The Remote Investor

3 Practical tips for investing in real estate remotely

Investing in real estate remotely can be intimidating, to say the least. From selecting which market to invest in, to building a team of reliable and communicative vendors, each step of the process is critical to building a healthy portfolio of homes. In this video, Michael gives you three tips that can help you get it right from the start!  
Brought to you by: https://www.myfiacademy.com/ 
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Transcript
What's going on. Everyone. Welcome to the remote investor. I'm Michael albaum, and I host the show with to my co hosts, Pierre Carrillo and Tom Schneider, and we talk about everything related to remote real estate investing. If you are new to remote real estate investing, you might be thinking to yourself, how in the world is that possible? I can't go see the property. I can't drive by the property to check up on things. So why would I possibly want to invest remotely? As a bay area resident and California native, I can tell you why, because investing where you live isn't always an option. So instead of throwing up your hands and saying, Well, I guess real estate investing isn't for me, come along with us, and we'll show you how it could absolutely be for you. So one of the biggest key takeaways I've learned over the years of investing remotely is how important and fundamental using a great property manager is. Now if you're someone that self manages, kudos to you. I have a lot of respect for the people that do that, but for the vast majority of us that are working still a nine to five job and don't have the luxury or ability to self manage, a property manager is going to be the linchpin and one of the most critical components you're going to have in your real estate investing arsenal. So number one, loop your property manager into the acquisition and buying process. Now this is something that a lot of people, when they hear property manager, probably aren't thinking acquisitions. When they hear property manager, they're probably thinking, hey, I already own the property now the property manager takes over and they're going to manage it for me. While that is true, something that I love to do and recommend to everybody I talk to about remote investing is leverage them in the buying process. I always say, date your agent and marry your property manager. So the property manager is somebody that you're going to have a long ongoing relationship with. A property manager is also somebody that lives, breathes and operates inside that market, day in and day out. It is their literal lifeblood to be an expert in that local market. Now, real estate agents can be local market experts as well, but they might not be as up to date on what market rent comps are or what market comparables are when it comes to rent. So if you involve your property manager in the process, they can give you a really good idea of what the property is going to rent for. They can also give you a really good idea of what it's like to own and operate rental real estate in that particular market, versus an agent. They're very familiar with what buying and selling real estate is in that local market. So having an agent is a great thing. Having a great property manager layered on top of that is even more important, in my opinion, additionally, getting your property manager to take a look at any inspection report you get is one of the most important pieces of the buying process. Again, in my humble opinion, property manager is going to give you great insights into what things need to be addressed now versus what can wait down the road, and can really give you a lot of ammunition when it comes to having the discussion and negotiation around the acquisition. So that's number one, involve the property manager in the acquisition or purchase process. Number two, interview multiple property managers well in advance of actually closing on a property in a particular market. Now I'll be honest with you, this wasn't something I was always good at practicing. I knew it in the back of my mind that it was something I was supposed to do, but when it came time to the acquisition, I got so excited and so short sighted that I said, I'll worry about the property manager after the fact, and boy, did I pay for it. I've chatted with some people in the past that have said, Michael, I interviewed one property manager and they were perfect. Why would I bother interviewing others? It just takes up more time and attention that I could be spending going to look for deals. Well, something that I always encourage people to do is when you interview multiple property managers, you're gonna get a really good feel for if the one you've selected is a great one, or maybe there are better choices out there. We just haven't come across them yet. So I find it a great use of time, energy and resources to go interview multiple property managers, because it's going to give you an idea of what the market has to offer. It might also tell you that it's not a market you're interested in investing in anymore because you can't find a good manager. Now, if somebody can't find a good manager, it might just be because they haven't looked in the right places, or haven't looked under every single stone, but if you truly have exhausted every management resource available to you in that market and can't find one that you're comfortable with, it might be worth reconsidering whether that market makes sense to invest in, because, again, as a remote real estate investor, the property manager is one of your biggest assets, but also your biggest potential fail points. And if we're not confident in our property management with our remote investment, again, it might be time to reconsider that market to invest in and last but certainly not least, take it from me as someone that has had to fire their share of property managers. Don't be afraid to fire quickly. Look, people are human. They may. Make mistakes. I make plenty of them, and I'll be the first to admit it when I do, or I like to think of myself in that light. Anyhow, property managers are no different. They make mistakes. There are issues that hopefully get overcome, and so that's not to say don't give anyone the benefit of the doubt, or don't allow anyone to be human, but all that being said, if a property manager is ineffective and you're not able to get out of them what you're needing. It might be time to change property managers. Now I'm someone that thought the pain of changing management companies was going to be worse than their transgressions, and turns out I was wrong. The short term pain is well worth the gain to bring in effective and new property managers. And one of the reasons I think this is so important is because the longer you stay with an ineffective property manager, the worse things tend to get, and the more embedded in your business they become. So cut your losses quickly and move to step two, which I mentioned previously, as you should have interviewed and screened multiple property managers. So hopefully one of those can be your backup, so you're not having to start from scratch. So this is all starting to come together with involving them in the acquisition process, interviewing multiple and not being afraid to pull the rip cord or rip the band aid off sooner rather than later. So hopefully this was helpful to everybody who's an active remote real estate investor or aspiring remote investor. I encourage everyone to come check out the show wherever you get your podcasts. We would love to hear topics and things you'd like to hear more about and learn about on the show, and we look forward to seeing you in the next one Happy investing. 

Proven Tactics: How to hire the best property managers

Hiring the best property manager for your out-of-state rental is critical to your bottom line, but how do you know which PM is best? In this episode, we go through, step-by-step, our process for vetting a selection of property managers in a remote market.
Brought to you by: https://www.myfiacademy.com/
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Transcript
So they said, Hey, I need your fee to be at this percentage of the rent collected. And this is what I can afford to pay you in a leasing fee. And I said, Okay, we'll take that. So he was like, Hey, everyone, what's going on? Welcome to another episode of the remote investor. I'm Michael Albaum. And today I'm joined by my co host, Tom Schneider, Pierre Carrillo. And today, we're going to be walking you through exactly what the step by step guide should be to interviewing and screening property management partners. So let's get into it. Alright, guys, so let's just jump straight into it here. So anybody? Well, not anybody, but a lot of people who are investing remotely are leveraging property managers, and property managers, kind of like real estate agents are a dime a dozen in most markets. So I'm curious to get your thoughts and to have you share with everybody, what things are you looking for when you're screening and interviewing a property manager? Tom, you want to kick us off?
 
Yeah, I'll start us off. I mean, I'll start by saying, you know, selection is important. And what I mean by that is talking to multiple. So I think in starting the conversation, I like the idea of kind of maybe sourcing, like potential candidates, and then going through a standardized process of like reviewing them based on a bunch of criteria. So I'll go ahead and riff a little bit on this and thinking about it as like three steps, right? Sourcing, identifying different ones, and then interviewing and kind of like put running them all through a process of picking the best one and a gauntlet, that's right, onboarding. So I'm going to start with just the idea of like sourcing and where to find. So I think there's a couple of different flavors, there are larger brands out there that manage properties in multiple different markets. And, you know, we'll talk a little about the pros and cons of that. But just like searching and sourcing, so you can say, hey, real estate property manager XYZ on Google is a way for that to come up. And I think the idea is, is it should be if you're in a reasonably sized market, like you should be able to find find at least like 10 different potential property managers to select from, and to kind of go through this like rubric of evaluation. But you know, what I like to do all search through Google or perhaps even like, look on a site like Yelp. As you know, BiggerPockets is also has like, a lot of people trying to sell you something. So like, you know, their their resources are, are great, but you know, a good kind of starting place to build that list. So other than lead the conversation with that, like, first sourcing identifying a bunch of them to run through this process. Yeah. Michael Pierre, any other kind of like thoughts around identification?
 
I think that's a great place to start a fan. Something that I like doing is also like joining a local group, like a Facebook group of investors in that market, and then asking for references like asking, Hey, who, who's using property managers in this market? Who would you all recommend? And then combining those two lists from the my own research that I'm finding online? And then what people are, are saying locally in the market? Love references? Love here. What about you? What did you do when when you bought your property?
 
So made the mistake of just kind of going with the most convenient property manager when we first bought it, and they were awful. And it's
 
so easy, just have the path of least resistance of like, Oh, if they say they do what I need them to do great, I'm not going to spend extra time it's like, especially the PM, like that is just such a long tail relationship where you don't want to like cut corners. And
 
it can be super costly. I mean, it ended up being costly for us, because they didn't even let us know that the tenants were out. And then we had this extended vacancy, because we didn't even know our property was vacant. And so one of the one of the things was just like how quickly people respond is a good indicator. You
 
know, it's so funny. We there's probably a whole nother episode on horror stories with property managers, I had the same situation where a property manager just told me how they wanted to treat the vacancy, and I'm like, What are you talking about? Like, there's like, a lot of time on the lease, like, I go, ya know, they've moved out. And it's like, what, like, you know, I get away, I get it, stuff happens. And it's like out of your control. But anyways, I think this is like a future episode, like digging into those kind of horror stories. So thinking about different variables that I think about when okay, I've sourced a bunch of them from either my agent or maybe a lender or online reviews, forums, all that good stuff. A couple of like, really important questions that I that you need to know and have kind of like written down is, how many properties do they have under management? Right? Like, how big is their portfolio? Does their footprint match up to like, where I am investing? How are they getting paid? And that you know, that seems like a very basic question, but it actually varies quite a bit from property manager to property managers. Some take a percentage of rent some take a flat rate, some take a percentage of kappa acts, you know, or construction. So, you know, not even those
 
little differences can change the incentives relationship to So, yeah,
 
it's it totally. So I'm gonna leave a little bit of a like leg rib for a Michael here to kind of add on. But those are some, like initial sort of like numbers like within a spreadsheet. Each row is represented by a property manager that I'm evaluating columns being, you know, their pay structure, how many investment how much inventory they manage, if their investor in managing their own inventory as well. And then sort of like, you know, check the box on like, what zips as well as like property characteristics they manage, like, are they a Class A type or a Class B, what properties am I investing in? Does that match up? Or leave a big pregnant pause to
 
take all the Yeah, no, this is so great. Tom, you said something that you glossed over that I want to come back to. And it's when we were talking about references before about where to find some of these property managers, agents can be a great, great resource for that, too. So if there's somebody listening to this, that is actively buying in a market, and so is working with an agent or wants to find an agent, and then we'll also need a property manager, those two can often play off each other and will often have good working relationships. Sometimes an agent will have a property management business or vice versa. So definitely chat with your agent or property manager about looking for one or the other. And then something else you said, Tom, is that like, asking them how many units they have under management? I think is a great question. So one thing that I talk a lot about in my education content at my Fire Academy is not only like what the questions we should be asking are, but what then the answers were being told, tell us about that person or that company. And so I think I want to dive into this a little bit more, because I love the questions that you pose. But I want everyone to come away from this episode with Okay, well, I go ask the question, and now I get an answer. And now what do I do? Is that a good answer? A bad answer. So, so curious what you guys think like someone says to you, Hey, I've got 1000 units under management. What does that mean? What what how does that information help us make a decision?
 
I think it's all contextual, on like, where they're managing, like, I think 1000 is a decent is like, quite a bit like, especially in like, a smaller, like, perhaps like tertiary or even like a major market. Like I think that's like pretty significant scale. As a property manager. You know, with that I'm, you know, kind of curious, also how many, like property managers, you know, they have like, as like a ratio to managing. But, I mean, I think that's really specific. So like, you know, if I'm in like, managing in North Pole, Alaska, like, I wouldn't, that would be crazy to have somebody have like, 1000 properties that are management, or whatever. Yeah, you know, city in Alaska. Yeah. Yeah, come check out Yeah. So I think it's very Michael, it's very kind of dependent on where they're managing. But if they're managing in Atlanta, and they're only managing, like, 20, or like, 40 homes, like, that's a little bit of a red flag to me, being in like such a big market. So, you know, kind of rule of thumb. I don't know, like, I typically only invest in places that have like a million, you know, population and like the greater like, Metro. And if a property manager is managing, like, less than 100, or maybe even less than 200 homes, I'm like, that's, that's, that's like kind of lien like, I don't want them to learn the craft of property management on my like, dime. I think I think you're kind of kind of go into where you're alluding at is like, how long have they been in business?
 
Yeah. Yeah. I love it. I think you I think you nailed that. And I think that it's so important to understand that real estate investing is so hyperlocal. And so market specific. And so it's really tough to take an umbrella approach and apply it uniformly across the board. So I agree, totally like, I think it all depends on the market size, do you think that bigger is better? Or smaller is better? Or like, the age old question? Does size matter? How do you how do you feel about that when it comes to your property management partners?
 
Oh, that's a good question. I mean, I think there's too small. And I don't think there's too big, like, as long as like, the other sort of criteria is good. And that like, Oh, they're collections is pretty good. Oh, they're like average turn is like, like pretty reasonable. Oh, you know, the, the customer and residents seem pretty happy with the services that they you know, with a with a grain of salt, because that relationship is always can be a little bit tenuous at times, a land, you know, a rent manager and a resident. But I mean, there are like major red flags. I digress a little bit. So anyways, I'd say there is a floor Michael, but like, not really like a ceiling of like, if they manage townhomes. Great. I've got it like an efficient business. Like, you know, I, I want to be a part of that, you know,
 
totally. PR. I'm curious to get your thoughts because I know that the property manager that you ended up going with did have a really significant footprint. And it was really,
 
and yeah, so there were a huge tech enabled company, and that's kind of one of the red flags that I'd say it's like if they're a tech heavy Property management firms kind of like one of these property management light services that they're using technology to solve their problems. They use Bitcoin.
 
Like synergy I'm all
 
about all about like making your systems robust and tech heavy and using all the latest technology. But if you're replacing people with technology in property management, I'd say that's a real problem. Getting someone out like one of the big problems we had with that first company was getting someone to get out to the property. And it was just week after week, no one would give us any new photos. And that's how we ended up with an empty property and not even knowing about it. And the property manager that we ended up going with was much, much smaller. But they were out there right away, they sent us photos of our property that day, we got in contact with them. They weren't bragging about being the most sophisticated technology driven company, but they were people who did their job, right, and responded in a timely manner.
 
So yeah, it's interesting. So like, we obviously can't take one off experiences and apply them across the board. And to say that every large tech enabled property management company is going to is going to operate poor for you. Conversely, every small mom and pop operator might not be a great fit. So this is why I love this is why I love that we're having this conversation is just to give people some ammo and some takeaways to then go investigate for themselves. Yeah, there he is. It's funny, I go ahead, Tom.
 
I think there's like there's sometimes this like inverse relationship of efficiency, and resiliency, where if you know, the build something so efficient, like if things go off the rails a little bit like it can kind of hit a standstill, like, you know, pure, like, there's probably a non standard thing, I don't know, maybe non standard or whatever. But you can, you know, very easily throw the baby out with the bathwater of trying to look, we have one employee for every 10,000 homes. It's like, Oh, that's great. But you know, you're in a business that is as kind of dynamic and like kind of a moving target as like managing real estate, managing tangible property, like you need to have some resiliency and some, you know, not over efficiency it.
 
Yeah, and when I say red flag, I'm not saying stop sign, I'm saying just notice for inquiry here, make sure that they're not replacing the things that should be done by a human with some app or automated response.
 
That's great. That's great. Tom, you touched on this point a little bit ago, and we're talking about property managers per property, kind of on a ratio basis. And so if someone is new to the investment, real estate space, they might be a little bit confused by that, because I'm talking to the property manager, what do you mean, there's like a different one, so maybe you could go elaborate a little bit on on what that means and what that looks like, across the different companies.
 
I think it's, you know, so I, you know, work in, like, real estate and like, as like a team, that is like managing property, like, you want to have a fairly high ratio of like, employees to number of units that you manage, like, you know, one 200 Or one, two, whatever I you know, whatever that number be, I think probably as an outside investor, it's a little bit less important to, like, have that as a ratio. So like, as long as they're responsive, you know, able to take care of the home, able to provide a safe, habitable, all that good stuff, you know, with a resident and least a home with good people. I think that's probably like, less important, like, what that ratio is. Yeah, I think sometimes, like, you know, for better or worse, kind of, I like, apply a little bit of a lens of like, just institutional experience of like, oh, you know, if our systems and technology is running well, like, you know, we have a good ratio, obviously, not the awful ratio that results in like, no flexibility and not being able to handle like stuff outside the lines. But, you know, I think that's probably less important, but still, like an interesting data point, at least for me. You know, having totally,
 
totally, and I think it's something that because I know your background, because we have history, I know that you asked the question and had experience with the person that you were speaking to on the phone, as you were interviewing this property manager wasn't the same person that you were going to be dealing with on a day to day basis. So how do you screen for that type of thing? And is that important?
 
You know, you you gave a good example on how to do this, because so like, a lot of companies like they've got a salesperson, the sales man or woman that's, you know, sweet talk you. And I think,
 
oh, yeah, we've got that we can do that. No problem. Yeah.
 
I mean, it's something that I think I think you taught is around this sort of, like secret shopper, you know, like, find one of their listings, like kind of go through the process. And like, that's gonna give you a much better insight on the there as like an operation. Doing that, you know, not coming in as a potential customer, as you know, someone who's having to manage but as on the other sight as like a as a tenant?
 
Totally No, yeah, I love that. And what what Tom's referring to is, basically, if you're interviewing property manager, screening property managers, just go on their website, find one of their listings, and call the phone number as, as a prospective tenant, and see what that process is like, as a prospective tenant, if they are great to work with, if they take really good care of you, if they're responsive, that's a great sign, versus if they're giving you the dog and pony show as an owner. And they can do everything and they answer all the right questions, but you have no idea how they're treating your prospective clients who are your tenants, that could spell trouble down the road. So I always like to see how the tenant is treated. It's funny, I posted about this a while back on Twitter, and someone was like, you're starting the relationship off with with a lie under false pretenses. And I'm like, No, man, I'm trying to understand what the customer experience is like for the clients who they're serving. Yeah, and I'm like, Get out of here. I don't need that. I think there might have been a property manager too.
 
I think another way, I like to kind of get under the hood. And, again, this is would probably the like more extreme heavy, like, interviewing process of a property manager. And I think there's a spectrum of level of diligence. And I think it's a good exercise to do to apply more diligence into this process. But another question you can ask is a more kind of like, open ended question like, Hey, what's your process of managing a renewal or managing a turn, and a property manager who's like, on their game is going to be like, alright, well, first, we look up at local comps at what the rental amount is going to be, then we review with the owner what they want to do with the actual resident that's living there, then we approach the resident with XYZ and present this to them. And you know, it's not to say that every single property manager has the same process, but it's like, they can like succinctly like, tell you or share with you what their processes and like they have a plan, you know, and I think also like, in going through those questions, like you're just gonna get, like naturally more kind of educated, like, you don't have to know exactly what the right or wrong answer is. But it's almost like you, you out you, you throw a question out there like that, like, Hey, what's your renewal process? What's your turn process? And just like turn on your BS meter and turn on your like, learning, you know, ears and hear what two different companies say? Like, it's, I think there's very little to lose of coming in with a beginner's mindset, no matter where you are in your investor journey, and asking these these really important questions, like the process of a turn or an initial lease, or, you know, you know, how you deal with someone who's late a couple times, or whatever, you know? Yeah,
 
no, I think that's great. And I love the open ended style questions. Guys, I'm curious to get your thoughts and it's something I've heard through, through the folks that I've worked with in the past is, you know, I'm too new an investor, I'm nervous to call these property management companies that are gonna take me seriously, why would anybody talk to me? I'm not, you know, I'm not a client of theirs yet. What do you have to say to that?
 
Stop being a little bitch.
 
Yeah, like, yeah,
 
get your ego out of the way. Because you're, like, it's just such like, a no brainer of, like, it's okay to be a little bit vulnerable. And like, and, like, ultimately, like, every single cycle of going through, like asking these types of questions, like, you're gonna learn more, you're gonna get a little bit like less concerned about asking questions. And like, ultimately, like, who cares how much you know, looking like, not smart, like they're trying to sell to you like, they're trying to get you the business. And I think there's like, very list in very little risk and going about it in a very, you know,
 
you're gonna be paying them good money. You just, yeah, you just gotta get the information. However you can. And that's the best way.
 
Yeah. And I think to on top of that, if, if you call and if a property manager makes you feel silly for asking these seemingly, maybe trivial questions, then that's maybe it's not something you want to work with anyhow, like, someone, someone on the other end of the phone should be willing to help educate you and hold your hand and walk you through what the process is, like, if they truly understand the business, and if they want new business, if they're interested in growing, you know, you've heard of contractors throwing a few quotes, you know, it's ridiculous price for something. So like, they don't want the business anyhow. So we see that in the property management world, too. And that's, that should be assigned to you as what their relationship might look like going forward.
 
I'm gonna flip the question or not. So on that same topic real quick. More often than not these property managers. You can't get them to shut up about their business. And you call them and they're like, Oh, we do this. And we do that. And we're going to, like, just like, Dude, I had a 30 minute call with you. We're going 45 minutes like dude, and he's like, let me off. You're good. I
 
know. Like, it could be some regional cultural stuff, like a very long call. How y'all do for sure.
 
I've never I've all the property managers that we've called like, never are they like, you know, why are you calling me?
 
Tell me we won't take your money. Hey, Michael, I got a question for you, you've been throwing off these. I love to hear from yours yourself as well, Pierre, what are some red flags? So, you know, we go through a process, we identify a bunch of people, we're asking them, you know, discrete kind of quantitative questions, as well as some qualitative questions, getting some processes that they have, what are some red flags?
 
I think Pierre touched on it at the beginning here, and that's timeliness and responsiveness. So if I ask a question, and I don't hear back from them for a week, or two weeks, or or at all, major red flag, and Tom, you brought up the point to which I want to touch on the cultural differences in a lot of other parts of the country to like, we are a massive country with a diverse cultural background, and customs and norms. And so here in California, Silicon Valley, I mean, if someone doesn't get back to you, by the end of the day, to an email, you're kind of like what's going on? In a lot of other parts of the country, two days, three days, four days might be the cultural norm in terms of that's being really responsive. So I think it's important to set expectations to around just asking the question and having conversation of, hey, if I email you, how soon can I expect to hear back from you, is really important. But in for that initial call for that initial interaction, if I'm emailing you, especially if I'm a brand new lead for you, I expect to hear back. And if I don't, that's a major red flag. And it's funny, I interviewed a bunch of property managers, or tried to interview a bunch of different property managers and a couple of the markets they operate in. And the ones I work with today are the only ones that called me back. And I'm like, you know, we make the joke about contractors, if you pick up your phone, you'll get business like if you call people back, you'll get business. So I think communication is huge for me, in terms of red flags, but right up here,
 
that was the main main one for us is we couldn't get eyes on our property. And to have someone that was like one of the biggest selling points we interviewed, I think three or four when we were trying to fire the previous one. And the one we ended up going with was the person who was quick to respond quick to go to the property quick to send us photos give us like, they just provide an opener, like this person's on it. They know what they're doing. They're local, they definitely live there. We're going with them. And they were the same price as the the first awful company. Yeah,
 
I think another red flag. Okay.
 
And that reminds me of this did not happen to me. But I've heard Tom tell the story before and maybe I'll prompt it for you, Tom. But the hidden clause inside of the property management contract? Oh, yeah,
 
that's a good one. So on to stage three, sourcing, then looking at specific questions, and then having a request of things to review. And one of those being like their property management agreement. So I've had to fire Property Management before kind of similar things where it's like, I feel like they, the property was in a satellite region, which wasn't their main region. So they didn't have like a great team, they're managing anyways, when I fired them, they like, like, in the Property Management Agreement, which I did not read, which now I do, all the time. Whenever I add a new property manager is like, they were like, collecting a bunch of money on like, on in firing them, like within the pm agreement. I don't remember like the specific details about it. But you know, it was like taking an extra month rent that they just like took, there's a cancellation clause, cancellation clause after it there was within a certain number of years. And, you know, I think like on the onset, like if I had read the property management agreement before signing it and said, like, Hey, I'm not signing it, do you include that? Take it out, like, I probably would have saved myself 1000 bucks or 2000 bucks on some like, crazy, you know, cancellation clause. So you know, that other to that point, right? Red flag is, it might take a little bit of time, and just skimming and reading through that property management agreement. But that's a good use of time, like it would have saved me 1000 bucks, 2000 bucks and going through that.
 
And it would have taken you two hours, three hours to read it. So that's like some lawyer money right there. That's pretty good ROI. That's correct. Yeah. Yeah. I think I think also to like, in HR, I think it's so important to read, like, read the stuff that they send you. It's legal, it's binding, you need to be aware of what you're signing. The other thing that I always look out for, and it's it's kind of a personal preference and pet peeve of mine, but when I asked the property manager, how do they get paid? How do they make money, and they start listing off all these things, and well, we charge $50 for an inspection and this, this $20 to return email and $20 to answer the phone. And like, I hate getting nickeled and dimed for all these different line item charges. And I and I, you know, from a property managers perspective, I get it because it takes time to do these things and so they need to make money and they need to charge for their services and the time they spend doing things, but me personally, I like I want a flat fee, I want like a flat percentage of the rent that they collect is how much is how I pay them. And I think it's also important to set expectations out there for everybody who isn't maybe familiar with property management, property managers, and how they charge, there's a couple different models. One is Tom, like you mentioned, a flat fixed rate, they charge 50 bucks per door, whatever independent of the rent, some property managers will charge a percentage of the rent, and some will have it that includes everything. And then some might have this kind of ala carte menu style of services and costs. I'm a big fan of kind of that middle tier of the percentage of the rent. And however much you collect how much you're able to charge, that's how much you get paid on a percentage basis. Because I think that aligns incentives and real really well, in that if they're able to collect more rent, they win too, they get to share in the upside. So I just wanted to put that out there for everybody listening, that it's just a personal preference, you'll figure out what works well for you do what do you guys like? Which style works well in for you guys portfolio?
 
Percentage of the rent, I feel like makes the most makes the most sense. But it depends. Yeah, it depends on if you're going with one of the lighter services out there, there are, like some of these tech platforms that offer you per door, which can come out to a bit less,
 
yeah, I do the math, you know, and, you know, a lot of stuff we're saying, you know, market kind of specific. So, you know, I have a few units up in the north, east in Pennsylvania, and there's not as many property managers as there are another like big markets, and, you know, they have this like, tech fee, like $1 a month or something, and I cringe so much when I see it, but it's like, they're, they're good. They, you know, they have good relationships, they collect rent, they keep the house in good shape, they're like on responses and stuff. So I think on that, like, you know, format of getting paid. It's, you know, do do the math, like, if it's a per dollar per door, or percentage of friends, like along with your within when you're doing your underwriting and making assumptions about repairs and maintenance, like how much would that work out to be in property manager that they're charging an upcharge? Or a daily amount or whatever, you know, on? So I think it's, it's worth within your actual model itself, you know, applying the different property managers, things. However, they're they're collecting, collecting money.
 
Yeah. Have you seen property management fees go up over the last four years at all? Have you recognized any changes in your portfolio? Or is it safe? Pretty static?
 
Good question, Pierre.
 
You know, it's, it's a really good question. It stayed static. But so the percentage as a number has stayed static, but the rent has, of course, increased over the last four years. Now, what I have seen increase our labor material costs. So the the repair costs are more expensive, those projects are more expensive, but the property managers know, which is I think, kind of the beauty of real estate investing in general is that it's a great hedge against inflation, because as the rent goes, as your expenses go up with inflation, your your dollars are bringing in also go up over time. So and the property manager gets to participate in that upside,
 
final two little recommendations on property manager. So one of them is I'm sure I'll talk about this again, in a future episode, but like, bring them into your acquisition process. So like, kind of like bonus questions, which is honestly my favorite thing to do, like evaluating a property manager and say, Hey, I'm looking at buying 123 Main Street, like, what do you think, and like, you can almost leave it kind of open ended and see how detailed they come back, like, I've had a wonderful experience is actually it was that property manager that in Pittsburgh, they're like, oh, this great, this house is really great. There's a lot of three bedrooms, this one's a four bedrooms, we'd lease it right away, I think we'd get this kind of rent amount. And like, man, that's thoughtful, that's knowing the market. And there's like, such a double whammy when with that, and that you're kind of like, de masking that property manager about how well they know the market, and how it's conscientious, conscientious, the right word, or, you know, thoughtful they are in the way in thinking about real estate, but you're also adding them on your acquisition team. Like, that's fantastic, you know, you know, and there's been other folks that says, like, ah, you know, we don't really manage a lot of properties in that area, you know, XYZ, so that's one pro tip, the other one and the other one is get a reference, like, that's like an awkward call or communication but like, such a high ROI, so say, Hey, do you have any like customers, you use that like I can talk to? And like actually just like emailing people and say, Hey, I'm thinking about using ABC property manager, and they said, you know, to get your feedback, like, what do you think about them? What I do well, what could they improve upon blah, blah, and it really good use of time? You know, that's sort of like a little bit of an introvert. It's a kid That's a
 
much more robust data point than their online rating. Because on property managers get rated by people who have to deal with them on a day to day basis, the tenants and tenants hate property managers. Totally.
 
Yep. I think that's a great point. My last pro tip that I'll leave everybody with is, everything is negotiable. So I've heard from students I've coached with in the past that they're like, oh, you know, I found this great property manager, but I ran their fees through my model, and it's like, it doesn't work. And I'm not hitting my cash flow targets. And I said, Okay, ask them to lower their fee. See what they say, like, you can do that. I'm like, Yeah, everything's negotiable. So it's like, okay, so they said, Hey, I need your fee to be at this percentage of the rent collected, and this is what I can afford to pay you in a leasing fee. And I said, Okay, we'll take that. So he was like, I got to have my cake and eat it too. So I would encourage everyone not to be shy about asking for the things that work for you. By that same token, you can't get mad at somebody for saying no. So their fees are their fees, and everybody's got to make money. But I would encourage everyone to ask the question, because all too often people say up, the numbers don't work for me. I gotta move on, when in reality, there are things that we have within our control or question that we can ask to help make the situation better. Sweet. Well, thanks so much for hanging out with us, everybody. Really appreciate it. We look forward to seeing you on the next one. Happy investing

I bought a fix-and-flip and can't sell it. Help!

In this episode, we analyze a case study of a fix-and-flip that wont sell after rehab. We discuss the various options available to the owner, identify strategy considerations, and extract a couple of lessons learned along the way.
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Transcript
What's going on everyone? Welcome to another episode of the remote investor. I'm Michael Albaum. And today I'm joined by my co host, Pierre Carrillo. And Pierre, we got an interesting episode. Today, we're gonna be diving into one of your friends AMA, give us the scoop. What's going on?
 
Yep, I have a friend asking for a friend,
 
a friend, longtime listener, first time caller. Yeah.
 
So he bought this property in Chicago for 190. He's put a little over 100,000 in renovations, he bought it as a fix and flip. And now he's trying to sell it, no one wants to buy it. He's done a couple of price cuts and still no bites. So he didn't ever consider the option of renting it out. He had only conceived of it as a fix and flip. So I thought, hey, let's pull this up as a case study. Let's see if there is another option rather than selling that can turn this alligator into a profit maker again. All
 
right, sweet. And for everyone listening who might not be familiar with term alligator is basically a property that you got to feed every single month. It's not cash flowing. It's cash flow negative. So we bought it for 190. It's a four bed two bath 14 140 Square feets, he put over 100k into it. Do you know that he buy this thing all cash? Or does he have debt on it?
 
Let's run the scenario. Both ways. Okay, perfect. Yeah. So
 
anybody listening is can find themselves in either scenario. So your buddies in this thing for 290 Let's just call it an even 300 To make things easy. So now it's listed at 315. You said he's already done a couple of price cuts. So judging by the pictures, it looks like he went in and kind of did everything right. The kitchen looks like a brand new kitchen looks like new floors throughout looks like clearly new paint throughout the trim looks nice. Stainless steel appliances. I mean, it's a clean look and property. Three bed two bath basement looks really nice and clean. Put in a mitt looks like mini splits. Alright, so your buddy listed the property, no bites. So what does he do now? So he got into it as a fixin flip. So the first thing that comes to mind is he could just sell this thing at a bit of a loss and move on. Like if he's not wanting to be in the property anymore. It might be an expensive lesson learned. But if he's able to get out of this thing for about what he put into it, he's lost the time, but he's gained the experience. So that I would say is option one, that's probably going to be our least our least fun option, or bill. Yeah, yeah, yeah. But bottom of the stack rank in terms of the options? Do you know? Is your friend able to sell this themselves? Are they having an agent that they're working with? who's expecting some commission from the sale? Or
 
their agent? Is their property manager who's kind of facilitated the whole deal for them? They have one person who's doing everything their local representative there.
 
Okay. And do you know, PR, did their budget? Did their rehab go over budget? Or were they budgeting for about 100,000 in renovations,
 
they went a little over what they had expected and renovations. Okay,
 
so it sounds like they missed the mark on their ARV, or after repair value. Which basically means once the property is completed, and all the work is done, what's the value going to be. And so for any rehabbers out there, any flippers out there, if you are planning on on flipping and rehabbing properties, you have to make sure that you are really specific and really accurate on what your value is going to be after you do that rehab or after the repairs, because you don't want to find yourself in this situation where you're trying to sell the property and you can't get the value out of it. And that's always, I think, a big risk and rehabbing or flipping. You could do your ARV Calix, when you buy the property, or frankly, you should do it before you buy the property. If you're in the flip, or you're in the deal for six months, the market could change in that timeframe. And so there's a really big exposure to the time that you're in the deal. So quick flippers tend to have the most success because they're into a deal and out of a deal. So their numbers are accurate, because they have a tight time window. The longer you're in a deal, the bigger the exposure is to getting your numbers wrong. So a second option here for your buddy is consider renting it out. So I would encourage them to go pull rental comps in the area for a freshly rehabbed three, two in this particular neighborhood and just see what it rents for. Because I did that really quickly
 
with him in person when he told me about it. And I think we got around 21 2200 a month.
 
21 2200 a month. Okay, perfect. So, again, we're in the deal for about 300 grand. it rents for 2122 This is just
 
using one of those like rough online rent. Yeah,
 
no, I think that's perfect. Yeah, I think that's perfect, real rough and dirty. We're south of the 1% rule. Now, the 1% rule basically says if you can rent a property for about one percent of what you bought it for on a monthly basis. So if you buy a house for 100 grand, and then you rent it for 1000 bucks, you should be able to cashflow that with a mortgage. So if your buddy doesn't have a mortgage on this thing, he owns it free and clear. I mean, he's in it for 300, he could be getting 2122 a month, those numbers could be okay, he might be able to live by and put some money in his pocket every single month, from a cash on cash return perspective, it's probably going to be pretty light. Right? So let's just do some some real quick math here. So if he's in it, if he can rent it for 2200, let's say, I'm going to use the 50% rule, which basically says we're going to take 50% of the income and throw it out the window to expenses to operational expenses. That's not the mortgage. So that's your property taxes, your insurance, your maintenance repairs, your turn any turn costs, you have your management fees. So let's divide that by two. So that means he's bringing in he's left with $1,100 a month. And if there's no mortgage, that's his, quote, unquote, cashflow. So if we multiply that number by 12, that's $13,200 a year in cash flow. Now he spent 300,000 to get 13,000 in cash flow. So if we divide our 13,200 by 300 grand, that's a 4.4% return. Now, that's a cash on cash return of 4.4%. So if anybody listening to this is like, Oh, my God isn't like an amazing return. Well, this type of deal would work well for you. If you're sitting here thinking, yeah, 4.4% is not so great of a return. Yeah, maybe maybe this type of deal isn't going to work for you. But so that's another option, right is just if there's no debt on this thing, rent it out, collect your 2200 bucks a month, pay your expenses. And all the while, you could consider either selling it as an investment property, or selling it to an owner occupant. But that's a much tougher sell because there's a tenant in place, especially if you have a year long lease, nobody is going to buy a property as an owner occupant who wants to wait to move in for a year, because they're not even gonna be able to finance it with an occupant loan. So it's definitely becoming an investment property at that point in time. So option three, is if he's got a mortgage on the place, well, really, it's the same option. It's right, it's rent the unit out. But if he's got a mortgage on it, he needs to evaluate, okay, what is his monthly mortgage payment. So principal and interest depending assuming if it's a fully amortized loan, assuming he's paying principal and interest every single month, if it's a flipping loan or renovation loan, it might be an interest only loan, let's say it's like a real traditional rehab loan, that's interest only. So he borrowed 300 grand at 10%, which is 30 grand a year. And so if we divide that by 12, his monthly payments $2,500 a month, for just the interest part. If it's principal and interest, it's probably going to be a little bit bigger. So that means he has a $2,500 mortgage expense, plus our 50% operating expense, if we're assuming roughly 50% of the income, which is 1100 bucks, right, that's why we said half the income is so that means in combined, he's got a $3,600 expense for owning this property on a monthly basis. So if he's can rent it out for 22, that means he's going to be negative cashflow. 1300 1400 bucks a month, depending on how long he's willing to stomach that for, if he doesn't want to sell this thing for a loss, that that's kind of the burn rate that your your buddy is looking at. So another option. And this one, I'm kind of a big fan of because it takes care of a couple of different it solves a couple of different problems is the rent to own model. And so people listening, you might not be familiar with rent to own. But basically, it's kind of like what the name implies, it's you are renting the house out to somebody that has the intention to buy it at the end of their lease. And so this is a really good option for owners and also for buyers. So there are a lot of people out there who have 1099 income or self employed income that haven't done their job for two years or haven't owned their business for two years. And unless you have two years of self employed ployment on your tax returns, a lot of banks aren't going to give you a loan. So you're not gonna be able to go buy a house. And so these people might have really stable jobs, really strong income earners, but because they don't have the tax return documentation to showcase that over the last couple of years. They're gonna have a difficult time qualifying for a mortgage. And so these could be a this could be a great potential person to sell this property to someone who isn't going to qualify for additional loan. And so the way they typically work is they're typically going to pay a monthly amount. A portion of that is going to go towards the typical rent And then another portion of that is going to go towards essentially building up equity or building up a down payment, such so at the end of their lease term or the end of the agreement, this tenant buyer can go to a bank and say, Hey, I've already paid for my down payment, I just need you to come in and finance the deal for me. So hopefully, by the end of that timeframe, whatever the lease term is, 12 months, 24 months, 36 months, that tenant buyer is now able to go to a bank and get a traditional mortgage. So there's, that's, that's another option. The other way to put this together is to sell it to a tenant, or a buyer with seller financing, he could sell it, but he plays the bank, for one of these would be buyers, that is having difficulty getting a mortgage,
 
which let's remove that loan away from the private lender to hold on to it as a seller financer for 30 years or Yeah,
 
so seller financing, we typically don't see the seller holding the note for the full duration, like a typical 30 year note is because the seller is typically going to be charging a higher interest rate than a traditional bank would. So if your buddy is if your buddy has a private note, I would definitely encourage your friend to talk to whoever the note is held with. And and, and see if they can maybe work with them. Because maybe your buddy could could sell this thing at 12% interest, and then make a little spread on the difference between what he's paying, and what he's charging someone for that private note, the seller financing works really well when the property is owned, free and clear. So but if it's not, if it's seller financing, assuming if it's a private note, maybe it's a friend or a family, or even a hard money lender, if they're willing to work with your buddy, I'm sure they are going to be happy to still collect their 10% or whatever the interest rate is on their note. So they get paid, your buddy is making a spread on the delta. And now a tenant or buyer gets to live in the property and become a property owner. So it is kind of a win win win. But it all just depends on how flexible people are. And then the other thing is, it really just depends on on the affordability factor. So what I mean by that is if this property isn't moving at 315, or whatever it's currently listed, I think it was 315. And interest rates for owner occupants are like 7%, seven and a half percent. It might be challenging for your buddy to sell this thing at 315 to somebody with seller financing at 12% or 10%, or whatever that number is. Because if it's not moving at 315, it's my guess is an affordability issue. So that those two more options for him to contemplate for him to think about just explore. A two more options are renting it out either on a short term or midterm basis. And this basically involves furnishing the property, which if your buddy listening to this, he's probably like there's a 0% chance I'm putting more money into this house. But as an option, encourage, encourage him to run the numbers and basically see, hey, is there a midterm market for this or short term market in Chicago, what I love to do a strategy that I've integrated big time into my portfolio is mid furnished mid term rentals to medical professionals. So if this property is anywhere near a hospital, or a clinic, or some kind of medical facility, there are a lot of travel medical professionals that come to these different facilities and do rotations there for whether you know, 12 weeks or six months or a year, what have you. So renting it out on not a nightly short term basis, but do it on a month to month basis. With some of these folks, the rents you're able to get are way stronger than if you're doing a traditional monthly rental, a because it's furnished and be because it's on a shorter term contract. See, because he's traveling medical professionals often get a stipend from their employer. So they're like, Yeah, I don't really care what the price is, I'm happy to pay it because it just kind of a pass through expense to, to whoever the the medical facility is. So that's a great option to consider. And a resource that I like using is furnish finder. So we can your buddy can go online right now, type go to furnish finder.com punch in the address or punch in the neighborhood in which the property is located in and see all the other furnish finders that are there, the size, what they're charging pictures, that sort of thing. Maybe this is this is a niche market that your your buddy can play in, if there's not a whole lot of existing inventory in there. Or if frankly, if the existing inventory just sucks. I see that all the time, like people taking pictures with their flip phones and posting them to their furnish finders. It's a lot of mom and pop operators. So if your buddy can come in and be professional and really make listings pop, and the numbers work, it can be really interesting. Then the other of course is doing traditional short term like Airbnb or VRBO. Seeing if there's a market for that in this particular neighborhood, could be a real good way to boost the monthly returns to get himself out of his alligator position. And then he can decide whether he wants to operate it as a short term rental and collect cash flow from that, whether he wants to market it and sell it as a short term rental to somebody who wants to operate a short term rental business. That's another way to get out of this. If he doesn't want to be in the rental game. I think I'm tapped out. And then how does how does that sound?
 
All of them sound like a bit of work, frankly.
 
Yeah, for sure. Like they're all a bit of work. Getting this thing sold at the price that he wanted to is, is the easy the easy button. But it sounds like again, there was either a miss in the evaluation on the front end, or the markets changed since he's been in the deal. So
 
he's wanted to do that. And he's had the person that he's working with there locally, and they haven't sold it in, you know, it's been months now. Should you consider given them the boot and gone with someone else?
 
Yeah, that's always, it's always such a good question, Pierre. And it's tough, it's really tough to categorize and drill down into, is this a personnel issue? And maybe a marketing issue? Or is this a market issue, and it's price wrong, or there's something physically with a property, that's the reason why it's not moving? Can't hurt to try changing? Who's listing it? Put it out there to you know, reach out to a couple other agents. Give them basically how to make them compete for your business. Say, Okay, this is this is the property I'm looking to sell. I'm interviewing a bunch of other agents, how would you market it? What are you going to do for me? What do you think it would go for? What's your plan to market the property? And see, see where he gets good, warm and fuzzies? Because when you said that it was the same, the same person that's been involved from the start. This is the agent that sold him the property. This is the agent the handle the rehab, and this is the agent that's now trying to sell the property. Is that right? Yes. Something tells me that that agent missed the ball, right like that. At the end of the day, the buck stops with your buddy, the buck stops with the share of the property, right? Absolutely. Yeah, I've been in a similar situation and I I pulled the ripcord rip the band aid off whatever expression we want to use here and changed and changed agents ended up being that it still took a long time with this new agent, but it was just a better personality fit. And I was so ticked at the agent that sold me the property. It was very similar. And he told me the property he owned it was actually his he owned the property. He's like, Michael, I got this great deal. It only needs five grand in rehab. I'll sell it to you for this ARV is this you'll be and you'll be out no problem. Well, the ARV wasn't that and the rehab wasn't that either. So shame on him for telling me that misleading me. But shame on me for going along with your whole. So this is this is a prime example of hey, trust, but verify. You got to run all your own numbers as well. Don't don't take what people are telling you always as fact go verify it for yourself. But so that's just even if he had difficulty selling it with a using a different agent, it might feel a little better to not have to give the commission to the person that he's already kind of frustrated with throughout the whole process. You know, it's funny, I was just chatting with a friend here locally that does some some house flipping and some investing. And a rehab went so sideways on them, like oh, the contract with is that and I'm like so the reality is it can happen to anyone, it can happen anywhere. The fact that it's remote does add a layer, a degree of complication. But it's something that can't be overcome. People have been doing it for a long time. So I just think it's important to understand and recognize the risks associated with with making that decision and making that investment. But I would argue that those same risks are involved with with flipping locally or doing rehabs locally. So I I don't think we can put poo I don't think the remote aspect is the reason this one went sideways. I'll put it that way. Hopefully this was helpful to your buddy. Hopefully this was helpful to everybody listening. If you have a property like this, we would love to hear from you. We'd love to analyze it. Kind of do an AMA style and and talk through what some different options are. Because every deal is different. Every property is different. Everyone's situation is different. So if you've got a specific situation that you'd like us to walk through and help you answer, we would love to do that.
 
Leave a comment under this video here. Tell us what your situation is. And we'll
 
take up the case. If it's worth it. Yeah, that was a good one. Yeah, even if it's not a good one, but leave us a comment. We'll try to do our best to help answer it if not on a show. We'll leave you a comment back. Thanks, everyone for hanging out with us. Really appreciate it. We look forward to see you on the next one. Happy investing.

Navigating high-interest, high-price markets: 3 Winning investment strategies

In this episode, we discuss 3 different real investment strategies that you can employ in a high-interest rate, high price real estate market. 
 
Transcript: 
 
Hey, what's going on everyone, welcome to the remote investor show. I'm Michael Albaum. And today I'm joined by my co host,
 
Tom Schneider,
 
Pierre Carrillo.
 
And for this first episode, we're gonna give you all a quick intro into us as individuals who we are as people and investors. And then we're going to be diving into today's topic. So I'll take the forefront here. So my name is Michael Albaum. I work full time in the property insurance industry for the better part of a decade. Now. I'm also a remote investor. I've been investing since 2014, with an emphasis on investing in areas that are not where I live. And we wanted to bring you all a lot of the content, about remote investing about what it's like to live a life every day as an investor, all while working a full time job, so that everybody out there who's in the same boat can do the same. Tom, you want to go next?
 
Sure, yeah. My name is Tom Schneider. And I am a remote investor. And specifically, what I mean by that is starting in around 2012, I started saving money and acquiring rental properties outside of where I live. So I live in Northern California Bay Area, started acquiring properties in Florida, in Georgia, in Pennsylvania, and kind of all over the place. And I've been doing that, you know, for the last 12 years or so, a little bit personal about me. I work in technology product for these types of companies doing single family rental and kind of peripheral stuff and very system minded in the way that I approach investing and general kind of career stuff. So that's, that's a little bit about me.
 
Love it. Pierre.
 
My name is Pierre Carrillo I met these guys about five years ago. And then I knew nothing about real estate, I was making my pivot into the marketing space from the performing arts world. And yeah, just got into the topic of real estate from working next to these guys and have transacted on one property. I've learned a lot through it, but I'm still a beginner. So I'm here as the moderator producer, and someone to ask the dumb questions and bring the topic that back down to earth.
 
You're selling yourself short, you transacted on one investment property, but then you just bought a primary residence, right?
 
Oh, yeah. Yeah. But that's not Yeah, that's a little off topic. But still a lot of great experience in there. But
 
a topic would be fun to to dig it in the future about, you know, digging out a pool that was illegally governed. So yeah, not super remote. I mean, very opposite, or very, very lucky, local hyperlocal. Interesting thing I'd love to try to dig into in a future episode.
 
I definitely have some tips after after that experience, for sure.
 
Awesome. Alright, guys. Well, today, I think I want to talk about because of where we are in the market, what are three things that people can do, given the fact that we have both high interest rates and high real estate prices, because supply and demand curves and just economics one on one tells us when interest rates go up, demand should go down. But we've just a I don't think have seen that. And B the prices haven't fallen with the rising interest rates. So we'd love to get to dive into this topic a little bit more on a couple tangible things that our listeners can do today to help combat that position themselves to be in a better spot to be able to actually make a move. So one idea that just came to me about things that people can do is just look for seller finance deals, like if you're having to go to the bank to get your financing for these deals, and the prices are high on the asset itself. And the interest rate is high. A lot of people you're not seeing cashflow. And so I just thought hey, what if we went seller financed for some of these deals and went to the seller directly? And so Tom, do you just want to give like a quick description of what seller financing is for anyone who might not be familiar,
 
I'm gonna start with the why Michael? So you know, these issues are on high interest rates, like well, it's like kind of painful for buyers and not Oh, you know, darn it, I can't get my kind of traditional financing it is equally painful for sellers just because that really kind of tightens the market up on who is buying from them. So I think I kind of a fun lens to take a look at this is like at the other side of the table of these folks who are selling you know, I love to do like 1031 exchanges and all kinds of stuff like that and you know, the the the type of buyers out there is just a little bit tighter. So I personally have not done a seller finance deal. So I don't want to like speak out of pocket I can kind of provide some generalities. But Michael, I think you might be a little bit better attuned or, you know, repertoire kind of to talk about this type of kind of non standard creative way in this type of environment weighted way to finance.
 
I love that you mentioned this the selling side too because I think that there's frustration in the market both on the buyer side but equally on the sell side. And I think like what I've been hearing from a lot of fellow investors is that a lot lot of these sellers are still living in the Circa 2021 2022 era thinking that they're going to get those prices, because interests are like two and 3% on a lot of even investment properties. And so people are like, Yeah, I can sell my property because people can buy this and pay this price. And the reality is that they just can't pay those same prices, given today's interest rate. So taking a step back for just a second, like just a seller finance deal, what is it at its core, it's basically the seller is the bank. And so Pierre, if you owned a property, and you were looking to sell it, and this works really well, when when the property is owned, free and clear, so if you didn't have a mortgage on the property, and let's say you were selling it for $200,000, if I as a buyer, were to come to you and say, Hey, Pierre, I'm gonna buy, you know, I'd like to buy your property, I'll pay $200,000. But I need financing. The options for me as the buyer is I can go to a traditional lender or a bank or credit union and say, Okay, I need 80% of this purchase price. And they might give me a loan or a mortgage for for 160 grand, I think I did my math, right, I think it's about 80% of the purchase price. And then I've got to come up with the extra 40 grand as my down payment, plus whatever closing costs and stuff such that Pierre you get your full 200 grand when we close this transaction, what a seller finance deal says is pure, because you own this property free and clear. You don't have to go pay off a mortgage on your end, you're going to collect all of the proceeds, that you're I come to you from the sale of the property, I can look to you and say, Hey, Pierre, what if you gave me a mortgage, you're going to finance this deal for me, then you and I can be as creative as possible around the terms when it comes to the mortgage or the financing. And the terms I think are one of the biggest undersung heroes of real estate deals in general. If we change the terms of a deal, like just simply the amortization, how long the loan is paid back over, that can have a significant impact on the monthly payment. And so instead of again, going to a bank, and then then telling me dictating to me what the terms are, okay, Michael, you're gonna have a 30 year amortization, with a principal and interest payment at 7% interest. This is what the payment is, Pierre, you and I can work out. Okay, what is it that you need Pierre as a seller to finance this deal for me? And I think that's why it's on. Oh,
 
so I am picking up what you're putting down, Michael. I think though, you know, as an investor, is there, like a really well, like made path to do this? If you haven't done it before? I feel like if I was gonna go do this, like, there's some details that I don't necessarily know, or there's like, there probably some way that I might be getting, I don't know, like hosed or screwed or like how, you know, how would you kind of like articulate going into some sort of non standard kind of financial thing, because I know, when I do a regular loan, I feel pretty good. You know, it's, you know, a lot of them done all the time. Like, I feel like there's just way more room to get kind of a raw deal with seller financing. I'd love to hear you speak to that.
 
Yeah, I think it's a great point. And it's funny because I've I've actually never closed a seller finance deal. But I've come pretty darn close on the sell side, somebody approached me about seller financing, and I was open to the idea. And so we were kind of dancing around, it ended up not happening. But I think you're right there there is this, there's no governing body, I would say around seller finance deals like there is in the lending world that protects both buyers and sellers. And so it's a little bit kind of like the Wild West, we can be as creative as we want. But then that gives rise in space to people taking advantage. So I would say definitely, definitely involve your agent. And your agent should know, you should have an agent that has done seller financing before, if they're going to be involved in that transaction. And two, you're definitely going to want to involve a real estate attorney, that's well versed in these types of deals, whether on the buy or the sell side, you want to be protecting yourself from those unknowns. And there's going to be contracts going back and forth, that you're gonna want to have your attorney review. And so I would say at the end of the day, these deals can be costly, because you're going to want to have your attorney reviewing these things. But by that same token, you're not going to have traditional finance charges like you would at a bank. So it might be six of one half a dozen of the other. But definitely you want to kind of cya make sure you have people that understand these transactions, reviewing everything you're signing your name to, again, both on the buy and the sell side. Like
 
it makes sense. Tom, you might have touched on it briefly, but it went in one ear and out the other when you said it. Why why did the seller want to do this? Yeah, totally.
 
So a seller might want to do this. Let's say you know, you have a you own a property, you own an asset. And all of your potential buyers are stuck at like, you know, 7% or 8% or whatever it's at. And let's say you know, you walk to you went up to a potential buyer and said like, Hey, you're going to increase the buyers capacity to buy, by lowering their monthly payment by offering an interest rate is below that of what is available through like the Standard Bank. So, you know, you're kinda like net of, you know, total money collected is you're gonna get that listing price or whatever you're trying to sell it at, you're gonna have a better opportunity to get that if you're providing financing that is advantageous. Now, you know, as from a seller's perspective, I feel like this could be a zone isn't an episode, you know, and I think like, at some point, it will be, you know, you're the mechanics of the money coming back to you is going to be a little bit different. And, you know, Michael, you can correct me if this is not, right, but it's going to be kind of more incremental, because you're acting as the bank, you know, which I think in some cases is kind of fun, you know, in that, you know, you're you're continuing to make money off of this asset, through, you know, the interest you're making on that loan that you're selling, but you're also providing a great benefit to that buyer, and that they're able to get an interest rate, you know, that is a little better feel like there's like probably like a marketplace, you know, a product and just my product that is turning on and like how what, wow, you know, why isn't there like a standardized like seller financing? You know, maybe there is, you know, holler at us, you know, in the comments on wherever you're listening, you know, a little research. Yeah, yeah.
 
And, Tom, just to just to kind of piggyback off what you said, I think that there's opportunities for sellers, even to maybe make the same interest rate that lenders are offering in the marketplace, or even more, simply by changing the amortization period. Most investors are familiar in the residential space with a 30 year amortization mortgage, 30 year fixed or 10 year fixed, or five year fixed amortized over 30 years. But if as a seller, you say, Hey, let's go to 4040 years, or 45 years, that just spreads out the payment, and you could still be making the same interest rate that a lender is going to be giving that person so I love the idea, I think we should do an episode on reasons to seller finance a deal, but just kind of to give you an insider look at what it was like because having had this conversation with myself and, and thought experiment, you can use the whole reason people own property, for the most part is to earn cash flow on it, there's the appreciation factor as well, too. But if you're earning money every single month as a property owner in terms of cash flow, great, that's awesome. Well, if you sell the property, most of us think, Okay, well, now that cash flow goes away, I need to go replace it with another cash flowing asset. Well, if you sell or finance the deal, you can still make cash flow every single month. But now, instead of having to deal with the property itself, and the insurance and the taxes and attendance and the repairs, you now are dealing with a borrower. And so you're still making cash flow in the form of monthly mortgage payments, right.
 
And you're originating that in a high interest rate environment, where if you were to sell as a lump sum and try to put that money into another property somewhere else, you'd be dealing with those high interest rates yourself? Exactly. You're gonna have to go get a mortgage. Yeah, you're just that's taking the loan as the asset.
 
That's exactly it, the loan becomes the asset. So I think that's a perfect way to say appear. And I want to I want to keep us moving forward, because I think yeah, Tom, you the other, we could absolutely do a whole episode about this. But so I think the second thing that people should be considering in this high price, hydrate environment, is looking for deals that have been sitting on the market for a long time. And Tom, I know that you're a very advantageous buyer, when it comes to procuring your deal. So give us some insights on why people you know, why, why is that something people should be considering right now,
 
you know, I think there's some sellers who don't care and you know, and can just, like, afford to let it sit for like, whatever, 100 whatever days, but I'm gonna dovetail this thing into into two pieces. One, it's, you know, getting offers in on homes that have been sitting for a while, and then to just getting more offers and like doing more kind of, like, reps, right, of like underwriting and like offering. So, you know, I've done this strategy, I'd say, it doesn't necessarily matter, like, what the environment is, is kind of like identifying those homes that have been sitting, you know, a little bit longer. I will say, though, you know, important to kind of have your eyes wide open while looking at these because it, you know, there could be some kind of little local thing like, Oh, it's right, by the railroad tracks, or, Oh, it's, you know, there's a loud dog next door or something like that. So,
 
you know, there's six months worth of manual labor in the backyard. There's, yeah,
 
there's an illegal pool or there's an illegal building. With, yeah, trouble. So, you know, I say that with a caveat. And that, you know, you still want to have that same level of diligence when going through diligence level of rigor, but I really liked this exercise and kind of dovetailing with, you know, doing it like a bunch and kind of getting those reps in the way that you're evaluating and underwriting because, you know, that doesn't cost any money. And those are skills like muscles that you're going to build over time, the more properties you looked at, and the more kind of like, performance that you're filling out. So I think this is a great strategy. and kind of a tighter environment is kind of identifying those longer, longer setting properties. Yeah,
 
I think I think that those are both great points to make. The whole reason I brought it up is I think that so many investors, whether it be a homeowner or an investor, look at a property see it's overpriced and then move on, and are on to the next one. And so if you never get a second chance of making a first impression, and so a lot of these properties are passed by simply because the price doesn't make sense, and are never going to be revisited by that buyer potential buyer. And so we as investors might have the opportunity to come pick up on something, if it was overpriced to begin with. And maybe it's had some price reductions, because people have already passed on it. And so targeting properties that have been sitting for a while, maybe because they were overpriced, or it could be exactly like you mentioned, Tom, that there's something wrong with them or something hyperlocal about the property that makes it undesirable. Even still, maybe we need to get a little bit more creative. As investors as buyers, maybe we need to be able to take on a little bit more value, add a little bit more hair as part of a deal. In today's high interest rate and high price environment, we're not going to be able to find the perfect deal at the perfect price. Because those are all tending to get snapped up pretty quick. So I love I love that you said that. The third thing that people should be cognizant of and thinking about in today's environment is just save more like take this time to get the reps in, like you mentioned Tom to get really to hone your craft get really good at the analysis piece at the identifying properties piece, all the while saving turbocharging, you're saving, so cutting expenses, cutting out frivolous spending, whatever that looks like, for you, as an individual look to start hoarding cash right as as much as you can, such so that when things eventually do change, whether it's pricing or whether that's interest rates, and they will, right, because markets run in cycles. You're ready? You're ready. Yeah.
 
And I think we're in a really interesting time. In that, you know, a lot of the mechanisms that are causing these super high interest rates, they're also like, allowing for like super high savings accounts that have like pretty high. So I mean, I've seen north of five, five and a half percent in a savings account, you know, so being crazily proactive on that front. I know you know, a lot of stock market like index funds have been ripping what I like to kind of do on this front is just love a love of drawing love a flowchart is just kind of like have, alright, my different income systems are coming in, I'm allocating XYZ to this, this much to the savings account that's getting whatever five and a half percent, the you know, all of these things but I would you know, advocate you know, writing it down, you know, if it's gonna be just like, it's just like a scrap piece of paper or, you know, something more fancy. Just so you can like kind of see like that fun flow and, and where it's going and optimizing. Kind of like turbocharging as Michael put the, your your savings that you have been proactive about it?
 
I dig it, man, I dig it. I'm period question for you both. What are you guys doing right now? When it comes to the investment space? Are you waiting? Are you watching? Are you actively investing give give us all an insider's look
 
similar, I just found out a wife is pregnant with third kid. So like, not dedicating like massive amounts of time to, to, you know, proactively kind of underwriting stuff. So, you know, more or less handing holding, standing pat, like with the portfolio that I have, you know, kind of filling up little savings accounts, here and there. And again, being proactive about that. So, you know, probably more in that, like, you know, option three bucket that we were talking about it, I love the idea of getting into seller finance deals, you know, like you were kind of like referencing before, Jim, because I mean, that makes a ton of sense in this type of environment, both on the sell and the buy side. Yeah,
 
there's no question. It's, you know, it's funny, similar I, I spent the last I spent probably all of 2023 getting all of my financing in order, because of the announcement that interest rates were going to be rising. So I just closed in September, a big cash out refinance deal. So I've got some dry powder as they say that I'm sitting on waiting to see what happens with prices and interest. And I've made a couple of offers on things that I've seen that that I wanted to be opportunistic on. And nothing happened. I just sold a seven unit out of my portfolio because I got a great price for it. And I said, Hey, let's just let's put up some some more savings. And then I actually just launched my own real estate education platform called My Fire Academy. So I've been really focused on that. And so if if something pops up, I'll absolutely take a swing at it, take a pass at it, but I've been so heads down focused on on a couple of other things at the moment. So I'm just going to kind of waiting and watching too, and then we'll see. We'll see. I mean, they talk about interest rates coming down. But I'm curious just to get your guys's thoughts, it's a gut reaction when interest rates come down, where do you think prices are going? It's
 
hard to imagine them not going like up, you know. I mean, I think there's a lot of like institutional buyers that are still, like, somewhat active. I mean, a lot of them are now kind of getting into, like build to rent type stuff. But I think just from the like, owner occupied, I think is gonna get a little bit more competitive, I would, I would assume, you know, buying in this sort of 150 to $300,000 range, where like, that gets a lot more competitive for kind of like owner occupied stuff. I would say that I'd say the other thing I'm doing right now is that I just kind of always do is I have a couple of like targeted searches with like Zillow. And Redfin is just to kind of keep my finger on the pulse and markets that I like, and any identify any kind of new stuff that's coming out. It's just sort of like a regular kind of hygiene of just knowing the market that I like, to markets that I like to invest in
 
here. Yeah, we're watching the interest rates just so we can refinance, because we did buy last year. So that would be nice. Looking at you guys with your sub three sub for interest rates, and
 
I'm in the same boat as you I bought my new primary last October, I'm sitting at a six and a half percent rate. I'm curious, Pierre, because you you just bought last year as well, when you were going through that process? Did you have this kind of interest rate? question in mind saying, hey, rates are high right now, if they do come down, prices are only going to go up. So let's buy at this price today, because prices are likely only to go higher from here.
 
Totally over 30 years, it just made sense. It's not the most optimal time to buy, but we wanted to start a family if we wanted to get going and it is the price that we had to pay today. If it if interest rates do come down, we'll be happy to refinance. But we're also we also made the calculation knowing that we could afford it at the rate we bought at I
 
think there's a quote that Michaels like itching to say, but I'm going to steal it from him. Do it. Yeah. Okay. All right. I got that. Gotta get it right. It's you you marry your house, you date your mortgage? Is that the right thing? Is that the right?
 
Oh, you know, it's funny, I didn't have anything in my back pocket. So I was like, I'm curious to see what you're gonna cook. I love that.
 
That's a great quote or subconscious. You're thinking about it. You know, the theme is like date, you can marry them your dairy your property, your mortgage, like, oh, yeah, you might be seeing it for now. But you can see it. Maybe you marry your basis? Yeah, sure. There we go. Yeah. I think the same analogy kind of works with mortgage and home. Oh,
 
this is great, guys. We should wrap things up here. But any final thoughts for folks listening on things to think about consider given the fact that we are finding ourselves in a high interest rate and high price environment,
 
get at bats get at bats underwrite homes, kind of sharpen the saw all of all of that. Jazz is is really important. Because you mean you really don't know when things are going to turn around and somebody had a crystal ball like, Man, I'd be making a lot of money. So I think put yourself in a position to jump when you you know, by looking a lot of deals, underwrite and all that, all that good stuff, because I mean, you really, you really don't know when it's going to turn. So that'd be my 10 cents. Yeah.
 
No, I think that's great. And I just had this visual pop into my head, anyone who doesn't know me. I'm a very visual person. And so I like I see Life in Pictures. Some people I think, think in words, I think in pictures. I just had this vision of like, remember that scene in Jurassic Park when the Raptors were like testing the fence. And like the crazy cage and the the guys like the learning. And I think Tom to your point is like, do your ad bats underwrite the deals, but also test stuff, like go make offers, because you'll test the market? You'll see. You'll never and you'll never, you never know unless you ask. And so maybe the market is still really hot and really tight. But you happen to find the seller that's open to taking an under market offer. Right? So I think get your at bats and get started building those muscles. And then test this stuff because making offers is free.
 
Love it. Yeah. And it's like, no, there's a whole psychology thing to it. And that definitely counts as a bat at bat is making an offer like that whole kind of fun. Fun. cycler sure,
 
for sure. Awesome. Well, thanks so much everyone for hanging out with us. Really appreciate it. We look forward to catching on the next episode.
 
Thanks, everyone. Happy investing. Happy investing.