On this episode of the Invest Four More Real Estate Podcast I talk to Marco Santarelli who owns Norada Real Estate Investment. Marco has invested in rental properties for many years and started when he was 18! Marco has invested in many states across the United States and explains what he looks for in markets, how he got started investing and why he started a company to help other investors invest in rental properties from a long distance.

Marco started investing when he was 18 years old by buying a condo, rehabbing it and renting it out. He also became a real estate agent and tried to make a career of real estate. Marco found that being a real estate agent was not his cup of tea and he left the real estate business completely. After a couple of years, Marco realized he loved real estate and had to get back into it. He started investing in real estate again, but this time he focused on investing and not being an agent. Marco bought many properties after attending a real estate training seminar with mixed results. He made money on some, lost money on some, but learned a lot!

There are many real estate training seminars available for potential real estate investors. Marco took part in one of the more expensive programs and while it helped him get started he had mixed feelings about the system. The system was over $20,000 and while he was able to profit from the program and it got him investing, he saw many people join up who had no success at all. He was also not fond of their sales tactics and thought they over sold what they actually taught. In the end Marco helped many of investors in the program buy houses that cash flowed, because the program was not working for them.

Marco offers some great advice. Before you spend $25,000 or $30,000 on real estate training, buy a house instead! If you are interested in real estate training programs I highly suggest staying away from the expensive programs that are more about signing people up, then delivering results. If you really want help and training, I offer programs that are taught by an experienced investor (me) that are much more affordable.

Marco invested in many different cities including Detroit. Detroit was thought to be a great market to invest in before the housing crisis with urban renewal all over the city and a strong economy. Houses were very cheap as well and it appeared as if you could not lose when investing in real estate there. Marco learned you could lose, when the housing bubble burst and Detroit was one of the hardest hit cities in the country. Houses that were worth $20,000 and renting for $600 a month, could no longer be rented for anything and were basically worthless.

Now Marco looks at the economy and housing markets much closer before investing. He stays away from markets whose economies are based on one major industry. As an example he talks about South Dakota where housing prices skyrocketed the few years, because of the oil boom. Now prices are plummeting because oil prices have dropped and there really is not other reason to live in South Dakota (just kidding).

Marco runs Norada real estate investments, which sells turn-key rental properties all over the country. Marco still invests in the same areas of the country he helps other investors buy in. Marco has built strong relationships with lenders, contractors and property managers to provide true turn-key properties. A turn-key rental by Marco's definition is already repaired, rented, managed and provides cash flow the moment you buy it.

You can reach Marco on his website Noradarealestate.com

LEAVE A RATING AND REVIEW FOR US OVER ON ITUNES

If there are certain topics you would like covered on the podcast please let me know! Please leave a comment below or email me [email protected]. I would love to know if you prefer the guest format or me discussing my experiences solo.

[0:00:14] MF: Welcome to the Invest Four More Real Estate Podcast. My name is Mark Ferguson and I am your host. I am a house flipper. I flip 10 to 15 houses a year, I own 13 rental properties with a goal to buy 100 by 2023. I’m also a real estate agent. I’ve been licensed since ’01, I run a team of nine and we sell close to 200 houses a year.

So on this show, we’d like to interview house flippers, landlords and the best real estate agents in the business. So stay tuned for some great shows, if you want more information on my rentals, on the numbers, on how I buy properties, check out investfourmore.com.

[INTERVIEW]

[0:00:58] MF: Hi everyone, it’s Mark Ferguson with Invest Four More. Welcome to another episode of the Invest Four more Real Estate Podcast, I have a really great guest for this show today. Marco Santarelli who is with Narada Real estate investment.

Marco has been investing since he was 18, took a little break and got back into it again and he actually runs a turnkey rental property company now. So Marco, thank you for joining the show, how are you?

[0:01:25] MS: I’m good Mark, thanks for having me on, I appreciate it.

[0:01:29]MF: Oh yeah, no problem, I appreciate you being on the show. I always like to tell the story of how people got started investing, how they got into the business. You got into it very, very young, tell us how you got started, what made you want to get in to real estate and how did it go?

[0:01:46] MS: yeah. If you want to go back to the very beginning, I kind of knew as a teenager that if you really wanted to create wealth, you had to do it one of two ways. One is through building a business and I had a few uncles who were self-employed, they had their own businesses and I saw that they had a certain level of wealth.

My family was not wealthy in any way, shape or form, in fact my mother had to work two jobs for many years just to help pay the bills and pay off the mortgage and do that kind of stuff. The other way to get wealthy was through real estate. Again, we didn’t own anything but our own home but I saw other people had real estate. I just knew that that was the way to go. When I turned 18 and I could qualify for financing, I just took the plunge and jumped in.

Quite literally I just bought a town home, an end unit, it needed some work so I bought it. Gutted it out with the help of my uncle who was a carpenter. W fixed it up, I put a sign in the yard, start taking applications. I eventually leased it out, managed it myself and looking back, the whole thing was very much textbook. I didn’t know what I was doing when I started because I didn’t take a course to read a book, I just jumped in and thought yeah, this is probably not hard. Everything worked out well and I kept that property for years and it generated cash flow.

My biggest regret with that first investment was selling it. If I look back, I probably bought it for about 40 or $50,000 and today in that market, that property’s worth over $400,000. So I would have had a free and clear asset worth about half a million dollars that’s still generating positive cash flow. That’s one take away is buy and hold and if you’re in a good market, stay in that market.

But that’s how I got started, that was my first property and then I got the bug and from there I bought another property, it was a condo and then I got my real estate license and sold real estate for a few years and I really didn’t like that, that’s not what I wanted to do but as time went on and then as 2003 rolled around as you probably remember, real estate was on fire all around the country and everybody, it seems like everybody and their dog was getting into real estate.

So I went back into real estate after taking some time off, I took two years off prior to that, not knowing what I wanted to do because I was the fallout of a .com bomb. That didn’t work out unfortunately. I didn’t want to go back into the corporate world and I thought, well, I love real estate, it’s really what I like, that’s what I want to do, I decided to become a real estate investor. To make the long story short, I can dive into more details if you want but effectively, over the course of the next two and a half years, I accumulated a high water market, 84 units. I got a jump in and do this, I did.

[0:04:41] MF: Very cool. I’m curious, there’s a lot of real estate agent as well as investors who listen to the podcast and being an agent is great for some people, other people not so great. What was your take away on trying to be an agent, what didn’t you like about that side of the business?

[0:04:58] MS: Well, to be blunt, I felt like I was chauffeuring people around in the back seat of my car. It’s not exactly that way, it is a service based business and you have to look at it that way but effectively, when you’re a real estate agent, you are self-employed. You’ve created your own job. And so if you don’t get up in the morning and generate leads and go to work, you’re not going to pay the bills. You have to keep generating new business in order to have those transactions close so you get a paycheck and commission and you can keep going.

The smart real estate investor will realize that, “Okay, I’m living in a transactional business and the only way for me to break out of that in other words to get out of the rat race is for me to create passive income.” And that’s the key, if you can get out of the rat race regardless of what you do, even if you like it, that’s okay. The only way to true financial freedom is to generate a passive monthly income that meets or exceeds your monthly expenses.

Once you’ve done that, now you’re literally financially free and you could do whatever you want, whenever you want. That’s the key, you just have to reinvest some or all of the funds you make into income producing assets. Obviously my favorite’s real estate. That’s the key.

[0:06:15]MF: Right. Makes sense. When you were an agent, were you still investing or were you just focused on being an agent?

[0:06:25] MS: I wasn’t selling real estate for too long, I think I was licensed for about two or three years and sold real estate for that period of time. I had a small business on the side, so I was kind of moonlighting, I was doing two things at once. What I did is I did take whatever commissions I made and reinvested it into my businesses and I took some of that, including commissions.

You can get creative as a real estate agent. As long as you disclose everything, you can take your commission and apply it towards your own purchase as part of the down payment. If you want to do it that way, you could do it that way in the right market right?

[0:07:04]MF: That makes sense. Okay, very cool. So then, you took a break, you got back into the real estate business, how did you get that many units so quickly? What was your plan going back into this real estate business?

[0:07:18] MS: Good question. Financing was pretty easy back then, I have to give a lot of credit to the grossly over subsidized financing that was available back in the early 2000’s, thanks to the policies of the government at the time. You know, Fannie Mae and Freddy Mac being government sponsored entities, they’re really backed by the government so they’ll take and buy loans but they made policies so simple back then that you could almost literally fog a mirror and qualify for financing.

In fact it was crazy, you could, at one point you could get up to 130% of the purchase. Purchaser re-fi but it was crazy. Financing wasn’t hard, there were a lot of ways to get financing not just through conventional but even through portfolio lenders. I did take advantage of commercial loans because some of the properties that I was buying were small apartments.

With commercial, they don’t look at how many loans you have or how many loans you have on your credit report. They look at the property first and then they look at your credit score and your ability to meet barely minimal requirements. Commercial financing wasn’t hard and then the third thing I used was some creative finance, I worked with sellers who were able to carry the financing for me for a short period of time.

They’re not there today but they were able to carry the financing for me to the point where I either resold the property or refinance the property and put new financing on it. Financing was pretty easy back then, it wasn’t all that hard.

[0:09:11] MF: Right, I know what you mean, I remember those 120, 130% loans and I kind of looked around and asked other people, does this seem like a good business? Should I be doing this? I guess we kind of found out how it all worked out a few years later.

[0:09:28] MS: Yeah.

[0:09:29] MF: Very cool. Properties you were buying, was your goal at the time to hold them long term or you buying them kind of to add value to them and resell them, what was your plan at that time?

[0:09:44] MF: For the most part I was just buying to hold but I did make a lot of mistakes and I did lose money on properties because I didn’t do what I preach from the top of a soap box today to all our clients and that is, do your due diligence. Make sure you know what you’re buying, confirm the numbers, do your inspections, understand the neighborhood, not just the property. A lot of investors are pretty myopic, not all of them but a lot of them. They’ll get so mesmerized by a property and how beautifully it’s been renovated or maybe it’s new construction.

But they’ll be mesmerized by this property and the numbers really makes sense to them. But then they don’t look at the bigger picture, they don’t step back and take a look at the rest of the properties on the street and that neighborhood and the demographics of that neighborhood and maybe the schools and crime rates in that area and then step back even further and look at the big picture.

“Oh okay, well, it’s in a suburb of a particular market, what is the economy like there? Their jobs, does their job grow? Is that a trend that’s increasing, decreasing?” You got to look at the fundamentals to give you an extreme example, couple of years ago, we saw “huge opportunities” in north Dakota. You just couldn’t find housing. People were literally living in tents because there was such a shortage of housing.

Well the North Dakota market is what I’ll call a one trick pony, it’s heavily based on oil and gas that should something happen like oil prices plummeting down to $45 a barrel like it is today, what would happen in that particular market? It’s very similar to other markets like Fort McMurry up in Northern Alberta Canada. It was crazy expensive how real estate skyrocketed, a shack became an eight or $900,000 property.

When the economy turns or you have an incident where you have oil prices dropped 40, $45 a barrel. Well guess what? Pink slips start going out and all of a sudden people lose their job either temporarily or permanently, the demand for housing goes down, the demand for rentals goes down, and then prices follow. And so you can’t be in those types of market. I guess the point I’m trying to make is, don’t get mesmerized by the property without looking at everything and verifying everything.

That’s how I lost money because some of the property that I was buying were in war zones in Detroit, you could buy a 10, $20,000 house that would rent for $600 plus a month and it’s great while you have a tenant that’s paying but if they’re on sub cities or they work part time or maybe they’re unemployed and they’re making their income from miscellaneous type of jobs or drug dealing, whatever, things happen.

So what you see on paper as far as your pro forma and what you expect to make at the end of the year is not reality. That’s what you’re hoping to see but again, you got to be in the right place, the right market, right neighborhood with the right property and the right management team, that’s kind of what we preach all the time. I made those mistake early on more than once and I learned the hard way.

I ended up firing my property manager and doing my management myself and that was really hard, I learned a lot from it but I came to realize that the ultimate solution for someone who is investing from a distance is to have a very good full service professional property manager because you live and die by that property manager.

[0:13:43] MS: Right, great advice. That is interesting how you said that Detroit is another one of those places where it was very heavily auto industry. When that collapsed, everything collapsed there. Just because you can buy a house for five or $10,000, doesn’t mean it’s a guaranteed win. When you looked at it a couple of years ago there, just tearing down houses because they were basically nothing. Great advice. I’m curious, were you investing in one market, multiple markets, where were you buying properties at?

[0:14:16] MF: At the time I was investing in Michigan, Florida, Georgia and Las Vegas. I was looking at properties in Phoenix but I never ended up buying anything in Phoenix, those were the four markets.

[0:14:31] MS: What made you pick those markets at the time?

[0:14:35] MF: You’re going to think I’m kind of crazy, but in the beginning, I was just kind of just following the lead of what other people were doing. I kind of knew better but I didn’t really stop to put my thinking cap on and really think it through all the way. I just saw other people having success and I just followed through with it. I did have some success for a while. Not all of my investments worked out the way I wanted them to. Most of them were fine but some of them, I ended up losing money on.

I’ll kind of actually go off on a tangent with your question here a bit just to kind of help answer why I picked Detroit as one of the markets. Back in — this is kind of how I ended up starting our company, Norata Real estate Investments. Back in 2003, it was around June, I got an email, out of the blue, I don’t even know how I got on this list but it was from Robert G Allen and if that name rings a bell or for maybe your listeners who don’t recognize the name, he’s a very popular author.

He’s probably authored and co-authored about 20 books, he was considered one of the grandfathers of nothing down real estate. He wrote books like Nothing Down — Nothing Down for the 2000. His first book was Road to Wealth and this are all great books and they’re a little bit dated today but the basic techniques still stand if you can do it in the right market. He had created a company back then called EWI. The Enlightened Wealth Institute. Basically it was just an educational body to bring people into real estate and then have them come in to these courses, these workshops and boot camps.

So I’m sure you’ve heard the story if you haven’t been to the seminar, but they have this event on a weekend here in Orange County California up in Orange. I just signed up for it, the first one they did was in September. I went and there was probably 1,500 people in this massive ballroom at a hotel. It was a two day event, the speaker, his name was Glen, he was very entertaining, he had you riveted to your seat, I mean you wouldn’t even get up to go to the bathroom if you had to go. That’s how engaging he was.

But he was talking about his success in real estate and how to invest in real estate and the possibilities and the potential. It was very entertaining and it was very enlightening and everybody wanted to just get started in real estate investing, that’s what it was about. You’d see people running to the back of the room with credit cards in hand at the end of the first or second day, I think it was a two and a half day event. It was just amazing how many people signed up for these five and six day workshop, these boot camps that were held in different cities.

I took two years off as I mentioned before, I had nothing else to do. I thought, “Well you know what? I’ll just go and do that.” So I signed up for it and one of the events was held in Detroit, Michigan and it was the foreclosure boot camp. That was one of the first ones. That’s the one I went to and the person who was teaching that particular boot camp was talking about all of the great things going on in Detroit and how it’s turning around and all the money being dumped into the downtown core which was all true. There were pockets that were really being revitalized.

But you know we all started drinking that cool aid and a lot of the people that went to that seminar started buying these inexpensive homes in Detroit and many of them were fixer uppers but were fixing them up with the help of people that were there on the ground that were being introduced to us. So that’s how I got into the Detroit market. What was interesting though is a lot of these people who ended up taking all these different boot camps through EWI were still not educated, they still didn’t know exactly what to do, how to find properties, how to analyze them, how to rehab them if that was what the strategy was. They just needed help.

They kept coming to me because I was buying a whole whack of properties at the time. They kept coming to me saying, “Hey Marco, where did you find these properties? How did you analyze them? How did you get it setup, what did you look for? Can you find me some properties,” and really that was kind of the start to Narada Real Estate is people were coming to me asking for help, they were coming to me asking for properties.

And I thought, “Well, maybe there is an opportunity here, maybe people really do need help for something that’s a little bit more “turnkey”.” That’s how the business started. It was in tandem with my own investing and in tandem with me investing in markets like Detroit and southwest Florida and Atlanta.

[0:19:18] MS: Wow, that’s quite the story. I didn’t realize that that happened like that. That brings up a number of interesting points. First thing, there’s a lot of real estate education out there and I think it’s tough to always know what the good stuff is that is or the bad stuff is but I’m not saying those programs are bad or don’t have their value but I always kind of get nervous, shy away when there are more about marketing and trying to get system with the credit card at the seminar when they are giving away information. But I mean it sounds like, at the same time, that program obviously helps you get started and get investing real estate too though.

[0:19:57] MF: Yeah, it did. I think the sore point that I have with it is that people were working out in the beginning I think their basic program was about $15,000 and they eventually worked up their programs to 25 to $35,000. There was a lot of people spending $35,000 on these programs. Just the $35,000. You had to pay — they were all held in different cities, so you had to pay for your flight, your accommodations, your meals for two to three days at each of these cities.

So you paid the tuition of 25 to $35,000 plus the travel to each one of these different cities. The education was okay, it wasn’t great but for many people, it was like drinking from a fire hydrant. The sore spot is that, people were spending $25-$35,000 plus when they could have taken those dollars and used it as a down payment to purchase one or two properties and have a small portfolio right from the get go with positive cash flow. They could have gotten into real estate investing instead they spent it on these courses.

[0:21:08] MS: Right, and even if they lost their money and made a bad investment, they probably would have learned more by actually buying a house than going through the process than you can learn sitting in a classroom. There’s a number of programs out there now from different companies and groups that are, they’re the same type of thing with lots of marketing to get you to buy and then very, very expensive.

It’s crazy to me and the tactics they use to get people to find money too are not always the best routes to go either. Anyway. So your started your turnkey company, are you still investing yourself, you keep buying properties, you started that company?

[0:21:47] MS: Yeah, There’s a small advantage to having 150 properties plus or minus at any given time available on the website, you see deals come along all the time, every day. I’m currently in escrow on two properties right now, it was three but I gave one of them away to a client that was looking for something in particular and what I was buying myself happened to be exactly what he was looking for so I gave it up.

But I’m in escrow on two properties right now and the greater Kansas City market. So yes, I’m still investing today and I do buy the same properties that we offer our clients, that we have on our website. There’s a certain formula or criteria. I know you know this Mark but maybe your listeners are not aware of this and I actually covered this in one of my earlier episodes on my podcast, I think it was episode four and I called it “Turnkey real estate investing defined”.

A lot of people throw the term turnkey around pretty loosely. Most investors have a general idea of what turnkey means but people define it a little differently. For some people, it’s simply rent ready, you’re a real estate broker so you know, you can go to the MOS and pull a property off and I know you bought one of these properties because I’ve listened to your podcast. But you bought a property that was virtually rentable from day one and probably needed just minimal work for cleaning. In fact, one of your properties had a tenant in it.

So I would call that, it is somewhat turnkey but it’s definitely rent ready. There’s not much you need to do to get that thing rented, it’s just a matter of cleaning it and turning it over. But to take that to another level, you want to define turnkey as being something that you can sink your teeth in to, something practical.

For me, what turnkey ultimately ended up becoming was the right market, the right neighborhood, the right property, meaning it’s new construction or newly renovated, there’s no deferred maintenance, you can just take over and you’re not going to have to worry about any kind of maintenance or repairs for the foreseeable short term.

Ideally it has a tenant in place under professional property management and of course when we’re talking about the numbers that have to generate positive cash flow and an acceptable cash on cash return for the investor. That’s what it’s all about, if it doesn’t cash flow from day one, to me it’s not an investment, it’s got to be putting money in your pocket. I’m a big fan or Robert Kiyosaki, I love his teachings and a lot of the stuff that we talked about is based on Robert Kiyosaki’s philosophies and principles.

An asset has got to put money in your pocket, it has to generate cash flow, that’s what it’s all about. That’s an important factor and I’m probably missing a few other bullet points here in terms of defining what turnkey properties and turnkey investing is but that’s what it is for us. And I think that is the best way for someone to build their portfolio if they are either a newbie , just getting started and they need the help, this is a great way to get your feet went and to learn the business and continue building your portfolio.

But even seasoned investors here, people who have 10, 20, 30 plus homes will still come to us because they have careers, they have a profession, they have family, their time is limited, they don’t want to be rolling up their sleeves and becoming an “active real estate investor”. So that turnkey model is really well suited for them because it allows them to build their portfolio in a relatively hassle free manner and they’re still involved but it is as passive as it can get. And I go on tangent for a lot so I’m not sure how I went down that road but I know I was talking about something before.

[0:25:48] MF: Yeah, I’m not sure what it was either but it’s some great information. Like you said, the turnkey definition changes based on who you’re talking to. As an agent like you said, I’ll see properties on the MOS, turnkey investment. It can mean anything from vacant and barely livable to a tenant in place or maybe it’s newly renovated. So many people have a different definition of what turnkey is.

And you’re right, you really have to make sure, your definition as an investor is the same as the definition of the seller who you’re buying the property from. Yeah, I agree with you. Turnkey should be either newer or renovated with a tenant, property manager and like you said, another great point the cash flow side.

I see quite a few turnkeys out there that aren’t really cash flowing but they’re betting on appreciation or talking about how great the market’s going to be and I’m a huge proponent of buying for cash flow and hoping for appreciation but never count on it because I’m not smart enough to predict what the markets can do and I don’t think the economist who study that stuff can predict it either. Cash flow is really what you have to base your investment off of.

[0:27:09] MS: Yeah, you’re exactly right, you got the order correct. Cash flow should be the number one priority, it should be at the top of the list. We try not to talk to investors about appreciation. If they bring it up we’ll talk to them about it but we’ll never discuss that or lead with it because it’s hard to time a market. Granted you can pick markets that are more prone to appreciation potential but if that’s your number one criteria then effectively you’re speculating, you’re a gambler.

The property needs to be an income producing asset, that’s what it needs to be. The appreciation will come along with it. That equity, the real estate guys say equity happens, so it happens in one of two ways. One is through the amortization of the loan, your tenant is paying off your debt service, your mortgage is being paid down by your tenant and each month, that equity, the principle is reduced and your equity grows.

If you look at markets historically, they’ll appreciate anywhere from four to six, maybe 7% on average over the long term. Effectively, what they’re doing is they’re keeping up with headline inflation, the CPI. You’ll get that appreciation over time. In fact there’s been some studies done not too long ago that it’s compared you’re relatively flat or what I call linear markets, particularly in the mid-west to more cyclical markets that you’ll find in coastal areas like California and on the east coast that happen to appreciate and depreciate in very rapid cycles, sometimes in double digit increases and double digit decreases.

Over the long term, what they have found is that a lot of these slower more boring linear markets have actually kept pace or in some cases outperformed the long term appreciation of the cyclical markets. So I got to find that study, I got to dig it up. I’ve heard of it and I just haven’t found it but I never really put the effort in but I do know the numbers in some of the markets because we’re in some of these markets like Kansas City and Indianapolis.

The point I’m trying to make is don’t bet on appreciation, define your criteria and this is what we tell investors all the time. Know what your investment goals are, have a strategy, define your criteria and then use that criteria to guide what you’re investing in and where.

When we look at that criteria, which we help investors define, we take a top down approach. We’ll take that criteria and we’ll say, okay, these are the markets that will help you achieve what you’re trying to achieve with your investment criteria, that might be Kansas City, Indie, Birmingham, Memphis, okay. Now, let’s start looking at combinations of properties and neighborhoods. It was in their criteria, they may have certain requirements in terms of the type of neighborhood.

Is it an A, an A minus, a B plus, whatever? Maybe they have bedroom, bath requirements, maybe they have a minimum cash flow requirement, maybe they have a minimum cap rate requirement? Maybe they’re looking for just a certain cash on cash return? Using that criteria, you can use it process of elimination to start eliminating markets, neighborhoods and properties till you eventually boil it down to a short list. Now when you have a short list, and anybody could do this, it’s not just with us, it’s even doing it on your own.

Define your criteria, look at the markets or research some markets that will help you achieve those goals, narrow it down until you get a short list, now start doing due diligence on those properties. You look at the neighborhood, make sure it meets your criteria in terms of economics, demographics, look at the cash flow on the property, find out what the condition is, you can request, at least with a turnkey provider, you could request a scope work so you can see what has been done to that property.

Ultimately, when you have that short list down to one or two properties, you’ll put them under contract and then the next thing you’re going to do is order an inspection, you want a third party home inspection to go through that property top to bottom. You want to make sure there’s no deferred maintenance, compare it to the scope at work, just see that everything that was said to be done is done. The biggest things you’re looking for an inspection are things that I call “must be done”, you certainly don’t want be done items on there.

You could have things that are meant to be done or what I call “should be done”, that could be a grey area. Matter of discussion but you want to comb through that. Then of course you’re going to have a huge laundry list of things that could be done and those are just things that I call “filler”, the inspector’s going to fill that inspection because they don’t want to send you a blank report. That’s the next item on your due diligence check list.

If you do that, you’ll actually build a portfolio based on your criteria and you’ll be very successful because now you’ll have an income producing asset under management that’s generating positive cash flow every month. Now, the key is to just rinse and repeat. Just keep doing that and keep adding to your portfolio and within five, seven years, 10 years, you should be at a point where you could hopefully be financially free.

[0:32:22] MF: Great breakdown of buying a turnkey property. I’m curious, with your experience in working with people, what are your thoughts on the financing aspect of turnkey properties? Many people are buying out of state, conventional loans, how do you feel about financing in different options or people looking device, the turnkey properties?

[0:32:44] MS: Well the best deal out there in terms of financing is again, your conventional loans, your Fannie Mae, Freddie Mac loans because they’re government subsidized. You’re going to have the lowest interest rate and the lowest down payment. It’s 20% down and you can get rates in the neighborhood of 5% plus or minus for non-owner occupied.

Your first four are usually the easiest to get because they have the lowest requirement, lowest credit score, it’s 20% down. The next six conventional loans will be 5% more in terms of down payment and you’ll have a credit score requirement that’s 700 or 720.

[0:33:20]MF: I think it’s 720.

[0:33:21] MS: Yeah. Right, so that would be your next six. At that point, now you got 10 on your mortgage or excuse me, 10 on your credit report and if you’re married, if you have a spouse, strategically it’s best to do those independently of each other, in other words, don’t put both names on that mortgage because if you’re both employed, theoretically you could double the number of properties you can buy.

10 on the husband’s name, 10 in the wife’s name, now you’ve got 20 conventional loans. At this point, what you’re going to have to start looking at are portfolio loans, there’s many lenders that we work with and there’s many lenders out there that do what are called portfolio loans. They’re not your Fannie Mae, Freddie Mac, they write their own rules, they may or may not sell those loans after they fund them but that allows you to purchase additional properties.

With some lenders, they have no caps. Again, theoretically, you could purchase an unlimited number of properties using that conventional financing. The interest rates are a little bit higher than conventional but they still work, they might be in the upper five or 6% range and then there’s some boutique lenders that will finance foreign nationals. We work with about three companies that will finance Canadians, almost any for a national investor.

Those rates are usually in the seven and a half to 8% range but in the right markets, the numbers still work very favorably and you can still get up to 30 year fixed rate mortgages. There’s really no excuse for anybody that has decent credit and some investment capital for a down payment 15, 20, $25,000 plus. You can get started. There’s financing options, there’s a lot of financing options today. Two, three years ago was pretty tight but right now it’s opened up, there’s a lot out there.

[0:35:15]MF: Right. I talk a lot about portfolio lending. If you can find a great portfolio lender, it can make your life so much easier because it’s rental properties or even flipping, they will finance flips too which many people don’t know. That’s great information. The foreign national thing as well, many people don’t realize, you can get a loan as a foreign national, it’s not easy to find those lenders but they do exist and after talking to people all over the world, United States has a pretty unique real estate investment market compared to a lot of places where it’s just really hard to make money.

[0:35:53] MS: Yeah, the US is interesting because again, we have these government sponsored entity of Fannie and Freddie, we’re the only country that I know of and has been for a long time that offers a 30 year fixed rate mortgage, that’s unheard of in other countries around the world. Canada has a 25 year amortization as supposed to our 30 amortization. But in Canada, you have to lock in a rate for three to five years and then after that term is up, you’re effectively refinancing that loan at a new rate.

It’s almost like getting a new loan every three to five years. I’m not a fan of that type of financing but that’s what they have, that’s kind of what they’re stuck with. I’m not sure how it works in Australia and in the UK but we’re pretty unique here in the US having 30 year loans. In fact, a few years ago if I recall, we even had a 40 year, there were some lenders offering 40 and even 50 year amortization loan, that’s incredible.

[0:36:54] MF: Yeah, I was just thinking about that, when you’re saying that, I remember those 40 year amortization, “Man, I wish I could get one of those down to help my cash flow.” Great information. We are really in a unique marketplace in the US and that’s why so many people from around the world are investing here. Great information. So tell me, now if somebody is interested in buying a turnkey property or they’re interested in talking to you more about turnkeys, what’s the best way for them to get a hold of you, to see some of the properties you have?

[0:37:26] MS: Well, we’re pretty open about having a strategy session, it’s essentially a free call, it could be 15 minutes plus. It’s funny how some of those calls end up being an hour easily but anybody can just call our office and talk to one of our investment counsellors and what they’re going to do is they’re just going to talk to you about what you want to achieve.

What are you trying to do, where are you today, where are you trying to go, what are you thinking of doing and that will tell us pretty quickly if we can help you or not. If we can’t, that’s fine, we would have a good conversation. At the end of the day, what we’re trying to do is just help people get their bearings straight so they can define their goals, their strategy, their criteria, the criteria will help define where they should be looking and what they should be buying, we could at a minimum help guide people to figure that part out.

Then, if they want to work with us, great. If not, that’s fine too. We’re in about 10 different markets in the US and that changes from year to year just depending on the economics of that market, the rent to value ratios, the economics, the fundamentals, how healthy the housing market is. That’s what we do day in and day out. I don’t know if I’m answering your question.

[0:38:43] MF: So they call you, should they go to the website? And I’ll put the links in the article. But yeah. What’s the best way to get in touch with you guys?

[0:38:53] MS: Yeah, probably the simplest thing to do is just to go to the website because we have a contact form there and an 800 number as well that people can call from and then the primary website is Noradarealestate.com — that’s N-o-r-a-d-a — Noradarealestate.com. And there’s tons of articles and there’s actually a great free report there too. Called the ultimate guide to passive real estate investing and it’s a free download.

[0:39:21]MF: Right, we’ll send a link to that website on the article write-up I do for the podcast. Yeah, you have a podcast yourself as well, that’s full of great information, I encourage people to check you guys out for sure. I think that’s about all I have for the show. I always like to ask people before we leave, someone just starting out in real estate, trying to figure out investing strategies, what advice can you give someone who is beginning, trying to figure out where they want to go and what they want to do?

[0:39:54] MS: Wow, that’s a pretty broad question.

[0:39:56]MF: I know, that was pretty, really broad but I’ll put you on the spot.

[0:40:00] MS: Yeah, I could probably take an hour answering that and I know you don’t’ want me to do that. If someone is just starting out, what they should do? Okay, so here’s what I would do. The first blog article on our website is called the 10 Rules for Successful Real Estate Investing. It’s always at the top it’s a sticky post because it’s really starting point.

The first rule of the 10 rules is knowledge. Knowledge is the currency of today. Without having knowledge, you are basically going to follow other people’s advice and you’re going to be prone to doing what other people suggest you do or tell you to do and you just become a lending effectively. What you need to do is educate yourself, that’s the starting point.

If you’re just getting started and you need to just get put on the tracks and have a right mindset, read Kiyosaki’s Rich Dad, Poor Dad. If you’re past that stage then get Gary Keller’s book The Millionaire Real Estate Investor. There are a lot of great books out there to help educate you, there’s some great podcast, there’s your podcast. My path of real estate investing podcast. There’s so much free information out there that there’s no excuse for not educating yourself and building a knowledge base.

The more knowledge you have and the more knowledge you apply, the more successful you’re going to be, you just can’t educate yourself, that is a starting point, that is the key to it all but you need to apply that knowledge. The next step is to take action. Start with knowledge, build upon that, get familiar with terminology and strategies and markets and ask people questions and that’s really how you’re going to accelerate your success.

[0:41:51] MF: Great information, I would say to you, when I first started out, I’ve been an agent for a long time and flipping houses but rental properties is just a completely different ballgame. I listened to some lenders and some other agents for investing advice who apparently had no idea what they’re talking about, they’re just kind of telling me what they had heard over the years.

And it taught me that even though they’re real estate agents and professionals in the real estate business, you really want to listen to people who are investors. Not just agent, not just lenders but people who have invested in real estate and want to do what you want to do because just because I’m in real estate doesn’t mean they know anything about investing. I learned that a long time ago.

[0:42:37] MS: It’s true. Yeah, most real estate agents and this is not a put down in any way, it’s just what they’re trained in. They’re effectively sales people. They’re trained in real estate, they have to understand the laws, the real estate laws but at the end of the day, they’re trained, educated sales people. It doesn’t mean that they know how to invest or how to analyze an investment property, in fact, I don’t know the statistics but a very small percentage of real estate agents actually buy real estate as investments. I saw statistic not too long ago, the percent of real estate agents that actually own their own home.

Many of them rent, they’re selling the stuff but they don’t actually buy the stuff.

[0:43:25] MF: It’s staggering, I saw that statistic too, it’s been a long time ago but I’m like “that is crazy”, how many real estate agents rent and don’t even own their own house and they’re selling it. Investing is even very few agents on investment property. Yeah, you’re right on with those points.

Marco, I think we’re coming to the end of the time we’ve got allotted for this interview. Really appreciate everything we talked about, advice you’ve given, really spot on, many different ways I feel about investing as well. Thanks a lot for being on the show, hopefully look forward to talking to you again soon. Really appreciate it.

[0:44:06] MS: It was my pleasure Mark, thank you very much.

[0:44:08] MF: Alright, thank you Marco, have a great day.

[END]