Are you leaving money on the table by not selling your deals to other investors for rentals? Engelo Rumora, shares his incredible story today of dropping out of school at age 14, making his way into professional soccer, then finding his way from Australia to the American Mid-West…a oasis of cash flowing rentals. “Turn Key” is thrown around a lot these days…but Engelo’s model to keep the property management in-house and build long lasting relationships with his customers is surprisingly unique…but makes sense for all the right reasons. Engelo shares more in this episode of FlipNerd.com, and shares some great lessons with us…don’t miss it!
Mike: Welcome to the FlipNerd.com podcast. This is your host Mike Hambright, and on this show I will introduce you to 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 FliNerd.com. So without further ado, 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 our industry to help you learn and grow.
Today I’m joined by Engelo Rumora. He’s a real estate investor who dropped out of high school at the age of 14 to train to become a professional soccer player. And that dream ultimately came true for him. After a brief stint of playing soccer, he found himself an unemployed young man with no formal education, and working as a laborer sweeping floors even. Today you know he wouldn’t be on here unless he had a story to share about how he’s managed to become a successful real estate investor who is now built a large real estate business. And he actually sells properties worldwide, too. That’s going to be the topic of the day. He has a fascinating story to share with us today.
And he also runs Ohio Cashflow, which is a turnkey business that sells a lot of properties to overseas investors. In addition to learning more about Engelo, and Ohio Cashflow and his turnkey model, we’re going to discuss the opportunity to sell more of your houses to overseas buyers and even talk a little bit about why investors from other countries are interested in the U.S. market for rental properties.
That was a mouthful. Before we get started today, though, let’s take a moment to recognize our featured sponsors.
Advertisement: RealtyMogul.com is an online market place for real estate investing, connecting borrowers and capital from accredited and institutional investors. Get a rehab loan fast and close in as little as 10 days. Rates start as low as 9%.
We’d also like to thank National Real Estate Insurance Group, the nation’s leading provider of insurance to the residential real estate investor market. From individual properties to large scale investors, National Real Estate Insurance Group is ready to serve you.
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.
Engelo, welcome to the show.
Engelo: Hi, Mike, how are you?
Mike: Good. You know, I’ve had a few people on, but I have to be honest here. I love doing this show, because I get to meet new people and fascinating stories and no matter how great anybody thinks their own story is when I get a change to meet people like you I always love it. And I had another guest on the show a while back, Tim Mai, and he was actually taken from sea by pirates. So he had a fascinating story. Those make for good stories.
But I’d love to learn more about your story and I know our listeners want to learn more about you. Can you give us a little about your background, and I hinted at some of the things there. But tell us more about your story.
Engelo: Well my long-time dream was always to become a professional soccer player. I’ve been playing soccer since the age of five and hustled very hard and I trained all day and every day, and finally that dream came true. When I turned 18 I signed a professional contract in Hong Kong and played soccer there for six months. Unfortunately, things didn’t work out the way I intended them to, and I had to move back to Australia. Of course, as you mentioned, I quit school at the age of 14, so I pretty much couldn’t get any job anywhere else except sweeping floors on dirty construction sites, so I worked as a laborer.
I always knew that I had a bigger purpose in life than just myself, and I really wanted to achieve greatness for my loved ones and for family and friends, and of course, for myself also. The turning point for me was when I got a book, “Rich Dad, Poor Dad” by Robert Kiyosaki, and that just completely brainwashed me and changed my perception on business and finance and real estate.
Then I just started immersing myself with everything and anything that was business or finance related. That kind of got me on the path of real estate. I built a very large portfolio in Australia in a very short timeframe. A lot of the media outlets picked up on that. I built a portfolio worth $1.4 million in nearly six months. I did that by buying rundown, undervalued properties and fixed them up, knocking on the banks door, refinanced out of the loan and just using that equity to do it again.
I quickly came to the realization that buying property to impress the chicks is definitely not the way to go, Mike.
Engelo: You should actually be investing for cash flow, because while most real estate investors go down the path of real estate to supplement their current income in the jobs that they are working in, because I really liked the job. If they do like the job they still want to be making $50,000, $60,000, $70,000, $100,000 in passive income. So with that being said, I guess that was the main reason why I initially started investing in real estate, and buying these super properties and getting into debt just to impress the girls was not the right way to go about things.
Then I started looking for cities and areas where I could find positive cash flow in investments. Australia unfortunately did not possess such properties. One thing led to another and that’s how I came across the U.S. market. It was on its knees. The market was depressed and the economy was going south. But slowly started selling out of my entire Australian portfolio and building trust and relationships with key people here in the U.S., and here I am today.
Mike: What year was that when you ultimately moved here?
Engelo: I moved to the U.S. in September of 2012.
Mike: Okay. So not that long ago. And you started off in Kansas City? Is that right?
Engelo: I started off in Kansas City. I did quite a few flips there and established some great relationships. And that kind of led me to Ohio where I am today.
Mike: Yeah, great. And in Australia it’s a very different model for real estate investing.
Mike: We’re going to get into why folks like to invest in the U.S., but talk a little bit about the dynamics of how hard it is to make properties cash flow in Australia.
Engelo: Impossible, Mike. If you look at the average median house in Sydney right now, from where I am from, it’s $750,000 for a three-bedroom house. And I just don’t see that as a sustainable way of moving forward. In order to purchase this property, you’re going to have to put down at least 5% or 10%, which is $50,000 to $100,000. And that’s hard enough itself to save that deposit. And then when you look at how much the loan repayments are, the rent is not sufficient to cover the loan repayment and all the other expenses.
So what the folks are doing there is they’re buying a high and hoping to sell even higher. And that is such a crucial error. Warren Buffett always said that the number one rule of investing is buy low and sell high, right?
Engelo: It’s just not a sustainable way of moving forward. I see a lot of it happening on the East Coast and West Coast. Australia is another one of those markets where folks base their decisions on hope that the properties are going to go up in value more than they are losing on their yearly mortgage repayments. And it’s just a recipe for disaster.
I think that’s one of the main reasons what caused the downturn here in the U.S. in 2006. Folks got greedy, and they were buying properties at a higher price and hoping that they were going to go up in value more than what they paid for them in three to six months. Then eventually it all came crashing down.
Mike: It can’t last forever. There is no doubt that some of those things that happened in 2006, 2007, are starting to feel like they are maybe happening again in some markets even in the U.S.
Engelo: Mike, yes. I keep seeing that everyone is pumping a lot of the East Coast and West Coast saying that the market’s going up in value. Look, I don’t see those markets sustainable markets for cash flow. If you want to speculate and base your decisions on hope, feel free to do so. But I’ve learned the hard way, mate. I was buying real estate to impress the girls, and it wasn’t a plausible way of moving forward. I strongly believe in staying behind what I say, that if you’re going to invest in real estate, you should invest for cash flow, and cash flow only.
Mike: Yes, and I know quite a few turnkey providers around the country, and a lot of them are California based usually helping California investors invest elsewhere for the reasons we just talked about, how the cash flow typically isn’t great. And a lot of them, most of them actually, tend to focus on the Midwest and maybe the Southeast, a little bit in Texas. And I know you just did some research to decide where to call home ultimately, or where to run your business.
So talk a little bit about the significance of Ohio and really the Midwest in terms of why that tends to be more appealing for a lot of investors.
Engelo: Yes, Mike. By far my number one picks are Michigan and Ohio, and it’s quite simple. The two reasons why is because the media and everyone and anyone is pumping high unemployment and declining populations. And guess what? Because of all of the speculation out there with the high unemployment and declining populations, it’s keeping the institutional investors on the sidelines. Mr. Wall Street is not waving his magic wand raising two billion dollars and just buying every single property in town, right, and for these two particular reasons. It’s the same with the Mom and Dad investors.
You aren’t seeing them around, because a lot of these folks are unfortunately uneducated when it comes to real estate, and they believe everything they see in the papers or on TV.
Engelo: Mate, I feel like a kid in a candy store here in Ohio, and Michigan is a great market, too. Indiana is a good state. Kansas and Missouri are also good states, even though there is much more institutional activity in Kansas and Missouri as we speak.
Mate, look, as I said, a kid in a candy store. We’re buying some amazing properties, and there’s not much competition. They are undervalued. The cash flow is great. And with that being said, I live and breathe the market here every single day. There are pockets here, for instance, in Toledo where I live right now, that are very desirable. One of them is for instance the Washington Local School District. I know this doesn’t mean much to you, but to the folks here in Toledo, our phones are blowing up every single day with people wanting to rent and buy in these particular pockets.
If you’re looking at investing for cash flow, and wherever you’re looking at buying, my number one rule for that is don’t stress on the stats and graphics that we see online and why you hear the news crews and in the papers. Focus on establishing trust and relationships with the key people in any target area. They’re your eyes and ears, heart and soul on the ground, and that will even make or break your investment.
Mike: Right, and talk a bit about the significance of the ratio of rent to ARV or market value of a house. I mean, that’s really the play there; that you can buy houses for not a lot of money that tend to from a ratio standpoint rent for much higher levels than certainly on the coasts. Of course, you want to buy houses as deep as you can, and I don’t know your exact model. But in a lot of markets like that, depending on the financing you have, you could almost pay market value for houses and still have them be good investments relative to other investments around the world, right?
Engelo: Definitely, Mike, and I’ll give you an example for instance. The deals here in Toledo, and I know Dayton is another market has also has some awesome numbers, they are falling off trees between the $40,000 to $45,000 price range. For a three bedroom, one-bathroom house, in a solid B-class area, built in the ’50s and ’60s, you are buying homes for $40,000 to $45,000 and they are renting from between $750 to $900 a month.
Engelo: And when you crunch the numbers, and even when you deduct the 10% maintenance and vacancy, you are still looking at around 12%, 13%, or 14% net cap.
Engelo: Look, I’ll tell you what, mate, I wouldn’t be freezing my you know what in Toledo if it wasn’t for these numbers. I’d rather be on the beach in Sydney right now in the summer.
Mike: Maybe you could share some information, too, or some of your perspective on the role, having been an investor in Australia, and the role that financing plays. I don’t know how rates compare there to here, but historically the opportunity depends a lot upon basically access to capital, right? So talk a little bit about how important your market is, and markets in the U.S. are, dependent upon cheap money, effectively.
Engelo: Well, mate, look . . .
Mike: You know the mortgage rates are here. Let’s say with FHA financing right now you are sub-five percent for sure, probably low 4% maybe, or mid four. What are rates in Australia for a traditional homeowner?
Engelo: Mike, to be honest with you, I wouldn’t actually know.
Engelo: Because I haven’t really looked into that market for awhile. I completely just forget about Australia. As I see the prices going up, there wasn’t much of interest. But I’ll tell you this, I do believe that as the banks start loosening their credit here in the U.S., I believe that a lot of folks are going to start buying properties that they currently are renting right now, and that should push up the market.
In Australia the rates are quite affordable, as far as I recall. I do remember reading a little bit up on it, but mate, I couldn’t actually give you [inaudible 00:14:24]
Mike: I guess my point is some of the desirability of real estate in the U.S. is based off the fact that real estate tends to be subsidized by the government ultimately.
Engelo: Yes. Well, mate, as I mentioned earlier, for an average three-bedroom house in Sydney, you’re putting down 10% and getting into a $650,000 loan. Who can repay that? It doesn’t matter what the ratio is, it’s just a stupidly high figure.
Engelo: And everyone is doing it over there right now, while here just depending on what state you’re buying in, the house is selling for $50,000 and this house is selling for $150,000. So it’s definitely much more affordable than it is in Sydney.
Mike: Right, for sure. I know you’re primarily a turnkey provider now. Talk about, I guess, that opportunity to be a provider of real estate. I know you sell a lot of stuff to overseas investors. But talk a little bit about why you chose that path.
Engelo: Sure, well, mate, I initially chose to start a business and offer turnkey properties because I couldn’t actually work on my existing visa legally. So the only way that I could stay here in the U.S. and realize my dream of achieving financial freedom through real estate was to build a large portfolio of my own properties. But in order to do that you need to have lump-sum profits that you can have the luxury of being able to tie them up in an investment property, which produces cash flow.
So as I started looking at the different strategies in real estate and how I could actually go about investing here, besides having the existing money that I moved to the country with, and buying properties and just holding them, I couldn’t buy anymore and I couldn’t work. So that kind of led me to flipping, because you buy rundown properties and fix it up. You have a bit of a margin on top and you sell it and make your profit. Then you can reinvest it in another deal and just keep going. And that’s how it led to starting Ohio Cashflow and being where we are today.
Mike: And talk about specifically selling to international buyers. I’ve had a lot of other turnkey providers on the show and most of them tend to serve domestic clients. Like I said, a lot of times it’s California investors that want to invest in the Midwest or other areas, because their markets are tapped out. I know some people who have sold large packages of their rental properties hundreds at a time to buyers from Australia and some Asian countries. But talk a little bit about the general opportunity to sell houses to overseas buyers.
Engelo: Well Mike, we consider ourselves to be a very small company. We want to keep it exclusive. We don’t want to pump the numbers. We want to keep it very tight and we generally want to work with investors that are interested in building a large portfolio. The opportunities are there. I might sound corny, but I believe it really it is a once-in-a-lifetime opportunity for investors worldwide, and one the East Coast and West Coast to still take advantage of these dirt cheap properties here in the Midwest; Michigan and Ohio, as I mentioned earlier, are my two picks.
We have a very specific vetting process. We only want to work with selected investors. We don’t want to sell more than 50 properties a year, and we just want to focus on that quality. We want to make sure that every property that we sell, and every investor that we work with is a great relationship there. We want to be prompt at communicating. I know it might sound like I’m giving you a bit of a spiel, but that’s not my intention.
Mike: It’s important to understand your view, because everybody is a little bit different, for sure.
Engelo: Well, mate, as I said, for all the folks out there, and as I mentioned earlier, it doesn’t matter what market you’re looking at investing in or what city, forget about the stats and demographics. Make sure that you establish a trust in relationship with key people on the ground that will genuinely care about your best interests, and that are not looking for a quick profit. They are actually interested in holding your hand throughout the lifetime of the investment and growing with you, and growing your portfolio.
And I think no matter how long it takes until you find those key people, don’t invest. I have a white shirt with a red cross on my back most days, mate. I get emails and phone calls from a lot of investors all around the world that got stuffed over by a lot of shady operators. Actually it’s quite sad. I can guarantee that we are definitely not one of those guys.
Yeah, mate, as long as it takes, you spend the time and do the due diligence more on the people that you’re looking at working with, rather than the actual area and stats and demographics.
Mike: Right, and in your model, are you managing those properties ultimately as well, or do you hand that off?
Engelo: Yes, mate, we have in-house property management. We have our in-house realty company, so we are fully licensed and insured real estate company here in Ohio. And it’s great, man. I still sometimes think how the hell did I make this happen.
Mike: Yeah, no. That’s fantastic, and a great story. I think this says something about your company, or companies that continue to manage them in-house. Of course there are a lot of bad examples out there, too, but I think it forces you if you want to have repeat customers.
Engelo: That’s correct.
Mike: If you told somebody that it doesn’t need any work on it, and you start managing it and two weeks in, or two months in, or two years in it needs everything, a roof, and the HVAC system is falling apart, then you would never obviously be able to sell that person again. I think there is a comfort level from people that are looking to build a portfolio with a turnkey provider to know that they have a true turnkey solution where somebody is going to continue to maintain it and it can’t just shuffle crap around and hand it over to somebody else, and it’s not their problem anymore.
Engelo: Mate, that’s the number one key to ongoing success, as you mentioned, to referral and repeat business; that property management. The only reason we set up in-house property management is for the after service. Once we make sale, we want to make sure that we hit the numbers we promised on paper. I do not know of any really successful turnkey company here in the U.S. that does not have in-house property management. And our property management doesn’t make any money. It’s not established for profit, as I said. It is only established for after service and to make sure that the numbers work.
Mike: Okay, and talk a little bit about the appeal. We talked a little bit about Australia, but are there folks in other countries that you sell to outside of Australia?
Engelo: Yes, we work with a lot of U.K. investors, and we’ve actually started hitting quite a bit in Asia. There are a few guys on the East Coast that we’re working with, too, and the West Coast. Mike, it’s not so much in the Midwest, but it’s always going to be on the East Coast or West Coast and the U.K. and Australia. We are looking at tapping into that Asian market, so hopefully we’ll get rocking and rolling there quite soon.
Mike: And you talked about how you purposely want to cap the volume you do. What do you do in this instance where somebody wants to purchase a lot more than you have the ability to do?
Engelo: Slow them down; we slow them down. One of our tag lines is we focus on quality over quantity. And another little tag line is that we want to be known as the Ferrari, the Rolex, and Louis Vuitton of turnkey real estate.
Engelo: We want to be so exclusive that people are banging on our door to try and become a part of our little selected group of investors. And if you start focusing on selling more to make a bigger profit, I believe that you lose that exclusivity. I think that by us doing what we’re doing and staying true to our business model, that is going to be the difference between the other companies out there.
And to be honest with you, I think that a lot of folks would and should appreciate that, because that means that with only a selected group of investors that we work with it’s obvious that we’re not focusing on the money. We are focusing on the relationship. We’re focusing on just them, and giving them our entire attention and undivided time and whatnot just to make them succeed.
I’ve actually had a U.K. investor that wanted to buy another two properties, and he only recently bought one. I said, “Mate, pull back a little bit. Let’s see how this one performs, and then we can always buy more.” There are a lot of properties here, and I don’t think the market is going anywhere, so there are going to be more opportunities for at least another couple of years to get in while they are pretty cheap.
Mike: I would say predominantly most real estate people that are active are finding deals and tend to be wholesalers. And then there are obviously a lot of rehabbers out there. And then there are really not a ton of people providing a turnkey real estate model, but there are some other companies out there. But just talk about the general opportunity for those people that may be wholesaling everything now, making a quick buck, but maybe are missing out on the opportunity to provide a service like you do where they can sell to other people and help enrich other people’s investments.
Engelo: Well look, mate, as I’ve said, I don’t think that you could have a successful turnkey model unless you have in-house property management. If you outsource property management, the outsource property management company is not going to care as much about that property as you are when it’s in-house, because you want referrals, and you want repeat business. Anyone that is looking at going down that path, they really have to have a good setup. They have to have good contractors onboard to do the rehabs. They have to have in-house property management and all that stuff. With wholesalers, they are really good at finding the deals, and obviously they have the buyers to purchase the deals.
For instance, we as a turnkey company buy a lot of properties from wholesalers. It’s just going to be a little bit of a different shift. It’s still all the same thing, but it is a different business model. If I could stress one thing, that is to have the in-house property management. And I believe if you are a good wholesaler and you want to go down the turnkey path, you can quite easily, because you’ve already got the experience. First of all, in real estate, you already know how to find a good deal, and you already know how to work with buyers. You’re just going to have to shift your perception on how you conduct business in a different way.
For example, the buyers are not going to be local. If you are in the Midwest they are going to be more investors on the East Coast, or West Coast, Canada, U.K., Asia, Australia, that live in overpriced markets and they want cash-flowing investments.
Mike: Right. So where do you see the market going from here, in Ohio specifically?
Engelo: Up baby. All the way, mate. Mike, I don’t have a crystal ball, and it’s impossible to predict the future. It doesn’t really matter, and I don’t really care, because I based my personal investment decisions on the numbers in the deal as they are today. And if those numbers make sense when I look at them today, and they suit my end goal of where I’m going to be, it’s a good investment. Where the market is going to be tomorrow, it doesn’t really concern me that much. I’ll put it this way; I don’t really see it getting any lower. How much lower can it go?
Mike: Right, where you are at for sure.
Engelo: It’s pretty much at rock bottom.
Mike: Where you’re at, for sure. It’s interesting because when you take away the lens of worrying about what the value is going to be tomorrow, and you just focus on cash flow, I don’t think there is anyone that is predicting rental rates to go down anywhere in the country. So resale value is not quite as important, unless you’re selling to people that plan to get out in three to five years. But for the long term buy and hold folks, it’s almost. I used to worry about the harvest part, my rental properties. Ultimately, I don’t want to have to sell them to a guy like me, an investor that has to buy at a discount. I don’t want to sell to somebody who is going to have to buy it at a discount from me when I got to harvest it. And then I quickly realized that if the cash flows really well I may never sell it, and I’m not going to even worry about that right now, because I have a long-term horizon.
Engelo: Yes, Mike, as I mentioned earlier, investors should invest in real estate to supplement their current income in the jobs they don’t like working in. And in order to do that you have to buy and hold.
Engelo: Now there are supercharged strategies to get there, to buy, fix, and flip, get the lump sum profit or whatnot. But a lot of folks have decent-paying jobs. One of my best friends is a urologist, and he makes over $400,000 a year. So he can buy a lot of our properties, for example, like hotcakes every day. And before you know it in a couple of years he’ll have a nice passive income.
With that being said, you touched on declining rents. I have never seen that happen. I guess for lack of a better word, I’ve only been in real estate for four years, and I’m only 27 years old. But I have quite a few successful mentors around me that have been in real estate for 10, 15, 20 years and one of my joint venture partners right now. He will confirm what I’m saying. He hasn’t seen the rents go down anywhere for the last 20 years. So it’s just something that I don’t see happening, personally, based on my research and experience, and the advice that I’ve received.
That’s why I stress on focusing on the numbers in the deal as they stand today. You know your purchase price. You know your expenses. You know your rent, and let’s say it doesn’t go down, like it hasn’t in my experience. And if those numbers and that net cash flow makes sense, and gets you a step closer to your end goal, which might be $50,000, $100,000, or $200,000 in passive income, then it’s a good investment.
And if there is any capital growth, then that’s just a cherry on top.
Mike: Sure, absolutely. Well, Engelo, if folks want to learn more about what you’re doing at Ohio Cashflow, where should they go?
Engelo: Mike, www.ohiocashflow.com, very simple. Or if they just Google “Ohio Cashflow” we are on the first page there, and we pop up everywhere. Follow us on Facebook, Twitter. They’ll be able to see videos, all kinds of funny stuff. We’re not salesy. There are no marketing tactics or sales gimmicks. It’s all about educating the audience and just having fun, mate.
Mike: Good, and thanks for sharing your story. And congratulations on your success; it’s a great story.
Engelo: Thanks for having me, Mike. It was a pleasure, mate. Thank you.
Mike: Have a great day, my friend, and stay in touch.
Engelo: You, too, Mike.
Mike: 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.