BiggerPockets Real Estate Podcast - 60: From 0 to 68 Rental Units in Just Four Years with Serge Shukhat

Episode Date: March 6, 2014

Today we are pumped to bring you one of the most exciting conversations yet on the BiggerPockets Podcast when we sit down with Serge Shukhat, a real estate investor from the Arizona area who is absolutely crushing it in real estate. Serge started with no rental properties just four years ago but has quickly built up a sizable portfolio with a mix of both single family and multifamily properties using creative finance methods and using the cash flow to quit his job. On this show we cover everything from getting started, choosing single family versus multifamily, tricks for dealing with tenants, increasing the value of your properties, and a ton more. This is definitely a show you’ll want to take some notes, so get ready to have your mind blown! In This Show, We Cover: How Serge got started while working full time How an Umbrella Policy can reduce your risk Landlord responsibilities vs. tenant responsibilities What kind of legal entity Serge uses Overcoming bad deals by “Doubling Down” How a competitive advantage can transform your business Working with real estate agents vs. getting your license Serge’s unique apartment that he’s bought and sold 4 times Hiring a resident manager to help reduce the load How to increase the value of your property by hundreds of thousands of dollars (OMG) And a lot more!  Links from the Show BP Podcast 048: Duplex Investing, Finding Great Properties, and Tips for Managing Tenants with Darren Sager Newbies Take Note: Why You Shouldn’t Buy Houses for $30,000 by Ben Leybovich HomePath.com/ Buildium.com Books Mentioned in the Show Landlording on Auto-Pilot by Mike Butler The Real Book of Real Estate by Robert T. Kiyosaki Good to Great by Jim Collins The 7 Habits of Highly Effective People by Stephen Covey Tweetable Topics “Real estate never works out how you thought it would when you bought it in paper.” (Tweet This!) “I don’t want to work till I’m 65, sick, or corporate downsized.” (Tweet This!) “My biggest risk was not losing my job- it was not buying enough real estate.” (Tweet This!) “You can go broke buying good deals.” (Tweet This!) “Population, income, and jobs drive real estate.” (Tweet This!) “It doesn’t matter if the first deal is bad… at least you learned.” (Tweet This!) Take what the market gives you and be quick to pivot. (Tweet This!) Connect with Paul Serge’s BiggerPockets Profile Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast, show 60. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the hype, you're in the right place. Stay tuned and be sure to join the millions of others who have benefited from biggerpockets.com. Your home for real estate investing online. What's going on, everybody? This is Josh Dorkin, hosts of the Bigger Pockets podcast. Yeah, with Brandon Turner. What up, Brandon?

What up, Josh? I am excited about today's show. I am also excited about today's show because we've pre-recorded the show and it's really fantastic. It is awesome. It is life-changing. So very, very cool. Yeah, yeah, yeah. So this show is a little bit longer than usual. So we're going to keep this front in nice and short for you guys. Before we get started, really quick, this is show 60 of the Bigger Pockets podcast. You can check out the show notes at biggerpockets.com slash show 60. and of course on the show notes you can ask our guest any kind of questions that you've got for them about anything that we've talked about on the show so definitely be sure to check that

out so today's quick tip today's quick tip is make sure you you try and get together with your business partner or spouse or whomever you're kind of doing your real estate business with you want to sit down with them what do you think brandon probably about once a week Yeah, I'd say at least once a week, once a month. I mean, whatever it takes, I guess, for your business. Yeah, to basically sit down and talk about your business because you'd be amazed at how much you can get out of that discussion. If you're not already having some kind of regular meeting with your partners, I think we both definitely would encourage you to do that. Yeah. Because here's the truth. You spend so much time in your business, just like in the day-to-day operations. If you don't take time to sit down and just say, okay, where are we going next? What are our problems? Let's write

this down, let's get organized. I did that this week with my wife at Starbucks for two hours. transformed like a lot of stuff that we're doing right now, just having a conversation about the business. So yeah, that's huge, huge. Awesome. Awesome. If the new year means getting rentals back in order, listings are a good place to start. Avail, part ofrealtor.com makes it simple to list a rental for free and get it in front of millions of renters. One listing, one click, post it across 24 top rental sites. Avail even helps generate listing titles and descriptions to save time. More visibility means fewer days sitting vacant and getting your property rented quickly. It's a fast, free way to find renters without the usual hassle. Get started at Avail.co slash bigger pockets. That's A-V-A-I-L-C-O-

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and even loss of rental income. Now is the perfect time to review your rates and coverage. Get a quote in minutes at biggerpockets.com slash landlord insurance. Steadily, landlord insurance designed for the modern investor. All right. So today's show is going to be focusing on the buyinghold side of investing. And our guest is a guy named Serge Shukat. And Serge is an investor in the Arizona area. And I just got some phenomenal, phenomenal information to help out.

He started as a single-family investor, moved into multifamilies. And we cover the whole gang. the transition, the pros, the cons. What's really cool, I definitely want you guys to stick around for this all the way through. Serge actually shows Brandon how he can easily increase the value of one of his multifamily properties by $336,000. Yeah. So.

That's why I'm pumped. I know he's pumped. If you're not already pumped, definitely stay tuned. Stay to the end. Check it out. There's tips all the way through. And with that, let's get this thing going. Serge, welcome to the show, man. Good to have you here. Hey, Brandon, Josh. How are you guys doing?

Weird. We're doing well. We're doing well. Brandon and Josh. I mean, you know, isn't it? Yeah, he understands priority. Wow. You started this thing on the wrong foot, Serge. All right. Listen, man, we're really happy to have you here. Let's get this thing going. How did you get started? What led to you getting into this crazy world of real estate investing? Well, I'm originally from the Bay Area, California. Became an accidental landlord back in 2008. I was working the corporate controller role with a tech company out in Menlo Park, California. Hey, what's a corporate controller? I don't even know.

Corporate controller is basically responsible for all financial reporting, financial budgeting, everything financial statement related for a company. Okay. Rolling up income statements and balance sheets and if you're going public, preparing an S-1, pretty much everything financial related. Okay. All right. So you were working a corporate controller job at a startup. Yep. And a company was growing.

And we had offices in Mesa, Arizona, as well as a few other regional places. And we were having issues with our operations out in Arizona. and my boss, the CFO at the time, thought it might be a good idea for me to go out there and visit and figure out what we can do operationally to get, you know, to fix things up. So I came out, spent some time in Arizona at the time. I loved it.

The summer was brutal, but enjoyed my stay. And it made a lot of sense for me to relocate at the time. And this was probably early 2008 at the time. So I accepted the role to, move out to Mesa, Arizona, and build a team, in essence, out there. At that time, I owned my home in San Mateo, California, and decided that it'd be a good idea to rent that. So here was a home. I purchased for around $800,000. Market rent at the time was around $3,000. And I thought, hey, if I'm even coming close to covering my mortgage, that's great.

real estate only goes up in the Bay Area, great deal. So we rented it pretty quickly, moved to Arizona, quickly started looking for a single family for us to move into rather than renting. So we had looked for quite a while at a bunch of houses, found a single family that we liked, made an offer, purchased it early 2008. in the process of looking at single family homes for my family, I noticed a trend that was happening out here in Arizona. In 2008, when the market began cratering, was a lot of inventory out here. And what was happening was all these homes were just sitting. They were just sitting. There weren't the big price reductions and there weren't this onslaught of foreclosures just yet. So I looked at it and said, wow, you know, this is interesting, really dangerous time to rent. And while my real estate

agent was hauling me around town looking at primaries for us. I said, hey, if you see something that makes sense cash flow wise, you know, why don't you give me a shout? Well, nothing really came up that was even under, I think even under $200,000 at the time, maybe even $150. So it didn't really make much sense. We bought our single family. And then in late 2008 on my drive to work, I started noticing one after another just for sale

signs, foreclosure, foreclosure, and our market really began cratering at that time. By January of 2009, there was just a glut of foreclosures on the market, and I started just tinkering, just started looking, saying, hey, what's out there? Okay. So I found my first home, which was a single-family, four-bedroom with a pool in a city adjacent to mine. And it was a single-family, four-bedroom, It was listed for $62,000. Nice. Yeah. Coming from the Bay Area, seeing that price, it was just mind-boggling.

It didn't make sense. So this is too good to be true. And my real estate agent said, hey, I've never even seen a house under $100,000. You know, I don't even know if this is possible. He didn't even want to write the offer because the commission was too low at the time, you know. So ran the numbers. You know, me being a CPA, I'm all about the numbers. Ran the numbers.

I thought I could rent it for about $1,000. made a whole lot of sense. You know, obviously I hadn't been on BP yet, didn't know about the 50% rule, didn't know about landlording, didn't know about anything at the time, but the numbers looked good. So borrowed a little bit of money from the family at the time, closed this home, I think the purchase price was $52,000. Found a contractor from the real estate agent's referral. Fixed it up for about $4,000.

put it on the market for 1095 and rented it in about a week. All right. So this was January 2009 at the time. And I did a little P&L said, okay, here's what I'm renting it for. Here's what my property taxes, insurance, and maybe a repair here and there might cost. And here's my ROI. And I calculated it out to something like 25%, you know, over 20%. I said, wow, this is something that can work.

But, but I learned pretty much within 30 days that it wasn't all tracked up to be. I didn't screen my tenant correctly. Yeah. And the house started falling apart. Yeah. I didn't fix any of the mechanicals. I didn't look at the air. I didn't even look at the air conditioning.

Didn't even look at the plumbing. I just put a coat of paint on it and fix some flooring and rented it. What, well. Yep. All right. So you start with this property. in the Bay Area. I actually wanted to ask you a couple of questions on that before we even get to the six, what was the $62,000 property. So you got the property in the Bay Area. You're this

accidental landlord. You move out. You get somebody in there. How is this going? You know, I mean, were you doing any screening on that? Or was that also just, let me shove somebody in there. I don't really know much more, but I know I have a renter who's interested and let's go. No, with the Bay Area House, I'll give a lot of credit to my wife. I was a little bit, desperate to find a tenant. We had, we were advertising on Craigslist and we were getting some terrible, terrible applicants. I was ready to jump on the first applicant. Hey, they have a deposit. Who cares? Let's get them. We can't have this thing vacant. And my wife had the foresight to say, no, let's wait. We'll find the right tenant. We got really lucky. We found a professional that

was moving into the Bay Area, had a stable job, moving in from Oregon, I believe. We rented a to them on a one-year lease. I had a good friend of mine from college. His father was a residential landlord in the Bay Area. I had, I think, 12 units, called him, got some lease templates, got some advice, and got it rented and quickly made our way to Arizona. Probably that whole year they were leasing. I don't think I heard from them once. Wow. Okay. I was going to say, so who managed it? Was it your friend's dad helped you kind of run it? No, no. We manage it ourselves. They pay us. I had some friends on standby just in case, you know, water heater broke or something happened. Nothing major. The house was a 1960s house. We had remodeled it before. So it was in good shape.

Yeah. It was our primary. We took pride in it. So it was no issues. Okay. Gotcha. So now you get the $62,000 house. The one thing that really rung out to me was you said it had a pool. That's the first thing I hear. And, you know, as a landlord, my thought always goes to liability and problems. And I know that we've had a lot of debates on bigger pockets about what to do with a house with a pool. And at least from what I've seen, most landlords that, whose opinions I've seen or I've heard share tend to say, you know what, if it's got a pool, bury that sucker. Fill that thing in and don't, don't even think about keeping a pool. I'm assuming you did not do that.

I did not do that. And I was kind of learning as I went along. My friend's dad, who was somewhat of a mentor to me at the time, he said, you're crazy. Don't touch a pool. I wouldn't touch a pool. It's, you don't want that. But I knew in Arizona with our hot summers, you know, five months of the year, people want pools. Yeah, of course.

Very desirable. I didn't really have a philosophy on the type of property I was looking for at the time. This one was cheap before all the real cheap properties hit the market. It cash flowed. I didn't know what it meant to maintain a pool. The pool maintenance was the responsibility of the tenant in the lease, which was another early mistake I made. And I didn't really have problems with the pool at the time. Sure, I worried about liability. They had young kids. I got an umbrella policy. It was definitely a concern, and it was something that I was watching over to see if going forward, if I purchase additional properties, would I go

with the pools or not? You mentioned an umbrella policy. For those people who don't know, what is that? So an umbrella policy is basically a secondary insurance policy that's in addition to your primary liability policy over the house that covers you above and beyond whatever your liability policy may be. So it'll say something like your liability policy, you'll have $100,000 liability for, first $100,000, your regular insurance covers you.

Anything after that, the umbrella kicks in. And the umbrella has a wider blanket of what it covers than a regular policy may. And do somebody just go to their, you know, insurance broker and talk to them about this? Or are there a special companies that just do umbrella policies? Both. You can go to a special company or you can go to your regular provider. until you have around 10 properties. Every provider is different.

You can get into the residential insurance, and it's easy. Once you get over a certain number of properties, everything becomes much more complex. Yeah. And I'll add to that that you can get an umbrella policy if you just own your home. You can just get a traditional policy and get the umbrella on top for X amount of additional insurance. So it's always helpful. That's right. Well, so on the $62,000 property, we go ahead. The property has now had some of these issues. And you had mentioned this 50% rule that we talk about. So, you know, to you and the reason I'm bringing this up before I kind of even get there is, you know, I think a lot of our listeners are new real estate investors who probably will do the exact same thing that you did and the exact same thing that I did. And I'll probably speak for Brandon and everyone else.

who jumps into real estate without really knowing everything. No, I was perfect when I started. Yeah, clearly. I mean, we don't account for all this stuff. So the surprises to you, above and beyond, you had already mentioned you didn't really investigate the CAPEX, right? The need to, whether it's the roof or the AC or the ventilation or any of the capital expenses, what other kind of surprises whacked you on this thing?

Certainly being in the world of being a landlord and being responsible for everything. You know, I was getting, here I am sitting at a corporate job in, you know, meetings with CFOs and clients and my phone's ringing off the hook telling me that the door doesn't close. You know, and I'm sitting here thinking the door doesn't close. So what? Doors don't close. I got doors that don't close in my house. Why do I have to fix that?

I don't fix it in my own house. You know, my wife's telling my wife's got a honey-do list that's not a big deal. Why do I, why is that my responsibility? And yet he's still married, by the way. Yeah. Very understanding why. So, you know, trying to figure out what's really my responsibility and what's not my responsibility. At first, I was somewhat standoffish thinking, hey, none of this stuff's a big deal, you know, fix it yourself, you know, fix it yourself, change the light bulb yourself type deal.

then I realized, hey, a lot of this stuff is my responsibility. If I'm going to do this, I better get a network. I better figure out how to get this stuff fixed, fixed right, and keep these relationships with my tenants. Yeah, yeah, that's true. You know, that's a little bit different than, I mean, that's pretty much my philosophy now is the idea of, I need to fix these things for my tenants. And kind of in an opposite way of looking at it, we had to show a few months back with

Darren Sager. And he talked about he makes his tenants do everything. I mean, like, if there's a door, they got to fix the door because, you know, they're the ones living there. And I never really, I don't know, it's just kind of a different perspective. And I think that a lot of it goes to his tenant base, which are higher income. You know, they're renting three, four thousand dollar properties. It's much different than renting a seven, eight hundred dollar apartment. So I think a lot of it comes down to that.

But I'm always exploring that issue. Even today, I've been doing this, what, seven years now? And every day I have a conversation on, should I fix this or not? Is it my responsibility to fix this? And do I charge a tenant or not? I mean, for example, and I just want to get your opinion on this. I had a tenant a few, I don't know, a couple months back. And he broke a shower door, just shattered it somehow.

Was this one of those plexiglass glass glass? Yeah, those glass shower doors on just a shower unit, not on a like a bathtub shower. I mean, shatters a thing. Whose responsibility is it? Now, he says in the middle of the night, it fell off. Yeah. And shattered. That's what he says.

That's what he says. Yeah, I can't prove it one way or another. What would you do? Do you pay for that? I think I might have even asked us on a show a while ago. But I don't know either. What would you do? You know, it's going to depend on my relationship with the tenant.

If I have the tenant in there, you know, on a long-term lease, two years, it's been three months. They pay on time. They tell me in advance if there's issues. If there's a good working relationship with the tenant, I'll probably bend over backwards and I will fix it, you know, and write it off to goodwill, right? I know that they broke it. I have this exact same situation with a sliding glass. door. She said it just cracked, right? It just cracked and broke in the middle of the night. You don't know the

real truth. But what you don't want to do is you don't want to get into a bickering match over a $500 repair. Does that $500 hurt? Sure, it does. But at the end of the day, you want the long-term tenant. You want them to be happy. And what I found is, particularly in the beginning of a lease, you got a good, what you think is a good tenant. They're going to be there a long time. Show them that you're a good landlord. Show them that you're going to go out of your way. Show them that you're going to make the repairs. and it'll buy you a piece for the remainder of the lease is what I found. After that, you know, what seems to be the most difficult and complex tenant in the beginning, if you go out of your way and show them that you're serious about the business, you're serious about landlording, you respect your tenants, you respect getting stuff fixed in a timely manner, they back off after that.

You know, it goes along with training your tenants. You can train them in a good way as well. Yeah. Well, I have nothing else to ask because you pretty much. nailed everything that I was going to ask in that singular statement right there. There you go. No, it's true. I mean, you know, ultimately the idea is, you know, if you're respectful to people and kind of

take care of them, that they're mostly going to become good tenants. And that's not always true, of course. It might be the, if you give a mouse a cookie kind of tenant. I talk about sometimes, yeah, if you do something nice from, they're going to demand the next thing and the next and the next. Yeah, I hate those. There's a fine line. There's a fine line and you can see if that's coming.

You can see if, you know, if that's the type of tenant that's bickering and you fix something and there's no, you know, thank you, no respect, you know, they just move on to the next thing that they want and they start demanding and demanding. Then I'll put a line in the sand and say, hey, this was not part of your lease. When you viewed the property, you know, this fence or whatever you're asking for was not there. And I'm always playing the role, you know, I'm a property manager. I'm not the owner of the property.

And so I'm the middle guy. and I always say, hey, you know, I'd love to do this for you. I totally understand, you know, if I were in your shoes, maybe I'd want the same thing, but the owner just doesn't see this reason as a reasonable request and here's why, you know. And it's a lot easier than me being, you know, this rich, mean landlord that that's trying to save money on their backs, you know, it's, hey, this owner isn't really making much money. After paying the mortgage, he's lucky to break even. And so every request you make, this owner's losing money.

So, you know, there's a fine line that I got to play being in the middle of both of you. I want to keep you happy as a tenant, but I also have to be reasonable for this owner. Yeah. Yeah. And so that's one of those techniques that a lot of landlords will follow it. It actually has stirred up quite the debate on bigger pockets. I know Brandon's on the same side as yours where – and I formerly was not, and then I switched over to that side where, you know, I, you know, I'm the manager. I'm not the landlord.

because in the end, I mean, people want to hate on the landlord. They really, really want to hate on the landlord. And if you're the manager, like you said, you're the middleman. Now, is there a fuzzy line somewhere in between? Well, it depends who owns the property. Do you own the property or does your company own the property? And so I was going to kind of ask about that. And we'll get into kind of what's going on after this second rental of yours.

But presumably you're buying your properties not in your own name. Is that correct? My first properties were in my name. When I kind of wrote a more detailed goals and business plan to expand this business, I quickly started opening LLCs with the state of Arizona and putting all the properties in LLC. Also got a property management company doing business as on a separate LLC where the property management company runs all of the properties. All the leases are in the name of the property management company. I have really two shells, an LLC that owns the property and then a property management company that has an agreement with the LLC's to manage the property. Interesting. The face of the property to the tenant is the property management company. That's almost identical to how I have mine set up as well.

I've got the LLC and I've got a property management LLC that everyone knows, everybody knows open door properties. That's the owner, I guess, is what everyone thinks. That's the manager. It works out well for me. And are you doing an LLC for each individual property? You know, I was, and then it got to the point where I was, you know, spending a lot of time opening these LLCs. And it got right now the way it is I probably have two to three properties in each LLC.

Okay. Can I ask how many total units now do you have then or properties, sir? Right now, 68 units and we're managing about 85. Nice. And that's just in the last, what, four years, right? Four years, huh? Yeah, that's awesome. That's awesome. Since 2009. So you've got your own properties and you're managing some properties for other folks as well. Yes. So while I was quickly expanding, I had a couple friends in the Bay Area, one of which was my boss in the corporate world. And he had dabbled in real estate back in 2006. He bought a condo in Scottsdale. I think it was, I don't want to give his information.

but it was $350 or $400,000, two-bedroom condo with an atrocious HOA, and he was underwater on it. They were all selling for about $100,000 come 2009. And every time he would come down to Arizona for meetings or whatever, he would always complain, oh, you know, this property, it's so bad, I'm losing money, why did I get into it? What should I do? Should I short sell? I said, you know, why do you keep complaining? Why don't you double down?

So you got, you know, you're losing 10 percent. Your ROI is minus 10 percent on this property. buy another five that are kicking out 15, 20% ROI. You won't even notice that that property is losing money. He had kind of this aha moment. He's like, wow, you're right. And I sat him down in front of my computer, showed him the properties that I had, what I was renting them for, what I bought them for.

And it was kind of this light bulb went off. And he was just one after another. He was ready to buy. And he expanded his portfolio pretty quick. And I would source these homes for them. Most of the houses he bought were properties that I bought in my what I call first generation of purchases. He bought them off me, probably a wholesale price at the time. It was more than I bought it for, but less than retail.

They were quick cash deals. And I would come to him, basically, I would find a property that I would like, one or two, that had higher ROI or meta profile that I was targeting. And in order to raise funds, I would sell one of my older properties to him for cash and quickly either 1031 or buy the second property. So we were both building on each other, utilizing each other's. We didn't have a partnership or anything like that. But I was getting out of one property, giving it to him and moving into selling one, buying two type deal. You know, you mentioned the concept of doubling down. And that's something that I love that concept of if, you know, a lot of people buy a bad property.

A lot of people got into real estate during the height of the market, and they screwed up just like, you know, your boss may have. And, you know, a lot of people use that fear to never get into real estate again. But that's kind of like the person in the stock market, right, where the stock market crashes and they get scared and they sell off all their property. It's like, yeah, the smart ones, they're like, oh, the stock market crash, I'm going to buy up a whole bunch more. That way when it goes up every, you know, a rising tide lifts all ship. Same thing with real estate. But now, my question on that whole double down was, did you have him, well, did you recommend that he hold on to that property, that loser property,

and get other properties to offset it? Or were you telling him, dump that sucker and get in on some other better properties at a cheaper price? No, my recommendation was to absolutely keep his property. He would have lost money on paper. It's clear that this was not a time to be selling. Remember, this was 2009, 2010, the sky was falling. All you heard on the news was how bad of an investment real estate was. All you heard was how nobody's building. There's ghost towns everywhere. Stay out of Arizona. Our population is no longer growing. It was doom and gloom everywhere. So it was really a kind of a contrarian play. But my advice was, hey, keep this. Your value will increase eventually, but double down to the

point where your negative return as an entire portfolio will turn into a positive because the returns out there were so great, you know. And he, he was somewhat hesitant, you know, following being in the Bay Area and not seeing what was going on on the ground. But all it took was, you know, a couple local drives. Here's some of the properties I own, you know, here's, I'd show him one that I'm remodeling, one that's rented. I, you know, I'd show him kind of exactly what I'm doing. And he was a numbers guy as well. Another CPA, he saw exactly what it was. It was common sense. It was common sense. What about the argument of taking the capital and even though you'll lose.

lose some of your money, but taking that selling it and using that cash to reapply towards other properties. It sounds like he had other cash available, so it was kind of irrelevant. Well, he had other cash available, and there was no capital out of that property. So he bought it on a conventional loan, his down payment and any equity he might have had in it was long gone. Okay. So he would have sold it. He would have lost it. He would have damaged his credit. And, you know, for a mid-40s-year-old guy with a lot of assets, your credit is gold. Last thing you're going to do is damage your credit to get out of a deal that's very small to your bottom-line network.

I got you. I got you. All right. Cool. So you've clearly built up a pretty nice portfolio. You started with this, this will call it the 62K pool property. What happened next? You know, you suddenly got the fever and you're like, okay, you know what?

I don't want to flip. I want to start building a buy-and-haul portfolio. for long-term cash and what was, you know, how did you kind of build up this criteria that you have? What are the criteria that you currently use and how did things start to grow from there? Because I think a lot of our listeners are like, okay, cool, I could buy one property. But then what? And how do I start building this? And how do I plan it?

Sure, sure. So after that first one, and I started seeing real returns, real rent checks, I got the fever at that point. I said, okay, and this would have been probably, you know, February, March 2009, our inventory was skyrocketing. I was actively looking at the market, what were properties selling for, what were properties renting for. And I said, okay, looking at the analytics and the pure metrics of the real estate market in Metro Phoenix, I looked at, I still remember this one graph that showed income as a proportion, income, to real estate prices, the ratio of income for the Metro Phoenix area to the cost of real estate and the relationships over the past 30 years. And that real estate always, Arizona is a cyclical market, very fast ups, very fast downs, but it would always fall at a very specific ratio,

which was defined as equilibrium, okay? And over the 30 years, it was always, homes were always trading at that equilibrium price. Well, lo and behold, by the end of Q1, 2009, we were probably 70% below that equilibrium price. So what I saw was that we were, the market had overcorrected to a point where it was just, it was a no-brainer. It was a no-brainer. So I said, okay, how long is this window going to last?

How long am I going to be able to buy property? And can I buy enough property? After that first house, I realized, hey, this is nice, you know, this $1,000 paycheck coming in every single month. It's a nice little supplement to what I'm doing. But at the end of the day, I don't want to work nine to five until I'm either sick or have to be retired or get corporate downsize, which is all that, all I saw around me growing up. So I said, how do I get to critical mass? And how many houses is critical mass? and what's the profile of home that's going to get me there?

And I didn't really know what that profile was at the time, but I knew I wanted to stand out in the market. So I did research, you know, just periphery, Craigslist, what are other people renting? And everybody was renting the same profile of property. It was a 3-2 newer property renting in my East Valley region that I was focused on for around $900 to $1,000. And I said, okay, if I could buy this,

this type of house and I got to compete with everybody else on the market that's so desperate to rent their house because they can't sell it, how long is it going to take me to rent and what's going to be my competitive advantage? And so I quickly came to the determination that my sweet spot was going to be a minimum of four bedrooms. I wanted a four bedroom because I didn't see the amount of inventory in the four bedroom segment as I did the three bedroom segment. And then small things that would attract tenants, things like things that people like in

Arizona, RV gate. pools, in-law units, different things that would make my house stand apart that wouldn't be a part of that mass. Okay. The second step I made was to bail out of California. I said it makes absolutely zero cents for me to hold this house that I bought for $800,000. I still had equity in it. The California market hadn't cratered yet. And I realized that my risk of holding that house compared to my potential, compared to my potential.

gains of moving that money into Arizona real estate simply didn't make sense. I quickly sold my California house, captured about $100,000 of equity that I had in that. Now I had a small bank roll to move forward on purchasing quickly on the Arizona, on the Arizona market. Nice. Hey, were you, sorry, were you still working your job at this point? Yes. So I was working my job, I worked my job all the way until the end of 2012. So at that point, I'm, you know, property managing. I got one house at this point. So I'm property managing that house.

I'm on talking about real estate agents, you know, contractors, brokers. I'm kind of in the real estate game at this point and working a pretty demanding job. And so, you know, there were a lot of detractors around me. You know, I had my best friend who I hired at the company, who had an office right next to me saying, you're going to lose your job, dude. You're risking a good, high-paying job for what? You know, for a lot of risk.

My parents kept saying, you know, don't risk your job, don't risk your job. And to me, I saw it completely different. I saw it as an opportunity of a lifetime that prices are so low right now and the return is so high. And, you know, I come from an economic mindset where, you know, at the end of the day, all profits fall to nothing. So I knew that if I'm able to get 20% returns right now, that that's not going to last long. I don't care how much inventory is coming.

I don't care how many foreclosures are on the market or scheduled to come on the market. As soon as others see that I'm getting 20%, they're all going to jump in, be it hedge funds, be it anybody else. And hedge funds, mind, you weren't in our market yet. Nobody was in our market. Everybody was kind of licking their wounds at the time. the real estate investors that were active in 2004 to 2007, they were wiped out. They were just kind of like, oh, what happened?

They were out of it. So there were investors competing, but I kind of had the market to myself for this small window. And I saw my biggest risk at that point wasn't losing my corporate job. My biggest risk was not buying enough properties to get to critical mass while this window was open for me. I saw that when it was cleaning. Yeah. You know, I just talked about that with a friend of mine who's kind of like my real estate mentor out here.

And we talked about, you know, one of the reasons, sometimes I feel like my business is a little bit chaotic is because we, we, and he feels the same way. Sometimes it feels like there was such opportunity during that time. All I could concentrate on was we've got this window that I'll never see again for the rest of my life, buy whatever I can. And like both of us just went on this buying spree and you kind of did the same thing. Like that was the focus was buying it. We can figure out how to manage it.

Now I've moved into that phase of my kind of career, but interesting hearing somebody else say that as well. So I've got a couple of questions that come out of the past few things that you're talking about. The first thing is you had mentioned your competitive advantage. And I think that's something that we don't probably talk about enough on the podcast. I don't really see us talk about enough on the site. You said you had focused on these four twos, you had focused on RV gates.

you know, kind of looking at what's a demographic of the average person who's going to buy, who's going to rent a property in, in this kind of area that nobody's kind of renting to right now. And you found this whole. And I want to, you know, I guess I just want to dig in on that a little bit and see, you know, what kind of advice do you have for other people who, you know, yeah, everyone's like, well, you know, the three-toes are pretty much pretty bread and butter property, investor properties, but you want a different approach. You said, well, yeah, that's great, but everybody's there. Where is everybody not?

How do people go and find where everybody isn't? Yeah, I think that's absolutely critical. You start by looking at what's on the market. What are your competitors renting? What are they renting it for? And then you work backwards and say, are these landlords even profitable? So they got newer inventory. They got stuff built in 2000.

You know about what that sold for. You know that they spent, say, $120,000. And you know they're renting it for $1,000. And you're saying, okay, are they making money? Probably not. Okay, so is that the model that I want to follow? Probably not. And then there was a different mindset back then.

Their model was, hey, the cost of construction is $200,000. I'm buying for $120. I'm getting a fabulous deal, right? That's not what I wanted to do. I wanted cash flow to replace my corporate income. I was very focused on that. That's what it had to do. So I had to have the highest ROI, okay?

I had to use leverage while I had it. And I had to have a competitive advantage that would allow my properties to rent for the top dollar. So what I was doing, I was buying my first round of purchases ended up being somewhat older properties. I'd say early 70s, maybe late 60s. mid-70s type deal. But they had things that people wanted. Like I mentioned, the RV gate, that there'd be a pool. And what that would allow me to do is to rent that home that may be older,

maybe not in as a desirable neighborhood as all my competitors, but I was getting the same price. So I was renting for 1,200 or 1,300, where I was buying for 60 to 70 because I had features, you know, I was in a non-H-OA community, which was also very important to me to not have HOAs. It was a non-H-O-A community. And that's rare in Arizona too, isn't it? I mean, Arizona is like flush with HOA's almost everything, right?

Absolutely, absolutely. Very rare. And at the time, having hindsight, you know, I was able to build a profile and go after that profile because there was so much inventory and there was so, you know, you're able to do this. Today, you take kind of what's given to you. Yeah. But what I ended up with was these properties that had these features that, you know, like one property had an in-law suite, you know, well, no one else on the market had that. So a property probably without that in-law suite with that age and that neighborhood may have rented for 900,

but I was getting $1,000, you know, which was similar to $2,000, what someone might get for a four-bedroom, 2,000 square feet built in $2,000 that he had to pay $184. I only had to pay 50 for mine, but because I had that feature, I was able to really squeeze ROI out of these properties. That's great. The problem I had after this kind of first generation of purchases that I found was, yes, I was getting higher rents, but I wasn't attracting the tenants necessarily that were, that I wanted. Okay. So I'd have, you know, a house that may have been bigger, but it was bigger because it had two or three unlicensed additions. And yeah, that's one of the reasons I got it so cheap.

But lo and behold, these additions started falling apart. These houses started falling apart. These tenants started moving in second and third families. And so kind of this first generation of purchases. And what I did was I went back and said, okay, my goal after the first purchase was to acquire unique, desirable properties, maximize my ROI and buy them as fast as possible. I'd gotten to about four or five at that point. and I looked at my short-term goals and said, am I reaching them? On an ROI perspective, I was. But over the

long run, I could start seeing these capital improvements, these issues starting to really eat away at me. And I knew that over the long run, perhaps this wasn't the exact profile of property that I needed. So with the help of my wife, we kind of sat down and said, hey, are we buying the right profile of property is buying the cheapest property at this point really the the smartest thing to do considering you know how much equity we're buying into and how bullish we were that three four years down the road these properties would be worth so much more so we kind of took a 180 at that point this was probably by mid to late 2009 after we acquired kind of our first batch of property and we said hey this profile you know we like that we're buying properties that are unique we like that we're

getting this kind of ROI, but we want to buy newer conforming standard type properties that still have some features but don't have all the unlicensed additions, what I call functional obsolescence, right? So it's got to have a garage. It's got to have two bathrooms. And so the sweet spot that we found was early to mid-80s, which was before the prevalence of HOAs, established neighborhoods that were close to job centers that had, again, four bedrooms, had the garage, most of them had pools, corner lots, RV gates, and kind of those features. And they cost a little bit more, you know, instead of buying them for 50 to 60, like the first generation of properties, these were costing 65 to maybe 85, okay?

So the ROI on paper didn't look as good. But what I quickly realized that in reality, the ROI was through the roof. Well, you're plotting over 30 years at this point or 20 or whatever it is. Yeah. You know, this reminds me of that post that Ben Labovic wrote on the blog a week ago called like, Don't bring that way up. It goes called like, newbies take note, don't buy $30,000 houses. And that was exactly his point was by buying these cheap, cheap, crappy houses,

you are effectively setting yourself up for failure later on because of all the weird things that come along with them. I think they have almost 200 comments now in that article. It's just tons and tons of debate on whether or not that's a good or bad idea or not. So I'll link to that obviously in the show notes at BiggerPockets.com slash show 60. Yeah. No, that was it was a good article. And I think you bring up a good point.

I mean, the whole premise of it is, you know, I, again, I think about the newer investors. And the new investors like, well, they're always thinking short term. I most don't really see the light 10 years out, 15 years out, 20 years out. But, you know, when you're buying and holding, the word is buying and holding. And you're holding and you have to put that into the picture. And you have to really run the numbers 20, 30 years out to see what you're holding on to. And if you're buying a crappy property and not fixing it up immediately, you know, not putting new roofs on and not, you know, replacing, you know, boilers and water heaters and all that stuff, you're going to have to do it at some point. And it's all going to come back down the line. So now that's, that's great. Hey, so I wanted to jump back to something you had mentioned earlier. You had said something about the real estate agents that you work with. And, you know, I think it's, it's, it's, it's, a big question that a lot of real estate investors have is, you know, how do I find these

properties? What do I do? Do I go find one agent? Do I go find 15 agents in 15 different areas? Do I set them to compete against each other? What are you doing on that front? Clearly, you're using more than one agent by your use of the word agents or maybe I. My advice, no, my advice is simple. Get your license. Get your license. It's easy. It doesn't take a lot of time. It's cheap. My wife, who is a big partner with me in this. She got her real estate agent license early in the process, I think by 2010. Okay. At the end of the day, real estate agent, I personally don't think is an investor's best friend.

It's just a lot of work, particularly then, you know, making, I'm making 10 offers a day. I'm making a lot of offers. Sight unseen. I simply didn't have time to go and look at every single one of these properties, especially since it was multiple offer situations. It was highly competitive even back then. So last thing I could do was to drive around town and look at 40 houses. So I'm having them send out offers sight unseen.

And lo and behold, one of these offers sticks, I go look at the house and it's not, doesn't fit what I'm trying to do. The agents upset, you know, I got to wait for the agent to get the lock to get into the house. And I was losing a lot of agents. It was kind of a revolving door. You know, houses would come up on the MLS. or wherever it was and it was, you know, you couldn't make an offer until tomorrow. By then the house was gone.

So it wasn't advantageous to us. It was at the end of the day, we had to control our own deals. Were you doing any marketing to find deals outside of the MLS? Or were you finding most of your properties from MLS or maybe even auctions? You know, I never did any yellow letters or any marketing or anything like that. We got our deals in the beginning from the MLS. And then as we built relationships later on in the community deals would come to us. Also had relationship with a couple early.

They weren't even hedge funds. It was just a group of guys from Texas who had a deal with Fannie Mae. They were buying basically $1 million for 30 properties. These were Fannie Mae properties that were on the market for probably, you know, 90 to 180 days. Some were bad. Some were good. They were buying blind packages throughout Arizona, 30 houses for a million dollars, and they would get their houses. And their exit strategy was land contracts.

So they wouldn't touch them. They wouldn't fix them. They would simply put up signs that say, owner rent, and they would get tenants in there. So I built a relationship with them, and what they would do is every package they would buy, they would send me their list. And they'd let me cherry pick three or four of these. And so pretty much, you know, they'd buy them for 30 each. They'd let me cherry pick. I'd buy them for 40, you know?

something along those lines, but they were still, you know, last MLS price was probably 60 or 70, so I'm still getting it way below what I thought was retail at the price. And it was kind of a win-win scenario for both of us. And it was a nice way to get some wholesale property. Nice. Nice. So what I'm hearing is not only are you not marketing. You're literally, the way you're finding deals is by having relationships with people. I mean, that sounds crazy, isn't it? I mean, how could you find properties just through relationships? That's how it works in real estate, especially now when inventory is so hard to find. You've got to leverage those properties.

And the guys, the days of just buying on the MLS are over. So how do you build those relationships? How does somebody who's a new investor who's like, you know what? Okay, I'm looking at the MLS. There's not a lot of stuff out there. I've got a property or two or none. And I want to build a relationship so I could kind of get this so-called funnel of potential properties coming my way. How do you do that? You know, it's difficult and everybody

will give you a different answer of how they did it. I personally don't think I was the best at doing that. I didn't have time, you know, with the corporate job. I didn't have time to go to all my local RIA meetings and work, call around a bunch of brokers. And it was the natural relationships that I built along the way, you know, the portfolio lender that got me to the 10th loan. And the people that they knew that may have been selling properties. It was a real estate agent that had purchased, that it helped another investor purchase property or sell property that connected me.

It's a contractor that works for another investor. It's kind of people you meet along the way, keeping your ears open, being respectful, finding what people have, and horse trading at the end of the day. Gotcha. Gotcha. Most investors spend more time chasing deals than reviewing their insurance.

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Plus, you get to share your place with someone traveling to your area while you're off making memories somewhere else. Your home might be worth more than you think. Find out how much at Airbnb.com slash host. All right. You had mentioned critical mass. Your whole goal here is this mad rush to pick up these properties before, you know, you're priced out of the market.

How did you do it? I mean, you know, either you made a hell of a lot of money and I'm going to tell my kids to go be a CPA or you use other people's money or loans or borrowed or begged or stole. I don't know what you did. But how did you get the cash to buy up all these units and all these properties? How'd you do it? Well, it was really a confluence of events. So my first four were standard conventional, Fannie Mae, you know, Flagstar, GMA type of loans.

No issue at all there. I had good credit, good high-paying job. And contrary to popular belief, people with credit and income were able to get loans back then. So I got my first four there. Then at that point, I had discovered BP and the whole concept of what's what is that? What's BP? Bigger pockets. Oh, bigger pockets.

And I think my first post, I think my first post at that time was, you know, how do you get past this four property wall? You know, I, I, I, lenders telling me, you're, you know, we can't lend to you. You got four loans. You're, you're a pariah. So it was, I think Joe Owens said, you know, call around. Call a regional banks. You'll find somebody. Somebody, you'll find somebody lend.

So I found a regional bank that happened to be literally across the street from my office, built a relationship with their broker, explaining them exactly what I do, what kind of investor I am, what my goals are, what I'm trying to get to. And they said, hey, we'll fund you as many as you need, you know, as long as these properties cash flow and you're buying them well under appraisal appraised value we don't have a limit okay so at that point then you know my eyes just open and i said okay now now i can take this to another level so the first batch of properties i purchased with the equity for my california sale um then the cash flow started building and i had a good corporate income my i didn't have a lot of expenses my my home in arizona wasn't you know

multi-million dollar mansion with a with a big mortgage payments i didn't have a lot of expenses And so I had a little bit of a bank roll at that time combined with the 35% down loans that the portfolio lender was getting me. How much was you said 35% down? It was 35% down. Okay. Well, it was 35% of purchase price plus the repair. So if I spent another 10,000 on repair or whatever, they'd give me 35% of that as long as I could prove the repair. Okay.

Okay, cool. So if you have 68 units total then, I mean, that's... That was the second round. How many did you pick up in that second round? And are you, are we just doing single family homes all the way to 68 or what happens? No, no, no. I see that, that would be pretty tough. That would be tough. Yes. The first 10 got me to, was through the portfolio lender. I think the first 12. And then once I, once I got to 12, the portfolio lender gave me a call and said, hey, I'm sorry, rules change. We can't fund you more than 10 now. Even though we keep all these on our balance sheet, 10's our limit. So you're basically cut off. So I call.

all around another bunch of banks and no go. I couldn't find any more lenders at that point. And I hadn't had real estate on my tax returns for more than two years at that point in time. So again, I was back to pariah status with the banks. I was pretty much cut off. Luckily at that time, the company I was working for got an offer to purchase, to basically sell the company. So a large, large public concern basically started negotiation with our management to buy out our company. And I had been with the company for eight years. I was an equity holder with some stock options. And I saw the writing on the wall.

I said, hey, if we sell this company, you know, I'll get a nice little check out of this. And I could really take real estate to the next level at that point. So we about eight months later, we sold the company and I got that check. So you didn't have to quit your full-time job. Your full-time job quit you and left you with a nice fat paycheck to go with it. It left me with a paycheck. They said all the right things. Hey, we want to keep you. No problem. I knew the writing was on the wall. I didn't care. Again, I was in a rush for time. It was a land grab. I knew even if we didn't sell the company that my days would be limited one way or the other. At that time, we sold the company. And that's when this was, so what happened in our market, Once I got to about 12 SFRs, we had that tax credit, that Obama, I think it was $7,500 owner-occupant tax credit. And that really had an effect on our market.

All of a sudden, you saw primary buyers jump right back. And so all these deals that I was getting for $60,000 and renting for $1,400, they disappeared literally overnight. And so there was probably a three, four-month stretch where I'm like, whoa, is this window closed on me this fast? But what happened at that time, the single family window closed, and this was another pivot point. So I talk about pivot points all the time is that having goals is important and having long-term goals is important. But looking at them, you know, for me, my goals are one sheet of paper, one sheet of paper of strategic comparatives that says, what am I going after?

What asset class am I targeting? What's the price range? You know, how am I going to get there? You know, how am I going to pay for them? How am I going to buy them? How many do I want to buy? And I look at it and I say, okay, if that window has closed and I'm not able to purchase these, what am I going to purchase or am I going to completely refocus and maybe get out of real estate? You know?

So at that time, the SFR game was quickly closing. And I didn't know if it would come back after the tax credit or it was gone forever. But the multifamily had opened. And so what you saw was a flood of now fourplexes, duplexes, you know, 16 unit, 18 unit, 32 unit complexes coming. on the market that had generally lagged before. It takes a little bit longer to foreclose on those for whatever reason that got tied up. But now those started hitting the market. So I made a pivot point, even though I hadn't been a multifamily investor at the time,

I educated myself on what does it mean to be a multifamily investor? What is a, you know, what's going to be my competitive advantage in this market? And kind of took everything I learned from the SFR game and applied it to the multifamily and said, okay, this is going to be the year that I'm going to start acquiring multifamily and kind of put single family behind me. Nice, nice. So how did that happen? I guess what came first?

So what came first, there was a fourplex or no, it was a fiveplex that came on the market through, I think, one of the auction sites. That was, it was five units. And what I liked about it is it was very similar to what I was doing with SFR. So with multifamily, what I didn't want is I didn't want the standard, you know, 1960 built, owner pays for all utilities, all one bedrooms, you know, that, I don't want to say tenant class, but that where I'm competing against every single multifamily owner. So I was, again, looking for something somewhat unique where how am I going to keep my units filled? So what I liked about this specific complex was that it had a great mix of units. It had two large three bedrooms.

It had a two bedroom and two one bedrooms. So it was a diverse mix. There were some things I didn't like about it. There was a lot of risk there. It was in a complex of 10, fiveplexes where one owner had owned eight of the buildings and two owners owned the other two. And all the owners were in some stage of foreclosure because they're, had purchased during the height between $200 to $250,000 per 4plex.

Well, that's something a mess. Or per 5plex. So it was a mess. So I'm looking at the first one of these 10 that came to the market. And I think it was priced at $60,000 or $55,000. This is 55 or 60K for the five units. Five units. For all five units, $60,000.

All five units. Now, these are these like, I mean, are there walls inside these properties? Yeah, no, remember, this is 2010 now. I don't care what year it is. Hold on, 60,000 five units. We're not in Detroit now, are we? No, no. That's what was so great about our money. Wow. Oh, my. But I will say, this wasn't, it's not like this was, you know, class A downtown Phoenix. This was a canal county, which was one county over from Maricopa County. It was in a economically depressed at the time area. It was $60,000 for five units. I ended up buying it, I think, for $42,000.

So $42,000 for five units. I can hear your New York accent coming through there, Josh. Is his anger? It's like the anger guy at the street yelling, like throwing hot dogs. Hold on. Wow, unbelievable. That's what I was thinking. But there was a ton of risk there.

Oh, sure. And I tried to get partners and say, hey, let's try to buy all 10 of these buildings. And no one would touch it. Even at those prices, you know, my gross rents I calculated would be close to $2,500, $2,500, $23 to $2,500. But there was a ton of risk there. There were nine other buildings, things that were decrepit, that were in some state of foreclosure, 100% unoccupied. There wasn't one tenant in there. Each unit needed work.

They needed roofs, the plumbing. I mean, it just wasn't maintained for the past five years with weeds. So there needed to be an HOA setup, you know, for whoever ends up buying other buildings, There needed to be an HOA to pay for common area maintenance. There was a common area pool, a common area office, 4.4 acres of land. So as you can imagine, buying one fiveplex in a community of 10 of them where you just don't know what's going to happen to the other nine, there's a lot of risk there. Even though it's $60,000. Yeah.

Well, I'm going to jump in because I had that exact experience. And so I had four families. And what happened was it was in these areas that I paid nowhere close to as little as you paid. However, these properties were decrepit. They were falling apart. People were moving out. And what was happening was I was being surrounded. So this property I had was being surrounded by properties that were vacant, that were becoming problem properties.

You had people, you know, sitting on the stoop all day, doing drugs. And in the end, I said, you know what, I don't have the fortitude or the intestinal fortitude to stick around. I wasn't going to buy all the other properties. I wasn't interested at this point. I was like, I could either buy everybody else and, you know, clean up the whole area around it or I got to get the hell out of here. And I just, I ran. I was like, this doesn't make sense before it goes, you know,

before I can't even attract a single tenant, I got to go. That's right. So it is a challenge. Yeah. Yeah. And there is there. It doesn't matter if you're buying it for $40,000 or you get it for free. Yep.

If you can't make money, who cares how cheap you buy? Well, and that's why I rip on Detroit. And, you know, I take some of it back, you know. But in the end, that's exactly why we warn people. It's not about how cheap the property is. Those numbers are awesome. I was busting chops about it. But like in the end, it doesn't matter.

If you get a $60,000 property and you can't fill it, then you're got a loser. Yeah. Or if it falls apart on you, you know, constantly because it's so old and run down. Yeah. So, yeah, so that was the challenge. And I didn't know. I mean, it was, I didn't know, do I want to get into multi-family? Do I want this class of tenant?

Can I handle, you know, the HOA? Can I, you know, there was just so many question marks. But at the end of the day, I jumped in, you know, got it fixed, got it remodeled, and got it filled pretty quick. You know, sat down with a lawyer, wrote up new HOA documents, became the de facto president of the HOA. And mind you, I'm the only owner now. There's still nine empty buildings. I own one of them. Yeah.

But now I have the HOA and I have control and any new owner that's going to buy over there has to go through me. And I knew the other nine would be coming up. So it's kind of like an experiment. It's like a mob boss. Yeah, pretty much, pretty much, right? So it's a, hey, you know, can I, can I do this? Can I do this forplex? Can I deal with this class of tenant?

Can I really realize this gross $2,500 income and what's that going to net out to at the end of the day? Yeah. You know? So did you buy the other nine? I mean, I'm guessing you started to accumulate some of the other properties, or maybe I'm wrong. So it's actually a funny story. I was telling us telling Brandon about this a while back. I actually, in this complex, I bought and sold these buildings four times now. All of them?

So I bought the first building. I fixed it and I rented it. Then a second building came up. I bought that one even cheaper. I think I bought that one for 38. and it was in worse condition, fixed it and rented it, right? And I'm managing it all at the same time with my SFRs and holding down the job. And I got to tell you, these units and these tenants were driving me absolutely crazy at that point, right? But now I'm all in, right?

My chips are in. I got two of the buildings. Now it's like each time one comes up, it's like I got to buy it as a defensive move, right? I don't want someone else coming in that's going to ruin my investment. So I bought my third building, and here I am on 15, 15 units, right? seven more that are going to be coming up. And I had a lot of money into these complexes because of the repairs and everything else. The tenants were driving me absolutely crazy.

At that time, an older gentleman who was working with his church group came in and bought the fourth one that came on market. And so now he's paying into my HOA, and I'm sharing kind of the HOA. I'm sharing the common area maintenance, the whole nine. He bought the fourth one that came on. He bought. Then he bought the fifth one that came on. Then he bought the sixth one. So after about six months in, he owned three and I own three.

Okay. And so, you said, you said, you said, sorry, you said that was a church group, right? It was a church group. That was like, was it a charity kind of like, some kind of ministry thing going there? Or what was that? Yeah, it was convoluted. So he was kind of shady. He was trying to...

He was trying to... The church guy is going to show me. The church guy, yeah. Believe it or not. Believe it or not. Was it a youth minister named Brandon Turner? I mean, I'm just checking. No.

So what he was doing, he was doing it, they wanted to place, you know, single moms, rehabilitated drug addicts, that kind of stuff in these units. To me, that was just a red flag. That never, that never works. That never works. It doesn't go well. So, what? What he did, and he was just running a train wreck over there.

I could see everything that's falling apart. And so what he said is, hey, search, I'd love to buy those three buildings off you and consolidate and eventually own the entire complex for our church. So he was raising money from the church group to buy these units. And he was trying to use it as kind of trying to make all his side income. So he'd have a unit that wasn't church related and he'd be making income off that. Shady, shady. That's right.

That's right. So I said, okay, you want them fabulous. You know, you can have all of them. So I sold the three to them. I think I sold them each one for $70,000. I was into each one probably for 55, maybe 60. So I didn't make out. But I tell you what, driving home with like the last time I had visited the property, I was just the excitement of being out of that project. Wow, that was great. I'm glad I sold, right? Yeah. So I took that money and said, okay, I didn't really like that multifamily experience that much, but I see the writing on the wall. I see that multifamily could be profitable. It could work.

I like that you can take a multifamily. You can get it cash flowing and it's going to be worth a function of that cash flow. I like that principle. So I found another project, which was three four plexes in a row in a somewhat, rural area. What kind of area are, Brandon? Rural. I saw that coming. But it was three four flexes in a row. And what was fabulous about it, again, each unit was 1,400 square feet and three bedrooms. So again, you know, kind of something different where I could

compete with the SFR class because of the size. These were all individually parceled and these were all townhomes. So I bought, you're going to love these numbers, Josh. I bought the first one, it was again, they all came up in separate times, no HOA. About the first one for $29,000. This was a fourplex. A fourplex, yeah. And these were, I mean, flat roof. So when you say fourplex, you're not, you're not talking about like a single house with four

rooms. You're talking about a building with four individual properties that could be renting out. It's not. This was a 5,500 square feet total, 12 bedrooms. Was it made of Legos? No, no. Stucco, 1979 built, all separately metered for water, all

separately, all utilities separate, nice curb appeal in a rural neighborhood right off the freeway, halfway between Tusson. And who was selling it? I mean, was this owned by the bank at this point? Or was it just somebody who was out of their luck or stupid? I mean, who sells this?

One was Fannie Mae. Oh, there you go. These were all foreclosures. was Fannie Mae. I bought one from Fannie Mae. I bought one at auction and I bought one at trusty auction, one from Fannie Mae and one at one from my quasi hedge fund from Texas. And the Fannie Mae, how do you buy a property from Fannie Mae just for those people who don't know? There's a number of ways. Now you just go to HomePath. You can see what they're selling, what foreclosures they have. HomePath.com, right? Yeah, HomePath.com and then just put in an offer through a regular agent. I think

at that time home path didn't even exist. It was just coming online. But what was happening at that time was a lot of this inventory was getting stale for Fannie Mae. And after it would sit, sit on the MLS for whatever six months, they would offload it to one of the auction companies, auction.com, Hudson and Marshall, Williams and Williams, there's a number of them. And what they would do is they would basically run it through and sometimes you'd get lucky. But Fannie Mae at that point was taking pretty much any offer they could get. Once it got to that point, once it sat on the market for a long time, any offer they can get. And it was listing price was, I think, 99,000.

And you offered them, what you say, 20? 29. We got it for 29, yeah. So it was listed for 99. You put an offer at 29. No, no. I think I tied it up at 36. And then I was actually having reservations at 36.

I was like, I don't want this big remodel. I don't want to have to fix the roof. I don't want to have, it was, I mean, it was insane. I mean, the roof was caved in. The windows were broken. It was vandalized. It was a wreck. But I saw the potential.

And I was actually going to, I was actually, I remember I was in Disney World with my family. And I was supposed to close. And I'm telling my wife, I'm like, I'm not even going to answer the phone. I'm not going to close this. I'm going to lose my $1,000 deposit. I don't want to do this. I don't want this. I don't want to deal with this.

I'm getting tired of real estate. And the agent kept calling me, calling me, I wasn't taking her call. She left me a message like, Sir, this is the last call. Fannie Mae is willing to sell it to you for $29,000. I'm willing to take $7,000 off if you closed by the end of the month. If you close by the 31st, which was like tomorrow, I'm like, ah, call their back. I'm all fine. I'll take it.

$29,000. Let's do it. And that turned out, I still hold all three fourplexes and those turned out to be the best investments of everything I've made. They've been able to attract elderly retirees, primarily from out of state. average rental is $700. I pay zero utilities. I fixed them up with tile.

I made them very rent long-term friendly. So I'm not constantly doing remodels. They're always, you know, 95% occupancy, always occupied, and they're just a cash cow for me. They're fabulous. Fantastic. That's awesome. That's awesome. All right.

So we're now in these mid-size units, and rumor has it. Rumor has it. There's kind of a pop-up. So all of a sudden you decide, I don't know how the story goes, but I've got in my notes here. There's a unit in the, was it 30s? That's right. So I was finishing the 12 units, finishing that, getting it loaded. And I'm saying, okay, I can see the potential of multifamily.

At that time, the older man that back to the complex where I had three buildings that I sold to the church group, that was a complete failure at that point. He had consolidated seven of the 10 buildings for 32 units. And he had, you know, drug addicts in and out. He had... Of course. Everybody was taking advantage of him, right? And he was taking advantage of everybody. Yes.

It was a mutual. It was terrible. Yeah, yeah, sound like. Yeah. So you said, hey, come down to the complex. Meet me in the office. Let's talk. I said, all right.

So I came down to the complex and it was a wreck. I mean, feral cats everywhere, probably 200 cats. That's Brandon's house. That's not a way. And it's a dream house, yeah. I have like three of my own and like seven outside. That's not 200. I mean, this guy, this guy, he was quick to tell me that he's been investing for 40 years and he

knows everything and blah, blah, blah, but he was making every mistake in the book. I mean, trading rent for HVAC repair, trading rent for flooring repair to people that weren't qualified to do it. I mean, just every mistake in the book. And he said, listen, I can't do this anymore. Let me sell these back to you. And I said, you know, I'm not interested. I'm not interested in, you know, in taking 32 units.

I don't have the money to do all these repairs, to do all this. He said, well, what would it take? You know, how much can I sell this to you for to be able to sell it to you? So I gave him a number and he laughed and he said, absolutely no way, you know, that's so much, I'd have to take such a big loss. And my investors would have to take a big loss. And I said, well, I understand, you know, if you want, we'll list it for you on the market, you know, we can slap a coat of paint on it and see what we can get. And the market was still bad at that time. It was slowly starting to recover. And hadn't

heard from him since. And I maintained the relationship. You know, I'd call him, see how he's doing. How can I help? You know, can I get you. I have an extra bucket of paint. Here I can help. It was kind of donation. Everything was through donations. He was using the church, you know, getting donated carpet, donated paint, donated everything, right? Wow, wow. So, you know, I maintain contact with him. And then out of the blue, I get a phone call, you know, in my office, still in corporate America.

And the guy says, hey, remember that number you told me? If you can come to close on Friday, this was a Monday, with that number, I will, I'll sell them to you. My eyes got wide open. I said, well, that comes out to really low number per unit. I don't really want to talk numbers at this moment because this complex is for sale. So he agreed to it. He was having health problems.

He tried to sell it somehow through a broker and some of the deals fell through and he needed the money quick. He had investors at his throat. He had to pay back some of his investors. I said, okay. And when I told him, okay, I didn't have that money in my bank account. So I'm sitting here. So I hung up the phone and I said, okay, how am I going to come up with this amount by Friday? So I called my friend that I had been selling some property to in the Bay Area that I spoke about before.

And I said, hey, I got this opportunity. Seven buildings, 32 units. How would you feel about buying two of the buildings? I'll buy five. You buy two. That'll bridge me to what I need. And maybe if you don't like the experience, I'll buy them back from you at a later point in time. We'll figure it out.

It's cheap enough. So at that point, we had the relationship where he didn't even need to look at stuff. He said, hey, if you say it's a good deal, surge, I'm on board. let's do this. So he kicked down a big portion of it. I paid for the rest. I still was running the HOA. So even though I sold him the three buildings, I was running the HOA for a team. You were an absentee HOA president. Yeah, yep, because he couldn't do it. I had the system. I had the accounting software and everything, so I was doing it. So it was a natural transition. I purchased the 32 units from him. Ten of the units were held by my investor friend.

And I quickly set to turn it around. I said, okay, you know, I'm going to need to kick out the classic turnaround plan. You know, I just put it all on paper. What do I got to do? What in order for me, I knew that 32 units should be worth well over a million dollars. Maybe not in that market at that point in time, but clearly that's what it should be worth. So I said, okay, working backwards. If my exit is going to be, say, a million dollars, where does my net operating income need to be?

My net operating need in that location, investors I knew would command around a 10% cap. So I knew my net operating income needed to be around $10,000, meaning I knew my gross income needed to be in the $20,000 range, which it wasn't even close to at that time. So I said, okay, to get it to the $20,000 range, what do my rents need to be? What are my big expenses that I need to contain? What capital improvements do I need to make? what kind of tenants am I going to be able to get in here? And I realized it would be a one to two year project. I'm now about two, over two years into it. And I'm just about there. I'm at 100% occupancy. Wow. I set up a one of the first things I did was I contracted with a company that submetered all the

utilities. So what they did is they came in. They installed submeters on every single unit. Okay. and they took the town bill for water as well as trash and sewer and they basically subdivided it. So what they did is they said, okay, here's what it costs and transitioned to bill the tenant. So what they do is they bill the tenant for actual water usage and a rubs-based system for the sewer and trash all on one bill. I continued to pay the town for the water usage and they go after the tenant for the water, trash, and sewer. So I'm basically in essence getting a 100% reimbursement from the tenants. Wow. So on the, you know, first thing that comes to mind really quick is that, you know, investors get a bad rap.

And you look and you see this guy, surge here who's basically taking. this property, 32 units that have been dilapidated, filled with junkies and, you know, and people who aren't taking care of it. And he's putting all this money into improve the neighborhood. You know, like, I don't know. It just like, it constantly hits me that like, why do investors, there's some bad ones, but like, look at what we're doing. You know, look at what investors are doing to improve neighborhoods. And you're the classic story of just that with this. And it's, you know, it's, I wish more people would look at investors in a different light, like just hearing these kinds of stories. Like, you know, you're putting a lot of money into it to fix

things up and improve things, you know. But I've got to tell you, it's been incredibly rewarding. When I'm on site, I have police officers that I build relationships with say, wow, what you've done with this place and what this complex has done for the community. For five years, you know, had attracted so much drug use and activity that now, you know, I'm screening tenants. I've got good tenants in there. I got nice green grass, swimming pool families. Yeah. And it's just, the dramatic change to a community has been tremendous and very rewarding. And then really, really quickly, you had 32 units. I'm guessing somewhere around 32 of them were occupied by somebody who probably wasn't paying

rent. How was the process of throwing all those folks out? I'm guessing you threw them all out or how to evict or something. And, you know, when you're evicting that many people, units, was that just like, you know, I could see that, you know, there being kind of riots on the street. Well, no, you know what? It was actually pretty easy. When I got it, it was about 30, maybe 40% occupied.

The church group was occupying one building, and I told them day one, hey, beat it. You know, this isn't, this isn't, this is a very ungodly of you, by the way. You're not living for free. You're not living for free. 15 people in the unit supposedly, you know, feel sorry for me. It wasn't that that wasn't happening. So that, that was quick. One of the first moves I made was I had that there was a resident manager who had to live there in the past before,

before kind of my first round with the complex who was working, who was part of the church group, who was part of the church, who the church got to be the resident manager. But she was fabulous. She was like the only person there that was very responsible, understood it. She had moved. She couldn't stand working with the older guy who was the previous owner. and she had moved with her husband to Montana. And so one of the first things I did was reach out to her, get in touch and say, hey, you know, I'm getting these 32 units back.

I want you there. I want you on site. She was a resident of the town, born and raised there, knew everybody in the town, knew all the bad players, all the good players had, you know, knew the police officers, knew the church, knew the high school teachers, knew everybody. So for me, that was a huge advantage in. you know, screening these people, everybody's going to come and tell you, hey, I'm great, I have a job, etc. She knows. If this person says they're working at subway, she knows if they're working at subway. This person's a drug addict. She knows they're a drug addict. So I got her back. I gave her a free unit. And I paid her what she was worth. You know, you get a lot of these people that say, hey, well, it's only 32 units. You can't really afford. You know, you don't have economies of scale. You can't afford to have a resident manager. You can't afford to have someone living in a free unit. And my response is always, I can't afford not to. You know, I can't important not to have somebody on site, eyes and ears for me that can tell me what's happening

at my property at all times. And just little things like trash. You know, you talk about trash, you can't have trash on the floor, you know, and who's going to watch over that for you? It's not going to be your tenants. Yeah. It's got to be somebody that has your best interest in mind. And if you're not paying them right, that's not going to happen. Yeah, that's really good advice. I want to touch on that and I want to go back. Actually, I need to go back and talk to you about the rub system you talked about submetering your water i mean that if what i'm thinking of what you're talking about you're talking about each tenant then pays their own water which means you don't have a water bill or a garbage bill anymore is that correct no that's not correct so uh me as the

owner here's here's how it works here's how works uh as the owner i set up a water there's there's one main meter, right? And that main meter goes to each and every unit. Each and every unit has a shut off in the front. Okay. The city comes and they do a meter read on that one main and they bill me for that water. Okay. So what I found was happening was my utilities, my water usage ate up all my cash flow. Every single month with that many buildings, there was always a leak in one of the buildings or if a tenant was mad, they'd leave the water running and it would equal literally like a $700 to a $900 bill every single month. One of the buildings would have that, God forbid, two or three of the buildings. You know what I mean? It was terrible. And I looked at it and I said,

this just can't continue. So the city continues billing me. Okay. The company that I engaged went over there. They set up a submeter on each and every one of the shutoffs in front of each unit and that meters the water usage per unit. I incorporated into my lease that the tenants are responsible through this company to call the company upon, we shut off the water before the tenant moves in. The tenant moves in in in order for them to get their water turned on. They have to call this company and say, hey, this is the meter read as it is today. This is when I moved in, set me up with water. So the tenant thinks they're dealing with a city or municipality or utility, right? They don't know that it's just kind of a pass-through.

So then my resident manager goes, turns on the water, unlocks the key. At the end of the month, the company sends their representative, reads the meters, and sends out a professional bill with the water usage plus an allocation of the sewer and trash to the tenant. The tenant then has 30 days to pay. And if they don't pay, they call my resident manager and we shut off the water. Wow. Simple as that. And you still, now you're still on the line for the water if at that point they fail to pay, correct?

If they fail to pay, then I'm on the line for the water. That's right. So, for example, a tenant gets into economic difficulty, doesn't pay rent, you know, midnight move out, they leave a water bill. I'm paying that water bill regardless. That's just bad thing. Okay. So it doesn't follow them. It's not tied to them or their credit report.

Theoretically it is. I know what water consumption they use. So I add it to their final tenant statement. So say they booked in the middle of the night. They didn't pay me last month's rent and give me 30-day notice. They owe me $700. I'll tack on $100 in utility. Hopefully they have a job.

If I screen right, they have a job. And so I'll get a judgment and I'll hand over the file to my collection attorney. who will go after them for the $700 plus the $100 utility, garnish wages and eventually hopefully get some of that back. Well, so here's what excites me about that. And I mean, I have my water bill and my apartment complex is about $1,800 a month. My garbage bill is $1,000 a month. That's $2,800 a month.

I'm going to get really nerdy here so people might want to, you know, ignore me for a second. But $2,800 a month times $12 months is $33,000 a year. I'm paying $33,600 a year I'm paying. If I could transfer that to my tenants, not only does that give me an extra $33,000 a year in cash flow at a 10% cap rate that increases the value of my property, $33,000, right? Absolutely. So what's the downside? Why doesn't everybody do this?

I'll tell you what, you know, and you can look in the forum. It's got to be expensive to do it, right? Well, the contract I got didn't cost me a dime. So the way it works with the company that I'm using, they have their own meters. They came. They did all the installations for free. They signed me to a four-year contract. They charge $5.95 as a rental per meter and $5.95 per unit for the read fee. But here's the greatest part about it. Well, that gets added on to the tenants bill. The tenant pays it.

So the owner basically pays nothing. It's a no-brainer. It's a no-brainer. The downside, the downside, and you'll see the debate is if you're in a competitive environment, if you're in a city where there's a lot of multifamilies and all your competitors are paying for water, sewer, and trash, then theoretically your tenant's going to say, well, why would I, why would I be on the hook for utilities when I can go across the street and not be on the hook for utilities? And that was my main concern. I had a lot of debate. And I didn't know if I wanted to do this. I had a lot of debate.

You know, would I lose tenants? Would my occupancy rate go down? how would the tenants react and here's what i found um i've had zero impact so what i did is in essence i did market research on there's in this town there's really two other large multifamily players i got their list of prices uh on their three bedroom two bedroom and one bedrooms which i offer um i was already cheaper than them and so what i did is i still raised my prices but i made sure my prices were about $10 to $25 cheaper than them. Okay. And I advertised it, said nothing about utilities. I just advertised it as 25 bucks cheaper than them. So we get a lot of people calling,

you know, look at the units. And I made my units marketable. I made sure my units were clean, showed well. That's always important. You know, you don't want to rent trash. And then they show up. And then they'd ask questions, you know, what does the owner pay for, what not? And my, my resident manager who was doing the showings, I trained her. I said, this is exactly what say. You say tenant pays for all utilities just as is standard for every single, single family home. No different. And if they give you kickback and say, hey, you know, well, ABC apartment next door doesn't make you pay for that. And you say, well, hey, that's why we're able to keep our prices low. And that's why we're able to offer the most competitive amenities, units, square footage.

What we offer is the best in town and being able to conserve utilities. Hey, we're conservationists. here. We care about water. We're in Arizona. You know what I mean? We care about that. Yeah. And what we found is that allows us to have the best offering and tenants say, okay, that's fine. And for whatever reason, I can't tell you why, you know, but they just don't notice when they're shopping for an apartment, all they care about is what is the rent? What is the rent? What is the moving cost? So let me ask you this. So, you know, on multis, I would never buy a multi-family where I was responsible for water ever, ever, ever again. I've lost so much bloody money thanks to tenants just turning the tap on or, you know, leaving the hose on or whatever it is.

The only thing that I could imagine would be a sticker shock. And, you know, ultimately it's not really your problem or responsibility. Oh my God, I had no idea. Water costs this much money. I've got my sink on all day. I've got my tub filled. You know, I got to get out of here. It has that resulted just out of curiosity and you having any minor headaches. I mean, it's not your headache again because that's their problem. Honestly, maybe that where I don't even know about it, but I've never had a tenant tell me I'm leaving because the water bill's too high or I'm leaving because somebody else pays for utilities and I don't. Yeah. I tell my resident manager at Move-in, you know, I'm a follower of that book, Landlording on autopilot. You know, you train your tenants right up front. And

You show them, I have my resident manager sit them down and say, you need to budget for utilities. You need to budget for utilities. Your water bill on moderate usage is going to be $30 to $40 a month. Your sewer and trash is going to be another $20 to $30 a month. You need to budget for that. During the summer, air conditioning costs are very, very high. Don't come complaining to us that our air conditioner is broke because your bill's $400. If you run your air conditioner, it's 72 degrees.

It's going to be $400 to $500. So you need to budget that. So we tell them that up front. And then it comes down to screening appropriately and making sure that they have a job and can pay for it. Yeah. Yeah. You know? Yeah.

That's awesome. Definitely. All right. So you got this 32 unit. It sounds like you're putting it up for sale. Tell us really quickly and we're going to kind of move on to the next section of the show here. What's the plan here forward? You know, you've got all these units.

You've got this one big building that you've turned around. You're selling. You know, hopefully good luck on that, of course. And do you continue to add multifamilies for turnaround? Do you, where do you go next? You know, our multifamily market has become so saturated and the returns are, the cap rates are ridiculous. The stuff I'm seeing selling is just, you know,

what are you saying? I'm seeing forplexes that I probably wouldn't have bought for $40,000 selling for a quarter million dollars. Ben Leibovic wrote about this in his syndication as well, you know, kind of this fake numbers out there in the multifamily segment is just so pervasive. You really have to be an owner-operator to know what the real numbers are. If you're going into this blind, you've never owned a multifamily, particularly in the older one, there's going to be people that get hurt.

There's going to be people that get really, really hurt. So I'm not seeing anything in multifamily, and I've been an opportunistic investor. I'll take what's given to me. So I'm again on a pivot point right now where I'm looking for to get out of my market, as far as the counties that I work in, the cap rates just aren't available anymore. We've had such tremendous appreciation out here. So I've taken my network, built a small network of contractors and agents and such in a county that's a south, southern Arizona, where there still are some deals on newer single families.

Again, rural areas. There's a military base down there. So I did my research on the demographics, the growth. and I'm starting to purchase some single families down there. At the end of the day, though, I'm really at an inflection point where it's, do I grow this business and systemize it and hire employees and get to the next level? Or do I slow it down, you know, figure out the management aspect of it and be happy with the cash flow?

Gotcha. Yeah. Gotcha. Gotcha. Wow. I mean, this is probably our longest show yet, but I still have like 500 notes that I want to get to. So we're going to probably have to, you know, wrap it up fairly soon. But let me ask you a couple more questions that I really wanted to get to specifically because I'm selfish and I like to know

things that help me. So how do you actually, the specifics of your business? You mentioned a resident manager and that you have a property management company. Do you also have like employees, handymen on staff or do you hire them out? How does kind of the actual functionality of your business work? The first thing I did was buy property management software. I use building, which has been fantastic. I couldn't imagine life without it. That was the first thing. The second thing,

set up the legal framework for a legitimate property management company. I have my resident manager that manages the 32 units and I also pay her on top of that to be basically my operational manager for the single families.

And so what she does is she's basically the call center. So if a tenant has a problem with a maintenance request or whatever has an issue, wants to yell at somebody, they call her. They don't even know I exist at this point. She also does all the turns and all the movements, all the moving or the tenant walkthroughs, tenant inspections. So what I did was I kind of worked backwards and said, okay, what are the touch points

in this business that need me that I'm spending a lot of my time in? And how do I get out of those? And I narrowed it down to tenant showings, which I absolutely can't stand. That's the worst part of the business in my mind. I can't stand showing units. That's a tenant showings, tenant phone calls, maintenance requests, basically all tenant contact. So I offloaded all. So you don't like people.

I love people. I just don't like hearing complaints. I don't like showing. Showings drives me crazy. That's a whole other tangent, right? So what she's allowed me to do is offload the touch points that can't be automated. Okay. Everything else that could be automated, I automated. So, tenants are all my tenants are trained. Do not call me. Do not call my operational manager.

Emergency or not, all tenant requests are filled out online. So they fill out their tenant requests online. It emails me. It emails her. And in some cases, emails my vendors. I have a list of specific vendors that I have for each regional area that I'm in, gets the email. and my operational manager will either just simply forward that email to the vendor for that. Maybe it's an HVAC repair. She's got the specific list of vendors that are pre-authorized. I got priceless that are agreed upon. She'll simply forward that to them. The vendor will call the tenant, schedule, get it done, invoice me.

I'll do it. So for me right now, the remaining touchpoints of the business are really accounts payable, accounting, journal entries, and managing my operational manager. So really one employee. Okay. All right. That's awesome. That's actually really, really helpful. So.

Yeah. Fantastic. All right. Well, Serge, I mean, this is, this is a fantastic so far. Really, really great information. We are going to... It's time for the fire round. That's where I get interrupted by our angry guy.

Actually, yeah, it is the fire round. All right. So, all right. The fire round is. the part of the show were, you know this, we ask everyone questions directly from the forum. So we're going to fire these at you and you can fire them right back. So question number one, for a buy and hold investor, does it make more sense to sell when the market seems to be peaking and then buy again when it drops or just to hold continually

and ignore the market? You know what? I'm a believer that you hold your best properties, that you look at the performance of each property every single year. And when the markets are high, you use it as an opportunity to basically sell your worst performing properties, lock in the gains, and perhaps buy better performing properties or buy a different asset class altogether, or invest out of state or invest where it makes sense for whatever you're doing.

But to just blindly say, I'm going to buy and hold, sometimes doesn't make sense. You sell your dogs, you keep your best properties, but you're always got to be looking because it never it never works out how you thought it would when you bought on paper tweet a whole topic right that was awesome awesome all right how can i estimate how much expenses will be on a multifamily property oh my god uh i i started 60% water or no water i mean people said people talk about the 50% rule i just i haven't seen less than 60% um wait wait wait wait hold on hold on hold on search because you know because a lot of really experienced real estate investors say that that's crazy you know Well, I get 20% on my properties.

I get 10%. 60% is not an unreasonable number to see. Here's the thing. It's not unreasonable. The problem with multifamily, you have pros and cons. People always talk about the pros. One roof, people under all in one place, easier to manage, etc., etc. But if you don't hear, when your average rental is 500 bucks, well, guess what?

There's still two sinks. there's still two toilets. There's still all the components in there are there. When you're only making 500 per unit, the repairs still need to happen. You know what I mean? So there is something. Depreciation is real. These things do fall apart.

These things do need to be repaired. When you're only making $500, your expenses add up. Now you have a lot of other expenses that you just don't have on single family. You don't have trash, water, sewer, landscaping, the grounds maintenance, The million other things, you know, bedbugs. I've never had bed bugs in a single family house, but in a multifamily. Don't move into Surge's properties. He's nerdy.

It happened. I met like, I think I hit 62%, I think, for last year for my expenses before taking in the mortgage. So yeah, I mean, definitely the 50% rule wasn't enough for my property, especially with that $33,000 a year, you know, utility payment. And you probably did well at that 60%, 62%. You know what? I'm happy. Well, let me ask you the two of you then.

I mean, so on these larger multis, I mean, what would you say would be a safe assumption for a new multifamily investor? You know, we say 50% on single families, generally, if you can find a 50% property, you know, you're in really good shape. You know, odds are it's going to be great, but you're still going to do the due diligence. What's what kind of screen would you set for a big multi? I mean, would it be 60? Would it be 55, 70? What do you think? You know, I think it would depend on the class of the asset, you know, certainly a class A asset that's less than 10 years old, that's submetered for everything, probably 50% may be reasonable, you know.

There are other multifamily. This is what multifamily investors just really need to grasp. There are certain multifamily properties that simply will not make money. I don't care how cheap you buy them for. I don't care what they are. If they're in the wrong location, they're the wrong. age, they're built the wrong way, you can get them for free and you will lose money every single year. You've got to understand that because everyone wants that crazy screaming bargain. And in this game, there's so many traps. Half of these multifamilies I look at, I say, wow, I wouldn't take that for free, literally. It's a liability. It's not an asset. A lot of these buildings are liabilities. There's a wise investor I once heard say that you can go broke buying good deals. I thought that was very, I guess, fundamental in my education growing up as a real estate investor.

So, very true. All right, let's go on to the next question is, would you invest in an area that had a slow population decline? You know what? I probably wouldn't. That's one of the big things and that's one of the reasons I love Arizona. Our population has been continuously growing. We had a blip during the recession where our population did not grow. But to me, population, income and jobs, drives real estate.

Simple as that. Simple as that. You've got to look at other factors, obviously. You know, is there a new building going on? How are you meeting the demand of the population growth? But if you have population growth and you have job growth, that's music to a buy and hold investors' ears. I mean, that's the first thing that I look at.

And I've never invested out of state. I have been stuck on Arizona. I love the combination of low property taxes, cheap. insurance. Scorpions. Scorpions are a problem. But, you know, it's got a fabulous combination for the real estate investor. No snowstorms, no freezing pipes. No nonsense. No nonsense with 3% tax, 2% tax like in Texas. I mean, every state I look at, I just can't get over some of these factors. You don't want to buy property in New Jersey. New Jersey. Oh, man. Imagine that. Yeah.

All right. All right. So, sorry, Jersey. I have. to pick on you at some point. Do you think there's a way to do some major minor renovations to a unit that's occupied and do you have any tips on that? Minor reservations to a unit that's already occupied? Yes, sir. If it's occupied, why renovate it? Good point. I mean, I see no point. You rented it as is. Why would you, why would you renovate it to have your tenant destroy it? Hey, don't get mad at me. I'm just reading with the, with the guy wrote, I've never done it. I guess there is. I guess there is, but it's just, it sounds like a big headache. I tell you, I had a, I had a unit that was, was rented out, and the unit was fine. And at some point, there in between, there was a giant hole in the kitchen floor. Like, I mean, straight up, like, the thing had to be, I don't know, the size of a big garbage pan, garbage can. And like, how do these things happen?

I know. How does that happen? Well, you know, I just fell through. You didn't fall through, dude. What, do you jackhammer that sucker? I mean, like, that doesn't just kind of happen. So. Yeah.

I had a tenant leave a boat in one of my pools, you know? It was a midnight move out. I got a backyard. I got a big boat. I got a boat just floating in my pool. Like a 15-foot boat? Like a real boat. Like a real boat.

Like, are you kidding me? That's funny. Now you go spinning in the beach on that thing, right? Oh, God. That's crazy. That's crazy. All right, cool. Well, listen, so we're going to move on to the last section of the show here, which is the

Famous Four. And The Famous Four, we've got these same four questions that we'd like to ask everybody. And I will start. What is your favorite real estate book? And I think I know what it is. You know, I like that landlording on autopilot. It was a good one, you know, just a good kind of reality check. Also, there's one of the Kiyosaki books, the real.

the real book of real estate, where he's got his advisors talking about it. In the beginning of my career, that was nice because it was very broad, a lot of different types of real estate, the CPA talking and the lawyer talking and kind of the, um, all the ass, I like, I like both of those. Yeah. I don't think anybody, I don't think he'd be said that one, but that was a good one. It was, it was different than most real estate books I'd read because it was much bigger picture. So cool. What about your favorite business book, non-real estate? You know what? I like the, uh, Jim Collins, the good, from good to great. Okay, yeah. Of course, what sets apart different leaders.

Also, the seven habits of highly successful people, a Covey. Yeah, good stuff. Right on. Cool. All right. Josh. Yeah, this is me. This is hobbies.

What kind of hobbies? What do you do for fun? I'm big on hiking. I've got a house out in a northern Arizona area in the woods, about an hour and a half out. We go hiking and there's lakes out there and got a nine-month-old baby. Congrats. kind of a home body right now, you know, and spending time with the family. Right on. Excellent. Excellent. Excellent. All right. Final question from me.

What do you believe sets apart successful investors from those who fail? You know, starting, you know, starting. You know, I hear about this analysis, paralysis, thinking, waiting for the right deal. It doesn't matter if the first deal is bad. At least you learned. Starting is the big one. And then I'm not big on getting too caught up and a big 10-page, business plan. Lay out five bullet points of what you want to achieve on your first round and then be quick to pivot. Pivot every time. Take the market gives you. You know what I mean? Don't try to force a strategy on a market that's not receptive to that strategy. Take what the market gives you. Are you a lead startup? Live it out of that if it doesn't work. Are you a lean startup fan?

The book Lean Startup? I was going to say you sound like a lean startup guy. I love the lean startup. Amazing book. Take what the market gives you. Yet another quotable topic here. Yeah. For sure. For sure. All right, Serge, it was awesome. Listen, so before we let you go, how can people find out more information about you? You know what? I'm on BP. That's the big one. BP, I'm on Facebook, all the social media.

Just holler. All right. Awesome. And we'll point a link in the show notes to your profile at biggerpockets.com slash show 60. And for everybody listening, if you have any questions for Serge, definitely make sure to hit them up in those show notes at biggerpockets.com. slash show 60. Serge, thank you so much. It's been a pleasure,

and we'll look forward to seeing you around on Bigger Pockets. Nice. Thanks for having me, guys. All right, everybody. That was Serge Schuchot, real estate investor in Arizona,

who is hopefully blown your minds about single family and multifamily buying hold real estate investing. There's enough information in there to, I don't know. If you haven't taken notes or if you didn't get anything

from the show, you are a, I think you're probably well on your way to do them very well. Cool. Yeah. Great show. I mean, I have like a whole like two pages of notes here just while we were recording it just note after note after note of things that I need to go look into. And I already looked into the submetering thing.

Already just hitting Google and I found there's a company in Seattle that'll do it. So I will be calling them as soon as I hang up the phone here. Awesome. Good stuff. Good stuff. All right, guys. Well, listen, we hope you enjoyed the show. Biggerpockets.com slash show 60.

and that's biggerpockets.com slash show 60 where you can reach out to surge, ask them any questions. Otherwise, jump on the site, get active, get involved, invite your friends, tell them about the podcast, help people that you know who are trying to build their wealth and improve their lives by introducing them to bigger pockets and helping them learn how to be successful. Let everybody know who we are, what we're doing. And hopefully we will see you again on the next show, Show 60. Thanks for listening. I'm Josh Dorkin. Signing off. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the hype, you're in the right place.

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