Show Summary

Given that Marco Santarelli was savvy enough to buy his first real estate investment at the age of 18, and has grown to become a highly sought after advisor, you should listen in on his Top 10 Rules for Successful Real Estate Investing. Marco is an investor, author, and founder of Norada Real Estate Investments. There are great nuggest in this episode of the FlipNerd.com Flip Show…don’t miss it!

Highlights of this show

  • Meet Marco Santarelli, Founder of Norada Real Estate Investments.
  • Learn Marco’s 10 Rules for successful real estate investing.
  • Join the discussion on the importance of adding geographic diversity to your rental property portfolio.

Resources and Links from this show:

Listen to the Audio Version of this Episode

FlipNerd Show Transcript:

Mike: Welcome to the Flipnerd.com podcast. This is your host, Mike Hambright and on this show I will introduce you to the VIPs in the real estate investing industry as well as other interesting entrepreneurs whose stories and experiences can help you take your business to the next level. We have three new shows each week, which are available in the ITunes store or by visiting Flipnerd.com. So, without further adieu, let’s get started. Hey, it’s Mike Hambright with Flipnerd.com, welcome back for another exciting VIP interview where I interview some of the most successful real estate investing experts and entrepreneurs in the industry to help you learn and grow. Today I’m joined by Marco Santarelli who’s an investor and author and the founder of Norada Real Estate Investments, a national investment firm that offers turnkey investment properties. Today we’re going to learn more about Marco but we’re going to talk about Marco’s ten rules for successful real estate investing. It’s exciting stuff but before we get started let’s take a moment to recognize our featured sponsors.

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Please note, the views and opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers or affiliates. Please consult professionals before making any investment or tax decisions as real estate investing can be risky.

Mike: Hey Marco, welcome to the show.

Marco: Hey, thanks Mike, great to be here.

Mike: Yeah, yeah. I know you’ve been working on a lot of great stuff and for those that maybe don’t know you all that well yet, or maybe thought they did but maybe they don’t, tell us a little bit more about your background as to how you started in real estate investing. I read somewhere that you bought your first house at 18 so that’s awesome, but tell us a little bit more about your background and how you ultimately got into real estate investing.

Marco: Sure. It’s always a question of how far back you want me to go.

Mike: Yeah.

Marco: But yeah, actually at the age of 18, as soon as I could qualify for financing, I literally just jumped into it. I bought my first property, which was a townhome. It needed work so I bought the property, I gutted it, and then I brought my uncle in who was a contractor. So between him and myself and a few other people we renovated the property. I took application tenants, I rented it, I managed it myself and I held onto it for a few years. So that whole thing was just done without reading a book or taking a course. It was just textbook. I knew other people were making money in real estate and they were creating wealth and I thought, you know what, this is really where it’s at. So I jumped in.

Mike: Talk a little bit about your inspiration because when I was 18 I was bagging groceries, I think. I guess I grew up watching “This Old House” and always had an interest in real estate investing but it was not until much later in my life that it was a viable option from a business or a career standpoint. So what kind of inspired you to get started at 18 where a lot of other people are thinking about a lot of things other than their career or building wealth?

Marco: Yeah, I think some people could say that they had parents that were real estate investors or were involved in real estate in some way. My parents both came from Italy. They were immigrants to Canada at the time, and so I never had an entrepreneurial family where they were investing in real estate or had their own businesses. My parents worked and my grandparents actually lived with us, so I was raised by my grandparents and they couldn’t even speak English. So I just looked around at people we had as friends, and they were kind of the millionaires next door. You would look at them and never know that they had fourplexes and all kinds of property and were very wealthy. I just knew that they owned real estate and I knew they were doing well. I think I just knew from being an entrepreneur right from the age of 16, always wanting to start my own business that real estate was where it’s at and it was probably one of the investments at the time.

Mike: Yeah.

Marco: Later I realized that it’s historically the best investment that anybody could ever get into and it’s historically been the best investment in all of history.

Mike: Yeah.

Marco: So that’s probably what made me jump into it.

Mike: OK.

Marco: So from there I ended up buying another property and then I kept going and I got my real estate license and I started selling real estate to home owners, and I just hated it. I didn’t like being a chauffer carrying people around in the back seat of my car selling real estate. But that’s how it all start, just at the age of 18, jumping right in.

Mike: That’s definitely very interesting. I’ve said this several times before so hopefully people listening to the show aren’t getting tired of hearing this, but probably the biggest single regret that I hear that most real estate investors have is that they didn’t start early.

Marco: Yes.

Mike: I think people realize everything you just said after they’ve been doing it for a while and they’re like, boy, I wish I had started this 10 years earlier or 15 years earlier.

Marco: Yeah.

Mike: It’s good that they ultimately get there but what an opportunity to discover the power of real estate investing at the age of 18. That’s awesome.

Marco: Yeah, but it’s never too late to start because with our company we have clients that call us in their 40s, their 50s and even in their 60s that are getting started in real estate because you don’t need to hit a homerun on your first property. As long as you start building a portfolio and you have positive cash flow you’ve got a good rate of return. You’ve got cash on cash return. It’s very competitive in the sense that you’re fighting inflation. Real estate is one of the best if not the best in hedging against inflation, so just the fact that you have a real estate portfolio and you’re getting a better rate of return than what you can get in most other if not all other investment classes, and it keeps up or it beats inflation, you’re ahead of the game already.

Mike: Right.

Marco: Equity will happen. It will grow over time through that amortization of the loan. If you have appreciation that’s great, that’s icing on the cake. So you’re building wealth. So it’s never too late to start, it’s just great to have time on your side and be able to start in your 20s or 30s.

Mike: Sure, sure. We’re going to talk about your 10 rules for successful real estate investing here in just a minute, but tell us a little bit about Norada and the fact that you are a turnkey provider and you effectively help other people build wealth. What’s really intriguing to me is over the last few years, and this is something you’ve obviously known for a long time, is that real estate is really becoming much more of an asset class that a lot of people can get into now that they couldn’t in the past or didn’t believe they could. So it’s really becoming more of a main street type investment class that people can actually choose to invest in versus the stock market and other things. Just tell us a little bit about your company and what you’re doing.

Marco: Sure. I started Norada real estate investments about 10 and a half years ago. Late in 2003 I jumped back into real estate investing very heavily. In fact, my watermark was 84 units. You might remember, there were a lot of people pitching these seminars where they were selling these boot camps and workshops, and really they were to the tune of $10,000, $20,000 $30,000, $35,000 for these workshops and boot camps. I don’t know if they worth anywhere near that. You could have bought a property for that kind of cash back then.

Mike: Those things are alive and well right now, my friend.

Marco: It’s coming back. Everything’s cyclical, absolutely. So I was at a seminar with 1,500, 2,000 people and I decided that I know enough about real estate but you never know everything and you never stop learning. I’m huge on education. Knowledge is very important. In fact, that’s the first rule of my 10 rules of successful real estate investing; educate yourself. But there were literally thousands of people buying into these courses, so I took these courses, these boot camps and workshops and what I discovered in that process is that many people were spending tens of thousands of dollars trying to educate themselves on how to invest but they really weren’t pulling the trigger. They weren’t jumping in. They weren’t making it happen. Many of them still didn’t know what to do.

Mike: Yeah.

Marco: So this opportunity kind of fell in my lap. Investors were coming to me and saying, hey, where are you finding these properties that you’re buying? How are you doing your due diligence and analysis? How did you negotiate it? I mean, it was just one question after another and I got to the point where I realized people were really wanting someone to hold their hand and provide them with an opportunity on a silver platter saying here, here’s 70% of it, you do the other 30% but essentially you’re near the finish line and you could invest in your second or third property. That’s really how the business kind of started.

Mike: Yeah.

Marco: In a nutshell that’s the answer. Sometimes I got off on a tangent, I apologize about that.

Mike: Hey, that’s the story of my life so I get it.

Marco: So, effectively, we’re a nationwide provider of turnkey investment property. The problem with the word turnkey is that there’s no industry definition of what that means. We people have a general sense or an idea of what the word turnkey means, but no one really clearly defines that and there’s no formal definition. The way we define turnkey is this; it’s pretty simple, a great market, a good neighborhood, a good property that’s either new construction or newly renovated, tenant in place, professional, local property management. That is the core of it right there. There are a few other things that are built around that but that is at the heart of what we define as a turnkey investment.

Mike: Yeah, and it takes some of the scary stuff out of the way for folks that want to invest.

Marco: Right, yeah. And we can talk about this a little later if we have time, but the whole thing about choosing the right market and being in the right neighborhood with the right property maximizing your return and minimizes your risk, and if you do that right from the beginning you eliminate a lot of the problems going forward. A lot of investors make the mistake of being presented a property, and the property looks good, it has nice curb appeal, maybe it was renovated and the interior’s in good shape and the numbers are fantastic, and I don’t mean to pick on certain markets, I do pick on Detroit from time to time even though I’ve personally been there about 25 times.

Mike: Everybody picks on Detroit.

Marco: I’ve bought a lot of property in Detroit in years past, I’ve since sold it, but I know the market well enough that I can pick on it. Although Detroit’s one of the fastest appreciating markets right now and has been over the past 12 months.

Mike: Yeah, it’s coming back.

Marco: So from an appreciation perspective it’s been a good play, but in terms of the health and wellness of that market economically and fundamentally moving forward it has a lot of question marks because there’s net negative migration, high unemployment, there’s not a lot of good prospects going forward in terms of jobs, the city is effectively bankrupt, on and on and on. Anyway, I don’t mean to pick on Detroit, my point is that a lot of investors are presented with these properties that look great on paper. They might even have 15-20% cap rates, which in reality doesn’t end up working out that way, but they get so mesmerized by those numbers and that property that they forget to look at the forest in spite of the trees.

Mike: Yeah.

Marco: You know, let’s look at the neighborhood, let’s look at what’s going on, let’s look at that market. What is happening? What is it going to be like in three to five to seven years from now?

Mike: Right.

Marco: So that’s important.

Mike: One of the fascinating things about those who are investing in turnkey type products is how easy it is to invest. I know a lot of California investors have been investing outside of California for a long time, for obvious reasons, if they’re looking for cash flow, but gosh, it’s easier than ever to own properties outside of your market. Just because of technology you can effectively be there without being there and the quality of property managers seems to be going up and up. I know it’s difficult to find good property managers but I think more than ever, largely because of technology and word of mouth and things like that, property management has gotten easier to find, certainly in major markets.

Marco: Yeah, the internet has been one of the greatest tools in the last century for the free market and entrepreneurs. The amount of information at your fingertips that you can just pull up in an instant is unbelievable.

Mike: Yeah.

Marco: It’s revolutionized almost every industry and so the ability for the average, typical middle-class investor to be able to invest, not necessarily in their backyard but in a market that makes sense and be able to do the research to find those markets is absolutely incredible. And then to be able to do your due diligence and narrow down the properties that make the most sense and be able to send contracts in on it and select your property management company and your home inspector and all that kind of stuff is very powerful.

Mike: Yeah, we all need to be thankful to Al Gore.

Marco: Thank you, Al Gore.

Mike: I pick on Al Gore too much. You pick on Detroit and I pick on Al Gore.

Marco: That’s funny.

Mike: All right, so let’s get into your 10 rules for successful real estate investing and let’s go through those.

Marco: Sure. I made the first rule, educate yourself, on purpose because everything starts with knowledge and education. I like to say that knowledge is the new currency and it really is. If you don’t continually educate yourself you’re really doomed to fail or doomed to follow out someone else’s plan. You don’t know a good investment from a bad investment. You really can make better choices and accelerate your success and your wealth creation by educating yourself, reading books, there are a lot of great blogs on the internet, there are a lot of good podcasts, for example, your show in my opinion one of the best. I listen to two and yours is one of them.

Mike: Thank you, thank you.

Marco: You’re welcome. So there’s a lot of information out there. In fact, it’s too the point where it’s information overload, but the point is that you really have to educate yourself and knowledge is the new currency, and the more you learn, not only threw reading and educating yourself through material, but actually having the experience of having done it, buying your first or second property, your third or your tenth, and just keep going from that. So educate yourself is the first rule. Stop me anytime if you want.

Mike: No, no.

Marco: I’m just going to roll through these.

Mike: Yeah, absolutely.

Marco: All right. So after you educate yourself and you keep educating yourself, that’s an ongoing process, the next thing is obvious. You’ve heard this time and time and time again but it’s really just to set investment goals. A goal is different than a wish, so it’s very important to actually write down, and I kind of sound like Tony Robbins here in talking about this stuff, but a lot of people just skip over this step. They realize that they need a goal, they have a goal, maybe it’s subconscious, maybe they just have it informally in their mind, but if you can lay out how many properties you want to accumulate in your portfolio over what period of time and what metrics those should have. Are you trying to achieve a certain cap rate or a certain amount of cash flow every month? When do you want to retire, how much do you want to be earning from that portfolio? When you start writing it down things start to become clear.

Mike: Yeah.

Marco: I’ll go off on a tangent here for a second. When we talk to our clients, if they don’t feed us this information we start to ask probing questions. We want to know what their investment goals are. We don’t need to know in great detail, we just want to get an idea, but from there we can determine what their ideal strategy is. People who are calling us are always buy-and-hold investors. They’re not typically flippers, but we clarify their strategy based on their goals, and then from those goals you can start laying out in bullet point form what their investment criteria is. Are there certain markets, certain property types, certain numbers of bedrooms and bathrooms, price ranges, rent to value ratios, a minimum amount of cash flow per door. So when you start to find those things, it’s not that you can open up more opportunities, you can start to eliminate possibilities and start to focus in on, like a laser, the markets and properties that actually meet your criteria and fulfill those goals.

Mike: Yeah, from a goal planning standpoint, and I mentor a lot of folks, and I really harp on goal setting. I guess my purpose is that you don’t know what to execute if you don’t know what you’re trying to achieve.

Marco: Right.

Mike: It’s the same thing you just said, just differently. It’s funny, I tell people from my corporate world, everybody always had analysis and plans and we’re going to do this. I worked for a large retailer that everybody knows and once it got laminated then it became the law of the land, so I tell everybody that. Publish it, print it, share it with your spouse, your partners, whoever, and laminate it and put it on your refrigerator or whatever, and think about it every day or all the time because that’s your roadmap for how you’re going to get to where you want to go.

Marco: Yeah, I can’t remember the statistic, but I read this a long time ago, but apparently people who actually have written goals are five time or ten times, it was an astronomical number, but were much more likely to actually achieve or come close to achieving those goals than someone who never writes them down.

Mike: Yeah.

Marco: So I think there’s a lot of weight to writing it down.

Mike: I think generally they’re better looking people too.

Marco: Well, there you go. Our host here.

Mike: All right.

Marco: All right, so the third rule I have is to never speculate. That’s really important because if you look back to 2003, 2005, people really weren’t investing. They thought they were… they think they were investing, but they really weren’t investing. They were chasing after appreciation and that was a mistake. Now, there were a lot of people who made a lot of money. They bought properties, road up the appreciation, and in some markets it was like 10-20%. I remember in southwest Florida there was a period of time where there was a 32% appreciation rate in one year, but you should always invest with the long-term in mind. Never speculate on the quick, short-term gains and appreciation. Appreciation is great, it’s nice to have, and it comes in time. All real estate markets move in cycles so if you pick the right market at the right time you’ll have the benefit of appreciation, but you never know when a market’s going to peak, and usually you don’t find out until six to maybe nine months after the fact. Fortunately for most investors real estate is a slow moving asset class. So if you’re smart enough to keep your finger on the pulse and you realize that the market has topped off, maybe you can plan accordingly and sell the property. Hopefully the demand hasn’t dried up or the financing hasn’t dried up for it so you can actually sell it, but it’s really tough to try to time real estate markets. It’s doable and we can do it. We track 401 markets in the U.S., MSAs, so we see what’s going on past, present and future, but the average person can’t do that so it’s really a mistake I think to speculate in real estate because I don’t call that investing. That’s not prudent.

Mike: Yeah, yeah. OK.

Marco: Which is a perfect segue into the next rule, which is invest for cash flow. There are rare exceptions to this, of course, but you always want to buy a property with positive cash flow. I like to say that cash flow is the glue that keeps your investment together. Like I said before, you really want to invest and build a portfolio so you have passive monthly cash flow and you have wealth creation or wealth building in the process. You can’t do that, or at least your runway’s going to be really short, if you can’t keep that property because you’re feeding it every month through negative cash flow.

Mike: Yeah.

Marco: So it’s really important to have positive cash flow because it gives you a good rate of return, a cash on cash return to your invested dollar, but what you’ll find is over time you’ll build equity though amortization through amortization and through appreciation. So always invest for cash flow. I think you would agree with me that that’s important.

Mike: Absolutely.

Marco: I like to measure that in terms of cash on cash return and total rate of return. A lot of people kind of get caught up on the cap rate, which is fine. It’s a very generic measure, it’s more applicable to commercial real estate, but again, I like rules of thumb and that’s one rule of thumb I use just to quickly evaluate a property at a high level.

Mike: Yeah. Great.

Marco: The next one is to be market agnostic.

Mike: This is number five, right?

Marco: This is number five, be market agnostic. The U.S. is a very large country, it’s made up of hundreds of local markets and that’s the key word. Every real estate market is local. It has its own fundamentals, its own economics, its own housing market, its own supply and demand. They all operate independently of other markets. What’s going on in San Diego is different then what’s going on where you live in Dallas versus somewhere in the north like Detroit.

Mike: Right.

Marco: So they all move up and down independently of one another and there are different demand drivers that are affecting those markets so it’s important to pick a market that makes sense. But the reason I say be market agnostic is that still to this day it amazes me, and even with the internet being a powerful tool at your fingertips, how many investors still think or believe or are just religiously married to the idea that they have to buy something within a 30 minute radius of their home because they just need the ability to drive by it every once in a while and make sure it’s there, or just be able to touch and know that it hasn’t disappeared or burnt to the ground.

Mike: Right.

Marco: I find that kind of humorous, but investors could do so much better and be more successful in their real estate investing business if they looked at other markets and realized that there are other markets, many other markets that are doing better than their local market.

Mike: Right, right.

Marco: Here in coastal California, you know, it’s one of the cyclical markets, which you’ll find very common around the coastal markets around the United States. I call some of these markets Bubble Markets because they go up and down like a yo-yo.

Mike: Yeah.

Marco: Property values here are very expensive. You’re looking at $400,000 to $800,000 to buy a typical single family, detached home that doesn’t rent for more than $2,500 to $3,500 a month, so the rent to value ratio is very low.

Mike: No chance of positive cash flow.

Marco: It’s extremely difficult. Let’s put it this way, you could create positive cash flow by putting 50% to 60% down, but then the question is and the argument to be is, why don’t you take that $200,000 or $300,000 that you just used to put down that 50% on that property and leverage that into four, five, six properties in let’s say the Dallas, Fort Worth metro area, have a better rate of return, better cash on cash, lower downside risk because the risk is in the land value here. If the market, and I shouldn’t say if, I should say when the market turns, you’re going to see property values come down quickly, and it’s not because of the commodities that are on the dirt, which are the bricks, sticks, copper and all that good stuff, it’s going to be the land value. So if you look at a market like Dallas or Houston or Indianapolis or Kansas City, many of the markets that we’re in, the land cost is so low that it literally minimizes your downside risk because you can’t go below zero on your land cost.

Mike: Right.

Marco: And you’ll always have a replacement cost on your property, it’s going to cost $50, $60, $70 per square foot or more to replace that property if it burnt down to the ground, so by investing in these other markets you’re actually maximizing your returns but also minimizing your downside risk.

Mike: OK.

Marco: I don’t know if that made sense.

Mike: Yeah, it’s important. All of my rental properties are in my market here so I’m guilty of what you said, but I operate my business here. I rehab and wholesale and do a bunch of other stuff and I keep some as rentals, so that’s primarily why they’re here, because all of my rental properties I actually acquired myself. With all that said, I have not been into one of the rental properties that I’ve purchased over the past five or six years ever, with the exception of when there’s been a major fire, which I’ve had a couple times. We have one right now that we’re rehabbing and that was just because it was a long process. I don’t manage them myself. If I’m in the vicinity of one of them sometimes I’ll think, let me drive past and see what it looks like.

Marco: Right.

Mike: But now I’ll think differently and say, no, I don’t even want to know. I don’t want to know if the grass is long or who knows. So I don’t even want to know, but I think a lot of it comes down to comfort with a property manager. I guess I feel more comfortable having the ability to go meet with and see my property manager more so than my houses. And with that said, you and I are thousands of miles apart and we’re having a discussion, which could just as easily be done with my property manager.

Marco: Well, you’re really not guilty of anything if you stop and think about what I said because you happen to be fortunate that you are in a market, a great market that has strong fundamentals, a strong economy and lots of demand. You have people moving into the city literally every day.

Mike: Yeah.

Marco: The last statistic I read, it went from 555 people a day moving into the state of Texas to over a 1,000 people per day moving into the state of Texas. So where are they moving to, Dallas, Houston, San Antonio, Austin?

Mike: Yeah.

Marco: So the demand for housing is always there. It’s consistently there if not growing.

Mike: Right.

Marco: So you’re in a market where the rent to value ratios make sense, you can still find 8% and 9% cap rate properties. They rent out very quickly because you have a large rental pool. You have everything working for you so you don’t have a need to diversify into another market unless you want to, which is actually one of my rules in terms of diversification, we’ll get into that here in a minute, but you’re in a good position. So you’re really not guilty of anything, you’re just fortunate to be in a good market that makes sense.

Mike: Yeah, yeah. But your point is that markets fluctuate and the opportunity window opens and closes and to be agnostic to that and be able to move into markets where there’s opportunity just like you would in the stock market. When something is undervalued you would go after it and when it seems like it’s a little bit overheated you would pull back from that stock or that market, per se.

Marco: Yeah. I had lunch with a client yesterday. In fact, we’re flying to Houston in three weeks. He’s going to be picking up about four or five properties down there on a 1031 exchange, and we were talking about exactly that. We were actually using the stock market to be kind of an analogy to diversification in real estate. We might as well talk about it here. Diversification across markets is the way that you diversify within this asset class. You talk to financial planners and stockbrokers and they’ll say, well, diversify. The thing is, if you’re diversifying within the same asset class you’re really not diversifying much at all. It’s the same paper asset that’s being trade on Wall Street.

Mike: Right.

Marco: But they use the term diversify a lot because you can’t manage your risk in the stock market. You have no control so they say, you know, put some money here in this ETF and put some money here in these blue chip stocks and put some money here in these small cap stocks. Well, how do you do that in real estate? The way you do that in real estate is you could diversify into different property types within that asset class, but the better way to do it and the smart way to do it is to diversify across different markets, because when you do that, like I said before, every market has its own economics, its own fundamentals, its own supply and demand drivers, so when you diversify across different markets you spread your quote-unquote risk in different areas. So if one market is maybe in a small down-cycle one year your properties in this other market may be appreciating and doing well and people might be moving to that area now because there are new jobs because of the shale plays in oil and gas or whatever the case is.

Mike: Right.

Marco: But that’s a prudent way to do it. My rule of thumb, and again this is just me, it’s my rule of thumb, but I like to tell clients to accumulate three to give income properties per market and once you’ve achieved that, if you still like that market and if you want to continue go ahead and do so, but if not let’s look at another market that’s geographically different, that has enough distance where it’s not affected by the other market or doesn’t share in the economics, and then build your portfolio there with three to five new properties and then keep moving on to other markets.

Mike: Yeah.

Marco: So that’s the whole concept of diversification.

Mike: OK. We’re at rule number six.

Marco: Yeah, I kind of jumped ahead of you here. I jumped down to diversify across markets, which is number, seven.

Mike: All right, well, we can do whatever we want, my friend, we’re making this up as we go along.

Marco: Yep. So I’m just going to go back here to number six. Take a top down approach. We spoke about this just before the show here, always start by selecting the best markets that align with your investment goals. A lot of investors, like I said before, they start by analyzing properties with little regard to its location. They get married to the curb appeal and the numbers on that property, which is effectively a pro forma when you first look at it. It’s really not historically, in most case, they’re not historically proven numbers. A lot of times people are buying properties that don’t have a tenant in there so there’s no rent role, there’s no proven history.

Mike: Right.

Marco: So they get attached to the pro forma number and unfortunately a lot of international investors that call us will get mesmerized by a lot of markets in the north east in the rust belt, Detroit included, and they’re really impressed by the rates of return but they really don’t put a lot of thought, if any, into what the economy is like and what the job market is like and all that kind of stuff.

Mike: Yeah.

Marco: So taking a top down approach means don’t start with a property, start with the market, then work your way down to looking at specific neighborhoods, the characteristics and demographics of those neighborhoods and then looking at the properties. This is actually one thing that we help our clients do. Once they’ve identified a market and we start looking at opportunities in that market, we start creating a shortlist of available turnkey properties that we have in that market and we start sending them neighborhood profiles. Those profiles include detailed neighborhood characteristics and demographics. It could include appreciation rates, home ownership rates, and just a slew of data that we can bury our clients with. We don’t do that initially. We give them some and we say if you want more we’ll give you more.

Mike: Yeah.

Marco: But just because of the tools we use we give them the tools; we give them the information to make prudent, logical, rational investment decisions on what they’re looking at.

Mike: Right. Yep, OK.

Marco: So top down approach.

Mike: Alrighty.

Marco: OK, so now we’re going to jump forward again to number eight.

Mike: OK.

Marco: And this is something you talked about once or twice now. It’s using professional property management. I kind of jokingly say that you live and die by your property manager. It is so important. I’ve seen investors suffer and have terrible experiences in the past because they have the wrong property management company who have placed the wrong tenants and they just suffer for it because they have a lot of turnover, they’re paying those turnover costs to refresh the property, they’re paying that first month’s leasing fee again and it’s just a real problem.

Mike: Yep. I’ve experience that first hand so I understand. Unfortunately, a lot of people have.

Marco: You’re right, Mike. I think most investors have, at some point in time, a bad experience with a property management company and come to realize and learn what they should look for the next time around.

Mike: Right.

Marco: Picking and choosing the right property management company is very important because you want to know that they have good knowledge of the tenant landlord laws, good marketing skills, strong people skills, the ability to deal with complaints and excuses, the ability to properly qualify and screen tenants. That placement is so important because it can determine how long that tenant will stay because they are a good quality tenant with good employment that can actually pay their rent. Are they a loafer, do they have a criminal record? There are just so many things to look at, so property management is extremely important.

Mike: Absolutely. Absolutely.

Marco: The next item is maintaining control. I touched upon this briefly before but the nice thing about residential real estate is that you can be a direct investor. You can actually own that property, you call the shots, you determine what is done and what is not done, who manages it, what type of tenant you want in that property, how much you spend on it, as opposed to investing in a fund or partnership. Now, I’m not saying anything’s wrong with a partnership, but you know as the old saying goes… I can’t remember how the saying goes and I don’t want to butcher it. It will come to me in a minute. The hardest ship to sail is a partnership, that’s how it goes.

Mike: Yeah, OK. Yeah.

Marco: There’s nothing wrong with partnerships. I have partnerships, I’ve done partnerships, but the problem with a lot of paper-based assets is that you really don’t have control. You’re a shareholder or you own a security. You own a piece of paper; you don’t have direct involvement or control over the property.

Mike: Right.

Marco: And that’s one thing that I love about residential real estate is that you determine what you’re investing in and what happens with that property.

Mike: Absolutely, yeah.

Marco: As opposed to leaving it up to corporations and fund managers like you do on Wall Street where you never really visiting the company you’re investing in.

Mike: Yeah. I started off in investments. I was a finance undergrad, worked for a large bank, was a huge, huge portfolio manager, and it just felt like… I guess I was dismayed as soon as I started down that path because it just felt like it was mostly financial engineering. Most people that are investing, gosh I don’t want to throw anybody under the bus here, but in my corporate world I think most people were trying to get through quarter to quarter. There’s really not a long-term version. It’s always about how do we prop the stock up for as best we can for maybe a year or two, and not that those words were ever used, but you just kind of feel like that’s what’s happening. Bonuses are tied to it, stock options are tied to it, things like that, and it just feels like there’s not the same stewardship that there is with an actual physical asset.

Marco: Yeah, and I think part of what you’re saying is that the fiduciary responsibility of the investor that’s putting up the capital to make that investment becomes secondary because companies are trying to achieve certain numbers. Stock brokers, fund managers, I don’t want to belittle financial advisors, but a lot of them are kind of honed in on the commissions, which in some cases can be very large on these products.

Mike: Yeah.

Marco: I understand what you’re saying. Like I said, I’m not a big fan of paper products. So maintain control, be a direct investor. It’s the best thing you can do and as you build your portfolio you’ll learn to love what you’ve done.

Mike: Yep.

Marco: And then last but not necessarily least, the last or the tenth rule for successful real estate investing is something fairly unique to real estate, and that is your ability to leverage your investment. I believe you should leverage your investment capital. It’s one of the only investments short of a margin account with a stock broker, but real estate is one of the few if any investments where you can borrow other people’s money, up to 80%, to purchase and control income producing property. That is phenomenal and that’s actually something that’s fairly unique to the United States. It’s not something that’s common around the world. Maybe because the federal government decided decades ago to subsidize housing, which you could argue was a mistake or a benefit, you could argue it both ways, but the fact that we have government GSEs, government sponsored entities that will allow you to borrow up to 80%, in the past up to 100%, but up to 80% of that purchase and control an investment property is powerful, because it allows you to take a small amount of cash and purchase real assets, real estate that produces income and can create wealth for you over time. So take advantage of it, especially today with mortgage rates at or near historic lows, around 5% for an owner non-occupied loan. There’s absolutely no reason that you can give me where you should just hold back and not stock up on as much as that mortgage capital as you can.

Mike: Absolutely.

Marco: Buy as many properties as you can as soon as you can. So definitely leverage your investment capital and buy as much property as you can with financing. And the other thing too, as just kind of a side note, with mortgage financing you’ve got inflation on your side. As much as we don’t like inflation the lender’s debt, which is your debt, is fixed. It doesn’t adjust every year to the rate of inflation, which I strongly believe is higher than what they report it to be.

Mike: Absolutely.

Marco: That means that every year you’re paying that mortgage off in cheaper and cheaper dollars because if our dollar is be devalued every year, which is has been for the last 98 years since the federal reserve came around, you have the advantage of actually paying that off in cheaper and cheaper dollars. And really, you’re not even paying it off, you’re tenant is actually paying off your mortgage for you.

Mike: Yep, yep. Awesome. Well, those are great. For those of you that maybe missed one of those or didn’t write it down or you’re driving in the car or whatever, we’ll add these on the page down below or a link to get Marco’s 10 rules for successful real estate investing. So Marco, tell us, for anybody that’s interested in learning more about your company and the turnkey opportunities you have, where do they go for that?

Marco: Well, the best place to go because we post a tone of information is our website, which is Noradarealestate.com, and Norada is N-O-R-A-D-A. Noradarealestate.com. There’s a lot of good articles and tools on there that investors can use.

Mike: OK, OK. Well, Marco, that was a lot of great information you shared today. I definitely appreciate your time and I appreciate you being on the show.

Marco: Thanks, Mike. It’s been great, I appreciate the invite.

Mike: Yeah, we look forward to talking to you again soon.

Marco: Thank you, appreciate it.

Mike: All right, take care.

Marco: Take care.

Male Voice: Thanks for joining us on today’s Flipnerd.com podcast. To listen to more of our shows and hear from incredible guests, please access all of our podcasts in the iTunes store. You can also watch the video versions of our shows by visiting us at Flipnerd.com.