Podcast Summary
Effective communication and regular meetings are essential for business partnerships and marriages: Regular communication and meetings can lead to significant improvements and transform the direction of your business. Use tools like DealMachine, Rent to Retirement, and PropStream to streamline strategies and gain a competitive edge.
Effective communication and regular meetings are crucial for the success of any real estate business partnership or marriage. Josh Dorkin and Brandon Turner emphasized the importance of setting aside time each week or month to discuss business strategies, address problems, and plan for the future. This simple act can lead to significant improvements and transform the direction of your business. Additionally, tools like DealMachine and Rent to Retirement can help streamline lead generation and investment strategies, respectively. As the real estate market becomes more competitive, it's essential to explore off-market opportunities using resources like PropStream to find motivated sellers and gain a competitive edge.
From accidental landlord to successful multifamily investor: Opportunities arise during market downturns for financially literate real estate investors to buy distressed properties at low prices
Serge Shukat, a Bay Area native turned Arizona real estate investor, shared his journey from accidental landlord to successful multifamily investor. He began as a corporate controller for a tech company and relocated to Arizona to manage operations. Seeing an opportunity in the 2008 housing market crash, he transitioned from renting out his own home to buying distressed properties at rock-bottom prices. His first purchase was a single family home for just $62,000, which he planned to rent for $1,000. Although he lacked experience in real estate investing at the time, the numbers looked promising. This experience marked the beginning of his successful real estate investing career. Furthermore, Serge demonstrated how he could potentially increase the value of one of Brandon's multifamily properties by $336,000. This conversation highlights the potential opportunities that can arise during market downturns and the importance of being financially literate in real estate investing.
Buying a fixer-upper and learning the hard way about tenant screening and property maintenance: Thoroughly screen tenants, maintain property regularly, and ensure proper insurance coverage to avoid costly mistakes as an accidental landlord.
Being an accidental landlord comes with its own set of challenges, especially when it comes to tenant screening and property maintenance. The speaker shared his experience of buying a fixer-upper in the Bay Area for $52,000, renting it out without thoroughly screening the tenant, and learning the hard way about the importance of proper maintenance, particularly for a house with a pool. He emphasized the importance of having a solid tenant screening process and taking care of property maintenance, even if it means incurring additional costs. Another key takeaway is the importance of having adequate insurance coverage, such as an umbrella policy, to protect against potential liabilities. Despite some early mistakes, the speaker was able to learn from his experiences and apply those lessons to future investments.
Understanding Umbrella Insurance for Landlords: Landlords need to consider obtaining an umbrella insurance policy to protect against potential liabilities. Responsibilities for repairs depend on the lease agreement and relationship with tenants. Effective communication and a reliable network of contractors are crucial for timely and efficient repairs.
As a real estate investor, you can obtain an umbrella insurance policy through your regular insurance provider or a specialized company. It's essential to understand that the complexity of your insurance needs increases with the number of properties you own. Homeowners can also get an umbrella policy for additional coverage. However, being a landlord involves unexpected responsibilities, such as fixing issues that may arise in your rental properties. These responsibilities can range from minor repairs to major issues, and it's crucial to determine what is your responsibility and what is your tenant's. For instance, if a tenant breaks a shower door, the responsibility for repair may depend on the relationship with the tenant and the lease agreement. It's essential to maintain good communication with your tenants and build a network of reliable contractors to ensure timely and effective repairs. Overall, being a landlord requires a proactive approach to property management and a clear understanding of your responsibilities.
Building a Positive Tenant Relationship: Demonstrating good landlord practices, such as prompt repairs, respect, and communication, can lead to long-term tenant satisfaction and commitment. Use an LLC for clear communication and streamlined operations.
Building a positive relationship with tenants, even during the initial stages of a lease, can lead to long-term satisfaction and commitment. This can be achieved by demonstrating good landlord practices, such as promptly addressing repairs, respecting tenants, and being communicative. This approach not only benefits the tenant but also helps maintain a good reputation for the landlord or property manager. However, it's important to strike a balance and not enable excessive demands, as some tenants may take advantage of a landlord's kindness. Additionally, using an LLC structure for property ownership and management can help streamline operations and maintain clear lines of communication between tenants, property owners, and property managers.
Doubling down on real estate during economic downturns: Consider keeping underperforming properties and investing in more during economic downturns for potential long-term gains
During economic downturns, it can be beneficial to "double down" on real estate investments instead of selling off losing properties. This concept was demonstrated through a personal story where a friend's underperforming property was encouraged to be kept and additional properties were purchased to offset the loss. The advice was given during the 2009-2010 market crash when the news was filled with negative real estate sentiment. The friend, who was hesitant due to his Bay Area perspective, was eventually convinced by local drives and evidence of the speaker's successful investments. It's important to note that the friend had no capital tied up in the underperforming property and had purchased it with a conventional loan.
Recognizing undervalued real estate markets and having a clear strategy: Analyzing market conditions and making strategic decisions can lead to significant growth in real estate investing. Focus on properties with a competitive advantage to expand your portfolio.
Identifying the right market conditions and having a clear strategy can lead to significant growth in real estate investing. The speaker shared his experience of recognizing the undervalued real estate market in Metro Phoenix during the economic downturn in 2009. He used data and analysis to determine the optimal time to buy and the type of property that would stand out in the market. He also made the strategic decision to sell his California property and move his equity into the Arizona market. Despite having a demanding job and starting with just one property, he continued to expand his portfolio by focusing on properties with a competitive advantage, such as those with at least 4 bedrooms and desirable features. This approach allowed him to build a successful buy-and-hold portfolio and eventually leave his 9-5 job.
Finding a niche in real estate for financial success: Identifying unique features and profitable models in overlooked properties can lead to significant returns in real estate, even during market downturns.
Identifying a competitive advantage in the real estate market can lead to significant returns, even if it means taking calculated risks. The speaker shares his experience of recognizing an opportunity during a market downturn and focusing on properties that were overlooked by competitors. He emphasizes the importance of understanding the market, identifying profitable models, and leveraging unique features to attract tenants and maximize cash flow. In essence, it's about finding your niche and capitalizing on it to achieve financial success in real estate.
Investing in desirable properties with good ROI over the long term: Focus on properties with desirable features and good long-term ROI, even if they cost more upfront, to avoid maintenance issues and tenancy problems.
Focusing on unique, desirable properties with good ROI in the long term is more beneficial than buying the cheapest properties with potential issues, even if the ROI seems lower on paper. The speaker's experience shows that buying properties with unlicensed additions and functional obsolescence led to tenancy issues and high capital improvements costs. After evaluating their goals, the speaker and their wife shifted their strategy to buying newer, conforming properties with desirable features, even if they cost more upfront. This approach led to better long-term ROI and fewer maintenance issues. The speaker emphasizes the importance of considering the future and running the numbers over a longer time frame when making real estate investment decisions. Don't focus solely on short-term gains; instead, aim for properties that will provide value and stability over the long term.
Building relationships is crucial for finding real estate deals: Networking and building relationships within the real estate industry is essential for finding deals and having control over the deal-making process. Obtaining a real estate license can help, but focusing on building relationships through local real estate investment associations, calling brokers, and leveraging existing connections is key for new investors.
Building relationships is key to finding real estate deals, especially when inventory is scarce. The speaker shares his experience of using multiple real estate agents early in his investing journey, but found it to be inefficient and unreliable. Instead, he suggests getting a real estate license to have more control over the deal-making process. He also emphasizes the importance of networking and building relationships within the industry. The speaker found success by building relationships with various players in the real estate market, such as portfolio lenders, real estate agents, and contractors. These relationships led to opportunities to purchase properties below market value. For new investors, the speaker advises focusing on building relationships through local real estate investment associations, calling brokers, and leveraging existing connections. The days of relying solely on the MLS for deals are over, and building a network is essential for a successful real estate investing career.
Leveraging Relationships for Tax Savings and Passive Income: Building relationships can lead to significant tax savings through 1031 exchanges and passive income via platforms like Connect Invest, offering fixed returns with minimal investment and management.
Meeting the right people and being open to learning can lead to significant savings on taxes through 1031 tax-deferred exchanges, as demonstrated by 1031 Pros. This strategy, which can save individuals and groups millions, allows investors to roll their property profits into new investments, reducing the burden of capital gains taxes. Additionally, passive income through platforms like Connect Invest offers an alternative to traditional real estate investing, requiring only a $500 minimum investment and providing fixed monthly returns without the hassle of ownership or management. Building relationships with lenders and finding those who understand your investment goals can also open doors to funding for larger property purchases.
Staying adaptable in real estate investing: Adaptability is key in real estate investing. Clear goals and being prepared to adjust when circumstances change can lead to success, even when faced with challenges like tax credits and lending restrictions.
Being adaptable and pivoting when necessary is crucial in real estate investing. The speaker shared his experience of hitting a roadblock when purchasing single family homes due to tax credits and lending restrictions, forcing him to pivot to multifamily investing. He emphasized the importance of having clear goals and being prepared to adjust when circumstances change. Despite facing challenges, he saw an opportunity in the market and successfully transitioned to multifamily investing. This story illustrates the importance of staying informed, being flexible, and not being afraid to change course when the market or circumstances require it.
Considering risks beyond price in multifamily property investment: When investing in multifamily properties, it's essential to assess the overall condition, location, and potential risks, not just the initial cost.
Purchasing a multifamily property comes with its own unique set of risks, regardless of the price. A specific example discussed involved a property with five units priced at $60,000, which seemed like an incredible deal. However, the property was located in a complex of ten 5plexes, where nine of the buildings were in various stages of foreclosure and completely unoccupied. The property required extensive repairs, and the lack of tenants and the presence of vacant, problematic properties in the area presented significant risks. The speaker shared his personal experience of dealing with similar circumstances, where he had to abandon a property due to the surrounding issues. Ultimately, the lesson learned is that while the price of a property may seem attractive, it's crucial to consider the overall condition, location, and potential risks before making a purchase. The success of a multifamily investment depends on more than just the initial cost.
Lessons learned from first multifamily investment: Despite initial challenges and lack of profit, first multifamily investment taught valuable lessons about thorough research and evaluation.
Real estate investing, especially multifamily properties, requires careful consideration and evaluation before making a decision. The speaker shared his experience of buying and selling multiple buildings in a complex, each time feeling the need to buy as a defensive move to protect his investment. He encountered challenges with tenants and discovered that a church group was trying to consolidate the entire complex for their cause. Despite not making a profit in his first multifamily venture, he learned the potential profitability of multifamily properties and the importance of understanding the value of cash flow. He then found another project with individual parceled 4plexes in a rural area and bought the first one for $29,000. Overall, the experience taught him the importance of thorough research and evaluation before investing in multifamily properties.
Investing in Fourplexes: Unlocking Significant Returns: Investing in fourplexes can provide consistent cash flow and long-term returns through careful planning, management, and sourcing from entities like Fannie Mae. Prepare for potential challenges like remodeling and unexpected issues.
Investing in multi-unit properties, specifically fourplexes, can yield significant returns if you're willing to put in the work and see the potential beyond the initial state of the properties. These investments can be sourced through various channels, including foreclosures from entities like Fannie Mae, and can provide consistent cash flow with long-term tenants. However, it's important to be prepared for the potential challenges, such as extensive remodeling needs and unexpected issues. Additionally, successful multi-unit property investment requires careful planning and management to ensure high occupancy rates and positive cash flow.
Building relationships can lead to unexpected opportunities: Persistence and maintaining relationships can lead to successful real estate deals despite initial setbacks. Strategic planning and focusing on increasing rents, containing expenses, and making capital improvements can help reach desirable net operating income and exit value.
Persistence and maintaining relationships can lead to unexpected opportunities. The speaker shares a story about a real estate deal gone wrong, where they refused to buy a large number of units due to the condition and cost. However, the seller reached out again years later when he was in a dire financial situation. The speaker was able to negotiate a deal with the help of an investor friend, and through the relationship they had built, the investor trusted the speaker's judgment and invested in the property. The speaker then implemented a turnaround plan, focusing on increasing rents, containing expenses, and making capital improvements to reach a desirable net operating income and eventual exit value. The success of the deal was a result of the speaker's determination, relationship-building skills, and strategic planning.
Revitalizing a Neighborhood through Real Estate Investment: Investing in real estate can positively impact communities by bringing in responsible tenants, recovering utility costs, and improving property maintenance through on-site managers.
Investing in real estate can lead to significant community improvements, as demonstrated by Serge's transformation of a dilapidated 32-unit complex. He was able to evict tenants who weren't paying rent or contributing positively to the community, and bring in responsible tenants, resulting in a revitalized neighborhood. The rubs-based billing system allowed him to recover water, sewer, and trash costs from tenants, effectively getting a 100% reimbursement. Despite negative perceptions of investors, this story highlights the positive impact they can have on communities. It also emphasizes the importance of having a resident manager on-site to ensure property maintenance and tenant screening. Contrary to common belief, the cost of having a resident manager is worth the benefits. Additionally, the rubs system, while not resulting in the elimination of water, sewer, and trash bills for the owner, does allow for more accurate and fair cost allocation to tenants.
Reducing landlord's water bills in multifamily properties: Implementing submeters for water usage in multifamily properties allows landlords to save thousands annually by transferring costs to tenants while maintaining occupancy and tenant satisfaction.
Implementing submeters for water usage in multifamily properties can significantly reduce a landlord's water bills and increase cash flow. The landlord is responsible for the water bill if a tenant fails to pay, but the cost of installation and maintenance is often covered by the submeters' fees, which are passed on to the tenants. This setup has not negatively impacted occupancy rates or tenant satisfaction in the speaker's experience. By transferring water bill costs to tenants, landlords can potentially save thousands of dollars annually and increase the value of their property. However, it's essential to consider the competitive market and tenant expectations when implementing this strategy.
Communicating effectively about utility costs to tenants: Effective communication and transparency about utility costs can help landlords attract tenants and prevent potential issues, while some investors shift to single-family homes due to potential financial risks and unpredictability of tenant usage.
Effective communication and transparency with tenants about utility costs can help landlords offer competitive pricing while avoiding unexpected expenses. By advertising slightly lower rent prices without mentioning utilities, landlords can attract tenants who focus primarily on the cost of rent and moving expenses. Properly training tenants about budgeting for utilities and setting clear expectations upfront can prevent potential issues. However, some landlords may prefer to avoid properties with utility responsibilities due to the potential financial risks and unpredictability of tenant usage. As the multifamily market becomes increasingly saturated and prices rise, some investors are pivoting to single-family homes in areas with more affordable deals and stable demographics.
Scaling a real estate business through delegation and automation: Implement software for property management, set up a legal framework, hire a resident manager, focus on key tasks, evaluate properties annually, sell underperforming assets, and estimate expenses conservatively
Effective delegation and automation are key to scaling a real estate business while minimizing personal involvement in time-consuming tasks. The speaker shared his experience of implementing property management software, setting up a legal framework, and hiring a resident manager to handle tenant issues and property management. By offloading tenant contact and automating other tasks, he was able to focus on remaining touchpoints such as accounts payable and managing his operational manager. Additionally, the speaker advised that buy-and-hold investors should evaluate their properties annually and consider selling underperforming assets during market peaks to buy better opportunities. Expenses on multifamily properties can vary greatly, with experienced investors reporting as low as 20% or even 10%. The speaker suggested starting with a conservative estimate of 60% for expenses but emphasized that every property is unique.
Multifamily investments: Economies of scale, but higher expenses and risks: New multifamily investors should consider a higher expense screen and focus on well-maintained properties for long-term success.
While multifamily investments offer economies of scale, they also come with higher expenses and potential risks compared to single family homes. Depreciation is a real factor, and repairs and maintenance costs can add up quickly. New multifamily investors should consider setting a higher expense screen, depending on the class of the asset. Some multifamily properties may not generate positive cash flow no matter the purchase price. Population growth and job opportunities are crucial factors for long-term success in real estate investing. Renovating occupied units can be a headache and may not be worth the effort. Instead, focus on finding well-maintained properties that meet the needs of your tenants.
Taking Action and Adapting in Real Estate Investing: Successful real estate investors like Serge Shukot embrace change, learn from unexpected tenants, and apply effective leadership and business strategies from books like 'Good to Great' and 'The Lean Startup'.
Successful real estate investors aren't afraid to take action and adapt to changing market conditions. During a conversation on the BiggerPockets Radio podcast, guest investor Serge Shukot shared his experiences with unexpected tenants and the importance of starting and pivoting in the face of new information. He also recommended books like "Good to Great" and "The Lean Startup" for insights on effective leadership and business strategies. For hobbies, Serge enjoys hiking and spending time with his family. To connect with him, listeners can find him on BiggerPockets and other social media platforms. Overall, Serge's insights emphasize the importance of taking action, staying flexible, and learning from experiences to succeed in real estate investing.
Find an investor-friendly agent for real estate deals: Connect with local market experts for guidance on potential deals and confident action through BiggerPockets Agent Finder, a free resource at biggerpockets.com/deals.
If you're looking to get into real estate investing or expand your current portfolio, finding an investor-friendly agent is crucial. The market can be unpredictable, but the best investors understand that it's not about timing the market perfectly, but rather having a solid strategy and being consistent. With BiggerPockets Agent Finder, you can quickly connect with local market experts who can help guide you through the process, from analyzing potential deals to taking action with confidence. This free resource is available exclusively at biggerpockets.com/deals, and it's an essential step towards achieving financial freedom through real estate investing. Remember, investing involves risk, so be sure to consult with qualified advisors before making any decisions. BiggerPockets LLC disclaims all liability for any damages arising from the use of this information.