Welcome to The Deal Pen, a podcast that digs into the details of untold stories from crafty real estate investors. And now here's your host Avi Rasowsky.

All right. We are live in The Deal Pen with Curtis Waters. Curtis is here in Charlotte, North Carolina. How are you doing today, Curtis?

Avi Rasowsky

I'm doing fantastic. Today's been a great day.

Curtis Waters

Excellent to hear. I think we first met at a meetup, probably a local real estate meetup in Charlotte. Is that right? Yeah. And I know I see you there often, but I would love to dig into a lot of what you've done over a long period of time, very consistently. One thing I'll say before we jump into your side of your story is a lot of people are blown away when you stand up at a meeting, you tell them how many units you have and how focused you are on building your portfolio and building it the right way. And I know there's certain metrics you look at, but is there any particular place that you think would be a good place to start on sort of your journey getting into investing and what you're doing now?

Avi Rasowsky

Well, I can, I'll give you a short synopsis of my background. So like a lot of people, I went to Florida Tech got a degree in electrical engineering. I was really into electronics as a teenager and did that for a while. Changed some companies, got more into sales and did a lot of high-tech sales until about 2014, about the time I really started to dig into real estate. I got a call one day, And they go, hey, we didn't get our next venture capital funding. So we're going to give you a month of severance and good luck. And I really didn't want to do it anymore. So I jumped with first feet, both of my feet into real estate. And I realized at the beginning that I needed to build relationships. So I started going to local real estate meetings. And I think that's my recommendation to just about anybody. Now, when you're starting out, there's so much you don't know. You can read a book, you can buy a course, you can listen to podcasts. But until you get out there and do it, there's so much you don't know. So I went out. And I started building relationships. One of the first strong relationships I built was with a woman that I met who at the time had roughly 20 years in real estate. And that was Bonnie Laszlo. And what she taught me was there's a lot of benefit to growing a rental portfolio. So that has pretty much been my focus. Along the way, I've probably wholesaled a handful of properties. And I think I actually flipped maybe two. I don't like the tax impact. Don't like the tax impact of wholesaling. Don't like the tax impact of flipping. I've done a lot of renovations. but that's renovate to rent. So I started 10 years ago, got my first rental in 2014 and just started building relationships and experience from that.

Okay, amazing. So backing way up into high-tech sales, when you got that message about sort of the lack of future with that company. What type, just out of curiosity, what type of technology were you selling?

I was, I had sold all sorts of things from computer networking, to wireless LANs, to learning management systems, and so on. I worked with a lot of universities, a lot of fortune 1000 companies. Okay. And so on.

Okay. And then, and so the next round of funding was never, never happened for that company. And then that was it. You went, you went full time, full focus into real estate investing. Yes. Okay, nice. When you first, so you had this realization and mentorship around the value of a real estate rental portfolio. Was that it? You just started building one rental at a time or what was the beginning of the journey for you?

So yeah, I started out one at a time. I bought a two bedroom, one bath home in Charlotte and 10 years ago, that house was, I think, 33,000. So tenant was paying under market rent. I wanted to get to market rent. Oddly enough, she didn't have any heat or air conditioning. So she was using space heaters during the winter. She goes, my electric bill is nuts. And so I wanted a tenant in there. I said, look, if I get you, heating and cooling, a central system, will you stay and pay more?" And she said, yes. I bought the unit wholesale, found someone to put it in, and went from there.

So 33,000, that was including the wholesale fee, right? Yeah. So you all in, okay. And do you remember roughly what she was paying for rent? Before and then after?

She was paying $550 and I had an agreement to get her under a year lease for $700.

Okay, nice. So, and all it really took at the time was the new heating and cooling. How much did that cost?

I think I spent $3,000 on that.

Okay, nice, man. Those must have been fun days to be able to do that.

That work was already there. Previous landlord sold her some bill of goods. Oh, someone stole it. I think what actually happened is her previous landlord wanted to use it on a different house. Oh, man. You know, I feel it's important to do right by people. I mean, it is housing code. People need to have heat.

Right. Okay. Well, I'm glad you came in and did the right thing for her. So she stayed for a while or no? Yeah.

Okay. Yeah. And I followed that up in the same neighborhood with a duplex for $41,000. And another investor had found it and they were scared. They go, well, I don't know that I can do this. So I struck a deal with them, hey, I'll leave you in the deal if you help out a wholesale, just assign it to me at no cost, and left your end for 25%.

Okay, nice. That's a pretty solid. So these two specific properties, do you still have those or no?

No, I no longer have them.

Okay, wow, those are amazing price points. And they're in or around Charlotte, somewhere near the area? Yeah, those were in Charlotte. Jeez, okay. I'm sure they're worth over $250, $300 probably, right? Have you checked?

Now, it doesn't really matter to me. At the time, it was the right thing to do.

Exactly. Well, I look back a lot of times at deals, I say, I regret selling it, but you do what you have to do in the moment you're in. Yeah.

Yeah, exactly. Very cool. So then I'm I looked at, you know, what else I could do. And at one point, you know, I was buying in the city of Charlotte. And I had other investors that started to talk about success that they were having in a suburb city of Charlotte, Gastonia. And I bought three houses there. I was at a real estate meeting one night and somebody came in and go, Hey, I got three houses on one parcel, and it's $45,000. And that included his wholesale fee. That was for all three as a bundle? All three as a bundle. One bedroom, a two bedroom, and a three bedroom. So I shot my hand up and said, I'll take them. Now, I didn't have the money. Now, I did get started buying the first couple using business lines of credit. So if you haven't used more than 30% of the credit that you currently have, and you have over a 700 credit score, you can get business lines of credit. And so that worked out well for me. So I'm at this meeting and somebody says, hey, I have three homes in Gastonia. So I shot my hand up. I didn't have the money. My money was already used up. So in the room was someone else that invested out of their self-directed IRA. And this guy had seen that I had some properties and I had them performing. You know, I always feel it's important for investors when you're talking to others, let other people know about the wins that you have. That way they know that you're a performer, that you can do something when you're starting. That's very important. So this guy said, well, I'll take a chance on you. And his terms were a 15% interest rate plus 3 points. Now, I've run into investors that say, oh, there's no way I would do that. Home mortgages are much less. Well, these wouldn't have qualified for a home mortgage. Three homes on one parcel, at the least, are a commercial mortgage. They needed work. They didn't have tenants. So you go with what's called hard money. So it's based on the assets. So it was either say, well, I'll pay a reasonable interest, which wasn't going to happen, and get zero, or I can pay 15 plus another three points and end up getting something that's going to work. I don't like to put any money in if I don't have to. I found another investor who put down the down payment because the private lender wasn't going to fund 100% of it. And I shared a percentage of the increase in value. So I think we kept that for a year and a half, and I think he got 66% return on his money.

The one who helped you with the down payment? Yes. Okay, very nice. And then, so yeah, you had a lot of winners in the deal because the wholesaler got 25% of, I guess, the cash flow, or did they get equity too?

No, the wholesaler, they got I don't know how much they made. I don't ever ask how much a wholesaler makes. I don't care. Because what's important for me, and I see other investors get caught up on this, well, the wholesaler made more than I did. Well, then maybe it wasn't a good deal for you. Or if it was, they found it. Right place, right time, relationship, whatever. This deal worked out, the hard money lender was lending out of his self-directed IRA. He made a good return out of that. I think the other guy, I think, so I didn't have to come up with any money. I was getting started. I offered him 50-50. Yeah, that's great. So I sold it as a cash flow on property. So purchase price plus renovation to get it ready to rent. I was in it for $61,000. All three houses I only put $16,000 in. And I kept it for a year and a half and sold it for $134,000. Nice. Plus I had the cash flow every month, and it was over $2,000 cash flow. Yeah.

That's great. When you were across all these examples in some of your early deals, it sounded like you had a pretty good knowledge base from probably some of your mentorship and just getting networked in. But was there a specific criteria that you were using, or do you have a new set of criteria when you look at, OK, I'll pay X amount in return for a certain amount of cash flow? How do you analyze that when you're buying something, or what were you using back then as well?

So I'm fortunate in that you can't do this well. I don't say you can't. It takes a little bit of effort to find a home in Charlotte for under $100,000. They are there. And I think you and I have had this talk in the past that if you go out and you look and you're talking to the right people, yeah, they're there. But I could find them easily. 30 minutes outside of Charlotte and Gastonia. So I never paid more than $100,000. So that's either per house or if it's multifamily per unit. The other criteria I have is a $200 benchmark. So if I bought a property for $100,000, I look at $1,000 a month breaks me even. Are we in real estate break even? Hopefully not. Yeah. So I need to have at least a $200 profit. So if I bought it for $100,000, $1,000 breaks me even. I want a $200 profit. My rent should be a minimum of $1,200. So that's a criteria I use. So has to have a $200. And then I look at cap rate. Now, I do run into other people in real estate that say, no, no, no, you can't look at cap rate on single family. Well, if you're a landlord, whether you want to admit it or not, you are running a business. And in running a business, you need to get a decent return. So I look to get a 10% cap rate. And I see other people that talk about terms that don't exist. They call it gross cap rate and net cap rate. That's not a thing. Cap rate is net operating income divided by the purchase price plus any renovation you do. So I'm looking at Bonnie Laszlo calls it, she uses the analogy, if you're a W-2 employee, who pulls money out of your paycheck? Uncle Sam. Uncle Sam, right. Well, Uncle Sam has a brother who's a real estate investor and he's Uncle Tim. So U-T-I-M, U is utilities. So if I got a single family home and the tenant's paying for that, They're paying the utilities, well, then the U is zero. But if I had a multifamily, let's say I had a triplex, and the waterline is shared, and maybe I have a street lamp, the landlord is paying for that. Then there's taxes is the T, insurance, and maintenance. We use a standard per 100,000, we say that The maintenance is $100 per unit per month. Now the caveat to that is you buy a property and it's got a bunch of deferred maintenance. If you didn't take care of this stuff ahead of time, it's likely to cost you more. You'll pay me more, pay me later.

really a lot. I try not to do any rentals. I have mostly notes, but I do have some rentals that I call them accidental rentals, where if we bought a property, very similar to your first story, tenants in there, they're willing to pay more. We can fix a couple of things. Oftentimes, those couple of things are a lot more than Back in 2014, I wish I could pay $3,000 for an air conditioning unit now. I think it's probably at least $6,000 or $7,000 for a decent unit. But yeah, if you leave the old one in, you're just setting yourself up for problems if it's a rental.

Yeah. Well, when you look at being a landlord, actually, it's not that much difference if you're flipping. Controlling and managing your cost is vital. I can call up someone local that advertises on TV and they're going to charge me just like the homeowner next door. As investors, we don't pay those prices. I usually go in and work with licensed HVAC folks that will install for a reasonable price. And when they're ready to buy the equipment, I pay their supply house.

Yeah, that's a great point, because a lot of these big ticket items are, if you're using these big name brands like you're referring to, which we won't mention names, but they can be, I mean, that air conditioning unit we're talking about could be $15,000 or more now. It's insane. And then they'll offer payment plans with very, very high interest rates. Yeah, it's hard to watch because you know, it's like, okay, there's a lot better options out there if you dig and you've become really good at finding those people that are happy to get paid what they're getting paid. They're just not spending a ton on marketing, right?

Sure. If I have a big operation, electrician, HVAC, plumber, whatever. And I've got a load of trucks and I've got a billing department and a lot of people. I have a lot of costs. But if I'm dealing with someone small, they likely want my business. So maybe they go out and they do the big expensive jobs where they're making a ton of profit and they fit me in. Yeah. Because a lot of times what I need is an emergency.

Exactly. Yeah. Yeah. You can, if you can set it up where you're okay, taking it when, whenever they can fit in a day to install, then you can ideally get a much better price. That's great. Um, so you have at that point in your story, you've got to, you know, one house at a time and you got into multifamily eventually. Uh, was that pretty quick or, or no?

So as we've talked about, I like to talk about the power of relationships. So I got a notice one day that Gastonia was going to take, there was an owner, he had five houses on one parcel and three of them were in bad shape and the city was going to demolish them. I negotiated to buy these houses for 15,000 a piece. And I turned every one of them around. By the time I was done, they were all rented at market rates. Permits were pulled, code enforcement passed. And what they told me whenever I was done is most people take on a project of this size and fail.

That's what code enforcement told you?

Yes. Other cities code has this as well. They always look at a new investor that they haven't seen as someone that's going to fail. I didn't fail. And so what I did is I believe in touching base with people. I think in Europe, they call it, you need to remain top of mind. So what I did is I went into the Office of Code Enforcement about every six weeks. And I was there one day in 2016, and I asked the fateful question. I said, hey, do you know anyone else that has multiple properties? And I'm thinking about getting another four, five, six. And they tell me, well, there's an out-of-state owner that has about 100. And they had a local guy that didn't work out, and they said that they would be interested in selling. So I made the call. I had been working with Bonnie Laszlo. I was part of the group when she decided to form a new real estate brokerage. I got my real estate license for a couple of reasons. One, not to carry people around and show them houses, but it gives me a layer of credibility. And whenever I buy or sell, I keep the commissions. So I went to Bonnie and I said, Bonnie, there's an opportunity for 100. I'd like for you to talk to the guy. He's calling me back in an hour. And if we negotiate something, I'll split this with you 50-50. And we negotiated a great deal where I think it was a $50 house option fee, good for three years. I could sell the houses and split the profit above their base. It was like 20,000 for a vacant or 30,000 for an occupant. That deal and the relationships, it started with code enforcement, went through Bonnie, went through this new seller. It ended up changing my life. I still have a lot of those houses to this day.

So you ended up, out of the 100, how many did you actually close on?

I think Probably, well, I closed on all of them. I didn't keep all of them. Some of them, we ended up doing a 1031 tax exchange because we had a limited amount of time. So we took some and sold them. I think at one point we sold something under 10 in order to buy 15 to 20 more.

Okay, wow. The relationship, obviously, the power of relationships is clear and present there. The other thing that's really fascinating that people don't talk about a lot is the option. Exercising options on real estate is such a powerful tool that I personally haven't done enough, but I definitely want to because you see in these Facebook groups and other forums like, oh, what's the best use of whatever, 10 grand or 50 grand. And then a friend of mine, he'll sometimes say, go get a hundred options. So how did you know to use the options? And what was the reason you use that instead of just saying, I'll contract to buy them?

Because if I said, I'll buy them all, I'll pay cash. Well, now I'm out finding lenders. Yeah. And or partners that could come up with that. And I already had a partner. It was Bonnie. You know, you developed a sense of trust. Yeah. The other thing that we saw is a number of these houses were under code enforcement violation. OK. I remember there was one house. Well, actually, two of the houses that were under code enforcement. you know, the folks at the city were surprised that we didn't demolish. It's like, no, they're fixable. Yeah. So that worked out. So, you know, we needed the time. Yeah. So we negotiated. And this was based upon the relationship that I did with, I developed with Bonnie. You know, she had dealt with options in the past. And An option on these properties made big financial sense. So the option said we can buy these at X price over the next 36 months.

Okay, perfect. So I was just going to say that for people that don't know. Tell us if you don't mind how the paperwork is set. How are you protected with that option?

So we put together the paperwork, we ran it by our local favorite closing attorney, and the seller signs it, and the closing attorney ends up recording it with a register of dates.

Okay, nice. So if the seller, I mean, obviously there was a trust there with the seller. It sounds like you weren't worried about this one, but in other cases, if you have an option, it's recorded, it's fairly secure because if a title search comes up, it's gonna see, someone's gonna see that, right?

Right. So here's the other thing that you get with an option. Beside the option, we also had our closing attorney agree to act Uh, as, um, he had power of attorney to close these so that whenever it was ready, it didn't have to go back to the seller and, you know, do all this paperwork transaction. It could be done right. Oh, very interesting. Here's the other challenge you run into with an option. So we had gone in and we had improved these properties. 100 properties makes a difference in a neighborhood or in a city. So we're increasing the value. So at some point, the seller has a thought in the back of their mind, hey, what if I don't want to close on these anymore? What if I want to keep them? What if someone else comes in and offers more? So the option plus the power of attorney gives you that protection. It's a protection you need as the buyer.

Interesting. So, yeah, I hadn't heard that before where the closing attorney will get. So the closing attorney was the attorney, in fact, for the seller specific to those properties, right? It was limited to those properties.

Yes. So for instance, I would say, hey, we're going to close this property. And the seller would be asked, hey, are there any special charges? We did agree that the seller on an occupied property had put an improvement, a new HVAC, new electric, or whatever, that we would cover that. So all that gets cleared, and a simple email that says, yes, you can close this.

That's great. That's very cool. And you made it pretty frictionless, it sounds like, because you had everything done up front, and then you had just go green light, green light, green light when you were ready for each one. Right. That's cool. Very cool. So that changed your life. Tell us a little bit about that. How did it change your life?

Um, a lot of deal flow. Okay. So not only were we, uh, you know, we did sell some, uh, but the others we kept. So with that kind of portfolio, plus the experience I had and the fact that I had partnered with Bonnie, who had a significant, uh, not just local, but national exposure. we were able to go to various private lenders and negotiate terms in order to buy these houses. Because a lot of them, they either needed work to increase the rent, or they needed work in order to get them rent ready. The ultimate plan and we did this after a couple of years, is we started taking these properties and we would do a cash out refinance. So we only do 30-year refinances. And the nice thing about it for the most part, when you do a cash out refi, that money, yes, it increases your debt on the property, but the money you pull out is not, based upon the tax advice we've been given, is not taxable to you because you're still responsible for that debt.

It's not a sale, it's a loan. I'm always curious to know, I don't know if you have a rule for yourself or not, but everyone's got their own risk tolerance, I guess you could say, with how much leverage they want on properties. And some people leverage up to their eyeballs and some people want very low debt. It sounds like you lean more towards leveraging. Do you have any specific parameters that you try to stick to when you're getting loans?

Well, the loans that we have on our properties are what are known as DSCR loans. Okay. And that stands for debt service coverage ratio. So I'll give you an example. Let's say that the principal interest taxes and insurance that the lender is charging you is $1,000 a month. They look for a DSCR ratio of 1.2 or higher. So now my rent is required to be at least $1,200.

So that's right in line with what you were saying before. It gives you that $200 cushion and obviously anything better is gravy, right?

Right. Yeah. So if you buy to the benchmarks I'm talking about, now your DSCR loans, you meet their criteria as well. So it used to be on a lot of these loans, you would be limited on the loan to value. percentage, but with interest rates where they are today, it's primarily the DSCR.

Okay. Obviously, every few years, you've got property tax hikes and insurance goes up, and so it can adjust as you go, right?

Yeah. We faced in the county where we buy, I think over the portfolio, it was somewhere like a 60% increase. I run into landlords that say, hey, I'm going to keep my rent stable, I'm not going to increase it. The challenge is, does your rent still meet that 1.2 ratio or higher?

Yeah, it dwindles away pretty quickly if you don't raise your rents.

Right. And luckily, we've been in a period where values have gone up as well. Yeah. So, you know, if I look at loans that I did two or three years ago, the values are significantly higher than they were then.

Right.

I'm not going to refinance them.

Right.

So, you know, that gives me more cushion as well. When I look at the importance of networking, one of the key things I tell people is, let me give you an example. I was at a real estate meeting for multifamily six years ago, roughly. And there was a guy there, he's a wholesaler, he's walking around. Then he goes, hey, my name's Jim Jones or something. I'm a wholesaler. If I can help you out, let me know. and he hands you the card. Well, that card went right in the garbage. You know, he didn't ask for my contact info. He didn't develop a relationship. You know, it's not important who you know. It's important who knows you. And what do they know you for? Do they know you based on the value you provided? Do they know you based on your reputation? How are you known to people? That's so important. I had a wholesaler that I was dealing with, and he knew that Bonnie and I had been buying a lot in town. And he came to us and he goes, hey, I've got a 20-unit apartment complex. And it was a great deal. Bought it for half a million dollars. or 25,000 a unit, and he made 100,000 out of that. I was happy for him. I'm always happy for him. I see his pictures, he's off in Columbia or some exotic location. Hey, if I can help someone out, because that was a great deal. bought the property, and I started developing a relationship with the seller. Old school guy, he found out after we had closed on this that he owned a bunch more, he owned 53 more.

And- He owned one more unit with 53 in it, or he- Oh, he owned three more, a total of 53 units. Wow, okay, okay, nice.

So, uh, you know, I bought some of the smaller ones whenever he was ready to sell. And he tells me and he goes, nap, I'm not going to sell the rest. I got 45 left. I'm going to leave them to my son. Okay. Well, through the years I had met his son. What do you think I did? I got his contact info. Yep. So I go to visit him one day and this was roughly November of 2022 and I walk in and this guy had a little office at his apartment complex and he takes cash and I'm there and a tenant walks in his left hand goes over to his desk and touches his pistol and this is the son of the of the previous guy no or this is the old guy that owns it okay and This was standard for him. Every time he went in his office, his pistol was sitting on the desk.

What a way to live.

Because he takes cash. Yeah. It's dangerous to run around with cash. Yeah. Our property management operation, the one that we use, everyone pays online, cash flip that they take somewhere and pay. we don't deal in cash. So the guy leaves, doesn't pay all the rent, of course, pays $100. And I asked him, I said, do you like having to have a pistol on the desk? And he goes, nah, he goes, but I don't have fancy property manager like you guys. And I said, then why do you do this? He goes, I like the money every month. And I said, OK. Do you think your son still wants us when your end comes? And he goes, yeah, probably not. So I went down that line of, hey, what do you want? And I said, hey, if I could offer you $10,000 a month, you know, could we work something out?

And this is a 45, it's a 45 unit complex.

45 units, yes. Okay. So we ended up negotiating a fantastic deal. He funded 80% of it with a five-year bull term. Okay. So sooner than five years, you know, optimize it, take it to 30-year financing. And we just kept, keep rinsing and repeating that same That same thing. I had another individual, he had purchased properties from us back in 2018. What did I do? I started keeping in touch with him because I knew he was a landlord. And we talked about, you know, things that we had faced. And he talked about things that he acquired. He ended up acquiring properties that I had owned in the past.

Okay.

and he moves to Europe. He calls me up last year and goes, hey, I think I'm going to liquidate everything. Can you list them for me? As a real estate agent, yeah, I could list them. In talking to Bonnie, we decided, why don't we offer him rather than him listing them? Because we know that some of the units have problem. Why don't we offer e-owner finances? And he agreed to it and we bought 26 rental units in one fell swoop.

So that's 45 and 26, that's 60, 71 units all on terms from those two deals. Yeah. That's awesome. So basically you lit the, going back to the first story with 45 with the guy in the pistol, he, you heard what he said is I like the money every month and you basically gave him a way to get the money every month without having to deal with a gun.

Yeah. Or even come in because, you know, Yeah, yeah. He lives minutes away from the property.

Jeez. So that's very cool. And I'm curious if you can think back to the, just to kind of dig into the numbers, you had 45, what was the average rent and kind of occupancy when you took it over for the 45?

It was 100% rented. Okay. But the rents were under market. They probably, averaged 750.

Okay. And 750, I'm just doing the math here, times 45. So 33,000 collected, do you know what he was taking home on that? Like, was he taking home more than 10,000 a month? I guess he probably was. You gave him, and then he'll get his balloon payment. You set it up for five years? Yeah. That's awesome. So we're kind of in principal and interest. Okay. That's great. That's a very nice note. I've never personally gotten into multifamily. I've thought about it. I've never put my focus there. But a lot of people that I know that have, they have a very hard time breaking in. And it sounds like what you've done to continue with the pattern is get to know people, understand what they want, understand what's important to them in their life, and ultimately, kind of figure out when the time is to buy from them. Is that as simple as it is?

Sorry, I got my dog barking in the background. Oh, that's all right. Yeah, again, it's building relationships. So, you know, I've gotten to know people that have these properties.

Yeah.

and you surround yourself with people that are in the space that you know you want to be, right? As opposed to, I guess, when you see people building relationships wrong, you gave that example, right? A wholesaler comes up, sticks a business card in your face and moves on. What's an example of people that have approached you the right way? It sounds like that wholesaler that you made 100,000 but brought you a good deal. What are other ways that you see people doing things right and then really building up their credibility in your eyes and building their business the right way?

I'll give you an example. Something that I don't see in a number of wholesalers is they think short-term. What money can I make now? What if instead of making all the money now, I brought a successful investor a deal and said, hey, I'd like to learn what you do. And instead of taking a wholesale fee, they niche themselves into the deal. Now, not everyone's going to go for that. But I'll be honest with you, I've never had anyone even suggest

Yeah, I love doing that. I've done it a few times, sort of mutual conversation where someone will bring a deal and I'll ask them and say, do you want to get paid now and be out? Or would you be interested in partnering on it? And it's worked out really nicely on several JV deals. But yeah, you're right. A lot of people don't think about that from the get-go. Because you're right, they want the money now. And I was very much in that mindset when I first started investing, is you want that payday at closing, right? But if you can think about the long haul, it's that delayed gratification, just like anything in life, it can pay off over time, right?

Yeah. And I think one of the things that you look at is the whole concept of long-term and short-term and marry that with the taxes involved. So if I'm wholesaling or I'm flipping, those are both businesses. So I'm dealing with federal tax, dealing with state taxes. The big key that a lot of people don't realize is in running a business like that, I'm also dealing with self-employment taxes. You got a W-2 job, Uncle Sam pulls Social Security and Medicare out of your paycheck, your employer matches that too. If you're self-employed, you're paying that. Doing these activities can easily cost you a 45% tax hit on the high end.

And a lot of people don't think about that, right? They're just making the money now and then they think, oh my goodness, they look back at their books.

Yeah, because most investors, until tax time comes, they don't look at their impact. Imagine if you bought a property and you renovated it, you used hard money lender or private lender, to purchase it, and you put a tenant in there, and you keep it for at least a year and a day. Now, you're into long-term capital gains. I'm only paying 20% on that, depending upon your tax bracket, rather than paying a real big hit on it. I've likely cut my tax impact in half.

Yeah, just by setting it up properly from the get-go. Right. On a sort of different topic, I'm curious on your thoughts on the difference, because you've owned both, many of both, the pros and cons of single-family versus multifamily. Do you think about that very often? Or what are your thoughts on which one's better and what's better about each?

So I know people that All they want to buy is apartments. So once you get over five, multifamily, yes, you can call two or more multifamily. But in the real estate world and the lending world, four and under is residential. Five or more is commercial. So if I look at how a single family home is valued, so I buy a single family home, for $100,000. I keep it X number of years. And let's say the value is $200,000. That value is based on not really very much the cash flow from an investor standpoint. Because I might be able to say, hey, tenant, I'm not going to renew your lease. Goodbye. And I sell it retail. So in selling at retail, now I'm based on the comps and how much someone's gonna pay for it. So if I go get an appraisal, the primary thing they look at for and below is the comparables. In multifamily, comparables have much less impact because it's primarily based on how much income do they produce? Again, you come back to cap rate. So every area, depending upon the year, time of year, economic climate, might be a different cap rate. And that's also based upon the property itself. For a class A luxury property in town A, it might be valued by an appraiser at a 4.5% cap rate. If I'm selling something, the lower the cap rate, the more money it's going to sell for. You look at cap rates when you sell, even though when you buy, I always recommend you look for a 10% cap rate or higher. In town A, it might be four and a half for a luxury apartment. Town next over, it might be a lower value based on the cap rate. Maybe it's a 5% cap rate or five and a half. especially the larger the property, the bigger impact the cap rate is going to have. How do you make a difference in cap rate? You increase the rent. If you bought a property at a 10 cap and We do everything on a 10-month basis. It makes the numbers easy. So if I were to increase the rent by $100 a month, say on a 10-month basis for oops, vacancy, property management, whatever, I look at 10 months. So that gives me an extra $1,000 of annual income. At a 10% cap rate, I add another zero to the end, that increases the value by $10,000. It's very difficult in most real estate to drop your expenses. It is possible the larger you get, if you cut down various items you're paying for, but the biggest swinger is going to be increase in rents.

I would imagine when you first buy, you may be able to reduce, I don't know exactly, but let's say you can get expenses to a certain level and then you're saying it's pretty stable, then your bigger variable is your top line rent collection.

Yes.

Okay, okay. Makes sense. Increase your rent and you're increasing your value. Yeah. If you're in a market where you're dealing with a much lower cap rate, every increase in rent, has a much bigger swing in the value.

Are you sticking to mostly still buying around the Charlotte area, or do you buy in other markets as well now?

Mostly in the Charlotte area. I'm open to anything that's going to catch for.

OK.

If I'm going to go somewhere where I've got to drive a long distance or fly, ideally, it's going to be a large enough size to make that worthwhile.

Absolutely. I get people asking me, what would you buy out in this town? I'm like, well, if it's a slam dunk, I'll go check it out. But if it's a marginal deal, no.

Well, if it's local, I know what my property management is. This is where a lot of investors get caught up as well. trying to save the wrong amount of money. So let's say that you have a property, it's $1,000 a month, and you have two different property managers. Property manager A charges you a 10% management fee. So for every $1,000 they collect, they keep $100, you get $900. Property manager B says, oh man, I'll make you a great deal. I'll charge you 70%. For $1,000, he gets 70, you keep 930. Oh, wow, look, I'm putting more money in my pocket. What you don't know is what happens if there's maintenance needed. What is that charge going to be? That is where most property investors end up having an issue is they don't understand the repair cost. Or if something happens and let's say that a bathroom needs to be remodeled, what's that going to cost through your property manager? Will your property manager allow you to use your own people? Will your property manager show this property multiple times whenever it's vacant? I had an investor I was working with, he bought a five unit. It looked really nice. And he went with a property manager, I think charged him 8%, and he wanted to remodel a bathroom. And he asked me, what do you think it's gonna cost to remodel the bathroom? And I said, shouldn't cost you over 2,500. His property manager told him 5,500. Because that's what the property manager actually makes his money on, is on repairs and remodels. And then he goes, well, what do you think it'll rent for? And I rented another property larger in size, but I use baseboard heat and window units for air conditioning. This had a full HVAC system that was relatively new. And his property manager gave him a number that was $125 a month less than what I was getting. Made no sense at all. But now the property manager only has to show it once. If you need repairs, he has a big markup to it. So I normally tell people, it's like a lot of things in business, it's not what you pay, it's what you net.

Yeah, absolutely. I've heard you say before, and I don't know if you still go by this, but you're obviously in it for the long haul with cash flow, but you will sell if you can get x number of years of cash flow in your pocket today. Do you still have that mindset of you've got to hit that certain benchmark to sell?

If I could get at least five years, then yes, I will sell. Ideally, what I'm going to do is if I sell, I'm going to replace that. I'm going to do what's known as a 1031 tax exchange. I'm not a tax professional, but it's a provision in the tax code that says I have an income property. It has to be income property. It could be a residential or commercial property. I'm trading like for like, income property for income property. Then I can buy this and not pay that capital gains tax. The other thing a lot of investors do is they're looking for cost segregation and all these ways to accelerate their depreciation. It's good until you realize when you get ready to sell, and you're not doing the tax exchange, the IRS wants you to recap, they recapture that depreciation you took. If you took 100,000 worth of depreciation, I think currently, and you can look at it, I think it's like 25%. My decisions are very in line with tax impact.

Yeah, so you're consulting with your tax professional to figure out what makes more sense on what kind of taxable events you have.

Right. And I see other folks that say, well, I want to take some of the money. Right. Well, you still take some of the money and pay taxes on it. Right. And the rest you defer. Yeah.

So just as a napkin math example, if you say, so five years of cash flow, if you're only getting 1,200 a month, am I thinking about that right? 1,200 a month times 60?

Well, let's say that my payment was 1,000.

Okay.

So I'm netting 200 a month. Okay, got it. Or 25, what is that? 2,400 a year. Okay. So if I could get ideally, say, 10 years.

Yeah. So 200 times 120 months. So if you could get 24,000, I guess? Right. That would, in your pocket after all of a sudden done with the sale, that after taxes, I guess? I don't know if you think about it that deeply, but

No, because ideally, I'm going to do a tax exchange where I'm not going to pay the tax.

You're just going to roll that 24,000 into the next cash flowing asset.

Right.

OK. Interesting. Yeah, I heard you say that at one of the meetings a while ago. And I was like, oh, I never thought about that. That's interesting. Because it sort of begs the next question is, well, so what's it all for? What's the end game? Are you trying to build something to a certain level? How do you look at the path? What's the destination for you with your portfolio?

The destination is to build up to a monthly income that I'm comfortable with. And if I need more, I buy more. The other thing I look at is because I bought right and I didn't stick a bunch of it in my pocket. I'm to the point where I have no money invested.

So you're talking about you've gotten deals with the help of private lending and seller terms and not your own cash.

And then cash out refi. So that any money I put in, I've gotten back.

Obviously, you've built up quite a reputation of being a credible investor. You have, I would imagine, a much easier time finding private lenders these days How did you, if you don't mind kind of going back for a second, then we can wrap up in a few minutes, but how did you get to a point where you were seeking out investors? Were you hunting for investors? Did they come to you once they figured out what you were doing? Like, what was that path and how intentional was it for you?

So I searched out people that I saw at meetings that said they had money in a self-directed IRA.

Okay, that was the criteria, as you know, they've got it.

Yeah. And then you find out that other people come into meetings, you know, you might look at them and they say, shoot, this guy isn't buying anything. But what you don't know is what he's doing in the background.

Yeah.

He's funding other people's deals. Yeah. You know, a lot of investors have money, you know, they left ABC Industries where they had a 401k, they put that money into a self-directed IRA, they're usually not happy with what they get out of stocks or mutual funds. They can make so much more acting as the bank. What I see over and over again is, well, if I look at any real estate transaction, who always wins? and it's the bank. So why not become the bank?

Yeah. Is there a common theme that you see across lenders that you've worked with over the years? Like they think a certain way or they just want passive income or they're not happy with stocks, like you said. What is the mentality that you see that may be common across many of them?

They're looking for investments that have some collateral to them. If I buy a stock or mutual fund, that has no bottom to it. Yes, the stock market, hopefully all your stocks aren't going to go to zero, but I can actually see a house that I loan money on. That's important to a lot of people. And other people say simply, hey, I don't want to put the effort out. I don't want to deal with tenants and toilets. But I see a lot of value there. And so they become the short-term bank. Long-term, I always go to a 30-year lender. But every time I buy a project, I go back to my wealth. of private lenders. And the other thing I do is if I complete a project, I always make sure there's another opportunity so I can roll this investor into the next opportunity.

That's great. I love it. Is there anything else that you would share? I mean, there's such a vast set of experiences that you have, and I think Maybe I'll pinpoint the question more. Is there anything else you'd share with people that are getting in and actually doing the work to find deals? What would you say to those folks, based on what you've been through, how to get started on their journey the right way?

So my recommendation would be guard your reputation. So unfortunately, real estate You know, people that are in this, unfortunately, there are people that have been deceived. Flashy folks, folks that talk about their great history that probably didn't exist. There's so many resources out, you can check people out. Hey, not everyone is going to have a stellar reputation. The key question is, do people pay their debts? Are they making their monthly payments? Do people do what they say they're going to do? And if you're getting started, that's something you need to look out for. I know people now that when they're vetting deals, one of the questions they're asking is, will you personally guarantee this? And I always say yes. So let's say that, and I see this a lot with flippers, someone's getting started and They go in, they take on a project, and it fails. Ideally, they're doing everything they can to make this private lender whole. Because you screw up once, what does that do to your reputation? Unfortunately, in the age of the internet, there are so many, there are shysters out there, unfortunately. Make sure you're not one of them. Mistakes do happen, but if a mistake happens, make it right. Keep communicating. This is the other challenge a lot of folks have. Things, you know, occasionally there's a bump that happens. Well, I can't pay you back today. But you communicate that. You don't wait until you're late and then not communicate.

Yeah, that's a great point. I've seen, there's a gentleman that I know does a lot of private lending. He posts a lot on Facebook about it too. And he talks about that. He'll give like stories about situations he's in with borrowers and a borrower will ghost him and he's like, hey, just talk to me. I'm not mad at you, right? And I personally have experienced where if I'm, let's say I've got an owner finance buyer that's late. I much more appreciate those that, okay, I know they're late sometimes or maybe habitually, but they're always calling me and saying, all right, hey, I can't pay it all right now, but I'll pay you this week and then in two weeks, I'll pay you this. Whereas I have, unfortunately, several that owe me money that just don't answer my call and don't message me back and pretend like I don't exist. That's way more frustrating from a lender's perspective, I can imagine. So yeah, communication is key. Even if you can't, I mean, obviously, ideally, you're doing everything right and doing what you say you're going to do. But yeah, things happen. Things go wrong in real estate. And as long as you can make it right.

I think the final thing that I recommend, especially to startup investors, is I know there's a desire. I want to keep 100% of the deal for me. Yep. I don't want to part. And being a lone wolf can work, but I hear people talk about this concept of the velocity of money. Let's get it done and let's get it done now. So for a lot of folks, I think it's important to consider partnering with another investor. You go in, you bring them a deal, or you go and meet with them, hey, Can I partner with you on this deal? And even if you don't make a whole lot of money on the first couple, I mean, I was talking with a private lender, a local hard money lender, and they will lend you money. They don't pull an appraisal. They use a broker price opinion. They don't even check your credit, which is not common these days. But they won't lend to you if you don't have any experience. They do the same thing, they recommend that you partner with somebody. I've seen investors where they're ready to let deals go because they couldn't find the money. I recommended either Bonnie or I talk to them and go, hey, why don't you find someone that will partner with you? Fifty percent of something is better than zero or 100 percent of zero.

Exactly right. And then one other question, and then maybe we can wrap it, but a lot of people, and I'm sure you see this too, because you hear the same questions at a lot of meetups all over the area, and I'm sure this happens across the country, people will get into investing, or they want to get into investing, and they think, well, I can't do it because I don't have the money to do it. And you have built a very sizable portfolio without your own money at all. How do you explain to someone in terms that they can understand once they see it, I think they start to understand it, but how do you say to somebody that doesn't yet know that you truly can buy property with no money? And I guess the question is, how do you explain to them that there is money in that equity that they may not understand? Have you had that conversation or do you have any words of wisdom for people that don't understand that yet?

Yeah, and it could be multiple ways to get there. It can be partnering. It can be understanding. In many cases, and I know you run into this a lot, what what is the seller name?

Right.

You know, I've run into sellers that they don't want cash because they go the taxes on getting that cash in one fell swoop is going to kill me financially. Right. You know, I've seen people that go, hey, Pay me x amount a month. And until they get back how much they have in it, they're not paying any tax. Go add value. There's a ton of ways to get into real estate without your own money. You either use the seller's money, use a private institution, use a partner. And as you get started, you find that there are other ways. Once you get more advanced, you can look at developing notes to get there. There's a ton of ways not to use your own hat. And this is something that I see over and over with people that are highly successful. They don't use their own money.

Yeah, it's eye-opening once you see how people with a bit more wealth than you can imagine will leverage. It's eye-opening for sure. Other specifically, what do you mean by that? You've seen people use loans to get into bigger deals?

Yeah. Well, gee, I have a mortgage note on Property X. Can I use that as a down payment? Can I pledge a property I have? Would you take something other than cash? There's a ton of ways to get this, but remove the notion that every seller needs cash. Maybe they don't need any cash, maybe they only need part of the cash.

Yeah, no, it's cash is a, I think it's probably Peter Fortunato's quote that he says, cash is the lazy way to buy houses. Whereas if you dig into what someone, no one actually needs cash as their end game. They need cash for something else. And if you can find out what that something else or those other items are, you can basically skip the cash part and just solve the problems, right?

I even recently ran into a network where Real estate investors are trading properties and trading mortgage net.

Yeah, I've seen that quite a bit. There's an exchange network. Actually, a gentleman named Philip Klink out of Greenville, South Carolina talks about a not the SEC stocks, but the SEC of the, I think it's the Society of Exchange Counselors or something like that. I don't know a lot about it, but it's exactly what you're referring to is they are bargaining their assets and say, hey, you got this note, I got this land, it's not making money, or I've got this note paying off, I don't want the money, can I trade it for something else? Yeah, it's a fascinating world that I'd love to dive more into. And then I guess the last thing I just, I see on your screen there, the entrepreneur's report for anyone that's just listening to the audio. Do you want to maybe talk about that and then, and then how people can find you and, and, and get more of your insights?

Yeah. Best way to find me is to go to entrepreneursreport.com.

Okay.

And talk on there about various real estate strategies, I talk a little about taxes. I talk about the debt service coverage ratio loans. It's a great starting point. As I mentioned, I'm also a real estate broker and I'm broker in charge in the Charlotte area for real estate realty.

Okay, perfect.

The website being entrepreneursreport.com.

Yes. And my phone number is at the bottom as well.

Okay, perfect. So if somebody goes to that site, they can find your contact and they can call you.

What do you want people calling you? I'm sorry, go ahead. I said my phone number is also at the bottom of the window here as well.

Oh, great. Okay. Awesome. Awesome. I see it there. Yep. Can I call it out? Yeah. Yeah. Okay. So 704-564-5412 in case, in case people can't see that. Cause some people might just listen to, uh, to an audio version. Um, very cool. So what do you want people calling you for? Maybe that's a good filter so that you don't just get random calls from people. What would you like people to approach you with?

Opportunities. Okay. The, uh, I mean, I don't buy a lot of single family houses, If I do, you know, I'm looking at well under $100,000. I am interested in the Charlotte metro area in multifamily. You know, and I mentioned my partner, Bonnie Laszlo. We also hold meetings that anyone is welcome to join. We hold them every Tuesday and Wednesday, Tuesday at 7, p.m eastern also tuesday at noon eastern and then wednesday at 7 p.m eastern so you can search on uh facebook for more about the group and the zoom link at real estate hobby millionaire with bonnie laszlo and team okay so that's searching in the facebook search bar yes

Okay, real estate, say it one more time. Real estate. Hobby millionaire.

And you'll see real estate hobby millionaire with Bonnie Les Valentin.

Okay, perfect. And that's H-O-B-B-Y millionaire. Real estate hobby millionaire. Very cool. So those are Tuesday and Wednesday, right? 7 p.m. both days and then Tuesday also as a noon session.

Yeah. And these calls are an hour. You can come on, present your deal. We'll give you our feedback. And I'll be honest with you, we're fairly blunt about this deal works or it doesn't work. The other thing that I'd recommend to a startup investor is don't try to take on something that's well beyond your capabilities. We had someone recently, they don't even live in Texas, but they want to go to Texas and they want to develop land. There's so much you don't know. Not that it can't be done, but find a partner. I think for a lot of people, that's a lot of your solution, is find a partner. You were talking earlier about lenders, people that go quiet. View your private lenders as your partners as well. It'll make things go a lot simpler.

Yeah, yeah. You said it very early on, is that there's so much you don't know, and there's still so much. There's so many unknown unknowns, right? If you haven't done something, there's somebody out there that probably has done it and can speed your learning curve up tremendously. And I totally agree with you. So very cool. Any final words of wisdom before we wrap this one up? I think we've covered everything. Amazing. I really appreciate it, Curtis. It's always a pleasure to chat with you, and it was the same here. So thank you for taking the time to do this. All right. Thank you. Thank you.

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