The SFR Show

In this episode, Tom and Michael share about their very first investments and some fun tips on how to get your children thinking about investing at a young age.

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Michael:

Greetings, and welcome to another episode of the remote real estate investor weekend wisdom edition. I'm Michael album and today I'm joined by

Tom:

Tom Schneider.

Michael:

And today we're gonna be talking about our first investments ever. And some things to think about talking with young people with kids about how to get started in investing, and how we were able to dip our toes into the world of investing and arrive where we are today. So let's get into it.

Alright, Tom, so I am very curious to hear from you. How did you get your start with investing in general doesn't have to be specific to real estate. I know your story. You got started after college with real estate. But is that where your story begins?

Tom:

So my initial foray into any type of investment, it was a grandma kind of a deal. So grandma set up a brokerage account. I'm not like a trust fund baby, but definitely super generous of grandma to set to buy some shares of stock way back in the day. So when I was cash, it might have been like, first grade, I think for like birthdays. She just bought like a share of Disney or something that she thought that I would like, and it was…

Michael:

Yeah.

Tom:

…so fun. Again, not wildly high amounts. But I remember my grandma buying me Disney and then like second or third grade, periodically pulling up the newspaper. For those who don't know what it is just getting it to looking at like the stock section. And then like, looking to that stock or something and just seeing it move. It was really eye opening of Oh, wow, I just made whatever, a half a percent. And I didn't have to do anything. I think it was some early of passive income and investing so

Michael:

And so is that what you eventually sold for the downpayment on your current house?

Tom:

I did not know it wasn't from the down payment on my turn. But are you ready for a choosy beggar comment?

Michael:

Absolutely.

Tom:

Okay, so this is the like, choosy beggar comment. I am like, you know, again, so grateful, like what a cool thing to do for a kid, but she didn't reinvest the dividends. So like, when I like ever got old enough to check on the account, there's just a bunch of the money, like whenever there was a dividend or like, it would just sit in cash. So it's like,

Michael:

Thanks a lot Grandma.

Tom:

No, no, no, choosy a beggar choosing beggar. But it was a good lesson that I mean, what it did little math exercise for to go back and Okay, if this had just been reinvested as a within to the stock instead of just taking the dividends into their cash position. Anyways, I'm derailing and, and being a choosy beggar, but it No, I'm not a choosy beggar. But anyways, Okay, done talking to them, and word vomit.

Michael:

What a great point to make. Because if that, I don't want to go so far as to call it a mistake. But if you hadn't learned that lesson, at that point in time, you may have never known like, Oh, this is a thing I should be doing, or this is good or bad. So I think that's great. And probably one of the most inexpensive lessons you could learn. And so I you know, hat off to your grandma for teaching you two lessons for the price of one.

Tom:

Yeah. And to bring this back to real estate investing. A great example of this is okay, you collect your rent from your property. And unless you're in a position where you're living off of that money, which I assume a lot of people are not, is to be long term greedy, and save that money that you're getting from your rent collected and roll it into buying a new property. reinvest the dividends, man reinvest the dividends? All right, Michael. Good. Go ahead. What was your initial entry into any type of investing?

Michael:

Yeah, so very similar story for my 12th birthday. My dad got me a couple of shares of GMC stock. And so yeah, I mean, almost exactly similar to you, I would check the newspaper and look and see what the sticker price the ticket price was doing with it go up, but go down and chatting with my dad having conversations with him about Okay, what is this mean? And what is a stock? And how does it work at a very high level, because, you know, I'm only 12 years old, I didn't have the kind of comprehension that Robert Kiyosaki had when he was a youngster. And he writes about in his book, to really understand the financial world with all about the comings and goings of the stock market and real estate and all that kind of good stuff.

So very high level, a stock going up is good stock going down as bad. And you can buy more of this. And so throughout my childhood, I would often receive gifts of, you know, two shares, three shares of stock, Disney, kind of the the big companies that, you know, kind of blew up, we think about a blue chip company. And that was great, except you really got an understanding of Okay, well, I can take money that I earned either from a job or allowance or what have you invest it, and hopefully walk away at some point down the road with more money than I put into it.

And so that delayed gratification was instilled in me at a fairly young age and my dad had this awesome quote, you remember those like claw machines we could put in a quarter and you whatever you played it with the client to get the stuffed animal or the toy. My dad said it to my younger brother who asked to play one of these claw machines, dad can I have a quarter to go play this. And he says, Well, do you want to be the kid that plays the claw machine? Or do you want to be the kid that own stock in the claw machine making company? Oh my god, like, it's like, so simple and seemingly kind of trivial telling that to a kid. But when you can start thinking about it in that capacity, that really changes, you know, your trajectory and the way that you think about money and about investing as a whole.

So I just love that story. And we always joke about it in my family. Because Yeah, it's just it's it's a shift in the mindset from consumer to investor.

Tom:

Do you want to get clawed or be the claw?

Michael:

Or be the… Yeah, be the claw. I always think about Liar, Liar. The Claw! Yeah, that was kind of my first story. And I've since been investing pretty much that whole time, as well. So I never never looked back of it.

Tom:

Love it.

Michael:

Awesome. Real quick. Last thing I'll ask you, before we go, Tom, is Is there anything that you plan on teaching your son in his early days about investing? How do you plan to have those conversations or share with him some of the knowledge that you've acquired over the years?

Tom:

I gotta make sure I tone it down, like, like,

Michael:

Charlie, we're talking about cash on cash return?

Tom:

Oh, yeah. Huge fan of some of the online like learning stuff has gotten so good, like, Khan Academy is, I remember when it first came out, and like where it's at now. I really enjoy it. And I think it'd be something fun that we do together by way that I interact with my son as he basically just do stuff that I like to do with him and just see, well, there are a lot of things that he likes but he's a one year old. So you know, his his English is pretty limited. But you know, his financial literacy is… I think we probably do all throw a bunch of stuff at them. Maybe give them some, some some stock. Look, have them look it up, I'm sure to be like, fun, like getting a position to get them a property or something to like, follow. But I mean, that's way down the road. No, at some point, yes.

Michael:

One of the guys anyways, Brandon Turner over at bigger pockets, the day his daughter was born, bought her bought a property and put it on an 18 year note so that by the time she was 18, she would have this free and clear property that she could decide what to do with either take over managing it or sell it to go to college or what have you. So I always thought that was an interesting idea.

Something else that someone told me was that the day that their children are born, they open up a credit card in their name, and they're just coasting around it so that way they get to start building credit by the time they're 16 1820 whatever, they have an established line of credit or credit history rather, which I thought was very interesting.

Tom:

That's great advice. I remember in high school getting a good gas card and that helped me so much get credit I mean, just having some silly little gas card like established an initial line and it made everything down the line so much easier to do because there was just some proof and what's interesting about real estate the longer that it and maybe it's just situational now that I have like kid but it's like so much about it is past that is like thought around like passed down inheritance and like talking about building wealth like oftentimes it's a it's kind of a family team effort from generation to generation. Both on the education as well as assets side.

Michael:

Totally.

Alrighty everybody that was our episode. Thanks so much for listening. If you enjoyed it, please please please give us a rating and review whatever it is listen to your podcasts. Those help us out big time. We look forward to seeing on the next one.

Tom:

Happy investing.

On this episode we had the pleasure of speaking with Lane Kawaoka of SimplePassiveCashFlow.com. We learn about his journey to where he is today and about his investment philosophy. 

Check Lane out at https://simplepassivecashflow.com/turnkey/, and his podcast https://simplepassivecashflow.com/podcast/ 

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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 host,

Emil:

Emil, the real deal, Shour. And today we have a really special guests. Lane Kawaoka is joining us today. And he's going to be talking to us about his journey from engineer to massive syndicator and how he got to where he is today. So let's go ahead and jump into it.

Michael:

Lane, thank you so much for jumping on the podcast with us and hanging out. sure appreciate it.

Lane:

Yeah. Thanks for having me, guys.

Michael:

Yeah, totally,

Lane:

Aloha everybody.

Michael:

So you're out in Honolulu. Right?

Lane:

That's correct. Live where you want but investor the numbers make sense.

Michael:

No, I don't know if you got the memo but that's not possible to do. You can't invest remotely.

Lane:

You just got to grow a pair, numbers don't lie.

Michael:

That's true.

Lane:

We all live in high priced areas, ain't gonna work, dude, like, especially if you want to run it with professional property management and actually do what your highest and best use is which is likely at your day job. Right?

Michael:

Right. So I would love if you can give us a breakdown. How did you get started? I mean, I know a little bit of your background. So how did you get started? And then where are you today? At the high level?

Lane:

Yes. So I kind of grew up this linear path. My parents taught me to go to school, study hard get a college education, because I happen to be good at math and science. When I was eight, I eventually came in engineer for some reason. Right?

Michael:

Did you play with Legos as a kid?

Lane:

Look, I'm just honest here, right? Like, I didn't care. I just saw engineers get paid pretty good money. You don't have to go to grad school. So I was like, I'll do that one.

Emil:

Straightforward, man. Nothing wrong with that.

Lane:

I mean, you know, I'm goal oriented, right?

Michael:

That's right.

Lane:

But yeah, so I I went to school, to be an engineer, became an engineer and just start work. And, you know, that's where kind of obsessed me like, there's so much bad financial advice out there, such as buying a house to live in putting your money in this 401k where there's all these fees, and you really not making getting ahead there. And you know, so that's what I did. I bought a house living, go figure.

Because, you know, for new guys in professional careers, you're up the road warrior, right? They send send you out on the road, because you don't get any family and you probably like the free Starbucks and expenses and hotel points, you know, that gets old for sure. But that's the life I live probably my first six, seven years working. But it allowed me to save a lot of money, and I bought a house to live in. But I was never home. I was only one Saturday. And I was like, This is silly. So I just started renting it out. The mortgage was 1600, the rents was like 2200 bucks a month and two young 20 something no kid, that was a lot of beer money.

I was like, wow, if I keep doing this again, and again, I'll be able to quit my day job. So that was the start of that. Oh, yeah.

Michael:

And where was that?

Lanes:

I bought that first property in Seattle, Washington. It was in a class area, everything you're not supposed to do primary market, high end where…

Michael:

When you're a young kid with money. And you're like, great, I can afford this. Go run and do it.

Lane:

Right. Yeah. It was a bad strategy for sure. But you know, that's how good real estate is you can have a pretty bad strategy and still do pretty well.

Emil:

Well, at first it was a bad strategy. But it got your start, right, which is I think how a lot of people get started, you buy your first place, and then you transfer it to a rental and you're like, holy cow. There might be something here.

Lane:

Yeah, yeah. And then you start that's where I started to get a little more sophisticated start to actually listen to podcasts and blogs, and you know, websites start to learn about the rent to value ratio. And I was like, oh, shoot, I'm not, not 1%, definitely in Seattle. And then I started to learn about this whole great debate that gets talked back and forth of appreciation versus cash flow. And I was like, screw that. It'd be cash flow camp. So I was like, oh, maybe I shouldn't invest in primary markets. Right. But I get it like, that's how it kind of calling people out. Right? It's, I didn't have the cajones still invest out of my backyard. So I bought a duplex in a little rougher area in West Seattle, more of like a deep loss area. And a little bit better numbers, but it still didn't hit the 1% rent to value ratio. So that was a couple years later, after saving a little bit more money, you know, buying the next one working at my job.

And then a couple years after that, you know, the prices kept going up and up and up, and I wasn't even able to cash flow. And I was like, What the heck is going on here? You know, I went to I tried everything. I was going to like these auctions. And I just looked around the room. It was just a bunch of unsophisticated old Microsoft guys with too much money. And I was like, This is not this is the dumb money camp. I gotta like, do something else. So that was where I started to look into these turnkey rentals and I bought one in Birmingham and it worked. I didn't get my arm blown off or anything like that. You know, nothing happened to me. You know, people didn't run off with my money. I worked with professionals property management. I got a broker And I sold the Seattle stuff and eventually in 2015, I had 11 rentals out of state.

Emil:

What did you start buying into? Were you buying single family rentals? Were you buying small multifamily? What did you start out with without a state?

Lane:

I just went to single family. Initially, my thought process was Yeah, the numbers on the multifamily the duplex triplex or quads are definitely better, but always want to stay above 800 bucks rents, it's kind of hard to do that with a duplex. Usually you got like a 500 $600 on both sides. So $1,000 combined, but I think we need stay under $800 on your tenant, the tenant quality isn't that great. You know, staying above $800 rent, kind of took out those those type of deals. And then I was you also got to think about the exit strategy, right? At some point, you're gonna sell this stuff. And I want to sell it to some emotional buyer who falls in love with it. And the only person who really buys a duplex triplex or quads or you know cheapskate investors like us.

Michael:

So what do you say to folks who are just getting started, who might not be able to afford the higher end stuff, they're, they're needing cash flow, looking for cash flow and want to go in and buy that 30, 40 $50,000 property?

Lane:

So just wait till like you can save. I mean, you already got to save up 1015 grand for that piece of junk Anyway, you might as well just save a little bit longer. I mean, most of the people I work with, like they're able to save 30 to 50 grand a year. I mean, so what's that to get from 15,000 to $25,000? Down payment save threshold that's few months for them.

Michael:

Right? Right? I don't know, just take my word for it. Don't dumpster dive in properties under 50 to $60,000. Just saying that. Yeah, don't be a noob. And just say, well, the numbers are great. The numbers are great on paper, you know, that that paper doesn't mean anything.

Michael:

Right. paper doesn't have anything to do with performance.

Lane:

Yeah, pro forma is like fake in French or something like that.

Michael:

So good.

Emil:

What was your criteria when you were looking to go out of state? Like, what did you I like that you said, minimum $800 rent. But what are some other boundaries you set for yourself? I think that's super helpful for people.

Lane:

I didn't want to go to two bedrooms or under, you know, three, three bedrooms, at least, you know, bathrooms that aren't really you could make arguments both ways, less bathrooms, less stuff to fix, right. But again, you know, what family buys a one and a half bath or less. So keep things simple. Just go after three twos or bigger. Four bedrooms are cool. I think that if you're going for section eight, that fourth bedroom really helps out too. Because a lot of times the rents are kind of based off of how many bedrooms there are. So that can really help. But yeah, I mean, just maybe not have a high end constraint, but at least have a low end constraint of three bedroom two baths.

Michael:

That makes sense.

Emil:

Yeah. What about market? How did you land on Birmingham?

Lane:

At the time, this was back in the old days when everybody was like reppin, Memphis. And I was like, Well, I don't want to go where else goes. And I was looking for more of a cash flow market. I didn't really care about appreciation. So at that time, did Birmingham and then I cobbled in Atlanta, which at the time did cash flow back in 2013? To 15.

Michael:

Back in the day.

Lane:

Back in the day, yeah.

Emil:

Yeah. Atlanta been on a tear.

Lane:

Yeah. So now, or at that time, those two kind of worked its way out to be, you know, good plays. And the way I thought about it was I was going to cluster properties in different areas. So I would get, you know, not just have more than one or two properties with one property manager be at least, you know, not the cheapest bottle of wine right are not the client with just one property just have at least few rights. You're not the bottom of the barrel, right? That's like a theme in my life just not being the bottom of the barrel. Yeah, a little bit better than the worse, right?

So I wanted to get these properties. So that would have kind of a little bit more of a pull with the property managers. So I had five in Atlanta, four in Birmingham, and then one in Indianapolis, I was going to start to buy more there. That was like another plan of mine, like what I saw earlier was in 2010, to 2015, the hedge funds kind of picked the market. I think at the time it was Atlanta, and, and maybe Memphis but like for some strange reason they went there and you can't predict it. You can look at all the data you want. But at the end of the day, these institutions are going to go wherever they go. And you just have to kind of react or this case kind of get lucky, right? The way I thought of is if I could just checkerboard, all these great secondary tertiary markets, which by the way are like Memphis, Indianapolis, Kansas City, Little Rock, Birmingham, Atlanta, like you know, you can't go wrong, I think. I think it's good to diversify over a little bit and maybe you get lucky. You know, maybe the person in New York will pick yours to just throw a whole bunch of money in there.

Michael:

Close your eyes throwing darts at the board.

Lane:

Right, right. I mean, if not just cash flow, right?

Michael:

That's right. That's right. And I like what you said to about those being like safe markets, you can't lose from a cash flow perspective, as long as the numbers make sense. At the end of the day, the value is kind of secondary, right? If that's the goal.

Lane:

Cities that are at least 100,000 population where you have, you know, enough choices for property management. And it's not just like a one trick pony in terms of the economy. That was kind of my big thing. I know, like, a lot of people pull up some kind of po dunk town and say, Oh, you know, the tertiary markets, like,

Michael:

Dude, look how good the rents are.

Lane:

That's not a tertiary market, right? Yeah, maybe the rents are super good, because the cap rates are high. But there's a reason why the cap rates are so high because it's out in the middle of nowhere. And it's only like powered by one meatpacking plant. Right. Those aren't the cities you really want to invest in. Maybe if you live there. That's cool. And you know that market intimately. But most of us are just a bunch of dudes in California, Hawaii, Seattle, New York, right? Like, what do we know? Stick stick to the secondary markets, dude.

Michael:

Yeah. And so what is it that you're doing now? Because I know that you've moved out of the kind of 1,2,3,4 unit space?

Lane:

Yeah, I mean, turnkeys. For me, it was a great way to get started. That's what I did from 2009 to 2015. As I became more of an accredited investor, I, you know, wanted to go after scale and lead projects of my own. So, you know, that's where I've kind of gone into more apartment syndication, but still same markets, same principles, cash flow. But in these deals, like the differences, we're buying it with force appreciation potential, right? We're going in rehabbing units, bumping rents.

Michael

Right on. And for those who might not be familiar, what's an accredited investor?

Lane:

Kind of a rich dude, sorta a guy who makes a quarter million dollars, I think if they're married or single, I don't know, you just got to look it up on the SEC website, or million dollar net worth and above doesn't include your primary residence, because that's not a good investment. That's just my input. But yeah, like a credit investor is kind of seen from the SEC as like, hey, this dude can go into a bad investment and not just be on the streets, right? So when you're under a quarter million dollars, half a million dollars, I don't think you really belong, investing in syndications. Right?

Michael:

Yeah, it's accredited investor, someone that can syndications can advertise to and it's a requirement from the SEC in order for them to be involved in certain deals, so they don't get taken advantage of assume there's certain level of sophistication. So most syndications have a requirement that in order to become an investor, a limited partner, you need to be an accredited investor.

Lane:

That's what it seems like. But in reality, like 90 to 97% of deals out there do except non accredited investors, except we are you or I aren't in that that network of the syndicator. So you have to be well connected. And you're probably not connected. If you're a non accredited investor, you probably don't know anyone other than Larry or Glenn in the office, right? investing in the 401k. They're out there. It's just yeah, to get access to the deals that are generally solicited, right. That's the key. Once deals are generally solicited or marketed on a podcast website, etc. Then the syndicator can only accept accredited investors. The key designation. But yeah, I would say if your net worth is under a quarter million and a syndicators willing to take your money. They got to be a little desperate. So I would kind of have caution for that.

Michael:

Interesting. So I get that question all the time, as part of the Roofstock Academy, our education arm of rootstock is, hey, if you know I kind of want this passive equity thing, that's why I'm attracted to real estate and the diversification away from the stock market. And so I'm kicking the idea around of syndications. As someone who's just getting started, they've never done a deal. Let's say they are an accredited investor, would you recommend going the syndication route and just being super passive or go getting their teeth cut and doing a deal themselves?

Lane:

I think it's great to see somebody going on doing that on their own, because most investors that are accredited, they've never owned rental properties. They're kind of that unsophisticated, accredited category, I call it. I like to see my investors own a rental property or two, because they get the game they understand that, you know, this is not a smooth ride. You know, so like, Case in point, just a super small deal like a 50 unit. Whenever you turn on the HVAC in May, for the first time the air conditioners, you get 50 of these things, you're going to have a handful of them break, right and if you're a rental property or you're like yeah, you get it right every time that happens. I get like emails from these like newbies accredited guys. What the heck happened here? This is poor due diligence. Yeah, I use my European accent it poor intelligence. This is outrageous. You are horrible. Now they don't really do that. But I know some people think it right. But the people who own rental property, they're like oh, okay, wow, I'm surprised not more broke.

Michael:

Only seven broke.

Lane:

Yeah, yeah, yeah. And they're like, oh, okay, okay. Oh, we're not getting distributions this quarter. Okay, well, that makes sense because there was a freakin pandemic, right that, like, I get it, you know, cuz I've owned real properties. they get it, you know, carry on, you know, keep calm carry on. Yeah. Whereas other investors they, you know, they just freak out right is he still understand that they're just used to the stock market, right even though in the stock market you're taking so much advice, right.

And that's what started this whole ride when I was investing in a turnkey I was doing like, my projections are figuring out that I was making like 30 35% money I'm on my money with the cash flow was just one of them. Yeah, cash flow, you may only be making 5, 10 percent, but when you add on the tax benefits the mortgage pay down the tenants paying down your mortgage, and then the the appreciation, the leveraged appreciation. I mean, you're making like 30 something plus percent, even on a typical turnkey.

And then I was looking at my garbage and my 401k. And I was like, wait a minute, what's happening? What took all my money? Right? Yeah, I mean, the stock market seems smooth, right? But Little do they know that everybody knows that they're getting their retirement just robbed from them. And that's what keeps hardworking professionals working forever, which really frustrates me.

Emil:

Personally, I don't invest too much in a 401k anymore. But what do you mean by people getting robbed in their 401k? I think that's important thing.

Lane:

Well, the 401k is kind of a newer thing. I mean, in a way, it's kind of the government getting in cahoots with all these financial companies so that you're kind of guided like cattle, to the slaughtering house to invest in that stuff. Like you're stuck, you can only invest in Vanguard 500, or whatever mutual funds that are out there. Right. Now it's crazy that real estate is called alternative investing. I mean, really, what what's alternative about this, I think, I mean, what's more wholesome, more natural than investing in a life hard asset, right, that produce income every month. But anyway, that's what they call it alternative investing, because somewhere back in the 80s, all this stuff, the 401k wasn't around back before then. But now it created that conduit that now the average guy can go in there and invest in this stuff, which isn't always the good thing. And it made Wall Street very rich. I mean, Hollis, do they have all these big buildings.

I'm more of a proponent for, you know, getting off Wall Street, investing in Main Street things that you have control over.

Michael:

And so what are some steps that somebody can take if they've never invested in real estate before? The thought of investing in their own backyard is scary, let alone outside of their market? How can somebody go best equip themselves and get over that mental hurdle?

Lane:

Yeah. So that mental hurdle is a thing, I get it. And I kind of very forceful when people because I know it's just them being scared. And until they realize that they can't move forward, they're just going to hem and haw and try and force some rental property in Oakland to happen, which isn't going to happen, because it's in the hood, it's just not going to work, right? Rent to value ratios aren't going to be higher than 1%, probably where you live. So I think what kind of pushes people over the edge, it's like seeing other people do this. And you don't need to be that smart to do this. And but it requires you to network a little bit and build relationships with the right property managers, and the right brokers and right inspectors.

But that's daunting, right? Because you can't really go off Yelp, right? or work with just some random brokerage firm. Because if you work at somebody at a brokerage firm, luckily, you're getting the dude who can't sell houses. And yeah, you don't want them managing your your property. But the key is just going off referrals of other investors. I know you guys have your lists, right of people you guys have used in the past or other clients have used in the past. So do I. It's not rocket science, but it's hard to navigate from your board shorts, or what are your sweatpants, sorry. It's not cold out here. But you're required to pick up the phone and talk to somebody and interact a little bit. I know, that's super hard for people these days. Yeah, you have to get some help from people.

And the cool thing is in this business, you know, I mean, today, I'm kind of financially free. And it's cool to help out people, right. And I think a lot of people, they were helped at some point, so they like to pay it forward. There's a lot of cool people in this business that are pure, passive investors that are willing to help out a new person, if they ask the right questions. Now, they don't want to give their time that teach it to you. That's another thing. But I think if you approach the right person in the right way, with the right tact, you can get the right connections, and then it's up to you to kind of follow through and connect those people.

Michael:

Yeah, that makes sense.

Emil:

I think it's partly like, there's gonna be some trial and error, right. Like when you're first getting started out, you're gonna make mistakes to think you're gonna choose the perfect property and find that perfect property manager, the right partners, you're talking about like, there's gonna be some trial and error. Obviously, you want to do your homework upfront. But I think sometimes people are just afraid of like, going into it saying, I know I'm going to make some mistakes. But I'm going to get better as I as I go along here.

Lane:

Yeah. But to me, I'd rather do that make some mistakes, maybe I don't make 30%. Maybe I make 20 or 15%. And then just get absolutely robbed by wall street. People can make up their own decisions. But that's the way I look at it. But it is getting off the beaten path, right? It's very uncomfortable. And most people are, they don't get out of their comfort zone. But then this is where it comes down to financial freedom is not for everybody, if everybody did what we were talking about here and bought a rental property this year, and then save up their money and buy another one a few years later. And then now they have more cash flow, they can buy one maybe every other year, every year, there'll be done in five to 10 years. And then who would get us our coffee, who would go and like sit in traffic all day for us. Right? You have to get out of your comfort zone. If not, you can just sit in your car and continue to listen to podcasts all day long, and keep going to work and keep trading your time for money. It's not for everybody. But it's not that hard. That's why you have to talk to people and you start to talk to people and you're like, you see who the person is on the other end. And like, you know, I have people call me all the time and they start to realize that yeah, this is a real dude. He's not super smart. Yeah, he's organized. But I mean, I can do this.

Emil:

It sounds like we're kind of oversimplifying it, but it's true. It's like just determination a little bit, you know, organization discipline, and just doing it.

Lane:

Project management skills.

Michael:

Oh, yeah. Yeah. It's funny how many people I think I'm sure we all talk to that, like, became accidental landlords or fumbled their way into something. And then they're like, Oh, crap, this is awesome. Right? It wasn't this like, calm, cool, calculated approach. It was like, Oh, look at what happened. Okay, I guess I can do that again.

Lane:

Yeah. I can't say that. I kind of got out of my comfort zone because I was accidental landlord, but I'm the one just sitting at the plank pushing people off because they know that they'll swim.

Michael:

It's not that deep. It's not that bad.

Lane:

Yeah, yeah. Don't worry. I got the life rafts out here. I got these light savers or in this metaphor, I have the relationship they have the connections have helped out dozens and dozens of people do the same thing. Right. I mean, you guys gather Academy that does this, right. Like, it's the safety measures are out there, right? Yes, there are some sharks there. We haven't seen them in days. Right.

Michael:

Right. And we've all got spear guns.

Lane:

So it's Yeah, yeah. But if you want to just stand this boat, right? I think that's the big thing people need to realize, is, you see on this boat, if you keep doing what you're doing, we know what is going to happen. I'm an engineer, I can build a spreadsheet, I can tell you what's gonna happen, you're gonna be like my parents, they just kept working their job, they bought a house to live in, the money in their house just grew with the price of inflation. It's not a good investment. And they retired in the age of 67 years old, where the government thinks that you'll probably die anyway, which is why they structure Social Security, and pensions the way they are.

Michael:

Yeah, I think there's this kind of this middle ground that not a lot of people talk about, like the investment community, we talk about financial independence or doing nothing. But I mean, if somebody goes gets 2, 3, 4, or five rentals, I would say that their life is going to change pretty drastically. If nothing else, we're just some additional walking around money. Like, kids college tuition, like it doesn't have to be this extreme thing. Start with 1234. See how it feels. If it sucks, go sell them? If it's great. Well, then see how you know, keep going, or just hang tight and enjoy the cash flow.

Lane:

It's not binary, right?

Michael:

It's not binary.

Lane:

It’s not like financial freedom is 1000 units or nothing, death at office. Yeah, go buy a few. But you'll start to realize that once you buy a few your deal, flow gets better. You pick up better properties in your life, and it gets easier.

Michael:

Oh, I don't know anybody that just bought a few. It's like, Okay, I'm done.

Emil:

Yeah, go. I could do more. I could do better.

Lane:

Yeah. So it seems like there's this great divide. But when you buy your first one after six months, it's it's like nothing. It's like, it's like a new job that you got, like, maybe you went up to positions like one extra position rung higher than you're supposed to. And you're like in the senior like, Oh, no, I'm like, super overwhelmed by this. But in three months, you got it. It's like It's like anything else. It's not no big deal.

Michael:

Yeah. That's a great, good point. So I don't know if you knew this lane, or you knew this Emil, but we're in you know, California and Hawaii. So you're filthy, stinking rich. I don't know if you knew that. But that's what a lot of other people think. So how do you not get taken advantage of going working remote with folks?

Lane:

Oh, yeah. So they think we're just some rich person drinking Muay Thais or,

Michael:

That's right. On the beach. Hanging out.

Lane:

Drinking cold brew on a surfboard. Right?

Emil:

That sounds amazing, actually.

Lane:

Okay, so the remote investor like vendor inflation is real, right? You got to be a little more sophisticated than the average bear and you got to keep these guys accountable. Right? And this is ultimately your job, right? You have a property manager, and they're going to try and get the best pricing for you. But they got time, they don't have much time, then I can put too much effort into this. So your job as a remote investor is to kind of keep them accountable and help out too, right? If it's a large repair over $1,000 $2,000. Yeah, maybe run a couple other quotes out there.

Just make sure you don't get gouged. Right. Like, I mean, there's, there's times where I've gotten like a $900 toilet repair bill. And I was like, Are you kidding me? Like,

Michael:

I’m gonna buy five new toilets.

Lane:

I mean, maybe I come from the construction industry. So this kind of second nature to me, but like, you know, you break it down per the hourly rate for that professional, the toilet, fixer upper guy, right? I don't know. I mean, I can just go on Google. And I can figure it out, like, what is their hourly rate? Or what I mean, I have somebody fix my toilet here. You know, what, just call up the next or plumbing repair guy and say, Hey, what's your guy's hourly rate to fix this thing? And there you go. Done. Yep. Right. Notice it? 100, 150 bucks an hour, right? go with that. And you just go with this logic. All right. Not an incredibly intelligent person. But I'm thinking to myself what the potential problem could be, how long it could be to fix it, and then multiply it by two, right? Like any good engineer does, right?

Michael:

Safety factor of two call it a day.

Lane:

Yeah, that bridge is good, right? So like, you know, like, this is what you do as a remote investor, you just kind of like guesstimate what it should be. And then if it comes up way higher than you like, well, now we kind of press is there some kind of issue going on there? Right? Are there kickbacks happening? You can kind of like train your property manager? You're not no sucker? Because most people are right. Most people are horrible. Investors, they don't even do any of this type of stuff. Right? And, and if he did show a little bit of due diligence on your side, they would they know, like, oh, Michael, Michael knows his stuff, right? And he's going to check us so we're better go get a good quote. But um, but yeah, I mean, it costs what it costs a 12 pair, throw in your box, that's cost what it costs.

Right. But that's the beauty of investing in places where the cash flows, because now you can pay it you have the money to pay this stuff. You're not going to run this thing with bubblegum, and and, you know, whatever, duct tape or whatever that stuff is,

Michael:

You can’t MacGyver it?

Lane:

Yeah, you're an investor, your job is to go and figure out what your highest and best use which is likely at your day job to just kick butt there and buy more properties. Right? If you're freaking out about the little toilet repair, you don't have enough properties.

Emil:

That’s so true. I can't…

Michael:

That should be a bumper sticker.

Emil:

I can't tell you how many times I would freak out over $150 bill, because I had, you know, you're early in like, every single bill is just like, Oh, my God, but then, you know, once you have some more, it's just, it's just part of it. You mentioned in the beginning, right. Like, that's the good thing about having investors who have a couple rentals themselves, is they're used to that stuff. They know that, you know, they come regularly and it's all part of it.

Lane:

Yeah, it's like, it's like asset protection, like I work with a lot of credit investors. And for some guys, you know, we might use the bazooka of asset protection, irrevocable overseas trust, and that stuff is not cheap. It's like 30 G's. And like, you know, I see the, the reaction there, right, like, Yeah, man, if you have that reaction, this ain't for you. Like,

Michael:

Right, it's not the right vehicle.

Lane:

Yeah. Not the right vehicle for you, right? Yeah. Here's a Camry or Corolla, right? Take that vehicle. Right? Right. This bazooka is not for you. But it just takes a while, right? I mean, you're gonna see this, this frequency of repairs come up, and you're gonna start to learn the normal cadence of this this piece, and then go buy another and then buy another and buy another us to say, because you were talking about this a little earlier, Michael, like once you buy a few properties, I'll tell you, that was where I became a really horrible engineer. And for me, this was maybe five, six years into my career. And I was like, why would I want to work? 50% harder for the next promotion to make, what 8, 10 percent pay increases? You don't really what the rung up is, when I could just buy one property. And that's my eight to 10% in a way.

Michael:

Right.

Lane:

It made no sense to me. And after I had a few of these, I just walked around like, I don't care. I don't care. I made more want to have like five or six of these rentals. That was cash inflow, and maybe a grand or two a month, I'm making more than my boss. Right? You know, that's what frustrates me about corporate America. Most people in the office are there because they have to be there, especially in the non senior roles, right, your middle management, your manager, Director level, they're not there because they're shining personalities that they're because they have to be there for the money. And it's hard to work as a subordinate to somebody who's not there because they have shining leadership skills. They're there because they have to be Mm hmm. That's where I was like, this sucks. I got to get out of here. I eventually went to more public sector jobs because I was in private in the beginning. I think that's a good move for a lot of young professionals, you know, kind of Roast Yourself in there and learn learn things.

But what because I had these rental properties, I was able to take a pay cut and go to more public sector jobs, or was a lot more chill and better quality of life. And that would probably have been a good lifestyle for me, to be honest. I mean, it just keep working my ad 100 grand your job 00 stress 35 hours a week, if that you know, and just pick up a rental property every year, that would have been pretty good gig, that's not your binary 1000 plus units or death, right? That's kind of in the middle. I think that's a great thing to shoot for.

But I think this is a slippery slope. Once you buy one, once you buy five, once you buy 10. It's just your hook your hook. And it just gets easier and easier. It's like, it's like Tom Brady, just throwing the football right. It's so easy for him at this point. Why not?

Emil:

Yeah, it is nice that you have that flexibility to make that decision, right? Like, I'm tired of private, I'm gonna go work in public where you know, I have a better quality of life, you just you gave yourself that opportunity to have flexibility in your life, which is amazing, right? And that's what this stuff does, right gives you the flexibility to do what you want, where you want with whom you want. And on your own terms. money's not everything, but it helps sure makes life a lot easier. And it allows you to design your lifestyle the way you want.

Michael:

Yeah, gives you choices. Awesome. Emil, You got anything else?

Emil:

Yeah. Lane, you've been investing I think 15, 20 years total. Now.

Lane:

I bought that first round. 109. So it's been a little over a decade now.

Emil:

Okay. Yeah. So a little over a decade. I love asking people who are kind of on the other end, you know, fully financially free, like, what are the big lessons, you've learned that you would tell yourself, you know, when you were just starting out or in your career, either, before you bought that first property, or when you had a couple and you were going to scale. What were like those big lessons you would tell yourself,

Lane:

I mean, a lot, some mistakes, but they all could have been mitigated if I had the right network. I mean, that's why around 2015, when I had 11, I joined different masterminds I paid to get into so I could get around other accredited investors, pure passive investors to see what they were doing, you know, some of the mistakes I made, I pay down my mortgages. It's kind of silly. Don't do that. Don't do the whole 15 year thing. 15, 15 or 30 years, right. That's the great debate, dude. And that's the best thing about this stuff. Just get the 30. And if you want to pay it down quicker, I don't know why you would want to do that. It makes no sense to me. You can, right? Yeah. And these are like the financial mistakes or dogma we're taught to do right that if you got around accredited, more experienced investors, they would say, Yeah, man, don't do that. Right.

Don't necessarily pay off your student loans. Right? Because I know a lot of people have those things these days, invests right maybe don't buy a house to live in invest. Right? Granted, if you're the 98% of the population who's horrible with their money. Buying a house is a great piggy bank to save money for saving to prevent you from keep your grubby hands off.

Michael:

That's a forced savings account.

Lane:

Right? But I think if you're smart guy, listen to podcasts. I think you're smarter than the average bear and you should invest it but run the numbers yourself. Right? Like I say numbers don't lie people do.

Michael:

That's great.

Emil:

True.

Michael:

That's great. Anything else Emil? I want to be respectful of Lane’s time.

Emil:

That was all I want to ask.

Michael:

Awesome. Lane thank you so much for hanging out with us today man. I really appreciate it. If somebody has questions for you wants to reach out to you get in touch with you where's the best place for them to do that?

Lane:

They can go to my website simplepassivecashflow.com and check out my blog there. A lot of turnkey information on there. Simplepassivecashflow.com/turnkey, is kind of the page and then then I have my podcast, simple passive cash flow, passive investing there too, which a lot of the first I think the first dozen podcasts are mostly about turnkey rentals, because that's what I was doing back then. So it was pretty tactical. Who do you go to where do you Who do you talk to? Where do you buy things like that? I would kind of refer people to that. And then yeah, join the simple passive cash flow Kool Aid drinking club of 1000 rentals or more. Just get that first one!

Michael:

Awesome. Well, thanks again. Lane. Sure. Appreciate it. And you have yourself a great holiday in New Year.

Lane:

Yeah. Thanks, guys.

Emil:

Thanks, man.

Michael:

Thanks. Take care. Alrighty, everybody, that was our show. Thank you so much for listening and a big big, big thank you to Lane for coming on, we appreciate you taking the time out of your busy schedule to join us. If you'd like this episode, feel free to give us a rating and review wherever it is you listen to your podcast. Don't forget to subscribe. And as always, we love comments, feedback and episode suggestions. We look forward to seeing you on the next one.

Emil:

Happy investing.

Join us for another Ask Us Anything of the topic smooth scaling.

---

Transcript 

Michael:

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

Tom:

Tom Schneider

Emil:

and Emil Shour.

Michael:

And today we're going to be tackling another AMA, aske me anything or ask us anything. And these questions come to us from viewers from the our most recent webinar that we hosted last week about smooth scaling. So let's get into it.

All right, Tom, in the hot seat from the word go on last episode, you made a commitment to me, Elena, and all of our listeners at the remote real estate investor podcast that you are going to be making some moves, restructuring your insurance situation, where are we today?

Tom:

Yes. So as I alluded to before, I don't have nothing to say.

So this is where I'm at, I'm coming to learn that it's not as difficult as it is, as I had put it in my head to update your property insurance. So well, I have not bound any new insurance, I have reached out to a wonderful member of the Roofstock Academy on updating my insurance, so I have no specific things completed. You know how you eat an elephant guys, one bite at a time.

Michael:

From the trunk down.

Tom:

One bite at a time, from the trunk down and from. So anyways, to make a short story long, I have reached out to my insurance broker that's going to help me play some new insurance. And I'm hoping we can get it done by the end of the year. It could be a little bit tight considering we are recording this on the 28th of December. But I can I don't know I'm feeling good, man. There's a little bit of momentum going on. I'm feeling okay. So not, as I said, not nothing to update.

Michael:

Good, double negative. Yeah, keep us posted on the next recording. We'll check in with you again.

Tom:

Yeah. And then also just, you know, what happened was my, for whatever reason, my payment to my original insurance didn't go through and they refunded me back. And then my mortgage company bought insurance on my behalf, which is you don't want to happen because they just they make it really expensive. And the coverage isn't that great. So I have insurance. I'm not like not insured on these properties on a subset of some properties. But anyways, remediating all those issues in the very near future. Okay, then it's done.

Michael:

Awesome. Good update, keep them coming. Alright, so let's get into some of these ama questions that came to us from the last webinar. So Emil a question for you, because I know that you are just getting into this space. Someone's asking, what about apartment buildings as opposed to single family homes, they found one with 34 units with an average rent of $650, which would be an average revenue of 24,000 per month in revenue? Would it be better to have the higher return per month for less property? How should they be thinking about that?

Emil:

So without knowing the purchase price, we're super limited here. It could be 34 units, and the rent is 650. And each unit is 40. k, and that'd be an awesome deal or the issue and it could be 100. k, and this would probably be a not so awesome deal. And it depends on where it is, what else is available in that market? So I'm not going to answer this question because I don't have enough information. I'm kidding, I'm kidding.

Michael:

Let's take it a step. Let's take it a step further and maybe talk about just kind of more generic. So if someone was comparing multiple units for a lesser rent amount per unit, but a higher gross rent, versus a single family that had a lower rent should be a higher rent per unit, but lower gross numbers.

Emil:

Yeah, this is something I'm personally starting to think about myself, like you can buy a lot of units with smaller rent, and you start to kind of realize the cash flow, and each one is maybe a little bit skinnier. All right, any maintenance that comes up, it kills that cash flow for that specific unit. But if you're spreading it out over a lot of units, it's probably unlikely that they're all going to have maintenance at the same time. So I think like, as you scale up bigger, that smaller rent makes more sense. And this is just kind of me as someone who's just starting to get my feet wet. I would love to hear this from somebody who has experience, you know, buying some bigger stuff that you know, they're all maybe one bed, one bath or studio apartments where you know, the rent is smaller.

But I think what really what really matters here is comparing this against single family, right? If you want to go get a bigger building, go do that. But you shouldn't just buy a bigger building because bigger sounds awesome. What if it's like, what if in your market, everything is so expensive in multifamily? Because everyone's going to that wonder four units just produce a better return right now because there's less fuel going for that. So I think you just have to compare the two and know what's a good deal in the market you're you're looking at versus just saying, I blindly want multifamily whether it's a better deal in this market or not. I don't know that's kind of how I approach it.

Tom:

I'd also say there's different muscles that you would need, I guess kind of overhead versus buying single family where single family, you can take advantage of the huge network of lenders that exists that just standard Wells Fargo, there's just tons of these types of lenders versus once you start getting into larger apartment buildings, it's your getting into commercial loans. So just a little bit more overhead or less available lenders to do that kind of lending. And typically, you're not going to get as good as rates as you can get with the lending, you can do now with a SFR, a one to four units. So I think that's a consideration. Michael, what do you see as the property management costs, differences between an apartment building and a single family? Are they pretty consistent apples to apples?

Michael:

No, it kind of goes all over the place. But I think a pretty safe bet is the more units you have, the less your monthly expense is going to be for property management. So if you're at you know, one unit two units, three units, you might be at their highest monthly gross charge on rent collected versus you adding additional units, that monthly number tends to go down. And you can also negotiate to have a lower lease up fee as well, or at least renewal fee, you can also negotiate that down. So the more units you have, it's like buying in bulk, the cheaper that becomes. And I think also to Emil’s point, you want to be looking at the tenant pool that's renting that type of unit, because it's really tough to make an apples to apples comparison of a three, two single family that rents for 1500. And maybe a one one apartment unit that rents for 650, that type of tenant you have in those two assets is going to be vastly different. And so is your expense load your maintenance, repairs, vacancy, that's going to be I would argue drastically different between those two types of units. So be thinking about that it's not just an apples to apples comparison of Oh, well, this number is higher than this. Therefore it is a better investment.

Tom:

Give a blanket statement with with no context, Michael, you think as overhead as an investor if I want to be you know, Mr. Mailbox money, don't do anything. Obviously, there's the work up front and doing the acquisition, would you say they're similar in the amount of ongoing overhead that you have to do multifamily? When I say multifamily like bigger apartment complexes for plus versus single family to a four Plex?

Michael:

Oh, man, it's that's such a tough, it's so tough,

Tom:

I would assume. I'll tell you my assumption that is my kind of in the dark, when you have units, and they are going through vacancies or things come up, you're going to be a little bit involved as an owner. And owning like a bigger complex, I would just assume that would be like a little bit more active. But I mean, I don't know if Go ahead, continue your your flow that I ruined.

Michael:

It's interesting, because you know, you have the a bigger building with more units versus let's say, a 10 unit apartment building versus 10 single families. And we can kind of make the comparison that way. So if you have one building, you have just one building, one roof, one set of mechanicals, you know, obviously, there's 10 of them, but they're all in one centralized location. And so people can learn a building really, really well, fairly quickly. And so you have the same repair people going to that apartment building the same maintenance folks. And so it becomes a learned asset versus having to go to 10 different properties kind of running all over the place can be a bit onerous. So from a management perspective, I think having everything in one place often makes it a little bit easier. And that's probably why a lot of managers will give a discount for managing a single building with multiple units. Because everything is there. It's easy, it's so much more touchable.

And from a time perspective, someone doesn't have to go drive to all of these properties to take care of 10 different things. So once it's stabilized and running and kind of humming along, I think that multifamily is a super easy mailbox money type of asset. But it's getting to that point. And from this question, we don't know where that is. We don't know how much work has been done. We don't know what the tenant class looks like. So really tough to say, without answering some of those questions that Emil was asking at the beginning of the question. All right, we can touch on this one all day. And we did a whole episode about multifamily or single family the ultimate showdown. So if you want to learn a little bit more about that, go ahead and check out Episode 19 for the ultimate showdown single family versus multifamily.

So let's jump on to the next question. Tom, this is a good one for you. How does Roofstock make money on transactions?

Tom:

Yeah, so we Roofstock acts as a broker. So rootstock makes money on the transaction, they make 3% that the seller pays. And then also when a buyer is buying a property on reflect, they'll pay an initial marketplace fee, which is a half of a percent, or $500, whichever is greater. So that's how Rooftock is making their money.

Michael:

And as compared to like a traditional MLS type of sale. Can you give people an idea of what type of closing costs they might be expecting to see there?

Tom:

If you're selling on the MLS, you're paying more you're paying typically about 5% versus 3% on Roofstock as a seller, it's worth noting that within reach Have stock there's two different types of listings, there are Roofstock exclusive listings. And those are the type of the properties where Roofstock is representing the seller and with those properties since Roofstock represent the seller, they do way more diligence before the property is listed. So before it's listed Roofstock will go do an inspection. If it's occupied, they'll look at the payment history as well as the lease. They'll publish that information in the diligence vault where a user can see the completed inspection. So those are exclusive listings. And then there are select listings and select listings are properties where Roofstock will represent the buyer on the transaction. And on those ones are identified on the MLS by our technology as well as our local brokers.

Michael:

So next question, I'll take it. Are there creative methods to utilize a VA loan or other lower down payment methods to purchase rental homes that are set for cash flow instead of as a personal residence? Short answer is no. There is always creative ways to finance properties. And so one of the great ones that I like utilizing is just with a HELOC. So if you have a primary residence, you have an investment property that has some equity, you can establish a HELOC on the property which stands for home equity line of credit and utilize that as your downpayment.

Now, typically, there's going to be some seasoning requirements from lenders, which basically means they want to see the money you're using for your down payment sitting in the bank account several months in advance of the purchase. So if you know you're going to making a purchase, be thinking about seasoning some of those funds and drawing on that HELOC. Another way to do it is using a cash advance from credit cards. It's something that I've never done personally, but I know a lot of credit cards have a cash advance option, you just want to find out very specifically from your credit card company, what the payments look like back on that if you're paying, you know 18 to 20% interest like a typical credit card on that money. There's a typically a fee associated for drawing on that cash advance line. So finding out what that fee is. But that's another way to access quick cash. Any other thoughts for creative financing?

Tom:

It just gives me the willies. The idea of taking a credit card advance that no it's a little bit above my paygrade of like taking risks with credit cards.

Michael:

Yes. Yeah. It's not something I've ever done. I've heard about it. I you know, in theory, it could be done. But again, that's nothing I've ever done. Yeah. Any other creative financing tips?

Tom:

Oh, the borrowing gets your 401k. You mentioned Oh,

Michael:

No. So that's a really great one. So we record an episode with a certified financial planner. So check out Episode 73 for a deep dive with a certified financial planner to get access to some additional ideas to learn how to finance investment properties. Alright, so Emil question for you. I just made my first investment property purchase in Indiana, I live in California, how do I scale that property into more go?

Emil:

Okay, your first one for it to allow you to do some of the things I'm going to mention it's going to take a while. So what you should do to scale currently is save more earn more like try to save up by the next one, right? But over time, how is that maybe the question here is like how does one property turn into more right or a couple properties turn into more. And there's a couple things that happen my second property with Indianapolis and so I'll talk about that. Now, this property we bought for, I believe, around 115,000 in Indianapolis in 2017. And when I bought it interest rates were at about 4.6%. And today they're at about three and a quarter. And in that time, it's appreciated from 115 to about 141,  150. And so what I'm in the process of doing right now, after three years is a cashout refi. Since the markets been good rates have come down, I'm actually going to be able to pull out most of my original investment and lower my interest rate so that my monthly payment isn't really going to change, I think it goes up $10.

So that is just some just luck of the environment appreciating and interest rates going down. And so I'm going to take hopefully 15, 20 grand, and now use that to go buy more properties. So that's one way you can scale up giving it time you're going to pay the debt down, hopefully appreciate. And then as interest rates change, you can take advantage of these different environments. That's one way.

The other way you could do it is again with time, instead of doing a cash out refi you could sell and 1031 exchange into something else. Maybe instead of a single family home you buy two single family homes or a duplex or a triplex or something that's another way you can scale up your one property in to more. Both those things require some time obviously.

The third way that I found that you're going to be able to to grow your portfolio from one or maybe a couple properties is the cash flow. So one thing I've done over the years, I've never touched a penny of my cash flow on these properties, except to reinvest in more property. So again, it takes a little bit of time but all these things are gonna add up and with more properties Get more of the effects of these things. And that's how a small portfolio is in my eyes and grow into a bigger one with just some consistency from using these three different methods.

Michael:

Love it. Alright, Tom, question for you. What would your advice be to someone who is currently a renter? Should I focus on getting a place in my own? Can one reasonably manage that and getting a hand in real estate investing? And either tips to start thinking about how to start thinking about that?

Tom:

Excellent question. So we actually had an episode on this episode 91. That was a showdown comparing renting versus buying you're buying your personal property first, or buying a rental property first. And I think this is very situational. Depending on where you live, it may make sense to buy a rental and continuing to rent, it may make sense to buy an owner occupied property, so or it might make sense to do both and do what's called a house hack, where you buy space that's a little bit bigger than what you need, and you rent out the remaining space. I personally bought a rental before I bought the house that I lived in. I before I bought an owner occupied house, it made sense to me, the properties were just so much more expensive, and the area that I lived in that I was fine having the flexibility of renting while finally starting to participate in all the upside of owning real estate.

So there's this really interesting fact I remember I worked at one of the very first publicly traded REITs. And in one of our slide decks, when we were raising money, there was this inverted relationship between homeownership and the unemployment rate. So if you look at countries like Scandinavian countries, they tend to have low homeownership, but they also have really low unemployment, versus a country like Greece, where they have high homeownership and higher unemployment. The idea is, in areas where you are not as tied down, this is a thesis behind that is areas where you have a lot of renters and you're able to move around to wherever the jobs are, there tends to be lower unemployment.

So I think driving that back to the original question about buying your own home versus buying a rental, I think there's just a lot of value of having flexibility as a renter, but you also want to participate in real estate investing. So the natural solution to that is to buy a rental property first continue to rent. But again, you know, it'll really matters where you're living at if the prices are not that expensive, then maybe it makes sense to buy house hack all that good stuff at the prices of homes where you live that are more expensive, maybe it makes sense to invest somewhere else.

Michael:

Great points. So I'll take this next question. How do you find a mentor? So it's kind of a self serving answer, you can check out Roofstock Academy comm that education program comes basically with a one on one coach and a mentor and accountability partner, as well as tons of on demand learning and a bunch of other benefits that you can check out on the site.

But above and beyond that, you can reach out to your local network of people, you're kind of first sphere of influence and see Is there anybody else that you know, directly, or maybe even indirectly look at that second sphere of influence, and see if there's anybody doing what you're looking to do? Not someone talking about what you're looking to do, but someone actually doing what you're looking to do. And then you can check out websites like bigger pockets, there are tons of active investors on there, I would definitely check out your local real estate club, meetup groups, and that's probably virtually right now, that's still a great place to network online, check out Twitter, there's tons and tons of active real estate investors on Twitter, myself, and Emil and Tom are on there. And so I think those are all great places.

Kind of above and beyond that you can go work in the space, go work for a property management company, go work for an investment firm, go work for a read, get your hands dirty with other people's money, and figure out how the professionals do it and then go look to do it for yourself. You could also go volunteer for somebody, if someone's there's a big investor in your area, find out who they are, and ask if you can help them out and work for free. I think so many people throw up their hands about saying, oh, why would I ever go work for free? It's like you will, because you don't know how to do something. So to get somebody to teach you think about what you're asking them to do. You're asking them to give up their time to help you do something which might not have any kind of return for them. So be thinking about ways to add value when you're looking for a mentor, don't just run up to somebody that has more experience and be like will you be my mentor? It's a relationship. It's a friendship, hopefully. And so look to nurture that and blossom that and think about if you were in their shoes, how would you want to be approached as someone who's going to teach somebody else how to do something? So that's that's how I would approach that.

Emil:

Can I add some real quick there?

Michael:

Totally.

Emil:

So sometimes you can feel really easy to get hung up on what value can I provide? If there is no like if I can't work for them. I just want some advice or something. I think a lot of people who will give you advice or offer some like initial mentorship. I think if you do what you're saying you're going to do or do what they tell you to do. It's such a good way to stand out because they probably give a lot of people advice and tips and stuff all the time, right. They go for coffee. And nobody follows up or follows through on what they're going to say, or that advice they gave them. And I think when you can show that person, like follow up in a month and say, Hey, I did what you said, Here's what's happened. I think people love that they love, like being part of someone else's story, right? They people, like when you reach a certain level of success, they like to give back. That's why they're meeting with all these people grabbing coffee, whatever. And you really stand out as someone that they should invest more time in, if you're actually doing what you say you're going to do, implementing the advice they give. So that's the other tidbit I'd give on, on people looking for mentorship out there,

Tom:

I was just just, you know, agreeing with a meal on people, like want to help other people, you know, and if you're able to kind of follow through, it's been really enjoyable to see people be successful, who, you know, have helped them a little bit along the way. But being proactive and following up is really important to make it worth their time.

Michael:

Absolutely. And then just to put a bow on this being teachable, and being open is I think, a huge, a huge thing here too. Because if you go to somebody looking for mentorship, looking for guidance, assistance, whatever you want to call it, and they give you advice, tips, tricks, whatever. And you're like, Yeah, no, I've already tried that doesn't work. Why would they ever want to help you again?

Tom:

Totally.

Michael:

So just don't go into this closed minded thinking you have all the answers, because if you did, you wouldn't need their help. So just be be super open and willing to receive feedback and guidance.

Tom:

Leave your ego at the door.

Michael:

Yep. Your ego is not your amigo.

Tom:

Did you Just make that up right now?

Michael:

I wish I did. I wish I could say, a buddy of mine said and I'm like, yeah, I'm gonna steal that for forever.

I'll take this next question. So if you buy property, all cash, can you refinance straightaway after closing. So with commercial properties, yes, I've done this 30 days after closing, I got 75% of my original purchase price, not the appraised value. Right after closing, for conventional for single family type stuff, residential properties tougher to do, most lenders have a seasoning period, in which they want you to own the property for anywhere from six to 12 months. So I would definitely have that conversation with the lender you plan on utilizing for your refinance ahead of purchasing that property, all cash, just so you get a very clear picture of, Okay, I've got to own this property for six months, nine months, 12 months, whatever it is, and I know what my cash flow is going to be. And I know when my how long my money is going to be tied up for. And after that I can get access to my cash. And here's the things I know I'll need to do to get that refinance here the document, I know I'll need to gather and just have everything primed and ready to go for when that time horizon does arrive.

Emil:

I think conventional lenders will do the same on the purchase price after you buy, but not appraise. I think the seasoning period is for going off appraised value. So like if you want to make any home improvements, and you want to refi out, you have to wait that 6-12 month period that you're talking about.

Michael:

That could be But yeah, I would just say to anybody listening, go talk to your lender, whoever you planning on utilizing, they'll tell you to get it directly from the from the horse's mouth so to speak. All right, Tom, Does Roofstock have recommended property managers? Or is it up to the investor to search one out on their own?

Tom:

Yes. So whenever roof stock goes into a new market, what they'll do is they'll research the top, say 10 biggest property managers in that area. After doing that they'll do a phone interview. And for ones that pass that they'll actually do an in person interview, will they'll go to the office, they'll take a look at their lease, they'll ask questions, operating questions like what's their standard operating procedure as it relates to tenant screening, setting rent. So they'll go through this exercise in evaluating a local property managers.

But with that said, I would really recommend people do their own homework as well. If you're going to use professional property manager, it's a great head, start getting some feedback from via Roofstock or somebody else on a property managers but it's still worth your time to go through the exercise of talking to that potential vendor just because just as a remote investor is just such a key relationship to being successful.

The last thing I'll add related to property managers, as well Roofstock does do this exercise of finding preferred property managers, you are more than welcome to bring your own property manager if you want to self manage it think of Roofstock as the river guide where they'll help you out if you need to help. But if you know what you want to do, great, that's awesome as well. And it's the same thing with lenders as well, where Roofstock will find some preferred lenders, but you're more than welcome to use your own lender or all cash.

Michael:

Emil, question for you. And then we'll probably take one or two more and then get out of here. What's the most important things you look for when sifting through properties?

Emil:

That's a good one. Most important things I would say I start with market I think we've talked about this on other episodes but okay market I want to invest in or markets, whatever it is, I think it's easier to start with one but let's say you want a couple then within that market, which sub markets do I want to target, right maybe it's a couple zip codes, maybe it's just one zip code by learning more about it and saying these are the areas I'm okay investing in. That way. You can get to the third most important one which is yield right cash on cash however you want to look at I look at cash on cash The reason you do the sub market first is because if you just do yield, it could attract you to some places you may not be interested in investing in. Or if you're just looking at yield, typically rougher neighborhoods. So I choose the sub markets first talk to property managers talk to people local in that area to learn more about what those could be. And then it's then it's your right, I can buy cash on cash, I mean, my down payment plus any closing costs plus, what do I have to put in the property to get it rent ready, if it's vacant, or whatever it is. So all that divided by my cash flow divided by that amount to figure out my cash on cash?

Michael:

I love it. All right. James from Washington is asking where can we get some of that Roofstock swag?

Emil:

You got to buy a property and then we send you swag.

Tom:

Buy a property or join our academy and buy property and we'll send you some swag.

Michael:

We will overload you with swag, James from Washington.

Emil:

How about, James, leave us a review on this podcast. If you're listening, and we will, that is another way we will send you some swag. So leave us a review. Send it over to us, email it and we'll get you some Roofstock swag sent out to you.

Michael:

All right, Tom, this is a question for you. I know that Tom mentioned having a separate bank account as a pro tip. But if we have a current HELOC, could we use our cash flow to pay the HELOC own? basically paying it down for a future property emergency reserve? Not sure if that would be a detriment for CPAs. But perhaps property managers can give you a breakdown for CPAs? To understand that question,

Tom:

I think I do I'm gonna take a stab at it. So you have a separate bank account. And then you have a line of credit and the HELOC, I would think of those as just as your bank account is serves a different purpose than the HELOC. So you would have them working in tandem. So you have your bank account, that is your source of equity, I think might be the right way to say it or just just kind of cash on hand. And then you have a HELOC, which is a source of debt. And if you were to draw a diagram of how all of these different pieces work together, you would have your nucleus would be your bank account. And then you would have funds coming in from your property manager. And then that funds from your property manager going into your bank account would pay off your HELOC or pay off your mortgage or whatever, it'd be a little hub and spoke, spoke and hub and spoke enough. So at the nucleus of this whole thing is that is that separate bank account that you have. And I don't think you need a different bank account for every single property. I use it for just a collection of properties. So there's no reason why you couldn't have a HELOC open and then pay down that HELOC from some Automated Transfer that you have in your bank account.

Michael:

And I think at the crux of this question is probably with regard to mortgage interest and using that as a deduction on your income taxes. And so, if you can show that you use the HELOC to for real estate purposes, that interest may be deductible as well. But so at the end of the year, you'll get a 1098 I believe that shows all the interest you've paid on your mortgage for a standard mortgage and you should also get one from your he lock as well. If you don't get one automatically just reach out to your lender and ask them for it. And then talk to your CPA about your specific situation about hey, I use this for real estate. How can we deduct this against the income? Or is this a deduction in and of itself.

Before we get out of here, I want to wish everybody I hope they had a Happy Happy New Year. Great safe, start to 2021 looking forward to kicking this year off in the right direction. Happy investing.

Tom:

Happy investing!

Emil:

See you later. Happy investing.

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https://vurbl.com/station/2QEn72i0gHA/

The New Year is here! Set yourself up right from the start with this quick nugget of wisdom on your tax strategy.

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Transcript 

Tom

Greetings, and welcome to The Remote Real Estate Investor. On this weekend wisdom, we're going to be talking about the new year and getting your taxes in order. This is going to be a brief episode on the importance of finding your CPA. All right, let's do it.

Welcome. Alright, so this is a weekend wisdom. We're talking about taxes, it's the beginning of the new year. And it's not too early to start getting yourself in order to have a successful tax season. Michael, why don't you lead us off with a few pointers?

Michael:

Yeah, so I think a lot of people treat tax as a reactive thing. And towards the end of the year, they're like, oh, man, I gotta get all of my stuff in order to get to my tax professional, when really, it should be the opposite approach. And it should be proactive. And we should be saying, Oh, it's the beginning of the year, awesome, I get to strategize with my tax professional about how I'm going to save so much in tax this year. So I think a couple things to do is first and foremost, if you don't have someone that you're working with as a tax professional is find one. And I would say that they should be well versed in real estate, either owning real estate themselves are having a lot of clients that own real estate, because that means that they're going to be up to date on what the local local tax law with the most up to date, tax law and tax code says, I would also say kind of have a plan for what you're thinking about doing both in terms of acquisitions and any sales or any rehabs and talk to them about that. Tom, you always say that you like to overshare. Same thing with your tax person, make sure that they're well aware of what's in your head for the year. And we just recorded an episode a little bit ago about goals. And so be talking to them about what your goals are and what your plan might look like.

Tom:

That's great. Yeah. And to those of you who like to use it, is it QuickBooks? Or what's the do it yourself?

Michael:

Yeah, that's not like…

Tom:

I'm sure there are people that have success using that. But from my personal experience, it's worth paying the money and getting a professional, you know, we all understand there's benefits, tax benefits of investing in real estate, the deductions, the deferrals…

Michael:

The depreciation…

Tom:

The triple D's, squeeze as much juice as you can out of that fruit. And we recommend paying for a professional who has experience.

Michael:

But Tom, I don't own any rental real estate yet. Do I need to go get a CPA?

Tom:

I think probably not. Probably not. I think I think that would be a good use case. This is not investing advice. This is not legal advice. Like if I'm talking to my sisters, and they and they they have a little bit less complicated taxes, I'd say yeah, does that make sense. But as it gets more complicated, you can use it, I was just having an interesting discussion with my tax advisor recently about building a little home office and how I can use some of that for deduction, like those costs. So anyways, there's just you want to squeeze as much juice as you can out of that fruit. So I recommend it.

Michael:

Awesome.

Emil:

Only point I’ll add, on as you kind of hear things about bonus depreciation are these things that are new to you, I always send those to my accountant and ask them about it. Because sometimes you do something, get super excited about it, it may not apply to your situation, or it does, there's something you may need to do to be able to take advantage of that, right. So like, when I stumble on new things, or I hear someone talking about how like, I don't know, if I structure things in a certain way in an LLC, that gives me this tax advantage. Or if I go full time real estate professional, all these different things, send it to your CPA, ask them about it. They should be knowledgeable on all these things and can help you based on your situation tell you if you can take advantage of them. And if you're not eligible now, what can you do? What can you change to actually be able to take advantage of those things?

Michael:

Yeah, I think that's great. I mean, I always joke with my CPA, I'll call him up and be like, hey, I've been reading and listening to podcasts again, he's like, Okay, here we go. So I think that's a great tip. And they'll they'll tell you, Hey, this is applicable to you, or it's not, I mean, what's really nice is if a CPA is really on the ball, and they can reach out and say, Hey, this is how I would structure this, right. And they're coming to you with the ideas as opposed to you going to them, but they're also people, they're also busy. They have lots of clients. And so I think you should take it upon yourself to be proactive in that department. You don't have to be a professional, you don't have to be an expert, but understanding the basics and what is available to real estate investors i think is super helpful. And then bringing that up to your CPA because maybe they forget, and so that's a bummer if you miss out on some great opportunities because they're humans.

Emil:

Yeah, absolutely.

Michael:

Sweet, short and sweet.

Tom:

Thank you everybody for listening to podcasts. If you enjoy this podcast, please subscribe, give us a rating. We appreciate that. All right. Happy investing.

Michael:

Happy investing.

Emil:

See you later.

In this episode, we have a Roofstock Academy member on to share his about his journey becoming a real estate investor. 

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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 host,

Emil:

Emil Shour.

Michael:

And we have a very special guest today, Nathan Murith. He is a Roofstock Academy member as well as Roofstock, user and investor. And we're going to talk today with Nathan about his story, his investment journey, what he's done thus far, and what he's looking to do going forward. So let's jump into it.

So, I would like to put the, the batch beacon was they called the bat signal out for requests for ama's. We're gonna do another episode. So that's ask us anything asked me anything. If you have questions that you'd like to hear answered on the podcast, please feel free to send either a meal or myself an email, I am at [email protected]. And Emil is [email protected]. And we will tackle those questions on the episode live for you.

Nathan, thank you so much for being with us here today. Really appreciate you taking the time out of your busy schedule, man.

Nathan:

Thanks. absolutely happy to be here.

Michael:

So before we hit record, we were just chatting about what's going on in your world. But before we jump into all that craziness, I would love if you could give everybody listening a little bit of background on who you are, where you come from, and what you've been doing in real estate last couple years.

Nathan:

Yeah, absolutely. So yes, my name is Nathan, right? I'm pretty new to real estate investing, originally from Europe, my wife and I moved over to New York, then the East Bay for work stuff. So my w two is technology. Like I think a lot of the listeners of the podcast, right? So basically, I think how I started was that, you know, is looking at ways to get better return on investment on some of the cash that we had in the family, you know, looking at online savings accounts, and other means to basically save, you know, save and kind of build for our future in retirement and no one basically after looking around for many, many days and hours and weeks, right, you can't find anything that even competes with inflation, right? So it's like, um, even if this money sits in a bank account, you know, so I started looking at different investments, you know, avenues, and I honestly can't remember, but I think it was something like just maybe a Facebook ad or something online that I read up about Roofstock, I started looking into that I was like, Oh, my, you know, like, the platform seems easy. And that's kind of what launched me. I'm intuitive. That was about six or seven months ago, I think. And I did six to seven months of just learning reading, you know, bigger pockets, roofstock Academy blogs, 100 different podcasts, there's so many out there, basically two months ago bought our first rental property through the roof stock marketplace. Last week, close on our second and looking to add a couple more, probably by January or February, something like that.

Michael:

Right on. And I know you mentioned it briefly, I just want to highlight for everybody listening in full disclosure, so it doesn't feel like we're springing on people later, you are a member of the rootstock Academy, and you have purchased a couple of properties to rooFstock. Right?

Nathan:

Absolutely. So I'm a member of the Roofstock Academy, right. And my intent there was really, you know, as I mentioned, I said, You know, I had this phase where I wanted to learn, not only did I want to learn, but it was also one very naively, you know, in hindsight, you know, 2020 very nicely, but I was one of those that thought that, you know, this whole pandemic and whatnot would have a pretty strong impacts to the real estate market. So there would be opportunities that would, you know, pop up, so it's trying to get ready and all that, I now understand more that even if there will, or if there might be an impact to the real estate market due to you know, market, you know, 100 year pandemics and whatnot. It doesn't happen overnight. It happens over many, many, many, many months, not years, right. So I spent six months or so studying. And part of that studying was the Roofstock Academy.

Michael:

Awesome. And for everybody listening, don't worry, it is not going to be a plug in entire show through stock Academy. We wanted to get Nathan on talking about his experience as a newer investor as someone who has just closed a couple deals. And he also happened to be a member of the Academy. And Emil were you gonna say something

Emil:

Before we get into some of this stuff about like details of properties you bought and all that. I feel like, one thing I want to address is a lot of people get stuck in that listening, educating themselves and then the move never happened. So you know, you spent a good amount of time I think like a lot of us, educating yourself learning what pushed you over to just say, I'm gonna make a move and get in real estate.

Nathan:

So I think for me, it was two things I try very much to be an objective or goal oriented individual and one of my personal goals but of course, mine My wife's goals because she's my partner in all of this right was to get at least our first property done in 2020. So that's kind of what timebox did for us. And I think I got to a point as well where you know, doing all this reading all this studying all this research, like, you know, many stories that I've heard, you know, just started getting becoming more confusing than anything, it was just more and more and more different, different, different, but mostly all the same stuff, just with very slight variants that just are just enough to confuse a newbie, right? So I just started to get confused. And after it was like, we were in the fortunate we still are knock on wood and unfortunate, you know, situation where, you know, $100,000, you know, rental purchase, for example, would not break our bank, even if it went horribly wrong, right. And I do appreciate and understand that is not everybody's situation, right? That's very, you know, different than individual to each person in each situation.

But we got to a point where, like, we can't learn more from reading, we just, we have to do this. And we basically pulled the trigger, essentially, on some of the things we're looking at, and went from, you know, having none to having to and a couple months, basically.

Emil:

Good on you, man. I think that's absolutely right, you get to a point where it's like, it's good to get educated and learn and stuff. But like, there's a point where you just have to jump in. And that's where the real learning comes in. And like you said, it's really fortunate to be in a spot where, you know, you're you're learning on the first couple, it's not going to be your make or break, especially if you plan on having a long investing career.

Nathan:

Yeah, and, you know, first by no means are we you know, multimillionaires Far from it, right, by by no means do we want to waste money, you know, by any means, right? You're obviously talking here, because we're, you know, we at least have the investor mindset, I think we're starting to be more proactive, and active investors, but just looking at it purely through the lens of risk. We're like, even if this thing goes horribly wrong, and we saw a roof over our head, we can still provide for two young kids, etc, etc. So like, if you don't start and don't try not do it, we will never actually learn.

Michael:

I forget the phrase, and I'm totally gonna butcher the saying here. But like, if lack of information was the ticket, like everybody would have six pack abs, or something like that, like, the information isn't lacking. It's the action that's lacking. Everybody knows how to go get six pack abs like workout and eat right. But it's actually doing and executing those things that get somebody six pack. So it sounds like you're well on your way to get your investor six pack.

Nathan:

Yeah, again, hindsight is easy, and all that, right. But now the two deals plus the, you know, four deals total, if you will, with the two, you know, primary situations that we've done in the past, or that we're in the middle of right now, if I think about I think most of the things that we were trying to educate ourselves on actually didn't even really weren't as useful, I think I'm trying to say as I thought they would be in these first deals, in the sense that I think purchasing a home is much, much, much simpler than people make it out to be. It's really not complicated, you're buying a thing, and there's a process follow the process. It's really not complicated.

But at each step of that process, it's probably a, you know, 150, checklists, you know, process, but it's the same 150 items every time with the exception that each one of those can come with very slight variant, depending on the lender, depending on the insurance, depending on the state, depending on the property type, depending. So because that's such an enormous amount of information, it's not possible to capture all that. So even all the basics, that simple process of purchasing something, I understood the basics, right. And there's nothing that could have read or that we could have done differently that would have helped me, you know, learn or prepare for what I went through with these first two deals that were purchased solely for rental purposes. So…

Michael:

Awesome. Nathan, I'm curious to, for you to share with everybody because I know you and I have talked at length about your investments and investing journey. But how did your maybe criteria change from what you thought you wanted your first investment property to look like to what you actually, I'm not gonna say settle down, but you actually purchased.

Nathan:

The thing for me two things before I answered that, like specific investment criteria piece, I think it's part of it, right. But the the market aspect of real estate investment, I think, at least for us personally, for me, personally threw me off a little bit because almost regardless of where you read what podcasts you listen to what you watch online or whatnot, you know, I get the impression that everyone starts with find your market, and then just find your criteria and go and I was like, Well, okay, but how do I find my market? Right? It is easy to say find your market. So that bothered me a lot. I was like, how do I find my market? What does that mean? You start reading all these things, it's even worse, because now there's more input and more data to figure out what the market is. And again, this isn't hindsight, you know, 2020 type thing, but I'm almost willing to say the market actually doesn't matter at all pick one, you know, yes, there rule rules have you know, general guidelines, right, some are more appreciation, some are more pure cash flow. Sure. I also am willing to say if if I put extrapolate my situation to a lot of potential listeners this podcast right? I'm almost willing to say that for the most part, a large part of the large group of individuals that are you know, listening here are people that are looking for cash flow, not necessarily appreciation, right. So if you eliminate this all those markets, right, that are just pure appreciation plays, the market doesn't really matter, pick one, start to just understand how it works and then go so and that I know now, I didn't know that. And then it bothered me a whole time. I was like, Where Where do I go? Do I go here? Do I go there to go there? And that was pretty hard for me.

And now I'm like, actually, you know, I was stuck. But I'm not anymore. And I won't ever care really about the market. I know. It sounds very, there's a bit of hyperbole here. But yeah, so that was one. I think the other adjustment just to go back to your question around like property specifics, I accepted that or my wife and I, you know, accepted that this first purchase was not going to be more likely, I should say, not going to be you know, slam dunk home, run, whatever you want to call it, right? It's going to be what it is. And we start to view it as this is the cost of learning and practicing. So it won't maybe be all of the things that we're targeting, but we're going to gain from doing it. Right. That was one thing. And then the other thing, I think that, you know, our mindset got adjusted as well around is all of the things that one can read online or listen to in podcasts, or whatever it is, everybody talks about the flashy numbers, right? You know, I got 29% cash on cash, I, you know, I have $800, you know, free cash flow every month, so on and so forth. We actually don't really know what those numbers mean, and if they're even true, because yeah, you could say that part of the conservative or not they account for you know, reserves Do they not? So you really never really know. And it's very easy to get distracted by all these veterans of the industry that have, you know, crazy experience and crazy numbers.

And so, so if they got 800, you know, dollars free cash flow, you know, per month plus a 29% cash on cash, I should be able to find that right, maybe Sure, one day, but not for this first one. Right. And that's what changed a lot. And I mean, for us, I mean, typically I was prepping for the podcast, who was just looking at our numbers is purely looking at first deal cash on cash flow versus our second deal cash on cashing the first deal. cash on cash is around 7%. And our second is 17%.

Emil:

Big difference. So what did you learn from the first one that you think helped in the second one, improve your cash on cash, which sounds like you had gone for?

Nathan:

I don't know if there's anything specific that I learned between the first and the second, I think it was more about for the second deal, I knew the market better than the first deal. So the first one, I think I purchased the deal, without necessarily trying to understand everything else was I was, you know, early phase investors, I thought analyzing deals was the most important thing to do. So I spent a whole ton of time, you know, analyzing deals, analyzing deals, analyzing deals, found one that fits my criteria. So my wife and I like, yeah, cuz, Sure, let's go ahead, if it's our box, all that let's do it. And that was the extent of it. And our numbers worked. So happy, it's working all of that for the second property, I think it was more around, we've been monitoring this one market, and this one, you know, particular zip code of this one market and just looking at it every day. And then one day, I happened to see this listing, again, it was on roof stock, but I'm seeing them everywhere else, right. So it has nothing to do necessarily with the roof stock, you know, platform per se, because they happen, you know, Zillow, they happen everywhere. Those are places that we look at least right.

And because I knew what, you know, this typical type of home, you know, typically goes for in that zip code, I immediately saw that they had potential. So then we started looking into it a bit more, see what work it needed would make ready costs, we'd have to put in whether or not we wanted to do additional work to up the value a little bit. And it's because we knew, quote, the market, I still don't like to claim we know the markets. I think it takes many, many years. But we knew enough to be like there's something here. And then we weren't planning on purchasing anything at that point in time. But because there was something there. And then we started peeling the onion a little bit and we're like, oh, this thing is listed at 130 and the zestimates. You know, 165 and the last 90 day comparable sales are all 220. There's something here. So let's just go ahead and do it. And we pulled the trigger that way just because we knew the market and we weren't necessarily again, doing air quotes here. I don't know that we know the market yet. But getting there. I think that's the difference.

Michael:

Yes. For everybody listening, go back, rewind, and listen to that last two and a half minutes. Again, what Nathan just said is like the epitome of what folks should be doing out there in order to pick up great deals. He knew what a good deal looked like only after having been in that market. Having done a decent deal. Now he identified what sounds like a great one. And I don't think he would have been able to identify that great one. Had you not done that first one, or had you not been spending the time to I don't like turn but I'm gonna say anyway, learn the market.

Nathan:

Yep. 100%. For the first one, we bought a deal. We bought a property we bought a deal that we found on a marketplace, whereas the second one, we bought a solid investment and our first real I guess investment property that fits a process right that we're going to try to repeat and help grow from right instead of just shiny object syndrome looking all over every turnkey provider every this or that. Is that a deal? Yes. No, just picking one. We now know a lot more.

Michael:

That's awesome. And how soon after you saw that property pop up the second one. Did you make an offer on it?

Nathan:

I can't remember within 24 hours that I saw it because the only reason I say that because of the 24 hour open door Yeah, on RooFstock, right. So I know we were in that because I wanted us to be one of the first offers. So that's what we did. So we did pretty pretty quickly. It was, I think, maybe a couple hours of me just really doing my due diligence, you know, running it, you know, checking it with my wife and all that. And then we're like, yeah, we like this. Okay, let's go. Let's just go for it put in an offer. And that's how it happened.

Emil:

Are you cool running through some of the details of your offer and everything?

Nathan:

Yeah, yeah,

Emil:

I think just giving people an idea of like, Alright, here's the list price, how did you do your due diligence? What did you submit it? Like? I think that kind of thinking is super, super valuable for people. So yeah, can you walk us through like, okay, you saw it listed? You said at 139?

Nathan:

Yeah, so, you know, we're interested in single family rentals, single family residences, right. Typically, our kind of our, our criteria is, you're fairly standard Three, two, in a decent, you know, neighborhood slash School District, you know, we were looking for that fairly, you know, stereotypical, you know, trying to minimize any tenant turn, right. So, data opinions, all that say that, you know, three twos with potential for families, better school districts tend to have tendency to stay longer. So that was our, our starting point. So with that is when we started looking at the couple zip codes in this particular market that we invest in. And from looking at that, we saw that, you know, the standard price, you know, 160, 65 170,180, that's standard range for, you know, three twos this square footage in this particular zip code, primarily because of the good school district. And then we saw this one pop up, and I think it was listed at 139, I think we essentially went in at 131,935. And that was the Chris Voss never split the difference technique of just, you know, throwing out a very specific number that actually didn't mean anything to us, slower than the list price. And it was very specific. And there was a bit of back and forth with the sellers. I think we came up a bit, I can't remember exactly, but like 1000, or something like that, it didn't change much. Right. And that's, that's what we got it for us. I think we, we got it for 131 935 or something like that.

Right? Um, so that was the purchase price for 139 list price. To go back to a question you asked about due diligence and all that when I saw that list price for this particular property, that's when my alarm, you know, went off because like, that seems low for this type of house in this zip code. So I started looking into doing the due diligence, which started with kind of just inspection reports, right, all of the stuff that is provided to us online to the marketplace. And notice that there wasn't much to it. Right. So the OD seems like still a pretty good deal. It's not like it needs a new roof, a new foundation or anything like that. It's still seemed like that, you know, piqued my curiosity even more, it's like, Okay, great. It's not a ton of work, then I just, you know, and all this is within, you know, an hour or two of me seeing this thing pop up on on the marketplace. Right, check Zillow, you know, Zillow, first thing I see is Zillow estimate is already at 165. So 30,000 above, you know, the list price, or in this case that the purchase price. And then I went one step further, and I looked at, you know, comparable sales in that zip code over the last, you know, 90 days and even six months I looked in everything was at 2200 to 20. Above. So that was another one of those was like, Well, you know, even if we can't rent this, or even if our numbers don't work out, great, we have multiple exits, because it seems like these types of properties are flying off the shelf pretty quick, you know, given pandemic and all that that's I think, across the country, maybe across the globe, right.

But we're going in pretty low compared to what's been sold, you know, the similar homes in the last 90 to 60 days. So, we had that assurance, I guess,

Michael:

And Nathan not to cut you off, but how did you look at comparable sales just for everybody listening?

Nathan:

Yeah, so I you know, Zillow realtor Redfin, there's all of them we just happen to use Zillow because we know from previous primary residence, you know, transactions that Zillow is data, according to our realtor. So for what, what that's worth, right. But according to our realtor, Zillow data is more accurate to then you know, others, for example, such as why we're using sure as anyone, right, they're all more or less the same anyway.

Michael:

And for those of you who aren't familiar, that's the yellow tab on Zillow, there's the red, which is for sale purple for red and yellow is pass previously sold. And so you can set the criteria just like you can on a filter for sale, you can see what's sold in the last 30, 60, 90 days, seven days in a given area. So I think that's what you're talking about. Right?

Nathan:

Correct. Yeah. And we were even, you know, being very, very, you know, strict at first, like looking almost the exact same square footage, obviously the same number of rooms and bathrooms, right, same kind of year, same acreage, you know, kind of being as strict as possible. So they were really looking apples to apples and you know, a few things pop up. Sure. And that's where we see the numbers like, well, maybe this is not enough data, for it to be representative and for us to say yeah, this could potentially be resold for 220, whatever the comparables were, so that we just loosened that criteria a little bit, it's okay, let's look at your different square footage, different acreage, maybe, you know, wider range of your built sorry, right, and things like that, and everything still seem to kind of line up in those, those numbers, right. And that's essentially what we did. And at that point, we gained enough confidence that we should just go in and put in an offer, because at that point is like, we had actual data that showed many, many, many similar homes were sold for, you know, a certain, you know, price range over the last 90 days and over the last six months. So even if we were off by a factor of 10%, we're still not losing money. So we didn't have a reason to not do the deal. Basically,

Michael:

That's so awesome. And what did the appraisal come back at? You recall?

Nathan:

It came back at 135. So walked into it with a little bit of equity. And we're now just this morning actually was talking to the property manager on site there, but we're going to be doing a bit of work on the bathrooms, which need a bit of remodeling, and then that should hopefully, you know, up the property value, and the property manager there also, you know, is pretty confident we could get an additional 100 to $200 per month in rent, if we did do the bathrooms,

Michael:

Wonder if the appraiser just didn't want to piss off the seller.

Nathan:

That's what I thought when I saw the number. I mean, it's still equity. I'm not going to dismiss that. Right, right. But is it Yeah, you know, everything around here is going for way more. And this is like just a tad above the purchase price. But it is what it is.

Nathan:

I've been seeing that and in stuff I've been buying as well. Like they're basically just doing it at the lowest price. It's funny because they pull comps and all the comps are way higher, but then they just go to the list price when they give their appraisals. I don't know if it's something to just protect them right now.

Michael:

It's safer that way.

Emil:

Exactly.

Nathan:

It was the case on our first property as well. It came back literally $500 above the appraisal came back $500 above project price.

Michael:

Yeah, yeah, exactly.

The fact that you're seeing things sell for way more. I mean, to me, that's more indicative than these funky appraisals, you asked me?

Michael:

Absolutely. And if you went to sell it and the appraisal came back still low. I mean, you'd have pretty good justification to go and say, Look at absolutely your comps are garbage. Like these are the comps you should be using. Yep, Don't feel shy or bad about challenging appraisals, everybody out there was saying it can totally be done.

Nathan:

Yeah. And that's something that, you know, while I've never done it, and while we understand that you can challenge an appraisal, right, and it's the know how to say this is the the formal or official way to get the value of a property for, you know, a lender for lending purposes, right. At the end of the day, it's what people are paying for the object. And that's the data that we could get from Zillow, so we know what people be willing to pay for it. So if we had to go in and challenge, we're pretty confident that we could probably get a successful exit from the challenge.

Michael:

Right. And at the end of the day, for you on the purchase, it doesn't really matter, because the lender is only going to give you 80% of the loan to value or of the purchase price. And it's the lesser of the two correct even if appraised for 200. They're not going to increase your loan amount because of that.

Nathan:

No, no, no, absolutely. But for us, because we knew all of this. Another reason why we wanted to, you know, pull the trigger on this particular property and do the work on it now to increase its value as much as we possibly can is to set ourselves up for doing a cash out refi as six months or a year, whatever it takes, right but because we already know there's that, you know, upside potential is another reason why no longer view thinking like even if this is not perfect. While So far everything is the numbers are and all of that we're like, it also gives us the opportunity to potentially pull out $30,000 in six months, a year, whatever it is, and buy another property. Right. So it's like maybe this is a two for one who knows.

Michael:

Perfect, perfect.

Nathan:

And that that was our thinking. So it was like all these Yeah, this seems like a pretty good deal. And you know, knock on wood so far it is.

Michael:

Awesome.

Emil:

Nathan, why do you think the you know if the comps and everything were 160? And then some 200? Plus? Yeah, this is something I always battle, I'm sure you always think it's like, why is the seller selling for so low? What are they not telling me? So? What was your thinking behind that?

Nathan:

I try to not think like that, because that's a pretty rabbit hole rat hole, whichever the expression is, right? Who knows? Nobody knows. Right? It's impossible to know what the motivation of any given buyer or seller is. Right?

Emil:

And when you ask, they never tell you the real rate, like you can ask but it's not.

Nathan:

Yeah, they won't tell you they don't tell the listing agent, your agent when you're purchasing doesn't know either all of that. In this particular case, what I did also notice in doing our due diligence is the former at the time there were current Of course, but now the former owners of this property had not paid their property taxes in two years. So whether or not that means something I don't know, I kind of interpreted as there's a smell here. You know, maybe it's a seller in some sort of financial distress that, you know, that has been paid. There was also a if I remember correctly, I believe they had a tenant in the unit or in the property for two months. So sign a lease tenant moved in two months later tenant moves out. So those kind of two things right or wrong. I had no idea. I still have no idea, right? But it's like, yeah, there's a few smells here. bad smells, but bad in the sense opportunity, right? Bad for the seller. Good for us the buyers thing, maybe there's something so we'll try. And that's what we did. And we got that properties. hopefully everything will pan out as planned.

Michael:

And Nathan, what's the rents on that? Are you estimated rent from your property manager on that property?

Nathan:

So if we were to move someone into the property today, without doing any bathroom remodel, it would be between 14 and 1500 a month. With the bathroom remodel? It's somewhere between 16 and 1700. a month.

Michael:

Love it. So when people say, Oh, you can't find any 1% properties out there. I think Nay, say you found it, as is added 1%. And you're gonna add some value and hopefully create a 1.2 1.3.

Nathan:

Yeah, so our first property was a spot on 1%. The second one hopefully will result in more than that. And in fact, speaking of 1%, right, that is a rule of thumb that has helped us and helped me tremendously in kind of identifying your quickly identifying, should I spend more time investigating, investigating or analyzing sorry, this property or not? Because it pans out? It's pretty accurate as a first pass to see whether or not a property at least for our criteria, it's pretty, pretty close. Right? So you're like, Yeah, that's a good rule of thumb, just like look 1% if it's not then move on? Yep. Move on. Right.

Michael:

Yeah. Yeah, we did an episode about that. How ironclad are are the rules, 1% 2% 50% 70% rule. And for in a lot of markets, the 1% rule for a lot of investors is pretty, pretty accurate.

Nathan:

It's accurate enough to shorten the list and then say, if it's, you know, point nine and not 1%. Well, you know, what, if everything else lines up, I'm just gonna put in an offer and see if I can get it for lower and make it a one percenter, right? Or something like that.

Michael:

That's it, oftentimes, it's not going to be off the shelf on percent, we can force it to be whether increasing the rent or lowering the purchase price, doing something to reduce our expenses on the property. So that we're kind of going to cram it into a 1% box, or 1% plus box, I always talk about my the best performing property, I own and I bought it like a point eight 2% rent to price ratio. But the seller had done several things that reduced a lot of the maintenance costs on a regular basis. And then also the rents were way under market. So when we combine those two things, it turned into like a 1.3% property almost overnight.

Emil:

Nathan, which market? Did you buy these properties? I don't think we've touched on it yet.

Nathan:

No, we didn't say I don't think so the first one is right outside of Chicago on the Indiana side of the border. Okay. And this second one that we've been talking about is in St. Louis, Missouri.

Emil:

Nice.

Michael:

Awesome. And so I kind of want to shift gears here a little bit. Before we started recording, you were telling us that you're in the process of moving out of your current primary, buying a new one and converting it to a rental. Right?

Nathan:

Correct. So if all goes well, last day of the contingency on the potential new primary residence is today. So we're actually I was speaking to our agents before hopping on the podcast, get our counter in place, I guess. So we'll we'll know in a couple hours.

Michael:

Yeah. Awesome. Awesome. So I'm curious to know, when you bought your current primary that you're in now, did you ever think that you'd be moving out and converting it into a rental?

Nathan:

Yeah, we did simply because our current primary now is a condo kind of downtown San Francisco. That's where we're located. We were about to have our first child when we purchased, we now have two young children. And we knew like a two bedroom, one bath condo, downtown San Francisco was never going to be in the long term plans. And we knew, obviously, we didn't know about COVID. And that has changed everything. Right. But we knew that when we were purchasing this condo, primary residence in the neighborhood where, you know, the chase arena was being built up, you know, two blocks away. baseball stadiums two blocks away a bunch of you know, commercial and residential construction projects around us Uber headquarters close to us. So there's all these indicators. They're like, yeah, we're gonna do this so that we can hold on to it, and then rent it when we move out. So that was one way to say yes, yeah.

Michael:

And so were you looking at the number like did you get so granular as to look at the numbers of Okay, this is our mortgage payment is we think we can get on it for rent and thinking about it or just, yeah, we'll convert it to a rental one day and worry about when we get to it?

Nathan:

So when we're purchasing it was not how we looked at the particular purchase. It was another one of those where which I think we're I guess we're fortunate. It's the same with this particular primary that we're in contract on Now that may close early January. We were not back then in a position where we absolutely needed to move and needed to buy something. So we were shopping, we're being shoppers, not buyers. And we're just shopping around. And again, just doing the leveraging the people aspect of real estate, just talking to the listing agent and listening to what this individual was really saying, there might be an opportunity here. So we just went in lowball, which was unheard of, for the Bay Area, you know, three years ago, because everything was going three, five, I don't 10% even potentially, I have no idea above, you know, asking. And we went 7% below, asking, I think so it just happened to be a good deal. Because we, I mean, all things relative, right, it was a good deal for the Bay Area, because of, you know, US listening to what the listing agent was really saying. And it just meant a lot of things we can get into that if we have time and want to write, but I think that in addition to us, when we started thinking about purchasing a new primary residence, we're like, if we're going to rent this out, we got to make sure the numbers work.

So that's when we started doing the numbers game a bit more, but just quickly led us to that plus, you know, lowest mortgage rates they've ever been in history, right. Okay, but refi, lower monthly rate, so that we're just buying ourselves in a sense, this extra buffer for whatever we may end up renting it at. Right. And obviously, you know, rents in cities like San Francisco, New York, and other larger vertical cities like this, you know, have taken quite a dive since the pandemic, right. But if we were to rent it today, with the hope and expectation that things will eventually go back to normal, we would still break even and not lose money. Right. So I think that's only possible because we bought them low. Right, or we bought the property came in low. So that's where we bought the deal. Right. Or we came into the deal, I guess, I should say, and because we refied.

Michael:

Yeah, yeah, perfect. It's such a unique time to be having primary refinances going on, because the rates are just like you said, unbelievably low. And so if this is something people are thinking about converting their primary into a rental, or maybe they're even not thinking about it, I would definitely evaluate it with these new numbers of, hey, if I did a refi, on my primary, could I convert it to a rental? And then have it make sense, because especially in a lot of those expensive homes, it might not make sense at your three and a half or 4%? Current mortgage, but at two and three quarters, or two and a half? Maybe it does. So I think it's it's great that you played with the numbers and great that you're able to make it work.

Nathan:

Yeah. And again, hopefully, you know, we'll see that's the plan. You know, again, there's a lot of uncertainty, you know, understandably, with, you know, the pandemic and whatnot. And that's a big, unknown. Yeah, but we've done everything we can, that is in our control to secure the situation, I guess, for lack of a better term to make it not turn into a sink, money sink, right. But instead, you know, at least break even and maybe even, you know, some positive cash flow monthly, right?

Michael:

Yeah. All right. We got to keep us posted on that one, too. Of course. Emil got anything else?

Emil:

Yeah, before we wrap up curious what the future holds for you. What's next for you guys?

Nathan:

So right now, obviously, and understandably, right, we're in the middle of this primary purchase, hopefully, that'll go go through, right. And if it does, we have quite a bit of work that we're planning on doing to the place, you know, right off the bat. So that's going to take up quite a bit of time. But once once we're past that, we'll have a clear picture of where we stand kind of financially and whatnot. And the plan is to go in and get at least four more rental properties in 2021, probably even more, you know, we've also started talking to different individuals to partner and get some additional deals that way needing less cash up front, just because we're, you know, partnering with other folks. So scaling, I guess, the short answer to your question Emil.

Emil:

Nice.

Michael:

And scaling in the same markets already enter and venturing out into new ones.

Nathan:

No seeing the same market. I think that, you know, if one thing that I appreciate more now than even six or seven months ago, is I feel like most of the work and effort is put in or should be put in understanding the market, as we talked about, and building the team, you know, the people, they're local to that market, because that takes more time and energy to identify those things, then analyzing a deal does. analyzing a deal is easy, but if it's in a new market every time and then you have to spend, you know, an order of magnitude more hours, understanding that market, building the team, finding the people all that it just is counter skill productive, right? So.

Michael:

Sure. All right. So.

Emil:

I agree with you.

Michael:

Yeah, me too. Me too. Having done it both ways. I definitely prefer going deep on a particular market. Yes. Okay. So two final things, Nick, before we get out of here one, what would you like to say to everybody listening out there that's was in his in your shoes six months ago, is doing research wants to get involved in real estate investing, but hasn't taken that first step yet? What do you recommend they do? What would you say to them?

Nathan:

Yeah, I think you know, we touched on a lot of them already. Right. The market thing is a big one building the team. You know, good people, no good people. I think everything that has happened to us so far in terms of investment, especially for like, the second deal, it's turning out to be, you know, much better than the first is because of the people because the lender was referred to us because the property manager was referred to us because they knew the insurance broker and all that. And that was very little work to get to identify those people in that team Once you've found the first that are starting to refer individuals. And that that is hugely important. I guess the other thing as well, that helped us on all deals is just to ask people for what you want, basically, because in both cases, I think we couldn't get the numbers to be where we wanted them to be. So we just called our lender and the property manager says, Hey, this doesn't work for us. Here's what we're looking at. Is there any wiggle room? And for both properties? In all cases, like Yeah, sure. There you go. Here's what we could do. I was like, okay, and if I hadn't asked, then I would have probably passed. Right. So yeah, just asking the questions. I guess.

Michael:

That's such a good takeaway, because I think so many people hear something and think, okay, that's what it is. And never think to ask because they might not know that there is any wiggle room. But I think that's a that's a really good takeaway is just Hey, ask the question, What I can say is no, and You're no better you're no worse off than you were previously. I guess the other thing that catch people off guard, or at least you caught me off guard with there's a lot of you know, planning tools, gurus, whatever that talk about, yeah, $100,000 home, all you need is $20,000. Right? Well, that's not really true, right? Because once you've added the, you know, closing costs, once you add your reserves, if you want to put money aside and all that, it's really closer to 30,000. So, you know, make sure you have that money set aside, right. And you're not going into every deal thing. Oh, all I need is 20%. I'll share for the down payment. And then there's all this other stuff, right? So the liquidities You know, one needs to have and it's more than just the down payment and that can be a surprise. If not, if not prepared.

Emil:

Really good point.

Michael:

Good point. Good point. All right. So Nathan, when the pandemic is over, where are you gonna go get your first meal when you eat out?

Nathan:

I don't know. We cook a lot. I don't know. I think simple. A beer garden. Outdoors people. Yeah.

Michael:

The bare necessities. Sounds awesome. Yeah. Anywhere where there's people.

Nathan:

Yeah, and yeah, and contact and exchange. And yeah, I think I think that would be it.

Michael:

Right on.

Emil:

At the beginning of this, I felt some I feel like I was so introverted. Like I'm primarily an introvert to be an extrovert when I need to, but like now I'm just like, all I want to do is hang out with people all the time. You miss it, you miss it a lot. You take it for granted.

Nathan:

We are social beings.  Right?

Emil:

Yeah. Yeah, really take you for granted. I don't know maybe some introverts out there like this is the greatest the best.

Michael:

That's great. Well, Nathan, thank you again, for hanging out with us and sharing your story. I hope I think there was a lot of really great stuff in there. You've been through a lot seen a lot that a lot. So thank you again for sharing. I look forward to seeing you and hearing updates from you as you continue on your journey.

Nathan:

Absolutely. Um, thank you guys very much. Appreciate the time.

Michael:

Already, everybody. That was our episode a big big, big thank you to Nathan for coming on sharing his story with us really looking forward to following up with him on how his scaling goes and how the purchase of his primary goes that he should be hearing back on today. If you liked the episode, please feel free to give us a rating or review. Wherever it is you listen to your podcasts. And as always, if there's anything in particular you want to hear us cover on episode, leave us a comment in the comments section. We look forward to seeing you on the next one. Happy investing.

Emil:

Happy investing.

In this episode, we have a Roofstock Academy member on to share his about his journey becoming a real estate investor. 

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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 host,

Emil:

Emil Shour.

Michael:

And we have a very special guest today, Nathan Murith. He is a Roofstock Academy member as well as Roofstock, user and investor. And we're going to talk today with Nathan about his story, his investment journey, what he's done thus far, and what he's looking to do going forward. So let's jump into it.

So, I would like to put the, the batch beacon was they called the bat signal out for requests for ama's. We're gonna do another episode. So that's ask us anything asked me anything. If you have questions that you'd like to hear answered on the podcast, please feel free to send either a meal or myself an email, I am at [email protected]. And Emil is [email protected]. And we will tackle those questions on the episode live for you.

Nathan, thank you so much for being with us here today. Really appreciate you taking the time out of your busy schedule, man.

Nathan:

Thanks. absolutely happy to be here.

Michael:

So before we hit record, we were just chatting about what's going on in your world. But before we jump into all that craziness, I would love if you could give everybody listening a little bit of background on who you are, where you come from, and what you've been doing in real estate last couple years.

Nathan:

Yeah, absolutely. So yes, my name is Nathan, right? I'm pretty new to real estate investing, originally from Europe, my wife and I moved over to New York, then the East Bay for work stuff. So my w two is technology. Like I think a lot of the listeners of the podcast, right? So basically, I think how I started was that, you know, is looking at ways to get better return on investment on some of the cash that we had in the family, you know, looking at online savings accounts, and other means to basically save, you know, save and kind of build for our future in retirement and no one basically after looking around for many, many days and hours and weeks, right, you can't find anything that even competes with inflation, right? So it's like, um, even if this money sits in a bank account, you know, so I started looking at different investments, you know, avenues, and I honestly can't remember, but I think it was something like just maybe a Facebook ad or something online that I read up about Roofstock, I started looking into that I was like, Oh, my, you know, like, the platform seems easy. And that's kind of what launched me. I'm intuitive. That was about six or seven months ago, I think. And I did six to seven months of just learning reading, you know, bigger pockets, roofstock Academy blogs, 100 different podcasts, there's so many out there, basically two months ago bought our first rental property through the roof stock marketplace. Last week, close on our second and looking to add a couple more, probably by January or February, something like that.

Michael:

Right on. And I know you mentioned it briefly, I just want to highlight for everybody listening in full disclosure, so it doesn't feel like we're springing on people later, you are a member of the rootstock Academy, and you have purchased a couple of properties to rooFstock. Right?

Nathan:

Absolutely. So I'm a member of the Roofstock Academy, right. And my intent there was really, you know, as I mentioned, I said, You know, I had this phase where I wanted to learn, not only did I want to learn, but it was also one very naively, you know, in hindsight, you know, 2020 very nicely, but I was one of those that thought that, you know, this whole pandemic and whatnot would have a pretty strong impacts to the real estate market. So there would be opportunities that would, you know, pop up, so it's trying to get ready and all that, I now understand more that even if there will, or if there might be an impact to the real estate market due to you know, market, you know, 100 year pandemics and whatnot. It doesn't happen overnight. It happens over many, many, many, many months, not years, right. So I spent six months or so studying. And part of that studying was the Roofstock Academy.

Michael:

Awesome. And for everybody listening, don't worry, it is not going to be a plug in entire show through stock Academy. We wanted to get Nathan on talking about his experience as a newer investor as someone who has just closed a couple deals. And he also happened to be a member of the Academy. And Emil were you gonna say something

Emil:

Before we get into some of this stuff about like details of properties you bought and all that. I feel like, one thing I want to address is a lot of people get stuck in that listening, educating themselves and then the move never happened. So you know, you spent a good amount of time I think like a lot of us, educating yourself learning what pushed you over to just say, I'm gonna make a move and get in real estate.

Nathan:

So I think for me, it was two things I try very much to be an objective or goal oriented individual and one of my personal goals but of course, mine My wife's goals because she's my partner in all of this right was to get at least our first property done in 2020. So that's kind of what timebox did for us. And I think I got to a point as well where you know, doing all this reading all this studying all this research, like, you know, many stories that I've heard, you know, just started getting becoming more confusing than anything, it was just more and more and more different, different, different, but mostly all the same stuff, just with very slight variants that just are just enough to confuse a newbie, right? So I just started to get confused. And after it was like, we were in the fortunate we still are knock on wood and unfortunate, you know, situation where, you know, $100,000, you know, rental purchase, for example, would not break our bank, even if it went horribly wrong, right. And I do appreciate and understand that is not everybody's situation, right? That's very, you know, different than individual to each person in each situation.

But we got to a point where, like, we can't learn more from reading, we just, we have to do this. And we basically pulled the trigger, essentially, on some of the things we're looking at, and went from, you know, having none to having to and a couple months, basically.

Emil:

Good on you, man. I think that's absolutely right, you get to a point where it's like, it's good to get educated and learn and stuff. But like, there's a point where you just have to jump in. And that's where the real learning comes in. And like you said, it's really fortunate to be in a spot where, you know, you're you're learning on the first couple, it's not going to be your make or break, especially if you plan on having a long investing career.

Nathan:

Yeah, and, you know, first by no means are we you know, multimillionaires Far from it, right, by by no means do we want to waste money, you know, by any means, right? You're obviously talking here, because we're, you know, we at least have the investor mindset, I think we're starting to be more proactive, and active investors, but just looking at it purely through the lens of risk. We're like, even if this thing goes horribly wrong, and we saw a roof over our head, we can still provide for two young kids, etc, etc. So like, if you don't start and don't try not do it, we will never actually learn.

Michael:

I forget the phrase, and I'm totally gonna butcher the saying here. But like, if lack of information was the ticket, like everybody would have six pack abs, or something like that, like, the information isn't lacking. It's the action that's lacking. Everybody knows how to go get six pack abs like workout and eat right. But it's actually doing and executing those things that get somebody six pack. So it sounds like you're well on your way to get your investor six pack.

Nathan:

Yeah, again, hindsight is easy, and all that, right. But now the two deals plus the, you know, four deals total, if you will, with the two, you know, primary situations that we've done in the past, or that we're in the middle of right now, if I think about I think most of the things that we were trying to educate ourselves on actually didn't even really weren't as useful, I think I'm trying to say as I thought they would be in these first deals, in the sense that I think purchasing a home is much, much, much simpler than people make it out to be. It's really not complicated, you're buying a thing, and there's a process follow the process. It's really not complicated.

But at each step of that process, it's probably a, you know, 150, checklists, you know, process, but it's the same 150 items every time with the exception that each one of those can come with very slight variant, depending on the lender, depending on the insurance, depending on the state, depending on the property type, depending. So because that's such an enormous amount of information, it's not possible to capture all that. So even all the basics, that simple process of purchasing something, I understood the basics, right. And there's nothing that could have read or that we could have done differently that would have helped me, you know, learn or prepare for what I went through with these first two deals that were purchased solely for rental purposes. So…

Michael:

Awesome. Nathan, I'm curious to, for you to share with everybody because I know you and I have talked at length about your investments and investing journey. But how did your maybe criteria change from what you thought you wanted your first investment property to look like to what you actually, I'm not gonna say settle down, but you actually purchased.

Nathan:

The thing for me two things before I answered that, like specific investment criteria piece, I think it's part of it, right. But the the market aspect of real estate investment, I think, at least for us personally, for me, personally threw me off a little bit because almost regardless of where you read what podcasts you listen to what you watch online or whatnot, you know, I get the impression that everyone starts with find your market, and then just find your criteria and go and I was like, Well, okay, but how do I find my market? Right? It is easy to say find your market. So that bothered me a lot. I was like, how do I find my market? What does that mean? You start reading all these things, it's even worse, because now there's more input and more data to figure out what the market is. And again, this isn't hindsight, you know, 2020 type thing, but I'm almost willing to say the market actually doesn't matter at all pick one, you know, yes, there rule rules have you know, general guidelines, right, some are more appreciation, some are more pure cash flow. Sure. I also am willing to say if if I put extrapolate my situation to a lot of potential listeners this podcast right? I'm almost willing to say that for the most part, a large part of the large group of individuals that are you know, listening here are people that are looking for cash flow, not necessarily appreciation, right. So if you eliminate this all those markets, right, that are just pure appreciation plays, the market doesn't really matter, pick one, start to just understand how it works and then go so and that I know now, I didn't know that. And then it bothered me a whole time. I was like, Where Where do I go? Do I go here? Do I go there to go there? And that was pretty hard for me.

And now I'm like, actually, you know, I was stuck. But I'm not anymore. And I won't ever care really about the market. I know. It sounds very, there's a bit of hyperbole here. But yeah, so that was one. I think the other adjustment just to go back to your question around like property specifics, I accepted that or my wife and I, you know, accepted that this first purchase was not going to be more likely, I should say, not going to be you know, slam dunk home, run, whatever you want to call it, right? It's going to be what it is. And we start to view it as this is the cost of learning and practicing. So it won't maybe be all of the things that we're targeting, but we're going to gain from doing it. Right. That was one thing. And then the other thing, I think that, you know, our mindset got adjusted as well around is all of the things that one can read online or listen to in podcasts, or whatever it is, everybody talks about the flashy numbers, right? You know, I got 29% cash on cash, I, you know, I have $800, you know, free cash flow every month, so on and so forth. We actually don't really know what those numbers mean, and if they're even true, because yeah, you could say that part of the conservative or not they account for you know, reserves Do they not? So you really never really know. And it's very easy to get distracted by all these veterans of the industry that have, you know, crazy experience and crazy numbers.

And so, so if they got 800, you know, dollars free cash flow, you know, per month plus a 29% cash on cash, I should be able to find that right, maybe Sure, one day, but not for this first one. Right. And that's what changed a lot. And I mean, for us, I mean, typically I was prepping for the podcast, who was just looking at our numbers is purely looking at first deal cash on cash flow versus our second deal cash on cashing the first deal. cash on cash is around 7%. And our second is 17%.

Emil:

Big difference. So what did you learn from the first one that you think helped in the second one, improve your cash on cash, which sounds like you had gone for?

Nathan:

I don't know if there's anything specific that I learned between the first and the second, I think it was more about for the second deal, I knew the market better than the first deal. So the first one, I think I purchased the deal, without necessarily trying to understand everything else was I was, you know, early phase investors, I thought analyzing deals was the most important thing to do. So I spent a whole ton of time, you know, analyzing deals, analyzing deals, analyzing deals, found one that fits my criteria. So my wife and I like, yeah, cuz, Sure, let's go ahead, if it's our box, all that let's do it. And that was the extent of it. And our numbers worked. So happy, it's working all of that for the second property, I think it was more around, we've been monitoring this one market, and this one, you know, particular zip code of this one market and just looking at it every day. And then one day, I happened to see this listing, again, it was on roof stock, but I'm seeing them everywhere else, right. So it has nothing to do necessarily with the roof stock, you know, platform per se, because they happen, you know, Zillow, they happen everywhere. Those are places that we look at least right.

And because I knew what, you know, this typical type of home, you know, typically goes for in that zip code, I immediately saw that they had potential. So then we started looking into it a bit more, see what work it needed would make ready costs, we'd have to put in whether or not we wanted to do additional work to up the value a little bit. And it's because we knew, quote, the market, I still don't like to claim we know the markets. I think it takes many, many years. But we knew enough to be like there's something here. And then we weren't planning on purchasing anything at that point in time. But because there was something there. And then we started peeling the onion a little bit and we're like, oh, this thing is listed at 130 and the zestimates. You know, 165 and the last 90 day comparable sales are all 220. There's something here. So let's just go ahead and do it. And we pulled the trigger that way just because we knew the market and we weren't necessarily again, doing air quotes here. I don't know that we know the market yet. But getting there. I think that's the difference.

Michael:

Yes. For everybody listening, go back, rewind, and listen to that last two and a half minutes. Again, what Nathan just said is like the epitome of what folks should be doing out there in order to pick up great deals. He knew what a good deal looked like only after having been in that market. Having done a decent deal. Now he identified what sounds like a great one. And I don't think he would have been able to identify that great one. Had you not done that first one, or had you not been spending the time to I don't like turn but I'm gonna say anyway, learn the market.

Nathan:

Yep. 100%. For the first one, we bought a deal. We bought a property we bought a deal that we found on a marketplace, whereas the second one, we bought a solid investment and our first real I guess investment property that fits a process right that we're going to try to repeat and help grow from right instead of just shiny object syndrome looking all over every turnkey provider every this or that. Is that a deal? Yes. No, just picking one. We now know a lot more.

Michael:

That's awesome. And how soon after you saw that property pop up the second one. Did you make an offer on it?

Nathan:

I can't remember within 24 hours that I saw it because the only reason I say that because of the 24 hour open door Yeah, on RooFstock, right. So I know we were in that because I wanted us to be one of the first offers. So that's what we did. So we did pretty pretty quickly. It was, I think, maybe a couple hours of me just really doing my due diligence, you know, running it, you know, checking it with my wife and all that. And then we're like, yeah, we like this. Okay, let's go. Let's just go for it put in an offer. And that's how it happened.

Emil:

Are you cool running through some of the details of your offer and everything?

Nathan:

Yeah, yeah,

Emil:

I think just giving people an idea of like, Alright, here's the list price, how did you do your due diligence? What did you submit it? Like? I think that kind of thinking is super, super valuable for people. So yeah, can you walk us through like, okay, you saw it listed? You said at 139?

Nathan:

Yeah, so, you know, we're interested in single family rentals, single family residences, right. Typically, our kind of our, our criteria is, you're fairly standard Three, two, in a decent, you know, neighborhood slash School District, you know, we were looking for that fairly, you know, stereotypical, you know, trying to minimize any tenant turn, right. So, data opinions, all that say that, you know, three twos with potential for families, better school districts tend to have tendency to stay longer. So that was our, our starting point. So with that is when we started looking at the couple zip codes in this particular market that we invest in. And from looking at that, we saw that, you know, the standard price, you know, 160, 65 170,180, that's standard range for, you know, three twos this square footage in this particular zip code, primarily because of the good school district. And then we saw this one pop up, and I think it was listed at 139, I think we essentially went in at 131,935. And that was the Chris Voss never split the difference technique of just, you know, throwing out a very specific number that actually didn't mean anything to us, slower than the list price. And it was very specific. And there was a bit of back and forth with the sellers. I think we came up a bit, I can't remember exactly, but like 1000, or something like that, it didn't change much. Right. And that's, that's what we got it for us. I think we, we got it for 131 935 or something like that.

Right? Um, so that was the purchase price for 139 list price. To go back to a question you asked about due diligence and all that when I saw that list price for this particular property, that's when my alarm, you know, went off because like, that seems low for this type of house in this zip code. So I started looking into doing the due diligence, which started with kind of just inspection reports, right, all of the stuff that is provided to us online to the marketplace. And notice that there wasn't much to it. Right. So the OD seems like still a pretty good deal. It's not like it needs a new roof, a new foundation or anything like that. It's still seemed like that, you know, piqued my curiosity even more, it's like, Okay, great. It's not a ton of work, then I just, you know, and all this is within, you know, an hour or two of me seeing this thing pop up on on the marketplace. Right, check Zillow, you know, Zillow, first thing I see is Zillow estimate is already at 165. So 30,000 above, you know, the list price, or in this case that the purchase price. And then I went one step further, and I looked at, you know, comparable sales in that zip code over the last, you know, 90 days and even six months I looked in everything was at 2200 to 20. Above. So that was another one of those was like, Well, you know, even if we can't rent this, or even if our numbers don't work out, great, we have multiple exits, because it seems like these types of properties are flying off the shelf pretty quick, you know, given pandemic and all that that's I think, across the country, maybe across the globe, right.

But we're going in pretty low compared to what's been sold, you know, the similar homes in the last 90 to 60 days. So, we had that assurance, I guess,

Michael:

And Nathan not to cut you off, but how did you look at comparable sales just for everybody listening?

Nathan:

Yeah, so I you know, Zillow realtor Redfin, there's all of them we just happen to use Zillow because we know from previous primary residence, you know, transactions that Zillow is data, according to our realtor. So for what, what that's worth, right. But according to our realtor, Zillow data is more accurate to then you know, others, for example, such as why we're using sure as anyone, right, they're all more or less the same anyway.

Michael:

And for those of you who aren't familiar, that's the yellow tab on Zillow, there's the red, which is for sale purple for red and yellow is pass previously sold. And so you can set the criteria just like you can on a filter for sale, you can see what's sold in the last 30, 60, 90 days, seven days in a given area. So I think that's what you're talking about. Right?

Nathan:

Correct. Yeah. And we were even, you know, being very, very, you know, strict at first, like looking almost the exact same square footage, obviously the same number of rooms and bathrooms, right, same kind of year, same acreage, you know, kind of being as strict as possible. So they were really looking apples to apples and you know, a few things pop up. Sure. And that's where we see the numbers like, well, maybe this is not enough data, for it to be representative and for us to say yeah, this could potentially be resold for 220, whatever the comparables were, so that we just loosened that criteria a little bit, it's okay, let's look at your different square footage, different acreage, maybe, you know, wider range of your built sorry, right, and things like that, and everything still seem to kind of line up in those, those numbers, right. And that's essentially what we did. And at that point, we gained enough confidence that we should just go in and put in an offer, because at that point is like, we had actual data that showed many, many, many similar homes were sold for, you know, a certain, you know, price range over the last 90 days and over the last six months. So even if we were off by a factor of 10%, we're still not losing money. So we didn't have a reason to not do the deal. Basically,

Michael:

That's so awesome. And what did the appraisal come back at? You recall?

Nathan:

It came back at 135. So walked into it with a little bit of equity. And we're now just this morning actually was talking to the property manager on site there, but we're going to be doing a bit of work on the bathrooms, which need a bit of remodeling, and then that should hopefully, you know, up the property value, and the property manager there also, you know, is pretty confident we could get an additional 100 to $200 per month in rent, if we did do the bathrooms,

Michael:

Wonder if the appraiser just didn't want to piss off the seller.

Nathan:

That's what I thought when I saw the number. I mean, it's still equity. I'm not going to dismiss that. Right, right. But is it Yeah, you know, everything around here is going for way more. And this is like just a tad above the purchase price. But it is what it is.

Nathan:

I've been seeing that and in stuff I've been buying as well. Like they're basically just doing it at the lowest price. It's funny because they pull comps and all the comps are way higher, but then they just go to the list price when they give their appraisals. I don't know if it's something to just protect them right now.

Michael:

It's safer that way.

Emil:

Exactly.

Nathan:

It was the case on our first property as well. It came back literally $500 above the appraisal came back $500 above project price.

Michael:

Yeah, yeah, exactly.

The fact that you're seeing things sell for way more. I mean, to me, that's more indicative than these funky appraisals, you asked me?

Michael:

Absolutely. And if you went to sell it and the appraisal came back still low. I mean, you'd have pretty good justification to go and say, Look at absolutely your comps are garbage. Like these are the comps you should be using. Yep, Don't feel shy or bad about challenging appraisals, everybody out there was saying it can totally be done.

Nathan:

Yeah. And that's something that, you know, while I've never done it, and while we understand that you can challenge an appraisal, right, and it's the know how to say this is the the formal or official way to get the value of a property for, you know, a lender for lending purposes, right. At the end of the day, it's what people are paying for the object. And that's the data that we could get from Zillow, so we know what people be willing to pay for it. So if we had to go in and challenge, we're pretty confident that we could probably get a successful exit from the challenge.

Michael:

Right. And at the end of the day, for you on the purchase, it doesn't really matter, because the lender is only going to give you 80% of the loan to value or of the purchase price. And it's the lesser of the two correct even if appraised for 200. They're not going to increase your loan amount because of that.

Nathan:

No, no, no, absolutely. But for us, because we knew all of this. Another reason why we wanted to, you know, pull the trigger on this particular property and do the work on it now to increase its value as much as we possibly can is to set ourselves up for doing a cash out refi as six months or a year, whatever it takes, right but because we already know there's that, you know, upside potential is another reason why no longer view thinking like even if this is not perfect. While So far everything is the numbers are and all of that we're like, it also gives us the opportunity to potentially pull out $30,000 in six months, a year, whatever it is, and buy another property. Right. So it's like maybe this is a two for one who knows.

Michael:

Perfect, perfect.

Nathan:

And that that was our thinking. So it was like all these Yeah, this seems like a pretty good deal. And you know, knock on wood so far it is.

Michael:

Awesome.

Emil:

Nathan, why do you think the you know if the comps and everything were 160? And then some 200? Plus? Yeah, this is something I always battle, I'm sure you always think it's like, why is the seller selling for so low? What are they not telling me? So? What was your thinking behind that?

Nathan:

I try to not think like that, because that's a pretty rabbit hole rat hole, whichever the expression is, right? Who knows? Nobody knows. Right? It's impossible to know what the motivation of any given buyer or seller is. Right?

Emil:

And when you ask, they never tell you the real rate, like you can ask but it's not.

Nathan:

Yeah, they won't tell you they don't tell the listing agent, your agent when you're purchasing doesn't know either all of that. In this particular case, what I did also notice in doing our due diligence is the former at the time there were current Of course, but now the former owners of this property had not paid their property taxes in two years. So whether or not that means something I don't know, I kind of interpreted as there's a smell here. You know, maybe it's a seller in some sort of financial distress that, you know, that has been paid. There was also a if I remember correctly, I believe they had a tenant in the unit or in the property for two months. So sign a lease tenant moved in two months later tenant moves out. So those kind of two things right or wrong. I had no idea. I still have no idea, right? But it's like, yeah, there's a few smells here. bad smells, but bad in the sense opportunity, right? Bad for the seller. Good for us the buyers thing, maybe there's something so we'll try. And that's what we did. And we got that properties. hopefully everything will pan out as planned.

Michael:

And Nathan, what's the rents on that? Are you estimated rent from your property manager on that property?

Nathan:

So if we were to move someone into the property today, without doing any bathroom remodel, it would be between 14 and 1500 a month. With the bathroom remodel? It's somewhere between 16 and 1700. a month.

Michael:

Love it. So when people say, Oh, you can't find any 1% properties out there. I think Nay, say you found it, as is added 1%. And you're gonna add some value and hopefully create a 1.2 1.3.

Nathan:

Yeah, so our first property was a spot on 1%. The second one hopefully will result in more than that. And in fact, speaking of 1%, right, that is a rule of thumb that has helped us and helped me tremendously in kind of identifying your quickly identifying, should I spend more time investigating, investigating or analyzing sorry, this property or not? Because it pans out? It's pretty accurate as a first pass to see whether or not a property at least for our criteria, it's pretty, pretty close. Right? So you're like, Yeah, that's a good rule of thumb, just like look 1% if it's not then move on? Yep. Move on. Right.

Michael:

Yeah. Yeah, we did an episode about that. How ironclad are are the rules, 1% 2% 50% 70% rule. And for in a lot of markets, the 1% rule for a lot of investors is pretty, pretty accurate.

Nathan:

It's accurate enough to shorten the list and then say, if it's, you know, point nine and not 1%. Well, you know, what, if everything else lines up, I'm just gonna put in an offer and see if I can get it for lower and make it a one percenter, right? Or something like that.

Michael:

That's it, oftentimes, it's not going to be off the shelf on percent, we can force it to be whether increasing the rent or lowering the purchase price, doing something to reduce our expenses on the property. So that we're kind of going to cram it into a 1% box, or 1% plus box, I always talk about my the best performing property, I own and I bought it like a point eight 2% rent to price ratio. But the seller had done several things that reduced a lot of the maintenance costs on a regular basis. And then also the rents were way under market. So when we combine those two things, it turned into like a 1.3% property almost overnight.

Emil:

Nathan, which market? Did you buy these properties? I don't think we've touched on it yet.

Nathan:

No, we didn't say I don't think so the first one is right outside of Chicago on the Indiana side of the border. Okay. And this second one that we've been talking about is in St. Louis, Missouri.

Emil:

Nice.

Michael:

Awesome. And so I kind of want to shift gears here a little bit. Before we started recording, you were telling us that you're in the process of moving out of your current primary, buying a new one and converting it to a rental. Right?

Nathan:

Correct. So if all goes well, last day of the contingency on the potential new primary residence is today. So we're actually I was speaking to our agents before hopping on the podcast, get our counter in place, I guess. So we'll we'll know in a couple hours.

Michael:

Yeah. Awesome. Awesome. So I'm curious to know, when you bought your current primary that you're in now, did you ever think that you'd be moving out and converting it into a rental?

Nathan:

Yeah, we did simply because our current primary now is a condo kind of downtown San Francisco. That's where we're located. We were about to have our first child when we purchased, we now have two young children. And we knew like a two bedroom, one bath condo, downtown San Francisco was never going to be in the long term plans. And we knew, obviously, we didn't know about COVID. And that has changed everything. Right. But we knew that when we were purchasing this condo, primary residence in the neighborhood where, you know, the chase arena was being built up, you know, two blocks away. baseball stadiums two blocks away a bunch of you know, commercial and residential construction projects around us Uber headquarters close to us. So there's all these indicators. They're like, yeah, we're gonna do this so that we can hold on to it, and then rent it when we move out. So that was one way to say yes, yeah.

Michael:

And so were you looking at the number like did you get so granular as to look at the numbers of Okay, this is our mortgage payment is we think we can get on it for rent and thinking about it or just, yeah, we'll convert it to a rental one day and worry about when we get to it?

Nathan:

So when we're purchasing it was not how we looked at the particular purchase. It was another one of those where which I think we're I guess we're fortunate. It's the same with this particular primary that we're in contract on Now that may close early January. We were not back then in a position where we absolutely needed to move and needed to buy something. So we were shopping, we're being shoppers, not buyers. And we're just shopping around. And again, just doing the leveraging the people aspect of real estate, just talking to the listing agent and listening to what this individual was really saying, there might be an opportunity here. So we just went in lowball, which was unheard of, for the Bay Area, you know, three years ago, because everything was going three, five, I don't 10% even potentially, I have no idea above, you know, asking. And we went 7% below, asking, I think so it just happened to be a good deal. Because we, I mean, all things relative, right, it was a good deal for the Bay Area, because of, you know, US listening to what the listing agent was really saying. And it just meant a lot of things we can get into that if we have time and want to write, but I think that in addition to us, when we started thinking about purchasing a new primary residence, we're like, if we're going to rent this out, we got to make sure the numbers work.

So that's when we started doing the numbers game a bit more, but just quickly led us to that plus, you know, lowest mortgage rates they've ever been in history, right. Okay, but refi, lower monthly rate, so that we're just buying ourselves in a sense, this extra buffer for whatever we may end up renting it at. Right. And obviously, you know, rents in cities like San Francisco, New York, and other larger vertical cities like this, you know, have taken quite a dive since the pandemic, right. But if we were to rent it today, with the hope and expectation that things will eventually go back to normal, we would still break even and not lose money. Right. So I think that's only possible because we bought them low. Right, or we bought the property came in low. So that's where we bought the deal. Right. Or we came into the deal, I guess, I should say, and because we refied.

Michael:

Yeah, yeah, perfect. It's such a unique time to be having primary refinances going on, because the rates are just like you said, unbelievably low. And so if this is something people are thinking about converting their primary into a rental, or maybe they're even not thinking about it, I would definitely evaluate it with these new numbers of, hey, if I did a refi, on my primary, could I convert it to a rental? And then have it make sense, because especially in a lot of those expensive homes, it might not make sense at your three and a half or 4%? Current mortgage, but at two and three quarters, or two and a half? Maybe it does. So I think it's it's great that you played with the numbers and great that you're able to make it work.

Nathan:

Yeah. And again, hopefully, you know, we'll see that's the plan. You know, again, there's a lot of uncertainty, you know, understandably, with, you know, the pandemic and whatnot. And that's a big, unknown. Yeah, but we've done everything we can, that is in our control to secure the situation, I guess, for lack of a better term to make it not turn into a sink, money sink, right. But instead, you know, at least break even and maybe even, you know, some positive cash flow monthly, right?

Michael:

Yeah. All right. We got to keep us posted on that one, too. Of course. Emil got anything else?

Emil:

Yeah, before we wrap up curious what the future holds for you. What's next for you guys?

Nathan:

So right now, obviously, and understandably, right, we're in the middle of this primary purchase, hopefully, that'll go go through, right. And if it does, we have quite a bit of work that we're planning on doing to the place, you know, right off the bat. So that's going to take up quite a bit of time. But once once we're past that, we'll have a clear picture of where we stand kind of financially and whatnot. And the plan is to go in and get at least four more rental properties in 2021, probably even more, you know, we've also started talking to different individuals to partner and get some additional deals that way needing less cash up front, just because we're, you know, partnering with other folks. So scaling, I guess, the short answer to your question Emil.

Emil:

Nice.

Michael:

And scaling in the same markets already enter and venturing out into new ones.

Nathan:

No seeing the same market. I think that, you know, if one thing that I appreciate more now than even six or seven months ago, is I feel like most of the work and effort is put in or should be put in understanding the market, as we talked about, and building the team, you know, the people, they're local to that market, because that takes more time and energy to identify those things, then analyzing a deal does. analyzing a deal is easy, but if it's in a new market every time and then you have to spend, you know, an order of magnitude more hours, understanding that market, building the team, finding the people all that it just is counter skill productive, right? So.

Michael:

Sure. All right. So.

Emil:

I agree with you.

Michael:

Yeah, me too. Me too. Having done it both ways. I definitely prefer going deep on a particular market. Yes. Okay. So two final things, Nick, before we get out of here one, what would you like to say to everybody listening out there that's was in his in your shoes six months ago, is doing research wants to get involved in real estate investing, but hasn't taken that first step yet? What do you recommend they do? What would you say to them?

Nathan:

Yeah, I think you know, we touched on a lot of them already. Right. The market thing is a big one building the team. You know, good people, no good people. I think everything that has happened to us so far in terms of investment, especially for like, the second deal, it's turning out to be, you know, much better than the first is because of the people because the lender was referred to us because the property manager was referred to us because they knew the insurance broker and all that. And that was very little work to get to identify those people in that team Once you've found the first that are starting to refer individuals. And that that is hugely important. I guess the other thing as well, that helped us on all deals is just to ask people for what you want, basically, because in both cases, I think we couldn't get the numbers to be where we wanted them to be. So we just called our lender and the property manager says, Hey, this doesn't work for us. Here's what we're looking at. Is there any wiggle room? And for both properties? In all cases, like Yeah, sure. There you go. Here's what we could do. I was like, okay, and if I hadn't asked, then I would have probably passed. Right. So yeah, just asking the questions. I guess.

Michael:

That's such a good takeaway, because I think so many people hear something and think, okay, that's what it is. And never think to ask because they might not know that there is any wiggle room. But I think that's a that's a really good takeaway is just Hey, ask the question, What I can say is no, and You're no better you're no worse off than you were previously. I guess the other thing that catch people off guard, or at least you caught me off guard with there's a lot of you know, planning tools, gurus, whatever that talk about, yeah, $100,000 home, all you need is $20,000. Right? Well, that's not really true, right? Because once you've added the, you know, closing costs, once you add your reserves, if you want to put money aside and all that, it's really closer to 30,000. So, you know, make sure you have that money set aside, right. And you're not going into every deal thing. Oh, all I need is 20%. I'll share for the down payment. And then there's all this other stuff, right? So the liquidities You know, one needs to have and it's more than just the down payment and that can be a surprise. If not, if not prepared.

Emil:

Really good point.

Michael:

Good point. Good point. All right. So Nathan, when the pandemic is over, where are you gonna go get your first meal when you eat out?

Nathan:

I don't know. We cook a lot. I don't know. I think simple. A beer garden. Outdoors people. Yeah.

Michael:

The bare necessities. Sounds awesome. Yeah. Anywhere where there's people.

Nathan:

Yeah, and yeah, and contact and exchange. And yeah, I think I think that would be it.

Michael:

Right on.

Emil:

At the beginning of this, I felt some I feel like I was so introverted. Like I'm primarily an introvert to be an extrovert when I need to, but like now I'm just like, all I want to do is hang out with people all the time. You miss it, you miss it a lot. You take it for granted.

Nathan:

We are social beings.  Right?

Emil:

Yeah. Yeah, really take you for granted. I don't know maybe some introverts out there like this is the greatest the best.

Michael:

That's great. Well, Nathan, thank you again, for hanging out with us and sharing your story. I hope I think there was a lot of really great stuff in there. You've been through a lot seen a lot that a lot. So thank you again for sharing. I look forward to seeing you and hearing updates from you as you continue on your journey.

Nathan:

Absolutely. Um, thank you guys very much. Appreciate the time.

Michael:

Already, everybody. That was our episode a big big, big thank you to Nathan for coming on sharing his story with us really looking forward to following up with him on how his scaling goes and how the purchase of his primary goes that he should be hearing back on today. If you liked the episode, please feel free to give us a rating or review. Wherever it is you listen to your podcasts. And as always, if there's anything in particular you want to hear us cover on episode, leave us a comment in the comments section. We look forward to seeing you on the next one. Happy investing.

Emil:

Happy investing.