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Can passive investments help you build wealth in 2022? Feb 02, 2022

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Andrew Davis is the Director of Investor Relations for PassiveInvesting.com, where he has helped raise over $200 million dollars for various assets. He began his career in sales, working for Fortune 500 consumer packaged goods companies, receiving multiple promotions and developing leadership, sales, marketing, and operational experience. Andrew is passionate about real estate investing since his early college years, he began the “side hustle” of investing in single-family RE in his 20’s and raised capital from friends, family, and in some cases complete strangers to acquire his first few deals. In this episode, Andrew will share insights about the passive investment strategy, how they compare to direct investing, how to participate in it, and some red flags to be aware of. Episode Links: https://www.passiveinvesting.com/ https://www.passiveinvesting.com/andrew-davis/ --- Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Michael: What's going on everybody? Welcome to another episode of The Remote Real Estate Investor. I'm Michael Albaum. And today with me, I have a very special guest, Andrew Davis, who is the director of Investor Relations at passive investing.com. And today Andrew is going to be talking to us today about what you need to be aware of if you are going to participate in a passive investment, what passive investments even are, and some red flags to be aware of, if you're going to be jumping on board with these. So let's get into it. Andrew Davis, what's going on, man, thanks so much for taking the time to hang out with me today. I really appreciate you coming on. Andrew: Michael, it is my pleasure. Thanks so much for having me. Michael: No, it's my pleasure. So you're based on the East Coast, right? Andrew: That's correct. I'm in Asheville, North Carolina, not to be confused with Nashville, Tennessee. You got to menstruate the ash. Michael: I could see that being a very common misconception. Andrew: Yeah, you really gotta really gotta lean into that A. Michael: So tell us, give us a quick backstory on kind of who you are, where you come from, and how you got involved in the passive investing space? Andrew: Yeah, absolutely. So yeah, I am Andrew Davis, I'm the director of Investor Relations for passive investing.com. And we are a private equity, a commercial real estate investment group. So what we do effectively is we buy large institutional quality, multifamily and self-storage assets. And all that means is, you really kind of three factors: the market, the deal size, and the class of the investment. And so 30 to 100 plus million dollar purchase price, this is kind of our typical acquisition. So as we're wrapping up our biggest deal today in the Fort Myers market, that's 109,000,300 Plus unit deal. It's yeah, big what the managing partners called Big Boy deal and, and then it's, uh, you know, we played just kind of higher quality asset classes, we'll probably dig into that a little bit more. So it's what's called the suburban class as that we also might be class assets. And then the markets that we play in are primarily the Sunbelt market. So those are North and South Carolina, Georgia, Florida, Texas, and Arizona. And then we're also looking in Denver, Colorado, and Boise, Idaho, as well. And so that's just kind of high level of our strategy. And how I landed here, is, you know, started out in the single family space like many of your listeners have or are, and man, it's, it's a tremendous place to start. But a lot of wealth can be created there. And there's tons of opportunities there. And it's a great place to kick your teeth. And that's how, I started. And so I'm very much a learn by doing guy. And so I was kind of in an in a transition career wise, I grew up on the West Coast. My wife and I met, she was in Florida. And she had just started a business. So I was like, who's gonna move and I said, I'll move on, I'll have an adventure. So I moved to move to Orlando, Florida, quit my job sold my house. I had bought in the Portland market at a very good time. So I sent out some capital had some flexibility and just kind of floundering. And my wife, I think, six months into being married was getting pretty tired of kind of woe is me. And she's like, Well, you never shut up about real estate investing. So maybe you should do something with that. Michael: You look up from your Halo game, like alright, fine. Andrew: Okay, fine. All right. All right. And it was kind of funny. It was like this lightbulb moment for me. And I was like, You're right. I love this stuff. And so I just, I just dove in. And I started going to local RIA meetups and just anybody that I knew that had anything to do with real estate, taking them out to lunch, or coffee or whatever, tons of time on bigger pockets, reading every book I could get my hands on. And really just got a got a basic idea for how to flip the house and kind of how to evaluate a rental, right? Just basic underwriting didn't really know what I was doing, but I knew enough to be dangerous. And so then in kind of reading and learning about that, I realized that oh, people go into these different meetups and things like oh, just people have capital. And there's people with deals and these people partner up and they get stuff done. And I'm like, I'm probably somebody to get into giving me money for to flip a house. And so I found a house to flip it was a foreclosure like 87,000 which is silly to think that you could buy that in today's market and put together a little deck and found a contractor to partner with me to do the rehab and he was gonna pay for it. We were gonna split the profits and then found an investor literally on bigger pockets to come in and fund the acquisition. Michael: Amazing! Andrew: My first deal and which is amazing because I had no experience. Michael: Right, right! Andrew: You know, I was I was again I just knew enough to be dangerous. And so long story short, we broke even on that deal the contractor was not great. And you didn't do a good job on the rent no but thankfully we broke on even. Isabel and I, my wife broke even. I was able to pay the investor he made like a 17% return. But it really what that did for me is it really kind of it opened me up to the power of real estate investing, right and the power of not being limited by my own capital, of knowing that, hey, if I can provide value in these areas, then other people can provide quite literal value in other areas, there could be partnerships formed, and I can grow a lot faster that way. And so I built a little business, just buying single family homes duplexes doing a mix of flips and buy and hold rentals and got up to a point over silver years, where I had 16 units. And that was good. But I just would get to the end of every single one of these deals. And it's a lot of work, a lot of work to put them together a lot of work to renovate them a lot of work to manage them, deal with tenant issues, all the things that go along with single family investing. And it's like, man, this is just the risk and the effort, the reward for the risk. And the effort just does not feel commensurate to me. Michael: Yeah, yeah! Andrew: And as I was in this space, and I was very fortunate to just connect with some really sharp operators in that in the commercial in the multifamily mobile home park, self-storage, just people that were buying these larger assets, and every single one of them would tell me, hey, it's the same amount of work, but the reward is exponentially higher. And so that really just continued, I really, really kept looking for ways to get into that space and connecting with different operators. And I also knew, hey, I'm really strong over here, right? I'm good on the capital raising side, I'm good with people, I'm good at building relationships, but you know, operationally details like that kind of stuff. That's just not, that's not my forte. So I really knew that I needed to have a partnership. I knew that I had, I had value and, and a skill set to bring. And then there was also, you know, a lot that that, that I needed, right to kind of operate in my zone, my circle of competence, as Warren Buffett would call it. And so, you know, long story short, this investor relations are all opened up the passive investing.com and I have been following these guys for a while, and felt very, very highly of them, and what they were doing in the space and just heard a lot of really good things about them. And so I just jumped on it. You know, hard pitch myself and, and, like crazy for the interview, I mean, just lift, you know, got to know them inside and out. And was very fortunate to be to be awarded the role. And we just had a lot of growth as a group. So in 2021… This is an extremely long intro. Michael: No, no! It's so good, so good. Andrew: You can cut it! But in 2021, we raised roughly $197 million from passive investors, so individual retail investors, and you know, our typical investor is somebody who is oftentimes a tired landlord, right. And they, you know, they bought in on the principles and the fundamentals of real estate, but they're tired of dealing with tenants and toilets. And so in that, in the course of that time period, I did the math, I had 1700, investor phone calls in 2021. So I had the privilege to talk to a lot of people and move from kind of an individual contributor role into a director role, and was just recently able to bring on two additional investor relations guys to just support me and onboarding new passive investors into our network and just informing them answering their questions, letting them know, kind of the mission and the strategy. And so that is sort of the meandering way I got to be where I am. Michael: Oh, that's so awesome. So Andrew, here's what was your thesis correct or accurate in that so many of your investors of the 1700 are folks that are just tired landlords. They just don't want to do the direct ownership thing anymore. Andrew: Yeah, I would say it is probably, it's approaching 50%. And that's anecdotal. So I would say that our investors are a mix of every single one of our investors is bought in on the idea of real estate, right? And it's a mix of like highly paid professionals. So lawyers, doctors, engineers, executives that want to diversify their portfolio, want to have an allocation of their portfolio in real estate, but quite literally don't have the time to go out and buy single family homes and renovate them and manage them or manage the managers. And then and then yes, a large chunk of them are folks who have acquired we have one investor in the Atlanta market, and he was a builder and over his career, he built, he built I mean built tons of homes for himself. He built 65 Single Family rentals. And he and his wife did very well to build their obviously did very well in building up a rental portfolio for himself. They're in their 60s. They're there kids are grown, they want to travel. They don't want to managing 65 single family home. And so he just very strategically liquidated those and rolled those in a very tax conscious way into our passive investments. So I would say, it's a good chunk of people that want one of those benefits, but just don't want to have to worry about it. Michael: Okay. And if someone listening to that is like raising their hand like, yes, me, I fit the bill, I fit the category. I also don't want to do the direct ownership thing. But once the exposure is bought into real estate, why wouldn't someone just go buy a REIT? I mean, what's the difference between like, this type of passive investment or wheat or something that's traded on the open market? Andrew: Yeah, man, that is a tremendous question. So you've got a couple, you've got a couple just… Michael: Yes, that’s one for my episode. Andrew: You've got a couple of distinctions between a publicly traded REIT a real estate investment trust, and investing, investing passively in a syndication or in a sponsored real estate deal. And so I think REITs have their merits. However, oftentimes, what you see in REITs, is a one you don't really have direct ownership. And so one of the things that people really like about investing with us is when you invest in in a deal with us, or somebody else that's using the structure that we use this, this spital 6B or this spital 6C structure. You are becoming what's called an LP or limited partner. And so what that means is you participate in all the benefits of direct ownership, without any of the liability, or the management responsibilities or the operational responsibilities, so you still get monthly cash flows, you still get capital appreciation. So say on a 50, or $100,000 investment, over a five year time horizon, you could potentially see a 2x of that invested capital, in addition to your monthly distributions. And then the third benefit that really a lot of that's it's really appealing to a lot of people is the pass through depreciation. And so every single one of these assets that we acquire, and the sponsors competent, there'll be executing this strategy as well, is they do a cost segregation study. And basically, what that does is it takes the depreciable life of the asset, which 27.5 years, I believe, for real estate, and it fast forwards the majority of that depreciation benefit into the first year. And then as an equity owner, or a limited partner, in that deal alongside us, the general partners operating the deal, you get that depreciation pass through you. And so you can use that to offset any passive income that you receive and the most tax professional, your tax professional. This is not tax advice, but it effectively becomes tax free income. So that's, that's you get the control. And I think when you invest in a REIT, what a lot of people like about investing real estate is the control of your capital, the different things that you can do with it with a REIT, you kind of forego those benefits, you're invested. You're invested in the asset class, but you're not getting a lot of the benefits of being invested in real estate. Michael: Okay, okay. But you might get some of that liquidity flexibility, so to speak, because I can buy a share today sell it tomorrow, that's gonna be very different with a with a, would you call it a direct investment? In a syndication? Andrew: Yeah, yeah, absolutely. Absolutely. So that is, that's the tradeoff is the liquidity piece. And so what we what we tell investors is, hey, we're underwriting these projects, for a five year hold, we've exited six deals. So far today, there's a group that's called having a full cycle deal, when you buy it, execute the business plan, you sell it, every single one of those exits has been three years or less. But that's never a guarantee. So your money is going to be locked up for a time period. And of course, we'll be receiving distributions on that during that time period. But yeah, you have to be, you have to be bought in for the short to midterm. Michael: Okay. And you mentioned that there's no liability with regard to being a limited partner and LP. So I just want to highlight that for…

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4 important tips for underwriting accurate property taxes Jan 29, 2022

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Getting your assumptions right on your proforma is crucial. Having one number off can be the difference between a home run deal and an alligator - costing you big. One of those crucial numbers is property taxes and getting that right isn't always straightforward. In this video, Michael explains how to get it right and properly underwrite your deals.

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Transcript

Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions, and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.

Michael:

What's going on everyone, Michael Albaum here from Roofstock, Roofstock Academy. And I want to talk to everybody today about how to actually calculate your property taxes.

So anyone who's purchased real estate might know that calculating property taxes, nailing them down with are actually going to be can be really difficult because they're not always gonna say the same from when you purchase the property, now you own it, they could absolutely change. So here are a couple things that I always recommend to do in order to really nail down into your pro forma what your property taxes are going to be.

So first and foremost, number one thing you should do is call the county assessor, make sure that you actually pick up the phone, I know it's kind of crazy in today's modern tech world, but pick up the phone and call the county assessor of whatever county the property you're interested is in. So if I'm interested in a property in Riverside County in California, I'll pick up the phone, call the county assessor and just ask to speak to someone who can tell you about how property taxes are calculated, because the interesting thing is that they vary from county to county, even within the same state. So we could be in California, California has a statewide law that says the property tax is no less than 1% of the property's purchase price. Now, Riverside County might do a little bit different than Yolo County or Alameda County, so you want to understand what those differences are. So figure out where it is you're interested in property, pick up the phone, call the county assessor, now.

They're probably gonna throw a bunch of different terms at you, they might say assessed value, appraised value, market value, purchase value, all of these numbers can be different. And they could also be used differently. And so not only do you want to talk to someone who can walk you through how to calculate how to calculate the property taxes and what values they're using, but actually have them walk you through how to do the math, because it can be really overwhelming very quickly, something to keep in mind is that there are three values that tend to be totally independent of one another one can be the assessed value, that's what the county is using to determine property taxes, your second is your purchase price. That's whatever the fair market determines your property is worth, or you determine its worth, because you bought it for that. And the third one is usually from the insurance company, that's the replacement value. And so these are three values that might never ever align, that's okay. So don't worry that the county is assessing your property way lower than you paid for it. That doesn't mean it's it's worth less than you paid for. And same thing with the insurance company, they tell you, Hey, this is the assessed value are the replacement value of your home and you're like, wait a minute, that's 100 grand less than I paid for it again, don't freak out, you want to understand what number the insurance company is using on a rebuild cost per square foot to get to that number and make sure you're not under insured. But it's not a big deal.

If the property value assessed value, which you paid for it are totally different. That's often very normal. So again, getting back to talking with the county assessor, talk to them and actually have them walk you through say, hey, if I bought this property on 123 Main Street for $150,000, how do I calculate my after sale property taxes as an investor, because something else that's really important to keep in mind is that there are often different tax rates for investors versus owner occupants or homesteaders. And so you want to be very, very, very clear with the person you're speaking to that this is a pure investment. Because if they understand or misunderstand you that this is a owner occupant rate, they could give you a lower rate, you calculate it, you're like, awesome, I'm in business, and then turns out your tax rates actually going to be double what you calculate going into it. So again, you want to be very, very clear that the person you're speaking to that this is an investment, hopefully, they're able to walk you through exactly how to calculate your property taxes.

But again, it's going to be different in every county you go through in the country, even within the same state. So don't make the mistake of thinking, Oh, I spoke to this county in Georgia, and now I'm good for the entire state. No, if you decide not to purchase in that particular county, you want to call a county that the property you're interested is located in to determine exactly how you calculate property taxes.

Some counties will just do a new assessment whenever there's a sale and say, Okay, this is our millage rate, that's usually a multiplier that they're using to calculate property taxes times some value, whether it's the purchase price or some assessed value that a county assessor determines the property's worth times the millage rate, that's your property tax for the year. It might be that simple. They might tell you something like Oh, we actually do a reassessment every five years or two years at some sort of regular frequency, independent of a sale. And if that's the case, you want to understand what that future property tax rate or value is, but know that until they do their reassessment you're going to be paying whatever the previous year's taxes were.

Now that's a very common case in a lot of places in the Midwest. So again, just really understand get a high level, but also very specific understanding of how to calculate property taxes. And I would say you should be able to explain it to someone else. Because that's how we in the education world find the best way to learn is actually to teach to someone else. So if you can explain it to a spouse, or a co worker, or a friend or partner, how the how the property taxes are calculated for that particular property, and what your projected tax rate and tax amount is going to be, then I'd say you're in good shape to move forward. But until you can do that, I would say keep having those conversations as awkward as it is, ask them to walk you through how to do it.

So those were a couple tips I have for everyone on calculating property taxes, and it's super, super important. It's one of it's often one of the biggest expenses associated with a property and so you really want to get it right, because getting it wrong could mean the difference between a home run of a property and a potential alligator that's dragging you down with it. So hope you enjoyed this video. Feel free to leave us a comment down below. We love hearing from you all and as always see on the next one, Happy investing.

The best U.S. cities to invest in a rental property Jan 27, 2022

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This episode looks at a recent article (linked below) in the Stessa blog that rates the top 15 US markets to invest in rental property based on a series of metrics. We give our thoughts on the metrics chosen in the study, how relevant we think they are, and note some other market attributes we like to consider when evaluating a market to invest in. Blog post: https://www.stessa.com/blog/best-cities-to-invest-in-rental-property/ --- Transcripts Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Emil: Hey everyone, welcome back for another episode of The Remote Real Estate Investor. My name is Emil Shour, and I am joined by Tom: Tom Schneider Michael: And Michael Albaum. Emil: And in today's episode, we're going to be talking about a blog posts that was recently published on the Stessa blog titled The best US cities to invest in a rental property. So let's dive into this episode Alright guys, so we recently published an article on the Stessa blog called The Best US Cities to Invest in a Rental Property. So this is looking at data from 2020 to 2021. And the idea behind it is to help people see which markets have performed the best, obviously not an indicator of which will perform the best in the future but always interesting to look at. And it details 15 Small metros, 15, midsize metros and then the 15 large metros that real estate investors should take note of and so this is a cool article, I want to go through it with you guys get your feedback. Do you agree with the way that the list was come up with how would you look at it as actual rental property investors? So you guys ready? Michael: Yeah, let's do it. Emil: I'm going to read from the article and we're going to link to this article in the show notes. So anyone who wants to go check it out and read it in detail can do so. So it says to identify the best locations for buying a rental property, our researchers created a composite index based on five key factors real estate investors consider when evaluating a market. These factors include the gross rent multiplier, recent and forecasts at home price growth, effective property tax rates, and population growth. Data Sources include the US Census Bureau, Zillow and the Department of Housing and Urban Development to improve relevance only locations with at least 100,000 residents and available data from all sources were including the analysis. So that's all the boring stuff to get out of the way. But so those key factors, right, so So this team of researchers, they create a composite index based on gross rent multiplier recent and forecasts at home price growth, property tax population growth, without diving into like, the actual list yet. What do you guys think? Are those are those factors that you care about as real estate investor A? And B, what do you think is potentially missing from that score? If you were to try to rank a list? Michael: Yeah, I'm gonna go first, because Tom always leaves me with the scraps! Tom: My mouth was open, when you sort of hit the button, you hit the buzzer first, go ahead. Michael: So one metric that I see a lot like gross rent multiplier grm, it's just not a metric that I find very useful. So for anybody listening, gross GRM gross rent multiplier is basically a measure of the gross annual rent as compared to the property purchase price. And so it's just a number, it's a ratio. And usually, it's a decimal, because unless your property is renting for like a crap ton on an annual basis, you're going to be renting it for less than you bought it for. So it just doesn't give you like a really good indication of what your expenses look like in that market. So probably, like, you could have an amazing gross rent multiplier, but your property taxes are through the roof and so your cap rates are still really low, or your cash on cash return is still really low, so that I don't find very useful. And one metric I would add to the pot would be the like, what the economy looks like, in terms of the diversification. So if we take Detroit, for example, turn the clock back 10 years, that was an industry or an economy that was really propped up by the auto manufacturing industry. And when that went kaput, we saw the whole metro really suffer as a result of that. And so I'm always trying to look at what are the legs that are propping up this local economy, and factor that into my decision making. Tom: Michael I'm gonna come out and just, you know, while grm gross rent multiplier is not the full picture. I think it's bread crumbs, Michael and I don't think you can throw it away in the trash like you just did that little spiel you did. Michael: I'm going to scrape it off with a little fancy silver thing off the off the tablecloth and just throw it over the floor. Tom: I think it's just a slice the GRM, while, sure there you know it's there are some really important components. I think it can directly kind of give you some baseline expectations with regards to cap rate and whatnot. And I'm not arguing with you that it's it's not a complete metric. But I mean, what are you looking for Michael? The like, buy not buy metric? It? Yeah, but… Michael: I want someone to give me the answer. Tom: I think it's it's I think it's a helpful just general metric to look at, when evaluating markets at that really high level. You're not making your acquisition decision. And this is, I mean, a fun thing about buying real estate is that there's funnels, right, you're evaluating markets, then you're evaluating neighborhoods, and you're evaluating properties. And I think the the GRM, it could be an initial Good, good one to start with. So… Michael: Let me let me take a shot in the dark here. Let me I feel like you also love gross yield as a metric. Tom: Love me some gross yield… No, come on, Michael. Here's what you do. Here’s what you're doing with GRM is, you can, you can use that value at a market level to start to kind of benchmark individual properties in that overall area. But you know, again, not the end al be all, I'll go ahead and throw my little thought on the other metrics you like how I changed the topic before like letting you get any any more words in but that Emil: This isn't a showdown guys come on, and you’re treating it like one Michael: Tom made it into one. Tom: Come on. Tom. Come on. Michael: Emil, life's a competition. I don't know if you got that memo. Emil: Yeah, right. All right. I like the fire. Keep it going, guys. Tom: Okay, so I'm going to talk about I liked that they have a minimum population of 100,000. People like in the metros they're looking at. But what I will say is, it's different. If you're looking at a, an area that has 100,000 population, and like that's it surrounding it. It's another thing, if you're looking at a pocket of 100,000, that's right next to a pocket of 200,000 or 300,000. So I personally really like population dense areas, I think, for some of the reasons that Michael talked about, and they generally have more diverse economies. I would add that as another top level metric when evaluating these not just kind of giving it a floor of saying it's greater than $100,000, excuse me, 100,000 people, that's the number. So I think that like clustering, general MSA is like really important in the way that I would evaluate, okay, what's the best rental market? So… Emil: I agree with what you guys said, my two cents, I would ideally like to see something like insurance costs, right? That's another big important costs for real estate investors. Really hard to do that, like blanket and insurance costs. And I'm sure that's why it wasn't included here. But something to consider. And then, you know, harshness of environment, I think is is an important one as well, right? If you have a place that gets very hot and very cold, your capex over the long run is going to be higher than somewhere like Southern California that has more like milder temperature all year, right. So these are all things I think, in a perfect world, you wave your wand, and you could like, have the data for these and plug them in very difficult to come up with. So I think what was used is what's really available and, and easy to collect for this. Tom: I thought of one more thing I would I would want to add on this. So they're giving like percentage changes in home price, you know, year over year, like comparing that to the baseline is really important. Like if you have an area where the average home price is $60,000. And it goes up by $5,000. Right, you know, that that looks like a gigantic jump in and it is but you know, if you're looking at that same area and the average whatever home price is 200,000 and jumps up $20,000 You know, like that baseline is a really is a helpful breadcrumb in the evaluation process. So Michael: Oh, so now you're into breadcrumbs. Tom: Are you kidding me I love bread crumbs. Michael: Big bread come guy. Emil getting back to your thing about insurance kind of the cool thing about it is I would be shocked if you did an overlay with the highest insurance costs over natural catastrophes zones. throughout the US, you'd see a pretty strong correlation. And so in parts of California will parts of the practically the whole state is in a wildland fire zone. And so you see your dwelling fire insurance costs through the roof. Same thing in hurricane zones. earthquake zones is a little bit different because you're getting specific coverage for that. But just for your standard, like dwelling homeowner policy. I would be surprised if it wasn't a really strong correlation with with the natural hazard zones. Emil: Good point insurance guy. Tom: Insurance Guy one more question for you. This is unrelated. Michael: How can I help? Tom: Earthquake insurance? So you are a new new homeowner I believe in California. Michael: Yeah. Can't you see all my earthquakes strapping on my two water heaters? Tom: We were complimenting him balling out and having to double water heater. Michael: One for the sink and one for the bath, you know. Emil: Get a tankless man! Michael: What do you think, I am made f money? Tom: My question before earthquake insurance. Totally unrelated. Do you? Are you? Are you uh? Are you a buyer of earthquake insurance? Michael: Yeah, I am. And there's like so much flak out there for people that get earthquake insurance. And here's the real, like hard pill that people have a hard time swallowing is the deductibles are normally, you know, five, seven and a half 10 15%. But it's of the dwelling limit. So if you have a $500,000 house with a 10% deductible, you're on the hook for the first 50,000. And so for a lot of people that ends up being more than their downpayment, or their equity in the home. And so they figure, if they got to come up with 50 grand, and they only put 30 into the property, they'll just walk away, like and let it go back to the bank. So that's kind of the argument for not getting it for getting it is if you have equity in a property, if you have a lot of cash sitting in the property, then it could very well be worth it. But again, your your deductible is set based on the dwelling limit. So if you've got an expensive property, you're gonna have to come out of pocket a lot of money for the insurance even kick in. And the insurance itself is still really expensive on top of that, even with these high deductibles. Tom: Makes a lot of sense. I’m Sorry Emil, let's get back on track. I'm, I've always interested with these type of insurance questions with Michael. Emil: I'm sure listeners are too. So good question. All right, let's let's get to the list, because that's why people are here. So we'll start at 15. And we'll go to number one, Tom, you actually brought up such a good point. And that the the percentage is not as important as you know, like if I own a home in California, and my property increase is 5%. Versus if I owned a home in Kansas, and it went up 10%. Because my property started out so much more like my actual dollar increase in net worth or equity wherever you however you want to look at it is going to be so much higher. So that would probably be a more interesting way to look at it. But anyway, any guesses on number 15? Tom: Oh, I'm gonna admit I looked at it, but I forgot. Emil: You saw it in the article and don’t remember from five minutes ago. Michael: I think it was somewhere in Florida. Tom: Wait, no, you're jumping ahead. Emil: Wrong, Michael. Michael: Classic. Tom: Wait, it's in the southeast? Emil: Kind of? Yes. Tom: Is it Nashville? It is Nashville. Emil: Good job, Tom. He just he totally just opened up the link and look back at it. Tom: I purposely put in a blank tab just to make sure that… Michael: Because you have no self control, no self control. Tom: Yeah. Emil: Alright. So for this first one for number 15. We'll go through again, the the Composite Index score. And then all the metrics that were used to compile this index, and we'll talk about them. And then for the rest of them, we'll just talk about the Composite Index. But we'll link to this article in the show notes for anyone who wants to take a deep dive on this article. So our composite index on Nashville came in at 53.27. And we'll start with the gross rent multiplier 21.4. So again, that is property value over gross yearly rental income. Median monthly rent 1422 median home price 365,573. Year over year change in home price 20.9%. forecasted home price growth, I believe this is over the next 12 months is 19%. Our effective property tax 0.56%. And a year over year change in population 1.4%. Michael: Your average price point is north of 350. Yet your average rent is about 1500. So man, if you look at the price to rent ratio on these properties, we're in that point five area. So I think if you're looking for a cash flow, these types of properties might be tough to to make the numbers work. What do you guys think? Tom: Totally agree. I mean, I think this is one of those investments where you kind of like believe in the market and the kind of the underpinning economics and I know a lot of people do. Nashville is a very popular place, I think, for people to move to. I was visiting over there recently. And yeah, it is a very cool city. Emil: I was just gonna say north of 1% year of your population growth, that's that's a big chunk for just 12 months. So a lot of people move in there. Micheal: I was gonna say I think something that I've started to do now much more so than I've done in the past is when looking at markets, evaluating the potential for short term rentals as well. And that's something that Roofstock actually just recently rolled out as part of the marketplace, which is super exciting. And so if before you like write off Nashville as a non possible cashflow market, think about some of the other tools in the tool belt, there are other ways you can approach this. And I think you can very easily turn a non capital market into a significant cash flow market via short term rental. Emil: Great point and good plug. Tom: So it's been kind of a, like, not super hot on like vacation rentals, but I th…

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What investors should know about the passive investing strategy Jan 25, 2022

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Whitney is a real estate maven who, after purchasing her first rental in 2002, and hitting a homerun, then nearly losing it all on her second deal, took control and figured out how to invest in real estate the right way. She realized that success must leave clues. So, she studied and replicated the very personal finance and wealth creation strategies the wealthy use. In this episode, Whitney shares her approach to passive investing, the differences between this strategy and direct ownership, a typical deal structure, and what investors starting out in the space should know about this investment vehicle. Whitney's Links: passiveinvestingwithwhitney.com Ashwealth.com --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Michael: What's going on everybody? Welcome to another episode of The Remote Real Estate Investor. I'm Michael Albaum. And today with me, I have a very special returning guest, Whitney Elkins-Hutton with Ash Wealth, and she's gonna be talking to us today about passive investing, and what we should be aware of before we get involved. So let's get into it. Whitney, thank you so much for coming back on the podcast and hanging out with me again today. I really appreciate you taking the time. Whitney: Absolutely. Thank you so much for having me back. I'm looking forward to our conversation today. Michael: Now Me too. Me too. So today, we're gonna be talking about passive investments, which is something that you've got a lot of experience in. And so I'm just curious to know, from your experience, what do you recommend people do? I mean, how do people get involved in passive investments? Because we hear about it, but maybe I don't really know how to do it. So what are some concrete steps people can take? Whitney: Yeah, well, I would love let's back up a little bit and actually kind of define what a passive investment is. And, you know, really, what a passive investment is, is group investing, you know, it seems, you know, especially with any financial situation, or you know, getting into the financial education world, there's a lot of terms that tend to confound and confuse people. But really, at the end of the day, yes, you know, syndication, passive investing, this is all group investing, how can you pull people's monies together, their talent, their expertise, their networks in order to take down a larger asset? That's simply it. And so when we talk about passive investing in let's just pick it, you know, an area like multifamily passive investing. It can be self storage, mobile, home, parks, Bitcoin, crypto, I mean, like crypto mining ATMs, but let you know, if we're sticking to real estate fast back to assets, typically, what you're gonna have is the structure of general partner and limited partners, Michael: Okay. Whitney: And so in this arrangement, the general partners are the active investors, and the limited partners are bringing the down payment to the asset. Okay, so the general partners, they've got all the knowledge, expertise, the market resources, they've put together the team of the brokers, the lenders, the agents, everything that's needed to acquire the deal, run the deal, and rehab the deal even. And then they're also able to bring to the table of credit and lending as well as other investors money. So the limited partner can participate in the rewards of the asset simply by contributing capital. So that was a lad that really it's pretty simple, right? It's like, you know, Hey, Michael, you want to go buy an apartment building together? Michael: Yeah. Whitney: Yeah. Great. Let's go do with 500 other people makes total sense. Michael: Makes total sense. And so that's where the terms GP and LP come from? Is that general partner limited partner? Right? Whitney: Yeah, the general partner is the active role in the investment. I mean, think about it, you don't want to 500 investors, you know, taking on day to day duties of the asset, or even voting on to date day to day operations of the asset. It was just, I mean, that's herding cats. Michael: Yeah. Whitney: So when an investor goes into a general partnership, or excuse me into a syndication, they're looking for the opportunity to relinquish some of that day to day operational control, in exchange for taking advantage of all this massive leverage, and getting their time back. I can tell you, for me, like, um, you know, we talked last time how I built up a portfolio of over 30 single family homes and was doing flipping on the side, right, that was a lot of time, I was making a lot of moving decisions. On all my I can tell you now, I have 38 passive investments. I spend maybe an hour a month reading through the reports and you know, you know, making sure that the distributions hit my bank account, I spend far more time on my single family assets. Michael: Much more active. Whitney: Yes. But, um, it's leveraged, what you're trying to do is create leverage in order to get that return. Michael: Okay. Okay. Whitney: But the steps are, we're flip flopping the steps, right? Because if somebody is, you know, the listener here is like, dang it, I would love to get into passive investing, but I don't know how I have experience in real estate. So I could be considered a sophisticated investor. Maybe they can be considered even an accredited investor, because they have the net worth or the the income to be accredited, but they just don’t know the logical steps, we have to flip their investing model on their head. Because up until this point, they probably have been looking at the asset itself, there's they've been searching for single family homes that have make a really good return. And is that home in a good market? And who's the day to day operator, it's them. They're calling all the shots and making the decisions. Now they might have property management, okay. But they're still very much in control of asset. When we go into the syndication model, we're flipping that on its head, the investors actually investing it in operating business. Okay, so they need to, as we were talking, before we got on, they need to learn how to bet on the jockey, not the horse. So if the horse is the deal, that's fine. And all we still want to get into assets that have good returns and numbers. But we want to make sure that we have an operator that knows what they're doing. Because at the end of the day, an operator that is very seasoned, has a good track record in good business sense, they're going to be able to take any deal and navigate it through the rough waters of our economic environment right now. Michael: Okay. All right, that makes total sense. So how do you evaluate an operator? Is it similar to how you would vet a property manager? You getting on the phone calling these these people and saying, hey, you know, what's your favorite kind of food? Are we gonna jive? You know, we are we a good fit? What does that look like? Whitney: Yeah, are you a leo a virgo? I mean, you could answer that question, but you might get a few chuckles out of it. But Michael: I'm sure. Whitney: Yeah, really, whenever you're learning to bet operators, you want to think of it as a sales funnel, anybody that's been in sales, right? You're trying to cast the widest net possible. But we want to make sure that that that operator that you're talking to is actually already somewhat aligned with your goals. So there's actually a couple steps that we need to take before then. One, is you sitting down and understanding what your investing goals are first, do you believe that real estate is actually a viable asset to invest in? If you can't say yes to that question? Michael: Kind of a non starter? Whitney: Yeah, well, I mean, not necessarily, right. Like you can there's, like I said, there's other assets, like, you know, crypto mining, and solar and all that they're also passive investments, but you know, for our conversation, we're talking real estate, you know, do you believe in the fundamentals of real estate? You can check that box move on? What do you need? Do you need cash flow, do need give you the appreciative gains of the asset. Now, it doesn't have to be an either or there are investments that offer both, but you need to get super clear with what you actually need, not what you want. And I run into the struggle, you know, investors that have the struggle all the time, is there like, oh, I don't need the cashflow. Right now, that's fine. I just want the gains. Well, the, the gains are kind of like the icing on the cake, the cash flow tells me that the investment has is profitable right now, even if you don't need the cash flow, put it in your bank account, save up for your next investment. Okay. Also, when you decide that flip that switch and start living off that cashflow, it's there, okay, you're not having to wait for these investments to cycle out. So I really like encouraging investors to look at balanced cashflow and gains type strategies, then we also want to understand what your risk tolerance is, okay, there's, you know, just like with single family homes or small multi-family, you can get into a development ground up deal or you can invest in a class a suburban, you know, structure that are apartment building or a complex that is, you know, you know, affordable housing but is very, you know, recently built no deferred maintenance, and you're just kind of clipping a distribution for five or seven years. So there's a continuum there, we need to understand which side of the continuum, once you know those, those pieces, now is the time to go find the operator. Michael: Okay. And am I just hopping on Google and typing in syndication operator? Is it that simple? Whitney: You can? Yeah, I mean, a lot of operators right now are online and so they have an incredible web presence. And that is one way to start sourcing operators. I also like and encourage investors to talk to each other get into a group where good because you know, like minded investors actually gather in places. There's websites like CrowdfundingDD, Left Field Investors in their sharing their investing knowledge and who they know love and trust. That's a great way to to kind of create a list you You can attend conferences as well, you know, to that I'm going to be at with passive investing calm this year, I'm going to be the Intelligent Investor here in a couple of weeks and out in LA. And then also, in my own backyard, we'll be at the best ever conference as well. Michael: Right on. Whitney: That's another place where investors and operators gather. Okay, yes, Google searches are fantastic. And but you know, I encourage people, you know, to get a little, you know, put themselves out there, if this is really a strategy they want to go after Michael: Totally. Whitney: Well, yeah, then it's a matter of, you know, betting on these operators. Now, you're going to search them out on their website, and they're going to have some sort of like, investor club that you can apply to, in general, generally, the next step is that you can hop on the phone with them for like, 1520 30 minutes to get some high level questions answered about their company, and also what other open deals that they might have. So take care to read through the information that they're putting out there. Because that can really answer a lot of questions to see if you're, you guys are really aligned with each other. And then you can spend that precious time on the phone get in some of the deeper questions that you couldn't find answers to. Michael: Okay. Whitney: And when you're talking on the phone, I mean, you're wanting to evaluate them, like, do you? Are they genuine? Do? Are they transparent? Do like them? How? What is their background and experience? How many deals have they done? Have they taken on full cycle? Are they doing this full time? Are they part time operators, some of these things throw off a red flag for me, you know, I want somebody to take care of my money as if it's my money, not theirs. And so I want them working on the asset full time, not just part time. And, you know, are there more than one operator? Okay, are they a one one horse show? Or I, you know, there's power in numbers, you know, there's just no way one operator can certainly run the entire deal. So I like to look for two three partners or more, that are operating as assets. Michael: Okay, I was just gonna ask, Is it reasonable to actually get the actual operators on the phone? Or is it going to be someone on their sales team that's gonna tell you everything you want to hear? And then, you know, so and so is so busy running these multibillion dollar assets? They can't, they can't help on a 15 minute call with me. Whitney: So it depends on the size of the investment group. So typically, like if you know, a larger investor group, think about it, you know, some of these deals, say it's a 60 or $80 million deal, there's going to be three to 400 investors individually going into that deal. So it's really in its right, and every time you deal opens, investors have specific questions. So it's pretty, you know, just to get everybody, like on the same page, we're going to try to use a lot of manpower initially to get investors questions, you know, answered. Now, it's a it's a yes and, okay, so initially, if the group's small, you're probably going to be talking to the direct operator, but that might give you an indication of the size of the company. As they grow, they're going to add on an investor relations team, because they have more deals running, they have more questions coming in, they have they want to have an element of scale to the business. Okay. Personally, I want my operator working on the deal, not necessarily talking to hundreds of investors every day, I want them focused on how they can make me money. Okay, so I don't see that as a detriment. Now, Michael: You see that as a pro? Whitney: Yeah, very much as a pro very much as a pro. Okay, now, okay. If I had, say, I'm going to throw down, you know, a $500,000, check, or a million dollar check. Yeah, I would love to talk to the operator to talk to the operator. So there's a balance here. And so you can ask to talk to the operator, there might depending on the group, there might be some, you know, guidelines on a, you know, what stage in, you know, the process of getting into a deal that it's, you know, beneficial for everybody to get on the phone. But, yeah, I mean, if you're going to be investing, you know, you know, any substantial amount of money, absolutely, you should be able to get on the line with the operator, it just might not be until you actually identify the deal that you want to go into. So everybody's gonna have different rules on that. Michael: Okay. All right. Got it. Well, that might undo years of therapy for my middle child syndrome, always being forgotten about never getting anyone to talk to me, but I'll work through it. I'll work through it. I've got a great therapist. All right. Well, that's really good to know. That's good to know. And set exp…

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The 4 pillars of building long-term wealth with Ryan Lee Jan 22, 2022

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For the last seven years, Ryan Lee has helped people build wealth by debunking bogus financial plans based on hope. Instead of hoping the stock market performed, that taxes would stay low, and hoping that his investments would perform as advertised, he developed something infinitely more valuable than hope: Control. Ryan has unlocked a personal path to achieving financial independence as well as a system of money management that he is passionate about sharing. In this episode, Ryan shares his investment strategy and the 4 pillars that you can use to evaluate a potential investment an determine if it is going to bring you the most reliable returns. Ryan's links: https://cashflowtactics.com/ https://podcasts.apple.com/us/podcast/rise-up-live-free/id1500021021 --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Michael: What's going on everybody? Michael Albaum here. Welcome to another episode of the remote real estate investor. Today with me, I've got Ryan Lee with Cash Flow tactics. And Ryan's gonna be talking to us about his background, how he became financially free, and what are some tips and tricks that you can maybe do the same? So let's get right into it. Alright, Ryan, so you were saying before that you figured it out? Because you had to? And so I'm curious to know, what was it that you figured out? What were some of the tips and tricks and tactics that you figured out along the way? Ryan: Yeah, man. So again, kind of going back to Rich Dad, Poor Dad, you know, first he like slapped me in the face and said, Hey, you, everything you think you know about money is wrong, Michael: You're doing it wrong. Ryan: Yeah, you're doing it wrong. And you're an idiot, right? And then the next thing that he said was, hey, the definition of financial success. And this radically revolutionized my thought process. It's not how much your net worth is, like, at the end of the day? No, it doesn't matter how much money we have, no matter how much income your assets generate. And so I started measuring my success off of how much income can my assets generate? And how long is it going to last? And how predictable is it going to be? And this really exposed the lie of the 401k. Because even if I had quote unquote, enough money in the 401k, I couldn't get it right, it was stuck, it was gonna be taxable. And I couldn't take it out before 59 and a half. And so I realized, man, that's that's a trap. So I went down the world of real estate, and real estate is the most powerful wealth creator out there. But it's also a pretty dangerous tool, right? And I went into it super naive. I'm grateful that I did it because I made a lot of mistakes. But you know, I went into the game of real estate trying to do it all on my own. Right, I thought may I'm gonna go out and find the property. And then once I find it, I'm gonna rehab it, and I'm gonna renovate it, and I'm gonna put a renter in there, then I'm gonna collect the rent. And I did that three times, right? And the first time I did it, walked around with my chest all puffed out, right? I'm a real estate investor, you know, and I wanted to tell everybody about it. The second time I did it, I was little bit nervous. And the third time I did it, I almost had a panic attack. Because here's what was happening, right? I mean, every property that I bought, I was actually getting further away from financial freedom. Because I had to find it, I had to renovate it, I had to put a tenant in it, I had to manage it. And man, man, if there's anything that you know about me, I am the worst, the absolute worst property manager in the entire world. And every time my tenant would call me up with whatever sob story they had, I would sob right along with them and say, Hey, don't worry about it, I'll pay your rent for you. And, you know, this happened for a good six or seven months, where I was just bleeding money. And I was bleeding time. And I realized, man, the only way that I can do this is if I start plugging into other people's expertise, right? I can't try to do it on my own, because I'm losing time that way. But if I can find people that love real estate, they wake up in the morning, they're like, Man, I love real estate, because that's not my definition of financial freedom. I love real estate for what it does for me. But I don't want to do real estate. So if I can plug into teams and people that have expertise in real estate, and finding rehabbing, renovating, managing all of that stuff with real estate, then my life, my life gets a lot easier. And I become the CEO managing to outcomes. So the difficult lessons that I learned along the way was don't try to do real estate on your own right? Plug into other people's networks and teams and have them do the real estate. And yes, they make money. But guess what, I get what I want, I get passive cash flow. And I have to manage outcomes. Michael: Yeah, that's so good. That's so good. So now having done that three times, and coming to that conclusion of okay, I want to be the CEO, I don't want to be the person in the trenches, so to speak. Do you think that that's a good place to start? Or do you think that people actually have to go through those first three, or whatever amount of properties it takes for them to get that hands on experience to recognize, well, I don't like this, or maybe I do like this? Ryan: Yeah, dude, that's such a great question. And man, I think everyone has their own individual ways that they learn. Some people are really good by learning from other people's people's experiences. Some people can learn from books and podcasts, some people just learn by getting their hands dirty. So understand who you are and how you learn. But for sure doing it gives you way more appreciation. Because if I hadn't done it, then I would come to turnkey providers and other people that are doing real estate. And I'll probably be a little bit more demanding because I didn't understand the process. I don't understand what's required in the work involved in it. So me doing it. That gave me two perspectives. It gave me a very, very clear understanding of what I don't want. I don't want to be a real estate professional. But it also gave me a clear understanding of what I do want and real estate was the same tool. It was just a matter of how I decided to pick up that tool. So doing it helped me understand, number one, hey, I can do real estates and I can do it to get the outcomes that I want but I don't have to do the do all of the work along the way. The next thing that it helped me understand was, you know, I lived in at the time I lived in a still do I live in an area where it's a lot harder to do single family homes, I mean, the median price where I'm living, man, it's several $100,000. And if I wanted to buy real estate and start in my geographic area, I'd have to have a lot of money set aside to be able to do that. So also, not doing it on my own allowed me to plug into networks like yours and say, look, what if I bought properties in the Midwest? What if I live where I want to live, but I buy where the numbers make sense. That opened up a whole new game for me. And that allowed me to start moving start from you know, rather than moving slow, and what's in my geographic area, it started to open up my expansion to say, what if I look in other areas and buy the right property in the right area with the right team? Michael: That's so good. So something that I hear all the time inside of Roofstock Academy and from this other investors investors in general is how do you do in remote investing? I can't make that mental mindset. I'm too scared to give relinquish control. So I can't go touch and see it and check it on my property managers was it sounds like the drive for you. Because the numbers made sense overcame that fear and relinquishing control is that what happened for you? Ryan: To a certain extent, you know, I still am kind of a control freak. And so every area that I bought real estate, I've gone to that area, right, I've literally gone to the area and that way, like it's kind of fun, because if I go out there, for example, Memphis, Tennessee, you know, Memphis, Tennessee, when I very first one out there, I had no idea I did my research beforehand and kind of understood, maybe some of the areas in that area that I wanted to invest in, took a plane out there, rented a car, got a map, and I just drove up and down the neighborhood's up and down, up and down. And I circled areas I liked, I exed the ones that I was nervous about. But here more than anything, is what I did, I developed a relationship with the team that I wanted to use out there. Because at the end of the day, real estate, isn't the objective real estate is the tool to exchange, that's all it is, I own real estate, someone is going to want to rent that real estate. But if I'm going to do it passively, I have to develop a really good relationship with my property manager, the people who are finding the properties for me my acquisition is and so that's what I spend, spent, and still do spend most of my time on, is developing really, really good relationships, one of the best things I've done, it's such a small thing, but man, it makes the biggest difference. You know, in in the team that I use instead of Memphis, for example. I've been using them for almost a decade now. And I've been out there a couple of times, I did most of my research in the beginning. And now I can manage it from my, you know, quarterback here from Utah. But every single year, I send them a Christmas card, and a gift card. Right, Tom, thank you for all the work they've done for me for my life for my family, I send them a picture of hey, this is what you're helping me do and accomplishments out of my life, please go enjoy dinner on me, right. And it's such a small thing, dude, it's such a small thing. But as I invest in relationships, man, I can't tell you how many times that team has gone above and beyond for me. I mean, they out of all the people, they manage properties for guests whose name they know, they know my name, right? Because I invest in that relationship. On the other side, if I didn't appreciate that team, you know, when I had a vacancy, like, I might just call them up and shoot them out and yell at them, and, you know, cuss at them. And you know, that in the long run is not going to help me be free, that's not going to help me get what I want. And so having done it myself, I understand the difficulty, the brain numbing work that that takes and the expertise that's required to do it the effectively and do it the right way. So I appreciate it more. And I honor the people that I work with. Michael: It's such an important you makes I do the exact same thing, actually, for all of the professionals in my life, all the teams I work with, I do the exact same thing. And you're right, when when I pick up the phone and give them a call, they also pick up the phone and they know who I am, and they appreciate. So I think I think that's a great tip. If nothing else to pour into the relationships that you have in your life, whether it be your lenders, target managers, insurance reps, whoever, but just show them that you care. So when you're thinking about them show the value the relationship I think goes a long way. Ryan: Man it so does, because at the end of the day, here's the crazy part, a house, a rental property has never written me personally a check. It's a person that's written me that says that, yeah, the house is just the lawyer. It's just alert to get people to do business with each other. And so at the end of the day, remember that you're investing in relationships more than anything. Michael: That's great. That's great. Okay, so we figured out and you figured out that remote real estate investing was going to be the tool that you were going to leverage. So what then what was the next step was the next thing that you figured out? Ryan: Yeah, man. And here's kind of a funny thing. And I think a lot of, you know, I'm assuming you're probably a lot like me in this way. You know, I'm very entrepreneurial, right? I like I'm creative. I like to see new opportunities and go chase down those opportunities. So in the beginning, I was like, well, if one type of Cash Flows great, what about all the types of cash flow? And so I bought a couple single family homes, and then I'm like, Well, what maybe I should buy an apartment complex. And maybe I should buy a long term care facility and maybe I should buy this and I was looking at everything through the lens of cash flow, which is a good lens to measure success by but at the end of the day, I still I wanted my time. Right. And I forgot that lesson along the way because the reality is every type of real estate is going to require a certain level of expertise inside of that real estate. And what I found is it's very, very hard to duplicate results inside of multifamily properties inside of long term care facilities that requires so much expertise that it's hard to duplicate those results. And it's hard to plug into teams that do that. So for me, I kind of went a little bit crazy and tried to buy everything. And then I've realized at the end of the day, I'm gonna just go back down and simplify back down to the type of real estate that makes sense for me, single family, three bedroom, two bath Type homes, bread and butter. Because the reality of it is, there's always demand for that type of property always. It's the easiest property for a guy like me just getting involved to understand because man, I've lived in a three bedroom, two bath home, I know exactly what it's like to live there. I know what areas that are good areas, I intuitively know how that works. It's the easiest type of property to get financing for. It's the easiest type of property to scale inside of a portfolio. And it's the easiest type of property to use to become financially free. So that was really kind of in the mid part of my game plan that was a major lesson learned is not all cashflow is created equally. And if I want to, you know, build a niche inside of long term care facilities, then I need to focus on long term care facilities. But if I want to be financially free, find a niche and get rich in that niche and just focus. So once I learned that once I learned the ability with my personal finances to focus, and it made my life so much easier now because it doubled down and duplicate those results. And the more I focus, guess what the better results I get, the better sophistication I get, the better I become an investing and I can get results fast now almost with my eyes closed because I focus on it for so long. Michael: Yeah. Oh, that's so good. Get Rich in your niche. I love that. So Ryan, a question for you though, is when real estate investors first start learning about real estate investing. Their purview is kind of like this. And for everyone listening, I have my hands kind of over my eyes like blinders. All we ca…

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This is the reality of owning multi-family property Jan 20, 2022

Show notes

We often hear investors tell the story about starting in single-family rentals and then quickly changing to multi-family properties to kick their growth into hyper-speed. But that transition is not always perfectly seamless. In this episode, Emil shares his struggle with one of his multi-family properties, and Michael helps him come up with a plan to solve his problem. --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Michael: What's going on everybody? Welcome to another episode of The Remote Real Estate Investor. I'm Michael album and today I'm joined by my co host, Emil: Emil Shour. Michael: And today, Emil and I gonna be talking about his real life debacle that he's in with his triplex and how he's going to be getting himself out of it. So let's get into it. All right, well, a meal first and foremost, and to all of our listeners and watchers. Happy New Year. We're recording this a couple days after the first, you have a good celebration? Emil: Happy New Years, my friend. Yes. I had some delicious I made some wagyu steak at home. We fired up the hot tub at our new house. So it was very mellow, but very relaxing and awesome new year. How about you, man? Michael: Nice. It was great. I went with my wife to a friend's house out in Stinson Beach. California was just right on the water hanging out through the beach walking doing some paddle boarding so no complaints very relaxing. Emil: Very good man. Michael:So today earlier before this episode, you and I were chatting and you've got this triplex and it's given you some headache. And I know you've talked about the this particular triplex in the past but maybe never in this capacity. So if you could bring all of our listeners up to speed what's going on with this triplex? Emil: Oh, man, so for anyone who's probably been listening to the show for a while they know the infamous triplex I'm sure you're tired of hearing about it. But this was a triplex I bought is my first foray into small multifamily. I bought this the end of 2020, November 2020. middle of last year, we had as planned some tenants move out, which was great. We wanted to do some work because it was pretty far under market rent. And so long story short, took us a couple months got the work done. And this one unit of mine has just been sitting vacant for a very long time. I had a my previous pm who wasn't very good. They came to me and they said, all right. It's very diplomatic of you. We have it I have a new property manager as of late so we're seeing how they're doing. But this property manager, we finished everything, the leasing agent. I thought this this property could probably rent for or this unit would rent for somewhere in like the $600 neighborhood. He's like, No, the market has gone up a ton. It's really hot in St. Louis right now. I'm going to shoot for $850 and kind of raise a red flag, but I'm like, You know what, I think this will be a good test of this leasing agent. If they're confident it they can make it happen. I mean, who's gonna say no to 200-250 bucks more rent per month, right? Like, I was like, Michael: Okay, and this was, this was the old pm? Emil: This is the old property manager. Correct. Okay, so sir, a 50. Crickets, I think a month later. Yeah, go ahead. Michael: Sorry. Emil, what was the rent when you bought it? Emil: The rent on this unit was I think 485 or something. Michael: Okay, so you did the Reno and then your projection of six to 650 was already a big jump, but they're saying, Okay, now maybe almost double. Emil: Right. Right. They're saying, you know, okay, we've seen rents go up across the country. They, I think they just overshot it. But I was, again, testing, right property manager I've been working with for about six months, new leasing agent, let's see what they can do. Right, let's see if they can, I think these are all just things to test, right. I try to trust and enable my property manager as much as possible. So I just let them run with it sits there for about a month, nothing, not getting really any applications with decided lower to 800 nothing for another two, three weeks, we lower it to 725 as Keep going Keep going. We get down to I think 675 650. And it had been months and months. And it was just the same old story, you know, property. The leasing agent coming back to me every week, telling me oh, I'm confident we're gonna get it this week. And it's just crickets every week. And so, at that point, you know, this property with with getting it rehabbed and being marketed, were at like, five, six months of no rents. And to me it was just a major, major red flag. Like we're in a hot market, it's true rent is going up, but they just can't execute. And so for me, it was a time to pull the trigger and find a new property manager. I like to move fast. I don't want to wait too long. I think I gave them enough chance and I just wasn't really happy with what they were doing. So I have since then moved to a new property manager, the beginning of December. We've been Marketing at 650. And we're getting kind of similar stuff. What's interesting though, what the difference is here, this property manager, they no longer accepting voucher tenants, and they just have higher qualifications, which I'm okay with. I'm okay if we wait a little. Michael: And what's a voucher tenant? Emil: Voucher is Section Eight, someone who meets a certain income threshold where the city the local authority is helping them pay their rent. Michael: Okay, so this Pm is not accepting those tenants. Emil: Yeah, they've decided, I think this is recent, they decided they're no longer filling vacant units with voucher tenants. So okay, which is fine. I want them to manage, you know, I want them to do whatever they're comfortable with, they have 1200 plus units, they manage they know this game, so I'm letting them handle it. So it's a new year, you know, December was slow the holidays, we didn't get much. And so now it's like, my leasing agent comes to me, he's like, I think we should be at 600. That seems where the market is, is telling us to be. And so, you know, this is just a rough spot for me where I'm like, What do I do here? I've tried multiple property managers. Is it my location? Is it the property like what's going on? And I, you know, I get different answers every week. But it's like, Man, I don't know. I'm curious if you've been in positions like this, what do you what have you done to get a tenant in place? Some additional background, I'd call this a classy property over 100 years old, you know, it's been, there's things have been fixed, but it hasn't gone like I didn't got rehab this place or anything special. So okay. That's the context. Michael: All right. Well, I've got an answer for your question. But I'm gonna first answer it with a couple of more quality questions for you, my friend. So this Pm that you got rid of, because I think I know, I've been hearing a lot of stories like this from people both in the academy, and then just people, fellow investor, friends and colleagues that they're frustrated with their PM, and they don't know what to do, and they don't know how to approach a situation. So was this lack of getting a proper at least, like the final straw? The, the, the, the property manager had been kind of screwing up up to this point. And this was the straw that broke the camel's back, or, or was this kind of that first, second and third strike for you that said, Hey, I gotta I gotta make a move. Emil: The rehab, I think was it went a lot longer than originally anticipated. I think that's every rehab, right? Like, every time you hear about that, it was just like, you know, I got pictures back. And the quality of my property managers telling me, oh, work was great, blah, blah, blah, I'm looking at the work. I'm like, yeah, it's okay. And it looks like we you know, we didn't pay. It wasn't the cheapest, but it wasn't the highest. I don't know, just, it was a couple things for me. But I would say the majority of it, it's the if you can't lease my place, like, how can I continue working with you? That was the majority of it, like, your leasing agent isn't doing their job? I can just keep a property with you. That's sitting two thirds vacant? Michael: Yeah. Now it makes total sense. And so what was the physical process that you went through to get a new property manager? Was it a, let's have a discussion with the existing pm saying kind of an ultimatum, hey, if you can't do this, then this is the consequence? Or was it you know what I'm so fed up. And now I did this other stuff. So walk me through what you did. Emil: I thought about saying, Guys, if you don't get this place rented by the end of whatever, like, I need to move on. My fear there is then I'm basically forcing their hand to find a terrible tenant, just to fill the place and keep my business. So I refused. I didn't want to set an ultimatum and then be in a worse situation a couple months down the road, I try to work with them. You know, I'm following up. I'm not like playing on the sidelines, like I'm getting regular updates. I'm trying to just hold them accountable as much as I can. And just seeing how they do things. And I I wasn't happy with it for months. And so for me, it was just time to move on. Try something new. Michael: And so were you interviewing other PMS? Did you cut the cord before you found a new one? What was that process? Like? Emil: You know, I talked to this was my second property manager in St. Louis. So I had been talking to some other property managers, there's people in the academy who you know, I chat with in Slack, and they tell me, Hey, you should check out so and so. It's funny, you talk to two different investors who've used the same property manager and you get a different story. And so I hadn't, I hadn't there was one backup I was thinking of, but I had mixed reviews about them. And then actually, you had a friend who was raving about a property manager they use in St. Louis. And I, you know, I was getting fed up like, Hey, man, just give them a call. So I called them we had a good conversation. They seem like they really knew their stuff and so, so further out has been great. You know, the last property manager, I was using smaller team, which I was curious to see, like, you know, do I get a little bit more sway with them because they don't have 1000 plus units. But I think sometimes you find that their operations are lacking, or as this company 1200 Plus units, their operations are much tighter, I get answers faster. They have a person who like they have people who master a certain domain, not like you're wearing seven hats within the company, which is actually yeah, I think better personally. Michael: Yeah. Makes total sense. Just, you know, why did you say you're so surprised? Like, can you have a friend like, what are you just like, pick? I don't have friends. Emil: And what was funny, because you asked, and I'm like, Well, you know how this story ends? She told me about the property manager. You're asking me like, you don't know. But you know, Michael: It's it's part of the ship, man, you know, it's for the pod. Alright, cool. That makes sense. And I think that's really good takeaway from from like a process standpoint, for anyone who is in a similar situation or feels like they might be in a similar situation with the property manager of being kind of fed up or having the the demerits accumulate. This is a pretty repeatable process that anyone can go through. And frankly, I think you should be interviewing property managers, as soon as you get an inkling of yours not working out, because you don't want to wait till after the fact you don't wanna be playing catch up, you want to be proactive and have a plan B, and possibly even C, for if and when that day ever does come that you're like, I'm done. Emil: Yeah, I can tell you personally, every time I've started to have doubts about a person, a vendor, or whatever, and I try to work through it, it almost always doesn't work out. So I feel like once you have that gut feeling like things aren't working out. Like you said, you should be talking to other people as a backup, because I found it rarely works out. Michael: Yeah. But so do you think then now having had that experience, you as soon as your next vendor, or relationship you get that gut feel? Are you going to cut the cord sooner? Or are you still going to try to kind of work through it to give people the benefit of the doubt? Emil: I stupidly still give people benefit of the doubt and try to work through it. Because you know, I'm, I'm not like going to fire somebody at the first. A mess up is different to me than like, I don't feel like this is going to work out. Everyone messes up its account, a bit like, are they accountable? Do they have a plan for how to fix this? It's a matter of like, when people mess up and there's no accountability, and they're not. They don't have a game plan for how we're going to fix this or anything. Or they're just being vague. That's when I'm like, Okay, this is starting to give me red flags. Michael: Yeah, makes total sense. And then just out of curiosity, when you ran this, the numbers on this property, how did it cash flow? I mean, what was your expected monthly cash flow? Emil: I don't remember the number I can probably go dig it up. It was probably gonna, I think it was gonna be once we rehabbed it, you know, if I include all the rehab costs, as like, my cash in the property, we were probably going to cash on cash around 10%. I think it was Michael: Okay. And so now the fact that this property or this unit, the middle or whatever, the the unit is vacant, are you negative cash flow every month? Are you still able to cover your costs? Emil: Uh, that one we were okay with when it was offline, we have the bigger townhouse style of the triplex vacant. That's the moneymaker. Right? That one's like 1000 Plus that we're marketing it for right now. It was at like 850 or 900. Before. So with just the one bedroom that we were talking about just now, offline or vacant, we were okay. But now that two are are vacant. Yeah, we're, I'm coming out of pocket every month. Right now. Michael: Okay. All right. And so is your property manager seeming confident that I can get the bigger unit rented out just as easily as the smaller one. Emil: They I mean, when I'm looking around my like, on Zillow for in the area for a three bedroom apartment. There's nothing right now. So for me, it's a rough time because it's the new year. It's cold, usually in colder climates, tougher to get people moving, like people don't move as much during the winter. Plus, you also just had the holidays. So not a lot of people, not as many people are moving. But in looking at the landscape. Like within a half mile mile radius. There's…

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What investors need to know about buying in Galveston TX Jan 18, 2022

Show notes

Ariana White is part of the Roofstock Certified Agent Network and serves in the Galveston TX area. In this episode, she shares what investors need to be looking at if they are considering investing in the Galveston market. We cover both the short term and longterm rental markets, property taxes, zoning, climate and much more. Ariana's contact info: arianawhitesellstx@gmail.com - @arianasellstexas --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Michael: What's going on everybody? Welcome to another episode of The Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by Ariana and Larry White. And they're gonna be talking to us today both about the long term and short term rental markets out in Houston and Galveston, Texas. So let's get right into it. Ariana and Larry White, thank you both so much for joining me today. I really appreciate you taking the time. Ariana: Yeah. Larry: Pleasure to be here, man. Michael: I'm so excited. You two are kicking butt in the short term rental space out in the Houston and Galveston markets. And I'm wondering if you can give our listeners just a really quick background on who you two are as power couple. Ariana: Oh, power couple. Wow, that's nice. Larry: Crazy. Yeah. All right, Jay Z and Beyonce over here. Michael: That's it. Ariana: But you're Beyonce, and I’m Jay Z! So um, so my name is Ariana. I've been a real estate agent for eight years. And I originally started in Vegas, I managed a team out there. Larry drags me to Houston, and actually took like a year off of real estate while I got my license here. And now I manage a team out in Houston. And so we specialize primarily in first time homebuyers and investors. And now going deep into the short term rental market. Michael: Awesome. Love it. And Beyonce. I mean, Larry? Larry: Yeah. And so I have a little bit different. I started about 1516 years ago, and convinced her to get into real estate, about halfway through my career. And so I've been a pretty successful solo agent, ran some very large teams grew a national real estate brokerage around foreclosures and REOs, which took me into the investor space to begin with. And so now we really have some of the most successful groups of Realtors across the country that we teach to duplicate what we did. And we focus and Ariana has a very successful team here in Houston. And as she mentioned, we're actually in the short term rental space personally. And so we're teaching other people, you know, investors that come to us quite often teaching them how to kind of duplicate what we've done and learn from our mistakes as well. Michael: Oh, my God, amazing. Well, we are going to have a lot of fun with this episode. I can't wait to hear about what you two are doing personally, in the short term rental space. But to kick things off, I would love to just get a high level overview of the Houston and kind of Galveston markets. Ariana, as you see them, like what should investors What do investors need to know if I'm totally unfamiliar with those markets? Ariana: Yeah, so Houston is really interesting, because we're one of the only cities where there is no zoning in Houston. Michael: So multi family, commercial single family, there's no… Ariana: Whatever you want. Michael: A whole smorgasbord. Ariana: Yes, and it changes as it goes out into the suburbs. But um, what's really every street is different in Houston. And there's certain little, little neighborhoods that have been, you know, people have moved in and fixed up old homes, and it's really developed, each little area of Houston has really developed its own adorable community. And I will say that the most, for the most part, my investors typically end up being either somewhere around the Med Center, which is a community here it is full of like young professional renters. And there many people in grad school, you have ages down there, Rice University is down there. And there's lots of young professionals that are all working in the hospitals. And so that area is a big area for renters and very high rents, and that is located in the heart of Houston. And also, one of the biggest areas that we're currently seeing is the Spring Tomball Humble. It's looks like humble, you pronounce it Um, okay, so, um, that neighborhood, the all of those neighborhoods, and great low tax rates, that's going to be like the major. That's the key piece. You're looking for a low tax rate in Texas, because property taxes can fluctuate a lot. Yeah. And all of those areas seem to have like young, single family homes that are consistently rented and low property taxes, which is a double win. So those are up and coming areas. Right now we're seeing a lot of our investors kind of go towards Michael: Love it. Larry: And then on the you know, it shifts a little bit when you start getting into the short term rental market, right? Because the taxes, I mean, you always want the lowest taxes. But if you are able to, you know, they talk about in real estate, location, location, location, right. So if you have a high demand because your next Minute Maid Park, because you're in Galveston, and it's a beach destination, not just for people coming in from out of town, but from people in Houston going and renting beach houses and stuff, their taxes can be offset that way. And so that's where you start getting into what is the drive? What is the demand? And like, what are our occupancy ratios, you know, for the entire month. And so that's where you start looking at seasonality and what's driving traffic, are there sporting events, or they're this or they're that. And that's where a lot of our investors can start buying maybe a little bit more expensive properties, right, like, maybe they go down to Edo, which is kind of East downtown, which is one of the top four markets and neighborhoods. And if you were doing a long term rental, it wouldn't make sense, it has high tax rates, you have to minimum prices, probably around 430. And it probably only rents for $3,000 a month. So most of the time, that's not going to pencil out for a long term. But you switch that to a short term, that it's close proximity to everything, and you can get three or $400 that night, and it's occupied 50% of the month, you start doing those, those numbers and you're like, Oh, hold on, this makes sense. So this is really where, you know, when you're looking at an investor, what is your strategy? What is your goal this year, and then we try and create a portfolio or a plan that aligns with their goals. And the numbers will tell us if we're on the right track or not. Michael: I love it. I love it. So and I think this is great, the conversation kind of naturally bifurcated into the long term side and the short term side, which is I think exactly where I want to take it anyhow. So getting back to the long term side for just a minute. And then I wanted to back to the short term side. What should people be aware of in terms of like, big companies that are headquartered out there? Like, why are people moving to the Houston Galveston area? And then for the short term side? Why are they visiting the area? I know you mentioned the beach, but curious to know, what other attractions are drawing people to the area? Ariana: Yeah, so in Houston, and what's real, we have seen what I'm lovingly referring to as the great migration. So we have had a lot of people move here from out of state, their number one draw is low cost of living, right, much lower than many other states that we're going to see either on the East Coast or on the West Coast. And, and what people are really looking for, and what I'm seeing mostly is, um, they're having, like the biggest draw is space. And we see a lot of people moving here from like, very populated areas. And granted, you can get a city feel here, but you can also go 30 minutes out and have an acre of land if you want to and have a full garden and farm and some cows like I mean, and you can have all kinds of tax exemptions, too. So if for any of our military clients, you get a huge tax tax exemption, particularly if you're a disabled vet, you have a homestead exemption here for property taxes. If this is your main living area, you can also have a senior citizen tax exemption. So Texas is really they love tax exemption. So a lot of our clients will use them. To draw that's a huge draw to Texas, people are looking for a little bit more space to either like a personal or business. I'm out here. short term rental wise in Galveston area. We have Moody Gardens. It's the closest beach the water's warm, and it's like a really great place to go take young like children because it doesn't get super deep. And Larry: Yeah, the NASA you have the space center, right and so all of that starts to come into play, which gives you a pretty good occupancy. And what we've seen during kind of this pandemic, right is that people have been wanting to get away and have more staycations and stuff as well. So you know when we get into our we have a short term rental we have a 20 acre ranch out in Fredericksburg and we saw our vacancies like drop drastically because everybody was able to work from home. So as long as we had a decent Wi Fi, they were like, Well, man, why don't I go out in Texas wine country, you know, versus my house and let's go on and the kids can go play outside and do this. So it you know, the market is changing, and we just have to keep stepping along with it. And the customers will tell us exactly what they're looking for. Ariana: Yeah, I actually had a client today call me today. She's gonna be moving here from California. And she's a nurse. And she's like, and I was like, you know, what's your timeline look like? When do you want to be here, and she said, You know, I can really move anytime I'm just planning on flying back. She's in the Bay Area in California. And she's like, I'm just planning on flying back to work. And then I'll live in Texas, Michael: She's gonna commute. Ariana: Mm hmm. And that was a very common thing that we see. So if you're able to remote work, or maybe you don't have to be in the office only, like one or two days a week, people are just buying a little, you know, having a little studio wherever they are based out of renting that out when they're not they're coming back living their main life in Texas and doing you know, flip flopping the opposite. So yeah, so it's, it's provided a lot of this new way of looking at how to be efficient in your workforce has provided a lot of opportunities for a lot of people, as well, in their, you know, in looking looking at your business in a different way. Michael: Oh, that's incredible. Gonna be racking up those frequent flyer miles for sure. Yeah. That's awesome. So Arianna, you were mentioning a couple of the neighborhoods up and coming neighborhoods? Yeah. That you were seeing curious if you can give everyone listening and watching an idea of kind of price points. And what you mean when you say low taxes? Ariana: Yes. Okay. So taxes here in Texas can range differently depending on every every little city has a different tax rate. And so we're known for having our property taxes be a little bit higher than some other states. And so that was definitely something that we have to consider when you're going into an investment property, right, the taxes can either make you or break you. And so when we're looking at properties that we're submitting to Roofstock, and for our investors, I am looking specifically for areas that have lower tax rates, because those are the ones that are giving us our best ROI. So one city here is Missouri City, it's south of the heart of Houston. And that city has notoriously low tax rates, which is great. It's also like a high, it's not a city feel. And it is a suburbia field. So there's lots of single family residences there. That area typically commutes to Houston for work. So there's lots of renters in that area. We've seen great success there. And Rosenberg, Tomball, Spring, and Humble. Those are all of those areas have had really low tax rates in certain pockets and have given our investors like a really good opportunity to get a home up there. Larry: And also what you're seeing is that Houston is expanding, right? If you look at from Dallas, to Houston over to Austin, San Antonio is called the Texas triangle. Okay, it's the fastest growing region in the country. And so what happened? What's happening? You have Dallas expanding, you have Austin, San Antonio, expanding, you have Houston expanding? And so everything's kind of like merging together together. Yeah. Uh huh. And so these suburbs, right, like, especially when you start getting this increase in prices, you know, people start going outside of the metro area, because the metro area, the median price point might be 400 500, etc. Now they can move out and pay 200 300 and get, you know, just a lot more bang for your buck. And so those cities that that she's talking about there are starting to see that and so they're still have a lot of population, a lot of people going to them, you have the difference in the prices, which could help you drastically if you're in that long term rental space. Michael: Totally. And what are some of those medium price points and associated rents that you'd expect to see in some of these markets? Ariana: So for the suburbia area of Houston, and what I'm typically seeing median price points, you can find a for the ideal property, right? The ideal property is a four bedroom. Single Story, maybe two story home, two and a half bath. And right now we're seeing those rents typically, well, we're seeing those sales, typically between 280,000 to 400,000, depending on the community, somewhere in that I just got one of my Roofstock investors into a new home community actually, this one particular new home community, a lot of 10% investors. And so we were one of the last homes to get in there. And he bought a beautiful four bedroom, two and a half bath in a great neighborhood brand new home. And he got that one for 330. And so that was yeah, it was it was a great, great deal. And we're expecting to rent it out for right around $3,000. Michael: Holy smokes. I mean, you're just flirting with that 1% rule. Ariana: Yes, we're right. We can get like right in there. If I get like one person, I get really super excited. So we're like, right there. Michael: Yeah, awesome. Well, something I think people like either fail to recognize or don't want to recognize is like, you might not buy it at 1%. But in five years, it could absolutely be a 1% property and all your expenses should remain relatively unchanged or increased slightly. But if your rent can outpace your expense increase, you got to meet in the shade. Larry: Yeah. And here's one of the things for Texas, specifically that you have to think about in 2008. And nine, the market got crushed, right. I mean, we like we came from Las Vegas, we saw homes depreciate 60 to 70%. Yeah, right, like just crush, you did…

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Rent prices are going up. How should investors be thinking about this? Jan 04, 2022

Show notes

Inflation is here, housing supply is in a crunch, and supply chain shortages, among other factors, are affecting the construction of new starter homes. In this episode, we dissect a recent article from CNBC documenting rental rates and weigh in on what we think this means for real estate investors.

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Transcripts

Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor Podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.

What's going on everybody? Welcome to another episode of The Remote Real Estate Investor . I'm Michael Albaum and today I'm joined by my co host,

Emil:

the lovely Emil Shour,

Michael:

the lovely self proclaimed lovely Emil Shour. And today we're gonna be talking about rents. Where are they going? What are they doing? What can you expect in the near future? So let's get into it.

Alrighty, Emil, what do you think I've got an article here from CNBC. Talking about where rents are going in the near future, what they've been seeing what the markets been doing. Why do you think they're going up? Down? Sideways? No, change your prediction?

Emil:

I think they're going up. I don't think they're going to go up as fast as we've seen in the last year, which has been pretty astronomical. But I think they're going up, inflation is here, rents have been going up with it, there is a supply crunch in housing, all those things to me mean, rents will continue going up because takes a while to build new housing supply is slow to come to the market builders aren't building like crazy, like they did before 2008. So you know, all those signs to me point that rents are going to continue going up, although I don't think it's as quick of a pace of as they have over the last 12 months.

Michael:

Yeah. When you say that home take a while to build and you're clearly someone that has never played the Sims before, because we just got like all those construction crews out here like you just pop them up all over the place. Right?

Emil:

That's right. I wish it was that easy. Maybe like prefab homes, they can just start plopping them down. But you know, even those built around community, everything I've read, and again, you know, you're reading stuff take with a grain of salt, but everything I've read, it sounds like builders are much slower and hesitant this time around, because a lot of them still remember the after effects of leading up to 2008, where they overbuilt and then they were left holding the bag with all these all these developments. So what I keep reading is demand is high. And they are very, very slow and methodical building new supply. Plus, there's a lot of regulation and restrictions, I think, in a lot of places that are preventing new housing preventing it from going up quickly.

I think all those factors. Again, I'm not an expert, but just based on what I've read. Supply is not going up as quickly as people hope it would.

Michael:

Yeah, that makes sense. And I mean, I know that you're a very well read person. I'm curious to get your thoughts shaking your head. I'm curious to get your thoughts on how did we get here? I mean, how did we get to such I was talking with um, I forget who I was speaking with. But they were saying like, we're 5.5 million homes shy of where we need to be. How did we How did we get here?

Emil:

Again, I am no expert. I I read stuff on, you know, my Apple news app. I read it on Twitter.

Michael:

Reddit, Facebook

Emil:

I think it's the same thing I'm talking about right? I think after 2008 When there was a lot of overdevelopment support, like all these charts, you see, you see like building building, building new supply going up fast leading up to 2007 2008. And then it just falls off a cliff. And since then it hasn't, it hasn't caught up. It's been a very slow build. I don't think we've even caught up to those 2007 levels of building of do build. So it's just been really slow. Again, I think it's just builder a lot. A lot of builders probably got wiped out. A lot of people still remember that time. So it's just been it's been slow. Is my understanding.

Michael:

Yeah, I totally agree. I think that we're seeing that lag. There's like the lead and lag measures and we're totally This is our lag measure of like, stuff isn't being built fast enough. Nor was it being built fast enough over the last decade or so. And so now we're feeling the squeeze. And I think that's compounded with supply chain issues like and lumber issues. I mean, lumber has gone up like 300% Over the last 18 months I think something outrageous and I know I felt that

Emil:

Did it do I thought it I went up high and then it dipped is it back up?

Michael:

I think that it is back up. I'm I don't want to be quoted. But I think that it's it's definitely higher than it was pre pandemic level. So while you're doing that, I mean that just that just goes and adds additional stress and costs to new builds. And so the prices, the end prices of those just tend to be higher. or

Emil:

So okay, May 2021. It peaked at, I don't know, whatever this this index on nasdaq.com is looking at 1600 Peak, and then it dipped to in the summer to like 456. And now it's it's back up to 950. So done a little U shaped not quite back up to that level it was last year. But yeah, you're right.

Michael:

I know when I get my material bills for my development project, that's still expensive as I get up.

Emil:

You're like, I know. You're in it.

Michael:

Yeah, yeah. General Contractor, Emil told me that the lumber prices have actually come back down. So yeah, we'll just work that in the budget. So in this article that CNBC came out with, they they quoted a core logic study that that CoreLogic did, and they surveyed single family rents over the course of the year across the country. And in August 2021, they jumped, and more than 9%, on average from your prior, which if you think about it, is like outrageous. If you think about getting 9% 10% 8% Rent bumps, I mean, in the restock Academy, we have our pro forma a calculator that we use, and I think we use like two or 3% for rent bumps, in terms of year over year increase. And so we're just keeping up with inflation, or just beating inflation, because we don't normally use two to 3% for inflation.

So we're just outpacing I mean, this is blowing the socks off inflation, even at five 6% What inflation has been last couple of months. This is still significantly better. So Emil, you and I were talking before we started recording here about what this says for the future of investors for investing in the space. I mean, what is this signal to you? 9% rent growth? Granted, we've seen prices climb like crazy. What are you thinking about the future? You're kind of near to mid term investment horizon.

Emil:

I mean, to me, if I was investing now, I'd be feeling really excited. I feel very excited, having had bought real estate years ago, and now it's gone up. That's the best time to buy was years ago. And when's the next time best time to buy is now? Which can always be said over a long enough time horizon. But right, yeah, man, if I if I'm an investor, and I see the rates are increasing, and they're doing these studies, and you know, reputable sites like CNBC are talking about this stuff. No one ever really knows where it's going. But if I was an investor, I'd be I'd be pretty excited knowing rents going up.

Michael:

Yeah, I feel the same. And I mean, I think this is also not a fad. And this is not a short, this does not seem like it's going to be short lived. If we are millions of properties shy of word demand is both on you know, on the home owner side, that just means that people are going to continue to rent for a long time until that that is caught up with and 9% is nothing to scoff at. And

Emil:

So let's talk about our I'm curious use you still own you and some single family still. Have you had any come up for lease recently versus your multifamily? Like, I have a triplex and it's been a little bit harder than expected to rent recently. And all my single family stuff, like we've been able to get rent bumps and renewals like fast. No problem.

Michael:

Yeah. So my single, my single family that I have on a long term lease in Southern California has not come up for renewal, they're dealing with some COVID issues still. So we're working with a tenant there, but they're month to month right now. But my primary residence that I converted to a short term rental during COVID, that we were getting awesome rents are on a short term basis. And then we actually got that rented out on a year long lease at the same rent we were getting from the short term renters for our long term renters for long term contract. And now we just put utilities on them as well.

So we were just over the moon, about that. And so the demand is seemingly through the roof, which is awesome. Yeah. And so again, I think that speaks to your point of like, it's still a great time to invest demand is still really strong, even if you have to compete and kind of elbow your way into the space. It seems like the rent growth is there to support it. And I'm curious to be able to get your thoughts if you're evaluating a property, and it is just about cash flow neutral, maybe a little bit of cash flow, but you with a 9% or even 8% or even 7% rent growth, you would it would kick you over into the cash flow positive fairly significantly. Is that speculative? In your opinion? Is that is that counting on appreciation or counting on a trend to continue for it to make sense? Are you okay? Because we have because of all the data supporting that?

Emil:

Yeah, I personally wouldn't. I would never Personally purchase a property where I'm either cash flow neutral or negative today in hopes that things go up. I'm only buying something that's going to cash flow and then hoping we get more cash flow right not not the other way around. I know investors, we've done webinars and stuff who completely have banked on appreciation, or not even appreciation buying in areas that have appreciated and looking for missed priced homes right below the median in that area. That's a great, I mean, honestly, if you really look at like, it's way easier to make a larger sum of money going that route, then cash flow, cash flows, like a slow trickle. But for me, I never want to come out of pocket on a monthly basis on any property. Consistently come out of pocket.

Michael:

All right, what if it was like 25 bucks, you know, you do your conservative underwriting, you're gonna make 25 bucks a month. And then with the rent growth, or potential rent hike for next year, you'd be at, call it 150.

Emil:

Only if I knew a renewal, like let's say it was a property. I did this with the triplex. I knew it was cashflow positive when I bought it, but I knew we were under market rent, yeah, we'd have to spend some money, but even factoring that in, we had some nice room to raise rents from where the market was at. And this is a year ago. And so like we've had, you know, rent growth, so it's now it's, it's going up even higher. So if you're buying it under that assumption, right? Not that it's at market rent, you think, okay, it's gonna go up another eight 9% Next year, I'd say if you're looking for a little something that has like a little more of value add on it or whatever, under market rent, then that's a different game. Sure. That makes sense to me.

Michael:

All right. Good to know.

Emil:

What about you?

Michael:

Yeah, I don't I don't know, as I asked the question here. I am thinking like, Oh, crap, I hope Emil doesn't ask me, I think that I would be probably more okay with it than it sounds like you would be. Because why the thing, the thing that I think people often forget about is like all of the benefits that owning real estate have for you and tax benefits is, is massively impactful. And especially for me at this stage in my investing career, and so cash flow, I mean, I'm so fortunate and so thankful that $150 a month, cash flow is not going to change my life, I spent the last 10 years building up cash flowing properties to be at this stage in my investing career in my life. And I I never tried to lose sight of that.

And so the difference between 150 versus 25 bucks for the potential of appreciation, and for the potential of rental increase, I think I'd be okay with that. And this just kind of goes to show you to all of our listeners, like it really depends on where you are in your investing career, what your investment thesis is that a Emil and I can be talking about the exact same property, it could be a go for me and a no go for him. And so just, again, I think this is a great a great kind of teachable moment of like, think about what your investment goals are not about what your neighbors are, what mine are, what Tom's or what Emil’s are. But think about what makes sense for you and your family when you're thinking about investing.

So I'll get off my soapbox now. But I when I go to calculate, like the total return on that type of property where there is good appreciation potential. There's maybe a little bit of cash flow. I think that could often that can make a lot of sense for me right now.

Emil:

Yeah, that's fair. I mean, that's the I think the awesome thing we've seen with this podcast is you know, bringing on different guests doing different things is like there's a lot of ways to win in real estate.

Michael:

Totally.

That was our episode everybody. Thank you so much for listening. Hope you enjoyed it. We love hearing comments, feedback from you all other episode ideas, things that you want to learn more about hear more about, so leave us a note in the comment section. And as always, we look forward to seeing the next one. Happy investing.

Emil:

Happy investing.

Is it smart to wait for the market to cool off? Dec 30, 2021

Show notes

In this episode, we run the numbers on a few different scenarios. We look at the monthly and lifetime payment on a loan at different interest rates to highlight the differences in cost. This exercise illustrates that sometimes waiting for the market to cool might not save you as much money as you might think. --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Michael: What's going on everybody? Welcome to another episode of The Remote Real Estate Investor. My name is Michael album and today I'm joined by my co host, Emil: Emil Shour. Michael: And we're gonna be talking today about a hot topic that if you live not under a rock, you've probably heard about, people are talking about rising interest rates and a potential market crash. So let's get into it. Alright, Emil, we're gonna get talking here in just a minute. But curious to know it's been a while man what's going on with you? Quick 30 second update. Emil: In November, we moved to a new house and we had a new baby. So it's been a very, very boring month. It was a very boring month of November. Not very big, huge life updates. You know, for anyone listening. I do not recommend having a baby and moving in the same month. That was a that was really hard and stressful. So Michael: Or are you just getting it all out of the way on one swoop? Emil: Yes. But no, no, don't do it. Don't do it. So went to sleep anxious woke up anxious. It is. It's a lot of stuff. So spaced out, like six months or something at least. Michael: All right. Well, I will for everyone listening. I've seen both meals, new baby and house both in person, which was awesome. And they are both gorgeous. He does good work. Emil: Thanks. My wife made the baby. So yeah, it's a team effort. Michael: Total team effort on both fronts. Emil: Yes, sir. How about you, man, what's what's new. Michael: All kinds of things like last week basically has been a financial gut punch, I had a bunch of issues with a sale that I did a while back and put some money up in escrow. And some things went sideways with the city. So that's in trouble now. And I'm trying to also close on a new primary purchase on in a day for now, two days from now. And I was supposed to send some money over from a financial institution. And they call me and says, Oh, our servers crashed, we couldn't send that money. And that was delayed by about a week or so. And so this morning, it just came in, in the nick of time. But I was like, how did you not think to tell me that the Amazon server hosting servers crashed and you couldn't send my money, you're holding it hostage for a week. So it's just been a real whirlwind. And then my construction project has gone a little bit off the rails yet again. So dealing with that banks, issues as well. So it's been a lot, it's been a lot, but as they say, when it rains it pours so hoping, um, through the worst of it. Emil: Has anything in real estate gone smoothly for you in the last six months? Michael: Yeah, actually. I was gonna say Yeah, cuz we bought that short term rental. It's been awesome. But they also found out that it needs a new deck, which is gonna be like eight to nine grand, which wasn't found during the inspection. So no, I can say with a resounding no, it's been good, but not smooth. Emil: I think there's a takeaway there is you should expect in real estate that things are not going to go smoothly. Like there's always little things. I think if you expect them, they don't feel so bad. And, you know, I think you've been doing this long enough where you know, it's just, it's just par for the course, like that's, that's how real estate works. It's a physical thing. It has things that break that need replacement. So I don't know, maybe maybe there's a nugget of wisdom there for people. Michael: Totally, totally, I think the hard thing for me is that I may I, my friend has this term, hopeless optimist. Yeah, you are, you know, and so I just hope things and expect things to go well, and when they don't, it's like, oh, man, but then the other side of me is like coming from the insurance world, I'm a total pessimist. And so I have this like angel and devil on my show. Like, it'll be fine. Like, no, it's gotten to be terrible. So it gets exhausting. Emil: Yeah. Michael: But in any case, let's talk today about something that's been on everyone's mind. I think he's been all over the news, rising interest rates, and the potential for the housing market to cool off a little bit looking into 2022. So, I mean, I'm curious to break out the crystal ball. What do you see happening here in the next six 8-12 months? Emil: I don't pay attention to too much news. But I think the Fed has basically said yes, it's inflation, they've no longer use the term transitory. And so I think they've signaled that in 2022, they're going to move rates. How much higher? I don't know that I think it depends on you know, if they move it up a little bit, does inflation start to get in check, or does it keep running wild? I think for sure, in 2022, it goes up somewhat. I don't know how high it could be. But I think it was going to be really eye opening. You know, you and I were talking before we recorded what does like what percentage change in interest rates and what resulting change in price like how does that change your monthly so if you're really Real Estate Investor on the sidelines thinking should I wait should I buy now? We're going to actually run you through the numbers of like, how does this change your payment? And what is waiting potentially do so? You, might be surprised Michael: And curious? It because there's been speculation out there talking that even if interest rates do rise a little bit, or potentially maybe even a lot, that the market won't really care, because there's so much pent up demand. Do you see that there's do you expect there to be a pretty elastic correlation between interest rates changing and ultimate purchase price? being reduced? It kind of in in lockstep? Emil: Yeah, it's funny, there's a, everyone's kind of expecting a crash. So you hear a lot of people saying they have money on the sidelines. So it's like, you know, we're talking about this, when there's a lot of cash sitting there. How much can prices really, for how much of a crash? Can there be if there's usually a crash happens when no one's expecting it? And you know, there's not a lot of money to kind of act as this safety net. But if things start falling, do a lot of investors come rushing in and prop it up? I think that's your question. Right? Michael: Yeah. So that's my question to a degree, but also, maybe because people are chasing yield so much, because things have gotten so much more competitive. When we see interest rates rise, we tend to see prices fall because people's purchasing power is diminished. But maybe people won't care as much this time. Maybe they're so hungry for yield and return that yeah, while the interest rate may have gone up a little bit, diluting their purchasing power, they're like, I don't care. I'm still you know, what was a six cap is now a five and three quarters or five and a half cap, that's still acceptable to me. Emil: No idea, man, I am no good at at guessing. I mean, I think part of it is when you have such cheap money. It's like why not take out a bunch of debt and go use it to get any yield? You can. So I think if interest rate, interest rates go up, I think it should check a little bit of that. But I don't know I'm not smart enough. Nor do I play a person smart enough on TV to tell you what's going to happen. Yeah. So I don't know. What do you think, Michael: Oh, man, I was hoping you weren't gonna ask me that you were supposed to answer. That's why I asked the question like, Oh, if I can get it up first. Yes, the answer. Emil: It's funny, I studied econ in in college, but I have no answer for you. Michael: Yeah. I mean, I'm of the opinion. And again, like you, I don't claim to be this genius person, or even very smart person that has a real grasp on economics, global, macro, and micro. But I do think that there does seem to be so much money. And people are overpaying for properties so regularly, that even if the interest rate goes up a little bit, I don't know if prices are going to dip very much. Because they might just come back to offering full list price or slightly below list price. Because instead of overpaying, they'll pay whatever the list price is. So I just think that there is so much money out there right now, both in the institutional world and people on the sidelines that I have a similar thesis to you that people are just gonna rush in at the first sign of a downturn, or a pullback or a crash, whatever you want to call it, and kind of prop up the market. So yeah, it'll be interesting to see. Emil: As long as there's still a lot of rental demand. And there's a supply shortage, right? There's high demand for single family. rents are going up there. You know, we've talked about it. So I think as long as there's that increasing demand and rents are going up and things are rosy, I think you're right, people are just gonna keep piling in. So yeah, that kind of creates a price floor in my mind. Michael: Yeah, I'm right there with you. I'm right there with you. Alright, well, let's talk about some numbers. Because you and I were running this calculation right before we started recording. And I don't know about you, but I was pretty shocked to see these results, Emil: Same. Michael: And so what we did for everyone listening, I guess everyone watching too. We did some calculations. And we said, Okay, we took a price point of $250,000 for a single family home. And this could be a rental, this could be a primary owner occupant doesn't really matter, because all we changed was the purchase price and the interest rate. And what we said is for $250,000, at 3% interest rate today is fairly reasonable. And we were recording this mid December of 2021. So if you're listening to this and a different time, and you're like the interest rates are nowhere near that, that's my disclaimer, disclosure that when we recorded it, this is where they were at. Watch. We're gonna listen to this in two years, but I can remember the good old days you get a 3% interest rate on a house. Emil: I think we are going to be saying that Michael: I think they're I mean they're so low like this is historic lows. So 250 1000 50,000 at 3% with a 20% down payment on a 30 year fixed mortgage. So that principal and interest payment on a monthly basis is $843. And the total amount paid over the life of that 30 year loan is 303,554. And so this Here's our benchmark, this is the number we use 250K at 3%. So then we said, Okay, what if there's a 10%, pullback in price, and interest rates jumped 1%. So our new purchase price would be 225,000 at 4%. And so we came up with the same calculation what our principal and interest payment would be, and then what the total amount paid over the life of that 30 year fixed loan would be. So the difference in principal and interest payment, drumroll please. This number is $859, which represents a $16 a month difference, you're paying actually $16 a month more than if you bought the property for 250,000. And the total money paid over the life of that loan is $309,365, which represents a difference of $5,811 over the total life of that loan. And so if we are looking at just the property itself, you are actually it actually makes more financial sense to buy it at 250,000 at a lower interest rate, which like blew my mind, I was pretty surprised that that was that significant of a difference on a higher purchase price at a lower interest rate. Emil: One caveat I just remembered, and we didn't talk about before we hit record, your property tax, obviously is going to be a little bit. I guess it depends. It depends on by on where you buy, and how they assess it. Is it on sale price? Is it their own assessment? So that's one caveat, you know, in case people were like, yelling at us in the comments, Oh, you forgot property tax. It's true. True. You'll have to figure that out. Because it depends on where you buy. Michael: Right? That there's it's that's multivariable calculus. I didn't gentlemen, we're not getting into that today. I mean, the other thing that you would want to consider too is is your downpayment, if you're talking about an investment, so from a cash on cash return perspective of on 250, you're putting down 50k on a $225,000 property or putting down for I think 45. So there's there's differences there too, but from a pure money paid over the life of the loan, monthly payment, there's definitely a difference. And it's actually more expensive, on a lower purchase price to 25 at 4%. So now we took that even further and said, Okay, what if there's a 20% drop in the market, and so from instead of 250, we're going to be getting that same property for 200,000. And we left the interest rate again at 4%. And so in this instance. Emil: By the way, 20% drop in real estate, I know 2008 skewed our reality of real estate crashes. 20% is a pretty large crash in real estate prices. Michael: It's pretty significant. Yep. So that monthly payment is 763, which is a difference of 80 bucks cheaper than our base case of 250 3%. And then a total money paid over the life of that loan is like 275,000. So represents like a $28,000 Delta. And then last but not least, we said, Okay, if there's going to be a 20% pullback in the market, maybe interest rates are going to move up more than 1%. So we did 200,000 purchase at four and a half percent, the monthly payment on that is 810, which is a $33 a month cheaper difference than our base case. And our total money paid over the life of the loan, like 292,000. So it's slightly cheaper by like 13,000 12,000, than our than our base case. So we saw a pretty massive reduction in purchase price, a one and a half percent swing and interest rate. And we're only saving 33 bucks a month in our payment, and only like 12,000 over the life of the loan. So if you're someone sitting here thinking like, Oh, I'm gonna wait for that 20% pullback, it's gonna be so impactful for me on a monthly basis and looking at the life of the loan, it might not be as impactful as you might think. But again, I'm yield to your point, property taxes, is important to think about all the other expenses might not be as impacted by purchase price, insurance, you know, maybe a little bit if we see a pullback in the market, if we see a bit of a recession, the cost to build might change a little bit. And so we could see some insurance premiums change a little bit, right. But as far as all the other expenses, your your repairs, and maintenance or capex and all these other things, your rental income potential likely won't change significantly. And so we want to look at the purchase price, your d…

Full show notes at the publisher

5 simple steps to raise capital for your next deal Dec 21, 2021

Show notes

Dave Dubeau is the creator of the Money Partner Formula, and he works with mom ‘n popreal estate investors and helps them to get started with raising capital. He’s a best-selling author and speaker based in Beautiful British Columbia, Canada. He began his real estate investing career in 2003 doing 18 deals in 18 months and nowadays he invests passively in multi-family properties. In this episode, Dave walks us through his 5 step process for raising capital for real estate. If you have run out of capital and credit, or can't get others to invest with you you might want to listen to this. Get a complimentary copy of Dave's newest book, Money Partner Formula at:https://moneypartnerformula.com/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Michael: What's going on everyone? Welcome to another episode of remote real estate investor. I'm Michael album. And today with me, I have Dave Dubeau, who is a Canadian capital raising expert. And he's going to be talking to us today about what we as real estate investors should know about raising capital and how to raise capital for our next deal. So let's get into it. Dave Dubeau, thank you for taking the time at your schedule this morning to hang out with me really appreciate you coming on. Dave: Big Mike. It's my pleasure. Michael: So you and I know each other from before recording, but for all of our listeners out there, can you give us a quick rundown of who you are and what it is that you're doing in real estate? Dave: Yeah, well, I am a fellow real estate weirdo. I'm into this wild and wonky world of real estate investing. I've been doing it one way or the other since about 2001. Actually started when I was living down in San Jose, Costa Rica of all places Michael has spent a decade Michael: Oh my God. Dave: Living in Costa Rica and had a language training down there a company and language training company bought the small building that ran the business out of did ended up doing a couple of what we would call Pre Foreclosure deals down there. Didn't know what the heck I was doing. Didn't even know what they were called or whatever. But they they worked out all right. And then I packed up my Costa Rican family, my Costa Rican wife and our two little Costa Rican kids. And we moved back to the frozen hinterlands of Canada, where I come from originally. Everybody goes, especially Canadians to go, Dave. Dude, what's going on? You're living down in tropical paradise. Your life and you packed everybody up and you move back to Canada. What the heck was going through your brain? Well, here's the thing Michael, we don't realize what we got till we leave it for a while. And as lovely as Costa Rica is being the rather fair complexion person I am in other words, paste the paste white guy in the pasty face white guy I am whether you got money or not in Latin America, everybody assumes that you do. So there's a target on your back. And that of your family now, thank goodness, nothing ever happened to us. But I know two people that got kidnapped and held for ransom down there and thought, hey, oh my gosh, small town Canada. That hardly ever happens. Never. Michael: Go figure. Dave: Yeah, our kids were getting towards school age. So I said, Hey, you know what? Let's start all that start over again in Canada. And so we moved back, but that was in 2003. And then I had to figure out what the heck am I going to do? Right? Because I'd left a business in Costa Rica. I hadn't been able to sell it. So I didn't have very much money. I've been gone for so long. I didn't have bad credit. I had a big fat zero. For credit. I've been self employed for 10 years. So it's pretty much unemployable. So it's like okay, hey, what next? And you're probably way too young to remember these things but I saw one of those late night infomercials but something like this you too can get rich with real estate with little or no money down. So I said perfect little or no money so I stayed away from the course and brushed it off and I think back then it was a bunch of binders and there might have been a Big VHS cassette or two in there Michael: And A track tapes. Dave: Yeah not quite that bad but getting there and put it to use. And I did 18 Creative deals in 18 months and that's that's what I got started real estate took took a few years off helped to up and coming real estate guru up here kind of grow his his company for a few years got back into it started doing not so creative type deals where actually had to come up with money for down payments and quickly ran out of cash and credit like most people do, I hit that wall and I said hey, I've heard of this thing, OPM other people's money. So maybe I should get myself some of that. So I can grow my portfolio. So I rushed out flounder around and failed miserably at raising capital and I remember it i this beautiful deal on the go. I needed $85,000 to close on it. I tried everything that you know people told me you're supposed to dial for dollars, network. schmoozed spammed everybody I knew and bottom line turned off a lot of really good prospective investors. did not raise the money, lost the deal. Got some major egg on my face. And after the dust settled, I said, You know what? That sucked. I don't I don't like dialing for dollars. I don't like networking and schmoozing and turning every conversation into a real estate conversation. Why don't I apply what I understand about marketing, see if I can make that work to attract investors, instead of always chasing after them. So by hook and by crook, I came up with this process that I call, the money partner formula worked pretty well for me. When I was doing those single family home type deals, I raised not a heck of a lot, but probably in the in the range of 700,000 or so for those kinds of deals. And then since then, I've scaled up into multifamily properties raised millions for for those kinds of deals. But more importantly, I've helped other what I call Mom and Pop real estate investors really get things rolling, and cumulatively help people raise well over $300 million in counting for their deals. So it works pretty good. Michael: That's incredible. So yeah, Dave, I think you hit the nail on the head that so many people either hit that wall as they're growing their portfolio, or even folks who are just looking to get started, don't have the capital to start on their own. So how do people How should people think about raising capital? Is it something that only is reserved for the experience? Or is it someone that who, if they're just getting started would also be a good candidate for? Dave: Well, you know, it's kind of one of those catch 22 things, right? So hey, I want to get going in real estate, but I don't have any money. I need money to buy a deal. But I don't have any money. You know, so how do I get if I don't have the experience? Or getting get the money? All that kind of thing? Here's the bottom line, Michael, it's a lot easier to raise capital, if you've got some experience. Do you need to have a ton of experience? No. But I would suggest, if you have even one successful deal under your belt, that's enough to give you the credibility to go out and start using other people's money to grow your portfolio. So what do you do if you if if you don't have money or experience? Well, there's a few different things that you do? Well, if you do have money, then obviously sell finance your first deal, that would be really smart, you got skin in the game, you're going to pay close attention to how that goes, if you got some money, but not all the money. And if you can partner up with somebody else, as a joint venture partner, you both put in some cash, you do all the work, and you still split the profits 50-50 With your investor partner, that's cool that gets you started. If you don't have any money, but you've got some experience of some sort, you can bring value to the table, go find somebody who's doing what you want to do partner up with them, not for a paycheck, but for a tiny slice of equity in the deal. And whatever that requires. If you're good at social media, if you help the person over social media, or you bird dog for them, or you whatever it is that you do, say, hey, I want to be involved in this, I want to learn what you're doing. I want to b e able to use this deal as a case study. And again, you only need to have one deal. And if you do it that way, you've got some legitimate experience behind it. So there's some ways to get involved if you don't have a heck of a lot of cash. Michael: Okay, great. And then so for people that maybe do have a couple of deals under their belt, and are looking to take that next step that are running on capital, how do they position themselves? How do they market themselves? How do they not dial for dollars? Does this help to start raise capital? Dave: Yeah, good question, because I think most of us would rather stick a needle in our eyeballs. No fun whatsoever. Yes. Oh, here's, here's what it's, I'll give you the big 30,000 foot perspective of this five step process, Michael. So step number one is instead of just shotgunning it and thinking everybody in anybody with a pulse and a checkbook could be an investor, what we want to do instead is you want to laser focus in on people that you already have a pre existing relationship with people who you know, and who know you friends, family members, co workers, business associates, people, you know, from the PTA, your sporting associations, civic associations, whatever, you've got a pre existing relationship with these people. So what we do with our clients is we help them come up with a list of about 150 to 200 of these folks, we think, Oh, my goodness, I don't know that many people, chances are you do. All you have to do is export all your contacts from your cell phone, your email address, and social media, all those different places, and then get them all into one place. Chances are there's a couple of 1000 there, and then just quickly whittle it down to people that you actually do know. Okay, so that's step number one, come up with that target group of potential investors. Now, if you got 150 or 200 people in there, they're not all going to become investors, of course, but typically, there's a significant number in there. And what we find with our clients is there's usually between one and $2 million, where the capital within your sphere of influence already, we just have to figure out who's got it, and how can we get them to get ready, willing and able to invest with us, right, so So the good news here is when we focus on this prediction thing group of people that you have that relationship with, you got two out of the three things you need taken care of. In order for somebody to invest with you, they need to know you like you and trust you, this group of people, they already know you. Hopefully they already like you. And they might trust you to babysit the house or the dog for the weekend, but not their 100 grand. But we can work on that. Does that make sense? So we got two out of the three taken care of there. Plus, this really helps you keep compliant with your local securities regulators. So I'm up here in Canada, we've got our own our own securities regulators are no nicer than the SEC, just as nasty. You guys in the state, you got the Securities Exchange Commission, I believe each state has some sort of regulatory body as well. So we got a double whammy. But bottom line is, there's this area that we are allowed to play in. And that is with good people that we have that pre existing relationship with. So let's start with him there. And then, instead of doing what Dumb Dumb Dave did, which is just charging in, like a bull in a china shop and saying, Hey, it's Dave, I got deals, you got cash. Let's be a little classier about it. So Let's reconnect with that target group of people on a personal level first, before we start talking business. Does that make sense, Michael? Michael: Absolutely. Dave:So what we do is we do a very simple, automated, partially automated, Warm Up campaign. So we we do this by email, we can set this all up in a CRM system, so it goes out all at the same time. And then your job is when people reply back to you actually have a genuine reconnection go back and forth a little bit by email with them, because there is capital in those connections. Plus, if you do it, right, it sets the stage for everything that's going to be coming down with the other four steps in this process. Does that making sense coming up with that target group of people first, Michael? Michael: Yep. With you so far? Dave: Yeah. All right, then the second step is now that we got this target group, and now we kind of broken the ice with them. Some of those people might actually put up their hand and say, Hey, Michael, this real estate thing sounds kind of interesting. Why don't you tell me a little bit about it. So now we got to be ready to have an effective investor meeting, right? Most people don't have the faintest clue about how to present their investment opportunities to a non real estate person, like we can get together realtors, and real estate investment clubs. And we could all nerd out and talk ROI. And you know, IRR is and analyze and all this kind of jargon, that the average person they're going to zone out. They're going to feel dumb, and they're going to shut down right? So we got to make sure that we've got a good I recommend a slideshow presentation like a PowerPoint or Keynote or whatever Google slides that walks people through at Reader's Digest level, about what you're doing with real estate. So what does Reader's Digest level mean? Well, that Reader's Digest is a magazine still exists, that's written for grownups, however, it's written at a 13 year old comprehension level. Right? So any average great 8er can pick up this, this magazine and read it and understand everything, okay? We want to do the same thing for our investor presentation. Not that your investors are dumb. They're just not real estate weirdos like us. So we got to, we got to dumb it down for them, we got to keep it really simple. We got to keep it focused on what's in it for them. We got to go through what our process is, what the pros are, what the cons are the rewards, the risks, how we mitigate those risks, overcome objections, answer all their questions, and do this in a fairly short presentation that you can go through with somebody at a coffee shop, or on Zoom or what have you, and about 25 to 30 minutes, with a lot of q&a in between there. So step number two is creating what we call your million dollar investor presentation, and being ready, willing and able to use it. So that's step number one, come up with a list. Step number two, create this presentation and get comfortable using it. Step number three is where we really kick things into gear with a marketing, constant and consistent communication. This all starts with having an investor focused website. So having a website that's completely focuse…

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