The SFR Show

In this episode, Emil interviews Tom and Michael about how to successfully manage a rehab as a remote investor. 

In this episode, Emil and Michael chat with Roofstock's Chief Marketing Officer, Suresh Srinivasan about how Roofstock got started, what has changed since and what we are doing to make buying an investment property as simple as possible. 

In this episode, Emil and Michael chat with Roofstock's Chief Marketing Officer, Suresh Srinivasan about how Roofstock got started, what has changed since and what we are doing to make buying an investment property as simple as possible. 

In our 4th Ask us anything Tom, Michael and Emil answer listener submitted questions about nifty tools to analyze properties, how to get the most passive income out of 120K, building a team and closing on deals remotely, using hard money and refinancing into a conventional loan. 

In our 4th Ask us anything Tom, Michael and Emil answer listener submitted questions about nifty tools to analyze properties, how to get the most passive income out of 120K, building a team and closing on deals remotely, using hard money and refinancing into a conventional loan. 

In this episode, Emil and Michael chat with Tyler Jahnke about how he persevered through a nightmare of a first deal to being a part of 100s of unit of real estate.  

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Transcript

Emil:

Hey everyone. Welcome back to another episode of The Remote Real Estate Investor. My name is Emil Shour, and today I'm joined by my cohost,

Michael:

Michael Albaum.

Emil:

And we are interviewing Tyler Jahnke. Tyler has become a good friend of ours and is also one of the writers on the Roofstock blog. So you may be familiar with him on some of the content he's written there. And this was a really fun episode. We got to talk to Tyler about the story of his first rental property. He lives up in the Bay area and he talks about investing in the Midwest and some of the painful lessons he learned along the way of buying that first property and how he's grown to be a partner and owner of over a hundred units through syndication deals. All right, without further ado, let's hop into this episode.

Theme Song

Emil:

Tyler. Welcome to the show, man. We're excited to have you.

Tyler:

Thanks very much. I appreciate you reaching out and getting my attention and allowing me to hop on today and talk with you and Michael.

Michael:

This is going to very much feel like every day on Twitter when we're always chatting about real estate investing stuff. Anyway, it's just on an audio format.

Tyler:

A quick little plug for Twitter there, I guess, right? Like most of us I think, met on Twitter and that's been a great platform for both of us or all of us and engaging in and connecting with people so happy. We met there and happy to talk real estate as much as we want.

Emil:

Yeah, it's funny. I've been on Twitter for years and I never realized there was this real estate investing and money, Twitter corner of Twitter. Like I always just used it for marketing and other stuff. And I was so stoked when I found this little community that's super engaged and loves talking and sharing best practices. So it's been fun, man.

Michael:

It's funny. This is my first live Twitter interaction coming off Twitter. And I'm so glad to see Tyler and I were chatting before we started recording it. And his personality on Twitter matches his personality in real life, which is always great because sometimes you meet folks. It's like, wow, you're really well written. And I can't stand you as a person, not the case at all here, which is always nice.

Tyler:

I'll be honest. I was a little worried thinking it just through like seeing you in person, it's like, how is he going to think I come across in reality versus someone who's behind a keyboard or a, you know, a mobile device typing 280 characters. I'm sure there's plenty of people out there that are completely different. And I was like, hopefully I come across similar, online as I do in person.

Michael:

I think by the same thing, I don't want to catfish anybody.

Tyler:

Yeah. Now I will mention the first thing I noticed about you and Michael was the longer hair. I'll say that.

Michael:

For anyone who hasn't seen, the reason they have leveled, they let myself go with the head hair and facial hair department. I'm going out the quarantine cut on, call it.

Emil:

Cool. So Tyler, before we hop into the good stuff what's going on in your world, what's new.

Tyler:

Oh, that's I mean, that's a big question. So first things first I work full time still. I am not a full time real estate investor. That's something that I think some people maybe assume that I am. So I do work full time in a sales and business role out here in the Bay area, born and raised in Berkeley, California. My office is in as in San Francisco, clearly we're all working from home right now, but so, you know, a lot of my day is still consumed by that full time job. But my nights weekends are still very much real estate or whether that's analyzing deals, talking to partners, talking to investors and networking, engaging, and then doing a lot of content build out on my platform and then just, you know, talking real estate as much as I can on my nights and weekends. So that's kind of what my day looks like right now. It's, it's becoming somewhat repetitive, but I have enjoyed it. And I do try and get out on weekends and hike and see the outdoors a little bit.

Emil:

Now that you've mentioned that you live in the Bay, my follow up question is how did you get into real estate investing? And why did you choose remote real estate investing? I think part of the, you answered with you live in the Bay area, but give us the back story.

Tyler:

Yeah, I guess I'll tackle the question of how I got in first and then we'll go to why out of state. But so I started investing in 2016, so about three and a half years ago now I was working a good job that I enjoyed in an industry that I also enjoy and still enjoy. But I did see myself, you know, kind of the future Tyler down the line, probably having to work another 40 years and reaching that age of 65 and then maybe retiring. So I think in my late twenties, a little bit of self reflection and trying to figure out what I wanted to accomplish in life. And a lot of that had to do with time freedom, which I think a number of your listeners are probably also conscious of right now, if they're thinking about real estate. And so I had to try and figure out ways to bring an income outside of my W2 job and just try and accelerate my growth on the financial side.

So through business podcasts, through investing podcasts came along this topic and strategy of real estate, which is abundant and everywhere, but no one really thinks about it. I mean, when I say no one, the majority may not really think of it as an investing opportunity. And so, you know, I saw it as somewhat of a logical step and I guess, strategy just by the fact that you could bring in monthly recurring income through tenants, paying off your mortgage and insurance and taxes, and maybe even letting you cashflow a little bit. And then to answer your question on why out of state for me at the time, it was pretty obvious. I couldn't afford anything in the Bay area. And I also wanted that cashflow and it's very hard to cashflow property in Oakland when you're going to pay $750,000 for it. It's quite impossible. Now I'm not saying it's impossible, but there's definitely challenges there.

So, you know, jumping into, out of state investing made sense for me, it was definitely a little scary because you emotionally get attached to these investments. I think as a newbie and you're like, I want to see it in person. I want to touch the front door, but at the end of the day, it's not necessary. If you have the right team on the ground to help you out and really guide you along the way. And so long story short, why out of state, it was affordability and the cashflow potential.

Michael:

So I want to know Tyler, how did you make that leap? Really, a lot of people call it a leap of faith jumping into this out-of-state market. Having never been there, maybe having never met your team on the ground, walk us through the mindset and the decision making that you went through to end up where you did.

Tyler:

That's the important part is to make the actual leap. And I think I will admit early on, I was rather naive and I didn't have everything buttoned up from an education standpoint. I didn't really know how to properly run the numbers that actually worked for me. I'm not saying, you know, leap in uneducated. I think again, that helped me initially because I was naive in the challenges and maybe dangers of investing at a state. But now thinking back, you know, over the years, my advice to others that are in a position of, okay, I want to do this, but how do I take the next step? I think it can actually be seen as a quite simple process. If you are educated in a market that you want to invest in, if you know how to analyze property, and if you have, you know, the longterm vision of what real estate can do for you, I think that's enough confidence to make the next step.

If you know the market you want to invest in, you know how to analyze property, you have the vision, like it's just going to be a mental at that point. So I don't have the exact advice for people on how to make the next step, because it's completely mental. Once you get those three things down, a market analysis and a vision, once you have that, it's all mental. So it's just going to come down to the individual and some people do it. Some people don't and that's fine. It's just mindset and personality.

Michael:

How did you find your first market? What did that look like?

Tyler:

My very first property that I bought in closed in December of 2016, I went the turnkey route and I felt that the fact that I had a full time job and working 40 plus hours a week, I felt that the turnkey route would be the best option for me to at least dip my toe into real estate. I will say the turnkey route is not always the best method. If you don't understand the partners on the ground properly, like I found out later. So I went to Turkey about found the market in the Indianapolis area. So the Midwest, which had high cashflow potential good acquisition to price ratio and had some of the metrics of a cashflow market, like population growth, job growth with higher wages, diverse economy. This could be a whole separate topic. So I apologize if I'm jumping too far ahead on what to look for in a market.

Michael:

This is great.

Tyler:

But I'll say that I hooked up with a drinky company out in the Midwest thought I vetted them properly, picked up a property for $37,000 cash back in the day, which is like the cost of a somewhat nice car. But it actually, instead of depreciated quickly, it's actually an asset that would produce income. So yeah, first property turnkey out in Indianapolis.

Emil:

I read your blog a bunch and I know you've talked about the experience of this first property and it's such a good one. And I'd love for you to share the story of, okay, you bought this property 37 [inaudible] on paper. It looks like it's going to cashflow nicely. I'll let you take the floor. Tell us about the story.

Tyler:

Yeah, yeah, yeah. So this is the best and worst investment of my life. So best in a sense that it got me in the game, right? I'll keep preaching this, like getting the game, getting the game, getting the game, whether that's a good or bad investment on paper, it's kind of a start that snowball. So yeah, $37,000 cash worked with a turnkey company that I barely vetted. I hopped on the phone a couple of times they started sending me leads via email routinely.

Michael:

Did you chat with any other turnkey companies or this was the one?

Tyler:

You know, me, you know, I didn't talk to anyone else. So it was all, I put all my eggs in one basket and that's kind of also my personality too. I'm pretty quick to trust and that's a double edged sword, as we all know, I'm usually pretty optimistic and very trusting. So that's good and bad, good and bad. So anyways, I talked to this company, you know, I started getting leads. I started evaluating the properties and my simplistic formula of figuring out how to actually calculate cash flow back in the day. I remember, you know, the estimated rents at seven 50 a month for a property that costs $37,000 napkin math on that was basically okay. Let's give the property manager 10% and let's account for property taxes and insurance. But you know, in my eyes, seven 50 a month, taking away all those expenses, I could probably cash flow 300, three 25 a month. We'll call it, which I wouldn't even touch anyways. My plan wasn't to actually spend that cashflow. So I was like, okay, if I could get a few of these properties in the next five years, you know, now we're talking substantial numbers on the cashflow side.

So I acquired this property and then that's when I decided to fly out. So after I actually close on this property in December of 2016, I decided to fly out to Indianapolis in March of 17. I initially wasn't even going to do that, but my parents were like, Tyler, I think you might want to like meet the people you're working with and just see if that property exists. I was actually kind of reluctant, but now I kind of make it a routine to check on my markets annually. We'll call it pre COVID. So we closed on that property. It takes about two or three months to actually renovate. And it wasn't really a big rehab job. They refinished like the hardwood floors. They replaced a window. They did a little bit of painting.

Emil:

The turn-key company is doing that for you?

Tyler:

Correct, yes. So the turnkey company, I guess the term turn-key by definition means it should be easy. There are some good Turkey companies out there and there's bad ones. My advice is just to vet them properly, if you go that route. So it took a few months to really quote unquote renovate it. And there were some red flags that popped up initially. And those were some things that I've, you know, looking back I've learned from if red flags are popping up, that you're not happy with in terms of maybe lack of communication or miss deadlines and timelines, I kind of became ignorant or I guess I ignored them because I really wanted to just close on this property and become a real estate investor. And so I think emotion took over and in some points where I was like, you know, realistically, I should have questioned these red flags up front, but I didn't. Cause I was like, real estate is a thing I'm going to acquire 10 properties and become financially free.

So I was too focused on that end goal. Finally got that thing rented. We did have a tenant in there for about 11 months. They paid on time every month, seven 50 a month. I took out, you know, 10% for property management. I made sure I had some reserves for property taxes, insurance. And then I just kind of pocketed that cashflow fast forward to the, you know, as I mentioned that cashflow for 11 months, we'll fast forward to that 12th month. My buddy who's actually in the real estate space as well in the Indianapolis market. He randomly drove by my property just to check up on it. And it was like Tyler, there's a lockbox on the front door. And I'm like, what do you mean? There's a lock box in the front door? Like what, first of all, I was shocked and I trusted him, but I didn't know what that actually meant.

So that caused some alarms in my brain, I guess you could say. It was like at that moment I was like, is this real estate thing gonna actually work? Because that was my first real, real big hurdle. And I guess I had to think through from a business standpoint, what would the next step be? So I didn't mention anything to my turnkey provider. I actually kept that quiet to start with. I wanted to get some verification from others. So I then began the process of actually building another team on the ground out there, aside from the turnkey company I worked with. And that was kind of again, why I go back to like this being my best and worst investment. It forced me to overcome these challenges and build a new team on the ground.

Michael:

So Tyler was this turnkey provider also managing the property for you?

Tyler:

Yep. They did everything. They sourced the deal. They walked me through the closing process, set me up with insurance and insurance agent. They renovated it. They managed it from a property management standpoint.

Michael:

One stop shop.

Tyler:

A one stop shop, everything you could have in one box there. Okay. So anyways, I called a couple of property management companies had them drive out there, pay them a little bit money to help me out and just verify that it was in fact clearly that the lock box on the front door meant it was vacant. I don't know the whole story. Apparently the tenant had left without telling anyone and the property was vacant and I was never notified. And that was the last straw. So I fired the turnkey company, had another property manager, take it over. I know this story is kind of going on, on and on and on.

Michael:

This is all great stuff.

Tyler:

We're getting towards the end of that first property. So after having a new company take over management, after vetting a number of them, I really had to make sure that this next hire of a property management company would be right. So I was on the phone, every lunch at work and at night, just talking to people to try and figure out who the best property managers in Indianapolis were finally selected someone. They went out there, cleaned it up, took over management and they crafted a scope of work on what would be needed to get this thing rent ready. Cause my thought was okay, small little blip in the radar. Let's just get this thing cleaned up, get this thing rented again, get it back on the market and get a tenant in there and then start cash flowing again. And then I'll live my happy life.

So they go in there, they craft the scope of work. First of all, I'll say the scope of work was probably a little more than I needed, but it was still a bill for $16,000. And I'm like, uh, wait, what? So, uh, so the property cost 37,000 up front. I need to put another 16 K into this thing to get this thing a rent ready. And I was like, there's no way I'm going to do that. Now along those, you know, the first 12 months of me owning that property too, I think I became a little bit more savvy. I actually, I learned a lot more after I had closed on real estate than I had. And so that's when I started really focusing more on the impact of location and obviously like the partners you work with. So my strategy in owning that first property had actually changed within those 12 months.

And I decided that buying in better neighborhoods with a little bit less risk and a different tenant profile would be the strategy I wanted to take. So ultimately I ended up selling that property. I did not put the 16 K into it. I did not think that that property would have a good longterm outlook. And I started buying in better neighborhoods. So long story short bought the property for 37,000, sold it for 41 a year later, took a year of cashflow minus closing expenses or closing costs. I probably netted, I think it was like 2% in a year. So I honestly call that a really big win on my part. I was like, if I could just break even on that first property, I think there's just so much knowledge and education and experience you get from that first property.

Emil:

So why did you decide to keep going? This is, I feel like I've heard so many stories where people, something like this happens and they give up and they're like, ah, this real estate investing thing isn't for me or someone who's new has zero properties is hearing this and is like, I don't ever want to deal with this. Yeah. Why did you keep going?

Tyler:

I'll give you a couple answers. Some you may want to hear some of you may not. The first answer you may not want to hear is I already had a second property under contract. So by default I had to keep going.

Michael:

That's great.

Tyler:

But so I was actually really confident after that first property, given all those circumstances and those challenges, I was like, I know what I did wrong. Like I bought in a bad neighborhood. I hired the wrong people. I just followed, you know, my napkin math. And I touched on this earlier. Like I became better at analyzing properties. So the deals would be better. And then again, like just buying in a better neighborhood with a different tenant class profile, that to me was important. I wanted someone who could afford rent and not be challenged by if their car broke down, that they have to decide between the car repair or rent.

I wanted, I guess, a little bit more security. So that's why I started buying in better neighborhoods. But I felt like, you know, after that first property round to the second property, I had learned so much in that first one, I could do it better and I could just get better every time. And so that was, it actually built confidence. And so, yeah, I went through some short term struggles and I think a lot of people will go through that short term struggle period. But if you really think that real estate is something that's going to be part of your life for 40 years, and it's a longterm strategy that one year of education and challenges will just amplify our growth, you know, as you move forward,

Emil:

I love that.

Michael:

Such a good story Tyler. I've got a couple of questions for you. And then 11 month period, when you were collecting rent and cashflow, did you think that you were a fricking genius that you had just got a dialed?

Tyler:

Yeah.

Michael:

Me too.

Tyler:

Oh, I was smiling. Every check that came in, the first check that came in, I was traveling with my buddies in Vietnam and I remember waking up one morning and I'm on vacation. Right. I'm on vacation Vietnam. And I got a paycheck. I got a check that came in at like one in the morning and I was like, this is unbelievable. I need to keep buying these as soon as just rapidly. And so, yeah. And it's funny because I started off my journey in the content space by just posting on bigger pockets and I kind of posted my life experience and I love going back online and be like, Hey guys, just want to give you an update. I got my payment, my check came in and I'm good. So yeah, it was definitely all smiles for a solid 11 months until, you know.

Michael:

Until it wasn't until it wasn't.

Tyler:

And so that's what got me back to reality.

Michael: The learning process that you're talking about and the education process that you're talking about, it seems like that'll happen in month 12. Like that was a massive ramp up for you because for 11 months things were good. So you thought you had done everything right?

Tyler:

My education prior to closing was not the greatest, but I really started ramping up the education process after I started closing. So that was, I got addicted to podcasts. I got addicted to bigger pockets. I got addicted to just consuming, consuming, consuming content in the real estate space. And that's why I had my second property already under contract. By the time, you know, all these challenges popped up. So I guess I would say I really started continuing that education process, you know, after I closed and I still do today, even though, you know, I've kind of grown in, in the investing space, but it's podcasts, it's books, it's websites, and it's talking to people like you guys.

Michael:

I think that's such a big takeaway for everybody listening is, Hey, after you've accomplished the goal of purchasing that property, whether it's your first fifth, 10th, or whatever, don't stop being educated. Don't stop getting educated because I think too many folks sit on their laurels and think, well, great. I did it. I know how to do it now. Yeah. Well you did that deal. Maybe the next one's going to be slightly different. And so there are things you can learn in the interim that are gonna help make that next subsequent deal even better for you. So I love that.

Emil:

I feel dumber now than when I first started. When I first started six months in same thing, I'm laughing, I'm getting checks. I'll just do this 10 times and I'm going to be rolling in dough. And then like reality hits and you learn more and then you're like, wow, I know nothing. The more you learn…

Michael:

I think it’s because we all started so similarly right? Buy one single family house, your purview is no one can see my hands, but they're very narrow right there. It's a very small scope. And then as we grow and expand and learn and educate ourselves, we realize there's this entire investing world out there that is comprised of so many different things. And we know so little about it. So I think that's a great point. And the old that just further goes to illustrate don't stop getting educated. Can't stop. Won't stop. Right.

Emil:

Rockefeller records.

Michael:

That's right. That's right. So I'm curious now, Tyler, you, you did that deal a couple of years ago, you know, what are you doing today? Where did you go from there?

Tyler:

Yeah. So it's been a journey and I don't want to come across as any type of expert. I'll say that, you know, looking back at my timeline, I've been investing for three and a half years now. So started in my late twenties now in my early thirties, I think there's still a long, long, long ways to go. But I will say within that timeline of three and a half years, my strategies have definitely changed. And so, you know, after that first I learned about, you know, the importance of location and really building that team on the ground. So I bought a second property and other single family house I'm in a better neighborhood with a better team.

I then kind of tiptoed into we'll call it the journey of scaling, scaling up. And so I bought a duplex that was like huge for me. So I went from like a couple single families to a duplex that was me scaling up. I think from my standpoint, my strategy now has changed because like you mentioned earlier, Michael, the education process, there's some things I do now in the real estate space that I was not even aware of, you know, a few years ago. And so I tiptoed around and investing passively in larger multifamily complexes. That's how I started off in the multifamily space was literally, you know, I come in as almost like a silent partner, we'll call it limited partner, they'd say invest in my cash in these larger deals for some equity. And then through that process, learn more about the larger multifamily value of ad space.

And that's where I am now focusing on the value add, but multifamily space, the GP role in these larger apartment complexes. But my portfolio is kind of two prominent we'll call it. We had the cash flowing properties in the Midwest and then the work that my partners and I do in Phoenix on the value of ad side. And like I said, in three and a half years, I've learned so much. And like you said, a meal too, like it's such a massive world out there in real estate. There's so many different techniques and strategies that you can go down into some rabbit holes, but yeah, it's a combination of cash line properties and Midwest plus some value add deals with partners in the, in the, in the Southwest region.

Michael:

For those of our listeners who don't know what is that LP GP thing called and what are those roles?

Tyler:

The term is syndication, which has good and bad, I think connotations or I guess definitions, but it's really just, it's a partnership between two groups. The general partnership group is generally a group of individuals that are tasked with acquisition of a property lending up financing, building out the business plan, building up the strategy, managing the actual renovation and reposition, and then really making all the decisions on whether to refinance or exit or whatnot. The LP limited partner side is a bunch of investors that come into these deals with some capital and with the intention of really not being involved in the day to day, it's a passive investment. It's like any business that needs, that requires funding and you have the team that's managing everything and then the, like I keep saying this, the silent partners that come in with capital to help fund the project, that's the basic structure of what a syndication is, but it's almost like any type of startup even, or any type of business that needs capital to close. And then you execute a business plan and hopefully pay off, you know, yourself as well as your investors primarily

Emil:

I know you're a part of a couple of different indications, your general partner in some where you're more active and your limited partner in some others. Right?

Tyler:

Correct.

Emil:

How did you decide to get into that? And which one did you start out with? I'm curious.

Tyler:

I started out on the LP side after I bought my first two houses and then the duplex, I wanted to experience life, not as a landlord to put it bluntly. There's always going to be some stresses as being a landlord. You know, you're going to have the email from your property manager saying a pipe has burst and we need some money or there's a hole in the roof and we need some money. That's just part of being a landlord. And so I was like, well, you know, at that point in my life too, I was really trying to value my time to one of the biggest things I try and follow right now is kind of, there's a quote out there that says, like start with the end in mind. And I envisioned my life, you know, 40 years down the line where I am selfishly bringing in income without really much active work.

That's kind of what my ideal life looks like right now from a freedom standpoint. And so I was like, let's just try out what this passive investing really is. And I know passive is always going to be a loose term, but I felt that if I could hop into a deal passively and try and learn the business plan and a strategy of what value add is, and then tap into the power of multifamily, which is extremely powerful. We're pretty much doing what people call. Like, I call it the big BRRRR. We're finding a undervalued property, repositioning it through innovation and then bumping rents up that leads to additional cashflow plus increasing the value of the property. So I liked that strategy. So I wanted to kind of hop in there, learn from those people passively and then eventually get into those deals more on the active side events.

Michael:

So in syndications, I've only done them locally, kind of with friends and family, never on a big scale, but when you were an LP on your first deal, and you mentioned several times that you learned from the GPS, were they happy to answer your questions as an LP? I mean, how did you go about learning this business as a quote unquote silent partner.

Tyler:

It's not like a relationship where you automatically become, you know, the mentee and they take you under your wing. Really what I was just trying to figure out was to slowly get into the game. And that was to begin to just review what a, an offering memorandum looks like, what do these business strategies look like? What do the cost of renovation look like? What are the loan terms like? That was the very first step for me. And as an LP, you get to do that because you're reviewing all of the terms and strategies.

So that was a very, very, very first step of me in education. Now, to your point, Michael, there's no way that these GPS are like, yeah, I'll take, I mean, maybe there's some out there, but I wasn't gonna email them and call in and be like, Hey, can you just tell me exactly what to do and how to do it? They're not going to say yes to that. They have much more important things to do. So really it was just being exposed to the industry and the business plans. That was the very first step. Luckily, you know, after that, the second deal. So the first deal I did was in Louisville as an LP, second deal was in Phoenix, which is now with partners that I work with. So through networking, through connections, through some mutual friends, I was able to kind of position myself in a way where yes, I was an LP, but the GPs actually knew who I was.

And so that led to further opportunity down the line. I'm really just through connection and through building relationships. But yeah. So I think to answer your question, Michael, how do you learn as an LP? There's some you can pick up just by being exposed to the industry, but again, you're not going to have someone take you under your wing most likely

Michael:

And hold your hand and say, this is..

Tyler:

Exactly.

Michael:

Okay. Yeah. Cool. Man, So, you know, I am also a multifamily value add guy. I've always done things on my own for the most part. What is it that you look for in these undervalued deals that are right for syndication? If you had to pick two or three things that like, yep, this is going to make a screaming deal. What are they?

Tyler:

The first thing I will say is I am no master of acquisition. That's not my role, but luckily I have partners on the ground that are, you know, educated and know the market much better than I do. But really what you're looking for is, as you mentioned, is undervalued property. And that in the multifamily space can be something that maybe it's mismanaged. Maybe they have a lack of capital to make any renovations. So, you know, the properties that we're acquiring generally are occupied pretty well in our market, which is Phoenix, but they're outdated. And because of that, rents are lower than what they could command. So that's one area where value add is really, you can take advantage of is just an old dilapidated property that maybe mismanaged, maybe you're not even collecting rent properly. There's just so many different areas in where you can find that value add. So to answer your question, I mean, what we're looking for is a specific type of asset that is in need of a cash infusion because the amenities are not the greatest and can definitely attract a better tenant with a higher rent.

Now we're also kind of in areas and neighborhoods where there's actually a lot of class A stuff going up. And so we're, we're buying things that we think we can reposition to be just under class A, to kind of create a little bit of a subclass. So similar amenities, you know, the grant granite countertops, the under Mount sinks, new cabinets, washer, dryer in unit, the dog park, that, all that stuff, right. So we're building a property that's right under class a but more affordable. So we're kind of creating that subclass and that's, I think another way that we're protecting ourselves and being able to draw in that tenant and be able to bring in that rent that we've backed. So yeah. Undervalued property and then creating that subclass is what we do.

Michael:

Love it. I do the exact same thing, just on a much smaller scale. That's great.

Tyler:

Yeah.

Emil:

So you've been on both sides, you acquire properties yourself, you've been part of syndications. Do you have a preference of which one you like, or do you kind of mix and match in both in you kind of see that happening in the future?

Tyler:

Yeah. I see myself mixing and matching. Like I mentioned, I have kind of two prong attack of the cashflow, the immediate cashflow in the Midwest right now. And that portfolio is small and I still have some time to keep building that thing up. I, you know, I still am attracted to the immediate cash flow of those properties in the Midwest because the bigger deals are great, but they're a little bit more of a longterm play for me. If anyone is familiar with how this structure works, you know, you, as an LP, you get paid out quarterly as a GP. You know, the big pallet kind of comes at the end when you exit. So that side of my portfolio is more of a longterm play. And when I say longterm, we're talking five to seven years, which really isn't super long term. But I think having a combination of both is really a nice way to diversify having that cashflow from the Midwest or wherever your market is in individual properties that I own personally mixed with the passive income on a syndication and then a big pile. Hopefully once those properties are sold and you exit. So I think ideally I continue to keep attacking those two prongs, keep building those portfolios side-by-side and parallel.

Michael:

So Tyler, something we talk a lot about in the restock Academy is about risk adjusted returns and that, you know, in the more risky areas we should anticipate and expect and really demand a higher return and the less risky areas say for investment, we could expect a lower return where you willing to give up a little on the cashflow or on the return side of things, making that transition over to a better neighborhood or a more expensive neighborhood.

Tyler:

A hundred percent. Yeah. I don't think I had the specific data on what that would actually look like.

Michael:

Sure.

Tyler:

But to me, even just from an emotional standpoint, I was like, I'd rather have an investment in a neighborhood with better schools, less crime, you know, community amenities, a grocery store. Like I felt that I was a hundred percent willing to take less cash flow for a better neighborhood, but also on the flip side, generally in a better neighborhood, you might have better appreciation as well.  So it's almost like right to me. Yes. I wanted to get out of that CD class neighborhood, get into that B class, we'll call it on my personal portfolio. I'm already seeing a much better appreciation numbers on that side of things. And it just, there's a lot more comfort in, in, in knowing that you have a property in a, that's not in a war zone, it's not crime ridden. You know, it, it's a good suburban neighborhood with consistent cashflow and, and most importantly, a tenant that's going to pay on time. That to me was a lot more important than the amazing numbers on paper in that war zone. That would cause me more headaches.

Michael:

Yeah. You bring up such a great point that, you know, on paper and mathematically and physically, sometimes those properties in the war zone pencil out really well and might even perform really well. But there's the mental health side of this business too. And, and I think that's so important so often gets overlooked of, yeah, I can make a killing over here, but I'm gonna make myself crazy and not sleep at night. And so we often say that there shouldn't be emotion when it comes to investing, but there is sometimes is. And that, you know, based on how it makes us how the investment makes us feel from an owner and operational standpoint, I think does need to get factored into the calculation

Tyler:

A hundred percent. Yeah. I'm all on board with buying, you know, it's not the A-class stuff that, not the D class stuff somewhere in that middle, you know, BC area. That to me is the most safe investment, at least in my opinion.

Emil:

Right. You see a lot of people, you know, they'll, they'll flash the similar situation, right. 35, 40 K home it's renting for basically the 2% rule. Right. So it will be running for seven to 800 and it's just like, it looks so good on paper, but there's all these other risk factors that you have to adjust for. And you have to have the appetite for like, dealing with messes more often than something in a better class neighborhood. So always important to consider that

Tyler:

Nice little segue to there on like just evaluating cap rates too. Like people will flash, Oh, I got, I got a 12 cap, right? It's like that's numbers. But like, if you look at it from a perspective of risk versus reward, that's probably going to be a more risky investment than a six or seven cap, you know? So it's been interesting to kind of learn that through the years to that high return on paper, doesn't always mean a high return in real life.

Michael:

Well, and also what's your time worth. If you've got to go spend 20 hours a week dealing with a 12 cap property, or you can spend two hours a month dealing with a six or seven cat property, you have the opportunity now to go buy more, you know, go buy two or three of those six caps and make us the same or even better returns. Yeah, absolutely. I think that's such a valid point.

Emil:

So we've been ending a lot of these episodes. We used to quick fire questions. We've been transitioning into…

Tyler:

Slow fire?

Emil:

Think about this for five minutes before you answer. No, it was just a random question that we just kind of riff on.

Tyler:

I'm all about that, man.

Emil:

I know you travel a bunch. Where's the first place you're going to travel to once all the restrictions are done and like, we can start moving around again.

Tyler:

I actually had a flight booked to Paris that I got super cheap and my buddy and I were going to go out there and explore the Dolomites in Northern Italy that is still in the back of our heads. And if, and when travel restrictions kind of open up, I think that's where we might go as the Dolomites in Northern Italy.

Michael:

I was just there in January Tyler. And it's unbelievable.

Tyler:

Yeah.

Michael:

Unbelievable. You can go in the winter. I don't know if you're planning on going in winter or summer, but the ski, like the snow sports, they're the snowboarding skiing, snowshoeing is unbelievable.

Tyler:

The plan was to go this summer actually, but just seeing photos of it is like, we were inspired to just find a way to get there. So that would be the first destination.

Emil:

I'm looking at pictures now. Cause I had never even heard of it. And it is…

Tyler:

I hadn’t heard of it till recently as well, but yeah, the Dolomites.

Michael:

They get, I think the most sun out of anywhere in Europe, in winter, they have the most like sunny Bluebird days and yeah, just don't have enough good things to say about it. Emil, where are you going to go?

Emil:

Well, now that I have a kid makes traveling, you have to think a little bit more. You're like, Hmm, where can we go? That's kid friendly and things like that. Probably a surf trip. I'm thinking Costa Rica, Costa Rica is like one of the more family friendly areas that has really good surf. That's not too far from Southern California. So probably Costa Rica, friends. And I have been talking about doing a trip down there for a while.

Michael:

Right on.

Pierre:

Michael can we get your synopsis of Costa Rica since you live there as well too?

Tyler:

We now have a travel podcast guys!

Emil:

Hey this is The Remote Real Estate Investor.

Michael:

Bait and switch everybody. Yeah that Costa Rica is awesome, man. It's a super, like you said, I know it's a super easy, but you've been there before, right?

Emil:

Yeah, I went there like seven years ago with a buddy. Yeah. Different type of trip.

Michael:

The surf is so killer. Yeah. You were also Nicaragua. We talked about that to you, right?

Emil:

Yup. Nicaragua's surf is amazing.

Tyler:

You've also mentioned Bali to me, Emil as well.

Emil:

I sound really cool right now. Cause have you guys been there. I’ve been there, but yeah, Bali, I need to go back to Bali. It is like surf paradise and there's so many good waves and I will probably watch a video on YouTube three times a week of incredible waves there. And I'm just like drooling. But anyway…

Michael:

Drooling at waves.

Emil:

That's right. That's right. What about you, Michael? Where are you headed?

Michael:

I think I have to go back to Portugal. I'm purchasing some investment property out there and sort of do some paperwork type stuff we need to get back out there.

Emil:

No big deal. Just buying a property in another country.

Tyler:

Are you going the Airbnb route on that.

Michael:

Yeah. So it's the Airbnb it's like professionally managed, but actually we're applying for what's called the golden visa so we can get our permanent residency status and ultimately citizenship out there as well to be able to live and work and travel in the EU without needing…

Tyler:

Awesome stuff.

Michael:

Yeah. So we're pretty pumped on that.

Tyler:

My buddies living in Portugal right now and he's just been working abroad for the last year. He did, he actually did Costa Rica for a while and then just flew to Portugal. And he's, he's actually writing a book right now about working from, uh, working abroad.

Michael:

That's awesome.

Tyler:

I'll connect you guys with him.

Michael:

That would be great. That's something that I did last year too, is a lot of fun. I've actually been to Costa Rica, Latin American then all over Europe. Portugal also has amazing surf, has amazing, awesome waves. Pierre, where are you headed, man?

Pierre:

I was thinking to go to Mexico, but I'm out of maple syrup. So I might have to go up to Canada.

Michael:

Get up to Canada.

Pierre:

Yeah.

Emil:

Can't live without that maple syrup.

Pierre:

No man.

Michael:

It's a lifeblood.

Pierre:

It really is.

Tyler:

I mean, you even have a piece of bark on your wall back there, it's like yeah.

Emil:

It's probably a good spot for us to end this one. Tell her before we let you go. Where is a good place that people can get in touch with you? Maybe ask you some questions.

Tyler:

My website is jump in real estate.com. You can find my contact info. They're always happy to hop on a phone call or even just exchange emails with anyone really, really enjoy chatting with people like yourselves. And I'm sure your listeners as well. So I just love talking to real estate.

Michael:

Awesome. And Tyler if someone wanted to be an LP and one of your syndications is your website the best place for them to get in touch with you regarding that type of stuff as well?

Tyler:

Yeah, I would say that's probably the main route I'd want people to kind of route to me is the website. So jumpinrealestate.com. There's an ask Tyler tab. You can just find my contact info there and, or follow me on Twitter at jumpinRE very active on that, which I talked to Emil and Michael pretty much daily on.

Emil:

Yes, follow Tyler on Twitter. Very good follow. Awesome man. Thanks again so much. Really appreciate you coming on.

Tyler:

Thanks.

Michael:

This was so awesome.

Tyler:

Definitely. Thank you both.

Emil:

All right, so that's our episode. Thanks again, everyone for tuning in. Before you go and make sure you subscribe to the podcast, you get an update every time we release a new episode and let us know what you think of the show. We're always looking for feedback, leave us a review. Let us know you think what you want to see more of maybe what you want to see less of and we'll catch you in next week's episode. Happy investing!

In this episode, Emil and Michael chat with Tyler Jahnke about how he persevered through a nightmare of a first deal to being a part of 100s of unit of real estate.  

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Transcript

Emil:

Hey everyone. Welcome back to another episode of The Remote Real Estate Investor. My name is Emil Shour, and today I'm joined by my cohost,

Michael:

Michael Albaum.

Emil:

And we are interviewing Tyler Jahnke. Tyler has become a good friend of ours and is also one of the writers on the Roofstock blog. So you may be familiar with him on some of the content he's written there. And this was a really fun episode. We got to talk to Tyler about the story of his first rental property. He lives up in the Bay area and he talks about investing in the Midwest and some of the painful lessons he learned along the way of buying that first property and how he's grown to be a partner and owner of over a hundred units through syndication deals. All right, without further ado, let's hop into this episode.

Theme Song

Emil:

Tyler. Welcome to the show, man. We're excited to have you.

Tyler:

Thanks very much. I appreciate you reaching out and getting my attention and allowing me to hop on today and talk with you and Michael.

Michael:

This is going to very much feel like every day on Twitter when we're always chatting about real estate investing stuff. Anyway, it's just on an audio format.

Tyler:

A quick little plug for Twitter there, I guess, right? Like most of us I think, met on Twitter and that's been a great platform for both of us or all of us and engaging in and connecting with people so happy. We met there and happy to talk real estate as much as we want.

Emil:

Yeah, it's funny. I've been on Twitter for years and I never realized there was this real estate investing and money, Twitter corner of Twitter. Like I always just used it for marketing and other stuff. And I was so stoked when I found this little community that's super engaged and loves talking and sharing best practices. So it's been fun, man.

Michael:

It's funny. This is my first live Twitter interaction coming off Twitter. And I'm so glad to see Tyler and I were chatting before we started recording it. And his personality on Twitter matches his personality in real life, which is always great because sometimes you meet folks. It's like, wow, you're really well written. And I can't stand you as a person, not the case at all here, which is always nice.

Tyler:

I'll be honest. I was a little worried thinking it just through like seeing you in person, it's like, how is he going to think I come across in reality versus someone who's behind a keyboard or a, you know, a mobile device typing 280 characters. I'm sure there's plenty of people out there that are completely different. And I was like, hopefully I come across similar, online as I do in person.

Michael:

I think by the same thing, I don't want to catfish anybody.

Tyler:

Yeah. Now I will mention the first thing I noticed about you and Michael was the longer hair. I'll say that.

Michael:

For anyone who hasn't seen, the reason they have leveled, they let myself go with the head hair and facial hair department. I'm going out the quarantine cut on, call it.

Emil:

Cool. So Tyler, before we hop into the good stuff what's going on in your world, what's new.

Tyler:

Oh, that's I mean, that's a big question. So first things first I work full time still. I am not a full time real estate investor. That's something that I think some people maybe assume that I am. So I do work full time in a sales and business role out here in the Bay area, born and raised in Berkeley, California. My office is in as in San Francisco, clearly we're all working from home right now, but so, you know, a lot of my day is still consumed by that full time job. But my nights weekends are still very much real estate or whether that's analyzing deals, talking to partners, talking to investors and networking, engaging, and then doing a lot of content build out on my platform and then just, you know, talking real estate as much as I can on my nights and weekends. So that's kind of what my day looks like right now. It's, it's becoming somewhat repetitive, but I have enjoyed it. And I do try and get out on weekends and hike and see the outdoors a little bit.

Emil:

Now that you've mentioned that you live in the Bay, my follow up question is how did you get into real estate investing? And why did you choose remote real estate investing? I think part of the, you answered with you live in the Bay area, but give us the back story.

Tyler:

Yeah, I guess I'll tackle the question of how I got in first and then we'll go to why out of state. But so I started investing in 2016, so about three and a half years ago now I was working a good job that I enjoyed in an industry that I also enjoy and still enjoy. But I did see myself, you know, kind of the future Tyler down the line, probably having to work another 40 years and reaching that age of 65 and then maybe retiring. So I think in my late twenties, a little bit of self reflection and trying to figure out what I wanted to accomplish in life. And a lot of that had to do with time freedom, which I think a number of your listeners are probably also conscious of right now, if they're thinking about real estate. And so I had to try and figure out ways to bring an income outside of my W2 job and just try and accelerate my growth on the financial side.

So through business podcasts, through investing podcasts came along this topic and strategy of real estate, which is abundant and everywhere, but no one really thinks about it. I mean, when I say no one, the majority may not really think of it as an investing opportunity. And so, you know, I saw it as somewhat of a logical step and I guess, strategy just by the fact that you could bring in monthly recurring income through tenants, paying off your mortgage and insurance and taxes, and maybe even letting you cashflow a little bit. And then to answer your question on why out of state for me at the time, it was pretty obvious. I couldn't afford anything in the Bay area. And I also wanted that cashflow and it's very hard to cashflow property in Oakland when you're going to pay $750,000 for it. It's quite impossible. Now I'm not saying it's impossible, but there's definitely challenges there.

So, you know, jumping into, out of state investing made sense for me, it was definitely a little scary because you emotionally get attached to these investments. I think as a newbie and you're like, I want to see it in person. I want to touch the front door, but at the end of the day, it's not necessary. If you have the right team on the ground to help you out and really guide you along the way. And so long story short, why out of state, it was affordability and the cashflow potential.

Michael:

So I want to know Tyler, how did you make that leap? Really, a lot of people call it a leap of faith jumping into this out-of-state market. Having never been there, maybe having never met your team on the ground, walk us through the mindset and the decision making that you went through to end up where you did.

Tyler:

That's the important part is to make the actual leap. And I think I will admit early on, I was rather naive and I didn't have everything buttoned up from an education standpoint. I didn't really know how to properly run the numbers that actually worked for me. I'm not saying, you know, leap in uneducated. I think again, that helped me initially because I was naive in the challenges and maybe dangers of investing at a state. But now thinking back, you know, over the years, my advice to others that are in a position of, okay, I want to do this, but how do I take the next step? I think it can actually be seen as a quite simple process. If you are educated in a market that you want to invest in, if you know how to analyze property, and if you have, you know, the longterm vision of what real estate can do for you, I think that's enough confidence to make the next step.

If you know the market you want to invest in, you know how to analyze property, you have the vision, like it's just going to be a mental at that point. So I don't have the exact advice for people on how to make the next step, because it's completely mental. Once you get those three things down, a market analysis and a vision, once you have that, it's all mental. So it's just going to come down to the individual and some people do it. Some people don't and that's fine. It's just mindset and personality.

Michael:

How did you find your first market? What did that look like?

Tyler:

My very first property that I bought in closed in December of 2016, I went the turnkey route and I felt that the fact that I had a full time job and working 40 plus hours a week, I felt that the turnkey route would be the best option for me to at least dip my toe into real estate. I will say the turnkey route is not always the best method. If you don't understand the partners on the ground properly, like I found out later. So I went to Turkey about found the market in the Indianapolis area. So the Midwest, which had high cashflow potential good acquisition to price ratio and had some of the metrics of a cashflow market, like population growth, job growth with higher wages, diverse economy. This could be a whole separate topic. So I apologize if I'm jumping too far ahead on what to look for in a market.

Michael:

This is great.

Tyler:

But I'll say that I hooked up with a drinky company out in the Midwest thought I vetted them properly, picked up a property for $37,000 cash back in the day, which is like the cost of a somewhat nice car. But it actually, instead of depreciated quickly, it's actually an asset that would produce income. So yeah, first property turnkey out in Indianapolis.

Emil:

I read your blog a bunch and I know you've talked about the experience of this first property and it's such a good one. And I'd love for you to share the story of, okay, you bought this property 37 [inaudible] on paper. It looks like it's going to cashflow nicely. I'll let you take the floor. Tell us about the story.

Tyler:

Yeah, yeah, yeah. So this is the best and worst investment of my life. So best in a sense that it got me in the game, right? I'll keep preaching this, like getting the game, getting the game, getting the game, whether that's a good or bad investment on paper, it's kind of a start that snowball. So yeah, $37,000 cash worked with a turnkey company that I barely vetted. I hopped on the phone a couple of times they started sending me leads via email routinely.

Michael:

Did you chat with any other turnkey companies or this was the one?

Tyler:

You know, me, you know, I didn't talk to anyone else. So it was all, I put all my eggs in one basket and that's kind of also my personality too. I'm pretty quick to trust and that's a double edged sword, as we all know, I'm usually pretty optimistic and very trusting. So that's good and bad, good and bad. So anyways, I talked to this company, you know, I started getting leads. I started evaluating the properties and my simplistic formula of figuring out how to actually calculate cash flow back in the day. I remember, you know, the estimated rents at seven 50 a month for a property that costs $37,000 napkin math on that was basically okay. Let's give the property manager 10% and let's account for property taxes and insurance. But you know, in my eyes, seven 50 a month, taking away all those expenses, I could probably cash flow 300, three 25 a month. We'll call it, which I wouldn't even touch anyways. My plan wasn't to actually spend that cashflow. So I was like, okay, if I could get a few of these properties in the next five years, you know, now we're talking substantial numbers on the cashflow side.

So I acquired this property and then that's when I decided to fly out. So after I actually close on this property in December of 2016, I decided to fly out to Indianapolis in March of 17. I initially wasn't even going to do that, but my parents were like, Tyler, I think you might want to like meet the people you're working with and just see if that property exists. I was actually kind of reluctant, but now I kind of make it a routine to check on my markets annually. We'll call it pre COVID. So we closed on that property. It takes about two or three months to actually renovate. And it wasn't really a big rehab job. They refinished like the hardwood floors. They replaced a window. They did a little bit of painting.

Emil:

The turn-key company is doing that for you?

Tyler:

Correct, yes. So the turnkey company, I guess the term turn-key by definition means it should be easy. There are some good Turkey companies out there and there's bad ones. My advice is just to vet them properly, if you go that route. So it took a few months to really quote unquote renovate it. And there were some red flags that popped up initially. And those were some things that I've, you know, looking back I've learned from if red flags are popping up, that you're not happy with in terms of maybe lack of communication or miss deadlines and timelines, I kind of became ignorant or I guess I ignored them because I really wanted to just close on this property and become a real estate investor. And so I think emotion took over and in some points where I was like, you know, realistically, I should have questioned these red flags up front, but I didn't. Cause I was like, real estate is a thing I'm going to acquire 10 properties and become financially free.

So I was too focused on that end goal. Finally got that thing rented. We did have a tenant in there for about 11 months. They paid on time every month, seven 50 a month. I took out, you know, 10% for property management. I made sure I had some reserves for property taxes, insurance. And then I just kind of pocketed that cashflow fast forward to the, you know, as I mentioned that cashflow for 11 months, we'll fast forward to that 12th month. My buddy who's actually in the real estate space as well in the Indianapolis market. He randomly drove by my property just to check up on it. And it was like Tyler, there's a lockbox on the front door. And I'm like, what do you mean? There's a lock box in the front door? Like what, first of all, I was shocked and I trusted him, but I didn't know what that actually meant.

So that caused some alarms in my brain, I guess you could say. It was like at that moment I was like, is this real estate thing gonna actually work? Because that was my first real, real big hurdle. And I guess I had to think through from a business standpoint, what would the next step be? So I didn't mention anything to my turnkey provider. I actually kept that quiet to start with. I wanted to get some verification from others. So I then began the process of actually building another team on the ground out there, aside from the turnkey company I worked with. And that was kind of again, why I go back to like this being my best and worst investment. It forced me to overcome these challenges and build a new team on the ground.

Michael:

So Tyler was this turnkey provider also managing the property for you?

Tyler:

Yep. They did everything. They sourced the deal. They walked me through the closing process, set me up with insurance and insurance agent. They renovated it. They managed it from a property management standpoint.

Michael:

One stop shop.

Tyler:

A one stop shop, everything you could have in one box there. Okay. So anyways, I called a couple of property management companies had them drive out there, pay them a little bit money to help me out and just verify that it was in fact clearly that the lock box on the front door meant it was vacant. I don't know the whole story. Apparently the tenant had left without telling anyone and the property was vacant and I was never notified. And that was the last straw. So I fired the turnkey company, had another property manager, take it over. I know this story is kind of going on, on and on and on.

Michael:

This is all great stuff.

Tyler:

We're getting towards the end of that first property. So after having a new company take over management, after vetting a number of them, I really had to make sure that this next hire of a property management company would be right. So I was on the phone, every lunch at work and at night, just talking to people to try and figure out who the best property managers in Indianapolis were finally selected someone. They went out there, cleaned it up, took over management and they crafted a scope of work on what would be needed to get this thing rent ready. Cause my thought was okay, small little blip in the radar. Let's just get this thing cleaned up, get this thing rented again, get it back on the market and get a tenant in there and then start cash flowing again. And then I'll live my happy life.

So they go in there, they craft the scope of work. First of all, I'll say the scope of work was probably a little more than I needed, but it was still a bill for $16,000. And I'm like, uh, wait, what? So, uh, so the property cost 37,000 up front. I need to put another 16 K into this thing to get this thing a rent ready. And I was like, there's no way I'm going to do that. Now along those, you know, the first 12 months of me owning that property too, I think I became a little bit more savvy. I actually, I learned a lot more after I had closed on real estate than I had. And so that's when I started really focusing more on the impact of location and obviously like the partners you work with. So my strategy in owning that first property had actually changed within those 12 months.

And I decided that buying in better neighborhoods with a little bit less risk and a different tenant profile would be the strategy I wanted to take. So ultimately I ended up selling that property. I did not put the 16 K into it. I did not think that that property would have a good longterm outlook. And I started buying in better neighborhoods. So long story short bought the property for 37,000, sold it for 41 a year later, took a year of cashflow minus closing expenses or closing costs. I probably netted, I think it was like 2% in a year. So I honestly call that a really big win on my part. I was like, if I could just break even on that first property, I think there's just so much knowledge and education and experience you get from that first property.

Emil:

So why did you decide to keep going? This is, I feel like I've heard so many stories where people, something like this happens and they give up and they're like, ah, this real estate investing thing isn't for me or someone who's new has zero properties is hearing this and is like, I don't ever want to deal with this. Yeah. Why did you keep going?

Tyler:

I'll give you a couple answers. Some you may want to hear some of you may not. The first answer you may not want to hear is I already had a second property under contract. So by default I had to keep going.

Michael:

That's great.

Tyler:

But so I was actually really confident after that first property, given all those circumstances and those challenges, I was like, I know what I did wrong. Like I bought in a bad neighborhood. I hired the wrong people. I just followed, you know, my napkin math. And I touched on this earlier. Like I became better at analyzing properties. So the deals would be better. And then again, like just buying in a better neighborhood with a different tenant class profile, that to me was important. I wanted someone who could afford rent and not be challenged by if their car broke down, that they have to decide between the car repair or rent.

I wanted, I guess, a little bit more security. So that's why I started buying in better neighborhoods. But I felt like, you know, after that first property round to the second property, I had learned so much in that first one, I could do it better and I could just get better every time. And so that was, it actually built confidence. And so, yeah, I went through some short term struggles and I think a lot of people will go through that short term struggle period. But if you really think that real estate is something that's going to be part of your life for 40 years, and it's a longterm strategy that one year of education and challenges will just amplify our growth, you know, as you move forward,

Emil:

I love that.

Michael:

Such a good story Tyler. I've got a couple of questions for you. And then 11 month period, when you were collecting rent and cashflow, did you think that you were a fricking genius that you had just got a dialed?

Tyler:

Yeah.

Michael:

Me too.

Tyler:

Oh, I was smiling. Every check that came in, the first check that came in, I was traveling with my buddies in Vietnam and I remember waking up one morning and I'm on vacation. Right. I'm on vacation Vietnam. And I got a paycheck. I got a check that came in at like one in the morning and I was like, this is unbelievable. I need to keep buying these as soon as just rapidly. And so, yeah. And it's funny because I started off my journey in the content space by just posting on bigger pockets and I kind of posted my life experience and I love going back online and be like, Hey guys, just want to give you an update. I got my payment, my check came in and I'm good. So yeah, it was definitely all smiles for a solid 11 months until, you know.

Michael:

Until it wasn't until it wasn't.

Tyler:

And so that's what got me back to reality.

Michael: The learning process that you're talking about and the education process that you're talking about, it seems like that'll happen in month 12. Like that was a massive ramp up for you because for 11 months things were good. So you thought you had done everything right?

Tyler:

My education prior to closing was not the greatest, but I really started ramping up the education process after I started closing. So that was, I got addicted to podcasts. I got addicted to bigger pockets. I got addicted to just consuming, consuming, consuming content in the real estate space. And that's why I had my second property already under contract. By the time, you know, all these challenges popped up. So I guess I would say I really started continuing that education process, you know, after I closed and I still do today, even though, you know, I've kind of grown in, in the investing space, but it's podcasts, it's books, it's websites, and it's talking to people like you guys.

Michael:

I think that's such a big takeaway for everybody listening is, Hey, after you've accomplished the goal of purchasing that property, whether it's your first fifth, 10th, or whatever, don't stop being educated. Don't stop getting educated because I think too many folks sit on their laurels and think, well, great. I did it. I know how to do it now. Yeah. Well you did that deal. Maybe the next one's going to be slightly different. And so there are things you can learn in the interim that are gonna help make that next subsequent deal even better for you. So I love that.

Emil:

I feel dumber now than when I first started. When I first started six months in same thing, I'm laughing, I'm getting checks. I'll just do this 10 times and I'm going to be rolling in dough. And then like reality hits and you learn more and then you're like, wow, I know nothing. The more you learn…

Michael:

I think it’s because we all started so similarly right? Buy one single family house, your purview is no one can see my hands, but they're very narrow right there. It's a very small scope. And then as we grow and expand and learn and educate ourselves, we realize there's this entire investing world out there that is comprised of so many different things. And we know so little about it. So I think that's a great point. And the old that just further goes to illustrate don't stop getting educated. Can't stop. Won't stop. Right.

Emil:

Rockefeller records.

Michael:

That's right. That's right. So I'm curious now, Tyler, you, you did that deal a couple of years ago, you know, what are you doing today? Where did you go from there?

Tyler:

Yeah. So it's been a journey and I don't want to come across as any type of expert. I'll say that, you know, looking back at my timeline, I've been investing for three and a half years now. So started in my late twenties now in my early thirties, I think there's still a long, long, long ways to go. But I will say within that timeline of three and a half years, my strategies have definitely changed. And so, you know, after that first I learned about, you know, the importance of location and really building that team on the ground. So I bought a second property and other single family house I'm in a better neighborhood with a better team.

I then kind of tiptoed into we'll call it the journey of scaling, scaling up. And so I bought a duplex that was like huge for me. So I went from like a couple single families to a duplex that was me scaling up. I think from my standpoint, my strategy now has changed because like you mentioned earlier, Michael, the education process, there's some things I do now in the real estate space that I was not even aware of, you know, a few years ago. And so I tiptoed around and investing passively in larger multifamily complexes. That's how I started off in the multifamily space was literally, you know, I come in as almost like a silent partner, we'll call it limited partner, they'd say invest in my cash in these larger deals for some equity. And then through that process, learn more about the larger multifamily value of ad space.

And that's where I am now focusing on the value add, but multifamily space, the GP role in these larger apartment complexes. But my portfolio is kind of two prominent we'll call it. We had the cash flowing properties in the Midwest and then the work that my partners and I do in Phoenix on the value of ad side. And like I said, in three and a half years, I've learned so much. And like you said, a meal too, like it's such a massive world out there in real estate. There's so many different techniques and strategies that you can go down into some rabbit holes, but yeah, it's a combination of cash line properties and Midwest plus some value add deals with partners in the, in the, in the Southwest region.

Michael:

For those of our listeners who don't know what is that LP GP thing called and what are those roles?

Tyler:

The term is syndication, which has good and bad, I think connotations or I guess definitions, but it's really just, it's a partnership between two groups. The general partnership group is generally a group of individuals that are tasked with acquisition of a property lending up financing, building out the business plan, building up the strategy, managing the actual renovation and reposition, and then really making all the decisions on whether to refinance or exit or whatnot. The LP limited partner side is a bunch of investors that come into these deals with some capital and with the intention of really not being involved in the day to day, it's a passive investment. It's like any business that needs, that requires funding and you have the team that's managing everything and then the, like I keep saying this, the silent partners that come in with capital to help fund the project, that's the basic structure of what a syndication is, but it's almost like any type of startup even, or any type of business that needs capital to close. And then you execute a business plan and hopefully pay off, you know, yourself as well as your investors primarily

Emil:

I know you're a part of a couple of different indications, your general partner in some where you're more active and your limited partner in some others. Right?

Tyler:

Correct.

Emil:

How did you decide to get into that? And which one did you start out with? I'm curious.

Tyler:

I started out on the LP side after I bought my first two houses and then the duplex, I wanted to experience life, not as a landlord to put it bluntly. There's always going to be some stresses as being a landlord. You know, you're going to have the email from your property manager saying a pipe has burst and we need some money or there's a hole in the roof and we need some money. That's just part of being a landlord. And so I was like, well, you know, at that point in my life too, I was really trying to value my time to one of the biggest things I try and follow right now is kind of, there's a quote out there that says, like start with the end in mind. And I envisioned my life, you know, 40 years down the line where I am selfishly bringing in income without really much active work.

That's kind of what my ideal life looks like right now from a freedom standpoint. And so I was like, let's just try out what this passive investing really is. And I know passive is always going to be a loose term, but I felt that if I could hop into a deal passively and try and learn the business plan and a strategy of what value add is, and then tap into the power of multifamily, which is extremely powerful. We're pretty much doing what people call. Like, I call it the big BRRRR. We're finding a undervalued property, repositioning it through innovation and then bumping rents up that leads to additional cashflow plus increasing the value of the property. So I liked that strategy. So I wanted to kind of hop in there, learn from those people passively and then eventually get into those deals more on the active side events.

Michael:

So in syndications, I've only done them locally, kind of with friends and family, never on a big scale, but when you were an LP on your first deal, and you mentioned several times that you learned from the GPS, were they happy to answer your questions as an LP? I mean, how did you go about learning this business as a quote unquote silent partner.

Tyler:

It's not like a relationship where you automatically become, you know, the mentee and they take you under your wing. Really what I was just trying to figure out was to slowly get into the game. And that was to begin to just review what a, an offering memorandum looks like, what do these business strategies look like? What do the cost of renovation look like? What are the loan terms like? That was the very first step for me. And as an LP, you get to do that because you're reviewing all of the terms and strategies.

So that was a very, very, very first step of me in education. Now, to your point, Michael, there's no way that these GPS are like, yeah, I'll take, I mean, maybe there's some out there, but I wasn't gonna email them and call in and be like, Hey, can you just tell me exactly what to do and how to do it? They're not going to say yes to that. They have much more important things to do. So really it was just being exposed to the industry and the business plans. That was the very first step. Luckily, you know, after that, the second deal. So the first deal I did was in Louisville as an LP, second deal was in Phoenix, which is now with partners that I work with. So through networking, through connections, through some mutual friends, I was able to kind of position myself in a way where yes, I was an LP, but the GPs actually knew who I was.

And so that led to further opportunity down the line. I'm really just through connection and through building relationships. But yeah. So I think to answer your question, Michael, how do you learn as an LP? There's some you can pick up just by being exposed to the industry, but again, you're not going to have someone take you under your wing most likely

Michael:

And hold your hand and say, this is..

Tyler:

Exactly.

Michael:

Okay. Yeah. Cool. Man, So, you know, I am also a multifamily value add guy. I've always done things on my own for the most part. What is it that you look for in these undervalued deals that are right for syndication? If you had to pick two or three things that like, yep, this is going to make a screaming deal. What are they?

Tyler:

The first thing I will say is I am no master of acquisition. That's not my role, but luckily I have partners on the ground that are, you know, educated and know the market much better than I do. But really what you're looking for is, as you mentioned, is undervalued property. And that in the multifamily space can be something that maybe it's mismanaged. Maybe they have a lack of capital to make any renovations. So, you know, the properties that we're acquiring generally are occupied pretty well in our market, which is Phoenix, but they're outdated. And because of that, rents are lower than what they could command. So that's one area where value add is really, you can take advantage of is just an old dilapidated property that maybe mismanaged, maybe you're not even collecting rent properly. There's just so many different areas in where you can find that value add. So to answer your question, I mean, what we're looking for is a specific type of asset that is in need of a cash infusion because the amenities are not the greatest and can definitely attract a better tenant with a higher rent.

Now we're also kind of in areas and neighborhoods where there's actually a lot of class A stuff going up. And so we're, we're buying things that we think we can reposition to be just under class A, to kind of create a little bit of a subclass. So similar amenities, you know, the grant granite countertops, the under Mount sinks, new cabinets, washer, dryer in unit, the dog park, that, all that stuff, right. So we're building a property that's right under class a but more affordable. So we're kind of creating that subclass and that's, I think another way that we're protecting ourselves and being able to draw in that tenant and be able to bring in that rent that we've backed. So yeah. Undervalued property and then creating that subclass is what we do.

Michael:

Love it. I do the exact same thing, just on a much smaller scale. That's great.

Tyler:

Yeah.

Emil:

So you've been on both sides, you acquire properties yourself, you've been part of syndications. Do you have a preference of which one you like, or do you kind of mix and match in both in you kind of see that happening in the future?

Tyler:

Yeah. I see myself mixing and matching. Like I mentioned, I have kind of two prong attack of the cashflow, the immediate cashflow in the Midwest right now. And that portfolio is small and I still have some time to keep building that thing up. I, you know, I still am attracted to the immediate cash flow of those properties in the Midwest because the bigger deals are great, but they're a little bit more of a longterm play for me. If anyone is familiar with how this structure works, you know, you, as an LP, you get paid out quarterly as a GP. You know, the big pallet kind of comes at the end when you exit. So that side of my portfolio is more of a longterm play. And when I say longterm, we're talking five to seven years, which really isn't super long term. But I think having a combination of both is really a nice way to diversify having that cashflow from the Midwest or wherever your market is in individual properties that I own personally mixed with the passive income on a syndication and then a big pile. Hopefully once those properties are sold and you exit. So I think ideally I continue to keep attacking those two prongs, keep building those portfolios side-by-side and parallel.

Michael:

So Tyler, something we talk a lot about in the restock Academy is about risk adjusted returns and that, you know, in the more risky areas we should anticipate and expect and really demand a higher return and the less risky areas say for investment, we could expect a lower return where you willing to give up a little on the cashflow or on the return side of things, making that transition over to a better neighborhood or a more expensive neighborhood.

Tyler:

A hundred percent. Yeah. I don't think I had the specific data on what that would actually look like.

Michael:

Sure.

Tyler:

But to me, even just from an emotional standpoint, I was like, I'd rather have an investment in a neighborhood with better schools, less crime, you know, community amenities, a grocery store. Like I felt that I was a hundred percent willing to take less cash flow for a better neighborhood, but also on the flip side, generally in a better neighborhood, you might have better appreciation as well.  So it's almost like right to me. Yes. I wanted to get out of that CD class neighborhood, get into that B class, we'll call it on my personal portfolio. I'm already seeing a much better appreciation numbers on that side of things. And it just, there's a lot more comfort in, in, in knowing that you have a property in a, that's not in a war zone, it's not crime ridden. You know, it, it's a good suburban neighborhood with consistent cashflow and, and most importantly, a tenant that's going to pay on time. That to me was a lot more important than the amazing numbers on paper in that war zone. That would cause me more headaches.

Michael:

Yeah. You bring up such a great point that, you know, on paper and mathematically and physically, sometimes those properties in the war zone pencil out really well and might even perform really well. But there's the mental health side of this business too. And, and I think that's so important so often gets overlooked of, yeah, I can make a killing over here, but I'm gonna make myself crazy and not sleep at night. And so we often say that there shouldn't be emotion when it comes to investing, but there is sometimes is. And that, you know, based on how it makes us how the investment makes us feel from an owner and operational standpoint, I think does need to get factored into the calculation

Tyler:

A hundred percent. Yeah. I'm all on board with buying, you know, it's not the A-class stuff that, not the D class stuff somewhere in that middle, you know, BC area. That to me is the most safe investment, at least in my opinion.

Emil:

Right. You see a lot of people, you know, they'll, they'll flash the similar situation, right. 35, 40 K home it's renting for basically the 2% rule. Right. So it will be running for seven to 800 and it's just like, it looks so good on paper, but there's all these other risk factors that you have to adjust for. And you have to have the appetite for like, dealing with messes more often than something in a better class neighborhood. So always important to consider that

Tyler:

Nice little segue to there on like just evaluating cap rates too. Like people will flash, Oh, I got, I got a 12 cap, right? It's like that's numbers. But like, if you look at it from a perspective of risk versus reward, that's probably going to be a more risky investment than a six or seven cap, you know? So it's been interesting to kind of learn that through the years to that high return on paper, doesn't always mean a high return in real life.

Michael:

Well, and also what's your time worth. If you've got to go spend 20 hours a week dealing with a 12 cap property, or you can spend two hours a month dealing with a six or seven cat property, you have the opportunity now to go buy more, you know, go buy two or three of those six caps and make us the same or even better returns. Yeah, absolutely. I think that's such a valid point.

Emil:

So we've been ending a lot of these episodes. We used to quick fire questions. We've been transitioning into…

Tyler:

Slow fire?

Emil:

Think about this for five minutes before you answer. No, it was just a random question that we just kind of riff on.

Tyler:

I'm all about that, man.

Emil:

I know you travel a bunch. Where's the first place you're going to travel to once all the restrictions are done and like, we can start moving around again.

Tyler:

I actually had a flight booked to Paris that I got super cheap and my buddy and I were going to go out there and explore the Dolomites in Northern Italy that is still in the back of our heads. And if, and when travel restrictions kind of open up, I think that's where we might go as the Dolomites in Northern Italy.

Michael:

I was just there in January Tyler. And it's unbelievable.

Tyler:

Yeah.

Michael:

Unbelievable. You can go in the winter. I don't know if you're planning on going in winter or summer, but the ski, like the snow sports, they're the snowboarding skiing, snowshoeing is unbelievable.

Tyler:

The plan was to go this summer actually, but just seeing photos of it is like, we were inspired to just find a way to get there. So that would be the first destination.

Emil:

I'm looking at pictures now. Cause I had never even heard of it. And it is…

Tyler:

I hadn’t heard of it till recently as well, but yeah, the Dolomites.

Michael:

They get, I think the most sun out of anywhere in Europe, in winter, they have the most like sunny Bluebird days and yeah, just don't have enough good things to say about it. Emil, where are you going to go?

Emil:

Well, now that I have a kid makes traveling, you have to think a little bit more. You're like, Hmm, where can we go? That's kid friendly and things like that. Probably a surf trip. I'm thinking Costa Rica, Costa Rica is like one of the more family friendly areas that has really good surf. That's not too far from Southern California. So probably Costa Rica, friends. And I have been talking about doing a trip down there for a while.

Michael:

Right on.

Pierre:

Michael can we get your synopsis of Costa Rica since you live there as well too?

Tyler:

We now have a travel podcast guys!

Emil:

Hey this is The Remote Real Estate Investor.

Michael:

Bait and switch everybody. Yeah that Costa Rica is awesome, man. It's a super, like you said, I know it's a super easy, but you've been there before, right?

Emil:

Yeah, I went there like seven years ago with a buddy. Yeah. Different type of trip.

Michael:

The surf is so killer. Yeah. You were also Nicaragua. We talked about that to you, right?

Emil:

Yup. Nicaragua's surf is amazing.

Tyler:

You've also mentioned Bali to me, Emil as well.

Emil:

I sound really cool right now. Cause have you guys been there. I’ve been there, but yeah, Bali, I need to go back to Bali. It is like surf paradise and there's so many good waves and I will probably watch a video on YouTube three times a week of incredible waves there. And I'm just like drooling. But anyway…

Michael:

Drooling at waves.

Emil:

That's right. That's right. What about you, Michael? Where are you headed?

Michael:

I think I have to go back to Portugal. I'm purchasing some investment property out there and sort of do some paperwork type stuff we need to get back out there.

Emil:

No big deal. Just buying a property in another country.

Tyler:

Are you going the Airbnb route on that.

Michael:

Yeah. So it's the Airbnb it's like professionally managed, but actually we're applying for what's called the golden visa so we can get our permanent residency status and ultimately citizenship out there as well to be able to live and work and travel in the EU without needing…

Tyler:

Awesome stuff.

Michael:

Yeah. So we're pretty pumped on that.

Tyler:

My buddies living in Portugal right now and he's just been working abroad for the last year. He did, he actually did Costa Rica for a while and then just flew to Portugal. And he's, he's actually writing a book right now about working from, uh, working abroad.

Michael:

That's awesome.

Tyler:

I'll connect you guys with him.

Michael:

That would be great. That's something that I did last year too, is a lot of fun. I've actually been to Costa Rica, Latin American then all over Europe. Portugal also has amazing surf, has amazing, awesome waves. Pierre, where are you headed, man?

Pierre:

I was thinking to go to Mexico, but I'm out of maple syrup. So I might have to go up to Canada.

Michael:

Get up to Canada.

Pierre:

Yeah.

Emil:

Can't live without that maple syrup.

Pierre:

No man.

Michael:

It's a lifeblood.

Pierre:

It really is.

Tyler:

I mean, you even have a piece of bark on your wall back there, it's like yeah.

Emil:

It's probably a good spot for us to end this one. Tell her before we let you go. Where is a good place that people can get in touch with you? Maybe ask you some questions.

Tyler:

My website is jump in real estate.com. You can find my contact info. They're always happy to hop on a phone call or even just exchange emails with anyone really, really enjoy chatting with people like yourselves. And I'm sure your listeners as well. So I just love talking to real estate.

Michael:

Awesome. And Tyler if someone wanted to be an LP and one of your syndications is your website the best place for them to get in touch with you regarding that type of stuff as well?

Tyler:

Yeah, I would say that's probably the main route I'd want people to kind of route to me is the website. So jumpinrealestate.com. There's an ask Tyler tab. You can just find my contact info there and, or follow me on Twitter at jumpinRE very active on that, which I talked to Emil and Michael pretty much daily on.

Emil:

Yes, follow Tyler on Twitter. Very good follow. Awesome man. Thanks again so much. Really appreciate you coming on.

Tyler:

Thanks.

Michael:

This was so awesome.

Tyler:

Definitely. Thank you both.

Emil:

All right, so that's our episode. Thanks again, everyone for tuning in. Before you go and make sure you subscribe to the podcast, you get an update every time we release a new episode and let us know what you think of the show. We're always looking for feedback, leave us a review. Let us know you think what you want to see more of maybe what you want to see less of and we'll catch you in next week's episode. Happy investing!

In this episode Emil and Michael answer listener submitted questions on various topics: inspections reports, portfolio diversification, evictions during the COVID moment, advice on approaching a BRRRR, what asset class to begin with and what to do with existing debt.

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Transcript

Emil:

Hey, everyone. Welcome back for another Episode of The Remote Real Estate Investor. My name is Emil Shour and today I am joined by,

Michael:

Michael Albaum.

Emil:

Tom is sitting this one out, so Michael and I will be running point on this episode, and this is going to be our third AMA or ask us anything. So we're going to take a couple questions that people have submitted. We've been receiving tons and tons of questions. So we're just going to keep answering them. All right, let's get to it.

Theme Song

Michael:

Is it a, AUA ask us anything or an AMA? Ask me…

Emil:

You know what? Just AMA, ask us anything. Ask me anything. Michael splits, hairs.

Pierre:

Ask Michael anything.

Emil:

Yeah, there you go, ask Michael anything.

Michael:

Alright, let's jump into it.

Emil:

Okay. So our first question comes from Alex and he left this voicemail. So let's listen to this one.

Alex:

Hey, what's up Michael and Emil, Thank you for taking my question. So my question is around inspections basically after you've gotten your inspection report back as a remote real estate investor, uh, want to understand how exactly you go about determining which items from the report you 100% needed to fix before the transaction goes through, versus which items from the report you could look at fixing over the next few years, once you've taken ownership of the property, versus which items in the inspection report you don't really need to pay attention to.

This is my question because of my experience reading an inspection report, even after running through it with my agent is like reading a foreign language. And I think being remote as a real estate investor only adds to that challenge since you weren't able to physically observe any of the items that are called out in the inspection report. So I want to get some color around how you guys assess that. Thank you so much.  

Emil:

Michael, do you want to take a stab first and we'll chime in afterwards?

Michael:

Yeah, sure. So I read an inspection report. Like I imagine a doctor would read a health report and kind of triage what's needs immediate attention versus what can be put on the back burner. And cost is definitely a factor in all of these things. And I loop in my property manager into the conversation because if there are things that need to be addressed immediately, your experience, you know, leaning on your experience is gonna be very helpful to determine, Hey, this sounds bad, or this looks bad versus, Hey, I know this is bad and I know this can lead to further issues down the road. So I would say electrical problems, roofing problems and plumbing problems just at a high level should probably get attention first and foremost.

Heating, you know, things I see called out pretty regularly, our old heating systems for old cooling systems. And that doesn't necessarily mean they're going to fail, but you might want to be thinking about setting some reserve funds aside to replacing those when needed. But if there's electrical things that you see an issue with, or the inspector sees an issue with, I mean, that's the kind of stuff that has potential to burn down houses. Plumbing has a potential to cause tons and tons and tons of water damage in properties and water damage is expensive to clean up. Everything else is, you know, needs to kind of be addressed as that on a, as needed basis with your local property manager. If there are things that are going to increase the rentability of the property or increase the market rent of that property might be worth doing and kind of double dipping, increasing the property value and rentability and addressing an issue that needs to be fixed anyhow. That was kind of a long winded answer of saying, you know, talk with your property manager, talk with other experienced investors, get their 2 cents on, Hey, is this really a red flag? Or are we just making mountains out of molehills?

Emil:

You know, I love your analogies by the way, mountains out of mole hills, a doctor in triage.

Michael:

Good, man, I'm glad you like it.

Emil:

I need to come up with a repertoire of analogies and whatnot.

Pierre:

You should start piggybacking off of him.

Emil:

I should right.

Michael:

What you don't know as I'm on Google right before every episode, Google like cool analogies and also funny jokes.

Emil:

Alright, secret, secret revealed. Now I know how to do it. I agree with a lot of what you said. I was taken down some notes while you were chatting. I think anything related with water plumbing, anything with like the shower? Right. So I bought a property and there was a couple of tiles loose. I wanted those immediately addressed because water can get in there and do some serious damage. Anything with like wood rot on the outside or would loose like siding or any, any of those things.

I want those taken care of again, because again, water gets in that's when the real damage occurs. I think like you said, asking your property manager, Hey, what do we think we can defer versus what should we address right now? One example of something that I've deferred a property, I bought actually ended up selling the siding on the home, which is like these panels that go on the outside of the house. Some of them were a little bit warped and it was recommended that I get those fixed. And you know, it's a little bit of, it's not an eyesore, but it, you can tell like it's warped, but it wasn't. There was nothing in like immediate need. Like there wasn't any gaps or anything where water could get in. And so…

Michael:

It just didn't look nice.

Emil:

Exactly. It just kind of looked a little off. So I was like, you know what? That seems like a nice to have. We're going to defer that for now. I actually ended up selling it in the same condition next owner decided to fix it, but they didn't have like a huge issue with it and it didn't really affect the sales price. So

Michael:

Did that issue show up on your exit inspection?

Emil:

It did. Yeah.

Michael:

Okay. The inspectors are consistent.

Emil:

Yeah, exactly. Sometimes you get two inspectors out there. One will miss something that the other one will point out. So there is like an element of the inspector.

Michael:

So hope that helps Alex. Our next question comes to us from Guesswork Investing from Twitter and Guesswork Investing would like to know what the real estate equity investments is. A percentage of total net worth are what total leverage we're taking and what size portfolio do you need before you can get rid of personal guarantees. Their understanding is that the bank can chase your other assets. If they cannot recover their principle through a foreclosure. Once you have a large portfolio, can you get a lender to lend purely against your real estate with no look through to your other assets? Okay. A lot of great questions. Emil you want to take a stab.

Emil:

Yeah, I think I can answer the first two and I might lean on you for that third one about personal guarantees. Cause I don't know much about it personally. Yeah. So real estate equity investments, as a percentage of my total net worth, if you include my primary in that it's probably 80% of our net worth. I would say somewhere around there.

Michael:

You're playing with fire is a private residence and investment

Emil:

It is 0% in investment. But if we're talking about real estate…

Michael:

Real estate holdings.

Emil:

Yeah exactly, like I'd probably say 80% of my net worth is in real estate. If we're talking about investments and we take out the primary, the primary is a big one. I live in Los Angeles. You know, there's a lot of you put 20% down on the house. So it's, it's a big chunk. So if you take that away and just look at real estate investments, I'd probably say maybe 40 to 50% of our net worth is in real estate investments. How about you?

Michael:

I’m on the higher end? I'm probably 90, 90, 93% totally invested in real estate. I've gone deep.

Emil:

This is a good like point we should probably dive into. A lot of people will say you and I are both extremely undiversified and we're all in on real estate and that's risky. And I have my own thoughts. I'm curious to get yours.

Michael:

Yeah, no, it absolutely. It's a perfect jumping off point. You know, I think that there's such a higher degree of control at the 10,000 foot level with real estate than as compared to the stock market. There is nothing that I can do to effect the price of Apple stock. Try as I may buy all the Apple products, support the company as best I can, there is nothing I can do to affect the outcome or price of the stock. Conversely, there are a whole crap ton of things I can do to affect the value and return I'm getting on my investment properties.

Multi-families specifically single family, absolutely up to a point, but multifamily most definitely. And now somebody can make the counterpoint and say, well, yeah, but you can't affect market cap rates and you can't affect economics, market economics, upturns, downturns. That's absolutely accurate, but you know what? My property will never go to zero. I'm confident to say that ever, ever, never, ever, ever in a billion years go to zero. I could sell it for scrap wood and parts if needed, or I could just go live there. If things got really bad, I can't go live in a stock. And I have had stocks go to zero on me. So I'm a very big advocate of real estate. And I think that it can provide a significant buffer between you and ultimate downturn. What are your thoughts Emil?

Emil:

I like everything you said, the only thing I'll add on top of that is one thing you could say is we're diversified within real estate, right? It's not like we have one building all of our money in there and it's just like, you're beholden to this one property and everything that happens there. So there's some diversification across properties. You and I are both in multiple markets. So that's further diversification for anyone who has that like argument, I guess you could call it. The other thing is it's very hard to get really good at different asset classes when you're an investor, right? Like to get really good at real estate investing really good at stock market investing really good at, I don’t know, whatever other types of investing for me, it's like, I want to get really good at real estate investing. And so that's just where I put a lot of my focus and attention.

You know, we put a little bit of money, we put money in our 401k, some in the Roth and stuff, and those are just going to like index funds, right? So there's that we're diversifying a little bit there, but really the majority of our investment dollars are going to real estate for the things you mentioned. Like there's just so much more control. You know, other things we talked about on the podcast, right? There's other, you're using other people's money. Your, your tenant is paying down your principal, helping you build equity. And so like, to me, that's why I'm not really focused on like, okay, I only 30% real estate and then 30% of the stock market and things like that.

Michael:

Yeah. It just, it allows you to control so much more in value. Just like you mentioned using other people's money. You can go control a hundred thousand dollar asset for 20 grand or 25 grand or, you know, whatever it is and get the benefits of the appreciation on that a hundred thousand dollar asset. Versus if you want a hundred thousand dollars of stock, you've got to go pony up a hundred grand, unless you using options or something like that, which is well above my pay grade that I don't understand just because I don't do that type of investing. But so this is, I also think it's simpler.

Emil:

Yeah. I agree.

Michael:

You know, in the grand scheme of things, this is a very simple investment and it's very understandable. Anybody can go learn this. I personally feel like the stock market or equities market is just a bit more complicated and to do the research and all that kind of thing is just, it scares me a little bit. It doesn't make it wrong, better, worse, or indifferent. Just not for me.

Emil:

Yeah. I agree with you.

Pierre:

And that's not mentioning using a 1031 exchange to avoid capital gains when you want to trade out.

Michael:

Exactly. Exactly. Yeah. There are so many tax benefits to real estate investing that allow you to keep so much more of the earned equity earned appreciation that the stock market doesn't have. I mean, I don't want to get into opportunities zones or any of that kind of stuff, but that's another way around it. But again, it's an Avenue to get into real estate and out of the stock market. So I just found that very interesting

Emil:

Fun fact. I actually, I posted on Twitter a couple of weeks ago. The way I bought my first property was I had a couple thousand dollars, right. Couldn't buy an actual property. And so I put it in the stock market, got lucky, started investing in like 2012 and cashed out at around 2017. I mean, everything was going up. You could have literally probably put a blindfold on and just throwing darts at the wall. So I got lucky. I won't pretend like I knew what I was doing, but cashed out and ended up buying my first property. So fun fact there.

All right. Next part of guesswork investing. This question is total leverage you're taking. So I have primarily take in 75 to 80% loan to value on my investments. Basically as much as the bank is willing to give me an investment property, they won't let you go lower than 20% for an investment property, I believe.

Michael:

Yep. I'm right there with you maximum. As much as they'll give me know, grow, grow, grow

Emil:

For better or worse.

Michael:

That's right.

Emil:

The third one, do you know more about like personal guarantee with lending?

Michael:

Yeah. I can speak to that a little bit. So it's going to be lender specific. So I work with residential lenders. I've worked with commercial lenders, all of them want personal guarantees even on the commercial space. So they're lending to an LLC, but they still want a personal guarantee. What you're looking for, it's called a nonrecourse loan and that's going to be your institutional, your Fannie Mae or Freddie Mac products, which are bigger loan sizes for bigger buildings. Those are non-recourse loans.

There are also non-recourse loans that lenders will make to invest retirement accounts. So your IRA is your 401k is that you're investing in real estate. If that's something that you're doing anything that's, non-recourse means they're not going to come after your personal stuff. So it just got to ask the lender, Hey, are these recourse loans with these non-recourse loans? What your portfolio size needs to be is really irrelevant. It's going to be the deal that they're lending on specifically. And so I would go ask those questions of specific lenders.

Emil:

Awesome. All right, next question. Let's skip down to Michael Fabbrini. Good friend of Michael and I. And he was on episode 24, which if you guys haven't listened to go check that one out, he talks about how he bought, I believe it was three properties in two months or two properties in three months. I forget which, which order, but great episode. So Michael was asking, how should newbies be thinking about COVID and the rent forgiveness and eviction protection that government are offering. as a beginner to investment properties, the last thing I want are homes that are occupied, but not providing any income. Is there anything we can do to limit risk? Michael? You want to take this first step?

Michael:

Yeah, absolutely. So we're recording this August 4th. The gut additional stimulus is expired, I believe, as of July 30th or July 31st. So this is kind of unique timing for this question, you know, for existing tenants, you know, I frankly just don't think there is a whole lot. We can do. If someone decides to stop paying, there was an, a moratorium on evictions. So we can't evict people. And also now in certain States, there's certain legislation that's coming down about why you can or cannot evict somebody. I've heard that you can't evict somebody for nonpayment during the COVID times, now that courts are reopening, what you can do to limit your risk on the front end of placing new tenants is just making sure that they have a secure job, making sure that they have proof of employment, making sure that they have reserves in the bank to cover rent. If unfortunately they do lose their job.

But so to my understanding, if you've got a current tenant in place, there isn't a whole lot, you can do to really protect yourself, try working with your tenants, putting them on payment plans. You know, letting them know that Hey, rent still is do right. Even if there's a moratorium on evictions, you are still expecting to be paid rent because you still have bills to pay yourself. And I think that there's this common misnomer or common misconception that all landlords are super rich and super money hungry and super greedy. And that you're the man, if you're a landlord, which frankly is, I don't think could be farther from the truth. We're people just like everybody else. We're looking to make investments and we're providing a safe and secure place for someone to live. And we also have expenses. We've got mortgages, we've got property taxes, we've got bills, independent of whether or not the rent comes in.

And so when you can kind of level with somebody and just really humanize yourself and help them understand that, you know, it's a little business and for, in order for you to be able to provide them with a safe and secure place to live, there are bills that you have to pay. And if you're incapable of paying those bills that might affect their ability to remain in the home, it becomes a much easier conversation and frankly, a different conversation than landlord tenant relationship. It's more person to person at that point in time.

Emil:

I love that you mentioned that everyone kind of thinks landlords are super rich and stuff. And most mom and pop investors have a couple of properties and that's their income source, right? It's not like they're ballin’ and they just have dozens and dozens of properties. Most people own a couple properties and that's their livelihood. So to just the only things I would add lean on your property manager, this is why we tout having such an awesome property manager. They manage a lot of homes in their portfolio or for all these different investors, right? So they probably have someone else's property that they're managing, that's going through the same thing. So they probably have a process for this and how they're managing it, how they're working with tenants. So I would say lean on your property manager, if that comes up. And the other thing, this is why we talk about having reserves, right? It's not just for things that break it's also for things like this that happened that you can't always guess when they're going to come. Right.

Michael:

So black swans.

Emil:

Yeah, exactly, exactly, black swans. So it's like, you need to have reserves for rainy day for all these things to protect yourself. And that's why it's so, so important to have reserves. So yeah, that's the only thing I would add.

Michael:

The best offense is a good defense. So that's how you protect yourself is by playing defense.

Emil:

Thanks coach.

Michael:

Put me in coach, just give me a chance . I would say the second part of Michael's question is that he's looking to get his feet wet with a bird project. And for anyone who doesn't know versus an acronym, it's B R R R R, which stands for buy, rehab, rent, refinance, repeat. And he's looking to do that locally, but saying that due to his local market and out a state would yield the best return. What are some of the best ways to find local wholesalers, contractors, and maybe a mentor who can assist? So I'm going to dunk on this here for a minute and just say, if you're looking for any of those things, come to the Roofstock Academy, we provide all of that and more I'm done plugging Roofstock Academy.

I think it also has… in all honesty, Roofstock Academy is a great place to come learn how to do BRRRRs, how to get access to a lot of those things you're looking for. Building your team is so important. And your team can also consist of just other investors, you networking in that area, whatever state or market you're looking to go get involved in here's to get your thoughts and know, I find that there's no better way of meeting people. Then just talking to as many people as possible because people in the space talk and people in the space know each other and good people know other good people. I think it's one of the bigger pockets. Jason Green says rock stars and rock stars. So just talk to as many people as you can in whatever local market you're trying to get involved in. And just ask for as many recommendations as you can. And it's going to be a super iterative process of getting recommendations, interviewing people, talking to folks, realizing who's going to work. Who's not going to be a good fit. And then kind of assembling your, was it the goon squad or the tune squad from space jam?

Emil:

Tune squad. There you go

Michael:

Assemble your own local tune squad.

Emil:

Yeah, I think that's the way to do it. Let's say you have your property manager. Let's hear investing in Birmingham. You've found your property manager out there. You really like them, right? You think they're a solid team. And like you said, good people usually know good people, so you can ask them, Hey, do you know a wholesaler? Do you know someone? Who's got a lot of deals who maybe gets more distressed properties that I could talk to? I guarantee you, they have at least one or two people you can chat with, or if they don't, they can refer you to maybe an agent or somebody who knows where to find these certain things. Right? So it's just like going down the rabbit hole and asking each person you talk to, Hey, I'm looking for this. Who can I talk to? Hey, I'm looking for a good lender.

Who should I speak with? And just like calling those people those, and you mentioned it. They're not always going to be awesome. You have to do your own interviewing, right? Like try to ask for multiple people, do your own interviewing, see who you gel with. See who kind of seems like they know what they're talking about versus doesn't and just kind of keep going down there. And in terms of mentorship or things out there, there's tons of case studies published online where you can look up out of state Burr and people will talk about the process they used. And then yeah, like Michael mentioned, we have the Academy, that's a great group. Michael's doing this personally. I'm starting to try to do it as well. So hopefully we'll have some experience to share. And there's, you know, there's just groups out there that people are doing this stuff and they can help you. So just go out and join some groups, talk to people, talking to people as you'll learn the most, you could watch a hundred hours of YouTube videos..

Michael:

Or read a hundred books.

Emil:

Yeah. Versus talking to someone for three hours. I promise you'll get more out of the three hours in those a hundred hours on YouTube. I say that from personal experience.

Michael:

Yeah. Well, my problem is most of the YouTube watching is dog and cat videos. So I guess we gotta specify real estate related YouTube videos. So Ryan from Facebook is asking for the best sources of financing for an asset prior to getting it stabilized, rehab and tenants. So it sounds like Ryan, you might be looking for a construction loan because that's going to be something that'll allow you to do work on the property. And they're likely going to evaluate it based on its ARV. And that's how they're going to calculate the loan amount. But other than that, I mean there's hard money. So you can get money for an asset before it's stabilized. But most traditional lenders like to see stabilization. They want to see the finished products with high occupancy for quite some time. Some are even going to ask for your, they want to see it on your most recent tax return.

So that could mean you have it stabilized for a year. Well, if you're trying to stabilize it, that's no good. But so I would just reach out to local folks. If you can, local lenders are typically going to be much more flexible than the big national chains. But if I understood your question, that's kind of the two ways I would go. I would look for local lenders that are going to give you either a construction loan or some kind of interest only loan on the ARV of that product once you have it stabilized. So I hope that helps.

Emil:

Only two other things I want to add there. Two other options besides a hard money and construction. Yep. First one is, go check out episode number 30 called how private money lenders can help you close more deals in less time. So you can check out there's private money, lenders, people who, you know, not banks or whatever who want to lend money and get a certain return. You can also ask friends and family their private money as well. What else? Oh, the second one outside of private money.

I just learned this the other day with a call with a potential partner there's companies who do personal loans, right? For maybe you want to do a home improvement or whatever sofi being the one that we chatted with the other day and personal loans, like they're not verifying what it goes to. They're not like, okay, you have to use this money for this specific thing. So you could get a personal loan saying you're doing some home improvement. Actually go use that for some property investments. So you have to look at the interest rate on those. I think it's pretty high, but that's another route you could go down. There's personal loans. You can go get to do some of these projects as well.

Michael:

I have two more. I lied. I don't know what I was thinking when I said I'm done. Keep it going. But also think about 401k loans from yourself. They can be a really great asset source of cash to utilize. And there's also HELOCs which if you have a primary residence that you have an investment property that has a HELOC, that can be a really great source of funds. Or even thinking about…

Emil:

What is a HELOC for people who don’t know?

Michael:

A HELOC is a home equity line of credit, which is basically just a line of credit against the equity in a property. So that can be a really another great source for you. And then the last one I think about too, is credit cards, depending on how you can pay folks or pay for things. And depending on how big of a line of credit you have in your credit card, that can be a really great way to fund things or float things. A lot of credit cards too, I just signed up for credit card has 0% interest for the first 12 months. So if I have an outstanding balance on that, I can basically carry that for 12 months interest free, which is pretty killer. So I think between what Emil mentioned and what I just mentioned, those are some great, great sources of funds.

And I really liked that the friends and family ones, I think it's something that a lot of people don't about, but most people I'd say a lot of people know someone that has a little bit of extra cash that they're looking to do something with, but isn't sure what, and after listening to this episode, they're probably not going to go invest in the stock market. And so for more information on HELOCs give episode 29, listen to, we talk about the top four ways to turn your trapped equity into real estate investments.

Emil:

And yeah, one caveat about friends and family mixing money and family and friends, always hard, right? I would recommend this is just a personal preference. I would recommend you go do a couple of deals before you go and ask friends and family. I personally wouldn't want to be on the hook for botching something, you know, the first couple of year learning, I would not want to endanger those relationships with money complications on my first deal. So personal caveat and warning on friends and family.

Michael:

Yeah, absolutely. I mean, I, it's funny. I borrowed from friends and family from my very first deal, but I bought it very traditionally and it was turnkey property and we sat down and ran the numbers together. So it was like one of those situations where it was pretty tough to lose and everybody was comfortable with it. And so if that's the only way you can get into it, I would say just be very careful, be very careful to be very aware of what you're doing, because it's one thing to lose your own money. It's something else entirely to lose someone else's money and especially someone who, you know,

Emil:

And this, yours was your father. Right?

Michael:

Correct.

Emil:

In the first one. Okay. So I think immediate family is probably a little bit different. They'll probably forgive you a little bit more than maybe your cousin or like a friend.

Michael:

Right, right.

Emil:

But yeah, there you go see, it worked out for you. So not a hard and fast rule on what I recommended. All right. Next question. We have Leslie from Facebook. Leslie is asking, Leslie is Michael's uncle, we just found that out.

Michael:

That's right. Shout out to uncle Les!

Emil:

For my first investment property. Should it be a condo, single family, home, duplex or triplex? So this is a good question. I don't think there's a wrong answer. I think it's something we always talk about. It's a theme throughout every episode. It's do the numbers work. I think that's really it. If you can find the condo where you're making a good cash on cash return, that you're excited about go with the condo. If it's a duplex triplex, great single family home, whatever it is, there is something about just starting with one unit single family home condo that I think is an easier learning curve than going out and buying a 10 unit property your first time. But there's people who go and do that. And they're totally fine. Right. Maybe it's a little bit of pain in the beginning, but they learn a little faster that way as well. So..

Michael:

Or they aren't. Or they they aren't fine.

Emil:

Yeah. They, aren't fine.

Michael:

They go down in a blaze of fire.

Emil:

That's true. They're like, okay. I took on way more than I can manage and I’m never going to invest again. Okay, I’m selling at a 50% loss.

Michael:

I think that's a super, I think it's a super great point is that it's got to fit for you as the personal investor. There is no one size fits all approach. And it also depends on what the investment market looks like. If this is something local, I know my uncle happens to live in LA, but for anybody else listening, if you can't invest in your local market and you have to go elsewhere, absolutely let the numbers do the talking. I'm a huge fan of the house hack if someone's going to be investing in their local market. And so if they want to have somewhere to live and invest in property, I think duplex or triplex makes total sense. Even a large single family home or a super large condo can make sense. And for an all of our listeners who might not be aware of how SAC is basically buying a property to live in.

So you qualify for owner occupant financing, but also renting out the extra space or rooms. So buying something larger than you need for yourself personally, or for your immediate family or whoever's living with you. So if you buy a duplex, you get to qualify for owner occupant financing live in one unit, rent out the other unit, depending on how the deal flushes out, you might be able to live for free or even potentially be making some money every month. So that's pretty killer. So if someone's looking to invest and they can invest locally, or it might make sense for them to invest locally, or even if it doesn't make sense to invest locally, entertain a house hack. If that's something that's that you're open to, that your family situation will allow for it. Cause I think that is one of the best, what is it Emil a growth hack or a life hack?

Emil:

Yeah life hack.

Michael:

To get access to real estate investing in a really safe manner?

Emil:

I love it. That's a great addition, the house hack.

Pierre

Hey guys, I have a question. If I have enough cash to pay off my student loans yet I have a very low interest rate on my loans, should I use the money to pay a down payment and use the cash flow from the property to uphold my monthly loan payment? Or should I pay my loan off first and then buy a property?

Michael:

Love that question Pierre. Emil, I can see you chomping at the bit, go for it!

Emil

Ooh, that’s a depends on the scenario question. I would probably…

Michael:

Let's preface this with, this is not professional advice. Go consult your tax and legal professionals.

Emil:

I would probably keep the student loan debt and go buy a property if I had the money to pay it off. Longterm, I think holding that property, having cashflow on it, having a tenant pay down your principal, letting the market do its thing, letting time and everything do its thing like waiting five years, right? Like let's say you pay down your loan and you have to wait another five years to save up to invest. I think you would have been way better off just investing, carrying that loan. Maybe the cashflow from your investment property now pays your monthly student loan payment, right? Like I would probably go invest that money if it's either or.

Michael:

Either or yeah, I wholeheartedly agree. I think that there's so many people in the financial space that talk about paying off your high interest rate debt first and then going to invest. And at the end of the day, let's just look at the math. Like let's look at the returns. If your interest rate on your student loan is at four and a half percent and you can invest money real estate and get 7% cash on cash on your money. That's a two and a half percent Delta that you just created for yourself. Versus just like you said Emil. If you go by, excuse me, if you go pay off your student loan debt, it might take you another five years to save up for that down payment. Well, at the end of that five years, you'll now have a down payment ready and no student loan debt.

If we flip the switch and say, okay, we're going to buy the property and keep the student loan debt. At the end of the five years, you'll have likely paid down a significant portion of your student loan debt. And you'll have had a property owned that has appreciated over the last five years and pay down the interest on it. Is it the principal on it and taken advantage of the tax benefits? So I just think as long as you can make more money in an investment, it makes sense to hold onto debt and use the money you're making from the new investment to pay off the old debt. And that's just called arbitrage. That's what banks do. Banks will lend out money at 5% and only pay 1% on the money that people are giving to them to hold on to. So that 4% spread is where they make their money and then all the loan processing fees and garbage, that kind of stuff.

But it's at its essence. Arbitrage is that's just, all it is, is arbitrage. You're making the spread. And I think that it's a super, super killer way to go. But again, just like you said, everyone's got to look at their own personal situation and decide, you know, what's gonna make sense for them. And the low interest rate stuff, it becomes pretty easy, but as interest rates start to creep up, that decision becomes a bit tougher.

Emil:

Yup.

Pierre:

So as long as your cash on cash return is greater than the interest rate of your loan, your outstanding loan, it can make sense.

Michael:

I think so.  If you could take 20 grand and put it into a house and make 7%, you take that same 20 grand to go pay off 4% interest. I'd say you're better off making 7%.

Emil:

That cash on cash also is not accounting for again, principal pay down from your tenant, paying your mortgage and the tax benefits, right? So reducing the amount you owe to the government. So there's all these amazing benefits that we talk about. So

Michael:

Yeah, the total return of investing in real estate is much bigger than meets the eye.

Emil:

Yep.

Pierre:

Cool. Thanks.

Michael:

Totally, great question. Yep.

Emil:

All right. I think with that, we're going to wrap up this episode. Thank you guys so much for tuning in. If you haven't already make sure you go subscribe wherever you listen to podcasts, you get notified. When we release new episodes, we're doing about two week right now. Hope you guys are enjoying all of them. If you guys have questions, submit them to us. We're happy to keep doing these AMAs. You can message us on Twitter. So I'm @Emil Shour and Michael's @ Albaum Michael, you can email us. I'm Emil Shore [email protected]. Michael is [email protected] and just submit questions and, we'll keep answering them and tackling them on future episodes. All right, happy investing.

Michael:

Happy investing.

In this episode Emil and Michael answer listener submitted questions on various topics: inspections reports, portfolio diversification, evictions during the COVID moment, advice on approaching a BRRRR, what asset class to begin with and what to do with existing debt.

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Transcript

Emil:

Hey, everyone. Welcome back for another Episode of The Remote Real Estate Investor. My name is Emil Shour and today I am joined by,

Michael:

Michael Albaum.

Emil:

Tom is sitting this one out, so Michael and I will be running point on this episode, and this is going to be our third AMA or ask us anything. So we're going to take a couple questions that people have submitted. We've been receiving tons and tons of questions. So we're just going to keep answering them. All right, let's get to it.

Theme Song

Michael:

Is it a, AUA ask us anything or an AMA? Ask me…

Emil:

You know what? Just AMA, ask us anything. Ask me anything. Michael splits, hairs.

Pierre:

Ask Michael anything.

Emil:

Yeah, there you go, ask Michael anything.

Michael:

Alright, let's jump into it.

Emil:

Okay. So our first question comes from Alex and he left this voicemail. So let's listen to this one.

Alex:

Hey, what's up Michael and Emil, Thank you for taking my question. So my question is around inspections basically after you've gotten your inspection report back as a remote real estate investor, uh, want to understand how exactly you go about determining which items from the report you 100% needed to fix before the transaction goes through, versus which items from the report you could look at fixing over the next few years, once you've taken ownership of the property, versus which items in the inspection report you don't really need to pay attention to.

This is my question because of my experience reading an inspection report, even after running through it with my agent is like reading a foreign language. And I think being remote as a real estate investor only adds to that challenge since you weren't able to physically observe any of the items that are called out in the inspection report. So I want to get some color around how you guys assess that. Thank you so much.  

Emil:

Michael, do you want to take a stab first and we'll chime in afterwards?

Michael:

Yeah, sure. So I read an inspection report. Like I imagine a doctor would read a health report and kind of triage what's needs immediate attention versus what can be put on the back burner. And cost is definitely a factor in all of these things. And I loop in my property manager into the conversation because if there are things that need to be addressed immediately, your experience, you know, leaning on your experience is gonna be very helpful to determine, Hey, this sounds bad, or this looks bad versus, Hey, I know this is bad and I know this can lead to further issues down the road. So I would say electrical problems, roofing problems and plumbing problems just at a high level should probably get attention first and foremost.

Heating, you know, things I see called out pretty regularly, our old heating systems for old cooling systems. And that doesn't necessarily mean they're going to fail, but you might want to be thinking about setting some reserve funds aside to replacing those when needed. But if there's electrical things that you see an issue with, or the inspector sees an issue with, I mean, that's the kind of stuff that has potential to burn down houses. Plumbing has a potential to cause tons and tons and tons of water damage in properties and water damage is expensive to clean up. Everything else is, you know, needs to kind of be addressed as that on a, as needed basis with your local property manager. If there are things that are going to increase the rentability of the property or increase the market rent of that property might be worth doing and kind of double dipping, increasing the property value and rentability and addressing an issue that needs to be fixed anyhow. That was kind of a long winded answer of saying, you know, talk with your property manager, talk with other experienced investors, get their 2 cents on, Hey, is this really a red flag? Or are we just making mountains out of molehills?

Emil:

You know, I love your analogies by the way, mountains out of mole hills, a doctor in triage.

Michael:

Good, man, I'm glad you like it.

Emil:

I need to come up with a repertoire of analogies and whatnot.

Pierre:

You should start piggybacking off of him.

Emil:

I should right.

Michael:

What you don't know as I'm on Google right before every episode, Google like cool analogies and also funny jokes.

Emil:

Alright, secret, secret revealed. Now I know how to do it. I agree with a lot of what you said. I was taken down some notes while you were chatting. I think anything related with water plumbing, anything with like the shower? Right. So I bought a property and there was a couple of tiles loose. I wanted those immediately addressed because water can get in there and do some serious damage. Anything with like wood rot on the outside or would loose like siding or any, any of those things.

I want those taken care of again, because again, water gets in that's when the real damage occurs. I think like you said, asking your property manager, Hey, what do we think we can defer versus what should we address right now? One example of something that I've deferred a property, I bought actually ended up selling the siding on the home, which is like these panels that go on the outside of the house. Some of them were a little bit warped and it was recommended that I get those fixed. And you know, it's a little bit of, it's not an eyesore, but it, you can tell like it's warped, but it wasn't. There was nothing in like immediate need. Like there wasn't any gaps or anything where water could get in. And so…

Michael:

It just didn't look nice.

Emil:

Exactly. It just kind of looked a little off. So I was like, you know what? That seems like a nice to have. We're going to defer that for now. I actually ended up selling it in the same condition next owner decided to fix it, but they didn't have like a huge issue with it and it didn't really affect the sales price. So

Michael:

Did that issue show up on your exit inspection?

Emil:

It did. Yeah.

Michael:

Okay. The inspectors are consistent.

Emil:

Yeah, exactly. Sometimes you get two inspectors out there. One will miss something that the other one will point out. So there is like an element of the inspector.

Michael:

So hope that helps Alex. Our next question comes to us from Guesswork Investing from Twitter and Guesswork Investing would like to know what the real estate equity investments is. A percentage of total net worth are what total leverage we're taking and what size portfolio do you need before you can get rid of personal guarantees. Their understanding is that the bank can chase your other assets. If they cannot recover their principle through a foreclosure. Once you have a large portfolio, can you get a lender to lend purely against your real estate with no look through to your other assets? Okay. A lot of great questions. Emil you want to take a stab.

Emil:

Yeah, I think I can answer the first two and I might lean on you for that third one about personal guarantees. Cause I don't know much about it personally. Yeah. So real estate equity investments, as a percentage of my total net worth, if you include my primary in that it's probably 80% of our net worth. I would say somewhere around there.

Michael:

You're playing with fire is a private residence and investment

Emil:

It is 0% in investment. But if we're talking about real estate…

Michael:

Real estate holdings.

Emil:

Yeah exactly, like I'd probably say 80% of my net worth is in real estate. If we're talking about investments and we take out the primary, the primary is a big one. I live in Los Angeles. You know, there's a lot of you put 20% down on the house. So it's, it's a big chunk. So if you take that away and just look at real estate investments, I'd probably say maybe 40 to 50% of our net worth is in real estate investments. How about you?

Michael:

I’m on the higher end? I'm probably 90, 90, 93% totally invested in real estate. I've gone deep.

Emil:

This is a good like point we should probably dive into. A lot of people will say you and I are both extremely undiversified and we're all in on real estate and that's risky. And I have my own thoughts. I'm curious to get yours.

Michael:

Yeah, no, it absolutely. It's a perfect jumping off point. You know, I think that there's such a higher degree of control at the 10,000 foot level with real estate than as compared to the stock market. There is nothing that I can do to effect the price of Apple stock. Try as I may buy all the Apple products, support the company as best I can, there is nothing I can do to affect the outcome or price of the stock. Conversely, there are a whole crap ton of things I can do to affect the value and return I'm getting on my investment properties.

Multi-families specifically single family, absolutely up to a point, but multifamily most definitely. And now somebody can make the counterpoint and say, well, yeah, but you can't affect market cap rates and you can't affect economics, market economics, upturns, downturns. That's absolutely accurate, but you know what? My property will never go to zero. I'm confident to say that ever, ever, never, ever, ever in a billion years go to zero. I could sell it for scrap wood and parts if needed, or I could just go live there. If things got really bad, I can't go live in a stock. And I have had stocks go to zero on me. So I'm a very big advocate of real estate. And I think that it can provide a significant buffer between you and ultimate downturn. What are your thoughts Emil?

Emil:

I like everything you said, the only thing I'll add on top of that is one thing you could say is we're diversified within real estate, right? It's not like we have one building all of our money in there and it's just like, you're beholden to this one property and everything that happens there. So there's some diversification across properties. You and I are both in multiple markets. So that's further diversification for anyone who has that like argument, I guess you could call it. The other thing is it's very hard to get really good at different asset classes when you're an investor, right? Like to get really good at real estate investing really good at stock market investing really good at, I don’t know, whatever other types of investing for me, it's like, I want to get really good at real estate investing. And so that's just where I put a lot of my focus and attention.

You know, we put a little bit of money, we put money in our 401k, some in the Roth and stuff, and those are just going to like index funds, right? So there's that we're diversifying a little bit there, but really the majority of our investment dollars are going to real estate for the things you mentioned. Like there's just so much more control. You know, other things we talked about on the podcast, right? There's other, you're using other people's money. Your, your tenant is paying down your principal, helping you build equity. And so like, to me, that's why I'm not really focused on like, okay, I only 30% real estate and then 30% of the stock market and things like that.

Michael:

Yeah. It just, it allows you to control so much more in value. Just like you mentioned using other people's money. You can go control a hundred thousand dollar asset for 20 grand or 25 grand or, you know, whatever it is and get the benefits of the appreciation on that a hundred thousand dollar asset. Versus if you want a hundred thousand dollars of stock, you've got to go pony up a hundred grand, unless you using options or something like that, which is well above my pay grade that I don't understand just because I don't do that type of investing. But so this is, I also think it's simpler.

Emil:

Yeah. I agree.

Michael:

You know, in the grand scheme of things, this is a very simple investment and it's very understandable. Anybody can go learn this. I personally feel like the stock market or equities market is just a bit more complicated and to do the research and all that kind of thing is just, it scares me a little bit. It doesn't make it wrong, better, worse, or indifferent. Just not for me.

Emil:

Yeah. I agree with you.

Pierre:

And that's not mentioning using a 1031 exchange to avoid capital gains when you want to trade out.

Michael:

Exactly. Exactly. Yeah. There are so many tax benefits to real estate investing that allow you to keep so much more of the earned equity earned appreciation that the stock market doesn't have. I mean, I don't want to get into opportunities zones or any of that kind of stuff, but that's another way around it. But again, it's an Avenue to get into real estate and out of the stock market. So I just found that very interesting

Emil:

Fun fact. I actually, I posted on Twitter a couple of weeks ago. The way I bought my first property was I had a couple thousand dollars, right. Couldn't buy an actual property. And so I put it in the stock market, got lucky, started investing in like 2012 and cashed out at around 2017. I mean, everything was going up. You could have literally probably put a blindfold on and just throwing darts at the wall. So I got lucky. I won't pretend like I knew what I was doing, but cashed out and ended up buying my first property. So fun fact there.

All right. Next part of guesswork investing. This question is total leverage you're taking. So I have primarily take in 75 to 80% loan to value on my investments. Basically as much as the bank is willing to give me an investment property, they won't let you go lower than 20% for an investment property, I believe.

Michael:

Yep. I'm right there with you maximum. As much as they'll give me know, grow, grow, grow

Emil:

For better or worse.

Michael:

That's right.

Emil:

The third one, do you know more about like personal guarantee with lending?

Michael:

Yeah. I can speak to that a little bit. So it's going to be lender specific. So I work with residential lenders. I've worked with commercial lenders, all of them want personal guarantees even on the commercial space. So they're lending to an LLC, but they still want a personal guarantee. What you're looking for, it's called a nonrecourse loan and that's going to be your institutional, your Fannie Mae or Freddie Mac products, which are bigger loan sizes for bigger buildings. Those are non-recourse loans.

There are also non-recourse loans that lenders will make to invest retirement accounts. So your IRA is your 401k is that you're investing in real estate. If that's something that you're doing anything that's, non-recourse means they're not going to come after your personal stuff. So it just got to ask the lender, Hey, are these recourse loans with these non-recourse loans? What your portfolio size needs to be is really irrelevant. It's going to be the deal that they're lending on specifically. And so I would go ask those questions of specific lenders.

Emil:

Awesome. All right, next question. Let's skip down to Michael Fabbrini. Good friend of Michael and I. And he was on episode 24, which if you guys haven't listened to go check that one out, he talks about how he bought, I believe it was three properties in two months or two properties in three months. I forget which, which order, but great episode. So Michael was asking, how should newbies be thinking about COVID and the rent forgiveness and eviction protection that government are offering. as a beginner to investment properties, the last thing I want are homes that are occupied, but not providing any income. Is there anything we can do to limit risk? Michael? You want to take this first step?

Michael:

Yeah, absolutely. So we're recording this August 4th. The gut additional stimulus is expired, I believe, as of July 30th or July 31st. So this is kind of unique timing for this question, you know, for existing tenants, you know, I frankly just don't think there is a whole lot. We can do. If someone decides to stop paying, there was an, a moratorium on evictions. So we can't evict people. And also now in certain States, there's certain legislation that's coming down about why you can or cannot evict somebody. I've heard that you can't evict somebody for nonpayment during the COVID times, now that courts are reopening, what you can do to limit your risk on the front end of placing new tenants is just making sure that they have a secure job, making sure that they have proof of employment, making sure that they have reserves in the bank to cover rent. If unfortunately they do lose their job.

But so to my understanding, if you've got a current tenant in place, there isn't a whole lot, you can do to really protect yourself, try working with your tenants, putting them on payment plans. You know, letting them know that Hey, rent still is do right. Even if there's a moratorium on evictions, you are still expecting to be paid rent because you still have bills to pay yourself. And I think that there's this common misnomer or common misconception that all landlords are super rich and super money hungry and super greedy. And that you're the man, if you're a landlord, which frankly is, I don't think could be farther from the truth. We're people just like everybody else. We're looking to make investments and we're providing a safe and secure place for someone to live. And we also have expenses. We've got mortgages, we've got property taxes, we've got bills, independent of whether or not the rent comes in.

And so when you can kind of level with somebody and just really humanize yourself and help them understand that, you know, it's a little business and for, in order for you to be able to provide them with a safe and secure place to live, there are bills that you have to pay. And if you're incapable of paying those bills that might affect their ability to remain in the home, it becomes a much easier conversation and frankly, a different conversation than landlord tenant relationship. It's more person to person at that point in time.

Emil:

I love that you mentioned that everyone kind of thinks landlords are super rich and stuff. And most mom and pop investors have a couple of properties and that's their income source, right? It's not like they're ballin’ and they just have dozens and dozens of properties. Most people own a couple properties and that's their livelihood. So to just the only things I would add lean on your property manager, this is why we tout having such an awesome property manager. They manage a lot of homes in their portfolio or for all these different investors, right? So they probably have someone else's property that they're managing, that's going through the same thing. So they probably have a process for this and how they're managing it, how they're working with tenants. So I would say lean on your property manager, if that comes up. And the other thing, this is why we talk about having reserves, right? It's not just for things that break it's also for things like this that happened that you can't always guess when they're going to come. Right.

Michael:

So black swans.

Emil:

Yeah, exactly, exactly, black swans. So it's like, you need to have reserves for rainy day for all these things to protect yourself. And that's why it's so, so important to have reserves. So yeah, that's the only thing I would add.

Michael:

The best offense is a good defense. So that's how you protect yourself is by playing defense.

Emil:

Thanks coach.

Michael:

Put me in coach, just give me a chance . I would say the second part of Michael's question is that he's looking to get his feet wet with a bird project. And for anyone who doesn't know versus an acronym, it's B R R R R, which stands for buy, rehab, rent, refinance, repeat. And he's looking to do that locally, but saying that due to his local market and out a state would yield the best return. What are some of the best ways to find local wholesalers, contractors, and maybe a mentor who can assist? So I'm going to dunk on this here for a minute and just say, if you're looking for any of those things, come to the Roofstock Academy, we provide all of that and more I'm done plugging Roofstock Academy.

I think it also has… in all honesty, Roofstock Academy is a great place to come learn how to do BRRRRs, how to get access to a lot of those things you're looking for. Building your team is so important. And your team can also consist of just other investors, you networking in that area, whatever state or market you're looking to go get involved in here's to get your thoughts and know, I find that there's no better way of meeting people. Then just talking to as many people as possible because people in the space talk and people in the space know each other and good people know other good people. I think it's one of the bigger pockets. Jason Green says rock stars and rock stars. So just talk to as many people as you can in whatever local market you're trying to get involved in. And just ask for as many recommendations as you can. And it's going to be a super iterative process of getting recommendations, interviewing people, talking to folks, realizing who's going to work. Who's not going to be a good fit. And then kind of assembling your, was it the goon squad or the tune squad from space jam?

Emil:

Tune squad. There you go

Michael:

Assemble your own local tune squad.

Emil:

Yeah, I think that's the way to do it. Let's say you have your property manager. Let's hear investing in Birmingham. You've found your property manager out there. You really like them, right? You think they're a solid team. And like you said, good people usually know good people, so you can ask them, Hey, do you know a wholesaler? Do you know someone? Who's got a lot of deals who maybe gets more distressed properties that I could talk to? I guarantee you, they have at least one or two people you can chat with, or if they don't, they can refer you to maybe an agent or somebody who knows where to find these certain things. Right? So it's just like going down the rabbit hole and asking each person you talk to, Hey, I'm looking for this. Who can I talk to? Hey, I'm looking for a good lender.

Who should I speak with? And just like calling those people those, and you mentioned it. They're not always going to be awesome. You have to do your own interviewing, right? Like try to ask for multiple people, do your own interviewing, see who you gel with. See who kind of seems like they know what they're talking about versus doesn't and just kind of keep going down there. And in terms of mentorship or things out there, there's tons of case studies published online where you can look up out of state Burr and people will talk about the process they used. And then yeah, like Michael mentioned, we have the Academy, that's a great group. Michael's doing this personally. I'm starting to try to do it as well. So hopefully we'll have some experience to share. And there's, you know, there's just groups out there that people are doing this stuff and they can help you. So just go out and join some groups, talk to people, talking to people as you'll learn the most, you could watch a hundred hours of YouTube videos..

Michael:

Or read a hundred books.

Emil:

Yeah. Versus talking to someone for three hours. I promise you'll get more out of the three hours in those a hundred hours on YouTube. I say that from personal experience.

Michael:

Yeah. Well, my problem is most of the YouTube watching is dog and cat videos. So I guess we gotta specify real estate related YouTube videos. So Ryan from Facebook is asking for the best sources of financing for an asset prior to getting it stabilized, rehab and tenants. So it sounds like Ryan, you might be looking for a construction loan because that's going to be something that'll allow you to do work on the property. And they're likely going to evaluate it based on its ARV. And that's how they're going to calculate the loan amount. But other than that, I mean there's hard money. So you can get money for an asset before it's stabilized. But most traditional lenders like to see stabilization. They want to see the finished products with high occupancy for quite some time. Some are even going to ask for your, they want to see it on your most recent tax return.

So that could mean you have it stabilized for a year. Well, if you're trying to stabilize it, that's no good. But so I would just reach out to local folks. If you can, local lenders are typically going to be much more flexible than the big national chains. But if I understood your question, that's kind of the two ways I would go. I would look for local lenders that are going to give you either a construction loan or some kind of interest only loan on the ARV of that product once you have it stabilized. So I hope that helps.

Emil:

Only two other things I want to add there. Two other options besides a hard money and construction. Yep. First one is, go check out episode number 30 called how private money lenders can help you close more deals in less time. So you can check out there's private money, lenders, people who, you know, not banks or whatever who want to lend money and get a certain return. You can also ask friends and family their private money as well. What else? Oh, the second one outside of private money.

I just learned this the other day with a call with a potential partner there's companies who do personal loans, right? For maybe you want to do a home improvement or whatever sofi being the one that we chatted with the other day and personal loans, like they're not verifying what it goes to. They're not like, okay, you have to use this money for this specific thing. So you could get a personal loan saying you're doing some home improvement. Actually go use that for some property investments. So you have to look at the interest rate on those. I think it's pretty high, but that's another route you could go down. There's personal loans. You can go get to do some of these projects as well.

Michael:

I have two more. I lied. I don't know what I was thinking when I said I'm done. Keep it going. But also think about 401k loans from yourself. They can be a really great asset source of cash to utilize. And there's also HELOCs which if you have a primary residence that you have an investment property that has a HELOC, that can be a really great source of funds. Or even thinking about…

Emil:

What is a HELOC for people who don’t know?

Michael:

A HELOC is a home equity line of credit, which is basically just a line of credit against the equity in a property. So that can be a really another great source for you. And then the last one I think about too, is credit cards, depending on how you can pay folks or pay for things. And depending on how big of a line of credit you have in your credit card, that can be a really great way to fund things or float things. A lot of credit cards too, I just signed up for credit card has 0% interest for the first 12 months. So if I have an outstanding balance on that, I can basically carry that for 12 months interest free, which is pretty killer. So I think between what Emil mentioned and what I just mentioned, those are some great, great sources of funds.

And I really liked that the friends and family ones, I think it's something that a lot of people don't about, but most people I'd say a lot of people know someone that has a little bit of extra cash that they're looking to do something with, but isn't sure what, and after listening to this episode, they're probably not going to go invest in the stock market. And so for more information on HELOCs give episode 29, listen to, we talk about the top four ways to turn your trapped equity into real estate investments.

Emil:

And yeah, one caveat about friends and family mixing money and family and friends, always hard, right? I would recommend this is just a personal preference. I would recommend you go do a couple of deals before you go and ask friends and family. I personally wouldn't want to be on the hook for botching something, you know, the first couple of year learning, I would not want to endanger those relationships with money complications on my first deal. So personal caveat and warning on friends and family.

Michael:

Yeah, absolutely. I mean, I, it's funny. I borrowed from friends and family from my very first deal, but I bought it very traditionally and it was turnkey property and we sat down and ran the numbers together. So it was like one of those situations where it was pretty tough to lose and everybody was comfortable with it. And so if that's the only way you can get into it, I would say just be very careful, be very careful to be very aware of what you're doing, because it's one thing to lose your own money. It's something else entirely to lose someone else's money and especially someone who, you know,

Emil:

And this, yours was your father. Right?

Michael:

Correct.

Emil:

In the first one. Okay. So I think immediate family is probably a little bit different. They'll probably forgive you a little bit more than maybe your cousin or like a friend.

Michael:

Right, right.

Emil:

But yeah, there you go see, it worked out for you. So not a hard and fast rule on what I recommended. All right. Next question. We have Leslie from Facebook. Leslie is asking, Leslie is Michael's uncle, we just found that out.

Michael:

That's right. Shout out to uncle Les!

Emil:

For my first investment property. Should it be a condo, single family, home, duplex or triplex? So this is a good question. I don't think there's a wrong answer. I think it's something we always talk about. It's a theme throughout every episode. It's do the numbers work. I think that's really it. If you can find the condo where you're making a good cash on cash return, that you're excited about go with the condo. If it's a duplex triplex, great single family home, whatever it is, there is something about just starting with one unit single family home condo that I think is an easier learning curve than going out and buying a 10 unit property your first time. But there's people who go and do that. And they're totally fine. Right. Maybe it's a little bit of pain in the beginning, but they learn a little faster that way as well. So..

Michael:

Or they aren't. Or they they aren't fine.

Emil:

Yeah. They, aren't fine.

Michael:

They go down in a blaze of fire.

Emil:

That's true. They're like, okay. I took on way more than I can manage and I’m never going to invest again. Okay, I’m selling at a 50% loss.

Michael:

I think that's a super, I think it's a super great point is that it's got to fit for you as the personal investor. There is no one size fits all approach. And it also depends on what the investment market looks like. If this is something local, I know my uncle happens to live in LA, but for anybody else listening, if you can't invest in your local market and you have to go elsewhere, absolutely let the numbers do the talking. I'm a huge fan of the house hack if someone's going to be investing in their local market. And so if they want to have somewhere to live and invest in property, I think duplex or triplex makes total sense. Even a large single family home or a super large condo can make sense. And for an all of our listeners who might not be aware of how SAC is basically buying a property to live in.

So you qualify for owner occupant financing, but also renting out the extra space or rooms. So buying something larger than you need for yourself personally, or for your immediate family or whoever's living with you. So if you buy a duplex, you get to qualify for owner occupant financing live in one unit, rent out the other unit, depending on how the deal flushes out, you might be able to live for free or even potentially be making some money every month. So that's pretty killer. So if someone's looking to invest and they can invest locally, or it might make sense for them to invest locally, or even if it doesn't make sense to invest locally, entertain a house hack. If that's something that's that you're open to, that your family situation will allow for it. Cause I think that is one of the best, what is it Emil a growth hack or a life hack?

Emil:

Yeah life hack.

Michael:

To get access to real estate investing in a really safe manner?

Emil:

I love it. That's a great addition, the house hack.

Pierre

Hey guys, I have a question. If I have enough cash to pay off my student loans yet I have a very low interest rate on my loans, should I use the money to pay a down payment and use the cash flow from the property to uphold my monthly loan payment? Or should I pay my loan off first and then buy a property?

Michael:

Love that question Pierre. Emil, I can see you chomping at the bit, go for it!

Emil

Ooh, that’s a depends on the scenario question. I would probably…

Michael:

Let's preface this with, this is not professional advice. Go consult your tax and legal professionals.

Emil:

I would probably keep the student loan debt and go buy a property if I had the money to pay it off. Longterm, I think holding that property, having cashflow on it, having a tenant pay down your principal, letting the market do its thing, letting time and everything do its thing like waiting five years, right? Like let's say you pay down your loan and you have to wait another five years to save up to invest. I think you would have been way better off just investing, carrying that loan. Maybe the cashflow from your investment property now pays your monthly student loan payment, right? Like I would probably go invest that money if it's either or.

Michael:

Either or yeah, I wholeheartedly agree. I think that there's so many people in the financial space that talk about paying off your high interest rate debt first and then going to invest. And at the end of the day, let's just look at the math. Like let's look at the returns. If your interest rate on your student loan is at four and a half percent and you can invest money real estate and get 7% cash on cash on your money. That's a two and a half percent Delta that you just created for yourself. Versus just like you said Emil. If you go by, excuse me, if you go pay off your student loan debt, it might take you another five years to save up for that down payment. Well, at the end of that five years, you'll now have a down payment ready and no student loan debt.

If we flip the switch and say, okay, we're going to buy the property and keep the student loan debt. At the end of the five years, you'll have likely paid down a significant portion of your student loan debt. And you'll have had a property owned that has appreciated over the last five years and pay down the interest on it. Is it the principal on it and taken advantage of the tax benefits? So I just think as long as you can make more money in an investment, it makes sense to hold onto debt and use the money you're making from the new investment to pay off the old debt. And that's just called arbitrage. That's what banks do. Banks will lend out money at 5% and only pay 1% on the money that people are giving to them to hold on to. So that 4% spread is where they make their money and then all the loan processing fees and garbage, that kind of stuff.

But it's at its essence. Arbitrage is that's just, all it is, is arbitrage. You're making the spread. And I think that it's a super, super killer way to go. But again, just like you said, everyone's got to look at their own personal situation and decide, you know, what's gonna make sense for them. And the low interest rate stuff, it becomes pretty easy, but as interest rates start to creep up, that decision becomes a bit tougher.

Emil:

Yup.

Pierre:

So as long as your cash on cash return is greater than the interest rate of your loan, your outstanding loan, it can make sense.

Michael:

I think so.  If you could take 20 grand and put it into a house and make 7%, you take that same 20 grand to go pay off 4% interest. I'd say you're better off making 7%.

Emil:

That cash on cash also is not accounting for again, principal pay down from your tenant, paying your mortgage and the tax benefits, right? So reducing the amount you owe to the government. So there's all these amazing benefits that we talk about. So

Michael:

Yeah, the total return of investing in real estate is much bigger than meets the eye.

Emil:

Yep.

Pierre:

Cool. Thanks.

Michael:

Totally, great question. Yep.

Emil:

All right. I think with that, we're going to wrap up this episode. Thank you guys so much for tuning in. If you haven't already make sure you go subscribe wherever you listen to podcasts, you get notified. When we release new episodes, we're doing about two week right now. Hope you guys are enjoying all of them. If you guys have questions, submit them to us. We're happy to keep doing these AMAs. You can message us on Twitter. So I'm @Emil Shour and Michael's @ Albaum Michael, you can email us. I'm Emil Shore [email protected]. Michael is [email protected] and just submit questions and, we'll keep answering them and tackling them on future episodes. All right, happy investing.

Michael:

Happy investing.