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Latest podcast episodes about Roofstock

The Remote Real Estate Investor
From the restaurant business to single-family to multi-family real estate investor

The Remote Real Estate Investor

Play Episode Listen Later Aug 9, 2022 33:05


Gino Barbaro is an investor, business owner, author, and entrepreneur. As a real estate entrepreneur, he has grown his portfolio to over $100,000,000 in assets under management and is teaching others how to do the same. Gino Barbaro is the co-founder of Jake & Gino, a multifamily real estate education company that offers coaching and training in real estate founded upon their proprietary framework of Buy Right, Manage Right & Finance Right ™. When starting their real estate investing career, most investors initially think about buying a single-family property (whether that's one home or a condo) and renting it out. Multifamily, though, is an entirely different story. Few people have experience buying an apartment building, let alone being in charge of running one. How does multifamily compare to single-family investing? In today's episode Gino shares insights on being a multifamily entrepreneur and syndicator.   Episode Link: https://jakeandgino.com/ --- 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, what is going on? Welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by Gino Barbaro, and he's going to be talking to us about being a multifamily entrepreneur and syndicator who used to be a restaurant owner. So let's get right into it.   Gino what's going on, man, thanks so much for taking the time to hang out with me today. I appreciate you coming on.   Gino: Michael, thanks for having me on. It's gonna be a lot of fun. We're going to talk a remote investing seems like an all you single family, people out there. Come over to the dark side. The dark side is multifamily. I know it's the pie in the sky out there but trust me if the pizza guy and the drug rep can do it. Anybody can do it, Mike.   Michael: I love it, I love it. You know, so I know a little bit about your background. Give all of our listeners who might not be familiar with who you are, where you're coming from, and what is it you're doing in real estate today.   Gino: When people ask me that my wife always says Gino, you need to expand upon your background and I'm like, I hate talking about myself and I could spend the next 30 minutes talking about myself because I'm not a young dude anymore but real quick. I'm gonna give me the 32nd overview. I got into real estate, probably out of college family. I went into the restaurant business and it was awesome. The first 10 years the restaurant business back in the early 2000s. Late 90s was phenomenal every business was great back then you could actually have an you know, a middle class lifestyle that way we were having a small business 2007 hits my father passes away and I went to work with my dad since I was eight years old. So I was in the business with him. I saw him every day and at that point, I start saying to myself, and I've shared this story a couple times in my living his dream or is it really my dream coincided with the Great Recession of 2008 all of a sudden, I'm working harder.   I've got freaking GrubHub I've got Uber I got all these things delivering you can buy Taco Bell for three bucks was gonna come on by Geno's pizza. You know, I mean, the competition was fierce. I was losing the appetite for business because I didn't have a business. I basically had a job. How many of you out there feel like that have a small business and I didn't understand core values. I didn't understand how to scale a business. I had one restaurant, and I met Jake. Fortunately, in 2009, he was a pharmaceutical rep getting food out of my restaurant and delivering it to doctors' offices but that was starting to end because of Obama's Sunshine Act. So that started waning and Jake says to himself, I'm leaving New York, I'm going to Knoxville Tennessee, and me is the proud New Yorker says where's Knoxville didn't know where it was back in 2009. I didn't and he goes down there. I would open a laptop. I'm like, dude, you got some deals down here. Let's start looking at deals and at that time, I was fortunate because I just started my mentorship program. I started investing in education. I knew the business aspect of it. I had done a few deals prior that were terrible. They weren't real, they weren't multifamily. There were other real estate deals and that's why I decided to really get focused on the education aspect of it. In 2011, we get together and partner up, it takes us 18 months to find that first deal. We closed our first deal in 2013. The rest is history in like five years, we were able to close 1500 units and we're sitting at around 1600 units right now with you know, one syndication and the vast majority of our portfolio is owned by just me, Jake, and my partner, Mike and some of our, you know, employees are investing in our deals but you know, I guess probably the most important thing I left out as I've you know, husband, wife, a six, my wife, we have six kids, homeschool of six kids, I've got a 23 year old down to a seven year old and you know, everyone always asks, what's the why do you do what you do?   You know, always said that's the big question, Simon Sinek and for me, it's not really anybody can say family and it's really important, obviously, the family. But for me, I wanted my kids to have a really healthy understanding and a healthy relationship with money. I wanted to be their role model, I wanted my kids to see me that I love my job and I want to sit here in the studio, love what I'm doing. I also want my kids to see that we can create impact in our lives and really work towards our sole purpose and I saw that as multifamily as being that that vehicle. Now if I was educated enough where I was more intelligent enough younger, I could have done that with the restaurant. I just didn't know how to set up the business and with the restaurant, I still would have had to work on the weekends, I still would have worked the holidays. It was a different lifestyle. So I think multifamily is just gives you that amazing lifestyle. It gives you the generational wealth and it's also given me the ability to create legacy skills for my kids. I'm not going to give my kids a pile of money. I want my kids to work and to learn those skills and to be able to say hey, dad, you know what real estate really is a business so you can become an entrepreneur doing this and here's what you need to do and I want to translate those skills into my children and as well as the Jake and Gino community. That wasn't 30 seconds Mike I'm lying. It was probably about six minutes but I try I'd my best bro.   Michael: You're pretty close. So, you know, rewinding the clock a little bit, you said you did a couple of deals that didn't go so well, and then you kind of ended up in multifamily. So talk to us a little bit about what those deals were and then how did you end up with multifamily, like, how did you come to that conclusion?   Gino: A person with money meets a person with experience, the person with the experience gets the money and the person with the money gets the experience that was made in the first two deals and, you know, it's one of those things where one of our coaches says you either pay for your education in the classroom, or on the streets and unfortunately, I paid on the streets and looking back at it, it was, it wasn't my fault. The first deal, my partner was terrible. He was probably bordering on criminal, we had a syndication going on, but it wasn't a syndication but at the end of the day, I am 100% responsibility junkie. So it was on me not to do due diligence, it was on me not to flower to the property, it was on me to invest in a deal. So even though it was his mistake, ultimately, I had to take responsibility and that was a shift back in 2008. When I read the book by T Harv, Secrets of the Millionaire Mind, I understood that your fruits are in your roots and if you don't take responsibility for your actions, I mean, shame on you. I mean, I made a big mistake, I should have never invested in that first deal. That didn't stop me again. It's my second deal in 2000, late 2006 had extra money lying around, we bought a building up in New York, what are the wrong part of the cycle, wrong market, blah, blah, the list goes on and on made a huge mistake on that and then I ultimately said, Listen, I've got a four Plex that I invested in years ago. I liked the small multifamily. I can do it part time while I'm working the restaurant and I like dealing with residents and it's an asset class that I understand renting out. I don't know anything about commercial leases. I don't know anything about mobile home parks. I like the basic human need, its food, clothing and apartments. I like that my brain can understand that and that's a pivoted me over multifamily and didn't know anything about syndication.   They just knew that if I keep buy a couple of these a year, refinance my money out and continue to, you know, build a portfolio, there was no burr that you know, 10 years ago, 50 years ago, there was just a refi and roll. That's what we call it and that's why I got into it and I love the model. I love the simplicity, I could do it part time. I didn't want to get into single family homes, because I didn't want to fix and flip I had the job already. I'm like, how can I pay for my kids college and how can I pay for my retirement and how can I pay for their weddings and I'm like, well, I know what wealthy people do. They don't save for the event they save to buy an asset and that's why that's what ultimately shifted my mind and are they I'm gonna buy these assets. I'm going to start building wealth and I'm gonna let these assets pay for these events and that's why to me multifamily was a natural fit because I did not want that nine to five fix and flip mentality, work all that I'm already making transactional money, how do I get that equity and how do I build my wealth at the same time and I thought multifamily was a fantastic vehicle.   Michael: I love it and just for our listeners, let's clarify something when you say multifamily. What is it that you mean because there's obviously the small multifamily and then commercial multifamily. So it's clarify for us, what do you mean?   Gino: For multifamily to me, it can be duplex, you can go out there and buy duplex that's a multifamily to me maybe if it's for commercial purposes, five units and more is commercial. But crap. I mean, I bought a four Plex back in 2002. I sold it in 2019. That little bad boy cash load for me every month, I use it as part of my business one of the garages, I was paying myself 1500 bucks a month for to rent it because it was a it was a storage unit there as well. I would store the stuff in the restaurant there, I had rentals coming in, I was able to leverage it where hey, you have to plow that driveway, you plow my driveway, give me a break. So that four unit paid me really well over the years I use that as far as cost segregation went. So you stack a few of those little multi families and the sky's the limit and I want everyone to really think about this process that we were talking about. I'm talking about the conveyor belts, we were coming out with this trademark. It's called conveyor belt of real estate and what it is it's an imaginary conveyor belts in front of you picture in your mind, you're starting to buy assets, or you're starting to stack these assets on this imaginary belt, and it can be a two unit. Then next year, you buy a six unit, then it's a 12 unit and as these assets start to matriculate, and you start to get equity out of them. What do you do with them, you either refinance them out, pull the pull the equity out, and put it into the next deal, or you sell it, or you continue to hold it but you want to start putting assets in that conveyor belt. It doesn't matter how big they are, it matters how well they're going to do for you and just starting, if you're waiting to buy assets, you're waiting for the next correction, it's never going to come you have to be ready when you're ready. I was ready in 2011 with Jake, I said I'm done. I need to start and in 2013 everyone's like oh the deals are great back then GDP suck. It was a 1% rents back then for a one bedroom worth 350 bucks. Now rents that same apartment complex for 995 plus rubs because we still own it. So evaluations have exploded. There was no syndication back then. You couldn't you couldn't read was money back then who nobody was giving you money to buy multifamily cap rates were high, because there was a lot of risk in the market because the economy was terrible. So don't blame circumstances or where you are in the part of the cycle. Great Investors, whether you're in the stock market, real estate, self-storage, you're making money on them when the market goes up and when the market goes down.   Michael: Yeah, no, I love that and you know, you said something that I want to come back to because I love the strategy. But you said rubs rent plus, rather in Santa Ana five plus reps, what is rubs for all of our listeners,   Gino: Sorry about that. So rubs his ratio utility billing system and what happens is a lot of these Mom and Pop owners when they have a property, and it's all bills paid, so let's say a little 10 unit apartment complex, and there's one water meter, well, the owner traditionally pays for all of the water on the on the property, because there's no separately meter. So instead of separately metering it, what you would do is you'd buy the property, and then you say to yourself, okay, the water bill is $1,000, there's 10 units, I'm going to split up and pro rata share each one of those and let the residents pay for that and it doesn't seem like a lot of money. But if there's 10 units, and let's say the water bill is 50 bucks per unit, 50 bucks times 10 unit is $5,000 a month of 50 bucks times 10 is $500 per month, and then times 12 is $6,000 a year. Now, $6,000 a year at a 10 cap is $60,000 in value at a five cap, it's $120,000 that you've just created in value on a little 10 unit apartment complex.   Do you think you can get rich doing that once every couple of years? How many pizzas do you need to make to make 120 grand? You don't know, I know there's a lot of flour and a lot of sweat doing that. So there's so many ways to make money in multifamily and that's just a little 10 unit apartment complex. We've done that with 300 unit apartment complexes where all of a sudden, you're billing back. That's your billing, you can't build back more than what you're collecting. But you can build back for water sewer garbage trash, so you can collect it all back and obviously if the market allows it in Knoxville, Tennessee, where we are, it's traditional up in New York, we can't do that I had an oil tank for a four unit complex and my four units. That was just one heating bill. So what I did it I raised I raised the rents on average about what it was costing me to do that. So either way, you need to get it back to the residents, because they're the ones who are utilizing it and obviously, the most amazing thing happens socialism doesn't work. All of a sudden, they're seeing that they get no water bill, guess what? Water consumption goes down. So not only is it good for you, it's good for the environment, people.   Michael: Yep, no, I love it. I love it and people always make the joke, you know, the owner is paying for the heating in the wintertime, windows open heats on 80 degrees in the house and it's like come on.   Gino: And that's it's real, Michael that that I mean, I drove by that place on or when I had it back in 2015. I drove by one day putting stuff in, it was 22 degrees out in New York and I see the window up and I go up says I go Bros and they're like, Hey, there, it was 84 degrees that throws in Jamaica or something. I'm like guys, really, and they're not paying for the heat, because just kicking along. So for those of you out there, what I ended up actually doing was I ended up bringing the thermostat to the basement and putting the thermostat in the bait leaving the thermostats upstairs, but putting the control downstairs in the basement. So I had the control set. So then they couldn't touch with the controls and I was I was able to control all of those three apartments from that thermostat that was located in the base because after a while, it's like you get fed up with it and that same apartment complex I had all of the electric on one electric meter for the three units and I would always drive into that place my father would always tell me show you that the lights on the old Italian guy, the lights on the Dekoven are what are you gonna do? I'm like, Dad, I paid I paid the electrician six grand they get it a whole new panel and everything and that was the best six grand respects I shut my dad off.   Actually got I actually got electric consumption down. I pushed the electric onto them. So there's a ways that you can you can you can, you know, save the multifamily and you talk about a single family home, you can do that with one unit. But can you imagine if you have a 50 unit complex, are 100 unit complex. I think with entrepreneurs, the more problems you solve, the more money you're going to make. So the more residents you serve, the more units you have, the more money you're going to make and that's the dawned on me when we thought when we bought our first 25 unit property it was like wow, I 25 units in one location Jake is doing his pharmaceutical thing I'm doing my pizza thing. We can manage all 25 of those units, you go to the complex once and collect rents there you're showing units there. Every unit is very similar. So it's very easy to scale that you know where the hot water heaters are, you know, where the you know, one or two roofs on the property one or two landscapes grasses to cut hot water heaters. It's all very similar. You're buying basic boxes, and it's so easy to manage and it's so easy to scale that model as opposed to single family homes. Now if you're doing single family homes, congratulations because we've got a bunch of students in our community. I mean, there's one guy Andy and Scott, and they're both from Scotland. These guys amazing. They bought 100 they're up to 100 single family homes and it dawned on them maybe I could be doing something different.   Amazing, they're managing themselves and they still got a W two job one of them, kust the I don't even know how exactly, it's amazing. But to do all of that, you could have bought 100 unit complex and had the same scalability and had the same results. But you don't know what you don't know and that's what happened, me and Jake, we thought, hey, four units, let's do that we're great. 25 units, great. But once you start buying these assets, you start seeing, and I'm sure a lot of your guests have said, this is just numbers on a paper, right? That's really what it is, your behaviors are belief driven. If you think you can buy a 20 unit, you can, if you think once you've done that, you're like, oh, I've done that. Let me push the envelope and go to a 40 unit, then you can believe you can do it, then you'll end up achieving that it really does limit us sometimes when you think you can't do something is everyone's always saying to me, well, what's one of your regrets. One of the regrets was I should have probably started buying 100 units early on, but I didn't have the skill set, I didn't have the mindset to do it. So wishing I would done something and actually doing it are two completely different things.   Michael: Yeah and I think that makes a ton of sense and I'm a big believer in that too. But do you know, let's touch on like the mindset, because so many folks in our community, both on the rootstock side in the Roofstock Academy side, are very comfortable with single family because they understand it, they lived in one or they've owned it as their primary, they maybe never owned an apartment building or maybe I've never lived in an important thing. So if for whatever reason, there's this mental hurdle that needs to get overcome to make that leap. What does that look like and what have you seen work for people in describing and kind of coaching people through how to make the leap from single family to multi?   Gino: Michael, that's a great question. If I had to stop and think for a second, I think multifamily tends to be more of a team sport, or a single family, people are more comfortable owning three, or four, or five or six, and they're doing everything themselves and unfortunately, there's a book called Built to Sell when you're buying single family homes scattered about you don't have anything really that's I'm not saying that that's sellable, you can still package it. But there's not an intrinsic value. As far as if you're having these apartment complexes, where you're looking long term and saying, hey, I have this 40 unit here, this add to here, much easier to sell, they're more of a business and it's the much higher multiple. When you're looking at it, I would say if you're really afraid of getting into the multifamily space, first thing I would always recommend everybody to do is what I did, I just go out there and pay for your education. I say invest in education, but find a mentor, find a group, find somebody who's doing it at a high level that you really respect that you really admire and the accountability piece that comes with it. Once you spend money on that you're going to show up for those calls, you're going to come to these events, you're going to do the work you got you're going to follow through with what the coach tells you to do, because you've invested in it.   I think the other thing is start small, I would say think big think as big as possible. But start with a two unit or a four unit. It doesn't matter how big it is. It just matters that you buy something and my other thing is I will probably would not be here if it wasn't for my partner, Jake, I had an amazing partnership and for us, we only needed just me and him. It wasn't anybody else. It was just the two of us. There's groups in our community that have three, four or five people on because one's a capital raiser one's boots on the ground, one's an underwriter, one loves to talk to investors, just start out small and start out if you can't do it yourself, find somebody who's going to hold you accountable. Find someone who has, you know, their, your values aligned with each other, find someone who's going to want to be into multifamily for the long term, instead of someone who's jumping around in crypto and next week is self-storage and the week after his mobile home parks really playing your flag and multifamily, give yourself a couple of months to do the homework and then go out there and start networking and selecting that market is very, very important and once you select the market, start networking with brokers, and you know if you're in a community with other community members who are investing in that market, and like I said, it's important once again, start small, you don't have to start with an eight unit complex. Start with a duplex a quad and what I've seen from students and myself and Jake, you know, very similar, you'll start with a two, then go to a six, then go to a 20 unit, then when you're 20 units, you're like I don't have any more money, well, maybe you'll refi a deal out or you'll start syndicating and raising capital for a larger deal. I think the quote from Mark Twain I always I always mentioned it's not what you don't know that what hurts you. It's what you know, for sure. That just ain't so and what I really mean by that quote is that people like well, you need money, and I don't have any money, or I don't have a balance sheet to get into multifamily and I mean, did Mark Zuckerberg stop from creating Facebook because he didn't have money. He had an idea. He had no money. Michael Dell, Bill Gates, a lot of these entrepreneurs didn't have the money, but they had the idea and they have the experience and they had the systems and they had the knowledge. If you're gonna get into multifamily learn the business itself and if you can understand how to create value in that space, you'll learn how to raise capital for these deals, and you will begin to bigger deals.   Michael: I love it, I love it. Do you know let's talk to that was it Andy and Scott, who are two of your students that have the 100 single families? Yes, talk to the Andes and Scouts of the world for just a minute and they understand clearly the single family mechanics how to buy single family homes. So what we love on the show is really actionable steps and takeaways things that people can go really chew on. So what are the physical mechanics that are different rent for somebody if they want to go buy that quad. It's like I understand single family, what do I have to do differently to go and get into a quad?   Gino: Andy and Scott did something that I don't think a lot of people in the single family space and very few people in the multifamily space do. They have a certain buyer criteria that I don't even think they understood themselves, they were buying a specific house in Section eight with a specific tenant and a specific area with a specific unit mix and I looked at your portfolio and like wow, you guys own very similar with using creative financing. I mean, it's amazing how dialed in they were for us when students start learning the process and this should be for your single family home investors as well or any market real estate market niche understand where you are in the market cycle, we call it the three pillars of real estate because this is really important and no take notes on this because this translates I think throughout all niches real estate, the three pillars are market cycle, their debt, and their exit strategy and you have to understand where you are in the market cycle of your specific market. Because back in 2013, that was a buyers' market cycle, back then you're buying anything you can you're buying old assets, new assets, old assets, because they're cheap, and there's a runway for you to make money on them. So you can fix them up, buy them cheap, fix them up, and then sell them.   It's very similar to the single family space, as the market cycle gets longer, and there's more risk and these assets are getting older, the older assets, those older houses are probably just as much as expensive as the newer houses. So why buy the older houses with all that capex and all that work, where you could buy something a little bit newer, and you're going to hold it for a longer part of the market cycle. So understanding where you are in the market cycle will help you formulate what you're buying. Right now we're buying assets that are newer, we're buying assets that are in really good parts of the market, because the market cycle right now, if there's a downturn, guess what you're gonna have to hold on to this deal a little bit longer than what you thought I'd rather buy an asset that's a little bit newer and that's in a better market part of the market cycle and a better part of the market than something that's older. So we've transitioned into that. I would also say that exit strategy, understanding what you're going to do with this, you know, a lot of people buying these homes, what are we doing? Are we going to keep them for the next two years? Are we gonna flip out, people just buy a deal because they think it's a great deal? Well, every deal, as our coach Bill Hamm says, you know, wheels up, you're on the air, he's a pilot, you're flying that plane, you don't have to take off, you'd have to buy the deal. But once you buy the deal, that deal is gonna land sooner or later, you're you know, it's either crashing down crashing, you're gonna get foreclosed on, you're going to sell it, you're going to refi it, whatever that looks like. So understand what your exit strategy is and then let's talk about what the debt component is because once you know what the exit strategy is, are you getting bridge debt? Are you getting community debt? Are you getting agency what we talked about Fannie and Freddie and these bigger multifamily deals? Is it going to be shorter term debt, long term debt, we're even using credit unions. Credit unions are really big in this space and multifamily is all of a sudden they've seen they're not banks, they're nonprofit. I don't know how they make their money, but they're getting their way into it and it's really a big viable option.   But once you've taken all that into consideration, you're looking at the three pillars of real estate, you're looking at market cycle, debt and exit strategy. Now let's chunk down what kind of assets you're buying in multifamily, specifically and even single family, what kind of homes where are these homes located and for us, we like to look at median income, because we're looking at median income, we can figure out what kind of renters there are, when we've made mistakes on deals, it's when the median income is lower, it's mid 30s 35, 40. That's when we have problems when we're buying in those areas that are marginal, because unless you know the path of progress is going there, meaning incomes gonna rise. That lower median income means you can't raise rents as much it means the quality of the resident is harder, there's more return on effort. There's so much effort involved in that asset. So be wary of that. So we're looking for specific median income, at least 50 grand we're looking for our for our specific, you know, niche. We love two bedroom townhomes. So if you're if you're a single family home investor, okay, I want to look for three bedrooms, two baths $50,000, median income, this part of the city I like garages, whatever that looks like. So figure out what for your criteria is because when you're looking at a deal, you can just check it off and say that doesn't fit my criteria or hey, I liked this deal. Even more importantly, when you're talking to brokers, you can push it out to all your broker friends and say when this kind of deal comes across your table, call me up and getting crystal clear on more, I guess buyer criteria. We love assets that have amenities in the multifamily space washer dryer hookups, for some reason are really huge.   So maybe in the single family space, hey, you want to have a place with a pool, maybe a little patio, Little Dog, a little enclosure place for the tenants, or maybe having washer dryer hookups in the single family home and offering that amenity as well. So figure out what the criteria is what kind of asset you want to buy. I think that'd be really helpful for anybody, whether they're buying single family homes, whether investing in self-storage, or multifamily and this criteria is going to change. That's why you really need to stay educated because market cycles change. As the market cycle changes. You're going to you're going to be buying assets that are different because as the as goes from a seller's market back to a buyers' market prices are going to drop, you're gonna see those see assets come down in price, maybe. So looking at those assets more you can pay it's a function of price. If you can pay less for an asset in those buyers markets, you're more willing to buy an older asset because your capital requirements are still there. But you're still able to make money because there's a bigger, bigger, bigger price range where you can go up holding these assets for a little while and refine them is really important in our strategy as well, I did it.   Michael: Gino, you said something that I want to circle back to you were talking about the exit strategy and I love the pilot analogy that you shared a question for you if someone is listening to this, and they're just getting started and they understand that real estate investing is great. It can be powerful to understand the fundamentals. But maybe they're not sure what their exit strategy looks like. They can't think that far ahead. Should that person wait? Is that person not educated enough in your opinion or should they? Are they okay to figure it out on the fly?   Gino: That's a that is a good question. I started not understanding it myself. So don't let that hold you back. I you know, the thing is we it's so hard to be an entrepreneur and to be an investor and to how we will we call the long term mindset, we created a brand called the 100 year real estate investor because what me and you're doing right now, our actions are affecting our kids and our grandkids. That's the reality. So if you're waiting to buy multifamily, you wait five years, well, that's five years that you could have owned something and waiting and waiting and waiting for me. When you buy an asset, it depends on the size of the asset. If you buy a $50,000 home, there's less risk in that than investing in a $70 million multifamily. So it depends what you're starting on as well. Also, that's the that's the important thing. But getting clear on why you're choosing real estate. I mean, why real estate? There's so many vehicles out there. There's so much out there. Real estate is a business and I think people don't understand that I didn't for a long time i Our slogan Jake and Gino as we create multifamily entrepreneurs, that that's the reality when you buying real estate, you're buying an asset, but you're also buying a business. How many investments can you do that with if you can think about it, you're buying a stock, you're just doing an investment as a stock.   But with real estate, you can become a real estate professional, it can really help you immensely on your taxes, you're actually buying assets that you start asset, managing it and looking at it from the from the investors perspective, and you're able to scale up and start hiring people. So you're building the business and then from that, you're able to create multiple streams of revenue from that one asset. So if you have 30, single family homes, you're out there, you're like, wow, okay, I've got 30 singles, I can start an education platform. I can start writing books, I can start doing YouTube videos, I can partner up and I can start lending private money, I can start doing hard money. I can have a little fix and flip business going on. I can get my broker's license, Title Company, why don't I partner up with Sony's as a title company all these different streams of revenue coming from that single family home portfolio. We did the same thing with our mobile with our multifamily portfolio, we started the education company, we started a syndication company raising capital, we have a development company now that will start building multifamily assets. We have 100 year company that we're selling whole life insurance to our you know, students as well to be able to invest in multifamily. So I think when you're looking at real estate, and you haven't started yet, it's an amazing business, learn the whole entire business and the and the opportunities that it gives you because that's why I want people to stop investing in single family and get into multifamily, because you can start hiring out a property manager, you can start hiring out maintenance techs to help you with that part of the business. That's very important but I mean, should you be changing toilets. I mean, when you first started, obviously, when you have six to seven units, you should be really going out there paying somebody to do that and your value is an underwriting deals, your values and talking to investors to invest in your next deal your values and creating another business that aligns with multifamily not doing those tasks that really pay 30 or 40-30 to $40 an hour, which is probably a lot in a lot of markets. But still, that's not what you should be doing. You should be focusing on those bigger tasks.   Michael: I dig it, I dig it. Gino, one more question. Before I let you out of here. You talked about being familiar and aware of where we are in the market cycle or where you are as an individual as an investor in the market cycle. Where are we right now?   Gino: Michael, this is one of the weirdest economies that I've been ever involved in and I'm a lot older than you I just don't when a recession. Can we define what a recession is if you're a Democrat, right? The definition if you're a Republican, you're screaming bloody murder. I'm an entrepreneur. I'm trying to figure out where we are. We've added so many jobs but yet companies are talking about laying jobs off. I just don't get a it's a such a dislocation, the supply chain. I try to buy a car a year out from buying a car, airplane tickets or double hotels or not avail I just I can't figure it out. But I think long term. I'm always bullish on the economy. I'm always I know there's there will be a way for to figure it out. Because if the person is not doing the job in office, that's why we have elections every two years. They're going to vote them out. Someone else is going to come in and things are going to change. I think long term real estate is will always be the place to be because it's an inflation hedge my rents are going up the same amount as inflation is going up or rents have been going up the unfortunate thing you've seen what's happened with the middle class, the middle classes get a paycheck. They've got you know, raises of seven, eight 10%.   A person who owns $50 million in real estate, their portfolio has gone up 10% In the last five years or whatever, they're up 5 million bucks. So it's you know, you have hard assets when all this money has been given to banks, what do banks do with this money, they lend it to people who buy assets, so assets have just gotten this natural swell. So if you're looking at it from the equity perspective, it's amazing and like I said, it is a basic human need demographics are such that the build to rent space has gotten huge because people don't want to buy homes, they want to be able to be you know, wanna be able to move wherever they want to their job trips over, they don't want to fix screen doors, they'd rather rent and that's really bodes well for multifamily and further for the rental space going forward and there's not enough there definitely is not enough of a supply of rentals out there and you saw what happened with rents in the last two years are up. You know, Knoxville alone was up 20% last year, year over year in one year because there's just not enough just be aware of where you're investing. I mean, I think areas that have job growth and population growth are always going to stand out. We love the Southeast Conference. You know, Tennessee, Florida, Carolinas Georgia, great part Texas. You know, everyone says Texas is booming as well. parts of Arizona are doing really well wherever you see migration wherever you see people moving to I would say you know bide here and Michael if you ever speak in the next five years anyone listening to this I'm sure even if they paid a little bit too much for the real estate today. They'll be happy five years from now that they invested in the deal today.   Michael: Love it Gino as we get you out of here if people want to learn more about you continue the conversation learn more about multifamily where's the best place for them to get a hold of you and do that?   Gino: Just go to https://jakeandgino.com/ , we've got an event coming out November 5 and sixth it's in it's in Orlando. It's our fifth conference multifamily mastery five we had 900 attendees there last year. I think this year we're going to top 1000 and it's just an awesome place to get with people who are doing deals who are raising money who are networking you're gonna find your next partner there we've got amazing speakers as well so just go on the Jake and Gino website figure out if you've got the ability we call on it. We always call it the financial vacation for smart people because you're gonna be down at Disney you gonna be hanging out with people and it's great. You bring the kids nine to five you know during the event afterwards you're at the resort you go to Disney so that's our flagship event for the search go to https://jakeandgino.com/   Michael: Awesome. Well, Gino you know, hey, thanks again, man for taking the time. This was super fun, really insightful. Definitely look forward to continuing conversation.   Gino: Thanks, Michael. Appreciate it.   Michael: Hey, you got it, take care.   Alright, everyone. That was our episode a big thank you to Gino for coming on and sharing some really great wisdom with everyone. For anyone who is interested in the space. Definitely go check out Gino and Jake's websites and as always, we look forward to seeing on the next one. Happy investing…

The Remote Real Estate Investor
Ask Michael anything: Return metrics, partnerships, & expectations

The Remote Real Estate Investor

Play Episode Listen Later Aug 6, 2022 28:12


In today's episode, we take on listener-submitted questions. We'll discuss calculating cash flow, risk-adjusted returns, getting started without large sums of capital with partnerships, and Michael's personal thoughts on the current housing market. We love hearing from you all and taking on your questions, so please keep them coming. Whether it is through reviews or YouTube comments, we will do our best to get to all relevant questions you all send our way. --- 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.   Pierre: Hey, everyone, and welcome to the Remote Real Estate Investor. My name is Pierre Carrillo and today I'm with…   Michael: Michael Albaum   Pierre: and today we're going to go over some more listener submitted questions. So let's jump into it.   Good morning, Michael. How are you today?   Michael: I'm good. I'm good man woke up in Washington State this morning on our way up to the San Juan Islands so couldn't be more excited. How about you? I know it's a big day, couple days coming up for you too.   Pierre: I'm doing good man. It's hard to sleep so excited for the weekend…   Michael: Do you want to give our listeners any insights into why it might be hard for you to sleep?   Pierre: Yeah, keep on having dreams that the day is something that can go wrong on the day. I'm getting married this weekend, so…   Michael: Nice man super excited for you and it's gonna go flawlessly.   Pierre: I'm sure I'm just having these weird dreams that are very, very unlikely about like, completely impossible case scenarios, but…   Michael: Pterodactyls are gonna crash your wedding and…     Pierre: Pterodactyls are gonna come down on the altar and knock over the tables. Oh, man, well, it's really stupid.   Michael: It's gonna be an amazing event, really, congratulations and I can't wait to see pictures after.   Pierre: Thank you, Mike. Cool, so we got a bunch of questions here. Let's see how many we can get through. We're kind of in a rush today. So let's, let's knock out what we can. Alright, let's knock out some of these easier ones real quick. First, is cashflow accounting for all the costs for owning a property?   Michael: Yes, I think it should. You'll get different definitions from different people. Some might say, hey, your cash flow is you take your rent, and you subtract out your PI TI, because that's your principal interest, taxes and insurance. Those are the expenses that they're accounted for everything leftover as cashflow. I'm quite a bit more conservative and I say, hey, yeah, that's a big chunk of what you got to subtract out from the rent but there's also prepared maintenance Property Management expenses, if using a manager capex reserves, things that could go sideways and so you want to have money set aside and earmarked for those expenses for not if but when they show up and then anything above and beyond that is your true, free and clear cash flow is what I would say.   Pierre: Agreed, yeah, should operate on its own as its own business. Next question here, thinking about generating cash flow faster? Does it make sense to purchase a portfolio of single family homes versus one unit generating the same income?   Michael: Hmm, that's a really good question. So I think it comes down to personal risk tolerance and personal investment thesis and strategy. So we could absolutely make the argument that hey, that person that has 10 single family homes, has less risk, from an occupancy standpoint than the person that owns one big single family home that generates the same revenue, let's say, because if one person leaves the person, the guy who are the person who has the portfolio, if one person leaves, they're still 90% occupied, they've only got a 10% vacancy, because they've got 10 folks living there. If, on the other hand, are single portfolio or single house person, if they have that tenant leaves or 100% vacant. Now, we could also make the argument that the person with 10 homes has 10 roofs to maintain, and 10 h facts to worry about and 10 sewer systems to keep track of, versus the person with the one property only has one of each of those things, the knife kind of cuts both ways. What I personally have experienced is that's the reason I went to multifamily is because you get the occupancy and vacancy robustness of having multiple properties but you only have one roof, I still might have 10 H facts if it's 10 unit property or 10, whatever 10 systems to maintain.   But geographically speaking, it's all in one place and so it's a little bit easier to manage. Now, multifamily apartments are going to be very different than a single family from an asset class and you're likely tenant base and the stickiness of a tenant. So that's a whole another conversation for another time. But again, I think the knife cuts both ways, so it's tough to say definitively one or the other.   Pierre: Wouldn't speak to the quality of a property if 10 of them are cash flowing or generating as much revenue as one property, we would be talking about 10 lower quality or lower tier properties, comparing that to one higher tier property.   Michael: Yeah, you probably could get there with logic but I think it's really tough to do in the sense of that's a very unlikely scenario unless you were in two totally separate mark gets in once you kind of leave the bounds of the market, a lot of bets are off anyhow. Yes, real estate is contiguous in the sense of how it's built in a lot of instances and the fundamentals and the mathematics. But the specifics is the specifics is the specifics and the nuances of operating a single family rental in New York is gonna be very different than operating one in California, or in any city that you go into in between. So yeah, it's just it's an unlikely scenario that you would have 10 equaling the gross revenue of one unless that one was like a really big Airbnb or something but again, that's a whole different animal unto itself.   Pierre: All right, what is a risk adjusted cash on cash return?   Michael: That's a really good question. So a risk adjusted cash on cash return is basically taking what institutions it's implementing what institutions do and how they rate properties, and how they think about risk tolerance. So if you can imagine, here, if your buy box is targeting a three, two single family home and a three star neighborhood, and you're targeting an 8% cash on cash return, I'm making up numbers here, right? If you found a property that was in a four star neighborhood was in a better neighborhood, you should be okay accepting a lower return than your targeted 8%. Maybe you're okay with a six and a half percent cash on cash because there's a trade off, right? You were targeting this property for 300, you got something that was better than what you were looking for in one category and so there's this sliding scale and we can see I'm a very visual person, right.   So there's this balance the seesaw, if you will, of usually cashflow versus neighborhood score and so that tends to slide or cash flow and appreciation tends to slide and so we are sliding a little bit more onto the appreciation side, because we're in a better neighborhood, therefore, we should be okay giving up a little bit in terms of our cash flow. Now, that scale should absolutely slide the other way. If you found a property that was in a two star neighborhood, let's say and you were targeting again, three and eight, well, hey, you're giving up a little bit on the potential appreciation, or at least we will expect you to because of the neighborhood rating, as compared to the three therefore you should be demanding a better cash on cash return. It's a way to be dynamic with your Buy Box and adjust to the situation that you find yourself in with regard to the physical properties themselves, as opposed saying, okay, I'm only taking a three star 8% cash on cash like, yeah, you're totally welcome to do that but this gives you a little bit of a wider scope, so to speak.   Pierre: Okay, is there a way to what's Is there a formula to use to calculate what your risk adjusted return should be based on different neighborhood ratings or property ratings?   Michael: There is and so yes, and no. So we built that into the Roofstock Academy calculators that we helped give folks to help evaluate them, help them evaluate properties. So we built that in for some folks, if you're doing it on your own, it just really comes down to what your risk tolerance looks like and so you and I keep looking at the same we can have the same Buy Box three star neighborhood 8% cash on cash and if we both find a property, that's four star neighborhood, I might be okay, accepting a six and a half percent cash on cash, you might only be okay at 7% because of what your investment thesis is, and risk tolerance looks like I might be putting more eggs in the appreciation basket, so to speak, where you might be saying that I don't know if it's gonna appreciate that much. So it's more of a concept than a than a true like mathematical formula. So I think it's just important to be thinking about and be aware of as folks looking at properties in, you know, in neighborhoods in areas and markets outside of their direct scope.   Pierre: Let's stick with the cash on cash topic. Mike, in this question here asks, is 8% a reasonable cash on cash return to seek in this market today?   Michael: So you're using my own number against…   Pierre: …a just happened to be just 8%?...   Michael: Our last example? Yeah, it just happened to screenshare. So it all depends, I think is so often the answer, unfortunately, and it depends on a number of different factors. I just underwrote a property that I purchased as a short term rental, where the projected cash on cash was like 15 16%. So is 8% reasonable, totally doubling that. So it really comes down to what's your strategy is cashflow, and long term rentals what we're talking about here, and I'm gonna assume for a minute that it is. Yeah, I think it's still totally possible. We just have to engineer the return correctly, which is something I think a lot of people aren't familiar with or don't know how to do or aren't willing to do from the standpoint of, I think so many of us are trained to go purchase rentals with 20% down and that's it. That's the deal. Well, that is one way to purchase rentals. But if the returns don't work at that threshold, maybe we tweak it, maybe we need to put 20% down maybe had to put 30 40% down and I think people are listening to this and if they're really familiar with the mathematical equation for cash on cash might be thinking, Michael, that's going to drive your cash on cash down, because we're using less leverage and in a lot of instances, it will, but not all of them and so there are very certain types of properties based on the characteristics of purchase price, what they rent for their expense profiles, and what your what kind of leverage you're using, that all goes into this recipe, so to speak, to bake the end result, which is often cash on cash and cap rate and so we can unequivocally say, less leveraged bad in terms of cash on cash return. So we want to run the numbers and look at putting a larger percent down, because that will often give you a break on the interest rate and the larger the property purchase in terms of purchase price, the more impactful that additional breaking interest rate becomes and so if we're looking at an $80,000 property, for example, we're going to finance it, the difference between a 4% interest rate or a 6% interest rate doesn't move the needle a lot. Of course, 4% is better than 6%, because we're paying less in interest over the life of that loan, our monthly payments are smaller. But if we're purchasing a $250,000 property, the difference between a four and six can be quite significant in terms of actual dollars that you're spending on that monthly payment. So I think we just need to be a little more creative on how we engineer properties in terms of the purchase, are we purchasing them, right? Using the proper amount of leverage? That can that can be all that's needed to dictate what our return looks like.   Pierre: Cool and we did a video on this specifically, using a pro forma template and running the numbers and comparing what kind of property would do better with an all cash offer and what one would do better with leverage. So check that link right above here for seeing like break that all down into detail. Like what is the lowest cash on cash return that you would accept all other factors considered?   Michael: Oh, that's a really good question. For me, personally, I'll probably be in the 5% range because I know that that's a that's a point in time. I think we're all thinking about this point in time right now as kind of the whole picture, and as the movie. But I think if we think about, again, my visual brain coming into play here, if we think about a movie, like a movie reel, it's snippets of pictures, right? That's where we get our motion picture from and so right now we're seeing one of those snippets, tomorrow is going to be different, the day after is going to be different in every moment, every day, going forward is going to be different and so I'm not looking at this point in time as the whole movie and so if I'm getting a 5% cash on cash today, I know at some point down the road, the rents will probably go up, interest rates may come down. They may not but they may and if I'm okay with 5% today, and the interest rates don't ever go down. Well, okay, I bought a deal that I was okay with earning 5% and again, my rent should go up over time. So my return should get better with time and if the interest rates do go down, well just refinance, and get likely better cash on cash. So you know, I was probably 10%. Last year, if you'd asked me that question. This year, I'm probably at 5% for long term, very traditional rentals. But I've also pivoted my strategy quite a bit to be more short term focused and so the returns there tend to be quite a bit better than your traditional long term, at, at whatever percentage you're okay, accepting today.   Pierre: All right, Mike, this next one? Is it better to save cash and buy a home every two years cash or by using loans? I find using cash, I automatically save about $5,000 in closing costs?   Michael: Yes, so I would say the answer can be a little bit of both. You don't have to do one or the other exclusively and so what I've done in the past that I've seen work really well and can be a very powerful tool is to buy the property, all cash, and then turn around and get your refinance and cash out 75% of the dollars that you put into the deal and so yes, you save cash, when you save dollars by going the all cash out because your closing costs, depending on the size of your deal, those closing costs might be negligible, or they might be significant and so if you determine that they're significant for you, maybe you do just hold the thing in cash for two years and then go buy something else. But I like the all cash purchase because you get the benefits of quick close, aggressive offers, you can often get the purchase price lower, and they just turn around and refi and for you at the end of the day, it's like an all cash it was a finance purchase to begin with, except for that hold period and you might only be able to cash out 75% as opposed to the 80% that you can often get financed when you go to purchase the property which that I still don't understand. By the way, why you can only get 70% on the cash out after you already own the thing versus you can get 80% leverage on the purchase but I aggress. So I think you can do both and I think you have to run the numbers and figure out what makes sense for you and also think about the risk tolerance that that you have as an individual. Are you okay? Parking money in a real estate asset and leaving it there? Where if the value changes overnight, like your cash evaporates or would you rather put leverage on it and so if the value changes, you're only getting impacted what your equity is in the property, you're 20% and the bank kind of shares in the pain, so to speak with you. Now, if you let the property go, when you're underwater, you're gonna feel the most pain the bank's gonna make you pay for that. But there's, there's again, there's risks associated with doing it either way and so I think it's important to evaluate and determine and just decide for yourself what makes the most sense.   Pierre: What options exist for first time investors, if saving cash alone will not suffice 20% down?   Michael: Another super good question. I would say you got to figure out who has what it is that you don't and, and partner up. So or think about partnering up, if you don't have the cash, but you've got the deal and you've got the know how or the drive to do the deal. Go find someone that wants to be involved in real estate, but either doesn't know how, or doesn't have the time or the will to get involved but has money. Conversely, if you've got money, and you're looking to get involved in real estate, but don't have the time or don't know how to find someone that has those things and so those kind of two personality types are three character traits of having one of the three things you need to do a deal, you either need the deal, or you need the drive, or you need the money, they'll find he'll have what you're missing and start piecing it together for yourselves and I think you'll be surprised at how many people have like one or two of these three things, but not are missing the third and are looking for that kind of unlock, if you will and so feels like oh, well how am I going to find some of money, post about it on Bigger Pockets comm join the Roofstock Academy and network with our investors around the world who are doing the same exact things and I think you might be pleasantly surprised to see what you find.   Pierre: Yep and I was at the Bigger Pockets conference in Denver earlier this year and one of the activities they did at the very beginning was like who has cash but no time, and that those people stood up and then they asked who has time but no cash and everyone sit up and just go into those meetings like that. It's like they facilitate these meetings between people who have to could have a symbiotic relationship. So go to conferences, sometimes they may seem like a lot of money, you might pay five $600 to go to one of these things, but it could open up a lot of doors for you. So that was a cool part that I saw there.   Michael: That's great. That's great. Yeah, I think that's perfect.   Pierre: That's how I got my start. I didn't have any money to invest. But I've consumed all of the Roofstock Academy hundreds of podcasts by now. So I had a little bit and so I teamed up with my brother and that's how we got started.   Michael: Perfect, love it love it.   Pierre: All right, how much money should I have saved up before I decide to get my first rental property?   Michael: A million billion dollars, I think you want to have your down payment plus several months of expenses bank will often require six months of PTI in cash. It really depends on the property, if you're buying a brand new property, like brand new construction, a lot of this stuff is going to be warranted by the seller or builder hopefully and then the appliances are going to gonna likely come with a one year warranty or a manufacturer's warranty at some point. So I'm less concerned about a brand new property than it would be 1950s built, everything's still original. So you have to evaluate, okay, what's my, what's my risk here and the way that you would quantify risk, which I think a lot of people don't look at is, first and foremost, what's your insurance deductible, if you've got a $5,000 deductible, you should never have less than five grand in your pocket ready to go tomorrow because if a snowstorm caves in your roof, you're on the hook for the first five grand to replace that roof.   Similarly, if you have a home warranty in place, for all the major appliances, you need your trade coffee, which can be 50 to 100 bucks, whatever and then hopefully, they're going to cover the appliance, but just kind of look around the house and say, Okay, what's likely to fail, you know, walls just don't fall down on themselves. Garages don't just collapse usually on their own, unless you're in a sinkhole or earthquake zone, whatever. So there has to be something to cause this stuff to fail, versus like your electronic components or your appliances. One day, they might just stop working, you got to turn on the stove, and it just doesn't work and you gotta go replace that thing. So I think it's important to look around your specific property and figure out okay, well, what's old and what is my what is my risk profile and where do I have the cash or cash equivalents? You know, some people would argue that a Roth IRA that you put a bunch of money into could be considered a cash equivalent because you always could pull out your, your additional contributions. I think it's up to like five years or something. So like, oh, Well, that's access to money that I didn't maybe know I had. So if you're okay with that, think about what that looks like if that's going to be treated as your cash equivalent, but I would say at least several months of reserves, above and beyond the PITI that the bank is going to require you to have.   Pierre: Cool, let's dig down on this a little bit more like going to like a personal finance perspective. At what point, you know, before getting into real estate, should someone have their financial house in order? What is a good place to be financially before you know that is starting to save up this first chunk of money to get into real estate?   Michael: Yeah, I'd say someone should have a pretty good handle on what their spend in terms of income and expenses looks like and so they know how much on an average month they're spending, they know how much they're saving and they are cognizant of, like just where their dollars go, because you're gonna want to do that with real estate investing, you want to keep track of okay, where are the dollars coming in? Where are they going and you want to make sure that you can A) run the numbers, right, I find that to be a big thing for folks, if you can, if you're already doing that, if you're already tracking and budgeting, basically what we built ourselves a pro forma in life, right is what a budget is same thing for real estate investing. So that skill already translates but if you're constantly trying to figure out where am I dollars going, and you know, I'm spending a bunch more than I'm trying, real estate investing could be tough, because now you're adding an additional expense and we're hoping that there's income coming in if you do your homework there should be and if you operate correctly, there should be. But I'd say you want to feel comfortable because there are big expenses that pop up with real estate investing, anyone who's been in this business long enough will tell you that and so if that makes you uneasy or on shaky, or you're not in a financially sound position to be able to absorb those hits or those blows, that can be really scary and I would definitely encourage everyone to think long and hard before getting involved in this business. Are you willing to stomach that and are you in a financially sound position that you can absorb those blows, and those can come in all different sizes and forms and so again, that's why I think it's so important to understand what your risk exposure looks like because the exposure on a $80,000 house, run of the mill 1950s, build whatever is going to be very different than a $500,000 house in Manhattan or condo, whatever. So it's really important to get clear on okay, where is my exposure coming from and then quantify it? How bad could it get if it's gonna go bad?   Pierre: Alright, next question here, Mike, when I previously own property, I hit a limit, because my debt to income ratio, how do I get around this to own 36 houses in 10 years?   Michael: So I think my guess is that question is coming from someone who purchased their primary residence and then went to purchase investment property. So investment property, in theory should actually better your debt to income because if you can imagine you've got debt now in the form of your mortgage payment, but and then your taxes and insurance. But then you also have income and so the income if we're cashflow positive, outweighs the debt and so we often see debt to income ratios decrease with time and so, I mean, there's your answer, if you're if you're buying cash flowing real estate, your debt to income is gonna be better than it was before you own it. Now, a lot of banks might not consider or give you credit for that, until you've owned the property for X amount of time, this has happened to me, I just had a lender tell me, hey, we're not going to consider the cash flow on your primary residence because it hasn't shown up on your tax returns yet. I'm like, yeah, but look, here's the lease, and here's all the deposit into my account and like, we don't care, whatever. So that could be a scenario but that's a very short term problem and I think, too, by the time someone is looking to purchase, I get the question too, hey, I can only have 10 loans. How do I buy 36 properties or how do I buy more than 10 properties. And what I found just personally, is that by the time someone owns, close to 10 properties, they they're finding out a different way to finance the properties anyhow, whether that's going commercial or going hard money or private money, whatever or you just bundle up a bunch of the single families into a portfolio note, put it on a commercial loan. Now you've just freed up a bunch of more conventional conforming loans. You're back in the game. So I think there's a number of different ways to approach it but I think to the original question of the debt to income issue, again, if you're buying cash flowing rental properties, your debt to income is likely going to be getting better with time.   Pierre: What are your thoughts about the upcoming housing correction crash? Is it best to wait for a few months to see how the market behaves to possible recession and interest rates hike interest rate hikes later in the year?   Michael: That's another really good question. So without having a crystal with a very hot topic, so it's interesting because interest rates have already gone up over the past six months drastically and yet demand still seems to be at an all-time high with purchasing rates at an all-time high. So if you're someone that is feeling more calm, trouble to kind of sit and pause and take a break and just see what happens, knowing full well that interest rates may continue to climb, and prices might not drop. That's totally cool. I think it's the person that's like, hey, I want to wait and see what's going on, figure out where this is going, rates continue to go up, prices continue to go up and that's not something we've seen before other than the last six months and then you're gonna be pissed that you missed out. That's where I think I want to encourage you all to think differently. I think you have to understand full stop, what are the implications of me doing nothing today? What could happen, and be okay with that?   So I think just, again, getting straight with yourself getting clear with yourself around, hey, interest rates might continue to go up. That doesn't necessarily mean prices are going to come down as much as maybe we think they are, or necessarily at all, because again, this past six months, they haven't really come down much and again, it's market specific. So in some markets, you might listen to like, yeah, I've seen it come down 10-50%. That's totally fine in your market, I think it's important to understand your market. So that was a kind of roundabout way of saying, get clear on what could happen, the likely the possible scenarios, and then decide and also like, if you go back to fundamentals, and you're looking at a deal today, and it makes sense and hits your Buy Box, like I'm, I'm all for it. I just bought a deal back in May and prices were more expensive than they were a year ago but I was like, you know what the deal still make sense? The numbers don't make sense. So I'm going to proceed and getting back to like we were talking about previously, interest rates change with time and so if it makes sense today, and it rates go down, you only got a better deal down the road and if they don't well, then okay, then you're okay with the deal that you bought today and again, the income should go up with time.   Pierre: And it does seem like we are seeing a drop in prices in markets where the tech industry is most concentrated. But you're right. It is not global, that it doesn't happen everywhere all at once but it's happening and anecdotally, I'm we're looking at homes right now and see price cuts on so many houses. So it's not a statistic, but I'm seeing it happen…   Michael: But you're seeing it.   Pierre: Yeah. Have you been looking at all Mike for you? You've been in an acquisition mode at all lately?   Michael: No, not since that last one in May. We've been just trying to get the short term rentals humming along nicely and smoothly. So we've just been focused on that and then also my development project getting that over the finish line, which I am so so close, which I'm very excited about.   Pierre: Awesome. Well, that is it for the questions today. Thanks, Mike for sharing.   Michael: You got it.   Pierre: It's got to go.   Michael: Sweet.   Pierre: Thanks, everyone for tuning into the podcast. Please leave us your questions as YouTube comments or on the podcast app. We love hearing from you all. We will catch you on the next episode. Thanks so much for listening.   Michael: Happy investing…

The Remote Real Estate Investor
How to weed out the good from bad in real estate syndications

The Remote Real Estate Investor

Play Episode Listen Later Aug 3, 2022 30:23


Taylor Loht is the founder of NT Capital and host of the Passive Wealth Strategies podcast. He teaches busy professionals how they can invest in real estate without dealing with tenants, toilets, and termites. He lives in Richmond, Virginia, where he started and runs the monthly Richmond Multifamily Investors Meetup, trains Brazilian Jiu-Jitsu, and actively contributes to Bigger Pockets. Intrigued with real estate investing but concerned about picking up a second job and more headaches, Taylor Loht searched for new investing strategies. As a busy professional himself, he understood the importance of learning passive investing strategies and sharing those insights with others. In today's episode, Taylor provides us with some insights on passive & active investing and real estate syndications. Episode Link: https://www.passivewealthstrategy.com/join-the-investor-club/?source=investwithtaylor   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 Taylor Loht, founder of NT capital and Taylor is going to be talking to us today about syndications and how to spot some of the not so great actors out there and who syndications may and may not be for as an investor goes. So let's get into it.   Taylor, what's going on, man? Thanks so much for coming on and hanging out with me today. I really appreciate you.   Taylor: Thank you for having me today. I'm really excited to talk with you.   Michael: No, likewise, likewise. So I know a little bit about your background and kind of what you're doing but for those of our audience members that don't know who you are, give us a quick and dirty who you are. Where do you come from and what is it, you're doing real estate today?   Taylor: Sure, absolutely. I'm a real estate investor based in Richmond, Virginia, I decided to make the switch to real estate investing. A number of years ago, I don't even honestly remember exactly when but had been investing in Wall Street, you know, typical things. For a few years. You know, at the time, it was kind of hard to pick and miss on Wall Street because it was right in the wake of the great recession. But I just saw real estate as a better opportunity to create passive income and then, you know, here we are.   Michael: Awesome and now today, you got a company and T capital. Talk to us a little bit about what it is that you all do.   Taylor: Sure, absolutely. So it's part of my real estate syndication investing. So basically, I help people passively invest in real estate syndications. Got the securities licenses and everything to do that and help sponsors raise capital in a compliant manner, of course, and, you know, help people, as I say, on my podcast, escape the Wall Street casino and build wealth on Main Street by investing in real estate.   Michael: Love it and what is your podcast called for anyone that wants to go check it out?   Taylor: Sure. Thank you for the opportunity. It's the passive wealth strategy show available every Monday, Tuesday and Thursday, new episodes interviews, just like this one,   Michael: Right on. So it's a common debate that we have passive versus active real estate investing. So I love for you to wear your passive hat because you've done both right? You've been on the active side, and now you're on the passive side. So why did you end up there?   Taylor: So, that's an interesting question. So I'm a little bit in a in a hybrid state right now, to be honest with you. But, you know, I think most people when they start real estate investing honestly, myself included in this, our familiarity with real estate kind of is limited to flips, which we see on HGTV, and buying single family rentals, and you know, the one up the street and rent it out. There's nothing inherently wrong with either one of those. But the reality is that both of those strategies take a lot more work than we really think they do from the outside. Now, if you buy a single family rental and put it use a property manager, you can turn that into passive income over time, if you kind of do it the right way and buy at the right price and all those kinds of things. Flipping itself is a very active business and after learning about both of those and most of the other real estate, investing strategies.   When I was kind of getting started, I just really gravitated toward commercial real estate larger properties. I honestly don't know what it is. Maybe it's aesthetic. Maybe I just I like to think big, just get really excited about big things. But when you're buying you want to buy a $15 million property. Well, you know, I don't want to say too much about myself here, but I don't have all the money for that down payment. I can't put all that money down and I never could write when I was just a guy at college trying to figure out my way in real estate. So eventually I found this path through real estate syndication. I had money saved up from investing in Wall Street and you know, I didn't did alright in that. But wanted to make this shift and started passively investing in real estate syndications, with my eye on getting on the more active side of things, and now I do both and you know, I'm more than happy to have this be my investing strategy, I love it.   Michael: I love it. Well give us some insights into who real estate syndication investing is for and who's maybe not a great candidate to be an investor in a syndication?   Taylor: Sure, absolutely. So, my mind first goes to and this is most of my investors are high earning busy professionals who maybe have a family they have a job that they work 40-60 plus hours a week, make a lot of money. and maybe have some leisure activities, just want to earn some passive income but don't want to build their own real estate investing business on the side, they want to maybe like I said, say as a lot of harp on this, get out of the Wall Street casino, and invest in real estate, then that may be a good fit because if you're somebody who earns a couple of $100,000 a year, then you have to, I think you should think about what your time is worth in terms of dollars per hour and where you can best allocate your time because time is our most finite resource and I was kind of debating whether I was gonna say this, but today we're recording today is my 33rd birthday and I'm always thinking about the shortness of life, I guess, if you will, and I think, from your investing standpoint, you should think about that we all only have 24 hours in the day, if you do really well in your career, then bear that in mind, when you're considering an investing strategy, that could kind of be another job like, like maybe flipping as often another job for folks more active investors, again, you know, I love active investing, you need to be ready to put the work in, it's, it's a lot of work to invest in real estate, find deals and do deals, especially today when interest rates are going up and prices are at all-time highs and we're seeing some softening in the retail market in particular, which, you know, we have to kind of, we have to work with the market that we're given and we find ourselves in. So you know, if you're willing to put the work in, I say go for it. You know, there's absolutely nothing wrong with that. I like putting the work in on my deals and everything. But really just think about your time how you want to spend your time and what your time is worth for you both in terms of what you want it to be worth, but also what it is actually worth, if you're working. What are you getting paid now and think about that for your real estate investing…   Michael: Yeah, I think that makes a ton of sense. I think it's a really great way to be thinking about things. Well, first and foremost, Taylor, happy birthday. Thanks for taking the time on your birthday day to hang out with me, this is awesome.   Taylor: It is my favorite thing to do. So no problem…   Michael: Well give us a little bit of insight into how you coach your investors or how you coach folks that think about the returns and the return on their time because I think that makes a ton of sense and thinking about, okay, how much is your time worth. But I can pretty clearly calculate, okay, if I buy this property as an active owner, this is what my return is going to be this was my cash on cash is going to be this is what my hopeful eventual exit price might look like versus about up to a syndicator like it's in your hands and if they screw up, well, then that that's a bummer for me.   But I don't have control over that. So are the returns going to be stronger as with this indicator? Are they going to be not as enticing, but I have to do as much work kind of give us an insight into how people I should be thinking about that?   Taylor: Sure, of course, I want to be careful what I say in this regards and you know, every deal is different and past results are not an indication of, you know, future performance and all those kinds of things. You know, in my experience, both in an active real estate investment if you're doing your own deals or investing in real estate syndication, either those strategies can do very well and either while either one of them can lose a lot of money, I think it's a, it's a matter of weighing pros and cons and to kind of get back to the question about if somebody is considering if passive versus active makes sense to them. If you're somebody who can't imagine giving control of your money or your investment over to a syndicator, no matter how experienced they are, maybe they have several 1000 units under their belt and several billion dollars in assets under management. But still, you can't get past it. Well, hey, that's a sign you know, and that's your priority. That's your decision to make it's your money as your financial future. Go for it. You know, I think that this spectrum when we're talking in a general sense about the returns that you can make, you know, it's a little tough to be specific about that. Either type of deal can make money either type of deal can lose money, I think some of the other things to consider is if you're going in buying a single family up the street, getting the data in your own name and those kinds of things. Well, you're on the hook for the debt as the investor and if you're willing to do that, hey, great, no problem.   Most real estate syndications, however, which use that, set it up and the lender set it up so that the passive investors are not personally guaranteeing the debt. So their risk of loss is limited to their initial investment, their equity that they invested in the deal. So your potential downside is your investment can absolutely go to zero. Of course, we always want to be cognizant of that and the risk in our investments but if you're not on the hook for the debt, then hey, you're not on the hook for the debt. Now somebody is on the hook for the debt and that's what you want and one of many things you want to look into. In a real estate syndication, who's guaranteeing the debt? How are our interests aligned that hey, we all want this deal to perform and if it goes wrong, it's going to be worse for say the general partners who are guaranteeing the debt. Those are things we want to think about but again, debt is a big factor in real estate investments, and it's one of the risks so that as a passive investor in the syndication, you can kind of take off the table for yourself and the general partner or key principal or somebody else will guarantee the debt.   Michael: That's a really interesting point that I want to come back to but since you were describing the person that really can't give up control, I think that's me in a lot of instances, I'm a recovering engineer and so I like to engineer the crap out of things but I'm just curious, have you come across people that like really want that high degree of control, but also invest in the stock market?   Taylor: That's an interesting question and I think, yes, I think we, maybe we've been kind of trained or programmed or maybe it's the way that media talks are something that we think that when we're buying a portfolio of stocks, hey, I have the control, because I get to hit the buy and sell button, which is true, you do get to do that. But there are many other factors that are outside of your control and when I was really heavily investing in the stock market, I got, I got my props here, my books. This is the first book I read about investing the Intelligent Investor, it's incredibly thick, I only read it once.   It looks like a dictionary, which is a ginormous book but you know, it kind of drove me toward index investing, because I learned through this book, Benjamin Graham and its Warren Buffett strategy as well that I can't pick stocks and I honestly, I tried a couple times, and I always lost out on I'm no good as a stock picker but I think that having that buy and sell button really gives us the feeling that we do have a lot of control and you do get that amount of control, you can buy and sell but you can't control the fluctuations of the market, you can't control the positive or negative decisions that the executives might make, or you know, kind of anything.   Michael: Right, right. It always cracks me up when people talk about yeah, I got so much control and it's like, like, stop kidding yourself. Alright, so let's talk about leverage for a minute because I think you bring up a really good point and it's interesting to know that the general partner is usually going to be on the hook for the leverage for the debt rather, and that it stops with limited partner. But talk to me a little bit about how people think about debt to invest. So what I mean by that is, if I want to go buy $100,000, single family home, I can go bring 20 grand to the table and get $80,000 mortgage. Now I control $100,000, an asset and the appreciation I see is going to be that $100,000 number versus if I want to go to a syndication, can I go get a loan from that same bank and say, hey, I want to put $100,000 into the syndication.   Taylor: No, and frankly, if the if I were, you know, the general partner seat in that case, and I found out that somebody was taking a taking out a loan to invest in the equity portion, it may or may not be technically legal for me to accept that money, but it would not be wise for me to accept that money because if things aren't going to plan, which can happen in a real estate deal of any kind, then you're going to be in a personally difficult position and that's going to flow to me, and it's going to be still going to be my problem and I'm just gonna have to deal with that. So it wouldn't be wise for the general partner or the limited partner to do that and I think I should clarify, what I previously said, Is there are multiple types of real estate debt. At a high level, there's recourse and non-recourse where recourse means you're personally on the hook for the money. A lot of syndication deals and commercial real estate deals will use non-recourse debt where the general partner while they're kind of they're putting up guarantees, and they're agreeing to behave well. We're not technically on the hook to repay the debt, but there are so many carve outs to that. So in the sense that if the general partner misbehaves or doesn't act in a certain manner, then the bank, you know, just reverts, and it becomes recourse debt anyway. So those are important things to consider but I wanted to make sure to clarify that point.   Michael: That's a great point to clarify. So talk to us Taylor about this specific scenario. You got a landlord, they own five single family homes, and they did the active investing, and they're kind of done, they're tired but because of what's happened over the last couple years, they've seen their equity go through the roof and they're thinking, you know, what, I will kind of want to get into this whole passive thing. I heard Taylor and Michael's podcast would love to get into one of those deals. So they cash out refi on some of those properties. So they take on new debt, now they've got a ton of cash. Are you thinking that that's not a great time to go invest that into a syndication deal, because it's technically borrowed, or when you say, take on debt is not a wise investment to go put into a syndication deal? Talk to us a little bit about that.   Taylor: That is a good point and that is an interesting way to reframe that question. I suppose in my mind, the previous question, I kind of interpreted that as, say, I'm Taylor, I'm going to go passively invest in this deal. I call my buddy Michael, I say hey, man, loan me x $10,000 $50,000. I'm gonna go invest in this deal, and I'm gonna pay you y percent over a certain amount of time. Well, that would not be wise but say if somebody's pulling debt out of properties, or applying a new mortgage to cash out refi buying properties that they already own. I think you can make a good case for that. I think it's really so one of the things where it If you're in that situation, you need to consider or you should consider all the available options. So interest rates are going up right now but historically, they're still at pretty much all-time lows and values are at all-time highs and single families. We're seeing some softening going on. But it's not like we're currently in the midst of a crash. Now, I may, I might be wrong about that but something to consider, the way I would look at that is what I want to continue owning these properties, say for another 10 years or so technically, think the average mortgages refight at seven years but how long? How much longer? Do I really want to own these properties?   You know, what's my potential here? Do I still want to mess with them? What rate am I going to get on this debt? I would consider, really all those factors are so many other options that you can technically get 10, 31 exchange into a single syndication if you do it properly. Now, a lot of times, it may not make sense, if there are fairly inexpensive properties, you're not bringing a lot of equity to the table, then it's a little more difficult to 10, 31 but I just think you have to consider all the possibilities and again, it's all about the individual making decisions that are right for them. If you still want to own those single families and continue to rent them out, then that is a valid way to do so and you still have real property there and hopefully, when you do that cash out refi you're still earning strong cash flow in the future, because you still need to support that new debt that you took on.   Michael: Great, great and Taylor give us some insights into what folks should be doing to screen syndicators because they're, you know, kind of like realtors, they're a dime a dozen, you see syndicators all over the place, doing all kinds of deals, talking about their deals are amazing. So what are what are some kind of BS meters or red flags that people can help raise on some of these folks?   Taylor: That's a great question. I mean, honestly, one of my favorite things to suggest that people do is go find other passive investors and ask them, who have you invested with what's gone positively or negatively? It's a little different than going to a syndicator and saying, hey, give me a couple of references because what kind of knuckleheads gonna give you a negative reference, right? You're gonna tailor it properly, right but if you're in that position…   Michael: Was that a play on words you're gonna take tailor right now…?   Taylor: In a way… But I would, you know, it's always you do get that question and I, you know, give people references if things have gone well, but for anybody out there in that position, there are so many groups out there that are focused on passive real estate investing leftfield, investors are great. Go there and talk with those folks and ask them, who have you invested with, it's gone? Well, there are a lot of other things you can do along the lines of background checks, heck, take the person's name and Google them. I mean, it's shocking how many people won't just punch a name into Google and you know, see what comes up, sometimes and this, this does happen. I know of at least one case where this happens. There, somebody out there who has a relatively common name, and if you google them, somebody else's prior court case comes up. So if there's any point of clarification, there's no harm in asking. But if you're, you know, if you're already out to let you know, make that judgment call on your own, if you want to ask them, hey, what happened here? Is this you or if you don't, then that's fine. That's up to you. Those are definitely things that that I would consider, I would dig into there. Also forums like bigger pockets you can go to you can post Hey, has anybody here invested with so and so, you know, DM me, and let's talk about search on bigger pockets as well.   There are many threads about positive and negative experiences with syndicators. Now, there's always an important factor to bear in mind that past performance is not an indicator of future results but I think learning about people learning about experiences can help illuminate things like scammers and fraudsters because those people are out there and you need to know how to look for them. I think as you if you're new in real estate syndication and passive investing, really try not to feel FOMO you can go out, get on people's deal lists and look at deals for a while you don't need to invest in the first deal that you ever see come across your desk, if they're good, and they're experienced indicators and they know what they're doing. They're gonna do plenty of deals right and you will get diversity, a diverse selection of deals in terms of asset classes, markets, you know, the what their maybe target returns are everything so that you can see get a picture a broad picture of how folks are doing deals and I think that really is illuminating and just taking a pause reminding yourself not to feel FOMO can really help prevent a lot of a lot of mistakes and I did put out a seven day course on red flags and passive real estate investing recently that people can get that's totally free. Not everything that can go wrong in a real estate deal because that would be an Encyclopedia upon Encyclopedia of right of information, but their high level things that if you spend enough years in this business, you'll see kind of recurring themes of things that go wrong in these types of deals.   Michael: Okay, that makes a ton of sense and those are all really great resources and tips. Thanks for that. curious to get your personal thoughts. There's the expression get rich in your niche or niche down and get laser focused and so from the standpoint of syndication, if someone has 100 grand to invest, are you thinking it makes sense to go all in on a particular deal because you love the deal and believe in that deal, and that syndicator are you going wide with kind of spray and pray across multiple deals?   Taylor: So for me, so just taking a step back, most of the time, in real estate syndication, you'll find that a typical minimum investment is $50,000. There are a lot of reasons behind that if you're accredited, that means it gets into the weeds but most real estate syndications can accept an unlimited number of accredited investors but find a 506 b syndications can only accept up to 35 non accredited investors. So they want to allocate those spots to people who are able to invest additional capital and where I'm going with that is they say a $50,000 minimum but you're not quite ready for that and you're accredited. It doesn't hurt to ask, say, Hey, would you take 25, would you take 35? Can we go a little lower? Because I'm trying to spread this out. But if I was in that position, having $100,000 I wanted to invest in real estate syndications. I would like to diversify it as much as I could because I think that's the wise decision. I was speaking with somebody recently about this. I don't want to say too much. But this person had almost a million dollars to invest. This was about a quarter of their portfolio. They had invested in Wall Street type of stuff for years and years and did very well and high income earner. Very great for them just getting into real estate syndication, asking about hey, how should I allocate this? What would you think about they were looking at their second real estate syndication investments are just getting started in the space and their consideration was I'm gonna go 500 out of this, this portfolio that I've chosen to invest in these deals and my thought on that is, that's probably too much. I think if you're really getting into it, it makes sense to not just dive in, right, kind of walk into the water kind of slowly so you can get getting diversified across markets and asset classes and operators and all those kinds of things and get your feet wet rather than just cannonball on into the waters.   Michael: Yeah, and find out later that it's two inches deep.   Taylor: By very possibly. I mean, you know, I've counted myself lucky to have I feel as though I've stayed away in my real estate investing career successfully from people who you might consider scammers and fraudsters, that doesn't mean you don't meet them, but you kind of find out who they are, and avoid them and don't do business with them but I think the more patient you are kind of helps you have a better a better batting average, if you will, maybe that's not the best way to put it. But I think diving in is the wrong, you know, wrong way to go, especially in a time when the market is, you know, maybe come volatile in the future.   Michael: Taylor, I'm curious, kind of in that similar vein, do you think personal tailors personal hot takes that having invested on the active side makes someone a better or more difficult, passive investor or does it not matter? I mean, if I'm thinking about getting started, I'm thinking, you know, I'm not sure maybe which one I'm thinking maybe as an active investor, I can learn the business and not have the wool pulled over my eyes as much or maybe I just go straight to the passive route without having to learn all of the stuff that comes along with going the active route.   Taylor: That's an interesting question. I'm not sure I'm honestly not sure how big of a I haven't noticed a difference, I suppose is what I'd probably say. I mean, I would say that though, regarding that one point, being a passive investor doesn't absolve you from learning how the business works. I think it's very wise to pay attention to what the industry is saying what at what active syndicators are saying to each other, what they're out there talking about and where they learn, right because you're going to learn the most about how deals work by say, reading the same books as them or attending webinars or maybe going to conferences. Some people are some passive investors are willing to make that investment many aren't. Some of those can be very expensive but just as a general comment, being a passive investor doesn't get you out of learning. You still got to learn.   Michael: Okay, no, I love that. I've always been preaching that that you got to learn the fundamentals from the get go, because who knows, you might learn that real estate investing isn't a great place for you and I think that's important to be cognizant of too. So kind of again, thinking similarly through that thought exercise, if we go back to our prior example of this, I'm the active owner. I own five single families looking to get involved in the passive side, and I'm looking at a pro forma from a syndicator and all I know is the single family space, right? I've purchased homes, I've done renovations on homes, capex, that sort of thing and I see a line item, big apartment building 15 million, like you mentioned, and their capex reserve is 250 a door and I'm like, no fricking way I've been in his business 250 is not going to cut it, you know, doesn't get you a stove. So how much should I be kind of nitpicking, this indication of what I know, to be true for my business, versus how much of the syndication world is just so above my head, and playing in a different Echelon that I don't really need to be spending time picking things apart?   Taylor: So I think if you're in a situation where a number doesn't make sense to you, then my opinion is you can either ask a question about it, you know, clarify, maybe run your own underwriting model, if you're so bold, not everybody wants to do that. But at a certain point, when the math doesn't make sense to you, the assumptions don't make sense to you, then just walk away and look for the next one because, you know, I, I hate to sound like an old dog. You know, 33, I've been investing in this business for a few years now but I've seen syndicators make math mistakes that lead made a pretty significant difference in the deals, and sometimes those are identified early on, sometimes they're a little, you know, higher profile but if a number like a Capex budget per unit or something like that doesn't make sense to you. You can ask question about it but use your own logic, I mean, you're at the end of the day, you're going to bear the benefit or the cost of your decision more than anybody else.   So, you know, ultimately, I think the at the individual investor level, kind of the buck stops with us, right, and we should walk away. If something like the math doesn't make sense, I've and I could go to the math errors, I've seen them blow up in a higher profile manner that I don't want to get into and I've caught them from others indicators and sometimes the ones I caught were not huge, but there was enough. Just seeing that is enough for me to say, okay, I'm done because.... Where are the other problem? Where are the mistakes? I'm not going to dig through this enough to find them, but, again, that's that feeling of FOMO, right? Really try not to feel it and if you bear that in mind, I think that helps make fewer mistakes, or kind of helps you, when you find that the capex budget doesn't make sense. It'll help you say, no problem moving on.   Michael: Yep. So is it is it fair to say to folks listening, don't go invest into a syndication until you get warm and fuzzy…   Taylor: Potentially, I think this again, gets to the individual investor level is that we all have different bars of warm and fuzzy, I'm at the point now where I get pretty warm and fuzzy with the deals that I invest in, and I don't invest in everything I see for sure. But I feel my opinion is that my warm and fuzzy is pretty well calibrated at this point, and also pretty heavily data driven. If you're brand new: Think about how is your warm and fuzzy, calibrated correctly. Maybe it is maybe it's not but you know, I'm, I'm not a pushy person in this regard and I think on the individual investor level, if you're not ready, you're not ready and that's okay. There's no harm in continuing to look at deals and, quote, sit on the sidelines but as long as in my mind, as long as you're looking at deals and you're evaluating them, then you're not quite sitting on the sidelines, you're still taking action, and you'll most likely step up eventually, or you'll decide, hey, this isn't for me at all, and you won't do it. But in that sense, you know, consider whether your warm and fuzzy is calibrated correctly. Maybe it's not, maybe you're a little too cautious or maybe you're actually being a little overly trusting, if you will, maybe you're mis calibrated in the other direction.   Michael: Yeah, I think that makes a ton of sense. Taylor, man, this has been a super fun interview. Where can people learn more about you reach out to you invest alongside you if they're interested in doing so?   Taylor: Sure. Absolutely, so I already mentioned my podcast the passive wealth strategy show available you know where you're listening to us right now I'm sure. My company NT capital, you can find out more at investwithtaylor.com or I mentioned the free seven day video course I put out on red flags and passive real estate investing that's available at passiverealestatecourse.com.   Michael: Awesome. But hey, man, thanks again for coming on. I really appreciate you taking the time and I'm sure we'll chat soon.   Taylor: Thank you.   Michael: Okay, well bye…   Okay, everyone. That was our episode a big thank you to Taylor for coming on really insightful. Again. I love some of those questions that you can ask syndicators to get an idea of whether or not it makes sense to invest alongside them or with them as oh, If you liked the show, or even if you didn't like the show, we'd love to still hear from you. Leave us a rating or review wherever you get your podcasts, and we look forward to seeing on the next one. Happy investing…

The Remote Real Estate Investor
Hashim Ismail's success with remote and local real estate investing

The Remote Real Estate Investor

Play Episode Listen Later Jul 28, 2022 30:58


As a dreamer and life-long learner, Hashim Ismail makes it a goal to push himself. Hashim officially started his real estate investing journey eleven months ago but began learning about real estate just two years ago. He dealt with analysis paralysis, but after making a goal to start in 2021, he decided to jump in with both feet. Through hard work, dedication, and optimism, Hashim has closed on seven properties in eleven months. Since Hashim invests out-of-state, he dealt with a whole new set of obstacles apart from the usual challenges new investors face. Through the new connections he made, Hashim educated himself on the area, without having to physically visit! Investing out-of-state can be risky within itself, so he has created a series of processes to mitigate risk as much as possible. In this podcast episode, Hashim talks about how he got started in real estate and how he found immense success simply by stepping out of his comfort zone. Episode Link: https://www.linkedin.com/in/hashim-ismail-76087120/ --- 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, what's going on everyone? Welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today with me I have Hashim Ismail, who is a San Diego based investor doing some pretty cool things, investing remotely as well as locally if you can believe it. So he's gonna be walking us through his story, his background, and some tips and tricks that got him over the hump to finally make that first purchase. So let's get into it.   Hashim, what's going on, man, thanks so much for taking the time to hang out with me today. Appreciate you coming on.   Hashim: Hey, Michael. How's it going, man?   Michael: Oh, super, super good. I'm on my way up to the San Juan Islands in my van, which is northern Washington. So I'm super excited. You're a SoCal guy, right?   Hashim: I am, I am SoCal. Yeah, similar, similar to you.   Michael: Right on and so we're gonna be chatting today about kind of your investment story and your journey and I'll be very interested to learn because you're a SoCal guy. Were you investing in Southern California? Are you doing the remote thing?   Hashim: So I started with the remote thing, and most of my investment is, is remote investing for the most part and recently this year, I got my first property in Southern California, but most of my properties are out of state.   Michael: So you did kind of similar to me, you almost did it backwards, like you started super far and then came zoomed in and zoom close. So walk us through I want to hear like soup to nuts what your investment journey has been like. So walk us through what your very first deal was kind of where was it? How did you get started and how did you get that meant, like, mentally your head screwed on right to be able to do the whole remote thing?   Hashim: Yeah, so as with many things in life, taking that first step is typically the hardest and most challenging for many people, including myself and, you know, I was listening to a lot of podcasts, Bigger Pockets podcasts, real estate, different real estate, reading books, and taking that first step was okay, what am I going to do? What am I going to do it and finally, in 20, December of 2020, typically at the end of the year, I tried to write my goals for the following year, December 2020, I wrote down real estate investing goals and it was I remember, it was wanting to investment property in 2021. At the time, obviously, I did not know how I was going to do it. Obviously, I had been listening to podcast reading. So I had an idea and I knew what real estate investing was, but I hadn't done it and until you do something, there's only so much you can read or listen about and 2021. So which was last year, April, to be specific, I took a first step towards that and I went, I started in Tennessee, Memphis, specifically the market that I started in and that's how I started my real estate journey and to be here today, well, throughout 2021 got a couple properties more in Memphis and then this year, I had another goal for myself to go into another market and I thought I could try my local market here in Southern California.   Michael: Okay, I've got a, like so many questions for you. This is gonna, this is gonna be a lot of fun. So taking a step back, like how when did you start, like getting educated, listening to podcasts, reading books, thinking, hey, real estate investing might be something I want to do. How long ago was that?   Hashim: Yeah, so I started roughly around sometime towards end of 2018, beginning of 2019 and actually, I saw I used to listen to podcasts on financial independence and one I remember one of the shows, they, you know, real estate came up, and that's when I started hearing more about real estate. I was like, okay, and I started doing little googling little research came across Bigger Pockets and that's how I started listening to more of the Bigger Pockets podcasts, and reading some of the books.   Michael: Okay, and so you spent, like, roughly plus or minus two years getting self-educated. Did you have like friends or family or like a coach or mentor anyone that was like, hey, this is like the theory and now let me help you put it into practice or was it all you by yourself?   Hashim: At the time it was myself. So listening to the podcast, different guests that come on the show sharing their story, and you get to learn a lot from that and obviously, that's, I'm sure that's one of the reasons why you host the podcast, I listened to some of your guests as well and there's a lot of nuggets and learnings that we take from that by other sharing. So I got to learn or gain a lot from that and then read some books and that's how it was for about two years give or take. It was just me reading, listening to podcasts, making the routine, but I didn't feel it because time flies by and I found it interesting and fascinating. It wasn't until, yeah, a year and a half, two years later, I was like, okay, I've been listening and reading, but I don't have anything. I haven't done anything yet, let me take action.   Michael: so I'm so glad you brought this up. I think that's like the linchpin. That's the turning point for so many people, or rather the disconnect between getting educated, listening to podcasts, reading books, seminars, whatever, and then actually taking action and doing something. So how did you bridge that gap because it's so easy to say one more podcast, one more book, one more seminar. So how did you how did you take that leap?   Hashim: Yeah, Michael, I think that's, that's true for, again, for many for many of us and I think it's human nature, especially when you haven't done something before that very first time. There's always a challenge. It's always, you know, a sense of fear. You haven't done this before, where do I go? What do I do in the waters, I typically use goals to, to push me and to push me specifically out of my comfort zone, things that I haven't done. So I use my goal setting and I, every year, I write my goals for the next year. So I use my goal setting as a way to push me in that way, I hold myself accountable. Hey, I wrote this down. I said I was gonna do this. Am I doing it? Have I done it? So that's what I used to push me. At the time out of my comfort zone was real estate investing. I hadn't done it yet. There was a lot of unknowns for me and that's what I use, as, you know, something to nudge me in the direction that I would like to go.   Michael: I love it any clearly you're motivated person, because you know you're holding yourself accountable to which is, which is something that I think a lot of people struggle with and so kind of getting philosophical here for a minute. How do you hold yourself accountable because it would be so easy to say, I missed the goal. I didn't do it. Oh, well, I'll do it next year because there's no one looking to you saying, hey, you, Tom, you said you were gonna do this, like, do it. Other than yourself, so how do you how do you motivate yourself?   Hashim: Very good point, Michael. So I think it's important. So personally, for me, I use my inner you know, my wife and my inner drive to, you know, to push me towards my goals and what I'd like to do, you know, look at big picture, where would I like to be? What is what would my life be like and I use that, you know, to motivate me, because real estate, like everything else in life, there's ups, there's downs, there's days that oh, my god, I'm crushing it some days, what am I doing?   Michael: And oh, my God, I'm being crushed….   Hashim: Yeah, am I doing this right? And it's important, it's part of it, it's part of almost anything left. So it's important to have, you know, something that can keep you going and I think finding your inner why your true reason and being clear, and your goal is going to help you stay the course it's going to, it's going to help you from distractions, from the lows and try to, you know, push you back to go to the highs. So, you know, when I write, you know, when I write my goals down, I try to stick to them. I mean, nothing's 100%, but I try to stick to them as much as I can. I will say another thing and I haven't done that as much, but I'm starting to do more of that is using accountability groups, you know, having a group, a core group that are on a similar journey as you are, and you guys can help each other out, you guys can learn from each other, but at the same time, you can hold each other accountable. I think that's super important for people to do and have, including myself and, you know, I'll share a bit more story around that is one of the bigger pockets, courses that I or, you know, like boot camps that I took, they put us into groups and at the end of I mean, there was a lot of value in that boot camp, one of the main thing was, you know, we get to be put in what they call accountability groups and to this day, I am in touch with my accountability group and we have regular meetings, everybody's busy, but we have regular meetings, and we try to push each other and hold each other accountable.   Michael: I love it and how long ago was the bootcamp?   Hashim: It was q3 of last year, so right nine months or so ago.   Michael: Okay, right. Well, good for you. That's awesome. So as she walked us through what it was like to do your first deal remotely, because I think we have a big segment of our audience listening to the show is just getting started or just about to get started. There may be a little bit nervous or unsure about how to proceed doing something remote Roofstock is a great system to plug into to leverage the preexisting relationships but did you do that or did you go kind of forge your own path?   Hashim: So when I what I did when I was looking at different at the time, I was looking again, I didn't know too much for from my knowledge, I would I knew I was looking at a couple of markets and there were certain criteria that I had in mind. You know, one of them was, hey, is this market? What's the number one thing actually for me was because I hadn't done it before, is what is the risk? What is the barrier to entry into this market and what is the risk? So if things don't go as I'm thinking they should and as I'm planning, can I absorb the hit or am I gonna fall flat on my face, and I'm pretty much knocked out and I did not want that. So I was looking at markets we're in if things go went wrong, I could learn but I would not be knocked back completely out of the game, I could sort of absorb a hit that you know, the hit. So that was one criteria. The other criteria is does this market this is Mark, you're gonna cash flow, because I was interested, I still am in cash flow and then the other criteria was around, hey, what's the owner to renter population, like? Is there enough renters? So my focus is birth and, you know, after the birth, I want to rent the property, and I wanted to cashflow are there enough people that are going to be renting this property and then the other thing, you know, for the market was around? What's the job market? What's the job like in this market? Is that that is their diversification.   So these are a couple of criteria that I had in mind, as I was looking at, you know, a couple of markets and, you know, there's other markets that meet this criteria and ultimately, I decided to pull the plug in, in Tennessee, and part of that meant specifically and part of that was when you're investing, you know, long distance out of state, as I'm sure you very well know, Michael, that team is super crucial to your success. I connected with a bunch of people in different markets and you know, in the Memphis market, specifically, I connected with some great people. So Steven, I can Dona mentioned that before, was on the folks that I connected with the Memphis market, and I learned a ton from him and at the time, he was I was able to share with him what my goals are, and what I'm thinking and he was able to also share with me what he's done, his experience in the market, and how he can help me get to what my goals are, and where I'm looking to go and, you know, based on my criteria, and based on, you know, barrier to entry and risk probability and tolerance, I decided, yeah, let me pull the trigger and get into one deal and that's, that's how it all started.   Michael: I love it Hashim and you mentioned something about this risk versus reward ratio, which I absolutely love. I think that as you're going to quantify this stuff and figure out okay, where is my, where can I swing for the fences and if I miss still be okay. So how do you quantify that? What does that look like? Is it a mathematical equation? Is it a gut feel like, how did you come to that conclusion?   Hashim: So in my mind, the way I think of it is, the first thing was the barrier to entry. How much are these homes? How much are properties costing? So I was starting with single family, how much a single family costing in this market? So take the Tennessee or Memphis market specifically versus, say, the Miami market or compared to Southern California, LA or…   Michael: slightly different purchase prices, right?...   Hashim: Yes, exactly. The barrier to entry and purchase prices are very much different. So if you think about that, AIG, you need a lot more capital to get into these markets, into these markets, some of these markets, and then be in the event something was to go wrong, you're at a much more, you're a lot more exposed, you're a lot more higher risk and I did not especially that's something I hadn't done before I was creating a process. I was learning everything was new to me, I wanted the lower entry point, and the lower risk profile when something goes wrong. I can absorb it and I can know I can take the learnings and keep pushing. I will say, as with anything else, it's good to learn and evolve and grow and now that I've done this a couple more times, I'm more comfortable. I am at a better place to explore, you know, some of these bigger markets. Obviously, the numbers need to make sense, but I feel more comfortable now than I was 15 months or so ago.   Michael: Okay, right on and you mentioned if I heard you correctly, that your very first deal was a burger. Is that right?   Hashim: Yes.   Michael: Okay, that's kind of crazy. I love it. So how big of a burger are we talking how what kind of cosmetic work was needed because I like for me personally, my very first deal was turnkey, I could barely wrap my head around owning rental property being on the hook for a huge sum of money, let alone doing any kind of work. So walk us through, like mentally and then physically what that was like?   Hashim: That my very first bird deal that I got, it took and I've shared that before. So it took it took about two months before I got it and the reason for that is I was so reluctant because I was no there was a lot of fun. They're like, Oh my God, it's a burger. I've never done this. I'm here the property is 1000s of miles away, how do I do this, and then the, the property went under contract, and that was bumped and then it came for whatever reason it fell out of contract and came back and as soon as it did, I just, I got it immediately after under contract. So what, you know, along those lines, at the time, I had spoken to Steven and Stephens team, that is what they specialize in. So in one end their brokerage, so you can buy and sell with them real estate with them. On their other end, they have a full, full blown team to help and work with investors around rehabbing and project management for their properties. So I worked. So I run the numbers, the numbers made sense to me, I run it by my team, Stephen and his team, the numbers checked and then I physically went and walked the properties and when we do the, you know, we take pictures, we see what the rehab, the extent of the rehab is going to be and have an estimate cost around what the rehab is and then if everything, you know, checks, we run the numbers, everything makes sense. Finally, I you know, I do you know, a final desk appraisal to just confirm because when you're doing the birth, the ARV is very important. So is the rehab cost. So you don't want to miss them those. So I do take a stab at them. But I also leverage professionals. I get the final desk appraisal and make sure the ARV is exactly what I'm thinking and then the rehab costs and make sure we narrow and nail that down and still plug in the numbers and make sure they still make sense and if they do, then I just you know I just go with it. It's a matter of reducing your risk and probably as much as you can, nothing is certain but these redundant steps help reduce that risk for you and so we get there, and I pull the trigger on it at the time I bought that property for 100,000 and I put about I put 45,000 into it for rehab day.   Michael: I mean, so you're 45% of the of the purchase price you put into it and rehab, that's not an insignificant amount. So share with us. Okay, share with us how you how you purchased it, was it, was it all cash? Or did you have to finance it and then how did you pay for the rehab and how close was that 45k that you ended up spending to what you projected or what you budgeted for.   Hashim: So for financing, I leveraged my my brokerage account, and I got a line of credit from that and that's how I was able to pull 100,000 in cash to buy the property. So I bought it off market, so I had to buy it in cash and then for the rehab par 45, 40, 45 is exactly what the estimate was. I you know, estimating rehab costs at the time, and even today is not a strong suit of mine and that's where you want to leverage your team and people that you can, you know, trust and that's what the rehab was budgeted for and it was Michael, to your point, it was significant. We did. I mean, flooring, paint inside out roof, kitchen bathrooms, I mean, everything, cut trees, trim stuff. So it was it was Major, it wasn't just cosmetic and little things. However, you know, on the other end of that, and it is you know, upfront it's, you know, you buy you rehab it it's you know, it takes also time it took about three months going through that process and then the tail end of that for the you know, as any other product process is doing the refinance at the end.   Michael: And so what was your projected ARV that you did your desktop appraisal on and then what was the actual ARV? Cuz I'm assuming this is all buttoned up. You got it refinanced, right.   Hashim: Yes, that was my first deal and it's all buttoned up at this point. So our desk appraisal was 271 270. When we did the desk appraisal, yeah. So that's where the numbers were at the time when we did the actual appraisal when everything was done and I think part of it also has to do you know, where the market was, it appraised for 281. So about 10,000 above what the desk appraisal was. So that was, that was a great deal and a great first deal for me and, you know, I'm, I'm happy I did it, and I'm excited and that will say, you know, to listeners, or anybody out there, not every deal is like this, again, with everything. There's offices that this was a good deal for me and I'm excited I did it. There's other deals that were not so sexy, and the numbers were not, you know, as appealing and there's some deals that don't even make those numbers and I tried to stay away from those but it happens.   Michael: So, for everyone listening, I'm tempted to not ask this question because it's gonna be like a dagger and everyone who's listening stomachs but what was your what were you able to cash out and what was your interest rate and what kind of like what kind of financing was a 30 year fix, talk us through that?   Hashim: Yes, I went with a 30 year fixed refinance and on the back end and I was able to pull out about 75% LTV with the lender and I got about 211,000 out of out of the deal and yeah, locked in 30 year fixed…   Michael: And your interest rate?   Hashim: 3.62 cents.   Michael: Oh my god. So you spent 145,000 plus your holding costs whatever those panned out to be, and paid yourself 211,000 at a 3.6% interest rate fixed for 30 years.   Hashim: Yes. Now, some of the other deals are my…   Michael: Draw exit stage left, amazing…   Hashim: Thank you Michael, again, this is like, you know, you know, I'm 14, and I'm thankful that that was my first deal and they went that way. I mean, some, especially, you know, interest rate change, and the landscape changed. Some of the deals are, again, are not as you know, as sexy, but it was exciting and I'm, you know, I was happy when I was on the other end of this and when I'm going over the numbers again, for sure.   Michael: Well, I think it's great and my hat off, and kudos to you but I think something that like it's so important to highlight, and we talk a lot about on the show is that. So often, we talked about the wins, we talked about the high points, and like, clearly, this was a massive win for you but we spent like the last 10 minutes talking about this and we only spent a few minutes talking about all the stuff that you did leading up to this, like literal years of prep work leading up to this point, for you to have this massive win for you to even recognize that, hey, this is a potential win for me.   So for everyone listening, don't beat yourselves up. Don't compare yourself if you're not there yet, or if your deals haven't been as sexy or as amazing because there's all this stuff going on ahead of time, prep, work legwork that you should be doing to be able to lead to deals like this. So that was your first deal. Amazing, amazing, amazing. What were your next deals like? Were those also birds, were those, were those more turnkey? Talk us a little bit about that.   Hashim: Thank you, Michael. Actually, that's a really good question that you highlight and I think it's important. I'm gonna answer the question, but I just want to acknowledge what you said. I mean, that's super important. You look at athletes, we watch them on TV for whatever timeframe it is that that game is going on for whether it's basketball, soccer, football, and they're performing, or they're supposed to be performing at their best during that time that everybody's watching and cheering and we're enjoying them. Behind the scenes, the amount of years that it took for them to get there is insane. We don't we don't have privy to that and you know, it's similar to almost everything else in life. So thank you for pointing that out. So the question that you ask, my deals are through a little bit of different stages as we speak. So some of them the one I just shared and one more I've gone through the entire cycle of refinance, some of them I'm not entirely sure I want to go the refinance route at the end of the burr, a will be more either if I can hold it for now. Especially that interest rate landscape is changing or perhaps what I'm also exploring is doing a home equity line of credit on them, for the time being and some of them are still on the rehabs. Some of them are not fully done yet as we speak. So they're, they're kind of like they're staggered in different stages at this point.   Michael: Okay, right on and getting back to that first deal for just a second. What did that property rent for?   Hashim: The rent?   Michael: Yeah…     Hashim: $1,520 was rented for currently love it.   Michael: And the cash flow?   Hashim: The cash flow is about $130 a month, which is, and I'm gonna elaborate on that a little bit more typically, not what I go for, for cash flow purposes. So my goal is my, my goal, when I target for properties for cash flow is higher than that, with this property. In particular, it was my first one, but also because I was able to pull a lot more, I pull about 60,000 more than I put into the property. So as you would imagine, that would impact the cash flow. So I'm okay with that and every, every property is going to be a little bit different but I typically shoot for a couple of 100 bucks cash flow and properties in general.   Michael: Right, so quick question Hashim, what's your cash on cash return that you've calculated on that property?   Hashim: Infinite…?   Michael: You're a spa like that's what I was hoping you would say. So again, for everyone listening, Hashim got a $60,000 payday and $130 a month cash flow, so he has negative $60,000 in this deal, so I fricking love it, man, I love it.   Hashim: Thank you.   Michael: Give us let's I want to be very respectful of your time and get you out of here but talk to us a little bit about what your local deal has looked like or deals that you're doing now in San Diego. Why did you come, why did you go from remote now to local after clearly accomplishing so much on the remote landscape, you know, why bother?   Hashim: I wanted to push myself to go into other market and part of it was, you know, my background is engineering and science and I like, you know, again, to create processes, but also to mitigate risk as much as you can. Part of that is diversification, so I wanted to go into another market, I do like when I get into a market, don't just do one deal, I like to go a little bit deeper into the market, because you're creating processes, you're building teams are spending time into it and in my opinion, you want to get the most out of your investing, right? You're investing time you're investing, so you want to get the most out of it and I will stay in the Memphis market that these are what I see, as of today. However, I wanted to get into the market, and I use goal setting to push me into that. I didn't know specifically it was my local market, but I wrote the goal in a way where and I want to get into another market if you're marketing 2022 and as the year started, I thought about it a little bit more and I know that in Southern California for many, many years now, and I don't own the property here. So I thought to myself, you know, why not do something local and the numbers are different, and the approaches very different than you would in other markets, every market is different and anybody listening to this are real estate investors out there, know that if not keep that in mind market to market things are going to shift Market to market strategy is going to shift and yeah, so I decided to I live here, let me attempt something local and that's where things are right now. So far, I got a house here and it's not necessarily my personal difference, less of a burr and more little bit of a little bit of a house hack, I'll say and then trying to add doing work to add more value and playing the appreciation game down the road.   Michael: Right on so is the thought to, you bought it as a primary residence live in it, add the value, and then do a cash out refi or do a home and put a home equity line of credit on and leverage that to go do something else. What does that look like?   Hashim: Exactly, Michael so that's, that's my thought. So I bought it living in fixing doing work on it and it's going to that's going to add value, but also you know, expecting the market, you know, with time, you know, the market is the market depends on where the market trends gribble with the work that I do to it, and with time, there will be some value, forced value added into the home and depending where that number is, most likely do home equity line of credit. So I have some cash to tap into and then I can go do more deals. Depending what that cash, how much cash I can tap into and what else I have going on. Yeah, that's, that's, that's I do.   Michael: Hashim I love it, man, I love it. We're gonna get you out of here but before we do, what do you have to say to newer investors who are just getting started or maybe two, two years ago, Hashim who's just getting started, now that you've been to the other side…   Hashim: But I'll say like, you know, stay hungry, stay learning, it's a journey, I take this approach and this philosophy and everything in life, keep learning stay at it and take action. For me I use I write down goals and I that's one way that I push myself find what what's gonna motivate you and what's going to push you and you know, tap into that and you know, take action. Having friends having an accountability group, I think is huge as well so you can leverage that you can leverage different combinations but those are couple things I have used and a couple of ways I recommend and anything in life is learning so do it and know make sure you calculate it but do it and doesn't go as well take the learnings from that and try to be better and try it again or you know try something else that would work better for you.   Michael: Right on I love it. Well hey, if people have more questions for you want to reach out to you want to compliment you on your on your amazing successes. What's the best way for them to get a get a hold?   Hashim: Yeah, absolutely. You can reach me on LinkedIn. So by tapping searching for my name Hashim Ismael on LinkedIn, you'll find me and then you can email me directly. My email, which is hashim@sirabucapital.com, SIRABU capital is spelled S I R A B U capital.com and then you can also find me on Bigger Pockets as well and just before we get out of here, Michael, I just want to give you a couple of shout outs so I want to let you know thanks Steven. I mentioned Steven I can Dona Tyler Madden. You know they've helped me out a lot, I learned a lot from them. You know they're mentors to me. I want to thank friends family, and my girlfriend for a lot of support Bigger Pockets community and finally, um you know anything tech related? Dan D and MC, you know who you are. Thank you for all the tech support with you everything. Anything that breaks, I just I just go to them and thank you guys. Thanks for having me here on the show today, man. I'm glad to share my story and you guys are doing a lot of you know, great recordings and great guests on the show. Thank you guys. Thanks, Michael for doing that.   Michael: Thanks, Hashim our pleasure and we will definitely be in touch with you man. Looking forward to seeing where you go from here.   Hashim: Yeah, man, thanks a lot.   Michael: You got it. Take care. Okay, everyone, that was our show a big thank you to Hashim for coming on being vulnerable, opening up the vessel a little bit, giving us an insider's look at what his journey has been like. As always, if you liked the episode, feel free to leave us a rating or review wherever it is. You get your podcasts, and we look forward to seeing you the next one. Happy investing…

The Remote Real Estate Investor
How to set yourself up as an attractive borrower and generate strong cash-flow

The Remote Real Estate Investor

Play Episode Listen Later Jul 26, 2022 38:50


Kenny Simpson and Krystle Moore are real estate investors, and Kenny's expertise is residential lending while Krystle's is in commercial lending. They have helped over 1000 clients on their path to creating generational wealth. 2019 has been about focusing on growing our business through marketing for them. Until this point, their business was solely from referrals. They started a podcast – Value Add with K&K – and have focused on using their influence on social media to educate their clients, potential clients and followers. They talk a lot about real estate and building wealth on the podcast but also about health, fitness, mental health and other areas where they feel they can add value. In this episode, Krystle and Kenny talk about how they got started in buying multifamily properties and what they did to leverage that to buy more properties. Additionally, they talk about what borrowers should do to be well equipped, as well as things to look out for as your purchase different property types. Episode Link: https://getinthecashflowgame.com/   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: Welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today with me, I have Krystle Moore and Kenny Simpson, a real estate power couple in the lending space, Kenny in the residential side and Krystle on the commercial side and they're gonna be talking to us today about things that we need to know about each space, what we can do as borrowers to be well equipped, as well as things to look out for as we're purchasing each type of property. So let's get into it everyone.   Just a quick shout out before we get into the episode, definitely want encourage everyone to go check out roofstockacademy.com It is a one stop education shop for both new and seasoned investors comes with tons of access to on demand lectures, potentially one on one coaching with me or some of the other coaches we have at the academy as well as marketplace, cashback credits for you to use on the restock marketplace as you're making a purchase. So come check us out roofstockacademy.com, look forward to seeing you there.   Krystle and Kenny, what is going on. Thanks so much for taking the time to hang out with me today. I appreciate you.   Krystle: Thanks so much for having us.   Kenny: Yeah, thank you excited to be here.   Michael: Oh my gosh, I am, I'm super, super excited. We are going to be chatting today about all things real estate financing related. So give us a quick and dirty insight into the two of you. who you are where you both come from and what is it you're doing real estate today?   Kenny: Sure, who we are well, people for short, if you want to cheat they call us K and K, because we both have K surname. So our background is in financing commercial for Krystle residential. For Kenny, we've been doing it for about 18 years here in San Diego and we've you know, we invest as well, too, primarily in multifamily. Gosh, how did we get here, you know, basically just jumped into the business and then kind of built our businesses up and then at some point in our career, we decided to get real crazy and start a property manager company and that grew way too big, way too fast and we said, how are we going to have you ever have kids in a life and do anything else because we can't work 80 100 hours a week. So we sold the company to start up and kind of took that time continue to work on building our brands starting our podcast doing a lot of content while doing our main businesses that finance and you know, and we just are active investors. So that's kind of the short story.   Michael: Right on, so you both kind of tag team in the residential side of lending, and then also the commercial side but it sounds like you're investing mostly on the commercial side.   Krystle: Yeah, so we invest primarily in multifamily and I think, you know, they kind of call us the one stop shop in terms of financing just because there's a lot of crossover between the residential and the commercial. So in Kenny's gotten really experienced at dealing with complicated real estate investors and people who own you know, several properties, I mean, things like we always say that those clients are like an underwriters nightmare but Kenny knows how to walk them through the income and how to do all that kind of stuff and then a lot of times they want to cross over into buying apartments. So it's a good partnership for us and it works out well for our clients.   Michael: Perfect and I feel like so many of our listeners as well kind of go through the single family organic progression, start with single family then maybe a duplex triplex quad up and therefore. So where have you seen from your experiences, like people do really well, in the commercial space, as opposed to sticking in the residential space at one to four unit, like when's the appropriate time for someone to graduate, if you will, or make that leap from one to four into five plus?   Krystle: Honestly, I mean, at least for us in Southern California, or probably any major metro, your biggest issue is going to be qualifying for the loan amount. So I think when you're trying to make that transition from residential to commercial people come to me and they say, well, what LTV can I get and I'm like, well, I need to underwrite the property because it's not like that just because we can go to 75 or even 80%. LTV, it doesn't mean that the property is going to qualify. So in San Diego, at least for Southern California, where we're at, we're usually debt service constrained, so cashflow and I like to tell people the lower the cap rate, the bigger the down payment. So obviously, cap rates have been super compressed recently and then now with rates going up, that means people are having to put more money down so the best time to make that transition is when you have the cash to make it I tell people I always recommend the more units you can buy, the better because you know if you have a four unit building and one person vacates, you have a 25% vacancy, maybe you'll break even on that property but if you have a 10 unit building and one person vacates, you have 90% occupancy still. So you're likely still cash flowing even with one person vacating. So you really want to get to that point, but you might have to, like, you know, I the BRR method, or those kinds of things to trade up but the biggest thing is just making sure you have the down payment, I think people should always be underwriting because that transition from four units, let's say to like a five, or a six unit building, you know, you've got to kind of like look at four to six units, just to make sure that you can get the down payment before you take that step.   Michael: Okay, that makes a ton of sense and let's maybe even take a step back for anyone that's not familiar with either the lending space as a whole or what commercial financing is. So I'd love to hear from both your perspectives. What do you look for on the residential side, like what pieces of information you're looking for and then on the commercial side, because I think it's a little bit different, what pieces of information are you looking for and how do you treat those two different types of loans?   Kenny: Yeah, so the residential um, I don't want to say it's very straightforward, because we do have we have more options, and probably Krystle and the reason why is because with Krystle like she says, if you just do not have the down payment, then you might just not qualify with us, the property could like not cashflow and you could put 25% down and still, if you qualify with your income, you could still get it but we also have full doc programs, maybe bank statement or debt coverage service ratio programs. So we have multiple, so really, what we're looking for probably is, depending on what if you're buying a four unit, most of the time, you're going to be looking at least 25% down, like I said, the property does not necessarily have to cashflow on a DSCR program that might be a little different.   But we have people buying an example for unit, it's way under rented, they're going to buy it, they're going to kick people out, they're going to raise the rent, and it's going to eventually cashflow. So that's number one, obviously, number two, you're looking at credit, can you go full dock, and kind of the traditional stuff of everything else, so but when you're looking at a two to four unit property as an investment, you're definitely gonna have to put like, at least 25% down and some people are putting more because rates are higher, and they just want to make sure if they buy it that it's cash flowing, too. So that's probably like the general quick, like overview with wonderful like two to four, for example on investments.   Krystle: I think that's the issue like for me, when I look talk to people who are buying four unit properties, the biggest thing I want to make sure of is, like Kenny said, a residential lender will give you a loan even if the property is cashflow negative, but the purpose of buying investment properties is to be cashflow positive. So, you know, you kind of have to do more of your own due diligence upfront, when you're buying a four unit versus apartments, I mean, I like to say like a bank is never gonna let you really fail, because they're not going to give you like a loan that's higher than what the property can support and they're going to put a lot of like cushion in there, too. We have replacement reserves, if you're self-managing, we're still going to use a management fee, we use a vacancy factor, we have all these kinds of things to kind of set you up for success, as an owner, I always say like with apartments, you can you can like you basically have to ignore your property and not pay attention to it and completely neglected in order to run in the ground, like apartments are very forgiving.   So when it comes to the four unit space, I tell people like you should be underwriting your four unit, just like you underwrite an apartment building, because probably the agents not going to do that. I think that there's a little bit of a hole in the realtor space where, you know, people that sell homes are also selling two to four unit investment properties, but they don't even know how to underwrite an investment property. So you just want to make sure of that and underwrite it like an investor. Like I always tell people marketing is marketing, right? So you want to look at it as an investment through an investor's eyes? What, what's that really going to cost you not the pretty package, if everything goes 100%- perfect. You want to like kind of factor in, you know, additional expenses that are unforeseen, because these are properties, and especially in southern California, you've got a lot of older properties. So you're probably dealing with plumbing or electrical, you're gonna have more maintenance than what's probably in the marketing package.   Michael: So is it fair to semis for a residential, you're more interested in the borrower itself and on the commercial side, you're more interested in the property itself?   Krystle: Yes, so we're definitely more interested in the property but I people say that to me, they'll call me and I'll go like, I doesn't matter about what I have. It just matters about probably well, no, we also want to make sure that you have decent credit, we look at what we call global debt service. So we are going to make sure that you can afford your monthly bills and things like that. So you definitely need to qualify, but it's not as strongly looked at as you would on residential. Like for example, if I'm going to do a commercial loan, and I'm getting copies of your bank statements, I'm not going to ask you to source your $1,000 cash deposit.   It's painful. So we I like to say that we have common sense. So we allow, you know, cash from business accounts, we allow personal accounts, we're not going to question you about all these things. So yes, we're a little bit more easygoing. because we look at you, as a sophisticated business investor, you're coming to me for a business loan, that means you're a savvy investor, not an unknowing, you know, potential homeowner. So we do look at it a little bit differently, you do need to qualify personally, but we do put most of the weight on the property.   Kenny: And you do, but you guys do require, like, if you are getting into bigger loan amounts, like some people, like, hey, I want to go out and buy this 30 unit building, and there is a net worth requirements like that. So the bigger you go with the buildings and the loan amounts, I would say, it's like, they're gonna look at you not just like, you know, net worth but you know, probably like a lot of people like talking about that, like, it's for me, it's going for a bigger building, I'd like to, you can look a little bit more.   Krystle: So the big things that you need to pay attention to, because when if you go to a commercial lender, or you want to buy an apartment building, they're not going to give you a pre-approval, they're not going to get you pre qual, if you ask for that, they're going to immediately know that you're a rookie, and you've never done this before, what we look at as your personal financial statement or real estate schedule, and what we're looking at specifically is that your net worth is at least equal to or greater than the loan amount and then we also want you to have 10 to 15% of the loan amount and post close liquidity. So that means after your down payment, after paying out all your closing costs, so let's say you're gonna get a million dollar loan, we want to see that you have 100 to $150,000 of cash or cash equivalents, most of the time retirement doesn't work, that's not going to unless you're close to the age of being able to access it. So and then credit score, it's like, you know, we're kind of like 680 score, I mean, some big owners have like things on their credit. So, you know, that are like maybe a tenant eviction, or like, you know, they've got little things on their credit. So we're not really paying attention to that as long as you look your credit worthy, you don't have a bunch of mortgage lates and you didn't file bankruptcy last year, you know, like, those are the kinds of things that we're looking for, but net worth and liquidity are the two big things that we require looking for experience to a certain level, there is they do want you to have experience, but if you don't, then they want you to hire a professional property manager.   Michael: Okay, and yeah, Kenny, you me to the question the words right out of my mouth. So when you do send, because that's like, I've got a mortgage package that I send all the commercial lenders that's got my PFS my schedule, real estate, but for anyone that's just getting started, like if they want to go buy a five unit building as their first one, is that going to be an obstacle for them from a lending perspective?   Krystle: Not typically, they might they, they'll more than likely want you to have a professional property manager. That's what most lenders are looking for and quite frankly, though, I've been telling my lenders this more recently, and I feel like believe it or not of all the things, especially with where we're at in the world, and everything in the economy, that I feel like lenders have led up on is the experience because I tell my lenders, you know, it's really funny that anybody can go buy a two to four unit property and again, negative cash flow, here you go, here's a loan, you're gonna be negative $1,000 a month. But now you want somebody have all this experience for apartments, like, if you can survive owning two to four unit properties, and as an investor, then you can definitely own five plus units. I think that's sufficient experience. So we've been getting around that but yeah, some lenders are still going to want it, I still definitely stand by my argument, though, that if you can own a four unit, that you can definitely own it, you know, a 10 unit, it's not like you're gonna go from four to 400. You know, if you go from four to six or seven or 10 units, that's pretty comparable but some lenders might require a signed Property Management Agreement.   Michael: Okay and from both your experiences on the owning and operational side of things, I mean, what are some of the big differences that you see and obviously, we talked about lending, but like, just between like a two to four, and then a five plus, like, what are the differences that people should be aware of?   Kenny: Yeah, so two to four? Well, one of the things is, especially here in San Diego, a lot of people on the four units, they're, they're moving into them, right. So you're probably how you can have an owner user, if it's an investment, you could live in it, and you have the tenants there helping to pay your mortgage, the other thing is on for units, a lot of times the trash, you might come with the property tax, you don't have to have a dumpster on the property and paying that additional, a lot of times the tenants are paying their own water, electricity and things like that. So the cost of running, it could be cheaper, just from that standpoint and then otherwise, like the for unit, I mean, if you're managing it, you're going to manage it pretty much the same. I mean, Krystle can kind of get in when you're getting bigger, but when you're getting bigger, you know, five to 15 or 16 probably the same when you get over 16 the difference really is you're gonna have that onsite manager by law but then you know, as you get bigger and bigger, if you've got 100 unit, then you're gonna have staff and this so it's really like Chris says, as you scale and size. It's it makes more sense because you know, if you have 100 homes compared to 100 unit property, you know, it's a lot more work 100 homes driving around 100, roughs, 100, things like that. So, you know, I don't know what else you have on a larger scale.   Krystle: Yeah, I would say the management of like a four unit to like a 15 unit building is roughly the same. Besides the fact that you have economies of scale, like Kenny, you mentioned, it's like you have all these roofs to take care of all these walls to take care of things like that that are going to be, you know, cut down, the larger the building is so and then once you get 16 plus you have the onsite manager but honestly, I think the psyche of the person owns a four unit is the biggest difference, because like I said, I mean, it's stressful, you bought this property as an investment, you saved a bunch of money for it, if you have to come out of pocket for that investment, that's an extra expense that you didn't anticipate if you have vacancy, or if you know, you've got to evict someone, or things like that. So I just, what I've noticed is that the real estate investors who own like the single family home to the four unit have a lot more stress when they have vacancy or someone that doesn't pay because they're going to be negative. Whenever you own a larger apartment building, you have a little bit more comfort, because you have a little bit more margin for error there. So I think the biggest thing is just the psyche of the person that owns the four unit versus owning the larger building and of course, there's like this kind of break through transition that you have to have to feel have the confidence to make that step. But I tell people, it's 100% going to be easier, the more units you own, like you're just going to feel more safe, more confident, you're going to have a cashflow. No worries, you're not going to be negative, you're not going to be putting money into your investment property.   Kenny: Yeah and when we managed, we managed from homes to one point that was over 100 units. The single families would do great until somebody wouldn't pay rent or they'd move out and they had to do a unit turnover and they cost more than the deposit and then it would sit there for maybe a month or two sometimes because they're trying to get this high rent and they didn't listen to couldn't get it and you're losing money and the other thing is, is we know guys that like flip properties, for example, like they flip houses and then you come to environment like now where it's sitting maybe you know could sit 30, 60, 90 days, they're getting zero cash flow and then when the guys started saying, well, I could just flip apartment buildings, and maybe they're going to even hold them for a year or two. In exchange, they started realizing why I'm sitting here on the market. I'm actually making money I'm getting paid, I'm not sitting there going, I need to get all my books, it's cost me money, that private money. So it there's you know, like the bigger the better. So when we manage it all we realize, like, if you really own a house, it's like man, it's almost has to be free and clear to like really make sense. Otherwise, we always thought like, gosh, it's tough, you know? So that's just from our experience here, just managing and then on the bigger when you're more like when you do those little rent raises, right? Yeah, but small rent raise across 3040 50 100 units. That adds up, you don't think so? You're like, oh, 100 bucks a month times 100? Holy crap. That's a lot of money. You know? Yeah. 10 grand, so…   Michael: Totally. Okay, that makes a lot of sense and Krystle, you mentioned it before, but I just want to come back to it from the underwriting perspective. What do you do with seller provided pro formas? Do you think there's any value in those?   Krystle: Totally, I primarily just pay attention to like utility cost and yeah, like trash and stuff like that. So I pay attention to like, the things that aren't going to change for a new owner and I pad those even a little bit because obviously utility costs have been rising. So those are the biggest things that I pay attention to and then I also want to look at, like I usually ask for the GL, like the general ledger from a seller to because I want to see what repairs they've been making and see look for any kind of patterns. Okay, this property has a lot of plumbing issues, like we need to focus in on that. Maybe we look at replumbing. Maybe we need to get the camera, you know, camera, the lines like we need to look at this. What capex have they done, like I want to know what kind of capital improvements they've done on the property. So I can kind of get an idea of what the condition is. So I definitely do pay attention to sellers, pro formas but I build my own and they usually like for example, brokers here we'll use like a 3% vacancy factor. I use five lenders use five, they'll use like $200 a unit for replacement reserves, we use 250 or even 300. You know, so there's just little things like that where I am going to be more conservative, but certainly actuals are very, very helpful. So if nothing else for the utility costs.   Michael: Yep, I was hoping you would say something to that effect. I always say that. They're good for lining your garbage can… like in place rent 400 market rent 1200 It's like, then you get it to 1200. Yeah, you know.   Krystle: And you know what, I've seen it both ways. I've seen it where sellers are under estimating what the building's worth. So that's why it's so important for you to do your due diligence because they can be too aggressive. They cannot be aggressive enough. I mean, the whole like, value and finding real estate as an investor is where you can find value where other people aren't, like I've heard so many people say, you know, LoopNet is the worst place to find apartments. Well, I found really good deals on there because I was able to get it in a way that nobody else did. I was able to see value and you know, adding creating additional income or reducing expenses, like there's deals everywhere to be had. It's just are you going to do the work and investigation to find where the little like pops of income and you know value ads are.   Michael: Krystle didn't mean it LoopNet is a terrible place. No one should go on and look at it ever. We should all stay off it.   Krystle: All right, no, I'll get more deals.   Michael: That's exactly right. That's exactly it. Like, I love that it has that stigma because I think it does turn a lot of people off and I like you have found some amazing deals from there. So it's like, awesome, keep thinking that it's like surfing sucks. Don't start, you know, I let people think that…   Krystle: People in the water…   Michael: Yeah, that's it so from a borrower perspective, and this is I kind of want to give you to the soapbox and the podium to sing it from the rooftops? What are some things that borrowers can do to be better borrowers, both on the residential side, and on the commercial side, like if you could describe your wish list your ideal borrower, what things do they have and what is their kind of their picture look like so to speak?   Kenny: And it's kind of funny because I, I'm forbidden to even work on my own loans because I'm not a good borrowers.   Michael: Really?   Kenny: Yeah, it's funny, right? I'm not a good borrower, I'm impatient but I will tell you, it's very simple. If somebody sends you a list of 10 things, and you actually have those 10 things we actually need them. Not like it's nine out of 10 out of maybe another 10. Yeah, so I always tell I joke, but always tell borrowers this. I said, I'm like your doctor and your attorney. They're like, huh, I said, so if you lie to me, I can't discover the cancer and eventually, we'll probably find the cancer but it will be like, when we're three weeks and underwriting and somebody pulls some report, and something pops up and they go, what's this, you're like, oh, I didn't think you'd find that. So I'm like, whatever you think we're not going to find, just tell me now and so I can tell you, let's deal with it now, and not three weeks down the road. So you know, filling out a full application. Letting us know if there's anything else we should know going on with income with job changing with changing bank accounts with maybe recently purchased property, that you're just not going to tell us that you think we're not going to find, you know, the skeletons in the closet, right, especially for us, because that's really what they're doing.   They want to give you a loan, but they also need to go like, what is it that you're not telling us and we pull reports and the reports they pull, they can find things. So for me, it's just being transparent. I mean, the list is pretty easy to follow. I would say one of the things is also a lot of people think I'm self-employed, I don't really show the income or this or that and I can't get a loan, that's really not true. There's many alternative solutions for self-employed. There's solutions for people that might just have you on property rich, I got some cash in the bank, and I you know, I got equity, there's options that don't think because you're not this cookie cutter person, there's not an option, you should talk to somebody and you'll explore it and see and really beat a dead horse and really make sure that there isn't.   Michael: Fantastic and what about on the commercial space?   Krystle: I again, we're so much easier. I just found that people go like, what do I need to get called and I'm like, send me your personal financial statement or real estate schedule. They're like, okay, what else do you need? I'm like, I'm pretty good. You know, I can tell you. I still want your tax returns and your bank statements and all that. So I think for me, just obviously getting stuff in a timely manner. I, you know, we have those clients that take forever to send you something and then the second they send it to you, you're like, they're like, okay, what are we doing now, like, or have you? Are you done yet? Are you close and you're like, you know, I can I also need time. So I think just having somebody that sends you the information that you need, again, someone like Kenny said, someone that's upfront with you about things, like the other thing that I find is like people are just so like, they don't want conflict, right? So if they're shopping you like they don't want to tell you and I'm like, I've lived my entire life, 18 years doing this business competing, like I'm aware, but you have to be upfront, because if a banker finds out like, you know, if they hear the deal for me, and then they hear it from three other people, like that doesn't look good on you as a borrower.   So you want to be upfront with whoever you're working with, hey, look, I'm getting quotes from a few other people. Okay, well, do you know who they're shopping because I just won't go there. Like, that's, that's fine. I don't want to screw the deal up for you. So there's little things like that, where reputation and commercial is so important and this is a small, small business, we all know each other, we all talk to each other. My bankers call me sometimes they go hey, so I just saw this deal from another, another broker, like do you know who's gonna you know, and it's a problem because if I dissected the information, like I don't just take information and throw it at the lender, I dissect it all i breakout capex, I say, okay, I got my insurance, quote, I it's lower than what's projected here. I get a lot of things. So what I submit might be different one than what the other guy is going to submit and so I think, you know, just making sure that you're upfront with people and what you're doing then I can strategize with you like I'm not gonna get upset or work on your deal any less because you know, you're shopping me so I think just being upfront with people is gonna get you the best deal ultimately in the end.   Kenny: Yeah, I will say funny to piggyback on that. I might even end Krystle's business. but I know they're really good at what they do. They just do it and they know what they want the bankers, but bankers will say like, if I'm out there like, oh, Krystle limits are so good. I go, well, what's alternative they go You wouldn't believe how many like commercial mortgage brokers just take the stuff from the seller or whatever just send it to us go, hey, what do you think we can do and they're like, did you look through this? No, you do it and you're like, that's the person that's taking your loan and getting a loan, and Krystle, that's what happens. They could submit that to the lender and lenders like, hey, we already saw this, like, that's not right. I know about, we can't just throw it out the window. So who takes your information, how they present it can literally, like cost you a deal at a good lender and it has. So that's one thing to make sure you work with the right people.   Michael: Yeah, I mean, to that point, Kenny, what questions should people be asking, of their lending professionals are working with and how do they spot some red flags?   Kenny: Well, number one, I would say, you know, if you're working with like, I know Krystal or myself, because I know as you're let's say you're buying an investment property, if your first one, you're probably going to have a, you know, conversation up front, and we're gonna ask you a bunch of questions. So we're going to kind of interview you and we get your stuff. You know, you should be leery when somebody's like, yeah, they took my stuff and I haven't really heard from them. Like, they haven't really asked me anything. I'm like, nothing. They're like, no, I'm like, so did they talk to you about the loan or no and I'm like, so you've had it over there for two weeks? So they mentioned rates? No, I'm like, so when I call somebody to ask them five questions, they can't answer. One, they've been working with somebody, I'm like, what have you talked about that, like, I don't really know. So you should feel very, very informed by the person you're working with and you should feel like, they're getting a lot out of you and they're also even if you're not asking me the questions, I'm kind of like telling you like the things you should know, you should be asking, because, like, so that way, if you do shop, you're like, This conversation was way different with Kenny than then. So and I know you're shopping, I want to be like on your guy, you know.   Krystle: You want to feel like the person like advising you and I don't think it's super common really to find that. For me, I think a big thing that's important is if I'm working with somebody, even a broker, like if I want to go work with a broker to buy properties, they should own properties to like, you should be drinking the Kool Aid, like you're selling it, so you should drink it too. You know, so I think you know, somebody who also is an investor, because I think they're going to understand and look at things as an owner and as an investor themselves. Like, when I look at a deal, I'm looking at it as if I was buying it as if I owned it. So a lot of our clients call us and say, What do you think about this deal? You know, and they get, they get our advice, and they want to get like, you know, their brokers advice. So you can listen to a couple of different people, because we all have a little bit different perspective but especially if you're getting into this, you want somebody who can kind of guide you through this and walk you through the process.   So I think, you know, if you're interviewing people, or you're wanting to like work with a broker or lender, you should ask them, hey, what's the loan process? Can you walk me through it, and how much that person says is going to be really telling, I think you want to work with somebody you like, you know, you just have to like them as a person and then secondly, ask them about the process and see what they say. I mean, either they're going to say something, you know, a few short sentences, or they're actually going to walk you through and let you know what to expect. I think that's the biggest thing is for us, we're advisors, but we also need to manage expectations and so you're going to find out real quick if that person will manage your expectations or not by you know, just understanding what the process is and how they how they answer that question.   Michael: I just want to come back and double click on what you said about liking the person. I can't tell you how many lenders I've worked with that it feels like such a combative relationship, whenever they call, I'm like, oh, god, like so and so is calling, like, kill me now. So versus I've worked with people that I love answering their phone calls, and I've paid more in rate, because I like them and because it was a partnering relationship, as opposed to this, you know, U-verse me type of thing. So I think that that's huge.   Krystle: For sure. I mean, it's somebody you're gonna be working with a lot and like, this is like getting like a physical, you know, like, stripped down, look at your…   Michael: Full cavity search.   Krystle: Yeah, all of it. So, uh, you definitely want to like that person and you want to have like, a sense of trust and I think we only trust people we like, you know, so if you don't really like someone, you know, or they're not getting back to you or they're not really communicating, you're gonna have like, these these, like, you're gonna feel really insecure the whole process and I mean, even as people who do loans, like Kenny says, I'm a bad borrower. Like, yeah, he is because he's always like micromanaging the situation and like, you know, freaking out that there's like, some weird thing that's gonna pop up out of nowhere. So it's like, you want somebody to kind of walk you through that process and manage it. If people who do loans for a living are already stressed out getting loans, like we can guarantee that borrowers who don't do this for a living are probably having a lot of insecurity.   Kenny: Yeah, and one more thing I'll say is, this is a good this is good to know, is like I'll get a complicated real estate investor with a lot of stuff. There are certain lenders you go to and there's certain lenders you do not go to and the problem is they're like I was is that this lender that and I get a lot of people that like I went down the road this guy and couldn't get it done. How do you know you can get it done? I'm like, Well, I don't know where he went but this is definitely a doable fall but I can tell you, there's a lot of lenders, I wouldn't take this, why am I because this is just not what they want. They're not good at this, you know, this is not what they do and Krystle is the same way and I think it's like so some people that are not doing you know, the investment stuff that often they just don't know that they just throw it against the wall, hope it sticks, and they come back to sorry, I know you're we're in escrow, we're not going to get it done. You got to we got to start over again. You're like what I'm supposed to close. So, you know, like, like, goes back to like, and trust is good, but also work with somebody that just has it, like, have they closed these loans? Have they done many of them, you know?   Michael: Yeah, no, that's great. Y'all, this has been super, super fun. The last thing that I want to touch on, which I'm sure is on everybody's mind, I would love for you all to get out your crystal ball and no, that wasn't a play on words, legitimately. Where do you think rates are going?   Krystle: So yeah, I wish we all had a crystal ball for that I've had I have certain clients who think the sky is falling and rates are going to be at 10% by the end of the year and then I have other people who are like, you know, I think you know, because of the amount of debt that we have, we've never had so much debt ever. Real estate inventory is still down, there's still a lack of housing. So in terms of real estate and interest rates, I think rates are gonna go up a little bit more of most of our lenders are predicting another point to a point and a half by the end of the year. But I think after that they're gonna have to start bringing scaling back because this last Fed rate hike, like definitely caused a lot of panic in the market. That was like a rough week for us, just everybody calling is everything, okay and what's happening lenders just raising rates, like multiple times a day, which does not happen in commercial. So things like that.   So I definitely saw the scare the next Fed rate hike, I think they will raise the rates again, I think we'll be looking at another half to three quarters hike. So I think we're in like a little low right here, right now I really like okay, treasuries have come back down and finished my summer vacation, you know, but the winter is going to be a cold road, you know, like, I think that things are gonna slow down a little bit, and people are just going to wait and see what happens and rates will be up maybe another point or so and then I think we're gonna have to start heading the other direction, because corporate debt, like there's a lot of debt, besides just our home loans and our apartment loans, there's all the corporate debt, there's government debt, all this stuff, and that's all tied to prime. So if the country can't pay their bills, you know, like, they're gonna have to keep, they're gonna have to keep rates low. Like, we can't keep going like this. So that's, that's my opinion.   Michael: There's no such thing as a cold winter in San Diego, come on.   Krystle: I mean, 16 degrees is cold.   Kenny: Yeah, I think I mean, like Krystle said, you know, piggyback off that, I think at the end of the day, we have to understand why the rates were raised and it's simply we've learned, it's like, yes, Jerome Powell, we got you loud and clear that until inflation, not just stops, but we see it progressively go low, and it stays there, they're gonna keep doing what they only know to do is to I look at it this way and I keep saying this over and over is, the more I studied this stuff, is where they want the economy to boom, they just put liquidity in, they either give it to people, they give you gas credits, give you money, don't pay, well pay your rent, you know, let's lower rates, let's you know, it's all that's monetary coming in, when they want to slow it down and hit the brakes. They just pull the liquidity out and they're pulling tons and tons and tons of liquidity out of the system. It's parked on the sidelines, they don't talk about it, but it's a massive, massive number that's sitting there and so on top of pulling liquidity out, which actually is the bigger issue, right? They are obviously in pushing rates up, so they're gonna hike and then we all know that even if they stopped hiking now and they started doing QE, we probably still have some type of recession, you know, so they're gonna put, we're going to have some pain. I mean, unfortunately, the party went on too long, they spied the Punchbowl and they left it out too long and we are going to have a massive hangover and we're all going to feel it and then they're going to put us to pain right there. We're going to be held down, we're gonna get to two, three wave hold down and then the Jetsons gonna come along and grab you and pull you back out and then when they do that, they'll probably do the same type of thing. So you know, lower rates, no, no one knows the Krystle ball, like how long this is gonna go but I just tell people, you just have to listen to the Fed and they mean business now ad there and when we start feeling pain, but I think like Krystle said is I think we're already starting to hear little this and that, you know, from people we know that owns jewelry stores or people that have you're starting to hear things that in the last couple of months, things have slowed down and you're starting to hear that. It's in one way, it's like not good, but one way it's good because if we don't slow down, they're just going to keep raising rates and we're going to have more probably Oops but I feel like the next hike is definitely going to do. I feel like that's going to be it. That's going to be like the nail in the coffin nail.   Yeah, I feel and I think they're going to let that run and then I think like Krystle says, come after summer, I think a lot of people are going to be like, you know, we're gonna start pulling back and I'm already hearing it, I'm hearing it from people, we're gonna do a addition on their house. Now they're not people, we're gonna go buy this or do this. Now, they're not people, you know, you're hearing talks of people and it's not that they don't have the money. They're like, I should probably not do that right. Now, that doesn't make sense but that's because what the Feds doing is working. So once this all happens, of course, we'll be back to QE, lower rates. My prediction is, we probably see start seeing some lower rates definitely by like early next year, q1, q2 starting to see rates come down and look, we might be shocked, depending on how much pain is in the market itself, they might have to really like COVID really hit the hammer on him and drop rates for a small period of time. So I think a refi boom, and the pent up demand that's going to come on the backside of this is going to be pretty insane. The amount of commercial guys that are big syndicators that aren't doing deals. They're just chomping at the bit there waiting. Where's the bottom? So everybody's sitting here going, we're kind of waiting for this recession. Where's the bottom? Where do I enter, right and it's just as unknown and it's kind of weird that we're just sitting here. Usually we get blindsided by it.   Michael: Yeah, interesting. Well, we will definitely have to have you both back on and q1 q2 of 23. And see how the predictions panned out.   Krystle: If we were right or wrong.   Michael: Yeah, well, we'll either be celebrating you are nailing you both up to this…   Kenny: But this is but it's funny, because we do we do month over month. I do month over month, a webinar on the housing market and in January, not I mean, you couldn't find one person that we looked at our study that they thought by q4 of this year, the worst highest rate prediction was 4% of this year. We were there like the first month. Yeah, everybody that thought we were gonna go this fast. Nobody predicted that sort of like, I thought this is like we're just kind of like in this. Like, they didn't think that you know, so we're just sitting here going, wow, nobody predicted this. They all thought we'd be raised to be at least a point or two lower, which is crazy…   Michael: Oops… Yeah…. Okay. Well, you too, this has been so much fun, really, really, really informative. Thank you so much. If people want to reach out to you both directly, where's the best place for them to do that?   Krystle: You can go to https://getinthecashflowgame.com/ and that links to both Kenny and I's, separate sites for financing, whether it's commercial or residential and then we're on Instagram and all the things so I'm Krystle Moore, and he's Kenny Simpson, the opposite the two best places.   Kenny: Yeah, appreciate you having us on. This has been fun.   Michael: Awesome. No, totally, totally my pleasure and definitely looking forward to chatting with your again soon.   Krystle: Absolutely, thank you so much.   Michael: Take care you two!   Okay, everyone, that was our episode a big thank you to Krystle and Kenny for coming on a lot of fun, super insightful, and especially if you're thinking about making that transition that leap from residential two to four units up to commercial family, this was a good one to listen, definitely keep it in your back pocket and as they mentioned, have some of those documents at the ready and you'll be really well prepared for getting into some of those commercial mortgages. As always, if you liked the episode, please leave us a rating or review wherever you get your podcasts and we look forward to seeing the next one. Happy investing…

The Remote Real Estate Investor
A step-by-step guide to setting up your real estate LLC

The Remote Real Estate Investor

Play Episode Listen Later Jul 23, 2022 19:09


Using an LLC is a powerful way to protect yourself from the liabilities inherent in owning rental property. We have had the discussion of whether you should use an LLC or an umbrella policy on the show before so we will dive into the details of setting one up. Today, Emil asks Michael about the process of creating and managing LLCs in regard to real estate investing.   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…   Michael: Michael Albaum   Emil: and on this episode, I'm going to be putting Michael in the hot seat and asking him questions about putting his properties in an LLC. We'll quickly cover why he did it and then I'm just going to ask him how he did it, what he learned what tips he can offer you. So that if it's something you've been interested in, you have a step by step guide on how to do it. So let's hop into this episode.   Before we hop into it, what's up, man? It's been it's been a while since we recorded up so…   Michael: I do I know it's been a minute I'm doing well, thanks. Trying to get some financing lined up on these three multifamily that I got the rug pulled out from under me on so still working through that but construction project, the rehab projects almost done, which I've been told is almost done for a while now. So I'm not really holding my breath but really I think this time for real is almost done. So let's get to you Emil, how about yourself?   Emil: I think you when we started this show like two years ago, you told me it was almost done. So I don't know if that's true.   Michael: That's true, I believe it…   Emil: I hope, I hope it finishes soon.   Michael: Thank you me too.   Emil: Good. My update with me, we are still selling the Jacksonville property. We just got it under contract but a week and a half ago, I want to say we did inspect the buyer scheduled inspection on Thursdays so I should probably be hearing back from my agent like today or tomorrow on I'm sure you know what, what they want to knock the price down based on seeing the inside, which I knew going into it like, once the inspection is on the inside, you know, we've had a tenant there for five years there. They're definitely gonna want some. They're gonna ask for something. So I'm expecting it. We'll see how that goes.   Michael: Okay, cool. Well, keep me posted, let me know how it all shakes out.   Emil: Yeah, man. Absolutely, so this episode, you know, a lot of people think in in a previous episode we covered what should you do an LLC? Should you put your properties just get umbrella coverage. In this episode, we're going to really just focus on like the steps that you personally took on setting up an LLC getting your properties in things, you learned mistakes, you made all that stuff but before we hop into like the how can you briefly give us the why, like, why did you decide to set up an LLC and put your properties in it?   Michael: Yeah, totally. So I grew up in the insurance world. Next question. So like, it's, it was something that I grew up around, like segregating assets, and like, understanding what risk is and how to mitigate risk and so that's really, from my perspective, what an LLC is used for, you put things into an LLC, that's bucketed and so that's kind of the limit of your exposure and so I used to work as a fire protection engineer and the commercial property insurance industry and that's also kind of on the physical side of things, what we would do, we would say, okay, how bad can a fire get and can we physically build a building and put systems in place that will contain that fire, so it doesn't spread to the rest of the stuff because if you have a small fire, it's usually not a big deal. If it's contained, it's not necessarily the end of the world versus if you burn, burn the whole plant down, that can be very problematic. So same kind of thinking can be applied to asset protection from the real estate investing side of things.   So it just made sense to me to bucket things in their own bucket, and keep them totally separate from my own assets. So therefore, if I did have a fire, quote, unquote, metaphorically speaking, or physical one, as any listeners of the pod know, that I've had to, it doesn't affect the rest of my building, so to speak, the rest of my net worth or my nest egg. So just keeping things separate made sense to me and so there's financial burdens that go along with that in order to have own and maintain an LLC. There's a cost associated with that. That overhead was worth it to me to mitigate that risk exposure.   Emil: Yep, makes sense. So did you did you set up an LLC before you bought your first property? Did you buy a property and then like quitclaim it in? What was what was your timeline for LC?   Michael: Yeah, so my very first two properties were Southern California single family homes, and so they didn't cashflow very much. If you live in California, the LLC has to be registered in California from everything I've been told and heard, if someone has a way around that I've been asking for years, let me know, I would love to not have to give California State Government 800 bucks a year per LLC. So those first two investments, I just had my personal name, I had high liability limits on the insurance policies themselves, like on the dwelling itself and then I also got an umbrella that sat on top of that, because that just made me comfortable on an umbrella for anyone who doesn't know what it is. It's basically a liability only policy that will sit on top of your existing policies and give you have limits across the entire portfolio and so the dwelling policy itself has a liability limit attached to it and so for me, I think I had like $2 million of coverage, or maybe 1 million on the dwelling and then I had an additional, I think, one or 2 million as an umbrella and so that can be applied across multiple properties but that dollar limit is like all that the insurance company would pay out in in any given occurrence and they also have an annual limit that they'll pay out in any given year.   Emil: Right, that's my current setup, I never LLC seed, I wanted to at some point, but…   Michael: Oh, good verb.   Emil: What LLC seed?   Michael: Yeah, you heard it here first folks, see new, new real estate investing verb…   Emil: Yeah, don't trust the words that make up. So I wanted to, but decided to just, I had an umbrella policy from the beginning on top of, you know, regular rental property insurance. So that's still my setup.   Michael: I think it makes sense for a lot of people and so you have to like understand what is entailed and what are the risks and benefits of having an LLC versus not having an LLC and just weigh the pros and cons? I definitely don't think it's you, like, thou shalt have an l like, no, you don't, I don't think you need one, necessarily. You just have to make sure that you understand again, what are the pros and cons for your situation and so it wasn't until I bought my third property and that was out of state that the cash flow cumulatively between all three was enough to support the 100 bucks a year payment. So that's when I did the whole LLC thing.   Emil: Yeah. Yep, that makes sense. I probably say, this is just my opinion, not legal advice, or anything. I probably say, once you're, when I did it, my net worth wasn't very big. I didn't feel like I had a lot to lose. I feel like when you start having more to lose, right, you're like, someone could personally come after more, probably a very, very good idea to make sure you have an LLC. So at the bare minimum, that's, you know, my opinion.     Michael: Yeah, totally and I mean, talk to like, talk to a legal expert, and get an understanding because they can really give you the breakdown, hey, this is this is what's exposed, or this is what's protected with an LLC, because the one thing I really hate to see as someone open an LLC, especially themselves think that they're totally protected, and then get totally shafted, you know, in a lawsuit or that sort of thing. So you really want to understand because you're setting up this system to protect yourself and your family and the assets, like spend the extra couple 100 bucks, whatever it is to do it right, and make sure that truly you have an understanding and a grasp of what is this doing and what are its limitations?   Emil: For sure, so that's a good segue. So at what point did you decide to LLC you, about the SoCal properties, didn't have an LLC.   Michael: So it was after that third, the third property that I purchased at a state, the cashflow was then enough on that, and then the other two, cumulatively to support that 800 bucks a year LLC payment to California. So at that point, I said, okay, let's move everything, put it into the LLC and now that'll kind of be its own standalone thing and so that that just made sense at the time and so I kept a very similar insurance policies structure, where I had the same liability limits on the property itself and then I also had the umbrella for the LLC that sat over those three properties.   Emil: Got it, okay…   Michael: Because I'm neurotic.   Emil: So, I think you're just being smart. So walk us through that you because now that you have properties, you have to do what's called a quitclaim of the deed, right from your name into the LLC. So we'll get to that but what did you do? Did you hire a lawyer? Did you just go on, like Rocket Lawyer or one of those online? How did you do it?   Michael: Yep. So I did it myself. I went on, like I think was like LegalZoom, or one of those type situations where you can set up your own LLC. In hindsight, I probably wish I had used an attorney, just because it was totally brand new and I was worried about making the wrong choice or selecting the right things. So in hindsight, I wish I would have spent the extra money just to have it done, right but for the quit claiming process, I use an attorney and we've had her on the podcast before Kelly Chrisman. She's amazing, she's awesome, really well versed and all this sort of stuff. So for the two properties I owned, I quit claimed those into the LLC and for this third property, I knew I wanted to basically start an LLC to take property ownership and so I actually did that concurrently, while I was in escrow and got the LLC opened before the property closed. So that actually took title directly from the seller into the name of the LLC. Because the more you can keep your name off the chain of title, apparently that's more beneficial. So I was like, okay, like, I'll just do that because I wanted to do it anyhow. So instead of closing in my personal name, and quit claiming, I just went straight to the LLC and it was a private lending note. So that was no problem to close from the lending perspective in the name of the LLC   Emil: God, okay, so that's, that was gonna be my next question is like, what are the differences in, like the process, when you buy in your personal name, I think you've highlighted on the first one, you can get a loan based on you, you as the individual, when you get in an LLC, it's a little bit different, right?   Michael: Right, so my understanding and definitely chat with your lending partners professionals out there, but my understanding is that like the government subsidized conventional loans, the Fannie Freddie type products cannot be titled in the name of the LLC, they're not going to lend to the LLC, they're going to lend to Emile Shour, or Michael Albaum, or Pierre Carrillo as individuals, not as entities can, commercial mortgages, totally different space, different ballgame, we actually just recorded a podcast with a commercial lender and a conventional lender, their husband and wife team and so that was really interesting to kind of get both sides of that coin but if you're going to get a non-conventional mortgage, you can likely get one in the name of your LLC, or some sort of business entity and so I would just simply ask your lender, hey, this is what I'm trying to do. This is the goal I'm trying to accomplish. What's the best way to do this and if they say, well, you need to close in the name, or your personal name and you eventually want to get it to the LLC, ask them oh, hey, can I transfer to the LLC after the fact? Some lenders will say, no, you may not. Others might tell you, yeah, the loans closed, do whatever you want, we don't care. So that might affect your lending decision of who you ultimately get financing through because if someone tells you no, don't do that, do you really want to go get that loan from that lender might kind of make you take pause and think twice about it.   So again, be super forthcoming with all the information, give them the goals, the strategies, the hopes, the wants to dreams, so that they can really help structure what loan product makes sense for you because if we just give them the transaction piece of it, and we're going to do something different down the road, it just, they're not giving you the best advice, because they don't have the whole picture.   Emil: Got it, okay and so, if I have a brand new LLC, and I decide to get a loan, in the name of the LLC, if it's a brand new LLC, like how do lenders usually look at that brand new LLC, like, how do they deem it worthy of, of lending?   Michael: Yeah, so they'll in that instance, likely look to you as the borrower, and just be like, do you have enough money to do this and we're gonna make you sign a personal guarantee. So you're still I mean, even if a meal shore LLC 123, doesn't can't pay the debt, like a middle shore, can we're coming after you directly and so new businesses new LLC, is are started all the time to take over property ownership or to receive property ownership, essentially and so I think that's something that they're used to, if they balk, and say, oh, you need two years of like business tax returns, like, obviously, new businesses won't have that and so ask them: Hey, how do we work around this? Can I give you a personal guarantee? What do you need from me to make this happen?   Emil: Got it, okay. Good to know. Let's see what else we want to ask you. What other parts of the transaction are different? So financing can be some that you need to ask your lender might, you know could be different. What else was different about buying a property through an LLC versus in your personal name.   Michael: The one of the main differences from a process standpoint, really nothing that the two are equivalent, you still get an inspection, you still negotiate with the seller. One thing I would definitely recommend people do is if they are considering purchasing in an LLC that might not be in existence yet. As you put your name on the purchase and sale agreement, put your name or assignee, and that basically allows you to assign the contract to someone else and so it's something that wholesalers might do and if someone asks about it, just say like, no, I'm just not sure it's either gonna be B, or my LLC. I'm just not sure yet. I haven't created it yet and that way, you can assuage any fears that oh, someone's trying to wholesale this deal on me but that makes it super easy for once you open your LLC, you can now say, okay, it's not Michael Albaum, it's Michael Albaum, LLC, 123, whatever, whatever that entity is.   And then the other thing to keep in mind is like the money flow, for how you physically need to purchase the property. So if you do purchase and close in the LLC, the money needs to come to escrow to the title company, from the LLC and so in your example in the like, you were asking, what if it's a brand new LLC, so if you're buying $100,000 property, and the bank's giving you a loan for 80, you're bringing 20, you Emil would transfer that 20 grand into the LLC bank accounts, which then that's where you're going to wire the money from to close the deal over to the escrow company as opposed to wiring it from Emil Shour checking account over to the escrow company. So you want to be able to show very clearly that this is the LLC is asset. This isn't a meal shores asset.   Emil: Got it, I'm glad you gave us that note about either your name or assignee because you're right, a lot of wholesalers use that and it's funny, you bring that up, because on the Jacksonville property, we got a couple offers, and they had that language and we didn't choose some because we're like, you know, wholesaler like those deals can fall out, they have to go find a buyer and you know, not as strong as someone who's just coming to buy it. So like, if you mention, you know, if you're you have your agent mentioned to the selling agent, or whatever, that I'm putting that in, because it's going to be my LLC, it's gonna get looked at differently. So good thing to clarify when you write that offer.   Okay, I think that was most of the questions I had for you. Any big lessons you had from the process? I think you mentioned a couple but if you could do it all over again, what you did differently?   Michael: Yeah, I think I would just have an attorney do it from the start draft up the LLC documents. It's also super important to keep in mind of if you don't live in the same state as where the property is owned in the LLC. Like, what is the registration process look like and so I've done it both ways. I formed a California entity, and then registered as a foreign entity in the state where the property is owned. So for me that was like Kentucky, or Alaska or Ohio. I've also done it the opposite, where I formed the LLC in Ohio, and then registered as a foreign entity here in California and so again, not legal advice, definitely chat with a legal professional. But from my experience, the LLC needs to be registered in both locations in California, because that's where I live and in the state in which the property is owned as well and there are certain things, taxes forms filings that I have to maintain for both states, which are separate and distinct and so making sure that you're in compliance with the local state, governing rules and regulations around LLCs. You also need to have a Registered Agent. If you're not living in the same state in which the LLC is owning the property. You might even need a registered agent if you do live in that same state but basically what a Registered Agent is, is someone or some company that can receive court papers on your behalf really is what typically is getting served.   Like, is there, like where do we send the mail to and so that's what a Registered Agent is. So there's businesses and services out there that can do that for you. I just use like a service provider that handles all that I've also used like my CPA or my property manager, that can also work but you just want to check and understand the local rules and regulations around who can and can't be a registered agent for you.   Emil: Yep, illegal zoom all those internet you know, LLC providers, they usually have that as like an add on option as well. So if you're like how do I do that? They make it super easy, like very, very common thing and make it super easy for you.   Michael: Yep…   Emil: You know, if you do want to talk to a lawyer, your accountant a good accountant can be very helpful here as well. They don't bill you for a 30 minute consult, so accountant can be helpful here as you're trying to figure this stuff out as well.   Michael: Absolutely, absolutely.   Emil: Cool, man. I don't have anything else. I think that's probably a good spot. This was this was actually enlightening for me because I haven't gone I mean, I have an LLC for my business but not for a rental property. So this was this is good for me as well.   Michael: Yeah, right, alright man. It got us all helpful.   Emil: Thank you everyone for tuning in. Please, please, please leave us a comment. Let us know what you liked what you want to hear in future episodes, wherever you're listening to this and we will catch you on the next episode. Happy investing.   Michael: Happy investing.

The Remote Real Estate Investor
Leveling up your real estate business with Mike Simmons

The Remote Real Estate Investor

Play Episode Listen Later Jul 19, 2022 43:27


Mike Simmons, a real estate investor, author of the book Level Jumping (linked below), has shared the stage with some of the greats like Gary V. Has made over $1 million in profits in 12 months!! He knew he wanted to invest in 2003, and bought his first flip in 2008....why did it take so long? Like a lot of people starting out Mike was afraid to tell his spouse because of the difficult conversation. It wasn't until he finally decided he was tired of allowing fear to be his excuse that he dove in. Today, Mike shares his inspiring story of how he left his job, entered the real estate world professionally to begin wholesaling and flipping houses. Episode Links: https://www.mikesimmons.com/ Level Jumping   --- 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'm joined by Mike Simmons, author, CEO, business coach speaker, and we're gonna be talking about Mike's business, wholesaling and flipping houses, and what we should be aware of if you're going to get into either of those businesses. So let's get into it.   Mike Simmons, what's going on, man? Welcome to the real estate investor.   Mike: Thanks for having me, I appreciate it.   Michael: Oh, my gosh, no, the pleasure is all mine. Super excited to have you on and really excited for our conversation today. So Mike, I know a little bit about your background and a little bit about what you do but for all of our listeners who are not familiar with you, give us a quick and dirty who you are, where you come from, and what is it that you do in real estate today?   Mike: Yeah, no problem. So, you know, I always say that my background is probably the least remarkable. I didn't sell baseball cards, I didn't go around the neighborhood looking for lawns to mow or things to do. I was a normal kid, probably on the lazy side. You know, and my parents were, we're in the automotive industry, and we're very blue collar Michigan, right. So the life that was displayed before me through example, and through explicit, you know, direction from my parents, and the Blueprint was, you got you finish high school, you go to college, or just as maybe even more preferable, you get into a union factory type of environment and it's very secure and you work there for 30 to 35 years, and you retire and you hopefully save some money and you scrimp buy and that's how you that's how life goes. That's just life. That's what people do, that's normal. Yeah, there wasn't one single person in my family or anybody on the horizon that was doing anything remotely entrepreneurial. So I did that I went to school, I went, I finished high school, I got a job with UPS, Teamsters, my parents could not have been happier with me being in the Teamsters and I went down that path, and I got married young, and I was working at UPS and like, unfortunately, UPS is a great company.   But there are injuries that happen because people you know, lift wrong and all that and at 25 years old, 24 years old, actually, I couldn't get out of bed in the morning without going to the chiropractor three times a week as a 24 year old, otherwise healthy man, oh my gosh and I knew I couldn't retire from there, because I was already almost too hurt and crippled to do the job I had to do at that time and I was in my early 20s and so I got another job in the automotive industry. It was a desk job and I started working there and this was, we were the mid to late 90s at this point and the automotive industry, like most industries, were starting to decline starting to have some problems. We were heading toward 2000 where a lot of bad things happen and in, you know, people think about tech and what happened if tech the big boom that happened. But the same thing happened in the automotive industry, essentially, we went from, you know, booming industry to many, many suppliers, going out of business struggling, it was really bad for a while and so I had to look around and ask myself, and I'm one thing I'm good about one thing I one of my superpowers is I'm a very honest, and I can I can very objective about myself and part of that is because it can be a tough thing to do. It's most people I don't think are, are objective about themselves and I'm not saying this to brag, I'm gonna tell you why I'm objective, and it's gonna kind of be like a poor, poor guy. My dad was a Marine, and, and he made it real clear what our shortcomings were on a daily basis as kids and so I have no problem. being real, honest, in a way that say, these this is what I'm not good at.   This is what's not great about me, like I'm very aware, I'm very easy for me to for me to figure that stuff out and so I asked myself at this point in the automotive industry, and things were declining, I didn't have a college education. I would I hire me if I were without a job and I was in the position of HR and I was, you know, somebody like me was across the table. What is there anything about me, that makes me more hirable than the 1000s of people who've been laid off over the last few years and it was easy. There was nothing about me that was remarkable. I had no college experience and I had very little practical experience. So why hire me when there's so many really, really talented people that were being laid off because of the industry. So went back to college, got a degree and I was working I'm kind of fast forwarding a lot, but I got my degree and I doubled my income. Like the minute I retire, graduated, the minute I graduated, I got a job, which literally was twice the annual salary and I was like, here we go, baby. There's no stopping and so just to kind of illustrate how that went, so I went into a company, it was automotive and I was working there for about six, seven years and at one point, it's seven o'clock at night and it's everyone had gone except my team. Everyone had gone home for the night, obviously, it was a five o'clock, most people were gone. It was seven 30 and I'm in at work and there are our client is there too, because there was something going wrong with our program that we are working on and he's there and in we're discussing the problem, and the guy gets really agitated the client, I'm not going to say which automotive company I'm talking about, but it rhymes with board.   Break company, I have an F 150. But he gets in my face and basically start screaming at me like dressing me down, like very much, really like when I was a kid like my dad did write down. Yeah and he was and it was seven o'clock at night. We're all working overtime. We're all clearly busting our butts to solve the problem and he gets in my face. They're screaming at me and he's the client, right? He's a big client and I can't really say anything back, except I'm really sorry. We're working on it and after he walked away, I went to my manager who was there too and I said, what are we doing here? What is happening right now? Why are we here? I'm getting screamed at we're doing our best, like there are issues I get it but nobody, nobody was negligent. We just have we have things that have happened, and we're working through but why are we still here? We should be at home and he said to me, I'll never forget, you need to get your priorities straight and I thought you are correct. I absolutely do, I have young children at home, I have a wife at home. I've been working overtime all week on this project. I didn't say this but in my mind, I'm thinking, you are correct, my priorities are wrong and from that point, I decided to take my side hustle that I was doing, which was real estate, flipping houses not doing a particularly great job at it, but just kind of stumbling through it and I said that is going to become my career priority. My priorities need to get dialed back to my family and make sure I'm at home and I'm spending the evening with them. I'm eating dinner, putting my kids to bed but from a career standpoint, that now becomes my focus and I will get my priorities straight and so he essentially put me on the right track. Inadvertently, he obviously was referring to work priorities but it worked the other way and so I from that day, I started making my side hustle, my main focus and I will say I a year later quit my job and the first year that I was in business and real estate full time that listen to this, this is true and I did this math, the first year that I was in business full time for myself as a real estate investor, my company's gross profits were equal to the total sum of my salary for the previous 25 years that I was working for somebody else, year one, which was a million dollars, I made over a million dollars in my real estate and over the years, like I'm talking going back to 18. When I started working right, I was making very little money and in the middle, I wasn't making a ton toward the end, I was making more but if you just take the average, which is about $40,000 for me, and you times that by 25 and is $1 million. My company grows that in in one year.   Michael: That's crazy, Mike! So where did you take it from there? I mean, are you still flipping houses today where you focus exclusively on that? Give us give us the insider scoop?   Mike: Yep… Yeah, good question. So I was flipping houses. When I was working full time, my wife and I were flipping houses and like I said, we weren't doing a particularly great job of it because she worked full time as a teacher, I was working full time plus as an automotive person and we were getting flips done. But we weren't particularly profitable, like we should have been. We didn't have any processes in place. My wife is extremely risk averse and so I kept trying to do more and do it faster. And she was slowing like brakes, brakes, brakes, right because she was nervous that we were getting ahead of ourselves and she probably saved me from really screwing up bad in the beginning. But at some point, she said, You know what? This is great and you clearly love it. I don't love it as much as you do. In fact, this is making it hard for me to sleep and it's making me hard for me to focus on my day job with the kids and I'm a teacher and that's what I do and I love you, I love the I love real estate but it's the roller coaster, the mental roller coaster is too much and I really would rather you go on without me and let me pull back and I'll just cheer for you from the sidelines and I totally support you and this isn't a negative this is actually a positive I just trust you to do it better without me and I did in and that's when things started taking off because I started doing way more activity like before we would get a house under contract. We would get it quoted out, you know, we would renovate it, we would put up for sale, we'd go through the wholesale process closed, check in the bank, before we started looking for the next day and that's not really a that's not how you scale anything, right?   So when she backed out, I was like, okay and I started putting offers in on multiple houses a day, like I was putting offers on everything and I started getting multiple deals at one time and so I had to learn how to raise money and I had to learn how to manage groups and what a forced me to do was, it forced me to come up with a process in a system that was repeatable and could handle scale. Before that, nothing we did was scalable, is all very manual, we'd go to Home Depot, we'd pick new colors for the walls, we'd pick out different cabinets, different flooring, like everything was custom to the house that we were working on and what I realized was really, really good house flippers who do it at scale, okay, and I'm not talking boutique flippers, who go into a town and they buy a $3 million, you know, historical home, and they like, put it back together with love. It's I'm not talking about that I'm talking about the people that are flipping 20-30 at 100 200 deals, they are not falling in love with every single house and going in there and making it the route, right, it's turning burn a little bit and so I learned how to turn and burn a little bit more in my business and scale it in a in a way that had systems and processes. But I still hadn't hired anybody. It was still just me, what changed the game for me and that changed the game for me in terms of, you know, a racing analogy, but, and again, this is not like I said all this in front of my wife as early as like the last month I've said all of this and she 100% agrees but she was like the governor in a race car, right? They put the restrictor on there. So you can only go so fast. Once that got pulled off. I pushed the gas all the way down to the floor, and I never stopped like, and so things just go faster when you're doing that much volume and back then, you know, now we're talking about 2014 ish timeframe. It was easier to get deals, I'll be honest, like, as someone who coaches people in real estate, I'm not gonna lie. It's harder now than it was back in 2014.   Still possible now, but it was easy back then. So I was getting deals off the MLS and it was going pretty fast. Fast forward another year or so and it started to get harder to get deals off the MLS and I was struggling a little bit and so I had to do some research and figure out and I was I was going to all the meetup groups and I was asking all the other house flippers like, where are you guys finding deals like what's happening? Where are you guys getting your volume from and they were all like, man, it's hard, like we're not getting deals like we're struggling and I'm like, Well, where are you looking? Where are you trying to find deals and everybody said the MLS everybody. I only knew one wholesaler in my market and I reached out to him. I'm like, Dude, I know you're not buying off the MLS. So where are you finding deals? He's like direct mail, I'm going direct to sellers and I'm like, what do you mean, go direct to sellers? How do you do that and so I took him out to lunch. He gave me the down and dirty playbook for how to do direct mail is what I was doing at the time and I started doing that and the deal flow started happening again and I started building and what I realized was and there's a whole story behind it that we don't necessarily have to get into but I changed my model from house flipping to wholesaling and it wasn't because of that guy. To finish in a nutshell, I was overly dependent and this is a huge mistake that new investors make all the time. I was overly dependent on one contractor and one realtor, they were everything the realtors, he found all the deals for me and they ran the numbers and they told me what was a good deal and my contractor was my only contractor and he basically made her are broke my rehab and on the same project as chance would have it. The realtor missed the numbers pretty badly and my contractor started flaking.   Now if you flip houses or renovate houses, or you have rentals, and I say my contractor flake, you probably don't need more information than that you go I'm with you, my contractors flaked too, right. But essentially, he stopped showing up he started charging me for things that he wasn't doing. He started making up half truths about stuff that he did do and so I was forced it and by the way, I was getting deal flow because I was direct mail, right. I had to let both these individuals off my team, to say the least and I had no backup plan and so as these deals were coming in, I reached back out to my wholesaling friend, I'm like, What do I do? I don't know how to wholesale. Can you just tell me what that even means? Like, what do you guys do and he again, gave me the down and dirty playbook and I called a house flipper friend of mine who I had recently talked to and he's like, I can't find anything and I said, Hey, man, I got this deal under contract. Do you want it for 110,000 at the time, that was the price 110,000 he's like, let me take let me look at let me look at the numbers coming back in 10 minutes. He's like I'll take it, I got it under contract for 95,000. I made $15,000 in like 10 minutes and In Michigan at that time, a normal flip 15 to 20,000 is a good flip number. Right, profit. Yeah and I was like I made almost the entire profit with a phone call. That was cool and probably a lot easier sold.   So much easier to do. No, by the way, no contract, right? No realtors. So I got another deal under contract. Ironically, it was also a contract for $95,000 and it was in a similar neighborhood. I called the exact same guy and I told him the exact same thing. I've got a deal for 110,000 It's yours. He said, give me five minutes. Call me back, he said, I'll take it. This all happened within four weeks to deal. I was like, I felt literally talked about love at first sight. I was in love with the model of wholesaling and so I switched my model over to wholesaling and I started, I started scaling it up and what really changed everything for me though, because although I was scaling up and I was starting to have some success, I still wasn't really running it like a true business I was I was a little bit scattered, I was a little bit unfocused and I joined a mastermind, a friend of mine at the time who lived in California, he had a podcast, and I knew him just through podcasting, and I was listening to his podcast one day, and at the end, he signed off, thanked his guest signed off, and I was doing dishes actually, at the time in my house and I saw I let it go, it was it's just kept going because I wasn't able to turn it off. My hands were wet and if it was over, he goes, Hey, if you're still there, I want to let you know about this very exclusive opportunity. I am pulling together some of the best real estate investors from around the country. We're going to form a mastermind, we're going to share ideas, we're going to help each other it's going to be awesome. If you want to get involved, you know, send me an email, whatever.   So I did $25,000 mastermind. Well, I $25,000 bazillion dollars to me at the time, but I was I was doing wholesale deals, right and at the time $25 was like two wholesale deals because I was averaging around 12 $13,000 per deal and I thought, I mean, if I surround myself with these people, will I do two more deals as a result of the relationships and the knowledge that will be exchanged. It seemed reasonable that I would and so I joined and I met someone their mentor, more than one person, but one person in particular, who laid out his company, he just laid it out. This is how I run my company is exactly what I do is what I did right and wrong over the last decade and he had the company I wanted and I said to him, his name's Andy, I said, if I if I see what you did, and I see what you're telling me, I should do and I totally agree with you. But you took you 10 years if I knew everything that you know now, and I apply it proactively. Couldn't I condense that timeframe? Like could I do any year and he said, I don't see why not? That's exactly what I did and I sort of came up with this term that, that I didn't think about a much until I've said it on podcast, and people resonate with it but I think the most powerful thing you can do in business is to use other people who are successful use their hindsight, which is 2020, as they say, right, as your foresight and so I used Andy's hindsight, all the things he did right and wrong, as my foresight going forward and I was able, that's what I was telling you that first year that I was doing the full time because I applied all of Andy's principals and I went from doing a couple of deals here and there to 10 to 15 deals per month and scaled up to a million dollars in that first year.   Michael: That is amazing and so right now your business is focused exclusively on wholesales, are you still doing flips?   Mike: Historically, it's always been wholesales but recently, and I have a business partner to its which is a whole story in itself kind of interesting about hiring and identifying talent. But so my partner and I have started strategically buying properties outright and then doing in Michigan, what we call them land contract, or we basically play the bank, we own the property, and we sell it to them and we hold the note as a company. So we started doing a lot of that. So we do like 100 deals a year, but half of those or more, but at least half would make fantastic land contract deals for us and so, and because of you know, COVID kind of showed us this a little bit and over the last several years that we've been in business, every business has ups and downs every industry has, you know, markets go up and down, right. So revenue kind of fluctuates and we thought how do we level that out a little bit? How do we make the valleys much higher, you know, so they don't go down and so we're doing a lot of this land contract stuff because it's every it's like you know, monthly recurring revenue and so we make the valleys much shallower and the peaks are still there. So we're probably wholesaling half of our deals and the other half we're buying inland contracting out…   Michael: Okay, let's dig into land contracts live because it's just not something I know very much about and we always joke on the podcast that we get to ask self-serving questions of our guests... So walk our listeners through asking for a friend walk us through like how land contract works and why it's so wide, so interesting.   Mike: Yeah, it's pretty straightforward but the concept and I'll kind of give you a peek, like a little bit behind the curtain here, right? The real like mechanics or the real like logic behind it. Me and my partner both as of a year ago, I had about 25 rentals, okay, which I have sold recently and I did it for a couple of reasons. Now, because rentals aren't great, they're great and actually, the rents are higher now than even when I sold them. So rent rents are going up, which is awesome. But for me, I bought them really, and I bought them like 2015, most of them and so the equity in them was very tempting to tap into and I recently have started doing lending on a grander scale, like I've scaled up my lending company, and I wanted to put that equity, that money into my lending company, it's just more of my focus now. But so what we're doing with land contracts, and why one of the reasons why we love them is unlike a rental, we are not responsible for any maintenance, any vacancies like we are, what the bank is to your mortgage, we get the mortgage payment, regardless of whether or not they have a leaky roof or whatever has to happen, right, we don't have to deal with any of that stuff and what we're able to do at least in Michigan, this doesn't work necessarily everywhere, the same way, because the rents aren't high enough in the house prices aren't low enough for to work in a lot of areas.   But for us, if you take someone who's living in a neighborhood, and they're renting, and let's just say they're paying for the sake of round numbers, they're paying $1,000 in rent, okay and they're renting a certain level house in that neighborhood, I can buy a house in that neighborhood that maybe is a little bit in distress that I can go in and buy it inexpensively and put some work into it and if someone were to buy that house with a traditional mortgage, especially a year or two ago, when rates were like high twos, low threes, they could buy that house and their mortgage payment might be $600, right, right. But they can't get approved for a mortgage for whatever reason, right? They have bad credit, or whatever it is, right? But I can buy that house, I can renovate it, and I can sell it to someone and really the pitch to them is listen, you want to own a home, and you're not currently in a position to get approved for a mortgage through a traditional mortgage company. But what if you could have homeownership, and you would pay no more than you were paying when you were renting, right still give me $1,000 give or take. But you own the home and you can build equity and in three to five years you can refinance out at a lower rate and you can own the home and probably drop your payments a little bit. Is it important enough to a person to own the home? If they're if all things being equal rent 1000 I have to pay this company 1000 for the house, but I own the house. That's what we do we buy the houses now, the reality is the interest rates are a lot higher than what you might get at a mortgage company, right. But we're also taking a bit of a risk. These are folks that have defaulted on things in the past and their interest and their credit scores are not great, but they have homeownership at this point and if so they if they have a down payment, and they want to own a home, we can get them into a home for no more than they would pay to rent a home in that neighborhood and three to five years, the goal for them is to fix things in their life and be able to refinance out at a lower rate and move on forever and then. So we're typically an average deal for us might be, you know, we buy it for 50. The ARV is 100, we put 20 into it. So now we're into it for 70 and we sell it for 85, right, we're still a little undervalued. So they're getting some instant equity, they have home ownership but when they go to refi in three, five years, we're getting a $15,000 check or whatever it is at that point, right. So in there's no calls from tenants, and there's no vacancies and none of that stuff. So that that's the that's the allure for US interest…   Michael: Interesting, I mean, isn't that similar, like rent to own or is it different?   Mike: It's similar, but they're not renting, right? a rent to own it, depending on how it's structured. Obviously, you can have some portion of the rent go toward whatever, but you still own the house, right? You still own the house as the person who's having that rent down. We don't own the house, necessarily. We own it, just the way the bank owns your house when you have a mortgage, right. But we're never getting calls from the city for law for Tallgrass. We're not getting calls about the maintenance issues or whatever. We don't have to worry that they didn't, you know, they left and they didn't finish their contract like it's a mortgage and if they if they don't pay their if they don't pay their mortgage, then we will foreclose we can foreclose on them.   Michael: Yep, interesting and so that like when you place these tenants into the home, there's a recorded sale that happens and so you're literally just playing bank, interesting…   Mike: Yep, just playing bank. Yeah, because we both had rentals, both of us and like I said, rental they're awesome but there's just a different level of responsibility for us playing the bank than then playing landlord and that's just what we're choosing to do. We both of us have rentals and it's, it's awesome. I rentals have been fantastic for me. It's just, it's not what we're doing now and we were just like, gonna get rid of the rentals and just wholesale. That's it but then this model presented itself, somebody we mutually knew in the industry is kind of like, hey, I'm doing this and they're doing it in Texas and it works down there too. I don't know that it would work in Los Angeles or San Diego or I don't know that it would probably not as well because the house prices but if you have house prices that you can get a house in a nice in these are like safe blue county collar neighborhoods, we're not talking about like war zones, but by any means I wouldn't buy a house there but in a nice blue collar brick ranch neighborhood, if you can get a house between 50 and 150,000. It could work when they start getting up to a half a quarter of a million, it just doesn't work as well anymore. You can't, the numbers don't work out.   Michael: Okay, okay. Good to know and just out of curiosity, I mean, how many folks end up refinancing out of your mortgage and then truly then own the house versus how many what percentage defaults or you have to go through that?   Mike: Really good question. We started doing this, like, eight months ago. So okay, I don't know, we don't have a loop. Yeah, but the friend of ours who kind of introduced this concept to us. He said about half of them refi out. Very few defaults, very few defaults because it's home, you know, people it's their home, right? They don't default, like they do necessarily on a lease, because it's not as transient. So according to him very few defaults. But we also screen people pretty well to like you would with a rental, like we're not just letting anybody in there, right? If they clearly have a pattern of defaulting on everything they've ever done, we could expect to default to we're not special but people have certain circumstances where their credit cut takes a pretty good hit but it's you know, it's something that is understandable, or it has a you know, story behind it. That makes sense. So I'm not expecting a lot of defaults, how many people will refi out? You know, our plan is to be a little bit more proactive with helping them with credit repair right now, we're not really getting involved in that but I suspect as we do get more involved with helping with that, that the number of people who actually refi out will probably go up, you know, so I don't really know right now how that's gonna go down. We'll see, we'll see how that goes. I don't know. Sure…   Michael: Okay, we'll have to have you back in 24 months to see. See what that looks like…   Mike: For sure, for sure.   Michael: Awesome. Well, Mike, let's shift gears here just for a moment and talk about wholesaling because, I mean, like you were mentioning a bit ago, it's no surprise that deals are a bit tougher to come by today. I think in the industry as a whole it's probably no surprise that wholesalers don't have the best reputation out there. Yeah, so I mean, I have I'm going to share kind of my thoughts on I think what makes you different but curious to get your thoughts and share with our listeners, me what makes you different as a wholesaling company and then what are some things that people can do to protect themselves from the not so great actors out there who are wholesalers?   Mike: The problem with wholesaling and the reason why it can get a bad name Is it is it is advertised and when I say advertised, I mean if you go out on the internet and say how do you become a wholesaler? Should I be a wholesaler? It's billed to people as this no money, no experience and that's how you get started in the industry…   Michael: And no risk…   Mike: Yeah, no risk. You get this, like, this mentality of this person who thinks they're just gonna roll out of bed open up their eyes, and money's gonna pour through the windows of their house if they're a wholesaler and it's not true, obviously. So you asked me what I do that makes me different. Here's what anyone can do to make their business different, but it doesn't it's not, you know, just for wholesaling but you have to run it like a business and a lot of wholesalers are very transactional in their thinking. They only care about the cheque they're getting next they don't care about future checks. They don't care about consistency, or predictability of their of their business and so they treat wholesaling, like this little dirty act they have to do before the real serious business comes along and in the reason why a lot of wholesalers get this bad reputation also is because there's something called daisy chaining in real estate, and most real, most wholesalers I'm doing air quotes if you guys aren't watching.   The reason most wholesalers or a lot of wholesalers have this reputation is they're not really wholesalers as much as they are what's called daisy chains and a daisy chain er is okay I'm a wholesaler I market to sellers I go into a seller's home. I create rapport and trust and in understanding of what's happening. I get a purchase agreement with them and I take that purchase agreement and I market it out to the other real estate investors in my community and some person who sees this takes the pictures, they take the text, and they mark up the price and then they send it out to a bunch of people, a lot of times a lot of the same people at a higher price and it's like called them and so you call them and you say, hey, I'll take it because you didn't see my marketing, you saw their marketing for whatever reason, you say, I'll take it. They don't even know me and I don't know them. But they're representing that they have this this deal under contract and meanwhile, I'm working with my buyers and I come to an agreement with a buyer and then this person calls me who's was also marketing up my contract and says, hey, I want to buy that house and I go, I've already sold it. Well, he's already told his buyer that they can have it for that price. But I already sold it because I have it under contract. Now he has to go back to the buyer and say, sorry, we have to back out of this deal, right and so it looks like a wholesaler is a really bad business person, bad guy, dishonest, whatever, misrepresenting himself, but he never had the deal and so that happens that's runs rampant. That's a real epidemic in the wholesaling world. So you also asked me, How do you tell the difference or how do you how do you avoid the bad ones?   The first question is that because I get people who send me deals, and frankly, I'll look at them if some other wholesaler finds a deal, and they were they offer it out at a price that my company might be able to land contract that house and we want to buy it, we'll do it. So the first question I asked them is, do you have this under contract yourself or are you representing somebody else and a lot of times they do and sometimes they don't? Sometimes they say they do and I say good. Then before I would buy this, I would need to see the agreement between you and the seller, your company in the seller, what's the name of your company, and I verify this stuff because if they don't have it under contract, I don't even care if they say, yeah, it's not me. But the guy who has under contracts a good friend of mine, and he gave me exclusive rights. I want to talk to who has entered a contract always deal with the person who has an order contract with the seller, with the seller, right? All right, that's, that's key. That's huge and we don't, we don't allow daisy chaining, we don't ever allow people to market out our deals, we only market them out and so all of our buyers know, we've told them several times, if someone if we're marketing a house and you see the same house being marketed by someone else, believe me when I tell you, they're not authorized to do that, they will never be able to sell it to you. So and as a wholesaler, I always make sure that I'm dealing with the end buyer, not a middle person, right? So if someone comes to us, though, and says, hey, I've got a buyer, and they're gonna, they'll pay you this much money and it makes sense for us. We'll give them a check like, well, we'll compensate them for bringing that buyer. But we're not going to we're not going to be what's going to be all transparent, we're going to let everyone know what's happening and so transparency in the wholesale process is important between us as the wholesalers and the buyers total transparency. Now, I'll say something that your audience may not love. There is not total transparency between us and the seller and does that mean that we're lying to them? No, it's not it doesn't. But here's what I always tell people to illustrate my point. Nobody loves or trusts me more than my mother, nobody.   My mom has heard me explain what I do as a wholesaler 1000 times and she has been all ears like she's could not be more dialed in to hurts her baby boy and what he does, and she's so proud and so happy and she's listening intently. But if you call my mom and put her on the air right now and said, Could you please explain to me what your son does? How he does it? She wouldn't know she might even tell you. I'm a realtor. She just doesn't know. It doesn't make sense to her. It's just it's too obscure. Right? So when we're in a seller's home, we don't say to them, Mr. Mrs. Seller, I know you're under a lot of duress. You have to move maybe there was a death or divorce or whatever there was right? Something happened in your life is spiraling. Here's the deal. I want to sign a contract, saying that I'm gonna buy your house, but I'm not buying it. I don't even know who's gonna buy it. I don't know where the money is coming from. I don't know who's gonna show up at closing. I'm not even sure if I'm gonna be able to close. Can we sign the deal now? It nobody would say yes. Okay and that's an a character characterization of what a wholesaler does. But on some level, it's facetious, but it's sort of true, right? I'm signing a contract. I don't exactly know who's going to buy it. In my case as a wholesaler and what I think makes what I do ethical is I have the financial backing to buy any house that I put under contract. If worst comes to worst, I can buy it right and that's not that doesn't come in the beginning. new investors don't always have that luxury. But what you can do as an investor and where you can be transparent and you should be transparent is do not sign a contract and imply or explicitly state that you will for sure be closing on the house without exception, you can't say that in most cases.   So what I say is some version of this, Mister seller, when I came here I was prepared to offer you $100,000 for your house, that was the highest number that I was authorized to offer you, you cannot go below 110,000 That is your lowest, that's the number. That's the gap, right… You want 110 minimum, and I was maximum allowed to offer you 100 but here's what I would like to suggest. Let's sign the contract for 110. Okay, I'm gonna go back to my investors and people who make decisions and help me buy these houses and I am going to see if there is interest at that price, I anticipate that there is not going to be but there very well could be but at the very least, if you can give me two weeks to talk to my investors and go to bat for you, and try to make them understand now that I'm here, I see this house is very nice. I didn't know is this nice but it is a very nice house. I think I can get this done but give me two weeks and I will come back to you in two weeks or less by the way and I'll tell you one of two things either, we can't pay 110 and so we need to rip this contract up and just part as friends, because we all knew that that was a possibility or we're going to move forward at this price and everything is good and I guarantee you will close. Okay, can if you couldn't give me two weeks. Now, if you don't want to do that, I totally get it. If you go to a realtor, they're going to want you to sign it like a three month contract where they get three months to market your house. I just want two weeks and if it takes me two days, I'll come back in two days. Either way, I'll be totally honest with you and it will be up to you what we do from that point we rip up the contract or not. It's totally up to you. Is that? Is that something that you can live with just for a week or two and nine times out of 10? They say yes. Now, when I when I go out now I am going out to my buyers and I'm saying hey, I got this this opportunity who's interested, right? If I get crickets and it's like, nope, nope, nope.   Then usually we'll try to figure out what our buyers would pay, right? That's the next question. Okay, you don't want it? It's fine. But what would you pay for this and we start getting that feedback and so we can go back to the seller and say, listen, I was right. 100,000 is the best we can do but I'm totally willing to rip up this contract because you want 110 or we can talk about a reduction or, or the or we get buyers that are like, yeah, I'll do it for that price. That's great, right and it's a little better than we thought and we go back and tell the seller, hey, if we go out to our buyers, and we find out that 110 is a really good price for us still, we'll still make the money we thought we were going to make we always go back and say we'll honor the 110 because I think that's the question I would be thinking in my mind if I'm listening to this interview? Well, what happens if they get really great offers? Do they still always go back and try to get that lower number? No, we don't. If we can make what we thought we would make or pretty close to it, we'll pay a higher price, right? We're, my goal here is to get to heaven not to make an extra $5,000, right. So I'm not trying to be a bad guy. But the key is the ethical wholesalers versus not the ethical ones, prepare the seller for the potential for a renegotiate or a cancellation up front and so when we go back, how often are they irate because we come back and say, hey, we can't do the 110. Almost never, because we very thoroughly explain what we're doing and we prepare them that we may have to come back and discuss the reduction or cancellation. The people honestly, they just want clarity.   They just want to know what's going to happen. What people get mad about are surprises. So when you say oh, great 110 done deal. I can't wait to close with you in a few weeks. This is so exciting and then you come back in three days and say we have to cancel the contract. They're mad 100% of the time, because they weren't you're not clear on what was happening. You surprise them with bad news and nobody likes being surprised with bad news but when you come back and say, hey, remember when we talked a week ago and I said this? Well, we can't do the 110. You know, we tried nine times out of 10 they're totally fine and honestly, seven times out of 10. They say well, what can you do and then we have that discussion. So, man, it's all about setting expectations.   Michael: Yes, 1000 times yes, as funny as you were going through kind of your pitch. I was like, Oh yeah, like that makes sense. That's such a different, like feeling that I got as you were giving as you were giving that Spiel than what I was expecting or than what I've experienced with wholesaler. So I mean, kudos to you and your team. It's clearly it's clearly working for you, so keep up keep up the great work.   Mike: Well, honestly, we have gotten deals, where and I know that sounds cliche, but I swear to you, this happens all the time and it we only know that when people tell us right so my guess is it happens more than we even know but we get deals where they got a higher offer from another wholesaler. But because we come in and we are professional, and we do address their concerns, but we wholesaling is not really about buying houses. It's about solving problems and again, sounds cliche, totally true. You can figure out what their pain point is and you can focus on that the sale of the house is secondary and I know that because we've had sellers tell us listen, we had somebody come along and offer us more than you guys, but we're not going to sell to them, we're going to sell to you because we believe you, we believe what you're saying and we like working with you. So professionalism matters and just to illustrate that point, underline it real quickly, one of our reps went into a house one time, and he was talking to a seller and they were going through the whole thing, it was like halfway through the meeting, and then knock on the door, and the seller says, oh, I forgot.   There's another investor or another, whatever. They call them coming in another person who wants to look at my house and my rep was like, oh, okay, and he kind of stood aside and a guy came in, my rep looked outside, and he saw the guy was driving a Mercedes, nothing wrong with that Mercedes fine but he left it running. He was wearing a suit, he came into the house, briefly said hello, and started walking around, pointing out all the flaws in the house, this is all this has to be replaced. That's no good. Nobody wants that and he shot a number at her with what he would pay and said, think about it and he got in his car and left. Like, everything that guy said, that wasn't verbal screamed, you are not that important to me. I'm way too big of a deal for you and I don't even have time to turn my car off. That's how little I think about what is your situation. I'm just telling you what I need and what I want and what I'll give you and I'm out of here, right and understandably, the seller was floored. She's like, that was the rudest thing I've ever seen, like, that was awful. I feel so like, offended by that. Yeah and of course, my rep was like, yeah, I would be offended too, right. Like, I agree with you. They're horrible. We're great. Let's get back to talking about how great we are. So it matters, like paying attention to their pain points, and not being all about the number. If you start talking about price right off the bat, you can almost guarantee you're not gonna buy the house. Yeah, if you start by listening, and addressing their problems, and let the sale be last. It'll work out for you much, much better.   Michael: I love it, I love it, I love it. Mike, we could go on, I think probably for days talking about this stuff but I want to be very respectful of your time and get you out here. For anyone that wants to learn more about you, your processes your business, where's the best place for them to do that?   Mike: Yeah, thank you for that by the way, I appreciate it. The best place to get a hold of me would be at my on my website, https://www.mikesimmons.com/ . If you go on mikesimmons.com, you can find anything about me and also my podcasts. I have a podcast called just out real estate. You can find the link to that on my on my website as well.   Michael: Right on…   Mike: Which you were on right, you were my guest.   Michael: We had a lot of fun.   Mike: Yeah, we did.   Michael: Well, Mike, thank you again for coming on and sharing so much wisdom with our listeners really appreciate it and I'm sure we'll chat soon, man. I look forward to it.   Mike: Absolutely. Thank you for having me. It was a pleasure.   Michael: Likewise, talk soon.   All right, everyone. That was our show a big thank you to Mike for coming on. Super, super insightful stuff. I learned a ton about the wholesaling business and wholesalers in general, and some really great questions that we as investors can be asking wholesalers to protect ourselves from the downside. So as always, if you liked the episode, feel free to leave us a rating or review wherever it is you get your episodes, and we look forward to seeing the next one. Happy investing…

The Remote Real Estate Investor
Ask Michael Anything: 401K loans, choosing markets, property management and disclosures

The Remote Real Estate Investor

Play Episode Listen Later Jul 16, 2022 23:36


In this episode, we cover questions submitted by attendees of a recent webinar. We talk about using 401K loans for investing in real estate, how to choose strong rental markets, inspections on remote properties, property management, and how disclosures work in different states.   We love hearing from you, and taking on topics that you are curious about. Feel free to submit your questions as comments on YouTube, in a review on the podcast, or tweet at us: @RemoteEstate.   --- 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, welcome to the remote real estate investor.     My name is Pierre Carrillo and today I am with     Michael Albaum.     And today we are going to be going through some listener submitted questions. So let's get right into it.   Alright, Mike's up for this first question here. This one came off of a YouTube comment. Jeremy asked, how do you use a 401 k loan for a down payment on a rental or an S short term rental? Do they have lower interest rates so that you can pay yourself back especially now that the market is down? What do you have to say about that?     Yeah, it's a super good question, Jeremy. So this is something that I've actually done in the past on my second rental ever I did this, and it's all dependent on your 401k administrator. And so who holds your 401k what the company is, and so mine at the time happened to be through Fidelity. And at that time, they say you can take a loan up to $50,000 or 50% of your balance in your accounts, whichever is less. I think that was how it worked. And then the interest rate at the time was four and a half percent.   Now this is back in like 2014 2015, something like that. So it's been a while. And so every interest in, the interest rate is going to be set by the Accommodator or by the facilitator. And the cool thing about it is that interest is actually paid back to yourself on a monthly basis. And so you can actually choose and again, this is specific for Fidelity and for my situation at the time, but I was able to choose the period in which I wanted to pay back the loan. So I can pick one year through five years in one year increments. So once you have 1 2 3 4 5, and so I chose the longest period possible because I wanted the payment to be as small as possible. So that way I could cash flow as maximum ly as possible. And the lender had no problem with this whatsoever, because they saw that the cash was coming from my 401k, they will often count that treat it as a cash equivalent, because we have access to them through these 401k loans and through other vehicles as well. So I made monthly payments to myself, it got automatically deducted from my paycheck on a, again on a monthly basis. So they took out half, I was paid every two weeks, I took out half the payment, and it went back into my 401k.   And so it's your again, you're paying yourself back the interest. So it's a really cool way to be able to get actually more dollars into your 401k account. Now the tax implications of this definitely not going to get into you're definitely gonna want to talk to a tax professional to understand how it's gonna affect you. But again, I would definitely look into your 401k Accommodator and see what the rules are around 401k loans because they can be a great, great, great tool to access.   Now keep in mind, the one thing that I think is super important to highlight is that if you end up leaving that company or that job, the entire loan balances due back. And so you just want to keep that in mind. That's uh, that can be kind of a sticky catch all. So that you don't want to get caught off guard with but again, every every Accommodator is going to have likely a little bit of a different way that they handle it. So reach out there, there's probably someone in their loan department that you could call and just start asking around these questions. But again, really great question, Jeremy, and a super, super powerful way to gain access to cash and quickly.     So follow up on that a little bit more, are interest rates on these type of loans the same as what's going on in the market? Or are these calculated differently?     It's a really good question. You know, I really haven't looked into it in a while since I haven't needed one. But you could very easily like, again, mine through fidelity, you could go online today and walk through this exercise and see what the interest rate you're quoted is. Yeah, I mean, it varies at the time, I think mine was like four and a half percent. And I think I got a four and a half percent loan on the investment property. So if that's an indicator of of kind of par for the course, I would I would say that yes, I would, I would think we could we could extrapolate that and say yes, that the loan you'll see on your 401k is likely going to be what you're seeing in the market. But again, remember this interest gets paid back to yourself so that the true like quote unquote, cost of it becomes a lot more tolerable. It just has to look at what your cash flows look like.     Okay. And are there any property types that are best for this strategy, or is it does it not matter?     You know, I really don't think it matters. Most 401 k loan accommodators will tell you you can take a loan for really any number of reasons, I don't, I don't know, if you have to specify you might. But I think if you wanted like a new TV, you could go take a 401k loan and do that. I don't recommend that. Because that is not an asset, that's a liability. And so I would say any type of cash flowing asset is going to make sense or could make sense for a 401k loan. And I know some of you listening are out there thinking, well, the stock market is a cash flowing asset, or a dividend stock is a cash flowing asset. And so I would just be very cautious around investing those funds in the stock market, because they're very correlated.   And so if you see your, if you see a stock market dip, now your balance in your 401k has dipped, and the amount that you have invested in the stock market, because you use loan proceeds to go invest in the stock market has taken a dip and so your proceeds to pay off the loan that you took is taking a dip, so it can just get very dirty very quickly. And so that's why I think real estate is a great investment to use those funds for because they are, I would say pretty uncorrelated, if just because the stock market dips doesn't mean the real estate markets taking a dip the next day.     All right, Mike, I know we've seen this question before. But let's hit it again. Because it's a really common question that people have is what advice do you have for selecting a strong investment market?     Yeah, it's another super great question, Pierre. So I think that it needs to come down to a couple of things. And I think people need to get really clear on what's important in a market for them, and what makes them believe in a market? For me, it's like five things. It's is there population growth? So are people moving to that market? Is there job growth, so the people that are moving there are have jobs to work, so they can pay rent and pay their mortgages? There it is, as their wage or salary growth, people that are moving there that are now working there are getting paid more to do so. And then is it diversification of employment? So are there multiple sectors supporting the local economy? Or is it exclusively manufacturing or exclusively entertainment? I like to see that it's it's diverse, so that if we do you have a pandemic-like occurrence, the entire market doesn't evaporate. And then last, but not least, for me, I like to see a plethora of deals that I would invest in, I want to see several deals on the market, you know, through the MLS through Zillow, wherever you're getting your deals from, that you could say, Yes, I would be happy investing in all of them. And they all make sense.   And for me, that's because I like to go deep into a market, I used to go wide, I used to buy one or two properties in multiple markets, and then it got really overwhelming and cumbersome. And so I like to go deep into a particular market. And so I don't want to go buy the one good deal in Atlanta, Georgia, I wanted the process to be repeatable. And so that's what I look for. And so I'd say people should get clear on what it is that's important to them. That is an indicator that the market is going to be around and healthy for a long time for the duration of their investment, and then some.   And so if you can find markets, and I can almost guarantee you, you will find multiple markets that check all of your boxes. I know for me, I have. And then it's just about picking one and picking one could be I interview property managers in four of the markets that I found that work for me, and who do I have the best working relationship with? Who am I getting the best vibe from? Where am I finding the best lenders? And so now that we found kind of the macro high level things, and we've also found the micro deal, let's start expanding and say, Okay, who are we going to utilize, who's going to be part of our team on the ground, because you can find a great market with great deals. And if you can't find a good property manager, you can't find a good lender. It's tough to transact there. And it's tough to own in that market.   So I think once you find the market and the deals now we got to start building up a team and seeing who makes sense to work with Who do you like working with? And then I would execute based on that.     When you say look for these deals, where are you looking?     You can look all kinds of places. So you can work with a local real estate agent. You could look on roof stock on the marketplace, you can look on Zillow, you could look on you know, any housing, like website that lists properties for sale, it's just pulling information from the local MLS. And so every every major metro is going to have multiple MLS is that are local to that Metro. And so that's where the listings agents are posting listings. And that's where they're showing you listings from, maybe you get off market stuff, you know, there's there's all kinds of ways to source deals, and so many different places to look, try all of them and see what you come up with.   And if you're working with an agent, I would say make sure you're working with an investor friendly agent and investor focused agent and make sure they understand when you say cash on cash return and cash flow, that they know what you're talking about. A lot of agents out there are residential agents that are used to working with owner occupants, not knocking them, but they just may not know and be familiar with the terms and key financial metrics that we as investors are interested in and looking for. And if that's the case, it's not necessarily your job to educate them. And so I would, I would maybe shift gears and look to go find an agent that understands our lingo. And the things that we're trying to accomplish.     What are some questions you can ask a potential agent to? I'm sure they like to say like, oh, yeah, I'm investor friendly. Let's do a deal together. What are some questions you can ask to kind of get to the bottom of it and see if that real they really are?     Yeah, totally kind of put them through their paces a little bit? What's the typical cap rate in your market? How long? You know, what's typical cash on cash return? In your market? What's the average monthly cash flow? In your market? What kind of value add projects? Are you seeing people doing? And are you an investor yourself? Do you invest in rental real estate? And if they say yes, well, I mean, there, you can kind of skip all the other stuff, if they if they tell yes? Or how many investors have you worked with? And can I get some recommendations? Can I get some references from you from some of your investor clients?     When you're buying a property remotely? How does the inspection process work? Do I know you get an inspection from a third party inspector? But can you also get a video walkthrough? Like how do you get all the information that you need to feel comfortable moving forward?     Yeah, it's another great question. And so for most people, if they are buying a property locally, I would be interested to know if they go and walk the property with the inspector. If they do great, it's, it's a good way to put eyes on and be able to really talk through what you're seeing with the inspector, when you're doing it remotely. I always have my agent go first and do a video walkthrough before I go ahead with the inspection, because it burned me once where I had the inspector go in and be like, this place is a mess. It's terrible, yada, yada, yada. And then my agent was like, oh, yeah, you don't want anything to do with this. And I said, Why don't we reverse that process and save me the couple hundred bucks that I just spent on the inspection.   Because all this stuff you could call out, you could see it doesn't take an inspector to recognize, hey, there's a massive crack in his foundation. Anybody who has who has site can be able to see that. And so I always get my agent, give me a video walkthrough. First, give me their opinion, then we'll schedule the inspection. After I get the inspection report, I usually call the inspector and say, Hey, what scares you about this property, if their inspection looks pretty clean, they'll tell me they'll be honest with you, they often don't have a dog in this fight, so to speak. And so they their job is to be honest. And their job is to find all of the stuff that's wrong with the property. And so sometimes we get an inspection report back, and it sounds a lot scarier than it actually is. Because that's their job, they have to find all of the stuff that's wrong or not working, or it could be a potential safety hazard.   And so it's something like some things could be like a missing light switch cover, right, that's going to be called out as a safety safety issue. But like, the reality is as a 75 cent repair, it's really not a big deal. But when you start seeing a lot of these things stack up as a laundry list. And maybe you're not familiar with the light switch cover, and that it isn't 75 cent repairs, you're like, oh my gosh, look at all these things I have to fix, it's gonna be so expensive.   So I think understanding and really talking through with the inspector, hey, what was actually scary, and what's just, you know, some stuff I need to take care of down the road or immediately, and really having a conversation, because a picture's worth 1000 words, but also getting the words. But the backstory behind the picture, I think is also really important and really valuable. And so most of these inspectors are very happy to talk to you. So have your agent, walk through the property, get pictures, if you can't get a video walkthrough, and then get the inspection and then have a conversation, and then make your decision. Don't let yourself get all hot and bothered and really bent out of shape over the inspection without first having a conversation with the inspector or with a property manager or a contractor. Someone who really knows. Okay, what is this going to take to correct? Or is it even needing correction right now, maybe this is a problem for down the road.     Okay, and say like in this inspection, certain repairs are noted. And you want to get a quote from local contractors for fixing it is there like a Kelley Blue Book of what certain services cost for real estate? Or, you know, I kind of have to know?     I wish there was you after doing this two or three or four times, you'll get a fairly good ballpark idea of what costs are in your market. And it's important to recognize that it's market specific. So a plumber in San Francisco charges, I'm going to bet more than a plumber in Topeka, Kansas, right? Just cost of living is different trades get priced differently. Materials even cost slightly different amounts. And so understanding Okay, there is going to be a difference for maybe what I'm used to in my market where I live. And so let's go get quotes for those things.   A lot of property managers have in house personnel that can do a lot of those repairs for you. And so they can be kind of your one stop shop for Hey, go get this inspection report. You can give it to them. And which I think you absolutely should, like hey, give me your thoughts and then give me quotes to get this stuff repaired. And they might have a plumber or electrician or a handy person in house that they can say, Okay, this is going to be $300 It's gonna be $200 It's gonna be $2,000 Whatever the cost is, if they don't, they might be able to put you in touch with some contractors or go get those quotes on your behalf with outside vendors.   Depending on the size of the job, I always like to go get three quotes. If it's you know, more than 1000 bucks, go get a couple additional quotes just to see where things are coming out. For anything under 1000 bucks, I've just found that, you know, it might not be worth someone's time to delay the repair, or to send a property manager chasing around trying to get quotes from people for, you know, a $75 repair or $100 repair, the savings that you get in dollars don't necessarily equate or are equivalent to the time savings that you put that you ask that person to do something. And so they might start to get a little bit annoyed with you.     Okay.     But I would definitely do that before your inspection period ends, like go get hard numbers, because that way you can you can use that to negotiate with the seller on the price or to make the repairs themselves or what have you can decide what makes the most sense.     Okay, so what should people know about managing the property themselves? So they don't want to skip professional property management and keep that extra cash? What should they know?     They should know that you shouldn't do it? No, just kidding. I think I think self management makes sense for a lot of people. It's just not for me. So Coach Dean over at Roofstock Academy with me, he self manages all of his properties, and he lives in a different country. So it's absolutely possible. And that works really well for him. It's just not something that's worked really well for me in the past. So I manage I self manage a short term rental that I own on the central coast of California. And then I self manage my my house hack, the upstairs unit and the house that I live in. And so I think if you're going to be self managing, you need to have a really good team around you, just like you would if you were using professional property managers.   If you're using property managers, they likely have those plumbers, electricians, handy people, like we were just talking about. And if they don't, they know who they can call in the event of an emergency repairs needed. Because you're not using those property managers, you kind of need to put yourself in that role and say, Okay, well, they're not going to call the plumbers, electricians handy people for me, I need to do that. And so having a network of service professionals to be able to call on a moment's notice, I think is really important.   Also, having someone that can be a go check on the property on kind of a moment's notice. And just put eyes on is also important. Because you can imagine if the tenant pays, doesn't pay rent on the first of the month, and they skip town on the second, you might have no idea that your property is vacant for quite some time. If you can't get a hold of the tenant not returning phone calls. Like there's just like you want to have eyes on physically, if not yourself than someone who represents you if you're not using a property manager. So again, building out your team is so so so hypercritical, even more critical if you're self managing.     Okay, so next question here is if you're buying a property that is currently tenanted, is there a way to get in touch with the current property manager, before, you know to find out more information about it before making a decision?     Yeah, it's a really good question. Sometimes, if you can find out who the property is managed by, of course, then you can just give them a call and start asking them questions. I don't know if property managers have a legal fiduciary responsibility to anyone. If they do, my guess is that it's going to be with their, their owner. And so you might, you know, if I, if you own a property that has a tenant in place, and I call your property manager and say, hey, you know, I know that there's probably 123 Main Street, do you guys manage that? Yes, we do. Tell me about all the problems that you've had with that property? Well, we probably can't do that, because we know it's trying to get sold.   So yes, you might be able to find out that information, but you might not be able to find out all of the warts, if you will, all of the kind of nitty gritty associated with that property. That's really what the inspection is for. And that's what you your due diligence period is for you get to ask the questions, you get to get answers to those questions. And if you're not satisfied with the answers, you get to walk away for free.   Yes, it can be helpful sometimes, but it's it might not be the silver bullet that I think a lot of people think it might be, because they might just refuse to answer your questions and say, you need to talk to the seller, you need to get that information from the agent, the selling agent.     Alright, Mike. So the next question here is on disclosures. Every state seems to have different requirements around what needs to be disclosed. How do you handle that in states that don't require disclosures?     Yeah, it's another really great question fear. And it's tough. Like if the state's not going to require the seller to tell you everything they know about the property, we have to go find that information out for ourselves. And the best way to do that is by piecing together kind of you have to make this story for yourself with pieces of information that you can get access to. So first and foremost, I would say look at the seller's taxes if you can get a hold of them for the last two years for that particular property. I'm interested to see, okay, you've told me you're getting this much in rent you've told me that the property performs like this? Now let's see what you told the IRS and make sure that those two things are the same. Oh, there's a discrepancy. Let's go ahead and reconcile that either in terms of price or figuring out what what it is that you weren't telling me before.   Also with the inspection, I mean, the physical inspection is going to show up, turn up a lot of stuff if there's water leaks, if there's foundation issues and so I think that's also important not to skimp out on or not to skip, unless it's a full teardown or a full gut renovation anyhow, there's not a whole lot to be gained from knowing that, hey, the roof leaks if you're planning on replacing it entirely anyhow.   But I think you start to have to gain different pieces of information and piece it together for yourself to have the story come to light, as opposed to the seller saying, oh, yeah, there's a leak in the roof. Well, if there's water stained, and the leak hasn't been replaced, you'll see that from a physical inspection. The other thing to keep in mind is that in a state like California, where disclosures are required, like the seller just says, I don't know, I don't know, I don't know, it's every single answer. And that's a totally valid response. And so am I any better off than if I didn't have the disclosures to begin with? In my opinion, not really.   And so of course, we are relying that this person is being honest and telling us about the things that they do know. And I have seen sellers be super honest and super transparent about the things that they do know, which is wonderful, because now you're armed with some additional pieces of information to help you make your decision, both around whether to proceed with the purchase, or the purchase price itself. But when a seller says yeah, I don't know, like you figure it out. I genuinely don't know, because it's been a rental for 10 years, I you know, live there for a year. And that was, you know, there's all kinds of things that sellers can say that muddy the waters that don't really give us any insight into what the answers are, the true answers are, and so we have to go find that out for ourselves.     All right, Mike. So like a state like Alabama, where it's a, they don't have to disclose something, if you ask them? Are they legally required to tell you? Or is? I don't know, good enough for in that case as well?      It's a really good question. I think legally, they have to tell you, I think don't quote me, I'm definitely no no legal experts. So I would definitely get a hold of a legal expert in the state in which you're transacting and ask that question. I think it comes down to if you ask them a question, and they lie, and you can prove it, there could be ramifications for the seller. And so I think it all comes down to proving that they knew about what you're asking about was not the truth. That I think is always the hard part. So there, it's very easy for someone to say, Yep, I don't know. And then how are we going to prove that they knew that they actually did know and that the thing was an issue for their property? So it gets kind of murky pretty quickly, as you can see. But yeah, just understanding what your state requirements are in the state you're transacting is really important.     Okay, cool. I think we will leave it at that we have a bunch more questions, but we're running out of time today. So want to leave us with any final words Mike?     No, keep the questions coming. These are great. We love to see how engaged our members are in community are and we love getting answers out to your questions as best we can. So please keep them coming.     Alright, everyone, we're gonna leave it at that. Leave your questions as comments on YouTube or comment on the podcast. Leave us a review. Give us a rating that helps us out a lot. And we will catch you on the next episode. Thank you so much for listening. Happy investing.

AI in Action Podcast
E363 Gary Beasley, CEO and Co-Founder at Roofstock

AI in Action Podcast

Play Episode Listen Later Jul 15, 2022 19:57


Today's guest is Gary Beasley, CEO and Co-Founder at Roofstock in Oakland, CA. Founded in 2015, Roofstock is building the world's leading real estate investment marketplace. Their mission is to make ownership of investment real estate radically accessible, cost-effective and simple. Roofstock's platform lets everyone from first-time investors to global asset managers evaluate, purchase and own residential investment properties with confidence, from anywhere in the world. Roofstock are combining highly-experienced people in the business with the power of AI and the efficiencies of institutional scale, knocking down the traditional barriers to real estate investing. They are building a vibrant and proactive marketplace for real estate investing where the accessibility to information is matched only by the ease of transaction. It's a new model where everyone can participate, from anywhere, at any time. Roofstock believe that building wealth through real estate should be nothing short of radically simple. In the episode, Gary will discuss: The motivation for setting up Roofstock, The impact they are making in the real estate industry, The role of AI, ML and new technology within their platform, An insight into the current Data Science and engineering team, Why Roofstock is a great place to work and What the future holds for Roofstock

The Remote Real Estate Investor
Ali & Josh's Story: From broke and in debt to real estate investors

The Remote Real Estate Investor

Play Episode Listen Later Jul 14, 2022 33:55


One couple that truly found financial success is Ali and Josh from the FI Couple. Ali and Josh are a power couple! They are real estate investors, financial educators, and all-around great people to grab a beer with and talk finances. Today, Ali and Josh share their inspiring story of how they went from broke and in debt to real estate investors. Are there any couples out there? You're going to want to tune into this one. Episode Link: https://www.theficouple.com/ https://www.instagram.com/theficouple/ --- 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 Josh and Ali of the FI Couple and they're going to be talking to us about their journey to financial independence, and all of the wins and losses that they've occurred along that path. So let's get into it.   Ali, and Josh, welcome to the podcast. Thanks so much for taking the time to hang out with me today. I appreciate you coming on.   Ali: Thanks so much for having us. We're really excited to finally quote unquote, meet.   Michael: I know, I know and so for anyone who doesn't know ally, Josh and I are friends from the innerwebs that we get together face to face and you all kind of have an alter ego online. Tell us a little bit about that, what's it called and what is it you guys we're doing real estate?   Ali: Yeah, so our Alter Ego is the DI couple which is short for financial independence and although we are not financially independent, yet, it's a really big thing that we're working towards. That is a huge part of our life and a big piece of the FI Couple is not necessarily being up on the mountain top and making it but showing the everyday journey of the everyday person getting there the ups downs, and all the way in between.   Josh: About 16 months ago or so we were kind of running the numbers and by we, I mean, I was like, you know, we're, we're kind of like 50% or so fie and we had a lot of time on our hands because we were in lockdown, like so much of the world and Ali had the idea to start a social media platform, which I thought was a terrible idea because if you knew us in real life, neither one of us are overly active in social media. But yeah, it was the idea of we're not there yet. But we've learned a lot in the two or three years that we've been doing this and maybe we could bring some value to people who are just starting out like we were just a few years ago.   Michael: I love that I saw this. I think it was a tick tock or real online and it was talking about van life and I lived in a van full time with my wife and dog for about eight months and everyone's like, it's so glorious. You wake up to these beautiful landscapes and so someone made a joke, like they woke up, poured their coffee and then open their van door and was a Home Depot parking lot. I was like, yeah, like I've done that tons of times, like, it's not always as glamorous as the social media makes it out to be. So I love that fact. I love you guys are doing that. So walk us back to when you started this journey into fire when you started really paying attention to your finances, what was going on your lives and what made you want to make a change?   Josh: Yeah, absolutely. Yeah, so it's like the quote is like necessity is the mother of invention kind of thing. We, Ali had just graduated from her master's program in 2017 and we were like one year away from getting married and we hadn't ever talked about money or anything like that prior to that. So we started having those conversations.   Ali: And that year, we were like, this is going to be our year for the first time in our relationship. We were both dual income, like solid incomes for what we were making at the time. We were planning our wedding and this was going to be it.   Josh: So it was at that point that it was like well, it was the act of planning for a wedding and figuring out how much that cost that led us to wonder like, How much money do we have in savings? What's our savings rate? What are our bills, it just kind of went down that rabbit hole and that was also like the first time we really started tallying up like all the student loan and car loan and credit card debt that we had, that we had always kind of known about, but never really looked at it, as you know, just kind of put it under the rug, if you will and that was when we realized, like we have over $100,000 in debt. We're not really making a whole lot of money. We have no idea how we're going to afford a wedding and we were both burnt out already in the jobs that we were working.   Ali: So we had done that basic research, we're starting to talk about finance more, but not really to be honest and then the year of 2018, the year of our wedding, Josh gets laid off from what he thought was his forever employer and we now went from like a pretty modest two income household to a one income household and we realized just how shaky things got in a moment and it was completely out of our control our lives were in someone else's control. So that was really terrifying. But having that crisis is Josh alluded to earlier is really what kind of put us in the corner and was like you're either going to figure this out sink or swim,   Michael: So, what did you do? You clearly are swimming…   Josh: Yeah. Luckily, and I had no idea like I was getting fired. In hindsight, I was like, yeah, I kind of make sense. But like we had started, I had started, it was like you have debt. So I went to the internet, I was like, Well, how not to have debt and so I first discovered the Dave Ramsey methodology, if you will and I was like, nice, we're just going to sell everything and we're going to eat rice and beans and that's what we're going to do and that lasted probably about like two months, and we were even more burned out. So I was like, so I went back to the internet and I said, okay, what's a better way to not have debt and just through just through the act of that, I started to kind of learning a little bit more personal finance. But that was actually when I stumbled upon biggerpockets.com. I had never envisioned us being like real estate investors or anything and that's when I discovered that and then the concept of house hacking, which was, you know, I didn't know a lot about real estate, but I was like, well, that seems like pretty interesting. Like, we could buy a house that has another house, and that person's will pay for most of ours and we'll save a lot of money, like it seemed really simple and so that kind of led us get down that path of beginning to plan for real estate.   Michael: Love it and so at the time, did you own your house? Were you renting walk us through kind of what that looked like?   Ali: So we were renting we were renting, I'm putting it in air quotes, a luxury one bedroom apartment, there was probably more than we realistically could afford at the time. But like, that's what you do, you get a nice place to live. So that's where we were living we were paying about, I would say like 13 a month before utilities or any of that type of stuff and Josh proposes let's house hack, let's buy a duplex and be landlords and I thought he had lost his mind. I, you know, like, I thought it was a really horrible idea, a really crazy idea and neither of us are handy. Neither of us have backgrounds in real estate or anything like that. So it felt like this really, really scary and radical idea.   Michael: Awesome and so what did you do next? Did you end up buying the duplex or did you get Josh's?   Josh: Oh, yes, a lot. Well, so yeah, so I got fired in January of 18 and then I was like, well, we still have a wedding to plan for. So I started driving for Uber and when I wasn't transporting people, but even like, sometimes when I was transporting people, I was just listening to BiggerPockets Podcast and I was just like, I don't know how we're going to buy real estate. But like, what we're doing right now definitely doesn't work. So we're going to find out a way so I was just like studying as much as I could from podcasts.   Ali: So, the Cliff's Notes version is we were relentlessly looking at real estate. We went to showings all the time, we drove for dollars, every spare moment, to really better understand opportunities in our area in terms of houses. We settled on like a city and we started putting in offers, and this was probably like, two months before our wedding and we were getting out there left and right. We were tiny fish in a big ocean and we weren't like sexy buyers. We were like, we have a 5% conventional loan and we need Max seller concessions because we're broke and we're scraping together every dollar we have. So we really worked hard to try to get that first deal. I think a month before the wedding, we press pause, because I'm like there's not going to be a wedding if we keep looking for properties right now. But then we skip the honeymoon and we ended up finding a duplex a few weeks after our wedding that we put an offer on it got accepted and the rest is history.   Michael: Oh my gosh. So did you skip the honeymoon because of finances or because you didn't want to leave to go then not be able to search properties in person?   Ali: I think a little bit of both but I think the real reality was we didn't have a lot of money. We were like neither of us ever made more than 50,000 in our career and at that time, we were making far less. So we were very intentional with the amount of money that we had and how we could best use it. So we could spend a few 1000 on a honeymoon or we could scrape together a few 1000 and buy a duplex that would allow us to reduce our cost of living, thus pay off our debt more expeditiously.   Michael: I love it, so walk us through the numbers on that first duplex. What did you buy it for? What was your housing payment and then what is it rent for?   Josh: Yeah, so and this was nice, too. This was our first off market deal. So we didn't have any other competition besides us and we were super flexible with the sellers. They needed a really long closing period and so we were happy to accommodate but the duplex was 158,000 It was 5% down. So with closing costs all in it was $14,200. We had $3,000 concessions at closing to help offset some of that and the total monthly payment on that was 13-180 and the unit we were moving into was really nice. There's a big three bedroom, one bath and there was a guy living upstairs in the second unit paying 725 a month and we moved in like the week of Christmas, I think it was 2018.   Michael: And so that you still have that tenant up there paying 725?   Ali: So he actually left in that unit was far below market, he was a great tenant, but he got married and decided to move in with his partner, which is understandable. But when he left, we did some like modest upgrades on the apartment and ended up raising the rent to like 925. So then our cost of living went down even more, which was really cool. So we've had a really great experience with that we lived in that unit for about a year and a half and then Josh got the idea what why don't we house hack again Ali, which I again, thought he was crazy but somehow, you know, we decided to do this and we ended up finding another off market duplex only six houses down from the first one, which was really convenient.   Josh: Because it was like really inspiring to see we went from like $1,300 a month, I think down to like little over 400 and neither one of us, were making much money. So that was like a huge win for us and it was really inspiring to see while we were saving money every single month, we have gotten rid of car payments. Now we're paying off a lot big chunks of student loans all throughout 2019 plus also like learning real estate, learning how to be a landlord, etc. So, but we were still paying like $400 a month. And I was like, Well, if we do it again, we'll be paying $0 a month. So we went into 2020 light guns ablaze, and we're gonna buy another deal and then obviously, like the world shut down and so it wasn't really until maybe like, may or may be the end of April that I was like, you know, I think I think it's going to be all right, we should still try to push forward with that and I'm always networking, whether it's in person or social media, we found another investor on our street who explained to us that he had a problem and he needed to sell a property and we were like, We'll buy your property, just don't tell anybody else about it and we closed on that, I think September of 2020 and moved in a week later.   Michael: Oh my gosh. Okay and so give us the numbers on that one and then let us know to what you rented out your unit for that you had moved out of?   Josh: Yeah, so that one was even better. So that was 150,000 but it appraised for 168. So we had some really nice equity walking in, we use three and a half percent down FHA all in was $13,200 and so we moved into the downstairs unit, the upstairs was already rented for I think 975 and then we rented our former unit out for 1350, which was pretty cool, because the mortgage was like 1380.   Ali: So that one unit essentially like covered the mortgage. So the numbers on that were really awesome and by moving into the second one, you know, the cash flow from property one covered our cost of living for property to so we were essentially living for free, which was our goal when we first started this so that was a big milestone for us.   Michael: Oh, that is amazing. Well, I love it. I love in the first one that you're caught your tenants rent didn't cover your entire mortgage payment because as you can probably attest to end the house hacking community. Everyone says, oh, you gotta cover you live for free, cover all your expenses and if you like, that doesn't always work out. That's not always possible in some markets. So what was that like for you guys? Knowing that, hey, we still have a housing expense, and we're house hacking. Did you ever feel like you were doing it wrong?   Ali: I love that you're saying this because this was such a sticking point for us because I think in the community that is such a thing, like live for free or bust and that was definitely something that Josh often said, like, we're living for free. Like that's what the people do on bigger pockets and we're gonna do it too.   Michael: That's what the internet says…   Ali: That's what the internet told me like success means. So the problem was when we went to the house isn't toward them, those houses, we live for free, and there were murders on that street. We, you know, we met prospective tenants and they were slamming doors in our face and I remember our real estate agent at the time was like, do you want to collect rent from that person? I was like, No, I really do not want to collect rent from that person. So I think it is, especially with house hack important to think what is my quality of life going to be because real estate investing inherently makes your life more complicated. There's more moving pieces, there's more challenges. So do you want to live in a place where you don't feel safe and you're miserable and your life is more complicated? I think that is how new investors be Come no longer investors very quickly. So, you know, in our relationship, Josh is 100% the numbers guy and make sure it works but for me, it was more of that qualitative of like quality of life and making sure it was realistic for us and I think we found a nice compromise.   Michael: Yeah, I think that makes a ton of sense and that's so often what I've seen with couples who are doing similar things is there's one person that does one half of the stuff and then the other couple, the other person does the other half of the stuff and then together, you kind of make it work. So that brings up a really interesting point, you too is, you said that before your wedding or as you're gearing up to get married, you really hadn't talked a whole lot about finances. So talk to us talk to me a little bit about what that conversation looks like what you've seen go, well, let's have a little therapy session here for a minute for all of our listeners, like, what did you know what worked for you too and what would you absolutely avoid going if you had to do it all over again.   Josh: So I'll start off with what didn't work. I became obsessed with financial independence and real estate nd I had all of the Excel sheets and analytics and cash on cash, YouTube videos, Baba, I put them all into it was like a board, like a board meeting, like I had it all set up, Ali is going to come home and wait till she sees these analytics, right? It could have blown away because bar graph literally instantly dead in the water and I was like, but wait a minute, like I like look at that, look, we're gonna get paid to live for free, and we're gonna cash out cash, excellent and she was like, I don't care. I made the mistake of trying to speak my language and not her language and when I went back to the internet, like how to get my partner on board. So often the message was like, stop trying to project what excites you onto your partner learn what excites them and then kind of back your way into that and so instead of going at Ali with, you know, Excel sheets and stuff like that, I remember, we sat there and we wrote down, like, what are the things that make us happiest? Like, what's your perfect day look like and so we wrote all that kind of stuff down and it was like, you know, it's traveling and spending time with family and stuff like that and when I stopped looking at the numbers and started showing, well, if we do this, this is just a bridge, like real estate isn't the end destination, it's the bridge to more freedom to do the things that we both have documented, we really enjoy more and when she realized that, like if we do this, yeah, it'd be hard sometimes. But you know, when we want to have a family will have more flexibility, she was in a really stressful job, it would give her greater optionality very close with family, we could spend more time with family and when I started speaking more like Ali's language, if you will, that's when I saw a lot of progress.   Ali: Um, I would say for me to like being the partner on the other side, where it wasn't my idea, it wasn't necessarily something I would have wanted to do. I felt really resentful of Josh, I felt like he was like doing something to me. Like, I felt like I had someone wanting to take our life in a direction that we never talked about. I didn't want I had no desire for and it felt like really like a lack of control and I didn't like that feeling and I think that that could very easily cause like a schism in a relationship where it's either like, we do this together, or we go in opposite directions and I, I like remember the words of Josh. So clearly, like, I'm not doing this, like our debt is doing this, our financial situation is doing this and I think when we made it less about us and more about like our situation, it really helped bring us together, because the debt was the problem. The low incomes was the problem, the working 30 years at a job we hated was the problem. So when we kind of approached it, it's like we're a team. So it's not like Josh holding you back from the nice single family home that I want. It's like the reality of our situation and I think we live in a society of such like, I want I want I want and I'm gonna get it right away, that the idea of delaying that sucks. People don't know how to do that, like Josh wanted to know how to get on the same page as a spouse and he could just Google it in two seconds, right because like, that's the world we live in and there's benefit to that but the reality was like it was hard to kind of have our cereal before we had our marshmallows, but we figured out a way to do it together.   Michael: That is so, so good and so bring us up to speed on what's going on today. Are you still in that second house hack? Are you investing in pure investment properties, what's going on?   Josh: Yeah, a little bit of both. So property one is now rented for just under 2450. So it's 1000 up top and then 1425 and both are still below market quite a bit but we just we hedge because we realize like stuff shifts and we don't want our rent to be a huge burden on people.   Ali: So, we didn't raise at all during COVID, we actually just raised both units by 75…   Josh: Marginally, so but it's still but it's a nice comfortable cash flow and it's like super low maintenance, which is really nice. We're still living in, we're actually in house hack number two, we've done a bunch of renovations while we're here and then we actually in April, we just bought our first non-house hack off market property using private money, which was really cool. This is our first endeavor into more creative financing. But we just bought that and that we bought for 190,000, we believe it's worth about 230. So we're about to go through the appraisal for the refinance process. But that rents right now on that are kind of low, it's like 2780 but the market rent was a little bit of a buffer is probably about 3000, maybe 3100. So once we get through a refinance, and then kind of depending on where people situations are, will steadily work to get that to market rent or a little bit below.   Michael: Amazing and is that in your local market or is that remote?   Ali: Yeah, I mean, everything that we've purchased so far has been within like a walking distance, or like a less than 10 minute radius and we do that really intentionally just because we self-manage our properties and we really, we live in the city that we invest in, and we love this city. So for us, it's really like taking these 100 plus year old homes, giving them some TLC and providing like safe and affordable housing to members of our community. That's not to say that we would not want a vacation home in another area that we could go to sometimes and rent out the rest of the year but we're taking it one step at a time…   Josh: Like buying super local has actually become quite the calling card for us and I mean, we've bought deals now from sellers who had other offers, even though they were off market, but sometimes they were out of town and just being locals and kind of spotlighting the work we do in the community was like a nice selling point for us and so they chose to work with us, even though maybe someone from somewhere else could offer them way more. They wanted to work with someone local.   Michael: That's great, that's great. and you mentioned at the beginning of the show that you're about 50% of the way to financial independence. So what does the rest of the roadmap look like for you too?   Josh: Yeah, so right now it's we don't want like this big portfolio per se, just for based on our goals and kind of our lifestyle. It's kind of like you can either have like a lifestyle, business or business can become your life and so for us, we want to be this small but mighty portfolio owner, so that looks like probably about 14 units total, maybe 16 and then if we shaved off two of those mortgages. For us, that's like more than enough cash flow to cover our needs and then when we're not investing in real estate, we also invest in like Roth IRAs, taxable brokerages. So basically, it'll be like a taxable brokerage. Probably like three more rental properties multifamily pay off two of those loans, you know, and then at that point, it's kind of like if we want to continue to, to work on projects that really excited us we can but it won't be out of obligation.   Ali: And like I see us really resonating with the first half of the fire movement like the financial independence but like the retire early piece kind of has like a little asterisk on it for us. I mean, when we first started all of this, we were both 40 hour week employees a W two jobs and this past November, I was able to leave a really toxic work situation. I was a school social worker schools as many industries were, were very tough during COVID and it just wasn't really serving my physical or my mental health and we were able to make the plunge but like me leaving so now I work two days a week in a school in order to maintain health benefits and Josh was working 40 hours a week and now you're coasting in the 20 hour range. So I think for us like that number hopefully goes lower. We build up our business through the FI couple we're looking to launch a podcast and some other fun stuff. So I think that will be really cool but really just more control over the work that we do and our time…   Michael: So I think you might agree that in the financial independence community the fire community big a lot of podcasts, Bigger Pockets, folks talk about the wins the highlights the successes, look at my Lamborghini, I just gotta look at this rent check. I just cash, no one talks about like the things that suck the things that are hard and they kind of dark times the underbelly, if you will. So can you give us an insight, maybe share a story about when were things crummy when did things suck for you too?   Josh: So I'll give you two I'll give you like a really specific one and then kind of like a broad overarching one. So a very specific one was the property the second property that we bought We thought it was in a lot better condition than it was and when we moved in quickly, we realized we had grossly underestimated the amount of work that needed to get done and we it was during like a really cold part of the season up here and so we ended up having like, no floors for a while, we had to have a lot of windows replaced, we basically took all of our belongings, and we lived in like a small bedroom for, I don't know, it was like two weeks, maybe three weeks, and like, we had to like tiptoe on the floor, because there was like nails and glass and stuff like that and that was just, it was a lot harder than I think we anticipated and I think a lot of shows, you might see like, quick boom before and after. Well, that couple of weeks in between was actually pretty brutal and it was very challenging for us and then I would say, on the broad spectrum, like, it can be really isolating, because the lifestyle that we're living, like, we talk about it a lot like, in real life, nobody we actually know for the most part is like living or thinking the way we are or do and we can kind of become like the weirdos and sometimes that can strain, like friendships or relationships and people kind of look at you a little bit different and people that you like love or grew up with or like you're different now and all you care about is money and, and we could try to tell them like our philosophy and the mindset behind FI until we're blue in the face to all you're gonna think about was like you just care about money. So I think it can also like really strain some relationships.   Ali: I think like, this stuff like comes in waves, like there are times when we feel like we're doing amazing, and everything's kind of running smoothly, like a well-oiled machine and then like chaos ensues and it's like one thing after another and again, like life is not an easy experience like as humans, we have a lot of complex things that go on in the day to day and I think that sometimes it's hard, like I think that we really glamorize financial independence and real estate investing, like it's this very sexy thing and once you achieve that, like your time freedom, your location independent, like all these cool things, but we often have the conversation of like, I feel like I'm complicating the hell out of my life right now. Like, we're like, wow, like if we had just a regular W two job like that seems kind of sexy now like with like, with life be easier, then yeah, rental property, that rental property but it's like reminding ourselves that like we are adding more spinning plates to our life, to ultimately have the freedom to have more choice and for me, like, our life gets crazy now in ways that I couldn't have imagined. But it's a good crazy that we picked versus a crazy, we don't have a choice over and someone else is dictating what we do on a day to day. So it's kind of just like, you know, you're gonna hit different challenges throughout and what feels the best for you?   Michael: Yeah, yeah, no, I think that makes a ton of sense and I just kind of want to highlight and tip my hat to you both because I posted it's funny we were chatting about before he record about different tweets, we were thinking about posting or Twitter, you know, tweets we've made in the past and my tweet this morning was about financial independence, thinking that I was going to be interviewing YouTube later in the day and I said, people who are serious about financial independence will do whatever it takes to get it done. Those who don't or those who aren't serious complaint and like you were working a W two job, Josh that you went and got a degree for and then you went and drove Uber, because that's what you had to do to make it work. So and it gets do you want to share anything with folks out there that are saying, oh, well, I can't do it because or this isn't gonna work for me. insert blank here. What do you have to share with those folks?   Ali: I just want to say to though, I think you can do both, I'm really good at complaining often and still doing it and I think you need to give yourself space for those feelings because I think sometimes it's like, just get over it and do it, whatever it takes and I think that mentality can be toxic to because you are human and you are allowed to have feelings and sometimes like the whatever it takes, maybe that isn't worth your mental health and your energy and there's another way you could kind of find a solution or maybe it's going to take a little longer but you're going to enjoy the journey a lot more. But yeah, I think so often we meet with people and they're like, I wish we could do what you're doing but and it's a laundry list of excuses and it's like we bought like Junker cars and cash. We're living in an apartment that in my opinion is way too small for the life that we want but we're doing it because it's like these are the things that we know we need to do to get where we want to go. So we have been in constant experiences of making ourselves uncomfortable for the greater good. So to speak and having perspective that, like, our life is really good and these are first world inconveniences, you know,   Josh: It's kind of like, it's like, if you want something you've never had, you have to do something you've never done and I think anyone a little bit today, like if people step into our lives, if you will, through social media, they'll be like, oh, my God, like, it'd be so nice if I could do this or I could have a social media platform, blah, blah and I'm like, yeah, but two years ago, no, this didn't exist. Like we didn't have a social media platform and we were, I was, at one point, I think we kind of had like seven jobs between the two of us and we were just scrapping and scrap and scrap, scrap it and stick exactly right. So it's not, you know, it's definitely doable but I think also, sometimes people they like, it's like zero to 60, right. They're like, I either can do nothing, or I need to do everything and say, well, there's like a lot of wins in between, like now and then but instead of like focusing just on the mountaintop, which I'm like 100% guilty of, and that's where it helps having either like, whether it's like a romantic partner, or a business partner, whomever, like someone who can keep you balanced and grounded because like, sometimes I will have my own little personal pity party and I'm like, oh, my God, we're not here. We haven't done X, Y, and Z and luckily Ali, be like, yeah, but like, here's all the things that we've been done and I'm like, yeah, don't show me that. I just want to look at all the things like we haven't done. So, yeah, perspective is huge.   Michael: Absolutely and I'm right there with you, Josh. I love throwing my pity party for a party of one and I think it's interesting two people are, like envious of the result or not envious of the work you have to do to get there. So I love that you both shared about having that perspective.   Ali: I heard this on a podcast once and I'm super obsessed with it and I feel like it really transformed my perspective because so much of all of this is mindset and she the person on the podcast was talking about like life is 50/ 50 but we often only focus on one half. So people like focus on like, the wins and all of the amazing things, but they're not focusing on the challenge that it took to get there and often I'm focused on like, the uncomfortable and the sacrifice, but I'm not focused on like, where it's going to bring me. So both pieces of that equation are like, so important to really be aware of.   Josh: Last thing I'll share on that. Actually, I posted this earlier, but it is it's like the iceberg analogy, right? Like, people will see the 20%, but they'll never see the 80% but you don't get the 20 without the 80. But a lot of times people that that 80 can be 80 can be really hard. It can be really stressful, but you don't get the results without it.   Michael: Yep, you two this has been so much fun. I really, really appreciate you coming on sharing with our audience and our listeners. If people want to learn more about you reach out, where's the best place for them to do that?   Ali: Absolutely. Yeah, I'm pretty sure that we've locked down the FI couple on every major social media platform that our main platform is Instagram and then Twitter, and we have a website to https://www.theficouple.com/ , so those would be the best ways to connect.   Michael: Amazing. Well, thank you again, and I'm sure we'll be in touch soon. We'll have to have you back on as you progress along your journey.   Okay, everyone, that was our episode a big thank you to Ali and Josh for coming on, and really being vulnerable and kind of opening the vest a little bit and showing us what it's been like for them along the journey to financial independence, wishing them best of luck and can't wait to see where they go from here. As always, if you like the episode, we'd love to hear from you all with ratings and reviews, comments in the feedback section and we look forward to seeing on the next one. Happy investing…

DREAM CHASERS | Interviews with the Future
REM 28: Brad Cartier - How We Can Fix the Affordable Housing Crisis w/ Brad Cartier

DREAM CHASERS | Interviews with the Future

Play Episode Listen Later Jul 14, 2022 32:45


Would you live in a Tiny Home???In a world that is becoming increasingly digitized, Americans are needing less and less space to live. According to recent studies, 23% of all Americans (and 34% of Americans age 18-34) say they would live in a tiny home or heavily consider living in a tiny home. Additionally, tiny home development is expected to increase by $3.5 billion by 2026!So, what is a tiny home?In today's episode, Brad Cartier, and I discuss tiny homes, missing middle multifamily, and other potential solutions to the affordable housing crisis in America. Brad explains that tiny homes are roughly 400 sq/ft and are an alternative entry into homeownership for people who are not yet able to afford large down payments for traditional housing. Brad Cartier is a cofounder of Blair Capital Asset Management which develops and manages missing middle multifamily in the Ottawa area and he oversees over a portfolio of around 100 rental properties including long, medium, and short-term rentals. Brada writer on all things real estate for Briefcase where he is a co-founder, as well as other outlets such as Motley Fool, Roofstock, and Stessa.In today's episode, we discuss…Are we in a housing bubble?Why fixed rates loans are only 5 years in Canada not 30 yearsWhat missing-middle multifamily is and why Brad is developing itRegulations Canada and California are passing to address the affordable housing issueIf you hope to develop a strong understanding of the current state of the American housing market, tune in to today's episode to learn from Brad's experience as a developer and industry researcher! Keep Making Milestones, Ben MalechIf you want to learn more about the Brad, you can find him at:Brad's LinkedIn: https://www.linkedin.com/in/brad-cartierSubscribe to the Briefcase Newsletter: https://briefcase.email/To learn more about Ben, connect with him through:Ben's Website: https://benmalech.com/Ben's LinkedIn: https://www.linkedin.com/in/benjamin-malech/Ben's email: benmalech@carswell.ioResources Mentioned:Rich Dad, Poor Dad - Robert Kiyosaki

The Remote Real Estate Investor
Kathy Fettke's perspective on the direction of the housing market

The Remote Real Estate Investor

Play Episode Listen Later Jul 12, 2022 37:38


With a passion for researching and sharing the most important facts on real estate and economics, Kathy Fettke is a frequent guest expert on such media as CNN, CNBC, Fox News, NPR, CBS MarketWatch and the Wall Street Journal. She is the author of the #1 best-seller, Retire Rich with Rentals, and host of two long-running RealWealth podcasts – “The Real Wealth Show” and “Real Estate News for Investors.” You'll also find her on the recently launched BiggerPockets “On the Market” podcast as one of several co-hosts. Kathy received her BA in Broadcast Communications from San Francisco State University and worked in the newsrooms of CNN, FOX, CTV, and ABC-7. She's the past president of American Women in Radio & Television. She is passionate about learning and sharing that information with the members of RealWealth and her podcast listeners. In today's show, Kathy shares her investment journey, her predictions on where we've been, and where the market is headed. Episode Link: https://realwealth.com/ --- 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 going on everyone? Welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by Kathy Fettke, who is the co-founder of Real wealth and she's going to be talking to us today about her predictions around where the market is headed, and where we've been. So let's get into it.   Kathy Fettke, how are you? Thanks so much for taking the time.   Kathy: I am doing wonderful, thanks for having me here.   Michael: Oh my gosh, I'm so excited. So we had your husband Rich on a while ago on our podcast and we were asking him about market conditions and forecasting and he goes timeout you got to have my wife on. So for anyone who didn't catch that episode, give us a quick, quick intro background, who you are, where you come from and what it is you're doing in real estate.   Kathy: Yeah, well, Rich, and I founded real wealth, which we really did by accident. It was back in 2003 when he was really more in the motivational world. He was a speaker and had come out with a book called extreme success. He was doing this national book tour, we didn't know anything about real estate, but we house hacked, which wasn't really a term then. But basically, we bought a house it was way too expensive for us. So we rented out rooms and that's how we afford to live there. That's how you summarize that. But other than that, that was our only landlord experience and we didn't we didn't think that we could buy real estate until we were rich. You know, that's oftentimes what people think like, I gotta wait till I am a multimillionaire before I can do that, so he you know, he was building his coaching business, I was a stay at home mom. It was on that. On one of his when he came home from his tour, his media tour, and he noticed a freckle. As you probably saw, he's a redhead. So there's a lot of freckles on that guy but he noticed he was like this one's weird.   So he checked it out and the doctor looked at it did more tests, thought he basically told rich, he had probably six months to live because melanoma was extremely deadly than it probably still is. But they have better things today. But back then it was just like, here's your diagnosis, you got six months. So obviously a massive shocker. Both of us being motivational speakers and coaches were like, no, no, no, I'm not buying this. But I had to figure out the finances and I wanted to take over so that he could you know, if the doctor was right so that he could really enjoy himself for those six months. But really, we both were like No, don't even go there just get better. So that's when I had a weekend radio show in San Francisco that I just did for fun. It was kind of a coaching show is helping people go after their dreams in a in like a 90 day period and, and really create the things that they always wanted, but were afraid to do and all of a sudden, I'm like, I gotta change the show to me figuring out how to make money in 90 days, you know and how do I do that? So I completely changed the focus to wealth building and because it was the San Francisco show, I could interview really high level people like Robert Kiyosaki and that's how I learned real estate investing and that's over time, we built real wealth and we've been helping people, you know, educate people and educate ourselves ever since on how to build wealth through real estate.   Michael: I love that. So you're telling us that you learned real estate investing via hosting your own podcast and interviewing folks that had done it?   Kathy: Oh, yeah and I was such a dummy. I mean, like, literally knew nothing. Nothing. I mean, we were renting out rooms in our home on Craigslist. So like, we understood the dark side of what's doing, right, because of stories there. But no, it wasn't until I just thought I got it. I gotta figure this thing out. I've heard that there's a thing called passive income. I don't know what it is but let's find out and I just started interviewing people but I was lucky enough that because I was so desperate to create money, and I've been a stay at home mom for years. I I'd been in broadcasting and that was my degree. But I didn't want to chase fires and murderers when I was raising young children. So I, I basically was not doing that anymore and, and so and bless. They had strikes all the time where I'd have to march for hours in the middle of the night like that. Anyway, I hadn't been working and I didn't It's hard for women when you're out of the workforce for even a few months, but let alone a few years, kind of don't know how to get back in. So that was the focus is like how do I do this? But one thing I thought, well, I could maybe sell sponsorships. So I just started listening to everybody who was advertising at the time. It was like, oh, wow, there's a lot of people, but advertising mortgages.   So because you know, this was 2003 and that was what it was everybody was wanting a mortgage? Because they were ridiculous. So I went down the phonebook which existed at the time, and called all these one by one and finally I got someone. Well, I finally got someone to agree only because I was so tired of hearing no, I called finally the last person on the list. I was like, I got an offer you can't refuse. I'm looking for a co-host, instead of like an advertiser, and the guy's like, yeah, sounds good. So that's how I got my sponsor, but it ended up being a mortgage broker who I made a co-host and I came home and rich started laughing. He's like, oh, now you have a mortgage show. Like, that's gonna be funny, because you don't even like going to our fight you skip every financial planning meeting we ever have. And because I just really wasn't into it. But this mortgage broker who became my co-host, I thought, you know, how am I going to make this interesting, so rich, and I thought, well, you know, interview his clients, find out what they're doing with these loans. And that's, that was the game changer and again, like, I had no idea what I was talking about but I think that's what made the show interesting is, I would I was in such awe of the things that, that these people were doing, that all my audience was like, also learning along with me, and they were in awe. Because I was interviewing these 30 year old who were retired, you know, it was like, I'm 40 and I'm not retired. So what are you doing and I learned about flipping and I learned about buying hold, and I learned tax benefits and, and, you know, just all the strategies that Pete that at the time, were kind of secret because podcasts didn't exist back then. I'm so aging myself, but you couldn't you couldn't get the information. It was like late night TV or $10,000 boot camps, infomercials. Yeah, so it was like I was opening this secret world of real estate investment and making it public and I'm happy to say I was one of the first it changed my life and it changed the life of 1000s of people who got to listen.   Michael: I love it, I love it a little bit. Kathy, I want to shift gears here in just a minute. But before we do, I mean, you had such an interesting purview into this world of real estate investing. So having interviewed all those folks, and having taught numerous people how to do this, is there a red thread, or kind of key takeaway that you think should be thought should be spoken to would be investors or newer investors as they're just getting started?   Kathy: 100%, I can tell you, for me, I, I had a completely new mindset, because people like me who aren't born wealthy, you know, and, and have parents who work for money, you know, whoever, you know, they, if they're not working, they're not making money that you know, they don't understand investing and assets and cash flow and stuff like that, which is most of the world, right? So if you don't come from that, you don't have it, you don't have the mindset. So interviewing these people who were so different than what I thought rich people were like, and so you can even see it today, people who are angry at those who have there, they're just they feel it's unfair, that that's, that's the mindset I was in and then to actually talk to these people and find out there the most generous people, they have a different way of thinking, they look for opportunity, they look for ways that they can make a difference and making a difference is, you know, you're not going to be in business very long if you're not making a difference. And if you're not helping people, that's the bottom line, you're gonna be out of business unless you're government funded, and you get paid no matter what. But, you know, but you know, in a, in a free market society, it's like, if you're not making a difference in helping people, you're, no one's gonna buy your stuff. So I just really learned that, that these, there was a different mindset. So it had to start there and the way that my mindset changed was just being around people and you hear that a lot you hear, like, if you want to change your mindset, get around people that you want to be like, don't hang around the people you don't want to be like, you know, you become who you hang out with. So for me, just even being on the radio, with these people was enough for me to be exposed to a different way of being so it really begins with mindset,   Michael: Love it and kind of taking that a step further, what's your best advice, or the best way that you've seen people get around some different people that have the things or have accomplished what it is I'm looking to accomplish?   Kathy: You know, today, it's so much easier. There's so many more opportunities. You have podcasts that are free. Again, this didn't exist. There weren't radio shows that talked about, you know, how to build wealth through real estate, you know, and if it was it was probably someone who was trying to sell you something. So today, you have access to so many different podcasts like right now. You have books that are $20 You know, my book retire rich with rentals is 20 bucks, and it's my experience all summed up. There's so many books like that. out there that are cheap. So, you know, learning from those who really technically have nothing to sell you, you know, except a $20 book, you know, that's, that's okay do that real estate conferences Rheas. There are local Rheas everywhere and you have to be careful, because RIAs still have sharks. Even when I started real wealth, I couldn't believe the number of sharks that were out there and I ran into all of them. I'm telling you, like I couldn't. This is the other thing that new investors don't realize is that not everybody's nice and not everybody's telling you the truth. When you're a truth teller, you just assume other people tell you the truth and I can tell you when it comes to financial services, it's like, you know, there's so many people that can lie to your face and I met all of them here as well as smile, and they're so happy and they would come to my real estate group groups, they would come to me, assuming I was naughty, like they were and be like, hey, I got some properties to offload. You know, I'll pay like 10 grand, you know, we're getting them.   This was when the when everything fell apart. He's like, we're buying these things for like, $2,000 in Kansas City, and you can resell them for 20. Like, that's not fair, that like, these are tear downs, you know, but so, and they thought that I would be down for that. So there's, there's still RIAs where there's sharks who got out. So I guess the next step is when it comes to mindset, you've got a next step, educate, educate, educate, because then you can't be ripped off as easily. It's kind of like, I like to describe it, like when I took my family to Costa Rica, and I forgot to do my due diligence in the sense of, I forgot to find out what the exchange rate was and I had my $20 and I wanted an empanada and we were hungry and I handed the $20 and I got some change back and I looked at it, and I didn't know what it was and we walked out and I heard the people laughing. I'm like, oh, I just got ripped off but I don't even know how I don't know. You know, so that's how it is in real estate, if you haven't done your homework, and you haven't read those books and listen to those podcasts and you have learned that it's pretty easy to get ripped off.   Michael: Yep, I love that, I love that. Let's shift gears here, Kathy, because what you're doing right now, in this space is super, super interesting and talking about market trends and forecasts. So give us a little bit of insight, give us a little preview into your world of what that looks like and how you're doing it.   Kathy: Sure, well, it was in 2005. I'll just kind of go back again, where I was able to get people like Robert Kiyosaki on my show and he was the first one who was counterintuitive and that taught me so much because he was saying things that nobody else was saying, and no headline was saying, at the time, like what oh, like at the time, the, the main economist for the National Association of realtors had just come out with a book in 2006. That said, you know, I can't even remember it. But it was basically like, why this is why there's no housing bubble and why home prices will continue to go up for the rest of the decade and it was like this was the National Association of realtors Chief Economist. So you get Kiyosaki coming on and going, no, no, that's like, the loans are going to reset and they're starting now and by 2007 2008, people won't be able to pay the payment, because it's all adjusting and it was so obvious once I could see the data and that oh, you know, I ended up joining my co-host and becoming a mortgage broker. So I knew how bad the industry was and I knew how full of lies it was I my first loan that I turned in. They the bank came back and said, oh, your client doesn't make enough money and I was like, well, that's too bad. I'll let him know. He doesn't qualify and they said, no, no, we changed his income he qualifies now and I came home and I was like, pocket, I go rich. Is that legal and he goes, no, honey, that's fraud. Don't put your name on that. So I was one of the few mortgage brokers that Dec was didn't want to deal with the consequences of fraud. So I would turn down people and they would just go to the mortgage broker next door. They were Nina loans, no income, no assets. I didn't need anything. Anything, I didn't need to know anything about you and I could give you a $5 million loan. It was crazy. So I knew something was wrong. But so did everybody else but it was it was nobody could see it. So Kiyosaki is going, you know, this isn't going to end well and like yeah, da. So he was explaining that all the markets that really benefited from easy loans and easy lending were California, Nevada, the San states, Arizona, Florida and he said, but there are certain places that haven't abused these loans and Texas was one of those places. Texas wouldn't allow 105% cash out refinance.   Do you know what that is? That's where you would do a refi and get more money back than the value of the house. It's bright, steady. So Texas didn't do that because they'd been through the SNL crisis in the 80s. They weren't going to do that again. So, he was Kiyosaki was explaining in 2005 2006 I've sold everything in California and all the San states and I'm buying in Texas, I'm exchanging everything in Texas, because the fundamentals are there. The jobs are there, the population is growing. But the but the property's cash flow and that was something. As a California girl, I didn't even know the word. I didn't know what cash flow was, except for negative cash flow, that was a thing. I was curious, like, if you invest in California with negative and that was like common. So it was like all positive cash flow. Okay, so rich, and I jumped on a plane, we went to Texas in 2005, we came back with five properties, because back then you could buy as unlimited amount of investment properties, no money down. That's the kind of lending that existed, and no paperwork. So you know, sign on the dotted line. So we came back with five, but we bought, right, we bought, where the growth was headed, where the jobs were, where the freeways were going, and I talked about it on the show.   Next thing, you know, everybody wanted to do what we were doing. So that's, again, how real well start is just helping people buy and these markets. So I knew back then that you have to does like don't pay attention to the headlines pay attention to fundamentals and that's the same thing I'm doing today and this same thing exists today, where the headlines are, are not following data and people are basing their investment on these false headlines. Like even today, I had a little Facebook fight with some people saying, you know, everybody's like housing crash housing crash, and I'm like, where, like, where? Just show me the data…Yeah, I'm really curious to know where this housing crashes and I get crickets, you know, nothing. But that's what people are thinking and I'm okay with that. If, if my competition leaves the market, I'm okay with that. I would love less competition. Go, go away. Let me buy the stuff, you know.   Michael: Yeah, totally, totally. So I mean, I'm hearing the same chatter and seeing the same headlines doom and gloom, bubble housing crash. Talk to us about what you're seeing from a data driven perspective and what kind of your perspective and projections are   Kathy:   Sure, well, let's look at the American home owner versus the American homeowner before the last crash, before the last crash, there was no money down. In fact, you got cash back for buying, you could buy as many as you want. No, no, no paperwork required, right. It was just right. You know, today, it's a very different situation thanks to Dodd Frank changes it you have to put money down. I mean, not necessarily the first time homebuyer can put 3% down, but they still have to qualify with open books. And we all know how hard it is to get a loan and it has been for the past 12 years, so…   Michael: Full cavity search… as your neighbor's mailman, like…   Kathy: It's crazy awful. I'm doing one right now and I hate it. But you know, this is what it's been for 12 years is difficult. So you've got people for the last 12 years that had to qualify, you have the highest FICO is these are people who have proven a history of paying their bills, that was not the case back then it was subprime at, you can have a history of not paying your bills and still get a loan 100% financing, not the case today, you have to show that you pay your bills, and that you put money down and that your income supports the payment and not just that, but that debt to income that you can't have so much debt that you can't pay your home. So, you know, it's not been easy. The people who own homes today qualified, they're locked into low rates. They have the lowest housing cost in history. I might be wrong on that but they have very low housing cost the people who own homes.   So because they're locked into 3% rates, and they qualified and since then their wages have increased. I'm talking about homeowners only now this is not the case for renters. Renters are in a horrible place today. Horror, I've my heart bleeds for renters today because they they're spending most of their paycheck just trying to have a roof above their heads. It's a difficult time. That's why I've been on a mission to tell people buy a house because you can lock in your payment for 30 years and not worry about rent. But unfortunately, there's a lot of people who are unable to do that and that's the story. It's the renters and hopefully, you know, hopefully landlords will be able to provide affordable housing but it's hard you know, it's hard today because we're trying to build affordable housing and how can we do it when lumber went up? 100% or whatever like it's not easy, eight right la Los Angeles. I live in Southern California. I don't know you know that what happened here but la tried to build affordable housing with a grant you know, free government money. Do you know that that the homeless housing that they built cost 800,000 a unit for I kid you not the oh my gosh, housing 800,000 because it's Well, first of all, governments don't tend to know leave it to the efficient sector. Yeah but it's not easy.   So, you know, when you've got a situation now where the Federal Reserve stimulated the housing market when they shouldn't have, they misread even our Federal Reserve that is supposed to be controlling the economy wasn't because they were thinking that during COVID, there would be a slowdown. But of course, when you print 40% of the money that's circulating in two years, there's probably going to be an impact and of course, that impact is inflation and add to it that the Federal Reserve was buying mortgage backed securities to keep interest rates low. So and all this happened when you had the largest demographic ever, of first time homebuyers hitting the market, the millennials, age 28 to 34 biggest, biggest generation ever hitting the homebuyer age and they're very well educated, well paid people, low interest rates, and then add COVID where they could live anywhere. So a recipe for disaster that drove prices up. People think they're going to come crashing down. Tell me why. Tell me why people who are highly paid, qualified for the loan or locked into 3% loans are going to suddenly go, oh, no, rates are up. I'm going it's kind of like that scene and you know, where the roller machine is coming at? Oh, awesome. Yeah, there's no, it's not. That's not happening.   Michael: Yeah, well, that's such a good point because I think I would be remiss if we didn't talk about interest rates going up. But that's so much of one side of the equation we're hearing about, in order for people to buy properties at these higher interest rates, there needs to be inventory to sell. So talk to us about kind of that side of the equation as well.   Kathy: Yeah, no, it's a great point, you know, it kind of economics comes down to supply and demand, always, always, you know, you can, you can have 2% interest rates, but if nobody wants, whatever it is, that's out there, it doesn't matter and that was kind of what happened in in 2010-2011 and 12. You know, interest rates went so low, but no one was buying housing, because they were scared and there was a lot on the market. So a lot of lot of supply, not enough demand, it didn't matter that rates were low, of course, that that turned around, eventually. But here we are, you know, fast forward, this massive demographic of young people that are trying to just have a place to live. You know, this isn't stocks where you just invest, this is like your life. People want shelter. They don't necessarily want to live with mom and dad. They don't want to live in small apartments downtown as they're forming families and there was this crazy headline that millennials weren't going to form families. Well, not at 21 but they're their family forming age now, you know, like, right, right, right, who's gonna buy a house and have babies at 21… I don't know maybe in the Midwest, but not generally, today. So there was just a lot of misinformation. Again, don't trust the headlines, it's be careful about headlines and look at the data. Today we have a situation where building has been difficult and in 2008, 2000 2008 builders got absolutely wiped out and they were in no mood to get started and many couldn't and there wasn't financing for builders.   That's how I got started in syndications because builders came to me and they're like, I can buy land for almost nothing. I can't get money, can you? Can you raise money? I'm like, I don't know. Maybe it turns out I could and so we were able to buy land for almost nothing and you know, buy 4200 lots in Tampa for like 10 cents on the dollar was crazy. It was crazy. But there was no money. So builders just and there was no demand. So why would builders built and that didn't mean that that's applied and really thin out until like 20 I don't know 14 Maybe. So okay, and then being a builder now being someone that boy tough business. You know, that land that we bought in Tampa, we're just now finishing, you know, selling those lots because it takes so long to get infrastructure in place took 10 years to get the roads in and the utilities and stuff. It's not quick, and that's even in Florida and in our other subdivisions. They're all two or three years delayed and that's just us, you know, so think of all the builders out there that either don't have the appetite to do spec housing, they'll build to order basically but and now you know new homes tend to get hit the hardest when rates go up. So builders really aren't in the mood to to build at a time when it's so desperately needed and then add the supply chain issues and the you know, just the blame issues, it's hard to hire anyone and then during COVID, we had to shut down our site, the cities were shut down, we couldn't get permits, we couldn't get approvals and, and then you know, one person gets sick on the job site and you're shut down for two weeks, you come back to work and one other person gets, I mean, it's been hard to bring on new supply at a time when it's so desperately needed. So here we are higher home prices, higher, higher rates, less people able to buy homes, more people forced to rent, and the inventory is not there.   Michael: So you think that there is enough kind of demand pent up there with not nearly enough inventory now or on the horizon, that that demand is going to push through those elevated home prices and interest rates?   Kathy: You know, again, it just depends on the market. The mistake, I think in the headlines is that they keep treating it like it's a national housing market and you and I both know, that's just not the case. It's so market specific. So there are some areas that really boomed because people from the San Francisco Bay area or from New York, got the heck out of town because they could live anywhere and cities are not so exciting when everything shut down. So you have places like Boise that just bubble up but is it a bubble when it's California money moving to a cheap area. For them it's no bubble, you know and it's not like these Californians are gonna go, oh, you know, gosh, prices are stalling. Maybe I should sell it a loss. No, they bought a house in Boise because they want to live there, you know, they want a second home or whatever and it was cheap for them. So but do I see that continuing? Probably not. I think I'm guessing prices have kind of maxed out at Boise but I also don't see a crash. You know, same for Austin, these aren't places I wouldn't necessarily invest. I don't like investing in places that saw 40% growth year after year. You know, like I, I doubt that's going to continue. I want to be in areas where that hasn't happened yet. It's about to happen.   Michael: And so you that's perfect segue into my next question is how do you find the next Boise or the next Austin? What are you looking for and what should our listeners be looking for?   Kathy: Yeah, I mean, it's definitely a changing market and, again, that doesn't mean people aren't going to still be moving to Austin and Austin still looks really cheap for people from New York and San Francisco. So some of these areas where, where there's tech growth and job growth and jobs of the future kind of growth. It's going to continue. I mean, look at Miami, if you asked me if Miami would see the kind of growth it's had, I would have said no way. You know, everybody's afraid. It's got to be underwater. No one seems to care. Miami was the hottest market ever last year in the year that everybody's talking about climate change, I don't get that.   But you know, what you have? Is the financial sector moving there from New York. So, you know, do you want to live in New York City where it's cold and windy in the winter or do you want to live in Miami, like one? That's right, you're moving? Easy, so I wouldn't, I wouldn't buy there but what that tells me is people that are that lived in Miami who are getting priced out, they're gonna move kind of to other parts of Florida, that are cheaper and companies that you know, maybe are concerned about climate change, you're gonna move to parts of Florida, that aren't as risky. Texas, you know, look at Elon Musk, you see, he's part of a trend that's been going on for 10 years of, hey, there's two places that stayed open during the pandemic, Texas and Florida, maybe South Dakota, but no one wants to live there. So it's really Texas in Florida. If you want to have a business that stays open, you're gonna go there, so the businesses are going there and people are following.   Michael: Yeah, that makes total sense and Kathy, where do you go to get your information and to get your data, the raw data, not the politicized headlines, but these are the numbers, I want to use them to then interpret and come to conclusions? Where do you get those from?   Kathy: I just I really just interview people all the time that are in that are either longtime experienced investors and have been through cycles and, and understand fundamentals versus hype and I'm not saying not to be cautious. This is a time to be cautious, because we're in a changing market and we don't know how aggressive the Fed is going to be and we don't we don't know what's hot, what's coming. But the fundamentals work no matter what. So I listen to longtime investors who have been through cycles. I follow the I follow closely the federal reserve and what they're doing. I follow the Treasury, the 10 year treasury and this is you know, this tells me when there's all this concern that interest rates are continued going to continue to rise, the 10 year treasuries retreating and the Fed follows the market and the market is saying, we don't, you know, we don't see that inflation is going to continue forever, or that the markets gonna boom forever and if the markets not booming and there's not rampant inflation forever, you're not going to see interest rates continue to rise. You know, if the 10 year treasury is retreating, that tells you rates are going to come back at some point to, again, my opinion. Right. So, those are some of the things I follow. I follow Housing Wire Logan Mota Shami, I love what he says you see could be controversial, but he's to me, he's been he makes sense and just data I mean, it you just look, all you have to do is search mortgage payments on the Fred I look at that's the Federal Reserve and historical, you know, mortgage payments to income, and its lowest it's been, and then look at jobs. We're still at what 3.6% or something on unemployment, so super lawyers the recession… I usually you don't have a recession when you got jobs like that and continued job growth. You know, we've got job numbers coming out, and we're seeing growth. So I don't know, they got two jobs for every one American who wants them. So how is that a recession?   Michael: Right, right. Yeah, no, I'm with you 100% and Kathy quickly for investors, because we've talked a lot about and focus a lot about homeowners and owner occupants. But for investors who are just getting started, you know, looking at their fellow investors or hearing podcasts, everyone talks about double digit returns for long term buy and hold for cash flowing properties. Should people be adjusting their expectations now, if they're just getting into the game, because prices are higher and because interest rates have also gone up pr do you think rents have kept up with them over time…   Kathy: For us, and I don't know what you guys are seeing, we're seeing cap rates look pretty pathetic honestly, it doesn't look great. So that's a bummer but there's still parts of the country that where you can get pretty good cash flow. They're just not areas that excite me. There, there will always be linear markets, markets that kind of just are there, and you can cash flow in those markets, but you probably won't see appreciation and they haven't even appreciated in this crazy bull run that we've had. So yeah, if something goes wrong, you know, your roof to change your roof, or you know, and I own these kind of properties. You have a plumbing issue, man, there goes your yours cashflow. So, you know, I like cash flow, but I would rather be in areas that are experiencing growth and in those markets, the cashflow is just not great. So I've been telling people, if you're you know, if you're it depends on what you're trying to do and if you're trying to create a retirement for yourself, and you're not needing the cash flow right now, don't worry about it, think about the future and ask yourself, where do I think this property will be 10 years from now, maybe 20 years from now…You know, that's what matters more, because you can make cash flow today, you know, if you're young get a get a job, you know, that should be your cash flow. You're here to give your gift to the world.   We don't have an economy if people aren't working and contributing, you know, you were not really meant to come here and retire at 30. I don't think you know, right. So if your job your cash flow and have that job is something that you're great at and you love to do and contributes to society, and have your real estate be what happens when you're you don't want to work anymore and maybe that's 40, maybe that's 50, it shouldn't be 30 if it is good for you. But you know, I look at it, like buy something that is going to hold up in the long run and be in an area where there's growth. Because my experience has been that's where the big bucks are made. We had a single family rental fund that we just closed out. I know you guys, you do lots of funds and what we found in our fund, we bought properties and growth markets and then we bought some cash flow markets to kind of offset and that's how we've always promoted things is like hey get your cash flow properties and get your not so cashflow but growth properties and you know, balances. What we found is that the cash flow properties ended up with like a 8% return or so and the growth properties were like 40% like there was no comparison between the two. So for the long term, you know, get into the hot markets where people want to live and where the where the demographics are moving to and don't worry so much. I mean, obviously the cash flow should cover your expenses. But it's the returns have definitely gone down but that's not preventing me from buying in those areas because you're right, what was it was such a limited supply of inventory. When you're in markets where people are moving to, you're going to see rents go up over time. So never judge a property on the first year of the performer. Don't do that have a five year or a 10 year or a 20 year pro forma, because the first year is always going to be the worst and you know, because you're paying closing costs and, and your rents are, you know what they are that year…   Michael: But you're finding stuff you missed in the inspection and…   Kathy: All of that… So, but year two, year three or four, just like with apartments, you don't buy an apartment based on your first year. You know, you buy it based on what it's going to do for you. You know, if you're gonna buy an old car, you're gonna you're getting an old car, if you're gonna buy a new car. I mean, I, you shouldn't really compare real estate to cars but I gotta tell you this time, it kind of make sense, rich, and I both own Tesla's that we bought Rich's early adopter. So he bought the first ones. They're worth, like $10,000, more than we paid years ago, the value has gone up on our tests, as I think that's funny, you know, usually, values go down, because of lack of supply, they can't get batteries and who wouldn't want a battery operated car?   Michael: You know, it's like 615...   Kathy: Yeah, that's right… So that's driving prices up. It's the same thing with real estate. You know, people want a place to live, and they want to lock in their rate, and they're going to lock it in and anyway, it's the same and it's the same as an investor, you're buying in an area where people are moving to you are locking into a rate if there's not enough supply, for all the people moving in, you're gonna see rents go up over time.   Michael: That makes total sense. Kathy, this has been so eye opening, super, super fun. If people want to learn more about you reach out to you learn more about your fund, where's the best place to do that?   Kathy: You can go to realwealth.com and join it's free and you get access to lots of free information and data and then the real wealth show is my podcast and I interviewed lots of economists there. So that's helpful in trying to sort out what's really going on out there.   Michael: Amazing, amazing. Well, thank you again for coming on. Definitely look forward to being in touch and we'll talk soon.   Kathy: Awesome, thanks for having me.   Michael: Thanks!   All right, everyone. That was our episode a big big, big thank you to Kathy for coming on. Super insightful, really, really informative and I love that way to be data driven and not get swept away by the headlines. As always, if you'd like the episode, we'd love to hear from you with a rating or review wherever it is you get your podcasts and we look forward to the next one. Happy investing…

The Remote Real Estate Investor
Investing in residential assisted living with Isabelle Guarino-Smith

The Remote Real Estate Investor

Play Episode Listen Later Jul 7, 2022 30:26


Isabelle Guarino-Smith, the CEO of RAL (Residential Assisted Living Academy). She has spoken across the country and has been featured in magazines & articles nationally. She was named both “Future Leader” in the Senior Housing industry and “Top Senior Housing Influencer” under 30. Isabelle is a sought-after coach and trainer for all things "RAL"! Isabelle's goal is to carry on her father's legacy by training investors & entrepreneurs how to... "Do Good & Do Well". In today's show, Isabelle shares her investment story and the many benefits of investing in residential assisted living. Episode Link: https://residentialassistedlivingacademy.com/ --- 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 Isabelle Guarino-Smith, and she's going to be talking to us today about all of the things we need to know and be aware of if we're going to get started investing in the residential assisted living space. So let's get into it.   Isabelle, welcome to the podcast. Thank you so much for taking the time to hang out with me. I appreciate you coming on.   Isabelle: Of course, happy to be here. Thanks for having me.   Michael: Oh, it's my pleasure and I'm super excited to chat with you today because we're talking about residential assisted living, which is a newer topic for the remote real estate investor. But before we get into that, give us a quick insight who you are, where you come from, and what is it you're doing in real estate today?   Isabelle: Yeah, I'm the CEO of residential assisted living Academy. We basically teach and train people all across the country how to own and operate their very own residential assisted living homes. We've been in the industry for now, this is our 10th year, we own and operate three care homes ourselves out of Phoenix, Arizona and I say we because it's a family business, I work with all my siblings, most of their partners, so I love that aspect, too…   Michael: So amazing and so you are teaching people how to own and operate versus residential assisted living facilities that is so interesting. So why are you I mean, why residences living? Why, what got you involved in it to begin with?   Isabelle: Yeah, so we actually got involved because my grandmother fell and broke her hip and the doctor called and it's like, she can't go home alone. She needs 24/7 care, help with activities of daily living? She was in upstate New York, and we were in Arizona, and it's like, okay, what are we gonna do? You know, and so a lot of families find themselves in a situation like this, where all of a sudden, poof, a loved one needs help and it's like, are you gonna quit your job and take care of them 24/7? Are you gonna give them in home care, which is insanely expensive or are you going to put them into a…   Michael: Dreaded H word?   Isabelle: Right, the H word, you're like, oh, no. So we were faced with that dilemma. We searched and hunted for like a place we even felt competent or comfortable with up there for her and found nothing that we liked, we were just grossed out of a lot of the options, and came back to Arizona, kind of found a residential assisted living home here. My dad was always a real estate investor. So he talked with the business owner and just asked her like, hey, would you be willing to sell and she's like, yeah, bought the real estate, bought the business had no idea what we were getting into, but got into it, so she could live there for free and he's like, all figured out how to run the business and over the course of the next couple years, my whole family jumped in got involved was like, We love this industry because not only is there great cash flow, but you're offering an incredible opportunity to like the community, the families, you're providing jobs, it was just so impactful and it was like, man, this feels so much better than so many other real estate investment opportunities.   Michael: I love it. It's kind of like the parents that have their kid go to school, and then they buy him a house so they could live rent free and end up becoming landlords like, oh, this is kind of cool. Yeah. Oh, that's awesome. So tell us what kind of services should someone's thinking about getting involved in the industry? Yeah, I'll take I'll use myself as an example. Like, I have no idea how the medical industry works. I just know there's a ton of red tape and dealing with medical insurance companies is a nightmare and a half. So do I need to become a medical expert as someone that wants to get involved in this industry?   Isabelle: Great question and the answer is no. We are real estate investors, I have zero medical background. I am not a caregiver by nature. If I was I probably would have taken care of my grandmother, you know, so? Absolutely not what we teach is how to own the real estate and own the business, you're still going to hire a licensed administrator who's going to run all of the day to day and they're going to hire the licensed caregivers who are going to care for the seniors. So you're really running the business in a way that you're hands off. I visit the home once every other month and talk on the phone with my manager like once a week maybe so we're definitely teaching how to do it as passively as possible.   Michael: Okay, okay. Love it and can you give us an idea let's talk numbers because people I think love numbers they can wrap their head or round numbers, let's dig in. So it sounds expensive. But just from what I've heard about how much people are paying to stay in these types of facilities, so give us an idea. If someone is just getting started, wants to wants to get involved, but doesn't have a several million dollars, you just tell us what some of the numbers look like from a purchasing standpoint, from a revenue standpoint, expense perspective.   Isabelle: So I always say it depends what route you want to take to get involved, right. Some of our students like in the Midwest, they want to buy land and build custom homes from the ground up, there's still land to buy out there and so they'll, they'll do that. So that's obviously the cost of the land and then building it that could take anywhere from a year to two years and be pretty expensive. But then the home is perfectly suitable and custom done and yeah, pretty those homes that I've been into are like incredible, they're so gorgeous. Another way you can get involved is buying a single family home and converting it to become an assisted living home. So that might be adding on square footage, more bedrooms, bathrooms, or it might be ramps, guardrails, light minor renovations, it just depends on how the home started. I like to say three to 500 square feet per person is comfortable. So if you have 10 residents, minimum 3000 square foot home upwards of 5000 is pretty comfortable for that.   Michael: Okay, that's a great kind of metric to go off of, and then that bed bath count does that play into that as well?   Isabelle: Most seniors are going to want private bedrooms, private bathrooms, but you can get away with like one or two shared options within the home, but as many private privates as you can, is better, the other ways you could get involved is buying an existing one, like I shared with you, we did so you buy the real estate by the business, you're up and running cash flowing day one and then the fourth one is maybe you don't have as much cash and you're going to lease the home, from someone who's retrofitted, got it licensed, it's ready to go and you're going to lease it from them, and just pay them, you know, the lease fee every month, and you're going to run the business and they own the real estate. So that's another way you could get involved but numbers wise cashflow I know you're in California, yeah?   Michael: Yes.   Isabelle: Okay, so California average, the state average is about $5,000 per month per resident is how much it costs to live in an assisted living home right now. But San Francisco's average is closer to like 6800 per month per person and that's for an average home and I told you, my grandmother, those average homes were yucky. I didn't want my goldfish there. Let your mother so let's say most of these homes that we're teaching our students do, they're more upscale, they're like luxury. They're beautiful homes. So let's say you have six residents there in California, and they're all paying $8,000 a month to live in your home. This is not unheard of, this happens all the time. That's 48 coming in each month, right? 48,000 but let's minus 15,000 for a mortgage or lease because you're in San Fran, it's expensive. Yeah, so 15,000 can get you a pretty nice home that could house six people comfortably right? Minus about 20,000 in your expenses, that's including your staff, including, you know, everything else that you need insurance activities, food, cable, everything, that's still leaving you with $13,000 of monthly net on that home. So it's very, very lucrative and that's what just six residents, every state varies between six and 16 on your maximum amount allowed, so if you get hired…   Michael: Oh my gosh, wow… But I'm like, yeah, for those that watching, I gotta pick my jaw up off the floor, because I've just gasping here. So it's about talk to us about like, you mentioned, you'd hire that third party licensed person that would then administrator, thank you, and then they go hire all the staff. So can you I mean, how do you find these people? Do you just like indeed.com or monster.com, third party administrator for RLS?   Isabelle: Yeah, you can definitely use job search engines, you can honestly go to licensing schools. So there's like caregiving, schools and administrative schools and you can get a fresh list of graduates. You can also just talk to other homeowners in the area and say like, Hey, is there anyone you know, looking for a job or things like that? It's a really tight knit community. So networking is like vital and we have our first manager, we asked around and found a guy, and we loved him. He was amazing, he moved on and started his own business, and we were so happy for him to do that and now we have a wonderful gal who oversees all three of our properties. So once you find a good one, they're really with you for a long time and you can lock them in and just share the vision of what you're looking to create and then they'll get excited about it too because they're really running all the day to day like they feel a lot of ownership for the business. You know um, so it's good to have them like on your team and getting excited and involved in stuff.   Michael: Totally and you can, you would feel confident to go to them saying, hey, I know nothing about this business. But I understand real estate investing, I understand numbers, like you're going to do all of the stuff and I'm going to be like the money and kind of deal structuring person…   Isabelle: You can go to them like that, or I would encourage you to come to our training first to learn everything. So that way, you're not walking in so blindly because you know, a lot of the things that you're going to be asking them to do, like, I want you to have some form of background knowledge just so that you're not coming from, like, you have no idea if they're doing it right or wrong, like you want some knowledge. So we teach and train all those different aspects of it. So at least you have a base knowledge. So when you go to them, you know, what you're looking for, and can kind of help guide them in that way. But you don't need to know the English intricacies of their job at all.   Michael: Okay, all right. Love it and where can people find out about that training?   Isabelle: Yeah, so a great free place to start is RAL101.com. We've got books, webinars, you could have a discovery call with me, I'll chat with you all about it but RAL 101 is a great place to kind of get started.   Michael: Love it, so I've got a million questions, we're gonna try to get through as many as we can on the show. Zoning comes to mind, because this is different than a traditional single family home with a single resident, what are some things that you need to be aware of at a high level because I can imagine market to market is different but what are some things we should be aware of?   Isabelle: It's still zoned residential and I know everyone is like, but you're running a business here and it's like, yeah, but an Airbnb is the same and that's not zoned any differently. So it's still zoned residential. It's still in a residential neighborhood. It's just there's a license on the physical property that it will vary state by state what is required or isn't required. More or less, if you've got to be Tom Cruise to get out of the house that is not SR safe, right? We want to make sure that it's like grandma's. We want to make sure grandma can get in and out nice and safe. You know, the hallways are wide enough the doorways that there's windows and accessible egress, and different things of that nature. But you'll get the home physically licensed through the state and they will approve based on square footage and safety and things of that nature. Occasionally, they'll ask for things like fire suppression system and it to me it's like put it in if that's if that's a requirement. Just do it. Like I you know, keep it safe. We want our grandma's safe.   Michael: Right, right. We want our grandma's and our goldfish is safe. Yeah. So how much if someone's looking at an existing home? I know you mentioned retrofitting is maybe one of the ways someone can get involved in the business. What should people be looking for? I know you mentioned 300 to 500, square foot bed, bath count private, private, what are some other things that people should be keep an eye out for?   Isabelle: Demographics are key in our industry. So you want to make sure that you're in an area where there's a large amount of 50 to 70 year olds, who are upper middle class and typically home owners. That demographic is what we call daughter Judy. That's usually who's paying for mom or dad to live in your home. So she you're marketing to her you want the home close to her because she's usually searching for the home choosing the home paying for the home and coming to visit mom, so she doesn't want to go 45 minutes outside of town, just because it's cheaper. She wants to go five minutes on her way home from work to visit mom or dad. So demographics is vital in our industry and really kind of doing that market research to determine what area and then even deeper like what neighborhood what, what like literal area is she in, you know, and really kind of narrowing down in that way.   Michael: Okay and then what about some property specifics are single level homes better are we want pools to be like Jacuzzis. Talk to us a little bit about some of the physical attributes, physical aspects of the home.   Isabelle: Definitely one story is a lot easier if you do multi-level like we have a guy in Jersey who's got a four story home and he added an elevator, right? We have some people in Texas who have elevators so you can do an elevator. It's just if you can get a single story home, that's obviously better and easier. It's just an extra fee. But some states and cities it's like that's impossible. Like you know, they all have multilevel homes, you're just going to have to deal with it. The three to 500 square feet and then don't think like oh, let's cram all these people in a home like you still want it to be a home. You want a living room, a dining room, a kitchen. If you can add in a library, a movie theater, a hair salon, different amenities like that. That's awesome and that's a major selling feature or factor to you. You want the backyard to maybe have some rose gardens or walking past a swimming pool won't get used very often. but it's a feature and you could you better pointed out to daughter, Judy, when you come to tour Look, grandma can be swimming and enjoying. So there's a lot of different things that they'll use more, and they'll use less but no matter what you're going to market them all and make sure that you're pointing them out and featuring them as amenities if you have it.   Michael: Okay and in terms of the actual care of the individuals, who are the residents? How do you decide or determine how much care to offer or what additional care offerings you have, like, I know there are a specific system living locations for like memory care, or for then different needs. So how do you determine what yours looks like?   Isabelle: So when someone comes to tour the home, you'll do? Well, you won't, the administrator will do an assessment with that senior to determine their level of care. So are they awake at night? Are they a two person assist, right, do they need help walking or is it just they forget their medication sometimes or like you mentioned? Is it a memory care thing, like, are they physically fine, but they're not mentally there anymore. So there's different varying levels of that they'll do that assessment with the senior in the family, when they first come into the home to make sure that we can accommodate them that we're able to do this, you know, and that it is going to be a good fit for them because you don't want a house full of people who have a super high level of care, that's going to be tough on your staff, right, you want to make sure that if you have one or two people who are super high, maybe everybody else has kind of less level of care. as they age and live in the home, their level of care will change and it will, you know, go up and down depending on all sorts of things. So you'll want to redo those assessments with the family and if anything has drastically changed, their rate to live in the home may also change because the level of care and then the type of physical bedroom that they are going to be in Is it a private, private, private, shared, shared, that's going to determine their rate to live in the home.   So you're going to want to be doing those assessments with the senior maybe every six months or something. There's usually doctors who can come to the house who can help do an assessment with you and kind of determine you know if it's a good fit, but we don't want to be on nursing home level doctors IVs gurneys. No, you can't we that's legally you shouldn't be doing that. That's not what you're licensed for, you can get licensed for memory care and we have a lot of students who have memory care homes who focus on those with Alzheimer's or dementia and those residents actually charge you charge more if you're a memory care home about 500 to $1,500 per month more, if that's how you're licensed because the home has to have different physical requirements like locks and things of that nature and the caregivers have to have an extra license level. So because of those things, it actually costs more to live in a memory care home. So a lot of our students like to go that route.   Michael: Okay, and that makes total sense and you touched on it, but I just want to circle back to it, that at what point does your licensure stop and say ABA level of care does it need to be hey, you now need to go do something additional.   Isabelle: It's really like there's only two way people leave the house they pass on you know to the other life or they go to a nursing home. So once you need doctors IVs gurneys, you know, you're hooked up that we can't accommodate that anymore. So basically, once something like that happens, where it's a true like medical need, where they need to be in a hospital, we can't help that anymore.   Michael: Got it and as far as like day to day stuff, I know the administrator is going to be taking care of a lot of this but are we providing three meals a day activities, like what is the day to day look like? Are people free to come and go as they choose?   Isabelle: Definitely three meals a day snacks on tap whatever they want to need, right? They can pull up to the little fridge and get whatever they want. It's not like a big facility where it's like lunchtimes at noon and it's like, no, if you're not hungry, you're not hungry. We'll feed you when we want to feed you and when a new resident comes in, we always ask them what's your favorite food and we'll add it to the menu, you know…   Michael: Like a tech startup?   Isabelle: Yeah, beer on tap perfect.   Michael: Happy hours.   Isabelle: Yeah. No, we do, we like to have fun with them and we like to let them enjoy. Especially food so important for seniors when your health is like taken from you. If you've ever had a health scare or family member has a health scare, it's like, that's all you think about like forget what you're wearing that day or what you're driving, it's like, oh my gosh, that's all consuming and that's their lives, you know, like it's painful for them to walk and, you know, they're hurting and whatever and so, like food, that's such a simple thing that makes you so happy when it tastes delicious and it looks beautiful and it's really important to have great food in the homes and whatever food they want and need. Activities wise, we do have activities that come to the home, we've got pet therapy, SR yoga, music therapy, we do all sorts of fun stuff in there, just contractors who will come and do a little, you know, class or interaction with the with the residents and it's really cute and fun and, and I love that.   Michael: I've man, I love it too. That's great. If someone is listening and thinking that these types of homes are a great fit for maybe someone in their family, or maybe for them as an individual, can you walk us through what the payment looks like? So IE is their insurance? Can this be built through insurance.   Isabelle: So about 10% of the population has long term care insurance, so not many people, but if you do have it, they will pretty much take care of your family to live in a home like this, which is excellent. That means the family or you don't have to pay anything. So if you don't have long term care insurance, get it because we're all going to need it. The only other ways really that people pay for these homes is if you served in a time of war, you might have VA benefits. If you have Medicare Medicaid, but they don't pay very much about $1,800 a month, but it might help supplement and then cash IRAs investments, paying off their needle selling their home and using that money and letting their kids figure it out a lot of people rely on their kids and it's God Children.   Michael: Daughter Judy…   Isabelle: Yeah, daughter, Judy.   Michael: Yeah. Okay, interesting, interesting and from a kind of, again, again, kind of getting back to the numbers and how to physically do these deals, and I'm sure you cover it in your academy, but we'd love to get a little bit of a preview or like, can you go to a bank and say, hey, bank, I'm gonna buy this property. Oh, and by the way, I'm not going to put a traditional long term tenant in place, I'm going to put in five tenants in place, and I'd be paying 1000, they're paying five grand each, like, how does that work?   Isabelle: Because the will first it's going to be like, you know, when you're purchasing a home, it's like personal secondary investments. So you're purchasing onto that investment category. So they know that you're not going to be living in it as your primary, you know, house, which is fine and that's one way to get the loan. A lot of people use different ways to fund these projects. They'll use SBA loans, some government funding. Sometimes people will use syndication, crowdfunding, private money, hard money, all sorts of different stuff. But you can get a bank loan to get started, you know, in this industry, specifically for the house, that is fine and, and it happens all the time. But the seniors in the home, they're technically not tenants. So like, you don't deal with the eviction moratorium at all. They're residents, and they're signing a residency agreement. So if they're no longer fit, you can kick them out, you have all the right in the world to kick them out. Because it's a very strict document. That's basically saying, we can only provide XYZ and you have to do XYZ and if you don't, it's right there, you're out not that we're kicking a lot of Grammys out…   Michael: To the curb…   Isabelle: I remember when COVID happened and so many of my single family rental friends were like, I'm screwed. Like, no one's paying me. I have all these homes, like I'm just screwed right now and I was like, dang, that sucks. Like, we're not having that issue because I mean, even looking at our world right now, things are getting a little scary, right? Like people are like, where should I invest? What's safe? What's recession resistant? I love Airbnb. But like Airbnb, that's what you do, when money is flowing. The when you're ready to go on that vacation, when you have extra money to spend and you're going to do all this stuff. Soon as money's tight, you're not going on that trip to La Jolla, you're not going to Europe, like you cut back on those things. necessities are always good to invest in because they're not going to go away. No matter if money is high or low. It doesn't affect it. So your mom or dad's care needs and home isn't necessity, you're not going to not pay for that. Like, we don't have that issue and it's pretty wild, because so many people are like, how does the recession affect you guys and it's like, what recession like no one stops paying for their mom or dad like, you just don't, especially at the higher end level. You don't it's pretty incredible.   Michael: Wow, so okay, talk to me again about the residency agreement versus considering them tenants because I want to convert all my tenants over to resident agreements like ASAP. How does that work?   Isabelle: Because we're taking care of them physically because there is that I don't want to say medical but there's that component of care. You're not only paying for the home, you're paying for the care as well. So that's kind of where that falls into place is that it's not that I'm you're just leasing this property from me and you have all these rights and stuff. No, it's the care component combined and that's kind of our saving grace in that regard.   Michael: Got it, got it. Okay…. Yeah. Maybe people like foot massages? I don't know. We'll have to see. We'll take a poll.   Isabelle: You can add in.   Michael: Yeah, exactly. Exactly! Alright, well, Isabel, I mean, we've talked about all of the great things. I think all of the Silver Linings give us what the downsides. What are the risks? What keeps you up at night?   Isabelle: Yeah, I think in any business, always, the difficult thing is people, right, and people across the board from the seniors, families, right, the expectations that they have, and making sure that you're accommodating to them, and things of that nature, all the way down to your staff, making sure that they show up, they're happy, they're enjoying their time, and they're representing you and your brand well, so I think people in any business is always going to be your most difficult or keep you up at night item, right because it's just, it's challenging and if you're anything like me, I'm very type A I like to be controlling, it's hard to run a passive business where somebody else is representing you. You're always worried. Are they representing me, right? Are they saying everything right? Are they doing everything? Right? So I think it's just learning a little bit to like, let go let things happen. You've got your policies in place, you've got your cameras in place, you can check in as much as you want but also, it's just going to drive you crazy. If you do so, just let it go a little bit.   Michael: Yeah, yeah. without violating any like HIPAA laws requirements, can you give us like your most outrageous family interaction story?   Isabelle: Oh, yeah. Okay, we had a family, this is the only family that we've ever asked to, hey, you're gonna have to move the senior, the only family in 10 years and 10 years in three homes. 10 years. That's pretty crazy. So okay, this family, um, they were very boisterous and loud. So they would come over and be like, tell our chefs get out the kitchen, we're cooking, and start cooking their traditional food, and there'd be like 10 or 12 of them and they would just like take over and start cooking and they would curse and they would scream, put on their music and be really loud and we were like, What is going on? Like, no, you're welcome to come over and join us for a meal but like you don't kick out my chef who I'm paying like, and they're like little coke, it's fine. You get out the night off but then they're like cursing and saying like, and it's like that's no that's not happening.   So we had a convo with them, hey, this can't happen anymore. You if you want to bring over food to share with everyone love it, love that. So, you know, then they do that but then it's you know, still the cursing the loud music that this it's disrupting the home and the other residents so we had to have more conversations with them and eventually say, this is no longer the fit for you guys, which sucked because the senior was precious and nothing was wrong with them like and so but it's like, like, that's just not going to fly in our house maybe in another house. That's fine but hear it was not a good fit and yeah, so that's my own. That's my one that experience.   Michael: Wow, that's pretty impressive and 10 years and three homes.   Isabelle: I know. Isn't that crazy?   Michael: That's awesome. Yeah, okay Isabelle. This has been so much fun. Anything else you think folks should be aware of to that should they should be aware of as they're interested in learning more.   Isabelle: I definitely want to share this live where you want invest where makes sense. If your market is not good to invest in right now or ever. Don't worry, you can do this remotely. 31% of RAL owners are remote owners. So it's totally possible and if you're remote, it does keep you more hands off because you can't just run over to the house if something's going on, you know, you're maybe a flight away or whatever and so you have to deal with things on Zoom or on the phone and figure things out that way so it does encourage you to be even more hands off if you are remote so I do I always like to share that especially I know you're in California and it can be a tough market so...   Michael: Preach to sabel I love it. This is the it's the perfect it's the perfect tagline for the real estate investor. Yes, we love it. We love it. If people want to learn more about you or RAL Academy where's the best place for them to do that?   Isabelle: RALacademy.com is a great place to learn more about us and RAL one on one if you want to chat with me more schedule a discovery call and I'd love to chat with you guys.   Michael: Amazing. Well thank you so much for this as well. This was awesome, really appreciate you coming on.   Isabelle: Happy to be here, thanks for having me.   Michael: You got it, take care.   Okay, everyone, that was our show a big thank you to Isabelle coming on super interesting insights and perspective and a very interesting asset class that I'm gonna have to go take a closer look at. As always, if you liked the episode, we'd love to hear from you a rating or review our big helps, and we look forward to seeing the next one. Happy investing…

The Remote Real Estate Investor
AJ Osborne on a growth mindset and investing in self storage

The Remote Real Estate Investor

Play Episode Listen Later Jul 5, 2022 33:47


AJ Osborne is an American entrepreneur, businessman, and investor who owns and manages his self-storage portfolio of over $212 million of assets through his companies Cedar Creek Wealth, Bitterroot Holdings, and Clearwater Benefits. He's the owner and host of the largest self-storage podcast, Self-Storage Income. As an operator and private owner with over 1.2 million square feet of self-storage, he regularly keynotes at national conferences on operations related to investing in, buying, and managing self-storage facilities. AJ specialized in developing, converting, and turning around underperforming facilities with a value-add strategy, and loves to show other entrepreneurs and investors how to focus on technology and self-storage automation. To learn more or to connect with AJ, tune in to today's podcast where he covers mindset shifts that we can be making as investors, as well as what we should be aware of if we're interested in getting into the self-storage industry. Episode Links: https://www.ajosborne.com/ https://www.selfstorageincome.com/ https://www.instagram.com/ajosborne/?hl=en --- 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 AJ Osborne, who is a maniac in the self-storage industry, absolutely killing it and he's going to be talking to us today about some mindset shifts that we can be making as investors, as well as what we should be aware of if we're interested in getting into the self-storage industry, so let's get into it.   AJ Osborne, what's going on, man? Thanks so much for coming to hang out with me today. Appreciate it.   AJ: Thanks for having me on, I appreciate it. This is gonna be fun though.   Michael: It's gonna be a lot of fun, I'm really looking forward to it. So I know a little bit about your background. I know you spoke very recently at the BP conference in Denver, Colorado in the spring. Give us all the quick background, who you are, where you come from, what is it you're doing in real estate today?   AJ: Yeah, so I'm up here in Boise, Idaho. I'm like, I don't know, like sixth generation Idaho and my family came and we're herding sheep over the mountains here and we grew up to see the big change that's happened in Idaho, which has been crazy over the last 20 years. But my dad grew up in extreme poverty in the southern, I mean, nothing like no running water, like poached to eat. They didn't have you know, they took baths with a pot of hot water to try that they boil over the fired. Try to get it like poverty that, you know, we don't, nobody knows that America today, right doesn't even exist anymore and that wasn't that long ago. He's only 64 years, so he's not even that old. Yeah nut when he was growing up, you know, he had it really brought this father died and early and so he married my mom and he wanted to get out of that. So he started selling insurance and then I grew up and I followed in his footsteps and I sold insurance too and we did that for a long time and you know, I quickly realized that selling insurance is awesome. I loved it, it taught me so much broke away.   But it I called it the treadmill, you know, you got to run, you got to run hard and the end of the day just didn't feel like we're going anywhere and it was like, You know what happens when this treadmill stops. So we started to really invest in real estate. In a big way, after a wait, we started in prior 2004-2005 and then we stopped in 2006/ 7 because things didn't make sense, started back up in 2010-11 and we have been building ever since then I but we like the asset class self-storage. When we got into self-storage, it was very much looked down upon people were like, you want a junkyard? My has that changed today. So storage is so hot and seems like every investor wants in and wants a piece of it. That that's not at all how it was when we started, banks didn't want to give us money. You didn't know really what to do with them. But we liked them because it was more of a BIST business than real estate. That made a lot more sense to me. I don't even view myself as a real estate investor. We own and operate businesses and that's our approach we took to self-storage. We didn't take the approach of traditional real estate, things that people viewed and hold it standards on valuations like cap rates, things like that. I couldn't tell you what a cap rate was on any property that I've ever bought, don't have any clue. We just fundamentally looked at it differently. We focused on revenue, only improving those revenues and cash flows due to operations technology, training and we needed because we didn't have anybody to manage these assets. We had to manage them ourselves.   There was no third party management at the time and that meant we needed to get our velocity of money, meaning we needed to turn our money over. We didn't want to have it trapped because we needed it to grow. But at the same time we had to pay for the management. So we needed the cash flow. So our strategy became that we would buy really underperforming assets, we turn them around, we'd have a capital event at the refinance time and that would give us our money back plus profit to go redeploy it, but we still would have the asset. We still own it. It was still making money and it could pay for everything we needed to and we did that out of necessity and so we grew that way and We did really well and that models worked very, very well for us and we did that for a long time. I became paralyzed from head to toe about five years ago and I was working for major brokerage firm out of Chicago $40 billion company or something like that I can remember and I was let go in the hospital, but I didn't need to worry about it because we had our real estate and I was put on life support at the hospital, I was put into a coma, then put on life support for months and then I had to relearn how to do everything.   I had to relearn how to talk, I'd relearn how to eat, oh, my god, occupational therapy, speech therapy, everything else in between and I spent the following. Six months from the time I got into the hospital, trying to learn all that kind of stuff, again, going home, paralyzed, and just kind of relearning things from scratch and it, you know, it obviously changed the direction of my life, for obvious reasons. But as well, it really changed the way that I view investing and financial security and wealth, and income and from there, we thought, you know, this is really important. I'm like, we need to share this with the rest of the world. So we started to allow investors to come in and invest with us alongside us. We started different things like podcasts, we do it, we just need to openly share information and that kind of became my passion, financial independence and, and education. Overall, my wife started a school that blew up, she has hundreds of students, it's OK through high school that focuses very largely on economic functions a way the world works and financial literacy and I started to do three companies out of my wheelchair and we've just been going strong sense. So that's yeah, so I am, that's what I do.   Michael: That is amazing, AJ, and I mean, there's just so much there to unpack but before we even get there, I mean, before we hit record here, I was telling you how good you were looking and I had no idea that you were paralyzed, so you've clearly come a long way. Good for you, man. That's, that's amazing.   AJ:   Thank you. It's been a long, long road, but been very, very fortunate and the gains that we've seen and had so not over yet, I still have paralysis in my lower legs, I still have pain, because my nerves were destroyed. So I have to deal with that but I mean, it's not that point complain about where we couldn't be happier with what I have to deal with, we do that as a blessing. So it's, you know, we are just so fortunate and excited to be doing what we're doing.   Michael: Awesome. So talk to us a little bit about kind of the new perspective that you got on investing that you had as a result of being paralyzed. What was that, like?   AJ: I think I didn't realize probably the entire position of where I was at in life, what that meant, and tell that happened and that changed the way I viewed my own position, maybe the value that I inherently had, and the knowledge and things that we could do and it also changed kind of the idea where it was like, you know, at the end of the day, we all stop working at some point in society, we call this retirement and I didn't have really a choice and when that happened to me, and it the whole idea of it just kind of became a little silly, to me, this this path that we came on and this idea of risk that, you know, entrepreneurship or investing is risky and I'm like, but it doesn't make sense when I think actually probably having a job is the riskiest thing you could do.   It's a single point of failure, so meaning you have no control over that income or that revenue at all and it's one single point that everything else is predicated on. So the moment it's gone, everything else falls apart, right? It's not diversified you so you have no control. It has no you don't own the source or the means you aren't diversified. It's, you know, I'm like that's, that's the risk. That's the risk right there and it was something I obviously always knew, but I interpreted it in a very different way and I thought there is no reason why people shouldn't be participant eating in the economy, and we have to change people from being economic consumers to economic participants and that's how we're supposed to be. This idea of us being economic consumers and holding a job is actually relatively new in society. This isn't something that has been around for a long time. The idea of retirement is no, I don't believe in it, I will never retire, like, what am I supposed to do? Go sit on a beach.   If I'm retiring, I'm dying, right? You know, we're supposed to do things that give us purpose, and we're supposed to be participants, and we're supposed to be delivering value to society and if you're not, you should really start to think about what the heck you're doing with life because you can tell people feel fulfilled, and it's in who we are. As humans we want to be busy, we want to work, we want to be participating. We are not meant to sit around and watch Netflix, we are not meant to not be in control of our lives. Yeah, that's we're not meant for that and we've seen in society, particularly over the past 20 years where, although problems across society have tanked. Like we have this viewpoint that there's so many problems in society today and that's just unequivocally not true. I mean, everything from murderers to it, just name it any metric you can think of in society, and we are 10 times better off than we were 50 years ago. We are you go back 150 years ago, and there's nobody I don't think anybody could survive. That's alive today, just 150 years ago, right, and you keep going back, and you're just like, wow, us as humans, we live so differently in such a very short period of time and yet, during this time, of incredible prosperity, and during this time of incredible lack of risk in anything, I mean, anything, you we live so long, you there financial safety nets in this country, are crazy to even think about, and yet mental health has skyrocketed and people are unhappier than they've ever been and when you start to look at these problems, it's because people lack purpose and they lack drive, and they lack control and, and it's we're not meant to be like that and I think when you look at financial independence and financial prosperity, it's about dealing with means like it's not money, it's just means like, money is this weird intangible thing that makes no sense at all and people give different meaning to it, depending on their own experiences, or whatever, it's but it's nothing, it's just debt, all money is debt. Paper money is a fraction of anything we even have everything else is ones and zeros on a computer.   All it is, is a means to accomplish something and it's crazy that no one knows how to use this means it would be the equivalent of you know, a few 100 years ago, you're not understanding how to grow food or hunt, you're dead. You just die, right? Like, and so if this is a means or a tool that we have, yet society, we don't know how to work within it. We don't know how to function it. It's not taught. It's not. And I think that makes so many people feel out of control. They feel helpless and they're stuck in this position that, you know, we just weren't meant to be in and so I get, I got really passionate about this stuff, and rethinking you know, what we're doing and why we're doing it and we're made to be creators and we're, you know, we are made to be driving after our passion to take care of each other. That's just so core and fundamental to our being and I want people to have that power, to feel that they are driving towards a purpose that they're caring for the ones that they love and they have the ability to do that and in today's modern society, that's an economic function.   It's not a natural function, which thank goodness, it's not because if it was a natural function, that means you would have to be the biggest and strongest to really accomplish that, right and if it was a natural function, I'd be dead long fires because I would never, I would have never been put into a coma I would have just died. So you know, it we have to rethink in today's society, all of that, and it just seems like nobody is and our school systems are failing. Clearly they're failing and society where we're concerned with things that don't matter and it's, it's making us all very unhappy and we don't we don't need to be like that.   Michael: Kind of, in that same vein, AJ, you have a little bit of a different view on leverage, wondering if you could talk to us a little bit about what that is.   AJ: Yeah. So leverage is a very interesting thing. When you look at when we're talking about creation, right? Leverage, leverage is synonymous qith capital, and it shouldn't be because no matter what you do in life, you're leveraging something. We leverage each other, we leverage knowledge, we leverage time we leverage resources, right and leverage is a component that we all have to use. We have to, you cannot do everything by yourself. That doesn't exist this idea, I think that we have these stereotypical entrepreneurs that were like, oh, I started in my garage, and now I'm a billionaire, right? It's just all by myself.       Michael: I did all by myself, right?   AJ: That's never happened once. That's not how it happens and I also think that that makes people feel really inadequate because they're like, Well, I'm not like that and you're, of course, you're not because nobody is right now.   Michael: Have you read Outliers?   AJ: No.   Michael: Oh, it's such a good book, it talks about things like exactly this point about, like the circumstances surrounding all of these people's rise from seeming, you know, rags to riches, and there's so much more there than meets the eye that that isn't talked about. So for anyone listening, if you're feeling that way, check out the book, Outliers. Great read, super interesting.   AJ: Well, and, you know, I felt that way and I think a lot of people do and it's a component of marketing. You know, aside the idea that Steve Jobs created apple, and he was just this Renegade, that, you know, it's a great marketing ploy, but it's not at all and, you know, you're gonna have a lot of haters out there for saying this, but it's just the truth. Venture Capitalist had way more to do with Apple success, and Steve Jobs rights than he ever did. You know, he was working on nothing in a garage. Like, it's not like they were really building a business. They were toying around with something and a venture capitalist was driving by saw them and said, hey, why don't I actually make this into something and that's how Apple came to be and then he went back, and he had all of their resources and their tools and their employees, and they really built something from nothing. But that's what it takes. It takes way more than you, you aren't enough. You never will be enough and that's okay. That's not a bad thing. People say that. And then they get upset and I'm like, don't win when you use this like, hurrah, hurrah stuff of No, I am good enough. No, I am I can accomplish anything.   You always feel let down and actually does great damage because you're not, you never will be, and no one is. And so like, you need like, you need to be totally okay and understanding that you're not like, why would you think that you are? We can't do everything all the time? I don't think I am and because I realized that when I hear that voice in the back of my head that says, AJ, you can't do this. Instead of saying, Oh, shut up, I can write that's pride. First of all, I actually lean into it, say, okay, you're right. Why, so I either need to find someone, or something that can help me accomplish this, because this isn't either a natural skill set that I possess. Now, I can either really take the time to learn it and do it. But if you had to do that, for every single thing, you would be stuck. You would never function in life or society. And so it's like, nope, lean into those, though your insecurities is the voice of reason. That's a good thing, right? I'm a dyslexic ADHD kid, right?   Do you think that I really care and think that I have to be able to spell to function in life? No, it's not something I'm going to work on my brain doesn't work like that. I don't need to worry about it. It's I find somebody else that can do those things and move on. Those insecurities are actually just things that are telling you, hey, you need to improve here, or you need to figure out ways around it. Listen to him, don't fight them, say great, thank you, and then get to work. But I mean, you're not bestowed upon you anything and you're not some great person, and neither was any of those entrepreneurs, right? It takes a lot a lot of people and you have to leverage talents. You have to leverage knowledge. You have to leverage time you have to leverage structure infrastructure, you have to leverage technology and then yeah, there's capital to you need to leverage capital, but it's all about identifying needs, and then figuring out solutions around those needs that isn't strictly designed around you. If I couldn't leverage other resources like I am, no one else could ever accomplish anything in life. So get rid of that kind of that fluffy stuff, right? That's supposed to be feel good and you read the story about some amazing person, like you're just not getting the whole thing and that's not reality and that's okay. It shouldn't be it doesn't need to be you don't need to be successful. It's not about you being more, right. It's about you having access to more and that is the key differentiator. You need to put yourself in circles with other people. You need to change your circle stances because you're leveraging your circumstances, whether you want to or not, you're hanging around a lot of deadbeats, you're leveraging deadbeats, and you're going to become what I like, call me curl, but it's true and if you're, that's fine.   But if you're not, okay, if you don't want that to be your outcome, why are you leveraging that the moment you spend time around it, the moment you're around it, that's the outcome. So like, you need to really take seriously who you're surrounding yourself with what you're doing, right, where you spend your time, and what you spend your time doing because little things are leveraged in time, meaning the things you do today, the impact is not direct, it's in 10 years, it's 100 times whatever impact that is one piece of knowledge that you can obtain today, you can leverage that through 10 years and so the outcome is 100 times what it was. But that's the same thing, if you just sit around and watch Netflix, or if you just, you know, hang out with deadbeats or people that complain. That effect is also 10 times in the future and you really got to look at that leverage, because you use it no matter what. It's just how you're using it.   Michael: Yeah, I love that and I think something we talk a lot about in the Academy is just being having the ability to get out of your own way. Which it sounds like you know, you're definitely touching on and so for people I think a lot of our listeners, something I hear regularly is I don't know anyone that does real estate, I don't know how to get started, how can people change their circumstances, like you were saying, how can they start to get around other people that they can then look to leverage for their own growth?   AJ: The circumstances are versatile, interesting enough, people feel like they don't have control over their circumstances, which is the greatest lie ever told. I mean, that is so stupid to even think about considering that, first of all circumstances are very much dictated right now by online, literally, just go unfollow everybody that you don't want to be like, follow everybody you do and you're immediately just now you just changed your circumstances, because I don't know what the average person spends on their phone, but it's probably eight hours a day at this point. So think about the impact of that and then on and then from there. Your friend group, like, just because they're your friends doesn't mean you're obligated to be around them and just because you don't want to spend time and take on their problems that are mostly self-caused, doesn't mean that you're mean, right? Like, you're not mean because you don't serve an alcoholic alcohol. No, you're a good friend. So stop, stop serving them social alcohol, like, right, they're alcoholics and get away from it. If you're an alcohol, don't go to the fricking bar, right? Just change your circumstances and when I say I'm obviously not alcohol, I mean, everything in life that you want to become or don't want to be moved. You live in a bad area move. Like, it's shocking to me that people are like, I have no opportunity where I'm where I live and I'm like, leave. All my friends are here, like, okay, then you don't care. Like, it's not that you like opportunity, because you want opportunity to come in the way that you want it and this is that pride thing again, why do you think anybody cares about you? Like, why do you think that they should deliver you something, right? We're not entitled to that we're entitled a slap on the butt when we come into the world and then maybe you gravestone I don't know, you know, and then a quick death.   Hopefully, you're not entitled to anything. So if you don't like your circumstances, but don't want to change them, and then complain about not having opportunity that's on you. Nobody else, stop complaining and you've got to move you got to get out of them. I'm shocked at how many people that you know, live in places where they're drowning in debt, they can't get ahead or, and they don't and then you ask them, why don't you? Oh, yeah, but I just love this area. It's so beautiful. It's like, so you're making a choice there, right? So first of all online, you can do that immediately. That's very simple. Stop spending time with friends that are deadbeat. That doesn't mean you're not their friend. You can still love that person. But you don't have to give that person your future. If they require you to give your future to them. They're not your friend and so stop it and then you know, family members the same. I have family members that I love dearly, and I'll always be there for them. But I don't want to be like them. Yeah and I'm not going to spend my life. Those are two totally different things. So you have so much control over your circumstances. It's the easiest thing to do. Go online, go to in real estate meetups, start going to events I went to I didn't know anything about storage. We started we want to get into storage. I started going to all the associations and all the event meetups right. We started to get into contact and I call people that had been in the business, but it's all about your actions and if you don't create the circumstances, no one's going to do it for you…   Michael: I dig it, this is there's so much good stuff in here. I want to transition a little bit to self-storage, because I think it's a super interesting asset class, it's being talked about and spoken about all over the place, yet why self-storage?   AJ: Yeah, so self-storage, I think offers the number one opportunity for anybody wanting to get into commercial real estate and here's why. First, the first reason is just structural. So prior to when we got into the business, 91% of everyone in the business was Mom and Pop operators, because this asset class had not been institutionalized. It was the newest asset class, as far as commercial real estate goes in the United States, institutional money couldn't operate it and they also had no way to model out what would happen in a credit crisis or anything else. So they couldn't invest in it. So institutional money didn't come into 2008, that all changed. With that said, a huge portion of the industry is still majorly mom and pops and that allows you to buy assets, that's value is crazy low, and they're not being operated well, and to very simply change that value around but so the two opportunities is firstly opportunity to actually change the asset but the second, the first one is just access. So if I, you know, when I was looking at trying to go into multifamily, well, multifamily over 80% is all owned by institutional, that means I have to compete to try to get limited supply of assets, I was at a disadvantage, right and there wasn't a lot of them. There's so many storage facilities, they're just everywhere and they're in every small town there. So your access to the industry, and your access to assets that can be improved, are just so plentiful in self-storage but the opportunity is that it's been institutionalized now, and it is a consolidating industry, meaning that's changing fast and because it's institutionalized, the value spread is crazy in them. That means there's institutional demand, right? Yeah, underperforming Mom and Pop properties that you can buy, and set them up to be institutional quality and that value offering is enormous.   Michael: Interesting and so if someone wanted to get someone's interested in, in self-storage, and they want to look to go get involved, I mean, it sounds very expensive as an individual to go buy a self-storage facility, do the value add play, as opposed to single family rental, people understand that usually have lived in them at some point in their life, or at least in apartments that understand kind of the guts and inner workings of it? How should people start to get educated about self-storage if they're interested in operating and owning one for themselves?   AJ: So firstly, you're in Northern California, right? Bay Area?   Michael: Yep.   AJ: So in the Bay Area? Well, I can guarantee you that most third tier market storage facilities are cheaper than any single family home, anywhere near you. So our perspective of cost with these and I think people have a very wrong way you can go buy a small storage facility that has 60 doors for under a million dollars, Miley, in most places in the United States, that is substantially lower than upper middle house, housing, right in today's world, right? So all of a sudden, you go, oh, well, that's not costly and I'm getting all these doors. It's a cash producing business. We don't value self-storage because somebody wants to own it. No, it's valued on our return. So when you buy it, it has its cashflow positive, right, or you wouldn't buy it, as opposed to like single family homes. Nobody cares if the cash flows, the demand functionality of it is due to wants and desires and needs that have nothing to do with revenue. That's not how storage works. So for the most part, I can find storage facilities all over the place that are cheaper than lots and lots of homes across the United States.   Second of all, you can raise capital, nobody wants to give you money, not in a big way to buy homes, right? Well, commercial real estate's different, because here, here's the investment and here's how it produces. Investors want to get money to buy a business, and a cash flowing investment. So the demand for other people to give you money to go into an asset that is cash flowing, and as upside potential is a lot higher. So I actually think it's much easier to get into commercial real estate than it is to get into single family homes. Now, the only reason why people think otherwise isn't there. They know single family homes, and they're everywhere, right? So it's an inventory thing. Oh, I can see lots of them, right but when you look at actually trying to scale or build a bit businesses needing to get capital, that's gonna be really hard to get people to give you money to go into a business, that for the most part, cash flows very, very little, if at all in most areas, whereas you're buying a diversified portfolio of tenants 60 doors as compared to two or four or 10, right, that have low capital expenditures, and as a way that you can improve the revenue. As investors, that's a great idea. So, you know, when you look at it from one side, meaning well, either they're expensive, or, you know, it's easier, multifarious single family, you're, you're only seeing what you understand and no, but when you look from a business or an investment standpoint, it's much easier to grow, build a business, or invest in a real estate asset like that, than it is the other one.   Michael: Got it, got it and then what about the operational side of things? I know that you said, when you first got started, you were doing it hands on, are there management companies like you have in the residential space that you can just plug and play into your existing asset?   AJ: Yeah, there are. So we, you know, after 2,008 third party management became institutionalized, meaning big companies got into it. There's also regional players, right, things like that to do third party management. I'm a fully vertically integrated private equity company, meaning we do everything from asset management to funding to all of it right, you don't need to do that anymore though, you can get a third party manager to come in and operate it, you need to make sure that they're on the same page as you and understanding the value proposition but management is the hard part, right? But it's so managing a single family home, obviously, much easier. Managing a self-storage facility is much harder, I view it more like retail than anything. These are short term leases, right and we have turnover all the time. So that I can see as being scary, or people not understanding but to have a third party manager that is great at what they do. Now, it's even easier. You don't even have to worry about it. You can hire somebody else to take care of it all.   Michael: Awesome, awesome. AJ, this has been super fun man, where if people want to learn more about you your story, self-storage, what it is you're doing, what's the best way for them to get a hold of you?   AJ: Yeah, so you know, I have self-storage income, which is the largest self-storage podcast in the world. I also wrote the number one best-selling book in our space, growing wealth in self-storage, and YouTube. If you want to learn about self-storage, all our contents free go out there and we have endless amounts of it and then Instagram is showing you everything we're doing. That's probably the easiest way it's AJ Osborne and you can go to any of my company self-storage, income cedar creek wealth, that's my private equity company but yeah, we're all over the internet. So AJ Osborne self-storage and there's no way you're not going to find me. But any of those resources, podcasts, YouTube, the book, or once again, my Instagram, which I'm always populating and uploading to learn more.   Michael: Love it at. Well, thanks again for hanging out with me. I really appreciate you taking the time.   AJ: Hey, thanks for having me on, I appreciate it.   Michael: Hey take care, we will talk soon!   Alright, everyone, that was our episode for today, a big thank you to AJ for sharing all those nuggets of wisdom, his background, where he come from, where he's been and where he's going. As always, if you'd liked the episode, feel free to leave us a rating or review wherever you get your podcast anything focusing on the next one. Happy investing…

The Remote Real Estate Investor
Brandon Schwab on how senior living facilities are powerful win-win investments

The Remote Real Estate Investor

Play Episode Listen Later Jul 2, 2022 29:33


Brandon Schwab is based in Chicago where he specializes in boutique assisted living. Brandon who is, founder, and CEO of Shepherd Premier Senior Living and Boutique Senior Living Fund had experienced first-hand the deficient care of his grandfather at a large, industrial-type senior living facility, he vowed to make improvements in the industry by starting his own senior living company that provides better, quality care to the elderly. It seems that parts of the US are significantly under-served with this class of product. To learn more or to connect with Brandon tune in to today's podcast and you can set up a time to speak with him directly. Brandon talks about his unique business model of syndicating small senior living assets. Episode Link: https://boutiqueseniorlivingfund.com/ wwww.shepherdpremierseriorliving.com www.brandonschwab.com   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 Brandon Schwab, who is going to be talking to us about how he's turning the senior living facility industry upside down. So let's get into it…   Brandon Schwab, what's going on, man? Thanks so much for taking the time to hang out with me today. I appreciate you coming on.   Brandon: Hey, man, this year is awesome, man. Thank you for having me.   Michael: Oh, of course and I think we're gonna have a lot of fun today, talking about senior living, which is I don't think we've ever covered this topic on the show before. So I'm super excited.   Brandon: Never…?   Michael: I don't think ever I don't think ever and shame. I know, I know, I know. Shame on us, that's our bad but give us the quick and dirty. We're gonna get into senior living in just a minute. Give us we can do it, who you are, where do you come from and what is it that you're doing in real estate today?   Brandon: Down and dirty… I've been in Crystal Lake Illinois. For 35 years, I am 40. I've got two kids I got in real estate in 2010. But back before that, I actually opened up our own company at the age of about 15 years old. I did that for 14 years, until I figured out quickly that I didn't actually own anything. I thought I owned something the whole time. But I found out at the end, I didn't actually own any assets. So therefore, I  didn't actually have anything to own to actually have up for sale. So I got into this industry in 2010. After I got crushed after 2008 happened. I at the age of 15. I was cleaning cars in RVs for 14 years and I thought I was crushing it doing there. I was taking home 200 220,000 per year but I was probably working 7080 hours per week. So like wholesaling back in 2010. Because I was like dude, I got paid like $200 for each car and probably about 500 for each RV. So like wholesaling in our first deal was like $1,000 I was like, do you know that would take me like 40 hours just to like, even come close to that and I said I have to get into that business. So that's it, man, it's awesome. Fast forward to today I am changing the industry for how the elderly are taking care of totally upside down.   Michael: That's wait. So you're putting elders on their head? I don't think is that is that good for them?   Brandon: We obtained we are changing the whole and we're changing the whole industry of how everyone thinks of it because typically, if you think of the older industry, right? You think of 100 to 200 type with a ton of elderly in there, right? Tons of them, right and they typically have a pretty terrible odor and the odor isn't very good. It's the odor because people don't get any help and then there's also the atmosphere of everyone asking for help because the average caregiver has to care for 20 to 30 people. I don't know on you, but we are in the top country in this whole entire and if that's how we care for the elderly, I feel like we didn't do things properly and they have to be totally turned upside down because how they're currently doing it isn't able to operate. I had a thing happen in our family back in 2004 where there was a person in our family who was 85 who ended up in a place for 200 beds and we pulled the pull cord to have people come in there to help them and it took them 10 minutes 15 minutes by 20 minutes like I'm getting like pretty irritated by 25 minutes like I just lose my shit and I go out to get a them to help them and I can't say I handled it all that well because I kind of exploded but like that's how I was first exposed and it turns out that's actually common to how the industry is able to operate and I said that's terrible. I hate this industry, hate it, hate it hate it.   They bought 10 years after that I was down in Florida and I got exposed to a five a home that had five people in it and I was like what is this? You know at the time I had 23 homes in our total I began build In our portfolio in 2012, and by the end of 12, I had 23 homes and I had, I thought I kind of had everything figured out. Well, at the end of 14, I'm in this house down in Florida and I'm doing each one of these like arms kind of crossed, because I'm just looking at the place and I go, What is this? I haven't ever seen a home before that is it was probably a 2800 foot house. There was houses on each side, probably 10 or 12 feet from the house and I was just like, What is this because typically as I would go down to Florida, Kelly's dad would play his piano in the old folks home 328 times per year for 35 bucks and I hated going because it was typically in these huge in the elderly in the odor was just terrible and I was just like, if we can get out of that, is there anything that I can do that I don't have to actually, and I would offer to like cook to clean all of that just so I didn't have to go? Thank God, I didn't I didn't have any option because I was ill put this house and I was like, What is this? This is cool. It's it didn't have any odor. It had this awesome atmosphere and I was just like, how have I been in?   How have I been investing in assets and I don't have any clue what this is and I asked the girl in charge, and I said, hey, how much do these people pay to be here and I threw out a figure of like 1500 or $2,000 in this girl did this hurt? Like her eyes came down here and like this girl's answer was like, and just kind of kept on walking and I was like, Kelly, what the hell was that answer? She didn't even answer me. So I ended up calling her and the girl goes, Brandon, I am sorry, I thought that you were only kidding because they begin at $5,200 a month, what times five people I'm like, that's $26,000 and every home that I had all 23 Our highest was like $2,200 per month and our average was like 18 and I said holy crap that one house with five people in it was outperforming every house that I had two times each month. And I was like, I'm in the I have to get into that business and by the time I was able to come home, I found a house in a town of 832 people and it was the house was 4880 feet on three acres. So like we bought it for 250 and put $550,000 into it right over the top. I got this house full by February of 17 and we were gross and 55,000 of income within a cost of the expenses of like 30 to 32,000 a month. So this house was jam on month, one month, one house, we were changing the industry to and offered this cool option that people have never heard of.   Michael: So you're netting like 20 grand a month on this place.   Brandon: Per house, yes and I have homes that are 1015 and 20 each home. So that's the that's the entry level for us, is 10, so…   Michael: I mean, okay, I've like speeches, I have so many questions. So I've got to imagine caring for the elderly. This is a very medically intensive, medically heavy industry and so talk to us a little bit about how do you how do you get into this industry because I think there's so many barriers to medical and then care and I could go on but tell us how you how you got started.   Brandon: So when I got going, I had everything in the to open up the house, right, I was able to open it. I even got the first two or three people in there, right and when I quickly got past like two or three people, I quickly figured out that I didn't really have the experience to operate them, right. So I was doing what I was trying to do to get the house full was I was calling on churches, in particularly wanting to talk to the head of each church. Now, I found out quickly that churches are hard to call on because they don't ever answer and they don't tend to call you back but I finally got one and I called in I was talking to the church pastor and honestly, I think he felt terrible for me because he's like, Brandon, you aren't so good at this like this is this isn't going to be your thing, right? So like he goes Brandon, hi god, their closest friend was in health care for 38 years. She just retired in in. She was getting kind of anxious to like go in to do things. So they introduced me and she was in health care industry for 38 years I ended up taking You're out to eat every Tuesday for about six months and I finally got her on our team, I got her to invest, but I had her in charge of operations and that was back in 2015. So I basically was able to open up homes, but I quickly figured out that I needed a team of experts to actually operate them. So after I had her in, it was in 2015, I kind of had her handle the ops and I focus on opening up homes.   Michael: That is wild. So at the beginning, before you brought her up, where I mean, were you there at the home, cooking, cleaning, doing all that kind of stuff yourself?   Brandon: No, I only had to go there when people didn't come in. So there was a handful of times where a person called in, and I had to go in there. That wasn't very fun and I quickly figured out I need to have things in place that that isn't going to ever happen over because I found out quickly that I am not very good when it comes to cleaning and taking care of people I quickly said, you know, I had to get out early. So I found people, I did have to cover a handful of shifts and I did call in for help because there were some things I just couldn't do.   Michael: I can imagine, I can imagine. So when you're looking at properties, I mean, this first property, what about it kind of jumped out at you and said, Hey, this, this is a good candidate or a good prospect to purchase, you know, for this type of business.   Brandon: So when I was down in Florida, I saw a five bed house in the five bed house was great. But the five bed house wasn't. It was geared for like an owner operator, a person that was in a health care field and I quickly figured out that that wasn't going to be us that I couldn't do that personally. So I decided to exercise. So I was looking for a first floor house, it was like 5000 feet, first floor 5000 feet. That's hard to find. So when I came back home, I thought that they'd be everywhere because down in Florida, there's 1800 of these homes. California has 2800 out there close to you, I think Arizona has 3000, Texas has 15,000 back by us. There's 55 by five, so I said…   Michael: And when you say when you say these homes, you mean like single family homes in neighborhoods that are being used for senior care facilities.   Brandon: So I am talking about homes that are caring for the elderly under 10 people. It is under 15 people per home.   Michael: Okay, All right. So you had 55 in your market…?   Brandon: 55 not in and there's 18 in all of Florida, and there was only 55 here, right and I said, that's bingo. Perfect I'm in, so that's how I first jumped in but a thing a thing that happened is when I first got in, there wasn't a ton of other people out there doing this. So I had to kind of go teach people this concept. So the healthcare part was definitely challenging but the houses that I was trying to find where four to 5000 feet, first floor only our first house, it was on three acres. It was a financial planner that I purchased that bought our debt built in office on to his house. So I had to open things up, I ended up putting 550,000 into the first house. So I had four private bedrooms, and I had three bedrooms for two people each. So for privates, and then I had three for two. So I had a total of 10. Did I go over, did I go overboard? Absolutely but I feel like if you're going to do anything, you have to do it how it ought to and I put three ADA A's on the inside for people to go to the psych bathroom, I only had to have only one and I had 380 access points to get into the house and out of the house and we just did everything over the top. So that's how I first got in and then beyond that house, it was harder to find that type of house over. So fast forward to today I've got five homes up and operating. I got two homes opening up in quarter three this year. And then in 2000 are in I also have 7.2 acres of land that I bought before COVID that I was going to put our own homes on.   Michael: This is incredible. So what is the financing look like for these homes? I mean, can you go to a bank and say hey, I want the purchase. I want to purchase it at 20 and I want you to give me a line of credit for the construction for the rehab. I mean who's financing this type of stuff…   Brandon: I had a chance, dude when I went in there to talk to these guys, they thought I had like, they couldn't get it. These guys are used to like, easy, typical type deals, when I told them that, that I was going to 10 people each paying 5000 to 5500. Each month, their heads literally exploded. They're like, Hey, man, why don't you come back after you do your first house? Then I'll talk to you and I was able to do that and they're like, hey, why don't you come back when you have two houses and then at that, at that part, I am like, you know, I don't think I'm going to actually go ask him for anything anymore. But like, that's how it happens. So a thing that I do for financing is I actually brought in private capital, from investors on a per L for each home and that's, that is how we did, I had to offer some pretty high IRR hours. But when you're first getting things going, that is your only option and a thing that I found that I was really good at is when I was buying properties, I was buying like oddball type properties, not the typical like three to 2200.   So I was buying houses that were on properties that the typical family at the time weren't trying to buy, right. So I was buying houses that were on the app on the MLS for 200 days, 400 days, 500 days and what I would do is I would give them an offer for them to carry back financing at the full asking price. Or I would give them an offer for cash but the cash offer was like so like 50% and a lot of times I was just using that cash offer to help prop up the other offer but I've had a handful of times where when I was putting in those two offers, they would take the other one. So I bought one house off the MLS one time that was on for 2.4 million. I bought that for 750 cash and other time I bought one in Connecticut that was on the MLS for 2.1 million. I bought that one for 700,000.   Michael: Okay, you are not kidding, those cash offers 30, that's incredible a budget you're solving for someone's like, that's…   Brandon: Yeah, those are offers that as I was able to have them in I thought no ways anyone can ever take this off or like they are going to be like, click just kiss but they took him because our other offer was 1.8 million owner carry back financing and they just didn't take but that was probably only 30% of our upfront portfolio. The other ones, I've had them take the owner offer carrying back financing. So that so that is how we did hazing.   Michael: And then you bring in investor capital to do the rehab, whatever upgrades you need. Yep, amazing.   Brandon: Yes, sir.   Michael: So like, when you're looking at properties, there's got to be at Imagine zoning limitations or requirements or local licensures that you need to get what, like, what should people be on the lookout for or how should someone be thinking about those?   Brandon: Well, anyone that's thinking of getting into this themselves and having people operate it themselves, I would tell you don't do it. It is something that I casually got into it thinking that I could just figure it out and it's been one of the most challenging things I've done, where it's taken me eight years, open up five houses and it's challenging. But as I would look for houses, I would look for houses in an area where the household income, the average was over 80,000 and then one of the things that I would do is I would go to the population and I would look for a population of in each town over 65 years of age, I would look for like 10 to 12% plus, anything that was up over hire, that was awesome. I did buy the 7.2 acres of land, all of our first five homes, they're in towns where it's like, you know, 10 to 20 or 10 to 18% over the age right. And then the town that I bought this dirt in for 7.2 acres, we paid 220,000 per acre but it is located directly next to a Dell property.   That's that is 5500 homes that are all 55 plus. So our percentage of over 65 in this town of 26,000 people is 32% Wow. Let's go. All of us purchase that. Before COVID. We were finishing that we got through entitlements, we were going to build six homes, 20 beds each and in office, it was gonna cost us $15.5 million. We had the all of that done, we even had a closing in place for a family office down in Florida, actually to give us a 10 $10.86 million at 12% and they were going to close March 13 2020. We were going to begin pushing dirt April 1, 2020. If you think back to the time, a little COVID pandemic entered into this plan, and the family office were two guys that were probably in their 70s or 80s themselves that earned a bulk of their family office capital from offices and they were in the class a office industry, right and they were trying to take cash out of that inputted into any other asset class and they ended up pulling out two days before closing. Yeah, because they were having tenants that GSA weren't paying. So it wasn't ideal, the overall timing of it, but our things have changed where we aren't building today because cost the build is just too high, where we are holding off until that cost comes back down and we are doing other things today that that fit what is going on.   Michael: Okay, you should have told those guys look, you'll get a free room and board. Just give me the money. I'll build you a spot.   Brandon: I was trying. It just wasn't great timing. I was like, what COVID? Come on. That's fine. It was just too early for us to have any clue. So yeah, unfortunately, they passed but I'm gearing things today now to try to build those connections up with those guys, because a ton of those guys have capital galore. So much dry powder that's just sitting, where if they can find an asset class that is out there that can help the elderly that can help give them awesome IRR that's going to top inflation and also help have a tangible asset. That's what they are looking for today. I think the days where people earn in 200% 300% Kryptos those days are kind of over for some time now, where people are looking for tangible assets today and I have this, so…   Michael: That is amazing and so these houses, I would imagine they serve three meals a day, and they've got all the medical care and there's like it's like a proper business like you would expect to see if you went to a traditional elder care facility, you would have all those same amenities and sounds like and then more, right…   Brandon: So a thing that's different for us for a for every home that has 10 Total people in it, I have a caregiver to every five to eight, five to eight total people compared to the other. The other competition has a caregiver every 1520 to 30 people. That's the thing that causes the old the overall odor. So in a home for 10 total people, I've got two caregivers in there from 7am till 10pm and then I've got a RN that comes in in the am and in the evening just to have eyes on everybody and then I have… that comes each week or as he has to write. So I offer everything in a home that is very cozy that other places have in 100 to 200 type building. Now, with that being said, it's actually harder for us to be as efficient as everyone else. As I only have 458 homes, I actually need like 1020 3040 80 homes to actually have things be efficient. So I'll tell you 10 Plus, under 10, it's hard to be efficient and that's a thing that keeps other people from being able to get into this overall industry or if they do get in there.   They're the owner operator that owns a home or to homes but they're in it every day going 80 hours per week probably profiting 250 to 400,000 per year, but they're busy and I said you know I can't do that I'm going to operate a company that I can expand, to have time to go do other things. You know, I've our oldest is 14 years old and I openness that I could have time to coach him, right and I have been able to coach him playing baseball just since he was eight years old and that's only possible because everything here so time free is…   Michael: That's amazing, Brandon. I think my last question for you. I mean, I have a million more, let's be honest but we gotta keep this within time. How do you insure the thing, is it like us traditional long term rental? Is it insured like a medical office? I mean, what does that look like?   Brandon: Yeah, so the insurance is going to, you're going to have insurance on the overall asset but then you also have to have extra, the extra insurance for operating it for E and O for if anything is able to happen, if anyone's able to get hurt all of that. That's typically about $800 Each house each month but a thing for us, though, is because I haven't had any issues. Over the past eight years, we haven't had any, any type claims, whereas you're in a home with only 10 people, if you offer on if you offer awesome care, they don't tend to have any issues and that's what's awesome on this because typically at the other places for 100 to 200. They have a they've got a caregiver to every 20 to 30 people because the owners are trying to get it to earn extra money. The only avenue to do that is either to push up your income or to cut your expenses. That's the only thing to change the actual NOI. So what they typically do is they cut the care giver item, which is going to an increase the NOI. However, when people are able to have issues and they are able to pass, then you have their families, a attorneys after you and they're pissed, telling everyone how terrible you are. I always feel that it is better to do things how they ought to be done upfront, even if it's harder, because everything that I'm able to do is harder. Like this isn't easy by any means I would tell you, it takes you getting to like home tend to like really cover the overhead. The overhead I found to truly operate this properly, is over 500,000 per year and in order to pay for that you need enough houses paying towards that, to don't have each house covered in too much expenses that they just can't cover, so…   Michael: That makes total sense. Big numbers…   Brandon: Big numbers.   Michael: Yeah, awesome Brandon, this was so much fun, man. If people want to learn more about you reach out with additional questions. What's the best way for them to do that?   Brandon: They can they can call me or text me. So on my phone, you can call me at 815-790-2330 or else you can call our office of 847-380-8624, yes, 847-380-8624.   Michael: Amazing and do you have a website that people can check out as well?   Brandon: I do for our fund but our fund isn't for everyone or funds only for a for investors that are a core they are qualified purchasers. So it's a tear a BB it's a 506 C they can check that out their shepherd, our operating company, I can get you the page to put in there. So it is well just for anyone to put eyeballs on our actual homes or our fund is https://boutiqueseniorlivingfund.com/   Michael: Awesome.   Brandon: That is that as well, man. Thanks for taking time to talk with us today, man. This has been awesome!   Michael: It has been a pleasure, I am sure we'll be in touch soon and take care.   Okay, everyone, that was our show a big thank you to Brandon for coming on super, super interesting topic that like I showed at the beginning of the show. I don't think we've ever had someone on the show talking about this topic, so really interesting. Definitely go check out Brandon's fund, and it's an interesting asset class. See where it goes from here. As always, thanks so much for watching or listening, and we look forward to seeing the next one. Happy investing…

The Remote Real Estate Investor
Are current market conditions an opportunity for real estate investors?

The Remote Real Estate Investor

Play Episode Listen Later Jun 30, 2022 32:25


Dana Dunford is the CEO of Hemlane Property Management and a real estate investor. In today's episode we discuss market conditions, interest rates, what is happening in the stock market, and what the current moment means for real estate investors. If you are wondering if it is the right time to purchase an investment property, you will want to listen to this episode. Links: Hemlane.com --- 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 Dana Dunford, co founder and CEO of Hemlane Property Management. And today Dana is gonna be talking to us about the state of the economy and some things that investors should be aware of and thinking about as we move forward in today's market. So let's get into it.   Dana Dunford, welcome back again to The Remote Real Estate Investor. Thanks for coming on and hanging out with me.   Dana: Great. Thanks for having me. Again, Michael.   Michael: Oh, my gosh, it is such a pleasure. You are great friend of the pod. Great friend of Roofstock. For those who might not be familiar with you give us the Quick, quick and dirty background of who you are. And background on yourself.   Dana: Yeah, so I'm Dana Dunford. I'm here in San Francisco. So just right across the bridge from rootstock. I have been in technology for gosh, now we're going on 18 years. So I'm a tech veteran, which we'll be talking about tonight, today, which I'm excited about. And on top of that, I'm in property management. So we're a tech platform for property management, and partner of Roofstock's. And we've seen what has been going on since q1, the market softening things changing in technology. So I think this is going to be a great call, because both Roofstock and Hemlane have seen it firsthand. And hopefully this gives some insight into what, what the upcoming year is going to look like for all real estate investors out there.   Michael: Totally. And just to give some people, some additional color, you are CEO, co founder of Hemlane, and you just did your series A, what was it q3 of 2021 or q4 of 2021?   Dana: Q4, so we raised at the perfect timing, those who are not in venture and the tech world of Silicon Valley. We couldn't have timed it better. You know, right now, and we'll talk about this today. Right now, the market is really softening. There's just less capital going into startups. We can't say this was people were already predicting this. So back in q3, and q4 venture capitalists were already saying, Ooh, there's a lot of money pouring into this valuations are really high. And some had already started pulling back. But it wasn't until what happened in the public markets, where you know, trillions of dollars were taken out of these Sass companies, valuations are overall the market cap, that suddenly the venture world that trickled down and people really started to pull back capital. So yeah, we raised back then roofstock, when was your guys's last raise? Because you guys are at a later stage. And so obviously, also impacted by this and quite, potentially, more significantly than us.   Michael: I think we got our term sheet squared away in in q4, as well. So right around that same perfect timing with money getting wired in coming in and in q1.   Dana: Yeah, perfect. So you guys will be able to weather the storm with that what we're going to be talking about soon here.   Michael: Yep, absolutely. I'm thinking so. Okay, so let's talk about how, like, how did we get here, because you're mentioning that trillions of dollars have been essentially taken off the table in terms of market cap. But for those people that aren't familiar with the space that haven't maybe been following along as closely, what like, where are we today? And can you give us some insight and background as to how you think we got here?   Dana: Yeah, so first of all, I believe most people on this podcast today listening are real estate investors. And so all of you hopefully got in when interest rates were super low, just artificially low, right? We never seen interest rates below 3% for so long. And one that was fantastic for real estate, right? You could get a rental properties at afford a higher price because your interest rate is much lower your loan. And then for startups and for companies money was much more free it was much more flowing. What we ended up seeing happen which most people predicted this would happen. But no one knew when or at least I haven't heard of any economists who knew this was going to happen exactly. We're in March, but we started seeing the inflation go through the roof, you know, 8.6%. And it's been consistent where we have seen the inflation rate really, really high.   And so the only way for the Fed to essentially combat that was obviously, to increase interest rates, which we are all seeing now are all seen in our real estate itself, doesn't mean there aren't great deals out there. So Mike, like, do you want us to talk about that, because I still think there's great deals out there that you guys have on the platform, and now could be a really good time to buy. So don't let that taint your decision of whether or not you should go into real estate.   But with that, as you know, when the Fed raises interest rates, consumer spending just goes down, that will probably people will spend less, and also things are more expensive. And so once you have that happen, the stock market's inversely correlated to interest rates. And so once interest rates went up, there was a correction in the stock market. Why it affects us on the private company side so much is Roofstock and Hemlane are both considered growth companies. And what happened was essentially, in the public markets, so any public company, there's basically two different types, there's growth, just like us, companies like Roofstock, that have gone public. And then there are value companies and the value companies are much more stable. They're based on their cash flow. They're typically larger, older companies, and their price is based on their sales. So their price is relatively low relative to sales, in companies like that, or like Bank of America, if you think about it, and RG like gas companies like very stable, steady businesses, where you're not going to see   Michael: Blue chip companies.   Dana: Yeah, your blue chip companies where you're not going to see, you know, 500% growth year over year. But what ends up happening is when the interest rates go up like that, and stocks go down, the ones that get devalued, the most are the growth stage companies. And the growth stage companies are companies like Roofstock, and heavily that are public. And so what we basically saw happen was this huge, huge cut in market cap in the public markets. And so for SAS company software as a service where you go, you pay a subscription every month to use a service, the market cap cap got cut by $1 trillion dollars from November of 2021. Until today, and so what that did was essentially, these companies thought they were worth a lot more.   And you know, some of them, like the stripes of the world, in the snowflakes had these really high revenue multiples, and suddenly, those just deteriorated. And the multiple based of what their valuation is versus their, their revenue went down. And that essentially trickled down to private companies like us as well. And so now when a company goes out to raise capital in q1, q2, primarily, now it's even, it's even worse. And what we're foreseeing in q3 is that you might have had a 10x, revenue multiple, so your valuation, it's 10x, what your revenue is, that's how it used to be.   Now you go out to a venture capitalist, and they're like, great, you're worth 3x, or 5x. So much lower valuation. And so what they're, they're expecting is a lot of down rounds, a lot of startup saying, If I can, let me just hold on to my cash, let me cut my bird, let me try to raise later and better times. And all of this impacts the economy, because it was the public markets that were hit. And now it's also the private companies where we are in Silicon Valley. And I do think this, this trickles a bit to real estate. It's it's a different type of market correction that we saw in 2008. In 2008, it was housing right and the mortgage crisis today, I think this is a lot more like the.com bubble. This is very similar to the.com bubble of these really high tech valuations that need to be corrected. And so when you think about purchasing real estate, I actually think that's why Roofstock is such a fantastic place to go. Because you're getting out of the tech scene, you're going to other markets and purchasing there.   Michael: It's so interesting. But then so I'm curious, we talk so often about in real estate that the price is only a factor, or it's only important if you're doing something with the property if you're buying selling refinancing, because otherwise you're just having a cash flow, and that often is independent of what the value is of the company, or excuse me, the property. So why does that matter? or for companies like the fact that there's the company is now worth less, unless they're trying to do something buy, sell, or refinance or raise, raise, raise capital, like, why does that matter?   Dana: So it doesn't matter for Roofstock. And it doesn't matter for Hemlane, because we just raised, we have enough capital to weather this storm. But imagine a company that raised and they had a, let's just give the case of like the stripes of the world 100x Multiple. And let's just say it's a private company, with 100x, multiple, and now they're going back out, and they're now getting a 10x. Multiple, they could have what we call a down round, where suddenly they are worth less than they were before. And that gives a lot less confidence. One the company itself, right? The amount that you're giving up as a founder, as an employee, as an existing investor, it's a lot more just to get in the same amount of capital you wanted to historically, in so what you're seeing is these companies really, really tighten the ship, and just say, Okay, we're going to stop hiring as many people, we're really going to look at our expenses. And that means there's not more money pouring into, you know, hiring 100 people every week, they're suddenly going back and thinking about who are the strategic hires, we really need? Should we be letting go? You've seen the massive tech layoffs where it's, you know, 20% of the workforce. And now suddenly, they're really tightening their books, because cash is king right? Now, you want to hold on to that cash? Because the last thing you want to do is go out and have a lower valuation.   Michael: Yeah. Okay. Well, that makes sense. And so talk to us a little bit about why this is affecting real estate investors or why real estate investors should even care about this that's going on?   Dana: Yeah. So I always think there's a huge opportunity when there's like the Warren Buffett, quote, right? be fearful when others are greedy and be greedy when others are fearful. I think right now everyone's scared. And there's a lot of real estate investors, like we actually just did a survey at Hemlane, where majority were saying we're not going to purchase in the next 12 months, because interest rates have gone up we should have gotten any year ago. Well, you know, the best time to get into real estate was 10 years ago, and the next best time is today, I think there's going to be a lot of great deals out there. I think that while others are tightening up, other investors are scared, this is a time for you to be really aggressive. I mean, still looking at your pro forma and and follow your numbers. But you'll be able to find some some great deals out there.   Michael: I've heard a lot of sentiment around, you can always change your interest rate, but you can never change your purchase price. So if someone is getting into a deal today, at an interest rate that's a little bit higher than they're comfortable with. But they anticipate interest rates to come down at some point down the road. What are your thoughts there?   Dana: Yeah, you can always refinance. I mean, don't do a deal hoping that interest rates go down, and you can refinance it or fudge the numbers on your spreadsheet. This is why   Michael: I was hoping that's what you were gonna say.   Dana: Yeah, like this is I mean, this is why I'm, I'm more conservative than most in every property purchases had a fixed rate. I don't do adjustable. But I can refinance, right? So I can always refinance. But I want to know what I'm getting into. So when you do your pro forma, do it with whatever the interest rate is now and consider it a huge advantage and just like increased cash flow, if you can refinance in the future, will interest rates go back to this like artificially low rate that we saw over the past five years, maybe not. But I don't think that is a reason not to purchase now. You do your numbers, and you look at it just because you might say property values are really high interest rates are going up, now's not a good time to buy. That's just laziness. Like, honestly, that's just you being lazy and not wanting to do the work.   There's always great deals out there. You just have to do the work, find them look at the numbers and say even with this increased interest rate, it's still a great deal. I'm still cash flowing and I've got a great cap rate, and you can go ahead and purchase. So I don't think of this as the time really to, to change your decisions on real estate. And part of that has to do with I think, you know, some markets will soften. Some markets may remain flat for a while but that doesn't mean that you're not getting the cash flow and having a great investment that by the way, with inflation where it is If it continues, having an asset where the value goes up with inflation, so I still think now's a great time to purchase real estate. And you might be able to get some fantastic deals as other investors are pulling out, you can really, really go in and get those great deals.   Michael; Love it. And Dana, I'm curious if because we've seen prices go through the roof, and interest rates have also gone up significantly, there might be a bit of a lead lag measure until we see prices come down. So in in terms of looking for different markets, I mean, are you targeting markets that are continuing to grow? Are you targeting markets that maybe are seeing some of that softening in terms of pricing?   Dana: So for us, we go where the real estate investors are. So if there's a real estate investor there, right, we're going to do the property management for them. I think when you're when you're thinking about the lag, that is definitely true. I've heard this with other real estate investors, I've seen it myself, where you see a price. And with interest rates up, the seller puts one price out there, because that's what it was two weeks ago. And suddenly, it's not worth that much. It's worth like 10% 20%. Last, but it's actually really good to put yourself into the position of the seller, and of the real estate agent, because you can actually get some really, really good deals off of that.   And what I mean by it is real estate investors have always told historically, have told their buyers in the past couple of years. If your mark, if your property is on market for over two weeks, people might think there's something wrong with that. And so, you know, we're going to ask for offers on X date, right, like X date and two weeks, or maybe we'll do one week, we're going to ask for offers. Well, if they've missed priced the property, you might be able to go in and you don't know this, but you might be the only offer because they priced it way too high, because we priced it from a purchase price from two weeks ago. And now that has suddenly changed like the market changes every two weeks, it really is. And you could go in and get a great deal. And so I think from from that perspective, there are still fantastic deals out there. But you have to be patient. And some of it will be that luck, where you get the right deal, though what else has gone into, and you can go ahead and purchase that.   So if you put yourself in the other shoes, you might see that you also see a lot of people you know why I don't think it's like 2008 and 2009 is people have a lot more equity in their properties because one value values have gone up. And then two, the interest rates were really low, people could afford more put more money in the market was booming. And so what we're seeing is that more people have equity in them. And at some point, it's emotional for someone, they're like, I just want to get rid of this asset, because I'm gonna go buy another one, or I just really want to move out of the city and move somewhere else. And, you know, to them, maybe 20 To 50 to $70,000 is not a lot depending on what it is. But that is a lot to you. And that changes, changes the numbers on your spreadsheet significantly.   And so I mean, with that purchase price, obviously that matters. But just because the price is out on the market for a property doesn't mean that the price is going to sell for. And so it would be a really good time to go out and experiment with that you will know your market better than anyone else, whatever market you're in, because it will take you bidding on like five properties. And maybe people will laugh at you like your first one, you go like 20% under and they laugh at you. But maybe you get lucky on the fifth one, and you'll get a great deal. But yeah, just follow the numbers in your spreadsheet don't have a purchase price, that doesn't make sense and you're not cash flowing. Or don't change the interest rate hoping that it will go down to that to that amount.   Michael: Yeah, that makes total sense. And speaking of spreadsheet numbers, are you seeing a lot of your investor clients that you work with adjusting their expectations around cash on cash returns? Now that prices and interest rates are up?   Dana: So not really I think most investors like most of the savvy ones we work with, we work with his sort of two different types of of customers, those who had properties just handed to them. And they actually never did the analysis like pan downs from parents and things like that. And then others   Michael: Accidental landlords.   Dana: Accidental Yes. And then others who are very strategic real estate investors and what we have found with them as they have the capital and they might not be they might be with inflation to your point Michael being like, Oh, maybe I should just go buy something because the dollar today is worth less On tomorrow, but no, I actually think most real estate investors are still saying, this is the deal that I got, historically, I want to get something like that. And so they're not changing those expectations on cash on cash return, but they might be going somewhere else. So they go to Roofstock, and they say, Okay, I, you know, couldn't find this property, you know, in my backyard, but on Roofstock, they do have the cash on cash return that I that I that I targeting. And so I do think they're not changing their expectations. But they are going out and finding alternative ways to get the numbers they need.   There's one case, Michael, where I find people change their expectations. And it's first time real estate investors to just get their foot in the door. And I'm actually okay with that. I think that there's too many people who, and for anyone who's listening to this, who doesn't have a real estate investment, you kind of sit there and you kind of fantasize about getting one and then you put so much like anxiety into getting your first property. And once you have your first you're like, oh, okay, that's what I got, here's what it is. And it makes it easier, where then you can go and purchase more properties and more properties. And you know, what you're looking for, and you know what the return was, and you have this process set up.   But the first one is really difficult to get into. So I find that those people today are changing their expectations, for certain metrics just to get into the market, before it's too late. Interest rates go up more, or you know, they're kind of kicking themselves that they didn't get in, you know, four years ago, five years ago. So I only think it's first time real estate investors where that's happening. And I'm actually okay with that. Because I think if you can get more people into real estate investing, and more people to just get their foot in the door, you're going to learn so much off of that first property, that then you're going to say, Okay, this was my cap rate for my first property. My next one, I have to at least have that or better and you kind of improve, you know, it's kind of like dating, you never like you don't date someone who's great. And then like the next person is like a downgrade, you kind of have the standard. And you're like, I can only go up from there. It's the same exact thing with real estate investing. So I really think it's only first time homebuyers where that happens are real estate investors for rental properties?   Michael: Yep, I think and I think that makes tons of sense. It's something that I hear all the time. It's Michael, I'm trying to get my first deal done and has to be amazing. And you know, it has to be a Grand Slam? Like? Don't worry about the grand slams, let's practice getting on base first. And then you'll know how to swing for   Dana: Exactly, exactly. And it makes it a lot easier when you have one property in that area. You know your market a bit more, and then you can kind of purchase some more around at.   Michael: Yep. Yeah, I think it makes him think that's totally right. And so Dana, we're kind of at this like crossroads where we're talking about, some investors are pressing pause on their acquisitions. And then this whole other cohort of investors are like, Oh, crap, I gotta get into the market before interest rates go up further before prices go up further. So it does feel like there's this pressure to buy or there's frenzy to buy, on the one hand, and then there's this whole other group, that's again, kind of taking a step back and saying, let's, let's wait and see what happens. How do you square those two?   Dana: Well, to me, I'm like a pretty unemotional real estate investor. And I feel like for anyone, whatever segment you fall into, you still have to go back to the numbers and see what makes sense. And so I mean, is there a right way to go? I think one people who are not going out, and they're using this as an excuse not to purchase properties, or just being lazy, honestly. And for those who are out there saying, I gotta get in and get my next deal. I think they're almost too emotional. Where they might go in and change the numbers to your point of saying, like, oh, it's not, you know, my last deal was was better than this, but I just need to get my foot in the door. Maybe that's not the right approach to have, it's, Hey, there's gonna be a deal out there. I might have to be a little bit more patient during this the for the next three to six months, I have to be patient, I have to understand what's going on.   But yeah, I just kind of go back to the numbers. I think in both cases, they're they're taking emotion and what's happening in the market and using that, like the macro for the micro. And instead of saying, You know what, I know what is a good deal, here's what it looks like on paper. Let me continue to go search until I find that and it might take you a little bit longer to find it. Or you might find a process like oh, wow, I can, you know, go 20% under and get lucky on a deal off of this, whatever the home price is, I could, you know, undercut them and give them an offer and maybe they'll take it to get that great deal.   Um, But I don't I think both categories are bad. I think someone who says I have to get my foot in the door. Before interest rates go up is emotional. I think someone who says there are no great deals out there are just lazy. And so I kind of fall somewhere in between of saying, yeah, just be financially prudent as you always should be with your real estate investment investments, know your market, know what numbers numbers you need, and make sure you're a little bit more conservative. Like, I know, a couple investors with adjustable rate mortgages that did them, you know, back when interest rates were really low. And I bet they feel pretty stupid right now. So   Michael: we won't name names,   Dana: Won't name names here.   Michael: Well, I'd be very interested to meet the the emotionally lazy person, because it sounds like those are two opposite ends of the spectrum. Yeah, I have to see. Okay. And last thing that I want to ask you about is around expectations. If someone is newer to the investment space, they may be looking to get their first deal done. Everyone around them, their sister, their brother, aunts, uncles in this market are making 10% cash on cash. Yeah, pick a number. Nice round number 10%. And they're like their expectation was was 15%. Right, for whatever reason, that's what makes them tick. That's what gets them excited about an investment. Everyone around them is making 10%. So how the how should investors be thinking about not looking at other people, and just focusing on what's good for them, but also not being blind and naive to what a market is really able to produce? In terms of In other words, like, they I want someone to be excited about the returns that they're getting, but I also want them to be realistic. How do you kind of how do you?   Dana: So the biggest thing I would say to throttle that is, most likely you've sort of selected a market because you've looked at, okay, where is and I mean, Roofstock does this for you, and you guys, I think have some great shows from like every single market of why why you guys are looking at a certain market. So that helps. But you as a real estate investor are gonna say worse population growth? And why like, is more industry going there? Like maybe an Amazon facility was just put into place? Does it have fed, ed's and meds? Like, is it stable, even recession proof, especially now? So you kind of go through and figure out why am I excited about this market? And you just start there? And like, don't forget about your, I mean, 15% cash on cash return? Like, let's just forget about all of that and just go through? What looking at macro, and now we're kind of going to micro to like city level?   Why do I think this is going to be a lot a good market in five to 10 years, because you're going to hold on to these properties and purchase more, right? Do that first, then you say, Okay, this is my market, then what you're going to do is for two to three months, you're going to look at all the deals there, go on Roofstock, I think you could set up alerts because I have those that go to my email that essentially like tell you here's a new property in that market, great purchase. Um, you're gonna go through and you might the first couple of properties, say you know what? Those, those don't really hit my cash on cash return expectations, but now you're starting to know your market and you're gonna see a trend, are they going up? Are they going down? And you can look at that over time to make an unemotional decision that is based on data.   I think that is the most important thing to do. When someone gets in this frenzy of I need this cash on cash return shoot, I'm not going to get it. So I'm just going to slash it. And I'm going to say now I need, you know, seven or 8% I and you're just becoming emotional. But if you go through look at the numbers and you say okay, great, I wanted 15% You know, my friends are getting 10% I'm and you're you change those expectations. And suddenly you say, Okay, I made this decision, and here's my cash on cash return. But I knew at that time, that was the best I could do. Because I looked at the data, then suddenly you never go back and wish you had done it differently. Because you have something that is non non emotional to back you up. And don't compare yourself to other real estate investors. I've seen real estate investors in the past four to five years who've been super successful, who are super stupid.   And the reason they were successful and I hate to say that but like there's so many people out there because basically it was free money like there was so much investment it was there was so much easy money from investors that I saw way too many people also going into real estate. A lot of actually on the fix and flip side that just got lucky because yeah, money was basically free to do a fix and flip and a The home prices were going up astronomically. And they feel like they're the smartest people in the room.   Well, maybe they were at that time, but like, give it two to three months, maybe six months, and the story might change. And so that's why I think it's hard at like one point in time, if you're just getting started to compare yourself to those around you, I don't think you should do that. I think you should just be financially prudent, and make sure that you're not overextending yourself. And you know, your market. And you know why you made the decision, you see you did, and it's all based off those numbers. And it's based off the numbers, but also you need to know the market, like you need to know you guys have neighborhood scores and ratings, that kind of stuff of like, here's why I only invest in neighborhoods that have three stars, or greater, or whatever it may be like it, write all of this stuff out, and take a really methodical approach to your assets, your real estate investing, and I don't think you'll regret it. Like, I don't think you're gonna go back and say, Oh, I really wish I would have gotten that 15% I targeted?   Michael; I think that is like spot on. Thank you so much. And if you missed it, if you missed any part of that, go back, rewind the last three minutes, and listen to that again, cuz I think that's a lot of gold in there. Then this was super fun. As always, if people want to reach out more, find out more about you or hemline. Where's the best place for them to do that?   Dana: Yeah, you can go on to Roofstock when you purchase a property, how many will be listed as a property manager? So go go ahead and do that. You can also go to Hemlane.com. And my email is dana@hemlane.com. So I love hearing from people.   Michael: Awesome. Well, thank you again, and very much looking forward to having you on. Again, I'm sure take care of we'll chat soon.   Dana: Great. Yeah, I'm excited in six months for us to see if we were if we stand corrected on what's going on in the market.   Michael: I know it'd be very interesting. Well keep close tabs on it.   Dana: Great. Thanks so much for having me.   Michael: You got it, take care.   Okay, everyone, and that was our episode A big thank you to Dana for coming on as always big friend of the pod as we were saying at the beginning of the show. As always, if you liked the episode, we'd love to hear from you all with a rating and review and we look forward to seeing the next one. Happy investing

The Remote Real Estate Investor
Are current market conditions an opportunity for real estate investors?

The Remote Real Estate Investor

Play Episode Listen Later Jun 30, 2022 21:37


Dana Dunford is the CEO of Hemlane Property Management and a real estate investor. In today's episode we discuss market conditions, interest rates, what is happening in the stock market, and what the current moment means for real estate investors. If you are wondering if it is the right time to purchase an investment property, you will want to listen to this episode. Links: Hemlane.com --- 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 Dana Dunford, co founder and CEO of Hemlane Property Management. And today Dana is gonna be talking to us about the state of the economy and some things that investors should be aware of and thinking about as we move forward in today's market. So let's get into it.   Dana Dunford, welcome back again to The Remote Real Estate Investor. Thanks for coming on and hanging out with me.   Dana: Great. Thanks for having me. Again, Michael.   Michael: Oh, my gosh, it is such a pleasure. You are great friend of the pod. Great friend of Roofstock. For those who might not be familiar with you give us the Quick, quick and dirty background of who you are. And background on yourself.   Dana: Yeah, so I'm Dana Dunford. I'm here in San Francisco. So just right across the bridge from rootstock. I have been in technology for gosh, now we're going on 18 years. So I'm a tech veteran, which we'll be talking about tonight, today, which I'm excited about. And on top of that, I'm in property management. So we're a tech platform for property management, and partner of Roofstock's. And we've seen what has been going on since q1, the market softening things changing in technology. So I think this is going to be a great call, because both Roofstock and Hemlane have seen it firsthand. And hopefully this gives some insight into what, what the upcoming year is going to look like for all real estate investors out there.   Michael: Totally. And just to give some people, some additional color, you are CEO, co founder of Hemlane, and you just did your series A, what was it q3 of 2021 or q4 of 2021?   Dana: Q4, so we raised at the perfect timing, those who are not in venture and the tech world of Silicon Valley. We couldn't have timed it better. You know, right now, and we'll talk about this today. Right now, the market is really softening. There's just less capital going into startups. We can't say this was people were already predicting this. So back in q3, and q4 venture capitalists were already saying, Ooh, there's a lot of money pouring into this valuations are really high. And some had already started pulling back. But it wasn't until what happened in the public markets, where you know, trillions of dollars were taken out of these Sass companies, valuations are overall the market cap, that suddenly the venture world that trickled down and people really started to pull back capital. So yeah, we raised back then roofstock, when was your guys's last raise? Because you guys are at a later stage. And so obviously, also impacted by this and quite, potentially, more significantly than us.   Michael: I think we got our term sheet squared away in in q4, as well. So right around that same perfect timing with money getting wired in coming in and in q1.   Dana: Yeah, perfect. So you guys will be able to weather the storm with that what we're going to be talking about soon here.   Michael: Yep, absolutely. I'm thinking so. Okay, so let's talk about how, like, how did we get here, because you're mentioning that trillions of dollars have been essentially taken off the table in terms of market cap. But for those people that aren't familiar with the space that haven't maybe been following along as closely, what like, where are we today? And can you give us some insight and background as to how you think we got here?   Dana: Yeah, so first of all, I believe most people on this podcast today listening are real estate investors. And so all of you hopefully got in when interest rates were super low, just artificially low, right? We never seen interest rates below 3% for so long. And one that was fantastic for real estate, right? You could get a rental properties at afford a higher price because your interest rate is much lower your loan. And then for startups and for companies money was much more free it was much more flowing. What we ended up seeing happen which most people predicted this would happen. But no one knew when or at least I haven't heard of any economists who knew this was going to happen exactly. We're in March, but we started seeing the inflation go through the roof, you know, 8.6%. And it's been consistent where we have seen the inflation rate really, really high.   And so the only way for the Fed to essentially combat that was obviously, to increase interest rates, which we are all seeing now are all seen in our real estate itself, doesn't mean there aren't great deals out there. So Mike, like, do you want us to talk about that, because I still think there's great deals out there that you guys have on the platform, and now could be a really good time to buy. So don't let that taint your decision of whether or not you should go into real estate.   But with that, as you know, when the Fed raises interest rates, consumer spending just goes down, that will probably people will spend less, and also things are more expensive. And so once you have that happen, the stock market's inversely correlated to interest rates. And so once interest rates went up, there was a correction in the stock market. Why it affects us on the private company side so much is Roofstock and Hemlane are both considered growth companies. And what happened was essentially, in the public markets, so any public company, there's basically two different types, there's growth, just like us, companies like Roofstock, that have gone public. And then there are value companies and the value companies are much more stable. They're based on their cash flow. They're typically larger, older companies, and their price is based on their sales. So their price is relatively low relative to sales, in companies like that, or like Bank of America, if you think about it, and RG like gas companies like very stable, steady businesses, where you're not going to see   Michael: Blue chip companies.   Dana: Yeah, your blue chip companies where you're not going to see, you know, 500% growth year over year. But what ends up happening is when the interest rates go up like that, and stocks go down, the ones that get devalued, the most are the growth stage companies. And the growth stage companies are companies like Roofstock, and heavily that are public. And so what we basically saw happen was this huge, huge cut in market cap in the public markets. And so for SAS company software as a service where you go, you pay a subscription every month to use a service, the market cap cap got cut by $1 trillion dollars from November of 2021. Until today, and so what that did was essentially, these companies thought they were worth a lot more.   And you know, some of them, like the stripes of the world, in the snowflakes had these really high revenue multiples, and suddenly, those just deteriorated. And the multiple based of what their valuation is versus their, their revenue went down. And that essentially trickled down to private companies like us as well. And so now when a company goes out to raise capital in q1, q2, primarily, now it's even, it's even worse. And what we're foreseeing in q3 is that you might have had a 10x, revenue multiple, so your valuation, it's 10x, what your revenue is, that's how it used to be.   Now you go out to a venture capitalist, and they're like, great, you're worth 3x, or 5x. So much lower valuation. And so what they're, they're expecting is a lot of down rounds, a lot of startup saying, If I can, let me just hold on to my cash, let me cut my bird, let me try to raise later and better times. And all of this impacts the economy, because it was the public markets that were hit. And now it's also the private companies where we are in Silicon Valley. And I do think this, this trickles a bit to real estate. It's it's a different type of market correction that we saw in 2008. In 2008, it was housing right and the mortgage crisis today, I think this is a lot more like the.com bubble. This is very similar to the.com bubble of these really high tech valuations that need to be corrected. And so when you think about purchasing real estate, I actually think that's why Roofstock is such a fantastic place to go. Because you're getting out of the tech scene, you're going to other markets and purchasing there.   Michael: It's so interesting. But then so I'm curious, we talk so often about in real estate that the price is only a factor, or it's only important if you're doing something with the property if you're buying selling refinancing, because otherwise you're just having a cash flow, and that often is independent of what the value is of the company, or excuse me, the property. So why does that matter? or for companies like the fact that there's the company is now worth less, unless they're trying to do something buy, sell, or refinance or raise, raise, raise capital, like, why does that matter?   Dana: So it doesn't matter for Roofstock. And it doesn't matter for Hemlane, because we just raised, we have enough capital to weather this storm. But imagine a company that raised and they had a, let's just give the case of like the stripes of the world 100x Multiple. And let's just say it's a private company, with 100x, multiple, and now they're going back out, and they're now getting a 10x. Multiple, they could have what we call a down round, where suddenly they are worth less than they were before. And that gives a lot less confidence. One the company itself, right? The amount that you're giving up as a founder, as an employee, as an existing investor, it's a lot more just to get in the same amount of capital you wanted to historically, in so what you're seeing is these companies really, really tighten the ship, and just say, Okay, we're going to stop hiring as many people, we're really going to look at our expenses. And that means there's not more money pouring into, you know, hiring 100 people every week, they're suddenly going back and thinking about who are the strategic hires, we really need? Should we be letting go? You've seen the massive tech layoffs where it's, you know, 20% of the workforce. And now suddenly, they're really tightening their books, because cash is king right? Now, you want to hold on to that cash? Because the last thing you want to do is go out and have a lower valuation.   Michael: Yeah. Okay. Well, that makes sense. And so talk to us a little bit about why this is affecting real estate investors or why real estate investors should even care about this that's going on?   Dana: Yeah. So I always think there's a huge opportunity when there's like the Warren Buffett, quote, right? be fearful when others are greedy and be greedy when others are fearful. I think right now everyone's scared. And there's a lot of real estate investors, like we actually just did a survey at Hemlane, where majority were saying we're not going to purchase in the next 12 months, because interest rates have gone up we should have gotten any year ago. Well, you know, the best time to get into real estate was 10 years ago, and the next best time is today, I think there's going to be a lot of great deals out there. I think that while others are tightening up, other investors are scared, this is a time for you to be really aggressive. I mean, still looking at your pro forma and and follow your numbers. But you'll be able to find some some great deals out there.   Michael: I've heard a lot of sentiment around, you can always change your interest rate, but you can never change your purchase price. So if someone is getting into a deal today, at an interest rate that's a little bit higher than they're comfortable with. But they anticipate interest rates to come down at some point down the road. What are your thoughts there?   Dana: Yeah, you can always refinance. I mean, don't do a deal hoping that interest rates go down, and you can refinance it or fudge the numbers on your spreadsheet. This is why   Michael: I was hoping that's what you were gonna say.   Dana: Yeah, like this is I mean, this is why I'm, I'm more conservative than most in every property purchases had a fixed rate. I don't do adjustable. But I can refinance, right? So I can always refinance. But I want to know what I'm getting into. So when you do your pro forma, do it with whatever the interest rate is now and consider it a huge advantage and just like increased cash flow, if you can refinance in the future, will interest rates go back to this like artificially low rate that we saw over the past five years, maybe not. But I don't think that is a reason not to purchase now. You do your numbers, and you look at it just because you might say property values are really high interest rates are going up, now's not a good time to buy. That's just laziness. Like, honestly, that's just you being lazy and not wanting to do the work.   There's always great deals out there. You just have to do the work, find them look at the numbers and say even with this increased interest rate, it's still a great deal. I'm still cash flowing and I've got a great cap rate, and you can go ahead and purchase. So I don't think of this as the time really to, to change your decisions on real estate. And part of that has to do with I think, you know, some markets will soften. Some markets may remain flat for a while but that doesn't mean that you're not getting the cash flow and having a great investment that by the way, with inflation where it is If it continues, having an asset where the value goes up with inflation, so I still think now's a great time to purchase real estate. And you might be able to get some fantastic deals as other investors are pulling out, you can really, really go in and get those great deals.   Michael; Love it. And Dana, I'm curious if because we've seen prices go through the roof, and interest rates have also gone up significantly, there might be a bit of a lead lag measure until we see prices come down. So in in terms of looking for different markets, I mean, are you targeting markets that are continuing to grow? Are you targeting markets that maybe are seeing some of that softening in terms of pricing?   Dana: So for us, we go where the real estate investors are. So if there's a real estate investor there, right, we're going to do the property management for them. I think when you're when you're thinking about the lag, that is definitely true. I've heard this with other real estate investors, I've seen it myself, where you see a price. And with interest rates up, the seller puts one price out there, because that's what it was two weeks ago. And suddenly, it's not worth that much. It's worth like 10% 20%. Last, but it's actually really good to put yourself into the position of the seller, and of the real estate agent, because you can actually get some really, really good deals off of that.   And what I mean by it is real estate investors have always told historically, have told their buyers in the past couple of years. If your mark, if your property is on market for over two weeks, people might think there's something wrong with that. And so, you know, we're going to ask for offers on X date, right, like X date and two weeks, or maybe we'll do one week, we're going to ask for offers. Well, if they've missed priced the property, you might be able to go in and you don't know this, but you might be the only offer because they priced it way too high, because we priced it from a purchase price from two weeks ago. And now that has suddenly changed like the market changes every two weeks, it really is. And you could go in and get a great deal. And so I think from from that perspective, there are still fantastic deals out there. But you have to be patient. And some of it will be that luck, where you get the right deal, though what else has gone into, and you can go ahead and purchase that.   So if you put yourself in the other shoes, you might see that you also see a lot of people you know why I don't think it's like 2008 and 2009 is people have a lot more equity in their properties because one value values have gone up. And then two, the interest rates were really low, people could afford more put more money in the market was booming. And so what we're seeing is that more people have equity in them. And at some point, it's emotional for someone, they're like, I just want to get rid of this asset, because I'm gonna go buy another one, or I just really want to move out of the city and move somewhere else. And, you know, to them, maybe 20 To 50 to $70,000 is not a lot depending on what it is. But that is a lot to you. And that changes, changes the numbers on your spreadsheet significantly.   And so I mean, with that purchase price, obviously that matters. But just because the price is out on the market for a property doesn't mean that the price is going to sell for. And so it would be a really good time to go out and experiment with that you will know your market better than anyone else, whatever market you're in, because it will take you bidding on like five properties. And maybe people will laugh at you like your first one, you go like 20% under and they laugh at you. But maybe you get lucky on the fifth one, and you'll get a great deal. But yeah, just follow the numbers in your spreadsheet don't have a purchase price, that doesn't make sense and you're not cash flowing. Or don't change the interest rate hoping that it will go down to that to that amount.   Michael: Yeah, that makes total sense. And speaking of spreadsheet numbers, are you seeing a lot of your investor clients that you work with adjusting their expectations around cash on cash returns? Now that prices and interest rates are up?   Dana: So not really I think most investors like most of the savvy ones we work with, we work with his sort of two different types of of customers, those who had properties just handed to them. And they actually never did the analysis like pan downs from parents and things like that. And then others   Michael: Accidental landlords.   Dana: Accidental Yes. And then others who are very strategic real estate investors and what we have found with them as they have the capital and they might not be they might be with inflation to your point Michael being like, Oh, maybe I should just go buy something because the dollar today is worth less On tomorrow, but no, I actually think most real estate investors are still saying, this is the deal that I got, historically, I want to get something like that. And so they're not changing those expectations on cash on cash return, but they might be going somewhere else. So they go to Roofstock, and they say, Okay, I, you know, couldn't find this property, you know, in my backyard, but on Roofstock, they do have the cash on cash return that I that I that I targeting. And so I do think they're not changing their expectations. But they are going out and finding alternative ways to get the numbers they need.   There's one case, Michael, where I find people change their expectations. And it's first time real estate investors to just get their foot in the door. And I'm actually okay with that. I think that there's too many people who, and for anyone who's listening to this, who doesn't have a real estate investment, you kind of sit there and you kind of fantasize about getting one and then you put so much like anxiety into getting your first property. And once you have your first you're like, oh, okay, that's what I got, here's what it is. And it makes it easier, where then you can go and purchase more properties and more properties. And you know, what you're looking for, and you know what the return was, and you have this process set up.   But the first one is really difficult to get into. So I find that those people today are changing their expectations, for certain metrics just to get into the market, before it's too late. Interest rates go up more, or you know, they're kind of kicking themselves that they didn't get in, you know, four years ago, five years ago. So I only think it's first time real estate investors where that's happening. And I'm actually okay with that. Because I think if you can get more people into real estate investing, and more people to just get their foot in the door, you're going to learn so much off of that first property, that then you're going to say, Okay, this was my cap rate for my first property. My next one, I have to at least have that or better and you kind of improve, you know, it's kind of like dating, you never like you don't date someone who's great. And then like the next person is like a downgrade, you kind of have the standard. And you're like, I can only go up from there. It's the same exact thing with real estate investing. So I really think it's only first time homebuyers where that happens are real estate investors for rental properties?   Michael: Yep, I think and I think that makes tons of sense. It's something that I hear all the time. It's Michael, I'm trying to get my first deal done and has to be amazing. And you know, it has to be a Grand Slam? Like? Don't worry about the grand slams, let's practice getting on base first. And then you'll know how to swing for   Dana: Exactly, exactly. And it makes it a lot easier when you have one property in that area. You know your market a bit more, and then you can kind of purchase some more around at.   Michael: Yep. Yeah, I think it makes him think that's totally right. And so Dana, we're kind of at this like crossroads where we're talking about, some investors are pressing pause on their acquisitions. And then this whole other cohort of investors are like, Oh, crap, I gotta get into the market before interest rates go up further before prices go up further. So it does feel like there's this pressure to buy or there's frenzy to buy, on the one hand, and then there's this whole other group, that's again, kind of taking a step back and saying, let's, let's wait and see what happens. How do you square those two?   Dana: Well, to me, I'm like a pretty unemotional real estate investor. And I feel like for anyone, whatever segment you fall into, you still have to go back to the numbers and see what makes sense. And so I mean, is there a right way to go? I think one people who are not going out, and they're using this as an excuse not to purchase properties, or just being lazy, honestly. And for those who are out there saying, I gotta get in and get my next deal. I think they're almost too emotional. Where they might go in and change the numbers to your point of saying, like, oh, it's not, you know, my last deal was was better than this, but I just need to get my foot in the door. Maybe that's not the right approach to have, it's, Hey, there's gonna be a deal out there. I might have to be a little bit more patient during this the for the next three to six months, I have to be patient, I have to understand what's going on.   But yeah, I just kind of go back to the numbers. I think in both cases, they're they're taking emotion and what's happening in the market and using that, like the macro for the micro. And instead of saying, You know what, I know what is a good deal, here's what it looks like on paper. Let me continue to go search until I find that and it might take you a little bit longer to find it. Or you might find a process like oh, wow, I can, you know, go 20% under and get lucky on a deal off of this, whatever the home price is, I could, you know, undercut them and give them an offer and maybe they'll take it to get that great deal.   Um, But I don't I think both categories are bad. I think someone who says I have to get my foot in the door. Before interest rates go up is emotional. I think someone who says there are no great deals out there are just lazy. And so I kind of fall somewhere in between of saying, yeah, just be financially prudent as you always should be with your real estate investment investments, know your market, know what numbers numbers you need, and make sure you're a little bit more conservative. Like, I know, a couple investors with adjustable rate mortgages that did them, you know, back when interest rates were really low. And I bet they feel pretty stupid right now. So   Michael: we won't name names,   Dana: Won't name names here.   Michael: Well, I'd be very interested to meet the the emotionally lazy person, because it sounds like those are two opposite ends of the spectrum. Yeah, I have to see. Okay. And last thing that I want to ask you about is around expectations. If someone is newer to the investment space, they may be looking to get their first deal done. Everyone around them, their sister, their brother, aunts, uncles in this market are making 10% cash on cash. Yeah, pick a number. Nice round number 10%. And they're like their expectation was was 15%. Right, for whatever reason, that's what makes them tick. That's what gets them excited about an investment. Everyone around them is making 10%. So how the how should investors be thinking about not looking at other people, and just focusing on what's good for them, but also not being blind and naive to what a market is really able to produce? In terms of In other words, like, they I want someone to be excited about the returns that they're getting, but I also want them to be realistic. How do you kind of how do you?   Dana: So the biggest thing I would say to throttle that is, most likely you've sort of selected a market because you've looked at, okay, where is and I mean, Roofstock does this for you, and you guys, I think have some great shows from like every single market of why why you guys are looking at a certain market. So that helps. But you as a real estate investor are gonna say worse population growth? And why like, is more industry going there? Like maybe an Amazon facility was just put into place? Does it have fed, ed's and meds? Like, is it stable, even recession proof, especially now? So you kind of go through and figure out why am I excited about this market? And you just start there? And like, don't forget about your, I mean, 15% cash on cash return? Like, let's just forget about all of that and just go through? What looking at macro, and now we're kind of going to micro to like city level?   Why do I think this is going to be a lot a good market in five to 10 years, because you're going to hold on to these properties and purchase more, right? Do that first, then you say, Okay, this is my market, then what you're going to do is for two to three months, you're going to look at all the deals there, go on Roofstock, I think you could set up alerts because I have those that go to my email that essentially like tell you here's a new property in that market, great purchase. Um, you're gonna go through and you might the first couple of properties, say you know what? Those, those don't really hit my cash on cash return expectations, but now you're starting to know your market and you're gonna see a trend, are they going up? Are they going down? And you can look at that over time to make an unemotional decision that is based on data.   I think that is the most important thing to do. When someone gets in this frenzy of I need this cash on cash return shoot, I'm not going to get it. So I'm just going to slash it. And I'm going to say now I need, you know, seven or 8% I and you're just becoming emotional. But if you go through look at the numbers and you say okay, great, I wanted 15% You know, my friends are getting 10% I'm and you're you change those expectations. And suddenly you say, Okay, I made this decision, and here's my cash on cash return. But I knew at that time, that was the best I could do. Because I looked at the data, then suddenly you never go back and wish you had done it differently. Because you have something that is non non emotional to back you up. And don't compare yourself to other real estate investors. I've seen real estate investors in the past four to five years who've been super successful, who are super stupid.   And the reason they were successful and I hate to say that but like there's so many people out there because basically it was free money like there was so much investment it was there was so much easy money from investors that I saw way too many people also going into real estate. A lot of actually on the fix and flip side that just got lucky because yeah, money was basically free to do a fix and flip and a The home prices were going up astronomically. And they feel like they're the smartest people in the room.   Well, maybe they were at that time, but like, give it two to three months, maybe six months, and the story might change. And so that's why I think it's hard at like one point in time, if you're just getting started to compare yourself to those around you, I don't think you should do that. I think you should just be financially prudent, and make sure that you're not overextending yourself. And you know, your market. And you know why you made the decision, you see you did, and it's all based off those numbers. And it's based off the numbers, but also you need to know the market, like you need to know you guys have neighborhood scores and ratings, that kind of stuff of like, here's why I only invest in neighborhoods that have three stars, or greater, or whatever it may be like it, write all of this stuff out, and take a really methodical approach to your assets, your real estate investing, and I don't think you'll regret it. Like, I don't think you're gonna go back and say, Oh, I really wish I would have gotten that 15% I targeted?   Michael; I think that is like spot on. Thank you so much. And if you missed it, if you missed any part of that, go back, rewind the last three minutes, and listen to that again, cuz I think that's a lot of gold in there. Then this was super fun. As always, if people want to reach out more, find out more about you or hemline. Where's the best place for them to do that?   Dana: Yeah, you can go on to Roofstock when you purchase a property, how many will be listed as a property manager? So go go ahead and do that. You can also go to Hemlane.com. And my email is dana@hemlane.com. So I love hearing from people.   Michael: Awesome. Well, thank you again, and very much looking forward to having you on. Again, I'm sure take care of we'll chat soon.   Dana: Great. Yeah, I'm excited in six months for us to see if we were if we stand corrected on what's going on in the market.   Michael: I know it'd be very interesting. Well keep close tabs on it.   Dana: Great. Thanks so much for having me.   Michael: You got it, take care.   Okay, everyone, and that was our episode A big thank you to Dana for coming on as always big friend of the pod as we were saying at the beginning of the show. As always, if you liked the episode, we'd love to hear from you all with a rating and review and we look forward to seeing the next one. Happy investing

The Remote Real Estate Investor
How much time and money can an investment mentor save you?

The Remote Real Estate Investor

Play Episode Listen Later Jun 30, 2022 34:25


Rich Fettke has a passion for helping people improve their businesses, grow their wealth, and live more fulfilling lives. He is the author of The Wise Investor, Extreme Success, and the audio program Momentum. Rich is also a co-founder of RealWealth®. Since 2003, the company has helped over 60,000 members improve their financial intelligence and acquire cash-flowing income properties — so they can live life on their own terms. As a licensed real estate broker and an active investor, Rich was selected as a Rich Dad Author for his expertise as a Wealth Mindset Expert.   The real estate industry is not easy for everyone to jump into. If you have just gotten your real estate license and feel you need extra support before getting your feet wet, or if you are an experienced agent looking to take it to the next level, you may decide to get a real estate coach. Rich who is a coaching mentor and investor will discuss the value of having a coach and mentor and what you can expect to find in his new book.   Episode Links: https://realwealth.com/ https://realwealth.com/the-wise-investor-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.   Michael: Hey, everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by Rich Fettke, who is an author, investor, coaching mentor, surfer, among many other things, and Rich is going to be talking to us today about some of the mistakes he seen investors make the value of having a coach and