, statistically, is your biggest expense in life costing you high amounts of interest, despite the low interest rate mortgages come with today. Right? So the interest rates with mortgages isn't the problem. The problem is how your money is applied to the mortgage itself, the principal balance. So by combining the two together the checking account and the mortgage together, your cash that $20 you just picked up and found outside 711 will pay down your balance today, just by way of making a deposit into the checking account, your principal balance in your mortgage drops by $20. It'll do that if you deposit a dime, it'll depart it'll do that if you deposit $10,000, your balance drops the day you make that deposit, it re computes interest automatically on that lower balance. All the meanwhile your cash is kept liquid for you to spend the very next day or the next moment.   Michael: So then if I needed that $20 back, because I changed my mind the next day. And actually I want a $20 thing. I can take it out of my mortgage or the line of credit, and then use it and spend a spendable cash.   Dave: Yeah, that's exactly right. So the checking account is fully transactional, full feature. So it comes with ATM debit Visa cards, online banking, on bill payment, mobile banking and bill pay, you could take a picture of a personal check with the with the app, the mobile app, and that gets deposited into the checking account automatically transfers to the HELOC paying down your balance that day. So it's full feature you can check right from it, Link external accounts to it transfer money back and forth from other accounts. When I say it's fully transactional, I mean that the way you're engaging your money is unchanged, you're still using a checking account. This one's just uniquely designed to make your money go further while you're not using it.   Michael: Holy crap. This is awesome. I've got a HELOC on a on a property. It's my primary residence. It's got a 10 year draw period. But one of the ways this is different is out at the beginning you said a 30 year draw period. So that's one distinction to draw from an ordinary HELOC versus this product by product on my primary residence is 30 year fixed. And I know you said this is a 30 year draw. So is this product have a fixed interest rate as well? Or does it is it variable like a traditional HELOC?   Dave: It's a variable rate. And we do offer an interim fixed term option we have a three year fixed and a five year fixed and then it goes fully adjustable meaning a monthly adjustable, so the interest rate is tied to the one year CMT, which stands for constant maturity Treasury rate, aka the one year Treasury rate. So that's the baseline or the index that we use in the interest rate structure. On top of that, the customer chooses a margin and that gets locked in it remains unchanged. But if the index moves which it can on a monthly basis, the rate the interest rate that the borrower pays it's being calculated on your daily balance can can adjust only once a month on the first we updated on the first now the index that we use is near 0%. It aligns with our federal funds rate which is targeted at zero to 25 basis points and it's currently at about eight basis points.   And so when the Fed says that they are going to you know maintain a pattern of low interest rates and not necessarily push short term rates up that's an indication that our the interest rate and our loan will not change either will remain very low. Historically speaking the index has been about 2.2% historically looking back 25 years so very low index to use for a an adjustable rate mortgage and that's why we chose it the index isn't really selected for HELOCs you know HELOCs are generally prime based. And the problem with your 30 year fixed mortgage isn't the interest rate again, it's it's the way that your money is being applied to the to the balance as you know most of your payment for the first half of the term doesn't go towards paying down your principal primarily most of that is going towards interest.   In fact, on a 30 year loan you pay 50% of the total interest that's already predetermined in the first 10 years alone so it's not a it's not a high yield for efficiency of your money. You've worked hard for your money. Why can't all your money as you pay down debt, why can't it go towards principal entirely and then the lender read Cast the interest that you that you're going to owe them. That's this loan. It's the only loan in America that pays principal first for the entire term of the loan. So also the only loan in America, like you said, that gives you access to your equity money and the cash that you put into it for 30 years, without having to refinance. It's also the only loan in America that re computes interest, nightly. Based on your new balance, however, you want to control it over the whole entire 30 year term. So a lot of only statements there, man, but we're pretty proud of it.   Michael: That's awesome. That's awesome. So is there a minimum? I know, you said that that's the one year Treasury is kind of the benchmark and then the lender or the borrower rather picks a margin. So is there a floor and a ceiling to where the variability or where the interest rate could go?   Dave: There is? Yeah, great question. Yeah, the floor rate is generally set at 3.75% for primary residences, and second homes, investment properties is slightly higher than that. And then the ceiling is set at 6% over the initial rate. So on a primary residence or second home, that'd be 9.75%. Roughly, today, for a line of credit that's exceptionally low, as you guys know, write lines of credit typically have ceilings that are up in the high teens, if not low, 20% or 20%. range. So very low.   Now, if for that, for the rate to reach that ceiling level, you know, the Fed would have to increase rates by roughly 600 basis points, right? Not likely that 6%, not likely. And so that ceilings low enough to where protects the customer, it's high enough to where it doesn't really cause concern, during any kind of rising rate environment to to us or to our bank partners to support the loan, there's kind of a sweet spot that you want to achieve with with applying a ceiling, a lifetime cap, you don't want it too high, you don't want it too low. And we know that we found that sweet spot with this loan.   Michael: That's awesome. And so from a qualification perspective, for borrowers and for the property itself, are you looking at the same type of stuff that a traditional or maybe not just about a 30 year fixed product, but go on, you're getting an appraisal, you're looking at borrower financials and all that sort of thing?   Dave: Yeah, yeah, exactly right. It we follow Fannie Mae, it's, you know, obviously, it's a proprietary loan that we pioneered, and it's a privately secured mortgage products, we don't sell it off to Fannie, Freddie, you know, any other loan aggregator, you know, or Wall Street, we, you know, it's secured on the balance sheet with our bank partners that support it, and, but the qualifying for it, and the process follows, you know, agency standards and industry standards and industry norms, of course. So the process is very similar to refinancing or, you know, purchasing a property using a 30 year fix, you'll get an appraisal, full title policy is included, you know, is involved, and, you know, all the all the standard, you know, third party closing costs, you know, are involved the same as if you were to get any other standard mortgage.   Michael: Okay, and who is a good candidate for this product? And who may be? Is it a good fit for this type of product?   Dave: Sure. Well, that's a great question. So this is a, this is a loan product, that that the benefits are driven by your ability to not spend more than you make. I mean, frankly, you couldn't get very far in life, if that's how you live permanently, right? I know that there's kind of peaks and valleys in our spending behavior. You know, holidays are more expensive than than maybe non holiday months, right? Or summertime could be more expensive. I mean, I know that there's an ebb and flow to expenditures and things like that for the average US household.   But overall, really on an annualized basis, if you live within your means you tend to be cashflow positive, you're not spending more than you make routinely, you already make a great candidate for this product. So are you You don't have to be you have to be a really great saver to to benefit you just have to have some residual cash leftover at the end of the each month right and so that begins to build and compound your savings. And that that's an advantage because it's condensing the amount of time you're in debt which is save you 10s of 1000s dollars in mortgage interest along the way while you remain liquid.   So there's that that type of household that's cashflow positive, they can be fairly disciplined they're not suddenly because they've got this heaping line of credit available. They're not going to go out and and change their their budget or behavior, per se, but the people that are thoughtful right and established with their finances make great candidates for the for the product. Also those people with some established established equity in their property.   Our minimum downpayment for purchase is 10% when we're supplying this for primary residents 20% for a second home 25% equity or downpayment is required for an investment property. So you know, this isn't the zero down payment loan right this is 100% loan to value financing loan This is the generally the 80% loan to value alone is most common. Our average loan to value is 75%. Our average credit score ranges around 770 Our minimum is only 700. So you know you need that high of a credit score to to qualify but our average range is close to 800 or so. average debt to income ratio is under 30%. And, you know, so this, this tends to really attract those people with, you know, established credit established financial behavior.   Michael: Yeah, that makes total sense. That makes total sense. And so, Justin, I want to bring you in for a minute, because I know that you are a member of the rootstock Academy, and you actually have one of these products on your primary. Is that right?   Justin: That is correct. Yep.   Michael: So I mean, you're really drinking the Kool Aid. I love it.   Justin: Oh, it's, it's, it's a game changing mortgage. You know, a lot of times when I try to explain what the loan is and how it works, you know, it's, it's met with a lot of more questions than pushback. And you know, I do find a lot of people asking a ton of questions pertaining to the program, but particularly those that are investors, you know, obviously the big appeal for this particular program is the access to the equity as you and I both know, anytime that we want to get access to that equity, we have to do a cash out refinance on the primary I have access to that equity whenever I need it.   So like I said, I'm a I learned a lot from the Roofstock Academy quite frankly, it gave me that additional confidence to start investing out of state so I have properties in the Birmingham Alabama area. Anytime I want to access that equity, I fill out a form sign it scan it into into the bank and I get a wire confirmation afterwards that the funds have been sent to the title company that's handling the closing it's awesome. It's it's really seamless, it's a really seamless program a lot of people are are hesitant about it, but I you know, knowing that there are other parts of the world that have really adopted this particular program, it's a fantastic program.   Michael: And so you're using the equity in your primary via the this all in one loan product to take cash out to then purchase as your down payment are you purchasing all cash?   Justin: So I'm using I'm still leveraging them into a 30 year fixed rate mortgage so I'm just taking the down payment. And then so I have it's actually a really seamless process I've got set up because what I did is so I take the 20% Plus closing costs and prepaids and I've used that for the down payment on I just closed out one last week down in the Grayson Valley area and closed, everything's all set. So what I actually do now is David mentioned by you have this checking account this offset account so all my mortgage payments come off of my line but all of my rent deposits get deposited onto my line. So it's it's just it takes the bookkeeping piece out of it the second Tuesday of every month is my property management issues the issues rent checks that's my favorite time of month because I just wake up and my lines automatically pay down but as far as like having to cut checks and in cut it you know sending payments in or whatnot it all flows seamlessly it's it's really nice   Michael: That's incredible so you really have a a one track funnel for your property your rental property Alabama actually paying down your primary residence mortgage right   Justin: It's pretty great Yeah, that's exactly what's happening.   Dave: You know, you think about it this way you're as Justin said his his mortgages on his rental properties aren't that are conventional mortgages aren't do aren't technically due until the 15th right before you're deemed a late payment or not a late payment but a maybe a late late penalty you know so you have you have this float you know for you know up to up to 15 days 14-15 days every single month to leverage the inbound money that you receive off your rental property into back into your all in one loan line of credit which serves to pay down your principal balance your daily principle in which interest is being computed on so by me by way of making a deposit think of this as like a checking account that's earning you in the form of savings right earning you the yield on it is equal to the interest rate of the loan. So it's like a high powered checking account that's yielding you back 3.75% on your deposits, right and that comes in the form of avoiding interest cost and that accelerates your pay down.   And so Justin's able to recycle that right he's he's able to farm savings just by using it and then take those savings right that build really rapidly and go buy another investment property so just it's just like this you know flexible credit facility that's available to you for a variety of different reasons pay down is one of them it's the byproduct of applying money to principle first and saving money on interest however you're liquid so you can constantly kind of read you know farm those savings and go leverage again and build your your real estate portfolio and in for your wealth opportunities.   Michael: This is amazing. This is a really really cool unique product that just I know we had chatted about it a while ago and it's still taking me time to wrap my head around it.   Justin: It takes a little bit to it because it's just different right we're constantly I mean he turned on the news and you hear about rates every I feel like mortgage rates at one point and turned into like water cooler talk right? Well, what's your rate? It's all about trying to get the lowest rate possible. You've really got to just take the concept of a mortgage and just drop it on the floor and let it shatter, to really understand that, you know, it's not so much the rate, it's the mechanics of the loan, I, you know, I'm a commissioned only sales rep, I do mortgages for a living. So you know, some months are great, some months are not so great, what a great month, I could take all of that money and apply it towards my principal balance and have the peace of mind of knowing that I have the ability to go in and tap into that equity whenever I need it.   It really, it's, it's, it's comforting, where others may be like, no, no, no, it's comforting to me to know that that that equity is available to me whether it's with a check, we have an all in one credit card. Yeah, you you have availability to whenever you need it.   Michael: That's so cool. So how does change in value work for the property both on the upside, and if the market takes a bit of a dive on the downside?   Dave: Nothing stopping a customer, there's no automatic modification of the credit limit. And that's it's probably a good good opportunity for me to kind of to address how the line of credit is structured, it's very unique as well, the credit limit that we established and underwriting remains unchanged for the first 10 years at that initial amount. After the after the 10th year, the credit line limit reduces slowly each month over 20 years till it reaches zero.   So this is how we keep people liquid over 30 years for use of the line of credit, we don't force a balloon payment. We never restructure how you pay for the loan into an amortized payment like with a traditional HELOC. That does that after 10 years. So it's it's a, it's engineered very uniquely, to be able to keep people liquid. But there's no automatic modification in case your property value goes up, you'd have to refinance into a higher into a higher line of credit, which is no problem.   There's no prepayment penalty on this, nothing stopping you or prohibiting you from doing that. There's no amortization schedule that starts over again, right, you just continue on with your principal balance where you left off, you just get a higher line of credit. But you have to go through the process, the refi process, on the flip side of property values come down, there's no there's no triggers an automatic trigger that reduces your line of credit either. What we're concerned with would be fraudulent activity, mismanagement, financial distress, where you really, you know, a risk of default, where where we might address things and look at the line of credit and available, you know, access to money. If in case property values come down, and there's financial distress, a combination of things might lead us to that point, we've never frozen a single line of credit, especially due to property value, we only had two forbearances last year on the product as a result of COVID. Only 2, now consider that we're talking 10s of 1000s of borrowers. And you know, consider what a 30 year fix people people tend to look at a regular 30 year fixed mortgages, low risk.   And to Justin's point, we're kind of programmed to just think that way, you know, nobody really kind of talks about the elephant in the room. You know, delinquency rate ratings, and historically for a standard mortgage are not low, they're actually relatively high, somewhere between about four to 10%. And, you know, if that if you lose your job, or you you're in financial distress, you have income reduction, maybe as a result of COVID, that payment is still do, you still have a payment to make. And if you don't make that you're 90 days away from from potentially defaulting, or even foreclosing on your home.   On this, it's a line of credit. The interest that that calculates daily is totaled up after the month is ended, and then drafted from the line of credit automatically on the 21st of each new month for you. So it's really, really hard to go late on our product. That's why we have no delinquencies and no lates No, no defaults since inception, which is just extraordinary.   Michael: Wow. That's incredible.   Justin: You know, I had a customer of mine, who we had closed on his line prior to COVID. And him and his wife had owned a fitness gym. Well, COVID came around, everything shut down. So there goes as income. Not only that, but he was also diagnosed with cancer. So there's just all this whirlwind of information, a whirlwind of just bad happening to this particular customer. However, no one was knocking on his door three months after, you know, the inability to generate that income because to Dave's point, the balance just increases. There's no There's no delinquencies, there's no late payments, it increases his mortgage balance, but he gets to stay in the home that he's living in. So there you mean you talk about security, that's, that's ultimate to me.   Dave: And that's because they've been approved for the line of credit limit, right. It's not like the old neg ATM, you know, mortgages where you're not even paying the monthly interest that's new, it's just being tacked on to the balance ongoingly kind of almost, you know, people really became too comfortable with that type of product. This isn't that you've established a line of credit based on your qualifying aspects and going through the transaction. So if you need to fall back on your available equity money that's available made available through the line of credit, it's there for you job loss. That's okay. You know, you've got a while till to get back on your feet without having to risk your home.   Michael: This is so cool, guys, this is so cool. Where can people find out more about the product? Where can people reach out to you both directly?   Dave: One of the best resources out there is the product website that's just publicly available. And it's all in one loan. com it's a great place to go to and learn more about it. And then of course, Justin, if you want to provide your information, I think that's the most direct way to learn from one of our experts.   Justin: Yeah, absolutely. I'd be happy to answer any questions. You know, like I said, this combination of the Roofstock Academy and being able to leverage the equity as, as often as I'm able to to be able to build out my real estate portfolio has really been a game changer. For me, I don't think it's something I would have even considered Had this not been the setup that I'm currently in. So first and foremost, Michael, I want to thank you and the guys over at Roofstock for providing me with that confidence. But…   Michael: My pleasure,   Justin: if anyone wants to reach out to me to learn more about the about the program and some of the benefits, I'm happy to answer any questions out, I'm sure we can get my information out there somehow.   Michael: Perfect. You can if you want, you can share it right here. And then we can put a link to it in the show notes as well.   Justin: Sure. So I can reach out to me at my office number, that number is 603-323-0755. And then my email address, oh, it's JMACAGBA, I need to spell out the last name because it's very, very unique as you can imagine.   Dave: Yeah, you said that a few times on Justin?   Justin: Yeah.   Michael: For anybody in the academy, you can I'm sure find Justin in the Slack channels as well and reach out to him. Well, guys, thank you again, so much for taking time any final thoughts or things that folks should be aware of or know, as they're learning more about the all in one loan,   Dave: I would just compel people to you know, consider why this makes such practical sense. Checking account space, zero interest, but they see the most money you'll ever flow or have in your possession any one time over over your entire adult life, right your working life, a high volume of money that passes through a checking account, your mortgage ends up mortgages end up being your constantly sick expense over time as well. linked together now we're talking about something unique and special that really works in your favor, as opposed to working exclusively in the favor of the banks. So this is not to demonize the banking industry. We all rely on them. But you know, it's I think it's refreshing to talk about a product that's really driven and it's it's, it's really puts the consumer before the before the institution itself.   Michael: Right. Great. Dave, Justin, thank you both. Again, really a pleasure to have you on and I'm sure we'll be chatting soon. Yeah,   Dave: Thank you Michael. Appreciate it.   Justin: Thank you.   Michael: Okay, that was our episode a big big big thank you to Justin and Dave for coming on. That was a lot of fun. If you're watching this on video, you probably saw my wheels start turning as we were talking about this loan product really a unique thing. And so if you're interested definitely recommend reaching out to those guys at their website or directly to one of them. As always, if you liked the episode, feel free to leave us a rating or review wherever it is listen to your podcasts. We look forward to seeing the next one and as always, Happy investing

    The entrepreneur journey, with the co-founders of Roofstock, Stessa, and Great Jones

    Play Episode Listen Later Oct 22, 2021 45:16

    Over the past year, Roofstock has acquired Stessa, an asset management platform made for real estate investors by real estate investors, and Great Jones a Property management company specifically suited to serve remote real estate investors. This helps make Roofstock a one-stop-shop for remote investors. In this episode we have the cofounders of all three of these companies on to explain the companies, why they joined forces with Roofstock, and their pearls of wisdom for investing and entrepreneurship. --- Transcript   Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Tom: Greetings, and welcome to The Remote Real Estate Investor. We have a really fun episode today Michael and I are going to be interviewing the co founders of all the different companies that make up the Rootstock ecosystem. So if you're not aware, over the past six to 12 months, rootstock has acquired an asset management platform called Stessa. A really cool software to manage all of your properties that an asset management layer, as well as a property management company called Great Jones. And altogether it's a it's a really powerful stack of real estate technology tools and operations for investors to have and we brought on the founders from all of these different companies.   So we have Gary Beasley from Roofstock, who was a co founder. We have the two co founders from Stessa in Heath Silverman and Jonah Schwartz. And we have two co founders from great Jones and Jay Goldklang, as well as Abigail Besdin. And we ask them about their company, the fit within the roofstock ecosystem, some pearls of wisdom on investing on starting companies, all of that good stuff. So really excited about the episode we have today. And let's get into it.   Michael: All right, everyone. Well, thank you for taking the time out of your very, very, very busy schedule. We've got a lot of heavy hitters on the line here. So I would love if you could all introduce yourselves to our listeners. One by one. Gary, you want to kick things off? We'll start with you.   Gary: Sure. Great to be here. I'm Gary Beasley. I'm the co founder and CEO of Roofstock.   Michael: Fantastic. And Abigail.   Abigail: Hi, I'm Abigail Besdin. And I am a co founder of Great Jones.   Michael: Perfect Jay.   Jay: Hi, I'm Jay Goldklang, founder and CEO of Great Jones now a Roofstock company.   Michael: And Heath.   Heath: Hey, I'm Heath Silverman, co-founder of Stessa.   Michael: And last but certainly not least, Jonah.   Jonah: Yeah, I'm Jonah Schwartz, co-founder of Stessa,   Michael: And we've got Tom Schneider on the line as well.   So I would love if you all could share, why Roofstock, Stessa, Great Jones decided to join forces. What was the impetus behind that?   Gary: When we first started Roofstock we knew not only did we want to have a marketplace for transactions, but we wanted to build deeper relationships with owners and build a community. And to do that, we knew that we needed to be relevant to all property owners who own single family rentals, not just those who are looking to trade at any given time. And so from the very early days, we were trying to figure out how to do that. And I met Heath and Jonah was 2017. Yeah, 2017. And we just hit it off right away. And I said, Wow, these guys are building something really cool that it could provide software for every single family rental owner out there. And like a Credit Karma app for real estate owners, it'd be a great way to stitch together community get a lot of data and and invite people into the marketplace at the right time.   So we had a marketplace and no community they had this great community they were building through the software. And so when I knew that it would be quite interesting to try to bring the companies together. Unfortunately, they decided to sell their company to JLL and not to us, JLL at the time was a little bit larger than Roofstock still is. But we'll talk about later life comes full circle very recently we were able to buy the business from gll and bring them into the Rootstock family and so that's worked out really well.   And then with with Jay and Abigail we also knew that we needed to have a relevant connectivity to retail owners and offer property management because that's the biggest pain point for owners is to be able to outsource a lot of those challenging tasks to professionals and and so we've been tracking Jay Abigail and Great Jones for a long time. There was an opportunity this year to get together get to know each other more recently and that was sort of the one missing piece of our fully integrated platform was retail property management. We have institutional grade property management through Streetlane, which was the first company that we purchased a couple of years ago and now with Great Jones and with Stessa we've all kind of come into the the ecosystem together one big happy family under the Rootstock umbrella.   And now we're in the process of integrating the businesses and, and, and growing. So. So why don't we turn it over to maybe Heath or Jonah, maybe you go first and then Jay, Abigail, you could you could chat about how, how this all has worked for you guys.   Heath: Yeah, I mean, I don't know if I have anything additional to add other than I still remember those drinks we had back in 2017, where we got introduced and started sort of as a more casual conversation about what we were doing and turned into a couple hours of just diving deep into both of our businesses. And I think it was just very refreshing and super exciting to meet somebody who had, you know, the same big vision, you know, of how do we bring transparency and accessibility to this asset class, that traditionally was just one that, you know, was hard for a lot of people to get into, and just didn't have great technology to help power investors out there. So, yeah, fantastic, it came full circle, we're super excited to be part of rootstock. And yeah, excited to see what we're gonna do together.   Jay: I think Heath and I, and also Gary and I have talked about how similar some of the visions are, that we've articulated, maybe the starting points have been a little bit different, because there's a lot to do. But sort of, I think each of us are organically as heard from, you know, the owners we work with, and to some extent, the residents that we work with, how many different moments they they'd like to, you know, have our partnership or, or, you know, partnership with like minded folks to think about using technology or operations to sort of remove friction and let them focus on on what they enjoy doing best. And I would say, you know, really, for the last 12 to 18 months, we've felt even more pull to help our customers, you know, buy more assets, dispose of assets, make good decisions. And so, you know, when, when there came an opportunity to come together, you know, not just in a partnership, but but but more than that with Roofstock. And also with the Stessa. Folks, it's been really exciting to get to work together, you know, to take take on the world, but with a with a shared vision.   Jonah: Yeah, we hear that from a lot of our customers as well, that they're, you know, what, what they get from stessa is great, but they'd love for us to do more, they want sort of that one stop shop, full stack solution to a lot of these problems, including transaction, including property management. So, you know, fitting together and putting out one solution for our customer base, or shared customer base makes a lot of sense.   Tom: I think what's so neat about these three companies is just solving, you know, three very different problems, from transactions to ownership to asset management. I think a lot of times as a startup, you know, you can have really big eyes and be like, Oh, you know, we want to do all of this, and it works really wonderfully. When it's able to come together. All together, I'd love to hear kind of the evolution that you guys had kind of originally, you know, was it always kind of to build out this full stack on your own? Or was it you know, more niche, I'd love to hear just kind of the evolution of your thought of the strategy of the business. And you know how that unfolded into where we're at today, which I think is a really nice platform, I'll say.   Abigail: I could take the great John's piece there. But it sounds like we're all describing a different starting point that very quickly led to this broader vision. Because ultimately, that's what we all learned pretty quickly, the customer wanted a no friction, one stop shop for the full puzzle. And on the great john side, you know, we started, we exclusively were serving what we call the retail customer, the mom and pop investor. And we had started to describe ourselves as institutional grade PM, institutional grade property management, which meant a whole host of things around the type of service that you deliver, and what you actually do as the property manager.   But it became clear that to really be institutional grade, you had to give the retail investor access to all the things that institutions have access to, which is really a full stack solution to investing. And so we I mean, I think Jay can correct me, but I think within a matter of months of the business existing had articulated that it's actually a platform vision that property management is this wedge into this much larger space. And it It took us quickly to realize that and then that's a drum that we beat throughout the duration of the business, and continue to hear and in talking to both Gary and Heath and Jonah, it feels like everybody had the same path. It was just a different what is the wedge, but the thesis is the same.   Heath: Yeah, 100% are our wedge, we always believe that financials were sort of the foundation of every real estate investors business. So by starting with the financials, we could become the system of record, we have all this data around the performance of their properties of their portfolio. And with that information, we can start providing you know, insights to help them maximize the value of the portfolio. You know, automate a lot of the you know, by automating the financials, we can save them a lot of time, help them make more money and doing so It would basically get us into a place where we could then long term become that platform. But of course, now that we have Roofstock and Great Jones, we've we've definitely accelerated that vision and are able to move a lot faster.   Jonah: Another thing that we hear from Stessa users is that by using Stessa, it gives them the confidence to expand their portfolio and obviously Roofstock and the Roofstock marketplace is there when our customers are ready to expand.   Gary: Yeah, I think bringing these companies together was a really natural thing. And we could talk about why I think it's working. It's still early, but it's working quite well, relative to I think a lot of business combinations. And I think what you're hearing is a lot of commonality of vision. And as Abigail, I think, probably like aptly, we put, we all just started from a different place, but we're kind of going in the same direction.   And so So for us, I think it just says accelerated kind of the growth and the amount of time it would take, rather than having to build all these things ourselves. By bringing them all together, we could just do it much more quickly. And and that's I think what we're seeing and then by getting the businesses together, then in addition to it's not just a one plus one plus one equals three, there are synergies, and we should each be able to grow our businesses faster and more efficiently. Because we're sharing data, we're sharing talent across the organization.   And there's a reason most mergers fail. And a lot of that is cultural. We have been very, you know, careful as we evaluate any of the transactions that we've done, it's got to be the right cultural fit. And this these clearly have been an honor. And I think one of the reasons that we've we actually ended up doing both of these deals was the people probably the primary reason they both had good tech and good businesses, but being able to attract all the the talent, the energy and the knowledge of the founding teams and their their core leaders around them really, really powerful. It's it's just hard to find that out in the market. So. So there's lots of reasons I think we're seeing early returns being very promising for this.   Abigail: I think that we all started a different entry points, and not randomly, but because those entry points were our strengths. So I see Stessa has like having firsthand financial issues with their portfolios, like really understanding that space very well, coming at it from like a real software sophistication, Jay and I and the team that we've built both come from really heavy hitter operators, you know, operationalizing messy businesses with technology. And then you had Roofstock with really deep real estate expertise, having done more at scale in the transaction space than probably any any other team combined. So it's not that we all just had the shared vision and happen to be coming at it differently, you have these really deep strengths that we're all playing to. And when those come together, I think that's part of the one plus one equals three that Gary's referring to.   Tom: Perfect segue into the next question, Abigail. So we've been talking about this kind of platform of the different layers of asset management, property management transactions, I'd love to hear the different founders talk about what is the special sauce within their layer of the transaction? Maybe technology, technology wise, you can explore the face the space of the question, but what would you say is some of the competitive advantages within that vertical of the company that you've started that has come together to form this this platform? I'd love to hear your guys's thoughts on, you know, what makes your segment that much better than other options out there.   Jay: On the Great Jones side, I think what we saw was, you know, a number of different areas of inspiration, I think, as Abigail mentioned, a lot of our sort of founding team. And I think at the core of what a lot of what we do is, you know, how do you take hard kind of online offline problems, maybe where there hasn't been a tremendous focus on sometimes efficiency or the Cust customer experience and build something better? That's sort of enabled by by technology and maybe enables, you know, higher growth and higher levels of quality?   So, you know, what does that mean, with respect to property management, I think the experience that investors have often had is that it can be run as a local service business. And as with many of those cases, there will be a really wide distribution where some people will be excellent, some some teams won't be. There's not a tremendous amount of consistency, facilitated facilitated by technology. It's heavily reliant on the people.   And I think what we found, you know, both them in prior experiences and that Great Jones is by I think the core, the core of what we're doing is thinking about What are the outcomes we want to deliver at the end of the day that creates, you know, a great customer experience and really solid returns? How do we think about instrumenting processes that haven't been instrumented previously? And what that allows? And how do we build great, you know, really nice interfaces for, you know, our own team members, owners, residents, vendors, anyone who needs to engage to create that great outcome.   And what we find that that then leads to, is a much more consistent and controllable level of performance, where we, where our team has much more transparency into how can we drive those returns? How can we drive that quality. And because we've instrumented things beyond captured, that data that maybe historically wasn't structured or captured, we can create much more visibility for an owner or a resident on the status of something.   And so an example would be, you know, doing a property turnover, where it sort of, if you if you know, from move out to kind of rent ready, that there are, there's a bunch that needs to happen in terms of doing a full inspection, considering the different paths to remediate or improve anything, coordinating the work of many different vendors, managing timelines, managing costs, you know, giving an owner the appropriate level of choice. And so we've built things like workflow tools for our own team, external interfaces, owner approvals flows, to really make that more of ultimately, almost like an e commerce and messaging experience for the owner. And that's what we think people have been accustomed to, you know, in other experiences, and enables the owner maybe to to Jonah's point to feel more comfortable growing their portfolio doing so across a number of markets, because they know, you know, the quality outcomes that can come with that.   And so, when we've done that being one example, but I think we consider a lot of the core of what we've done to think about, you know, how do we infuse maybe more consumer tech into a space that that hasn't necessarily had that to create a more, a higher performing, maybe more digital, more consistent experience?   Tom: That's awesome. transparency, control, all of that good stuff. I love it, Jay. Gary, do you want to want to speak next?   Gary: Sure. You know, one thing that I neglected to talk about at the beginning, and I know you wanted us to talk a little bit about our real estate investing experience. And I guess what, what it brought to mind that I was sort of thinking about this, which I think is sort of relevant to what we're all doing is, I started really, at very large scale on the institutional side buying 1000s and 1000s of homes during the last financial crisis, and really, kind of cut my teeth figuring out how to build institutional grade tools that would be used by institutions. And I think what we're doing here together now is taking a lot of those learnings that that I and my co founders, Gregor and Rich, kind of, were deeply embedded in institutional scale. And I don't want to say dumbing them down at all, because that's that it sounds derogatory. Simplifying them, and, and having a lot of that same power that we developed, you know, for institutions, and putting in the hands of, of retail investors. And, and, which is, by the way, where 98% of the home set.   So when we think about the addressable opportunity, as a platform catering to real estate investors, it just gets me so excited that we can take all those learnings and apply them now through these different business models at real scale to to retail investors, which as well as institutional investors. And I think one of the other I think, I guess, learnings or I would say, observations that might be counterintuitive, as people are out there thinking about building their own businesses, and how it might relate, you know, to what they're doing in their own lives.   But we took a little bit of a different path to building Roofstock, where oftentimes people will say, you got to pick the retail segment, or you got to pick the institutional segment, and then focus ruthlessly on that single customer, and don't try to boil the ocean. Well, we did try to boil the ocean in that we, we took a contrarian view and said, there's, you know, 90 million homes out there about, you know, 17 million of them or so are rentals. But that rental home doesn't know whether it's an institutional home or a retail home, it's a home. So we need to understand the whole market.   And by catering to both types of customers. We get data from all of them. And the market is the market. It could be an institutional buyer, retail buyer could be any of that. So So I guess I would just encourage people as they're thinking about that. Their own entrepreneurial journeys don't necessarily always listen to conventional wisdom. Because we didn't, we came at it differently, perhaps more ambitious than we then might have been wise coming out of the gate, but we felt like it was the right strategy has turned out to be, it's a work. And so you know, a lot of it comes down to execution. And being able to prioritize and ruthlessly prioritize when you're trying to do a lot of ambitious things, you have to figure out which is the most important which are the most important and focus on them.   And then also know when to pivot and when to stick to your strategy. That's just kind of another thing is for entrepreneurs out there. And that would be one of the things maybe that's interesting for everyone else on the call is that we've all had times where we've had to pivot our strategy. And that's one of the hardest things as an entrepreneur, you have to have conviction around what you're doing, until you decide you need to do something differently. And I'd be curious if there if any of you, my or my colleagues here had any, any observations around that, but that is something that as entrepreneurs and as real estate investors, you You are always trying to figure out well shoot, do I need to change my strategy here? Or do I need to stick to my stated goals?   Abigail: We had something similar where a great John's we I mean, almost identical, we were serving the retail customer exclusively. And we had the opportunity to serve an institutional customer, which was so different and clearly frightening because you have your your heart envision set around a certain customer experience but but took the leap and did it and we too ended up finding not just that it works, but that it it benefited both customer segments. So the the wisdom of have a single customer segment we too maybe walked away from, and both customer segments benefited in a way that I think, paid off the courage of that paid off. I had definitely received the advice early in my career, less about Greg Jones and more in previous contests to get great at murdering my darlings, which I believe is a literary phrase around being willing to like, you know, move away from a plotline, if it's, you know, not serving the momentum of the book or whatever piece that you're writing and definitely sticks with me. It's it sounds ruthless, but I think it ultimately pays off ends up being the bolder decision.   Gary: And you thought all that stuff that you learned when you were a writer was not going to be beneficial in your entrepreneurial career.   Abigail: Exactly. Here I am.   Heath: I'll add, you know, with Stessa we actually pivoted pretty early on. So the first customers that we targeted were really mid market investors. So people with, I don't know, 50 to 100 million in assets under management who we go after and provide full service bookkeeping to. And that's kind of how we got started offering and create financial solution. But we quickly learned that the really massive market, as Gary was saying, is really this, you know, retail investor out there. So shortly, I don't know, what was it Jonah, was like a year and a half after, after we started signing up customers paying customers, we basically made a big decision, hey, we're gonna go off to this much bigger market much harder to reach. You know, these are investors who are very hard to identify, often not willing to pay upfront. So with a free self service product, and we had to go back and fire all of our existing paid customers, which was, which was a very painful experience, but put us on really the right track to get to where we are today.   And when we went after those retail investors, one of the things that we learned that was really interesting is that, while technology and data is really you know, there's quite a bit out there, it's very pervasive out there today, many of these investors were just not using anything, we found that most of them, they actually had no clue if they were making or losing money on any of their investments. They kept most of their financial data in a out of date static spreadsheet, and the only time that they knew if they'd made or lost that money, or how their properties were performing was once a year when they got the returns from their accountant.   So that was a pretty big insight, we realized that when we built Stessa, and when we targeted these guys, we really needed to make this an incredibly intuitive, very much a consumer grade offering for these guys. So we built this self service to all, you know, purpose built for investors, built by investors, you know, really based on our own pain points that Jonah and I have had after being investors. For a number of years together.   And one of the one of the wonderful things about that is again, this was very, very painful decision to to make this change. But nowadays, our you know, our biggest, one of our biggest areas of customer acquisition is just investors referring other investors. And when you go into our net promoter score comments and see what people are writing, I actually did this. The other week, I took all the words created a word cloud, and the two biggest, most common words that people use when they describe it that our users use when they describe Stessa is easy and love.   Gary: Great, great question prompt Gary, Michael, go ahead. And yet, you know, feel free guys in move in the conversation in a certain direction you think they'll be more engaged in as we're as we're going through, but this is really great. So far, I love the inflection point question of these businesses, I think people are going to love it. Go ahead, Michael.   Michael: So you all individually have mentioned technology and how your companies have leveraged that. So I'm curious if you can give listeners at a high level, what technology you're giving them access to. So they can compete with some of the big players at the institutional level.   Gary: Fundamentally, when we think about what's different about Roofstock it's it's the data and technology that's foundational to what we're doing. So you're you're you've got really the same data and information analytics at your disposal that the major institutional investors have through our platform. And so the whole idea is to make it simple and intuitive, not not overly complex, to have a nice UI, but very powerful data around valuation underwriting how to evaluate investments on a risk adjusted basis with our neighborhood scores.   So the idea would be if you were an experienced investor, or even a novice investor, you can come and use our tools. And, and, you know, we provide, you know, I don't want to say it's training wheels, but but it kind of is your because it's all sort of teed up there with starting assumptions that you could then play with, you could look at other properties, you can, you can participate in the rootstock Academy and learn, you can join that community and share ideas and notes. So we try to provide this as a platform for investors to learn, we have plenty of people who engage with us who never buy anything, but they're just learning about investing and how to how to get on their own journey. And that's fine. It's, it's totally cool, we love it.   But eventually, we were there in case they, they want to do it. So I think in terms of if you if you're not in this in this, professionally, oftentimes just hard to understand how to value something, or how to think about the trade offs of buying a property in a four star neighborhood versus a two star neighborhood and you're playing with a lot of that stuff in. And that's what we're trying to do is continually make make the site in our, our business, intuitive, not overly complex, but have enough power that people can unlock, when they want to get in and do further and further research.   I know, when we were first raising money, we got some feedback from venture capitalists, it turned out to be very good advice. The first version of our site was way too complicated. We sort of nerded out on a bunch of different calculators and all these kinds of things that as kind of professional investors were like, oh, wouldn't it be cool if we could do this and that and that, and we did. And his feedback was, guys, this is a Frankenstein product, I get why everything is there. And it seems like it was kind of you just kept adding things because they were cool. And that's exactly what we did. We we did not, we didn't edit properly. And so that was a really good forcing function for us.   He said, If you could ever clean this up, you'll have a monster company, but it just, you know, it's gonna, everyone's gonna get lost in this. So we did and we, we simplified it greatly. And we took a lot of that functionality, we buried it a little bit deeper into the sites, you can unlock some of the sales analytics and things like that. But there's a real balance between having a powerful set of tools and a simple set of tools. And while people want choice, complexity can be it could tie you up in knots.   And so it's got to be this balance between, you know, editing and providing curated data and choices for people versus you know, maybe say that, like if you walked into a store and none of the products were organized into sections, it'd be so overwhelming, right? But if you if you could get guided to the right part of the store, and then you have three things to choose from, it's a heck of a lot easier. So that was I think another kind of interesting lesson as we were building just because you can do stuff doesn't mean you should In many cases, simpler is better.   Tom: Gary one thing I've been meaning to hear you articulate a response. This question is, for some investors, there's a perception that Roofstock is more for like an intro investor, they buy a house on roof stock, and then they bought it, the training wheels are off and they go buy somewhere else. What would you say to that comment of thinking of Roofstock as kind of like, exclusively as like, on the retail side, just for the training wheels, like the initial investor, and then you, you know, go somewhere else, I'd love to hear your your kind of thoughts on that stigma?   Gary: Sure. Well, I would say it depends on what you're trying to accomplish, right, we have some of the most sophisticated investors in the world buying homes off Roofstock. So it's not just for novice investors, it but we do have a unique positioning, and that there are very few on ramps for investors to to learn how to do it, and we provide that that guide. And if someone buys a home in a particular market, and they want to buy more homes, I think, you know, there's no obligation to do it through Roofstock, you certainly can can use those those skills that you have developed.   But it's it's certainly a heck of a lot easier. Because we've you've got all those tools already. And so there's no reason not to, it doesn't really cost you much to use our system. It's it's a, we charge a small marketplace fee to buyers, but you get all the data and analytics and all that to go there. So I would say if you want to buy remotely, it's very hard to do it on your own. So Roofstock has that infrastructure where we compare you with property management, financing, all the comps and analytics, that you certainly could go do it. But if you're looking at homes in four or five, six different markets on your own, it's very challenging, you have to travel, you have to find real estate brokers to work with.   And so, you know, I don't think, you know, I guess I really don't think about our platform is catering, certainly exclusively to first time investors, although a lot of people do start with us, I think on average, now we're just under two homes per investor. You know, people were using the site, I think a lot of people are trying to buy a home a year. For our platform, there's certainly no obligation to continue to use this. But I think for the most part, what we're seeing is people kind of continuing to use us and maybe using more and more of the tools over time, as they do get more sophisticated, maybe you do start to think about portfolio construction and think about where you want to own homes and set up little alerts, put yourself on a program to get build a diversified approach.   So I think it's it's a testament to the platform that we're building and the veracity of it, that it can be something that someone could start with, and then stay with throughout the lifecycle. And you can get as as geeked out is as you know, intense as you want about some of the tools and analytics, but you don't have to.   Gary: And plus all the other additional layers within stessa. Great Jones and Michael, do you want to just reiterate that question that Gary answered first related to technology we can have. Jay, Jonah and Heath take a stab at it as well.   Michael: Yeah, absolutely. So curious to know, because you all come from a technology background, what technologies and tools the individual investor has, Abigail, I think you said a nice that the mom and pop investor has at their disposal because of the companies that you all have founded?   Jonah: So I think he then I, you know came to this not because we were full time real estate investors, right? Real estate was sort of like our side side hustle while we were working in in the tech industry. And you know, that our day jobs in the tech industry, you have access to workflow automation, KPI, dashboards, like, you know, sophisticated modeling tools. And when we were working on our side hustle, owning a moderately sized real estate portfolio, we were doing spreadsheets and sending a lot of emails back and forth and had a stack of stack of paper documents on our desk. And so that was that was really the core problem that we were looking to solve is is give people that those sort of, you know, professional tools, but make it simple and make it purpose built for real estate.   Jay: Yeah, I think, you know, taking on a bit more of the operational side of property management but with a similar lens. A lot of our product strategy has been about, you know, how do we build the internal tool set and structured data that helps us create the outcomes in a scalable way. across, you know, an increasing number of markets, so enabling, you know, investors to work with us across a bunch of markets, that then leads to that transparency for the owner. And I think, you know, I talked a bit about how we've thought about turns in that context, I think that sort of measurement also allows us to then, you know, really lean in and maybe build some more custom tooling where we see there's going to be a benefit.   So for example, when we were very focused on once we had built a lot of the measurement of turn times, we saw there was an opportunity to get, you know, our staff out to homes to inspect them faster, that led to us building a set of sort of prioritization and routing tools, focused on that problem, that sort of prioritization of field work and, and completing that. And so I think part of where that thing goes, in addition to the outcomes for our investors, is a new layer of intelligence into that operational layer. So because we're measuring things like processes, or costs, maybe ROI around things like maintenance or turns or, you know, how did those decisions work out that we made around renewals or leasing, it's been our, you know, our goal, to think about how to structure those data sets, maybe into the owner, you know, web application, or, or help owners make their next decisions based on a sort of a layer of ownership that they haven't had that transparency into historically.   Michael: So I've got just one last question for everybody and very curious to see where it takes us. But I would love if you all can share a little pearls of wisdom or a nugget that you've picked up, because you are founders and co founders of tech companies that you find really applicable to real estate investors, what's the kind of an actionable takeaway or something that an investor can walk away from listening the episode today, from you all that have that have founded companies?   Abigail: I already shared, that you need to murder your darlings. So let that ne a minimum pearl.   Tom: We should we should name the episode.   Abigail: The website, you know, the original Roofstock website was so complex that he had to murder maybe just bury some darlings. So I think we saw that that the same lesson play out there, the the main piece of advice I have is to not overreact to things that are on fire. So just sort of set that your baseline is that all things will be on fire, there'll be multiple fires, and that you shouldn't over pivot or over course, correct, based on anyone, you know, imminent moment of pain, which I think takes a degree of articulation and commitment to where you're going and what the longer term path is. Less that be taken too literally, for real estate investor, I don't mean to use fire, like if something's on fire. Surely, that's not the lesson to be learned there.   Michael: I was just gonna say, do you know about the two fires that I've had in my building, I don't, I don't, where were you two years ago to calm me down.   Abigail: But whatever, whatever the appropriate corollary is, you know, to be confident in whatever strategy you set and be committed to it and not over pivot based on, you know, near term troubles.   Jonah: I would second that, that in real estate, it can be tempting to try to optimize one particular transaction or renovation at the expense of like the long term. You know, thinking about your, your network, your you know, the your business relationship, so the team that you're using to build your real estate portfolio up. And, you know, obviously, you know, building a startup is similar, you can't get, you know, there's the day to day aspect of it. But you also have to make sure you're always building for the long term.   Heath: Everything takes so much longer than you ever expected.   Gary: I would agree with that. I agree with all those those pearls of wisdom. I think having the right long term orientation, making decisions that are right for the long term, very critical, whether you're an entrepreneur starting a company or you're a real estate investor, you know, how much do you want to invest in your renovation, it's going to cost you more, but then it's going to cost you less on an ongoing basis that when you're starting a company, how much do you want to invest upfront in your core technology and in your team, you could do things more on the cheap, but it might not be as enduring. So I would think about investing, you know, in capital and people that are really, really critical.   And then I would say, just on the entrepreneurial side, what has worked for me is real optimism is I think there's different ways and but it's you're intellectually honest, but you're optimistic and you're in solution oriented. You can fall into despair very easily as an entrepreneur or if you have a real estate investment that's going sideways, but if you really sort of say okay, we are where we are, you know, what are our options, how do we fix it and I know we're going to get through this. It You find very few entrepreneurs who won't don't have a glass half full kind of orientation.   A good friend of mine found in Workday. His name's Aneel Bhusri. And he also founded, you know, another company with Dave Duffield earlier in his career. And so Dave co founded Workday with him as well. And, Aneel said one time, he said, Yeah, you know, I'm, I'm, uh, you know, I'm a glass half full kind of kind of person. And I'm a good complement to today, my co founder, you know, by contrast, he's a glasses, entirely full type person. So, you know, it's not as a glass half empty glass half full. And Aneel thought he was, yeah, I'm pretty optimistic. Dave was like, oh, off the charts, this is going to work. And this is how it's worked. He's created multiple billion dollar, you know, multi billion dollar companies. But so I would say attitude is important, and perseverance.   And I think by keeping that positive attitude, not everything is going to go right, you need to try lots of stuff, and celebrate failures, keep going. So we like to say at Roofstock, you know, fail forward fast, try new things, celebrate those things. And it's not easy to celebrate failure. It sounds kind of silly, and it's kind of a West Coast thing. But we do try to do it and you know, talk about things that don't work. And eventually, you're going to find some magic in there. And if people aren't comfortable failing, they don't take those chances. So I think, you know, those are a few things that I would just I would share.   Heath: You know, and I'm gonna add one more, which is luck surface area. And as you're talking about optimism, it kind of reminded me of this. So at my wedding, Jonah actually gave the best man speech. And he spoke a bit about luck surface area and how it applies. And I would say, both in real estate, and in starting a startup, you know, you really got to just put yourself out there, make it known where you want to be, you know, go and scream from the rooftops, hey, this is what I want to accomplish. This is what I want to do make sure everyone is you know, knowing what you're trying to do. And hopefully the right people will kind of step up and, and help you get to that end goal.   Gary: I love that luck surface area. You know, if you think it was Ben Hogan, who also said, the more I practice, the luckier I get. So there's no substitute for that hard work element, as well.   Tom: Jay, do you want to close this out? I haven't heard your pearl yet. Do you want to get to the final pearl?   Jay: Sure. I mean, I think I think it goes back to something Gary said about investing in the team where I think the quality of the team. And I think relationships among the team are just such a huge lever in it, whether it's startups or really trying to be successful at anything. And so I think, being patient around building the right team, having a high high bar for the right team, and sort of, you know, who's your network that you rely on, as you build a portfolio as you build a company, I think has, you know, led to some of our greatest successes and, and some of our missteps occasionally. And so I think, as has always been, you know, something, something I've tried to keep in mind.   Gary: And I would say, you know, one thing that I've also learned over time, and I firmly believe is, is the right strategy, whether you're building a company or a real estate portfolio, even though buying property is transactional, there is a way to live your life and build your career in a way that's more relationship oriented. And I think some of the most successful entrepreneurs, whether it's in tech or real estate, take the long view, and don't view everything as transactional. And while you want to get a good deal on a property, you might be dealing with a serial seller, you deal with that person well, you're going to develop in the long run, you're going to do much better by trying to find Win Win outcomes.   And so that I would put that out there because I think oftentimes in real estate, people view things very much as a one shot deal. very transactional, trying to maximize everything. And I think if you sort of take a step back a little bit, sometimes and optimize for the long run, take more relationship view can be smart.   Tom: We love to hear your feedback. So if you have any questions you want to ask some of these co founders about real estate entrepreneurship. Please, if you're watching this on YouTube, just write it into the comments. We watch that stuff all the time. And if you're listening to this on a podcast, if you could write this in the either Apple podcast comments, or you can just email us you can email us at help at roof with questions, comments, anything you Want related to this content that we're creating and as always, happy investing

    Welcome to the Central Texas real estate market

    Play Episode Listen Later Oct 19, 2021 27:16

    Kevin Guerin is an investor-focused real estate agent and part of the Roofstock Certified Agent network. Serving the Central Texas Market for over 20 years, Kevin is a wealth of knowledge for investors looking to expand into the Central Texas market.   In this episode, Michael and Kevin discuss neighborhoods, price points, tax assessments, rates of appreciation, common issues that investors need to be aware of.   Contact Kevin: --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to another episode of The Remote Real Estate Investor. I'm Michael Albaum and today I'm interviewing Kevin Guerin who is our Roofstock certified agent out in Central Texas. Kevin's going to be talking to us today about some of the Central Texas markets as well as the Austin market and some of the things that we as investors should be aware of. So let's get into it.   Kevin Guerin, out in Austin, Texas. Thanks so much for joining us. How are you today, man?   Kevin: Good. Thanks for having me.   Michael: Now, my pleasure. My pleasure. So I know we were chatting just before we hopped on recording here, but for everyone listening at home, or in the car, or wherever they are. Tell us a little bit about yourself. Are you an Austin guy born and bred and how long you've been in Texas.   Kevin Born and raised in Texas, which doesn't happen that much anymore, it seems but I've been a I was born in Houston moved to Dallas at a young age than it was in a small town called Granberry outside of Fort Worth through high school. And then as soon as I graduated high school, I came down here to Central Texas and went to school. It used to be Southwest Texas now it's called Texas State. But that was in 1987. And I haven't gone anywhere since. So I've been down here a long, long time.   Michael: Right on and in that time. I mean, just from what I've seen in Texas, or Austin do in the last five to 10 years. You must have seen it really changed in the last 30 years.   Kevin: Yeah, the last 30 years have been crazy. This place went from you know, the capital of Texas with the University of Texas downtown to all of these tech businesses moving here and just the growth of people just moving to the city. The high rises downtown. They kind of they call it crane city from time to time because there's just there's cranes building all of these big condo buildings and just people moving here left and right. Because quality living is great, that's a beautiful city. People just love being in Austin.   Michael: That's awesome. That's awesome. What do you love most about living in Austin?   Kevin: Well, we live out by the lake. there's a there's a few lakes that are out here. So we live out by Lake Travis. So you know, we take the kids, wakeboarding, and hay out of the lake as much as possible. And a bunch of hike and bike trails out here and sports and fitness is huge. And in the Austin area. And so we're on a baseball field or a golf course on the lake most of the most of the time and just kind of get out into the, into the nature in the wilderness and enjoy life.   Michael: That's awesome, man. All right, well, let's jump into the meat and potatoes here of the episode. And I would love if you could share with everybody a little bit about Austin as a market and who is coming to the market in terms of companies.   Kevin: Yeah, so Austin. Austin has been a solid market Austin and the cities around it has just been a great place for for investing, you know, for years now. Tons of people moving here, our rentals just don't sit vacant very long, because there's just still a shortage of supply. I remember one time I looked and it said that about 186 people per day were moving to the city of Austin. So when you think about that number and how many buildings are here, it's just you know, it's a supply and demand thing.   So now we've got you know, Apple is expanding Amazon. Tesla, obviously in Tesla's the latest announcement, I guess they're moving their home offices here. Samsung's talking about putting another big operation where they're building more chips or things in town. It seems like every week, there's a different tech company that's moving here and not just from California, they're coming here from other places like VR Bo is here. Indeed is here there's a lot of different companies that love to have their base here. So it's great with the University of Texas here and the other universities here is huge talent pool of, of employees. And so they're here and they're taking advantage of that.   Michael: That's awesome. I mean, it's really sounds like a mini Silicon Valley or another Silicon Valley might even be bigger geographically than what we have out here in California.   Kevin: I think it is I think we still have more land to build on. A lot of our current investors like to purchase things that are going to be a little bit closer into where all these tech companies are going. But there's still a lot more land around where you know, we're gonna have the appreciation because of simple supply and demand and people are going to want to buy and live closer in but it's, it's just never going to get as congested as some of the other places because you know, we don't have an ocean right on the other side to where that we have to stop building. There's there's Still space out there. There's still farmland. But I think prices are going to continue what they've been doing for years just because not everybody wants to be an hour out. Everybody wants to be 15 minutes away.   Michael: Yeah. Yeah, yeah, that makes total sense. So let's talk about prices for a little bit, what are you seeing and maybe you can give people kind of a high level 30,000 foot level tour of Austin and some of the different markets and sub markets within the city where they could look for rentals if they're looking at they're interested in investing in Austin proper.   Kevin: Yeah, prices. Who would have ever thought that through a COVID we would see price increases the way that we have over the last couple of years, but the days of trying to find something around 200,000 or even gone like we're, we're definitely creeping up to more expensive markets, or the sweet spot is kind of in between three and 400,000 that's gonna get you to 2000-2500 square foot house or so. A lot of the markets that that investors are really interested in are going to be kind of north of downtown Austin.   So we've got some other sub markets or smaller cities up north of Austin called Round Rock, there's Georgetown, there's Cedar Park, Leander, gosh, Liberty Hill even now hadow bunch of these little areas that have great subdivisions, masterplan subdivisions that have the hike and bike trails, and the resort style pool and the gymnasiums and things that are that are there that that they offer for, for people who live in these places. And, you know, we can rent them out quickly for a nice amount of rent. It's just, we can't get enough of them. We manage a bunch of properties. Here, we manage about 250 or so. And we may have two or three vacant right now. And that's just because we just put them on the market a few days ago. So things go really quick.   South is also pretty pretty happening right now because the Tesla that everybody knows about is down right by the airport. So there's some some markets maner Dell Valley and Kyle Buda people are buying those areas to because they know that there's going to be you know, however many 1000 employees at Tesla, they're going to need places to live to so we don't really focus as much in the city of Austin itself. The school systems not as good there as it is as some of these sub markets. So most of my most of my investors want, you know, the better schools. So we go into the other places that have higher rankings in the school districts.   Michael: Okay, that's great. And just as kind of a ballpark figure in that three to $400,000 rental, the 2000 2500 square foot, what would an average rent and north of the city expect it to be?   Kevin: It all depends on the sun, the square footage and sub square footage in the subdivision. And you know, the age of the home. So if it's a newer home $350,000 and it's going to be 2020 200 square feet somewhere in there. Again, it depends on which subdivision is but we're anywhere from 1900 a month to 20 $500 a month somewhere in there nowhere near the 1% rule that we used to be yours in the past but now hopefully we're still we're still able to you know at 20% down are so we're still even able to get to at least even or maybe cash flowing just a little bit after property management fees and taxes and HOAall that all that good stuff.   Michael: All that fun stuff. Yeah. Talk to us a little bit about property taxes. Since this is one of the biggest misses I see, especially for new investors, and even those seasoned investors investing remotely. How do those work in Austin, just again, high level cuz I know county by county, it's likely to differ slightly.   Kevin: Yeah, we're gonna be a little bit higher than most of the other markets, we're gonna be anywhere from two and a quarter to 3% of the county assessed value. So a lot of people think when you buy a house at 400,000, that that that percentage is going to be based off of that 400,000. But what it's actually based off of is what each county assesses that property for so the county may think that this house is only worth 300,000. So then then that the 2.5% is only off of that 300,000 instead of the 400,000. So it is definitely a little bit higher than some of the other markets that Roofstock is in. But we thank goodness we don't have a state income tax here. And it is how they pay for a lot of the schools. That's why some of the schools are good. Most of the people here go to public schools, they don't have to go to any kind of charter private schools because the public school system here is really good. And a lot of that comes from property taxes.   Michael: That's great. Do you know how often the properties are reassessed   Kevin: The property taxes are reassessed every year, and I believe the taxes the tax bills are due may 31. But most people are going to have a mortgage and it's going to be you know rolled into it but they reassess it every single year.   Michael: Okay, perfect. So in theory, if you buy that house for 400,000 County assessor's it for 300,000 a year you buy it that could go up year over year. And you know, is there a limit for the amount that that could go up and could have jumped to 400,000? The following year,   Kevin: There's a cap, I want to say is 20%. cap. So I don't think you can go all the way up to the top, you know, can't can't jump 100,000.   Michael: Okay. Okay, perfect. So that's great to know. And also great to keep in mind for everybody listening, as you're looking to determine what your property taxes are. Definitely chat with Kevin chat with your local personnel on the ground to get a handle on, you know what that current assessed value might be, and to wrap your head around what it might be able to get up to?   Kevin: Yeah, all those records are posted on the county website. So the tax assessor website, so whenever we're running our analysis, we go straight there and look to see what it was last year, and see what it was the year before that to kind of get an idea of what the increase may be going forward. But all of those numbers are on there to where you're not really guessing you're you're looking at the actuals.   Michael: You're calculating? That's great. That's great. So Kevin, I know there's a lot of other really great markets in Central Texas. Can you talk to our listeners about what some of those might be? And maybe a little bit, they might be a little bit less competitive?   Kevin: Yeah, so we, we've helped people buy homes from Killeen, Texas, which is up. That's where Fort Hood is. It's a little bit north of Austin prices are a little bit cheaper up there. We had one listed the other day for rent and my leasing agent said he had to finally just just shut it off because he got so many phone calls on it, but homes up there are going to be you know, under 200,000 or so. So they're a little bit a little bit more affordable.   New Braunfels is another market that has just exploded last I saw it was like the seventh fastest growing city in the country. And it's halfway in between Austin and San Antonio. So what I think a lot of people are doing is, you know, mom may work up in Austin dad may work down in San Antonio, but they live in New Braunfels and split the commute time.   Georgetown is also another area that if you look on a map, it's going to look like it's a good distance away from Austin, but it's simply not they've we've built some toll roads here where you can legally drive 85 miles an hour on them and get places really quick. And Georgetown has just exploded over the last few years. It's got a it's got a university there, Southwestern University, it's got a bunch of medical but there's just the ton of great subdivisions going on up in the Georgetown area.   So that place is also exploded, and, you know, even all the way down to San Antonio, San Antonio is going to be a little bit more affordable. I've been nervous in the years past about how long things were gonna sit in the market, vacant for rent in San Antonio. But those days are gone too. I think people have just been priced out of the Austin market a little bit people that are moving here from different states. And they're going to some of these other areas that are just a little bit more affordable. And San Antonio is definitely one of those along with Killeen, New Braunfels, Georgetown, I mean, I would take a look at all those areas, because I think you're gonna get some really good deals that are going to fill, fill quickly. And you're still going to have that appreciation play that everybody says it's kind of icing on the cake. But around here when it's historical, and it's been 15% over the last 10-15 years, you kind of have to consider that when you're you're looking at the different investments that you want to make.   Michael: Yeah, absolutely. And in talking about some of the different price points and some of those different markets you mentioned, does the rent scale fairly linearly, or does that does that price to rent ratio actually get stronger with some of these more affordable markets?   Kevin: That definitely get stronger if somebody's strictly looking for cash for the cash flow play, they're going to have to go in some of these sub markets because it won't quite be the 1% but it's going to be a little bit more affordable on the on the price of the home and rents are going to be stronger. Austin the rents just can't keep up with the explosion that we've had with with home prices going through the roof rents are always going to be lagging when it comes to you know, being able to get up to that next levels but some of these other markets that didn't have the explosion that's Austin's Austin's had over the last few years they're definitely stronger on the on the cash flow play.   And a lot of our clients that's what they're doing they're buying it they get that they get the easy one that's going to have the cash flow every month and then after they get that one and get some rents coming in then they look for that growth play property that's going to be close to Apple or close to Samsung and and that way they kind of they're kind of a wash when it comes to you know how they're looking at their investments when they're making a little bit monthly on one but they know that in 10 years is where they're gonna make make most of their money on the on the Austin property.   Michael: Make the big money. Yeah, that makes sense. And just as a frame of reference for people, how far is it to drive from Austin to San Antonio because I just like being California I have no idea how long that takes.   Kevin: So it's it's depending on what side of town you want to be on but you know from like the downtown area to the downtown area is about an hour and a half. And what they're saying is Dallas and Fort Worth is a Metroplex that kind of grew together. Now there's our LinkedIn in between where the Cowboys play and the Rangers play, but it's it's they call it Dallas Fort Worth metroplex. They're saying the same thing is going to happen here because in between Austin and San Antonio are these other sub markets from Kyle to Sam Marcus, where they go to college to New Braunfels to Selma and shirts and San Antonio so it's all grown together and you can I mean obviously I've been here for 30 plus years I've seen that happen you used to be driving in the middle of nowhere but now you're just driving driving within cities.   So it's you know, some parts are hour hour and 15 minutes to get from one part to the other, but they're pretty easy to get to and again with those toll roads that they've added, you can you can fly down there and get there really quick.   Michael: Yeah. And that makes total sense then for those folks splitting the difference one partner living working in Austin, the other in San Antonio, it's a 45 minute split down the middle. I mean, especially someone coming from California. That's like a dream to commute. 45 minutes to work.   Kevin: Yeah, yeah, no, most places here if you're going 45 minutes, they feel like it's a long way. At most things around here. point eight V is going to be you know, between 20 to 30 minutes to get from, you know, these cities that are up north of town to downtown or to the university or to the Capitol. It's pretty easy to get around except for I 35. I 35 is the one interstate that runs through Austin and they can get congested just because of all the people that are here but as I said, they've built some toll roads and they're continuing to build them that helps people get around a little bit quicker.   Michael: Okay, that's great. Kevin, talk to us a little bit about insurance cuz all I hear about not all I hear about but I so often hear about hail storms, tornadoes, hurricanes, these type of issues in Texas. So in Central Texas in Austin and some of these other markets do you have a lot of those natural hazard issues?   Kevin: Hail is the biggest one. When we get hurricanes that hit the coast here, a lot of people kind of hope that that it makes it up to Austin to fill the lakes that are historically 10 to 15 feet low. So hail is the one thing that you know if you buy a house here and you're gonna hold it for 10 years you're going to replace the roof, the roof is going to need need to be replaced at some point because a hailstorm is going to roll through here with golf ball and sometimes baseball sized hail that will damage your roof. Tornadoes or just south enough to where we don't have a whole lot of tornadoes knock on wood that has not been a huge issue flooding is not an issue here it's it's literally the only thing that you have to worry about is hail.   And then we do have foundation issues at time to time there's some of the the ground around here is has some issues with some shifting and so we get an inspection on every single property just to make sure that homes haven't settled a little bit too much but those are two of the biggest things that we look for is how's the roof does it need to be replaced and you know is the foundation doing as it's supposed to do it most of them are going to be slab up here because most of them are going to be newer construction we don't have basements here so we got to make sure that the foundation is doing what it should the roof is in good shape and insurance will cover the roof it won't cover the foundation but insurance is not expensive here either I'm not sure what it is and other parts of the country but most people are getting really good coverage for you know eight sometimes 700 800 to 1100 a year to cover those things again not the foundation but wind and and rain and hail that kind of stuff.   Michael: Oh that's super cheap on like a $300,000 property I mean that's that's pretty amazing.   Kevin: Good. Well we can we need it with some of the property taxes that we have to pay. Michael: Yeah, it all it all evens out. So would you say that foundation and hail damage are two things that somebody kind of colloquialisms unique to this central Texas that people should really expect to see or not be shooked. If they see that on an inspection report or other other things that are kind of unique to Central Texas that hey, every property just has termite damage for every property is going to have this type of thing. Because a lot of remote investors when they see certain things that they're not used to seeing get really spooked. So talk to people about what they what they should be expect to see and what how they should keep their cool.   Kevin: Yeah, yeah. Almost every inspection report is going to state something about a hairline crack because of a foundation shift or you know, they're going to say that they can tell that there's been some sort of movement, we shouldn't freak out about it because It's going most properties are going to move just a little bit. But you know, in 10 years, if it's only moved a quarter of an inch, I think we're going to be good, you know, the HV AC system because it is hot here. Most of the time, we'll only have a few months where it's cool. People's hv AC systems are going to be used a lot. So when we're doing our inspections, we also really dive deep into how the unit looks. How old is the unit? Does it look like it's you know, somebody's been cranking it down to 65 degrees every day for the last three or four years it changing out that AC filter, but you know, we're looking at the ACS really close the roof, obviously the foundation, but none of them scare you away, if you know if we can get the sellers to take care of whatever small items there are.   But I would say the foundation is one that yeah, if it's got if it's got major issues, we're going to get a foundation company to go in there and take a look and see if it's something we should just run away from the roof. Literally most people don't even know that their roof has the damage on it. So we get somebody out there to take a look at it. And you know if they say yeah, this, this area had a storm six months ago, and there's enough damage on there, we have a lot of sellers that are that are taking care of replacing the roof before we close because that needed to be done. They just didn't, you know, nobody's hopped up on the roof lately to see that it needed to be done.   Michael: And to just give people an idea of what a roof replacement costs, do you have a ballpark idea for your, you know, 2000 square foot property.   Kevin: Yeah. 7500 to 12,000, depending on all the peaks and how high it is. I think two stories are going to be more expensive than a you know, a flat one story, but they're gonna be last one we just saw was right around 7500 for a full replacement.   Michael: Okay. Okay, that's great to know. That's great to know. And then, Kevin, my last question for you is we're recording this mid October 2021. So for everyone listening, keep that in mind. But what are you seeing people do who are winning offers? Are they coming in all cash? Are they going over ask and you can talk specifically to kind of each of the sub markets that you touched on if you'd like, but just you know, what do folks need to do to win these twin these properties?   Kevin: Yeah, you know, I think that the craziness of for about 10 months last November was the first time that I ever had anybody wanted to make an offer above list price. Like that was unheard of here. I've never seen that before. And I actually told him I said, You're crazy. We don't we don't do that here list price, we'll win it. Like No, no, we need to go. I think it was $20,000. Over I said, well, that's the craziest thing I've ever heard. And then every offer after that for about 10 months had to be above lists, we had multiple offers on things I was one of 75 offer one of 75 offers on a house in Pflugerville. It ended up going for like $100,000 over on a $300,000 house, it was chaotic, those times a little bit. They've slowed.   So we're still a strong market, there may be a couple of offers on property, but it's not the way it was. So now I would just suggest, you know, you definitely can't come in significantly lower and expect to win anything sellers, sellers are still sellers are still living in the past, when they think that they're going to get 75 offers at $100,000 over list. Those days are gone. So right, they have to be educated things have slowed down a little bit, let's price it appropriately, and then hope that we can get that price.   So you know, if we're coming in at less price financing is fine. People are still writing the appraisal waivers. So if it does get appraised a little bit lower than what they're willing to offer, they're coming to the table with a little bit of funds. But I'm not even seeing those as much as we were there for a little bit. But I would say it depends on the days on the market is something just hit the market and somebody really likes it, it checks all of their boxes, let's go in at list price and try to get it wrapped up. If it's been on the market for 20 plus days, maybe able to get a little bit of a discount, but I would you know $10,000 off or maybe 15-20,000 try to meet at $10,000 off somewhere in there.   But we've got to be strong with them. Just again, because there's not as much inventory as we've had in years past. There's more than there was a few months ago but sellers are still expecting to make a little bit of money on on their cell and they're getting it so nobody's giving away properties. Nobody's discounting big. We just got to make a lot of the other terms good, you know, we want to try to close within 30 days, our due diligence periods, try to make them a little bit shorter. Give them a nice deposit at the beginning to where they know that we're serious. So we try to sweeten the pot that way. And if we can if we can go in with a highly qualified buyer close in 30 days at what people are asking then Hopefully we can we can capture some deals.   Michael: That's fantastic. All right Kevin My last question for you is you are a rootstock certified agent out in Central Texas so what is it that you're looking for when you're publishing properties to the rootstock select marketplace program?   Kevin: Sure so we found that most of our clients are they like newer they like newer properties in nicer areas with better schools that are going to obviously rent quickly so we try to get something within you know, built within 2010 and newer, if we can't find enough of that then we go to the year 2000 and newer, we try to get to 1700 square feet to about 23-24 maybe 2500 square feet depending on the area and just something that looks clean that has what everybody's looking for you know the granite countertops the the good looking wood floors, we don't want any you know green bedroom green walls in the bedrooms and pink bathrooms we try to go pretty basic but you know, modern looking looking homes that that is not going to ship they're not gonna scare a potential renter away when they walk in there.   A lot of our clients just don't want to go in and spend a bunch of money up front they just want to buy something that may just need to be cleaned and maybe one wall painted and then they put it on the market and get it rented really quick and the price range you know we kind of talked about it some of these sub markets will look and try to find something in that 225 range and then you know everybody realizes when they're buying in Austin it's just gonna be a little bit more so we try to put a good variety out there because you know everybody's looking for something different for the most part.   Michael:  Alrighty everybody that was our episode a big big, big thank you to Kevin, I learned a ton about the central Texas markets as a whole hopefully you did too. Check us out wherever you listen to your podcasts, Google, Spotify and apple. We love comments and ratings. We look forward to seeing on the next one and as always, happy investing

    What we think about the talk of a pending crash

    Play Episode Listen Later Oct 16, 2021 15:24

    There are so many people talking about a pending economic crash. When are they not? In this episode, we discuss how we are thinking about our investment strategies in light of this topic. Even though timing the market is not a reliable strategy, it is important to hedge for the ever-present possibility of an economic downturn.  --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor Podcast is for informational purposes only and is not intended as investment advice. The views opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Emil: Hey everybody, welcome back for another episode of The Remote Real Estate Investor. My name is Emil Shour and my co host today are Tom Schneider, and Michael Albaum and on this episode we're gonna be talking about all the doom and gloom headlines you may be reading out there so lots of YouTube channels lots of articles out there are saying there's an impending crash and so the three of us are just going to weigh in and tell you what we think tell you how we think you can navigate this and come out ahead so let's hop into this episode.   Michael: I think it's important to just start start off by saying that this is not a prediction of crystal balls it's just so that everyone's been talking about it we were talking about the upset everyone's been chittering chatting, chattering, Chaturanga, chatting about this impending crash that we said let's talk about what you can do and this is applicable really for any crash whether it's tomorrow five years from now 10 years from now these are just I think solid and sound principles that we plan on using to insulate ourselves from from a crash.   Tom: Definitely anyone who says they know when the crashes like happening just like run the other direction anyone who tells you Here are some easy you know here's the the easy no work way to make money run the other direction so anyways excited for this episode   Emil: Let me ask you guys this When did you start investing? When did you guys start investing in real estate? What year?   Michael: Like 2012.   Tom: Almost like well, yeah about 10 years 2014   Emil: So maybe you guys probably didn't see it as much I started in 2017 and I remember in 2017 I would probably see that headline at least once a week of like another bubble, bubble coming market crash crash like YouTube videos headlines, though since 2017.   Michael: Real click-baity stuff.   Emil: Yeah, and this is four years ago and so I think my my hypothesis here is it's click baity, no one has any idea at some point right? Someone's going to be right if you just keep saying every single month a crash is coming a crash is coming. You say that for seven years I guess at some point you may be right and then you're like See I told you so.   Michael: I'm a genius.   Tom: Kind of sorry I'm diverging a little bit I love that that's a great point of just saying that every day I heard the story about like fund managers that would have like tons of different diverse funds and like one would hit and then they would market everything on that one like diverse fund ended up kind of a similar sorry distracted Tom see what's a squirrel running by go ahead sorry keep going.   Emil: No I mean yeah, this is just casual conversation. I just think it's it's a it's clickbait I don't think anyone knows when it's going to happen it real estate moves in cycles Yes, there's going to be ups and downs right? This this kind of trajectory have been on where things have only gone up that is not sustainable forever. None of us I don't think are going to say that real estate only goes up or that anything only goes up things come down but I think it's a fool's errand to try to predict when those things will happen.   Michael: Oh, fool's errand great great saying.   Tom: Totally agree totally agree. I mean I think there's a lot of things in the world you can worry about i think that you know worrying on timing exactly the the crash and the idea of like trying to no that is just unrealistic. I think you know, when we get into the the meat of the episode, it's about Okay, what can you do as an investor to put yourself in the best position to weather the storm? And, you know, perhaps even come out even stronger?   Michael: Yeah, I'm with you. Yeah, I second that.   Emil: So let's just talk about what what should you be doing what what do we do not what should you be doing? But how do we navigate these things? So Michael, Tom, whoever wants take it off? Like how do you approach investing even at a time like this when values have never been higher?   Tom: Michael, would you like to go Would you like me to go?   Michael: Yeah, I'll go cuz you always steal my thunder. So…   Tom: I totally was, like,   Michael: I can see you there like, Oh, I hope he doesn't go first so I can steal his thunder yet again.   Tom: I'm sitting on the edge of it. All right, go ahead.   Michael: So one thing that I'm doing, and this might be counterintuitive, but I'm actually levering up as much as I possibly can, because what it does is, we're kind of at this unique time and that like you mentioned, milk values are so high Interest rates are so low. And so there's that massive spread, if you've got equity in your property that you're able to take advantage of, and get a lot of it at a very low interest rate. And so that's what I'm doing. And I'm getting some dry powder in my back pocket to be able to utilize if there is a crash.   If there is not, well, I'm just going to continue investing. And I'm probably not going to wait on the sidelines for very long before redeploying that capital to wait and see what's going to happen, because if you find a good deal, the numbers make sense. Great. And this is something that we've said all along is something that I've been preaching all along, let the numbers do the dictation for you. But the numbers be your deciding factor. So I'm grabbing as much cash as I can, while the values are still high. And I'm trying to get as long term as long of a term as I can on the debt. And so that's that's what I'm in the process of doing right now.   Tom: I love the contrary and take you have a little devil's advocate here. What say there is the crash, right that we are talking about? Are you concerned at all about the value of your properties being underwater?   Michael: Yeah, it's a great question.   Tom: Since you're maximizing your death.   Michael: Yeah, it's something that Emil and I have talked a lot about. And I think we've shared on a podcast as well, I'm less concerned actually, if the if the value of the property goes underwater, because at the end of the day, the value of the property is really only meaningful in a couple of different places. One is from an ego perspective, talking about your net worth. But two is from If a If a transaction is to occur on that particular property. And by transaction, I mean either refinance or sale because I already own the thing, so I'm not buying it again. But if I need to refinance the property, it's and it's underwater, I'm in trouble. If I need to sell the property, and I'm underwater, I'm also in trouble.   But in light of those two, barring those two events, that I believe that even if it does go underwater, the value will come up over time. And as long as there's cash flow to support the debt service, and pay myself, I'm okay taking on that risk. Or again, the potential upside of I'm putting cash in my pocket today. So if there is that crash, I'll be able to buy into that crash down the road, and hopefully hedge my downside.   Tom: Love it, Michael. Excellent. Excellent answer. Emil, do you want to jump in and I'll take up the wood, if there's any kind of scraps at the end after? Yeah,   Michael: Clean up   Emil: The scraps at the end? No, I agree. I think that's the number one thing I wouldn't miss is me personally, I'm not going to invest in anything that is me banking on appreciation to make my return, when valuations are high, I would only purchase something that I know I'm going to cash flow to be able to cover my my debt like Michael talked about because even if the value goes down 20-25% as long as I'm still able to pay my bills, I'm still able to make some money on top of it as well, it doesn't really matter to me what the value is I'm planning on holding long term. So my strategy you know, what I would avoid is is going in buying a property in hopes of it appreciating another 20% like it has in the last year or so.   Tom: Awesome. So I'll throw a couple of other tidbits in there you know, just like Michael said, making sure well the actual value doesn't matter as much but just making sure that you have some buffer in the in the cash flow is is important to be cognizant of. Just because you don't you don't have a lot of control the value but you know at what you're buying for and the way that you're using debt, you can give a little more control of that cash flow. So if there is a downturn you need to be able to weather the storm.   The other thing I would say is making sure that you have the right reserves in place as a cash backstop. Sometimes capex comes up you don't you know the the worst thing that can happen to you as an investor is you need to, not panic sale but sell out of necessity and do it quickly and you can prevent that from happening controlling your exit by making sure that you have the proper reserves so that's like the biggest way that you can get in trouble with this downturn is just needing hafting instead is make up a word there have having hafting data definitely made up a word I think it has a punch to it it's kind of fun to say.   So the you know my number one tip is just look at your reserves make sure you have you know six months whatever whatever that number to make you feel comfortable if you have some older properties that have some potential roof stuff maybe you up what that the amount of dollars you have. But to Michael's point about cashing out and having some you know, quote unquote, dry powder on the sideline, should there be some sort of a downturn? You, you can be there but to be honest, I think there's so many investors with that same attitude, but maybe I'm wrong that you know, are kind of catching up and ready to pounce. Perhaps I'm wrong.   But, you know, for that reason, I think it also kind of provides a little bit of a backstop if prices were to go down. I think there is some money on the sideline, ready to go. But anyways, as far as kind of a way to go hedge kind of the downside of risk is just making sure that you have proper reserves. I think I repeated that same point like three times, but repetition is the mother of learning. So   Michael: Driving it home. Tom, what are your thoughts on getting access to that capital via cash out refi or the lines of credit?   Tom: I love it. I'm, I love it, I love it. It's like, I feel like elf talking about maple syrup. Anyways, it's I think getting access to it is, is great. And for the market dynamics that Michael spoke of have really low interest rates, as well as high price appreciation. I too am very comfortable getting as much debt as I can just making sure that the rent covers the the excuse me the loan servicing and the debt payments that I have. So I feel I feel the same way that Michael houses right now is a great time to get that money out and to either reuse it right or just keep it keep it in the background.   Michael: But of those two, cash out refi versus HELOC or line of credit, you have a preference for what you what you would prefer?   Tom: I think long term fixed deck is great. I mean, on my on my primary like I have a big HELOC that I'll use for some stuff I'm doing around building a little studio shed a little office. But for my rentals, I think getting that long term fixed debt into place. And who knows maybe the the interest rates go down in the future, great, I'll refinance and if they go up great, I'm already locked in for a really low debt. So that is the situation there.   I think the the one other thing I'll talk about on this topic around, hey, maybe the great market bubble burst is happening tomorrow or next week, or whatever. We don't know when that is. So you know, if you have acquisition plans, I wouldn't hold your breath and just wait for that to happen. I would, you know, go through the process of building out a buy box, you know, establishing what you want to buy. And then you know, continue to underwrite properties until they they fit and it makes sense. And you know, perhaps there's there's nothing that hits your buy box, like at this time, but I wouldn't basically at a high level, I wouldn't turn off your acquisition machine, if you're in like an acquisition mode, trying to wait in timeout, timing that particular cycle, just because as we said, it's, it's impossible.   Michael: The other thing that I think about that, it seems to be on everyone's mind, and everyone's talking about, and it could very well be click Beatty, too. But I think there is some truth to this is the inflation, inflation is coming, on a prior episode with Jason Hartman, we spoke about inflation in great detail. And for those, I highly encourage anybody who's interested to go listen to the episode, at a high level, it's basically you're you're locking in a payback rate in dollars, and then that value is likely going to be floating up. So we get to pay back the loan with cheaper dollars over time. So again, totally recommend going check out that episode. But that's just another reason another benefit to taking on debt. And long the longer term, the better. And so for those two reasons, I'm out, I'm in. I just watched Shark Tank last night.   Emil: So you're saying that that's why you are another big reason why you're going out and basically levering up as much as you can?   Michael: Exactly, exactly. To get the cash backs up, like Tom was mentioning to have some dry powder, and that inflation is coming, I would probably be doing something similar. Even if there wasn't all of this talk of a crash. My strategy really hasn't changed. I just think it's kind of good practice and nice to have. And again, with the interest rates being so low, it's like how much better do you need it to get for you to go take the cash out?   Emil: Yeah. I if I had a crystal ball I doubt we're going to look five years in the future and see lower interest rates. So probably a good time.   Michael: Yeah. Yeah.   Tom: My final point is in Michael kind of alluded to it as well as at least we're we're longer term hold guys. And with that type of a strategy, there's just a little bit less risk for these market fluctuations. In that you know, we're we're playing the hold these too as retire early, all that good stuff. So you know, if you're a flipper, I would be a little bit more concerned around big changes in the market values of the houses, but as a long term holder, it's less less risky, I would say.   Emil: Great.   Tom: What actually happens with is a lot of times flippers end up turning into holders just because they can't sell the property for what they're worth. So that's how a bunch of long term buy and hold started back in you know, late 2010s. Crash   Emil: Alright, With that, let's sign off. Thanks everyone for tuning in. hope you got some value out of this one and we will check you out on the next episode. Happy investing.   Michael: Happy investing.   Tom: Happy investing.

    How Dave Homyak makes killer returns in the Smoky Mountains

    Play Episode Listen Later Oct 14, 2021 33:54

    Dave Homyak is a former engineer that quit his job to go into short-term rental properties full time. Dave runs Smokey Mountain Cabin Realty, helping investors maximize their returns by investing in rental properties in Tennessee. In this episode, Dave shares his investment journey, how he quit his job, how he 1031s his way into bigger properties, what his returns look like, the most powerful price points to get into, and some tips for investors thinking about getting into this game. --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to another episode of The Remote Real Estate Investor. I'm Michael Albaum and Today we have with us Dave Homyak, who's going to be talking to us about short term rentals out in the Smoky Mountains of Tennessee, and what he did to leave his job is under two years with these types of investments. Without any further ado, let's get into it.   Hey, Dave, thanks so much for taking the time to hang out with me today. Really appreciate it.   Dave: Yeah. Thanks for having me.   Michael: Now, my pleasure. For our listeners who don't know you give us a brief background, who you are, Where'd you come from? And how'd you get started in real estate?   Dave: Okay, so basically, I was an engineer, I did engine calibration for a living, I worked for Chrysler, Detroit, diesel, General Motors, bunch of companies like that, and always wanted to do something in real estate, but quite honestly was afraid to do it. So my first investment property I purchased at 53. And the reason I purchased it is because I wanted to be able to get away from my W2 income. And I had had some money saved up I thought I'd pretty good saver. But I was like, what would it take to make me feel like I can walk away and not have any anxiety whatsoever?   And the answer was pretty easy. It's like if I replace my income, then I can walk away and do anything I want. And it's gonna, I will not have to ever worry. And so basically, I set the goal for myself to replace my engineering income in two years with real estate. And I was able to do it in a little bit under a year. And that was due to getting into short term rentals. And I ended up doing it in what I had kind of researched somewhat to the best of my ability at the time. But then what ended up is that an independent third party which is airDNA they ranked it as the best market in 18 best market in 19. It's three of the top six large cities in 20 and I'm waiting for the latest report to come out and I'm sure it's going to be in the top again.   So bottom line is I happen to buy in the one of the best markets and my research indicated that was a good plan. I had no idea that it was going to work out the way it did as quickly as it did though.   Michael: That's incredible. And so we've got to ask Where is that market?   Dave: Said market is in the Smoky Mountains, which is Eastern Tennessee, the three major cities are Gatlinburg and Pigeon Forge, and Sevierville. So Sevierville is the one that people haven't heard of as much but it's equally profitable and made the air DNA dotco list basically ended up you know, I made the decision looked into apartment syndication knew I could replace my income with that didn't know if I could add it to your timeline, ended up deciding on the Smokies. I looked at the Smokies panhandle of Florida, which is also a good choice. I think Smokies are a little better. Less hurricanes there. I really wanted to go into Panama City. And that got hit about a year later. And I'm like, Oh, I'm so glad I don't have to mess with that stuff.   Michael: Dodged the bullet.   Dave: Yeah, exactly. And then Scottsdale and I ended up going to the Smokies. So started this search and started trying to figure out what I was going to do in March of 18. April is kind of apartment syndication month. first weekend in May, I actually went to the Smokies to look for the first time and ended up seeing six cabins tried to make a decision on three, picked one bought it. So end of May I had that up and running it worked great over the summer, bought another one in August and then bought a third one in November.   And in December I got when the General Motors was offering buyouts and I said, I think it's time to go. And my, my goal was actually to probably stay with General Motors through July. And basically they said if you leave now we'll pay you through July. So I said okay. I can start on, on my leaving and yeah, and all the healthcare and stuff like that that goes with it. So yeah, it worked out really well.   Michael: Fantastic. So what about the Smokies attracted you? They're just out of curiosity.   Dave: So the thing that attracted me was there were people that were making a lot of really good cash on cash return. So one of the things that makes the Smokies a lot different than most other markets and in the panhandle Florida it's fairly similar. But all these things are second homes they're sold turnkey. So if you have to furnish, if you have to buy silverware, if you have to put in beds, TVs, all that stuff, that's just more money that you're gonna have to pay. When the Smokies there's basically two contracts that get written when you buy a house.   One is the purchase agreement for the cabin or the chalet, whatever your choice may be. There's a reason that chalets sometimes work a lot better than cabins and mainly due to supply and demand issues of buyers. But you also write a purchase agreement for the entire contents of the house. So you know, you have here's the cabin price, the chalet price, and for $1, you get the contents. So I literally am closing midweek, and that weekend, I have it rented out. So that's one of the benefits of you don't have a whole lot of downtime. And the second benefit that I didn't even know about at the time or didn't, didn't have nearly as much of a priority on as I do now when I help other investors is the whole regulation.   So in the Smokies, there's not that many hotels, they cannot take nearly as many visitors into the hotels is a built up entertainment, venues, things like that. So there's no way that they can go in like they do in other cities and say we want to ban short term rentals or we want to regulate heavily short term rentals. And, you know, play that regulatory card in make what used to be a really good investment not nearly as good of an investment. And I think you see that in the panhandle of Florida, as well as the Smokies, but I like the Smokies a little better just weather wise stuff like that.   So yeah, I mean, then the other thing is, there's a couple loans that are available down there that I'm not sure if they're available nationwide, I know they're available down there, but there's a 10% down second home loan. So if you're, if your intention is to spend 14 days or more in that property that you're buying the first one down there, you can get a second home loan on it. And that's a fantastic way to get into that market. Because you know, most investment properties you're not going to get for 10% down, right, and certainly not investment properties, you know, that is a primary residence you can put down last but for secondary to put down 10% is pretty crazy.   And then the loan that just, it still makes me smile, it's making me smile right now, and I've talked about it hundreds of times with different investors is there's a 15% down investment loan. And to qualify for the loan, you have to project what the income of the cabin is. And if the cabin throws off enough income, that qualifies you on a debt to income ratio. So for example, if the cabin is gonna throw off $5,000 a month and the payments gonna be 2000. And you're maxed out on debt to income right now. You know, if you're at 40%, guess what, you still qualify because of a cash flow project. It's a cabin with projected cash-flow of 5000 a month, and that cash flows enough to cover the the mortgage payment.   So it's just, it's like one of those things that you're like, I'm pretty I get I've actually checked with my like, once a year, I check with my loan officer, the person that I've used just is this still a thing? Yep, still a thing. And I'm waiting for somebody to say I'm not sure that should be a thing. You know, but it still is now. So even if you're even if your debt to income is fairly high, you can still qualify on the for the investment loan at 15%.   Michael: That is just incredible.   Dave: Yeah, I, it makes me smile, every time I tell somebody, I still can't believe it.   Michael: Yeah, I'm still trying to wrap my head around it, it doesn't seem to make sense. But if it's a thing, it's a thing.   Dave: At least for me, when I've used an investment loan down there, like the property actually made the money it wasn't like you had to stretch your make something up, like I think it's gonna make 10,000 and it makes five or something like that. It's more like if it's going you know, I said an honest five, the payment I think was 16 or 1700 a month and and it did make the five a month that I said it would.   And then where it gets really interesting is once you show them once you show the mortgage company a Schedule E and prove that it made what you said it was going to make, you now qualify for another one the next year. So basically, you can get one of these a year, as long as you wait until after you file your Schedule E and give that to the loan officer. And then if you are married, you know and if you're playing in two person mode two player mode, then you and your wife can both do one a year on that plan. And then the next year you can both do one on that plan.   Michael: Oh my gosh.   Dave: So it's a way to build, build a portfolio very fast and that market is still one of the best markets when it comes to cash on cash returns. So even though there's been a lot of appreciation, the nightly rates have gone up a lot, they had about 2000 cabins burned down in 2016. And before COVID came in, they had I think five developers come in and start to build. And it just the nightly rates have just gone up and up and up. And it's just one of those places that when the when the economy does well, that place does well, the Smokies do well. When the economy does poorly, the Smokies do well, why 60% of the United States is within driving distance of the Smokies.   And smokey, Great Smoky Mountain National Park is the most visited National Park. And in 2009 2010, visitorship actually went up when the economy was doing poorly. And when people are like, what how do you Why do you think that happens? You know, I explained, you know, if, if you're afraid about the economy, you're not flying to Florida and taking a one week Disney Cruise, but you're still gonna want to go on vacation. So you're saying you know what, I'm going to drive to the Smokies, I'm going to rent a cabin for three days, we're going to do this thing on the downlow. It's going to be nice, but it's not going to be as extravagant. So I think even when things slow down.   There's, I obviously know a lot of people that invest down there and kind of one of the one of the questions that that we asked each other is what am I missing? It seems like there's really big upside, and not a whole lot of downside. And we haven't come up with anything. Yet that makes it scary. What am I, I very well may be missing something. But I've asked a couple guys and we can't figure it out.   Michael: So I mean, I just I love hearing all of this because as I was sharing with you when we connected before the podcast here, I just 1031ed into a property down there and severe bill. And so I'm very excited now to to get that up and running right here. And this only makes me even more giddy.   Dave: Yeah, yeah, it's pretty, it's pretty cool. I guess the other thing that I've done that I think is interesting, I think your listeners will find interesting is, the other thing I do is as an engineer, I don't sit still very well. So I'm constantly analyzing my properties. And I've owned five, but I keep trading up and 1031ing up. So for example, 2018, I bought a three bedroom, a four bedroom, a five bedroom, middle of 19, I look and I say hey, the five bedrooms doing better than the four, the four bedrooms doing better than the three. And they've all been appreciating, I know, I think I'll sell this three bedroom. So it's underperforming the other two.   So I sold the three bedroom and it had gone up enough that I actually use that 10 1031 money as a down payment on an eight bedroom. So very directionally correct eight bedroom does really well it costs me basically you know the downpayment that I put on the three bedroom and then just this you know the sale on the transfer the money to control an eight bedroom a year later. And there are different people that are doing that. So some are on a never sell anything. And I get I get some people upset on some of the real estate investment forums because they say, What's some of the worst real estate investing advice you've ever heard. And I say buy and hold and they say oh, they just don't like that.   And I'm like, I think I'm doing okay with it. And maybe I should have kept them all and just bought other ones. And then the other thing I ended up just recently doing is I sold the first cabin I bought which was a four bedroom, and I 1031ed did into this ultimate killer, like five bedroom the most incredible views. Just amazing. So that's kind of the other half of the coin is when you're looking at a lot of the when you're when you're looking to do Airbnb anywhere, when you take a look at the market. And if you if you buy the airDNA data, what you're going to see is, especially when you start to well, bigger places are there are less bigger places. So you're going to get outsized demand for the supply of bigger places, so you're able to charge more more bedrooms is better. In the Smokies a view is better a pool in the basement is better.   And what you're also going to see is that if you're running at 95th percentile property, your gross is double what your what a 50th percentile property's gross is going to be. So that isn't if you're running a 95th percentile property, your profits going to be double because you're already making a profit at the 50th percentile, it means your profits going to be you know, times three times four times five, because you've already got your expenses paid at 50th percentile. So anything about 50th percentile You really need, yeah, that's just money in your pocket.   So you really need to, I was, you know, I've made, I've made some mistakes along the way that have cost me someplace between, like a pretty lot of money and just like a lot of money. There are no small mistakes that I did. So, you know, one of the mistakes that I made was, well, if I can put 10% down, this will be I'm going to try not to put much more money and like, if something breaks, I'm going to do it. And looking back on it, there's a couple things that I could have upgraded, that wouldn't have been a big deal. That would have netted me more money in the long run better reviews. You know, when you look at that delta between the 50th percentile in the 95th percentile, it's amazing. So it's, it's worth, it's worth doing that and not kind of being gone on to put in 10%, I'm gonna try never to put another penny in unless something breaks, you know.   Michael: That's worth the upfront investment. So yeah,   Dave: It totally is worth the upfront investment. And even if it's in, let's just say it's, it's not, let's just say you only have the 10% of the closing costs, you know, the other thing is you're making, you should be making a couple 1000 a month anyway. So I mean, in two or three months, you're gonna have 567 $10,000 to spend. So maybe you wait a couple months, and then you put in, you know, the new the new furniture in the living room and refilled the pool table or whatever, get the better hot tub, whatever it is, when you feed that back in, I ended up just selling a place. And it's just doing some, I have some friends that also have properties that are identical, like literally identical to mine like same layout, same view, 50 feet away, and we were talking some numbers. And you know, they did, one guy did a really over the top renovation, his numbers were crazy, and one guy did a milder renovation. And I would I was doing some math of what it would have taken me to put in that and it'd been like under 10 grand. And basically, he was kind of he was out grossing me by about 10 grand, like, Oh, you put in the 10 grand and for the last three years, I could have made 10 grand instead of I save 10 Grand 30 grand Got it.   Michael: Right.   Dave: So it's it, you know, my mind is a is a work in progress for maximizing all these things. Well,   Michael: That's the engineer in you I totally get that as a reformed engineer myself. We get that.   Dave: Okay. Yeah, totally. Dave, I'm curious to get your thoughts because I'm sure that there are people that would argue that there are Smoky Mountain equivalents all over the place, I can invest anywhere in the country and make a good return. What are your thoughts on that? And how do you kind of narrow in on some hot markets?   Dave: I agree that you could probably make the same money. If you dig into 95th percentile stuff, if you dig into all this stuff that makes money. I think it's harder to make money in other places. And what's really interesting is what the how I made more money inn the Smokies, I've made more money, I've made significantly more money in the Smokies with appreciation than I actually did from Airbnb. So if you're making crazy cash on cash, which you still can kind of do, if you know where to look. And your appreciation is outpacing your cash on cash. That's the thing that I think some of the other markets lack. And I've known people that have had places that you know, guy that was in, in place just outside of Denver, and he was killing it in his neighborhood. And I forget if it was him, or his, basically the two of them where they were doing Airbnb in there and it got banned, and all of a sudden, everything's gone. Or you do it in some small place that maybe you're making money. But you know, how do you get that out? And how do you find the investors to come in behind that? Do they know that's a hot market?   So I think a lot of people concentrate and obviously the rental arbitrage people are just doing a just a strictly cash on cash thing. But I think if you look on, if you look at the markets that are being rated by air DNA, I think you're going to have a better overall return. Because other people are just being pointed to that direction, and they have the proof that they need if there's any, if there's any fear of the numbers, the books being cooked, whatever, and you know, some far off market, the middle of Wyoming, whatever I don't know. I mean, I've heard some really interesting numbers of people buying places in the Midwest with pools during COVID, they just they just annihilated because kids want to swim and people have money and if you couldn't go to the public pool and your kid really wanted to swim, guess what you're dropping top dollar, you're gonna beat out the other guy to get that lock in that place with a swim pool, even though it's a less expensive city. So I mean, those guys didn't really well, they're going to do now that the public pools are kind of open, I don't know.   But I think overall, I trust the air DNA data. And I think the cash on cash is available in other places, I'm not sure the appreciation is as much.   Michael: Okay. And so you actually help people find properties out in the Smokies, is that right?   Dave: I do. I do. I that wasn't my goal, my. So my goal straight up was, I was an engineer, I took my bite out, I said, I get to do whatever I want. And I don't like I don't sit still well. So I'm like, I am going to learn to fly airplanes. And my goal is to fly jets. So my goal was to fly for Delta. And so I'm like, I got my private pilot license, I got my instrument pilot license, made it halfway through commercial license, and then kind of like, the whole real estate thing kind of blew up for me.   And in even before I started working, about halfway through the commercial, or excuse me, halfway through the instrument license, I started to get people asking me, Hey, can you kind of help me do that? And can you help me find some of the best performing properties. And I think, because of the engineering background, and because I'm not afraid to do the numbers, and because I'm not afraid to run some spreadsheets and stuff like that, I'm able to better explain to some of the more technical science, math investors, why this makes the most sense. And I'm able to make them feel comfortable enough to invest there.   So I'm getting a lot of clients that have never invested anywhere, I'm getting a lot of 1031 clients, but they see the numbers and it's just like you can't not do it. And that's, it's, it's one of those things that you know, right now, depending on depending on the cash on cash that you're looking for, a lot of a lot of the places don't work. But if you know where to look and and how to make it work. It's a lot easier and, and it's one of those things that it's like, even with, even with MLS access down there. A lot of the agents don't put in the numbers that you need to see. So there's a lot of calling and texting and stuff to dig a lot of this stuff out to make sure that your clients are getting the best stuff. And I think that's what myself and my teammate do better than a lot of other agents is dig out those numbers and make our clients comfortable that they're getting some of the best returns that they can in one of the best markets.   Michael: That's awesome. So Dave talked to us a little bit about what some of these properties that we're talking about cost. And what are some of those cash on cash return numbers and metrics that you that you're seeing.   Dave: Rght. So yeah, when I got started, things were a lot cheaper, it was a lot easier. But the crazy thing is the numbers were slightly better when I got started. But they're still pretty righteous right now. So right now, it's very difficult to find, but I am finding some clients 60% cash on cash returns, I'm finding people between 40% and 50% cash on cash on a fairly regular basis. But yeah, there's, there's just some places that are under priced a little bit. And that's why you're looking just to see what it can do. And there's so many, one of the things I don't like about the Facebook forums, any Facebook forum for Airbnb, is the amount of people that say that nobody should ever take a course.   And I never took a course. And all these people said, are telling these brand new people don't take the course. And I added up what I didn't know and how much it costs me. And it's, it's like 40 or 50,000. Like if I'd taken the course I would have saved myself easily 40 or $50,000. And I'm like, You have no idea how much you can spend on a course and save money. So one of the things that we're seeing down there when we're finding these properties, right is there was somebody that was just bragging that they just filled their last two nights for 2021. And I just thought, boy, you're so underpriced. If you have your entire thing booked up every last day that that just tells me you're leaving a lot of money on the table.   So it's a combination of what you know, kind of what numbers they're generating, currently what their calendar looks like. You know, if they're completely full and they have pretty high gross while you know there's a lot of room, a lot of upside. There's just a bunch of different things like that, that we're using to find properties. And just the straight math is if you find some property compelling enough to pay $100,000 more for it. That's great. Down to roughly $500 a month in principal and interest payment that breaks down. So let's break it down to short term rental terms, you're going to rent it out list, it's going to be under 500. But we'll just call it 500. For the easy math, let's just say you're going to rent it out 20 days a month, now, in the summer, there's no you're renting it out 20 days a month, you're renting it out a lot more than that. But let's just say 20 just to make the math very conservative.   If you rent it out 20 days a month. That means whatever you paid $100,000 more for. If you can charge $25 a day, $25 a day more. For that additional amenity you're breaking even. And if you can charge $26 a day more, you're making money. And guess what have you cost in the Smoky Mountains? About $100,000? Can you rent a cabin for more than $25? A day more? If you get a view? Heck yes. Can you rent to you know, can you rent a five bedroom instead of a three bedroom for $25? More day? Heck, yes.   Yeah, there's so many of these things. So bottom line is if you look, if you want to do just straight math, and let the math guide you to what you need to buy to have the best cash on cash, you're starting to get into more expensive properties. And you know, that basically, kind of up to any price works several million is is fine. If you have the financial ability to do that, things start to make sense, things make a ton of sense. And like 750 $800,000 range, you're still making money in just about any range, you know, 300, 400,000, but you're not making as much and you don't have as much cushion.   So there's a lot of people that are like I want to start small, and I want to and I'm like you, I will be happy to help you find and buy anything you want. But let me explain to you why starting small, in my opinion is more dangerous than starting with something that's making 5-6- 7, 000 a month, right? Because guess what, you can lose 567 1000 a month and you're still breaking even versus you know, if you're making 1000 1500 a month when something goes wrong, you're now making nothing and you may be coming out of pocket. I never want to come out of pocket.   Michael:: This is mind blowing day. This is such good stuff.   Dave: Yeah, cool. So glad you like it.   Michael: As as we wrap up here and let you get out of here. What's a final takeaway that first time short term investors to be thinking about that they want to get into short term rental game? What are some of the hardest lessons that you've learned that you can help people to hear from?   Dave: One of the things I see people do is I want to stay so if there was a post I saw that said I visit Detroit on a regular basis, I want to stay in Detroit. I think I'm going to get a short term rental in Detroit. I say I will pay cash for wherever I want to stay. And if I want to stay in Detroit, I'll pay cash that I've earned in the Smokies are one of the top markets. I'm I'm very big into what's the least I like to earn money. But what I really like to do is earn money with less effort. So if I can have five or 10 places in Detroit, that earned me the same money as one place in the Smokies. I'm going with the Smokies all the time, or the panhandle of Florida or, you know, right now some of the other really hot ones Joshua Tree, Broken Bow. Some other places like that northeast corner of Pennsylvania.   There's a bunch of other markets, but I want I don't want to have I see a lot of guys do like a 40 or 50 person, kind of, or 40 or 50 property, you know, rental arbitrage grinding these things out. And that's just not me. I would say try to get the one that has the best cash flow and go from there.   Michael: Path of least resistance.   Dave: People trust me and people tell me things that they probably wouldn't tell other people. But if you knew, and you would never get any of these people on your podcast if you knew how much money that I know that friends have burned through attempting to do short term rentals poorly like 50,000 a year 75,000 a year just I thought I'd try this house. I thought people would really like it. And they didn't it's like go with the proven method, click the stuff that's working. Don't try to reinvent the wheel. You know, go to where there's 1000s of other people that have already done it.   That's the big mistake that I see people do that cost them lots of money and lots of time in the end and I don't know and just here's my other just general real estate investing advice. There's a friend there, I have a friend of mine who's very sharp. And he's basically he's put together a portfolio. He's mid 20s. And he's put together a portfolio that now basically makes him financially independent, he makes more money from his real estate portfolio than he does from his day job.   And it's like, just ask guys like that, or ask me or ask y'all like, I have this idea. What do you think? And you know, he's very happy to help people. I'm very happy to help people. I'm like, yeah, I'll jump on a call for five minutes. Tell me that you want to invest in, you know, I don't know, some, you know, I'll either tell you how to figure out whether it's a good idea, or I'll tell you why it's a horrible idea just to begin with, you know, avoid places with regulation, avoid places that you might lose money, avoid anything that you can make a couple $100 on, like, why are you doing that? Make 1000s? Like, think big. Like, it's not that much harder to do. It's actually easier. So I guess that would be the other. The other thing I would steer new investors too.   Michael: That's so so good day. Well, it kind of in that vein, how can people reach out to you to get a hold of you if they want to either invest with you in the Smokies or just want to bounce some ideas off of you.   Dave: I'm on Facebook. So Dave, homie, AK on Facebook is a way to reach me, you can message me click on me, whatever. I have a website, and smokey is SMOKY. And if somebody wants to sign up, I have some introductory investment, zoom classes like a 60 minute thing. And I kind of explained what I think is important when finding an investment. I obviously say that the Smokies are a pretty good place to invest because I believe that so those would be the two the two main places to get in touch with me there's, or   Michael: Alright, Dave, this has been great. One final question that I want to ask you. Because it seems like you are so hyper focused on one particular market. Do you think it's make sense to diversify and invest across multiple different states? What are your thoughts there?   Dave: Excellent question. I am hyper focused on the Smokies because I know those returns are incredible. I'm not necessarily saying somebody should invest in the Smokies only or the panhandle of Florida. I'm saying follow the numbers. I really have an issue with people that have multiple properties in multiple cities. And they're not doing a comparison of how much you know how much money they're earning, and how much time they're putting in. And there are properties that they have that are doing better and there are properties they have that are underperforming and It baffles me why somebody would want to waste their time on an underperforming property instead of cut that one loose and upgrade so I just wish more people would run the numbers.   Michael: This has been so great thank you again for taking the time to hang out with me and I know we'll be chatting soon because we're fellow smokey guys now   Dave: Yeah awesome really appreciate you having me on.   Michael: Take care talk soon.   Alrighty everybody that was our episode a big thank you to Dave super super cool story and I'm just total fanboy because as I mentioned the episode I also recently invested in a smoky so I'm very excited to hear that the outlook is positive. As always, if you liked the episode, leave us a rating or review wherever it is this your podcast and we look forward to seeing the next one. Happy investing

    What a professional project manager can do for your project

    Play Episode Listen Later Oct 12, 2021 49:08

    Antonia Botero is a project manager, licensed architect, and urban designer. As the owner of MaddProject, a boutique project management consulting firm, she specializes in advising real estate owners and related-industry businesses with their development projects, keeping them on task, on schedule, and on budget.  In this episode, Antonia shares the scope of work of a project manager - what they do, what they don't do, what they cost, and when you would want to bring one in on your developments. --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor Podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to another episode of the remote real estate investor. I'm Michael Albaum, and today I'm joined by a very special guest, Antonia, she is a project manager, extraordinare licensed architect in numerous states, and then the owner of MaddProject, and she's going to be talking to us today about when you should think about hiring a project manager, what are some of the do's and don'ts, do's and also what it's like to be a woman running her own business in the construction space. So without further ado, let's get into it.   Antonia, the Conqueror project manager, extraordinaire, licensed architect in multiple states and owner of MaddProject, how are you today?   Antonia: I am wonderful. Thanks for having me.   Michael: Now, absolutely. Thanks for taking the time to hang out with us. So you are a jack of all trades, you do a lot of different stuff. Tell us a little bit about what it's like to be a project manager. But before we get into that, can you share with everybody what the best way to get ahold of you is or a hold of your company bad project, if after listening to this episode, they're like Antonia is a beast. She's a rockstar, I want to use her as my project manager.   Antonia: Sure, absolutely. So my website is great is a great way to get ahold of me, there's a little contact me form in there that I watched very closely. So Mad And you can scroll down, contact me. Also, there's a great newsletter that I write about once a month. So if you want to get it, you can hear from me that way. And additionally, I'm very active on Twitter. And I will give you my handle and you can share it in the notes as well. But that's a really easy way to contact me. And worst case, if you really just want to get to me, it's Antonia at Madd Project calm with a double D. So that's her always I'm very easy to get a hold of.   Michael: Awesome, awesome. Well, again, thank you for coming on and sharing with everybody. What I want to talk about today is what it's like to be a project manager. What are some of the things that a project manager does? And then what are some of the hurdles that you've seen people really stumble over when doing rehab or renovation projects where maybe they should have gotten a project manager?   Antonia: Sure, absolutely. So typically, on development projects, there's one person who serves as a point of contact for the owner, who helps coordinate the design team helps to oversee the permitting process and ultimately oversees or helps to oversee the construction manager during construction process. So generally, when you have larger projects, you should expect to have a project manager somebody either in house with the developer or a third party, like my company, that their job is just to make sure that the project is going in the right direction that you're accomplishing through design, all the different, you know, goals that are set forth in the pro forma. So that's generally what a project manager does.   Michael: Okay, I guess what would be the scale or the scope of a project that you would feel a project manager would be justified in coming on because a lot of our listeners will do cosmetic rehab, update flooring, kitchen, bathroom, that kind of thing. And they might be thinking to themselves, oh, shoot, do I need a project manager for that? What do you what would you say is kind of the defining scope or cost.   Antonia: So you know, it really depends on what you want the project manager to do, if it's something where you just need a little bit of help on strategy. That's one way if you need comprehensive project management because you've got no idea what you're doing. By way either of you know it's a new type of project that you've never done before or you've never done any kind of design or construction before you don't know how to hire an architect. It's really more about the resources that you have available and less about the size of the project itself. I think that's more the thing that I would say pushes you to have a project manager   Michael: Okay, now I love that. What about let me give you a scenario because I think this has been a lot of our listeners fall into this category and curious your take on on project management versus their project management. So I'd say 95, maybe 98% of our investors or listeners are remote investors. And oftentimes they are newer investors. And so if they want to take on a project that involves some significant rehab of a house, maybe changing some bedrooms, around changing the footprint of the property, and then some cosmetic stuff, and they don't have any experience and they're remote, is that something you think they'd be justified in hiring a property manager to help facilitate and coordinate?   Antonia: I mean, I definitely think that there could be a lot of value. If they're thinking of doing it again, at some point, because there's a lot of things that you can standardize, for example, like, let's say, you know, that you like a certain tile in the kitchen, you know, that you want your bedrooms to be a certain size. And in order, instead of having to go through the process, you know, learning the lessons, the hard way, you could have a more strategic sort of session with, you know, we do hourly consults, or 30-minute consults, where we could talk about some of those strategies, we could talk about some of the things you could standardize.   So I think, perhaps not hiring someone full on, but at minimum, having some sort of conversations with somebody either be at the architect that you end up hiring for the project, because you're going to need one, if you're doing something like that, or the contractor that you hire for it. I think having some general strategy of Hey, like, what are the things that we're going to have to do? What are what is the permit like? How long do those things take, and then ultimately, going back and saying, Hey, we want to do this, again, let's make a list of all the things that we learn in terms of, you know, how long permits actually took, what finishes, we do end up liking that were very easy to get during construction, they were easily available at the local store, and in sort of really find a way to, like, take the lessons and actually use them, right?   Because a lot of the problem that people have is that, you know, let's say you do it once, and you're gonna make mistakes, and that's okay. But if this is the first time you're doing it, and you still don't know, like, how to pick tile, I mean, are you doing?   Michael: What are you doing?   Antonia: I'd really say, sort of sit down for a minute and think a little bit about strategy and about like, and then as you go through the process, write down some of the lessons so that you can refer back to them, and really have a better go around the second, third, fifth time.   Michael: I love that. And I think it makes so much sense. And I mean, I love to that mad project does these half hour hourly console's because so many people don't know what they don't know. And so don't even know what questions to ask if they're a property manager or contractor who they're working with. So I think a strategy session could be so valuable. I know you and I have talked about my development project. And I wish we had sat down for numerous strategy sessions before taking on that project, but too little too late that this is how this is the learning lesson on the job.   So what about in terms of driving? timing? Is that something that a project manager should be expected to do or could be expected to do? If I'm a remote investor and contractor says, Hey, it'll take a month, I hire a project manager and said, okay, make sure they're out there getting this stuff done, because I'm remote? Is that something that you're able to help help out with?   Antonia: Absolutely. So there's a couple of different ways that a project manager should be doing that. And again, it also depends on the size of the project. If you're, for example, in your example, where you're saying, okay, it's for remote investors, you know, the project manager should have a couple of different points of contact with the team that is actually on the ground, whether the project manager is also remote or not, you know, there should be at least a weekly meeting during construction, and that in that weekly meeting, you should be discussing things like, hey, like, did the inspector come this week? Are we gonna run out of the tile that I really like that I know, has like a two week lead time? And so we really need to anticipate it. Hey, are you actually on schedule? And if you're not on schedule, why aren't you on schedule? Oh, because the plumber didn't show up? Why didn't he show up? Did we? Did you not pay him? Or is it because you know his guy last minute had a family thing and couldn't come on Tuesday.    So it's really having those touch points and having them constantly like you can say, oh, we're gonna have weekly meetings and then by the third one, people lose steam or, or kind of feel like, Oh, well, you know, we've had them the last two weeks, we don't really need to continue having them. That's absolutely the wrong thing to do. You want to have constant touch points, you want to make sure that you're, you know, all the time paying attention to what's going on, particularly on those remote projects where if you're doing like a single family rehab, they go really quick.   So you want to make sure that you're Hearing the problems every week, you know, the contractor a lot of times a lot of these contractors can have a question. And they can forget to ask you for four weeks, and then, you know, they stopped work because they didn't have an answer to a question that they forgot to ask you. So, you know, a project manager can absolutely help to do one, make sure that you're having the meetings. And number two, you can in your agreement with your project manager, you can ensure that they are walking the site, at least, you know, every two weeks.   So, there's really a lot of things that you can do you know, the project management, you can also have these periodic meetings with the different parties. So you don't necessarily have to have a meeting with everybody you can have I mean, I highly encourage having like an all hands meeting once a week for for like a single family rehab. But you can also make sure that like Tuesday mornings, you call the architect, and you're just gonna, you know, you're just kind of chit chat, you're like, Hey, how's it going, like, Hey, what are you up to, you know, cuz those are the times when you get like, the dirt, right? Like, Hey, I went out there, and like that green that you chose for that wall is, you know, the contractor is not going to tell you, they're like, Oh, yeah, I painted the wall,   Michael: And I got paid for it!   Antonia: He's not gonna say, Hey, I didn't write the I paid for it, I painted the wall, and you you come visit from out of town, and you look at it, you're like, Oh, my God. Good idea. Right. So those are the things you want to avoid. And the way that you avoid them is by keeping that contact. And and again, you know, once you're a remote investor, and you've done this a few times, honestly, these are things that once you kind of get the hang of them, you don't need to hire someone else to do them, you can do them yourself, if you have a good strategy and a good framework to begin to do them. And then you got to have the discipline, right?   So having a project manager a lot of times in a project is like having like a coach, you know, it's the person who's saying, like, Hey, you need to pay this invoice, hey, you need to sign this contract, hey, you need to make this decision. You know, hey, like, I need to, I need you to go to down to the city and sign this document like normally, having that extra discipline helps a lot in the project and they helped to drive the schedule. So all of these things and having that constant coaching and sort of follow up, follow up follow up was absolutely the role of Project Manager. And it is the thing that really keeps the schedule, which as we know and development schedule scheme, and that doesn't matter what project you have.   Michael: Anyone who's watching the YouTube version of this will have noticed that I was smiling, grinning ear to ear when Antonio was talking about the plumber, because like literally, that's what happened, like flipped by GCS and all the Providence show up and I got family stuff like Are you serious? Are you kidding right now. So it that kind of stuff happens.   Antonia: But it's also important to know that the guy didn't show up because he had a kids soccer game that he forgot about, versus Hey, you didn't show up? Because the contractor didn't pay him? And then you're like, wait, I paid you. So why didn't you pay the guy. So and the more you know, the quicker you figured that out, the better because you don't want to be having that conversation when you're like two weeks away from supposedly being done. And then it turns out that, you know, your contractor or your your CM has not been paying your subs for the last, you know, four weeks, and you come to find out that you have a lien on your house, right?   So, you know, in that sense, like, that's also why it's important because you can avoid these major sort of problems. If you're able to catch them as they're happening.   Michael: Love it. Love it. So that's, I think, a really great summation of what project managers do do. Can you talk to us a little bit about maybe what the clients have expected of you in the past, but you said, you know, like, this really is outside the role and scope of a project manager, when what should people expect to have done by other people or to do themselves?   Antonia: Oh, boy,   Michael: Feel free to go crazy with this one.   Antonia: You know, we've run into some funny situations that I mean, I've I've installed bread, I've built furniture on site, I've I've brought people coffee. I've been on site overnight on installs of big jobs. You know, within the bounds of professional reasonableness, we basically do everything. And I that's a big, you know, caveat that I put at the beginning of that reasonable professionalness.   Michael: Right, right, which is so shades of gray. Right, in that statement?   Antonia: Oh, yeah. Yeah. And then every now and then, I mean, you know, for for me on the bigger super complex projects where you know, you have sort of a syndicate or group of, or different group of investors coming in to code up a project. This is like the really big stuff. I will sit in a lot of investor meetings, just because Very often investors will ask, you know, the sponsor, Hey, how are you going to build this? You know, what are these things cost? What's your schedule? Like? What are you? What's your team? Like? Like, who's actually giving you insight? How are you going to review applications? All these things? And, you know, I'm the one answering those questions on behalf of the sponsor, the person who hires me. So there's a little bit, you know, that goes into that, you know, we also do a lot of feasibility at the beginning of a project.   Many times people will come to us to say, Hey, you know, we went down the road of designing this entire project, and it doesn't pencil. And it turns out that it's a terrible idea to build a high rise building in this neighborhood. What do we do, and so I'll actually, you know, I'll put my architect urban designer hat on, and I will redesign the entire building.   So I, you know, it's been crazy. And I think the last year pandemic, you know, kind of gave people a little bit of reason to pause. And to rethink a lot of these things. And so I actually ended up with almost every single project that has come through in the last 18 months, I have redesigned at the request of the owner, that they said, hey, look like we whatever we have isn't really working. What do you think we should do? Like, how do we start project management on this? And I'm like, Hey, guys, let's take a step back, read a feasibility and make it work. So we'll do a lot of that.   So we go from, you know, we are a little bit involved in those investor conversations, because they often have questions that we aren't equipped to answer. And we're also involved in feasibility, you know, I'd rather be involved in projects that don't need to have the ship turned around, I'd rather just be involved from the beginning, but it is what it is. And then…   Michael: It is what it is.   Antonia: Yeah. And then finally, you know, we are obviously the on site day to day stuff, you know, design decisions, technical, mechanical, electrical plumbing decisions regarding ownership preference, and what's really going to be the best way to go with systems. You know, all of that stuff, obviously, that that's the more traditional stuff that you'd expect to see. And where we are a little bit less traditional is on the design, and is on that sort of investor facing stuff.   Every now and then I'm asked to be a part of potential investor conversations. And if for whatever reason, the situation is a little murky, or there's a lot of kind of unanswered things like, you know, it's a dance, right, you want to make sure that you're helpful and that you're, that you're there. But at the end of the day, I am not the owner of the project. And so I have to be very careful, not only from like a deal perspective, like I don't, I don't want to say anything that's gonna tank your deal. That's, you know, that doesn't help anybody. But at the same time, like, I am a registered architect, I do carry professional liability. And I am very aware of it. And so, you know, I my agreements with all my clients, like explicitly says that, on the project involved, I have no professional standing, I am not the architect of the project. And sometimes there's conversations or moments with building departments or things like that, where I have to really be disciplined about my role on the project and the fact that I'm not I'm not a professional with professional standing on this project.   So that's kind of the general where we draw the boundaries, you know, and then there's the, you know, the stuff that is not professional. We deal with some of that, too, but that's how they, you know,   Michael: It sounds like we could probably do a whole episode on that.   Antonia: Oh, yeah. Yeah, for sure.   Michael: So I'm curious, Antonio, why in the last 18 months have Have you had to redesign all the projects? I mean, what have you changed? What have you seen changed in the last 18 months?   Antonia: Well, I mean, I think a little bit, you know, some, some project types got a little bit of a break, naturally, like hospitality did. You know, one of my projects is student housing. And they had a little bit of a break related to financing to, you know, banks were not running to finance these projects. And so, you know, these owners took the time to say, Hey, you know, what, maybe there's a better way. And there's a, there's a way where we can make this a little bit more efficient, a little bit more appropriate. And so they took the time to do it, just because, again, they had a natural break related to the fact that, you know, no capital was looking out to put money into student housing or hospitality project. I mean, hospitality was pretty, pretty hard hit.   So yeah, it's, you know, there was definitely a lot of redesigning hotel ideas in these last 18 months,   Michael: Okay. And redesign in the sense that it's no longer a hotel or redesigned from the perspective of we're just going to do it a little bit differently than it was done more traditionally in the past.   Antonia: Two different types of projects that I have redesigned predominantly to Housing has been, you know, one of the types that I've redesigned. And then the other one was hospitality. In the case of the hospitality project, it had a condo component to it, has a kind of component to it, the mix was changed a little bit, the sizes of the units were changed a little bit, you know, the amenities were changed a little bit, ultimately, I mean, so this is for an existing building that has, has this massive renovation going on.   So it was really kind of with what you had and how far they had already gone into construction, because that buildings already in construction, they are like the interior renovation was already underway, basically, they were basically looking to make it a little bit more attractive. Now understanding that COVID had to happen and how the pandemic had changed the way that people use space, particularly public space. So that was what the hotel sort of redesigned, it's still a hotel, that building is probably always going to be a hotel, it's very significant. And so we didn't change the use completely.   In the case of the student housing, for example, there was a little bit more of wanting to make the construction a little bit more efficient. And so really looking at the massing. And how much of the structure was wood, how much of the structure was concrete, you know, whether it was more or less expensive to build as a podium versus a wrap, you know, if we were going to go above four floors, and if we did, what that meant for the construction type. And so having these sort of technical conversations completely changed the massing of the building   Michael: Interesting,.   Antonia: Like altogether, completely different building completely different size. And then it again, you know, prompted a lot of conversations about public space, because this, this building is the size of a city block. And so, you know, you had a lot of like that deep in between space. So it's like, well, how do we create courtyards? You know, originally they had a massive courtyard, and we said, hey, look, you know, really big corners are usually very uncomfortable spaces. And so what are why don't why are we a little more thoughtful about how we divide this space? And and what can we do in those courtyards to program them and make the whole project just better? That's sort of the flavor and the reasoning why you'll you know, we would redesign projects. So…   Michael: That makes total sense how neat. That's really cool.   Antonia: That's pretty cool. I enjoy that a lot. Because one of the things that I don't talk a lot about on Twitter, for example, is that I am actually an urban designer, I do have a graduate degree in urban design, and I and I, like, you know, the idea of the whole building, how does that building affect the the environment around it? How do you approach it? How does it you know, address the street? What's the human scale of it? Where are the amenities? Where do you see them from? What's the good corner? What's the corner, you want to avoid? All of these sort of urban questions really come into play when we do these building redesigns? You know, where are you going to get a lot of shade in the courtyard? Where are you, you know, is that going to be an uncomfortable place to hang out? So that's pretty cool for me to get the chance to do that.   Michael: Yeah,   Antonia: Being an architect without the hassle of being,   Michael: Right, only the good parts?   Antonia: Exactly.   Michael: So it sounds like there isn't a whole lot that you don't do. And that's for sure, like a double, triple negative sentence, but that's okay.   Antonia: Something like that. Yeah. I mean, who then the reasonable, asks, we, there's, you know, and every now and then we're finding new things that people approach us for, you know, one thing that also became a little bit interesting was, I had a couple family offices reach out during pandemic to say, Hey, we have this project going on, or we're gonna invest money into this project that's kind of starting soon, we want you to look at the people who are going to build it, and let us know if you think they can pull it off. And to me, that was a little bit surprising.   But I had more than one request, like that. So that kind of thoughtfulness is really on the investor side, and a little bit, adding a little more sophistication and a little bit more data to people who aren't used to having that data or have the background to make those decisions has been really interesting.   Michael: Oh, that's great. That's great. Just a little quick word to the wise for the folks that are doing that hotel redesign, tell them not to have to fires during the course of construction, or really screw things up for him. Take it from me.   Antonia: I will. Yes, I will make sure we should add that to the list of things to watch out for.   Michael: That's great. So tell me when someone is going out and looking to hire a project manager or have a concert with the project manager, bring them into the fold? Should First off, what should they be looking for? What should some of the interview questions they speak to them about? And then you mentioned remote versus that remote could or could not be an issue. Can you speak to that a little bit?   Antonia: Sure. Um, so one of the things that you want to find out from a project manager is you really want to understand the scope of services that they provide. Not, you know, unlike some of the professional disciplines that are related to development, project management is not really regulated in any way. So different people do different things. And it really depends on their background. So you can get some project managers who are very strong during the construction process that will absolutely have no idea how to lead a design team.   So and not to their fault in any way, they will advertise that, hey, I don't, I'll take it from the moment that you have construction documents, and you have permits and your financing, I'm good. But before that, like, I can't help you. So these, like make sure that that has been spoken about, like if you need somebody to lead your design team. You know, in the instances of small projects, if you have a really good architect, they can, they should be able to project manage the whole design aspect of it. But you want to make sure that you're on the same page regarding what you need, right.   So if you need somebody to help you figure out pay applications. And if you want to carry your own ACR, that's an Anticipated Cost Report, which I highly recommend for big projects, you need to have a conversation with the project manager that they will do that, you know, even project managers that are really strong in construction will not carry an anticipated cost report for you. You know, a lot of times that falls on the finance side. And it's a little bit disjointed and difficult to do. Because if you've never done one before, and if you're not familiar with construction, it's really difficult to anticipate things like change orders, you know, so there's very little anticipated in your anticipated cost report if you can't have any foresight, because you have no technical understanding.   So again, being super upfront and clear about the things that you need. Having said that every now and then I will have clients reach out or potential clients reach out and say, You know what, Antonia, I need help on this project. And I have absolutely no idea what I need. And that's fair. And being that upfront and honest about it is a great starting point. Because then the project manager, or the potential project manager can say, Okay, tell me your situation. And we can tell you what services we offer and where we think we can fill in the gaps. And a really, really good one will say, Hey, you know what, these are things that I don't do, and either I can recommend someone to do them, or this is how we should handle them.   So again, it's just being upfront about what you need. And really being comfortable with that person's experience and, and connections in the industry, because that's really important too. And making sure that they're able to they're, they're gonna be able to pull it off and you know, someone that I respect and you trust, right, that you trust their their experience, I would also recommend asking for references.   Michael: Yep.   Antonia: I always, I always have, like, you know, about about eight people that I keep in mind for references. And the reason I do that is because my contact with them has been super varied. You know, some people are people that I've worked for some people are people that have worked for me, others are contractors I've worked with others, or architects I've worked with. And so depending on the type of project that I'm sort of going for, and if the potential client says, Hey, I need references, I'll tailor my references to be adequate for what they're going to be building so that they're appropriate and relevant. So always ask for references, you know, I mean, you just want to be comfortable with the person, you're going to spend a lot of time with this person, you want to make sure that you can communicate well with them, that you can be candid with them. It's sort of like the lawyer kind of thing, like you want to make sure that that you're comfortable telling them everything that's relevant, because if this person is supposed to represent you, and they only have half the information, you also have to trust them that they're not going to share some stuff that you don't want to share with people right at the wrong time.   So it's all of these things, I mean, that I would really watch out for on that, on how to pick a project manager.   Michael: That's great. And then remote versus local remote to the project local to the project, what are your thoughts there?   Antonia: So you know, now especially again, same thing as last 18 months have been really interesting, because for a long time a lot of people were very adamant about, well, if you're going to manage this project, you have to be there. And I've found that not necessarily to be true, because for several years ahead of 2020 I had been managing projects remote just as a result of the kind of work that I was doing. I was doing a lot of hospitality work nationally and so We lived on a plane, you know, and the rest of the time you were managing it remotely. And we had very specific systems that we had set up.   So you know, that, that's a big part of it is if you're going to go with someone remote, make sure they have strong systems to manage it. And you want to put in that agreement that, hey, you need to be there once a month, you need to have that in your agreement, and then your understanding, and you need to talk about how often you're going to need them to be there. You know, having said that, it really depends on the project. And it really depends on the investor, as what you're comfortable, you know, a lot of banks will require to walk your site once a month. And so you may want to make sure that to put that into the agreement.   You know, there's two minds about it. You know, on one hand, I will tell you, there's nothing like having someone on site all the time. But at the same time, I will tell you that I've only ever done one project where I had to be there every day. And it was extremely complicated. You know, it had a massive Historic Preservation component to it, it had crazy MEP coordination for you know, kitchens, commercial kitchens. You know, it was a large urban project, it was six acres, there was a lot to it, there was like every day it was wild. And just very few projects fit that bill. So you can have that you can request that but be willing to pay for it. Right.   So that's also a consideration. If you want somebody there every day, if you want someone, someone there once a week, or, or once a month, that's going to have a different price point. And so you have to also be really honest, a good project manager will be able to tell you that hey, you don't me to be there everyday. You do need eyes on your project, especially while it's under construction. Absolutely. But you know, now managing design. I mean, I have teams right now that are let's say my average team is like 15 people, like project team. And out of those 15 people you can have, you can have them be in like six different states.   Michael: Wow.   Antonia: And like, that's normal right now. Michael: Wow. You know, that's really cool. And it really opens up the the availability for project managers of who you can select, that's great.   Antonia: For sure. And you know, what, it also allows you to start hiring design firms that are more appropriate for projects. And a lot of times people were like, well, I want to hire a local architect, and you want to go talk to the guy, and you were doing a student housing project, but the guy had never done student housing, or multifamily, for that matter. But he had done, let's say, commercial spaces, that was kind of the closest local guy you're gonna find, you know, now you can, you can hire the best student housing architect in the country, and still feel fairly confident that they're going to be able to figure out what's appropriate for your project and working whatever jurisdiction you're in. So that's also a great advantage to owners to really open up that pool to get better resources for their projects. There's no excuse anymore. Basically,   Michael: There's no excuse for sucking.   Antonia: There's no yeah, there's no excuse for hiring a crappy team.   Michael: Oh, that's so good to keep in mind. And you touched on it, I definitely want to come back to it. So I think what's probably on a lot of people's mind is cost. What is it typical? Is there such a thing as a typical cost structure? And what should people expect to pay for project management services?   Antonia: Sure. So you know, for interior renovations, let's say that are under $5 million, which is kind of your typical hospitality renovation. For you know, the branded hotels or, and even the boutique stuff to to a certain size, you're looking at, you know, $5 million, and under, typically, those project managers will charge a percentage of the full project cost. And that doesn't include only construction, it also include your soft costs. So managing your design team, going through the process of hiring the architect everything, though manage, it's like turnkey if you will.   Those people will charge somewhere between five and 6% of the overall. And I don't agree with that general structure, I that's not how that project works. So we're fee based, right? So we'll give you a fee. That's the fee monthly for the duration of the project. Except during construction, depending on the larger projects, we actually switch our our style a little bit during construction. Actually, I put more resources on that. And so that's when it's a little bit more, but not, not so much more that you're like whoa, it doesn't double.   So, on those smaller projects, you'll see like a five to 6% that's typically what you'll also see In ultra luxury, single family, and ultra luxury, I'm talking about houses that are over maybe $4 million or so, where you absolutely need a project manager. Some of these buildings are so complicated between crazy structures insane, like audio systems, you know, really expensive materials where if you cut the marble wrong, it's like a $70,000 mistake. Yeah, so in those instances, that's what do you out, I would say that that's kind of market. So that's what you should expect to see.   On the larger projects like and larger, and you're going to realize that there's a gap here, and we can try to address the gap. So on larger projects, let's say $30 million over, particularly if it's ground up, what you'll usually see reps charges two to 3%. And again, on large projects, I don't think that that's the right way to build a project. You know, there's things that I think it sets up the wrong incentives, you know, like, oh, if your construction costs more than you pay anymore? I don't know, that doesn't seem right.   Michael: Right, right.   Antonia: And then, yeah, and then sometimes, like, there's instances where you're, and this rarely happens, but when it does, and this year was a good example of it, you know, ownership decides to redesign the building, and now you're doing an extra year of work, not necessarily for any extra fee. And when you are a smaller consulting company that can really hit you. So that also hedges for that, like I am, how much I am per month, until we reach construction, period. And if it and if you guys decide to put a pause on it to go do some exercise, and you want me involved in it, you know how much it's gonna cost you.   And so the benefit with having the fee based option, or the fee based billing that we do, is you know how much we're going to cost from day one, like, you know, you can anticipate those costs on day one, whereas a lot of project managers, or project management companies, you don't really know how much they're gonna cost you. I mean, you think they you do, but you actually don't,   Michael: Because your costs change throughout the project.   Antonia: Because your costs change throughout the project. So it's a really tough situation. And it always it's, it just always creates all kinds of funny situations with people, and you end up having conversations that are not related to moving the project forward. So you know, and then there's that gap, right? So what happens to projects that are, let's say, ground up $10 million?   My thought is, if you're in that position, and you're a developer, it is very likely that you didn't just wake up and get there, you kind of have a process of getting there.   Michael: I would hope so.   Antonia: Right. And so in those instances, and I've had people like that reach out, I will tell them, I will say, hey, look like this is how much I am because it's no less work from a project management standpoint than a $30 million project. The difference is obviously the fee, and the fee that that the sponsor will charge investors for management. And so given that the management fee is going to be a lot less, you know. Most of the time, I will say, hey, let's Why don't we set up like a retainer? That is not comprehensive project management? I have that going on right now with with one company in it, and it works fairly well with them. I mean, you know, they call me when they have a question. They call me for strategy, but I don't actually manage the day to day.   And it works really well. So on those, I just tell them like, Hey, you know what, you're, you're perfectly capable of managing this yourself. You know, if you have questions like you can call me and I have those relationships where I don't mind, like being on the phone for an hour here and there and growing those relationships so that when they do have the 100 million dollar deal, and then they're like, Hey, we're ready to have a really crazy project, and we really need you then. Then I'll be you know, we know that we work together well, and it works out.   So that's kind of the super long answer to your question how much your project managers should charge but no theories and yeah, you have to watch it To be honest, like I you know, it can there's some shenanigans in there. So just, you know,   Michael: Like anything, there's so many little shenanigans. Awesome. Well, I want to I want to start wrapping up here, Antonia and curious to get your thoughts. And if you could speak to kind of what it's like to have to be a woman in the space and any recommendations you have for women investors out there that are trying to do some projects in a space that's been traditionally male dominated?   Antonia: Yeah, for sure. Um, you know, I think one of the things as any woman, business owner in any kind of industry, to be honest, one of the things that we always have to remember that that Men are usually pretty good at. And I'm not again, usually I'm adding that…   Michael: There's an asterisk there!   Antonia: Yes, um, is setting, you know, very good professional boundaries. And I think that that is something that in my experience a lot of women have a little bit of a harder time with because we want to be nurturing, right, we want to help, we want to, we want to be like, Oh my gosh, like you I really need to help you out of this project mess that you got yourself into and and so when you actually begin to look at owning your own business and whether it's that's a development company, or whether that is just a project management company, or just the the rehab that you're doing, and you're happens to be the owner, and you happen to be a woman, you know, setting up those those boundaries ahead ahead of time, right, and saying, like, hey, like, these situations, like I'm not going to put up with or are these things are not things that are okay, interpersonally not just between men and women, like really, this is just not professional, and sort of standing your ground and, and again, being kind about and being professional about it, but really setting those boundaries and, and making sure that the that you're you're training the people around you, so that you have those boundaries, right, you want to say like, Hey, you know, you can't call me on Sunday at six in the morning about this project, like that's not okay. Whether you're the owner, or or you're the consultants, so that's a little bit, one thing that I would just say, you know, boundaries are super important when you're doing your own stuff. They, they make things much better for everybody on projects. So that's one thing.   The other thing is, you know, for me, actually, and I just picked this, for myself, the idea of the perfection, like if I don't have all of these things lined up, then I'm not going to be able to, I'm not qualified or, or I don't belong in that space, or whatever. And I struggle with that still, you know, where it's like, well, I haven't done this, and I haven't done that. And so because of that I don't belong here. That's not true. You know, like, you'll meet plenty of people that haven't done X, Y, and Z and, and contribute amazingly, into a certain community. Because we all have something to contribute.   And so having that sort of understanding there from day one to say, like, Hey, you know what, like, maybe I haven't done these things, maybe I didn't go to that school, maybe I don't know, the mayor. But you know what, I'm going to do this rehab, and I'm going to rock it. You know, being a woman shouldn't never be like, Oh, I can't go there, I can't show up to the jobsite because I'm a woman, you know, that that kind of fits into that category as well. Either you know, the things that you haven't accomplished or who you are just because of who you are, it really shouldn't hold you back from from doing the things that that you that you feel like you could you can do and if you give them your best effort, there's no reason why you know, being a woman or, or not having a certain experience should should limit you. It certainly doesn't limit a lot of people out there and so that's kind of the other thing.   And then I think finally you know, for me, you know, not to not to make it sound like it's all roses, it's definitely hard in some instances. But I've gotten really lucky in that I've run into really good mentors. And you know, they're all men because obviously the industry has a has sort of the demographic that it has and they've been fantastic you know most of them have become friends they're people that I keep in touch with the people that I've brought business to after the you know after years and so you know, if you're able to lean on them and kind of call them and say hey look like I don't have to deal with situation or they're really the people who are going to champion who and so finding those mentors and having them close by is really pretty important finding kind of not only the mentors you know, just finding your tribe eventually finding other women in the industry who are like kicking ass out there and just you know, leading mechanical companies and leading Plumbing Companies you know, developing things themselves and, and having them as a you know, as a nearby kind of support, but also a little bit of someone that you can look up to and say hey, like they've done it. So.   But it is certainly tough, I'll give you that there there's some instances where you know, there's situations where you want to make sure that you're very ready to say you know what, I'm not gonna play like that's the boundary and and to me if you're able to really set those boundaries for yourself, and you know, that really goes back into like your self worth and like all of these really big kind of sort of your emotional stability You know, making sure that your your sugar is low right now, because you haven't had lunch, you know, it really goes back to like being really good. Really good for yourself. So that then you're able to establish those boundaries so that then you're able to deal with those situations because you know, development is really hard, you have a lot of unknowns. And it does add an extra layer that you're a woman and so people sometimes react to you differently. But I think it's all you know, if you're able to say like, hey, these are my boundaries, and this is my power, and I'm gonna go conquer the world, you know, brings us back to the conqueror.   Michael: Antonia the conqueror   Antonia: Then you're able to, like, occupy those spaces and contribute, right? Because that, I think, is the part where a lot of women don't realize but like, like, we need your contribution, you know, as a as an industry and not because you're a woman, it's because of what's in your head and the ideas that you have. And, and if we're losing your contribution, because you're a woman, I mean, how stupid is that? Right? So that's kind of my, my, my bent on it. But again, you know, we could have an entire episode about the ridiculous less than professional situations that I've been in that are super salacious and ridiculous issue, we're probably like, take up a pen name and write a book. But that's not to say that, right? So, you know, that's that's kind of how it is.   Michael: I everything you just said like, yes, yes, yes, I love it all go back and re listen to the last six, seven minutes of what was just said, pure gold. Love it. Love it.   Antonia: Glad to hear it.   Michael: Well, no, absolutely, absolutely. So thank you so much. and tune in for sharing and coming on today. Any final thoughts before we let you out of here,   Antonia: Um, you know, just that same in that same vein, you know, there's so much, it's such a place of abundance, to be honest, it's such a hustle and not hustle in the bad way. But like it, you know, it's such a, an amazing, general way of doing business, you know, development has all of these amazing opportunities for all kinds of professionals, or even for people who don't have a ton of experience in it, you know, getting involved in real estate development, like owning things, you know, like, we can't say that without saying I used his name, right.   So it's like owning things, and understanding how your built environment works. And being a part of it contributing, it is just so wonderful. And I really think the sphere of community that we have is amazing. And so, you know, continuing to grow, that continuing to be a part of it continuing to contribute is just such an honor. And it's really wonderful to, you know, I'll tell anybody, if you if there's a way that you can get into owning things and into contributing to your neighborhood and to the people around you. That's just, you know, that's what being a citizen being around and being here, you know, being alive is for people like me, but then again, I grew up in development. So for me, like, it's just something I'm really passionate about, and I if you have the means to do it, and in the interest, go for it.   Michael: Love it, love it, check out Antonia on Twitter, check out her company mad project. It was such a pleasure to have you on and I'm looking forward to chatting again soon. Take care of Antonia.   Antonia: Yeah, it was wonderful. Thank you so much for having me. And I'm looking forward to being back at some point we can talk about a bunch of other things.   Michael: Absolutely. We'll take care. I'll talk to you soon.   Antonia: Thank you. Awesome, everybody. That was our show a big big big thank you to Antonia I got tons of great actionable takeaways from that. Hopefully you did too. Especially cuz I'm in the midst of a pretty significant development project. And Tony has been a really, really big help there. So go back and listen to the episode with the chorusing on the next one. Happy investing.   

    Michael walks us through an inspection report on his short term rental

    Play Episode Listen Later Oct 9, 2021 16:05

    In this episode, Michael wraps up our discussion on reading and deciding what to do about our inspection reports. Michael walks us through his inspection report on a short-term rental property. He highlights the most concerning issues and discusses how he will go about addressing them to set himself up for success. The inspection contingency period is a crucial step in buying a new property. Doing your homework here can make or break a deal. Overlooking issues in the inspection report can potentially leave you with thousands of dollars of repairs in the near future and eat up that precious cash flow. --- Transcription   Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor Podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Emil: Hey, everybody, welcome back for another episode of The Remote Real Estate Investor. My name is Emil Shour. And today I've got   Michael: Michael Albaum.   Pierre: Pierre Carrillo.   Emil: And if you saw the last episode here and I walked through a recent inspection report, I covered a triplex that I bought back in November of 2020. And Peter actually walk you through an inspection report that he's currently in contract for on a property. So last person up is Michael and just a quick recap, what we're doing is we're walking you through these inspection reports, calling out things that we see and just walking you through our thought process giving you an over the shoulder look on how we look at certain items listed how we go about addressing them, either with the seller or getting different bids. So that next time you get an inspection report, you feel confident to do the same.   Alright, Michael, kick us off.   Michael: Alright, so I'm going to be pulling up this inspection report for a property that I am also in contract for similar to Pierre. So this is a 62 page inspection report, which oftentimes they are. And like Emil mentioned in the prior episode, the inspectors job is just to find everything that they can. And it's also important to note that inspectors there's like a national certifying body for home inspectors, I believe it's national. And so there's set guidelines and parameters for things that they're looking for, and how they report and things that they do look at and things they don't look at. So just keep that in mind.   And also something it's important to keep front of mind is that inspectors are looking for safety and habitability issues, not necessarily aesthetics, or rent readiness for a property. And so I've heard people in the academy talk about oh, well I got my inspection report and it was a $2,000 repair estimate. And then my property manager walked it and said, oh, there's an additional $5,000 and make rent ready costs. So these two people are looking at things through two different lenses. So it's really important to keep that in mind. And I always try to have the property manager walk with the inspector if at all possible, or at least walk after the inspector so that way they can give you their two cents around okay, well, that was the inspection, safety, habitability his side Now let's look at the make rent ready stuff, because the inspector is probably not going to tell you if the walls are scuffed or if the you know, the carpet is is thinning, right? That's all stuff that that a property manager is gonna be looking at.   Pierre: I was just gonna say, Michael, why does your house look way nicer than Emil and mine?   Emil: This is short term.   Michael: This is a short term rental. Yeah, I'm getting out of an older property. Similar to Emil's about 100 years old, I did a bunch of value-add rehab work on it. And now I'm kind of done with it. So I am moving on to something and I said, you know, let's go for something higher end fancier, less headache, because I've dealt with too many headaches in the past.   So, the properties built in 89. We can see here that the structure is wood Foundation, race, Foundation, three, three, and then some of just the basic details. And getting into the meat of the property. Here's lots of disclaimers, they talk about all of the things that were inspected versus not inspected. So telling me the smoke detectors were tested. There are some loose siding on the property. They're pointing out some growth, organic growth on doorframes. But let me find where there are some things that made me take pause. And to be honest, there were not many of them, which is really nice, because this is one of the cleaner inspections that I've seen.   Alright, so here we have a little, a little hideaway in one of the electrical boxes. So just something to take note of that if animals are present, rodents are presence present. There's a way and a reason that they're present. So look to find out how they're getting into the area and how you can keep them away. That observation.   Emil: Was that a mouse?   Michael: That was a mouse Yeah, I got a better picture of it too. We've got vegetation growing along the home and then touching the roof here. So trees can drop things that can cause damage to roof. And then they can also rub against the physical structure or the roof and cause damage as well. So keeping things clear of roofs is great.   We've got just some loose deterioration on the deck boards. There was an area that needed a hand railing It currently doesn't have one because it's taller than 30 inches. So inspector took a picture of that and said, we've got to put a hand a handrail here. And then getting inside the home, there's no discharge pipe on the water heater over pressure, pressure relief valve. So that's a safety hazard. And basically what this is, the pressure builds too much in the tank, this valve should open and release that pressure and if anyone is standing near here, or sitting near here, that could burn them and cause a cause of problem. So having a proper vent pipe or a discharge pipe is important.   Then they found that the anchor, the laundry basin wasn't properly anchored, it was loose when he moved it. So having something to anchor that to the floor is something I want to have done. Some rust on the on the chimney cap. And again, this is all really, really minor minor stuff. There was some mold growth in the bathroom, which is not to be unexpected. If anyone's lived in a place, they'll know that sometimes mold can grow, slow drain in the sink. Again, not a big deal, play some drainage down there snake the drain,   Emil: Michael why didn't that mold give you concern, because I know mold is one that people kind of big red flag freak out about why did that mold not give you any major concern?   Michael: Yeah, it's a really good question. So mold in places where it's supposed to be wet, doesn't concern me, this is more of a cleanliness issue than a pervasive systemic issue. In in your infection report that you share, you had a toilet leak from the second floor causing wetness on the ceiling in one of the rooms. The rooms aren't supposed to be wet, ceilings aren't supposed to be wet. So if we saw mold there are starting to get black mold or mildew. That would be a big cause for concern, because two things one, we could maybe see what's on the roof on the ceiling. But what we can't see is what's behind it. And so we might want to cut a hole and do some investigation to see, okay, how pervasive is the mold? Mold in a shower? I mean, I don't have mold in my shower anymore, but I used to. So it's something that happens in wet areas. So the fact that it's here, it's on tile, it's very common, is not cause for concern.   Emil: Got it.   Michael: Great question.     Emil: Thank you.   Michael: Yeah, of course.   Emil: And you're gross for having mold in your shower.   Michael: Hey, man,   Pierre: He's a married man now!   Michael: Yeah I am married man, I had to step up my game big time. When I was when I was young and gross, I had mold in my shower.   So here is the, the breaker box for the garage. And you can see there are some blank spots that are just open, they're not filled with blanks. So getting blanks installed is great. It's nice that they're still open, open slots for additional breakers, additional circuits if need be. But we just want to make sure no one sticks their finger in there. And so that's like $1.50 part at at Home Depot or Ace Hardware. So just getting someone to come install that.   And then he tells me that the GFCI protection. And that stands by the way for ground fault circuit interrupt, interrupter is supposed to be anywhere near water is where these are supposed to be said it wasn't functioning properly. So he has a testing tool here and just shows that, hey, it's not working properly. And so the fact that it's an outdoor outlet, they should have GFCI, which they do, but it's just not working properly. So getting that corrected is important.   And then noting some loose outlets, just screwing that stuff down is important. And then here's an open box, junction box, which doesn't have a cover on it, it's in the attic or basement as you need. It's in the crawlspace in the basement. So not a big deal, because no one should be going down there. But it's not right. So getting that corrected. And again, it's a very easy fix.   Pierre: That is so clean down there dude.   Michael: It's impressively clean. It's impressively clean. So here we had pooling in one of the quarters corners of the crawlspace. And so this was something like I was mentioning before, there's not supposed to be water here that's supposed to be moisture here. So why is it here? So I had I called the inspector and we just had a really great conversation. He says honestly, Michael, for a home of this age, this is like one of the best inspection reports I've ever seen. And having also looked at a lot of inspection reports This was also a very clean report to look through.   So but this is this is again cause for pause. What's going on here? Why is there water here so I had somebody else another contractor actually go out and inspect and kind of get an idea of what was going on. And what they thought was there is actually a vent that goes up to the basically ground level near the lawn. And there are automatic sprinklers to water the vegetation and water the landscaping around this property. So what they thought happened is that water was actually going down that vent, getting getting into the basement, so they don't think that there's water coming up from the ground. They don't think that there's Any kind of leak, but they just think it's it's it's sending natural water intrusion, which making some changes to the watering cycle in the way the sprinklers are pointed is likely going to correct that issue.   And so here we also see that there was at one point moisture down here on the block walls. So he noticed the presence of efflorescence. And we can see that here in these pictures that hey, at some point, there was likely a little bit of moisture down here. And so again, I think that's the the same issue of Hey, the landscaping, irrigation is either not timed properly, or it's too much, or it's just the direction of it isn't quite right.   We also saw some sweating on the pipes. And so he just said, recommending additional insulation, which not a big deal. We talked about the vegetation near the structure already. And so here we see some additional furry friends. And so we need to get this taken care of so sealing up all the holes into an out of a structure. And this is an outbuilding, so not a huge deal. It's not like it's in the house, but still not correct. So we want to get all of these all of the penetrations into and out of the building sealed, as well as penetrations into an electrical box sealed.   Emil: Mama and some babies.   Michael: Can't blame Oh, it's nice. Yeah, Mama with my Melissa babies. So very cute picture. But unfortunately, I think we need to evict these these tenants. They're not welcome.   So here, that was really it. So 25 pages out of 62 with some pictures. And then he's giving some additional comments on the property as well. And so here we have some interior photos as well. And so he didn't, not any asbestos, which was great, which is, which is common because of the age of the property was built in 89. I believe that especially this was no longer being used at that point in time.   So that in a nutshell, was this inspection report, there were not very many issues to speak of. There was nothing really that caused concern other than the water in the basement in a crawlspace. But after hearing some opinions, personal opinions around what they thought was causing that, I think it's a very reasonable explanation. And so it does not think make me think oh my gosh, there's water coming into this basement, it's gonna flood, it's gonna cause a lot of issues.   So this, again, was one of the cleanest inspection reports that that I've ever got to view. And I was thrilled. So we're very excited about the purchase of the property. Because I think it is going to be such a such a easy thing to manage short term rental wise, and kind of pre empting for getting ahead of the question. This was actually we didn't ask for a dime in repairs, or credits or reduction in purchase price from the seller, I was so impressed with the way things were maintained that we already got it for less than ask so I said, You know what, we'll just take care of all this stuff, my property manager said there's only about $2,000 of stuff to do little stuff. And I said, You know what, not even worth frustrating the seller over because I need to I had to ask for some favors, because I'm doing this via a 1031 exchange. And so I needed the seller to cooperate with me on my timeline.   So I said, I'm going to just treat them as best I can and hope that they're going to do the same to me. So so often, I think we get stuck on the numbers and the price and the dollar amount where that's a piece of the deal. But the deal itself is comprised of terms and different components. And so you want to be able to to negotiate where you can when you need to   Emil: Nice this is good we had a spectrum of of different properties yours Michael superclean didn't really need to ask for much peer you had a couple of loose ends and ask the seller to make those repairs. I didn't mind wasn't huge, but I knew I was gonna have some turns where it's gonna add up to like 20 30k with all the little stuff and had a couple bigger items that I asked the seller to either credit or lower the price on so we got a we got a nice spectrum of inspection reports on this one.   Michael: Yeah, I think it's also important to keep in mind, you know, where are you in your investing journey. And you know, I, I was like you every inspection report I looked at was was of that caliber with those types of repairs because then it was a value add play. And then you bought this thing knowing you were going to add value to it, versus this type of inspection report that we just looked at. This is like already turnkey, there's not a whole lot of value to be extracted out of it. I'm buying it for the cash flow. So there's it's important to remember keep that front of mind as well.   Pierre: When is that going to be available to rent?   Michael: Well, so we should be closing on it next week. And then we're going to get a furnish so hopefully a couple weeks after that.   Pierre: Friendly discount!   Michael: Friends and family discount. Absolutely. Absolutely. You heard it here. Folks.   Pierre: As long as you have a good internet connection there, I'll take a longer one.   Michael: Oh yeah, I mean something that we're talking about doing actually with the property manager is kind of marketing it as a as a corporate retreat, because the front of the property kind of looks like a conference center. So having workstations and really kick butt internet is absolutely going to be going to be present at that property.   Emil: Alright guys, well, if you are listening to this episode on the podcast, I highly recommend you go to YouTube, look for Roofstocks channel and watch the videos here. I think it's just so much more helpful when you can actually see the inspection report. See what they look like see what's called out. If you're listening just just go check out the video. I promise you'll get more out of it. With that we will check you out on the next episode. And happy investing everyone.

    This is how we analyze inspection reports on rental property

    Play Episode Listen Later Oct 8, 2021 37:29

    The inspection contingency period is a crucial step in buying a new property. Doing your homework here can make or break a deal. Overlooking issues in the inspection report can potentially leave you with thousands of dollars of repairs in the near future and eat up that precious cash flow.  In this episode, we pull up inspection reports on homes that we have either bought or are currently looking at purchasing. We walk through the reports, point out the most concerning issues, and discuss how to go about addressing them to best position ourselves in these deals.  --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Hey, everyone,   Emil: Welcome back for another episode of The Remote Real Estate Investor. My name is Emil Shour. And today I'm joined by   Michael: Michael Albaum   Pierre: And Pierre Carrillo   Emil: And in today's episode, we're gonna be talking about inspection reports. And instead of giving you guys kind of just high level overviews and hypotheticals, we're actually each going to pull out a recent inspection report on a property that we've either looked at or purchased and walk you through our thought process as we were looking at the different items and how we approached each one. And so hopefully that can help you feel more confident when you're looking at your next inspection report. So let's get into this episode.   All right, so I'm going to kick this one off, and I'm going to cover the inspection report from the triplex that I bought back in November of 2020. So let's pull it up. And I'll walk everyone through all the different things that we saw come up, and my thought process as we were going through each item.   Alright, so this is the inspection for for the triplex that I recently bought back in November. And what I'm going to do is I'm gonna walk you through some of the things that are common in in an inspection report, and the things that I find that I think are worth exploring more versus things that I think aren't a super big deal. And obviously, these are just relevant for me, but walking you through my thought process.   Alright, so the first thing I want to point out again, is is the inspectors job is to literally point out any potential oddity or you know, thing that doesn't look exactly 100%. Right. So here you can see that looks like the lock isn't lining up correctly. And there seems to be something with this top lock as well, maybe it's not like fully fastened, I think is what he wrote. So these things, these are minor, these are all things that we can, you know, probably take care of when we have a turn come to or if the tenant complains about it, we can just get it taken care of. These are minor, not a big deal. For me.   This was the first thing that really stood out to me when I was a valuing this property. So the ceiling at the first floor bathroom of one side of the property has an active wet stain. And so it looks like there was a toilet issue that they referenced here later. It was actually the toilet on the second floor wasn't secured properly. And there was a small leak from the top floor of the second.   So the first thing I did actually, when I saw this, you know leaks are are never something to be taken lightly. So the first thing I did is I contacted the inspector, you know, I had his number and I just asked him like, you know, how, how bad is it? What do you think, in terms of damage and potential here, he didn't sound super concerned about this, when I spoke to him, he made it sound like you know, you just got to get that that toilet fix, it's not super bad, you just have to, you're gonna have to patch the wall, repaint it, and you should be okay.   And this was something I was comfortable with proceeding. You know, this could spook a lot of people away. But for me, you know, water leaks, especially on a property this property is 100 years old, not uncommon. So we ended up just to kind of bring the story full circle on this one, we ended up replacing the toilet day one after we took over and got the ceiling patch repaired and haven't heard of any leaks since. So it looks like this has been taken care of.   Michael: Emil, you did something here that I really want to draw attention to and applaud you for not that you need any ego boost, but you picked up the phone, and you call the inspector. And I think too many people don't do that. And there's a reason the inspector provides their contact information. It's so you can call them and ask these types of follow up questions. Because if someone just sees a leak, or a wet spot in the ceiling, their mind can run. And they can tell you know, the inspector can tell you what they think the other report but actually hearing the intonation in their voice hearing. Like you said he didn't sound super concerned, that's different, conveyed via speech than via text that you're reading on a page. So I love that you did something that I also do, because a picture is worth 1000 words, hearing it from the horse's mouth so to speak, can be worth 10,000 words.   Emil: Right? And you know, especially as us investing remotely like we're relying on our people, locally, our inspectors all these people to really give us a full picture since you know we may or may not be there to view it ourselves. So this is something I just you know, want to talk to About it's also this guy's putting a full report together, he's not going to write me, you know, four paragraphs on how he actually feels. But if I call him, he'll give me that info if I asked for it. So always helpful to pick up the phone. Okay, so here are a couple things that I mentioned earlier, this was the toilet that was leaking, we replace it with a low flow toilet, so that he would save on the water bill and be obviously we needed to fix the toilet because it was an active leak.   So the inspector also mentioned here a kitchen faucet that was kind of loose, we actually just did a turn on this, this unit and we replaced the entire cabinetry and secured the faucet. So we're good to go. These are all again minor things that I knew we could get taken care of. Once we do a property turn, I bought this property knowing a couple of the units were under market rent. So I figured we were going to have a couple turns coming soon anyway. So all these small things didn't seem like a big deal to me, because we were going to have to make a bunch of repairs to clean the unit up before releasing it.   Okay, another big one in the inspection report this furnace. So this furnace got called out I believe, they said that it will, the unit did fire up and respond as expected when the thermostat called for heat. But budgeting for replacement in the very near term would be prudent. So I think they they mentioned this was like when I when I talked to the inspector I asked him about this as well. And he said it was 15-20 years old. So he said it's working. But this thing is on its last leg. So this was one thing that I went back to the seller and asked for a credit on and there's one more thing I'm going to mention later as well. And how I went about this and what the result was but for now I'll just leave it at this was one thing that was big enough where I went back to the seller and asked for a credit or reduced price.   So for me, I don't like to add up all the little little things and bring it to the seller. That's just not my style. I know some people do it. For me, I'm just looking at big things that cost 1000s of dollars potentially. And those are things that I'm going to bring up with the seller, if you know especially if they were marketing the property a certain way like fully turnkey or ready to go whatever, I'm going to bring these things up with the seller.   Michael: That's such a good point and the old because there's it's definitely a double edged sword in that all the little things like you mentioned, the $50 repair $100 repairs on their own, typically are not a big deal. But if you get enough of them, I mean that could be several $1,000 worth of repair items and so it could be death by 1000 cuts type of situation. So I think me personally I'm similar to you I don't nickel, I try not to nickel and dime people and get really nitpicky, if it's little, I'll take care of it myself. But if there are enough of them, that can also be indicative of some of the other deferred maintenance issues or how the property was managed for the life of that owner. So definitely let this kind of be a red herring if pay there are a lot of little things be on the lookout for maybe some bigger things as well.   Emil: And I you know, I think it depends on the kind of property you're buying right if you're buying a property that's marketed as turnkey and it's obviously very not then maybe you can pick those things apart. This is a property where I knew you know, tenants had been there for a while under market rent we're gonna have to do some some work and the price probably reflected that so i didn't, i didn't nickel and dime a bunch of the smaller deferred maintenance things   Michael: Yeah, yeah, so important to keep in mind.   Emil: So this was this is it in terms of the big things that were called down the spectrum for a couple other small things but nothing that was you know, a red flag for me. So you know, the other thing we always do any property we buy is we have the sewer line scoped. So have a plumber or you know, sewer line Inspector, your agent or whoever a property manager, somebody can can get you in contact with somebody. So we have the sewer line scoped and we found that there was a crack in one of the sewer laterals and so we got a quote for that the quote came back at $4,000 so this is again this is one of those things that a lot of people could see and immediately find as a red flag. For me I know it's not a huge deal we're going to break up the concrete replace it, which is actually not a bad thing right like now I know we have brand new sewer lateral at least six feet.   So but what I wanted to do was make sure that I could get credit from the seller so I brought the furnace and the sewer lateral to the seller told him what was going on asked him for I believe it was a combination of credit at close and a reduced price. And seller agreed on the full amount for the sewer lateral and then half for the furnace. They weren't willing to do full because they said it was still working but because it was all they were willing to do half. So we agreed on that. And those were the two big things in my inspection report that I brought back to the seller.   So these these are all i think that's that's a key thing to remember is that you know, maybe if I had foundation issues are something that was really big and the expense, you know, range could have been 5000 to 25,000. Maybe that's something I'm I'm not going forward with. But if I have, you know, pretty confident estimates, I can bring those to the seller and get the price reduced or get credits back so I can take care of those things. For me, those aren't going to be deal breakers.   Michael: So Emil, you did something that I don't know if you you mentioned, but in between the time where you got the inspection report back, and your due diligence window closed? Did you get bids for that, for this work?   Emil: The inspector gave me an idea of furnace replacement. I also asked the property manager, you know, their property managers, they deal with this stuff all the time, they can give you a good estimate, these sewer lateral, the, the person who sculpt the line was actually a plumber as well. So they were the one who gave me a bid and ended up fixing the sewer lateral. So that that was the nice part is that the inspector, the sewer line guy was also a plumber. So he could give me an estimate.   Michael: Perfect. And so was the estimate pretty spot on for what the actual cost was?   Emil: He ended up going in, and I think it ended up being around $6,000. Because the way the sewer lateral was cracked, they couldn't take the scope as far as they wanted to, because it could potentially I guess, fall in the cracks and cause more damage. So they ended up having to replace I think an extra two or four feet more than they had originally anticipated. So it came out to $6,000. Obviously, that's the risk you take when doing these things is these are estimates they're not 100%. Mine went up 50%. So you always have to kind of think about those things and determine if you're willing to take that risk.   Michael: Yeah, something something that I do is I'll try to go get bids, exactly like you did. And then I'll add a buffer on top of that, because there's the you know, you're you're paying for this repair, but there's also time, energy effort and risk, like you mentioned, involved with doing that kind of repair. And so in my opinion, depending on the scope of that, you should be compensated for that as well. But you should be building in some some buffer as well, because I've seen projects like that blow up. And that can be really, really scary.   Emil: Yep. Yeah, this was a sewer lateral is definitely not for the faint of heart. I mean, they could break it up and see so much other stuff, you know what I mean? Like, it was definitely a risk that I, I don't know, I bought a lot of turnkey properties. And I was like, ready for something that I don't want to say it was going to be more of a challenge. But yeah, it was going to be more work involved more of a challenge. More like getting to know the nitty gritties of a property. So it was a risk, you know, this was the fifth property I've bought, so I was ready to kind of just take a little bit more risk.   Michael: Yeah, and that's, you know, more risk more reward you got this property for probably under market value because of some of these issues. Now, like you mentioned, you've got brand new sewer lateral in place, you're never gonna have to worry about that again for the lifetime, but you own the building.   Emil: Right, Yep, and not gonna use it. Yeah, they used to use cast iron. So you know, they rot after a very long time and break now is replaced by PVC, which I believe has a much longer life.   Pierre: No, it's cool to it's cool to see your report after you've already closed on the property and get the the aftermath scoop as well. So mine is going to be from the other end of the transaction. This is active right now this is a property that we're working on. So we're still in the contingency period now.   Michael: Ooo a fresh one.   Pierre: This is first time. Yeah, since fresh, and this one's off of Roofstock as well. This is a roof stock select property. So yeah, this is my first time seeing an inspection report. So this is, you know, a learning experience and everything I know I've learned from this podcast here so listening off in the sidelines producing the shows,   Michael: We always joke about how they're so self serving. I mean, you're This is the epitome of the self service.   Pierre: I've been self serving from the beginning here, dudes.   Michael: You're like guys, we got to start a podcast, I want you to talk about remote real estate investing. I want you to view inspection reports.   Emil: Tell me everything you've learned.   Pierre: That's how I avoid my enrollment fee for Roofstock Academy.   Michael: That's the real long con, I'm going to get hired at Roofstock…   Pierre: Yeah, so this is the inspection report provided from Roofstock buy with the roof stock select property. So they give you two files. One of them is kind of an estimate summary which we'll look at real quick before and then we'll jump into the inspection report. I found it interesting to look at what they highlighted as needed to be done as opposed to going through all of the pictures individually and seeing other things that weren't mentioned.   So this is what they said the estimated total was, and here, here are some of the issues that they pointed out. So some, you know, shrub trimming near the walls of the outside, like the little line item total there, this house was built in 66. So this is kind of the old window structure, all of the windows were painted shut. So that is a hazard, especially for section eight. That's actually not up to the code of section eight. This was I'm working on this with my brother. And we're thinking we want to replace the windows, but not just yet. I don't think it's that big of a deal. We're just going to cut the windows open. They might, I don't know, I'm worried about the ropes on the inside of them being kind of rotten and not functioning properly.   Michael: Yeah, windows are expensive. Yeah, very expensive to replace.   Pierre: I got a quote on Windows and I think I can't remember I don't have the numbers in front of me, but I think it was like $7,000 per, wait.   Emil: Yeah, for all the windows. That'd be crazy.   Michael: That was probably for all the windows.   Pierre Yeah, yeah, it was it was seven or $8,000, something like that. So definitely not what we above and beyond what we had set aside for capex on this property, so we're thinking, let's just cut these open, make them up to code and then replace them later on.   Emil: That was a smart thing you did though, is going to get that quote right when you saw Okay, we think we're just gonna have to cut the paint so that they can you know, they're not painted shut, but what happens if we have to replace the windows? What does that cost look like? So that you can like you can pricing that risk for yourself, okay, if we had to replace all these Is it still worth it to us?   Michael: And something else that you'd sounds like you've thought about is like, what's the ROI on that replacement on those windows, if you're not paying for utilities, there might not be actual any ROI until you go sell the property and who knows when that's going to be so it's really that $7,000 I mean that could just be the cost of doing business that they get so bad that it's non tenable and you just have to replace them okay, so I mean that's that's property ownership but until you run that calculation and really understood what the risk is like you're mentioning Emil that's so important to put a number to it.   Pierre: The other thing to pointed out here was some roofing issues here I found all of these estimates to be like incredibly low.   Emil: Did you talk to someone else and get a maybe shingle repair estimate? Well,   Pierre: I did not speak to someone who's specifically working on shingles I got kind of just a contractor to look at the entire report here and see what they could do like as a lump package windows being separate Of course another little thing around the window around the does that like a little chimney some exhaust vent. Then cracking in the driveway and then this is the garage you know this isn't a livable unit so what do you do about that?   And then this this was the thing The only thing that really worried me about the garage was this little door here there are more pictures of it in the inspection report but there's like this is a metal door and there's like sharp pointy edges and I don't know if someone were to get scratched on that that seems more like it's not making the place less livable it but it is maybe a liability if someone gets hurt on it.   Then on the interior here we have this outlet, 38 bucks you know is that?   Michael: That just now yeah that seems pretty low for some electricians and electricity like trade fee just to show up to the house like 100 bucks so.   Emil: Yeah, that's gonna be 100 120 bucks for sure right?   Pierre: Yeah. Right and then there's some cracks here which I spoke to the agent down this is an Alabama so I spoke to the agent down in Alabama and he said there's any house that is of a certain age even five years old, you're gonna start seeing these cracks because the ground is soft and it is moving and so that you know that worried me like what's going on here is the is it's not stable was there like massive shifts in the structure but apparently that's pretty common on houses of age in that area.   Emil: Random aside here my house is fully renovated my personal residence before we bought it two years ago, and you know living in Southern California we fault lines and stuff but even after two years if you walk through the house you'll notice a bunch of little cracks throughout the drywall as well. Even though it's all new drywall and new, sheetrock everything, before we bought it.   Pierre: Okay, here was another thing. Recently, we had a couple of videos, we posted a couple of videos from our certified agents in different markets. And one of the things he brought up in from Memphis was the circuit breaker. So you can check that video up here, just look at the specifics around circuit breakers and fuses in Memphis. But this one looks like it's pretty overloaded. And so we're thinking, my brother, and I were thinking maybe if we could replace, because there is room you can see you can fit some more in there. But these are all the fat breakers, or how to I don't know, forgive my terminology here. I'm not an electrician. But I know that there are thinner attachments here. And if we were to replace these fat ones with thinner ones, we could fit a lot more. So we're not doubling up, you can see a lot of doubling up happening there.   Michael: Yeah.   Pierre: So instead of replacing the entire service panel, going in there and replacing some of the connectors with the thin connectors so that we can single up on them.   Michael: Pierre, did you get input on the aluminum wiring being present at the breaker because that definitely gives me the heebie jeebies.   Pierre: Yeah, so that is a concern. And we have a meeting today to speak about that. Can you tell me about what the issue with the aluminum wiring is, and because I believe that aluminum wiring does affect our, you know, the status as Rootstock certified.   Michael: Right. So aluminum wiring is just an older school style of wiring and prior to that, they use what's called knob and tube. And so it's just it has a tendency to, I'm not even gonna say tendency, it has been associated with overheating and causing fires. And it's just, I don't think it's as good of a conductor as copper, and so that there's more resistance in the wire. And that's why you get the overheating. And you'll see copper is is kind of the norm in newer properties. So there are different ways that aluminum wiring can be present in a property, it can be physically, the entire length of the wire, could be could be aluminum, it could be also what's called a pigtail, which is they have copper in the in the wire, and then at the very end at the breaker, they convert from copper to aluminum, and then you have aluminum going into the breaker.   So I would see if I couldn't get a little bit more clarity around. Okay, is this aluminum wiring just the breaker or is it pervasive throughout? Because a lot of insurance companies actually won't insure properties that have aluminum wiring, or knob and tube wiring. So that might be a question on your insurance intake form is Hey, is there what's the wiring material? And if you say copper, and the house burns down, and then they find out what's aluminum, they could then deny your claim because they said, Well, this is not, you know, you lied to us kind of a thing. So I would definitely look to go get some clarity around that.   Pierre: Okay, that's really good to know. And so if the house is wired through and through with aluminum what's what are your thoughts on that?   Michael: I would definitely say chat with the local agent and find out what's common for the area. Because this is just one of those things, all the houses that were built in the 40s 50s 60s, I think they used it up through the 60s even, had aluminum. And that was par for the course. And that was not a big deal at the time of construction. So unless someone's done a total rehab job on the house, it's going to have aluminum, so it's definitely something that you can find an insurance company that'll do it, I've done it in the past, but it's just gonna be more specific to that market.   So you might need to go with a local carrier or a local office, because there are tons of people that have this in their home. So it's not like it can't be done. It's just it's not as good as copper, though, if you if you can have the better one, choose that one, you know, right. But again, if this is the only option, that's just a risk that you're going to take in any insurance company that that insures it with knowing it has aluminum wiring, okay, then you're kind of covered, but it's just a risk that you want to be aware of that. That is present at the property.   Pierre: That's really good to know, that's something I haven't considered yet looking at this, I was just kind of concerned. I did see the note there about aluminum wiring, and I did see that that affected the status with the Roofstock certification. But I didn't quite know why. So thanks for that. The main concern I was looking at was like these double tapping here.   Michael: The double tapping Yeah.   Pierre: But it looks like there's room so I think that we won't need to play replace the service panel if we can, you know, get that addressed. So apparently the water heater is passed it's expected lifespan but it is still functioning. It's an electrical water heater. So Michael: That's 28 years. Wait, that's incredible. It's still going after 28 years? Yeah, it was manufactured 29 years is manufactured in 92. Yeah, little things still cooking away. They don't make them like they used to man.   Pierre: Yeah, that's true. So this should this be something that we start factoring in as a potential repair in the next year or two?   Michael: I would I mean, I would kind of like a meal situation with his furnace. It was assays but like yet, it still works. But you're on borrowed time at this point.   Pierre: Okay?   Michael: You were on borrowed time a decade ago, this thing?   Pierre: Okay.   Michael: So I would definitely say that's that's gonna go and the way that Murphy's law works is you're going to close and the things get a blow on day one I would definitely,   Pierre: Don't say that man.   Michael: You know, plan for this is this is coming up. Now something to think about is just getting a home warranty, whether that's provided by the seller or you get it, but I would say hey look, you go to the seller and say, what I would do is say, hey, look, this thing is well past usable life, I'm gonna have to get this thing year one, I need a credit for it. And you can decide on what that cost looks like. But that's how I would definitely play this. And then you can turn around and go get a home warranty. And the home warranty is hopefully going to cover this, the devils in the details, always. So make sure to talk to your local property manager around any good Home Warranty companies in the area. But it's kind of a nice insurance against it.   Emil: One thing about home warranties that I've seen personally and maybe it's just the warranty provider, I used, a lot of things that maybe pass their serviceable life and then you get a warranty on them. They're going to they're not going to cover that like we had my personal residence a, the condenser was way past service will live like a dog had peed on it or something before we bought it, but it still works fine. And then six months down the road. like Michael mentions Murphy's Law thing gets busted. And we went back to the the warranty company and they said no, it was it was faulty. So we're not going to cover that. So just a random thing they keep in mind as well, with warranties.   Michael: Yeah, you hear the good and the bad, because that's mine blew too and they totally replaced it.   Emil: Maybe it's just the provider I used. We won't name names.   Michael: I think part of it is the provider.   Pierre: That's cool. So looking at this, I want to show you a couple of other things just to show like what the inspector highlighted as things that we need to really take care of, and things that I found in the inspection report proper. That concern me.   So this is what the inspection report looks like. It gives you a summary of things that need to be repaired based on the different areas of the house. So I'm going to just a lot of these things that are yellow are what were addressed inside of the kind of capex summary at the beginning. But there's some other things in here that they didn't point out. So one of the things we saw was there was popcorn ceiling. That you know, it's kind of concerning, but not unless we really want to do a major rehab. So I don't think we're going to be doing a major rehab on this property anytime soon.   Michael: And Pierre, why is it concerning?   Pierre: Asbestos, it's like an older construction where they're using asbestos so a little dust isn't going to be a bad thing. But if you're going to be cutting major things open when the property is tenanted, you could be exposing them to carcinogens.   Michael: And just so everybody knows I'm not a doctor, I'm not a medical expert, asbestos expert, but from what was has been told to me is that asbestos is really only a problem when it's airborne, or it's in some form that is not solid. So you encounter asbestos in a lot of different places. And I know for me, I like I was super gun shy. I saw asbestos in a report, I was trying to run the other direction. But what I was made to understand is that if you There are many different ways to encapsulate asbestos to prevent it from becoming airborne, that are perfectly acceptable and safe. And so if you see asbestos on your inspection report, just go look to understand where is it? how pervasive is it? What remedies are available, that are perfectly acceptable, legal and safe, that you can that you can go through to make that no longer an issue?   Pierre: Cool. Yeah, the first time I saw that I was like, Oh, no, but then just kind of digging deeper into it, you realize it's not going to be a problem for us.   So this here, this is on the underside of the roof. It's a little bulging thing. They didn't point that out in the in the summary the repair summary,   Michael: It looks like they just did a cheap replacement on the roof deck when they replaced the decking so they use plywood everywhere else. And here they use this cheap Yeah, this is called particle board.   Pierre: I think it'd be pretty easy just to support that with a couple of two by fours and a piece of plywood and a pin nailer but just getting up in there is going to be a pain but that's something that I want taken care of.   I think that that was pretty much it the aluminum wire and and this that that are my big concerns that weren't pointed out so much on the repair estimates.   We asked the seller to repair all of this stuff, and he agreed to to to repair all of these things. Before the sale   Michael: That's fantastic.   Pierre: But now I have a couple more details now that I didn't have after walking through this with you guys. It's like you know what to wear. what extent is the house wired with aluminum wire? And yeah, so that's that's a big concern now that I'm going to need to bring that up and see if we can. And then also, can you put it in new water heater? Is that part of   Michael: Right? Yeah, that it's not called out as broken or needing repair. So is that included in the scope or not?   Pierre: Right? And is that a reasonable thing to ask? Or am I starting to nitpick?   Michael: Is that it's not a hypothetical. You're genuinely asking?   Pierre: I'm asking the wise words of the sage Michael Albaum.   Michael: If I am the wise sage then we're, we're all in a lot of trouble, guys, believe me? No, I mean, I don't think it's, it's nit picky, the water heater, that's honestly one of your biggest ticket items on this report. And so it's, it's not called out as a expense, or the cost associated because it's still working. So truth be told, it's not something that I would actually have the seller replace, I would much rather get dollars for it, because it's still working. And the thing might go another five years, who knows, and so why replacement isn't broken. And other people might have different opinions on that. But that's, that's my personal belief. And now you're empowered to have the dollars in your pocket to take care of it, when it does become an issue. And then you can decide what am I going to go the Home Warranty route and save some money? Or am I just going to keep these dollars set aside to actually replace the thing when it when it needs to be replaced?   Pierre: So what you're saying is to ask for a credit for that?   Michael: That's how I would play it, I would either ask for a credit. And I like a credit better than a reduction in purchase price. If you're using a loan, is the credit is truly dollars in your pocket, that reduction in purchase price. Well, if you reduce it by 1000 bucks, your savings is only the 200 bucks, if you're using alone is 20%, or whatever your down payment is.   Pierre: Tight? Yeah, that's that's what we're going through right now. We have a meeting today, we're in the inspection contingency period now. So we need to, we're coming up on the end of it. So we really need to figure out the rest of this and make our call.   Michael: And, Emil, how would you play that?   Emil: Exactly. Like you said, I think having the money in your pocket is better, because then you can just put it aside or whatever, maybe the thing lasts another two years, right. So you don't have to replace it right now. The other thing that the other reason I would I would take the money or ask for money is, you don't know how poor of a job they're gonna do, they may replace it, but do the minimum amount possible getting like the cheapest person, you know what I mean? versus you like really thinking about how you want to get it done and find someone you trust or whatever. So wherever you can, I would ask for credits and reduction to make the repairs yourself, versus having them kind of make as cheap as possible to get this thing sold.   Pierre: Okay, so you're talking about the all of the repairs, not just the water heater?   Emil: I think the other ones are small. I mean, if you can, yes, I would ask for credits, and whatever. I think at this point, you've already asked them to make those fixes, and it's fine. I don't think any of them are major enough where it's gonna be a huge issue. But that's kind of how I play it. Now, knowing what I know.   Pierre: Do you know if there are any protections, if they do do a crappy job, and we go back in and look, and they just just did some stupid work, and we got duped into buying the property?   Emil: I think of that point? It's on you. But you'd have to ask a lawyer probably.   Michael: My guess is there's going to be language in the PSA, or the addendum around acceptability? Because like, like if they're just phoning it in, you know, and not really doing the work to an acceptable degree. I think that there's got to be some out for you. But I think the language is going to be specified in the contract.   Emil: Pierre, what would you have done, had they said no?   Pierre: Well, I'd already started getting quotes from contractors, although those are tough to get if they because the property is not under our ownership yet. The property is tenanted, and so a lot of them were like, well, when can I get in there? And do it or get in there and take a look, I don't want to look at these pages, you know. So, I did get a couple of estimates. We were ready, we were ready to take on the repairs ourselves, if we would get a reduction in purchase price. Well, I mean, the numbers still work for us. I mean, all of these repairs, were still under the capex that I'd set aside for the pro forma so the numbers still worked, although I'm not about to just you know, give people money they don't deserve so I would have asked for the repairs or now i don't know i wouldn't I didn't know about asking for a credit. That's cool. Like give me money.   Michael: Most lenders have a cap around how much and this is again, using a mortgage hub will have a cap around how much you can get back and credit versus production and sale price. So just something to be aware of. It's like one or 2% I think is really common. Every lender might be a little bit different, but that's kind of what I've heard and seen. So if you're buying $100,000 house, they're gonna win. get you to a grand or two in terms of credit, but the less you reduce the purchase price, because that's an agreement to you and the seller as much as you want. But I'm curious, what was the bid, that there are bids that you've gotten thus far? And what were you prepared to ask the seller for?   Pierre: The bids I got were between like five and 6000 total for like all of the stuff and not not including the water heater, and not replacing windows, of course.   Michael: And so were you going to ask the seller for all six of that, or was it some a different number,   Pierre: We were going to also consider the findings of the appraisal. So we also have an appraisal contingency. So I wanted to just bring it all together. So we're not just like nickel and diming. But just kind of big, big picture. And I don't know, this is my first time. Like trying to, I don't know, I'm not like so bullish and confident going in and be like, Yo, I need this fool, I'm trying to be I don't know. polite. I don't know, dude. First one.   Emil: I think you're doing just to set you're doing a good job on your first one. I probably wouldn't have even asked for anything because I had no idea. I was just like, up it is what it is like, I got to deal with it. For what it's worth, I think you're doing a better job than I did on my first one. So don't beat yourself up.   Michael: No, I mean, you're definitely you're going through all the steps. Yeah, like Emil said, hats off to you man. I was very in a very similar boat to a meal just like stumbling through like I guess this is how this works now.   Pierre: You guys are really just giving yourself a round about compliment to yourselves because everything I'm doing is what I hear you guys say all the time. So…   Michael: You'll have to keep us posted on how it all goes and how the quality of repairs come out and how the deals have a deal shakes out.   Pierre: Cool, thanks, guys.   Emil: Alright, so we are actually going to cover Michael's inspection report in a part two episodes since this one's running a little bit long. So make sure you're on the lookout for that one. Michael always has tons of good advice, so it's gonna be a good one. We'll check you out in that episode. And happy investing.   Michael: No pressure, no pressure,   Emil: No pressure, Michael.   Michael: Happy investing

    Here‘s what you need to know about investing in Pittsburgh PA

    Play Episode Listen Later Oct 6, 2021 36:05

    Max Feinberg is a Roofstock Certified Agent out in Pittsburgh PA, a fellow investor and a wealth of knowledge about his local market.  In this episode, Max tells us about the homes in Pittsburgh, the vintage, neighborhoods, the rent to purchase-price ratio, common issues that come up on inspection reports, and details that only a local would know. Listen to this episode to learn if Pittsburgh is a good market for your strategy.   --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Mark: Welcome to The Remote Real Estate Investor. My name is Mark Woodling. Michael Albaum and I are joined today by Max Feinberg, who's from Pittsburgh, Pennsylvania. So he's one of our certified agents and is going to give us a quick market breakdown and tips and tricks that we need to know about investing in Pittsburgh. So let's jump into it.   Max: Thanks for having me.   Michael: No, We're really excited to have you on So You are our certified agent out in Pittsburgh, right?   Max: That's correct. Yep. Pittsburgh, Pennsylvania.   Michael: And are you born? Are you a born and bred Pittsburghean? Is that is that the proper term?   Max: Pittsburgher, Yeah, I am.   Michael: Much better.   Max: We could go with Pittsburghean. I was born and raised in Pittsburgh, Pennsylvania. I left when I was 18 years old. I lived in Arizona for about seven years. And I started my real estate career out there. But I'm back home in Pittsburgh and really enjoying working in real estate here.   Michael: Where in Arizona where you?   Max: I wasn in well, I went to Arizona State University. So I was in Tempe, Scottsdale Phoenix. started my career in Scottsdale. Yeah.   Michael: A lot less snow out in Tempe right?   Max: Yeah, yeah, well, weather was a little bit better. But it's not how I'll tell you that much.   Michael: Yeah I totally can appreciate that. So max curious to know, how did you go from Arizona real estate back to Pittsburgh real estate was it just, you know, the home homesickness or you knew that market better, you'd read that market better?   Max: It's a combination of a few things, those those are definitely part of it. Arizona is one of the more competitive real estate markets in the whole country. I'm not going to get the number exactly right. But I remember they had some crazy number of agents in the state of Arizona over 40,000 or something like that. And so just inherently not being from there. And not having that sphere of influence and network made it hard for someone who was just starting in the real estate industry to get you know, some traction.   When you combine that with not really knowing the area, like you just mentioned, and being a little bit homesick. All those things brought me back to Pittsburgh.   Michael: Fantastic. And I'm curious what what's been the biggest change in Pittsburgh, since you grew up there to now what have you seen?   Max: the biggest one has probably been, you know, some of the factors that are making up the economic drivers here in Pittsburgh, the increase in tech jobs, health care, education, all of those things. And then what they've done to the real estate market, some of the crazy amount of appreciation we've seen in certain areas, and now starting to spill over into these other areas. And we're seeing a lot of development. When I when I was younger, we didn't have we didn't have as much of that the Pittsburgh was still coming off that steel town reputation. And that's really changed a lot over the last 2025 years.   Michael: Interesting. So when people say when people hear the word Pittsburgh now, what should they think of?   Max: They should think of technology, healthcare education? I know it doesn't. Well, you know, you still think of the Pittsburgh Steelers, you think of steel mills and things like that. And I think there's only one steel mill left in the whole city, you know, those have been gone for a long, long time now. So you know, the main economic drivers, as I mentioned before, I've totally changed and we've become a really savvy city. That's more cutting edge.   Michael: Interesting. That's really exciting to hear.   Max: Yeah.   Michael: So as someone that's not familiar with Pittsburgh, asking for a friend, talk to me, like I'm a brand new movie, and give us kind of a high level walkthrough, if you will. Okay, if I'm looking at a Google map of Pittsburgh, how should I be thinking about some of the different sections, sub markets areas, if I'm an investor?   Max: Yeah, it's funny you say that, because I always tell clients I'm working with looking at a map of Pittsburgh is really not helpful at all. For a few reasons. One, we have over 90 different cities that comprise of a fairly small, big citiy, you know small major market. So we have a lot of small little neighborhoods, which are all really different.   And you know, outside of the city of Pittsburgh, there's another 150 or so small neighborhood. So when you combine that with really the topography of the area, looking at it to the map, as an investor really doesn't help you too much. You know,   Michael: Great to know   Max: A town that can be right next to another town on a map would be one place would be an A plus type community with great schools. And you look at a map and you say, well, these prices are lower right next door, why can't we invest in this area? Well, you know, it's across a river and there's a mountain there and you know, it looks like it's next to it on a 2d map. It's really not the case. So it's definitely be helpful to be familiar with the area. And that's where I could come in, or I've had a lot of clients come, you know, fly into Pittsburgh and drive around and really learn a lot from just doing that.   Michael: What you just said, I think is so valuable for so many investors, because I think so often, especially remote investors will take our local knowledge and apply it elsewhere. And to your point, I mean, you can't do that. You can't do that ever, and especially not in Pittsburgh. So this is great to know. Okay, so then talk to us about some of the markets, sub markets, neighborhoods that you are seeing, really right for investors, where folks are doing quite well.   Max: Yeah, you know, it's there's a few different types of investments that could work here in Pittsburgh, as I'm sure there are other areas and with there being so many different communities. I would say there's really not one answer to that, right. There's there's communities, such as Lawrenceville, or Shadyside, or East Liberty, where we've seen a lot of these companies like Google or Facebook, or Uber moved from Silicon Valley and open offices here. And so those are more appreciation plays, right? Or maybe Airbnb or a property like that works in these areas. But when we're looking at analyzing them for cap rate, or cash on cash, the prices are a little too high. So where we see a lot of success with investors in Pittsburgh is some of these areas that are a little more obscure, a little lesser known that I would call more B to C plus type areas. And we have a lot of them. There's no shortage of them. Like I said, there's, you know, 100 of them.   Michael: Okay, so awesome. And kind of digging into the numbers a little bit on those more appreciation plays. Can you give us an idea of just a ballpark idea of what a 3-2 would cost and what it would rent for versus some of those more cashflow heavy markets?   Max: Yeah, yeah, I mean, in Lawrenceville, and areas like that. Some areas that are popular with nightlife would be like the South Side Mount Washington, Lawrenceville, these types of places are three twos probably going to be the lower end would be 250, you're probably going to be in the 350 to 400 range for something that doesn't really need any work. And the rents are going to be in the mid 2000s. So on the surface, if we do, you know, napkin math, right back in the napkin math, that doesn't really meet that 1% rule that we look at, to further analyze a property. But right, you know, you are getting appreciation you are in areas where you know, it's probably a better tenant base that, you know, wants to be in those areas for the nightlife and things like that. So…   Michael: Yeah, totally random question. Where do you think the term back of the napkin came from? Is it because there's like, like food on the front of the napkin?   Max: Probably a couple guys sit in like a, you know, a pub in England or something. Maybe just doing some math on the back of a napkin? I'm not sure.   Michael: No one ever says some front of the napkin math, it's always back of the napkin.   Mark: So Max, I got a quick question. What's the sweet spot that you're finding right now between, you know, the cash flow markets and the appreciation markets? Where Where do you feel like the opportunity is that most investors are really gearing towards in it's competitive, but not overly competitive?   Max: Yeah, so for Pittsburgh, there's, there's a few different answers to that, if you're looking for single family homes in those B to C plus type areas, we're going to be looking at prices that are in the low to mid one hundreds, just because that's where the rents are going to match up, and we're going to be near that 1% rule or maybe a little over it. Now, like most cities, if you get a little further away from town, or you go to some areas that are a little less desirable, we may be able to find single family homes where the numbers look a lot better. And there's inherent risk involved with that as well, the buildings are a little rougher, you may have more tenant turnover and issues in that regard. But that's generally where we're going to be for a three bedroom, one or two bath home, duplexes and triplexes are going to be probably in the mid one hundreds to low to hundreds. At this point, which has really gone up, you know, I'm sure like a lot of other cities in the past two years, from, you know, the low to mid one hundreds to high one hundreds, each thing's probably gone up about 30,000. So, you know, probably about 10 to 15% appreciation.   But that's where we're going to see the numbers. I like to steer clients towards duplexes and triplexes if they're looking for cash flow. You know, we know that there's probably more turnover on multi units than there are single family units. But cash flows generally going to be a little bit better around here.   Michael: Max you bring up such a great point. And it's something that I talked to members in the academy all the time about, how do you have the conversation around someone who says, well, Max, here's this $120,000 house that rents for 1200 bucks, let's say, but over here, here's this $180,000 duplex that rents for two grand gross, and you have to explain to them that those tenants might be very different. We have to get beyond the gross numbers. I mean, how do you have that conversation?   Max: Right? Yeah, well, that's tenant turnover is just part of it. I mean, here in Pittsburgh, as I'm sure we'll touch on In a little bit here, some of these buildings are older, and utilities are separated. In some instances, they're not separated. In some instances, the owner may be responsible for paying water and electric, the tenant pays gas. Whereas a single family home generally the tenants responsible for paying all the utilities.   But when you dive into the numbers a little bit more, may actually make those single family homes more attractive than they first appeared. But yeah, no tenant turnovers part of it. Utilities being split as part of it, just property maintenance is part of it. I mean, you've got two kitchens, to bathrooms, if not more, probably bigger buildings. So there's a lot of factors while the cash flow may be a little bit better, your expenses maybe a little bit more as well.   Michael: That's such a good point to keep in mind. So you, you mentioned it, and I would love to come back to it. So the age of the housing stock in Pittsburgh, talk to us about what that looks like. Is it new builds? Is it 200 years old, 100 year old, you know, what, what is the age of some of these properties that are good cash flow investments look like?   Max: Yeah, we don't really have a whole lot that's over 130 years old. And most of the stuff that's going to be that age is going to be really close to the city center. So some of the neighbors like the north side, South Side, you look at the date, those were built in those were in the late 1800s. But oftentimes, that scares people without even really looking into it. I mean, these places were built to last a little bit different than they are nowadays.     And then we have new builds, I was just at a friend's house yesterday, who has a townhome that was built less than a year ago, he's already got plumbing issues. So you know, sometimes sometimes age isn't a bad thing. But there are issues that are associated with having buildings that are 100 years old or so which is where I would say a lot of these properties are going to sit about 100 years old 80 to 100.   Michael: And how do you determine or decipher? I mean, so I would give an example, I have a four Plex that was built in like 1890. But I took it down to the studs, brand new, everything brand new, you know, roof, electrical, plumbing, whatever, and so on the insurance that says your construction 2019. So how do you get how do you? How do you coach people? How do you walk people through? Yeah, I know, it says it was built in 1900. But it's been rehabbed. So for you, as the owner, it's effective your construction is 2020, or whatever.   Max: I tell people that all the time, I say, you know, if this building was built in 1880, there's very few things in this building that are still from 1880, one of them may be the foundation, which I know is a big is a big issue for a lot of people. But again, these foundations oftentimes are 18 to 24 inches thick, and they're not going anywhere. But as you touched on the plumbing, electrical roof, all this stuff's probably within 50 years old. So you know, we go in there, we do inspections, and we figure out the age of some of these mechanicals, and we're better able to figure out what we should be estimating for maintenance capex and things like that.   Michael: I love it. And so you touched on foundations, and there may be some damage to those foundations. What are some other common issues that you see in the Pittsburgh market that maybe are custom to the Pittsburgh market that might scare other investors away? Like for one we had, were chatting with an agent, they have termites everywhere, they have termites. So if you see termites is not a big deal. what's what's kind of unique to Pittsburgh?   Max: Termites is one of them, but it's not crazy. Common around here. termites are prevalent, though, but a lot of the issues that we see here that I've noticed have caused pause for some investors from out of state are related to the foundations, and then kind of our pretty awful weather. So you know, these foundations that are from 1880 1890, they didn't use basements back then the same way we do. And they design these houses, with foundations that are oftentimes fairly porous. And then when you combine that with the amount of rain that we get here, we see issues like mold, we see issues like dampness and basements. And then, you know, some settling and foundation shifting that's associated with age and moisture.   These issues are pretty common around here and definitely can be caused for large concern, but oftentimes are not. And, you know, I talked to Mark about this a few weeks ago, I work with one guy who says mold is gold, because it scares people away. But it's really easy and common. It's an easy thing to fix. And it's so common, but you know, when you deal with people from Arizona, for example, they hear the word mold and they just shut down right?   So that was those would be a couple things. A couple other common issues around here have to do with the age of buildings and cause people to hesitate or odd layouts. We have sometimes these duplexes or triplexes that were single family homes maybe 100 years ago, and they'd be repurposed over the last 100 years. They've got really bizarre layouts and they're not your traditional uptown or side by side duplex. We've got very small bedrooms that really should be closets, attics that are finished, basement bedrooms, things like that, that if you trace the lineage of a property back, you'll find that every 20 or 30 years or so something was done and changed it a little bit so those are a few of the things and that just other issues that are associated with older buildings which we kind of already touched on.   Michael: Yeah, that makes total sense.   MarkL Yeah Max I think one of the important points to the mold aspect is it's so cold up there that you know mold really thrives on heat right and that's where a lot of water just kind of you know, it turns in the mold once the heat gets to it but out there the freeze you know, really takes care of it so you're not going through these vicious mold cycles out there. It's really just maybe more seasonal if anything, right?   Max: Yeah, I would say it's not as common in the winter but these basements again, they a lot of them just let a lot of water in and if you're not running a dehumidifier or you know there's a lot of people that do external French drains and things like that there's ways to combat these once you remediate the actual mold issue.   Michael: That's great.   Mark: Mold is gold well we'll save that only for the more high level investors out there that really can coined that phrase I think that's good for anybody so it doesn't freak them out you know once they see some of those items.   Max: Right.   Michael: So max I come from a long long background in the insurance industry so I'm curious to know in Pittsburgh Do you guys have natural disasters? Do you have tornadoes, floods, hurricanes, that kind of thing?   Max: You know, it's funny you say that I it's another thing I like to talk to out of state clients about while our weather here is not notoriously great, you know, we get a lot of rain and it's fairly overcast, we actually don't have many natural disasters. We really don't have earthquakes. We have tornadoes one tornado me we every, maybe every three to five years. And you know, it touches down and it's gone. And, you know, I guess we do have some floods, because of the topography and the amount of rain. And they're, you know, you coming from insurance, I'm sure you're familiar with, we do have a lot of properties that require flood insurance. So that's something that we dive into, you know, before we commit to a property, because that can be a little pricey and can hurt hurt the numbers if that's another 1200 bucks a year or so. Right?   But the weather here, it doesn't get too hot. It's really not as cold as some places, you know, in New York, or, you know, Minnesota or Wisconsin or places like that. It's not as hot as you know, some places in the south. So it's fairly mild here, in my opinion.   Michael: You're talking to a guy from California. So the fact that snow is a part of the equation, mild is no part of that sentence.     Max: That's right. Yeah. Well, yeah, with no earthquakes here so we'll take that.   Michael: That's a big win. That's a big win. Sign me up.   Max: Right.   Michael: Okay. And so Max, I'm curious to know, or for investors to know, because I think property taxes is one of the biggest misses that investors encounter in investing remotely, they often know how, what their property taxes look like in their county or their state, but going across the country across state lines can often change things. So how do you know how people should be calculating their property taxes?   Max: Totally. That's the biggest one I've seen. Mark and I have talked about this as well. You know, a lot of times we've got buildings here that have been owned in the same family for 70-80 years. And on the surface, you look at the taxes, it's like, wow, $200,000, and it's only $950 a year in taxes. Well, that's what it is now, but it's going to change.   So that's one of the conversations I like to have with people. It varies county by county here. So Pittsburgh's in Allegheny County, and that's where most of the properties that we're going to be talking about or Roofstocks going to be publishing are going to be located in Allegheny County.   Generally, in Allegheny County, the way they reassessed these properties is approximately 80% of the new sales price. And then the millage rate in each Township, which we just discussed, there's a ton of them, varies. So I can't really give a one size fits all answer there other than you can calculate the assessed value based off your purchase price, and then go check out what the millage rate is for whatever neighborhood that property is actually in and go from there.   Once you get outside of Allegheny County, in the neighboring counties, such as Westmoreland, Butler, Beaver County, places like that, they're all calculated differently. So we could go on a one by one basis there but Allegheny County for the most part, that's how it's done.   Michael: Okay, perfect. And that's what I always share with folks too is Hey, just go call the county assessor ask how you calculate your resale property taxes. So this is super helpful. So for anybody listening, who's interested in investing in that market, go look up the millage rate for that specific area and multiply it by 80% of the purchase price.   Max: Approximately varies year over year. Sometimes it's 75. But yeah, that's a safe way of calculating it   Michael: More or less. Okay, cool. Mark, do you have some other questions for Max?   Mark: Yeah, I think it's good to know really what your expectations are because it's a two way street. You know, buyers are putting in offers on Roofstock for MLS properties, we would kick those offers over to you as a referral. And you're going to work with those buyers. But when you have that first conversation with buyers, what is it that you always emphasize or some of the common things that you say hey, before we move forward into and submit this offer. Let's make sure we have these things in a row. What What is it that you go through?   Max: Well, I'll tell you this, Roofstocks done a really good job of making sure buyers are pre qualified and ready to buy. So it's a little different for buyers I work with from Roofstock, that may be someone I've met through another means. But the biggest thing with expectations is I try to let people know that the market still pretty hot, it has slowed down a little bit, especially in the multifamily world. But if we see a property that the numbers look really, really good, a lot of other people are seeing that property, and they're running those same numbers as well. So you just got to be ready to go.   And I know a lot of people a lot of times being from out of state have a lot of questions. And some of which we've just covered, how do I calculate taxes or some of these issues? So I like to just try to have this conversation with them initially, and say, Hey, you know, here's, here's the answer to these questions. By the way, we also have a 10 to 14 day inspection period where we can make sure we're not getting into something that we shouldn't be getting into. So if a property looks really good, I just want people to understand that it's going to be gone still within 24 to 48 hours around here.   Michael: That makes total sense.   Mark: That's great. And when you submit an offer, and you hear back from let's say, a listing agent, you know, what's the typical back and forth that you have with a buyer, because I know some agents give you extra information and give you some ideas about you know, where you need to be, how do you approach that with a buyer to give them as much market Intel, just so they can really either submit that offer, say, Hey, you know what this may not be, you know, the the best offer on the table. So let's go shop for another property.   Max: A lot of times, especially with deals that are really competitive, I just tell people, even if it's not a highest and best situation, sometimes it's best to put your best foot forward and just say, Hey, this is what I'm willing to do. This is my personal, highest and best situation. And if someone else wants to do 10,000 more, or is able to offer cash, then so be it right, and this one wasn't the one that was meant to be. But that way, at least you know, you're not trying to squeeze out two or $3,000.   I try to help people understand that if you're going to look at this as a long term investment, two or $3,000 off of sales price, when you're doing a 30 year mortgage is so small, that if you think this is a property that you really want, it looks like a good deal. Let's go for it, right. And we can do our due diligence on the property and some of these other things during an inspection period, when we can still get out of it, and you can get your deposit back.   Michael: And Max to your point. I mean, even putting your best foot forward, knowing that you might still lose out on the deal allows you to potentially become that backup offer. If the first deal falls through this just happened to me…   Max: Totally,   Michael: You know, the selling agent came back and said, Oh, you know, our other buyer fell out. Are you still interested? And I see Yeah, you know, we can talk? Yeah, let's have that conversation.   Max: Yeah, we can talk about that offer. That offer might go down a little bit right?   Michael: Exactly. You gotta pay for rejecting me.   Max: That's, that's right. Yeah. But you know, that's that's happened a lot around here. And I'm glad you said that, because I think we've had a lot of appraisal issues lately. I'm not sure if this is happening in other markets. But I think appraisers, especially around here, are tasked with the difficult job of trying to cool off a hot market, right? They see these prices going up and going up. And they don't want to be the ones left holding the ball like 13 years ago, or 12 years ago. And so we've had a lot of, you know, appraisals come back low lately. And that's really open things up for what you just mentioned, hey, this person doesn't want to buy it anymore, you know, hey, is your offer still stand? So I'm glad you said that, because we've seen a lot of that here.   Michael: Interesting. And so in terms of the offer prices that you're seeing properties go under contract for, are they and keep in mind everyone listening, we're recording this end of September 2021. But are they at list price? Are they over list price? Are they under list price? Where are you seeing the off the winning offers coming coming in?   Max: With single family homes, we're still seeing them above list price pretty often. With multi families not quite as often. I feel like there's a few reasons for that, you know, obviously the first and foremost being there's less people looking to buy multifamily properties that are single family properties. But multi families are still going to be around list price. I just had a client lose out the other day we went 7000 over on $125,000 duplex, and I think the winning bid was probably about 10 or 11,000 over so that's still common.   We don't really have anything, you know, more than, you know, 10 or 20,000 over for the most part, just because you don't really go 50,000 over, you know, on a $200,000 purchase. I'm sure in places like California, you may see it more often because the initial price is higher, right? But here the percentage is, you know, never really too much more than 10% above list price.   Michael: Okay. And are you seeing people get really aggressive and creative with the terms that they're offering?   Max: Yeah, yeah, I mean a lot of people still waiting inspections and I know that's something that's hard for a lot of Roofstock clients. And I really honestly expect a lot of Roofstock clients to want to waive inspections as they've never seen the properties but sometimes you have to remember you're competing against local investors as well, who have experience and they've walked that property and they're comfortable waiving inspections, because they already know you know what's needed or what's not. So that's obviously still a big part of it.   And we're seeing, you know, lease backs to the owners, because it's hard to find properties for them to move into. So they're letting owners stay, you know, for three months for free. There's a lot of creative things going on right now.   Michael: Interesting.   Max: There's still people covering appraisal differences as well, even if you're doing a purchase with a loan, you know, you can still waive the appraisal contingency, but you're going to be responsible for covering that that gap. I've seen that more often in the last few months than I have in the past as well.   Mark: And so Max, are you when you're getting an offer submitted through Roofstock? How many times are you doing a leaseback? Like what percentage? Or what percentage? Are you waving? You know, the inspection contingencies or any of those like what's what's the common ratios that you're seeing out there?   Max: For Roofstock not as much again, the clients are usually out of state. And so they they feel more comfortable, at least having an inspection done. And so I try to help them understand other ways that we can improve the offer, you know, obviously more money is helpful, but maybe more deposit money, maybe a quicker closing, whatever it may be, there's other ways to make your offer more attractive. Maybe you just tell them, hey, I want to do an inspection. But it's going to be an as is sale, I'm either going to take it or leave it I'm not going to use this inspection to really beat you guys up and negotiate any further. I just had a Roofstck client do that this week. So leasebacks not as often. But you know, other creative strategies are pretty common.   Michael: Awesome. And, Max, when you're putting up properties onto the Roofstock select program in the Pittsburgh market, what criteria are you looking for? What is it that when you see a property screams Oh, perfect investment property candidate?   Max: Yeah, Mark and I have talked about this a lot. And I'm still trying to find, you know, what's best for the Rootstock investors? And I think the answer to that is there's investors that are looking for all different types of things. So I'm trying to get creative, and put all different types of properties on there, I've been doing a lot of properties in these Lawrenceville types areas where the initial return doesn't look great. But I found that there's Roofstock investors who are from California or Washington, and they're still looking at us. And when these are still really good numbers.   So that's I'm doing some of that a lot of the B to C plus properties where we're looking at a 1% rule. That's one of the things I'm looking for. And then I've I've been uploading some properties to Roofstock lately that are in some of the areas where the returns are going to be a little higher. And on the front end, I've really found it's important with those properties to have these conversations about potential issues. So there's there's all sorts of different criteria for what we can find in Pittsburgh.   Michael: That's great and cool to hear that Pittsburgh does really cater to to every investor type or every investor persona with the type of asset that they have that you have in the market.   Max: Absolutely.   Mark: Yeah, I have a few stats I want to throw at max and just see what he if he has any comments around these because I was just studying John Burn's real estate data, which is a great source of information. It shows that rents were up 2.7%, from 2020, basically. So over the last year, it was 2.3% in 2020, and 2019 is 3.6%. So slow and steady, I would say is always good. The existing home prices jumped. This is a median number from 173 to 192 in 2021. So over the last year is jumped up a nice percent was that clip about 20% clip, it's not too bad or 10% clip, excuse me.   Here's the number that stood out. And I would love to hear what Max has to say on this. So I'm looking at the cost of a payment and maintenance to own versus the cost of rent. And it shows that the cost of a payment with maintenance for let's call it an entry level home is $997 a month versus that same entry level home to rent is about $1416. max, are those numbers accurate? What do you see in the market?   Max: That sounds accurate to me, like I said, you know, $1400 a month in rent would be about probably $170,000. Home, depending on the area, but so that average rent sounds just like the average purchase price you just mentioned. So that sounds spot on to me. And I'm glad you brought that up the rent increase to one of the other things that we see around here a lot, which I've had conversations with a lot of Roofstock investors about is the current rents of these properties we're uploading, we have a lot of properties here that are older, have maybe been passed down through families, tired landlords, and the rents are just crazy low.   And so you know, when we initially upload properties, if there's tenants in there, the numbers may not look great on where they are now, and there's a lot of reasons for that. And the most common reason is landlords, just really not raising rents and keeping up with how fast they've appreciated, like you just mentioned, Mark, I think a lot of these older, tired, landlords don't really go and check the real estate stats like that and say, oh, holy cow, I should have raised this, you know, 10% over the last three years, because that's what it's gone up, you know, and people don't realize that, you know, they're still sitting at 650 a month for a one bedroom. And, you know, it should be at 850. Now, and that changes everything. That's really, really common around here.   Michael: Yeah, that's such a good point, Max. And I was just having a conversation with some investors yesterday talking about the difference between buying on pro forma or buying at true value. And so what we're talking about is because of single family is a little bit different than multifamily. But for single families, if the potential is truly there, I think it can totally make sense. But you just want to avoid is a seller saying, Oh, well, the market rents 850, my current rents at 650. But you have to pay the price to buy the home at 850. And really, the market is 700. That's where you get yourself into big trouble. Max: Max: Right? Right. It's like, well, you should have gone and done it then. Right?   Michael: Yeah, why don't you do it? And then I'll pay for it. Right?   Max: Why don't you do it then and keep the house. But you know, what I'm seeing a lot of times is that, in this market, we're kind of purchasing in the middle of the pro forma and true value. You know, people are pricing them at the true value, and the performance, you know, 20,000 below that, or 30,000. Below that. And oftentimes where we're settling is somewhere in the middle. So yeah, I'm glad you said that.   Michael: Okay, that's that's super good to know, as well. And what tools would you recommend investors utilize to get a handle on what are the true market rents?   Max: Well, I this is a conversation I have all the time, I wish there was some sort of rental appraisal software where there was an actual correct answer for that. But really, you know, we have this conversation a lot, there is no such thing as a rent appraisal, right? It is, whatever someone's willing to pay. The tools I use are probably the ones that a lot of other people use. I use Zillow rentals a lot. I use Rentometer a lot. I use Craigslist, I look what's out there, I just try to look at everything that's, you know, really available. And then oftentimes, if it's still available, I'll take 10 or 15% off of what that is, and say that's probably about where we should be otherwise, again, it would be rented at that price. Right?   Michael: Right.   Max: Yeah, it wouldn't be available still, if it was if it was priced correctly, but we use rent ometer I use rent ometer a lot. Zillow rentals a lot.   Michael: Yeah, those are those are both great tools.   Mark: So I have two more quick stats. One of them's vacancy. So we're showing the vacancy rate is actually like 5% going all the way back to 2016. So 95% occupancy, as you guys would say, Do you find that that's true? Or you know, it sounds like it's a very competitive rental market out there. Is that right?   Max: It is a competitive rental market. I've I always go back to two things when I think about how competitive the rental market is and how people don't really realize how competitive it is I purchased a building in December of last year, so it's been about you know, 9-10 months, and the owner was living in the downstairs unit which was a really nice unit and they told me it's probably worth 750-$850 a month. Well I went on Facebook marketplace, listed it for 1100 a month I got all these comments You're crazy. You're crazy second day rented so it is competitive. You know people don't realize what true rents really should be and how many people are actually looking for a nice property if you've got a nice clean property people are willing to pay because there's not a lot of those available.   Michael: Awesome Wow.   Mark: Well the backup statistic to that is 53% of the housing units are tenant occupied. So renters are occupying 53% of the property so that shows you homeownership rate out there is just not as strong and that's in the city as Pittsburgh so that's where the competitive nature is coming from versus ownership rate is 64% nationally right so you flip those numbers around and you see that there's that many more renters than in Pittsburgh.   Max: Yeah you know what it's really I've heard that stat and it's really amazing to think about when you think about the cost of you know purchasing a property here it's it's amazing that it's not flipped around and you can buy a nice house for $170,000.10 minutes away from the city but rental rates are really high here and I'm not really sure why I think maybe it's because we have a lot of out of state investors and you know, I'm not really sure beyond that, but the opportunity is there there's a large rental pool and not a lot of vacant properties as you just mentioned.   Michael: Interesting.   Mark: That's great Well to me that that's what sums it up right there is that it's there's the the slow steady your rental growth, there's a tenant occupancy, there's a there's a demand for tenants that are coming from both your side as well as they're looking for properties. So it sounds like the supply and demand is very healthy on the renter side which is the I really drive investors to the market.   Max: Yeah, and rising rents and rising ARVs as well so it's a good time to get in.   Mark: Max this was great. This is the the comments on just you know what, what the common things are that you're seeing out there. I mean, this is the information that you probably have the conversations every day, maybe 5-10 times a day so glad we could get that out there and share it with a listener. So Michael, this was us, he was probably one of the better interviews I would have to say because it's, it's a demystifying right, all the all the little things that people hear about, but you really need to hear it from the locals.   Michael: And I can say wholeheartedly, Max that   Max: I'm gonna have to go back and watch the other interviews how to make sure. Thanks, guys, I appreciate it.   Michael: This was great.   Mark: Thank you so much.   Alright, thanks again, Max, for joining us. And thanks to all the investors for listening and we'll catch you on the next one. Happy investing.

    How passive is real estate investing really?

    Play Episode Listen Later Oct 2, 2021 16:48

    We often hear real estate investing referred to as passive income. But we feel that can be misleading sometimes. Depending on the cycle of your investment periods, the asset class you are in, and the condition of the properties you are acquiring, real estate investing can require different levels of involvement.  In this episode, we discuss what that level of involvement can look like in these different scenarios and how you can turn the dials to adjust your strategy to accommodate your desired level of activity.  --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions, and seek investment advice from licensed professionals.   Michael: What's up everybody Michael Albaum here from The Remote Real Estate Investor. And today I'm joined by my co host,   Tom: Tom Schneider.   Michael: And today Tom and I are going to be talking about why is real estate investing referred to as a passive activity and the benefits some of the benefits that it yields referred to as passive income, we're gonna be talking about how passive investing in real estate actually is. So let's get into it.   Alright, Tom, share with me a quick update about what's going on in your world. A little portfolio update, if you would,   Tom: Oh, so I've mentioned before building a little, shed a little office shed, bottom of the lot, it is coming along. contractors are busy as all get up. But I have secured I'm in line, I'm in the queue, I'm the next person in the queue for my concrete guy. And then for the contractor actually going to putting it together. Next in queue there. So this is a symphony of development. This is my first development ground up development project. And it's just in the corner.   My wife's been asked to get it's a good way to frack totally, like totally, it's, um, you know, on my own whatever, project manager, whatever GM on the site, and it's timing from the materials getting ready from the company, that's prefabricating, the shell, the shed the site team that's doing the actual, like concrete stuff. And, you know, at first in doing this project, and like, yeah, this isn't really real estate investing. But the more that I do it, the more it's like, oh, these are totally muscles that you know, yeah, some some land up development stuff. So anyways, it's it's going along well, that is kind of the extent of my activities as it relates to investing. Right now is some value add stuff at my primary residence.   Michael: That's awesome. And I wish I had done something like that. Before I started my total redevelopment projects, I had a goose egg experience doing that kind of stuff. So that's, that's really cool.   Tom: Yeah, go getting it somewhere. Yeah. And yourself, Michael?   Michael: So I'm in the midst of a 1031 exchange, I'm selling a value add property that I added some value to out in the Midwest, and I'm buying a couple short term rentals via that 1031 exchange. And, man, the timing of it is just like so tight. So I'm scheduled to close on the down like property, the property that I'm selling by Friday or Saturday, and then purchase the new property on Tuesday. And I timed that. So I'm well within my 45 day window, but I didn't realize how tight it was actually going to be. So if one, if the sale of mine gets pushed out a little bit, I might have to scale or slide the purchase a day or two, which I'm hoping doesn't happen, but just really trying to line everything up to be as seamless as possible. But I'm excited to get into the short term rental space.   Tom: Exciting, juggle, juggle, juggle. That's it. That's it. timing. Yeah, very cool.   Michael: All right. So let's start picking this apart. So a lot of people have referred to real estate investing as passive investing or real estate investing generates passive income. And I'm curious to get your thoughts around how passive you think it truly is. And is it black and white, or are there shades of gray here?   Tom: So the way that I would describe it to a friend is, you can get to the point where it can be a pretty passive source of income. But realistically, like upfront, there's, there's some work to do. So in cycles of ownership of the property, there are going to be ones that are more busy. So when a property when you're doing your acquisitions, I'm going to I'm going to spend a good amount of time evaluating properties submitting offers, managing the transaction, stuff getting financed, lined up.   So in that upfront part of the process, definitely not an extremely passive process and even up to the point if you're buying it vacant, and perhaps there's some renovation work that needs to be done, I'm going to poke my nose into that process. Either managing contractors with my property manager or managing them directly. That's not a super passive process. And then going up into the editing process where you're working with your property manager to set rent, where they are marketing the property.   I mean, I'm at the point now with my property managers where I have an established relationship where I trust them to run with stuff but getting off the ground. I'm a little bit more hands on so the other kind of property lifecycle where it's time consuming is some construction thing comes up and I will usually with my property manager, that what's called a not to exceed limit and NTE, am I using that right i think so anyways, Start with the cost. Yeah, yeah,   Michael: Let's run with it.   Tom: If the cost is above a certain dollar, I'll say hey, I want to know about it like this could be a repair replace decision, where I did least like to provide some input, you know, I'll you know, talk to you the local property manager. The other high time commitment not passive is it repeats again, right, the tenant moves out goes back into construction. So a property can be occupied for a long period of time that is relatively passive and not really doing a lot except for opening the proverbial mailbox and seeing the rent check come in. However, though, there like is a good amount of time that it's not necessarily passive. So I think it's a little bit of a misnomer, the passive term that is often applied to it, just because especially in the upfront and some of these major milestones you can be a little bit more involved in, as you start building your profile, go from one to five, to 10, to 20, there really can be a lot more involved in it. I mean, I enjoy, I enjoy it, I think it's fun, you know, but it's definitely   Michael: It's because your sick in the head like me!   Tom; Because I'm sick in the head! The other time where it's not so passive. I'm sorry, Michael, I'm stealing just all the fodder, I'm just like,   Michael: I should never have given you my notes.   Tom: You shouldn't, you should have spoke first, all the points and then anything else. The other pretty time consuming event is tax time. And I think I've complained about this before, on where you're, you're collecting all these different documents and passing them on to your CPA, you're collecting your 1099 from your property manager, your 1098 from your mortgage, if you have a mortgage, and all these other documents. So that can be a little bit time consuming.   But you know where I'm at right now, I don't spend a whole lot of time and that I have a portfolio that's been humming along for a while. So I'm not necessarily doing acquisitions. I'm doing land development on my own personal primary. So Alright, Michael, I'll stop stealing all the points that we talked about before the episode. So go ahead, Michael.   Michael: That was great. You covered everything episode done. Thank you. Just real quick plug, something that you mentioned around tax time is if someone is using Stessa, they'll likely have a much easier time come tax time, because so many of those documents can be housed there and then sent directly over to their CPAs. But I think you nailed it. I think that's definitely a misnomer, calling it passive income. For all the reasons you mentioned that I'll just kind of share an anecdote from when I started investing, because I think it's it's a very common way that people get started investing.   So I started buying very turnkey single family homes in Southern California. And so the first one I bought was was relatively new build was a couple of years old, and was turnkey, ready for a tenant. So we got a tenant in place. And then I was freaking out until we actually got that tenant place, which took about a month, just because of the timing, that of what I bought the property. And so once you got a tenant in place, I was very hands on on the property manager trying to keep tabs on everything that was going on, because I didn't know any better. After a couple months of that it was very, that it was versus very passive. I mean, the property didn't need any work, that tenant was placed. And it was just one single property. So there wasn't a whole lot for me to actually do.   Now I would keep tabs on what the property manager would send over her reports every month and see, okay, what were the expenses and plug that into my spreadsheet and see how close was I in guesstimating, what my pro forma was going to be. So I spent 20 minutes a month, just checking up on things, reviewing the reports. And then I added a second property to the mix. And that was new construction brand new build.   So very similarly, there just wasn't a whole lot of stuff going on with that. And so there was the same property manager in the same market. So now I just had two properties on that monthly report as opposed to one. So okay, I spent 25 minutes reviewing that once a month, then added a third property. And that was my first add a state investment. And so that was a couple duplexes. And very similarly, it was fairly turnkey, fairly new builds about 10 years old. And so already tenants in place, there's just wasn't a whole lot for me to do in terms of being an active manager or managing the manager, so to speak. So I had property managers for all of these.   And that was kind of the case for a lot of my investing. And so the more turnkey I think you buy, oftentimes, the easier it is from the ownership and operational side of things. And there's really not a whole lot to do so to speak other than make sure things aren't going off the rails.   It wasn't until I started getting really heavily invested in value add projects that I was having to manage a lot of what you were mentioning with your with your shed is managing contractors keeping tabs of okay who's doing what and when and keeping tabs on your property managers because they're much more involved with that process on a day to day basis than I am but getting update reports, checking in seeing what happened, what works scheduled it and make sure things are actually getting done. And then following up and seeing what things are renting for how soon are they getting rented this kind of thing. So because that's been my life, up to my eyeballs for the last Three, four or five years, it's just been a lot, I've been much busier in that capacity. But now that things are starting to slow down from a project standpoint, it's definitely becoming more passive.   And I have a four-plex that I've talked about on previous episodes, and took that down to the studs total, I mean, brand new build, essentially. And that is very much humming along because there's not a whole lot that occurs on that property, knock on wood. So I talked to my manager about getting it pre leased and pre marketed and what the rent should be and how we're going to push rents and this kind of a thing, but that's only when the leases come due, so four times a year for that for those four units. So from that perspective, it can be very, very passive.   Tom: It's just a great kind of a point in that I think your there always is going to be some time constraints kind of based where you know where the property is, but there is a little bit of a menu of how much how not passive or, you know, by the type of property that the condition of the property so depending on you know, what type of investment that you're looking for, you know, for me looking for a property you know, maybe turnkey maybe some light work that needs to be done but ultimately, you know, a minimal time investment beyond those major events you know, acquisitions terms, what that versus you were, I have an appetite for a little bit more stuff and up to your eyeballs at points in times. But I mean, like life, there's, you know, there's ebbs and flows of…   Michael: I thought I had an appetite for, until I threw up, but that's neither here nor there. I think, Michaels, Uber says it really well, too. He talks about regularly. And in his book, he talks about taking on all these value add projects, and in hindsight, he wish teachers would have bought more turnkey. And so like you mentioned, you can really dial it up or down how much time and involvement you want to have. But you'll either pay for it or receive a discount. And so I think a lot of people end up buying properties on the cheaper end of the spectrum and given markets that probably do need work, but expect it to have the same time requirement as a turnkey property. And I just think that's a very big misalignment of expectations.   So you really need to understand what does this type of property What does this class of property look like in terms of my time requirement in terms of capital requirement? Because I think people often knock turnkey investments Oh, they're all the equities already been sucked out. Yeah. But if someone doesn't have the time to go manage it, or deal with the headaches or deal with the projects that are needed, like I think it's it can be a really great avenue for people. And so that's I think one of the beauties of real estate is you have this broad spectrum and depending on who you are and where you're looking to go there's likely something for you.   Tom: Yeah, and the other you know thing about these you know, massive project type properties kind of against people who say oh, you know, all the values already been sucked out for these properties that are already in good shape, the concept of beta where in taking on a project that has a property that has a big project, sometimes those costs can go over like and you can you know, end up buying this property that you're thinking you're gonna squeeze out some extra value but instead you're actually just squeezing a bunch of extra work and then your costs are going over I mean, it's really easy to look at these projects with some pink rosy glasses and thinking that you're getting some extra value but when in fact you're just doing more work and oh, materials costs are up Oh, your contractors timing so it's vacant for longer like me I don't think that's really the purpose of this episode so I'd like to expunge upon or talk about the value of slightly more turnkey properties   Michael: Vut that's where it ended up!   Tom: That's where it ended up.   Michael: I mean, I Case in point like Exhibit A myself that for that four Plex I was talking about as we got into the property started taking off the sheetrock. My contractor calls me goes look, Michael, the electrical and plumbing is all done very poorly. So this needs all new electrical and all new plumbing throughout, that wasn't in the scope of the project. So that's $40,000 that was not accounted for. Like that you pay for it now pay for it later kind of thing. So absolutely. I think big risk, big reward potential but also big risk for things to go sideways and get overhead get over your head and over your skis fairly quickly.   Michael: And less passive back to the original topic.   Top: Back to the original topic. So now kind of getting getting through some of the other asset classes I'm fortunate enough to own a couple double net and triple net leased properties. And if anyone doesn't know what that is, I highly encourage you to go check it out. You can Google it, it's abbreviated n n capital or N N N for double net and triple net lease respectively. That is about as passive as you can get in my opinion, with still being a direct owner. Now you can go invest in syndications or funds or crowdfunding any of that kind of stuff, which is truly passive, I mean, it's like stock market investing, you set it and forget it type of a thing, you're not a decision maker, you don't get to decide when things are done, ie being a decision maker, but double net and triple net leased properties often come with very, very little landlord obligations or responsibilities, if any. And so that in my opinion is is another definition of mailbox money. And if somebody is interested, again, highly recommend going and check check stuff out online about those   Tom: And those leases are almost always you know, commercial or retail shop right?   Michael: Exactly at the CVS is the Walgreens the McDonald's, the Carl's juniors. A lot of these companies will use utilize triple net leases and not actually own the property. And so it's it's definitely a different beast different asset class unto itself, but still within the real estate space.   Tom: Future episodes thrown in the queue.   Michael: Let's do it. Let's do it. Hopefully you can't hear the dog snoring next to me.   Tom: Calming, it's calming   Michael: Soothing. Awesome. Tom, anything else before we get out of here.   Tom: Nope, I think that's pretty good. We got it.   Michael: Awesome. So takeaways, do your homework on the front end? Do the legwork. Get the train moving so that way it's easier on the back end. Alright everybody, that was our episode. Thanks, Tom. Always a pleasure to riff on these with you. If you liked the episode, feel free to leave us a rating or review whatever it is listening your podcast with the chorusing on the next one. Happy investing.   Tom: Happy investing.

    This is how Alex Jarbo gets massive returns with short term rentals

    Play Episode Listen Later Oct 1, 2021 30:16

    Alex Jarbo is a real estate agent and investor that specializes in custom-built short-term rentals. He also runs the YouTube channel, Alex Builds which details his process. In this episode, he tells us how he got started, what his strategy and returns are, and important things to consider if you are interested in getting started in the short-term rental game. Alex's channel and contact: Email: --- Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Hey, everybody,   Michael: Welcome to another episode of remote real estate investor. I'm Michael Albaum. And today with me, I have a guest, Alex Jarbo. And Alex is actually doing ground up development for short term rentals out on East Coast market. So he's going to be talking to us about what that process looks like, and all the lessons he's learned along the way. So let's get into it.   Alex Jarbo, welcome to the podcast. Man. Thanks so much for taking the time to hang out with me.   Alex: Oh, thanks for having me on, Michael.   Michael: Now. No, I appreciate you. So give everybody a little bit of background on who you are, where you come from, and what is it that you're doing in the real estate space, because I know that it's very interesting. Let's bring everybody up to speed.   Alex: Yeah, so I'm originally born and raised in Detroit, Michigan. My parents grew up in Detroit and then my parents moved to like 20-25 minutes north of Detroit. During the Marine Corps when I was like 18 years old did that for like five years, I was stationed in Washington DC, that time it was like time to leave the Marine Corps. I decided that I want to be in real estate got my real estate license in North Carolina, moved to Asheville, North Carolina, right out of the military, and then I sort of dabbled around in real estate flipping properties.   Didn't really like that too much did the real estate agent thing for a little bit made some good money but I was I was helping investors sort of find Vacation Rentals instead of, and I realized like okay, let me let me try like purchasing some. So we had some money saved up and I went out and started like looking for vacation rentals in this area. Or like properties that would do well as like short term rentals and stuff didn't really find anything that wasn't like crazy overpriced. This is like even before like the COVID lockdown and then so we just decided to build we just decided to build our first cabin which ended up being an a-frame took took about a year to get that done just because we were like my first build and just learning everything and then from there like we started renting it out and started doing really well and then like one turn into four and then four turned into not like next year so we're breaking ground on four this year and then we have 24 plan for next year.   Michael: Holy smokes it sounds like these cabins are just having like little cabin babies.   Alex: Yeah. We just took took the class cashflow and just rolled it into the next board took our like I took on investment money for the first time with with the like to have the cabins and then all the all the properties we're doing next year with investment money. So like with other people's money, oh,   Michael: Man, that's frickin awesome. I love how you just said, Oh, this thing isn't working over here. So let me just go build my own. Most people say oh, it's not working like Screw it. Real Estate sucks. It's I can't do it.   Alex: No, no, absolutely not. And I mean that the model that we're following now really has been I mean, like solidified with like with COVID, because we had a lot of like out of town, people moved to this area that are working remote. And that sort of drove real estate and that's driving real estate prices up everywhere. But that drove real estate prices up here now. And it's like, if I try to go out and find a vacation route right now like I'm competing with people who also want to live in the home, we build all of our homes a stick built permanent foundation. And the reason we do that is just so like it's just as a built in exit strategy there so we we build them as normal, like single family house for the most part, like they're still built as unique cabins, like a-frames log cabins, something something unique about the architecture. But if like for some reason, like 5-10 years down the road or the city, like decides to one like the county one day decides randomly to not allow short term rentals in the city or the county. Then like we do have an exit strategy there.   Michael: So yeah, that's awesome. And so that first one that you built and rented out, was that a short term rental? Was that your traditional long term?   Alex: Yeah, no, it was a short term right out of the gate. We had designed it as a short term rental and then we saw how good those numbers were that were just like I was I never really underwrote the property myself. I just figured that we underwrote it as a long term rental like okay if it doesn't work out, we can put a renter in there and just cover the mortgage and maybe cash flow a couple $100 but I mean the cash flow like for October's like five grand for the small cabin. That's like that's net in our pocket.   So yeah, I was I was curious to see like, I was You know, I've never done my numbers on this before because it's been renting out for like a year and a half a little over a year and a half now, I was like, let me let me do like annual numbers and see like, what actually would have like if like, let me do the cap rate, let me do the ROI. And like, just with, like, I didn't have an investor with that property. So like, my cap rate was like 26%. My, yeah, my ROI was like 80 something percent, like for the whole year, I'm like, oh, okay, I think we are working here.   Yeah, so that's what I put together, I started putting together like a YouTube channel and sort of talking to some people. Like just some, like close friends and stuff, who had some money saved up and they wanted to do something. And then I just just pitched him the idea of like doing like, right now what we do is like, we sort of pivoted from doing like one or two cabins at a time to like doing six at a time. So we do like these small vacation rental complexes, but there's still like stick build permanent foundation owns, like we purchase six to 10 acres. And then we subdivided into three plots. And then we put three primary homes on it. And then three accessory dwelling units are like mother in law suites that are detached, like in the back, like up maybe like 100 or 200 meters away. That way we get away with doing six at the same time, but it's three separate parcels. So safely, something comes up and we need to sell one of the properties are safe, like an investor wants to back out or something. We can also like give them back their money.   But yeah, it's like we the 24 that we're doing next year, we have like 455 investors lined up for those for those 24 cabins and it's four separate communities. So…   Michael: Man, this is incredible. So I'm curious on that very first one, did you finance the build with a construction loan? Did you go all cash then he didn't have investors walk us through how you got that done?   Alex: Yeah, and I sort of briefly talked about this on my YouTube channel. But we we started with like a second home loan, essentially I had my license technically was still in Michigan, like where I'm from, and then my wife, we'd live separate for a little bit until just like until her job allowed her to work remotely full time. So we were allowed to get away with doing a second home loan second home loan construction loan. Just because I had an established residency here in North Carolina, I didn't know if I was going to be here long term either. So technically, like my address was still in Michigan.   But a lot of people a lot of posts that I talked to now sort of that's how they get into this space, whether it be building or with with just purchasing an already built home for vacation while purposes they do it as a second home loan, and other lenders are fine with it. Like if it's a second home loan, it's rented out as an Airbnb that's what everyone's doing. It's like they'll stay in it two, three weeks a year and then for the rest of the time they'll just rent it out just to cover their mortgage.   So yeah, that's that's how we started we did a two time close loan, which there are negatives and positives to that so it's essentially a construction loan for a year and then you refinance into a permanent like 30 year fixed which is what we ended up doing.   Michael: That's awesome. And so can you walk us through some of the numbers on what did it cost to build because I think a lot of people just assume that building ground up is more expensive than buying existing which is why more people maybe don't do ground up.   Michael: Right. Like you're a little bit of the head like headache comes with it if you're just like starting with it, but but it felt like it fell on us we're just like okay, we're either gonna overpay for a property that's not 100% perfect and it's gonna need some work anyways, so we're like instead of renovating a home for three to six months, why don't we just build one like from scratch and we'll take like 12 to 14 months. So what are our numbers these numbers again, these are numbers that were prior to COVID so like with like materials and everything going up but our first Kevin the first Kevin we built for 202 and that the 202 means it was also like furnish the land cost about 50,000 and then it cost around like 135 130,000 a build it's only an eight it's like an 830 square foot cabin, which sounds small but if you actually like if you actually see it like it's an open floor concept pocket doors everywhere so no doors are opening in and out we just really tried to optimize the space like.   It's funny like we just the furniture sort of decided what when you're building these cabins like these smaller cabins, the furniture like decides what the house sort of looks like so it's like you have to like have your furniture planned out before you start designing the home but yeah, we that that cost It costs around like 202 to three to build and furnish.   And then yeah, we started we just started renting it out. We've been we've been 100% occupied for the last a year and a half. I mean besides maybe like, one or two days that we've taken for like maintenance days or like to just do some like extra work on the cabin. Like I already mentioned my cap rate was like 25% for that first year without an investor. And then my ROI was about like 80%   So like the nice thing about our market which If I do decide to invest in a different market and this market is year round I'm here like people like to be in the mountains year round we have the I'm in Asheville, North Carolina so we have like the breweries here but we also have like the Biltmore Estate, which people actually come for like in the winter and stuff people like to hike in the winter too so with Yeah, it's like I accidentally stumbled upon like a year round market now we do have like busier seasons and stuff so like October November in my opinion are our busiest seasons because it leaves season like with all the leaves, changing colors, it just like turns like yellow orange reds and stuff. So   Michael: That's incredible. So while you were talking, I just pulled out my calculator and ran the numbers on your dollar cost per square foot, which is about 160 bucks a square foot   Alex: Yeah, and I would say right now I'm pricing out these other properties that we did it's closer to 200 a square foot Okay, which is a pretty big jump but it's nothing it's nothing like compared to like if you're building in like California, like our lender that we're using now for the bigger projects next year. They're based out of California and it's like my entire 660 unit project is about like a $2 million bill compared to like something in California which like a single family house could cost that.   Yeah, So yeah, we're around like 200 square foot or and so like this the first six that we're doing next year, it's anywhere between 400 square foot all the way to 2600 square foot so it's like there's a big range there. Like some cabins can only sleep like two people but the biggest cabin can sleep like eight to nine people.     Michael: Oh my gosh that's awesome. So you take on investors you do the build and then do you turn around and sell them for the investors and then you manage them talk to us a little bit about the whole business model.   Alex: Yeah, so that we self manage and that's that's part of the business model is we take we we take on the investor money and then we don't take a development fee, we're a full partner throughout the whole thing it's a it's a long term play we don't we don't we're not selling them so that the hold is about 10 years I just that's a pretty round number. If I can refinance say like at the five year mark, I will just to give the investors back their money but I think my projections I've done for my last the last three projects were like two and a half years to get your money back from when your initial investment from when when they're fully built so about it takes about a year to fully build the project three and a half years to get your initial investment back and that's not including the refinance to pull out money say like they want to another initial investment back essentially or we can take that money and go do other projects with it. And also that doesn't include principal pay down that doesn't include if if we do want to sell like in 10 years like so. Yeah, they're getting their money back four or five times over six times over I would say so.   Michael: That's amazing. That's absolutely amazing. So what do you tell people that are trying to get into the short term rental business? Do you tell them hey, you know go start go do ground up development because it works really really well.   Alex: It's all dependent on your risk and what type of headache you want. Like so   Michael: You're getting headaches it just depends what kind   Alex: Yeah so like that was a that was the biggest reason why I started the YouTube channel was like to detail every single part of the ground up is is not as stressful as people find it I would say the hardest part is just making sure that you have a builder like a competent builder that's also comfortable and take it on   Michael: Competent being the main key   Alex: Yeah, absolutely. And another another thing is like when you're approaching a builder like and you're you're looking to do maybe if you're just on the like if you're just trying to do like what we first did which is like an 800 square foot cabin make sure the builder knows that upfront like you're they might not want to take on a project that small um so yeah, I would say getting into it just making sure that you have a competent builder but also an agent like when you go start to look at land.   And stuff to make sure that you have an agent that deals specifically in buying and selling land, which we have in this area. So like I went to Google and just type in like land agent Asheville and there are there are agents everywhere that only specifically deal in land save like you're in the rural parts of like the city that you live in. So that that's huge. It's just like you can you can leverage all their knowledge all their context when it comes to finding the right piece of land.   Access is the biggest thing for us. So making sure that our guest isn't driving like 20 minutes down a gravel road, especially if they're arriving at night. So like we look at we look for like properties that are like parcels of land that are attached to like state maintained like double lane roads and stuff, especially if we're building six cabins. So like the six cabins we're building, the first six we're building next year that All if all those cabins are fully like maxed out on, like the amount of guests that can sleep in, they're all rented out. It can sleep up to 34 people a night, like all six cabins together, so you got to think of like 34 people going up and down that road, it can't be a single lane, gravel road.   Michael: Right.   Alex: So that even even if you're building only one cabin, you got to think of like the guest experience, like do like do you really want your guests who maybe is arriving at night to be like going up, like 20 minutes up a gravel road, and they've never been to this cabin, and they lose reception like, like, so it's like, that's the biggest thing when we first look at even building the access to the lands important, which means before like part of the due diligence before we even go under contract is driving out to the land, because it might look cool on on the MLS and might look cool when we're looking at it with the agent like on the computer, when we're looking like at the GIS maps, like the satellite images, but you might not know like, maybe it's just that, like, it's an absolute terrible commute to even get to the land. So it's very important to drive up there, too.   Michael: That makes so much sense. And so are you using the same agent and the same builder like the same team for all of your builds? Or do you find Do you bid out all your projects?   Alex: So different subs, same builder, I wouldn't say we have an agreement with the builder that we have is just like we're sort of like, we've become his exclusive client. Because we we I went to him, I'm like, hey, like 24 projects next year, like I'd like to be a priority here. Which makes sense. So yeah, we use the same builder, same agent, for the last two that we did was the same agent, I'm licensed in this area as well. But it does help to have someone that only deals in land. And like the land agent that we use has like experience with like buying and selling for their clients like up to like, under 200 acres. So like our 10 acre parcel isn't really a big deal compared to like, some of the larger projects they build. So yeah, same team, for the most part, it's just the subs are going to be different because we bid everything out after that.   Michael: So Alex, can you speak to now that the building is built, you've got your short term rental built, or maybe you go and buy one, what's what are some things that you're doing to kind of set yourself apart without giving away the secret sauce, but that, you know, investors should be thinking about or be aware of, of things they could do in their own short term rental.   Alex: Yeah, and playing off the title of this podcast, you got to decide if you're, if you're going to be worse, if you're going to be doing it remotely like out of state or if you're if you're living in the city, you also got to decide if you're going to self manage compared to if you're going to hand it off to a manager, you're going to hand it off to a manager, that's easy, you just give it to them they handle everything. Um, there are more and more tools that are coming out now that allow remote real estate investors to be able to handle this themselves.   A good example of that is like when I when my wife and I recently went to Tulum, Mexico, I almost everything was handled from my phone like nothing crazy it happened there. So I would say the if you're going to self manage, which I'd honestly recommend because like right now managers is a good manager will take about like 25 to 30% of gross, which is a lot. I would recommend like trying to do it on your own. Start with the cleaning crew find a cleaning crew that specifically deals in short term rentals. If you're just starting out, I wouldn't like go out and try to hire a cleaning crew like find find a company that already handles short, short term rentals, they're going to be sort of like where the gravel meets the road there.   The cleaning crew helped helps with like save something's broken, like my cleaning crew will like take a picture and send it to me and I sent it directly to Airbnb or wherever I'm renting from they, my calendar directly links to my cleaning crews calendar. So like if there's an update on a booking or like if, if a new booking comes through, they automatically see it. So I would say cleaning crew number one.   Have some contacts. I like a plumber and electrician, like just like three or four contacts there just in case something does come up at the cabin. The nice cool The cool thing about new construction is for about the first year you don't really have to worry about too much maintenance, because they are brand new homes. And then on top of that it's just leverage leveraging the technology like we use. We use a service called Smart B&B that automates all of the messaging. So I'd say 80% of my messaging is automated, where like sending, sending and checking instructions, checking up on the guest sending out checkout instructions, and then everything like the last 15 to 20%. Like if I do like something some days will pass where I don't I don't look at we'll look at the Airbnb app, but it's like some days will pass where I don't even touch my like, contact the guests at all because they're having a good stay without me having to do anything. So messaging is important, Smart B&B.   And then right now we recently started implementing stay fi which is like an online marketing platform where it's like an email capture. So like say if you like go to an airport, you go to, like a mall, you have to put in like your email address before you have access to the internet. And that sort of protects us. Like if they're doing anything like sketchy on our internet, that that will protect us. But it also captures their email, it captures everyone's email in the cabinet as well. So it's like one listing, if five people are staying in the cabin, that's five emails there. So you're building an email list there. And then we just re we're gonna start remarketing, to these guests who have already stayed with us. And the goal is to be able to take them off of the Airbnb platform and sort of run them through our platform. That way, we sort of have more control over the guests, like the the guests, and also, they're going to be paying less in service fees, because I believe right now, like the service fee on the guests adds like 15% for Airbnb, which it's getting higher and higher.   And it's like, they take 3% from the host, which is not too much, but 15% from the guest, and it recently went up like like a year and a half ago. And like now I like there isn't really a week that passes by, and that we don't get at least like a potential guests or to complain about the price prior to booking. Like they're like them asking for a deal. So that didn't happen for the first year where you're renting it out. And it recently started to happen in the last six months, where like a lot of people are complaining about the price where we don't really have too much control over it, like of the service fee. So that sort of really opened my eyes to like, Hey, I think we there there has to be a way to sort of start getting, like controlling, controlling the guest experience essentially.   Michael: Totally. Well, I mean, I feel like it's very similar to a rental car, you say, Oh, it's 25 bucks a day. And then I'm renting for three days, and then you get your bill and it's $700. Like, wait, what, how did that happen. Sur charge   Alex: Yeah, why is my security deposit more than my rental. Yeah, yeah.   Michael: It's crazy. That makes a ton of sense. I think that's frickin genius. I think that is genius.   Alex: We were thinking about it like last, the service that we use Stayfi recently came out like in the last six months, but we're I was trying to figure out how to do that, like I want because like with any business online or offline, like real estate to offline, for the most part, you have to build a list in some in some type of way. Even if you do long term rentals, like building a list, building a waitlist is super important. So that's our way of end like we're essentially getting paid to build our email list here. Where it's like the guest is paying us to stay at the cabin, and we get their email. And we're also helping them out. Because if they do decide to book through us compared to Airbnb, they are saving money on the service we sell.   Michael: So yeah, so did you set up a direct website for us specifically, or is third party,   Alex: We're building a website right now to help bring those like people in so like we're building the list right now. But for all of our future cabins, all of that is built into like the budgeting and everything. So..     Michael: That is incredible, man. But Alex, anything else that folks who are getting into the short term space should be aware of things you know where that you've seen things go south or sideways for short term rentals.   Alex: Oh, when it comes to utilities, make sure that you have like, when you're purchasing the land, I would say the land is probably the most important part is making sure that you have access to utilities, when it comes to like, you get like, here we're a little bit we invest in more rural areas about like 15 to 20 minutes away from downtown. So let's like the first cabin that we built, we needed like an electricity easement from the neighbors to be able to run electricity to our property. And it took about like six months to build that. Or to get that we built that entire first cabin with a generator, which is crazy to think about now.   Thinking about utilities, electricity Internet's a big one, making sure that you have like, even if you're doing Satellite Internet to like make sure that like you, you take down the right trees, or you know where the internet is going to be at. So when you start building. Yeah, making sure just making sure on the management side making sure that you are able to the right people are in place. So like before you if you're looking to get into like a specific market, making sure that the builder like you can find the right builder, you can find the right cleaning crew that that's going to be super, super important and just you building unique properties. If you're going the building route.   What I'm seeing is and I started this way, like I started with the master leasing thing where it's like you you rent out a property from a lot like an owner and then put it on Airbnb and sort of split the profits there or at least pay that rent. That's how I started. That's how a lot of people started. That's how I saved money to sort of do the my first build. But what I'm seeing is investors like I already mentioned are coming into these markets and sort of really bidding up the properties which is driving down returns, and they're just they're purchasing normal properties and just putting them on the market. There isn't any really draw to them or any type of appeal, they're not really unique in any way. So I would say for the listeners, though, if you're going to go the building route to like really focus on building a unique property where the property itself is an experience outside of the city, like that the guest is visiting. So that's sort of like my company thesis, for the most part is building unique properties that will, like draw guests to these properties and sort of set you apart from the 1000s of listings in your market.   Michael: Yeah, that makes a ton of sense. I have a couple Airbnbs over in Portugal, and we're getting it furnished right now. Beautiful. Yeah, it's awesome. But I was chatting with a property manager about furnishing it. And he goes, Michael, I swear to God, if you put a single trolley car picture in your house, it is not going to work with you, because that's what everybody does. Everyone. Portuguese is very famous. So you have to set yourself apart. I think that makes tons of sense.   Alex: Absolutely.     Michael: That makes sense.   Alex: Yeah. And I mean, you can't like, like thinking of that, like, before you even like when you're designing the property is super important. Because like, yeah, change the structure once it's fully right. So.   Michael: Right, right, right. Yeah. Cool. And Alex, my last question for you is how do you think about or how do you go about getting ahead of political changes or county ordinance changes? What's the best way to get informed about that if someone is trying to buy a short term rental?   Alex: Yeah, I would say number one, look up your your county city's zoning laws before you go in there. So in the city of Asheville, currently, you can't have vacation rentals, but in the county you can, in the city you can't so we invest in the county that sort of helps us a little bit to Asheville is a drive in city where a lot of our guests were coming in are driving in they're not flying here. Um, so they don't mind the 15 20 minute drive. Getting Ahead getting ahead of it, it's just like call up your planning department and just ask them what the zoning laws are.   What we do to on top of that, to protect us is we like Like I said, we keep the property separate. Where we subdivide, we're all say like, all six of our properties aren't on the same parcel say if we do need to sell, but we also underwrite our properties as long term rentals, like when it comes to like, we make sure that if we put a long term rental in our property that it will be able to cover the mortgage payment or at least break even if not cashflow a couple $100 a month. And that's like, that's like Plan C when it comes to the vacation rental stuff is underwriting them as a long term rental, which some coasts might not agree with. But that's just been with me taking on investor money, I need to be like 100 like very, very conservative when it comes to like, Plan B Plan C plan D So   Michael: Yeah, I think that makes sense. That's that's what I've said for years too because you know, I don't know how somebody could disagree with that methodology because you seeing this this Airbnb going away in numerous cities like Monterey, California, you can't have short term rentals. So what are you going to do if you just bought a property there so I don't think saying it could never happen here is a realistic adage   Alex: Yeah, no, I had spoken to a host that had like I think 2020 listings in Detroit where I'm originally from and the the mayor of Detroit at the time had done an Airbnb ad like he had he had been on an Airbnb ad like like telling people like hosts and stuff to like essentially come to Detroit like Airbnb is welcome. And then like a year later, it'll leave a year later, like Detroit just decides to get rid of Airbnb. So it's like like you like you? Yeah, and he had he had worked with the city and I forgot what he had done to sort of grandfather himself in but um yeah no you're completely right there is is like plan for the worst when it comes to this stuff because like, again, like the the mayor of the city was on an Airbnb commercial. Like and they still they still change their laws. So.   Michael: Wow, yeah, I can't really happen anywhere. Alex might my truly last question for you is how can people find out more about you? Where can they get in touch with you? Where can they come invest with you if that's something you're open to?   Alex: Yeah, absolutely. Yeah, we're, we're we're building out we're growing pretty rapidly right now. So if they want to, if they want to check out my YouTube channel, it's called Alex Builds. The little icon to find it is like a little treehouse or blue treehouse. Or they can email me directly at so it's I'll be I'll answer any questions that anyone has some   Michael: Fantastic man This was absolutely awesome. Thank you so much for coming on and taking the time really appreciate it and curious see how this next build turns out.   Alex: Yeah, absolutely. Thanks, Michael.   Michael: Alrighty, everybody, that was our episode a big big, big thank you to Alex. I hope I wasn't being too too much of a fanboy the whole time. I was like, what this guy is doing is unbelievable. So definitely go back. Give this episode another listen to if you're at all considering getting into short term rentals. If you liked the episode, feel free to leave us a rating or review wherever it is, listen, your podcasts We look forward to seeing the next one. As always, happy investing      

    This is how the pros protect their real estate assets

    Play Episode Listen Later Sep 29, 2021 39:33

    Investing in real estate is a powerful way to build long-term wealth and achieve financial freedom. But if your assets aren't sufficiently protected, you may be putting yourself at risk of losing your hard-earned income.   Clint Coons is a real estate investor, an attorney, and an asset protection expert with Anderson Business Advisors. In this episode, Clint gives a clinic on how you can set up asset protection for your real estate portfolio.   Get a free strategy session with Clint's team here: --- Transcript   Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey everybody, Michael Albaum here. Welcome to another episode of The Remote Real Estate Investor. Today I've got with me a very special guest, Clint Coons with Andersen Business Advisors. And Clint is gonna be talking to us today about all things asset protection, and what we need to know about them as investors. So let's get into it.   Clint Coons, thank you so much for taking the time to hang out with me today. I really appreciate you coming on the show.   Clint: Mike, thanks for having me on. Looking forward to it. Yeah,   Michael: Absolutely. So for all of our listeners, if you could tell us a little bit about yourself and how you got into the world of asset protection.   Clint: Well, okay, so I'm an attorney that that that goes right. How do I how do I fall in asset protection? Well, I think a lot of it stemmed from the fact when I was growing up, my father was an avid real estate investor. And he, he wanted two kids, he got two sons, because he needed indentured servants for 27 years. And so I grew up working on my own my dad's real estate for free, he always said, hey, it's gonna be yours one day, so you better do a damn good job, or you know, I'm sending you to college, and I'm paying for it. So this is your payment. But what was interesting to me is that my my grandfather, my dad's dad, he's an attorney, and he never wants to told my dad, you should do this, this, protect your assets, reduce your taxes.   And so the few times that my father was involved in a lawsuit is more about let's just write a check to make this thing go away. And when I was in law school, start thinking about this, hey, there's got to be a better way to do it, rather than put yourself out there and, and have all your assets exposed, because there'll be some times when he would be legitimately concerned about a situation that came up maybe at an apartment building, that he thought, you know, there might be a big lawsuit coming down the road and hit him.   So that got me really started with my partner, when we started our firm, Anderson business advisors, you know, it was, I never thought I'd be where I'm at today with, you know, close to 400 employees and in multiple states. But when we started out, we saw that there was a real need for this and that people just weren't getting the right type of advice, I guess, when it came to protecting their assets. And so that's what I started doing.   Michael: No, that's awesome. And you so graciously are going to be offering everyone, all of our listeners a consult with a link in the show notes. So definitely check that out, if you are interested in scheduling a time with Clint or his staff in the show notes section of the podcast.   So curious to know, Clint, I mean, give us a high level of what asset protection is, what does that entail? Because I think it's a term that gets thrown around a lot in real estate investors love to sound fancy schmancy. So we love throwing terms around but give us a breakdown of what does it actually mean?   Cilnt: So So here's the thing I'll do, I'm gonna answer your question, but it's gonna be a little different here. You know, right now I have a portfolio that's over 250 properties spread out, cross unite, well, not all I don't have as many states as I used to. But it's in multiple asset classes, predominantly single family homes, that have multifamily commercial, also have warehouse and mobile homes. And when I started investing, I went about the approach of, you know, set up an entity, an LLC, or a corporation, that's what you're going to do to buy property and, and you're going to protect it. And I thought that was the way that it should be done.   And over the years, I started to recognize the fact that when it comes to asset protection planning, you just can't look at that by itself. And that's the mistake that I made when I first started practicing my partner and I, Toby, we came out of the gate and our firm we were doing really well and the first couple years and we could make $500,000 and, and because our firm works both on the tax and asset protection side, you know, we have CPAs tax preparers, bookkeepers and stuff, we would work to reduce our taxes down to zero, so I can make a half a million bucks and pay zero federal income tax. I thought I'm the smartest guy out there and   Michael: I have made it   Clint: Yeah, yeah. You want to be like me? Alright, let me just show you some of the things that we could do for you. And all of a sudden, at about 2004 or five I realized that all that stuff I was doing on the tax side really wasn't helped me out on the investing side. Because I wanted to be in a real estate mess or just like my father I want to go out there and buy and buy properties and I started struggling because you know when you go to an underwriter What do they ask for copies of your tax return. So I turn over my tax returns and they look at and they say hell you make no money. Yeah, it just doesn't show up there. Yeah. Thank you. You're a drug dealer, right? You're running coke to Miami.   Not the best scenario to be in. And so when it came to the asset protection side, I started realizing Alright, so you got the tech side, get this asset protection side, so, so you can put stuff in entities and you can overstretch yourself, I started realizing too, on some of the investments when I was trying to apply for an SVA loan, they would look at some of my structuring and they go, What the hell are you doing, you know, I don't see your name associated with this, and I'm trying to get a loan closed, and I can't get it closed because of some of the planning that I had done, which sounded really great at the time. And so for me, it was a matter of finally coming to this realization that for any investor, you have to look at three things, you look at asset protection, you look at tax planning, you look at business planning, and you understand that the entities and the tax planning that you do, should further you're investing and investing to me as a business.   And many of the things that I tell our we tell our clients run contrary to what a CPA is going to say, or possibly what an attorney is going to tell them because they themselves only look at that one leg. And they don't understand the wider picture of what it takes to get a deal done. Unless you have tons and gobs of cash floating around where you're going to you're not going to use leverage, you have to be sensitive to that. And, you know, even when I started, I was flipping properties in the Vegas market for a couple of years, my partner and I and we'd set up an S corp to flip them, we had separate LLC set up to minimize the risk and everything's running great, then we decided to wind this thing down. As you know, more California investors started coming in and screwing up our returns on these deals were picking up.   Michael: Yeah, we have a tendency to do that kind of across the board!   Clint: I know we would look at something and think, oh, man, that's it. That's a 60% return like not touching anything less, it's 28 to 30. Because you get a taste for that. And you don't want to deal with anything else after that point. Right. And so I started winding that business down. And because of the way I'd set it up through an S corp, you know, I thought it already solved my problems. I went away from, you know, deferring on my taxes and changing, I started showing more income and then I set up this flipping business and then that flipping business starts to become an anchor around me because every time I turn over my tax returns my 1040s. It's a what's going on with this business over here, it looks like it's about out of business. So I'm just winding it down. Well, how do we know you're just not very successful, and you have outstanding obligations and all this stuff that the bankers or underwriters like to throw out the brokers throw back on you? And it was it's been a learning experience, to say the least.   And so when I went to your question, when you talk about asset protection high level, you need to think of it at that what I described think of as a three legged stool that the entities can help you do more. And that's what they should do, you should set up structures that are going to protect you, but at the same time allow you to achieve your goals. You don't want to create a structure that's going to handcuff you. And it's going to make it hard for you to get to where you want to be because you have to deal with title companies, you're going to have to deal with underwriters at the end of the day and local attorneys or CPAs. And so you have to be able to explain it. And if you can't explain that you don't understand it, it's really not going to be beneficial for you.   And so I always approach it in that manner. Look at what you're doing, and then design the plan around the investing rather than stick the investor into one common plan, which so many people end up doing when they're working with people who don't who aren't real estate investors themselves.   Michael: Yep. I think that makes so much sense. And I love that you have kind of all three components at your company because I think so often too many of us have a great CPA that we've worked with and become investors and say, Okay, well, this is what I'm doing. Talk to a CPA, TPAs, tell them something, they go do it and then they go talk to their attorney and attorneys like yeah, I shouldn't have done that, like, Oh, crap. Well, the CPA told me and the attorney tells you one thing you go do and his CPA goes, I wish you hadn't done that. It's like, come on, can't we all talk under the same roof? So I think makes…   Clint: that I would probably step in and tell them a completely different strategy.   Michael: Yeah, there you go. So talk to us a little bit about some of the different vehicles that are involved with, we'll call it a quote unquote, asset protection, a typical asset protection scheme, somebody a lot of our listeners have a couple of single family homes, and they're looking to protect themselves, what are some of the different options or vehicles that they have likely heard about that they might want to consider utilizing?   Clint: Typically what we're going to look at, of course, as a limited liability company, LLC for for single family investors, if that's what you're doing, you know, the buy and hold type. I like to use limited liability companies and about 90% of the time, because that structure allows you to control how the income is going to hit your tax return, which is which I think is oftentimes overlooked by people, professionals who are not real estate investors. And I'll, I'll come back and circle back to explain that in a minute.   So the LLC is a hybrid entity, it gives you asset protection, something happens inside of the box, you know, I always say it's going to stay inside of the box verse and it also protects your assets from what you may do, you know, say you sign a personal guarantee on something and then you default and they sue you. Typically LLC should protect the assets from your creditors. And so when we're working with investors, we want to make sure that they're utilizing that structure in the right context. And you know where you're investing as well, because it could change if you're investing in Florida, I'm probably going to use a land trust in Florida because most people have a mortgage on their property, if they want to protect it, and they transferred into an LLC, well, then you have the doc stamps, which is going to hit you for one to $3,000, possibly on that transfer.   But if you use a Land Trust, you've got to pay any tax, and you get the same asset protection as the LLC if something were to go wrong. Whereas if you're in California, I'm probably gonna use a statutory trust out there, because in that context, you're gonna save $800 a year in a franchise tax, whereas the LLC in California, they're gonna want $800 for each LLC set up. And there's other nuances…   Michael: Per year for all you California listeners.   Clint: Per year. Yeah, maybe in Texas, it's a series LLC, or a Tennessee might be the same thing. And so what I tend to do is we want to look at where you're investing, number one, and then we'll decide whether or not it's going to be a limited liability company, or a trust for single family investments. But the mistake that I see that people make, and I used to make this mistake when I would teach, when I first started teaching asset protection workshops for real estate investors, is that I would tell people, hey, you know, if you got four properties, look at the equity value, and if it's under 250, to $300,000, put all four properties into one limited liability company.   And the reason I would tell people that is a, I looked at asset protection from an equity standpoint, you know, I got four properties, what's the most I stand to lose that if something goes wrong with one of those properties, there's toxic mole, the smoke detectors not working in the place burns down, because the meth dealer that you're renting to disable them, and then their family turns around and sue's You these are all stories that have from our clients, by the way?   Michael: Oh, yeah, I though you were grabbing these from thin air.   Clint: No, Hell no, he got a multi million dollar lawsuit for wrongful death. And I'm like, he must have been the most successful meth dealer in that county. You know, they say his life was worth that much. But you say you approach it with this, you that mindset that it's all about the equity. And when people think about setting up LLC is, you know, they're they're trying to save, they think, well, I don't want to spend the money, they don't see it as an investment. They see it as a cost. And that's really a preservation mindset, not a growth mindset when you go that way.   But then it dawned on me, when my investing took off, and I started buying more. And I started to realize, as a single family investor, it's not about the equity, I'm not buying these properties, I do a lot of investing in Winston Salem. And you know, that's not an equity play, that is just purely income. And that's why I buy residential real estate is to generate that that monthly cash flow that mailbox money that comes in.   So I started realizing Wait a minute, I'm buying for cash flow, let's say had four properties in one LLC, and one lawsuit takes out all four properties. Yeah, I lose $200,000 equity. But that doesn't hurt as bad as losing the $24,000 in income I was bringing in every year because that's what I had my wife quit her job, and now she's working full time in real estate. Or maybe we're sending her kids to college now and that $16,000 or $24,000, and we no longer have it. That's life altering for a lot of people to lose that money that you'd come to count on.   And I started thinking, Wait a minute, I'm doing this wrong, I'm doing people a disservice. And so they start telling, hey, when it comes to asset protection, put one property per LLC, that's and and that's not uniform, okay. Now at my level, I probably I typically group 10 properties for LLC. And people say, well, you're hypocrite you just told me to put one you're just trying to charge me more for make more money off me. Yeah, that's exactly that's all you know, I'm an attorney. Right? What's the difference between lawyer and liar, pronounciation.   So why? Why is that? It's because when you hit my level of investing, you have 200 properties, and you have 20 limited liability companies with 10 properties in each. And each of those LLC, let's say is thrown off 50 grand a year, I can lose a 10 pack of properties in a lawsuit and that $50,000 Yeah, it sucks to lose 50k but I've got 19 others giving me $50,000 a year. Whereas if that was all you had, and you just lost that $50,000 in income, that's life altering for me. It's not changing the wine I'm ordering at night, that's not changing where I'm vacationing, it's not changing anything about my lifestyle. And so I often tell people you know, when you get up to about 20 properties, then look at starting to group them, because I would never put myself in a situation where I have 250 limited liability companies set up to protect my assets, right? But when you're starting out, that's when you really need the protection, because that's where you're more apt to make mistakes as well.   Michael: Yeah. So I come from the insurance world, for better or for worse, I was raised in that world and used to work in commercial property insurance. So I'm curious to get your thoughts around people, because there's kind of the two camps, there's the pro LLC camp, and then there's the no LLC camp. The no LLC camp says, especially for the California investors, for 800 bucks, you can go buy a lot of umbrella insurance, a lot of excellent coverage. What are your thoughts around that for especially for folks that are just starting out?   Clint: Well, I mean, you need the insurance no matter what you do. And so you always have to get a policy. The way I look at it, when it comes to insurance planning is Do you trust your carrier is going to actually step in when you really need them? And going to pick up that claim? Or is that claim even covered, most people never read their policy, so they don't have a clue as to what's excluded.   Michael: Right. And that's a very long list, by the way   Clint: It is, and it keeps getting longer my business. But my partner here at Anderson, he used to be on the insurance side, he represented insurance companies, and he has a great little story where he talks about they always, you know, have these conventions about how they're excluding more and even charging more for less coverage,   Michael: For less coverage.   Clint: Yeah. So what I tell people is, it's the way I go about my planning for our clients is that I want to create a situation where number one, people don't even know what you because the way we structure the LLC is on the single family side, if somebody run an asset search, you're not going to be associated back to these properties, it's really difficult for them to find that you're the owner, because you can set up LLC, in a way in which your name is not tied to it on the public database. So you know, Secretary of State's website.   And so the whole reasoning behind this strategy is to get the plaintiff's counsel to take your policy limits. The Listen, that's my whole goal. I said, you know, if you're likely to be in sued those is pretty small. I've never been sued on my real estate have come close, but I've never been involved in a lawsuit. But if it did happen, I'd want it to be where, you know, they say we can't get after anything or better. They don't even know what you have. And and they'll take your policy limits and go away.   In fact, one of my clients in California, you brought up California and they have a nightclub. And two guys were injured. When they walked out of the nightclub, they got hit by a car by somebody who was in the parking lot. And so these three attorneys representing these two individuals, were suing for 15 20 million bucks. And my client that had the nightclub, which is probably the most responsible party for over serving, someone was able to walk away with policy limits. That was it. And in Why was that? Because all of his assets that are close to 15 to $20 million, were completely hidden from plaintiff's counsel, they couldn't figure this out, couldn't tie it back to them.   But then they went to the building owner, the least culpable person in this neurology was on a building's leasing it to this nightclub. And when he tried to settle, they're like, man, we did an asset search and live this, what they said is that we know what you're worth, and we know you can afford to pay. So you're gonna take we're gonna take policy plus on you. And he's looking at the other guy, which happened to be his son, he's like, this is BS, you have more than me, and you're walking away without paying anything and said, well dad, that's why you don't hold things in your own name the way you do. And so that's the way I approach planning. You know, you can't see what you can't see. And if you set it up that way, it's a great defense.   Michael: Interesting. And as someone who has set things up in a certain way, how easy is it to change once it's already in place?   Clint: Yeah. So I mean, you can do some things. But unfortunately, there's always going to be a trail there. If somebody were to dig hard enough, they're going to be able to find it out. But I often tell people I said, most attorneys in my experience that bring these types of cases are lazy. And they're just going to do a cursory analysis. And they're not going to dig deeper to see who's actually involved. So it's worth pursuing. But what's even more important to when you're setting up these structures is understanding the tax side of it that, you know, when you set up an LLC, we all know their pass through entities and a lot of people like to set up disregarded LLC, so they don't have to pay a CPA to file a tax return. And I get it. I mean, most of my LLC is are disregarded, they don't file federal tax returns.   But I like to filter that down on my 1040. By having that I call it a holding company will set up an LLC in a state like Wyoming or Delaware, and it will own all my single family residential LLCs as well point down to it. And on that one, I'm going to have it set up to be treated as a partnership. So it's going to file a 1065 and I know that's that some people say it's a cost I'm going to tell you it's an investment and when you pay a CPA to do that Because most of the loans that, you know I've dealt with, or my clients are dealing with on the single family residential side, they're underwritten by Freddie Fannie guidelines because those brokers are selling them off. And so they're going to take your 1040, they're gonna look at your, your schedule E, and they say, all right, look at all these properties, you're a new investor, you have three properties, right? And they're on your schedule E page one because either you hold them in your own name, or you hold them through a disregarded LLC, where you got the asset protection.   But when you're applying for the next loan, and they run a debt to income ratio on you, to see whether or not you qualify, you're pulling in $50,000 a year in rental income, but they're not going to give you credit for 50k, they're only going to give you credit for about $38,000. And you say, well, that's not fair. They say yeah, but we have to take 25%, throw it out the window, because Freddie Fannie will buy this stuff. If we give you full credit, we only can give you credit for 75% for vacancies.   But if you hold it the way I'm describing, you take that same amount of income, you put it on a different page of your tax return, the way it filters down, then you get 100% of that income credited towards your debt to income ratio. And it's just I mean, I find it astonishing how many people continue to make these mistakes where they start getting up against his debt limit on investment property loan limits, and he's wondering, Well, why is that, you know, I can pull out their 1040? Or are teams doing like, right here, right here, I need to change this. And it's as simple as just changing what you're doing   Michael: Very, very interesting. So at what point would you say it's appropriate for someone to sit down with someone such as yourself or at your firm? or do some real business and tax and and legal planning? Is it their first property before they got their first property? Is it after they have five? Is there are a good number?   Clint: Well, it depends on what you're doing. So if you're just strictly single family, then the next question is going to be if you have money properties at your single family investors, my next question is gonna be how you're going to fund the deal if you're going to use traditional financing. And then what I would tell you is listen, get the property First, if you're going to buy a property, maybe you think that you're going to be able to do a cash out refinance in a short period of time on it, within six months, you're going to try to angle for that, well, then I can't even touch that property, you can't do any planning with it for the first six months, but if it's not that type of play, where you're buying the property and rehabbing it and then go on to do a cash out refi on it, then then my recommendation would be after you get your first property that would be the time to explore what we're doing as far as asset protection is concerned.   Now if you're buying for cash or private money is coming into the deal to finance it for you and so you're not dealing with a broker or maybe it's a portfolio lender. I often tell individuals I always tell people that I work with or in our events, Hey, go out and find a community lender develop a relationship with a community bank that's going to be one of your best friends going forwards I mean it hasn't been for me and those deals I can't put together through other means and they have different lending standards so in that situation maybe you explore possibly taking title in the LLC itself so it never hits your name Yeah, you're gonna be on the debt but those types of lenders are they will allow you to close in an LLC. Whereas your Freddie Fannie stuff, it can't happen you're gonna have to close in your own name and then you can transfer later on into the limited liability company.   So I'd like to close in the name and the way I typically tell people to write up their agreements if you're making an offer you know, put your name and or designated entity on the offer and the reason I use that language is so that if it turns out that I'm working with a portfolio or private I can then set up an LLC and close in that LLC and the lender couldn't object to or the seller couldn't object because I had that language in there and if you ever asked by the realtor or the seller Why did you put that extra line in there? best response is my and then fill CPA or attorney you choose told me that they're not sure yet on how I'm going to take title of this property for either, choose again tax or estate planning throw it in there purposes and so they may want me to close in and one of the entities I've set up for me and then whenever you throw those names out there CPA or attorney tends to make the sellers and their agents go Okay, no problem.   Michael: Okay. Yeah, sounds good. Yeah, all right. That's great. That's good. Something I actually do on every offer I make or every purchase I make is Michael album or assignee because I need to be able to move that around.   Clint: Perfect. Yeah, that's I mean, you know, you're you're an avid investor. So you've been doing it.   Michael: Yeah. Now that's, that's a great tip. That's a great tip. Clint, I'm curious to know and hopefully you can shed some light on is something I've heard in the past is, if if I go get a really big umbrella policy, even inside of an LLC, or a big a big high liability limit on an insurance policy, I'm putting a big target on my back, because like you mentioned, a lot of these folks are not going to go much deeper in So they're gonna say look here's the policy limit we could can see this guy is worth 5 million or this gals is worth 5 million so how do you think about how much to insure something I've heard is insure up to the the property value or the equity rather in an LLC or in the property I'm curious to get your thoughts around how much insurance should you get?   Clint: Yeah, I agree with that um, I think that's a is typically a good way to approach it whatever your foreseeable risk of loss could be on that property. So typically, you're going to be looking at somewhere around 200,000 250 total for any type of bodily harm injury things like that that can come up from that but it's not to say wouldn't still have an umbrella policy if you can get it I mean, I'm sure you've had some other events where you've interviewed people who work with real estate investors and they offer those types of policies there's a number of them there's a few of them out there that I direct people to as well because it's good just to have the umbrella now if you go excess liability what a lot of people don't realize with insurance is that these things get stacked on top of one another so if any layer there gets cut out many times it throws off the rest so you could say well I have this umbrella policy or excess liability policy but if you're if it's predicated on your umbrella paying first now then if they doesn't pay then they don't pay and so that's why I'm not into the stalking the insurance get game because many times they find ways to get out of it.   Michael: That makes sense. And I'm curious if you could share with us some common mistakes that you hear people come you know that experience in their life whether they're a new client they're like Clint, I tried to do it the cheap route and do it on my own and now I need you to fix it or are you someone that was working with somebody else and you know, regale us with some with some of America's Funniest Home Videos   Clint: Well typically comes down to this is not understanding the investment that they're getting into and and what's going to happen down the road for example I was working with this was last year a guy called me yes I met him on YouTube, he calls me up and says hey, I've been trying to sell this multifamily deal that I got into I bought and I'm buyers keep falling out of under the financing contingency I've gone through two I've got my third one on right now and what's going on? I said well how's it held? You said an LLC so like let me get your LLC is a disregarded LLC said yeah, that's why I set it up on whose advice well my CPAs that I wouldn't file a tax return if I did it this way.   Well he's, right but the problem is is that when you go to sell you know the underwriter is going to look up they're gonna pull title it's gonna say LLC and the what they're asked for is tax returns. I mean, that's they assume every LLC has to file a tax return. So that's your problem. You can't verify income and expenses, you should have been set up filing a return. And so it's things like that, that that that creep up on people or let's say you you don't understand the state law with regards to holding property, I brought up Florida let's say you buy some property in Florida, you set up an LLC deed your property into the Florida LLC, got $150,000 in debt on it, the assessor sends you a bill a month and a half later saying you owe 100, or you know, 1500 bucks in doc stamps, like, well, where did this come from? Well, it's because you put in the LLC, you should have never done that.   So those are the things that come up, or Pennsylvania, for instance, you know, if you set up an LLC in Pennsylvania to transfer your property in the county is going to nick ya for at least between two to 810 $12,000 on that property transfer. So knowing what you should do to get that protection is so important. And that's where investors oftentimes make these mistakes, where they just don't do anything. And that's the worst. And I often tell people when I teach you before COVID we always teach these you know, live events, 3d asset protection events for real estate investors. And on break, you always got attendees that want to rush in and ask questions. And I can always pick that one guy that had the story and I knew the story before he even got up to the front of the room because of the look on their face. And I always start out like this, you know, I used to have and now I don't and I wish…   Michael: Back in the good old days.   Clint: Yeah, I wish and my wife told me and I didn't listen but I do now. So those are the things that you know, you cannot predict when a lawsuit is going to occur. And if you're going to start getting that start investing in real estate, you know, just understand what you're getting into and look at setting up a structure as investing back into your business and that's what you need to look at real estate investing as a as a business. And then not only do you need the right structure, you need the right tax and accounting firm to work with or CPA who's gonna keep keep good books and records for you know, profit loss balance sheet, because there's going to come a time where someone's going to ask for that information.   And if your stuff doesn't look professional Like you actually pay attention to the details, then they're going to whoever you're working with is going to make an assumption that you're too risky to do business with. And then it's going to create doubt in their mind. And those instances come about, at times when you least expect it. I mean, look what's gone on now with COVID. You go back to, to last year where they had the idol loan and the triple p loans. A lot of people we couldn't help get this money because they'd never paid attention that to their financial side, the loss and balance sheet. Yeah, I mean, they guys would write down their p&l on a napkin. I've got pictures on it. Yeah, they would. They would take a picture of it and send it in and say, Here, give this at the SPM like, a series a napkin? Yeah, buddy, you can't help you. And then they'd be mad.   Michael: At least use graph paper. Come on.   Clint: Yeah, something. And crayons. So it's interesting, but that's what I often tell people, there are certain things you need to do, and you're sticking your head in the sand, saying that it's never gonna happen to me, it is going to happen to you. But it seems like you appreciate the risk and you take reasonable steps to mitigate that risk, you're going to be in a much better situation, because no one wants to give it all away after you've spent, you know, 5 10 15 years, building this this stuff up? Yeah.   Michael: Yeah, that makes total sense. Then I've got two more questions before Yeah. And then I'm gonna let you get out of here. One is, I've actually heard of using debt as a form of asset protection in the sense that of, hey, if I, if I saddled this property with debt, I take out all of my equity possible, no one's gonna want to sue me over it, because they don't stand a whole lot the game Is that a fair way to think about it?   Clint: We'll see. Alright, so I tell people the exact same thing, we show them strategies where they can put, I'll call it Phantom debt on their own property to make it look unattractive to a creditor to want to go after and we've heard these is friendly liens. But at the end of the day, they're just smoke screens, number one. And that's to discourage that the shakedown lawsuits right where somebody is coming after you really don't have a claim, they think they're just going to put pressure on you, and you're going to capitulate and roll over and pay him, right, but on a legit judgment, now, that's not going to help you because what what attorney would do in my instance, I would just record the judgment in the county, wherever you're located. And that that's just going to sit there. And if you try to sell or refi, any property, I'm going to get paid. And so I'm going to sit back, I'm going to make 10% rate of annual interest on that debt. And what you're going to be doing is working for me, but you just don't realize it because you're not going to default on your debt, you're gonna keep paying that mortgage down. And eventually, one of these days, you're going to want to sell that property or refi, that property, and that's the day I'm going to get paid.   Or I'm going to move against the property at such time where I figured there's enough equity in there because the equity is going to continue to go up. So it's a payday. I mean, a lot of times that's what what plaintiffs will do, they're not going to move on the property directly. We're gonna sit back and wait, let that judgment, you know, grow at a 10 cap, who doesn't want a 10? cap? So so that's what it does for you.   Michael: Yeah. So not necessarily a cure all of Hey, I just laid the thing with debt, and I don't have to worry about it.   Clint: You do when you want to sell a refi? Because that's when they get paid.   Michael: That's when they get paid. Okay. That's really good to know. That's really good to know. And then my last question for you is because you mentioned California, and I'm a California guy, and I think we've got a lot of California listeners. they'd heard over a year, California Franchise Tax fee just sucks. Like there's no other way to put it. So how you mentioned that there's a way to get around it. And was that via a trust?   Clint: Yeah, actually, there's a couple of ways around it. One way is to use what's referred to as a disregarded limited partnership. And that is an entity a similar to a limited liability company. But the issue I have with with that strategy is that it's predicated upon a Franchise Tax Board ruling in 2019, that held the disregarded LP did not fall under the revenue tax code provision that assesses the $800 to disregarded LLC. They said hey, if the legislature intended to they would have put limited disregarded LPs in there, but they didn't, they just said disregarded LLC.   Well, the Franchise Tax Board moved to get the legislature to change the law, the revenue tax code, which they have not done yet to incorporate disregarded limited partnerships in that definition has been subject to the $800 franchise tax. You can use them and I have some clients that prefer to go that route because they're more familiar with the limited partnership and working with third parties, but there's always a risk California changes it and incorporates it into the revenue and tax code because of this Tax Court ruling.   Now on the other side of that is to use business trusts. And you've probably heard the term Delaware statutory trust which is a trust that it That has become synonymous with 1031 exchanges. So if you sold a piece of property and then you wanted to roll into a syndication, it wouldn't qualify into a typical syndication structure as an LLC. But if you structured as a trust, you can, the IRS has ruled that it's an acceptable interest to roll into. And so a lot of syndicators that want to bring in 1031 money started using that Delaware statutory trust framework to allow this to occur.   Well, the trust itself offers asset protection. So if you put an asset into it, and something goes wrong with that asset, the beneficiaries of the trust are completely protected from the claims of the trust creditors. Wyoming has a statute that's very similar to Delaware. And I choose to use Wyoming just because it's a little less expensive. And it's a little more flexibility built into their trust statute. So what we'll do for California investors, oftentimes this create a Wyoming statutory trust, then registered in California as a business trust, we have to make one filing in California, and then they can start holding their California real estate in these business trusts, instead of limited liability companies and the business trust is not subject to that $800 franchise fee.   And in fact, if you invest outside of California, I mean, the Franchise Tax Board has taken the position that since you live in California, any LLC you create on this planet, or some other planet is doing business in California, and out of it, yeah. So so many times, we'll just set up the trust in in every state that we can, that actually recognizes a business trust to hold real estate.   Michael: Very interesting   Clint: That's a way around it.   Michael: Very, very interesting.   Clint: I'll still have an LLC, though for you will still have your interest in that trust owned by typically a Wyoming Limited Liability Company, and you'll still have to pay $800 on that. So you can't get away from the $800 fee completely with the way we put the structures together, we'll just minimize it down to no more than $1600 a year total. So you could have 50 trust and you're not paying more than 16 $100. And banks. I mean, I just did a deal with one of my clients, we set up for Ws T's for some buildings in California, and they were able to go through the refi process with Chase Bank, I had to do some work with Chase to get them to understand it. Namely they said these don't exist. And I say well, hell you guys underwrite this loan right here. And it's in a Delaware statutory trust. So what am I missing here? Are you guys are obviously using these things? And yeah, went through. There is a little bit of a learning curve there for some some institutions, but they di work.   Michael: All right. Well, I might have to schedule a call with you here offline, because there's definitely something there. Well, Clint, this has been so great, man, thank you so much for taking the time, where can folks get a hold of you, or some of your colleagues, if they have additional questions want to reach out to you for your services?   Clint: Yeah, I'd be happy to give anybody that will would like a free strategy session, if you just go in the show notes. It's, you can go there and click on that link, it'll bring you to a website and just put in the information. Or if you just want to, you know, Google, my name, YouTube, I got a ton of information. I mean, we lead by educating people and we give it all away for free the education because we want you to make informed decisions when it comes to your investing.   And it's really based upon as I stated, you know, real world experience because we're doing what you're doing when it comes to investing and I'm sharing with you those strategies that I'm finding that make better helpful for me and those for our clients to help them find success and build their business.   Michael: Love it. Love it, Well Clint. Thanks again. Definitely look forward to chatting with you and do yourself a favor. Take care. All right.   Clint: Thank you, likewise.   Michael: Alrighty, everybody a big big, big thank you to Clint, that was an awesome episode. I know that I got a lot out of it. And as he was talking, I was like, Oh, I need to be doing some, some changing around here. So definitely give that one another listen to definitely check out the show notes with a link to a free console with Clint and his team. I think it's definitely something that everybody can learn and use from. If you liked the episode. As always, feel free to leave us a rating or review. We'd love to hear about new episode ideas. So leave us a comment in the comment section. Looking forward to seeing you on the next one

    The 7 step investment plan to buying your first property

    Play Episode Listen Later Sep 25, 2021 20:38

    Buying your first property is one of the most difficult parts of beginning your investment journey. With so many unknowns and so much noise out there about what to do, many investors get stuck in analysis paralysis. However, after speaking with tons of investors, one echoing sentiment is that all of them wish that they had begun sooner.  That is why we put together this 7 step investment plan. With a clear path forward, and measurable milestones you can soon be on your way, through paralysis, to being a successful real estate investor!  --- Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Emil: Hey, everyone, welcome back for another episode of The Remote Real Estate Investor. My name is Emil Shour, and I am joined by the lovely   Tom: Tom Schneider.   Emil: And today we're going to be discussing the seven-step investment plan specifically to buy your first rental property. So a lot of people want to invest in real estate, they get stuck before they actually buy their first one, we're going to outline a simple seven step plan to make that dream a reality. So let's get into this one.   Alright, so we're gonna be going back and forth, Tom and I and we're going to outline the seven steps. So Tom, kick us off with number one.   Tom: Awesome. So the first step is to know your financials. And this is really important because you need to know how much funds you have available to acquire homes, while keeping a good balance for reserves. And a great way to go about this is to talk to a lender to get pre approved. This is something that they do day to day and working with people, especially if you plan to use debt, that's gonna be really important where they can help you know, how much funds you have a failed available for doing acquisitions.   Emil: Yeah, let's do a quick example here. So let's say you want to buy a $150,000 home 20% down $30,000 for the down payment. Let's assume I don't know 4k for closing costs and escrow all those different things you might need. So 34, and then I would keep at least another five to 10k minimum and reserves. So you can a lender won't allow it and you don't want to put every single dollar you have into your property and have nothing left. You know, maybe you step into the property, there's some things you need to fix month one, you just don't want to be sitting on on no cash. So make sure you have at least you know for $150,000 home I'd keep five to $10,000 in reserves and you can scale that up, the bigger the property you're buying.   Tom: Yeah, and if you are planning to do debt, a couple of important metrics you're going to need to know is your debt to income ratio. So what are your recurring monthly costs on you know, credit card house, all of that good stuff, versus what you earn as income and it's not the same for every single lender, but they typically want at least a, a three to one ratio of your your income versus debt. So that's going to be an important exercise in knowing that.   Excellent. So let's go ahead and move over to step two.   Emil: Alright, so step two, create SMART goals. I know this one sounds fluffy, but it's very important. You need a SMART goal which for anyone who's not familiar is Specific, Measurable, Achievable, Relevant and Time bound and the reason you need this is because a lot of people will say I want to buy a rental property and they really have no measure of their progress towards that step right so the first step that Tom mentioned know your financials right I could create a SMART goal around that Okay, look at my funds are set get to $40,000 and then my next step is talk to a lender by next weekend and then my next step is choose you know the different steps we're going to outline here but you want to have really specific things right take the take the big meaty goal break it down into small chunks that are achievable that you can create some momentum around that are going to get you to your goal or else you just look at the big thing and you you know you're not you don't have the property and you just give up.   Tom: I think there's something to be set up for momentum in in getting the goals as absolutely small as possible and getting wins on those goals I'm talking about just like identify a lender call the lender call that you know answer the lenders questions blah blah blah so uh you know getting as specific and you know, small as possible. There definitely is some momentum to be gained by doing that.   Emil: Totally.   Tom: Awesome. So this next one is choosing a real estate strategy. And at a at a high level there are a couple of strategies right so there's buy and hold this is I'm buying to hold it for cash flow for a long time. There could be fixin flip, I want to go buy it, I have some construction skills or a network to buy a property and fix it up. Me personally, I want to build a big passive income stream. So I'm buying and holding for the long term. And there's a couple of different parameters here on these different strategies that we have related to experience time, money, risk and reward. And you can pause this if you want, this is on YouTube where you can see where we have a high medium and low of these different strategies where fixing and flipping is definitely more of an experience is very important versus wholesaling hard money lending as well as buy and hold.   Emil: Alright so step four is going to be what a lot of people are probably thinking this video is about which is build your buy box this is essentially what kind of property do I want to buy? What kind of returns do I want to see all those kinds of things so budget and investment profile things like what price Am I willing to pay? Right in our earlier example we said $150,000 property right so let's say that's the amount of cash you have 30k for downpayment, a couple thousand bucks for your closing costs and another five to 10 in reserves.   Okay, now you you're able to buy $150,000 property desired cash flow so maybe you say for every property I buy I want at least 100 or $150 per month in cash flow so being able to say what kind of cash flow Am I looking for for each property? Things like location so what kind of neighborhood are you looking for? Are you willing to buy in a neighborhood that has poor schools and maybe higher crime Are you looking for something that is more stable is going to be in a better neighborhood maybe have higher appreciation those things so getting really specific about what kind of property and what kind of returns are you looking for you can even get down to the property attributes right three bed two bath very common rental property style, but some people buy two bed one bath because maybe they don't want a family living there maybe they just want you know a couple or a single person living in that house. So just identifying these different property attributes the year another big one right.   So you know, you you talk to property managers in the area you talk to other investors you learn that homes built before 1950 you know, they have old plumbing they have they were made of a certain material, so you maybe want to steer clear that so you say okay, I'm only willing to buy homes of this vintage bought in, built in 1960 or later. So all these different little things that really define your buy box and we have lots of materials on this channel, this podcast talking about how to run the numbers, how to analyze deals, so we're not going to get into the exact specifics of those, we have those to help you dig deeper into this one.   Tom: Yeah, I'd say a major problem that a lot of new investors have is they get paralysis by analysis where they're looking at listings either on Roofstock or on the MLS or wherever and you know, just seeing so many properties I think by working before evaluating specific properties building that buy box it's going to make it a lot easier to make that you know yes, no decisions where you're not needing to come up with whatever parameters kind of on the spot so kind of working in a box or buy box working to define these parameters. So when the time the property comes in front of you to evaluate, you have a kind of a yes, no based on this exercise that you already did. And lastly, you know, this buy box is not written in stone. So I think it'll evolve over time as you as an investor, kind of get a better taste of risk profile and what kind of returns you're looking for markets and all that good stuff.   Emil: Yep. And one last note on the build your buy box, you know, let's say we're going to talk about in the next step, so I'm going to allude to the next step here but once you've chosen your market, one thing you'll want to do is actually look at the different sub markets within that market to help you build your buy box right so you may say oh, I want a certain cash flow return or cash on cash but you may be in a market that that's not achievable. So you know, you can say here's my buy box and go find a market or you can do the inverse you can say here's my market and I'll build my buy box from there so just quick note.   Tom: Yeah, and in part of your buy box is thinking about a return profile so these are some terms that Roofstock has used in the past a cash cow which is a high cash flow, perhaps a little bit more beta and the return of that it's a lower rent property. There's a balance buff which is kind of in the middle between the other extreme which is an appreciation a case where it's an a property where it's not cash flowing a ton, but it has some some high appreciation opportunity. Here's a little pros and cons list of the three, Emil, if you want to do a quick hitter of them.   Emil: Yeah, so our cash cow the high cash flowing property typically lower purchase price, you're gonna see a higher cash on cash return always give the warning that remember Excel math can lead you astray. So just know that you may have higher fluctuations even though typically Yes, you will see a higher cash on cash return here.   You have a larger rental renter rental pool, so more people who are willing to live there and you know, some people will say it's more recession proof in that you know, someone who may be in a in the living in the balance buff property. You know, when things get hard, they can move down to The cash cow rental because it's a little bit cheaper, things like that make the rental pool larger. The cons, you have a slower price appreciation, right? So let's say the entire market goes up 10%. If we look at these three properties, the cash cow only went up $6,000, the balance, both went up nine. And then our appreciation property went up 20k, right. So looking at them the same year, your actual dollar value of appreciations lower. And people always want to live in nicer neighborhoods. So that's always a thing that's going to drive up your your prices.   Slower rent growth, right. So same reasons as mentioned for appreciation, just nicer neighborhood rent growth, typically in the past, not always a an indicator of future performance, but will rise faster. And then last note here, as a con more management intensive, right, these are older homes, you may have, again, the neighborhood, the quality of the tenant you're getting, they may not take care of it, it may not be a pride of ownership neighborhood, all those things may make it more management intensive.   I'm going to flip to the appreciation and we'll go balanced because it will make more sense that way. So our Pros for appreciation as we have higher appreciation, right? nicer neighborhood more people taking care of their property. You have multiple sales and exit strategies we just talked about on a podcast about this actually. So that's good timing. Right. Appreciation Ace you have a nicer home, you better neighborhood more people, more owner occupants may want to buy that home when you ultimately decide to sell it. So it gives you some more options. And then you have higher rent growth and the cons, you do have a higher purchase price, potentially longer vacancy because you have that smaller renter rental pool. And you have higher churn costs, right? Imagine a four bed three bath home versus a three bed two bath, you may have more, you know, you have more square footage, more things to potentially repair once a tenant moves out. But on the other end, typically, people living in these homes, take better care of their homes as well.   And then you have the balanced buff, we're just kind of sits in the middle, you get a combination of cash flow and appreciation. These are easier to finance and have a lower purchase price and the Appreciation Ace type property, they're also harder to find because more people kind of stray towards the middle. And it's a little bit older of housing stock compared to the appreciation and again, because they are more competitive, you're gonna have maybe more of a bidding process, if you go looking for these types of properties.   Tom: Yeah, he's the last thing I'll mention on these different styles is there's people who have been successful in doing all of them. And there's people who have been unsuccessful, right? So there, there isn't necessarily a right or wrong strategy. It's it's right for that person, right.   Emil: And you may even want to get a couple right I personally, I have some properties that fall under the cash cow. And then some that fall under balanced. So you can always buy multiple and see which ones perform better for you which one you're you're enjoying owning.   Tom: So the next thing is picking a target market. And this is another way that you can make it a little bit less intense, when you're looking at all the listings, you're not looking at a million different markets, if you can target that market earlier on. And just like we were talking about the different return profiles there is often by in the market, you're going to see more of a certain return profile. So here we see the cash flow, excuse me, the cash cow is more of a secondary and tertiary markets, where there's just perhaps a little bit less competition and a lower price. But you know, relatively higher rent compared to that price.   Then on the other side, we have the Appreciation Ace, these are properties in Texas and Florida, California, Arizona, those really big markets where, you know, on a cash flow basis, they're not going to be a very high return. But there's the opportunity on appreciation upside.   And then lastly, there's that balance buff, which is right in the middle. It is the kind of secondary to first, whatever hit tier markets in Atlanta, some stuff in Florida as well and some stuff in Texas. But again, these are kind of generalities, there's really stuff of all different levels and all different markets. But at a very high level, there tends to be a little bit more based on these different breakdown.   Emil: All right, Step six. This is a super, super important one, especially if, if you're listening to this you are most likely a remote real estate investor, meaning you're investing out of state or potentially even out of the country, building your team identifying your team. So since you're not there to manage the property and look after it and find it and all those things. you're relying on a team of people this is so important and is going to be the thing that determines your success.   Again, you can run all the numbers and everything in your spreadsheet but this is a business a physical business. It's a physical property and you're dealing with people. So the people on your team are the ones who are dealing with all those things. And you need to choose them wisely.   So the big ones you're going to want to focus on, we have our starting five in the bottom, bottom right, which is a nice little basketball analogy. So your point guard your deal source. So that could be a, a real estate agent and investor friendly real estate agent, a investment property listing site like Roofstock, any anywhere where you can get deals, right, so who's going to help you find deals.   The second is your inspection providers. So this one, you don't even have to really worry about until you're under contract. Oftentimes, your deal source can help you with this, whether it's an agent, whether it's refseq, they can help you find the inspection provider. Lender, lenders an important one. So again, you want to make sure before you're going out and making offers you get pre approved you know your rates, you know how much you can afford all that stuff, the power forward, which I think is your make or break and I want to stress this one the most, they're your property manager, they are the person who is dealing with your property, they're dealing with the tenants are finding new tenants, they're renewing the lease, they're doing all the operational things that you are outsourcing, which is the most important. So this is a very, very important one, make sure you spend a lot of time speak with a lot of different property managers in whatever market you're looking at, make sure you understand who they are.   It's common Tom and I can both speak on this, it's not uncommon to you know, go with a property manager, it doesn't work out and you look for someone else on your list. So know that this is a very important person on your list. And it may take a couple tries to find the person that's the right fit for you.   And then the last one, your insurance provider. Another one that I would say is not critical before you buy your property more so when you're under contract, but another person who's important on your team.   Tom: And a couple points here, some people might see this list and kind of get overwhelmed. The really key ones to get up front is your deal source next is going to be your agent or broker Roofstock's a great spot. And the other one is going to be your lender if you're planning on using debt. And then also I would say your property manager even before you acquire one of my favorite things to tell friends that are getting into investing is to talk to your property manager before even buying and even get their input on the property that you're acquiring. And I would lay it on the table say, Hey, my name is Tom, I'm looking at buying 123 Main Street, what do you think of 123 Main Street, you know, what do you think the rent would be? So there's, there's no reason why you can't proactively bring that property manager into the conversation.   And all the other ones, I'd say, I'm trying to think of a basketball analogy, but I'm struggling, you're who you pick as your property manager, they're basically you're going to be have a farm team to be able to do your handyman and all that stuff, because that property manager will have those resources.   All right, tying it all together. Step number seven. So this last step in the seven step investment plan is to set up a monthly plan review. This is where you're you're building your SMART goals, you're building your buy box, you're doing all of identifying the the work that needs to be done, set up a regular cadence of reviewing how you're making progress against these goals. And there's some great questions you can ask yourself, what is going well, what is not going well? What changes are needed? Does this plan still excite me? And do did I over underestimate funds, time allocation, etc. I think in any type of endeavor, introspection is really important. So setting up a regular time on your calendar, where you're kind of circling back and asking yourself, what went well, what didn't go, Well, what can I do better? It's gonna make you that much more effective and committed and all of those other good superlatives.   Emil: Yeah, I have a tip for this because I had this originally in my calendar, and I would always miss it. And one thing I did that made this so much easier is I have a quote unquote, an accountabilibuddy. And every week we have a check in and we talk, you know, I text a couple things that at the end of the call, I text a couple things that I'm going to get done that week. And my friend who does this as well with me, he does the same thing. The following week, we check in on those, those action items, those little SMART goals to make sure that they were completed and we're reviewing and talking things out. And so I felt like having somebody who's in your same shoes either, you know, someone who consider a mentor or someone who's in the same stage, to like be able to bounce ideas and hold each other accountable. That makes this step so much easier and actually more impactful as well.   Tom: Totally, a little bit of social pressure of talk telling someone you're going to do it and then circling back like i i, within restock Academy, we have mastermind groups and I'm part of one and it's man, it makes a difference on having not only the monthly plan review, but that social accountability is is really powerful and getting getting things done.   Emil: Yep psychologically proven.   So there you have it. That is our seven step investment. plan to help you buy your first investment property. I know we covered a lot but honestly if you follow these steps, you'll be in great shape. We have a lot of supporting stuff like we mentioned about building your buy box, how to analyze properties on this channel. So if you want to do some more digging, we have all those resources available for you. Hopefully this helps you get unstuck get you that first property and get you on your way to building your property portfolio. Happy investing everybody.   Tom: Happy investing.

    How Stessa power-user Reberta Dalla Verde manages her international portfolio

    Play Episode Listen Later Sep 23, 2021 19:42

    Roberta Dalla Verde is a lawyer, mother and a Stessa power-user. With her family, she owns property throughout Georgia and Brazil. On today's episode, Roberta tells us about her investor journey, how real estate is a great business for a busy mother and how she manages her international portfolio with Stessa's asset management tools. --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only and is not intended as investment advice. The views, opinions, and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Tom: Greetings, and welcome to The Remote Real Estate Investor. On today's episode, we have Stessa power user, Roberta Dalla Verde, who is going to talk about her portfolio in Brazil as well as in Atlanta. Alright, let's get into it.   Roberta, thank you so much for joining me.   Roberta: Oh, thank you so much for having me here.   Tom: To start us out. I have a fun question to ask you. So what has been the best day since becoming a real estate investor? This can be kind of any sort of investor related activities or what has been one of the best days you've had.   Roberta: I think there's so many different in so many days, we had the good days. With a best day, I think let's say for example, our first when we bought our first property that was like, Wow, there was something we were not revealing expect. And then we were able to buy it for like, Oh my gosh, this is it. And but I think as far as the investment, once we started getting really into the business of investing, when we realized actually, one day, we had hired the CPA. And we had a few properties already. And we hired the CPA, and he's like, okay, now let me explain a little bit of all the good things that you may end up with, because you're investing in real estate for like, Oh, no, really, when we so that was the aha moment like for us are like, Oh my gosh, this can be into like, our lives can change. And this actually a business.   So for us, that was the most I think me that I think of it, it's the most important day for us any change in our lives from there to now. So definitely, that was the…   Tom: I love it when you, you know, you decide to do something for all these good reasons. And then once you're kind of moving along, you realize there's more good reasons to do it. There's something that that's great.   Roberta: Yeah, I remember he said, like the real estate was like, a multi dimensional asset class, you're like, well, what is that I started looking into it was like, wow, that's Yeah, so what is that?   Tom: So what initially pointed you towards real estate? What was your background? Before getting in? I'd love to hear about that.   Roberta: So I was born and raised in Brazil. We've been here in the US. So my husband and I have been hearing us since 2005. And one day, like we were saving and we bought a house. And then we lived there for a few years. And then we we bought this property. We're where we live now. This was back in 2015 and 2015. Yeah. And we decided to keep the previous house and we turn it into a long term rental. So just we thought as an another stream of cash, you know, we didn't have the big picture of investment. So we were like, okay, let's keep it we were able to keep it and invest in another property like you buy the new one. So let's do it.   So there, that's when it started. We we started managing that property. We didn't know anything about it was completely new to us. And coming from a different background. We're like, okay, there's even the buying process was different, like all sorts of different things we had to learn and by ourselves. So I had to study a lot.   I'm an attorney. I practice I even have, I went to graduate school here in US, but I don't practice anymore. So since then I've been focused more only real estate and then as our portfolio grew. We just you know, I was more involved with that. So in 2015, we started it took us maybe like two years by our second rental, and then from there. It's just, it started evolving. And I'm a busy mom. So it's like okay, real estate. Really, it's good for my type of routine. It gets into I can fit it in To my schedule. So it helps me with that, like, I can have both worlds, you know, I can be with my kids, but two, I can work for ourselves, which is something very important for us. So. So that's really a very important part of my day I deal with real estate. So it's on a daily basis that.   Tom: That's great. The The, the flexibility it affords, you know, a couple of things I want to pick out in that in that awesome story. So was the intention always when you bought that first house to eventually just to keep it and leave it as a rental?   Roberta: Yes, it was. But it was just as a rental because we at that time, we were like, Oh, we heard somebody say, you know, that's things like it's far away from us. Somebody kept their housing is getting good money, because we live in an area where real estate is hard, and like the rentals are good. So appreciation is good, everything's good. So we didn't have that idea. But we're like, Okay, this is a good cash flow for us an extra thing. And we can keep it in. Really, house was fairly new. So we didn't have a lot of maintenance. So we could, we just decided to keep it but we didn't have in mind growing, we didn't have the growth of a portfolio in mind. At that time. We were we probably would stay with only one at that time. Like we were not looking into buying others.   Tom: Yeah. So that's a great transition into growing so kind of roughly what does your portfolio consist of today?   Roberta: So we have properties that are single family homes, we have townhomes and condos. And we have both here in the US in the state of Georgia, and in Brazil. So we have properties there as well. Most of our properties are long term rentals. And we have a few short term rentals in Brazil here in US only long term. And we decided to stay in Georgia. Because first we know the market very well. And besides that, we don't think that right now it's the time to go broaden our, you know, our places just because we still have a lot of opportunities here, and very good opportunities. So there is no need for us now to go to different states. The places we know very well, Georgia, and it's mainly north of Atlanta, where we invest on but we've been pretty familiar with the area we we know the area pretty well. So we're completely comfortable with this range here. Close by.   Tom: Is that like Alpharetta and like smearing or like further up north?   Roberta: Yeah. Alpharetta as well. A little bit. North of right down like, even Forsyth County. How can you besides Boulton County, we have all like north of Atlanta, all the way. I don't know how many miles 60 miles up seven miles. Do you know the area?   Tom: I do? I like Atlanta a lot. I invested. That's my my most of my portfolio is in Atlanta as well. That areas is wonderful.   Roberta: Yeah. Yeah, the return in there, it's pretty good. Like, people come to us and give us no shows, opportunities like they notice here too. So we've got to be known in the area in. So it's easy for us to invest here. And you know, it doesn't take much to like Express, we know where to go and how to see if it's a good deal or not.   Tom: That's That's fantastic. And I'd love to just you know, not go too deep on it, but investing in Brazil as well. So did you use first invest in United States before you built out some short term rentals in Brazil?   Roberta: Yes, we started here in us and then in Brazil, it was actually because we had an uncle that passed away left me some money there. And I was like, Okay, so what are we going to do? And to bring it here because of the exchange rate was kind of not a wise decision. So we started looking into opportunities there. And at the time, the market was very low for the receipt was very cheap. And since we started, so it's been a few years and we start growing the portfolio because Then the the market was slow, and then it started picking up. And now the return is very good. So we are happy with the properties that we have there. We have management companies that help us there as well. So it's it's easy to, even though you're miles and miles away, it's very easy to manage, we got to a point where Stessa helps us   Tom: Great transition!   Roberta: with our even with our portfolio being abroad, we're still able to plug in the information we get from them into Stessa, which is a great benefit.   Tom: Yeah, excellent transition. So you for throughout the properties you own in the world. stessa is able to aggregate you use that to aggregate all of them.   Roberta: Yeah, it's definitely helping us with that as well.   Tom: How did you first discover Stessa and like what are the you know, the main problems that it solves for you?   Roberta: So here it is. First, let me give you a background a little bit. In the beginning, we had this booklet that our the accountant that we're filing taxes with gave us to track the expenses for our initial for our first rental. So it was this booklet where we would write down all the expenses. And then we moved into like, okay, let's get this Excel spreadsheet, and that but all of the expenses. Well, after a while, it was a little bit hectic, to keep up expenses, and to track it there was very hard. And then we started looking into options online, we're like, okay, let's see, there must be something to help us here. And then we found a few, then you will have to pay for many others that we there were not adjusted for real estate, you know, like they were not built for real estate. The apps are like, okay, you can kinda use it. But not it was not designed for real estate.   So, you know, there were like, no, this is not ideal, either. And then there's some that were made for real estate, but they would charge us and we're like, No, we don't want to go with, you know, we don't want to pay for that service. And we found Stessa We're like, Okay, well, this is great. It has been like we've been able to use it since we first started with being great plugging all the information and give us such good information. Like we can see everything. They're right there. Like we can keep track of expenses and our income, all the different documents, were able to put it there like to upload, we have since appraisals, deeds, lease agreements, and inspection reports, like all sorts of different things. They're really all these make my my life much easier, because I can go to one specific place, and, and have all there.   We use other apps as well, we use, and that helped us and also helps us with the job as best as always can be quite grueling. sure to keep track of all the fines you have to pay or things like that. And also we use a Z Inspector with inspections because we we perform like inspections on our tenants. And for those that are not with management companies, you know, we go inspect their properties must know. Yeah, so all these apps, they make my life  much easier.   But this Stessa, for sure is the one that I use the most because it's like on a daily basis. In the morning, I sit on my desk and I write on stats are looking at all the transaction and the dashboard, all the colors and everything.   Tom: So it's it's probably helps, you know, hard to use some of the other apps in for the properties that you have in in Brazil. I'm curious about kind of your operations, you guys use third party property management or you do the management on your own, or I'd love to learn about that.   Roberta: So there are some properties. We have two management companies here in US that offers and a few properties are managed by ourselves so we may I manage them. dependents come directly to us on a few of the properties because we like to have that taste as well. We want to keep track of what the management companies we kind of we like to compare And keep track of what you're doing the best or not and ways to improve. So we like to manage some ourselves, just to make sure we, you know, we, we know the business from all points, like from the beginning to so and that also we have management companies in Brazil that help us with the color the properties there.   So, there's quite a few management things, you know, to keep track of all the reconciliation status helped me a lot, because I do financial reconciliation with all the property management inputs, like, every time I get there, denote the income from there every month, and I do a reconciliation. Stessa is my source for doing that. Otherwise, I would go crazy, just looking at my bank account. So this helps me a lot.   Tom: I'm curious. Let's say I had the the person in charge of building out new things and Stessa. What would you request as a new feature or new functionality? If you have if you had to have one?   Roberta: It really, nowadays, it's helping me the way it is now. Because without the documents, I have all that spread out.   Tom: I love the document storage.   Roberta: Yeah, yeah. So that that is easy. on a day to day, I keep track of my expenses and my income. And I keep track of my mortgage, all the mortgages that I have, and the balances the insurance. So it's really helping me a whole lot. I don't know, I would say sometimes, I don't even know if there is something like somebody could think of but for example, the banks, duplicate entries. And then for the reconciliation part, sometimes the banks duplicate and then Stessa. But it's so hard. I don't even know, I can't think of a way for Stessa to get this in a better way. Because it reads directly from the banks thing. I don't know. Maybe I will. I will add to that. I have to think about it.   Tom: Yeah, we Yeah, we Yeah, very much care. I care a lot about what the what our what our customers want. And so yeah, love, love that continuing to kind of think through ways to kind of get to the next level. So my last question for you. So looking back, what's one thing you wish that you had known before getting started?   Reberta: I wish I wouldn't have started much earlier back in when I first came, I would say the first game here. Because we had no clue. We had no guidance. So I wish I had a mentor that would have shown me where to go, which apps to look at what to track what to look for, even as far as investment. We don't we didn't know what would be a good investment to know we had to learn having our own today nowadays, we have our own range, I would say you know, of return. We have a good robust calculator for our return. But before back in the day, I wish I had somebody that would have got a you know, guided me and to make me an investor like much earlier in the my life to have to have started this much earlier. But yeah, it is what it is.   Tom: Yeah, exactly.   Roberta: If I can help somebody now. I would definitely, you know, as we do, like we try to help as many people as we know, because it's all in the end. It's all lack of information, lack con, people don't know. And if they didn't know they would be doing wiser decisions and investment is   Tom: Yeah raise everybody up. I love it. Well, Roberta, thank you so much for joining us.   Roberta: Thank you so much, Tom. I appreciate it.   Tom: Thank you so much to Roberta for joining today. It's super interesting learning about her portfolio in Brazil and how she uses Stessa. And as always, happy investing

    What you need to know about investing in Lexington KY real estate

    Play Episode Listen Later Sep 22, 2021 39:43

    Daniel David is a Roofstock Certified Agent, real estate coach, and fellow investor in Lexington, Kentucky.   In this episode, we get Daniel's scoop on the Lexington real estate market - the local economy, price points, level of competition, common issues that come up on inspection reports, and what makes it a great market for investing.    Explore investment opportunities in Lexington on Roofstock today.    Contacts and links mentioned in the episode: Daniel David - 859-797-4007,  --- Transcript   Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only and is not intended as investment advice. The views, opinions, and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Mark: Hey, everybody, this is Mark Woodling with Roofstock. Thanks for joining The Remote Real Estate Investor podcast. Today we have Daniel David, who's in Lexington, Kentucky. He's one of our certified agents. And he's gonna give us some insights about what's happening in the market. So let's go ahead and get Daniel on.   Welcome Daniel to the remote real estate investor.   Daniel: Hey, Mark, thanks for having me on. It's a pleasure to be here.   Mark: Awesome. So are you in Lexington today?   Daniel: I am, you know, in the Lexington Kentucky area actually born in this area grew up here, graduating high school from here. But then I ended up joining the army back and 98. So shout out to any army vets that are you know, listening to the podcast.   So spent three years in Heidelberg, Germany loved it, I if I could go back there, I would go back there. Immediately, I came back started started being a wedding DJ, believe it or not. So I'm used to talking on the mic used to talking in front of crowds and you know, engaging and making things a lot of fun. So hopefully, we'll be able to make some, some fun stuff here today. And then you know, of course, you know, doing weddings is not just a one day event. There's the planning sessions, you have the rehearsal, you've got the wedding, and then you've got to find time to go promote your business.   Well, during this time, you know, my son happened to be in kindergarten. And he's like, Dad, can you come spend some time with me, you know, pick me up from school today. And I was like, I can't I have a meeting? And then he's like, well, that's okay. You can pick me up on Friday. I was like, No, I gotta go to rehearsal. And then Sunday, you know, was the bottle showed or promote, to generate more business? And he was like, you know, dad, when are you going to stay home and spend some time with me. And I was like, that was the dagger that if I could have quit that day, I knew I would have.   So I knew some things needed to change. And that's what got me involved in real estate. So I ended up going with a large national brand, my first run out the gate with KW, Keller Williams, and my second month in the business, I actually listed 26 homes. A lot of people thought that, you know, look, you don't know what you're talking about, you don't know what you're doing. And then once I listed those 26 homes, those same people were like, okay, so maybe you do know what you're doing just a little bit. So end up getting into coaching, training, mentoring, and then have the opportunity to join the EXP where I coach training mentor, you know, we've got about 1000, our group across 38 states, four provinces in Canada, Mexico, and Portugal and Puerto Rico as well.   And so we've got tools, models and systems and things like that. But I've always been a real estate investor. I'm an investor agent. So I love talking to numbers. And you know, talking about cap rates, and all that good stuff that most people just don't.   Mark: That's awesome. I've heard a lot of really good things with EXP Realty, these days where they're bringing on more investors centric agents that really know how to talk numbers versus, you know, selling somebody owner occupied homes. So that's great that you've made your way over there. And I also hear you're a real estate coach. So maybe give us a little background on how you've been coaching, whether it's buyers? Or is it families, like tell us about you know, that experience?   Daniel: Well, you know, it kind of covers a vast range. So if you're working with buyers, there's certain things that you're looking for that, you know, can save time of, you know, if you're looking at, it doesn't matter whether you're buying real estate to invest, or you're buying for your personal reasons, one of the best things you can do if you're not paying cash, make sure you have your financing in order first. This is going to save you so much time on the back end and also on the front end. Because when you are pre approved and you've got all your ducks in a row, it's just like you've got cash on hand. So when we find something we can move rather quickly.   When you're looking to invest in real estate. You know, one of the best person investments that I can give advice is buy a duplex, especially if you know you're just starting now live You know, maybe you just graduated high school you're got, you know, roommates and things like that. It's amazing how much profit you can make. If you can buy a duplex, live in one side, and then run out the other, basically, when you're renting out the other, they're making your mortgage payment, then, you know, once you finish school, move out, take advantage of this IRS rule that the government has is the three five rule. So if it's been your primary residence for three of the last five years, you can actually claim that still like your personal residence, and not pay capital gains tax on that. So at the end of year three, look to sell that thing off, cash out, and now you've got a big nice cash portfolio to start going into future investments.   Mark: Well, that's what's so interesting about today with you know, all the pandemic is that people are moving in are much more mobile. So they may be moving from California and in trying to find a market like Lexington, Kentucky, and in finding that the price point is just so affordable, where they can pick up these properties for, you know, nothing compared to what they're paying back home. So yeah, house hacking. That's, that's what they call that little strategy. But well, I would love to hear more about the coaching as we go through. Cuz, you know, the reason why I ask is do you coach more individuals or families to me that you end up as a life coach, because you know, there's two parties to any decision, you're gonna have to play mediator here and there. So, you know, we'd love to, Who is your typical client type, so maybe give us a little background there.   Daniel: You know, I love working with investors, it's your typical agent does not understand how to work with investors. You know, they're more concerned about, you know, hey, look at the nice decor in the house. All Did you see that this has a garage, and investors like, okay, so tell me the cap rate? Does, what's the cash flow on this? What's the numbers look like? And so, you know, if the numbers make sense, then we can look at the house. And, you know, if it has nice aesthetics, that's a plus.   But, you know, let's look at the numbers and look at the meat and potatoes, let's dive into. And so, you know, back in 2015, I actually started a real estate investors group on and we can find it on And no, that is not a hookup site, just so you know. So we've got currently over 500 members, 556 Last time I checked. And, you know, we talk about how to buy, sell, invest, and even, you know, the fix and flips, you know, Lexington is a perfect market, if you're looking to buy and hold not so much on the fix and flips because everybody's looking to fix and flip. And those are few and far between. and it's like sharks circling. And they just all pounce, and they end up driving up the profit to where there's no like, meat on the bone at the end of the day.   So I, you know, buy and hold is like the best strategy that I found that works really well because Lexan has some great numbers for rents compared to prices. And you know, you mentioned like, back home or outwest, where you know, 300,000 won't even buy at the front door, you know, here in Kentucky 300,000 will get you a pretty nice place with with a good cash return on investment.   Mark: Now, that's that's great Intel and exactly what we want to dig deeper into. So let's go into Lexington. And let's actually give people a little tour that may not be so familiar with it. So what I know is that it's the second most populated city in Kentucky. I think that's always a big thing that most people don't recognize. It's the horse capital of the world. So I think that that's a pretty big deal. Maybe known for a little bourbon and some other activities, you know that around fine tastings and, you know, good things like that. And then of course, University of Kentucky, Wildcats, though, maybe why don't you give us a little tour of the city and go through anything that people may know or may not know and, you know, give us your perspective on it.   Daniel: Okay, so Lexington is, believe it or not one of you know, it's growing we're, we'd like to be a little conservative on growth as compared to some of the other cities. It's, it's definitely like an old money town. So you've got horse racing for those horse enthusiasts. You mentioned the bourbon. Some of the best bourbon in the world is produced right here in our backyard. So we've got a whole bourbon distillery trail the trail you know, if you're ever in Kentucky, I recommend you go check out the bourbon trail. We do have the University of Kentucky and that is what kind of anchors Lexington and then that's also followed by the medical industry we have some of the top medical physicians and things like that in in the world are right here in Kentucky. And that's that's not a well known fact, you know, one of the cardiology departments and things like that we, we strive for success there.   We've also got, you know, for those that like, some companies that you may have heard of, we've got Amazon, we've got Lexmark is anchored right here. And then if you've ever eaten, Zoe's, Zoe's was founded right here in Lexington, Kentucky. So awesome, great companies with opportunities and growth for, you know, future investments and things like that.   Mark: So what I've been reading about, is that just the low overall cost of doing business out there. So it's very attractive, I think it's a competitive tax environment for companies to move to. So what are some of the companies you'd say that are making a splash right now? Are there any technology companies or companies that are maybe building the next great facility that they're looking to move to out in the Lexington area?   Daniel: There's plenty of opportunity for those companies that want to take advantage of those industries, Metro nets, kind of installed their fiber optic network throughout the area. So now we did a true gigabit up and down, that opened up a time of opportunity. And we've had some companies that are taking advantage of those opportunities. And then other companies that are kind of like, Well, you know, I'm not sure about this whole fiber optics thing.   So there's great opportunity to hop in on the technology side. Lexmark a, you know, they are pretty some of the best printers in the world. They are, you know, anchor here, so they're taking advantage of some of those opportunities. And then, you know, you've got a lot of law firms here in Kentucky, you also have a lot of medical opportunities. So if you're in the legal or medical industry, Kentucky's, especially in Lexington, Kentucky is a great spot, we are considered a retirement town. It's a so if you're looking to retire. And I think money magazine has had us and consistently in the top 20 since like 2005, which is just insane.   So we have some great nightlife, and then, you know, some, some great little off the beat restaurants. So we want to get away from those chain restaurants. We have some great local eateries here that would, you know, rival some of the great cuisines are probably used to experiencing.   Mark: That's awesome. Well, let's I want to dive a little bit further into the quality of life in a second, but you touched on it for a second they gigabit city. That's a big deal. Or gigabyte, oh, no, which when you pronounce it, but that's a big deal. There's only a handful of cities around the country that have the entire city infrastructure set up to have a gigabyte download speeds. So yeah, so MetroNet, is the name of the company and are is their headquarters in the area as well? Or is that just their presence?   Daniel: They have some some of the companies and then because they've already set up that infrastructure here in Lexington, they're expanding to the surrounding cities and bringing that in as well. So that is a huge benefit, especially if you're looking to invest because I know, tenants are looking for, like the high speed internet to be able to stream and do things like that. So it used to be that we just had spectrum cable. And that was it. That was like the fastest internet that you could find, which you know, drove prices up. And, uh, you know, now that MetroNet has come in, it's been a game changer. And so a lot of those companies that had that, you know, kind of Monopoly have had to really rethink what they're doing because so many customers now have choices. Now, you know, it used to be that everybody had a landline phone, and everyone has a cell phone, so there's no need for a landline phone anymore. So your older population, they're still used to having that landline, your younger population. It's like nope, I'm completely mobile. I don't want to be tied to one spot which makes you know investing in elections and a great opportunity.   Mark: Sure, into between all the colleges around town you have this you know, gigabyte city or gigabit. And what I've been reading about is the the millennial population that's really attracted to the area A. I think it's because it's post college, but also if you have the technology and you have This future thought on how to keep some of the the youth their income the restaurants, because these are the people with the disposable income. So what do you see in terms of like the city makeup, I heard a little bit about being a great place with for retirees, but when you see, are dealing with even local buyers, who is the buyer that you're working more closely with, or who's the renter, that you may be working with looking to rent a property?   Daniel: Well, usually when you first come out of college, you've got that massive student loan debt. And so mortgage companies take that into consideration. Now, they are policed here locally, if you're in a certain field, they will forgive your student loans and not count that into your loan, which is a great benefit. For buyers, and I, you know, sellers have that opportunity as well, for your renters that, you know, whatever up whatever reason, you can't get qualified.   Lexington does have, you know, some pretty competitive rent rates, you know, you can look anywhere from like, for a two bedroom, one and a half bath, probably looking at, you know, around that 1000 to 1200 range, where if you get on the outskirts, that's probably closer to like 900-1000.   Mark: Wow.   Daniel: And you're still close enough to where you can commute, when I think commute, I think anything 15 minutes or less, is you know, you're right there.   Mark: That's incredible. So you have this younger, younger set of, you know, let's call it the millennial generation. And next thing, you know, we have Gen Z coming around the corner. You know, what I've been reading as well is that, you know, this is one of the most highly educated, you know, post graduate groups in the in the entire country. So I saw that 42.9% of the population 25 years or older has at least a bachelor's degree. And 18.6% has a graduate or professional degree, which is the 11th highest. Let's see ranking Lexington, the 11th most highly educated city in the country. That's incredible. Wow. So the colleges are keeping the the renters around or whomever you may be buying as well. But they're staying around so they don't just graduate and then take off for the big city. It sounds like they're they're sticking around and spending their disposable income there.   Mark: Yeah, it's, and a lot of that ties back to birth friendly city. No, we were not like all up in your business. But when you talk to us, we're cordial. We're, you know, we're genuinely interested when you're trying to carry on a conversation with us, we're not trying to, like turn up our nose and say, See, everyone's helpful, and very supportive. And I think that drives a lot into why you're seeing a lot of retention when students graduate from UK.   So we also have Transylvania University, which, you know, is not on the same level as UK, as far as like, student wise population. But academically, they, you know, like you said, they rival pretty much anyone in the nation. So we have a lot of educated people that choose to remain here just for the sake of, there's opportunity. And we're growing, we're still, you know, expanding. We're in Lexington has not reached its full potential yet. And so there's plenty of opportunity for growth. And that's what makes it attractive to a lot of people.   Mark: Well, that's great. Well, we'll put some show notes and links into the podcast. But there's, that's where I got a lot of my information. It's the economic development group out of out of Lexington, or typically, it's the, you know, the Chamber of Commerce, that puts out a lot of great content. So I highly advise anybody to go check that out and study some more of those statistics.   But let's get into the actual like, let's get into the micro economics of this and start talking about what little pockets of Lexington that you're really focused on. So as a kind of a preface, you know, Daniel is the one that is a part of a certified agent network at Roofstock. So he's actually underwriting a lot of the properties from the MLS and then posting them to Roofstock. So he comes up in estimates if it's vacant, or rent a random out as well as potential rehab.   So maybe Daniel, give us a little idea about when you're going through and looking at properties. What are you looking for that you would consider as a good investment property and maybe walk us through some of the pockets around Lexington and talk about whether it's schools that are the driver or areas that are more a cap rate for Guess you know where you can get the better return on your investment. So give us a little Intel there.   Daniel: Well, so let's talk about the sweet spots, because I love, love talking about sweet spots. So in Lexington, one of the hottest areas is the Kenwick subdivision area that's 40502 on the zip code, anything that you can pick up there that is increasing in value. So just to give you an idea, like what we saw last year, compared to this year, numbers were up about 20%, just in that area alone, which is just crazy.   So Lexington as a whole, we had about 1.9 months of inventory the last year that has, unfortunately decreased it's like 1.3 months of inventory right now, which, you know, not saying you can't find deals, because a lot of investors think oh, well, you can't find deals on the multiple listing service. Well, that's where I get a lot of my deals. If you know what you're looking for, you know what you're doing, you can find cap rates as high as like nine, nine plus percent on properties that are on the Multiple Listing, I find those all the time and upload those for you on Roofstock.   So, you know, what I've been experiencing? Since I have joined Rootstock, I'm actually you know, we're, we're writing about an offer per day. Right. So it's, it's just crazy. And there's a reason that a lot of investors were targeting. And it goes back to all of the things that we have discussed throughout the podcast.   Mark: That's great. So maybe walk us through a few other areas, or how do you kind of divide the lines is it highways that are dividing is it you know, other areas that kind of separate where some of the better schools are give us an idea about how you would kind of generally categorize that.   Daniel: We do have some schools that you know, outperform others, you know, as a real estate agent, I am kind of bound by this no discrepancy rule, kind of things. But Lexington if you think about it, Lexington as itself as if you think of a wagon wheel, and then each spoke points to the center. So the center is downtown, we have this road called New Circle Road or Circle 4 it makes up the outliers of Lexington, and then each exit points as a spoken and all focuses towards downtown. And then we have now started to take that wagon wheel. And now we're putting another wheel around that where we're getting into some of the other areas that have direct access to like, I64, I75. And we've noticed some rapid growth in those areas as well, that's out in the Hamburg area.   Also, we just build a new high school, Frederick Douglas high school that has drawn a lot of investors into that area. And then you know, because we have UK, there are some opportunities to invest in the UK student area where you will constantly have an influx of students, you'll never run out of opportunities there. Most of those are more than four units, though. So if you're interested in that field with me, I'm sure we'll go over my contact information later on. And we can discuss those opportunities.   Mark: That's great. That's great. So, you know, when you're underwriting these properties in general, you know, is there a certain cap rate that you're really looking for? Because I know, like you said, the price points, you know, can be a bit higher in some of the areas but it sounds like your taxes also are not nearly as high as what you'd experience in areas like Texas where I am. So what is the price point and expectations that buyers should expect? You know, in terms of maybe like something between 100 and $150,000, you know, what should a cap rate look like and then 150 to 200, and so forth.   Daniel: Most of the tax rate and Fayette County is 1.278%. So, you take that into consideration, which puts you know, if you're buying a property at like 100,000, you, you're right at about 200 a month or something like that, which points to 2400 a year. Or if you go lower, then of course that varies your cap rates. And my sweet spot is you know if I can find anything 9 plus I'm golden, but if I can get it between that seven and 9% I know most investors will no bite on that   Mark: Fantastic. Wow. Yeah, those are numbers that you You really don't see in some of the the major we would call like tier one cities. But as you get into these secondary markets where you have less competition, and there is a little bit more available inventory, it doesn't sound like there's much so you need to add quickly. But, you know, there's some markets where I mean, properties aren't aren't on MLS for more than four to six hours, and then they're snapped up. So it sounds like you have a little bit of breathing room, but not a whole lot of time to react.   Daniel: No. And so there is a great sitting right outside of Lexington. It's Richmond, it's about 20 minutes away. It has it's another college town, it's got Eastern Kentucky University is there EKU. And you would be surprised on $125,000 property, you want to take a guess at what the taxes are per year.   Mark: No tell me   Daniel: $25   Mark: What Aren't you getting for $25, though? That's what concerns me?   Daniel: Well, it makes a great opportunity for some investments, I actually have put a couple of those up on Roofstock. So you can check those out. And the cap rates on those. I think one of those was like 14%. So it's definitely worth at least checking out.   Mark: So is it just an unincorporated town where they're not paying You know, the local city taxes are what makes it such a steal?   Daniel: Just county taxes, not so much on the city end? And the county taxes are like .099321 or something like that. I mean, it's it's absurd tax rate. And I was like, No, this can't be real. But I got on the property value administration, which investors if you're not checking your PVA rates, you need to go check those out prior to on any potential investment. That's a added bonus tip there.   Mark: PVA stands for what?   Daniel: Property value administration,   Mark: Okay.   Daniel: And basically, they're the city elected officials that go around, they collect the taxes for the city on the property. A lot of people think, well, it's the sheriff's office that does that, well, yes, they go out and they serve the tax, notice that it's all paid to the county or to the city. And so when I said there's some great opportunity to invest in properties, not just in watchmen, but also the outskirts, Richmond in is one of those areas that it's definitely worth checking out.   Mark: Very cool. So we've touched on a lot of the highlights, and I always think it's good to go through and really, you know, put a spotlight on the city, some of the great things, tell us about the negative aspects. And you know, I don't want to beat up on Lexington too much. But this is where I want you to be very forward with us. You know, are Are there any common issues that you see, in most of the properties, you know, that are investment properties that somebody may acquire, but what are the things that investors should be looking out for in keeping their guards up on?   Daniel: I would say a lot of it has to do with whatever pm you're using and pm for property management, just making sure that they're vetting, properly vetting the tenants. Because, you know, it's just like any industry, every industry has their bad apples, and some do not do as thorough job as others. So, you know, just make sure that you properly evaluate your clients out.   If you're charging, you know, 595 for rent, you know, that there's probably going to be some, I'm not saying that, that it will always be the case. But we know more often times than not the lower the rent rolls, the core conditions condition that they leave the property and when they leave, and that's not every single tenant, but the majority do because it's not their place. They don't care for it the same way. So we're not putting granite countertops when we go in to those facilities. You know, a nice Formica countertop, a lot of times people think, Oh, well I have to go in I have to get this place.   And believe me, I made the same mistake when I invested in my first property after you know, having multiple properties. Now it's just about hey, what can I do? Go and buy it low? Let's repaint the cabinets, refinish them, let's put some new doorknobs or you know, hardware on the cabinets. Let's change out the door knobs put some decent doorknobs put some LED light fixtures in it. Then clean up the curb appeal. Then, you know, okay, now we can get that reappraised it will nine times out of 10 appraise for even higher than what your original purchase for let's refi, refi that pour initial money back out with our repair money, use that money to go buy our next investment and keep growing the portfolio that way.   But answering, you know, getting back to your question, I know we kind of went off the tangent on that one. So, tenant mixture, we do have, we do have section eight, we do have a need for, you know, Community Housing, and, you know, those needs. We do have some landlords that, you know, for whatever reason, they, you know, COVID kind of hit them a little hard. And maybe their tenants didn't pay rent, which we know, a landlords experienced that all across the country. So, you know, we didn't experience that much here in Lexington, but we did have a few that they stiffed of the rent, and then, you know, when the moratorium got lifted, then they just bolted rather than face the eviction, which, you know, they got to live in it free for about a year.   So they did, you know, kind of do some damage, they didn't really take care of the place, and nothing like major, but, you know, cosmetic wise, they, you know, don't, they didn't take care of it like they should. So I mean, a couple of drywall, patches, some new paint, maybe some new carpets, and then you're out the door, or, you know, in mine, I don't even use carpet anymore, I go completely vinyl. And that's what I'm   Mark: Sure.Well, it sounds like there may be some tired landlords coming, coming to market in the near future, because that is a quite a blow to take and not have income coming in, but still having to pay pay your mortgage. So yeah, that's always the risk that you take. Now, I have to, I think, really good questions that I want to jump into as well as when you get an inspection. And in Lexington, you may say, you know, Mark, there's just one thing that you will see time and time again, that falls on that inspection report. But don't freak out. Like let's not let's not jump to conclusions and say, Oh, I'm out. What are those things that a buyer should expect in Lexington, that is just going to be common, you know, and in something that's going to be easy to remedy versus a deal killer.   Daniel: Okay, so inspectors love to talk about drainage issues, and the effects of groundwater on the foundation. And they'll go on for like three pages in the report talking about all these potential damages that could occur if left untreated. What that means is that on the downspouts, you need to go to Lowe's, you need to get one of those black hoses to attach the downspouts and divert the groundwater away from the house. That's about a $15 fix per downspout.   But they will. But if you just read the report, and you're not talking to an investor savvy agent, they will have you convinced that this home needs hundreds of 1000s of dollars in repair or 10s of 1000s I you know, almost as much as the cost to build the place. And that's certainly not the case.   Mark: Yeah, and I think what we're all experiencing right now, we've had a little more rainfall than normal. So I think it's good for any investor to check even their primary homes and make sure that water is going away from the property. Cuz in the south especially. Yeah, the the grounds may dry up like in Texas, we have clay. So you know, when it gets really hot, you don't have the right moisture down there. That's when the foundation issues come about. So yeah, I do agree, you just you got to reroute the water.   Daniel: Now, I will mention that we do have some homes here in Kentucky that were built. And they have some knob and tube wiring. So it's rare to find those. But some of those older homes, like I mentioned in the Kenwick subdivision, some of the older homes there, they're full of knob and tube wiring that are still active. And you're not supposed to splice into those, but a lot of homeowners have spliced into that. So make sure that you look for that on the inspection report.   Mark: That's great. But I think just knowing what's common and what to look for is big and then when you get the inspection report, maybe tell us a little bit about how how you interact with the buyer at that point. So when when the inspection comes back, you know, Roofstock's, helping pay for that in order for a buyer to get the roof stock guarantees. How do you like to go through an inspection report with your buyers?   Daniel: So we just look at it line by line. And I'll ask them hey, you know, what are your concerns over This section, let's talk about this. Then, after we talk about the whole report, I'll ask them. Okay, so what's the deal breakers? Because we can't ask for every single thing. This is not a punch list. A, you know? What's your top? Top Five deal breakers on this? Okay? So out of those five with what's your top three? So if I can narrow it down to like, one, two or three that, okay, we can have those items requested as repairs. And then, okay, these would be nice to have, but I'm okay If they don't do this, then let's, let's submit that and see where we land.   You know, I'm, I'm all about trying to keep everybody on the same team, which I do, you know, bring the other side in, I don't look at it is it's like us versus them. Like, no, we're all involved here. Listen, if we can make this work financially, then, hey, it's a great investment. It's a great opportunity. If we can't work it, okay, well, then we're obviously we got to kill the deal. But I tried to see what other avenues can we take? Before we get to that point.   Mark: Man, this is great. Well, everything I've heard about Lexington has been an eye opener for myself and as an investor you always want to know Where the next markets are that others maybe haven't quite cannibalized, I would like to say you have iBuyers out there, you have institutions out there. And it just seems like Lexington is, you know, more of a local investors market, you're not having as much outside interest. But that may be an opportunity for our Roofstock investors to come out to Lexington.   Daniel: It definitely is. Lexington is like one of those well kept secrets, that is slowly starting to trickle out to the rest of the nation. And what we're seeing, as far as the outside interest, outside interest is high, simply because what you can buy out on the west coast, you can buy multiple properties for that same price, right here on in Kentucky.   Mark: That's amazing. Well, just to kind of close it out. And then we'll ask ask how people can get in contact with you. But the probably the top statistic I always love to look at is the census data. And it shows that 54% of those in Fayette County, which is Lexington and some of the surrounding cities, is that ownership rate is 54%. That national average is 64%. So you have a lot more renters in the area. And then all these economic drivers such as you know, the colleges, you know, the the younger, you know, the the younger renter base that's, you know, graduating and needing somewhere to move up into once they get a job locally. And all the job growth that to me, those are the win win opportunities that again, there's going to be more opportunity even with low supply that you have, there's going to be more to pick from because I think our buyers can be more competitive in the market to find properties in that seven to 9% cap rate, like what you're talking about.   In a lot of other markets. That's kind of the unicorn that is fictitious, there used to be a five or seven to 9% cap rate, but those have been compressed and pretty much disappearing at this point.   Daniel: Yeah.   Mark: Glad you could be with us today. Daniel, maybe give us an idea. If somebody wanted to reach out and talk to you a bit more about what's happening in Lexington or, you know, maybe have a conversation before they make an offer. How can they get in touch with you?   Daniel: Best way to get in touch with me is either by phone or text, you can text me at 859-797-4007 or you can email at   Mark: That is awesome. Thanks so much for joining us today. I am enlightened now. And I'm more than excited to see what kind of activity we get with you and start to drive some offers t so thanks for being on today. Daniel, we really appreciate it.   Daniel: Mark. Thank you again.   Mark: Hey everyone, thanks for listening and participating in today's podcast on Lexington, Kentucky. Daniel brought a lot of good information. So we hope that it's useful for you and we look forward to having you on next time. Happy investing.

    Why you should buy property with your exit options in mind

    Play Episode Listen Later Sep 18, 2021 14:15

    Many investors buy with the intention of holding forever. But things can change and you should have an exit plan. In this episode, Tom and Emil discuss why having an exit strategy is important and how to be thinking of the right one for your property. --- Transcript  Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Tom: Greetings, and welcome to the remote real estate investor. On this episode, I'm joined by   Emil: Emil Shour.   Tom: And today we're gonna be talking about buying with an exit in mind. So in other words, how to think about the eventual sale and if you're going to sell at the point where you're doing your acquisition. Alright, let's jump into it.   Emil, I am a big fan of this topic. And shout out to Pierre, for identifying this as a discussion point for today. So to reiterate, we're gonna be talking about buying with the exit in mind. And I think what before we get into the specific strategy points, as considerations is really important to think about buying with the exit in mind. Emil, I'd love to hear you riff on this.   Emil: It is, it doesn't seem like it is when you're buying your first property. And I'll tell you from experience, but years later, you will start thinking about a lot more as you buy properties and wishing you had thought about it a little bit more down the road, even if you know you're going into this and I'm holding forever. That may not always be the case. And you may want to sell down the road, especially when you know, you've done this thing for many, many years, and you're just ready to get out of business or whatever it is, it's always good to think of the end in mind.   Tom: I, the way my thought processes change, I've always been very, I buy hold forever, all that stuff. But the way I've evolved thinking about it is keep the capital in play forever. So you know, you can sell your property and have an exit in mind. But just roll it over with a 1031 and keep that capital in play. And there's plenty of good reasons to do that. Perhaps you're leveling up into you know, a two for one property is converting that 1031 or perhaps you're consolidating regions, I did that I did that with my first 1031 moving out of one market and doubling down into a different market. So just because we're thinking about the exit in mind doesn't necessarily mean that we're exiting the capital and I just need redeployment. So this discussion is very specific to the exit of the either redeployment or perhaps you have the money.   Emil: Yep.   Tom: Alright, so the first topic that I want to talk about with thinking about the exit in mind relates to thinking about who your potential buyers are. So, Emil, why would you ever notice up with a couple of buyers in a start discussion?   Emil: Alright, so I'm gonna be assuming we're talking about single family homes here. So when you are selling a single family home, luckily, you have two buyers, unlike multifamily, commercial, we're only really selling to investors, but the single family you could sell to an owner occupant, or you can sell to another investor who is like you probably buying it, wanting it to be a rental wanting to collect rent, wanting all that stuff. So you have two options with a single family in place versus a multifamily or commercial property.   Tom: Yeah. And I think what's a good way to think about that is, you know, how can you maximize, we're going to maximize the value for the various different types of buyers that you have. And I'm gonna reword that just a little bit. So next, I'm gonna start with analogy, a smart mouse has multiple holes to run to. and applying that smart mouse analogy here is one of the great things about SFR is having two different sellers to sell to so I think Emil is gonna talk about example in a minute with related to, you know, nicer homes.   Emil: So to give them like a good example here of how you are maximizing your sale price by having multiple people, I think that's actually one of those unique things, single families, you can sell to an owner occupant. And so this is something I realized, after I bought properties in areas that, you know, the neighborhood's score, the neighborhood quality isn't as high schools aren't as good. But that on paper yield looks great, right. And so I'm traveling seeing these higher cash flow properties.   And having and having property, they're nicer neighborhoods, probably the less nice neighborhoods, I can tell you, I weigh this a lot more now in thinking about the exit. The property, the nice neighborhoods, they appreciate more, and again, you can sell them to owner occupants, down the road. And the reason that's great is that they are an emotional buyer, right, they feel that your home, they really want it, especially right now you think we're in a bidding wars, you got people bidding up prices, all that stuff, that's the type of person you want to sell to, obviously, you can sell to an investor as well, they're gonna look at the numbers, you know, if you have a tenant in place, we'll talk about how you can sell that. But failing to know document is a great option there emotional if you want to sell to.   Tom: Yeah, selling to attend in place is a really interesting strategy to implement and adjust within your ownership. So one of the early funds that I worked at, they did a lease purchase option is one of our main products. And what they did with that is they collected a little bit of a premium of rent and also collected a bigger deposit that they eventually converted into the downpayment, should the tenant convert on their lease purchase option. So I think there's a couple companies that are doing that now. They're specializing these lease purchase options, where within the lease the tenant have the opportunity to buy. But I think that's like a really interesting strategy, kind of sub strategy of thinking about the exit in mind having an actual lease purchase option. And if they're able to purchase the property, awesome, then you know, you convert on your exit, and if they're not, yeah, there's a lot more upside of the rent that you've collected.   Emil: Do you know if you as the owner can, like once you sign that contract with a tenant, like let's say, it's two years by the end of two years? Because it has the option to buy it? Or do you get final say like, Oh, no, the markets gone up? 10 20%? More? I don't want to sell it anymore.   Tom: Good question. I mean, I think there there is some whitespace, or I guess, flexibility and how these are structured, the way that we had our lease purchase options is they were predefined prices upfront. And it was a little bit of a risk reward for everybody in that if the price isn't appreciated beyond what the predefined prices were on paper, then great for the tenant who's buying the property. If they if they didn't, then I think there was like a little bit of a decrease in the price. I don't even like really meaningful. But eventually as that company got bigger and you know, had more sophisticated investors that were investing in this property management, you know, owner operator, they decided they didn't like that feature of our leases, at least cuz they weren't able to control the exit, you know, they wanted to hold on as long as the candidate and like lease purchase option.   But I think as an individual investor, I think there are, you know, are some advantages for having this type of lease in place with, you know, the premium and renting and that and typically like a better tenant, you know, you could be like, Hey, you know, this is your house that you're buying, you know, you're less likely to have what was the hammer party Michael Zuber talks about, somebody brought hammers and just hammer the house for a party. So that's what's likely to happen.   The other potential seller out there that I think anyone who owns real estate is probably getting hit up is these these institutions or I buyers that are making these offers kind of on the spot. I know I've received them from Redfin, from all these all these other companies. And I think it's, it's a nice kind of validation on the price. I think if I was to sell to one of these companies, I want to really be really thoughtful and looking at what I think the price of the property is compared to what they're offering. And it can make sense. But away at an important thing about the ibuyer pieces, you need to be in a market in which those ibuyers operate. So if you're buying real estate in really little little itty bitty markets, you're less likely to have that as an option into selling to one of these I buyers or, or institutions.   Emil: Yep. And the other person sending those mailers is maybe not ibuyer, but someone who may be a wholesaler, or they're an investor themselves, right? Like I'm sure you get that I buy houses letters, I get paid like five a week right now. I just wanted someone to buy your house all cash offer. So that's another investor who's may not be an institution or big company, but is, you know, small, private and buying homes for their own portfolio.   Tom: I'm getting better at explaining I buyers, I think I might just explain it for those who are not familiar with that term. So historically, real estate has been a dealer model, excuse me a broker model, right, where there's someone in between selling to a buyer and a seller. But what's happening in the industry is they're moving to more of a dealer model where there's this ibuyer in between who buys the property, and then, you know, perhaps does make some margin because they have their own title company, they do their own this, and then they sell it. So they take actual ownership. And I'd say comparing the traditional broker versus a dealer model where and ibuyers, a dealer modeling tons and tons of money going into the space and doing that you look at Zillow and Redfin and all those companies.   And it's interesting, I, you know, I don't want to divert the conversation too much. But I would be concerned about nooit, where there's any kind of downfalls in the market, you know, I buyers is holding a lot of inventory on their books. But it was more money moving in space. So anyways, that's the other consideration in with buying with the exit in mind is kind of what are the buyers in the space and having that as an exit, and final thoughts on selling to?   Emil: Those are the big ones.   Tom: Alright, so lastly, we're going to talk about considerations with the exit in mind selling the property occupied or vacant. So I think timing is a really important consideration if you do have a very specific exit, timing in mind, monitoring that lease. And, you know, perhaps structuring the leases, so they've ended up in a peak sales time where you want to be a seller could that could be in the summer when School's out and all of that good stuff. So that's an important consideration in with buying with the exit in mind with occupied properties.   Emil: Yep, good one in that you know, just general property management, you don't want to be having to fill especially if you're in the Midwest or somewhere it's called having to backfill a tenant during during the winter time. And the same thing with with selling right, it's you want to be selling in the summer in the spring, that's just when there's most activity most people buying so lining it up properly can help you maximize a good price as well.   Tom: I will throw in a little Roofstock plug though. So as a big reason why rootstock was created the marketplace just to make it really efficient to buy and sell occupied property either. For some of those who have an earlier episode, we had Gregor Watson, he was one of the co founders, he had this awesome story where he was working for a fund that owned 1000s of homes and he went into a realtor and in Dallas, he says, hey, I've got 1000 homes I want to sell, do you want to sell them and the broker of that realtor like, you know, his put his hands on his chin was thinking about it. He's like, I can't I can't sell your homes. And Gregor was like, why not? This has gotta be the biggest boon for your business ever. And the guy's like, I don't have 1000 signs. It was that moment that Gregor was like wow, this is a market opportunity to be able to… But anyways, I diverge. If you are thinking about selling, you know, with occupied properties like Roofstock was basically built for that to, to do that make it really efficient. So you don't have to vacate the tenant and all of that good stuff. So…   Emil: Have you had you sold a property? I know you and I both bought to Roofstock?   Tom: Yes.   Emil: I have actually sold as well have you?   Tom: I have, I've sold occupied and vacant.   Emil: Nice. I sold only occupied, one last year.   Tom: One last year, nice. 1031s are real 1031s are real. Got some exciting content coming up around the pike related to 1031. We will share probably in late September, early October. So lots of fun, fun things around that. I think a key takeaway from this session is, you know, you should buy with the exit in mind, even if you plan on holding forever, because it could be just a matter of redeploying capital. Because you never know necessarily as your strategy evolves and to have those that optionality is really important to think about.   Any final thoughts Emil?   Emil: No, you know, just again, think about even if you go in, I had the same kind of I'm gonna hold forever, life happens things change. Yeah, you may feel differently. Always think even if you don't plan on selling, think about if I were to sell just take those considerations in mind. It'll it'll help you make a smart decision long term, I think.   Tom: Totally. Yeah, I think it's been an evolution for me as an investor is thinking kind of ahead of that next step. like okay, what does an exit look like this property? Yeah, like that. Definitely.   Alright, guys. Well, thank you so much for listening. I hope you enjoyed the episode and please like, subscribe, wherever you're hearing us and as always, happy investing.   Emil: Happy investing.    

    Here‘s a Roofstock Certified Agent‘s take on the Columbus Ohio market

    Play Episode Listen Later Sep 17, 2021 29:07

    Roofstock Certified Agent, Harvey Yergin with Simple Solutions Real Estate in Columbus, Ohio answers important questions about investing in this market. In this market overview, Michael and Harvey cover what investors need to know about the Columbus market from, local industry, the rent to price ratio, the competitive environment, the type of properties, and what investors should be looking out for on inspection reports.  If you have more questions for Harvey about deals in Columbus, feel free to reach out.  Simple Solutions Real Estate - - 901-484-9751  --- Transcript   Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everybody, welcome to another episode of The Remote Real Estate Investor. I'm Michael Albaum and Today we have with us our roofstock certified agent out in Columbus, Ohio, Harvey, Yergin, and Harvey's gonna be talking to us today about the Columbus market as a whole and some things that we as investors need to be aware for if we're going to go invest in that market. So let's get into it.   Harvey, thank you so much for joining us today, man. Really appreciate you taking the time out of your busy schedule to chat with us about Columbus, Ohio.   Harvey: Yeah, sure. No problem. Glad to be here.   Michael: So tell everybody listening. Are you a Columbus native? You know, where did you come from? Like, where did you come from? Where did you go? And how long have you? And how long have you been in the Columbus market?   Harvey: I have been in Columbus, back in Ohio for six or seven years now, with close to six years. I'm originally from Akron, Ohio, which is closer to Cleveland moved around the country a bunch sometime in Virginia, Tennessee, Oregon, Michigan, had a bunch of kids and decided we wanted to get closer to family. And we do a little bit of research on Ohio. No offense out there to other Ohio and but Columbus is it's got the most going on.   Michael: Sound like fighting words to me.   Harvey: Population growth is exponentially higher than the other two major markets in Ohio, Cincinnati and Cleveland. And there's just way more industry here. They're just they're just plain simple. There is more going off Columbus. So we landed here. We're close to family. My wife is from Pittsburgh. So we have a support system here now and Columbus is home.   Michael: Love it. That's awesome. And how long? Have you been a realtor? And then how long have you been in the real estate game? Because I know you're chatting for the episode, you're an investor as well.   Harvey: Yeah, I'm an investor, I spent most of my time in my investment company, and working on investments, been a real estate agent since 2018. So three years or so. And, like I said, primarily working in my own company with my partner. But then also just by nature of being an experienced investor in this market, also helping buyers and sellers buy and sell their real estate investments, as well.   Michael: Awesome. And how many transactions have you done in the last 12? months? Like number of purchases? number of sales?   Harvey: Oh, I don't know, a couple few dozen, most of which are representing our company and the purchase? Or sale?   Michael: Awesome. And so did you get involved in the transactional side of things, because there was just a need for it because you were doing so much business, basically, for your for your investing business on the personal side of things.   Harvey: I got involved as a real estate agent, primarily to I mean, I think there's a common story but get in, get your license so that you can save some expenses and costs   Michael: on the Commission's Yeah,   Harvey: Yeah, on the transaction on your own transactions. And then, you know, obviously, there's some some money to be made. If you're representing other people. You have you have a little bit of a niche in that you understand transactions, maybe more so than other real estate agents, because you buy and sell for yourself. And you're familiar with real estate investment transactions and deals because they're, you know, they're very much different than your retail sales, sales. And I like helping people as long as people want to be helped. I like like working deal but like wouldn't deals together.   Michael: That's great. That's great. All right. Well, now I want to give you the platform to yell from the mountaintops how great of a market Columbus's. So talk to us about some of the economic drivers and talk to me like I know nothing about Columbus And truth be told, I don't know a whole lot. So that'll be eat that should be easy for you to do. But so what are the what are the big economic drivers in the market? Who are the big kind of companies that are that are in the space and do they have a tech scene.   Harvey: There's no secret anymore. I mean, Columbus as a market for real estate investment, that that information is out there makes every top whatever list for real estate investing. And there's really there's two big factors there. Maybe three one is population growth, something like a million people in projected population growth between now and 2030, or 2040, or something like that. So a lot of people for short amount of time.   Industry here, mostly retail, I call it junk retail and fashion retail. So Big Lots is here, dollar generals here. But also, L brands, which is the biggest the biggest employer, in Columbus, they're here designer brands is here. So people like Abercrombie and Fitch, the SW baby, big fashion, retail. Businesses are here. And then if you've ever heard a Nationwide Insurance insider   Michael: On your side!   Harvey: That's right, so insurance is huge here. There's a lot of there's several big players, including nationwide. And then healthcare is also large, because nationwide is plays on both sides of that. So they they run a couple really big hospitals, facilities. And then if you've ever heard of the Ohio State University, their top five employer here as well. And not only do they have the university itself, but they have several research and medical facilities around the region. Technology is largely based in those those industries. There's a lot of funding in financial services I forget forgot to mention Chase is here. financial service technology, innovative insurance, technology and medical, medical technology. And then all of the technological research and development University is doing as well. I mean, there's a lot, there's a lot going on.   Michael: Right on. So is it safe to say that that is a multifaceted economy? It's not solely reliant on a single sector?   Harvey: Right. Yeah. I mean, I'm I went on to what I named, there may be three or four different sectors that are just in the top five employers in the area, there's Yeah, there's a there's a lot going on in terms of different industries, and diversity.   Michael: That's fantastic. So that maybe you can give us kind of a walkthrough of if I'm looking at Google Maps, and I type in Columbus, I get a north, south east west over, you know, 30,000 foot view. Talk to us about some of the different markets, different sub markets within Columbus, that we should be aware of.   Harvey: Yep. So if you look at a few of the map, you got it. 70, which goes around Columbus, generally, inside of that is Franklin County, it extends a little bit outside of that as well. So inside of Franklin County, obviously you have Columbus, but then you have really close in suburbs like Westerville Gahanna, Reynoldsburg, Grove City, Hillier power, how, in my view, there definitely is a couple other ones around. And those are the close in suburbs. And all of all of those cities and municipalities I just mentioned are super hot and saturated in terms of both retail and investment real estate. deals are just hard to come by they're as they are in a lot of MSA.   But if you extend out which the pattern now that we're seeing is that investors are starting to move out and it's because people are starting to move out as well. There's just cheaper houses. There's there's not as much of a demand right now anyway to commute to a job downtown. And even if you are commuting, it's likely that you're commuting less frequently. And maybe you're okay with a 45 minutes 60 minute drive now because you're saving 100- $200,000 on a house and you're getting more acreage and you're getting more space. You're, you're now okay with a 45 minute drive.   So places like Lancaster and Newark, Delaware, maybe Mount Vernon, which is to the north Lancaster's to the south east, Newark is due east, places like that, which are 45 minutes, average driving time to downtown Columbus, on fire. I mean, Newark. If you told me that Newark, Ohio, if you told me a year ago that Newark would be a place where you could buy a house, do a little bit of rehab, put it on the market and get multiple offers over asking, me and a lot of people will tell you recruit your that's exactly what exactly what's going on. And some of the best deals to be had are out in those peripheral markets.   Michael: Now that's wild. And so give give everybody an idea of Like, if I'm a single family investor, I'm looking for a three to that'll have a good rent, what are some of the price points in those four markets, those four neighborhoods just mentioned, as well as their corresponding rents? And just, you know, ballpark average?   Harvey: Yeah, I think it's pretty fair to say that you could find three to for between 130 and $150,000, then rent is going to be between $950-$1150 depending on your specific location and some features in the property. Awesome. Which, okay, 3/2 130 to 150. Good luck finding that and a lot of areas.   Michael: I'm a California guy, and I can pretty well guarantee it doesn't just exist so much out here.   Harvey: Yeah, not even in Columbus.   Michael: So when you're looking to underwrite properties at Roofstock. And for those people that aren't familiar with you, you know, you're one of our rootstock certified agents out in Columbus, and so if not v certified agent out in Columbus. So when you're underwriting properties on Roofstock that go on the Select program, what is it that you're looking for,   Harvey: You know, the big things are rehab, a lot of things that make them Margiela properties that make the market now in Columbus. And just as a disclaimer right now, on Roofstock, even though I'm mentioning these peripheral markets, we're the only the only properties that are available to Roofstock investors are the ones inside of Franklin County, really, because it's, it's because of the on the property management side, there's just there's not a lot of infrastructure for investor support yet on those markets. So we're limited to that, to that Franklin County, I 270 close in ring.   And we're looking for is minimal rehab, things that hit the market at certain price points, you can just guarantee or just just assume I guess that if they're under a certain price point that they probably got some issues with them. And we know that Roofstock investors are not, especially because most of them are out of town, they're not really keen on having to manage any sort of big rehab project with people that they all know in town that they can't get to frequently, minimal rehab being $5,000 or less, on average. And then neighborhood quality because neighborhood quality translates to tenant quality. So we're looking at the the neighborhood rating score, and then gross yield. I mean, just how much how much ranking you get compared to the purchase price, which that number is shrinking with every day that passes I think, I think with time we'll start to see rent start to you know, it's lagging now. But we'll start to inch closer to the kind of growth that we've seen in in sales prices. But so those are the three things, just minimal rehab, making sure we're hitting a minimum neighborhood quality than the gross yield is something that will produce cash flow.   Michael: Love it. And Harvey, can you talk to me a little bit about how to calculate property taxes. Cuz in a market like California, our state, we kind of have a statewide law that says the property taxes are gonna be based on the sale price. So if you bought a property 10 years ago, for 100 grand your property taxes are based on that purchase price, if I buy it from you now, and I pay 500, my property taxes are going to be probably at least 5x what you were paying. So how should investors be thinking about property taxes? And does a sale trigger any kind of reassessment? How does that work?   Harvey: Yeah, the sale the sale doesn't necessarily trigger reassessment. But the local school boards and this is municipality specific. So if you're buying in Columbus, this is true. The school boards are very in, they have a really good process for going through finding recent transactions, making an appeal and getting that value updated. Which because they want their they want their funds they want. They're trying to capitalize on a market that is appreciating. And you know, they want their programs and their facilities to grow right alongside it. So you can't blame them. But that is it's happened to me. And it can be quite sizable. So look at the auditor site and figure out what the tax is based on now. And then figure out where where you think you're going to purchase it. And you get a reasonable idea of how much that tax bill is going to go up. Outside of Columbus, I don't really know but in Columbus, that's very common.   Michael: Okay. So if I'm looking at a property that was at purchase, last purchase $100,000 and the taxes let's call it were 1200 bucks a year. If I'm going to then purchase the same property at two to $200,000. Is it a safe assumption then to double the property tax because the purchase price has doubled. So now I'm thinking I'll be at 2400?   Harvey: You know, if you're underwriting it, I probably will do that. It's probably not that exact. I think they, there's some formula, I forget what it is, but they take a certain percentage off of that, and then they tax you on on that percentage. But yeah, that's, that's probably not a bad place to start for your calculations.   Michael: Okay, perfect. It's funny, you mentioned the school board's I had the exact same thing happened to me numerous times down in Cincinnati, I'm pretty heavily invested down there. And, yeah, and it's funny, you know, because part of me feels really great about being able to help the local school systems get funded and grow, because everybody wants to be part of a good school system. So if you're coming into an area, you're then donating, for lack of a better term, more money to the school system, which will hopefully bring it up. But at the same time, I was like, Man, this sucks, like, it is just so expensive, oftentimes, to do business. So it's a catch 22.   Harvey: It is, and it's a but in theory, it should come full circle that you think as the schools improve the neighborhood improves your your neighborhood and consequentially your house becomes more desirable. And then the like kind of feeds itself. But that assumes obviously the school board is handling your funds with some sort of proficiency.   Michael: Yes.   Harvey: Which, you know, I think in Columbus, they do a pretty good job. But I will also say, if you're taking out a loan on these, and your servicer is a little bit slow to I don't know, I don't know what their process is. But if they're slow to make sure that your escrow account is enough to keep up with that tax increase, what happened to me recently, I have a duplex in Columbus bought for, you know, an increased amount over the last last purchase price. My servicing company didn't know for two years, and then just this past year, we got Oh, you owe tax on the increased value for the last 24 months. We then double your PITI, your your mortgage payment   Michael: To catch up!   Haryvey: For the, catch up. Yeah, for past payments and future payments. Oh, my gosh, that would have been nice to have just incremental increases over, you know, a shorter amount of time. Wow. Yeah, that does happen.   Michael: Well, that's a great tip for listening is look out for that stuff. I mean, if you're if you know what your tax bill should be, and you're mortgaging servicing company, your mortgage service company isn't taking enough from you and to make those payments. Speak up. Say something that's that's a really good teachable moment.   Harvey: You're going to get notification from from the auditor or the treasurer   Michael: For the county.   Harvey: Yeah. When your tax is increasing. And then if you don't see increases in your payment on that property for a couple months, it's probably time to call on it. Start asking questions, because you don't want that surprise. 24 months.   Michael: Yeah, that's that's not a fun present.   Harvey: No, no, not at all.   Michael: Harvey, talk to us about some common issues that might show up on an inspection report in Columbus, that folks should just be aware of, as an example, I bought property in Alaska, and they have diesel fired boiler and heat the house that's just common place me being California. I was like, Whoa, major, major hazard and I was like, calm down. This is standard par for the course. So what are some things that you that that you see that buyers should be aware of?   Harvey: Wet basements blowing basement walls, that those are scary things, especially for people who aren't familiar with basements. And we are familiar with basements that were made to be wet. houses. There's there's a lot of old inventory in Columbus. And a lot of that old inventory from what I understand, was built to take on water that doesn't excuse poor water controls from your downspouts and your gutters and your grading. But they can cause bowing and it can cause signs of water intrusion.   Remedying bowing basement walls is a very common practice going in and having to waterproof a basement that's not already waterproof is a very common practice. The selection of contractors that do that is very high. I mean, there's a lot of contractors out there that do that kind of work, both remedying the the bowing and the waterproofing. So don't let don't let that scare you. If anything, it's a it's a negotiation tactic with whoever you're purchasing from, but that will inventory there's still knob and tube electric work in houses, which can be scary for people. But again, there's those contractors that can handle that sort of thing. I've had to do it several times. It's just not that big a deal.   Being on well water or having a septic tank instead of public water and public sewer. It's just not that's not that scary one buyers, especially if they're native. They understand renters as long as things are inspected and safe and functional. They understand as well, but in certain areas... I mean in Columbus, it's very rare in fact that I think they've fallen gotten rid of all septic tanks? Anybody who's not on public sewer or public water, but just outside of the city. That's that's pretty common and it should not be a deal breaker. As long as they're functional. They're safe. And they've been inspected.   Michael: Great. those are those are three really good ones. Because as you were saying them I'm so over here like, ah, like, that sounds awful. So this is a good learning lesson for me too. I've never heard that that some of these older properties were built to take on water. That is a totally foreign concept to me.   Harvey: Yeah, yeah. When I heard it, too. I was thinking Who the hell would build a house? That's supposed to where the basements supposed to get wet? But yeah, it's just, it just was the way they built.   Michael: Okay. And they don't make them like they used to, that's for sure.   Harvey: No, they don't build basements to take on water anymore.   Michael: Do you have any interesting stats, or kind of notable highlights that you want to share with with potential buyers or folks interested in the Columbus market?   Harvey: I would say the inventory levels here in Columbus right now are pretty interesting. There wasn't long ago, there was 1300 houses on the market. And I just looked today, and I think there's 28-2900 houses on the market. Some of that is seasonal, I mean, things just tend to loosen up around this time of the year anyway. But that's a pretty sizable gain. And we're starting to feel it a little bit. It's not as crazy inventory is starting to sit on the market a little bit longer than it was this summer and spring. And prices are as crazy then maybe isn't as many offers. So it is getting a little bit easier to purchase. We run a real estate investment company we go direct to seller, the more difficult it becomes for anybody to purchase, the more difficult it becomes for us to purchase. But we're seeing a little bit more ease. On the purchase side.   I would just encourage investors Roofstock investors who are interested in the Columbus market to just continue to be patient. I've been a real Roofstock agent since early spring of 2021. Guess how many transactions we've completed for Roofstock purchasers? Zero sec. Yep. And it's, it's just tough. I mean, finding a rehab property that is on the MLS and marketed already, that isn't one going in 24 hours or two, doesn't have the rent to support the purchase price. To date, it's just been a very, it's just, it's just rare to find. But like I mentioned, things are loosening up, continue to be patient. And I think I think you'll there will be deals to find.   And I would also encourage through the winter. So let's say late September through March, keep paying attention because that is the time to buy because historically the market is more buyer friendly. Less seller friendly.   Michael: Harvey are you trying to cut into my turkey time you telling me I gotta go look at real estate deals. I'm trying to eat stuffing.   Harvey: I mean, if you want to, if you want to buy deals and build long term wealth, yeah, I guess   Michael: That was it's such a good point. I bought so many deals in that exact timeframe for just that reason. I mean, I I joke it I kind of saying tongue in cheek, but I think for folks that kind of take time off. That's the wrong time to take off. I say if you're gonna sit out, you know, anytime do it when the markets crazy hot. And so when when there aren't folks out there trying to buy deals when everybody else is taking a break. That's when you should be pushing the pedal to the metal.   Harvey: Yeah, sure. And it takes some discipline to because I came from, like corporate america and a regular job. And that time of year is where everyone kind of slows down takes vacation doesn't take work. So serious holiday parties party is in the office. But yeah, I mean, to just say, Okay, this is our plan for fourth quarter and in the first quarter of 2022. And stick to it and be disciplined about it. I mean, that can be you can make a break an entire year off of the deal you purchase in December.   Michael: Easily, easily. No, I love that man. And I'm curious. I mean, you bring up a really great point that there haven't been any deals done in Columbus. So I would challenge everybody listening to go and be the first person to get a deal done when you know, win that race but also what should folks be aware of? What would you coach recommend people on that they need to do in order to win deals in this market? And we're recording this late August of 2021. So take this with a grain of salt depending on when you're listening to it but right now what do you see in folks? What do they need to do?   Harvey: Be reasonably aggressive on your purchase price, not not aggressive? Just be reasonable on your purchase price. Just assume that the deal you're that you're offering was being offered on by other people now, certainly. You can submit offers below asking, and certainly you should submit offers at a price that makes sense. In fact, I would just encourage you to, to make offers. Because it's, it's, it's just like fishing, right? We just, it's a numbers game at this point.   Don't be over lease, freaked out by a an inspection. Recently, I had a deal blow up when the inspection came back, we had a 10 day remedy period in the contract, which just means that we get the inspection, we read it over, we decide to things that we don't like and then we ask you to either fix them or give us money. Because of that. Use the remedy period, if you ask for things, all they can say is no. Or maybe they say yes. And all of a sudden, now you have a deal. That was less cash in or a deal that is fixed up and better than it was when it was on the market to use that period to your advantage. Don't run off, just because there's some scary things in in the inspection.   Michael: Now those are those are great tips. And how are you seeing all cash offers playing in the Columbus market right now?   Harvey: They're frequent. And they come from institutional buyers quite a bit. There's hedge, hedge funds and institutions that we're all competing with. And they throw down big chunks of cash. And they they often buy multiple houses at the same time.   However, I've seen sellers opting to be more patient for more money than jump out a cash offer just because they can close in 10 days. So cash doesn't always win. It looks like maybe they're winning less frequently. I don't know that for sure. But it seems that way that sellers are being more patient thinking okay, I can get I can wait 30 days, 25 days and get 20,000 more dollars out of this. Well,   Michael: Seems like a pretty good ROI.   Harvey: Yeah. Yeah, not bad. I mean, then lender is good lenders are closing in 21 days. So if you come in and you're pre approved, and your lender is legit, and they're gonna move on things quick. I mean, three weeks, the seller can make, you know, several 1000 more dollars, which can compete with really as a cash offer, at or above asking that close in 10 days.   Michael: Well, that's really good to know. That's really good to know, Harvey, this has been awesome, man. Is there other any other thoughts, tips, tricks, insights that folks should be aware of about the Columbus market?   Harvey: Be patient. And like I said earlier, I'd make make offers and pay attention. Paying attention, especially through the winter months.   Michael: Perfect. We'll have our our heat vision goggles on it's I know it gets pretty cold out there.   Harvey: Yeah it can.   Michael: Awesome. Well, Harvey what's the best way for folks to get in touch with you if they have questions about the Columbus market about property management?   Harvey: Yeah, feel free to email me You can also text or call me although I'm usually faster respond to texts at 901-484-9751. I'm also on Facebook, our investment company Simple Solutions Real Estate is also on Facebook. I'm all over the place. Reach out and love to connect.   Michael: Right on. Well, thanks again. Harvey. This was really great. Appreciate you coming on.   Harvey: Yeah. Thank you, Michael.   Michael: Take care. Talk to you soon.   All right. All right, everybody. That was our episode. A big big big thank you to Harvey. I know I learned a ton about the Columbus market very much looking forward to continuing to learn about the market and seeing where it goes from here. Sounds like some really big things coming down the pike. If you enjoyed the episode, feel free to leave us a rating or review. And as always, we'd love to hear comments or a future topic ideas so let us know in the comment section. We look forward to seeing the next one. Happy investing

    How to be the G.O.A.T. real estate investor with James Wilcox

    Play Episode Listen Later Sep 16, 2021 29:09

    James Wilcox is a Real estate investor out of Central Kentucky, a Stessa power-user, and host of the YouTube channel: In this episode, James shares his investment journey, his strategy, an insider's view of the Central Kentucky market, and some tips on being an effective real estate investor. --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Tom: Greetings, and welcome to The Remote Real Estate Investor. On this episode, I'm joined by James Wilcox, who has been investing since 2012. James is a buy and hold investor in Kentucky. And he is a power user on the stessa platform. Alright, let's get into it.   James, thank you so much for joining us.   James: Yeah, thank you so much for having me. I'm really excited to be here and share a little bit of my real estate investing knowledge and journey with all your listeners.   Tom: Awesome. I'd love to go back to the beginning. But before we do that, let's start with one of your best days as a real estate investor. So can you think of a day that stood out like, Wow, it's so awesome being a real estate investor XYZ happened? That'll be my opener, upper question.   James: Yeah. So I mean, that's a really great question. And, actually, I've had a lot of great days, but I really want to focus on like, my best day was also probably my worst day possible, during my whole journey. So a little bit kind of background on that I purchased my first property back in late 2012. And through that process, you know, everybody's got to work with contractors and kind of get the property back up to snuff, so to speak, this one had a lot of deferred maintenance on it.   So I did some of the work myself, but I had to call in a GC to do like some more of the heavy lifting. And like we redid the foundation and stuff like that things that I couldn't personally do. And I'm not really a big, super good handyman, I might know how to do it, but making it go from my brain   Tom: Know enough to be dangerous   James: for my brain to the hand, you know, it gets mixed up a little bit. But so I had hired someone to come in and do some of those things. And whenever we got toward the end of the project in 2013, they had kind of basically skipped out on a lot of the punch list items. So I was left with a property that was you know, probably like 80% done of where I wanted it to be. And so I work a full time job. And at that time, you know, like I said, I'm not super skilled at handyman type stuff. And so I'm going over there, you know, after five at night, and also working when I can on the weekends and stuff to try and get this property back up and back on the market at the time we had wanted to sell it ended up becoming a rental. And that's kind of how the journey got started.   But I'm over there and had no power on at the house, and no lights or anything. So I'm sitting there basically, like late at night trying to get things done, I'm sweating, because there's no HVAC on anything like that. And I just just Yeah, really, really frustrated because I had this giant punch list of things to do. And it just seemed extremely overwhelming.   So I just took them in and just sat down. I won't say that I shed a few tears. But it definitely got very emotional because it just felt so overwhelming have so many things to do. But right then and there is when I decided that I wasn't going to give up. And then I was going to get this across the finish line. It did take a little bit longer. But that's when I decided that real estate investing was for me because of the challenge of it. And that's why I ended up being my best day because that's the day that I chose not to give up.   Tom: I love it. So you kind of came into it, you know, and then really kind of got put in the burner and tough situation with the property need a lot of work and just committed to it.   James: Yeah, trial by fire is definitely how I've succeeded.   Tom: I love it. So now kind of going a little bit backward. What How did you initially get into real estate was it? Did you have friends or family or I'd love to hear about how your initially got going into the into the space?   James: Yeah, so I had no real estate background or no real direct family that was involved in real estate. my story's a little bit on the sadder side. I had had my father passed away when I was a senior in college. And we had always lived with my grandmother. And she ended up going downhill soon right after that. And so she had passed away that put me next in line for her home. And even though there was, you know, some debt to pay off and things like that some medical bills and things such I did end up sharing half the house with my uncle.   My uncle has also had health problems at the time too. So I just felt like at the time it was such a burden on him to try to figure out what to do with this house that had just seen a lot of deferred maintenance. My grandmother did not like people coming over and fixing things you know and stuff and that was the house the first property. And so I ended up buying out him we agreed on a price and since I own half I gave him you know, a portion to buy out his house, so I did own a home, you know, free and clear, but it wasn't exactly the best quality home by any means.   So whenever I started doing that he did some napkin math, you watch HGTV, oh, it's fine, you know, throw some paint, you know, rip up these nice gold, shag carpets, you know, and do all that and just put it up on the market and I'll make some money. Well, that didn't, you know, obviously pan out really well. And you heard a little bit of that background of that story with some GC problems and the project taking way longer than I needed to, you know, the yard got so high that I was getting letters from the city, you know, and I had to go over there and mow it and is basically up to my shoulders and things like that and, you know,   Tom: Just grow a corn maze.   James: Yeah, yeah, it ended up being just, you know, a big long process. But because of that trial by fire, I ended up keeping pushing forward with it. And I did get the property back up into a shape that I was happy with. And once I did the actual numbers on it, and had someone a real estate agent, come look at it and stuff. At the end of the day, it looked like I was gonna maybe breakeven on it, and probably lose a little bit as well. And someone else had come up to me and was like, well, you should rent it out. Because the market over here, there's always demand for rental properties and stuff. And he's like, okay, yeah, well, that kind of maybe kind of fits more my personality anyway, because we don't really do a whole lot of flipping, you know, it just makes my stomach turn, trying to figure out what first time homebuyers want, you know, and paint colors and tile and all these types of things, you know, I like clean and functional, but still looking nice and stuff.   So I was like, well, I'll try that for a little bit. And I ended up managing that property from a distance, since it was in a different city than I lived in for a little while. And when I got that first rent check for my first renter in the mail, because that's how we did it back then. And it was just amazing feeling it was just like, man, I didn't do anything this month, and I actually got a check. You know, I own the property at this point, you know, free and clear and everything like that. So it was really great. And it just took off from there.   Tom: That Mailbox money. So that's a that's incredible. So you you inherit this property and buy it out. And you know, it's great with real estate, you now have options, having options to either sell or to buy or sell or to keep it as a rental and just identify that as a better hold property. How quickly Are you know, what was your kind of next step after getting that initial property check in the mail? Was it oh, you know, this is pretty awesome, I want to add some more properties. I'd love to hear how it evolved from you kind of strategy and all that good stuff.   James: Yeah, so that first property is always going to be your hardest. And that one took, you know, several years to pretty much get lined out from the actual purchase to the rehab to actually even getting it rented out. And I had kept that same tenant for a little while. And then they ended up leaving and I gotten another tenant and kind of did on my own more or less for that for a little while a couple of years. And during that time, I consider that kind of more when I started to delve into more the background and the education trying to work out to improve my processes and things. And I'd really dug into it a little bit when I first purchased the property. But whenever it was me being on the front lines, being the property manager, I knew I really needed to step up my game, then, but I had always been a fan of bigger pockets. And I've been on that website for a very long time. And I've been a permanent member for a very long time as well.   And So basically, during those couple of years of me being the property manager, I really took the time to read a bunch of books. I mean, I've read probably every single one of them out there, or listen to them through audible and stuff. And then I browse the forums, you know, on bigger pockets, you know, anything, I can find YouTube and stuff to make myself a better real estate investor. And then so once those couple of years have passed, and I felt a little more confident that I knew a little bit more, that's when I pulled some money out of the properties or that property and then went on to buy a lot of more small multifamily. And that's really what we focus on right now. You know, duplexes, triplexes four-plexes type stuff?   Tom: That's fantastic. Yeah, love the BiggerPockets communities is a great resource for for folks. I'd love to hear about your use of Stessa. So having a couple of properties. When did you first hear about it? You know, how do you use it? Why do you use it love to hear you just kind of talk about your relationship with that software?   James: Yeah, Stessa has been great. Back when everybody first get started, you have no accounting whatsoever.   Tom: Back of the napkin Yeah,   James: So I just started out, you know, just like everybody else with no accounting whatsoever. I did switch over to kind of using Excel a little bit for a while trying to keep track of you know, the rental coming in expenses, stuff like that. But I'm a very data driven visual type person. So I love charts and graphs, and everything and tracking everything possible. So then at that time, I had switched over to an online software that was much better at tracking metrics, and kept me a lot more organized. I'm not in actually a very organized person, my wife will definitely tell you that I have a bunch of paperwork, I keep tons of paperwork on stuff just because I like having the, the physical and the data but…   So that property management software, it had property management and kind of the accounting built in. It's called rentec. Direct. And back then it was very, they've had a refresh since then. But there was very old school feeling like it provided you with a lot of tools and bells and whistles, but it just just looked really old. I did, I did like it, it was something I paid for, you know, a small bid monthly for. But I did want something a little bit more visual, something that I can also import the data into, like using Excel. And I was spending a lot of time still in that program. Typing all the transactions in manually. And I didn't like that, because it was taken a lot of time to do that. And back in 2017 is probably when I switched over to Stessa and started, you know, importing the data and more trying to automate things a lot more. And it's been great ever since then for that.   Tom: Awesome. That's great. I'd love to you know, you talked a little about doing property management yourself. Are you still managing your properties? Or have you you pulled in some some third party property management lift that burden?   James: Yeah. So that very first property is the only one that I actually property managed myself. Once we had graduated up and started buying those small multi families that we do now. I immediately switched over to third party property management, and the fun story of how I actually decided to do that. So I Live in Lexington, Kentucky, which is central Kentucky, and that property was in Mount Sterling, Kentucky, and that's about a 45 minute drive one way it was, you know, where I grew up and everything like that, but well out of the way whenever there was, yeah,   Tom: Little out of the way.   James: Little out of the way 45 minutes, you know, mostly Interstate, but to get there door to door. And with you being the property manager, sometimes you're the one going over your boots on the ground, you know, you're solving problems and fixing things. So I had had a tenant call me in the winter, and they said we can't get the heat to work. So anybody who's been in property management knows that. If the heats not working, and it's cold outside, that is the number one red flag priority you need to address that.   Tom: Yeah safety.   James: Yeah absolutely. So like 100%. Let me go come over. I'll be over there. 45 minutes, drive all the way over there. I look at the thermostat. It's that cold.   Tom: Oh, geez.   James: So I went over there, flip the switch to heat, it turned on immediately start heating up the house, so and then. So I was like, Oh, man. So I got back in the car. And I'm driving all the way back 45 minutes, you know, cold outside snow and all that type of stuff. And it was just like, yeah, I need to get property management. That was the moment that I decided that because I like that is not worth my time. And I ended up getting another tenant and they had called me, you know about that? Around the same time, too. And I told them, I was like, yeah, that thermostats a little tricky. Like, you just need to switch it from cold heat. And that'll solve it. And sure enough, it was at least I learned my lesson, you know, but it did take me a little while to find a property manager that I felt like I could trust over there. And I went through even a couple property managers throughout our career in real estate investing, but the ones that we have now, I'm super happy with. Tom: Yeah, I think that's something you know, in in using third party property managers, oftentimes, you know, at some point, you know, it might make sense to look around. If it's not, you know, meeting what you're looking for. Would you give any advice in selecting a property manager in your, you know, experience and having interviewed and selected and then re selected property managers?   James: Yeah, absolutely. your property manager is going to be by far, I think, the best key person on your team. So you really need to have a great property manager, whether you're investing out of state or investing locally, having the good boots on the ground, and someone who's got great systems in place, is definitely going to be a key to finding a great property manager. I think probably one of the best things that when the interview in property managers is to really see how many properties they do manage, and what various types of properties that they do manage. Are they mostly A class single family, or are they large multifamily, maybe they only do apartment complexes and find the one that's going to fit best with you.   Really a good property manager is going to have great communication with your tenants and with you being the owner. And anybody who's got great systems in place, you know, we're going to do a counting, we can send it to you PDF, Excel, you know, you're going to get it this time of the month. You're going to get your deposits this time of the month. You know, ask them about everything that they do on the day to day, and if they got good answers to those questions, they're probably going to beright for you.   Tom: I love that in just in wrapping up the same type of properties that you have and making sure that they can they have experienced them, you don't want to be the the test dummy into it. Kind of a related question. I'd love to. I'd love to give your hear your feedback. Looking back. What's one thing that you wish you had known when you first started investing in real estate?   James: Yeah, so my number one   Tom: What's a tip that you would give the 2012 version of yourself, but what would be the tip?   James: Yeah, so whenever I first got that property, as working on it, and stuff, I really treated it more as a hobby. So it was just kind of like, Oh, yeah, I'll go over there, you know, knock out a few things are, I'll work on it on the weekend, it's like, that was a mistake, I needed to treat it like a business from day one. And I needed to know that, with that property being vacant, it's costing me money, you know, and I need to really get the ball moving on that. And if it means me not being the person doing the boots on the ground, doing the work, you know, changing out the light switch covers, doing electrical, or cleaning, and all that type of stuff, and just paying the extra money and hire someone else out to do it, if they can get it done that much faster, is gonna be better on your profit margin.   You know, like, it's, especially with single family, it's a lot of feast or famine. So if that property's rented out, and there's no problems, no repairs, things like that, you're good, once it's vacant, and your vacancy rate, you know, is 100% on that. So it's like, you really need to get those turned over quickly and get them re rented back out and where I'd kind of him hauled around about on it and treated it more as a hobby and just like something I did in my spare time, which is fine. I think everybody needs a side hustle and things like that to motivate them. But if I treated it like a business, from day one, I would be so much better off and actually having, you know, better accounting, being a great part of that too, you know, and not just having horrible accounting.   I, tax time was always horrible for me. And only recently, in probably the last five years or so do I feel like I've gotten in a really good space? And stessa? You know, would be definitely big key to that. But I would spend tax time, you know, always file for extensions to get more time. And then you know, it's been just hours and hours and hours of going through receipts and   Tom: Digging it up.   James: Yeah, yeah, I tried to go through it all. And it just was not not good experience and even West. So like how you are there's other programs too, that do that where you can take a picture of the receipt, and it scans it in. Like that's so he, I feel because like a lot of those papers and receipts and stuff after a year like the inks disappeared on it. Good luck going back trying to figure out what that was, or which property it went to, or even how much it was or anything like that. So definitely treat it like a business from day one.   Tom: James, how important would you say the the social aspect and what I mean by that of real estate investing is like mentorship, mentoring, I don't know that you're a part of any masterminds. But I'd love to hear kind of your thoughts on I know, the general the importance of having a community as an investor.   James: Yeah, I think community is super important. And that's why I'm so actively involved here in central Kentucky, and developing other real estate investors. I help run a local organization here, that meets through Facebook and doing local meetings. And we do try to do them once a month. You know, this is COVID time. So some of the in person meetings, you know, aren't happening. But I have done a lot of live streams throughout 2020, especially over different topics to help educate people on various topics with real estate investing.   I'm also president of a nonprofit landlord organization back in Mount Sterling, Kentucky as well. So with being so involved in local community, I cannot stress how important it is for you to surround yourself by those that are like minded and those that are willing to help you.   I had a mentor when I first started, he was a local commercial broker. And they were the large commercial broker here in Lexington. And I started working with him back when I was thinking about buying into the small multifamily and stuff. And he really told me that whenever we were successful, that we needed to pass that on to others. And I've definitely tried to keep that close to heart and tried to stick with that. And that's why we're so involved in trying to help others teach them how to be successful in real estate investing as well. But I think just if you can find anyone locally, that is a real estate investor, they will definitely talk your ear off and be more than happy to share information with you and try to educate you because we all feel pretty much in this community that real estate investing. And buying properties are what's going to help set you up long term. And especially it's going to be great for your own retirement and personal wealth generation.   So we're just having an abundance mindset, especially here in central Kentucky and in our group. So we're more than happy to share with you, anything to help you to be successful and I guarantee there's so One near where you are locally anywhere, that would be more than happy to do that as well. So you need to go f