How to pick the best rental market

0:00When I bought that 2unit the term they use now is called house hacking I just saw it as buying a two unit right I'm going live in one unit I'mma rent out the other unit and it was a strategy I read about and it just made sense Chicago has a lot of two to four units and I was already renting an apartment at that time so it was like okay I'm just going to keep doing what I'm doing which is essentially living in an apartment I'm just going to transition from paying someone else rent to owning the building and that's exactly what we did so we were able to qualify I'm saying we my wife and I we were able to qualify for FHA loan where we could put as little as 3 and 12% down so we bought this 2unit building in a really nice area of Chicago for $362,000 and I put less than $10,000 down and as a matter of fact when

0:48we got the closing we negotiated some credits because there were some things that need to be done I got a check back at closing so it worked out really well to get started and then on that very first de we implemented our business plan so we fixed up that top unit we increased the rent of that first floor resident who was there and when all this was done we had actually increased the value of the property now I knew we increased it I didn't know how much and when we were getting ready to buy our second property our agent came by and she's talking to us and she's talking to us about her background and she's like what' you buy that property for and we tell her and she's like I think you got a lot of equity that I'm like I don't think so we got some but not a lot she's like no I think you got a lot so she pushed us to talk to her lender they looked at our numbers

1:36and they came back and we had created over six figures worth of equity in about one year and to me it's like I knew you could make a lot of money in real estate right but this was beyond even what I was reading as like best case scenario so it's like you tell me I bought this thing for 362 and it's already worth half a million dollars and I've only had it for a year I'm good but I ain't that good but did reaffirm a few things real estate was the way to go and then if I could even come close to this kind of success I wasn't expecting that but if I could come close to that kind of success this is the thing I should be doing yeah absolutely that's that's incredible did you sell that deal then or did you refinance it or no we were living in it so we stayed there we refinanced it we pulled out Equity we got a line of credit

2:25And we actually Ed that line of credit to buy what ended up being our third deal nice and what would you say that two unit's worth today so we did sell that one we sold that when we moved here to Cincinnati so I had it for seven years and then sold it about 5 years ago and when we sold it I want to say we sold it for around 700 or so it's probably worth 700 750 something like that yeah yeah and since then five years ago appreciation been crazy so it's probably even higher now it's crazy how I mean one decade makes a huge difference yeah so so let's compare that now to the types of properties that you're buying today you know what what deals you target

3:14why you target them like what are the the what's the main thing you're looking for when you you go buy a deal today well there are a couple things that happen to us right so to you know as we were buying those two units three units I ended up buying an 8un building and what ended up happen happen is the company I was working for went into bankruptcy so I just put down six figures that line of credit all that Equity I built in that first deal I put it into this 8un commercial property and about maybe two months later the company I was working for winning the bankruptcy so I had equity in these projects which was great but I didn't have the cash flow and I didn't have the money coming in and I didn't even have the savings right so I was really IL liquid when it came to that situation so the biggest thing that I learned is I'm always going to be limited in my

4:02growth if I'm only relying on the money I have saved in my bank account so I heard about other people's money I've heard about people you know partner with others I just didn't think it was right for me you know I was fearful that I might lose someone's money I knew I did great on that first deal but I mean some of that was luck some of that you know had had to do with the market and the timing it wasn't again that I did something incredible so I just didn't feel confident that I could go out there and partner with someone else else and I was fearful I might lose someone else's money but when my job and my security was threatened and his company went into bankruptcy I had to do a deep reflection right and say okay well what are you do sit here in so or you're going to figure out a solution and I did feel confident enough to find other people and I hired a mentor and that Mentor is buying larger properties and he taught

4:51me how to buy larger properties so that's exactly what we started to do so today we buy larger apartment buildings typically 100 plus units for and we go in with a value ad strategy so when we say value ad what I mean is we're buying a property that is already producing income and we're going to have a business plan to increase the amount of income this property generates now the beauty of commercial real estate is these properties are valued based on their income not necessarily what the neighbor sold his house for so if I can increase the income I can increase the value and it's really straightforward from that standpoint so we like to look at and see where rents are where the expenses at are there other income producing opportunities and then we Implement that business plan to drive up the value of these properties so we buy

5:39Mainly in the Midwest and the southeast so think about a 2hour radius around Cincinnati you know Cincinnati Louisville Kentucky Columbus Indianapolis those are some of our core markets within like we do go a little further south east to Atlanta Georgia the Carolinas and all the way down to maybe Florida as well nice nice and there's a couple questions I have based on what you just said but the first one is around other people's money you said you know you had the fear that a lot of people have I I it's the same way right in the beginning but I remember back in 2011 when I borrowed you know private money like private money for the first time from friends and family I laid awake at night going what happens if you know this happens or the the property doesn't work out the way it should like it scared

6:28me so much more to lose someone else money especially friends and family than it did my own so how did you get past that to get comfortable starting to borrow a significant amount of money you're absolutely right you know and that's exactly how I felt and quite frankly we're not taught to partner you know we're taught to do everything by ourselves even as little kids right you go to school you work on a project you're supposed to do your assignment so we don't talk freely about money and how much are you making or what you do on this deal or like that's not really the American culture right so when you think of borrowing money or partner with someone else there is that fear of of losing that money and like you I feel way more comfortable with losing my own money because I knew what I was doing and why I was doing it and I came to grips with that but the first thing that happened to make me feel more comfortable

7:17was I realized one I was limiting my opportunities I was seeing deals but I couldn't pull the trigger because I didn't have enough savings the second thing though and this was really important the people who were close to me were watching what I was doing they saw me investing they saw me growing in making six figures on that first deal and they would ask me questions and they'd be interested in being a part of it or learning more about it but I was hesitant because again like you I had that fear when I when I was at that company and they ended up going bankrupt and I had to do some deep reflection I had to ask myself some questions I had two little kids at that point and it was am I just going to keep doing for the next 30 or 40 years and updating my resume and just praying I can get another job

8:05And that that that gap between you know job loss and the new opportunity isn't so big that we can keep moving am I going to keep adding one or two units or three units you know every year or every other year and then maybe in 15 years I can walk away and do something else right when my kids are already grown or they're already past the age where they want to spend time with me or can I do something else today right so because of that situation where I was somewhat desperate to have more security and more control over my future I decided that I needed to work with other investors I could help them and and then as I started that early process the biggest aha for me was when I started talking to people who had money to invest they wanted this initially I thought they were doing me a favor

8:54Right I'm going to them hey I need this money do they invest okay oh great they'll invest for me I'll make this work when I realized I was doing them a favor it it flipped and that was very powerful and you hear people say stuff like this but it's true if you have high net worth individuals who are looking for passive income they're looking for cash or they're looking for appreciation or looking for diversification of their portfolio they're looking for some tax benefits they're only a handful of options for them to get that and then they're not going to invest the time that you've invested that I've invested to learn about real estate to learn how to structure deals what to look for how to analyze deals how to select markets they're not they don't have that they're busy right they're they're out there making money they're taking care of their family or doing things that they want to do so they need someone like you who is investing

9:43That time to learn how to be a successful real estate investor and they trust you so they're going to partner alongside you now the big thing for me was making sure that I educated them as much as possible because I did want them to be fully aware of the risk I also want to tell them how we're mitigating the risk but to be clear there was no guarantees it's not a slam dunk I wanted them to know hey here's my experience here's what I've done here are the people around me who are helping me this is what I'm going to do if you are interested in joining me I will invite you to that if it's not a fit or you're concerned on the risk I completely understand it's just not the right opportunity so when you remove yourself from that equation and you stop thinking about it from a selfish perspective then it's a lot EAS easier and when I say selfish think about it like this right

10:33Elon Musk okay let's say you and Elon grow up together and Elon comes to you and he's like hey I've got this I've got this awesome idea right I'mma build electric cars and you're like a man that sounds crazy he's like you want invest in this you're like no that sounds crazy I'm not investing in electric cars dude right okay you know you you probably kick yourself you know now looking back on it that you missed on this opportunity same scenario Elon Musk is your friend but Elon never tells you that he wants to build electric cars you see him in the garage working on some stuff from time to time you know you ask him what's going on I'm working on this thing right and then one day he just launches this thing you're reading about in elon's a multi multi-millionaire one of the richest men in the world he's a friend of yours and you never had a chance to partner or invest with him

11:22How would that make you feel right so if you have a solution that can help someone else's problem and you don't offer that solution you spend all this time investing in it yourself learning about it doing it right you doing deals yourself if you've solved the problem and you're not going to share the answers to the test with the people closest to you it's selfish you're not forcing them to invest but you may want to at least make them aware to say hey you know what even if you don't invest with me you may want to look into real estate hey check out this book that I've read hey check out this resource the people that you know are probably having the same issues you're having right they're all looking for cash they're all looking for long-term wealth they're looking to you know retire early or walk away from their job everybody you know you know we we we all face similar things we might be different places on our journey but

12:10we're all looking for those Solutions so if you have that solution you're not sharing it it's actually kind of a selfish act so that that really helped me transition my thinking when it came to other people's money that's super helpful for from a from a tactical like process standpoint then what do you what is look like to take some because you know conceptually I get like you're going to share it the idea with with potential private money investors you know friends and family that sort of thing but like what is what is the actual material that you share yeah great question right so in our world what we do is called real estate syndications and syndications are really just a way of pulling money together think of it like this right there might be 10 people out there who are going to go out buy a rental property and let's just say we all have 100,000 each

13:00So for that 100,000 we can go out and buy 10 individual properties we're responsible for you know every step of the process with those properties so what we do is we actually take everybody's 100K we pull it together so now we've got a million dollars we're going to go out there and buy one larger property and then some of us are going to manage that we're going to take care of everything necessary from the day-to-day management hiring and firing vendors make sure the deal is operating and Performing and everyone else who put in money is going to be a passive investor so they're not doing the day-to-day stuff but they get the same benefits and the same returns of owning the real estate so the way it's structured is we create an LLC and there is going to be one arm that's the general partnership or the active team there's going to be a second arm the limited partners or passive

13:48Investors who are only investing money they're not making the day-to-day decisions so that LLC is the vehicle that they invest in and then that LLC of course owns the property property so the way we we start that is we like to have conversations with people just to learn are they interested in real estate are they interested in departments are they looking for the tax benefits the cash flow the appreciation and if so we say okay well hey when we have an opportunity we'll share that with you you take a look at it we're going to give you kind of our business plan we're going to let you know where we see the opportunity is and you can ask questions if you decide that you want to invest to be a part of the deal then there's a formal process to you know fill out the paperwork necessary to to buy the shares to be a part of the LLC and

14:37Then at that point you'll be a part of the team in the investment got it yeah no that makes sense I appreciate that breakdown because people gloss over that a lot and it's like well how does this actually happen mechanically one thing that probably ties into your marketing background that I feel like you're really good at is and a lot of Real Estate Investors don't talk about is the idea of brand building you know everything someone does whether it's online or in person is creating a brand for themselves whether they recognize it or not and so I think that plays into this as well like people come to me and they're like you know I want to raise money to buy these this real estate and yet you know behind the scenes

15:26Like you look at maybe their Facebook profile and it's got this Shady stuff on there or they're just the way they they have done business in the past is not like reputable and like they they just don't have like when somebody researches them like their brand is kind of not somebody that you'd probably lend money to so I try to explain like it's easy to build to to raise Capital when you become somebody who's worthy of accepting and and being a good Steward of capital but if your entire brand is somebody who's not based on all the actions that you've done previously it's going to be challenging so what's your thoughts on brand building as a marketer I love that question right because marketing and branding often get you know Tangled up as as one

16:14Idea they're very different marketing is the the steps you take to make the public aware of a product or service that's advertising that's pricing that's you know distribution those are your marketing things right your promotion channels all of that branding is what people think of your brand right and what you said is spoton you know the way I like to tell people branding is what people think of you when you're not of the room to defend yourself right so if you think of any product or service whatever you feel that's their brand to you okay so someone who's trustworthy reliable if that's been your experience that's their brand if it's high quality great reviews that's the brand right so branding is really more

17:02Of a megaphone to who you are at your core you know that's what branding is marketing is you know you can highlight certain aspects of yourself and call out key facts but if people have a bad experience or you know you have great deals but maybe bad customer service or you're never available to answer the phone well that's going to that's going to leak into people's perception and the brand and the perception that you carry so to your point if you're looking to raise capital for deals one we you got to take that very seriously I think too many people have been very flippant with this notion of raising Capital these this is the money that people have worked really hard for I mean 50k 100K for many people that is you know six months worth of work a Year's worth of work maybe even more so that's

17:51A lot of savings right that's a that's that's the time that they've invested to have this money that they're entrusting you to go out there and hopefully protect if not grow so take that seriously and your brand needs to reflect that your approach needs to reflect that your education your you know everything you do needs to be centered around helping to grow and protect the capital from these investors so certainly there are marketing things you can do to attract more people and bring more leads in but at the core do you care about these people are you trying to protect them are you doing everything you're power to make sure these deals are successful that's what I want to know and that really is the key of building a brand right if you're doing good things now you got to share that with people that's where reviews come into play

18:39that's where having a website comes into play that's where being able to share your track record comes into play so all these things are important because people don't know you you have to tell them who you are but you also have to be authentic you know if people start reaching out to your referrals and they say oh no this guy was terrible to work with he you know took my money and I didn't hear from him for six months well that's going to be a terrible experience right for your brand so you can you know fool people for a short amount of time right with maybe some slick marketing but the reality is your true brand your true core values that's going to come through you know maybe the money is already in the bank account but when you're working with people that's going to come through and I think for anyone in this business this is a long-term wealth creation opportunity so you don't want to be shortsighted here build the real business take care of people

19:28Do the right thing respond to your investors right if you're doing those things you'll set yourself up your family and you'll have a great brand and a great reputation