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Ignore The Noise - Here’s How to Actually Calculate Projected Cash Flow Nov 09, 2020

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In this Episode Emil, Tom & Michael cut through the noise and explain how to calculate cash flow properly. --- Transcript Emil: Hey everyone, welcome back for this week's episode of The Remote Real Estate Investor. My name is Emil Shour. And I'm joined by my co host, Tom: Tom Schneider. Michael: Michael Albaum. Emil: And today we're going to be talking about how should you actually calculate cash flow. There's a lot of different formulas out there. And we want to clear the air and give you a we believe is the best way to calculate what your projected cash flow should be as you're analyzing a property. So let's get into this episode. Theme Song Emil: Alright, guys, so this was actually a topic that I thought would be interesting to cover, because I feel like there's a lot of misinformation out there. And I feel like it's really easy to read case studies and blogs and go on YouTube or on social media. And you'll see people talking about their cash flow. And the numbers seem outrageous, right? It's like a property renting for 1100 dollars. And they're talking about $400 of cash flow a month. And obviously, it seems like there's a lot of things missing from the way their, their expected cash flow should actually look like. And so I thought it'd be good for us to dive into this on this episode. Have you guys seen the same thing? Like a lot of people? Michael: Yeah, I have a property that rents for 1100 cash flows 400 bucks a month, so this is gonna be interesting. Emil: Oh, do you Michael: No just kidding. Emil: Do you guys see this a lot? Do you guys like get this kind of feeling like being prevalent out there that a lot of people maybe aren't calculating cash flow the right way? Tom: Or they just inflate it a little bit to feel good about yourself. Emil: Sound cool? Michael: Yeah, he's a bit of an ego thing. Tom: Yeah, the thing with returns and what I like about this episode is man assumptions are just so important. And two people can be looking at the same deal, analyzing it and come up with completely different returns based on the way that they're calculating these, you know, what's in the sausage factory of those calculations is just so critical. Emil: Yep. Michael: I agree. I think that's kind of where deals often get made or broken is in the assumptions. And if you make a bad assumption, you can very easily buy a bad deal. And you could just as easily lose out on a good deal. So getting good at making assumptions is huge. But I totally see this regularly, where people aren't including the things that I would include in their cash flow calculation to determine what it is, I think it's it's too often to light. Emil: Yeah, I agree. I've actually seen examples of this of properties that I've analyzed, like someone posted on Twitter, a property they just purchased. And I remember that exact property, and I had underwrote it as well. And my cash on cash was like half of what, you know, they said their cash on cash was going to be so I've seen it on like, on property, like specific properties, I've underwritten, too. So hopefully, it's a good episode for people to just have like a little bit more of like realistic expectations of what their cash flow could look like after they really account for everything and peanut butter spread all the expenses that come up throughout the year, right, Tom? Tom: Jiffy, that Oh, yeah. Michael: Jiffy on the spot? Emil: All right, let's start out by talking about like, what is the formula? What expenses should you be considering as you're calculating this number? Michael: The PITI is an acronym for your principal, interest, taxes and insurance. So the principal and interest is just determined by whatever the mortgage looks like, whatever the interest rate, whatever the amortization period is, and then your property taxes, if you are escrowing, these, the lender will often pay them for you. And so you pay monthly into this account. And you don't have to have this big property tax bill once or twice a year. And so I would always call the county assessor to determine what the after sale property tax looks like for an investor, and then obviously, divide that number by 12, to get a monthly cash flow amount. And then your insurance, I use a very ballpark estimate of point eight 1.2% of the purchase price for properties under 150 K. And for properties over 150 K, you're probably looking closer to one half - .8% of the purchase price, one half percent to .8% of the purchase price. And so I'll use that number divided by 12. And again, apply that to my monthly cash flow. So you've got your principal interest, taxes and insurance, and then your property management on top of that, Tom, what are some other expenses that I want to hog the mic here that you would include in your monthly cash flow? Tom: Ohh, vacancy, so an often assumption used is half of a percent of the annual rent or perhaps a month, depending on what that term time is, like, like a more conservative would be doing it a month, but hopefully that would be shorter than that. Another one is within that property management fee, or I guess this would be separate but they would be managing that process. If you're using professional property management would be turned costs would be repairs and maintenance costs and to define the term cost. That's the cost You're paying after your tenant moves out, and you have to get the property rent ready again. So that's typically more static stuff, some paints and carpet, perhaps if there's some older deferred maintenance that was there when the tenant was living there that kicked down a line that would be addressing any of those issues. So turn costs, what do you typically budget for your? I'd love to hear what you guys typically budget around turn costs. Michael: 1 million dollars. I've seen this inverse relationship between monthly rent, amount of the property and turn costs. So if I've got a $2500 a month rental, my turn reserved that I'm escrowing is going to be a lot less than a $500 a month apartment. So can I have a bigger security? Emil: Do you guys have a separate turn reserve? Yes, don't just leave it as a repair and maintenance and it kind of just gets lumped in there. Michael: I mean, it can, I just am mentally bucketing money for when the turn comes, that's totally independent of the regular repair and maintenance and the regular capex that I'm anticipating and also reserving for a page back the roof, exterior paint that kind of stuff. Tom: You have a mental escrow account. Michael: Yeah, mental escrow account, but also I put it into my calculator, it is a separate line item. But yeah, mentally, I'm thinking about like, Okay, this money is going towards the eventual turn inevitable term for kind of middle of the road rental, I put a couple hundred bucks. Yeah, on it, depending on when the last time that the unit was turned. If you did a big turn at the beginning, your subsequent turns are probably going to be a lot less. And you can also do things on the front end, like tenant proof properties, put in vinyl flooring, laminate flooring, as opposed to carpet, you never have to worry about that, again, you know, maybe tougher cabinets, builder grade cabinets, you can put into the getting into get less banged up. So there are things you can do on the front end to make your turn reserves down the road, your turns less expensive. Tom: I’m going through a turn right now on one of the properties. And thankfully, the property manager which just did their move out inspection in the properties in great shape. So this is going to be a fairly inexpensive turn, it's like 400 bucks or something like that just to do kind of a deep cleaning. But in my experience, turn costs have ranged anywhere from 400 to like 10,000 bucks if there's a lot of deferred maintenance. And where you see those big deferred maintenance is oftentimes if you have a tenant that's been living in the property for a super long time, then stuff builds up over time. Sneaky stuff sneaks up like fences and any kind of like loose decks and stuff like that is the one that always surprised me that I'm like, dang, that's expensive. So in budgeting, kind of depending on the condition of the home, my kind of down the middle of the line, say we're talking about a 1700 square foot three bedroom, two bath, I typically budget around 2000 bucks or something like that for the turn if it's occupied. And it's, you know, been so for 12 months. Michael: Wow. $2,000 you budget for the return? I mean, for the for the turn, Tom: I'd say anywhere between 1000 and 2000 bucks. I mean, I don't know you don't necessarily and be overly cautious, but then optimistic. Emil: So how, at this point, how are you even making any money on these with all those assumptions? I'm kidding, we don't have to get into that. But I think the only other one we're missing is utilities. So if you're buying a single family home, most of the time, water and electric are going to be even lawn service, all that stuff is going to be covered by the tenant. So you don't have a ton of utilities to pay for. If you're buying multifamily. A lot of times you as the owner, you're on the hook for water heat, sometimes depending on where you're buying a couple other different things. So I've noticed with multifamily, you have to account for a lot more utility versus single family, the tenant is covering a lot of those. Michael: And also depending on how the property is metered, you may not be able to push utilities onto the tenant for multifamily and a lot of multifamily also have what's called a house meter, which is a common area usually just electric meter. That's good for common area lights, exterior lights, that kind of thing. So you'll as the owner will likely be responsible for that. Let's say again, just check how the property is metered. And that'll give you some indication of whether or not you as the owner are going to be paying utilities whether or not you're going to submeter it or check some of that expense back to the tenants in the form of a utility bill back or just included on the rent. Again, check how it's metered. Emil: Yep. So okay, so I think those are all the different line items It was interesting to do because you guys have a couple more line items than I do so that may be some homework for me to start being a little more conservative. I thought I was being conservative here I am looking at you guys like dang Tom: Looking back at my bottle I I estimate typically like 1000 bucks not 2000 bucks in that like catbacks turn costs but a lot of that is dependent on what I'm seeing like within the inspection if it's like in pretty good shape your point to Tom How do you ever cash flow on your on your property with that turning cost is is right and so yes, a little bit less overzealous with my Yeah, not 2000 roughly you know 750 to 1000 bucks is is more where I target that turn costs the once a tenant moves out. So within that cash flow assumptions, Michael: And is that inclusive of like cap x reserves to for HVAC roof? Or is that a separate line item? Tom Two separate line items. So one of them would be for R&M for costs that I'm incurring? Well, the tenant is in the property. So roughly 75 bucks a month, maybe 100 bucks a month, and hopefully a lot of the months that doesn't happen, and you don't do that, but then a separate line item for reserve for capital expenditures. Michael: And so is your turn reserve considered cap x? Tom: Yes, that is that. Am I thinking about this the same way that you are? What? Go ahead, Michael. Michael: Yeah, I mean, I just have a separate, I break it out, separate I call it, you know, turn reserve versus capex. My turn reserve I expect to spend every year or every tenant turn versus the cap x is more, I think 10. Instead of that a little going into this bucket, that's going to be a piggy bank to draw on when I need to replace the roof replace the fat. But at the end of the day, I mean, the money is going into the account anyhow. So I just mentally earmark it for certain purposes. Tom: I like it. So just to paraphrase the three buckets that you have within these type of costs is R&M tenant occupied, right. Yeah. And then one would be turned costs just bread and butter, cleaning paint. And then the third one would be more specific for like, roof or like, you know, major property system? Ah, back. Yeah, Michael: Big ticket systems.Yeah, exactly. Tom: I like it. Nice. Nice. Emil: You got a lot of very detailed Michael, I like it. Michael: I'm a reformed engineer. I don't have a choice. Emil: All right. So we've gone over, like, what's the formula world of things we consider, we've kind of like sprinkled in some of our assumptions, but maybe we should just go through each line item and give what we think maybe are some good assumptions for people. Would that be helpful? Michael: Totally. Let's do it. Emil: Okay. All right. So mortgage, I don't think we need to get into how you can go online, use a mortgage calculator, figure out your mortgage payment. That one's pretty, pretty simple. Insurance. Michael, I really liked your, your kind of formula, I use something pretty close. Can you describe that again? Michael: Yeah, so I like to use and this holds fairly true for properties. 150,000 purchase price or less. So I like using point eight to 1.2% of the purchase price. So let's just take an example a property's 100,000. on the low end, we're talking $800 a year on the high end, probably around 1200. And what's going to make the difference on that sliding scale is one, how conservative how much insurance? Are you looking to get? What type of policies that are replacement cost versus actual cash value? Is it really a comprehensive policy? Or is it named peril? So I am a very conservative person, I come from the insurance industry, I grew up in the insurance industry, so I get a more expensive policy than is available for that same hundred thousand dollar property, you know, my guess is you could go get insurance for 400 500 bucks annually, it is available is out there. But it's probably not going to be the type of coverage that I'm comfortable with. And so to help me sleep at night, I'm going to up the coverages, I'm going to add some additional layers to it probably get some additional liability coverage. And so the additional coverages just have additional cost. So for the extra $300 a year, or $600, or whatever it is, that's often worth it to me. So I've just over the years and purchasing properties and helping other people purchase properties, that point eight to 1.2% of the purchase price tends to be fairly reasonable. And I'm confident that getting that type of coverage, you shouldn't be paying much more than that, that's going to be on the high end, being very conservative. So if that ends up being your biggest expense on the property, you know, of course, we might want to go back and take a second look at things and say, oh, maybe we were too conservative. But I find that typically the $300 that we might be too overly conservative isn't going to push something from a no go into a go category. There are typically going to be other expenses that are significantly larger as a percentage of the income that we want to take a second look at and see if we can't refine those a little bit more. So that was a super long winded rant. Hope that answers the question Emil. Emil: No, that was good. That was great. Okay, so that…

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The Most Important Aspects of An Inspection Contingency w/Jim Barker Nov 07, 2020

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In this episode we get Roofstock and Streetlane's VP of Construction, Jim Barker's take on what investors should keep an eye out for on inspection reports, and what to consider that might not be on it.

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Transcript

Tom:

Greetings, and welcome to The Remote Real Estate Investor. In today's weekend wisdom, we have Jim Barker. Jim is a seasoned professional in the single family space. He is the VP of construction at Streetlane and Roofstock and has seen thousands the homes. And the question we asked for him today is what are some key parts of the inspection contingency that he looks at?

Theme Song

Jim:

Yeah, I know it's a it's a great question. And we're buying houses every week for institutional clients and bought thousands of houses for various owners over the last few years. And these are always things that come up is when you get an inspection report back -- what to worry about and what is fixable. Because there's things that you want to avoid that that are or maybe you know, functional obsolescence or something that is really foundational to the home that that is going to be a long term problem. And that those are the things that I really look for when I am going through an inspection report. And then there's things that are just either aesthetics or basic functional that they have a dollar amount next to them for a repair, replace, but as long as you understand that, it's still a good asset, and those things are easily fixed.

So that's kind of how I divide up the inspection reports. When I go through them, I really look for any sort of long term functional issues like structural cracks, I really try to avoid poor drainage, and that may cause water damage. And another thing with basements that we see quite a bit of is, you get a 50 year flood, or 100 year flood, which I use that term, but how come it always seems like this, these flood events happen so much more often than 50 or 100 years. And if you're a property owner, it always seems to happen while you own it. So I'm very leery about drainage, especially in homes with basements and want to make sure that it's not sitting on a downhill slope or that the gutters are properly diverting water away. But you know, other things like does the home have insulation in the attic? Or that that's something that you don’t really think about, but it really impacts the livability of that home.

And the things that everybody always wants to look at, or like old HVAC the water heater, and it's good. But those are simple fixes. I mean, it's $1 amount, but once you swap it out for new equipment, you don't worry about it again for the lifespan of that equipment. So I guess that's it really for me is I want to focus on things that are not easily fixed and structural water damage, strange layout of rooms and things that may not show up on the inspection report the neighborhood issues, right? That's a as somebody who's doing their due diligence, not just to look at the asset, but really look at, you know, the immediate surrounding neighborhood.

Emil:

I like that. I like that you frame that. An old age back and all the water heater, they're really not big deals because a first time investor, they'll see that. And I think like the warning signs go off. And you're right. It's just it's $1 amount. It's not that complicated. Someone can change it out in a day. Like it's not a long term issue. It's just going to cost them money to fix.

Jim:

Yeah, no, it's the things that where you really have to rip into the structure or that I don't like to deal with it. If I'm not an experienced construction professional or have a contractor that I really trust, it's just tough to. You'll even fix some of those issues, and you're never quite sure if you really got them or like you said on the water heater, once you change it out, it's done. I would say it probably should touch on it though. Something that we've seen pretty regularly in the portfolios that we manage to is older plumbing systems seems to be one that's coming up regularly. And there's a lot of homes that are popular for SFR investors, but they're built maybe 40 or 50 years ago and that there's a series of items in homes that are really what I'll call like lifetime replacements and things like a driveway the supply plumbing so you really have copper plumbing from so a lot of these older houses, and then the drain line plumbing sewer lateral to the house.

And these things last 50 years. I mean, they're things that you don't ever think about replacing and a lot of times don't show up on an inspection report because they're your underground or within walls. But it's a good question to ask the inspector especially if you can have them focus on a few things is to give their evaluation of what are the materials that are they're used for supply plumbing, the waist plumbing, and give some evaluation of the driveway and other any of the other lifetime type replacement items as we see it right after 50 years. They do give out there are things that you may need to address and they tend to be a little bit more pricey when you have to take care of those things. They're not showstoppers, but you should definitely know about them. When getting your home inspected

Tom:

Thanks, Jim and thank you to all of our listeners. If you enjoy the episode enjoyed the podcast, please subscribe and give us a rating and have a great day. Happy investing

Market Deep Dive: Atlanta Georgia with Dan Nelson Nov 04, 2020

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Tom and Michael chat with Dan Nelson from Excalibur Homes about the specifics of the Atlanta Market. --- Transcript Tom: Greetings, and welcome to The Remote Real Estate Investor. On today's episode, we're going to be deep diving in the Atlanta market. And we're here today with Dan Nelson. And I'm also here with Michael: Michael Albaum. Tom: All right, let's do it. Tom: Before we jump into the interview, let's touch on some of the quantitative aspects of the Atlanta market. So this information is coming from the Census Bureau, Macrotrends as well as John Burns. First, I'm going to talk about the population in Atlanta proper, just over 500,000 individuals in the greater MSA population, there is just under 6 million so 5,000,800 and we've seen a population growth of 2%. Over the last year, the median household in Atlanta that's $71,000. The existing home values year over year has increased by 5.5%. And the effective apartment rent has increased by 2.4%. The home value entry level according to John Burns is at $196,000. The existing median home price is $279,000, then median single family rent is $1,364. And the year over year rent growth of that single family has grown a whopping 5.6%. The single family gross yield is 7.8%. Jumping into a different category. Let's talk about the occupancy rate. So the occupancy rate in Atlanta is 91.3%. The number of unique units properties are artists 2,331,002. And of that the owner occupied mix up 59% of that or 1.367 million, renter occupied and makes up just over 750,760 9000 to be exact, and vacant right now is a little bit under 200,000. And that's at 8%. All right, let's jump into the interview. Excellent. So before we jump into the Atlanta specifics, Dan, I'd love to hear a little bit about yourself and the company that you work for and all that good stuff. Dan: Yeah, my name is Dan Nelson. I'm the VP of Sales with Excalibur homes. I'm a third generation realtor. My grandmother, Mary Nelson was just recently inducted into the DeKalb County Hall of Fame for realtors, which was exciting for the family. My dad, Mike Nelson, the founder of Excalibur started the company back in 1985, he had a primary focus towards property management versus sales looking for a little bit more stability for himself and our family. While he was at the same time simultaneously was in the National Guard, flying helicopters, my brothers and I all grew up within the company. So we started in, you know, Middle School in high school with learning turnkey, and construction and landscaping during the summers as well as once we were old enough to drive taking administrative positions within the company, learning everything from the ground up, essentially how to each department operate, understanding each job and also working each job for a couple years at a time. I took a brief stint down in Florida, working in the multifamily industry with some with a company out of Tampa called 908. Development, they did a low income tax credit company where they did a high rise in downtown St. Pete. So I handled the lease up and stabilization of that project that was in the 2009 to 2011 timeframe, I had my Florida real estate license down there. While I didn't need it for that job, particularly, I moved back to Atlanta in 2012, I had my Georgia real estate license here. And that was about the time 2011 2012 we started seeing institutional folks and through the Atlanta market, doing things we've never really seen before buying properties on a level that was kind of unheard of in the SFR space, you know, typically they were not really big players and this type of market until then. So when I came back, it said, Hey, Dad, you know, we're going to go buy a couple hundred houses at a time, you know, not five, not 10. So it's a very exciting time for us to go through and one learn how an institutional level underwriting works, how they're evaluating homes, you know, what they're going to consider capitalize expenses versus what a mom and pop investor might. And the level of buying was very interesting for us to learn how to navigate and compete with some of the larger funds out there at the courthouse steps, essentially, you know, we'd have teams go out on the Tuesday of the month when they were trying loans. And we'd go out there with a big stack of certified checks and hope that we would win as many bids as possible. As well as putting out you know, 50 to 100 offers a day on the MLS trying to capture as many opportunities as possible. So that, for me was probably the most valuable experience in the shortest amount of time for real estate related to acquiring investment properties for investors. And that experience has translated very well to assisting our mom and pop investors as well as Roofstock customers that are entering Atlanta's market to understand how big of an area we were in and each individual sub market that we're in and how different types of properties are going to perform over a certain period of time. And from there, I got promoted to Vice President of Sales. So now my job entails growing our team, you know, marketing and making sure that we're bringing in more customers assisting customers like yourself, acquiring as many properties and good opportunities, giving good counseling advice as to what type of investment strategy might be best for certain buyers, whether it's, I'm looking for a capital gains type play, or I'm looking for more of a retirement play, whatever it may be, depends on which investors and what stage of their life and what's most important to them. But we take that into consideration much like you guys do to building a customized buy box for certain buyers. Excalibur as a whole is kind of a full service company, whereas we manage about 2500 homes here in metro Atlanta are one of the larger companies in metro Atlanta, with a pretty large footprint. We're in 12 to 15 counties. We're located here in Alpharetta, Georgia, which is about 30 minutes north of Atlanta itself. And we've been here for 35 years. The property management is what it is we're obviously going to handle properties for owners make sure that we're addressing tenants leases moving in tenants address Seeing work orders to maintain properties etc on call maintenance. But at the same time, we have a sales division that's going to help people acquire and build portfolios or help them exit the market at a certain time. Tom: So, Dan, super interesting. Full disclosure, I'm an Excalibur customer, a happy Excalibur customer. But one thing I didn't know was that Excalibur had been in business since 1985. And and you given the background, I thought it was interesting, talking about how, you know, things changed in 2010 2012. All this institutional capital came in, how did all of that change the process, specifically around like evaluation, and then any other changes with management and what kind of changes that that look like? Dan: On the acquisition side, it definitely sped up our timeframe. So whereas traditionally, you would go out, take a client to a house, walk through it, you know, determine exactly what your plan is, prior to making an offer. We're now sending out sight unseen offers and making our best judgment on renovation budgets based on our experience and how much renovation we do, and we're doing, you know, millions of dollars in turnkeys, and large renovations, as well as new constructions, we have a very good pulse on what's happening in the construction side of the market, which is very beneficial to our clients. The timing of it is you've probably seen this before, when you're trying to acquire a home, there's a lot of people trying to acquire homes. So from last year to this year, in September last year, we had roughly 20,000 active listings This year, we're down about 48% in the month of September for 2020. So obviously, the demand keeps increasing supply has been going down, which makes it more competitive for us to get properties under contract. So our technique is putting out offers with our best judgment on what the property value in its current condition in estimating what a renovation is going to cost us on the front end, so that we can get that property under contract before they see 1520 other offers from other investors and owner occupants that are still competing in this price point. And then from there, we'll go out there and one of the main selling points on Excalibur is we're able to go out there and you know, one to two days with the construction team and say it's exactly $12,000, or it's exactly $5,000. So if we were off on our initial judgment, we know within a matter of days that we can renegotiate this deal, or we found something that gives us the opportunity to pull out because it's too significant for us to one be able to renegotiate with the seller or to it's beyond the comfort level of another investor and something they might be willing to spend for a renovation. So that's one of the main things is the speed of which the transactions are happening right now and the competitiveness of the market. So I think it's it's no secret that Atlanta has been a good opportunity for people nationwide and worldwide. So once institutional guys got here that created a level of competition we weren't ready for and we got used to. And now we're kind of changing with the times on a monthly basis instead of a yearly basis. Michael: Dan, kind of in that same vein is more of a strategy question. Are you the offers that you're writing? Are you giving them an expiration date of 24 hours or 48 hours that the seller is forced to give you a response? Because in some markets, like especially in California, it's so hot, it's so competitive, you want to give the seller a deadline so that they're not looking at other offers, but also want to be flexible enough so that they consider your offer, as opposed to they know they're getting 10-12-15 other offers? How do you play that? Dan: The short answer is yes, in most cases, we're going to give them an expiration of 24 hours from the time of delivery. The long answer is it's a case by case scenario. So if we can get a listing agent on the phone relatively early on in our underwriting process, when we say hey, these numbers look pretty good. I want to call and make sure this property is available before my team spends half an hour putting together a contract package or rootstocks team putting together a contract package for your customer. If we can get them on the phone and find out and kind of take their pulse of where they're at. Are they expecting offers? Or are we the first one, we can kind of change our strategy based on feedback, that listing agent somewhat forthcoming with in a lot of instances, but I would say over 50% of time, you don't get somebody on the phone, you say I'm not missing this deal. I'm making the offer, I'll just put an expiration on there. Michael: Sure. I think that goes to hammer the point that we harp on so often that this is such a relationship centric business, you know, you can get that person on the phone and you're agreeable, and they're agreeable. There's a lot of stuff you can glean from that conversation that know is a lot of like shedding light on the situation, you know, that you had no idea about going into? Dan: Yeah, and it's also a good opportunity for us to explain who we are, if they're not familiar with Roofstock or Excalibur. Give them a little brief history of our processes. You know, there's a lot of investment companies that will throw offers out there. Their technique is every time I'm going to go ask for a significant discount after the inspection. We try to make sure our reputation is such where we make an offer and if we do have to cancel the agreement because of the findings in the inspection, we're typically not tying them up for the entire length due diligence period. So that one, while it may not have worked out, they're not going to, you know, brush our offer to the side the next time or two, we make a competitive offer. And we go and find out the findings are in line with what we thought and there may be a minimal reduction, but it's something that both parties can live with. And, you know, the seller achieves their goals as well as the buyer finding an opportunity and a competitive market, Tom: Relationships, relationships man. Michael: Yeah, relationships and also reputation. I mean, that is definitely going to proceed, folks, I think much more so than they realize, especially if they're repeat customers in the same market. I know that if someone sees the same players pulling the same tricks over and over again, there's no way that anyone's going to want to do business with them. And that kind of stuff gets around right? You hear about those kind of folks pretty quick. Dan: Absolutely. Tom: Let's go ahead and jump into Atlanta, a lot of good stuff to cover. And the way they want to start this discussion is talking about different pockets in Atlanta. So as much as we can use kind of landmarks, either, you know, cities or freeways, how would you typically talk to an investor, you know, in thinking about the different pockets of the different types of returns that you're going to get? Dan: We kind of look at Atlanta, more like a clock. So you've got major interstates and highways running through Atlanta going south to north, we're looking up the 75 corridor, more pointing towards the nine or 10 o'clock, our beef got Cobb County running up that way. On the east side, you've got Paulding and Douglas County's directly north is Forsyth and we can kind of just start, I guess we'll just work our way around from swell nine o'clock. So directly north of Atlanta, you've got Roswell, Alpharetta, coming and Dawsonville. Those are traditionally higher priced markets with very high rated schools. So the opportunities there are are going to be less common. Most of the time, when we do find opportunities up that corridor, they're going to be in Cumming, Georgia and Forsyth County, which is an excellent place to invest. But over the last six months, I may have bought five houses, you know, which is a small number compared to what we're typically doing on an annual basis because the inventory is lower, and the pricing is a lot higher. Tom: And when talking about higher pricing, we're talking 200,000 Plus, right? Dan: Yes, so the medium median price up there is probably going to be the 250 and higher. So you're not going to have a lot of homes that are going to meet the rental house metrics where the rents don't quite keep up with that purchase price. Now, if we could buy there all day, we would focus there as much as possible because of how we expect that area to grow and, and how the schools are performing. So North metro Atlanta as a whole, when you're talking about Cobb, Cherokee, Forsyth, and Gwinnett, and Holme counties, those are all very, very good opportunities for you to buy in as a whole. Obviously, there's going to be schools that range from lower caliber to much higher calibers, but as a whole, they're going to have better quality schools, you're going to have better appreciation rates, but you're also going to see that is intertwined with higher property values. So with that being kept in mind Gwinnett County and Cobb County have been two very good sources of rental properties for us to buy with blending a higher HPA value, the home price appreciation value with a good cash flow value. So our philosophy is…

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Michael Zuber on When to Buy Turnkey vs When to Use The BRRRR Strategy Oct 31, 2020

Show notes

In this week's nugget of weekend wisdom, Michael Zuber weighs in on when to employ different acquisition strategies.

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Transcript

Emil:

Hey everyone welcome back for another episode of The Remote Real Estate Investor. This is one of our weekend wisdom episode. So hope this catches you on an amazing weekend. So in this week's episode is somebody you guys are probably familiar with. If you've been following the show for a while, we have Michael Zuber back on who is the author of one of my favorite real estate investing books called one rental at a time, he also has a YouTube channel by the same name, definitely recommend checking out both of those. If you want to check out if you missed Michael's previous episodes, he was on episode 11 and 37. So go check those out. He's a regular on the show, and we wanted to bring him on for a quick weekend wisdom. So hope you guys enjoy this one.

Theme song:

Emil:

You mentioned doing BRRRR during 2010. Really before it was even BRRRR. I know you've also mentioned you know, if you're a busy professional, like you don't want to tie up a bunch of capital like buying a turnkey can be smarter because you're not having to keep putting a ton of money in. I'm curious if you have, Are there times in the market cycle that you prefer one or the other? Or how do you decide right now I'm going to be I'm going to follow the birth strategy versus right now I think I'm just going to use less capital go turnkey.

Michael Zuber:

So for me personally, or are we talking about your audience? Because we're really different people, right? Your audience is busy professionals. That's probably what you're asking about.

Emil:

Yeah, but I'm curious. Just even from your story, right, you were a busy professional. And at some point, you kind of made the transition. So maybe it was just being comfortable…

Michael Zuber:

When you think about, so buy and hold rental properties is one rental at a time, right, you can get at one rental at a time, basically two different ways. One way is you can buy turnkey properties, which I consider clean, zero make ready, right? Means you buy it, you either have a tenant or you you stick a tenant in no additional dollars out of pocket, just so we can clean up the understanding. I believe in the beginning, when you have yet to build a team when you have yet to really understand the network and all the nuances in any market the right thing to do the least risky thing to do, the fastest thing to do is to do what today is called a turnkey property.

That said, as you gain experience, as you gain units, you as an more experienced investor will have the option to make choices, there will be market cycles, I've been doing this 20 years, and there's been two or three portions of this cycle where bur is just more profitable. The best example was 2010 to 2014 in that market, because it was generally bouncing off the bottom, you still could get yesterday's prices and tomorrow's values. So if you bought a dump, you got yesterday's prices, but once you polish it up, you can get tomorrow's value because there wasn't a great supply of them. That was such a special time. BRRRR was a huge benefit for me because I recycled 95% of my capital or more every time so I could just keep on buying as fast as I found deals in my pile of money never left and it never had to grow. So that was a pretty special time.

Lots of people, Brandon Turner included were very successful in that time. And he's built a great career off of it David green as well I believe but most markets are not 2010 to 2014 where you really couldn't do anything wrong. Right? In between 2010 and 2014. If your project was too much longer than it should have been you won if your project cost you an extra 10 grand you won I mean it was it was a special time and for people to not nuance The difference is just not fair. That was so special. It may never be that easy. Again, that said you can always find what I now call slumlord properties today you have to find really slumlord properties but they're out there right? These are ones that can't be financed, no bank would loan on them you have to pay cash very few buyers have appetites for properties that smell and have bugs and just are disgusting but if you can negotiate a fair price you can go in get it because it doesn't really cost that much more to fix a disgusting versus a semi disgusting because it's still paint still new floor still new kitchen still new bath, still some floor it's all the same stuff.

So you can still go in you just got to buy them right I would tell you in a market that is so hot for owner occupant that doing bird today is a lot harder than 2010 to 14. Not impossible. I'm going to suspect the market will get better for Burr in the future when it's more even keeled today, at least in the markets. I'm in owners are dominated the market 90% of the offers are coming from owners only 10% from investors. I have never seen it that way. It is so hard to be an investor today because there's no inventory and everything that clean is getting bid up by FHA buyers, which put less down and have lower interest rates. So I can't compete. I put in 100 offers or so this year and haven't gotten any of them.

Emil:

Yeah, that's kind of what I was getting to that answers it perfectly. It's it's kind of like a blend of experience having the right team knowing how much all those things are actually going to cost you which only comes with experience and then partly timing.

Michael Zuber:

Yeah, the one thing I would really close with is I would never tell someone to make BRRRR their first investment Too risky, too many ups and downs. It's just too hard. You don't even know if you want to be a landlord yet. And now you're going to take on working with general contractors without knowing the team, the risk profile of your first rental property being a BRRRR project. Not great.

Emil:

Yep.

Michael Zuber:

Your chances of success are not great,

Emil:

Especially as a remote investor, which is our audience.

Michael:

Yeah, not great. Time man, time. The thing that people don't realize is a busy tech professional. It's usually not money. That's our constraint. It's time, time, right? We time use it more efficiently. I tell people you can learn your market 20 minutes a day, people fight me on now like frickin ages. Do it stop going 1000 directions in 1000 different things. Just focus, tighten up your focus. Look at it 20 minutes a day and move on. Right? You've got life you got to raise a family. You got all this 60, now you're working at home you're working 24 seven. And you know, use Roofstock Learn to market pick, look, get after it and just move on.

Emil:

Love it.

Awesome. Hope you guys enjoyed that episode. And thanks again to Michael Zuber for coming on. We'll have him on on a future episode as well. Alright guys, enjoy your weekend. Happy investing.

Halloween Special: Real Estate Horror Stories w/Chad Carson, Gary Beasley, Michael Zuber, Jim Barker & Tom Schneider Oct 28, 2020

Show notes

This week, we bring you something different with a collection scary real estate stories from some friends of the show. Join Chad Carson, Gary Beasley, Jim Barker, Tom Schneider & Michael Zuber for some creepy stories for the Halloween season. --- Transcript Emil: Hey everyone. Welcome back to The Remote real estate investor podcast. On today's episode, we have something really special for you guys. In the theme of Halloween, we wanted to go out and collect a bunch of horror stories very, very spooky real estate investing stories. And so we asked a couple friends of the podcast to share some stories they've had along the way. Some of them funny, some of them a little scary, some of them real spooky. So we have a total of five people speaking given their stories today, and that includes author and coach, Chad Carson, Roofstock CEO, Gary Beasley, Jim Barker, who is the VP of construction at Roofstock, our very own Tom Schneider, you guys know from this show, and author and good friend of the show, Michael Zuber. So without further ado, let's hop into their stories. Emil: So first up, we have author Chad Carson. So let's hear from Chad. Chad Carson: It was actually an investor friend who tried to get me to take over his property and manage it for him. And we went and looked at it. It's like, Yeah, I got this tenant who's not really paying that well. And that's okay. Yeah, we'll see how that goes. And it was a big is a brick house with a huge basement. And I said, Well, I'm gonna have to go visit the house. I'm not gonna take it over before looking at it. And so we walked to the house, we were walked inside, and we could just tell the tenant was really not at ease. Like he was just kind of nervous about something and kind of watching us too closely. And I noticed he got really uneasy when I started going towards the door to the basement. And I said, Oh, okay, I guess I better go the basement, open the top of the door, the basement. And all I heard was thousands sounded like of wheels going squeak, squeak, squeak, squeak, squeak, squeak, squeak, like lots and lots of little wheels and little sound like little feet, you know, little rodent feet running on these wheels. And so I kind of went to flick on the light and I looked at the bottom of the stairs, and there's like two red eyes, kind of looking up at me in the dark, and I flipped the lights on. And there are, there's there's one whole room in this basement with just tons of tons of rat cages or mice cages too. But that was only one part of this basement operation this guy had going on, there was all the reptiles and the other part of the basement that were the they're eating all of the rodents that he was raising, so he had big huge snakes. He had turtles and these big bats. He had I don't think I saw any alligators, but it's turtles and iguanas. And so it's like an exotic pet operation going on this guy's basement. This is one particular horror story. I was glad it wasn't my property and I told the guy as we walked out I said I'm not managing this property until you get rid of this tenant. The final part of the story I'll try to make fast is that he did get the tenant notice the tenant had to leave it was like 60-90 days later when he finally got it out and we went back to the house with the same friend and we're like we walk in the front door the same front door it looks it looks empty oh okay and not so bad and we're walking down the hallway the same hallway that had the basement door and all of a sudden this massive like big you know kind of dark brown mouse rat thing like comes charging down the hallway right so we both for the living room and take off is this mouse like was not scared of us at all like runs around the corner right when that happened I was right before he said Ah not so bad. There's this looks not so bad is this mouse comes charging down and after the mouse comes charging down we're getting ready to leave because I'm like let's just get out of this place. And I look over at my friend he's got this big huge roach crawling out of his shirt that must have dropped down from the ceiling somewhere. So long story short you know that if you get a bad tenant and that's the moral of this story was he didn't screen his tenet he didn't inspect it he didn't pay attention to what's going on and things can get out of control if you're not paying attention so that's that's the lesson there. Michael: Holy Smokes. I thought you're gonna say yeah, you decided to take it over and have him cut you in on the business and get 10% commission for all the animals and sales. Chad Carson: Oh man. I didn't touch that property I was I helped them advise them I you know from a distance so I didn't get any more roaches or or my shoes. Emil: Right Next up, we have Gary Beasley so roofstock co as many of you know, he has a really spooky story to share with you guys. So let's hear from Gary. Gary Beasley: When I was in the hotel business, this would have been back around 1997. I was in the midst of acquiring a very old hotel in Claremont Berkeley hills called the Claremont Resort and Spa. So this is right on the border of Berkeley in Oakland. It sits on top of the Hayward Fault. The really creepy thing we found out right before closing The general manager of the hotel came over the grab behind the diligence room took me in his office and said, Gary, I got to share something with you. Like, okay, what is this is the building have termites or something, he says, he hands me this file doesn't say anything. I opened it up. And it's a thick file full of handwritten notes. These were from guests, and from people who worked at hotel, and was all very, very similar. And it all happened on the fourth floor of the Claremont hotel. So the guy's name was Henry Feldman, I could remember it like it was yesterday. And he looked at me and he really wanted to watch my reaction as I opened through and started reading some of these notes. But there were dozens and dozens of accounts of people seeing a woman in a long white flowing dress, and either hearing or seeing one or two small children. And sometimes they would look out their window and see them in the Rose Garden. And like her tending to the roses, and sometimes she'd be kind of floating the hallways and like Oh, come on is this I'm looking around for a camera. He's like, no, read more there. This is no joke. And a lot of these are pretty recent. And then a number of things would happen in the rooms. One, sometimes the lights would go on and off unexplainably. tv would go on in the middle of the night, really blaring loud. Water would be on in the bathroom when they clearly had not been in the bathroom. drawers won't open in the dressers. And then one that was pretty freaky was a lot of people complained that they tried is when they tried to exit their hotel room, the door handle was hot, it was really hot, and it wouldn't, then they couldn't turn it. And so like this is really odd. And also, the other thing that was very common was people being awakened by someone thumping on their chest when they're sleeping, like bam. And no one's in the room. It's like what is going on. And in fact, I heard this from when I was getting my haircut one day there. But the guy who used to cut my hair was telling the story that it just happened at someone who's the hotel, this was a few years ago, and she like, moved to a different floor or whatever. So I'm trying to say I asked him what's the commonality of all this stuff? Because you know, I have no idea. But none of these people know anything about any of the other stories. Oh, there's one more and then I'll tell you the kind of the genesis of it. And what puts the theory. There's an NBA team that used to stay there when the warriors have people in the LA Times will stay there. There was an A famous NBA player. I think you can even find this online somewhere, who was there and he was complaining about the noise in the next room, the little kids playing. And he called downstairs and they said Sir, there's no one in the room next to you. It's vacant. It's not been booked. He's like, no, there is you could come up here right now. And so they come up open the door. Sure enough room, no one in the room, totally vacant, nothing touched. He freaks out. And I think he actually checked out of the hotel. I don't think he went to a different floor. So all this crazy, crazy stuff, right? And so I said, well, Henry, you know, what do you think that the genesis of it was? He goes well, there was a woman who lived here with her small children. Before it was a hotel, on the property. It was just a house. And she and her children died in a fire on the property Michael: That's wild. Tom: It's like all the different mediums to it's like the electrical, the water the… Gary Beasley: Exactly, exactly. So he said, I'm not telling you, you know not to buy the hotel. I don't know if any of its true. But I was told by my lawyers, you know, this is the kind of thing we have to let everybody know about. And he said, we've never had anybody hurt or anything like that. So if there is anything there, it's not a malevolent thing. But he said I started very much a skeptic, but with all of these things happening that are so similar, because I don't know. Michael: Wow, how many how many stories is that hotel here? Gary Beasley: It's the top floor, the fourth floor. Michael: The fourth floor? Okay. Gary Beasley: Yeah. And then there's a tower as well, that goes up. There's a bell tower. So there's one room that actually connects to the bell tower where there's been a bunch of stuff. It's kind of centers around that whole part of the hotel Michael: That is so wild. Tom: If you haven't seen the hotel, just google Claremont hotel, and you'll immediately go Yeah, that's probably haunted. Gary Beasley: Yeah, it’s probably the largest wood frame structure this side of the Mississippi. So another bit of trivia with this hotel, so it was owned by this great guy named Harold Schnitzer. For probably 50 years before we bought it from him back in the late 90s. And he was one of only I think three owners and the hotel was built after the 1906 earthquake. But the land for that hotel, reportedly was one in a checkers game. Back in the around the turn of the century. So there's a lot of really, really interesting colorful history around the hotel. Pierre: So you guys still ended up buying it? Gary Beasley: We did end up buying it. Michael: Wow. Pierre: Have you received reports of this kind of stuff happening since you've bought it? Gary Beasley: So you know, it never has been something that's been that widely reported or talked about obviously, this kind of stuff is still happening because I heard it from my the guy who was cutting my hair there probably five years ago, because I used to go there just to kind of stay connected and and all the people who work there like oh, yeah, it's just like common knowledge that this stuff happens. But But yeah, so I think if there's if there you know, there's something if there was something going on before we bought it, it's still going on. Michael: Wow, you just in about four and a half minutes convinced me to never stay at the Claremont Tom: Just avoid the fourth floor. Gary Beasley: Some people pay a premium and ask to stay on the fourth floor. Like I said, No one's ever been hurt. I mean, you might be a little spooked. Michael: Yeah, yeah. Gary Beasley: But this way if the TV comes on or whatever, you know what to do. It's just nothing to worry about. Just go probably turn it off. Make sure the waters not running in the bathroom. Calmly Go back to sleep calmly Go back to sleep. Pierre: Put a pillow on your chest. Gary Beasley: Yeah, no. So the whole theory is she's trying to wake up or kids or wake up whoever's there and get out of here. Yeah. Happy Halloween boys. Emil: Okay, next up, we have our very own Jim Barker. Jim's got another pretty spooky story for you guys. So let's hear from Jim. Jim Barker: There's a lot of weird stories out there and I thought seeing a giant pipe organ built into a home was really up there, that was in Long Beach California but, but this one was a trip out to Indianapolis and we had a group of houses there for the firm that I was working with that that were really in need of a lot of renovation they had purchased these sort of sight unseen really low purchase prices knowing that they needed some rehab but didn't know exactly how much they needed and and when we got into this house, I think my first experience was walking into the home it didn't have the utilities on the walls were sweating. And being a Southern California native and and at the time kind of living in Florida and going out throughout the southeast. I didn't really think about it but that was like oh, it's got a basement and I kind of went to go walk in the basement I think I was using my my cell phone flashlight and it almost stepped into like a about five feet of water their water is just full of water in this basement. So kind of quickly realized we needed to get a waterproofing company out there and they did a good job they they pumped the water out of the basement and identified Yeah, we had this long term issue there with this house and created a plan for us to waterproof the basement with some excavation around the outside and some sump pumps and rock Okay, this is a it's already a scary rehab house but it wasn't truly scary at this point, just a little odd, but when they got the basement dry and then the next step was sort of remediate all the water damage in the basement. And they said okay, well take us a couple days and then you can come take a look at it really scope out this house after we're done. So in the process, they they stripped this entire basement of the drywall that was around the basement walls, and let it dry out had some fans in there. And then and that's really when when I got the call from this vendor saying Hey, you got to come back. This is something weird going on at this house. And yeah, I'd seen a lot of things probably you know, a couple thousand SFR houses that had been at this point and nothing really fazed me whether it was a hoarder house or or anything else that you might run into but when I got back to this house, he's like yeah, I just you know, it's so strange you just got to go in and experience it for yourself and so this house was odd enough already man had been stripped of drywall and didn't have cabinets or anything in the kitchen. So it just kind of looked like this old creepy space. And as you went down in the basement, it was just kind of like a split level. So as you walk down the stairs and kind of went down there like what what does he guide me into I really didn't know and like, get to the bottom and you see this like, weird, creepy. Two foot by two foot hole that's been cut in this cinderblock wall of this basement. Like, what is that and go in there and like, what were they tunneling outside of this basement for I have no idea and stick your head in the little hole and you're like this doesn't even seem safe. But sure enough, they tunneled out and kind of created this maybe six foot by four foot little room that couldn't have been more than in two or two and a half feet tall, underground, and it had nothing in it, but a foam rubber mattress and some old like 1970s floral cushions from couch c…

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Our Top Tips for Finding & Vetting A Good Lawyer Oct 26, 2020

Show notes

In this episode, we wrap up our series of finding an vetting solid vendors with the lawyer. Join Emil, Tom and Michael to learn their strategy of finding a good lawyer. --- Transcript Emil: Hey everyone, welcome back for another episode of The Remote Real Estate Investor. My name is Emil Shour, and I'm joined by, Tom: Tom Schneider, Michael: and Michael Albaum. Emil: And today we are going to be continuing our series on tips for finding and vetting different members of your real estate investing team. Today we will be covering the lawyer. Let's hop into it. Michael: Tom, what is in your hand? Tom: What?! What are you talking about? Michael: Looks like you have a tail. Emil: What is going on? Michael: Is that a crop for like a horse? Tom: It's this thing called an Orange Whip. It's it's actually pretty fun. Emil: I hope you don't use it on your child. Tom: No, no, no, it's a golf tool that I just kind of hold at my desk, and it has tons of wiggle waggle. Michael: Mm hmm. Tom: So when you swing, I'm kind of a gimmick guy like a golf gimmick guy so like is that they buy something you know, like a straight jacket that helps you whatever your swing, I'll buy it. I got this thing recently called. And I'm very pro Orange Whip it. So when you swing back, this orange ball that's has like a ton of wiggle waggle. It makes really good tempo and improves your swing. So you're not coming over the top, you got a nice inside out swing. I'm funny with golf. I don't play like that often. But when I do, like, I just like, you know, go all out. And so like 10 months of the year, don't really play it. But then two months, like, oh, man, I need this gimmick. I think I figured out and yes, Michael: I was gonna say I've known you for a couple years and not once have I ever heard you mentioned golf. Tom: I mean, we must have not talked during that little month sequence that I was really into it. But as a shout out there, Orange Whip. This isn't a paid promotion. But I think if you're in a golf and you want to have good tempo, and strengthen, get an Orange Whip, I'm pro Orange Whip. So that's what's behind me. Emil: You're gonna love this. So my brother in law started this little it's another gimmick. It's called putt cup. Tom: I’m in, Ooh. Emil: So a mug that has a flat brim so you can lay it on the ground and just practice your putts. You know if you'll put mugs on the ground, but it has this flat side to it. So you get a nice roll in there. Tom: That's beautiful. At first I was thinking oh, there's a hole in the cup. So when you putt it goes in, but that doesn’t make sense. Michael: Wouldn't be a cup anymore would it? It’d be more of a funnel. Tom: Where does he sell it on? Emil: Amazon. You just go look up putt cup. Tom: I'm in. Emil: Another gimmick for you. Michael: Also not a paid promotion. Tom: Yeah, another amazon.com! Emil: Have you heard of it? Tom: Have you heard of it? Michael: It's a little book company. Emil: Small boutique retailer. Tom: Related to Amazon is this thing called fake spot. So an Amazon companies could like spam a bunch of high ratings when they have their product. But there's this thing called fake spot that you I think I posted on that Academy Slack channel that will analyze if the ratings are fake, and it gives a true ratings by looking at and getting rid of the bots. It gives you an honest take. So Orange Whip, fakespot, and Amazon. Those are my three recommendations for today. Emil: Okay, guys, well, we could be talking about golf and Amazon all day. But people are here for our real estate knowledge, or lack thereof. So let's talk about how you find and vet, a lawyer. We’ll break it down into three parts. So when in the process of your real estate investing journey or buying a property, should you look for this person? How do you source? So how do you go out and find a lawyer? And what are the best questions to ask to make sure they're legit, and can help you and be a valuable member of your team? So let's start with when in the process. Should you find the lawyer? Do you guys have went Have you guys done this in the past? Tom: All right, so I'll jump in first. If you are investing passively, you're holding properties in your own name, you know, it's not necessary that you buy them in an LLC, I would argue that within your checklist to get going as a remote real estate investor, getting an attorney in place is not high on that list. And that you don't have to do it before you start evaluating. You don't have to do it before you start buying. If you are looking to own these properties into a more complicated structure, with either LLC is sure you're going to want to have an attorney either to help you, you know, set up your LLC or using like a Legal Zoom or one of those type platforms. But if you are like myself, and perhaps you own a couple of properties, not in an LLC, you have it in your own name. It's not necessary to have get a lawyer upfront, or even after you own. You know, it really depends on what you're doing and what your threshold for risk as it relates to having things in your own name. You know, as far as timing, I would say it depends and it's not necessary to do upfront. Michael: So I'm going to take the counterpoint to a slight degree. I think it depends on what your risk tolerance looks like and what your starting assets look Like, if you don't have a whole lot to your name, it's probably less important to go chat with an attorney prior to. But if you do have a lot to your name, you could have a bigger target on your back. And so, I think just understanding what you're getting into the risks you're taking on, and what structure if any might be appropriate for you, those can all be really great questions to ask on the front end, prior to purchasing. And just as if you're looking to get involved with real estate as a whole, again, good questions, to be asking questions to go get answers to just so you're coming to the table with all the information or as much information as you can. And so having a consult with an attorney doesn't have to be yours. But one, a real estate attorney in general, can be really great, and how do I protect myself, but also understand that they are likely going to try to sell you something, all kinds of asset protection, and they often will use scare tactics. So take everything you hear with a grain of salt and go talk to other investors about what's actually happened in their world. Tom: Another thing to think about is, what are the different use cases that you're going to be using attorney with, so one of them would be on the front end, you're, you know, setting up a structure, maybe you're putting a fund together, maybe you're putting together a single member LLC, you know, that's a use case of using an attorney. And if you're not going through that, it's not necessarily that you find one other use cases that come in with an attorney is perhaps you buy a property, and there's an eviction with the tenant or some kind of issue like that, more likely than not, your property manager is going to have some legal, you know, representation, or kind of like a third party that they'll use to manage the process of eviction or three day notices and all that stuff. So it's not necessarily that you personally have an attorney to do this, your this is something that you're paying your property manager to do, they're gonna forward some of those costs to you, but they're going to get kind of better, better pricing, because they're like at scale, and probably have like, pre made templates for a lot of this kind of stuff. What other use cases would you be using an attorney with you guys think of? Michael: That's like, 85% of my experiences with it, I've used mine in an insurance issue, I had to bring in my attorney and just be like, Hey, I'm not getting the service and answers to the questions that I'm posing. And then also with a contractor that I had to fire, they were saying, they're asking for all kinds of stuff, and I ended up firing them and I copy my attorney, and you have to pay me and I said, That's not gonna work like that. And here's my attorney. And so if you'd like to say anything, you could say to both of us kind of a thing. And that solved that problem pretty quickly. Emil: And that was the end of that, Tom: On the front end, if you're buying with, you know, friends, or whatever creating a fun, so structuring that whole thing. I guess I'm repeating myself again, I did that before. But Michael: Yeah, I think I think structure is a huge part of it. And so making sure that you get that right on the front end is super, super important. And so I've used my attorney for that. So we were talking and it's so one word can change the meaning of an entire contract. So making sure that that's right and designed to protect everybody involved in it actually is designed to do what it's intended to do is really important. So I've used done that in the past and setting up multi member LLC partners have have her structure that and draft up those documents. Tom: On those documents, there are some good hybrid approaches, such as LegalZoom, and Rocket Lawyer where they have these templates that are pretty much ready to go. Be it tenant related templates, which you're not going to need if you're using a property manager, but setting up an LLC and that kind of stuff. It's a nice hybrid approach, which might be a little bit more cost effective than bringing on an attorney where you're paying $500 an hour or whatnot. Just because, you know, setting up an LLC is kind of a punch and play thing where this it's a well worn path where these hybrid approaches where you could buy these templates can be more cost effective. Michael: Yep, I would agree. Emil: I'll just, I'll speak quickly to my own personal experience, I wouldn't say this is the right or wrong way to do it. But just so our listeners kind of have an example of, you know, when in the process, one of us use it. So for me, I bought four properties in my name, no LLC, just directly in my name. And after my wife got married, had our daughter, we started really thinking about, you know, what are some of the legal implications of having all these properties in just my name, you know, we had a family member who went through probate, which again, if you want to learn more about that, Episode 41, like Michael talked about, and so I really wanted to avoid those things. Once family came into the picture, you start thinking a lot more about these things. And so that was the point for me, which was actually earlier this year, that I decided to enlist the help of a lawyer to help us create a trust so everything you know, in case, knock on wood, anything happens to me, it flows directly to my family without much hiccup or headache. So that was kind of just my my personal journey into when I picked up working with a lawyer and.. Michael: In episode. 40 We also talked about trust stuff. And we talked about in that episode about anyone who's investing in real estate should absolutely investigate whether or not a trust is a good fit for them. I think probably it's going to be, Emil: Especially if you have a family and again, you, you know a lot of these properties in your personal name. And there's all this like, legal stuff that can happen if you don't set it up properly. So good idea. Tom: It's interesting how much of real estate like strategy wise, it's like, next generation, you know, just like… Michael: Yeah, after you die. Tom: Totally. Yeah. But I mean, what a great gift that you can give to your family's future. I think talking about defer, defer, defer, and then you die, you know, with regards to 1031s and taxes. So anyways, short commentary, there Micheal: It’s the gift that keeps on giving, you know, real estate. Tom: Yeah. Emil: Anytime you talk about legal stuff, it's always just such a happy episode. Michael: It's always the doom and gloom and morbidity, right? Tom: What's consistent in life, death and taxes? Michael: Death and taxes. Tom: That's it. There we go. Next episode. Emil: All right. So let's, let's move on to how do you source How do you go out and find people to interview? So how have you guys in the past? You're looking for a lawyer? What did you do? Michael: I got super lucky, my older brother had a good friend who I'm also friends with. And one of his good friends from college was a lawyer. So I reached out to her and we've been good friends. And I've been a client of hers for a long time. So it's great that she's very young and but experienced, and so she's going to be around for a while, and looking to grow as well. So I don't have to work with someone for five years, have them retire, and then go look for another attorney. So she's been awesome to work with. She's super, super great. So I just happen to know someone, I didn't really have to do a whole lot of interviewing, and we kind of just grew together naturally. And it was a really good fit. Tom, what about you? Tom: I would go back, we've talked about in some of the other episodes of the hierarchy of where to identify these type of vendors. So at the top of that is personal relationships that you may have. And when I worked at one of the single family REITs, got to know the attorney, actually, we might actually have him, come on to the episode, he didn't come on the podcast soon. He's the general counsel at Mynd Property Management, where another great resource is professional references and then looking at forums BiggerPockets, brucite, Academy members have access to our Slack channel, and then just general view, so I say those are the key spots in descending order of what I'd recommend for identifying a lawyer. Emil: I think the big theme, and we're hitting on it in all these episodes is the power of networking and asking either the people you work with or networking with other investors who they know because they've worked with them, they have experienced with them, right? It's not like you're just going on Google and who's the first name that comes up, or the first ad that comes up, and it's just so powerful to network and ride the coattails of others, if they found good people. Michael: Yeah, you don't need to reinvent the wheel. Emil: Alright, cool. That was a fast section. So moving on to the last part. What are some good questions that our listeners can ask? When they're interviewing a lawyer to make sure that's the right person to bring on to their team? Michael: For me, I think the first question is, do they work with real estate investors? Because there's all kinds of attorneys out there that specialize in different disciplines, just like you have all kinds of different doctors, specialists. You know, if you had a problem with your hearing, you wouldn't go to an orthopedic surgeon, probably I don't know, I that's my guess. There's not medical advice. So same thing with attorneys, and accountants, and really all the team members were talking about these episodes for that matter. So making sure that they specialize in real estate, and specifically working with investors I think is really important because they're going to look to do certain things for you that are going to be different than if you were an owner occupant. They're going to treat you in a very specific way and look to s…

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Real Estate Is Like A Bond Indexed For Inflation With An Equity Kicker w/CEO Gary Beasley Oct 24, 2020

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Michael:

Hey everybody, welcome to another episode of The Remote Real Estate Investor. This is our weekend wisdom episode. I'm Michael album and joined today by Tom Schneider and Roofstock CEO, Gary Beasley.

Theme song

Michael:

So, Gary, we want to ask you a question about what is your favorite metric to use when evaluating properties? And how do you think about that metric when it comes to total return.

Gary:

So I like to think of single family rental homes as sort of like a bond that's indexed for inflation with an equity kicker, and I'll explain what I mean by that. And the reason I think it's particularly relevant right now, is we're in a low interest rate environment, people do feel like with all the money we've been printing over the last few years, there is a potential for inflation down the road. So you want to think about what kind of investments could potentially be inflation hedges in case inflation. And the Fed has said, we're gonna keep rates low, and we're not so worried about inflation, so we're not gonna be as aggressive in raising rates.

And then you've got this equity kicker element in homes, which is really the appreciation component of it. So let me tell you what I mean. So the bond component is that the cash flow that you could generate from the home when you own it, and that's like the bond piece every year, you could raise the rent to at least keep up with inflation, because their annual contract. So if there's a lot of inflation in the market, you can raise the rent. So if you had to sign a 10 year lease that was flat and inflation went up, you would be in trouble. So you've got that annual indexing.

And then you've got the capital appreciation piece, which if the property goes up, you know, 3%, a year or 4%, a year, which is historically has done over the long term, you get that capital appreciation piece, like you would get, say, in a stock with a stock value going up, you've got the value of your underlying asset going up. And what's nice about real estate, unlike with stocks, which are harder to, in most cases, put leverage against unless you have a margin account, anyone could get a loan for a house. And so you could get a 70 or 80% loan on the house. And I like to give a you know, very simple example, if you have a home that basically just covers its costs over, say, a five year period, but it goes up at three and a half percent a year and you have an 80% loan on it, you could get a 14 or 15% annualized return on that, because you've got someone else paying down your mortgage and creating principal value, you've got, you know, you're you're riding the property value along, and you're getting kind of four to one leverage on your equity.

So when you sell it, your annualized return over that period can actually be quite high, even if you're not pulling money out or getting current return along the way. So when I look at investing in homes, the yield is one component of it. But I'm really more of a total return investor, I don't necessarily feel like I need to pull the money out every month and then spend it or put it into something else, what I'm trying to do is create value in that asset. And so I like the idea of having someone else pay down the loan balance for me, and create value over time just by getting that exposure to housing, and letting the market be your friend. And then at some point in the future, if you decide to liquidate it, you've got a lot of hopefully embedded equity value, that's when you could sort of realize the benefits of that investment.

Michael:

That's a great kind of analogy and pictorial representation. Can you talk just real briefly about how a bond works if somebody wanted to go buy a bond, so that way they can compare that investment versus real estate? How does that traditionally work?

Gary:

Yeah. So when you buy a bond, what you buy is a coupon on that that bond, and then you get your money back. So you could buy a municipal bond or Treasury, something like that. And let's say you get an interest rate on that bond of 3%. And you buy your hundred dollar bond, and you get $3, every year back. And then at the end of that term, you get your hundred dollars back. That's the entirety of your return. And that's a 3% annualized return, because you're getting your 3% every year, the difference between like a bond and a single family rental home, which you might be able to get a similar kind of return every year on a home, but the value of the underlying home is going up. And so then instead of getting $100 back, maybe you get $120 back, right and so that's where that's that equity kicker piece that I'm talking about. That's over and above that bond piece.

Michael:

Already, everyone that was our quick weekend wisdom a big big, big thank you to Gary super informative. If you enjoyed the podcast, please feel free to leave us a rating and review wherever it is you listen to your podcast. We look forward to seeing the next one. Happy investing

Our Top Tips for Finding & Vetting A Good Property Manager Oct 19, 2020

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Tom, Michael and Emil continue our series on how to source a powerful real estate team. In this episode, we discuss the property manager. --- Transcript Hey everyone, welcome to another episode of The Remote Real Estate Investor. My name is Emil Shour, and I'm joined by my co-host, Tom: Tom Schneider Michael: And Michael album. Emil: And in today's episode, we're going to be continuing our series on finding and vetting different people on your real estate investing team. So last couple episodes, we've covered insurance carrier and lender and then in today's episode, we're going to cover the property manager. So let's get to it. Theme Song Emil: Alright guys, in the last episode, we gave a quick shout out before we got into the episode and want to do that again. Give people shout outs for leaving us reviews. So this last one came from IanC11. Love the pod great for someone who is new to real estate investing combos and personal experiences are super insightful, and the info is easily digestible. Thanks, Ian. Appreciate it. Man. Tom: We are almost at our 100th review on Apple podcasts, which is pretty awesome. And I think for the person who hits, who writes the 100th review, what do you think Emil? Some sort of like, Emil: What if now nobody wants to write a review? Because they're waiting to get to 100? Michael: They're waiting? Tom: Yeah, I think we sent him a shirt, a roof stock Academy shirt and books done. approved, budget approved. Emil: How about the next 10 reviews? So anyone from 94 to 104? will pick one person and send them that cool pack you mentioned? Tom: Well, maybe it's at 98, 95. There's a term for this type of promotion. It's we could be at 100. I don't know we could be right below good reason to write the promotion. We'll do it for two people. Emil: Two people. There you go. Alright, next 10 reviews, we're going to randomly choose two people and send you some cool stuff. Okay, so we're talking about the property manager. This episode, we're going to follow the same format that we have been, which is a three part question series. So the first part is, when in the process, should we be finding our property manager? When in our real estate acquisition process? How do you source a property manager? And what are some good vetting questions to ask them to make sure you're finding the right property management partner? So let's kick it off with when in the process? Should a new real estate investor start looking for a property manager? What do you guys think? When have you guys started looking for your pm in the process, Tom: I would say you can't do it early enough. Because it you know, if you take one thing from this episode, and I've probably repeated this a couple of times, is you can bring, especially as a remote investor, leverage that property manager as local boots on the ground. And you can begin the interview process by adding them as a data point within your acquisitions process. So let's say I'm looking to buy a house in Columbus, Ohio, or Atlanta or Indianapolis, you know, in talking to property managers, I can get their feedback on properties that I'm looking at and neighborhoods, it's a really, a secret sauce to a remote investor is bringing in that local property manager early and often. So I would say as early as possible, what you don't want to happen is in a transaction, you know, you've found a great property you like it fits, checks off all the boxes you're looking for. And then like last second scrambling to find a property manager, you're not going to make as good of a decision. And plus, you're wasting that opportunity to use that property manager as part of your acquisitions team. So early and early. Yes, early. Michael: I agree with you, Tom 150%. I think you, you nailed it. And they can be your eyes and ears, they can be adult, they should be involved in the due diligence process, they can give you insights into markets and sub markets and streets where you want to avoid and things where you want to be looking out for. I think they a good property manager is going to really have their finger on the pulse of a particular market. And so that only goes to stress the importance of finding not only just a property manager, but a good one. And Tom, to your point of scrambling last minute to find a PM, I've been there done that I did that twice. Actually, in the same market, I was really excited about the market, I was really excited about the deals, I didn't have a pm in place. But I had a really great agent. And I've talked about this in the past. And so I purchased the deal. And then I threw it in interviewed a bunch of different property managers, and there were just no good options. So I had to pick the least bad of all the options. And like, just to put it bluntly, it sucked. Like it was so bad. I ended up firing the property manager A few months later. And it was a really awful experience. And after I closed that second deal, I was thinking about selling both properties and just getting out of the market because it was such a nightmare dealing with the pm in that market, because there were just no good alternatives. And the whole time before I fired him I was looking for alternatives and I just couldn't I just not none existed. And so I can get into it a little bit later. But I then convinced my agent to start a property management business and that worked out pretty well. But so in lieu of find if starting your own property management business are forcing someone to do it on your behalf. Definitely try to find a good pm early. Well, before you purchase. Again, if I hadn't been able to do that I would not still be in those markets today. I think your investment lives and dies by your pm. Tom: Yeah, I think we had an earlier episode where we talked about the decision of using professional property management or self managing, yes. This is the the, this episode, the guise of it, I think I'm using that word right, is you are buying remotely and you are using professional property management is the assumptions that we're making. In this episode, Emil: I would say that once you've decided on your market, once you're saying I'm gonna go invest in Dallas or Atlanta or wherever, I think your next step should honestly be to go talk to property managers, they know so much about the area. Yeah, you can spend tons of time researching online, looking on forums, whatever, but like property manager lives and breathes that they're managing, often hundreds of properties in that market, they can tell you the areas that they like managing where they don't like managing, where they're seeing a lot of growth, rent growth, whatever it is, they can tell you the types of properties that they are able to lease up very easily, versus ones that are more difficult. They're just a knowledge of wealth that I think you should tap as early in the process, like you guys mentioned. So honestly, it's like, once you've chosen a market, I would go start talking to two property managers, honestly. Michael: So Emil, I actually work with a student in the academy who takes almost the exact opposite approach. He's involved in a particular market, loves, loves, loves his property management company, and is now investigating other markets, only those in which that same property manager operates. So he's actually following on his property management coattails to other markets, other states, because he likes them so much, because he believes in them so much. So you can almost use your property manager as a roadmap so to speak, if they're operating in other markets as to other markets to potentially investigate. Now, of course, you can still go do your market due diligence and validate it for yourself. But knowing that that piece of the puzzle is already solved for you, makes it kind of nice. Emil: Yeah, this person probably chose a market and then found the property manager, and now is using them to explore other markets, right? Michael Correct. Yeah, it's only it's only for secondary. After you've established that property management foothold, Tom: I'd like four different property managers that I interface with, and man, it'd be a lot cleaner to just have one. Michael: So much better. Tom: That sounds pretty good. Emil: And just knowing that you have a reliable property manager to keep using, like, that's so invaluable. Tom: Yeah. And some specific stuff that I've gotten from property managers is they're like, for the most part, they're pretty honest. Like, in talking about a neighborhood, if they like or don't like it, in my experience has been a pretty like low pressure sales, like not like high pressure, like, Oh, yeah, this is the house right? where they'll give honest feedback. And some specific feedback I've gotten is, oh, you know that property, it's really consistent rent, it hasn't shown a lot of appreciation. But you know, it's always occupied that kind of neighborhood. Another one was looking at a property. And they were talking about the bedroom count, I'm like, Yeah, it's a four bedroom, two bath, and like, oh, wow, we manage a bunch of properties there. And there's very few four bedrooms, that's going to move right off the shelf. So getting that kind of insight information that you wouldn't be able to get if you didn't bring a property manager in super early. So those are some specific examples of the benefits of bringing the pm in as early as possible. Emil: Nice way to throw some good anecdotes in there. All right, ready to move on to the next one, then? Michael: Do it. Emil: So our next question, or subtopic is how to source? So how do you go out and even find a couple of property managers to start interviewing. So what have been some ways you guys have researched potential property managers in the past? Michael: I'll jump in here and say personal references have been top of the charts for me. And if there's not personal references, then professional references, whether that's the agent you're working with, or through roof stock, or other investors in the area that you might not know on a personal level, the slack forums if you're a member of the Academy, or bigger pockets, great places to reach out to folks and ask who they've used to, they've had success with. And then cold calling and Google reviews, I think good sources as well. We talked about this in the past, but a lot of those reviews, you kind of take them with a grain of salt to a degree in that it's usually the unsatisfied folks that are leaving the most reviews and the loudest reviews. But also by that same token, I've mentioned on previous episodes, that the people making these reviews, if their tenants are your future clients, and so you want to make sure that the client population being served by the manager is happy and satisfied, because that's who your tenants are going to be dealing with as well. So that's kind of the hierarchy that that I'll use, and it's a lot of cold calling, a lot of cold calling. Emil: Yeah, I've recently there's a property manager in St. Louis, who I'm looking to grow with. I was just doing a round of interviews last week and it was one pm that really stood out to me. And I always like to look at reviews but at the same time, like you mentioned, take it with a grain of salt because it's a You could have 100 happy tenants and they never write reviews and it's right I've disgruntled ones who were like, they want to get back at whatever pm and so that's the way they do it. This one actually had a bunch of great online reviews. So I thought that was really cool. Michael: That's even better sign. Emil: Yeah, rare. Yeah. Michael: Yeah, that's pretty. That's pretty rare. Emil: Anyway, Tom, what about you? Michael: Oh, just one more to add. Sorry, Tom, Tom: Take all my points. Make sure you take em all. Michael: How's the scraps man? NARPM. National Association of Realtors and Property Managers I think is that acronym, but there's some national accrediting body for property managers, and if they're a member of that… Emil: National Association of residential property managers, just look. Michael: Thank you, sir. So checking out that website can be helpful. And it's just another accolade for them to put to their name into their business. So they're usually held to a certain standard level, which can be helpful to know that they've got that in their back pocket, I Tom scrap away, Tom: Scrap away, I'm gonna try not to just repeat it, but the the Maslow hierarchy of selecting a property manager. Okay, I'm just gonna repeat it. So the first reference is a great place to start. But that's not the end all process, then you go into your interview questions and references, but personal references and professional references, and the best professional reference with the property managers I found to be his agents. So is there an echo in the room. So like Roofstock has some references within all the markets that we operate in, we go through a pretty thorough process of identifying property managers, so professional references, and then kind of blogs, social reputable forums, our friends BiggerPockets, Roofstock Academy, we talked quite a bit about specific local property managers that we like. And lastly is the old Google search bar. So on top of that list is where I will start in opening a market searching for a property manager. Yeah. Emil: As someone who works in digital marketing, I want to give one word of caution to our listeners, just know that a lot of times online, when, let's say, someone posts about who are the best property managers in x markets, you'll a lot of times either find vendors or vendors will peg a customer like they're watching those forums. They know a lot of investors are there. And so sometimes they'll peg a friend or somebody to go post on those. So just know that going in, right that things can on the internet can very easily be skewed and always do your own research. That's the one tip I want to give people here. Michael: Wait, you mean? You mean the internet doesn't have like editors that make sure everything is factual? Emil: Look, man, we're saying that all here, but think about it. Think about it. 10 o'clock at night, you're looking around. And you know, there's a couple couple people chiming in for the same property manager online on a forum, right? You're not immediately. You may be skeptical, you may not. So I just want to heed that warning to our, our wonderful listeners. I don't have anything else to add here. You guys, you guys hit all the good ways to source potential property managers. Alright, so let's get to the good one. I think this will probably take up the majority of our time here is the vetting questions. So this is such an important part. It's important because I think it's easy to get a list of questions to ask. And I think property managers often get a lot of the same questions, and they can get good at responding in a certain way that they know and investor likes to hear. So I'm curious if you guys have like, tried and true questions that kind of help break past the the canned responses. Tom: Emil I feel like Michael and myself has been like taking a lot of the low hanging fruit with some of these initial questions. Would you like to take the lead and leave us with more more scraps? Emil: Absolutely. I thought you'd never ask. Tom: Being a gentlemen. Emil: I'm going to go…

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Market Deep Dive: Indianapolis Indiana with Vincent Ash Oct 14, 2020

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In this episode Mark Woodling and Tom Schneider talk with Vincent Ash From the Indy Chamber about the Indianapolis Real Estate market, economic developments and what is happening in Indy in general. --- Transcript Mark: All right, ladies and gentlemen, welcome to the remote real estate investor. I'm Mark Woodling. I'm here with Tom Schneider. And we have Vincent Ash here with us today from Indianapolis in the Chamber of Commerce. So we really wanted to bring him on to give him a bit of a background on why investing in Indianapolis is something that really any investor should want to be interested in. So I think this is a good opportunity to not only hear from us, but really get one of the local experts who has an idea of what's going on in the market that we don't get to see or read about in your daily news. Theme Song Mark: So, before we jump in with Vince, I want to run over some numbers about Indianapolis. So, Indianapolis consists of a pretty broad range, the populations 876,000 people as of 2019. So, the greater MSA is actually 1.8 million. So Indy alone 876,000 versus the greater population 1.8 million people and the population is growing at 1.3%. So the median household income is $64,200 number of units is 867,000 single Family properties, of that 58% are owner occupied in 32% are renter occupied, leaving about 10% that are currently vacant. So as for home price and rent, existing home values have actually gone up 7.2%. The effective apartment rent growth is 3.6%. home value at entry level home is on average $163,900. The existing median home price is $227,000. And the median for rent as of December last year was $1,259. year over year rent growth is 4.7%. And single family gross yield on average is 9.6%. Home occupancy rate is 95.4%. And apartment occupancy rate is 94.7%. Vincent, why don't you give us a little bit of information about who you are and your position with Indianapolis chamber. Vincent: Absolutely. So my name is Vincent Ash. I am the director of Indianapolis economic development for the city and our county that we are also associated with I have been at the chamber for a little bit over two years now. I'm very much an Indy, local, Indy native, I moved to Indianapolis when I was five years old and pretty much been born and raised there. Prior to my role now at the chamber, I worked for Simon Property Group as a financial analyst. For those who are familiar with Simon, one of the biggest rates in the country and probably internationally as well. But I worked as financial analyst for them, no do a real estate transactions and then moved over to the chamber. My role as director of develop Indy is we basically are the economic development arm for the city of Indianapolis. So we work on business attraction, business expansion, real estate, real estate, redevelopment projects on a larger scale, looking at multifamily projects and things of that nature. We also work very closely with the mayor's office in the city, on any economic development policies that they are looking to, you know, change or implement or modify. So overall, we have a pretty big scope. We do have a person, our team that focuses on business retention, we have an ombudsman that helps facilitate, you know, permitting, and regulatory and zoning questions. And then we have a project manager that focuses on retail. So we're touching a lot of different phases of economic economic development overall, it has been very successful, pretty respected throughout the city, not only as the economic development arm develop, indeed, but also as an indie chamber, having a lot of businesses that's associated with us as well. So that's overall what we do and kind of my role at the Indy chamber. Mark: So if there's anything that comes up, let's say that there's new business opportunities in Indianapolis, you're probably the first person to hear about them and really understand, you know, new companies that are moving to the area, new jobs that are coming in. And frankly, you're kind of a salesperson that's trying to bring in those companies and really make Indianapolis look as attractive as possible. Vincent: Absolutely. Yes, I'm not a salesman, but Trey, but I have to do it. For this job really just as like an attractive mechanism. I think the state does a good job of attracting people to Indiana. Fortunately enough for Indianapolis believe 60% of the GDP from the state is located in our in our central region, Indianapolis region. So overall, our state depends on our capital as well, Indianapolis, and as has been Bode very well for, you know, everything that we've got going on for us in the overall, Mark: That's great, well, this is a perfect conversation to be having. So let me just get in a little bit about really what we're looking for, you know, we all want to understand kind of the macro level economics of what's going on in Indianapolis, but we don't need to go into like population trends and jobs, income, you know, cost of living particularly now, but we're looking for you really, some of those nuggets of information that make any out of state investor feel like there's a level of confidence that they can have not just in buying into the city, but eventually they're going to be buying into real estate and owning, you know, brick and mortar and renting out, you know, properties in the area. So, you know, maybe you can give us a little bit of an idea about what we're not hearing in the news, you know, and what you're seeing in the local economy that somebody in, let's say, on the West Coast isn't good to hear about. So maybe give us some general economic highlights. And maybe we even start with a little bit of a COVID-19 impacts and what you're seeing, since that's such a relevant topic. Vincent: So COVID-19 is affected everybody in the world and Indianapolis was was not any different for that. We did realize that, you know, it did affect a lot of our small businesses. And particularly, we look at our restaurants, our breweries that have been very successful here in Indianapolis, but those have been impacted the most Well, COVID is our as our restaurants or personal services. Are you looking at Barbara's beauticians? So overall, from a covid impact, our small businesses were hit the hardest, that we did some very innovative things at the chamber. As far as some traditional lending, as well as you know, help collaborate with a CDFIs to do paycheck protection programs that help keep these businesses afloat. We also are doing like a reimbursement grant now, overall, to kind of help those small businesses and they've been very appreciative of those efforts. And it has honestly kept a lot of our businesses being able to stay open. Throughout the midst of this, I will say from a, from a broader scale, we're looking at some of our corporate, you know, attraction projects, or some of our expansions and growth that we've been able to see. I will say there was a pretty much a slowdown, I would say in April, I think as companies would kind of figure, trying to figure out what they will plan and planning on doing. But I kid you not. And I thought I was gonna be twiddling my thumbs throughout COVID. Because I was like, there's no, nobody's making a large capital investment, like going for it. There's no way I'm going to be busy, I was really just looking at ways that I could pivot and help out and other avenues going for so but we weren't, we didn't say very busy, stay very busy overall, when we looked at from our industry standpoint, Indianapolis is very diverse. And that was has helped us be pretty successful. Mark: So Vincent, maybe give us a little bit of a background of what Indianapolis is really known for, you know, that the jobs in the area that you see are really growing are just some of the basic highlights of why people are moving to Indianapolis because we know it's been growing a ton. We've seen rent growth, personally from Roofstock’s point of view really increase and seeing a lot of investors moving to the area and wind to invest there. So yeah, give us a high level and kind of walk through what you see. Indianapolis as in your eyes. Vincent: Yeah, absolutely. You know, kind of, as I was saying, from an industry standpoint, Indianapolis is very diverse. So that has really allowed us to be recession proof to an extent. When you look at 2009, we've been able to maintain a steady growth, when you look at you know, most of the rest belts, cities when manufacturing is left, you know, early 2000s and in the 90s a lot of those cities, you know, struggle, overall industry standpoint as being diverse, has been very beneficial. So some of the major industries that we have here are looking at life sciences, pharmaceuticals, so Eli Lilly is a major anchor in our city. They employ about 440 thousand people just in our city alone. So you look at them and offer Eli Lilly have a lot of other pharmaceuticals or drug manufacturers that also have located here in Indianapolis and we kind of have sort of a life sciences of here. Not only that our tech scene has been exploding here lately. Look at Salesforce, and we are their second largest office globally outside of San Francisco and but we have a lot of different startups that are here indeed that are continually to grow. One of the one of those reasons why tech is is kind of booming here is from a cost standpoint, cost of living is very affordable here. But the main thing the main driver is workforce. So we are within 70 mile radius, I believe we have close to 100 different it's a major college institutions. In particular, you know, some major ones Purdue I, Indiana University, all State University rolls home and Butler's located in Indianapolis, we have 40 institutions that's just located in Indy overall. So from a workforce and talent perspective, tech companies feel like they can attract a talent by locating here. So that has been very well received and our startups are continually to grow. High Alpha is a big venture group that's here indeed is very strategic about helping growth those hundred companies that they have been associated with Xylo being one of those startup companies that is growing, we just got an announcement that Kanos which is based out of Belfast and Ireland is going to grow here in Indianapolis and make any Annapolis their main hub. So from a tech scene, we have been we have grown a lot. So when you look at life sciences, like a tech, we can look at our aerospace Rolls Royce and what they do from you know, manufacturing, engineering and aviation standpoint, they're headquartered here have about 44,000 people are that are in Indy. And then on top of that, logistics, we have the second world's largest FedEx, probably soon to be number one outside of Memphis because they are landlocked. So from a logistics standpoint, we are also growing. E-commerce is even more important now throughout the midst of COVID than it ever has been. And we have seen major growth in pretty much all four of those sectors to even throughout the midst of this pandemic. And so it bodes well overall, from a diversity standpoint, the industries that we have here in Indy, allowing us to continue to be able to grow where our hospitality industry our convention industry is very in service industry is very huge here in Indianapolis, our convention center is we have Gen Con every year, you just looking at some of the announcements that we had recently from a sports standpoint, and they were supposed to have NBA All Star game in February, I don't foresee that happening with a pandemic going on. But you have NBA All Star game, we have Final Four, we have the big 10 Football Championship, the National Football Championship, all within, I think, a couple years of each other. And Andy has been very good at hosting big events, and our sporting industry has continued to be successful. So even though we see, you know, some downturns in our sports, in our hospitality, as being able to continue to grow in life scientists, tech logistics, aerospace has been has an other, you know, advanced manufacturing jobs proven us that we can, you know, stay resilient, and really recover and continue to grow throughout the midst of any type of downturn in economy. Mark: Oh, that's important. No, that's really, really good to hear. I mean, we want to see every market thrive and come back. But we know you guys are set up for it with it right infrastructure. And, you know, I agree these low cost of living areas are just really what people need, you know, people leaving San Francisco and saying, I can have a quality, quality lifestyle, but for half the price. It's so great. Well tell me a little bit about maybe what is happening, and we don't see it today. Maybe there's some new opportunities or you know, what's trending maybe with a kind of new interest in the areas or anything that you give us some, some intel on that others quite don't know quite yet, but is considered public knowledge. Vincent: I can say from a real estate development standpoint, we have been getting the attention of a lot of out of state developer. And so we have a lot of new pretty big projects lined up. One of those is a remodel of a former Coca Cola bility Hendrix Commercial Property Group, which is based out of Wisconsin is actually nearing completion of that project, which should be I believe, at the end of this year, basically took a Coca Cola bottling plant made it a mixed use, work, live play type of environment. There's a couple of tech companies that's going to be located there. They have all new independent restaurants that are new to Indy that will be there but they're no franchises, which is I think we're pretty big for is having a lot of local restaurants and local breweries very, a lot of very good ones. But this development alone really wanted to focus on the independent aspect, bringing new concepts in, they have an independent like film theater that's going in, that's going to be a part of heartland Film Festival. And so they they have other retail components associated with it, but we were seeing a lot and we have we do have some other projects, you know, lined up from a you know, real estate related redevelopment standpoint, where companies and developers are coming in finding you know, properties, you know, like a former Coca Cola bottling plant and remodel it and refurbishing it. And we like I said, we have a few of those as well. We really kind of hit stream with a lot of multifamily developments, like I said, a lot of outside of the state developers are interested in, the good thing about indie is that we really haven't hit that significant, you know, density or high rise. But there's so much potential to do that. And developers are noticing that. So we got more high rises developments that's coming into our downtown core. Of course, that's where, you know, most people most take people, you know, want to locate and want to be in downtown. And the good thing about that is, is that they can live downtown, but also stay outside of downtown and still really have any type of lifestyle they want. I would say, and I usually say this to any business or company that we have coming into Indianapolis, you can have any lifestyle you want, within a 30 minutes drive. And when I say 30 minutes drive, I mean 25 miles, yeah, I'm not, I'm not talking about, you know, six miles like that you get like in California, six miles will turn into a 45 minute 30 minute drive is going to be about 25 to 30 miles, you can and you'll have that any type of lifestyle you want. If you want to live downtown, you can live…

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Our Top Tips for Finding & Vetting A Good CPA Oct 12, 2020

Show notes

In this episode, we continue our series of how to select and vet strong team members. This week we discuss the CPA. --- Transcript Emil: Hey everyone. Welcome back for another episode of The Remote Real Estate Investor. My name is Emil Shour and I am joined by my co hosts, Tom: Tom Schneider Michael: and Michael Albaum. Emil: And today we're going to be continuing this series we've been doing lately on building out your team. So how do you find and vet the different players on your quote unquote real estate investment team. In today's episode, we're going to be tackling the CPA, which stands for certified public accountant for anyone who's not familiar. So let's hop in. Theme Song Emil: All right, before we get into the meat of the episode, the meat and the potatoes, meat, potatoes, the salmon and, the salmon and couscous. Let's go with that. We have some people leaving us some awesome reviews I want to give a quick shout out to so recently real estate financial freedom wrote, “The show has the feel like we are sitting around a table talking shop about real estate, they do a good job catering to beginner but also go into depth into more complicated real estate subjects. If you are thinking of investing out of state, this is the podcast for you. This podcast makes real estate feel very approachable.” Emil: Thank you so much love the review, we'll try to give everyone a shout out if you leave us review was mentioned at the end of the episode. But please leave us reviews. We love them. And we'll give you a shout out in a future episode. Michael: Thank you so much. Emil: Alright guys. So we usually tackle three questions on each one of these episodes, which is when in the process? Should you look for this individual? How do you source them? And vetting questions to ask them to make sure you're choosing the right person? So let's start with the first one. When in the process of acquiring, let's call your first rental property, do you need to go out and find a CPA? What have you guys done Michael: Now. Now .ow now now Emil: All right, Mr. delay? Michael: I think that first question, it really depends. I chat with someone in the academy a few weeks ago who does their own taxes, they prepare their own returns anyhow, using, you know, TurboTax, whatever. And so they said, Yeah, I already understand how taxes work, I understand tax works. And so adding one rental property to the mix is not a big deal whatsoever. So they've been doing their own. So if that's you great, but if you don't prepare your own taxes, or you want to go hire a professional to do it, I think it can be really great to have that conversation as soon earlier in the year as possible. Because as we all know, taxes are due in April for the year prior. And you can't really do a whole lot of changes after the fact. And so chatting with a tax professional as you're getting started in owning real estate is going to set you up to have some really good habits and makes tax time so much easier for everybody involved. So I would say as soon as you're considering real estate, talk to a tax professional about how your personal situation might be affected by owning real estate, what some deductions look like and what your overall taxable basis might look like as a result of owning real estate and how that might change as if you previously didn't. So I don't think it's ever too early to start that conversation. Tom, what are your thoughts? Tom: Yeah, my thought is just kind of on the first piece of this is something that you could file your own taxes and talking to people in Academy, asking about the stuff. My advice is always, you know, it's worth paying that money for a professional, there are a lot of tax benefits with real estate, you get the three DS depreciation deferral and deduction. And you really want to squeeze as much juice as you can out of those three. And it's difficult if you don't have that specific real estate experience. My wife's a tax attorney, but we still hire someone different does, you know international tax, which is very abstract and interesting. But my point is, real estate tax specifically, is there's a lot of fruit on the tree that you want to harvest. And you want to take advantage. So it's worth paying that money to find somebody. So timing wise, you know, it doesn't have to line up with any of your acquisitions. There is some neat stuff that Michaels talked about in the past will try to sound cool doing cost segues and stuff like that, but Michael: Nailed it. Tom: I mean, as long as you give yourself some leeway before going into tax season, I would say that's the real kind of timing and doing it hire a professional who has real estate specific experiences is important before tax season. So that's my timing two cents. Emil: I like it. I'm going to take the counter point. And I'm going to say that this is a person on your team who, Yes, you can look for them early. But I think there's so many moving parts earlier on to focus on your property manager which market you're going to invest in finding an agent if you take that route that I think the CPA can come a little bit later. I think a lot of fuel can get caught in all the nitty gritty of I should check off all these boxes. And it's like focus on educating yourself and then get that first property. I think the accountant can come a little later. So I'm gonna take the counter point, Michael: I think it's a really good point to make a meal and that who you ultimately work with can totally come after the fact I think it's really important that somebody at least have the conversation with a tax professional about a like how does real estate affect me personally, because I hear about it all the time. But I don't understand. So for me taken, you know, an average deal, whatever that looks like in your market, or wherever you think that might look like for you as a buyer, how would this affect me because I think it gives a really good insight and helps a lot of people purchase strategically based on some of the tax advantages that they may or may not qualify for. But I 100% agree that the actual person doing the tax returns can totally come after the fact. Emil: That's a good point. So also, I think when I bought rental properties I chose to that was the first year I hired a CPA to do my taxes. It was like I started doing some, like some side project consulting stuff as well. And so that makes me W2 mix with rental properties. I was like, You know what, I'm just going to give this to a professional, make sure I'm doing it a correctly and be getting maximum deduction so that I save as much as I can. I think we said all the time, a good CPA, they will save you way more than you actually pay them yearly. Michael: And I'm just curious, do you guys use a CPA on any kind of retainer or annual program or you just pay them for the time that you use when you speak to them? And then for the tax return? How does your program look? Tom: With my CPA, it's sort of a one time event every year I you know, it's not any sort of like recurring contractor engagement, I could like, use them one year and go somewhere else, but they already have a lot of my information. So it's, it's a lot easier to have some continuity with them. I've been meaning to do a little bit more like a consultation of kind of lifting up the books on all that I have within because right right now I basically just send them all my information all by my 1098 for my mortgage, my 1099 for property managers, I send them all that information, and they just come back with a nice, clean, albeit like pretty long tax return, just because there's so many moving parts that they understand. I've been meaning to do kind of more of like a like an engaged consultation and and have answered your question. But what I do with right now, it's just every year, just a one time do the going through the exercise, but no more strategic stuff. But I'm just something that I think I probably do this year on the list of things to do. Michael: Do it, do it? Yeah, it's really worthwhile to do that. That planning portion of things. And then what about YouTube? You pay them like an annual fee? Or do you just do the tax return fee? And then the hourly stuff? Emil: Yeah, it's just the paid to do my tax returns. But I'm probably in a unique situation that my CPA is my brother in law's very good friend. So I can always ask him stuff. And he's really cool about it. But he used to charge me a lot less like he was very inexpensive to start, I think like, friend discount. And I told him this past year, I was like, I asked you a lot of questions throughout the year, our taxes are getting more complicated, like just raise that fee that we normally pay you and he was like, I've never had anyone asked me to charge them more. But thank you. So you know, it was like he's become more consultative throughout the year. And I just want to make sure like, I'm compensating him so he's not like goddamnit Emil's texting me again, right. Michael: You don't want him to feel like you're taking advantage. Emil: Exactly. So I was like charging us more. And it's still like totally reasonable. So that's kind of how we have it set up with him. Michael: Great. Emil: How about you? Michael: Oh, yeah, I'm just hourly, and then whatever the tax return is at the end of the year, and so I'm chatting with my CPA several times throughout the year, kind of about next moves and strategy type stuff. We don't really have this formal sit down session where Okay, we're gonna talk strategy about what it is, but I'll call him up and ask him Hey, you know, cost seg, do you think that would have a big impact on my, on my taxes this year, and talked about the numbers and yada, yada, yada. So there's definitely expense ongoing expense throughout the year, but it's just whatever the hourly fee is, however long the call is, that's what that's what I pay him almost like an attorney. And it works great. And I I think it's well worth the money. I'd say it sucks when I get the bill. But I think it's it's money well spent. And it's a deduction to keep track of the… Tom: Yeah, it’s a deduction it is for listeners who are newer, Michael has a lot more moving pieces on within his projects. He's doing multi families doing, you know, all kinds of stuff. But at least for myself, it's a much more simpler engagement of kind of the the annual thing, but I think as you go into more complicated deals and structures, there is more meat on the bone for going through with your CPA. So he would be on the further end of the spectrum of kind of more, I guess, opportunity for tax savings and more more need for higher engagement. Michael: Right, right. Right. Yeah. more need for planning, I think. Yeah, absolutely. My first couple years, my first one, I had a handful of deals was not nearly as frequent or this often. So I think it's a really good point to make, Tom that this is going to be a pretty person that you probably won't speak to very regularly when you're first starting out. Emil: Yeah, good point. All right. Let's move on to the second part of these episodes where we talk about, Michael: We've got about a minute 50 left to cover these next topics. Good luck. Emil: All right. So moving on, we're going to talk about how do you source CPA? How do you go about finding someone who could be your potential CPA? So how did you guys go about it? Michael: I called around a bunch of different people. I was using this guy that my dad was using, with a big firm down in LA. And he was, he was really thorough, and he was really good and he was really expensive. And it just got to a point where I was like, Yeah, I just can't, like afford you. Slash need that level of service. So they provide all kinds of stuff. And a lot of that's baked into the cost of the returns. So I went and found my own person. And then that didn't work out. Well, I had a bunch of problems with the IRS because this guy was a pain in the butt. So then my brother found someone he liked down where he lived. And so I was using him and I have been for the last several years, and he's been great. He's a smaller shop, but really knows his stuff has a lot of real estate clients. So it's been a really good fit since but trial and error and we're going to share here in a minute, some of the interview questions that you can ask a CPA that I wish I had thought of a couple years ago when I was going through this process, because it would have been a lot less painful. Tom, what about you? Tom: Yeah, so using the same framework that I used in the last episode in sourcing a CPA, I think at the top of the pyramid is personal references is a great place to start and then pass there would be professional references. Oftentimes, a partner with a CPA is an attorney. So you know, if you have an attorney like oh, what CPA recommend, or do you have a CPA like, oh, what attorney you're like, they're oftentimes working together. The third level would be forums Roofstock Academy, that's a place where within our private Slack channel, we talk about vendors and CPAs pretty regularly, or at bigger pockets or friends there have a great forum. And then lastly, just general online research. I sourced my CPA from a reference a gentleman named Paul Kidwell, who was one of the early employees at Roofstock. Think he was our like VP of data, something just super smart guy. He's an advisor. I’ll stop now, but I got my CPA reference from me. Michael: Emil, I know you shared already that your brother in law's best friend, was that the first one that you use? Or did you have some trials tribulations leading up to that point? Emil: No, I wish it was more of a science that I could divulge sort of listeners, but I've known him for years, too, before we ever actually, like needed his services. And he's a good guy. And I was like, he was the first person I thought of when we needed a CPA and just let him run with it. And he's been great. So yeah, it was more of just going with my gut. Somebody I know. You know, I mentioned like, this is what we're doing. We're investing in property out of state and he was like, totally comfortable with it. And he's been he's been awesome at handling it. So Michael: Right on. Emil: Yeah, our situation is a little easier. Tom: I’m gonna give a shout out to my CPA, though. So I use Iryna CPA accountancy Corp. And she's awesome. So just a little free advertisement, something like Yeah, why not? Why not sure these people she's located out of Oakland and in Northern California, but her website is irynacpa.com. And I've used her for the last, I don't know, five, five years or so. And she's fantastic. Emil: Yeah, my CPA is Dan Ratynets. And he's at Eichenbaum, Comer & Ratynets. Michael: Awesome. And I've been using Josey Schenkoske with Bianchi, Kasavan & Pope and they're out of Monterey, California. They go by BKP and Associates. Tom: Some love, some love shout outs. Michael: Yeah. So I just want to give a kind of real quick personal anecdote from when I was going through my trials and tribulations trying to find a CPA. So I went from that really expensive one that my dad used. And then I was sourcing my own. And I found this guy, he was a one man operation. I went met him and we talked and he goes, Yeah, I can totally take care of all of this. And this is my accounting firm. That that totally sounds like he…

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