We all know that more millionaires and billionaires are made with real estate that any other vehicle, and rental properties are the vehicle of choice for creating passive income and building long term wealth. Robert Syfert joined me on this episode, which has become the award winner for Best FlipNerd show of 2016 for building a passive rental portfolio. Let’s start this great episode.
This is episode #324, and my guest today is Robert Syfert. Robert is an expert at teaching and helping others build wealth with rental properties. In fact, before he got involved in real estate investing he helped others with estate planning and financial planning…then brought his knowledge of helping others build wealth into real estate.
Today we talk about how to generate cash flow and build wealth with rental properties, and we get into detail about Active investing vs. Passive investing. I know from experience that statistically, many of you listening to this are either already building your portfolio, or very likely, want to but you haven’t moved out of the starting gate yet. The common reason for that is you assume that you have to do everything yourself, from finding deals, managing rehabs, finding tenants, then managing properties.
There’s a better way – and today we discuss it in detail. So…let’s dive in!
Please help me welcome Robert to the show!
Mike: This is the FlipNerd.com Expert Real Estate Investing show, the show for real estate investors, whether you’re a veteran or brand-new. I’m your host Mike Hambright, and each week I bring you a new expert guest that will share their knowledge and lessons with you. If you’re excited about real estate investing, believe in personal responsibility, and taking control of your life and financial destiny, you’re in the right place.
This is episode number 324 and my guest today is Robert Syfert. Robert is an expert at teaching and helping others build wealth with rental properties. In fact, before he got involved in real estate investing, he helped others with estate planning and financial planning outside of the real estate space, then brought his knowledge of helping others build wealth into real estate. Now, today we talked about how to generate cash flow and build wealth with rental properties, and we get into detail about active versus passive investing.
Now, I know from a lot of experiences, statistically, many of you listening to this message right now are either already building your rental portfolio and on your way, or very likely you want to build your own portfolio. You understand the power of maybe owning rental properties, but you haven’t moved out of the starting gate yet. And I think the most common reason for that is you assume we have to do everything yourself, finding the deals, finding financing for the deals, managing rehabs, finding tenants, and then managing the properties yourself, and all that entails.
That’s a nightmare for most people. If you’re not a professional property management company, you probably shouldn’t be managing your own rentals. But in terms of even finding deals, if you want to build wealth through rental properties, it doesn’t mean you need to be an active investor and do everything yourself.
So I don’t want to steal the thunder from the show anymore, but there is a better way, and today we discuss it in detail. So let’s dive in. Please help me welcome Robert Syfert to the show.
Robert, welcome to show, my friend.
Robert: Hey, thanks for having me, Mike.
Mike: Yeah, yeah. So I’m excited to talk a little bit more about . . . well, today, everybody, we’re going to talk about building wealth through rental properties. And this is such an important topic that, honestly, we’ve had a number of shows on this in the past, but we really haven’t had a whole lot this year, I don’t think. I think we talked about it . . . it was like a glut of this topic in maybe the middle of last year, but something we probably haven’t talked enough about this year. And it’s such an important thing.
I can tell you, personally, we have a rental portfolio that, for a long time, we’re looking at it like, “Is this worth it? Is it worth it, you know?” And we’re getting a bunch of debt paid down, and stuff like that. And so we’ve probably held the average property in there for seven, eight years now, and we’ve paid them off pretty aggressively, and then now we’re starting to see like, “Man, this pretty good. We should have kept more.” So, anyway, I think it’s a great topic, so excited to talk to you about it today.
Robert: Awesome. I mean, it’s easy to say what you wanted in hindsight, right?
Mike: Absolutely, especially when the market . . . you know, when we bought most of them, like I said, average seven, eight years ago, it was a very different market. So, now, when we look out there, we’re like, “Man, we’ve seen what’s happened to our . . .” In fact, we just got all of our . . . in Texas, we just got all of our tax bills. So you start to see all these appraised values, and which, you know, some of them we protest. But at the same time, we start running comps and we were like, “Wow! That house is worth this now?” Like, it’s crazy, what’s happening. And we’re like, “Man, we should have kept double or triple that, you know, over the years.”
Hey, before we jump into this topic, Robert, why don’t you tell us a little more about yourself and your background?
Robert: So, I’ve been passionate about real estate my whole life, but worked a corporate job in estate planning, and mortgages, and things of that nature, so lengthy time in finance, and estate planning, and protecting people’s wealth and transferring it onto the next generation. So spent a long time there, and then just got full-bore into real estate, chased my passions and pursued it to give myself more time.
And, as you know, running a business in real estate, when you first start out, you don’t have a lot more time because there’s a lot more things going on in building those things and finding properties that you don’t necessarily think of when you’re like, “Ah, I could just get into real estate and it’s so easy, and it makes tons of money.” And it does, once you figure it out and you do it all right.
So spent my first couple of years figuring all that out, and then just found out that I had a niche really in the rental space, because, just like as you’ve seen all the numbers, for me, it was a very easy thing to look at because I’m coming from a finance and estate planning background, I looked at it from a different perspective than most people who are just looking at cash and cash return, and whatever options are out there.
So got really busy and effective doing that. Grew a very large company, very quick doing an average of 20 houses a month wholesaling and rehabbing, and lots of other things mixed into that. Did a couple hundred deals in just over a year, so got a lot of experience through that.
Also had a management company with a partner. We managed over 500 doors at one point, and then just got to where I am now, and creating wealth for others around the country that don’t have the time to put into it that I do, and just want to put their resources, having their money make money for them, so to speak. And created a model that fits perfectly for that.
Started it all brand-new from scratch, again, with relationship-driven focus. So we’re very much about building relationships with people because our goal isn’t to just sell you a house, right? It’s to help you build wealth, help you pass on that wealth to the next generation, kind of come natural to me from the background that I have. But I love that I can now do that in real estate.
Mike: Yeah, it’s great. And this is going to be a great conversation for those of you listening because when you have that background of estate planning and financial planning, and stuff like that, and then you can tie it into real estate, which we know is superior to most other investments out there that are just generally putting it in the stock market, where people are generally fearful of more now than they were in years past, I think, it is . . . and truthfully I’ve talked about this before in the show, my wife and I both have a financial background, and working in investments. Even through college, you’re taught that’s just where you invest.
But when you start to realize that there’s a whole other world out there. And, you know, from my standpoint, I just feel like the stock market, even though I used to work in the investment space, it’s just like financial engineering. I don’t get any of it. I don’t understand it, I can’t touch it. It just doesn’t feel . . . I don’t want to do anything other than real estate now, after you’re involved with it, right?
Robert: Yeah, same experience. It’s just, there’s so much you can do in finance, and I get it, but you’re right. There’s just too many ways that you can lose, in my opinion. So most of them can be mitigated in real estate. And you’re right. Now I’m in real estate, I mean, people ask, “Well, don’t you diversify?” Yeah, I do other markets, I do other things within real estate, but that’s where my diversification comes from.
Mike: Yeah, it’s funny because people are so conditioned to think those typical ways where . . . I mean, I don’t really talk about this very much where I bought hundreds and hundreds of houses, I’ve lost money on, like, three or four. And the thing is it’s really not risky when you know what you’re doing, when you’re working with people that know what they’re doing, because, by nature, not everybody is the same way as me, but we tend to be very conservative in nature, and so we tend to do . . . you know, we’ve probably missed out on some deals that would have turned out all right, but we stayed safe just because that’s kind of who we are.
There’s people that lose their shirt in real estate investing, don’t get me wrong. But if you’re a long-term buy-and-hold, that’s much less likely than somebody that’s trying to do their first rehab and live a life like they’re on HDTV, or something, right?
Robert: Yeah, exactly. It’s really hard to make the mistakes and lose money. I’m with you, I think. Actually, I don’t think I lost money, I think I just broke even at one house, was my worst case. I mean, it wasn’t a rental property.
Mike: Well, good for you. So, folks that are listening, our intent today is to really help separate . . . we’re going to talk a little bit about passive investing versus active investing, and where you can invest at. Robert’s got a background in helping people invest in the stock market and do other things like this. So we’ll kind of talk about . . . that’s where we’re going to start at, but just talk a little bit about those are some things you could do, and then maybe, here’s why real estate makes sense. So do you wanting to share, Robert, some of your experiences about maybe some of the eye-opening experiences you had when you are teaching people, “Here’s what you do with your money,” which . . . I don’t know this about you, for sure, but typically somebody told you what to say to those people? “Sell our mutual funds,” or, “These are our products,” instead of, like, looking at maybe . . . you probably never talked to anybody about real estate when you were working in corporate America, right?
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You probably never talked to anybody about real estate when you were working in corporate America, right?
Robert: I sure didn’t. The only person I talked to about real estate back then was actually the owners of the company. I, for years, actually kept going to them and saying, “You know, I really feel like real estate a piece that we somehow can fit this into this model.” And just coming from the finance background, obviously, it’s something that they can’t figure out how to capitalize on. So that wasn’t something that was ever going to get added, which led me to leaving, at one point.
But, yeah, I was fortunate enough, though, with the finance company that I worked in, we catered to retirees, so those that were 50 and older. While I was taught what was the best things out there, and we had daily meetings on what was good and what was bad, the good thing for us is that I learned a lot of what you’re talking about – a lot of the mutual fund, stockbrokers are mostly taught on which mutual funds they want sold today, which stocks they want sold today. And what a lot of people don’t realize is you may be working with one agency now, and what you’ll find if you look at your portfolio most of the time is all funds that they own.
Now, why is that? Because they make more money off of that. So at the end of the day, whether you lose money, make money, go sideways, it doesn’t matter, the finance company’s making money. And there were just some things that disturbed me about that.
Now, fortunately, the company I worked for, we helped educate people on that to show them, “Hey, look. This is what’s in your portfolio. This is not what you’re saying you want, like you say you want safety, you don’t want any risk of losing money, yet your entire portfolio is at risk.” And they would keep saying, “No, no. It’s all protected, it’s all guaranteed,” and this and that, but then once you analyzed it and showed them what they had, they were 90% at risk, full market risk of if the market tanked, they went down.
So we just helped educate people, and if they were looking for safety, we helped them move their money into places that were more safe, like certain life insurance policies or certain types of annuities. So we actually did a lot of annuities, and, sure, that was mostly brought on by the agency I worked for. That’s what they showed them and we went more towards indexed annuities, and fixed annuities because they inherently do actually have guarantees within their policy where you can’t lose your money. You may not make as much as other places, but you also don’t have the downside risk that you do with other places. We did a lot of that.
Then, because we, in that company, also had connections with estate planning and tax planning people, we brought them in and kind of looked over the entire portfolio, and, “All right, well, what are you doing to not only protect your wealth, which obviously is your first goal, but you’re looking for, at some point, you’re going to want to transition this wealth to the next generation and make sure it stays in your family, and keeps building generational wealth.” So we looked at a lot of that, too, and making sure they were set up right to avoid all the common pitfalls of probate, and things like that.
So got a really good feeling doing that thing, but, again, had a passion for real estate. So always knew that you can do more in real estate. Now being in it, can really prove that to be true.
Mike: Yeah, well, let’s just kind of go through a little exercise. The way you think about this now, having the financial planning background, because typically what . . . you’ll know this better than me, but you probably looked at how much does somebody have? How many assets do they have? And what’s their lifestyle like now? What kind of earnings or income are they used to? You’re kind of help people plan for the future. So you go through this exercise of saying, “Well, if you invest in this and you get this return, then you’re going to generate this much revenue per month, or this much in dividends to live on,” and stuff like that.
So up until, not saying this didn’t exist until fairly recently, but I think a lot of people have a hard time making the connection to say, “Here’s how I go through that exercise with rental properties. Well, it’s going to cash flow this much a month, conservatively, and, therefore, I need this many. Over time, I’m going to pay down that debt, and I’m going to have an asset that I could sell, or it’s going to cash-flow that much better.” They kind of make the leap between that traditional financial planning that is probably easier to look at because there’s prospectuses, and a lot of information to something where it’s all assumptions, like there’s no prospectus for a rental property.
Robert: No. You’re right, to me, they’re really both the same, in a sense, if you’re doing it right with the rental side, so it’s really why we changed model we did a year ago. That’s the right way to do it. So in that other business and finance, we would do exactly what you said. We’d evaluate the entire portfolio. The more of it we know, the better we’re going to be able to help you. What are your goals, short-term and long-term? Are you looking to retire soon? And what kind of income are you going to need to continue to maintain your lifestyle throughout the rest of your life, and then transferred without losing any money generation?
So we would, we’d analyze everything they have, and you get very nitpicky in that stuff, like what kind of fees are you paying for what you have? What kind of risk tolerance do you have, and what kind of risk are you taking?
So we evaluated all that, and it would take us several meetings. So, again, it was relationships, building relationships with the client, finding out what is their needs and wants and goals are, and then marrying risk tolerance, and things like that. So a lot more complicated because you’re doing a lot of prospectuses on what things can potentially do, and it’s a lot of speculation, and inherently the market has to do well for that to do well, for a lot of the things.
The other side with real estate, for me, it’s a lot easier. But we do the exact same thing, so we build a relationship and then we’re really looking at, “What are your lifestyle goals?”
I’ll give you a perfect example. We had a client the other day who said, “Look, my wife still works and I’d like to retire.” Okay, and I know he was looking at, “Well, I just want to buy houses, and I want to get rental passive income.” “Okay, great, we’ll get to that eventually, but let’s say, what’s that income that you’re looking to replace?” Or, I always look at what’s the end in mind? And in his case, it was, “Well, we need to replace $5000-a-month in income.” Then we back that out to say, “Okay, well, how much cash do you have to work with? Do you want to do that all in cash? You want to do that with IRAs? Do you want to leverage and use some financing?” He was, like, “Well, let’s look at the cash outlay that you’re looking to do over time, and let’s marry . . .”
Now, in his case, it was all cash and IRA money. We looked at as funds and I said, “All right, to replace $5,000 in income, how many houses is that going to take to give you the net operating income after all expenses?” And, I think, in his case it was only somewhere between 8 and 10 properties, which he didn’t have to do all at once. We can build that over a couple years to get where he needs to be, but he was so blown away to say, “Wow! That’s it?” Like, he had in his head that, “I’m going to have to buy 100 homes, and it’s going to take so many years to be able to do that.”
Once we looked at what his actual goal was and then back that out to what it’s going to take to accomplish that, because rental properties are really easy. While there’s value, and people understand value, and value can go up and down, in the rental game, it’s really easy. I’m not going to speculate on what the markets going to do, on what the value is going to be tomorrow if the market goes up or down.
Rental properties, to me, is very easy because I know what the rent is, I know what the rent is I can collect, I know what my expenses are, and they’re really not going to change especially if you do an adequate rehab upfront, and then I’m going to have that cash flow. Cash flow is going to return whether the market goes up or the market goes down, or it stays stagnant and neutral, the rent’s still going to come every single month because somebody needs somewhere to live, they have to pay for it.
So we can predict what that’s going to be and we can build a portfolio around that. And then really it’s just do you have enough cash and assets that you want to do it that way, or do you want to leverage and build more of a portfolio and maybe your goals change because you realize how simple it is, like in this guy’s case? He’s like, “Well, if that’s the case, maybe I should do $10,000 in income and have a better lifestyle.” I said, “We can work with you, over time, to do that, too.”
Mike: It’s funny because you can really predict . . . you, conservatively, I guess, what rents are going to do over the long term, I think, much easier to predict than . . . especially if you’re conservative, you don’t get carried away. But, you know, generally speaking, there are some markets that their rents go down every once in a while. But generally speaking, rents generally don’t go down. I mean, they’re constantly going up, at least, at the rate of inflation typically, overtime, so a little bit easier to predict.
One thing I want to say to the folks that are listening to this, if you’re listening to this . . . I had somebody on the show recently that he was 22. Actually, I think it’s coming out . . . it’s a show or two before this episode here. So if you’re listening to this episode, we just released that show. He’s 22 years old, started investing when he was 19. And when you hear that stuff, you’re like, aren’t you jealous of that, you didn’t start earlier?” Like, always, that’s the purpose of the whole show was, like, get started basically.
But if you’re listening to the show, we’re talking about people that are . . . estate planning always has this connotation with retirement. but if you’re listening to this show right now and you’re in your 20s or 30s, get started with this stuff now because, you know, there’ll be a point where you can . . . you know, the traditional retirement age and all that stuff, you just throw it out the window, like retire way early, like you can plan to just check out, way ahead of time, for what most of your friends are going to do.
Robert: Oh yeah.
Mike: And, of course, the other big thing that we talked about with . . . this is an investing class . . . or we haven’t talked about it, this is an investing class, is that you can use leverage. So traditionally, when you’re doing the planning exercise, I assume you’re looking at, “Well, here’s how much money I have, and if I can get an 8% return, this is the dividends I’ll get, or this is the increase in equity that I’ll be able to generate, over time, or whatever.” But real estate is a whole different animal because you can easily lever that up to where, even if you’re putting traditionally, like, 20% down, whatever you have to invest, you have probably 5X purchasing power, right?
Robert: Definitely. Yeah, leverage is a big deal. I mean, obviously you can extend your money more. It just depends on, again, the size of portfolio that you’re looking to create an income, and then, just like you said, it’s very predictable. We’re . . . again, I’m kind of like you, we’re very conservative and very safe. So most of the time, when we’re projecting it for people, we actually project it based on the fact that nothing is going to go up.
Now, we know that’s unrealistic, and it’s going to, but if I play it safe and say, “Hey, this is not going to go up for the next 10 years, but here’s what you’re going to get over the next 10 years. And if you’re leveraging, here’s how fast that’s going to be paid down,” and we’re still not saying there’s any increase, so we’re being ultra conservative in our approach for what we do. But I think that’s great, because if you make more than that, well, you’re just a lot happier.
Mike: Yeah. Well, we haven’t talked a lot about where you primarily operate. You primarily operate in Southeast Michigan, or the suburbs of Detroit, and that area. And I know we talked about this a little bit ahead of time, sometimes when people hear Detroit, they think it’s like the center of the universe, like, “Don’t go there.” But I know you and a lot of other people that have really changed my mind on Detroit, because when I started to find out the values of properties in the suburbs are equivalent to where I’m at in Dallas. So you kind of think of these little bombed-out neighborhoods which, when you go into some parts of the city, that’s what you see. But if you stay out in the suburbs and other areas, it’s a whole different world, right?
Robert: Yeah, totally. I mean, it’s like anywhere. I don’t care where you go in the United States, just Detroit itself has had a lot of bad press so people are drawing attention to it, but the reality is I’m sure you can find a horrible warzone area where you live now.
Mike: Oh, there’s some pretty rough areas of Dallas that I’m sure are equivalent.
Robert: Houston, Dallas. Everywhere I travel, the common thing is there’s always a very rough area for that city, and there’s the more populous area. Detroit is no different than that. Sure, if you’re in the Detroit area, there are some pockets where I probably wouldn’t want to get into my car and drive through. That’s typical anywhere you go. But then in all the suburbs, they’re nowhere near the city of Detroit. They’re outside of it and there are thriving communities. I mean, we have homes . . . you know, neighborhoods that are $100,000, $150,000 neighborhoods, all the way up to the multi-million dollar neighborhoods just a couple miles around the corner.
Most markets have stuff like that. Actually, in the suburbs of Detroit, we have one of the . . . I think it’s one of the wealthiest ZIP codes in the country, like in the top three next to Orange County and [inaudible 00:21:31] area. That’s in Birmingham. Birmingham, literally, is five miles from the city of Detroit’s border. So a lot of people, they hear [inaudible 00:21:41].
Mike: Lots of misconceptions. One of things, though, is I know in your business, so we’ll talk about how you helped investors ultimately with buying rental properties and then managing for them towards the end of the show. But one of the opportunities . . . one of the things that is really interesting about Detroit, in that context, is that there’s not as much competition there as there might be in other markets where you keep rentals because it has that negative connotation, even though you, in your heart don’t believe that any of that’s true or you know it for yourself, but it scares some people away, which makes it a better opportunity to potentially own rental properties, or even do fix and flips, right?
Robert: Yeah, definitely. There’s a lot of bigger money, overseas money, even, that’s coming into the Southeast Michigan area because they recognize that. It’s taken a few years for people to come around because of bad press, but now they’re doing a little okay. There’s still deals happening every day in that market, so they’ve started analyzing, there’s a lot of overseas investors that contact us now to say, “How can I dump a lot of money in your market, have you help us do it?” Because obviously they’re overseas, they’re not going to be there and they need someone they can trust. But, yeah, there’s a lot of money coming into our market, and a lot less competition because there are the people that are afraid.
Mike: I’m totally I’m not prepared to give this quote at all, but there’s this Warren Buffett quote about, basically when others are . . . when others are excited about it, run away, and when people are running away, that’s when you need to get greedy and dive in.
Robert: Yeah, I think he uses that to relate to the market, like, when everyone’s running from the market, usually when it’s crashing, that’s when he likes to buy the most, and he’s able to buy the lowest. So, yeah, I love Warren Buffett’s quotes.
Mike: Truthfully, also real estate investors, we talk about real estate investing all the time. But, I don’t know if you agree with this, a lot of people, I think do, is that that just happens to be the widget that we’re buying and selling. But, for us, we’re ultimately in the opportunity business where we’re basically trying to arbitrage opportunities that we find that happen to be in the real estate space.
Robert: I agree. Someone else said before people don’t recognize we’re in a marketing business. It’s marketing to find homes, and there’s a lot of intricacies, as we both know, that go into that, and real estate just happens to be the product that we buy or sell at the moment.
Mike: Yeah. I’ve got a question of the week for you that I want to ask that basically ties in a little bit of what we’re just talking about Detroit specifically. So I know you primarily are not operating in the city and the suburbs, but what, would you say, is the biggest myth about investing in Detroit that most people have?
Robert: Well, the biggest myth is that it’s the murder capital, and everything is bad in Detroit, and it’s the dangerous warzone, and you can’t get out of your car, and you’re not safe in Detroit. I would challenge you to fly in and go look at Downtown Detroit. It’s one of the most thriving places that’s being completely revitalized. We have brand-new Tiger Stadium down there, we have the brand-new Lions. They are about to start building a brand new hockey arena down there, and building multimillion-dollar apartment and condo complexes.
I mean, give you an example that dispels a lot of the myth, Dan Gilbert, who owns Quicken Loans, owns the Cleveland Cavaliers. I think he owns something like 51% of downtown right now because he’s continuing to pump money into buying commercial property down there. Do you think a man with billions of dollars pumps that kind of money into an area unless he knows something we don’t, and where it’s headed?
So, for me, that alone dispels a lot of the myth that’s down there. But I personally have lived there and been around there, so I just know it’s not what people think it is. They see the bad side of the news. The news, unfortunately, doesn’t show all the good things most of the time of what’s actually going down there, what’s being built, and what’s happening.
Mike: Yeah. Good news doesn’t sell newspapers or advertisements.
Robert: Unfortunately, it doesn’t. There’s a lot of good. I mean, even with the new mayor, they continue to change a lot of programs and making it more advantageous to create better areas, get rid of the blight, put more streetlights in. All kinds of things like that are happening throughout the city.
Mike: That’s awesome, awesome. Well, let’s talk a little about why so many people . . . I bet there’s a bunch of people listening to this right now. If this resonates with you, you’ll understand where I’m going, that are interested. They know they want to buy real estate, they know I want to own rental properties, they see that as an opportunity, but they never get past actually doing anything about it. Why is that? What do you think that is?
I mean, it’s because you can’t log into E-Trade and go buy something right now. It’s a little more complicated than that, but I know that has something to do with it. But why else do you think that people think about it and talk about it forever, but never do anything?
Robert: I think it’s . . . two things initially resonate with me because we do think about this all the time. One is mindset, right? A lot of people are caught in the next shiny thing, so they’re just over-analyzing. They’re thinking about it, thinking about it. They’re reading this in real estate. Then they hear this guy talk about something different in real estate, and they’re chasing this shiny object. And they may spend tons of money trying to research that, but then, again, never do anything because they haven’t figured out the magic secret.
The secret, as we both know, is taking action and implementing what you actually learn and just doing it. That’s, the 19-year-old, 22, it’s because he just does it, and he’s so young. It’s not overthinking and trying to figure out the right way.
The other piece that I see is so many people . . . we talk with a lot of people on the West Coast who recognize . . . they’re just blown away by the returns that they can get over on the East Coast or in the Midwest, and it scares them, almost. “Ah, it’s too good to be true, but I’m I don’t have time to fly out there and learn.” So they scare themselves and they recognize that there is potential out there, but they want that potential be in their backyard so they can go touch it.
They could fly out there and go see it, because unfortunately it’s not on E-Trade, but there are a lot of providers and companies out there that work to provide that solution for you so that you can do those things. But I’d say it’s mindset. They’re trying to overanalyze and overthink the opportunity that there is instead of just pulling the trigger, and taking action, and making money. And then they want that opportunity in their backyard, even though it doesn’t exist. And that goes with the first one, right? They’re going to keep searching for a way to make it exist in their backyard, even though it’s not going to exist.
Mike: Right. It’s kind of a shameless plug, I think a lot of folks know. If you’re listening and you don’t know, you should check it out. But we started passiverental.com, this website, to help people that want to be a more passive investor because my whole life as a real estate investor, and yours, too, we’ve been active investors. We like . . . you’ve got to find the deal, you’ve got to figure out how to get the financing, you’ve got to jump through hoops with cities and permits, and all those things. We have a lot that goes into it.
Finding deals is the hardest part of this business, and a lot of people, because of shows on HDTV, or whatever, they never talk about finding the deal, they always just have the deal. “Oh, the deal is just there.” And then it’s all about the rehab and the journey. It was like, the hardest part happened upfront and you never talk about that. And so I think a lot of people don’t realize yet, although people are waking up to it that, “Hey, there’s a different way. I can work with somebody that finds the deal, rehabs it, gets his hand in it, and then manages it for me, and it becomes more of a Main Street-type product then, right?”
Robert: Yeah, someone takes on all the headaches that you’re afraid to take on, because you’re right, the TV shows, they make it . . . it’s gold and it’s deals just pop right in your lap and then all you got to do is go through the fixing it up and sell it, and make big money. But, right, they don’t go into all the marketing analyzing, deal evaluating offers that are made, follow-up, and all the things that go into actually getting that one deal that does do that. They do show a lot of the rehab, but they don’t show a lot of the dealing with the city, pulling the permits, having the inspections from the city come in, and other things that can go wrong in a rehab. Especially the larger it is, the more likely to have something that’s going to go wrong.
Mike: There’s some things that can go wrong, right?
Mike: Yeah, I think hopefully what we’re doing through the website, through passiverental.com, and even through talking about stuff like on the show today, is try to educate people that you don’t have to go do all those things as an active investor. Truthfully, I think that’s what keeps a lot of people from moving forward because they assume they have to go do it all themselves and they don’t know where to get started. And as we talked about, just kind of the acquisition side, we talked about this before the show, just the acquisition side of our real estate investing businesses is a business in and of itself. You’ve got staff, salespeople, a lot of advertising stuff going on. It’s a whole business all by itself, right?
Robert: Yes, a lot of intricate pieces moving every day to make that happen just to get one acquisition, and multiple acquisitions so you have properties doing . . . yeah, I love what you guys do with passiverentals.com because you’ve already evaluated which markets are great returns for people, and evaluated why they want to work with certain companies that can solve most of those things for them, so they don’t have to go out there and spend the time money, energy, and resources to get it done.
Mike: Yeah, and what we’re seeing is there’s a lot of people that also . . . especially if you’re . . . I don’t want to scare anybody away if you this doesn’t resonate with you, but most people don’t want to buy one property. Like if you get to a point in your life where you’re . . . most people that want to own rental properties, let me just tell you, don’t have a goal of buying one rental property. You’re either going to have 100% vacancy or 100% occupancy. You’re either going to love it or you’re going to hate it. I mean, just like everything, you need to have a portfolio because I’ve had houses burned to the ground before, but because it was one in part of my larger portfolio, it wasn’t as painful as it would have been if we just had one.
Robert: Right, doesn’t affect you as much.
Mike: Yeah, but most people aspire to buy more, over time, and unless you’re a full-time real estate investor, the acquisition side is going to be difficult for you. So you might as well rely on somebody else to do that part.
Robert: Yeah, because they don’t see all the costs associated with doing that part. Again, seeing the show, “I can just go and grab a house. They’re all over the place.” They’re usually evaluating hundreds of leads and whittling that down to the ones that fit a certain criteria to make offers on, and expecting a bunch of them before we get that one deal. So, like, you get big business on that alone, if nothing but a business there for finding properties.
Mike: Yeah, absolutely. Then even people that . . . I always encourage people too, there’s so many people that I know, I’m sure you’re the same way, that buy some rental properties and they manage them themselves, they’re like . . . I don’t manage my own rental properties. But especially when you’re getting started, you know, you have like two, three, four, five rental properties, you shouldn’t be managing them yourself. What a nightmare. I mean, it eats your entire day up, or your weeks, and it’s just, you know . . .
Robert: I had an attorney friend that did it in the beginning, and he actually joked about it. He said he just hated getting the middle of the night toilet bowl phone calls. That’s why we have a [inaudible 00:32:54]. You know, I don’t even manage my own rentals. I own the management company that manages all my rentals, but that means there’s processes, and systems, and people in place to do all that stuff. It makes life a lot easier. I don’t get any of those phone calls. I just know stuff’s handled, and I get my money.
Mike: Yeah, absolutely.
Robert: It’s all that really matters to me.
Mike: I mean, if you do invest in the stock market and, let’s say you’re buying stock in Apple, you’re not swinging by the Apple headquarters to help mow the lawn, right? It’s really no different ultimately. There they should be investments that somebody else . . . there’s some expenses involved. But I promise you, Apple has expenses that are eating up your potential profit, but they need to do those to run the business, though, just outsource that stuff, right?
So talk a little bit about what we will be call turnkey and just how this has evolved. I think you’ve probably seen, you know, obviously you’ve got into it over the last several years. But there’s been this evolution of people that are becoming providers around the country that help provide the solutions that we’re talking about today, which is making a much more passive solution for investors that just can’t be actively involved. Tells us a little bit more about what that means to you.
Robert: Two things: what it means to be true turnkey, I guess, I’ll talk about, because there’s a lot of people that misuse that term now because it’s very popular, so there’s the not really providers, but, “Hey, I have turnkey,” and it’s not. So my true definition of turnkey is, quite simply, someone that you can work with in a market that has already built the business around being able to find and acquire properties, and they do it. Then once they go through all the steps of marketing, analyzing, inspecting, making offers, following up, and getting the actual deals, then they go through the process of closing that property.
They purchase it into their acquisition, as we like to call it, and from that stage, then they go through the rehab. They already have the contractors, they’ve already vetted the people, they work with the right contractors, they have a system in place to rehab this house, pulling all the permits from the city, getting it rental-certified. A lot of people don’t realize they need to do that. I mean, if you don’t, it will cause you fines down the road because you’re not properly certified with the city that you own a rental property. At least, the most is to have that.
So it’s all those processes through the rehab stage of getting all that stuff done. And here, turnkey, I think is the biggest . . . one of the two things that are the biggest difference. The biggest difference is the quality of rehab you do upfront. And what do I mean by that? What I mean by that is a lot of people, “Ah, well, it’s cleaned out. It’s got a fresh coat of paint on, so I can put a renter in there and someone can live there.” That’s not enough, in my opinion. That is what’s going to cause you some grief down the road. You need to work with someone who’s going to do an adequate rehab upfront so that you don’t have short-term maintenance issues, and more importantly, you don’t have, three years from now, replacing a furnace that you could have replaced upfront, or putting in a brand-new roof because you overlooked and thought you were saving money upfront.
Well, that saving money usually costs you money now because now you have water leaks and damage, you’re in the property for multiple maintenance issues, and you’re losing your money left and right, and don’t know why. I would suggest it’s because you thought you were going to make more money by cutting a corner, and cutting a corner didn’t make you more money. So if you do extensive rehabs, new to newer roofs and windows are a good idea, new mechanicals are great ideas, so that you don’t have issues.
We like to put in all brand-new flooring. So, one, not only just cleaning the carpet, we can check the underneath, make sure the subflooring is good, the foundation is good. And you can’t see that without ripping the old flooring out. Kitchens, we like to update, we like to update all of the electrical, plumbing, bring it all up to code. So that’s all done in the rehab to make sure you have short and less maintenance issues, if any. Your maintenance issues should be a tenant stopped up your toilet, or a light bulb went out. Those are the type of maintenance calls we like to have because they’re minimal costs, if anything.
Then from that, you’ve got to do an adequate job on placing a qualified tenant. So a lot of people are just, “Ah, I just want to get it rented. Let me put it on Craigslist and get whoever comes that has money, and put them on my property.” That’s another nightmare if you do that way. You have to run their credit report, you have to look for their . . . you know, do a background check, you have to look for recent evictions. You have to verify their income, and that they can actually pay for the property, that they don’t have utility collections, because most tenants, at least in the properties that we deal with, they’re responsible for our utilities. So you want to make sure that they’re in the history of paying their utilities.
Then once you’ve done that, vetted and found that right person, so moving them to the property, and it’s taking care of them. It’s giving them 24-hour access to maintenance lines so if they have any issue, whatever it is, you go out there and help them with it, following up with them every month to make sure that there’s nothing that they’ve ran into. So we treat a lot of our tenants like family, just because we know that if we treat them that way, they’re more likely to be longer-term tenants, they’re better likely to take care of our homes, which helps us all build passive wealth.
And then we create a lot of online technology. So there’s a lot in there to help tenants pay us easier. We want to make their life easier, we want to make collecting from them easy, too, and if they have any issues, we want to take care of them very quick.
Biggest issue I hear with some companies there is that, “Management company never returns my calls. The management company never comes out to fix anything.” And that’s a big problem, because if your management company doesn’t do those things and isn’t on top of those things, that isn’t going to help.” So turnkey providers, someone, in my opinion, who does all of that A to Z, from finding and acquiring the property, to properly rehabbing the property, to placing a qualified, certified tenant, and then properly managing it, and managing the expectations of the tenant, and then if they’re working for investors, making sure that they’re doing that for their investors, as well, right?
Mike: Yeah, absolutely.
Robert: Should have on-time reporting every month, you should have online access to all of the . . . technology is so vast today. There’s no reason why you, as an owner, shouldn’t have live access to everything and all communication that’s happening with your property. If you don’t, I would ask your company to do a better job, because there are services that help them do that.
Mike: Yeah, I think it’s really incredible, you know, if you’re listening to this and you’re managing your own properties, or you’re going to start buying and think about managing your properties, I know, in my mind, that . . . first off, I already know this from owning a lot of rental properties, is my biggest expense is turnover, and then the make-ready I have to do in-between, like, by far. And so if you can minimize turnover, if you can . . . you talked a little about what your approach is, but a lot of people find ways to basically get people to stay for a longer period time, make them happy.
You don’t have to go over there and give them a back massage, or anything like that, but there is a way to make people feel like they’re valued and make them feel like it’s their home so they want to stay there longer, for sure. And if you don’t have the ability to treat people that way, or the time that takes, and you don’t have the ability to do maintenance and all these other things, then you’re going to get hit more often with your biggest expense, which is going to be turnover and another make-ready. It’s just is as simple as that.
And so there’s always little things you say, “Well, how fast could I do make-ready? Could I do it as fast as somebody that manages hundreds of properties and has crews on call ready to go? No. Could I have some of the tech . . .” I just love technology in place today that’s not that expensive. But, you know, “Could I be as good as a professional property manager company in these five or six different areas from finding tenants to verifying them, to make-readies, and all that stuff?” and in every instance, it’s like, no. And what’s the cost associated with that? And why not just pay to somebody that’s going to do it better, and save myself that cost, and all the heartache associated with it.
Robert: And you’re right, with technology, as a management company, remember, you may be managing your own portfolio, 1, 5, 10, 15 houses, and it seems like it’s okay, but you can’t afford, at that model, to buy some of the technology that make your life so much easier because it just would be cost-effective. But we have hundreds, if not thousands of homes to manage, so we can afford some of the better technology that’s more advanced to do it across the board for everybody.
Mike: And if you do it yourself, what you can’t afford is to go on vacation, or to take time off, or do other things because you’re on call, right?
Mike: I mean, I know if you are managing my properties . . . I don’t have any properties right now, but if you are managing my properties, I’m already 1,500 miles away from you. It doesn’t really matter where I’m at. I could be in Cabo, I could be anywhere.
Robert: Go enjoy your life, and just let . . .
Mike: Yeah, that’s why we do this stuff, is to, first for lifestyle reasons and wealth building, it’s not to create another job for ourselves. Who needs that?
Robert: I think most people I speak with, and myself included, primarily got into this to have more time, so you can enjoy your life with your family and do what it is you want to do. So wealth building, to me, is a bonus to what happens with it, but the reality is we all want more time. We’re all striving to have more time with our family and work less, and that’s, “Make your money work for you, don’t work for your money.”
Mike: Yeah, absolutely. Well, for those of you that are listening in, we actually recently partnered with Robert and his company up in Detroit because we’re trying to find great markets and great property managers that can help members of FlipNerd or people that listen to the podcast to build wealth, and it’s something that we believe a lot in. So we have a few different markets where we help people buy properties, but it’s through partnerships with, like, Robert.
So if you’d like any of this today . . . this isn’t intended to be a big sales pitch, but I’ll tell you that this is important stuff if you want to build wealth. So if you’d like to talk to Robert and you’d like to learn more about opportunities up in the Southeast Michigan area, just go to passiverental.com. There’s a Contact Us button. Just contact us and a member of our team will call you. We can help you, like, line up with financing.
We have access to some of the top people. In fact, you don’t even pay us anything, at all. We do this totally free, because, truthfully, just to put it out there, in the event that you buy a property Robert, we just act as an agent and we get paid that way. So you don’t have to pay us anything for our service or by answering any questions. We really want to help people that listen to FlipNerd. So just go to . . . it’s passiverental.com, and we’ll connect you with Robert.
Hey, Robert, anything that we didn’t discuss today that you want to talk about here, as we kind of wind it down?
Robert: No, I think I think we did a pretty thorough job, and you guys do a great job over there at Passive Rental with helping them understand more things they can do with leverage, and time, and all of that. I guess the only thing I would open up to add just from my background is some people think, “Well, I don’t have any cash.” You may be sitting on a retirement, an IRA or 401(k), or something like that, and don’t even think of the fact . . . because, again, going through school and the way you may have been raised and taught that the only place you can put that is in the market. There’s a lot more advantages to you, and there’s a lot more ways, legally, through IRS code that you can invest that in real estate, and many other things that you have more control on what happens. So just don’t negate the fact that you have multiple opportunities to make yourself wealthier and protect that wealth for generations.
Mike: We don’t have a lot of time talk about that today, but being able to use your retirement account to invest in real estate is so powerful that most people . . . you know, there’s been a massive awakening of this lately. But it’s still in it’s infancy as to where it’s going to be. So, absolutely.
Well, Robert. Hey, thanks for joining us today. Appreciate your time and your insights.
Robert: Thanks Mike. Thanks for having me on.
Mike: And for everybody listening in, thanks for joining us today. This was episode number 324. And so if you’re looking for something to do, we have about 323 other episodes for you to watch out there. So we appreciate you following along, and hope everybody has a great week.
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