Hey everyone, and welcome to Passive Real Estate Investing. I’m Melissa Nash, your guest host, jumping in for now. Let’s dive in.
Welcome to the show, Steve, I am so glad to have you here today.
I’m glad to be here. We’ve known each other for a while and it’s always good to catch up.
Yeah, definitely. So I purposefully did not tell our listeners about your bio because I want you to introduce yourself. So if you don’t mind, take a second here and tell us a little bit about yourself and let’s dive into all the good stuff that I know you have to ready to share with us today, <laugh>.
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Yeah, sure, sure. I’ve been in real estate for a long time, done a a few different niches within real estate. I mean, there’s so many ways to invest in and, and make money in real estate. People ask me what I do for a living and I just kind of say real estate and they glaze over. ’cause You know, I don’t want to tell ’em <laugh> it, it just opens up a can of worms because there’s a lot of questions. But I, I got in at a terrible time. Back in 2008 is when I really started cranking. And in 2008, you could not pay somebody to take a real estate deal. Everybody was scared to death. The world was ending. I I still remember the fall of 2008 when Lehman Brothers melted down, and I had no idea what was happening at the time, but I, I did know that people still needed somewhere to live.
I mean, how that was all gonna unfold. I didn’t fully understand, but I mean, really, that was a time when people thought capitalism and and investing were done. But as it turns out, people still have to lay their head somewhere at night. And, and so that really, really stuck with me ever since then, I, I went on to get a master’s degree in real estate. I learned about development and how institutions work. I mean, that was cool. I have the piece of paper, but mostly what it taught me was how, how did the big money think about a deal? How do they analyze these things? So I I I like that. That was great. I got involved in a bunch of small multifamily. I’ve been the general partner on a couple of ground up construction projects for, for multifamily as well, and started getting even, even into some commercial flex space recently.
So yeah, I’ve done all kinds of deals from helping somebody buy an $80,000 rental to raising $20 million to build a bunch of town homes and, and hold it as an apartment complex. And I have taken it on the chin a number of times. I’ve been really successful a number of times. And I think that’s just the, the nature of real estate. If you are persistent and you stay in the game and, and you buy property, you develop property in a market that has population growth and is landlord friendly, you’re, you’re generally gonna win. But, you know, you really have to get in the right deal and have staying power. That flipper mentality can be problematic. I think you have to view it as a long-term game.
Oh my gosh, yes. You, you said something and it, and I just wrote it down, you said stay in the game. And I appreciate that you said that because I talk to, you know, investors every day, this is my life. This is my world. Yeah. All day, every day. Real estate, whether you wanna hear about it or not, if you meet me on the street, it’ll probably turn to that. But, you know, there’s a lot of people out there that have stories like 2007, 2008, 2009, and this happened and that happened. And it, it’s, it traumatized people. It scared people. But I, I’ve never yet met an investor that stayed in the game back when all that happened. That regrets it. Have you?
I, I don’t think so. I mean, we all have deals like you and I were joking before we recorded about kids and how kids kind of come the way they do. And you know, if you’ve got multiple kids, a couple of ’em are doing well and one’s always got something going on, some kind of a problem, right? <Laugh> as a parent, you, you know that, and that’s kind of how your portfolio can be. You got 10 deals and eight of ’em are doing great. One of ’em, you gotta do a little work. And one of ’em is, you know, driving you a little bit nuts, but, and so, you know, if you put all your chips in one deal, you know, you could say that, oh, maybe I am, I am sad that I did that, but generally averaging it out multiple deals over many years, I’ve never met somebody that that regretted it. In fact, they’re usually trying to do a 10 31 and get more deals. Right. So, yeah, I agree. I think it’s a good statement.
Yeah, definitely. So you know, and kind of tagging onto that is, you know, everything that you do, which we’ll talk about in a minute, we’ll kind of tease everybody with this really cool, amazing project that you have going on right now that you sent me last week, and we’ve been talking about it. And I, I’m really excited to share everybody that information. So we’ll, we’ll tease everybody with that, with that little bit of a cliffhanger <laugh>. But, you know, this is a long-term strategy. This is not a get rich kind of a, you know, I always joke around and you’ve seen those ads that pop up or the ins Instagram real estate gurus that have the Ferrari, and they’re like, you know, I wholesaled this and I flipped this. And basically the strategy here that we’re talking about that you’ve done for so long is buy and hold.
Right? That, that’s kind of the main strategy that we’re talking about today. But what’s interesting is you, you do have some bur type deals for those investors who want a little bit more equity in the game and want a little bit more experience, I would say, I mean, when I did my first bird deal, I learned a lot. I’m not gonna say I was successful at it <laugh>. But if you’ve got somebody kind of holding your hand, helping you through that process, then that’s gonna be a lot easier. But the big picture here is the long-term strategy. We, we are not just trying to like, Hey, we’re gonna make you a million dollars tomorrow. This is buy and hold wealth creation. Do you agree with any of that? Or disagree? Feel free to disagree with any of that that I just said.
No, I, I totally get it. It, it doesn’t mean that you can’t make money on short-term deals. Some people are very, very good at that. But I would tell you that anybody that’s been doing that for a long, long time says you can make money on short-term deals. You can also lose money on short-term deals. And so I think staying power and being in a deal for a long time is a way to even out the, the risk and just let the market do its work. There’s a, a legendary stock market investor, Peter Lynch, and I’ve been thinking about a quote of his a lot lately. He said, there are two kinds of investors, those who know they cannot time the market, and those who do not yet know that they cannot time the market <laugh>. And so, you know, you, you’ve gotta just, I, I mean, I don’t mean to hit you over the head with quotes here, but Steve Schwarzman, founder of Blackstone, he says that time wounds all deals.
And when it’s a short term deal, that’s what he’s, you know, referring to. Right? You gotta make that happen. You gotta get going and then get it on track, because the more time that the deal is not baked, that it’s not doing what it’s supposed to, the more something can happen in the macro and economic environment before you’ve gotten to a point where you do have a staying power, right? And that’s why it’s, you know, rentals are good because of that 30 year fixed rate mortgage that gives you tons of staying power. You know, I have a commercial deal right now that I’m the general partner on, and it’s good, but I have to pay a lot more attention. You know, every quarter we have to do what’s called a, a, a covenant measurement. Like how are my, how are my rents looking and compared to my expenses?
And these guys could, they could find me, they could require that I deposit money if the deal isn’t, you know, isn’t doing great. But if you buy a, a just a boring house or a fourplex, and you’ve got 30 year fixed rate debt, as long as you’re making your payment, nobody’s doing that. So you put yourself, you set yourself up for a lot more success to have staying power and let the market do its work over time. Because people get this mentality of, oh, the market’s up, it’s gotta come crashing down, and I’m gonna wait till that happens. And they’re, they’re dramatically overestimating their ability to know when that will be. I mean, do you know when the bottom is? Do you know when the top is? Because I don’t, but I know that if I stick with it over time, that I benefit from those tops, right? And, and so it’s just, you know, we really overestimate our ability to do it. And the whole the whole buffet thing of be greedy when others are fearful, that’s a lot easier said than done. And I, I, I see, I see some fear in the market right now. And I mean, shouldn’t we be greedy? But a lot of investors are waiting for when is the sure thing gonna come back? I mean, what, how do you know when the sure thing is right? Buy with good fundamentals and wait?
Well, you know, I’ve, I’ve been doing this helping clients buy real estate for the last 10 years, and I’ve been hearing the same conversation for the last 10 years, meaning what you just said, where people are like, oh, you know, the market’s doing this, or the market’s doing that, or, I’m afraid of this, or, you know, and I just think back and go, how many people keep pushing that back waiting to time the market, right? They’re like, I’m like, if you would’ve invested 10 years ago, I mean, I look at some of the properties I bought 10 years ago, and I’m like, oh my gosh, I’m so glad I did that. And I’m not, I’m not saying this to like, I’m not, I’m honestly not trying to say this. I’m like, you guys have to go out and buy a property tomorrow. But I really, truly do believe in that.
It’s, it’s not timing the market. It’s time in the market. And I’m so grateful that I bought those properties 10 years ago, five years ago, three years ago. It was two years ago last week. I bought a property last week. I’m so grateful for that at a time when people are like, oh, interest rates are this, the sky is falling, the economy’s doing this, the, this, this, this. But you know what it is. I’m just, I’m not worried about where that market is, is going to go or where it is. I don’t know. Are we in a recession? Are we not? I’ve heard that we are <laugh>, I’ve heard that we’re not. And so I’m just like, you know what? I’m just gonna put my head down if a deal pencils out on paper and it makes sense. And I, I’m not going into it blindly. I’m weighing my risk. I don’t care what the interest rates are in that regard. It’s making sense. There is a strategy, there’s a plan. I gotta get my tax write offs, <laugh>, I’m just gonna keep on, you know, kind of moving forward. So I do believe right now that there is fear because of the media. I mean, everybody is an expert, right? Mm-Hmm <affirmative>.
Yeah. Yeah. There is one way to time the market, and that is through interest rates. And right now everybody’s deciding what, what they think about those <laugh>, because you’ve got, yep, a whole generation that came up when rates were really, really low and, and now they’re still comparatively low, but they went up a very quickly. And, and people are still getting used to that. And you time the market by saying, does this deal work today at today’s interest rate? And if it does, congratulations, get in, get your money to work. If it doesn’t, don’t buy that deal. But then if you say, okay, we wait 2, 3, 5 years, riddle me this, if the rates are the same in two or three or five years, are you glad you did the deal? I’m, I’m gonna argue that yes, because you’ve been making cashflow. Remember the deal worked on day one and your money was doing something for you.
You were getting principal pay down, potentially a gain in equity. You got depreciation against your taxes, right? You did all that, so you’re happy. So now, scenario two is 2, 3, 5 years from now, rates go down, refinance time, the market <laugh>, right? It’s a math problem at that point, you go, okay, my rate is 6.750, the, the lender said I could refinance down to 4.875, do it. Sweeten up your cashflow position. And in that kind of environment, I would bet you your property’s worth a good chunk more as well. You might even be able to pull some cash out, and you’ve still got that fixed rate debt. If 2, 3, 5 years from now, rates have gone up and now it takes seven point a half percent to get in a deal. Are you glad that you bought it 6.755 years ago? Absolutely. You are. So, I, I think that’s the way that you, you time it, does the deal work today? Cool. Do it. And then grab those opportunities on refinances in the future if they present themselves. And if they don’t, you’re still rocking and rolling because your money has been in the market doing its work.
Yep. Yep. Oh my gosh. That, that was perfectly said. I love how you explain things and break things down so simply. And I know our listeners appreciate that too. Even, you know, oldie like me, <laugh> oldie as far as real estate investing. I appreciate how you broke that down and simplified it. The next thing, rather that I would say on top of that is the way you make money is by having a renter in place. We, we need to have the renter, we have to have high rental demand or a pool of tenants where they need a place to live. Like you said in the very beginning, people need to lay their head down somewhere. Housing is not a luxury, it’s a necessity. And so if we’re picking these markets where people can find jobs, where people can afford to live there, and there’s a consistency of renters, then we don’t have to worry about creating a loss where we don’t have income coming in because we’ve already done our homework on the front end. Which leads me to, let’s talk a little bit about Indianapolis. I’ve been a big fan of Indianapolis as long as I’ve been an investor specifically in the Midwest, and it’s just been consistent. So, so let’s just dive right into it. Tell me what you’ve got going on in Indianapolis, and I would love to kind of hear the story about the projects that you’ve got going on. So just fill in the blanks for me and tell our listeners all about this.
Yeah, I get a lot of airplane time, Melissa, because I, I’m doing some development and construction projects in a number of different states, and I, I of course have partners on the ground in these states that do the on the ground stuff. I do kind of, of the stuff that’s not on the ground. You know, I’ve done a lot in the Intermountain West, working a lot in Dallas right now, a lot in Alabama, but also in Indiana, which is a, a great state that I, I did call home for a little bit back in the day. I moved out there and worked for a group that bought foreclosures at the auction. And this makes me sound really old, but you could buy, you know, we’re talking like 2011, okay? You could buy a old Fannie Mae foreclosed property for <laugh> $15,000. Wow. You put $20,000 into it and rent it out for 800 bucks a month, right?
It was, it was crazy. Now, by the way, when we were doing that, not a lot of people wanted to do it because it was a fearful time. And now, if you had a time machine, you would go back and say, give me 500 of those <laugh>, right? It, the, the, the benefit of hindsight is always there, but so you, you gotta go, is it a good deal right now? And, and that’s the question. And don’t get too worried about the rest of that stuff, as long as there’s population growth, as long as there’s a good job market, right? We have to have those things. So yeah, I, I had spent a number of years doing development in the Intermountain West and, and working with a, a group that built fourplexes for investors. And as we did this, some of my former colleagues back in Indiana approached me and said, Hey, do you think that that business model could work for what we’re doing out here?
And initially, I, I immediately thought, no, because we do, we do a pre-construction model, and I’ll talk about why we do that in a minute. But a short preview is higher risk, higher return. You can get a better cap rate if you go pre-construction. And what we had previously really benefited from was just market tailwinds, right? If you were doing development or construction from 2015 through early 2022, and you could fog a mirror, you were making money, right? Mm-Hmm <affirmative>. It, it’s just really, really hard to screw up during that time, especially in the markets that I was in. And, and wow, did they get a shot in the arm during COVID, you know, some of the places I was in Salt Lake and Boise and Phoenix. I mean, like, it feels like half of California emptied out to move into those markets during COVID, and it just really drove prices insane.
So I thought, well, Indiana’s boring. It doesn’t traditionally have the appreciation that the Western United States has, so I don’t think this is gonna work. But as I dug into it, the, the rent to value ratio was just superior. The expense ratio was lower. And I, I started talking with these guys more because they had, what had happened is the mayor of a city up in the Fort Wayne Metro, Fort Wayne is the second biggest market in Indiana had a big need to bring some housing. They’ve got a lot of manufacturers and logistical companies in the Fort Wayne area, and a a lot of these people are driving in over the border from Ohio or through just surrounding little cities to, to go where the jobs are. But this isn’t a market that attracted tons and tons of development during COVID. Like I said, Indiana is boring, and I mean that in a good way, but they make a lot of the stuff that we all use every day.
And so these people are having a hard time, you know, living in the metro. They got big commutes every day driving through the corn fields of Indiana to get into Fort Wayne and work at these businesses. And so this this city, we acquired 15 acres from them, and they gave us a, a tax abatement. And we won’t dig too much into that today, but in short, your property taxes are gonna be greatly reduced for the first, oh, about four years of your ownership, which is a great bridge to kind of fight this interest rate situation that we’ve got going on now. But, you know, even better, the cap rate is so good because of the high rent to value ratio. We got a steal of a deal from the city, you know, I don’t normally volunteer this, but we bought 15 acres for $225,000, right?
Wow. That, that’s a huge savings. And that’s a big reason why the cap rate is what it is in a western United States market. I mean, that’s gonna be like 3 million bucks. And you think about that as a developer, you’ve gotta go recover that cost. You’re gonna have to charge a lot more for these units. And, and then that cap rate gets meh by the time all the numbers shake out at the end of the day. So the, the, the rent that you get per door compared to the price that you pay per door is, is very, very good. So it, it’s, there’s a, there’s a term out there, Melissa, called positive leverage or negative leverage. A, a very simple and effective way to think about these deals is the cap rate and the interest rate. If the interest rate is higher than the cap rate, you’re in trouble. You’re gonna have to put a lot more money down to get the deal to positively cash flow. But if the cap rate is higher than the interest rate, all of a sudden you’re in the money, right? All of a sudden you, you’ve got the wind at your back and, and, and you’re putting your money to work with debt in a productive way instead of a way that’s pulling you down where you have to write a check every month to service the property.
No, bueno. We do not want that. We, we are cash, no bueno. We are cash flow people over here. We, we want the cash flow deals. Show me the money.
That’s right. And so it’s, I I’ve looked at a lot of deals lately. I look at ’em every day, and I think you do too, and making a new construction deal work right now, which a lot of people want because they’re just easier to rent. They, they’re really low drama for lots of years. But it’s extremely difficult on this one because we have such a low land basis and low property tax, it, it works, but many, many new construction deals like new houses in, in the south or in Texas, you know, we’re talking four and a half, five, maybe five and a half percent cap rates on a lot of those. And, and builders will do incentives where they buy your rate way, way, way down. But that can come with some risks too. But, and then the deal’s, you know, okay, right, you’re, you’re barely getting positive leverage. But on this one, that’s not the case. It’s, I mean, it sounds self-serving, but it’s by far the best new construction deal I’ve seen. And anyone who takes time to vet it out typically agrees.
Well, absolutely. That’s why I was so excited when you sent me over this project. I was like, oh my gosh, Steve, I’ve gotta tell everybody about this. Let’s, let’s, let’s get you on the podcast, because that’s the fastest way to get information out to as many people as possible, because like you said, we’re so used to, and looking at new construction projects in, you know, Florida, Texas, North Carolina, and I love those. I mean, those are phenomenal. We have great teams, and you, you’ve done some, you’ve got some stuff in Texas as well, and you know, those are, those have their own strategy, right? We know you’re gonna spend a little bit more for those. There is that long-term appreciation play. But people do love the Midwest. I mean, gosh, I, we’ve been selling, you know, renovated turnkey properties in the Midwest forever, and so people have wanted and desired new construction there.
And like you said, it’s, it’s all about making it pencil out correctly. Because if somebody really wants to give up their cap rate or their cash flow, and they just wanna kind of set it and forget it, a lot of times they’re like, okay, well, I guess I’ll do this Texas thing, or, or whatever. But to be able to do new construction and maybe cash flow a little bit more is kind of exciting. So tell us a little bit more a about these, like, what are there, they, are they duplexes, fourplexes? What do we got going on?
Yeah, we’re, we’re implementing a strategy that I learned back when I was working with, you know, the development group in the, in the Intermountain West. And basically it’s this investors, many investors love duplexes, triplexes, and fourplexes because they get a lot of the security that comes from multifamily, but they get the financing available on single family. I told you earlier, you know, I’ve got a big multifamily deal that I did, and it’s a commercial loan because it’s more than four units. And there are tremendous advantages in that of core. But for a very passive individual investor, there’s, there’s some hassle, right? You, you gotta be more of a, a very part-time or almost full-time investor to deal with that kind of stuff. But on a duplex or on a fourplex, you can use one conventional loan and own two doors, three doors or four doors underneath that.
And I don’t know if on the show you’ve gotten into it with lenders, but every investor can get up to 10 of these conventional loans in their name. Some people call ’em Fannie Mae Loans or Freddie Mac loans, right? It’s the kind of loan you use to buy the house that you live in. And so, in theory, an investor could own up to 80 doors under their own personal name by, by gradually playing Monopoly and leveraging into duplexes, triplexes and fourplexes. And it’s a game of, of acquiring these units and 10 31 exchanges and just increasing what you own. And even better, if you’re married and your spouse can qualify for loans, they could get 10 fourplexes in their name. You as a couple could own 80 doors with fixed rate debt. And a lot of the headaches that are happening out there in the multifamily market with debt resetting right now, you are not, you’re, you’re, you’re not experiencing that.
Your debt is fixed. Like I said, if you make the mortgage payment, nobody’s knocking on the door looking for money, you can just cruise. And so that’s why we designed this kind of a deal. And even better, you know, we, we all know these little hodgepodge fourplex neighborhoods that we’ve seen. I I’ve been in your neck of the woods, Melissa, in Orange County, I’ve seen this in Seattle, I’ve seen it in New Jersey in, in the seventies and eighties. For whatever reason, builders put up a bunch of these boxy fourplexes, you know what I’m talking about? Two units up, two units down, it’s above. Yep. Yep. Two, two bedrooms. And a lot of these were not done in neighborhoods with HOAs or, or a good HOA and sometimes HOA is a dirty word. But in, in investing, in our case, we love it because if, if there was an HOA that is run by the investors, when your neighbor across the street lets his roof go and puts a blue tarp on there, and somebody parks a, a bright yellow VW bug on the lawn, what do you think that does to your tenants when you’re trying to release one of your units?
They look across the street and go, that guy’s, my neighbor, right? So a a a properly run HOA can preserve the value of the community because the architectural standards and the landscaping standards, the insurance requirements are uniform across the board. And if somebody isn’t complying the HOA has teeth to make that happen, and it preserves the value of your asset, and you get better tenants. And so what we’ve done is, is instead of building your traditional boxy two up, two down fourplex or, or a little dinky side by side duplex, although they do have their place, which we could get into, we build town homes. And when we do our engineering and our, our plat, you know, we might be able to see, okay, in this section we can put up six town homes. But when we go in for our approvals with the city, we’re gonna plot that as one duplex and one fourplex.
So from the outside, you just see six town homes, but on the county records, on the tax records, there is a lot line right there after the second unit, and there’s a duplex and a fourplex. And so you get town homes and people are living in three bed, two and a half bath units with two car garages that have UpToDate architecture, you know, like good, good hardy plank or stucco, depending on the market that you’re in. And they just look a lot better. So you, you go cruising through our project, you’re just gonna see a bunch of town homes, but really it’s a bunch of doctors and dentists and it people that own duplexes, triplexes, and fourplexes. So we have, we have a couple of duplexes, a few, a few tries and, and a bunch of quads available in the project that we’re talking about.
And it, it really, you get there because of engineering, it’s a, it’s an art and a science to how many units can we fit on here versus we don’t want to cram too many on, because it, it makes it not a very livable experience, especially in the Midwest, right? We’re in Fort Wayne, Indiana, we’re not in San Francisco. People expect a little bit of space and some landscaping, right? You’ve got two car garages with driveways. So it, it’s a dance between, you know, what’s your density gonna be like versus your profit. And, and you know, you don’t wanna build a community that people are moving out of all the time because there’s no parking or there’s no space, right? You gotta know your market.
Absolutely. And so the other thing that I was kind of thinking when you were talking is the property management side of it. Because as you mentioned, the owners, you know, a KAU listeners, you can buy one of these or you could reserve one rather. You gotta talk to Steve and, and he’ll let you know what’s available and you can kind of see if it’s gonna work out for you or not. But the owners don’t want to do anything, right? This is, this is the plan. We wanna be as passive as possible, which is why new construction is so popular. I always say that, you know, my happiest investors at the end of the day are probably new construction, just because, I mean, not to say that rehab properties are difficult, they’re very easy as well, obviously, but new construction, you just don’t have to even communicate with anybody ever, because everything is under warranty, everything is new.
And if you have a good property manager, so this is where I’m going with this, has to be a good property manager. As you know, Steve, there’s a lot of not great ones out there, but if there’s a good property manager, you can essentially, the idea is kind of set it and forget it, and it should be pretty passive. So is there property management? I’m hoping you’re gonna say yes. And as I, as I, I kind of led into this, hoping you have property management. We did not talk about this, so please tell me a property management, we’ll also have to cut it.
That would be awkward. We’ll have to do some edits if no, my, my partners, my development group out there own a management company that manages close to a thousand units, spread out over the state of Indiana. And this was all crafted with their input from the very beginning. You know, they help run the comps. They, they help establish the rules of the community. They do all the lease up. I own a number of properties like this myself, and I can tell you as an investor, right, I’ll take off the developer hat, put on the investor hat for a second. I spend like it just sounds like I’m exaggerating, but I’m just gonna say it, Melissa. I spend like five minutes a month on those properties, and you probably do on yours too, right? You get your, your monthly email from AppFolio, which is the program we use that says, okay, here’s your here’s your statement for the month.
You know, we collected $2,000 in rent. You had $150 plumbing bill. The management fee was X. You can expect the distribution of, you know, $1,700 or whatever in the next couple of days. And then you see that the money hit your account. And if you’ve got your, your, for example, your HOA and your mortgage on autopay, I mean, that’s, that’s all you did. Now, the money’s in your account. Sometimes you might have a conversation with the manager. There’s a situation that may be a little bit more complicated, but you have hired them to handle this stuff, right? And so usually it’s just making sure you’re up to speed, you’re making a couple of decisions. But most months, Melissa, like five minutes and tell me if I’m exaggerating, but that’s literally what I spend. And maybe maybe during tax time I gotta get some documents together and it’s a little longer, but that’s about the size of it.
Yeah. And you know what, people always, you probably get this, but people will be like, it’s too good to be true. Like, I don’t, I don’t believe you. Or how could this be? Or how is this possible? Why doesn’t everybody do it? I mean, that’s probably the biggest one that I hear is if this is so great, why isn’t everybody doing it? Well, number one, not, we have to search for, I say this all the time, but we have to search for this information. We have, we don’t learn in school about real estate investing and all the tax benefits and yada, yada, all the things. The wealthy know about it and the wealthy hire a lot of people to do this for them. And so I agree with you though. It, it is really easy and it can be passive. You know, there’s active investing and there’s passive investing and active investing would be, you know, you’re a wholesaler or you’re going out and finding these deals on your own, and you are, you are more of an active investor because you’re the one that’s actually putting these projects together and meeting with the mayors and you know, that is active investing.
So that’s one side of your business or for another investor, or, you know, a lot of people don’t call themselves investors yet ’cause they’re so new, they have a full-time job already, right. That, that they, they’re doing their thing, so now they wanna do this passive side. So absolutely. I agree with you. I do not spend more than on my long-term rentals. I I don’t even know if I would say five minutes a month ’cause I’ll go months without doing anything, you know? So I, I agree with you. Very, very passive. If again asterisk, asterisk, if you have a good property manager, then, then it, then your life can be pretty smooth.
Yeah. And, and it’s, there will come a time when you’re gonna fire a property manager, right? Can we just be open about that? That’s gonna happen because people’s businesses change, right? And I want to tell the investors, don’t be spooked by that. It, it happens, right? Somebody gets old and they sell their business and the new person that took over just isn’t getting it done for you. But news flash, you can fire a property manager, the new one goes over, does an inspection, you get your documents signed up and, and then they take over, right? So I, I’ve been through that process a couple of times myself and I lived to fight another day. And so that could happen at some point. But when you’ve got that good property manager in the group, ’cause I’ve got other properties where I’ve never changed and I, I, you know, a couple properties I’ve never even been inside of or even driven past.
So absolutely when you’ve got that good manager there that has experience they’re gonna do that job. There’s a term in real estate, Melissa, called highest and best use, right? If you ever get your license or you know, what is the highest and best use of that property? And I think that that’s something that applies to investors too. What’s the highest and best use of your time, right? You might have a tech job or be a physician and, and that’s the highest and best use of your time. You’re specially trained for that. You’re making money at it and you want somebody else whose skillset is to manage that and, and deal with that investment so that money can, can work for you while you’re doing what you’re best at.
I love that. That was actually I’ve, I’ve heard that term before and you said that very well. So there’s, there’s a little bit of a lot of people who think that nobody can do it better than me. I have to control it. I have to, you know, be the one that has to drive by my property and you know, even down to the, you know, the tenant, you know who, who’s picking the tenant. I have to do that because I have to do it the best. And I’ve seen investors go from that type of control to just kind of passing it off on somebody and their life just changed. I’m like, wouldn’t you rather be doing something else? You know, enjoy time with family and friends or read a book or go do something like put more hours in on, on your job if you love it so much, whatever it is, you know, when I’d you say it. Highest and best use of your time. I love that.
Highest and best use. Yeah. The, the highest and best use of a, you know, a tech engineer or a software engineer is not calling plumbers, right? It’s not reviewing credit applications, right? You’re investing so that somebody else does that for you. And, and yeah, guess what? When you pay a manager, you leave a little bit of money on the table, but do you <laugh> anybody who self-manages more than a few properties quickly, quickly realizes this is not the highest and best use of my time. I’m better, the better use is go make more money, buy more properties, and, and let them do their work.
Oh my gosh, that was perfect. I, I second that a thousand times <laugh>. Okay, so earlier before we hit record, we were kind of just talking and you said something and I wrote it down because I want you to explain it a little bit more. You said that one of the things you’re doing right now is you are playing offense when everyone else is playing defense. Can you explain what that is and kind of what, what are you doing out there in the real estate world that our investors can be a part of where they can actually be part of the offense and not the defense?
Yeah, yeah, sure. I think we’ve been in a market and until early 2022, we had almost a decade where you just had to buy a vanilla deal and because interest rates were low, you won, you did. Well, we’re not in that anymore, right? Prices have been stubborn, you know, some people think, oh, I’m gonna wait till, you know, we hit bottom. And, and once again, I wanna re reiterate, how confident are you in your ability to know when that’s gonna be <laugh>, right? Nobody knows. Or you know, other people are just, they kind of keep going. They think prices are gonna continue to go up. I’m of the opinion of if it cash flows today, you don’t care what it’s gonna do over the next two or five years. Now, if you buy in a market where it bleeds out 70% because it was one dimensional and didn’t have any jobs, that, that’s a different conversation, right?
So, but what, when I say that, I go, okay, then we have to add value in ways that can overcome the difference between cap rates and interest rates. We’ve gotta do something, we’ve gotta maybe take on a little bit more risk if we want to get in the market right now. And one of the ways to do that is pre-construction, where you take on some of that construction risk, and that’s this deal in Indiana we’ve been talking about. And anyone that wants to hear, hear about it, Melissa can put you in touch and we can show you how that that works. But that’s one way is is we take on pre-construction and we, we’ve even got a tax abatement, we’re attacking expenses, right? We’re, we’re getting, you know, creative on these deals so that we can overcome that interest rate Delta. Another way I’ve seen it, and I know you’ve been involved in this in the past, is to do bur deals.
Buy, rent or buy renovate, rent, refinance, repeat, right? That’s Burr and that’s kind of hard depending on the market that you’re in, right? Tell somebody in Seattle to do a burr, it’s probably not gonna happen unless they’re just really good at it and they live there and that is the highest and best use of their time. But many of the clients that we work with live in these, you know, west Coast or East Coast or Intermountain Cities and, and they are engineers or doctors, and they get what Burr is and how it needs to happen, but they don’t live in a market where it’s really possible. And so we do a program, we call it the Concierge Burr program, where we, we do it for you and we’ll outline the budgets and the scope of work and the purchase price. We’ve even got a debt fund that provides the hard money as long as an investor puts the 20% down to buy the property, renovate it through our general contracting group, and then you refinance at the end.
And, and essentially what you’re doing, Melissa, is you’re getting the same cash flow, is if you put 25% down, we’re in reality, at the end of the day, you only put 10% down. That’s offense. I’m, I’m getting creative, I’m doing something different and unique to make deals work. We, we even have a got outta the box recently too. You know, our main office is in Dallas, Fort Worth and Texas is a market that people, people love and hate and, and primarily it’s because the property taxes and insurance, right? I always say two things can be true at once. The property taxes and insurance in Texas are a problem. But the second thing is Dallas just keeps going. It just keeps growing. In the next five years, it’s projected to surpass Chicago as the third largest metro in the country. People keep moving. Wow, I didn’t know that.
Yeah. Yeah. Check it out. They just keep going there. And so the taxes and insurance aren’t scaring those people away, but what we were able to, to figure out is there’s just a huge demand for what’s called commercial flex space. And these are units that, you know, a plumber, a contractor, a martial arts studio, a bike repair shop, you know, small businesses, they need a little bit of square footage with a big roll up garage door and a little bit of parking in a small office in a bathroom. That’s what they need, but they’re gonna finish out that space the way that they want to, hence flex space. And it’s dramatically underserved because, and it’s dramatically underserved for both tenants and owners. For tenants most warehouse or flex space is huge, right? I run a, you know, if I run a gymnastics studio or a small plumbing company with two employees, I don’t need 20,000 square feet.
I need 1500 or 2000 a place to put my trucks and some repairs and have somebody to answer the phone, the phones. And so that’s a big one, is that entry level of 1500 to 2000 square foot spaces. Nobody’s putting that up in any notable quantity, but there’s a huge demand, especially in markets that are growing. But how do we manage that expense problem? And what’s great is a lot of flex space is triple net, where the tenant is responsible for the maintenance, the taxes, and the insurance. So you can participate in a market like Dallas and your triple net does not negate the risk of taxes and insurance. They still need to be paid, right? But what it does is it smooths it out, you know, because most of these leases are at least three years long, and so that, that, that stuff is smoothed out over time instead of getting these unexpected spikes of, oh, I got a big, you know, a great big assessment or something like that. So that’s another way to get creative and, and do different deals and go on offense when everybody else is just kind of waiting around for rates to get better or prices to go down, which every day that goes by just kind of seems more like, I just kind of think we’re here for a while, right? So those are those are two ways that we’re doing it.
Oh my gosh, I am, I’m so excited. I I haven’t really talked to you about the concierge burr, which by the way, great name. It’s, it literally says what it is because again without knowing the details of this, obviously people can talk to and you can kind of give them the ins and outs and what this, what, what this might mean for them. But concierge means somebody’s doing the work for you. So, like you were saying, you know, anybody can do it. You just have to have the right people in place to help you do it. So again, you’re not being an active investor and taking on a second job, but if somebody’s there kind of holding your hand is how I, I think of concierge is somebody kind of taking your hand a little bit and helping you do that. What a great opportunity.
I’m excited to hear more about that one. The flex space again I cannot tell you how many conversations I have with people during the week about this, you know, Texas problem in Dallas-Fort Worth and where people really do wanna be a part of the market and it’s really hard to make that math work. So, so yeah, you explained it, you’re, you’re taking the offense here and coming up with creative solutions. And I think you’re right. I, I don’t, from all the experts I’ve heard and I listened to and kind of where everything’s heading, I, I don’t know if we’re gonna see an interest rate drop. It is what it is. And I think, you know, everybody who’s just stalling and waiting, just run the math, you know, open your eyes to opportunities, open your ears to opportunities and just see what it looks like. Quit being so stubborn on the interest rate thing. <Laugh>, we might be here for a long time. Just look at the numbers, look at the math. That’s the coolest thing about real estate investing, I think is I get nerdy with my spreadsheets and I just look at it and go, okay, what is the game plan here? What is the strategy? Let’s check out the math. Does that fit with the strategy that I’m gonna go with for my next investment? Yes or no? Like, it it’s that simple. I think people complicate it.
Yeah. Yeah. I, I do think you can, it’s not a productive exercise to try to guess what rates are gonna do. I mean, we all still guess, I mean, it’s kind of fun to talk about, but if the deal makes sense today and in a year or two rates go down, you’re not gonna be going, oh, I shouldn’t have bought it. You’re gonna refi <laugh>. That’s what you’re gonna do, right? And the cash flow’s gonna increase. So I, I, I just think that’s a good way to think about it and, and you know, if rates go up, you’re gonna be happy that you borrowed cheaper money.
Yep. Yep. You’re in a, like you said earlier, this is kind of a, that’s, that’s our belief. That’s kind of where our mindset has always been. And so it’s just so nice and refreshing to hear somebody else consistently say the same things that I believe so much in. So anyways, so let’s kind of wrap this up again. I’m gonna make a call to action and that is going to be you guys just get on the call with Steve or somebody from his team. I know you’ve got people on your team too that are really awesome, Steve, and just have these conversations, see if it works for you. If it doesn’t, it doesn’t. Great. You’re gonna walk away with some new knowledge like we shared on this podcast and you guys can just click on the link and I’ll hook you up and introduce you to Steve. What else do you have to add here? Steve? Did I cover it or you got anything else to add?
I think just one more simple thing. Run the numbers right? Too many times people are just kind of living in the, the ether of, you know, what they feel. But I can certainly help you do this. Our team can, I know Melissa can look at your portfolio. I mean, does the math tell you that selling this deal over here and buying two over there makes sense? What leverage does it make sense at? What interest rate does it make sense at? Right? Do do the numbers and, and don’t look just at monthly cash flow. We of course want it. I think that’s kind of the first step. But oftentimes the software that I use and the Melissa uses shows you what your return looks like in 3, 5, 10 years, just assuming very modest rent and expense growth of usually like 3% a year. And you’ll be very pleasantly surprised as to what those returns start to mature into when you let the deal cook, when you just let it do its thing. So look, look at the math. Don’t get too caught up in the emotion and the, and the tariffs and this happened and somebody bombed that, or, you know, people gotta live somewhere still. I learned that lesson back in oh eight and it’s still true.
Absolutely. I agree with that More than <laugh>, I’ve just seen it, you know, especially now the last thing I’ll add, ’cause that was, I don’t wanna like mess up everything you said ’cause it was like so perfect, but the biggest trend that I’ve seen talking to property managers is, you know, we saw this big boost after COVID where, you know, everybody was buying houses and rental demand did go up for a bit, but it kind of was tapering back down to actually normal levels. But now we’re starting to see a little bit spike again in rental demand. And that’s because a lot of people who were going to buy a home because of the whole interest rate thing, have decided to put that off and they’re gonna wait it out to buy their first forever home or whatever until interest rates drop. So now they’re going back to the rental market because again, like you said, people need a place to lay their head.
And where we have a shortage, shortage of housing in the United States we are rewarded by the government with our taxes as investors. They want us to create affordable housing for people. And so we are rewarded as an investor with some pretty awesome tax benefits. So it’s all I, I, I just get so nerdy and excited to talk to you, so thank you again for all of your wisdom and everything you shared with us. And yeah, let’s regroup again and, and I would love to have this conversation with you again. And I know oh, as, actually the last thing I was gonna say is with the Indie project, are there opportunities available for people right now if they talk to you? Yep.
Yep. Exactly. There, remember, like I said, it’s pre-construction, so we’ll, we’ll look at the plat map with you, we’ll talk about your timing and what unit may be the best fit. Our, our lenders got everything squared away where we can help you get the construction financing and walk you through exactly what that process is like and, and yes, sometimes you can do 2 10 31 exchanges on pre-construction. So yep. We’re, we’re just kind of building our way through that project right now. I’ll be out in a couple of weeks where curb and gutter just went down and Asphalt’s going down. The very first units are gonna be done that investors have already closed on in September. They’ll be on the rental market here in a couple of months. So it’s gonna be cool to see some units turnover and, and start moving tenants into the completed ones.
Amazing. I’m excited to see that project as well. So thank you again Steve and you guys check out the show notes and I’ll hook you up with him.
Thanks for having me. Catch you later.
You’re welcome. Bye.
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