The SFR Show

In this episode, we have one of the SF Bay Area's top real estate agents, Brandon Kersis, talk to us about how to be smart with renovation projects and pricing strategies.  

Brandon on Instagram: https://www.instagram.com/wcrealtor/

Brandon's Website: www.thekersisteam.com

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Transcript

Tom:

Greetings and welcome The Remote Real Estate Investor. On this episode we talk to a selling agent Brandon Kersis one of the leading agents up in Northern California in the East Bay. We talked to him about how to set price, his thoughts on ways to add value to the sale price and all that good stuff so all right, let's do it.

Welcome to the show, Brandon. Thanks for jumping on before we get into the the meat of the conversation. Let's give a little give a little introduction about yourself.

Brandon:

Yeah, thanks for having me on and happy to be here. Um, my name is Brandon Kersis. I run a real estate team in East Bay, called the Kersis team and we sell mostly around the woman Creek lumber and Lafayette Alamo, Danville areas, do a lot of residential real estate. We got involved just created the team about four years ago growing since we were number one broker at our company this year, and I got involved with my family and happy to be on and share my expertise.

Tom:

Well, we are a remote real estate investing podcast, you primarily do owner occupied stuff. Is that right?

Brandon:

Definitely. Yeah, a lot of owner occupied stuff. But we do some duplexes and a little bit of multifamily but mostly single family residential owner occupied.

Tom:

Awesome, awesome. I think the theme today, I think there is a lot of kind of just general principles of maximizing the value of the sale. And I think when we were talking about scheduling this, you had recently won an award for like most sales, like within the company. Is that right?

Brandon:

Yeah, yeah. Top single broker at the company.

Tom:

Yeah, awesome.

Michael:

Yeah. Good for you. That's awesome.

Brandon:

Thanks. Yeah, it's been a lot of hard work. I think what makes us a little different is that we do have a lot of experience getting properties prepped really well for market. So I can definitely speak on that today.

Michael:

Well, Brandon, I'm super excited to talk to you today. selfishly, we always joke that half these podcast episodes are self serving. So I've got an investment property that I'm planning on selling to an owner occupant down in Southern California. So we'll definitely be picking your brain as we go through this.

Brandon:

Sounds good.

Tom:

Alright, so we have a couple of a rough agenda. And I think the general theme that you know, transcends between owner occupied as well as selling rental properties is how do we get the most value on the sale and the categories that we have identified ahead of times, and you know, like, all episodes is going to be conversational. So we'll probably go down some rabbit holes, but one of them is related to construction projects. So you know, upgrades in the kitchen, that marble, all that kind of good stuff, we're gonna talk a little bit about price setting strategy, we're gonna talk about marketing collateral relevant, not only as a remote investor, but just in these times of a pandemic of getting the most bang for your buck of perhaps virtual visits are not actually seeing the property.

So Brandon, I'll let you kick off the conversation. So thinking about maximizing the value in doing work on the property and preparing to sell it, I'd love to hear your sort of philosophy. Go ahead and ramble on. Let's hear it.

Brandon:

Yeah, I mean, the whole thing about maximizing value, you know, when you prepare a salad, trying to get the ROI, right, you don't want to spend any money that you're not going to get back. And that's regional. And it also depends on what kind of house you have. I think the first step is understanding your local market and also understanding the house you have, right because if you have a very specific house to a specific buyer, your strategy is going to be a little bit different. If you have a house that all the buyers want, there's no objections, everyone's going to bid on it. So that's one thing to consider when prepping.

Basic realtor makeover that everybody does in the past has been, you know, paint stage make it look really like plain and kind of newish. But there's different strategies you can do, especially with investment properties. Sometimes people want a bite of equity when they come into the property. So you may want to actually present the property as a fixer. There's buyers out there, they're doing left and right swiping, and they want to see dirty carpets, they see brand new carpets, they're gonna do a left swipe right. So.

Tom:

Yeah.

Michael:

How do you know Brandon, if you have a, like you said he like a unique property or a property that everybody would want to bid on?

Brandon:

Well, like one thing, like in particular in our areas that schools are really large driver of the market. So we take a look at that. And then what else do you want in a house schools are really important, flat grassy areas. So flat grassy backyard is going to bring you 13% more than a sloped yard on average. So that's a pretty big number when you have a median home price of like a million plus, you know, that's going to be a significant boost in value.

So if that's the case, and you're catering to a market that's really specifically driven for schools and lifestyle for the family. You want to make sure that you landscaped that space really well. And now it'd be you know, maybe a considerable investment That people in the past may not have considered as much. But with the COVID pandemic, and just the different dynamics at play with work from home, you may want to consider actually, you know, doing a larger investment in landscaping and yard like that, because that's really what you're selling, right? That's one of the big selling points of the property, good schools flat, grassy backyard, you'd want to try to embellish those positive features of the property.

Michael:

Interesting.

Tom:

And thinking about this and rentals. I mean, I think that's one of the main tailwinds of a single family rentals, where you get a little bit of premium rent as it relates to having that yard where you might not necessarily be getting that if you're buying an apartment complex.

Have you seen changes in the type of scope that you do in preparing to sell over the last several years over the last, I don't know, five or 10 years? Where before used to be like, Oh, we got to do the kitchen, we got to do XYZ? I mean, I love that strategy. You're talking about it being more targeted where, hey, maybe you want to leave some stuff undone some stones and turn just so it gets the buyers imagination? I mean, have you seen that evolve?

Brandon:

It's an interesting question. You know, there is a lot of cheap money out there, right. So the time is really one of the tricky things. And if you have people working from home, doing some remodeling can be pretty tough. So you know, actually probably have seen it evolve more, it's having a property finished as much as possible when preparing for market.

But if you look at what sells houses, Kitchens and Baths, typically, right. So if you have, let's say, a property that you can kind of with photography, I just do a little bit of an update on the kitchen, maybe, let's say by doing a countertop span, you know, depending on the market, and 7000 bucks, changing a countertop and a kitchen and then painting the cabinets. And then we'll do something like staging around the bathrooms, if the bathrooms are dated to try to get an impact for the buyer that they kind of pass by the defects of the bathrooms, because they're focused on the kitchen beam. So it's trying to strategically pick a few features of the property that you can really have stand out. And again, embellish those features and try to get them to buy in to the good parts of the house.

Michael:

Interesting.

Tom:

Yeah, it's interesting about wanting more turnkey buyers are looking for because, you know, there's just an endless supply of television shows of people, you know, making it their own. I'm doing my own thing. And I think that I think maybe people have cycled through and tried to do home renovation and then realize it's really hard. And it takes a long time.

Brandon:

A ton of buyers probably that are interested in this podcast, specifically do not want to pay for other people's updates, right? You have to be careful. That's like a pretty big, you know, like, I don't want to pay for somebody if they don't do it, right. So if you do make choices, you do want to do a good job.

Michael:

So Brandon, but that brings me to a question I have for you. So something we talk about a lot in the Roofstock Academy is knowing where your highest and best buyer is going to be when you're prepping to sell a property. And so how do you coach your clients about either making upgrades or advertising it as a fixer upper? I would just imagine that somebody who's gonna buy a fixer upper is gonna be less particular than somebody who wants a turnkey product. They're gonna find every single zit and pimple on the property, right?

Brandon:

Yes. So like with the fixer upper, you want to focus on negotiation, right? You gotta pick a fixer, you want to do some preparations around negotiation, because that's going to be a pretty, pretty big thing that you're going to be dealing with. So you can do some pre inspections and stuff like that and just be prepared with market knowledge to know where the price should be in depth. You don't want to double discount, right? You don't want to sure price the property low and give a discount for condition as well. That makes sense.

Michael:

Okay. Okay. And so how do you coach people through whether to you know, make the repairs and marketed as a turnkey versus marketed as a fixer?

Brandon:

That's a good question. Yeah. It depends on how close you are on the spectrum. Right. If you're pretty far away on the spectrum of being being a fixer, I think you go with it being a fixer. And you just mark it that way. Yeah, that's that's pretty much it. If it's got a lot of wood damage. That's a pretty big one. Wood damage can be pretty costly. So we stepped into a listing for the agent property management property in Walnut Creek, East Bay, and she fixed it out she put a nice floor she did a new kitchen. They didn't fix any of section one stuff. The framing was fungus damaged with moisture. And there was like a $40,000 pest report on the property. And then they'd been newly remodeled.

Michael:

Ugh they put lipstick on a pig.

Brandon:

That's like the antithesis right? You don't want to open up a can of worms. You know, that would have been a great property that just kind of leave as is and just market when it could be.

Michael:

Handyman special or TLC?

Brandon:

Yeah, people love that.

Tom:

Totally unrelated, I had a good friend in college or Somali who his car was like dying like it was bad news like it was on its last couple miles and he's like, well, you know, I'm gonna give it a carwash, I going to enjoy the last few miles that I had with it, it's like the same thing where you have a house, it's falling apart, you just dump a bunch of paint on. I guess it's…

Michael:

Put a bunch of money into it.

Tom:

Yeah. brutal.

Brandon:

Yeah. You don't even want to paint it? I don't think, I think you probably let it go, you know?

Tom:

Yeah, that makes sense. And I guess that kind of ties into this next type of question on price setting.

So I'd love to hear your kind of philosophy and talking with a client about price setting and the ways that you're thinking about, you know, are you setting it low and opening it, a lot of bids are setting a little bit higher to raise the baseline?

Brandon:

Yeah, I can't price setting it's super specific to the market and the property. And you can be way more comfortable. If you've got, you know, a good strategy pricing low if you don't have a lot of objections, but you really want to know where the market is. But if you're pricing aggressively to draw a bunch of people in, you want to know where your target is, you need to have a pretty good idea of how high above asking you can get. And a lot of that can be done locally. Like if you guys are investing, you know, in an area that you're not super familiar with, you might not be living there, just create really good relationships with the real estate agents in the area, make some friends, and just call them and talk to them. And if you'd be friends and agents, they will give you all their secrets, they will give you all their opportunities, they will tell you everything that's happening in the market.

So for instance, we have this upcoming property, we did a listing presentation last night, we recently broke the record in the area as a townhome, and it was an original condition. And all the comparables nearby were about 750 we were a fixer, we spent two weeks we spent $30,000, we just got 830. So the appraisal came in at 100 a day to come up with $30,000 cash is the way the appraisal contingency. And we set a record.

So we got this new listing that's completely remodeled, super modern, you know, German appliances, and just everything's really, really sweet. And I told them, you know, 819 list price is really good, because we'll be able to beat a 30 and possibly set a new record. And I was really confident that 819 she on the other hand is like oh 819 it's so much money, you know, and I brought her another net sheet at 860. I said I think the 860 site, I don't even want to see it. Don't even show it to me, he told me to throw it away. Maybe I'm crazy. Maybe 860 is nuts. You know, that night, I go home, I talked to another agent friend who has same unit, not updated two doors down in contract, beating the 830.

So having access to that information, you guys can set prices low or even even move the price up from what you think might not be low, but still get that metric above asking, right. So if you're pricing low or giving the impression that you're pricing low, you're expecting above asking. And you can do stuff like that, like setting offer dates, right when you hit the market, just like coming on the market, just saying offer date in a week.

And they're like, oh, wow, that's really confident like you're already setting an offer daily. This is one of those desirable properties, no stuff like that. But if you do want to hit your number, like if you're in a luxury price point, or you like you've got a property that's like on a hillside and not everyone's gonna want it because the property you may want to price more accurate, right and just kind of have a longer market time and wait for that specific buyer.

Michael:

Interesting.

Tom:

So I'm going to paraphrase a little bit. So just on that last little piece that you're talking about that that was so interesting, in the listing where a lot of people are going to be interested, that's where you it's a little bit safer to try to go for that type of setting the price that's going to result in an over the top, it takes a certain type of person to love this type of property, that's where you would want to price it a little bit more accurately to what we think the price is going to be that right.

Brandon:

Yeah, I agree. That's exactly right. So if you've got a specific buyer, a smaller buyer pool, yeah, you may want to price more accurately, but if you've got a really driving market, that and a property that adheres to a lot of buyers, you're safer and probably better off pricing on the lower side.

Michael:

So okay, so now I'm going to bring in my personal situation and get your thoughts so yeah, I've got this it's a class a condo, great schools, great neighborhood, you know, relatively new was built like six, seven years ago. It's a very hot condo association people are selling very quickly.

So I'm wondering kind of the psychology behind buyers so I think my agent things sort of go for for 2424 something like that. Like let's say we price it at 400. We go low with it in hopes of getting it up if it ends up going at 420 or 424 are people going to be more frustrated that they saw it listed at 400 and have to come up 20 over asking to get it versus pricing it at 415, 417. And they've only got to go that, you know, three, four or $5,000 delta over asking.

Brandon:

Yeah, it happens, buyers get frustrated. And they're like, where they missed or like, why did they price it so low?

Michael:

Right, right, right, versus just starting it off in that midpoint. They only have to come a skosh above that to get to my number. So what are your thoughts on that? How do you price that like thinking about buyer psychology to.

Brandon:

Yeah, well, the trick about the buyer psychology, there is also the market, what's what they're used to, if they're used to always adding another 20, it's not going to be a huge stretch. Sure. Also, it's kind of a little bit of a situation your agents gonna do, where the whole period the properties on the market, they're kind of thinking 400, and they're falling in love with that condo, right? So they're like, 400, it's kind of sweet, I can walk down and get Starbucks and all this stuff. And then you know, the agents like, yeah, 400, you know, like, come check it out, you like it, like the disclosures. And then day three, how's activity going, it's starting to pick up a little bit, right, so you're articulating that to the agent, that agents telling the buyer and it's like a slow movement up to the highest price.

So that the day before, you really don't want to scare people off, because you don't know how many offers are gonna come in, there can be not a nice feeling, you never know until you receive the offers. But one thing that you don't want to do is scare them off early, you want to bring them to the finish line. And then when you get there, that's the point where you can be really a little bit more forthcoming about how much activity there is. And that one buyer that really wants it is going to be able to take it a little bit higher than the next person.

I wouldn't worry too much about that delta of the buyer sentiment of being frustrated with paying that amount. Because in the long run, like it's great to own real estate that also has a little bit to do with the contingencies of the offer, too, and how safe you are when you first accept it. You can leave room, right like for the townhome that we sold where we got that record price for 830. Or this townhome we got a record price, we got a 30 they had no appraisal contingency, but they had an inspection contingency. So the appraisal came in at 800. They had to come up with 30,000 cash to cover but then they negotiated a little bit with us on things they'd probably normally wouldn't have. And we play ball with them. Because we knew Hey, you guys gave us great offer. So we gave them some cash back.

I mean, what else is selling? Right? Like what else is selling your buyer what else is on the market with the condo.

Michael:

So there's one that just sold in the same complex at 415. Same floor plan similar finish about a month and a half ago. But there's like nothing on the market, things are just getting gobbled up down there.

Brandon:

So that townhome I wanted to price it at 730. And my fly I sold a lot of properties if you wanted to go 770. And I'm glad we did.  I would probably hit it at 415 you'll probably go over because there's nothing right.

Michael:

There's just no inventory.

Brandon:

Yeah, yeah, you'll probably do well, and we just came out of this like winter season. This January is typically a mind that like there's no inventory and good properties can go really high over their market value that come on early.

Tom:

This is a great segue on seasonality they didn't think about asking, you know, a lot of people asked like, Oh, you know, it's probably a little different from owner occupied versus rental. But I'd love to hear your input on seasonality of selling and buying if you know that I don't want to use the word like a better time or a worse time to do it. But I'd love just to kind of see some kind of general trends you've seen in your career in seasonality on the buy side and sell side.

Brandon:

Yeah, typically there's a lot of seasonality around schools and activity with you know vacations and stuff like that. It's kind of been flipped on its head lately. You guys say that's accurate?

Michael:

Yeah, because the rules of school are so different now.

Brandon:

Yeah. It's been bizarre. showings on Mondays and Tuesdays. Typically it's you know, we can think you know, past like two or three years I've been feeling like January is a good month and I feel like we get a ton of traffic late January, but not as many people that want to pull the trigger. You know, obviously the spring markets always like you know, the area that everyone feels is the best so like beating out that market a little bit the strategy I think a lot of people take on in our market but I do feel like people are a little bit reticent. When you come on early, get a lot of foot traffic and stuff. Got a nice house but people aren't ready because they're waiting to see other stuff as well. So March is a great month, March and April.

Tom:

Have you ever played play a fantasy football like auction style.

Michael:

I never have no.

Tom:

This happens every year. I think there probably is some similarities. So like you'll have like the best player come up and he always is a little bit of a discount because people are like holding on to their pennies because you only have so many dollars you can spend in this auction and then when you start getting to the third fourth and fifth best player they go for way over what you because people don't want to get left out. So do you think that as sort of like a parable to like the real estate market beginning of the year people a little more pinching their pennies, Not sure. Then the middle of the you know, the spring, the main, like purchasing time, you know, things are maybe a little bit inflated and selling for a little bit higher. Am I just making this up?

Brandon:

No, I think that's it.

Michael:

That's so good.

Brandon:

Yeah, it seems accurate.

Tom:

Christian McCaffrey, man get healthy man, you You hurt me this year, you hurt me this year.

Awesome. Let's transition to talk about how marketing has evolved. I think this has been a real boon to remote real estate investing just how good it's gotten for being able to capture, you know, condition, feel all that stuff without actually being in the property.

So go ahead, Brandon, I'll let you take the lead. And kind of just the way that is evolved some stuff that you guys like to do some things that you think are more effective, all that good stuff.

Brandon:

Yeah, that's a great topic, you guys can always talk to the agents in the area that have, you know, the best marketing presentation and find out who their photographers are, and just get access to really good photography and tools. So you can do virtual showings and to making it look really good online. So the photography can make a huge difference. It really can when you capture enough light. And I can tell you, I can give you so many examples of palaces that were photographed with a poor photographer and a good photographer, and just how much more of an impact that makes. So don't ever, ever short money on photography. And that is an expense your agent should be paying if you have a real estate agent. So that's their expense. And don't let them short on that, because that's the first thing people see that's it makes a huge difference.

So a lot of people are doing that Twilight photos for single family homes, you can even do it on a multifamily unit. I mean, you could do a drone shot where they fly up a drone in the evening around five o'clock, and you have a lens that closes for a long time and captures all the light, and then the lens opens or the shutter, what we do is we take two photos, we take one with a really long shutter speed and then one regular and then we superimpose them on top of each other. So we have like a really cool evening shot with our ambience and the blue light from the sky comes in and all the lights in the house really shine. You can do that on a multifamily rental if you wanted to, you know, it's a few hundred bucks, but it can really stand out when you're looking at properties. And you see something like that. It seems like it's something special. Right? You know, you took a little bit more of an effort to spend on that.

But yeah, Matterports are a huge thing that 3d scans. That's pretty pretty new thing. That's pretty cool. If you don't have anything special there and you do the matterport you're kind of bored with it. You'd be like, Oh, this is all the hous is?

Tom:

Yeah, you know, so you may not want to do, looking a little too much out of the rug, or…

Michael:

Yeah, yeah, that's such a good point, though, to be thinking about.

Tom:

Yeah, I can totally see seeing a photography bill of saying seeing like, you know, 100 or 50 or $200. And you're thinking yourself, oh, why would I spend that much I can do this on my phone for free. But it's like, Man, what a Pennywise pound foolish way to go go about it. I mean, great point on just the photography and just how critical that is and probably for marketing on the rental side as well. That's just something that it's totally worth spending an amount way more than you think would be worth. But is definitely is worth it.

Brandon:

For sure. Yeah. I've got a friend that does a ton of rentals. He's like Airbnb King. Hmm, does really good photos. Always gets pretty tenants that…

Michael:

Brandon, you mentioned something which I want to circle back on with regard to cost and who's paying for what cuz I think when people think really listen to this episode, or think about selling a home, they're thinking, Okay, I gotta pay my agent commission, maybe I have to pay to get the property ready or staged or painted. I mean, who typically pays for all that stuff to get a property prepped to sell?

Brandon:

It depends. Everything's negotiable, right? I go through a lot of situations where it makes a lot of sense, just to not do you have any preparations. And if you know the market value, you can trade that property pretty easy. And then you can basically not have to go through the expense of having an agent because agents, you know, the fees can be costly, but that's a negotiated thing. Who pays for what all that stuff is, is negotiable, sometimes.

But marketing typically is the agents expense. And if you get a good agent, they're going to do a few things really well for you. They're going to negotiate really well. They're going to price really well. And they're going to market the property really well. And the thing about it, it's like you're only as good as your last deal. So like for me, it's really important that my clients choose specific options because it's my reputation on the line and I want the property to look a certain way so that I can get more business and have good results.

It's all results driven, you know, like staging, cover staging, oftentimes, you know in the price point that we're in, and photography and those two things for single family homes specifically, it's really, really important the ROI on those are huge. So that's the first ROI choice that you guys have when choosing an agent is basically pretty important. Right?

And then a few other cool things we do is like you know, light fixtures suggestions, really simple update to the house to make it hip and trendy is to switch out the light fixtures. It's usually inexpensive fix and then coordinating colors with the stager is important. So having the stager pick out contrast walls like what Tom has right behind him darker color, having a few of those that you know,

Michael:

Tom, you're so hip and trendy man.

Tom:

Moonshine!  I was trying to make a color like, like

Michael:

Moon shadow.

Tom:

Moon shadow. That's the word Yeah. It's like why is our dark side of the moon shadow?

And then Swiss coffee. You ever get a lot of Swiss coffee out there? Swiss coffee is a very popular white. Anyways, yes.

Brandon:

But yeah, like, floor plans are cool to see.

Tom:

Yeah, there's a couple of other insight maps is another company that does similar type work.

Brandon:

Yeah. So the matterport is a 3d scan. And it takes quite a while. And then there's also this new thing called LIDAR, which is another laser scan that you can do 3d images of the yard. And that's kind of a new technology that's not quite out yet. You know much about it, but seems like it would be pretty cool.

Tom:

Put on a virtual hat and run around the backyard. Incredible.

Brandon:

Put an Oculus and your kids.

They have that now, too. They've got 3d matterport for Oculus.

Michael:

Holy smokes.

Brandon:

Yeah, you guys tried Oculus.

Michael:

It's unbelievable.

Brandon:

It's cool, man. Imagine walking through a house like that.

Tom:

It made me kind of sick to my stomach. I mean, I'm I tried it like, what was it that we described like when you like turn to the side, it's like, smoother than your eyes are. Remember, it was a while ago, several years ago, but it gave me a little bit of a headache doing one of their like tours. But yeah, now that stuff is very cool. Very, very cool.

Michael:

Pretty unbelievable.

Brandon:

Yeah, I was in Big Sky a year ago…

Tom:

What was that?

Brandon:

Nothing. I was just gonna ramble on about Oculus.

Tom:

I want to hear some more Oculus stuff, which is that we're a bunch of friends are in big sky. And we did it for the first time. I just like had like the best workout in my life, just shooting people. And

Michael:

I also was quite sweaty. After I got done playing. I was like, wow, Holy smokes.

Yeah. All right. Brandon, I have a final question for you before we let you out of here. And that's just what can folks do, either on the buying side or on the selling side to work better with their agents.

Brandon:

So communication in the beginning, basically, setting expectations is important. And just communicating in a way that's effective for both people, trusting your agents really important. Like it really helps us to have confidence from our clients that they're telling us, hey, you know, it's fast to trust you, we know that you care about us, we need the best results, you know, and that gives you a little bit of a boost of confidence, but you want to do a good, good job for them. You know, so just having a really good relationship where you trust them, and you pick the right agent that's going to make good choices for you. And then communicating your needs.

Michael:

In that same vein, how does someone know if an agent's doing a good job for them? Or they're just another kind of notch on the belt so to speak?

Brandon:

Yeah, that's a great question. I'm communicating every day, you know, just being there giving reports emailing what's happening, knowing what's happening, knowing what else is going on in the market. So they should know if the house were active nearby. And if it went pending, they should know what the buyer sentiment is. They should be able to speak to each buyer that's been through the property, what they liked what they didn't like about the house. That's really important, because you can't just put a sign up and you know, just have people follow you and they want to buy it.

Michael:

Right, right, right. Yeah. Okay, so great. Great tips.

Tom:

Yeah, one thing I'm gonna throw at you at the end here, Brandon, this is the some quickfire questions. Okay, so these are just general kind of philosophical You know, one word answer don't have to overthink it. We do this with with some guests on related to investing in real estate. So you're ready for some quickfire questions.

Brandon:

Sounds good. Yeah.

Tom:

As ready as you can be.

All right. consolidation or diversification?

Brandon:

Consolidation.

Tom:

High property taxes, or high income taxes?

There's no necessarily right answers to do it. You don't need to overthink it.

Beandon:

Yeah, that's a tough one. Probably property taxes.

Tom:

Okay. High rent growth or Low vacancy?

Brandon:

Low vacancy.

Tom:

I like it just a couple more for you throwing you on the spot here. Cash Flow or appreciation?

Brandon:

Appreciation.

Tom:

Debt or equity? You guys hate that one though.

Michael:

No, no, it's all good. There's no right or wrong.

Tom:

 Totally. We talked to Academy members. It's like, you know, a huge part is like what's your investment thesis? You know, more cash flow more appreciation more balance. So yeah, no appreciation is great.

Brandon:

A lot of my friends are cashflow investors yeah.

Michael:

Because you can't get it in the Bay Area.

Brandon:

It's really thin. And it's like, you know, you lose tenants. If you could go south.

Michael:

Yeah, really quickly.

Tom:

Last couple of questions. Single Family or multifamily?

Brandon:

I’d say multi multi family on a wide scope.

Tom:

Yeah. Yeah. Well, more cash flow there. Local or remote investing?

Brandon:

Local.

Tom:

Turnkey or massive project?

Brandon:

Man as an investor just for making money massive project.

Tom:

Sure. All right, non -real estate related, Midnight Oil or early bird worm.

Brandon:

Early Bird worm.

Tom:

Text message or email?

Brandon:

Text.

Tom:

And the final question. Olive oil or butter?

Brandon:

Oh, great question. Butter!

Tom:

All right,

Michael:

Good answer.

Tom:

Yeah. Good answer. You made it to the quick fire as well. Brandon, thank you so much for coming on. And joining us today anyways, if one of the people wanted to reach out you know, questions on selling and all that good stuff.

Brandon:

Yeah. If you want to see us on Instagram at WCrealtor, and you can see a lot of our stuff on there. And we've got a website www.thekersisteam.com, feel free to reach out and give us a shout.

Tom:

Awesome. Thanks again for joining us.

Brandon:

Thanks so much for having me guys, that was a lot of fun.

Tom:

Thanks to everybody for listening. We hope you found this episode entertaining, enjoyable, educational, all of that good stuff. And if you did, if you could subscribe and like our podcasts wherever you listen to your podcasts, give us a rating and as always happy investing.

Michael:

  Happy investing.

In this episode, we cover, at a high level, the top 5 investment strategies and who they might best work for. 

---

Transcript

Michael:

Everybody and welcome to another episode of The Remote Real Estate Investor. I'm Michael and today I'm joined by my co hosts,

Tom:

Tom Schneider

Emil:

and Emil Shour

Michael:

and today we're gonna be talking about some different strategies that you could pursue with your real estate investing. So I think a lot of people are very familiar with a couple different strategies, but today we're gonna be talking about high level what the different strategies are, and what might be a good fit for you if you're just getting started. So let's get into it.

So, in this episode, guys, I want to talk about five major strategies, your categories, if you will. So I talked about wholesaling, fix and flipping bur in long term buy and hold or just rather buy and hold and then we're gonna end with house hacking.

Emil:

Guys before we start talking about these topics, I want to give a quick shout out to K winters 34 who left us an awesome review recently, I've been listening to this podcast for the past year since it started I cannot say enough good things the hosts interact in a light hearted manner to make it a very easy Listen, I have learned a ton and it reinforces my belief that this is the way to financial freedom. Thank you so much. Awesome review. Appreciate it. I'm with you. This is my path to financial freedom as well. So leave us a review. We'll give you guys a shout out in a future episode.

Michael:

Thanks so much. Kay winters I guess my mom was right. I do have a face made for radio.

Tom:

Oooooh!

Emil:

There you go. That lightheartedness coming out.

Michael:

So Tom, do you want to kick things off and talk to us a little bit about wholesaling.

Tom:

Wholesaling, yes. So I think before getting into some of the pros and cons, we're gonna put a definition out of these different strategies. So with wholesaling This is a really interesting industry and basically what this is, is this you are getting a property into contract and then selling the contract and the difference between that sale price and what you sell it for that's what you're making as your commission so you're never actually taking title and owning the property you're doing sort of an arbitrage where you're getting right in between so there are some states where it's there's a little bit more nuanced the technical aspects but but at a very high level you know, you're not buying the property you are selling that property and I'm sure a lot of you who own properties or have seen signs on the on the road that says we buy ugly houses, those are all forms of wholesaling.

And I get in my mailbox every day guaranteed like a couple of letters that was written by a robot that made it look like it was a handwritten saying I'm looking to buy your property in blah blah blah. And these are just wholesalers, it's their game and you may get phone calls to like hey, I'm a local investor interested these are wholesalers and as an owner I find it kind of annoying a little bit it just you know just creates a lot of clutter in my mail and my voicemail,

Emil:

Okay Tom.

Tom:

In all of this stuff so nothing against wholesaling I guess maybe something against wholesaling. Jamming got my inbox.

Emil:

Yeah, dude, you're definitely got something against wholesaling.

Tom:

Yeah, you're right.

Michael:

You're raining on a meal's parade, man.

Tom:

It's funny. I'm. Oh Emil! Well, you know, he's using some of the techniques as a wholesaler but he's not wholesaling, though, right? He's looking to buy it.

Michael:

Yes,

Tom:

Wholesaling is good honest work and what is I'm going to just keep kind of riffing on wholesaling, wholesaling. Oftentimes, these people are looking for quick sailors. And man, I was at a real estate conference and I heard this acronym talking about wholesaling, and it was kind of dark, but I think it's like kind of true. Like, it's I think it's like death divorce. And there's like one more D like death is with a lot of people who are trying to sell quickly. It's like some traumatic event happen, and they're just looking for someone to buy it pretty quickly. That's where wholesalers are, I'd say like pretty active.

I personally wouldn't ever want to sell to a wholesale, hopefully I don't I'm not in a position I need to just because if you're selling to a wholesaler, you're often selling below what the market value is, you know, and the upside of doing that is you'll be able to sell very quickly but I wouldn't recommend okay enough talking about my personal thoughts on wholesaling. But anyways, Tom rant on wholesaling done over the air, somebody call here quick.

Emil:

Wholesaling  has gotten a bad rap. There's a lot of bad wholesalers out there, but the good ones, they find people who were in some type of distress, like you mentioned, they have a death in the family and divorce. They're trying to get rid of a property. Maybe it's someone who can't afford their mortgage anymore, whatever it may be, and they help that person get out of distress or they can right. A lot of times wholesaled homes are not in very good condition. Like if you're an owner and you needed to sell your property and it's in good shape. You could probably just go list it right but it needs a lot of work. If you need a quick sale. All those things also can actually be a great option for those people. Yes, you're not going to get top dollar, but it potentially gets you out of a hairy or difficult situation for you as the owner

So they, you know, I know they get a bad rap, but they do have a place and a purpose, I think. And on the flip side, they help investors who don't do this acquisition effort on their own, they help those investors who are looking for distressed properties need some work, whatever it may be, they help them find that and in return, they get that difference that you mentioned. Right? So wholesaler finds a property gets it under contract for 50 k has a list of investors, one investor agrees to pay 75 K and the wholesaler made at $25,000 for doing all the marketing all the work that was required to get that contract, which is a lot of work to get one contract, let me tell you, so that's kind of the value that the wholesaler brings to the table.

Emil:

So great synopsis. Tom do you have something to add?

Tom:

You do want to get on the list of the buyers of wholesalers. I mean, wholesaling is good hard work. You're blasting out a ton of people trying to get it, you know, very low percentage high volume game of actual conversion. But if you don't have capital to buy a property like this could be a way to get in the action as a wholesaler.

Emil:

Exactly.

Michael:

That was getting me my question who should consider being a wholesaler? And who should consider buying from wholesalers? Yeah, so Tom, I think you just touched on who you know, who should consider being a wholesaler is someone who doesn't have capital to get in the game, their own capital getting game, this is a good way to generate some cash. But understand that you do need to go understand the local rules and laws governing real estate transactions in your market because they do vary like you were talking about. So make sure you go understand those before doing anything. But so then who would be a good person to utilize a wholesaler as a buyer?

Tom:

I mean, I think anyone an acquisition, right? I don't know. Do you have any preconceived answers to this question? I mean,

Michael:

No asking for a friend.

Tom:

Sure. That's what they say Michael asking for a friend.

Michael:

I mean, like Emil, you were touching on if you're on the buying side, and don't do this on your own very regularly, it can be a good way to go. It's just tough because a lot of times those types of investors buying from wholesalers are looking for under market deals. And if the wholesaler is making a spread in the middle, a lot of times that value can already have been extracted from the property. So I think anybody could be on the list as a buyer for wholesalers. And just evaluate the deals they're sending you make sure that there's still enough meat on the bone for you. Because a lot of times, like you're saying, Emil, all these properties need rehab, and you're buying them under market value. So make sure that you're still buying them under market value and the rehab you're doing when that's done, there's still equity spread in the property.

Emil:

That's the key. It's like if the wholesaler is usually going to, you know, let's hear on the wholesalers list. They're gonna say I have a property three bed, two bath x square footage. Here's what I'm selling it for. Here's the estimated rehab. And then here's the after repair value, retail price, I would say the person who should be buying from the wholesaler is someone who really knows the rehab numbers, like if you have pictures you can have in your head say, Okay, this is what I think it will be. Never take the wholesalers estimate to be true, right? Like a lot of times they know the numbers that need to work to make it look like it's going to be a great deal. But you need to know your numbers.

So I would say if you're brand new, I would I would be very cautious about going and buying from a wholesaler and see if you've done a couple rehabs yourself you're like, you know your market, you know, whatever rehab budgets within a margin of safety, then I think it's probably safer to go to a wholesaler as my two cents.

Michael:

Love it.

Tom:

I like that recommendation too. Yeah, good call.

Michael:

Okay, so let's move on to our next strategy, which is fix and flip. So a meal Do you want to start us off by talking and defining what a fixin flipper is?

Emil:

Yeah, so it's similar in a sense to wholesaling in that you are typically finding a property that is in distress and need some work, you can buy it for under market, and then instead of flipping the contract to somebody else, you're buying the property, you're doing the renovation yourself, and then you're making your money on the sale, once it hits that after repair value that we mentioned with the wholesaler right? So you buy a property for $100,000 and needs $50,000 worth of work and you estimate you can sell it at 225 so now you're making 75 k on that slip you know obviously minus all the fees you pay when you sell but the idea is that you actually buy it you fix it yourself and then you flip it either to you can flip it to an investor you can flip it to an owner occupant, you're doing the whole process yourself.

Michael:

Awesome and thoughts on who makes good fix and flippers as a strategy?

Emil:

This is another way to make money faster I would say you know with like buy and hold it's typically like you know you're playing a longer game with fix n flip you need capital, or you need hard money, either one, but typically, it's like you have some capital and you're looking to to make short term profit versus holding long term and making cash flow and appreciation all that so I guess it depends on are you trying to make money in the short term or are you trying to do a long term hold and make money and compound over time?

Michael:

And on that too, just keeping in mind that the money that you earn from a flip profit is taxed very differently than the money you earn from rental income.

Emil:

Yes

Just be aware of that when you're counting your numbers. In that example you gave in that $75,000 profit, you know, minus your closing costs, let's forget that for a minute. But that 75,000 is going to be taxed very differently than if you made 75,000 in a year from rental income. So just be aware of that when you're when you're running your numbers.

Emil:

Right.

Tom:

I guess we’ll meander into pros and cons. So two huge risk variables in the fix and flipper, one of them is on the property themselves. You know, if you're buying a fix and flip, there's likely some major things that need to be fixed. And unless you're really good at estimating those costs, then you could get underwater very quickly, where you're end up, you know, paying more. So that's a major risk, I wouldn't recommend doing this remotely, I wouldn't recommend doing this if you don't have a construction background, or you're not partnering with a very strong construction, skilled acumen you know, partner.

So that's one other risk, one risk, and the other one, I think is getting your hand in the cookie jar, if like the market was to turn, unlike a long term buy and hold where the risks of the value going up and down are going to smooth out a little bit…

Michael:

Peanut butter spread!

Tom:

Peanut butter, chunky, smooth, now we're talking about smooth peanut butter. More of a chunky guy myself… Anyways, okay, you in doing, buy, fix and flip, you're just way more at risk to fluctuations in the market. So those are two really important variables that you are opening yourself to risk in doing this fix and flip strategy. But there are people that do it and make a lot of money with it. But I know there's also people who do it and bite off a little bit more than they can chew.

A huge, really important aspect of a fixin flip strategy is speed of redeploying capital. So with a property that you're doing a fix and flip on, oftentimes people will count their returns on a yearly basis. So like, let's say, I'm doing this with $100,000. And I, you know, buy a property, fix it up. And I turn that capital over multiple times, instead of just say making like a 15%, or 20%, or 10%, whatever that number is, if I redo that same compound that multiple times in a year, that's how successful flippers make money is being able to move very quickly, because the the holding cost of capital is pretty high, especially if you're borrowing money. And having done some consulting for companies that do flips like this, like a really key metric that they're following, you know, not as closely as, obviously, the dollars and keeping that inside, but it's totally related is how quickly can they get the property rent ready, you know, get to the market, and then how many days on market it is and so they can take the money from the sale and just redo it again, and rinse and repeat, rinse and repeat.

Michael:

And Tom, those are really great points, any tips for folks on how they can mitigate some of the risk associated with the market volatility while they're doing a flip?

Tom:

I think where there is seasonality, you know, kind of like if you can kind of time your completion of projects out to be where properties are most marketable, which oftentimes is in the spring after the school season. But if you're racing through doing these fix and flips as fast as you can, that maybe that doesn't matter as much, you're just trying to move as quickly as possible, I would say, know your lane, like know what you can estimate really well like, again, the ability to estimate those costs, and avoid the kind of unknown costs as much as you can, is just really, really important. And I mean, anyone who's exercising this strategy successfully knows that Yeah, but uh, if you are going to do it know, your cost really well know your cost basis.

Michael:

And just to add to that, to kind of alley-oop  myself, I would say, evaluate every flip as a long term, buy and hold. So that if things do go south, while you're mid flip, you can just hold the property, rented out cash, flow it, and then flip it, do your flip portion at a later date.

Tom:

I'm going to drop another one of these real estate conference comments. So I think it was talking with some of these folks who were fixing flippers, and a lot of them just ended up turning into buy and hold. And to Michael's point, if the market does go south, a lot of these people who are doing fix and flips ended up just to being long term, buy and hold, investors liked it.

Michael:

And so just the thing to be aware of is making sure that your capital, however you're funding these deals, you have the ability to convert it into long term financing, or it's you can still hold on to it. And the deal still makes sense, which leads kind of segues very nicely into our next strategy, which is the BRRRR method. And Emil, I know you're working on one of these right now. So can you define for us what the BRRRR is?

Emil:

I'm doing a cheater BRRRR where interest rates have plummeted and home values are skyrocketing. So traditionally, in a BRRRR it's buy, renovate, rent, refinance, repeat, it's kind of like flipping but to a bank is the best way to think about it. So you buy a home that's distressed needs work. So you buy it for under market value you put in your rehab to improve the property and then you take it to a bank to refinance out most or all of your capital and then the last are being repeat. So you go and do that process over and over again and especially after I think like 2010 and currently like, because the market bottomed out and started going back up for years and years and years, this was a very, very, very popular strategy people were using to quickly grow a portfolio. There's a lot of like, nuance and details into how do you do this correctly. So you can pull out most if not all of your capital, but that's the gist of of how this works and why people use it.

Michael:

Okay, and so who would this be a good strategy for and who might this not be a good strategy for?

Emil:

I think it's probably similar to wholesaling and fix and flip in that I think it's best for someone who knows the rehab budget, right, it's really easy to mess up the rehab budget, or 10, think you're getting a deal when you're not. And then you think the after repair value, right is going to be higher than it, it could be. So there's just a lot of learning that comes with this. I don't know if you know someone does on their first try, they get it perfect. But I think it just, you know, you got to say I'm willing to take that risk and get your feet wet with it. And the two big variables are knowing your after repair value, what is it going to appraise for and the rehab required to get there, and then do the numbers work in that formula.

Michael:

Mhm. And I would say to this is definitely for someone who, who wants to take on some risk, who likes a project, but you mentioned about not getting it perfect. And kind of being leery of that, I think it's really important, again, to identify the numbers and to really call out what that means even if you do miss the mark. So if you buy a property for 50 K, and you put 30 into it, now you're 80 into it. And so you know, you think it'll appraise for 100. And so you can go get a loan at 80% loan to value and get all of your 80 k back, let's say it only appraises for 90.

So if it appraises for 90, you're gonna go get 80% of a 90 k loan, you'll get $72,000 back, which means you left eight k in the deal, which still probably isn't too bad. I mean, if you run the numbers on the return on investment on that deal, that could be fantastic. And then if you were to go buy that same $9,000 property at 20% down, you'd have to put in 18,000. So you get to have this property for only, you know, set whatever 7.2 or 8000, whatever number I said.

So it can still be a really great strategy. Even if you missed the mark, you just don't want to miss really big,

Emil:

Right.

Tom:

This is good for growth mode Brr. So like if you don't need the cash flow now, because in the process of doing a Brr, you are increasing your monthly debt obligation. Now you might net making it and have more cash flow, you should add when you're done with slipping that new refinanced capital that you're getting out of it into a new property, you should cash flow more, but in between time, you are increasing the amount of debt that you owe on the property, so your monthly payments is going to be a little bit higher.

So I think it's a fantastic way to grow faster and leverage appreciation by doing the whole refinance aspect of the BRRRR. But if you're in a position where you don't want to increase your total debt, and you want to have as high as loan to value ratio as possible, than doing that refinance aspect of BRRRR, which is really the key are in BRRRR strategy is maybe not the right fit.

Michael:

Perfect.

Emil:

The only thing I was gonna add is that I forgot to mention, typically investors when they're buying, they're doing it all cash. So that's another thing to think about cash helps you buy from the seller quicker, right? So that makes your value prop to the seller better. And if the home really does need a lot of rehab, the bank oftentimes may not lend on that because it needs a lot of work. It's riskier for them. So that's one of the other caveats is you know, you need that capital, a lot of times you're buying these properties all cash to to do the deal on the front end.

Michael:

And something else along those lines, keep in mind is that lenders often have requirements about how long you have to own the property for before they'll give you a refinance. So definitely ask that question and have that conversation on the front end before you purchase the property. Because the last thing you want is to get buy a property, you already have it for a month, and then you can go get your money 30 days later, when in reality, it might be six months to a year.

So you just want to run your numbers while you're owning the property for however you financed it at the beginning, however you purchased it, and then also run your numbers about after you put debt on this thing. What does that property performance look like? And make sure those numbers make sense in both situations.

So let's shift gears here and talk about house hacking. Tom, do you want to give a kind of high level definition of what that is and talk to us about who might be a good candidate for a house hack?

Tom:

Yeah, so a house hack is you are buying a property to live in and you're renting out either the other rooms or perhaps it's a duplex or triplex the other units or perhaps there's maybe even two little houses on the property Isn't that nice? A little community but, at a high level house hack is you're living in one room unit and somebody else's living in the other room unit or the other little house we're so fortunate to have that

Michael:

But Tom this show is is called remote real estate investor if I'm buying a primary that's not real estate investing.

Tom:

Well, Michael, I'm hoping you're alley-ooping yourself because I just I missed you threw up for me to dunk.

Michael:

I wasn't an intentional alley-oop, I thought it was a lob, but I think it's definitely a hybrid of both…

Tom:

I was looking the other way!

Michael:

You know, it's it's definitely a hybrid approach in that you get to cover your own housing needs, expenses, often with rental income. So you get to experience being a landlord, whilst getting your owner occupant financing, which is the best type and cheapest type of financing available, and you get to live somewhere. So I think it's, it's a really, really cool hybrid approach. And it's got a lot of benefits and allows you to toe dip into being an investment property owner without having to do that fully. And so you get to kind of hold it close to your vest have some degree of control. And so this is we're talking about who might this be a good strategy for who might this not be a good strategy for? Well, this is definitely not for a remote real estate investor. Because by definition, you can't be remote and do this you have to go by be an owner occupant to begin with, at least what you do after the fact is totally up to you. But you need to go live in the property and living it.

Tom:

You know, cool kind of related to this strategy that a lot of cities are getting looser around guidelines of allowing ADUs. So you could buy a house, and it's just the house and you're living in it with whatever your family or whatnot or your friends. And then you can build a small little dwelling units. And there's so many cool companies popping up that allows that does these prefab little houses.

So you could even back into this strategy, not even planning on it, you know, necessarily upfront when you buy your house. But there's a lot of tailwinds and supporting kind of a reverse a lighthouse hack, with cities getting friendlier of building these small units, as well as companies that build these small units getting cheaper and better and faster.

Michael:

Awesome.

Tom:

And it's something that we're like kind of considering, you know, putting a little ADU, in-law unit.

Michael:

Yeah. And so for those who might not be familiar, what is an ADU?

Tom:

ADU stands for accessory dwelling unit.

Michael:

Awesome. And so Emil, who do you think would be a bad candidate for a house hack other than you know, someone who wants to be a remote real estate investor,

Emil:

I don't think there's a such thing as a bad candidate.

Michael:

Booom!!

Emil:

I will tell you personally, that like, if you're cool with it, you should 100% do it. I will tell you, personally, I'm married, I have a kid at this point in my life. It's not something I'm interested in, I would have loved to have done this when I was single or whatever, you know, didn't have kids. But now it's like, we have a home, we have a backyard. We have our own space. I like that. If you are in the same situation as me and you're like, I still wanted like power to you go do it. There's no reason you shouldn't or couldn't do this. It's really just about personal preference, I would say.

Michael:

Yeah. And like Tom, you were mentioning, the space aspect can lend itself really well to this. If you have two properties, you know, two single family homes in the same lot or a duplex, triplex or quad, you know, you can still often have your own space, you've just got to decide if that's something that you're okay with based on the setup of the property.

Emil:

Yeah,

Michael:

But definitely look for opportunities. You know, large lots are great, zoned multifamily, lots are great. So I think that there's a lot of opportunity out there, especially like what you were mentioning, with cities changing guidelines and regulations around adding additional ad use. Yeah.

Emil:

Yeah, so many people in our community are converting their garages to an edu. I honestly would love to do that. But are we have a detached garage that's in the backyard. If it was in the front, it's kind of like they're separate. They have their own entrance and stuff, but with the backyard, it kind of changes it. So we've decided to hold off on converting into a deal now but a lot of people in our community are doing it.

Michael:

Right on. Alright, so let's shift gears here, guys to our final and probably bread and butter topic, the buy and hold strategy. So Emil, do you want to walk us through what the buy and hold is? And then Tom, maybe you can take us through who might be and who might not be a good candidate for this strategy.

Emil:

Michael, I would love to but you know what, I'm gonna pass the baton back to you. You know, Tom and I have been carrying the load this entire time. And you know what?

Tom:

Oooooh!

Emil:

It hurts. You're up?

Michael:

Are you guys's backs exhausted from carrying the team?  

Tom:

Yeah, and Michael's out here doing all this fancy alley loops and crossovers and we're gonna do it to you Michael. Learn to shoot a free throw Michael shoot a free throw.

Michael:

The ironic the ironic thing in all of this is that I like I suck at basketball. It was like that and volleyball were the ones like the two sports I just never could get good at and I remember I always like I shoot the basketball from my chest. It's how I throw at people like really? like really? Like you're like You're a grown man.

Tom:

I have weird body control like I think like repeating like a little action great at it but like basketball they called me technical Tom because I like I don't think I like had good at it. I would just a flail little bit.

Emil:

Oh god.

Michael:

Now I don't feel so bad.

Tom:

I get rebounds. You know?

Michael:

Yeah, I'm a good passer. That's for sure.

Tom:

In unethical ways. Okay, sorry. Go ahead.

Michael:

All right. So the buy and hold strategy is at its Crux kind of in the definition. So it involves buying a property and literally just holding on to it for some certain amount of time. And there's you might have often hear different time periods associated with this. You may hear the short term buy and hold the long term buy and hold

So, for me personally, a short term buy and hold is anything inside of five years and a long term buy and hold is anything north of 10, seven to 10 years, I would say.

And so you buy it, you hold it or whatever your goal is, whether that's appreciation, or cash flow, and collect those things, whether it's cash flow, you're hopefully collecting cash that whole time. And if it's appreciation play, you're hopefully gaining appreciation inside of that time. And then you can decide what to do with it. Once you've accomplished your goal, whether that's a cash flow number and appreciation number, you can decide to sell it and utilize it maybe a 1031 exchange, or you can refinance it and tap into some of the equity, which is kind of what Emil was alluding to previously, that he's got a BRRRR without the renovation is he got lucky and bought well, and there's been a lot of appreciation in the area. So that in itself is what a buy and hold is.

So you guys want me to keep talking about pros and cons of who might be a good candidate?

Emil:

Yeah, go for it, man, we'll just chip in.

Tom:

Sure. So I would say a good candidate for buy and hold is anybody with a decent time horizon, if you are looking to make money yesterday, or tomorrow for the next thing, then buy and hold is probably not going to be a good fit for you. This is definitely a slow and steady wins the race type of strategy. And as Tom, you always say, to get rich, long term greedy, right. So it's, it's a very slow process, it's definitely not overnight, so don't expect things to change rapidly. And so if you're someone that is looking for that rapid growth, this is probably not a good fit for you.

But you could definitely combine a couple of these strategies like the BRRRR method with a long term buy and hold, you can buy a property, then you hold on to for a long time. And so you can you can grow really rapidly that way. But just in and of itself, buying a property sitting on it, you don't tend to see rapid changes very quickly. So just know that.

So Alternatively, you know, this could be a really great strategy for anybody that's got a long enough time horizon that doesn't necessarily want to be super active with their investment strategy. They just want to buy something and hold on to it kind of like a stock and just let it do its thing over the years, this is a perfect strategy for you. So if you have some capital to start to make a purchase, so you can partner with someone that has but you don't, this can be a really phenomenal strategy. And you look back in 5,10, 15 years about on the investment you thinking, Man, that was awesome. You know, this was such a great investment. I'm so glad I did this 5, 10, 15 years ago, hopefully, is the sentiment not tarnished. Why did I buy that stupid thing 5, 10 15 years ago.

But I think given a long enough time horizon, if we look at historics and values and what they've done, again, given a long enough time horizon, they've gone up significantly. And when you compare that against the stock market, when you compare your total return in real estate against the stock market returns, I think people are very pleasantly surprised with how real estate performs as a general asset class solid. How did you guys?

Emil:

Nailed it?

Tom:

You did great. You. You made both of the free throws, they …swish!

Emil:

From the chest!

Michael:

I did? Did the grandma bounce into the bucket?

Tom:

Hey, don't knock it if it works, man. Don't knock it if it works. That's it.

Michael:

That's what I'm saying.

Tom:

Yeah, I agree with everything Michael said. I mean, the way that I think about it kind of long term is I'm looking for something with pretty low overhead. I'm not doing it to make another job. I'm doing it to create wealth and just kind of build this machine that when I'm ready to turn on the spigot for just, you know, to live off of I can I can do that if I want to, or I can continue to work if I want to. It's just that optionality is with a is what I'm just trying to build with my long term buy and hold strategy.

Michael:

You can work if you want to.

Tom:

Sure. Yeah.

Michael:

Por que, no?

So something to just keep in mind to final thought is that these are some high level strategies that are available to folks be thinking about what interests you if you're unfamiliar with any of them. If you've already mastered some, you can think about expanding your tool belt into others. And also keep in mind that a lot of these can be combined into one another and mix and match. It doesn't have to be one or the other. But I would definitely say if you're starting out, just be cognizant of getting smooth peanut butter spread too thin across too many avenues, it can happen very quickly, you can get shiny object syndrome. So pick one, go learn about it, see if it's a good fit for you and look to pursue that because you can very easily get distracted.

All right, everybody. That was our episode. Thank you so much for listening, feel free to give us a rating and review wherever it is. You'll see your podcasts. Those are really helpful for us and we'd love to hear feedback from you all, as well as any episode ideas that you want to hear more about. So thanks so much for listening. We'll catch you on the next one. Happy investing

Emil:

Happy investing!

Tom:

Happy investing.

In this episode, Chad Carson shares about the importance of having a due diligence checklist for buying new properties. 

Get Chad's checklist here: https://www.coachcarson.com/newsletter/ 

Checkout Chad's Podcast here: https://www.coachcarson.com/coach-carson-podcast/ 

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Transcript

Michael:

Hey, everybody, welcome to another episode of the remote real estate investor. I'm Michael Albaum, and I'm joined by my co host,

Emil:

Emil Shour.

Michael:

And we have a very special guest for this weekend wisdom. Chad Carson is with us again. And Chad's gonna be giving us a little bit of insight into how he does his due diligence and some tips and tricks he's developed over the years to do it really well. So let's get into it.

Chad, we were just chatting about a process that you use to close on every property that you close on, right?

Chad:

Yeah, basically, I think the analogy we used was, you know, when you get in an airplane, and you see these pilots at the front of the airplane, and they're, they're walking around the plane, they're looking at things, they're testing things, they basically are going by a checklist, because who wouldn't look at a checklist to make sure you don't make a mistake before you put a huge metal plane into the air right with all these passagengers in the back? And I guess my point was, why wouldn't a real estate investor before they go buy a property with hundreds of 1000s of dollars or at least 1000s of dollars? And this might this property might be with you for a while right? And you want to make it work? Why would you not have some kind of process, some checklists that you would use when you're buying a property?

So I guess my main message is like, have a checklist, right? Even if it's like three or four things, what are the things you got to do and check those off the list, I started doing this with my business partner at the very beginning of our business, we just got lucky and read a book called The E myth, e myth mastery, I guess, just the E myth, right when we started our business, and that was that idea of checklist was like at the heart of that book. And so we just embrace that. And the idea, though, is that you can build a checklist for everything in your business, everything in your life if you wanted to. But every time you do a process, you're simultaneously doing the thing.

So you're closing on this property, you're doing the closing. But you should also be thinking about working on your business, and actually writing the checklist so that the next time you close on the business or the property or if you delegate it to somebody else, they can actually go through and do that same process as well. There's the kind of lesson itself of the closing checklist. And there's the meta lesson of just building your business around standard operating procedures and checklists. That has been so critical for everything we've done.

Michael:

I think it's so interesting. And I know for me that confidence can be the like, biggest enemy here. And that Oh, yeah, I've done this 10 times, what do I need a checklist for? But to your point, I mean, that's when people really start to get complacent and mistakes get made. And so I'd be curious to know what's on your checklist.

Chad:

Some of them are really mundane, like, hey, you're about to buy this property, make sure you turn on the utilities. Yeah, it's pretty straightforward, right? But I had some properties you bought and all the contractors show up and they're like, Hey, is the power on can't turn ourselves on. We'll be back in a week. Because we have other jobs, we have to get to now like, Nooo, delivering the dumpster like some of those kind of just like transitional pieces, those are definitely on there.

But even before that, I've got some items about how to like to send a instructions to the closing attorney or the title agent. That's a part of the checklist. And then there's a much more detailed checklist about due diligence. So once you get a property under contract, you get this period that we probably all have heard of where you just want to make sure that all your assumptions are right, make sure the values is what it thought you was, make sure the repairs are what you thought they were. And so that's a much more thorough list.

Everything from checking out like red flags in the neighborhood, making sure there's not like a vicious dog like jumping in the backyard, go different times a day. Look for powerlines look for weird smells look for it as we did every time I made a mistake. I kept on adding it to my checklist saying, Alright, there's another mistake that I'm gonna add to the checklist, right? So it just helps me to think through the deal and to analyze it, I think we're all susceptible to is that you you get emotionally attached to a deal. Like you want to do this deal. You get committed, like once you've started moving, once you're committed to it, you made the decision, you don't want to like show yourself that you are show everybody else perhaps that you made a bad decision. Right?

And so sometimes you got to have this checklist to bring you though some cold water on your, your excitement and to say, all right, take it easy here have some cold, hard calculating the questions to ask yourself. And the checklist is like my little computer brain kind of bringing myself back into the rational world.

Michael:

It's so good. I know that for me personally, like after I've made that commitment, that emotional commitment, which I am trying to fight tooth and nail every single day, when I'll get probing questions of Hey, what about this? What about that? I find myself getting defensive.

Chad:

Yeah.

Michael:

And I'm like, wait, this has nothing to do with me. They're asking objective questions about the deal. It's not a reflection of you as a person back off. Yeah. So I know I need to I need to work on that big time. But I think that's great points that you bring up with your closing checklist.

One I'll add from a mistake that I made or almost made is when you receive wiring instructions from the title company, call them and verify the information that you're seeing on your screen is what they sent you. There's been a lot of wire fraud as of late and so somebody could intercept that change the instructions and then you still receive it from the title company. But in reality, you're receiving instructions to wire to Joe Blow in, you know, not the title company. So that's one that I picked up on over the years.

Chad:

Absolutely. Yeah, there's a lot of good ones. This is something when you're a network with a purpose, like ask people, what do you do before closing? And then you can add those kind of things to your checklist, because there's so many, so much good wisdom out there from other people.

Michael:

Yeah, there really is.

Emil:

Chad, do you have a checklist or something people can download on your site? I know you have tons of resources. Is there some where people can go see your checklist?

Chad:

Yeah, actually have a free toolkit. Anybody who goes to my website, like if you go to coach Carson comm forward slash newsletter, and you can actually get that on the homepage as well. And it's got my closing checklist. So you can you don't have to reinvent that wheel. If you just want to borrow that and download it. There's also some other stuff like I have a deal worksheet and some spreadsheets and different rental Tenant Screening kind of checklists and things like that. But yeah,

Michael:

Awesome.

Chad:

If y'all want to put that link in the show notes are something that people feel free to get that free and get downloaded for themselves.

Michael:

Fantastic. We'll definitely check that out.

Emil:

I might go get that myself can feel like I can always improve. I don't even have a checklist. So get on that you got it.

Michael:

You can always expand it even if you glean one thing from every 10 people you chat with or network with or check out I mean, that's time well spent. I think so never stop learning. If you're the smartest person in the room, it's time to find a new room.

Chad:

Exactly right. I'm gonna plan on being my last day on earth. I'm gonna be like, adding to my checklist and  learning something new.

Michael:

So there we go. Awesome. Well, thanks so much for hanging out with us, man. This was really really great stuff as always enjoyed it.

Chad:

Thanks for having me, guys.

Michael:

Catch on the next one soon.

All righty, everybody, that was our episode. Thank you so much for listening in a big, big, big thank you again to Chad Carson. Super fun guy. It was a lot of fun to record with him, he’s super gracious with his time. If you haven't checked out Chad's podcast, there's a link to it in the show notes as well. We highly recommend you giving it a look. And we always appreciate rating and reviews wherever it is you listen to your podcast. So thanks so much for listening and happy investing.

In this episode, Coach Chad Carson joins us again to talk about an important article he wrote for BiggerPockets on making sure your investment goals are in line with your life goals. 

Link to article: https://www.biggerpockets.com/blog/go-small-or-go-home  

Link to Chad's website: https://www.coachcarson.com/ 

---

Transcript

Michael:

Hey 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 Shour. We have a very special guest with us today. Chad Carson is joining us again, and Chad's going to be talking to us today about his article that he wrote for BiggerPockets. Why the Massive Real Estate Empire you think you want won't give you the life you imagine? So let's get into it.

Chad Carson, thanks so much for coming back on the podcast, man, we so appreciate you taking the time out of your busy schedule to hang out with this.

Chad:

Happy to do it. Thanks for asking me back.

Michael:

No, of course, of course. So you wrote an article that got published on BiggerPockets. And we're gonna link to that in the show notes. But the article is called why the massive real estate Empire you think you want won't give you the life you imagine? So we're gonna have you read an excerpt from this article. But I would love to know to kick things off. What made you write this article was kind of your inspiration.

Chad:

Yeah, I wrote a lot on bigger pockets I haven't written as much lately, but also wrote a book for bigger pockets. And so I just I love the ecosystem of BiggerPockets. I love the team behind the scenes. It's just a great service to real estate investors and was immersed in a lot of that, though, I think I heard a common refrain. And it's not necessarily a bad thing. But a lot of the podcasts, a lot of the articles you read the ones that really stood out, were the ones talking about get as big as you can, you need to syndicate, you need to get it 1000s of units.

And that was exciting. I guess it makes you know, my podcast hosts your podcast, it makes exciting, you know, headlines when you have this person who bought 50 properties in one year. And that's amazing. But as I thought about it, like the people I knew, both in like the non famous people, nobody even knows who they are, but they have tons of lifestyle, and they have flexibility. And they do what matters to them. A lot of these people had like five properties or three properties, and they had paid them off. And they were really simple. And it was nothing to write home about supposedly.

But if you measure things a little bit differently, it actually was pretty incredible. And so I wrote the article to try to tell that story and to explain kind of my point of view on that. And the headline was, you know, go small or go home, because the Grant Cardones of the world are saying you need to 10x otherwise you're no good, you know. He in particular, you know, maybe I get Grant Cardone on my show one day and have a discussion.

Michael:

Have a chat with him.

Chad:

Yeah. But I wanted to be kind of the the foil to that not because that's wrong, not because people shouldn't get big and go big. Like, I'm not saying that. What I'm saying is all of us who think keeping things simple, and going small, is just perfectly fine and actually preferred. I wanted to give a voice to that for those people and make an argument, why that's actually a better thing, in many ways.

Michael:

Michael:

Awesome. Love it.

Emil:

I love that I stumbled on this and like the perfect time because I was starting to have that internal conflict where I'm like, man, am I just not thinking big enough? Like, I think this is what I want. But you see it everywhere, like you mentioned, like everyone's saying, Oh, I just took down 100 units here. And he starts to be like, is that what I need to do to be successful? And I love that this reframes that. So yeah.

Chad:

Yeah.

Michael:

All right. So let's jump into a chat if you want to kick us off here and tell us this a story of three real estate investors.

Chad:

All right, great. Yeah, I'm gonna get my place here. So a story of three real estate investors. And I got to give a little background to this before I start reading it, because I actually got this story from other people, as many stories come from actually a real estate investor named Jack Miller, who was a teacher for many years, he's now passed away, but he was a really good teacher. And I used to go to seminars with him early on in my career, and pretty sure I got the story from him. He probably got it from somebody else as well, but I adapted it for my own purposes.

The story goes that there were one summer there were three real estate investors, and they were their couples. And they traveled together to Europe and these investors that originally met each other as beginner investors in the BiggerPockets forum, and they liked each other a lot. And they helped each other kind of grow along the way. And so they became friends. And then about 15 years later, they each had experience some success with the real estate business, and they wanted to kind of go and enjoy the fruits of all of their efforts, because why not? Right, so they decided to go spend 14 days together visiting the Mediterranean coast.

First they were going to go explore some ancient cities in Italy, like enjoying some amazing foods and good wine perhaps. And then they were going to continue with a high quality kind of a Mediterranean cruise that would stop at Croatia and Greece. And they even go to one of my friends. Another bigger pockets author, his home country Arian Shehi lives in. It was from Albania has family still in Albania. He's from there originally. So another cool place.

So could these investors afford a nice trip like this? So you can imagine going to Italy and go on the Mediterranean coast? Well, let's take a look at the financial scoreboard to see how they could afford it using their real estate.

So couple number one was Liz and Tom and they are in their 50s and they live invest in self manage their properties in Missouri in the state of Missouri, and over the last 15 years they've bought 10 single family houses one by one and good neighborhoods. Liz and Tom search hard to buy these houses as fixer uppers. So they needed some work, they were able to buy them below value because of that. And they use the BRRRR strategy to recoup most of their cash on each deal. So they would kind of recycle their cash, buy another deal, fix it up, get it rented, do another deal. And then they would use what's called the Debt Snowball technique to pay off their mortgages early. That's something I talk a lot about as well. So they started with a BRRRR, they got loans, they paid off their debt. And so now their houses produce $7,000 per month, or $84,000 per year in positive cash flow. So that's number one.

Number two, Tiffany and Darius are in their early 40s. They live in New York, and they invest in North Carolina using a property manager. And 15 years after they started, they now own 150 unit apartment building, Tiffany and Darius began with smaller properties. And then they used a 1031 exchange. So a tax free exchange to kind of trade up from the smaller properties into these bigger properties until they had enough equity for a down payment on that the big 50 unit building. So they have 50 unit building has a solid fixed interest, 25 year mortgage. And the property itself after paying all their expenses produces $10,000 per month or $120,000 per year in positive cash flow. So that's couple number two.

Couple number three is Mike and Martin. And they're in their late 40s. They live in Nevada, and they own properties all over the country. 15 years after they started, they now have 500 units, Mike and Lauren began with their their rentals, but they because of their ability to put together great deals. They also began syndicating deals by pooling money from other people. So they were the general partner and they they recruited money from other people, their portion of the rental income equals over $30,000 per month, or $360,000 per year, their portfolio produces the most money out of all three couples.

So it's pretty clear to see we got into the weeds there. But all three couples can easily afford to pay for this nice European vacation. You know, money is not the issue. This is exactly why all of them began investing in the first place. But the story it gets a little more interesting as they approach the end of this trip.

So let's extend the trip a little bit. By the end of this trip. All three couples have had a fabulous time. It's been great so far. In fact, a couple number one, Liz and Tom propose, hey, let's all stay a few weeks longer. You know, there's a lot more to explore here. We're already here. Why don't we just do that Liz and Tom's rentals are full of self reliant tenants who automatically deposit their rent each month. And the tenants can email or leave a voicemail with any kind of maintenance emergencies if they come up, but this rarely happens and with no debt or immediate plans to buy more properties, their business schedule is amazingly flexible.

Couple number two Tiffany and derrius. They check their calendars. They have a few community and church functions, but they can put those off until later. So their property manager is very competent and in control the day to day issues on their 50 unit building. And because there's no major financing or remodeling projects looming, they happily agree to stay over as well.

But a couple of number three, Mike and Lauren have some challenges they want to stay and can easily afford the expensive extending the trip. But there are projects looming back at home. Remodeling contractors are waiting for their guidance on some recent value add apartment purchases they made, a new property manager needs to be found to replace them underperforming on with some of their units. Their corporate bookkeeper and administrator need help some of their equity investors want to meet with them to discuss some past and future projects. As a result, Mike and Lauren regretfully declined the vacation extension.

So this kind of leads me to one of the main points of this is the myth of the passive big business. Mike and Lauren do not have a bad business. In fact, it's financially the most successful business of the three investors. But here are the questions I always ask to the Mike and Lauren's of the world. Did your investment business meet your true goals? Are you spending your time doing what's most important to you, and what alternative approaches have met your goals just as well with less hassle and less risk along the way? Because it's possible that Mike and Lauren are happy with the current situation that they are like more power to him, I'm happy for him.

But my experience has shown that many people in their situation are less than happy. The extra money that they have, has come at a cost. And I'm sure I can get examples from all sorts of people listening to this with comments about Shark Tank hosts and famous entrepreneurs and BP you know, bigger pockets, podcast guests and other people on the podcast who've built really big businesses that also check all of those goals off the list.

Now I'm sure they're out there. And it's fine to provide those successful examples. But the bottom line is you the person listening to this? What are your goals? And what's the best way to achieve them? Are you a shark tank host? Or are you just a regular person like me, and who's trying to free yourself from the nine to five grind so that you can live an extraordinary life. So I know a lot of real estate investors. I know a lot of entrepreneurs, and at least in my experience, the ones with the most money, have big businesses. If that's your number one metric like go for it. Go for the big business. But the ones I know the most free time, if that's what you want, the most flexibility are the ones that have, and also the ones that have less stress, have smaller, simpler businesses and portfolios. And interestingly, I don't see these smaller investors worrying that they have a smaller net worth than the big investors. It seems they're too busy enjoying their life.

Michael:

Ah, it's so good.

Emil:

So good, so much better when Chad reads it for us.

Michael:

It really hits quite differently.

Emil:

Yeah.

Chad:

Yeah.

Michael:

So Chad, is this something that you've applied to your life? Have you always known this? Or is this something that you came across kind of later in your investing career?

Chad:

Now like, I'm the kind of person has to get smacked upside the head by anything. So I don't want to act like I've got any, like prior knowledge here.

A brief version of my story was in 2007, my business partner and I were like, kind of following that path a little bit, you know, like the, hey, let's get bigger and bigger is better. You know, just honestly, it was like looking at goals of other investors who we admired. Like, we admire these people, they were really good. And there was fun, and I'm, I played sports in life. I'm a competitor, like, I think it's fun to go compete for something. And it's, so we did the same thing. And we were we had in 2007 39, closings, some of those closings had, and those are all acquisitions closings. And some of those are multiple properties. You know, like some multi unit apartments. Some of those are flips, or buying, fixing, and flipping. Some of them are buy and hold rentals. But we were like, really, really busy. But we kind of took a step back, and I have to give credit to my business partner has my 50-50 business partner who we've been together from the very beginning. And he kind of pushed back on it more than I did, saying, like, wait a minute, like, we're so busy. And we've made some money this year. But what are we trying to accomplish here? Like, where are we really like moving towards the goals?

And we actually sat down and had like a kind of Heart to Heart business meeting where we each wrote down on a piece of paper, like, what are the things that are really most important to us? Or more specifically, like, what would we spend our time doing? If money were no object is such a good exercise, I encourage everybody to do it.

And the kinds of things I wrote down at that time is a 27 year old, and I just got married that year, where I wanted to go play basketball, pick up basketball in the middle of the day, for two hours, I wanted to go hiking in the woods with my wife, I wanted to travel abroad and do some things like that. Now some of those costs money, like traveling abroad cost some money, but like playing pickup basketball for two hours, hiking in the middle of the day, like that cost zero money, but the biggest limitation was how much free time and flexibility I had.

And at that time, I did not have flexibility and free time. And I was like, wait a minute, like, what am I doing here? It sort of reminded us and again, get my credit my business partner, and also maybe reading books, like the four hour workweek, I think kind of hit me upside the head a little bit too, you are in control of how you build your business. There's no, nobody telling you, you have to buy a certain number of units. There's nobody telling you how to run it a certain way. Like you are the architect of your business. And how you build that real estate business will determine how much free time and flexibility you have. So it's up to me, it's up to you to be able to do that.

Michael:

That's so good. It's so good.

Emil:

When you came to that realization, did you put a new goal in place? like okay, here's the goal. And I'm always curious about like, the way this kind of happens for me is I set a goal, we reach it. And then like anyone who's kind of Type A the goalpost changes. All right. Now he did that. What's next? And so like, I'm just curious how you've dealt with that over the years?

Chad:

Yeah, I'm the same way. I think we all are this, like the hedonic treadmill idea, I think just built into our psychology is that we get to something or like, Oh, that was nice. Let me get the next piece of candy. You know, like, it's just what we do.

But I found something that I don't know where I read this or heard about it that but if you make goals for experiences, and transformation, those actually tend to last a little bit more, or at least you had the memories of them. And I think it was from the four hour workweek that kind of inspired me to start taking some mini retirements. And so we actually made a goal my wife and I did to travel abroad, like, let's not wait, we're old to do this, like, we had the money like we were saving money, we live frugally. We're making good money. And it was more about just I need to like, build some systems into this business in order for us to be able to travel for multiple months at a time.

It took us a while It took us like a year, year and a half to really detach ourselves from some of the things that we had going on to build systems in the business where I had some other people doing things that I was doing prior previously. And then also just working with my business partner to say, Alright, what systems Am I running? What systems are you running? How can we automate this? How can we do some things remotely into 2007? We kind of had the aha moment. 2008 and then 2009. In August 2009, my wife and I went on a kind of our first big mini retirement where we got the backpacks out, went to Spain for six weeks, I learned to speak Spanish, she was already fluent in Spanish. And then we it was a little higher dollar in Spain. We loved in Spain, but we also wanted to go to South America. So we flew back and went to Peru and stay there for a month in order to keep up Peru and just loved it. And that's where I really learned to speak Spanish at that point. And then we traveled down to LA and hiked around in Patagonia kind of southern tip of South America.

Then came back up to Buenos Aries and spent some time there and along the way met so many amazing people, other people traveling other people who lived there locally.

It was one of those like for a type a person, you know, like one of those experiences where like physically like about eight weeks into that trip I felt like a not like untied in my chest where I was like, wait a minute, like I didn't realize that not was even tied. And now the thing is, I'm tying in Latin America in particular for me, this has a special place because I feel like there's a there's just a kind of ethos of connection with other people and relationships in the value of slowing down.

We Americans do not always appreciate that like there and probably other places in the world as well appreciate the value of slowness and deliberateness. That trip for me was kind of transformational because it got me hooked on that. And it got me hooked on, Emil, like goals that are more difficult to quantify but so much more impactful on on who you are and on your life.

Michael:

Just quick side note, I'm so glad that you mentioned that you really learned Spanish when you were in down in Peru and say holy crap six weeks in Spain and you learn Spanish, like know how embarrassing for me?

Chad:

No, not at all. I mean, I was doing a little bit there. But I'd taken one semester in college and I spoke German in college. So I kind of had one foreign language that helped when you learn the second one is a little bit easier. But right, I hasn't really say that I speak Spanish because it's like, up and down. And I was very fluent then sure. And since then we went Ecuador, and I got better. And it just, I still have my gringo accent. And I still,

Michael:

Of course, of course.

Chad:

But I have a Spanish teacher at home who can who can correct me luckily.

Michael:

Perfect. It's funny, because I had a bit of a similar smack upside the head to you in that I have a good friend of mine who's really become more of a mentor. And he's a young gun like me. And he's like growing, growing, growing, growing as fast as he can and recommend doing the same thing. And he's like, 1000 units. That's where I'm at. And then I have another very close friend who's 66. So he's quite a bit older in his career. And he's like, dude, like, is this in line with your life plan and life goals? I was like, I didn't even think to ask that question when I started, because all he could see was right in front of my face, like grow, grow, grow, this is what I can do now this what I can do now. And I'm hitting this running after this unit count in this cash flow count, not even thinking about what is this mean for my life?

I think it's so important to take a step back, even when you're just beginning even if you do have the ability to grow, grow, grow. But stop and ask yourself for every single question is this aligned with my life plan and goals.

Chad:

It’s also the pace. One thing I wrote about in the article that I didn't mention here, just that we didn't talk about is the pace at which you grow, you know, it took you 30 years to get 1000 units versus taking you five years to get 1000 units. Those are two different like scenarios, because you probably have to have a different relationship with debt, a different relationship with leverage different relationship with just speed and pace. There's nothing wrong with growing but even if your ambition is growing is like how are you doing? Are you doing in a way that I compared to like climbing a mountain, like if you want to climb Mount Everest, my wife and I tried to do this one time we were in a canyon, like climbing a canyon and South America going down and I was like, you know, oh, we've got this. We're like hiking all the time. And I went fast all the way back up. And I almost passed out like because I went way too fast. And I you know, didn't have enough water and dehydration.

And I compare that the same thing. If you were a professional mountain climber, you wouldn't just go straight to the top of Mount Everest like you would go up climatized little bit, come back down, go up a little bit more climatized. And I think that's a more reasonable approach to business as well, it but it requires something that very few of us, myself included, have a hard time with his patience. He gotta be patient, and be willing to just plug along, hike slowly. That's so difficult. It is For me.

Michael:

It is so difficult, especially when you have the means and you think you have the ability or the bandwidth or what have you. You're like, Oh, it's right here. It's so easy. I'm, I'm already doing this. So what's another project? What's one more project with one more project, it becomes very easy. Again. Yeah, Emil is laughing.

Emil:

Ask Michael how he knows!

Michael:

It's really scary. And it kind of can overwhelm you. And I talked about this on prior episodes. But I left my nine to five engineering job last August in 2019. And that first week that I didn't have a job, I was the busiest I've ever been in my entire life. And it's because I was taking on project after project after project thinking I could handle it. And it just it Yeah, it really consumes you.

And so I have very hardly adapted since then that I think smaller is better. And I love Love, love that you talked about the debt snowball. I think that often hits people upside the head pretty quickly. And like Oh, you mean I don't have to go buy 15, 20, 30 units, I can just focus on the 6,7,8,9 I have and pay those off and get the same result. I think it's pretty eye opening.

Emil:

In the article. There's this image that you have at the top of the article called the fulfillment curve and it shows like fulfillment going up is you have survival comfort, small luxuries and at the top you have like a star saying enough. And then it starts to come down and says clutter complexity and hassle. I think for a lot of people who invest in real estate who, by their nature are super frugal and don't even like like spending money. Yeah, you can grow, you can expand things, but most likely, we're all just gonna be like chipmunks storing more money in the bank.

Chad:

Yeah, I gotta give credit for that. And I actually got permission to use that in the book I wrote retire early with real estate from Binky Robin, your money or your life, probably my favorite financial books, people haven't read that it's kind of an old school book, this, they've got a new version A few years ago, the concept of that enough, like, it's kind of like patience, you know, it's one of the typical things to get with money. And the filmmaker you're mentioning, if you think about the free first $100 you earn right out of college, or right out of high school or something like that. $100 will buy you like tons of pizza, it'll buy you like, you know, a little bit of value food, it can get you some clothes,

Michael:

Numerous beers,

Chad:

Yeah, you're gonna get a lot of satisfaction out of that person. $100, right. But if you fast forward that and you keep going up more and more, you're going to get to a point, this is difficult to find that point. But there's a point where every extra dollar you get is going to mean, you're gonna have to work a little bit longer, you're going to have to buy extra, you're going to be buying more stuff is going to complicate your life, you're going to get boats, you're going to get cars, you're going to end, now that you have this fancy car, you're going to be worried about somebody running by it one day with a key and like scratching your fancy car. And there's just it comes with worry, it comes with anxiety.

Some of the philosophers like Henry David Thoreau, who I really admire, like the transcendentalist. And Emerson, if you look at some of them, and the stoics, and the Roman stoics, they were about being happy with what you have, and finding the place, that's enough for you. And very often, they would say, like money and wealth is an obstacle like to being happy being fulfilled, that you actually feel like you have enough. And that's another thing I've just admired in my own travels, like you meet some people who you stay with, and their guest house or whatever, with a lot less money than you, but you talk to them and see how much joy they have and see how generous they are. You don't need a lot of money to do that. And when you think about the people you really admire in your life, the most generous and who are the most happy and bring the most joy to your life? You know, there's a disconnect. It has nothing to do with money.

Again, not something I'm perfect with. But it's at least challenged me to think about, like, where does money fit into that relationship by Why do I need money, I need money to take care of the necessities, I need money to make this comfortable. Like I want us to live in a house that's warm, and I want us to live in a place that's safe. So of course, but when you get beyond that, when you start getting the biggest house and you start getting five houses, when you start to live in and you start getting the nicest cars, there's no doubt there's some baggage that goes along with those that I think at least from my own life makes me even less happy.

Michael:

I think you touched on something previously that our circle back to in that when you put goals and ambitions around experiences, rather than material things or dollar amounts. I think it's lasting longer as I think the way you said it. And I totally agree. I also think that is kind of a good thought experiment and exercise you should write down you know what it is that you want to do for a year, if you could walk away from your job for your What do you want to do, and then figure out how much that costs. And I think people will be shocked to recognize and realize, well, a lot of the money that they're earning is going away to taxes anyhow. So if you're earning money through passive income, you don't need as much as you're currently making. And it might not cost as much as you think it is to live and do whatever it is that you're looking to do for a year or two years or what have you. So that's something that I'm gonna have to sit down and do as well, because I think it is pretty eye opening.

Chad:

When you have free time. Like it totally changes your relationship with money as well. Just think about one specific example. Let's say you had the next three months completely free, you could do whatever you wanted to do. And you really didn't have an agenda on where you wanted to travel. Like let's say post COVID, we can actually travel, I'm just itching to do you know, there are deals every day where you can get a flight for 200 bucks to someplace that should cost 1500 bucks to fly to. And if you just like to say you spin a wheel said I'm just gonna go wherever the $200 flight is.

Michael:

Airport roulette.

Chad:

Yeah, like, you can just say, I'm just going like, bingo, I'm going to Singapore, I'm going to you know, wherever it is, because that's the kind of thing you can do. And you have flexibility of time. And most people do their budgets based on this busy work lifestyle where they're working 5060 hours a week, they have two weeks of vacation per year, they have to go in those specific two weeks, and they have to fly the certain times.

Man, when you give yourself a year, a year and a half to do whatever you want to do, the cost of things totally changes. Because if it costs a lot of money to go there, all right, I'll just wait for how does take my time, or I'll just go to a different place or I'll get there a different way. And it's a totally different mindset. And that's kind of the retirement lifestyle that people think about. But when you build that into your early life as well, and you take many retirements and you just slow things down, you might not need as much money as you really thought you did before.

Michael:

I was posting on Twitter the other day having conversation back and forth to somebody about I was curious to know how much money people spent having a job. So the work the clothes, the coffee, the meals, the transportation back and forth and someone goes I'm sure someone already did this. And so of course somebody had and it was like several $1,000 a year. So you subtract that out. You take out the tax. I mean, it really starts to become more manageable I think then then a lot of people realize.

Emil:

I think, for me, I've bookmarked this article, I know myself, I forget this message often. And it's so important. It's something I want to like, come back to yearly, if not quarterly, to just like reinforce that mentality, or else again, I think if you're a competitive if you're a type A, it's really, really easy to lose this message. And it's so so damn important.

Chad:

I have to go back and read it myself. Like, everything I write, I like I am the number one like receiver of this message. It's like my better self sitting on one shoulder like talking over here. So this is like the stoic chat writing this thing talking to the like, the chat is like, you know, gluttony over here, eating all this food and traveling really fast and buying all these properties. I'm there as well. And I think it comes back, Emil, too like, what you pointed out like is how you set your ambitions. I think it's great to be ambitious. I think that's what part of what makes entrepreneurship so compelling is that we see things out there that bother us, and we go out and solve it like this. I think that's amazing.

And I admire entrepreneurship. And I am like, through and through in my DNA, I am an entrepreneur, I love it. I think it's awesome. I've just been trying to figure out like, number one, it's like, let's find some balance, because there's other things in life, and you need to take some naps, and you need to enjoy your family. That's part one. But then Part two is like, Where can you channel that ambition in different ways. And the most intriguing thing for me lately has been like social entrepreneurship. There's a Nobel Peace Prize winner called Muhammad Yunus from Bangladesh, who won the Nobel Peace Prize for doing micro lending businesses in Bangladesh, and a spread kind of around the world as the Grameen Bank, and people are very familiar with micro lending now.

But he even broader talks about how entrepreneurs once you've made it financially, or maybe even gotten a little bit of a nest egg, why not turn your energy and your entrepreneur entrepreneurial effort towards social problems and other things that you could solve with a businesslike solution, but then you do it in a way that maybe doesn't make you any profit at all, or, you know, you're not doing it to make money. And so I'm really intrigued by that.

I've been doing it locally with a nonprofit trying to build an alternative transportation network in our communities, and not just cars, but bikes and walking and people work, you know, moving about who don't have cars, I don't want to use cars. That's kind of my little experiment locally. But there's also other interests, like affordable housing and health care. I mean, you just we can all we can make a list of like problems in our society, that if we if we had more smart, financially independent entrepreneurs working on them, man, like, how much better could we be? And I think I think that's something in our kind of circle of real estate investor, podcast and financial independence community kind of people that we can kind of get around that they have all these smart people that we know, thinking about that, and having the ambition to free up our time so that we can go change the world together. I think that would be just a pretty cool ambition in the big picture.

Emil:

Love that.

Michael:

Yeah, that's awesome. Well, Chad, always such a pleasure to have you on man. Thanks so much for taking the time.

Chad:

Yeah, you as well. You guys have fun on this podcast. You talked about good topics, and good stuff.

Michael:

We try.

Emil:

We try.

Michael:

Awesome. We'll Chad, if folks have more questions would like to reach out to you. We'd like to get a hold of your books, what's the best way for someone to get in touch?

Chad:

A couple different places. I know you'll have the BiggerPockets link to that article on there. I checked on that article. Every once in a while it's been become pretty popular on there, one of my more popular articles, so I can leave a comment there. And then I also wrote a book for BiggerPockets called retire early with real estate, which you can check out and it's kind of that article, even bigger, like the whole book is kind of built around that concept. And it gets into house hacking, and it gets into debt snowballs, and it gets into what you do after you achieve kind of your number for financial independence. How do you build some resiliency, so backup plans using entrepreneurship and other things.

So the book is definitely something I would recommend to kind of get started. I have a podcast as well, that's kind of centered at coachcarson.com, The Real Estate and Financial Independence Podcast. And if people would like to add another one in addition to this podcast to their podcast list that would be honored to have you over there.

Michael:

Fantastic. Thanks again, man. And I hope to do it again soon.

Chad:

Thank you, Michael. Thanks, Emil, great talking to you.

Michael:

Likewise.

All right, everybody. That was our episode. Thanks so much for listening. A big, big, big thank you to Chad Carson, as always super gracious with his time really fun guest to have on the show. If you haven't checked out his website, I highly recommend you do it. And if you haven't checked out his books or blog posts that he's made, I can also highly recommend them. So thanks so much for listening and happy investing.

In this episode, Tom and Emil battle it out in the hotly debated question of whether to invest in a big city or in a small town. 

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Transcript

Michael:

Hey everybody. Welcome to another episode of The Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by my co hosts,

Tom:

Tom Schneider

Emil:

and Emil Shour

Michael:

And today we're gonna be having another showdown episode, we're gonna be doing big city versus small town, which do we like better for our remote real estate investing. So let's get into it.

Real quick before we get into it, I ate pizza for dinner last night, and it was really hot when I came out of the oven, and I just burned the roof of my mouth. Is that ever happened to you guys where it's just like so raw?

Tom:

Definitely. I'm very risk averse. When it comes to heating food. I just played safe my microwave. I programmed it to not go for over 30 seconds and if it's something that takes five minutes, I just stand by plugging in 30 seconds and then it's just safer that way. Mouth pain is terrible, like teeth. tooth pain, anyways, yes, that sucks when you burn your mouth.

Michael:

I'm just an adult baby like, you don't break your mouth.

So for those of you who don't know, or who have never listened to a showdown episode, what we're gonna do is we're gonna debate big city versus small town. And then we're going to swap sides. And so the person who took small town is going to have big city and vice versa. So we get to hear the CO hosts pro and con argument for both big city and small town so we get the full viewpoint and vantage point for how they think about these things. And I can see them both frivolously I don't know if that's the right word writing down notes. copiously taking notes.

Tom;

I'm not doing it for those frivolously.

Michael:

Frivolously!

Alright, so Emil, are you taking big city or small town first?

Emil:

I am going to take big city. And when we talk about big city here, before we get into it, let's define that for audience. What are we defining as a big city? Are we talking a Los Angeles and New York, a Chicago? Are we talking secondary cities, tertiary cities?

Michael:

I'd say secondary and tertiary cities.

Tom:

I'd say big cities, let's say the 10 biggest cities in the United States. So like, I'd say, Atlanta, Orlando, Houston, Dallas, New York, LA, those ones, what do you guys think? I mean, I'm just kind of shooting from the cuff here work. But the little cities got to be little, little cities. You know, I think the middle middle ground is off the table.

Michael:

I don't want to have ever heard of the cities that you're talking about.

Tom:

Indianapolis, you're not in this debate.

Emil:

So we're not going to go into like which city in particular, but just in general, in general, like big population cities. So the top 10 are New York, Los Angeles, Chicago, Houston, Phoenix, Philadelphia, San Antonio, San Diego. That's interesting, Dallas and San Jose. So that's the top 10 markets. And then we'll cover the other end of the spectrum where you're just talking about like, you know, a small town in Michigan or something, for example, right?

Michael:

Yeah, yeah, perfect.

Emil:

So I'll take a large city to start perfect, Tom, you're on small town.

Tom:

Beautiful.

Michael:

And Emil I want to give you the floor first. So tell us why you are such a big fan of big cities.

Emil:

I'm not a big fan of big cities, but I'm gonna pretend to be for this show.

Michael:

So for the debate for the debate.

Emil:

To me, there's three that really stand out. So those three are population, rent growth and appreciation potential. So in bigger cities, you have a lot of people, meaning you have a lot of tenants, which is good. As a residential real estate investor, I want to know my tenant pool is large, that's a good thing. For me, that means I have a lot of tenants. Good to know. The second one I mentioned is rent growth. So typically, in larger cities, you know, Los Angeles in New York, some of those top 10, we mentioned, you're just going to see much higher rents than you would in a small town.

And I don't know if we've covered it on the podcast before, but the lower your rent is on a monthly basis, the way I like to look at it is you have a smaller margin of error. So sometimes you will see like a 50 or $60,000, home that rents for five 600 bucks. And they're like, Oh my god, the cash flow. And the numbers look amazing. But what they don't realize is one big expense can really wipe you out in terms of cash flow for the year, because a roof costs what a roof costs, have it fixed. And so when your rent is low, yes, it could look good. If everything goes right all year, your yield will look great. But in reality, you'll have those big costs come up and they'll crush your cash flow.

So in larger markets, your rent is higher and your rent growth is typically higher as well, because populations big It's a place where there's a lot of demand, a lot of people live there. So rent growth, you typically can see go higher.

And the third one is appreciation potential. So those larger cities, that's a lot of times when there's a bull market, that's where you're seeing a lot of the appreciation happening like meaningful appreciation, right? You buy a property that's worth $500,000 in it goes up 10% now you just made 50 k in equity, let's just say same 10% on a $75,000 home, you only went up seven grand right?

So just your equity, growth potential through appreciation is just going to be much lower. So to me, those are the three things that really attract investors to big cities.

Michael:

Does any of that thought process thesis change? Because of COVID?

Emil:

I don't know. I mean, yes, it does, like I live in Los Angeles. And I know that rents have actually declined, especially in multifamily, because a lot of people have either left the city to go to the suburbs or moving out of state or whatever it is. So I know rent growth and multifamily has gone down population. I mean, that's what's affecting it right. There's just less demand for housing gear. So that's driving rent wrote down, but on the flip side, right now, appreciation is skyrocketing in California, because rates are so low. And this isn't for multifamily, right multifamily is based on how the acid is performing. So if you have lower rents, the cap rate is going to be higher, which means you're gonna have a lower price when you want to sell it. But coupled with that low interest rates, so it hasn't really affect like even multifamily values have gone up as well, it's kind of been negated by low interest rates.

So on one end, it's hurt cash flow. But on the other end, you know, I've heard that a lot of La multifamily like their net worth is skyrocketed because of all this appreciation.

Michael:

Good to know Tom, your rebuttal?

Tom:

Three letters, two words, baby ROI, cash flow, when you go to that small town to buy, well, first of all, small town, just a great way to live, you know, slower paced living. But let's get back to the discussion, I digress. So your returns traditionally are going to be significantly higher on a cash flow basis. In this smaller towns, if you look at just the ratio of the rent to the price of the home, it's going to be higher, there's going to be higher returns.

Now true. There's some downside of typically, there are smaller economies. But if you're looking to get in and looking at these returns as a gross yield, as cap rate, smaller towns are gonna find higher returns. And the reason for that, I think a big reason for that is there's just less competition when you go into these big cities like the Phoenix is and the Dallas's there are these huge institutions that have these fancy calculators that are buying houses all the time, when you go to these small towns, there's not that competition. So you as an investor, being a hard working smart person that you are, you can go evaluate houses and not have old Wall Street breathing down your neck, make it offers right over your back. So in less competition, higher return. And the reason why I think this trend is only going to continue to be a better opportunity to invest in these smaller cities is this concept that we learned of working remotely?

Now, I think this was a terribly unfortunate pandemic, obviously, you know, what is it over 400,000 people passed away in working remotely that has this has caused, I think it has shed light on the ability of the workforce to manage working remotely. And in turn, what I think this is going to lead to is more people more permanently working remotely.

And what that means is, if I'm living here in the San Francisco Bay Area paying XYZ for rent or on a mortgage, why wouldn't I want to go move to a small town have that same whatever Silicon Valley job, but have the cost structure of living in this small town. So I think the demand within these smaller towns has a lot of opportunity with this growing remote workforce. So by buying in these smaller towns now, man, you're taking advantage of these lower prices that you have in these smaller towns with the potential influx of people moving in. So again, three letters, two words, ROI, cash flow, living remote.

Michael:

So to sum that up, is that like being a small fish in a big pond going now to a big fish in a little pond?

Tom:

Yatse yatse. I love the lake analogy. I love the lake analogy. That's right,

Michael:

Perfect.

Tom:

So yeah, generally speaking in these smaller towns, you're gonna find better returns, you're gonna find ratio of the rents to be pretty darn good relative to the price of the house compared to these big city slicker return numbers and the price versus the rent. So and I think a big reason for that is less competition,

Michael:

So I asked Emil a challenging question with regard to COVID and big cities. Tom, you're in the hot seat, bring it with these remote workers leaving big cities.

Tom:

It's a big city word you just used surmised.

Michael:

One because their job was there require them to be there physically, but also because the amenities that big cities offer? Do you really think that the demand is going to continue for the folks that lived in the big city and like the big city amenities are truly going to move to the small towns?

Tom:

You know, I think what really drives demand Michael is happiness. And I think the what makes people happy, I think is evolving. I don't think what makes me happy today, who knows what's gonna make me happy and five years from now, and just my personal experience in living through this,

Michael:

don't tell your kid that

Tom:

No, no, hold on, hold on. In my personal experience of this year of working from home, it should makes me happy to like take little breaks to go pick up little Charlie, give me a hug. And here I'm trying to talk a little bit mainly jibberish not there yet still working on it. And that's really happy You know, so if I can have a better working remotely, sure I don't have that cool wine bar or whatever they do in the big city. But I can have my you know, little restaurant that I go to. And I like that it's good. I know people have been to who are live in small towns or they're awesome. I'm super pro small town. I actually have a good friend who lived over in this area, who was area called Diablo had this big awesome house and he decided, yeah, I'm gonna move I don't need to live here. And he just up and uprooted and moved to a smaller town and it's happening be before our before eyes. ROI, cash-flow.

Michael:

Okay, ROI. Cash Flow. All right.

Tom:

And Happiness, that's the third argument. Happiness.

Michael:

Happiness. Yeah. Cool. All right, Emil, what do you have to say to Tommy Boy over here,

Emil:

You stole my thunder with the will that demand go down post COVID. And I think that's a big one. I mean, I think a lot of people can be misled to believe like, Oh, this place now we're just gonna have so much demand. And it's gonna have demand for years to come because people are moving. Now, I personally believe that people don't change that much. I think when we're in our post COVID world, things are gonna go back to normal more than people think they will. And so I see a lot of people returning back to cities, like there's a reason people have lived in cities and enjoy cities for a very, very long time.

That being said, I see more companies doing hybrid, right, you're in the office a couple times a week, meaning you're not gonna want to live an hour, hour and a half away from where your work still, even if you're only commuting couple times a week, I think demand will go down. So it's easy to be like, Oh, this new place is super hot right now. And it's just a small window of population change. And the other one ROI, again, it's super easy to fool yourself into returns in Excel, right? Doing a little percentage based on rent. When in reality again, when rent is low, the cost to repair a toilet the cost to repair a roof, same amount, whether you're investing in somewhere like Los Angeles or rural Missouri, maybe the labor is cheaper, but the parts are the same.

Michael:

I think for me, it always comes back to kind of the chicken or the egg argument. I have the answer to that question. The chicken came first.

Emil:

Yeah, you're you're done. Okay.

Tom:

I mean, just think about it. The chicken came first.

Michael:

It's a no brainer.

Tom:

I was thinking about this the other day at dinner is definitely the chicken so

Michael:

It's only the chicken that's on my plate right now. You know, are the cities cool because of the people and the amenities that are there? Or is it the jobs that bring the people that then bring the amenities?

Emil:

I think it's both.

Michael:

No it's an either or .

Emil:

No, I will not play your black and white game theory here.

Michael:

Option C.

Emil:

No, I play by my own rules. Sorry.

Michael:

Nice nice Allay-oop.

Michael:

All right. Good rebuttal.

Tom:

I like it. I totally agree with your you know, a middle road it's not you know, sprinting to one direction but…

Michael:

It's a showdown Tom, we're not talking about all the roads.

Tom:

Okay, right back to showdown. Good.

Michael;

Come on. Don't give in so easily. All right. Tom, I want to give you first at bats here. You are now pro big city and Emil, you are going to be now pro small town. So fight!

Tom:

Emil, You hillbilly. Just kidding. Okay.

All right. So big city. So a meal opened up with some great points about a larger, more dynamic economy. And with that larger economy and more people, you have more options. And I'm going to dig into this options theme a little bit for my my point here. So one of them is you have more contractors and vendors available. Specifically, the key one we talked about so much as a remote real estate investing podcast as your property manager, you're going to a small town, there's probably one, maybe two vendors out there who can service you and if you happen to be in a city where that property manager is not good. You are pretty much sol, right?

As a remote investor, you rely so much and within a big city. If you have a property manager that isn't up to snuff. Good news. There's probably five other property managers out there that you can talk to try out super important to having that optionality of property managers to not to be loop tied. hogtied tongue tied. What's that?

Michael:

Hog tied

Tom:

One of those right? Yeah, to just one property manager in the small city, which you are almost guaranteed is going to happen if you're in a very little town like that, very much related is the contractors to do the work. So if you're looking up on Yelp, plumbers, if you look in some little town in Atlanta, like Missouri versus St. Louis, there's going to be a ton more plumbers in St. Louis, and they're gonna be more competitive, you're gonna get better opportunities to find quality and value with more people. That's just a function of competition and volumes. And lastly, equally importantly, there's a lot more renters.

So you can expect and I'm kind of just talking from intuition. If you have a lot more renters, you're gonna have a lot less they can see just because there's more demand to move in versus a smaller town where, you know, there could be some seasonality there could be some a lot tied to very specific parts of the country. To me, perhaps it's an oil economy and oil industry is dipping. Like, does that mean your house is dipping? We invest in real estate to diversify our investments not to lock into specific economies. That's why you want that broad economy and lastly, is the volume of transaction. So, you know, one of the downsides of investing in real estate in general is this concept of liquidity. And liquidity is can be solved by high volume or it's helped by a high volume of transactions.

And in a small town where there's not that many transactions and the media not a lot of debate man for buying. You could get hogtied again, you're going to hog tight all over the place to get your foot staggered into by if you need to sell for whatever reason, in a larger city, you're much more likely if you have to sell quickly, you're much more likely to get it to what the market value is versus a small town where there's not that many buyers man you got to get lucky and time that out.

So big city short, the ROI I think on paper is definitely gonna be higher out the gates in a smaller city but for these reasons, I think you have some opportunities within the operational costs as well as the vacancy and you know, getting into the actual crunch in the numbers of executing, done!

Michael:

Great points. Tom, I got to ask was that, you know, small town in Missouri a pop shot at me because you know that I've invested in a in a smaller town in Missouri.

Tom:

I should have said a small town in Alaska.

Michael:

No question. Yeah.

Tom:

Or a small town in Alaska. Michael's got units all over the place. So easy for him to…

Michael:

Easy pickins,

Tom:

Easy. pickins now. Nice. Yeah, it came to me. Right?

Michael:

Yeah. All right. All right. All right. Good points Emil? Small town.

Emil:

I'm gonna try not to repeat too much of what Tom said. So I really just have two things here. I know, Tom mentioned competition. But that is a huge one. The fact that you're, you know, in certain places, you're not competing against people with endless money, right? Like, if you're going to a smaller town, like these big hedge funds that scooped up a lot of single family homes and stuff. They're not playing there.

You also just have a less sophisticated investors, right? So I think you can get better deals in general, if you're a savvy investor in smaller towns.

The other one, you know, there's appreciation that we talked about in bigger markets, but you also don't have that boom and bust like you do in bigger markets. So while California has these big swings and cycles where it goes up a bunch, you know, home, I like to think of Michael Zuber when I talk about this, because he invested in Fresno, California, he had a home that he bought for like $100,000, I think in like 2006 and 2008, it went up to like 220, he sold it, and then like a year or two later, it's gone back down to $75,000. Same home, right, just like losing tons of value, you have the potential to lose a lot of equity. And that, you know, makes it harder to sleep at night.

During recessions, obviously, places across the country get hit. But you don't have that as large of these swings and drops as you do in these big markets. So I mean, that's just another pro to talk about with with smaller cities. It's a little bit steadier growth, but it's also not boom and bust. And that's all I got to say about that.

Michael:

Right on. Tom, what's your Tom sandwich? response to what I had to say for himself?

Tom:

I'm going to end this on your reference about our guy, Michael Zuber, I think it's a good way to close out the debate is to know your market, whichever one you pick big or small. Let's see I'm supposed to be aggressive right now.

Emil:

No, that's that's the right answer.

Tom:

Okay. Okay, good.

Emil:

We're playing sides here. But like, yeah, it's to the value of our audience. That is really what matters, right? Is that like, you pick a market you learn in you get good at you network there, like whether you go big city or small city? That's the real takeaway.

Tom:

Yeah.

Michael:

But there has to be a right answer. I mean,

Emil:

Of course, there's there's got to be a right because there's, there's not people doing really well in big cities, and people also doing really well in small cities, you got to choose…

Michael:

It depends is never a good answer.

Tom:

Yes, yes.

Michael:

Yes, no, but that's such a great point. I mean, you both made really, really great points for the pros and cons of the big city and the small town. And I think you hit the nail on the head by saying, you'd have to learn it, because there's all kinds of people under the sun and with different investment theses, and different goals and different starting points. So there's something out there for everyone. You just need to go learn and find what it is that suits your needs and meet your goals. And then go do that.

Tom:

And be eyes wide open to the upside. And the downside. There isn't like a city called the money tree that like everyone just picks Moneyville. It's you know, you have to be strategic and eyes wide open on what like what your risks are with that and apply your strategy to that.

Emil:

Let's repeat that. Again. There is no such thing as a perfect market. So a lot of people are like, Where do I invest, searching for that perfect, perfect market? Obviously think about what you're going for what are the pros and cons but honestly, there's no such thing as a perfect market.

Michael:

I always joke with folks that the deal of a lifetime only comes around once a week. Similar things to markets, there will always be a better market that I'm willing to bet the farm on, so don't feel like you have to go find the absolute best tip top one, because that's a vicious cycle. And you'll always be able to convince yourself that there's a better market somewhere else. So find one that works for you and then go hammer away at it.

Tom:

What size market? are you guys looking at for your next investment in your portfolio? Are you analyzing anything you notice a specific city names, but you can say?

Michael:

Let me see, let me look up the population.

Emil:

I think I've mentioned it. I invest primarily in St. Louis now. And what's interesting about St. Louis, St. Louis is weird where it has St. Louis city and St. Louis County are separate entities. So if you look up the population of St. Louis, it's like 300,000, which is like number 63, or something in the country. But if you look at the MSA of St. Louis, which includes the county and everything, it's like 2.1 million or something. So it's like top 20. So that's an interesting one.

Michael:

So the market that I'm looking at investing in has about 220,000 people living so not big, but..

Tom:

Is that the MSA or is that the broader MSA or when we say MSA, it's like a group of cities that kind of make metro area what is MSA stands for?

Emil:

Its Metropolitan Statistical Area. It's usually a much larger area than just the actual like city of St. Louis or Birmingham or whatever, includes more of like counties, and then like potentially neighboring cities that just make up the larger MSA.

Michael:

I think that's just the city. Just the city itself.

Tom:

I’ve traditionally invested in big large cities, but I think they might go to like mid size might have ridden the big bull, now I'm gonna ride the medium sized calf. I think it's good. A stepbrothers reference.

Michael:

Yeah, so good.

Tom:

So I think that's what I'm evaluating right now. A couple of middle sized cities in Alabama, South Carolina, Southeast sunbelt. I did evaluations on.

Michael:

I'll share just a couple of quick anecdotes with folks. So, Tom, you're mentioning that I invested in Alaska. So I and I own property in Ketchikan, Alaska, which a lot of people have probably never heard of, it's somewhere where all the Alaskan cruises stop. It's tourism driven. There's some other industry there, but it's definitely a tourism centric, area, city, town, borough, whatever you want to call it. Technically, it is a bureau. And that's been actually my best performing property that I owned to date. And part of that was understanding what drives that economy. I mean, I just googled the population of Ketchikan and it's like 8300 people. So I mean, that's like, tiny, that's a blip on the radar. But that swells in the summer with all of the workers that are coming in for the seasonal type stuff.

That, of course, hasn't happened this year. But it's interesting, I haven't had any kind of gap in vacancy, or intendancy, throughout the entire period of COVID. Knock on wood, this, I've been super lucky. So you have these kind of interesting dynamics and looking to really get a handle on and understand what's driving that local economy and that local market, and any seasonality to it is really, really important.

I've also invested in that small town in the Midwest in Missouri town, like you were mentioning. And I just go with a population that is like 6000. I think the reason is so low is because there's a huge military installation there a big military base, and that's not being counted here. I think military bases like 15 or 20,000 people that live there are near base, so…

Tom:

and then you're also in Los Angeles as well. Right? So just like it's Mr. extremes.

Michael:

That's right. That's right. So there's so many different ways to piece this together. no right or wrong just right and wrong for each individual.

That was a really gentlemanly, clean showdown, guys, thanks for keeping it all above the belt, good, clean punches, and great points made around by all.

That's our episode, everybody. So thanks so much for listening. If you liked the episode, even if you didn't like the episode, feel free to leave us a rating or review. Whatever it is, you listen to your podcast. We really appreciate them and they are a big help for us. If you want to hear about something in particular, feel free to leave us a comment and let us know what you'd like to learn more about for an episode. We look forward to seeing you on the next one and happy investing.

Tom:

Happy Investing