Epic Real Estate Investing - The Best Cash Flow in America | HTH 003 | 456

Episode Date: August 29, 2018

On today's Way Back Wednesday episode featuring Hold That House, Matt Theriault and Matt Andrews discuss the best cash flow in America! Learn what to look for in new markets, where the Matts invest, and how to use others' experiences to your advantage. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey, welcome to Way Back Wednesday, and I got a hot episode for you today as Matt Andrews and I discuss how to find the best cash flow in America. And it's as relevant today as it was when we originally recorded it. And speaking of cash flow, are you coming? Are you coming to the cash flow conclave? It's coming up soon. It's in October 18th through the 20th in Boston. The cash flow conclave, it's the invitation-only meeting that's going to reveal the secrets of residual income through real estate. And you are invited. Go to Epic and, Intensive.com. Get all the details. Grab a ticket before they're all gone. I'll see you there. Now enjoy the show.

This is Terio Media. Don't wait for appreciation to buy real estate. Buy for cash flow and wait. In other words, Hold that house. Your host's Matt Andrews and Matt Terrio. Yeah. It's my new song, man. I dig it. Do you dig it? Flipping houses can make you really. rich holding them will make you wealthy.

This is the Hold That House show. I am Matt Terrio and over there is Mr. Matt Andrews. What's going on, people? And before we again, we've got a free gift for you. So go to hold thathouse.com where you can download the four-hour work month, the Ten Commandments to Managing Property Managers. Really, the key ingredient to financial independence through real estate that they're not telling you about.

No one is talking about this. And you can get that for free at hold that house.com. Yeah, yeah. Hey, hey. Well, guys, today we are talking about, well, we're talking about some really cool stuff today. We're talking about actually the key thing, the key to this whole podcast, cash flow. Right. And specifically, how to find the best cash flow in America.

All right. We're going to break it down for you right now. And basically, the way we're going to break it down is just by telling you how we choose the markets that we invest in for cash flow. You know, what is the process that we go through to do this? You know, I invest in, I started in Florida because that was my backyard. and I think that's what a lot of people do, Matt. They start, you know, they think, hey, I'm here in, you know, Idaho or I'm here in Tampa, Florida, or whatever. Unless you live in Los Angeles.

Unless you live in Los Angeles. Then you don't. In which case, no one can invest in real estate because it's too expensive, right? Right. Well, it doesn't cash flow. Yeah, exactly. Cash flow is not existent. But, you know, a lot of people think you kind of have to start somewhere close.

You have to be in your backyard. You've got to be able to drive by the property or whatever it is. And that's just not the case, isn't it? No, it's not. I mean, we talk about this a lot. You know, live where you're, want, invest where it makes sense. Absolutely. And you, Matt, more than really anybody I know has reached out and explored a ton of different real estate markets looking for the kind of cash flow

that you want for your personal portfolio and the kind of cash flow that you sell to other investors. So maybe you could just tell us, you know, kind of what is your process starting out when you are moving into a market or first looking at a market? What are the characteristics that market has or what are you looking for as kind of the first signs that that might be the market for you. Sure. Well, being a cash flow investor, I do look for the cash flow numbers. I look for a market that has a really solid rent to purchase price ratio where I can get, you know, I at least want a double-digit return. That's the absolute bare minimum. So you want at least a 10% return. Yeah. Yeah. Okay. And it depends on how I acquire that. It depends also,

I'll make some, I'll be flexible with my standards depending on what type of neighborhood it's in. Okay. And I can talk about that in a minute. That's the first broad disqualifier, though. You want to make sure it's somewhere you could get doubled-to-to-cash-low. I'm addicted to my monthly paychecks. Yeah. And, you know, the bigger, the better, the more consistent, the better, obviously.

And so I look for those markets that can produce that for me without any real extraordinary effort on my part. And so that's first. And in those markets, I look for all your basic indicators. I look for, you know, I look for a strong economy. I look for a diverse employment what? I look for diverse employment. Yeah, diverse industries. Healthy employment.

Exactly. Growing employment, yeah. I look for a stable or growing population. I look for the migration numbers. I look for government participation in the development or the maintenance of the area. I look for big anchor type companies. I look for Fortune 500 companies. And I look for all that.

That's what everybody does. You know what I mean? That's kind of normal. But I do not go into a single market. I will not go into a market unless I have confidence in who's going to be managing my properties. I've got to really essentially have a relationship. And if it's not personally, it has to be someone with who I really trust and respect that they can make that introduction for me. Because we've talked about this in the past, I think it was just last week, where we talked about, you know, you could have the best house with the best numbers.

And if you have bad property management, it doesn't matter. And I look at that same thing as far as the markets go. You can have the best economic indicators that give it a massive thumbs up for this market and this is where it's all going to happen for you and happen the best. But if you don't have property management there, it doesn't matter. Right. It's like building the best motorcycle in the world and then having someone race that's never been on a motorcycle before.

It's still the best motorcycle in the world. But they're going to crash and burn on that first turn. Right. I mean, that's what's going to happen. So same thing with property guys. You know, if you, you know, acquire a property, however you are buying your properties, you get the best possible price. And you know, based on the rents around it, it's on paper, it is amazing cash flow. But you hand it over to the wrong person.

You're shooting yourself in the foot. Absolutely. Absolutely. So that's the biggie. And kind of how I started was, I will belong to an educational network. They're no longer around. But there were 30,000 students from all over the country in this network. And I was blessed enough to be a part of that network at its peak and its height. And I was able to create a pretty solid network across the country, not just with property

managers and realtors and contractors, but with fellow investors. And it started where I got my first deal, a group of deals from a distressed investor just outside of Chicago. And I had no idea, being from California, I had no idea that houses could be sold for $30,000 or purchased for $30,000. I didn't know that in California either. Yeah, well, yeah. Well, you can't do it in California.

But that really opened my world to a whole new realm of possibility knowing that those types of properties existed. Sure. And they rented for five, six hundred bucks a month. I mean, we're always here really focused in California on that 1% rule. Does it pass the 1% rule? Like, you can go in the Midwest and the South and you get that 2% rule. Yeah.

Right? And this was like, so I'd never seen that before. And then from there, I got a, it was referred to somebody. down in Memphis where I bought my first 14 unit and had that management underway and then noticed that, wow, the single families here produced the same ROI as my 14 unit. And so I went there and then the demand

through our turnkey operation over at Cashflow Savvy, we didn't have enough properties for the amount of buyers that we had. So we looked for another market. We started asking for other investors and they referred us over to St. Louis and had very similar numbers and we got assigned to property management there. And we just kind of moved from one market to the next.

as our demand grew, and then as our portfolio grew, we saw the importance of diversifying. But having said all that, that is not a foolproof system. Right. It's just a starting point. Sure. Because I think every single one of those property managers that were referred to us, none of them worked for us anymore. But it did get us in that market. It got us at least a starting point.

And then once we got more involved in that community and knew more about that market, we met other people. Yeah. And we were able to upgrade. We were able to increase. but property management number one. We'll be back in 30 seconds. Right after this. If waiting for your investments to grow

feels like waiting for pink to drive, there's a powerful secret your financial planner doesn't want you to know. You can accelerate your investments growth by two, three, or even four times. That's bad news for Wall Street. But great news for you. We're turnkey allies.

And we'd like to offer you free information that will show you how to take control of your investments and double, triple, or even quadruple their returns. And it's yours. for free. For the secret your financial planner doesn't want you to know, go to turnkeyallies.com. That's turnkey allies.com. You hit on something really important there, I think, that I want to make sure everyone pays attention to is that you were referred to some of these markets, right? So, I mean, that is key. So much of the time, I think, you know, we as entrepreneurs and everyone out there listening, you know, everyone listening to this podcast is an entrepreneur in one way or another, right? You know, you own property or you're looking to own property and buy and hold good cash flow real estate. And it's something that a lot of us, you know, a lot of us kind of get into a trap of trying to do it ourselves

or trying to reinvent the wheel when what we should have done was gone and asked someone who's already successful on what we're doing, do you have a referral for this? You know, and so like when someone asked me, how do you find a good title company? I ask the five biggest investors I can find in that market. What title company do you use? That's not rocket science. Right. Right.

That's not rocket science. So you hit on that. You said we were referred into that market. So obviously you spoke to somebody that you considered someone that has some knowledge about that market, and they referred you to that market based on the criteria you gave them. So talk about that process a little bit. How do you talk to investors and get kind of those referrals to move into those markets? How did that process work?

Like you said, Memphis. Someone turned you on to that. How did that work? Well, I mean, it could be as simple as, you know, go to your RIA meetings. Yeah. Because you know what? You know who goes to Ria meetings? Investors.

Sure. Right? So it just got the basic conversation over the stale donuts and the cold coffee is, you know, where are you investing? What type of industry are you doing? And, you know, you'd get fix and flip answers. You get wholesale answers. You get lease options. You get, Ro, we're doing this project with the bank and this development over here.

And then you also get the people. I just got, I got four of these houses over here. Oh, so how's it working? Like, I'm listening for people that are having a positive experience in the investment. And who have experience. Yes. For sure. Yeah.

Not listening to somebody that writes for a newspaper or some economist that's talking theory, somebody who is doing it. Please don't listen to those people. Yeah, exactly. But that's a good point though, right? Is that there's always two different sides to the coin. There's education that comes from people sitting at a desk looking at numbers telling you what they think.

And then there's education and real estate that comes from people that are doing it. Right. And you always want to get your information from the people that are doing it. Always. Right. So you got a good referral to the Memphis. Yes. And that led to others.

Right. So Memphis and then what were somebody in St. Louis? St. Louis. Cleveland, Columbus, Kansas City, Indianapolis. We're now, I've got two partners, one in Birmingham and one in Atlanta. So we're all over now. Yeah. And I'm in all of those places because I have solid property management.

Right. And like I said, it's not a foolproof system. We had to do some swapping out and hiring new people in some cases, in some of our markets because we've had to fire multiple people. Yeah. But we're solid there now. Yeah. And now I'm in all of those markets.

And when I do my marketing for actually looking for deals and looking for properties, it's just like my opportunities for opportunity are so much greater because I know in those multiple markets I can get all of those opportunities to perform. Sure. Absolutely. And like we said, you know, like so many beginning investors think they have to invest in their backyard. Well, what if your backyard is like the worst cash flow in America?

Yeah. Like Los Angeles. where I live. Right. Yeah. It's not good cash flow. Right. So for you to think that you have to do it in L.A. County or, you know, somewhere close by here, that's very prohibitive, right? There are real estate investors here that do different kinds of deals, but they're not the cash flow type opportunities that your business is based on, right? So you have to look outside of that. So that's a real impediment. Is that or move? Right. Or not invest at all. Right. Like those are my options. Exactly. So I'm addicted to the ocean. I love the sunshine. I, as much as I hate it,

I do pay the California sunshine tax. It's very expensive. So I just have to... We got the sunshine in Florida too, Matt. Yeah, I know, with no tax. Exactly. Believe me, I've considered. You come visit anytime, buddy.

I will. I will. But moving out of Southern California just wasn't an option for me. Sure. I love the water. I love the climate. This is where I want to be. So I had to learn how to do it outside and in other markets.

Right. And, you know, people always ask, how do you do that? I was like, well, could I invest with people? people that I know. I have people that I know that work with me. And I found those people initially because they are referred by me or referred to me. Sure. And you have a process for it. So once you have an objective criteria for what a good cash flow market is for you, and then you went and did it in Memphis, then it was a natural step to, okay, now let's go to St. Louis. These fit the same criteria. So the same things that work here with some tweaks

will work there, right? And then Indiana and some of these other markets that you're in. And so once you have the process set, even though there are differences in those markets and there are differences in some of the acquisition strategies maybe and differences maybe into some of the investors that you're selling to, the core is really the same, right? You're looking for the double-digit returns. You're looking for good, strong property management, right? And you're looking for a team of contractors and realtors and title companies that can kind of form the back end of your team to facilitate getting those deals closed.

Correct. Cool, cool. So that being said, what are some of your favorite markets right now? I guess the way the question is, where are you having the most fun right now? Yeah. Well, I just got back from Indianapolis. Okay. That's a great little city.

Yeah. There's a really good mix of the cash flow numbers are good there. But you can also, there's a weird dynamic in many of the markets where, you know, you can, tenants and property owners live in the same areas. So you could purchase a property for 50, 6. $60,000, get it to rent ready standards and get $800, 900 a month. But then in that same market, you can buy that same $50,000, $60,000 house and then really, you know, improve it in a way that's a homeowner ready, I guess, and elevate the quality

of the components, I guess you put in the property. Error fixtures is a little word I was looking for. Yeah. And now you can sell it for $80,000, right? But it doesn't make sense because it's not going to rent for that much more. Right. But you can sell it retail and a flip opportunity. So you got more exit strategy there.

Absolutely. Just more options to you as an investor. If you decided, hey, you know what, I don't want to own this as a rental property anymore, you've got an option in a neighborhood like that to put some more improvements in and then sell it, maybe even make a profit and then put it back into another buy and hold house. Absolutely. Right? Something like that.

So that's really cool. And that also ups the attractiveness of that neighborhood for the renter, right? Because if a renter is moving into a neighborhood and they see that they're surrounded by some renters, but also a lot of owners. That just makes that neighborhood better because obviously ownership mentality brings with it a little bit more pride in keeping up the house and that type of thing.

So it actually makes it a nicer rental neighborhood for your renters as well. Indeed. Indeed. So Indianapolis has that dynamic. I really like Cleveland. If you visit Cleveland recently, if you have visited. LeBron.

LeBron is there. He raised property values by 20% the day he signed, I'm sure. It was a good move. Yeah. Johnny Manselli's probably evened that out a little bit. Yeah, probably, yeah. But if you go there, the whole city seems like all the sidewalks, everything is under construction.

Yeah. And they've got the fastest internet in the country is in Cleveland. In Cleveland. The underground files, whatever. They're number one, number one or number two city for young entrepreneurs. That's a good sign. Absolutely. It's a very kind of a hipster-driven area.

Lots of bars, lots of restaurants. It's just really nice there. And I can see it's one of the markets where it's really obvious that the city is working on itself. Yeah. And so that's encouraging to me. Memphis is the same way. Their new mayor is very much building out the center of the city and outward for tourism. They've started at the river.

They're moving inland and they're tearing down the projects. They're replacing the projects with single family. So it's very visible there as well. So those are probably my three favorite markets, Indianapolis, Cleveland, and Memphis. And what I hear you saying there is there's a lot of indicators there. of long-term growth. Right. So, I mean, a lot of the things you just mentioned, you know, have job stability kind of,

you know, their economic growth, it being kind of young, a younger contingent moving there because that is the sign now of, you know, growing communities that have been dead for a little while now are growing. It's because they're invigorated with a younger population, right, that is there and investing in an area and making that area cool. Right. You know? The dynamic about the younger market, I mean, the research comes out over and over.

over again about the millennials are not in too much of a hurry to buy a house. Yeah. They're renters. Yeah. They want to be mobile. They want to be, they want to travel lightly. They want to be able to pick up and go somewhere. So to be a landlord or a property owner, a cash flow investor in those metropolitan areas

is for the future. I mean, the millennials is a very big portion of the population now. And, you know, that presents stability, in my opinion, as a cash flow real estate investor. Sure. If there wasn't enough there already. Yeah, but it just looks brighter and brighter. Yeah, that's awesome. So you're in multiple markets.

I am. You mentioned that you're from Tampa, but I know you're not there as active as there as you used to be, and you've expanded. So how did you pick your other markets? I did. That's a good question because I actually started my business in 2000 in Tampa, St. Petersburg, Clearwater, even some in Orlando, but all central Florida area there. And for that particular time, and from 2000 until probably, well, really till just three

or four years ago, it was a great cash flow market, especially during the down years, when everyone else thought real estate was horrible. Right. You know, I would talk to people that weren't in real estate, and they would say, what do you do? I'd say, I flip houses, and they would go, ugh. How's it going? Poor guy. Yeah, you know, they've got to look at me like, and I'd be like, actually, it's going

really good, because I can get 10 houses for every one I used to get because I buy foreclosures, you know? So it was a great market then because I would buy them. My model then was to buy them, fix them up, rent them, and then I would actually package those up and sell those to investors overseas or investors in California that didn't know that kind of cash flow existed, right? We had a lot of buyers, especially that then for, you know, northern California buyers, Bay Area and stuff like that. You know, a rental property, you know, a low-end rental property up there was 800,000 and I could get them 16 houses for that amount.

So it was like they just thought it was amazing. And so I started my business there, but what happened was hedge funds started coming in. They sort of buying up a ton of, a ton of the inventory, which was good in one way but bad in another. I flipped a lot of houses to hedge funds, so they were one of my best buyers. But as they kept buying, they were outbidding people at auctions and outbidding all the MLS stuff.

So the prices started going up, up, up. And suddenly those 10 plus percent cap rates that I was getting were turning into nine and then eight and then seven because as those prices increased, the rents didn't increase with the prices. So we saw the cash flow drop there. And I'd spend all this time training my buyers, you want 10% cap rates are better.

Well, now I couldn't get them in my own backyard. I couldn't get them anymore. So I fell prey to that whole thing thinking, oh, I've got to figure out how to get properties better here. I've got to figure out how to acquire in a different way or I've got to find some other way. Well, I was thinking about it all wrong. I just needed to go elsewhere and find the cash flow that my people were already used to getting. So I found that by going to West Michigan, which scares a lot of people because they just think about Detroit. West Michigan, it's a whole other deal.

You know, now there's money to be made in Detroit, too. Don't get me wrong. I just haven't done that yet. You know, but West Michigan, Grand Rapids, Muskegon, I could buy properties in those areas, and it was very similar to the cap rate and the cash flow I was getting three or four years before that in Florida. So it was a perfect fit for me.

So then did the same thing, you know, that you do, go through the process of finding the good property manager, establishing the team up there, established it. It was working well, doing the same model I did in Florida just a couple years before that. So it was natural to go to, to go to Ohio and to go to a couple markets there after that. So Columbus was one market I did, and I haven't done Cleveland yet,

but I'm probably going there with you soon, so that's cool. And Columbus, and then we also did a little bit in Indianapolis as well. And those markets are very similar to that Michigan market. I could duplicate that kind of like you did pretty easily. Hey, if I can do this here, can I go one state over and do it like that there? And then established again that cash flow. So those 10%, 11%, 12% cap rates. I had those again.

So I'm all about going out of my area and finding the cash flow because it's about the numbers. It's not about, you know, do I like Michigan? It's not about, oh, is it cold up there? It doesn't matter if it's cold up there, guys. I mean, I'm from Florida. And yes, I think it's really cold in Michigan, you know. But guess what? I'm getting 12, 13 and sometimes better.

People live there. People live there. Yes. And they will rents and I will make 12% cap rates are better or whatever it is, you know. So that was what it was for me. It was just really just finding that next market that I could get that cash flow in. how did you pick Grand Rapids in that area? Yeah.

Because I mean, you're about as far away as you could get from that market. Pretty much. Yeah, you just go straight up until you're not in America almost. Exactly. Yeah, there you are. So that was actually somebody, a student of mine, because I sometimes take on students that I'll help, you know, teach how to buy and find properties they can fix it up and hold. And so I had a student in Grand Rapids, and I didn't know anything about that market.

But he became a friend. He really just started doing some amazing things and was like, you know, did far more than I ever thought he was going to do. do and I started looking at the numbers of the properties that he was buying and fixing up and renting and I was looking at the performance and I'm like wow is this like an exceptional one that you're showing me he's like no we're doing these all the time now and I'm like you're kidding me and I'm just like I'm sitting here beating my head against a wall in Florida trying to find out how I can buy properties for less and you're up there doing it all day long right and I taught you how to do it and I didn't even

realize it that's exactly how I ended up in St. Louis. Is it really? Yes okay so I think my if my student actually makes more money than I do now. That's a good thing. You're a good teacher. He started showing properties to me and I had the exact same question. I'm surprised we never talked about that before. That's awesome. That's exactly what happened.

I said, is this right off multiple listing service. This is what this is there here all over the place. I was like, oh my gosh, here I come. Yeah, I know. I waited until summertime when the snow thawed and I was like, I'm coming up, dude. I want to see everything you're doing. Right. You know, let's lay it all out here.

And I mean, I fell in love with the market in like two or three days. And I was just like, you know, and it wasn't as competitive. It's getting more competitive up there now to acquire properties, but still a great market. But it wasn't near as competitive as what I was dealing with in Florida. So the same amount of effort that I was putting into the Florida market in Michigan was yielding four times the results. And that's another good lesson, too. You know, you think I thought I had to do it in my backyard. Well, my backyard wasn't good at the time.

So I was just, you know, literally beat my head up against the wall. I went up, did the same thing in a different market that was the right market at the time. and things really flowed really easily. So then it was just a process of creating my team, which like what you were talking about is key, right? Because it doesn't matter how good I'm buying them if I don't have a good manager and a good team behind them. So, you know, that was the hard piece up there

was getting the right team. I went through three property managers, or I'm sorry, I went through two before I found my third that was really a good one. And we'll talk about that in the future episode sometime about how we've weeded out property managers and you've got to let people go and they're not doing what they're supposed to do.

And so went through that process, And, you know, it's been a great market for us. So just taking that and just like you know, have just replicated that process in other markets. And I feel like if the cash flow is there and if the numbers are there, I'm going to go check it out, make sure there's a team I can put in place. And then I feel like I could take that model really anywhere, anywhere that has the rents and, you know, the acquisition strategy and, you know, purchase prices to support it. So you got to love it, right? Yeah. It's awesome.

It's just, it's not nearly as difficult as people would think. it is. No. You know, and once you do it once, you're like, why did it take me so long to get here? What was I so afraid of in the first place? Yes. First time is always the hardest for anything. Yeah. Yeah. And start with a referral. Start a referral with someone that you trust. And that can be your starting point. That's what we should all be doing for everything. Find somebody who's good at it and ask him, hey, how'd you do that? Right. Right. Buy him a pizza, do whatever you got to do, you know. Right. Right. That's the way to do it. Don't reinvent the wheel. For sure. Well, on that note, that's it for today.

Flipping houses can make you rich. Holding them will make you wealthy. We'll be back next week. And until then, remember, don't wait to buy real estate. Buy real estate and wait. Hold that house. Contrary to popular belief, a lack of funding is not the biggest barrier to starting a business.

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