On today’s episode we are doing something a little different. We are having one of Norada’s newer active clients interview Marco Santarelli with some common, and not-so-common questions. Be sure to listen for some history, thought provoking questions, and motivation to pull the trigger or keep the momentum going for yourself.
If you missed our last episode, be sure to listen to The Effect of World Events on Your U.S. Real Estate – Lior Gantz.
Enjoy the show!
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What Clients Want to Know… Marco Santarelli on the Other Side of the Mic
On today’s episode, we have something completely different, something I’ve never done before. We’re actually going to turn the tables around where I have one of our current clients at Norada Real Estate Investments interviewing me. What he has done is he’s come up with some questions that he wanted to have answered, and many have been answered, but he’s got questions that he wants to ask because these are the questions that he thinks about, some of the stuff that keeps him up at night. We got talking one day down in Florida and even before then. We got thinking that, “If he’s got these questions, I’m sure that many other investors have these same questions.” We thought it would be neat for us to just have an interview, but he’s the one asking me the questions and I’m just going to answer them as he fires them off at me. His name is Chris. He’s a native of Florida. Chris, welcome to the show.
Thank you very much.
It’s good having you on here. I’m feeling a little awkward about this because I’ve never been interviewed on my own podcast. It’ll be a lot of fun. Before we get started, why don’t you just give our listeners just a high level introduction to who you are and what you’re doing in terms of real estate investing?
I live in Florida, as you mentioned, in the West Palm Beach area. Middle aged, I work for a corporation in the typical E Quadrant, according to Robert Kiyosaki. My wife and I have three children and we’re at the stage in our lives where we realize that our current investment plan is not really going to get us where we want to be, that being our 401(k). We have owned one or two different rental properties over the years. We’ve gotten our feet wet, but at this point we’ve made a decision to go deep and long and make this our main push and our primary vehicle for financial independence.
Wise decision. I don’t want to reveal too much about your financials or your personal facts, but just so people know where you’re coming from, you do have retirement accounts, so you are vested in the stock market. But you also are investing in real estate and your goal was to ramp up your portfolio size on the real estate side and maybe divest to some degree out of the stock market. Is that a fair assessment?
Correct. We are looking in terms of passive streams of income. I’ve first read Rich Dad Poor Dad in the early 2000s. I kept going at the corporate job, my wife kept going at her career. We pretty much just continued on that path in spite of believing in the entrepreneurial spirit and dabbling in rental real estate. Now, I’m going to turn 50 soon, I’m looking forward 10, 15, 20 years and I just don’t see saving money in a 401(k) as a real retirement plan. Even if you are able to assemble a pretty good chunk of money there, it’s just not going to carry you. It’s not going to give you the income that you need. Over the past year, now I’ve been planning and preparing and studying. We’ve reached that point now where it’s time to accumulate those properties and redirect our investments, redirect some of what we have sitting and do this as strong and fast as we can.
There was a reason I asked you that Chris because there are a number of people that we are talking to. In fact, I’ve met with two or three of them just in the last two weeks, face to face for coffee. They’re in 40s and 50s, they have accumulated a fairly sizable chunk of cash or net worth and they’re looking at, “How can I better position myself to take advantage of the opportunities and increase my cashflow and position myself for greater passive income?” Whether it’s for retirement or not, it’s really where a lot of people are coming from right now.
Even though we work with newbies, people who are just getting started, a lot of our clients that are coming to us over the last six, twelve months, are professionals that have half a million, a million plus in investible cash. They’re all over the spectrum and they’re thinking the same things you are. They’re asking the same questions that you are, so that’s what this episode is about. Let’s just fire off some of those questions that you think about and ask and have asked. I’ll hand over the mic to you. You can just ask me whatever you want to ask me.
The first question you probably know a little bit about, I guess it would be an introduction, a little bit more than we may know from your podcast on your personal background. What did Marco do before Norada? How did Norada come to be? The backstory behind where you are today.
Whenever I get asked this question, I never know how far back I really should go. I’ve been entrepreneurial since I was thirteen years old, when I taught myself how to code on a computer and started writing games. I didn’t know anything about marketing and sales, but I just knew that if I came up with a good product, I could sell it. That was back in the days of Pac-Man. When I turned eighteen and I could qualify for financing, I just wanted to jump in and invest in real estate because I just knew that real estate was a great investment. You just see it everywhere, you hear it everywhere, people talk about it. People who have wealth that you know, they typically have created their wealth in real estate or hold their wealth in real estate. If that’s not the case, then usually it comes out from people who have built a business, not a job, but a business where they have systems. They have the income, now they’re taking that income. What do they do with it? They put it into real estate. Knowing that as a teenager, I just jumped into real estate, bought my first property at the age of eighteen. I fixed it up, leased it, managed it myself. It was pretty much textbook, but I went on to buy more property and get my real estate license and sell some real estate.
Then over the years, on and off, I’ve been involved with a couple of other ventures and businesses that I was a partner in or that I had just started myself. Some were successful, some not so much. Fast forward to 1999, 2000, in the heat of the dot-com craze, I was a third founding partner in a dot-com business. It was really more offline, it wasn’t really a dot-com business, but we were funded by venture capitalists out of San Francisco. Because we were VC funded, they considered us a dot-com company and they wanted to take us public, if possible, but we had 9.5 million in VC funding and then the stock market crashed, the NASDAQ crashed in 2001. Everybody’s VC capital dried up. There was no more access to funds.
At that point, I fortunately, was in a position where I didn’t need to go back into the corporate world or get a job and I decided to just take a step back and just take a couple of years off. I just dabbled with some things, otherwise, I’d be completely bored. Then in 2003, I got an email from someone that our listeners are maybe familiar with, that’s Robert G. Allen who had authored and coauthored about 20 books. He’s considered one of the godfathers of Nothing Down Real Estate. In the middle of the summer, I got this email saying that in September of 2003, there was going to be this free two or three-day boot camp, seminar, whatever in Orange County, California. I thought, “I love real estate. I’ve always loved real estate. I’m in real estate. I’ve got nothing better to do,” so I went to this two or three-day event. It was amazing. The content was great, it was really high energy.
The amazing thing was that people were whipping out their credit cards at the end of the first day or at the beginning of the second day. They were buying this $15,000 and $25,000 boot camps. Ultimately, the price went up to $35,000. They were going to these events that were four, five or six events in different cities around the US and getting further education. The interesting thing was that you still had to pay for your flight, accommodation and food on top of the tuition. I did go, I signed up and I went. I met hundreds of investors. That was the greatest thing that came out of that for me. What I learned and the reason I started Norada Real Estate is because people were wanting to invest in real estate, they wanted to educate themselves, they didn’t know what they didn’t know so they wanted to learn so they can invest.
The biggest thing was that in 2004, I started buying up a bunch of property. In fact, over the course of 2004, 2005, I had amassed 82 or 84 units. I had bought a lot of property. Investors were coming to me early in 2004 saying, “Where are you finding these deals? How are you analyzing it? Can you help me? Can you coach me? Can you find me some deals and bring them to me so I can buy them and I’ll pay you a fee?” That’s really how the company started and that’s a little bit of my personal background. Here we are thirteen and a half years later, we are one of the largest providers of turnkey rental real estate in the US.
Where do you see that going over the next five to ten years?
My goal, my vision, and this is something I’m actively working on today, is to become the number one largest provider of quality turnkey rental properties in the United States. We are on that trajectory. I have been hiring to help accomplish that vision and that goal. I certainly expect to achieve that within the next five years. We are making some in rows right now into China to help funnel some of that capital towards the United States. It’s going to come here one way or another, I just want to make it easy for them. That is our overall goal. That is my mission right now, to become a premium quality provider of rental properties for investors so we can help investors at all levels expand their portfolio and create financial freedom, which ultimately leads to their time freedom.
The problem is that there’s a lot of education out there, but a lot of people don’t know where to get it. We’re not an education company, but I do provide some of that through this podcast, our blog articles and just the free consulting that we provide over the phone with investors. I want to keep doing that and provide more of that. I think the benefit that comes out of all that is really just gaining people’s trust and loyalty to work with us and to refer their friends and family.
When I started looking for turnkey properties in different states, I really didn’t know where to turn at first, so I went where everyone else would, which is to Google. That’s pretty much how I ended up finding your site and learning about your podcast. As I listened to it, I started to understand a lot more, a lot faster about the importance of having a team. One of the biggest concerns that I had was how do I manage the property remotely. I’d use property managers even for houses that are local to me, but I’d still have to go by the house at times, I still have to deal with things with my own two hands. Doing that long distance, I didn’t have my head around it or how to go through a rehab process or really how to do the type of financing necessary to ramp up into a portfolio. When I realized that that’s the main thing that Norada does, it really has the team waiting for you, was when I became really excited about it. One of the questions that I would have asked you in the beginning is, what’s the difference between going to Norada and going directly to providers in the market? The answer is your value add. I don’t know if you could elaborate that a little bit better than I just did. What does Norada bring to the table for somebody who wants to do this but really doesn’t have a team?
There’s no rocket science to investing in real estate, it’s just a matter of educating yourself and gaining that confidence through competence. Anybody can do it on their own if they want to put in the time and energy to learn. Experience is the best teacher. When you go off and do it on your own and you try to build your own team, sometimes you get knocked down and you step on some landmines. Hopefully, those are not expensive mistakes, but often, they are. I’ve made my fair share of mistakes, as many people do. What we’re going to help an investor do is avoid those landmines. You obviously have goals and you want to get to a certain place financially. If you want to do that through real estate, we can be that counselor, that advisor, that guide that can explain the dos and the don’ts, help you select markets, help you select properties and what neighborhoods to be in and pull those goals and that criteria out of your head. Those are just some of the value added things that we provide, that handholding and guidance. Plus, a really big thing is if you’re starting off on your own, you’re really trying to identify the market you want to be in. That involves some research. We help to shortcut that process.
Once you’ve identified the market, now it’s a question of, “Who do I work with?” You can start calling up real estate agents. If you’re buying a fixer-upper, then you’re going to have to find some competent contractors, the same thing with the property management. Property management is critically important. You live and die by your property manager so you want to have the best management company you could possibly have. You can call up a bunch of companies and get referrals and try and figure it out on your own, but all the companies that we work with, the team that we have, the people that are within our network, those are all people that we’ve worked with for years. They have a history. We know what that history is. When we recommend someone, 98% of the time, we have a high level of confidence in recommending them, we know what you’re going to get in terms of service and results, we don’t necessarily manage them, but we keep our finger on the pulse and we know what’s happening. If there are issues that come up, we deal with it.
Team is critically important, you said it yourself. Having the right team at every level is important. We’re like that lead on that team of people that you work with. When something goes well, we know about it and we’re happy about it, and that’s most of the time. When something goes sideways, we know about it right away because you are going to pick up the phone and call me or call your investment counselor or even shoot us an email and just say, “I’m having communication problem or I’m having this issue,” or something broke 30 days after you purchased the property. We’re there for you. We’re always jumping in and helping. You can go down the path of creating it yourself or you can shortcut that effort. I wouldn’t say it’s a done for you model, it’s very much done with you where we’ve already covered 70% to 80% of it for you.
I found that to be true. When I first contacted Norada and scheduled the initial appointment with the investment counselor, during that first call I told them my goal in week one is to identify a market. Goal in week two is to have the relationship with the property managers there, the providers there and then start looking at the houses. We hit those goals perfectly and went straight into the houses at that point. It was good. I knew the type of market, but I didn’t know which one it was. Your investment counselor helped me get there.
A couple of questions a little bit more specifically. I’ll ask some that I know the answer to already just because they’re probably good questions that a lot of people wouldn’t know the answer. One of the things that I’ve noticed is sometimes, for example, I selected an initial market and I’m looking at houses there through your provider, sometimes I see that they can have a limited number for brief periods of time. They might have just sold several, they might be buying new ones that aren’t ready yet. I’ll notice on the MLS or through other websites that there are many other houses available in the market, but the provider only has a small number at a given moment. What are your feelings as far as your clients looking at these other properties? Obviously, they’re not through your channel any longer. What do you do to help keep the flow going or to help keep a ready supply? Can you talk a little bit to that temptation someone like me might have to look at a house that’s available when I don’t find it through your provider?
If you talk to any real estate investor that is not aware that there is a turnkey solution where they could work with a company such as ours to have a lot of inventory already vetted out through specific builders and other providers in the ground, what most real estate investors think about first and foremost when they’re looking for property is that they’re going to find it or have to look for it or search for it on the MLS. The MLS is just a very, very large database of anything and everything that’s for sale in a market. Provided it’s not for sale by owner, but everything else is put on the MLS. That’s the main tool that keeps realtors employed, because it’s an exclusive tool where a seller can list a property for sale on the MLS through a real estate brokerage. People put stuff on there that covers the entire gamut. There’s distressed properties, there’s distressed sellers selling their properties, there’s high-end properties, there’s low-end properties, you’ve got stuff that is a complete fixer-upper, you’ve got stuff that has been newly refurbished and is being flipped. You can find all kinds of stuff.
If you have access to the MLS, great. Zillow, Trulia are tools that you could use to search the MLS. I don’t know if it shows you everything that’s on the MLS, but obviously if you’re working with a local real estate agent, whom you trust of course, and understands the investor’s mindset and mentality and there’s chemistry there, if you can work with someone on the ground who ideally is an investor themselves, then you can find properties on the MLS. The question is, where are those properties? You obviously have to have certain neighborhoods or locations in mind, but also the condition of the property. Take all that, compare and contrast that to what we have. We have a far limited number of properties that are listed on our website at any given time. It could be anywhere from zero on a bad day to 10 to 20 on a really good day. They turn over fairly quickly right now because we’re just in seller’s markets in most markets most of the time.
The big difference is this: those five or seven or ten properties that you find on our website at any given time, and I’m talking per market not in total, those are either properties that are newly built, that’s new construction or they’re newly refurbished, which means that they were a “distressed property” at one point in time, but they’ve had a scope of work done to it. That could be $20,000 to $50,000 in terms of what is being done and that’s pretty extensive, that’s a pretty heavy renovation. That would include virtually everything; all the mechanical, flooring, cabinets, fixtures, roof, landscaping, all that stuff. It is very much like a new home. That’s what you’re getting when you work with a turnkey company like ourselves. You’re buying something that’s either new or like new in specific neighborhoods that meet a certain criteria. Again, MLS is like a shotgun approach. It’s got anything and everything, whereas what you find on our website or through our network, because not everything that we have available to investors are on our website all the time. There are for example, new construction fourplexes that we have that we don’t necessarily have on the website all the time and we’ve got other projects that go on.
The point is this: what is on our website is investment great property that meets a minimum criteria of what should be acquired by our investors to build their portfolios, meaning that they’re typically in A or B grade neighborhoods, they have a positive cashflow, they have cash-on-cash returns when fully leveraged of hopefully, 10% or more. There’s just a criteria that has to be met. You don’t find that on the MLS because the MLS is just a big pot of everything.
I can attest to that from what I’ve seen so far with your providers. I’ve bought houses and they’re almost always as is. Whatever is discovered in the inspection report is what you’re getting. Unless the appraisal has a problem, which is a whole different story, but just that inspection report, that more or less tells me how much money I have to spend on a property to get it to rent ready. Not even looking at brand new appliances like a lot of these have. I can tell you how surprised I was in the first house that I had go into escrow through one of your providers, they were in a hurry to get that inspection report. As soon as the inspector left, they were calling me, asking me for it when I got it. As soon as they got the inspection report, I received an email back saying, “We’re all over this list and we’ll send you photographs of everything when it was done.” There was nothing seriously wrong, a couple of outlets here, a little small things like that, but they couldn’t have been more eager to knock everything down on that inspection report. The little bit that they missed during rehab was immediately taken care of and now that house is scheduled to close in less than two weeks. I feel when I’m looking at your properties and dealing with your providers that I know that I’m going to get a quality house. I know that whatever is on that inspection report is going to get resolved also.
The idea is that you’re going to get taken care of. You’re the priority, you’re not just any buyer. You’re our client and we want to look out for you and take care of you. The companies, the service providers that we work with in each market feel the same way. They know that you as an investor, as a client, are probably not purchasing just one property, you’re probably going to be buying one after another after another to build up a portfolio and you’re going to be a long term client on the property management side. It’s important for everybody that you’re taken care of now and tomorrow. That’s a good example that you just mentioned. I didn’t know about that until today, obviously. That’s not an uncommon scenario. What you just described that experience is actually a fairly common experience. If it’s not, we find out about it and we have conversations with the people that we work with and make sure that everybody is working in your best interest.
I couldn’t be more happy. We actually have three houses in escrow with that same provider, all scheduled over the next few weeks. They’re just doing great. They’re doing good work. The houses are fantastic. We actually went in and visited them and walked into the first house and couldn’t believe the quality. Once we did a little bit more studying, we took that one and the next two that we put under contract, we haven’t been inside of, but we have total confidence. Again, the inspection reports are coming back strong, the appraisals are coming back on, so we’re very, very happy. I can tell that they’re eager to please us because we came through Norada. That’s a big difference compared to go in through the MLS I guess. They want to make your clients happy.
I pay a lot of attention to recent sale prices in current listings. It’s a good idea not to overpay for something. The big debate about turnkey versus buying rehabbing and holding it yourself, part of that whole debate is you’re trying to get a house with more equity at the end of the day. You’re trying to get your overall price lower. Personally, I have a job and I’m not going to travel around. I actually do a lot of construction management in my job, so I know that I don’t want to do it at night or on the weekends when I can’t be there and talk to people directly. I am happy to pay the full fair market price for a house that’s been completely rehabbed. When I look at houses, sometimes for example, if I’m looking at a type of house that’s in the $80,000 to $100,000 range in the MLS, then I think it would be right to pay $100,000 for that fully rehabbed house, if not a tiny bit more. Because most of what’s in the MLS is not rehabbed, some of it is in bad shape, some of it needs a lot of money. Can you talk a little bit to why it’s a good idea for an investor like me, somebody who’s working a lot of hours and who doesn’t have the capacity for that type of management, how we should be looking at when we see lower priced houses in the same neighborhood?
I think the answer is pretty simple. The market value of a property is based on comparable properties in the area, but it’s always suggested for the condition. If you have three identical properties on the same street and one has been newly refurbished, it’s one of our turnkey properties, another one is dated, the mechanicals might be five, ten years old or longer, and one that’s a complete fixer-upper. They’re not going to be the same price. Even though they’re the same square footage, same floor plan, same street, same block, they’re going to be different prices. A huge factor is the condition. However, when you’re purchasing a turnkey property or anything that’s completely refurbished, even if you did it yourself, you bought a distressed property and you fixed it up yourself, at the end of the day, when that appraiser goes out, eight times out of ten, they’re going to come back with an appraisal that is reflecting the true market value of that property based on comparable properties, things that are comparable.
If there aren’t exact matches, the appraiser’s job, and this is what they’re trained to do, is to take the subject property and compare it to three to five comparable properties, the best comparables that they can find in ideally a half mile radius and they’re going to make adjustments to those comparables based on condition, whether it’d be the roof, the mechanicals, the kitchen, whatever needs to be adjusted. The price that you see should be, eight times out of ten, what the true market value is of that property. Does that mean you’re overpaying? You’re not because eight times out of ten, that appraisal will come back pretty darn close to what the asking or list price is that you see on our website. We don’t control those. Those are not determined by us.
If that price needs to be adjusted down, it can and often will be because of the appraisal. They’re priced at fair market value. Sometimes they’re at market value, sometimes they’re a little bit below, but it’s pretty rare that you’re paying over. In fact, I say pretty rare, it’s almost never. I mentioned eight out of ten twice, the other two times, those appraisals will either come back above the contract price or the purchase price that you have. One times out of ten, it’ll come back much lower. I’m not talking like $1,000 or $2,000, it’ll be a measurable amount. Often, that’s because it was a bad appraisal. You have a lazy appraiser or just someone who didn’t know what he was doing. We have to contest that and pull comps or do a BPO, a broker’s price opinion just to crosscheck and reference those comparables.
I’ll make one other comment, the prices today are pretty much near market value and they sell. They sell fairly quickly. Sometimes properties will sell before they even hit our website because we know what a client like yourself will want, we know what’s coming down the pipe, we e-market and it never shows its face on our website. Other times, they’ll sit around for a few weeks, but everything is selling because we are seeing a lot of velocity in terms of sales and all the markets that we’re in. In fact most of the markets around the country are very active right now. For the most part, in the seller’s market. They are turning. That means that there’s little to no wiggle room on that price. Will we ask for you? Sure. If it comes up, there’s no problem. We know that the builders and the providers that we work with can sell that property all day long. If it’s not to you, it’s going to be to someone else. That wasn’t the story three, four years ago when we were more in a slower buyer’s market where you had more control or more influence as a buyer. That’s not the case today.
You’re 100% on that. The third property that we put under contract, the provider called us, I don’t think that made it to your website. As soon as they had one that add in auction, they immediately sent us. I think they had an initial picture and after we put it under contract, they started the rehab, but obviously, the contract and everything contingent upon that inspection after rehab so we had all the safety we needed.
That’s a good example, by the way, of once we get into your head and we understand what your investment goals are and we started to identify a roadmap and break that into a criteria. When we know the market, the neighborhood, the property type, the price point or price range, the types of cashflow you’re looking for, once we’ve identified that, we work off that criteria. When we see a property come along that meets that criteria, we can just simply contact you. One of us will contact you and let you know about the property that’s coming up. It may not hit our website and in your case, that third one never did.
Marco, I’m enthusiastic, I’m excited, I feel like I got a lifeboat here as far as retirement or financial freedom is concerned, but one of the things that I have to scratch my head about a little bit is the model you have of selling these properties out to the public and educating people to do this. I’m glad you do it. I’d like to understand a little bit about why you don’t just buy all of these. In other words, you’ve got the partners, you’re obviously making a profit by these partners selling these to your clients, but how come you don’t just syndicate and do a Blackstone and buy thousands and thousands of houses and hold them long term or even without syndication, just yourself? Why is it that you take it in a retail capacity like this?
I find this to be a bit of a funny question because I get asked this from time to time. Not often, but occasionally. The answer is this: Me personally, do I invest? Yes. In fact, I’m in escrow right now on three properties in Kansas City. I’m scheduled to close later this month. Do I invest myself? Sure. We have hundreds of properties that come through our business. Do I have the capacity or the capability or the desire to acquire all of those properties? Absolutely not. Not only do I not have the capacity, but not all of them meet my specific criteria, my personal criteria, my investment criteria. Even if it did, we’re comparing an apple to an orange. The apple is me as an individual investor investing. That’s what I like to do and I will do that. Do I cherry pick some of the properties? Sure, I look at the properties and when I see something I really like that meets my criteria, if I like it enough and I’m looking for another property, I’m going to put it under contract, take it off the website, I’ll buy it myself. Our business is here to help guys like you, whether it’s someone who is seasoned or someone who’s just getting started or anybody in between. The reason I started this is because I recognize that other people needed help.
Again, it’s not just about the education, we’re not an education company, although we provide that. It’s that people need help and a team and resources to be able to do it on their own, especially people who are time strapped. People want to invest, but they don’t want to roll up their sleeves and do the heavy lifting. They have a career, they have a family, they have obligations and they want to do something, they need the help and we’re here to help them. There’s no cost, there’s no fee from us to them. That’s our business model. I guess that’s a long answer to your question, but at the end of the day, we’re here to provide the same opportunities that we take advantage of as investors and we’ve created a business around it. The business is to help you build that portfolio.
I think that that philanthropic approach comes to a lot of people as they’ve reached more success and evolve further in their business where they just have a desire to give back. I sense that in what you’re doing.
There’s certainly a financial aspect to it. I wouldn’t necessarily be doing all of this work for free because I work long days and I typically work seven days a week, although I wouldn’t say I’m working twelve to sixteen hours every day. I want to take some time off as well. Think about this, at the end of the day, if I can look back and see how I’ve been able to help people with their financial freedom and providing them time freedom, showing them an option or an opportunity to improve their lifestyle, I guess is what I’m trying to say, that’s a pretty good legacy. I wouldn’t say that was my primary driver in the beginning. It has become more of a driver as time has gone on because I recognized that I do talk to a lot of people and all our investment counselors, we talk to a lot of investors, we touch a lot of people’s lives, I’d say, we help 99% of the people that we talk to. I think that’s a pretty good feeling. If I can help 1,000 people, 10,000 people improve their lives, then that’s a pretty darn good thing. It’s like Zig Ziglar says, “You can get everything you want in life if you help enough other people get what they want.” I find that to be true.
I agree. I feel the same thing. I feel like I need to talk to some of my relatives and some of my coworkers and say, “Look what I found,” and help people get off of that crash course they’re on.
A lot of people don’t understand. Everybody knows what real estate is, but they don’t understand it as far as an investment. A lot of people seem to think that real estate investing is buying an ugly house and fixing it up and buying a bunch of lumber and hammers and doing work on the weekends to fix a property. Sure, you could do that, but you’re creating another job for yourself. That’s the active way to invest. The passive way to invest is to buy these turnkey properties, the done-for-you properties and just build a portfolio and just do as much of that as you possibly can, as fast as you can. People are watching these shows on TV, whether it’s Flip or Flop, or Flip this House. Those can be a little deceiving. On top of that, so many people that follow the mainstream media and listen to the news, follow financial news, I hate to say it, but they are brainwashed into thinking that investing has to do with stocks, bonds and mutual funds. The reality is that, real estate is far more common and far more lucrative and safe in my opinion than a lot of these paper assets that are out there. I think through education, we let people know that this other option exists. I don’t consider this the alternative investment. To me, investing on Wall Street is the alternative. This is the tried and true, most historically proven investment class or asset class.
I agree. I’ve had a couple of rental properties for the past seventeen years, never more than five at once though. The dive I’m taking now, Marco, it’s because what really comes down to this is it’s safer and this is where I have more control. I cannot predict what’s going to happen in the stock market from one day to the next, nobody can. If you think that you can predict what’s going to go on in the board room of your own employer, good luck with that. I work for a company that’s owned by a private equity, they’re in board meetings today and I’d love to know what they’re deciding on our future. That’s a place where I spend a lot of time.
The pure speculation behind stocks and mutual funds and bonds and things like that, I prefer the real estate where I can decide on what’s the rent going to be and I can pick the house myself. Really, it comes down to the more I can control, the more I can manage. It’s not, like you said, where it’s a job. It’s portfolio management. I like the feeling of saying, “I’ve got this many. Now let’s go add another one to the collection.” It’s fun to go looking for that and to crunch those numbers and call up the property manager and confirm that the lease expectations are accurate. I enjoy doing that a lot more. I look at this as something that I’m going to give to my kids one day. I try to look at every house with the Warren Buffett mentality of, “Don’t buy a stock unless you want to own it for the rest of your life.” That’s how I look at each of these properties. That’s not to say that I don’t know where the exit is and I don’t have an emergency exit plan, but the investment approach is very long term, very slow, methodical, boring. I want to put my energy into making the higher level decisions when those monthly reports come out and into looking for the next properties. In doing that, that’s where I see this as passive income ramping up over the next five to ten years replacing my active income as that time goes by.
One of the questions I have directly related to that is, for me on the numbers that I use just as a rough guide estimate initially and these are going to be correct for every market or every person, but I look at each house as being approximately $25,000 to get into and that’s because there’s some reserve funds and closing costs and it depends on the price of the house. With a minimum cash-on-cash, that would be $250,000 a month so $3,000 a year on each of those properties. As a rule of thumb, you could say ten properties would be approximately $3,000 a month. When I look at that and I say, “With that metric, it’s easy to start figuring out how many properties I need to own, work less hours or for me or my spouse to stop working while the other continues.” How much time do you think a person could truly expect to spend in order to build up a portfolio of say, ten houses or 20 houses over a couple of years? In other words, if I were to say, “I want to buy ten houses over the next twelve months. Two markets, five houses in each market,” what do you think would be a realistic amount of time that I would need to spend on a weekly or monthly basis to do that?
Just to be clear, you’re talking about the acquisition, not the management of those properties?
Correct. My role here where I’m looking at the properties.
It’s interesting, some investors know exactly what they want. Within two phone calls, they’re already shortlisting three properties and putting one under contract. That could be literally three to five hours, maybe two phone calls of one hour each and then some due diligence and emailing on the side. You get there pretty quick. Other people need a little more time. They have to think things through and do a little more research. They just take it at their own pace. There’s no rush. You go at the speed you want to go. I would imagine that with our investment counselors, and investor’s probably having anywhere from one to five phone calls and then a slew of emails back and forth, just depending on how many questions they have. Hopefully, I’m answering your question, but it could be anywhere from one to ten hours per property.
As time goes on, the amount of time goes down more and more because we have an understanding of who you are and what your investment goals are and your criteria and so it becomes much, much easier to identify those properties and continue building that portfolio. I guess the short answer is it doesn’t take as long as most people think because we have a lot of the tools and the information available through our website, through the emails that we send you, putting you in contact with our team members on the ground. Once you decide to move forward, the things unfold fairly rapidly. Quite literally, it’s a checklist, it’s a two page checklist I’ve created. You can just literally follow it step by step.
It just helps to know how to budget time for that person who’s just getting started and they’re a little bit worried that this might take too much of their time after work. I have a question here, which is not for myself, but maybe for some people that would be listening, which is if a person gets to the point where they decide, “I want to do this,” they’ve studied, they’ve educated themselves, they feel like they’re mentally prepared and they’re ready and their personal financial statement warrants this and they’ve got the funds together for their first property. For some reason or another, they’re just hesitating to pull that trigger. What do you say to a person in that position?
Fast forward yourself ten years and 20 years down the road and look back and ask yourself, where you’re going to be in ten years and where you’re going to be in 20 years? If you’re going to be in the same place that you are today and you’re not happy with that position, that situation, that lifestyle that you have, then you need to take action. To borrow from Tony Robbins and I’m paraphrasing here, your future and your destiny is shaped in the moments of decision that you make. You need to make that decision to make those changes that will impact and affect your future and your family’s future and your heirs.
When you start to ask the question why you’re doing something, then the decisions become much, much easier to make. Because if you realize that you’re doing this to improve your lifestyle, to increase your financial freedom, to make sure you have a comfortable retirement, to have time freedom to spend with your family, to travel, so your kids can inherit or participate or share in what you’ve achieved and what you’ve accumulated, those are all the whys. If you think about the whys and you look down five, ten, 20 years, in other words, you’re future casting, if you look at your life as if you are standing 10, 20 years down the road looking back, what does it look like? Hopefully, that’s enough to motivate people to take action and really do something, because there are a lot of people who are smart and they educate themselves, they take the time, they spend the money, sometimes tens of thousands of dollars to educate themselves on investing and real estate investing. They have the capacity, they have the credit, they have what it takes to make it happen, but then they don’t take action or they take action very slowly or they talk themselves out of it because they get into the trap of analysis paralysis. Whose fault is that? It’s not because you didn’t have the cash, the credit, the education, it’s because you are not taking the next step, you are not pulling the trigger.
I agree. My side is buy a house. If somebody says, “What do you suggest I do?” Are you ready? Are you educated? Do you have the pieces in place? Then buy a house. It’s just that simple. If you already have some, buy one more. If you don’t, buy the first one. I think that after you get that car moving for the first few inches, it’s a lot easier to keep pushing it. That’s really where I’ve been. I think that you spoke a few minutes ago to that person who starts very slow, I basically did that. I wish I had gone faster and I wish that I dug in sooner, but at this point, it’s just going to be to keep taking them down as fast as reasonably possible. It’s, like you said, five years ahead, ten years ahead, 20 years ahead. Every time I have a three or four-day weekend and I wake up to go to work that next day, I’m thinking, I need to get done. It’s so motivating to me to take a week off. I just think, “I want to retire.” I don’t mean retire into illness, I mean into that discretionary time to have that more free time. I’ll never stop working entirely, I like doing this, but to not have to go to that job where I’d rather not go in those close and the commute and the five-two cycle every single week. I’d rather have that freedom and that discretionary time. That’s what motivates me to do this. Every time there’s a Friday or a Monday off, I cannot not think about when that day comes. That’s the reason for the action we’re doing now.
You’ll find that you’ll build momentum. This is one of those exciting things. There are just so many things I want to say, I don’t even know where to begin. If you need to get started, get started. Buy that first property or buy the next property. The thing is, if you just focus on that one property, that single-family home, it’s not that hard. You go through the process, you look back and you realize, “That wasn’t too difficult. It was pretty easy.” For most people, they start to get the bug. They’ve realized, “That wasn’t so bad. That was actually fun. It’s exciting. I’ve just added a property to my portfolio,” whether it’s the first or the 100th. There’s a little more income coming in every month. You’ve got those tax benefits and now you’ve planted another seed to help grow that wealth as the years go by where that equity grows through amortization and through appreciation. Even if you buy five properties right off the bat, the first year is not too exciting. There are some cashflow coming in, you got some tax benefits.
That’s all great, great stuff, but when you start to look back after three years and five years and you realize, “I’ve actually made X number of dollars. I made this much of a return. My net worth has grown by X number of dollars.” Now, you can start to magnify that because you start to reinvest that cashflow that you’ve received from the property and maybe you can equity strip from some of those properties and build your portfolio faster. Things just start accelerating after five years and after ten years. It’s just getting started. What’s the worst that can happen? Maybe this is not for you. You take that single-family home and a year from now, you decide to sell it. Maybe you breakeven, maybe you take a slight loss, but at least you’ve had a great experience or learning experience and you’ve proven to yourself that this is something for you or something that is not for you. You can always step back. The worst case scenario is not all that bad if you just think about it for a minute.
No, it would be a little difficult to lose money if you sold even within the first few years. When you look at the cashflow coming through, full ROI happens very, very quickly on this. That’s including with the mortgage amortization and everything. I’ll tell you, having bought and rented and sold a number of houses, not too many, it’s still under ten right now, it was mind blowing to me when I started working with your provider. The very first property, I looked at the pro forma. For example, it had the rent at $900 a month, this was on an $80,000 house. We don’t get those rates in Florida by the way. When I ask, “Is this $900, is this reasonable?” The person showing us the house smiled and said, “I actually just signed the tenant for $950. I try to be conservative on the pro formas.” That blew my mind.
On the second house that we put under contract, when the inspector showed up, unbeknownst to me that there was already a tenant in there. They had signed that tenant, put them in, they’d moved in. This was on May 1st. We had no idea that they had already put a tenant into the house that we had under contract. I couldn’t be happier. That kind of thing just doesn’t happen when you’re doing this all on your own. Those first two properties are cashflowing before closing. Obviously not to us, but they’ll be cashflowing the morning after we wake up, the day after the close. I’m very excited about this. I can see how this is going to go well. I don’t have a lot of fear concern as far as how it’s going to play out. I think that that confidence just comes from education and from realistic expectations where this is not pioneering, this is not a brand new business model that we invented recently. This is an old standard common way of building this passive income. Just like we said to each other earlier, it seems more reasonable and safe and something that’s easier to control than a pure speculation play in the stock market.
You have far more control, you have a much greater total return on investment than any other investment. Obviously, having a successful business, but that’s not for everybody, not everybody wants to start a business, own a business, run a business. What do you do? Besides, that’s an active way to be an investor, but short of that, the next best thing is income producing rental real estate.
You go to work at your job and you funnel as much funds as you can into your investment quadrant. That is exactly our strategy. We will continue to buy these houses as quickly as we can and divert funds that we can to them. I look forward to working with you and growing this portfolio. I’m enjoying the partnership.
I appreciate that. Thank you.
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