From Zero to 35 Rentals in 4 Years – A Client Success Story | PREI 097
Having a plan of action is one thing, but sticking to that plan is another. Most investors lose motivation when they see a task that is too big for them to do. But Anton Ivanov had a clear vision of his goals. When his tasks where bigger than he can handle, he broke it down to smaller pieces. Anton inherited a condo and became an accidental landlord but then saw that turnkey investments is great for starting investors who want to go out of state. Now he owns 35 rental units across four states that generates passive cash flow. Anton shares his stories of beginnings and how he got his confidence in the real estate investment world.
I have an interesting episode because I have a special guest, but he’s more than a guest. He’s actually a past client. This guy has really impressed me. The reason is because he set out to acquire real estate and build a portfolio. He set some goals and he made a plan. Not only did he execute on his plan but he stuck to it. He stuck to it in a way that he actually surprised me. I got an email with the subject line, “Just wanted to say a HUGE thanks.” I was a little taken aback. At first I thought, “It’s a spam email,” and I was about to delete it but then I recognized his name. I opened it up and he basically said, “I want to reach out to you just to say thank you for all your help, guidance and advice you’ve given me in the few years back. It’s been absolutely invaluable.” That’s literally “right from his email.” One thing led to another and I wanted to get him on the show here to share his experience and a little bit about him and how he got started and why he chose the path he chose and how he built his portfolio. Everybody’s got advice and some wisdom and knowledge and I figured it would be invaluable for a lot of people to learn from him.
His name is Anton Ivanov. He is a real estate investor and an entrepreneur. He has built a 35-unit rental portfolio that’s spread out across four states. He lives in California, so these are not in California. He’s also the founder of an incredible app called DealCheck. It is dubbed the leading real estate analysis software and it is used by over 28,000 investors and agents to quickly analyze and compare investment properties. I actually was part of that beta test when he was developing it and it is excellent. I really enjoy using it and it’s outstanding. If you live off of an iPhone or a smart device, I really suggest putting that on your device because it’s useful. With that, I want to welcome Anton to the show.
If you missed our last episode, be sure to listen to Ken McElroy on The Economy, Finding Deals, Real Estate Myths, Property Management, and Achieving Goals Part 2.
Enjoy the show!
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From Zero to 35 Rentals in 4 Years – A Client Success Story
Marco, it’s great to be here. Thanks again for having me.
It’s my pleasure because you really, really impressed me how you built up a 35-unit rental portfolio when you had essentially zero when we first started. You inherited one property from your family and that was the starting point. With that interesting story, why don’t we start off by you telling us a little bit about you and how you got started with real estate investing?
I’m actually originally from Russia and I immigrated with my family to Southern California, to San Diego in 2000, so I was in high school. I graduated high school and actually right after that, I joined the US Navy, active duty. I served for six years for the American Navy. Along my service there, unfortunately my parents passed away. They left me with a condo that they lived in here in San Diego. That was my first experience with real estate. I was young. I was in my early twenties. I basically became a landlord when I least expected it. I was stationed in Japan in the Navy warship. I almost sold it right when I inherited it because I didn’t know anything about real estate. I never owned a property and frankly, I was a little scared of what all of that entails. I’m really glad I didn’t. I did keep it and for a few years, that was the only real estate investment I had. It produced very little cashflow. It’s Southern California, so prices here are extremely high and rents arenot comparable to that. From an investment perspective, it was not a great deal at all. That didn’t give me a lot of encouragement, this asset that I owned that really didn’t generate much income for me.
It did give me some insight into being a landlord, dealing with remote property management. I was in Japan, this property was in California, so obviously I used a property manager to handle all the day-to-day operations, leasing, maintenance, upkeep and all of that. I went a little bit backwards than a lot of people. Most people buy a property and then become a landlord. I almost skipped the whole buying process the first time and just got thrown into being a landlord. I think that experience with managing a remote property or supervising a property manager who was managing my property for me really set the foundation for what came forth later and allowed me to see what it’s like, see what real estate is all about and obviously develop some systems and processes and expectations with how to effectively manage rental properties when you’re not around. That’s how I got started.
Fast forward a few years, I got out of the Navy and I moved back to San Diego with my wife and settled here into a civilian career. I built up a little equity portfolio up to that point. I was buying stocks and some index funds and diligently putting money away for retirement like a lot of people are. I started wondering, “Are there alternative solutions? Can I get better returns on my money elsewhere?” I had this property which was not producing great returns, but it was an alternative investment method. I got interested a little more in real estate. I started reading a lot of books. I read BiggerPockets, which is a great resource and I was warming up to it. At that point, I also started looking at local properties in San Diego just to see what the market is like, what kind of investment properties are available locally, how much money can I make. What I basically realized very quickly is that my local market, at least for somebody like me who didn’t have many connections, who didn’t have a lot of money to invest at that point, the San Diego was not really going to work out. The prices here were ridiculously high. $300,000, $400,000 plus was the minimum to get any property. The returns that you’ve got on those properties were fairly low, so most of the time I couldn’t even find a cashflowing investment if I just scan the MLS.
That got me thinking, “What can I do? I still want to invest in real estate but maybe the local market is not the right solution.” I started looking at other markets and a lot of other strategies for how investors buy out-of-state properties. That’s actually how I found out about turnkey investments and connected with you and Norada for the first time. I looked at turnkeys and what I realized is that they can be a great opportunity for somebody like me who wants to invest out-of-state in these cheaper, better cashflowing markets, but doesn’t really have a lot of connections. I don’t have a local team. On top of that, I had a full-time job so I really didn’t have enough time or experience or knowledge to build up a local team at that point remotely. I realized that turnkeys can actually be a great vehicle to help me get started with real estate, buy a few properties, start generating that cashflow and then go on from there. That’s actually what I did.
When we connected, you helped me and my wife buy four properties within a span of about a year and a half in Atlanta, Georgia and several in Birmingham, Alabama. These were the first few properties that I actually bought myself in addition to the condo that I inherited from my parents. These were my first real investments. They were all out-of-state. What really helped me is I had a lot of experience with remote property management. I was able to use that to basically make it a very effective operation after I bought them and was able to effectively manage them. I actually still own all those properties today and they produce great cashflow, so I had great success with buying those few properties. That was my starting point. After I bought those few properties, I continued looking at real estate and kept building on in my portfolio. I eventually moved away from buying turnkey properties as I had more experience and more connections. More recently, I started buying multi-family properties, four-plus units in Kansas City, Missouri. Over the last four or so years, me and my wife had built up to a total of 35 rental units and the interest spread out across four states.
You became an accidental landlord is effectively what happened when you inherited that condo. You jumped in willingly or not into real estate investing, although it wasn’t necessarily the best market to be in. Thank you for your service. You could have started anywhere. You could have taken a more active approach in wholesale properties or purchase distressed properties to rehab them and then flip them or rehab them and just hold them yourself and build your portfolio that way. You didn’t. Why did you choose to buy more passive rental properties or even where you started, turnkey rental properties?
Once you start reading online, real estate has a lot of different ways you can start investing. A lot of people are successful with wholesale deals, flipping, doing the deals, more advanced rehabs. When I initially was reading all the material available, I absorbed all these different strategies and long-term buy and hold method fit with my with my risk tolerance with what I wanted to accomplish better than anything. The reason for that is I was looking for a long-term investment solution that would generate me cashflow, specifically more or less passive cashflow, and eventually enable me and my wife to retire or at least quit our full-time jobs and live off of our passive income. The rental strategy fit the most into that plan. I looked at flipping homes with that and wholesaling to me seemed more like a job. It’s something that you have to keep going and keep going with it. If you’re doing it and you’re doing well, it’s generating you income. When you stop, the income stops. I already had my full-time job that I worked and I was happy with, so I wasn’t necessarily looking for a new avenue to add to my income stream that I have to work for. I was specifically looking for passive income for long-term assets that would generate this income for years and decades to come. That’s why I chose rental properties.
As far as turnkeys, in my situation where I had some money to invest but not a lot, so my local market was not necessarily a good fit for me. At the same time, I had pretty much no experience finding deals and buying properties and going through that whole process. I definitely didn’t have local teams and all these other markets to do extensive rehabs. Frankly, I didn’t feel comfortable with that. I read a lot of stories of rehabs gone bad and it makes sense that it’s something that probably you shouldn’t jump in head first unless you have some prior experience maybe doing flips yourself or you truly have an excellent team on the ground that you trust and that can do a quality rehab for you. Given that I didn’t have any of those, the turnkey model fit perfectly. I was able to buy really great houses in good areas with good cashflow with basically minimal work required on my part other than find the neighborhood, find the actual house, run my cashflow projections. I basically skipped the whole rehab component and the risks associated with that. Granted you pay a little price for that, whereas you’re basically buying the properties at around market value, so you’re not able to get a deep discount into that. At the time, I felt like that was a good way for me to get started.
A lot of people take this approach when they lack the time necessary to put towards an active model, an active approach where you’re remotely managing a crew of people, even if it’s local, but just to find a distressed property that you can acquire, fix it up, do it under budget and get it done in a reasonable amount of time where you could put it back on the market and hopefully have some equity in it. Even if you don’t, just to have a portfolio or build a portfolio that is performing and generating income. It’s not just the time, it’s also the experience. A lot of people don’t have experience and that’s why they choose this route. A lot of people just really don’t want the brain damage. They just prefer to build the portfolio as passively and as hassle-free as possible. I think that is ultimately what you did in the beginning and then as you gained more experience and you had the luxury of having that “extra time” on your hands, you were able to take more active role. Not entirely a full-on active role of being a full-time or professional rehabber, but you were able to be more involved as you built it up. That segues to the whole topic of markets. Markets are very important and that’s really the starting point. It’s the top of my funnel. Investors often don’t know where to start. How did you pick the market to invest in? What was your starting point other than having the conversation with me?
What I’ve seen talking with a lot of other investors, they’re so eager to start looking at actual properties, running the cashflow numbers that they almost ignore the market piece completely. Actually that will, in my experience, have a significant and maybe even a prevailing impact on the returns in cashflow that you will get long-term. Picking the right market or at least the market that fits with what you’re looking for is extremely crucial. Basically, the way I went about it is I first set a series of goals or expectations or criteria as far as what I’m looking for. For me, price point was a big consideration. I had some money to invest but not a lot, so I was looking at markets that were basically below $100,000 purchase price point where I could buy quality investment properties for $50,000, $75,000. That was one of my criteria. Right off the bat, that limited a lot of markets, especially areas like California or some of the higher value East Coast areas from that list. Following that, I looked at what am I looking for in a rental property. To me, it has always been a strong cashflow. Some investors like the appreciation aspect and they tend to gravitate towards more cyclical markets, even like California or other coastal areas where if you buy at the right time, the property can appreciate significantly in just a few years and maybe you can get lucky and sell and make your money. I wasn’t looking for something like that. I was looking for a long-term investment that would generate consistent passive income. With that mindset, the equity and the price appreciation becomes almost the secondary goal. I never planned to sell any of these properties or at least not in any foreseeable future. What the property price did is almost irrelevant to me.
It’s great when you get appreciation, but I was focused more on the cashflow. That was a big consideration into my market search. That pretty much eliminated coastal areas that tend to be a lot more cyclical. You can buy at the wrong time at the peak of the market and that would negatively affect your cashflow and cap rate and returns obviously. I gravitated more towards the middle of America and that’s why I picked Atlanta and Birmingham initially and more recently, Kansas City. They tend to be very strong markets as far as economics and demographics are concerned. Those are the factors that I always look at. I like cities that have a diverse job sector that are not dependent on a single industry, that have a growing population, a sign that the city is doing well, people want to move there. Obviously, it goes hand in hand with the jobs. At the same time that the prices are somewhat low, the cashflow is good so your cap rates and the cash-on-cash returns that you get can be fairly high.
There were some other minor considerations like weather due to increased maintenance costs associated with having a property in a very rough climate, maybe like north parts of America where there are heavy snow storms that would do more wear and tear on your roof and other structures. At the same time, I didn’t really like super hot areas like maybe Phoenix where it’s so hot that could potentially add more wear and tear. I picked milder climates and I put all that together. I had several conversations with you and you were extremely helpful educating me on the cyclical versus linear markets and the differences in cashflow and price appreciation. Combined with all of that together, I was able to narrow it down to basically just a few cities and ultimately settled on Atlanta, Birmingham and more recently, Kansas City as they just better fit all of my combined criteria for a market.
I think it’s important to point out for people that these properties you’ve purchased between $50,000, $75,000 and $80,000 back then was four years ago. Although those properties were purchased in decent neighborhoods, today those $75,000 properties are hard to find that you can’t get them. They’re not worth $75,000 anymore. They’ve appreciated. What you’re talking about in terms of purchase price as of four years ago is a different story today. Today, you’re looking at $90,000 to $100,000 properties. It depends on the market but I just want to keep things in perspective. Today, we as a company don’t really like selling anything under $70,000 to $75,000, not just because property values have appreciated but because we don’t like to lean into the C class neighborhoods like other people like to do or other providers like to sell. I personally have a preference for the upper B class neighborhoods and maybe the A- type neighborhoods, but that’s my personal preference.
That’s a very good observation about the neighborhoods. Over time, I did also develop a strategy where I basically liked the middle of the market. I tend to avoid the super nice, the super desirable neighborhoods because the prices there tend to be overvalued because of the homeowners wanting to buy the houses. You tend to see higher prices there, probably better tenant quality if you did end up buying a property there but I just didn’t find that returns in those areas really justified themselves. At the same time, I also avoid C areas pretty much entirely. The cashflow can be great, the houses are cheap, but the tenant quality tends to degrade so much that you just start having recurring problems, missed rent payments, late payments, tenants literally just skipping town, leaving your property and you don’t find out until the next month that they did so. I think that I would agree with you as I prefer those B, B+ areas as the bread and butter of buy and hold investing where you get the best combination of prices, meaning they’re fairly reasonable but at the same time you get really good returns and good tenant quality.
I wanted to bring that up because it’s important to point it out. On the C class neighborhood properties, it’s the cash-on-cash return and the cap rates that look very attractive and it is, to some degree, what seduces investors to look at those properties as being more attractive. It’s not that the cashflow is better, it’s the cash-on-cash returns and cap rates that are more appealing. Your cashflow is actually higher in dollar terms when you get up to these $100,000 to $150,000 properties that are in better neighborhoods because in dollar terms you’re making, roughly speaking, about 1% of the purchase price. $130,000 property is going to rent for roughly $1,300 a month, maybe $1,250, maybe $1,200. What your net cashflow is in dollar terms is better than buying that $50,000 or $60,000 property. It’s actually higher. Your cap rate and your cash-on-cash return might be lower, so it’s important to differentiate these two things. If you’re focused on cashflow, the numbers are better on the more expensive properties. The cash-on-cash return is often higher on paper in the lower-end properties, the lower-end neighborhoods.
To your point about the types of tenants that you’re dealing with, that demographic, the potential problems, anecdotally speaking, the higher turnover, that eats into your annual cashflow. What might look good on paper at the end of the year might not be so good because you have these ongoing problems. That’s not true all the time and it’s not true for everybody and it certainly wasn’t true for you in the beginning being in a $50,000 property. I bring it up because I want people to be aware of what they’re looking at when they’re comparing lower-priced properties in C neighborhoods versus B neighborhoods versus A neighborhoods.
I think a big part of that really comes down to having realistic expectationsat the beginning. A lot of times, especially the turnkey providers that operate in very lower-end neighborhoods like C areas, they’ll list still a 5% vacancy and something like 5%, 8% maintenance. Realistically, if you own properties in those areas, I think what you’ll find out is the vacancies are just going to be a lot higher because of the late payments because of tenant issues and the increased turnover and lease-up times that you have if your tenants are turning over more and more. At the same time, you’ll see your maintenance costs go up. The cash-on-cash returns and cap rate may look attractive but in fact, I’ve seen it where it’s basically just inflated. It’s presented in a way where an investor who’s not familiar with the area would be attracted to just the actual numbers in returns. If you speak with somebody who either owns property there or lives there or has previous experience owning those types of properties in those areas, you’ll basically realize that it’s just unrealistic. The cash-on-cash or other projections listed are basically almost false, you can call them. It’s projection, so you have to take them with a grain of salt.
I think one other thing that really helped me along my way is being very conservative with my cashflow estimates. I always ran the projections myself. I know that a lot of turnkey providers and even just traditional sellers that want to give you some operating statement or returns that you should expect, I look at that but I don’t take that and just run with it. I always like to run my own cashflow projections using my own estimates that I think make sense for the area, the type of neighborhood, the propertyand the age of the house, for example. If it’s a house built before 1950, I know that realistically it’s going to have just more ongoing maintenance costs than a house built in 2000. As houses age, systems degrade and it’s part of the real estate investing game. At the same time, a house in an A+ area is likely going to have very small vacancies, whereas a house in a C area will probably have longer vacancies and your tenants will turn over so you will have more downtime. I think for any investor, it doesn’t matter which market or which property types they’re focusing on. Running the cashflow projections yourself in a way that you can actually explain it to somebody, that’s the basis that I went with. If I’m putting some numbers down on a piece of paper and using them to estimate my returns, I should be able to explain every number to myself or to another person if they were next to me even if I was alone. If I’m putting 5% for vacancy, I should be able to justify that or maybe it should be 10%. I may find that out once I actually start thinking about it.
What this basically allowed me to do is have very realistic expectations going forward and I just wasn’t disappointed. I save all of those projections that I make and then I compare them to my actual returns that I get years later. I can honestly say I don’t think there was a case where the actual returns were worse than I projected. In fact, it usually works out to where the actual returns are much better. That’s fine with me. I would rather be pleasantly surprised or impressed with the performance of my rental properties than basically be disappointed or get stuck with a property that’s a cash drain for me every month because of ongoing issues.
One of the takeaways here is that as you get into properties in lesser quality neighborhoods, as you approach B- and into the Cs, what you want to do is bump up your vacancy allowance, whatever you’re factoring in there, as well as your maintenance and repairs because you can expect that those numbers are going to be higher. If they’re not, great, you’re pleasantly surprised. In case that is true, then you’ve prepared for it, you’ve budgeted for it and your projections are going to be closer to your actuals. I think that’s an important point and a key takeaway here. Let’s talk about properties. Everyone has a different criterion when it comes to choosing property specifically. Did you have a criteria in the beginning or what was your criteria for choosing your properties? You touched upon this but did you have a criteria right from the get-go?
I definitely did. My criteria evolved somewhat over the years based on where I was in my real estate trajectory and how much funds I had available, but I always had criteria. When I first started looking at turnkey properties back in the day you had on your website and other turnkey providers, it was somewhat overwhelming the amount of potential investments you can make. Very early on, I developed a set of criteria that not only steered me in the right direction, so I end up with a property that I was happy with but frankly just helped me narrow down the available selections. I’m an analytical person and I had to have some way to narrow down my choices. I couldn’t just pick this one because I like the pictures or something or pick the one with the highest return. I always had a criteria. I think at the beginning it definitely revolved around property price. I had a limited amount of cash to invest. I was using financing, so using the 20% down conventional financing that I was going to get. I immediately limited my purchase price. Back then, less than $100,000 was my range. On top of that I had several additional criteria, one being the property age. I really did not feel comfortable buying turn of the century homes or homes older than about 75 years. I wanted a 1950 plus age, built in 1950 or later was one of my target criteria just so I was not stuck with a property that was so old it was going to have just so many additional problems.
On top of that, I was fairly picky on the layout of the actual homes. Once you start looking at the pictures and the floor plans, you realize that there are all kinds of homes out there and some are just built very poorly. It may seem insignificant for an investor like, “Who cares? I’m not going to live there,” but what I found is to get a home rented when you’re actually trying to rent it and tenants are looking through your property, that’s what they see. They see your property, they’re going to look at the layout, they’re going to look at how many bedrooms it has and you have to cater to your tenants. They are your customers. If you buy a property that looks great and potential cashflow is great, but you’re having a hard time renting it out because it’s either too small for the area. If it’s a one-bedroom place and most people locally are families, your potential tenant base is going to be a lot smaller. If you walk into the kitchen and it’s just so poorly laid out that most people are going to walk right out, effectively long-term, your vacancies are going to be higher, your income is going to be lower, and your returns are going to be lower. I focused on buying a property that I would potentially live in. Maybe it wasn’t my ideal place but if I have to, I’d live in it. It was functional. It fit in well with the neighborhood.
The final criteria was the cashflow and the cash-on-cash returns. I think back in the day, I set a minimum cashflow of $150,000 per property. I would not buy a property less than that. My cap rate range was around 7%, 8% plus. That’s using my very conservative estimates. I’ve seen a lot of properties advertised for 10%, 12% cap rate but then when I use my more conservative projections, they came up to about 6%, 7%. I think between those criteria, I was able to narrow the list down pretty well. That eventually allowed me to buy some of those properties. Going forward as I was building my portfolio in more recent times, I always have a property criteria and in fact pretty specific. It still includes property age. I’m still big on that. The purchase price, my max purchase price varies depending on the available cash I have right now. Some of those things like having a functional layout and number of bedrooms, bathrooms that fit well in the target area that would appeal to the most tenants, I still keep today and I think they’re basically universal criteria that any investor could benefit from.
I’m glad you have a criteria and we always encourage investors to put a criteria together. We actually hold their hand and walk them through that process of building that criteria because sometimes they really just don’t know. I would add one more thing that is really more of my personal preference than anything else to the list you just gave. It might sound a little superficial but I like to look at the curb appeal of the property and how it presents itself when you first look at a photo or you drive up to that property. What’s going to happen is whether it’s a retail purchaser or you have a tenant that pulls up to a property looking at it for the very first time, what you need to happen in between their ears is they need to get that feeling and sense that, “That looks like home. I feel comfortable with that. It’s attractive. I could get used to driving up to this property every day coming back from work.” That curb appeal is an important factor for me. It’s not a quantifiable item. It’s more qualitative than quantitative. For me it plays into the equation when I look at a property. Just a little thing but it’s a little thing that certainly helps when it comes to leasing up the property or selling it down the road should you ever want to sell it.
It goes hand in hand with the layout and just the general look of the house. It’s not necessarily something you can point your finger at necessarily or write down the exact criteria that it should fit. Ultimately, you’re trying to sell your property to a prospective tenant or perhaps somebody else who is buying it later down the road. If it looks like crap from the outside and not very well on the inside either, you’re going to have a very hard time renting it or selling it.
We have two kinds of investors. I’m going to ask you for some advice if you have any. There are those people that are just getting started. Literally, they’re thinking about it or they’re getting ready to purchase their first investment property or they’re in the process. Then there are those people who have very small portfolios but they’re still relatively green. What advice would you give to new and small investors that are looking to grow and get going down the road where they have the momentum that you’ve had because they want to build up a larger portfolio, whether it’s 5 or 10 or 20 or 50?
I’ve met all kinds of investors. Some are just starting out and some have a lot more units. When I was first starting and I was talking to these people, one thing I realized is that to build any meaningful passive cashflow from real estate, you do need a lot of units unless maybe you’re just sitting on a pile of cash and you buy properties without financing, which I think is rare. Most of us are going to use financing and when you work out the returns, you’re going to get a few hundred dollars per property per month. Realistically if you want to retire on this income or if you want to live on the income, you need a lot of units. That’s why actually me and my wife, early in our real estate journey, we set a goal that we wanted to have 50 rental units. We arrived at that number by working backwards from, “How much income we want per year and per month? Let’s say an average property yields us $250 per month, then how many units do we need basically?” We worked out to that number and then that was our goal.
I think it’s very important for any real estate investor to come up with a goal of units that they realistically want and when they need them or want them by to have some roadmap. If you just buy one rental property here, one rental property there, I’m sure you’re getting some income. I feel like it doesn’t give you that drive and that power that you will have if you do have a set goal, if you say, “By age 40, I want to have 50 units. Let’s see where I’m at today. Where do I need to be next year?” My piece of advice is fairly general, setting goals, but it really helped me to focus on where I need to be this year? How many properties do I need to buy this year? How many properties do I need to buy next year? I hold myself accountable to that.
The second piece of advice is there are a lot of real estate investors who use creative investing strategies and syndication and partners. Me and my wife, we didn’t do any of that. It was always just me and her. We didn’t get money from friends or family. We didn’t partner up with somebody or do syndicate deals. We did more of a traditional approach by just doing it yourself. What really helped us is actually our finances outside of real estate. By that I mean we both have jobs, we both work, we try to maximize our income from other sources. At the same time, we try to save as much money as possible, have a high savings rate, live a frugal lifestyle. That allows us to save up for those down payments that much quicker. Combining that with all the cashflow that we get from rental properties, which we do not spend, we do not collect it, it basically just keeps itself in separate accounts and then we add to it from our own income, from our full-time jobs constantly. Over time that’s what really powered our growth.
At the beginning, it was basically just our savings that were driving our new purchases. Over time, as we owned more rental properties, all the cashflow from them added to our personal income and allowed us to buy properties much, much faster. It’s basically like a snowball. It’s slow at first. Maybe you buy one property and then wait a few years. Over time after five, six, seven years, you get to the point where now the cashflow that you get from your properties is a lot more than what you can actually save yourself. That’s what really powers your growth. The key here is to be disciplined and consistent and live that frugal lifestyle. Don’t be tempted to just start collecting this passive income from the rental properties and spending it. Instead save it and use that to buy more and more units until you reach your goal, let’s say those 50 units, then you basically made it. I think keeping that trajectory very consistent, having your eyes on the prize and really focusing on growing our portfolio instead of just starting to spend the income really helped us.
Another way to snowball the growth of your portfolio is to equity-strip or refinance properties when you are equity-rich on a property. If you can take that equity out, you can redeploy it into the purchase of more properties. That is also a tax-free event if you do it the right way and we can help you with that.
In the last few years, the properties that we purchased at the beginning that now appreciated in price, we are doing a round of refinances that allows us to keep our portfolio leveraged, pull some cash out from our properties, used that to buy more units. It just basically adds to the whole snowball and can allow you to build up a portfolio that much faster.
Some people are probably wondering how you’re financing these properties, especially when you’ve gotten past the twenty-property mark because you’ve clearly tapped out the number of conventional loans that you can get. How are you financing it? Are you using portfolio lenders?
In the last two years, we started using commercial loans. It’s very true what you said. After a certain point be that five, ten, it varies depending on your financial situation, it’s hard to get conventional loans. We try to get them as much as we can because the terms tend to be better. For about two years, we’re basically tapped out. I did look at portfolio loans. We ultimately settled on commercial loans because we’re looking at those bigger multi-family units and I was able to establish relationships with some banks here in California that still have really good terms and longer amortization periods and anything going forward will likely be for us. Since we’re focusing on those multi-family properties, we’re financing them with commercial.
I assume those are 25-year amortizations.
They are. The terms vary that we get. I was able to find a lender that has ten-year terms with up to 25-year amortization periods and interest rates that are still very competitive. It’s a much less regulated market than conventional loans. I think when you get to that point in your portfolio, it really makes sense to look around at available financing options, talk to more established real estate investors, which is what I did and how I eventually found a few lenders that have really good terms and flexible to where they can actually even finance smaller multi-families like duplexes and fourplexes with commercial loans as long as titles and LLCs.
They say that experience is a great teacher. Most wisdom is gained by experiencing different things as compared to acquiring knowledge through schooling or just any other mean. In looking back now in what you’ve accomplished over the last four years, what would you have done differently, if anything at all?
I’m not sure if I would’ve done anything fundamentally differently. I think I’ve definitely learned a lot of experience with being a landlord and managing a portfolio now that’s rather big, of 35 units. At the beginning,I used to spend a lot of time micro-managing properties myself. I would get really attached to a property and I wanted to see every statement, look at every maintenance request for every property. If there was a slight something I didn’t like, I would start calling my property manager and asking a lot of questions. I think long-term that actually is not a viable strategy because as you build a larger and larger portfolio, you basically become the CEO of your business. It’s more important to empower your property managers, establish processes and guidelines and procedures that you both agree on so that will help them operate in a way that you want but at the same time distance yourself from your portfolio. With each additional unit that you purchase, you don’t want to spend more and more of your time on it because what will happen is you won’t have any time for anything else. That was happening to me for awhile until I took a step back and realized, “This is not scalable. If we want to get to 50 units, I cannot spend all this time managing these things myself.”
Instead, I talk to my property managers. I really hammered down on what things I care about, what things I don’t really care about. I taught them to be more effective at managing my properties and build that trust relationship where I trust them to do a lot of important decisions and handle leasing and maintenance and even renovations at this point without me. Basically that trust built over time and I feel like a big impact in that was me training them and making sure they understand how I want things done. At the same time, after we did that training session or that explanation, I would leave them alone so they feel like they know what they’re doing, they have the power and just let them do it. Ultimately that’s what you’re paying them for and they’re probably the most important member of your team. You can’t just go around micro-managing somebody. I’m sure none of us will like it if our bosses did it at work and I don’t think a property manager likes it if you do that as a real estate investor to them all the time.
It’s important to set expectations right from the beginning because then you feel better about it and you’re more comfortable with them, but you also probably have built up a level of trust with your property managers. That improves the relationship. That’s great advice. You don’t want to micro-manage. You certainly want to supervise not necessarily manage your managers, but certainly be on top of it. You have a great app. I want you to share what your app is and where people can find it. If you have anything else you want to mention, go ahead and mention that. Please share with our listeners how they can find your app.
I’m the founder of DealCheck, which is basically a property analysis software that I initially built myself and now it has grown to a big following of over 28,000 investors and real estate agents who use it daily to help them analyze rental properties, rehab projects, flips, commercial buildings, multi-family properties. My initial motivation for it was I was really big on analyzing the cashflow projections and estimating property returns. I couldn’t really find a good tool that I liked. I know there are some calculators out there. I wasn’t really happy with them. I wasn’t really happy using spreadsheets, so I built a mobile app that allowed you to run all of this analysis with just a few clicks right on your phone if you wanted to and generate really good reports that you can send to your lenders, other investors, partners. We’ve grown quite a bit. We now actually have a web app as well, so you can use DealCheck on your computer, tablet, laptop, phone, whatever makes sense. All the data is synced across. You can try it free at DealCheck.io. It’s free to sign up, so I encourage everybody to give it a try.
Anton, congratulations on your success. You’re rocking it here with 35 units and growing. I know you’ll hit your 50-unit goal; great story to inspire other people. I appreciate you taking the time to come on the show.
Thanks for having me, Marco. I had a great time. Thank you personally for all the help and advice that you’ve provided me early on. That played a big role in helping me get where I’m at today.
You’re very, very welcome. Thanks again.
I hope you found this interview with Anton to be inspirational and encouraging. You have everything you need to accomplish your goals already inside you. You just need to be really clear on what it is you want, write it down, be specific and create a roadmap or a plan for yourself. If those tasks just seem too big, especially when you’re getting started and you don’t actually have that momentum to move forward, take those tasks and break them into smaller chunks. Break them down to smaller bite-sized pieces because you’ll find it easier to do something small, simple, easy and tiny than something that seems monumental at the time. As you keep doing that, you take one little bite after another bite, after another bite, and you start eating way at these tasks, you’re going to find that you’re not only going to build momentum but you’ll feel good about yourself and you all of a sudden will start to feel confident. You’ll have that momentum and excitement to keep moving forward. You’ll just plow through walls.
That’s what Anton did. He went from basically zero property to 35 in four short years. He’s well on his way to his goal of 50. He’s at a point now where I think he’s financially free, but it’s not the goal that he ultimately wants. He’s happily working at his job. I know that once him and his wife get to that 50-property goal they might revisit what they’re doing and maybe do something that they actually enjoy doing maybe more. Maybe they’ll be full-time real estate investors and that’s all they’ll focus on. At least, they’ll have that time freedom. That financial freedom just leads to time freedom.
If you have any questions you want to ask me or my team, you can click the Ask Marco! link at the top of the website and submit your questions to me. I’m going to be doing an episode with listener questions here soon. Just go to PassiveRealEstateInvesting.com, click Ask Marco! and submit that over to me. If you haven’t subscribed to the show, go ahead and subscribe on iTunes, Stitcher, wherever that maybe. While you’re there, help us spread the word. We try to put out good content and share good stories and good interviews. You could do that by going to iTunes and leaving us a rating and review. We really greatly appreciate that. It really does help pass this message along because people see that and they read it. Thanks for listening. I look forward to having you on our next episode.
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