60: From 0 to 68 Rental Units in Just Four Years with Serge Shukhat

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What's going on, everybody? This is Josh Dworkin, host of the BiggerPockets podcast, here with Brandon Turner. What up, Brandon?

What up, Josh? I am excited about today's show.

I am also excited about today's show because we've pre recorded the show and it's really fantastic.

It is awesome. It is life changing. So very, very cool.

Yeah, yeah, yeah. So this show is a little bit longer than usual, so we're going to keep this front end nice and short for you guys before we get started. Really quick. This is show 60 of the BiggerPockets podcast. You can check out the show notes and@biggerpockets.com show 60 and of course on the show notes you can ask our guest any kind of questions that you've got for them about anything that we've talked about on the show. So definitely be sure to check that out. So today's quick tip.

Tip.

Today's quick tip is make sure you try and get together with your business partner or spouse or whomever you're kind of doing your real estate business with. You want to sit down with them. What do you think, Brandon? Probably about once a week.

Yeah, I'd say at least once. Once a week. Once a month. I mean, whatever it takes, I guess, for your business.

Yeah. To basically sit down and talk about your business because you'd be amazed at how much you can get out of that discussion if you're not already having some kind of regular meeting with your partners. I think we both definitely would encourage you to do that. Yeah.

Because here's the truth. You spend so much time in your business. Just like in the day to day operations, if you don't take time to sit down and just say, okay, where are we going next? What are our problems? Let's write this down. Let's get organized. I did that this week with my wife at Starbucks for two hours. Transformed like a lot of stuff that we're doing right now just having a conversation about the business. So yeah, huge, huge.

Awesome, awesome.

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All right, so today's show is going to be focusing on the buy and hold side of investing and our guest is a guy named Serge Shukat. And Serge is an investor in the Arizona area and just got some phenomenal, phenomenal information to help out. He started as a single family investor, moved into multifamily, and we cover the whole gamut. The transition, the pros, the cons. What's really cool. I definitely want you guys to stick around for this all the way through. Serge actually shows Brandon how he can easily increase the value of one of his multifamily properties by $336,000. Yeah, that's why I'm pumped. I know he's pumped. If you're not already pumped, definitely. Stay tuned, Stay to the end, check it out. There's tips all the way through. And with that, let's get this thing going. Serge, welcome to the show, man. Good to have you here.

Hey, Brandon, Josh. How you guys doing?

We are. We're doing well. We're doing well.

Brandon, Josh, Josh, Brandon.

I mean, he understands priority.

Wow, Serge, you started this thing on the wrong foot. Serge.

All right, well, listen, man, we're really happy to have you here. Let's get this thing going. How did you get started?

What.

What led to you getting into this crazy world of real estate investing?

Well, I'm originally from the Bay area, California. Became an accidental landlord back in 2008. I was working the corporate controller role with a tech company out in Menlo Park, California. And. Hey, what's.

What's a corporate. What's a corporate controller? I don't even know.

Corporate controller is basically responsible for all financial reporting, financial budgeting, everything financial statement related for a company.

Okay.

Rolling up income statements and balance sheets, and if you're going public, preparing an S1, pretty much everything financial related.

Okay. All right. So you're working a corporate controller job at a startup.

Yep. And company was growing, and we had offices in Mesa, Arizona, as well as a few other regional places. And we were having issues with our operations out in Arizona, and my boss, the CFO at the time, thought it might be a good idea for me to go out there and visit and figure out what we can do operationally to get, you know, to fix things up. So I came out, spent some time in Arizona at the time. I loved it. Summer was brutal, but, oh, yeah, enjoyed my stay. And it made a lot of sense for me to relocate at the time. And this was probably early 2008 at the time. So I accepted the role to move out to Mesa, Arizona, and build a team, in essence, out there. At that time, I was a. Owned my home in San Mateo, California, and decided that it'd be a good idea to rent that. So here was a home I purchased for around $800,000. Market rent at the time was around 3,000. And I thought, hey, if I'm even coming close to covering my mortgage, that's great. Real estate only goes up in the Bay Area. Great deal. So we rented it pretty quickly, moved to Arizona, quickly started looking for a single family for us to move into rather than renting. So we had looked for quite a while at a bunch of houses, found a single family that we liked, made an offer, purchased it. Early 2008, in the process of looking at single family homes for my family, I noticed a trend that was happening out here in Arizona in 2008 when the market began cratering. Was a lot of inventory out here. And what was happening was all these homes were just sitting. They were just sitting. There weren't the big price reductions and there weren't this onslaught of foreclosures just yet. So I looked at it and said, wow, you know, this is interesting. Really dangerous time to rent. And while my real estate agent was hauling me around town looking at primaries for us, said, hey, if you see something that makes sense cash flow wise, why don't you give me a shout? Well, nothing really came up that was even under, I think even under $200,000 at the time, maybe even 150. So it didn't really make much sense. We bought our single family. And then in late 2008, on my drive to work, I started noticing one after another just for sale signs, foreclosure, foreclosure, and our market really began cratering at that time.

By January of 2009, there was just a glut of foreclosures on the market. And I started just tinkering, just started looking, saying, hey.

What'S out there? Okay. So I found my first home, which was a single family, four bedroom with a pool in a city adjacent to mine. And it was listed for $62,000.

Nice.

Yeah. Coming from the Bay area, seeing that price, it was just, oh, yeah, mind boggling, you know, it didn't make sense. I said, this is too good to be true. And my real estate agent said, hey, I've never even seen a house under $100,000. You know, I don't even know if this is possible. He didn't even want to write the offer because the commission was too low at the time, you know, so ran the numbers. You know, me being a cpa, I'm all about the numbers. Ran the numbers. I thought I could rent it for about $1,000. Made a whole lot of sense. You know, obviously I hadn't. I hadn't been on BP yet. Didn't know about the 50% rule. Didn't know about landlording. Didn't know about anything at the time, but the numbers looked good. So borrowed a little bit of money from the family at the time, closed this home. I think the purchase price was $52,000. Found a contractor from the real estate agent's referral, fixed it up for about $4,000, put it on the market for 1095, and rented it in about a week. All right, so this was January 2009 at the time. And I did a little p and l said, okay, here's what I'm renting it for. Here's what my property taxes, insurance, and maybe a repair here and there might cost. And here's my ROI and I calculated it out something like 25%, you know, over 20%. I said, wow, this is something that can work.

But.

But I learned pretty much within 30 days that it wasn't all cracked up to be. I didn't screen my tenant correctly.

Yeah.

And the house started falling apart.

Yeah.

I didn't fix any of the mechanicals. I didn't look at the air. I didn't even look at the air conditioning. Didn't even look at the plumbing. I just put a coat of paint on it and fixed some flooring and rented it.

Wah, wah.

Yep.

All right, so. So you start with this property in the Bay Area. I actually wanted to ask you a couple of questions on that before we even get to what was the $62,000 property. So you got the property in the Bay Area. You're this accidental landlord. You move out, you get somebody in there. How's this going? I mean, were you doing any screening on that or was that also. Just let me shove somebody in there. I don't really know much more, but I know I have a renter who's interested and let's go.

No, with the Bay Area house, I'll give a lot of credit to my wife. I was a little bit desperate to find a tenant. We had. We were advertising on Craigslist and we were getting some terrible, terrible applicants. I was ready to jump on the first applicant. Hey, they have a deposit. Who cares? Let's get them. We can't have this thing vacant. And my wife had the foresight to say, no, let's wait. We'll find the right tenant. We got really lucky. We found a professional that was moving into the Bay Area, had a stable job, moving in from Oregon, I believe. Rented it to them on a one year lease. I Had a good friend of mine from college, his father was a residential landlord in the Bay Area. Had, I think 12 units, called him, got some lease templates, got some advice and got it rented and quickly made our way to Arizona. Never, probably that whole year they were leasing. I don't think I heard from them once.

Wow. Okay. I was going to say who. So who managed it? Was it your friend's dad helped you kind of run it, or.

No, no, we manage it ourselves. They paid us. I had some friends on standby just in case water heater broke or something happened. Nothing major. The house was a 1960s house. We had remodeled it before, so it was in good shape. Yeah, it was our primary. We took pride in it. So it was no issues.

Okay, gotcha. So now you get the $62,000 house. The one thing that really rung out to me was you said it had a pool. That's the first thing I hear. And, you know, as. As a landlord, my thought always goes. Goes to liability and problems. And I know that we've had a lot of debates on bigger pockets about what to do with a house with a pool. And at least from what I've seen, most landlords that. That whose opinions I've seen or I've heard share tend to say, you know, what, if it's got a pool, bury that sucker, fill that thing in, and don't. Don't even think about keeping a pool. I'm assuming you did not do that.

I did not do that. And I was kind of learning as I went along.

My friend's dad, who was somewhat of a mentor to me at the time, he said, you're crazy. Don't touch a pool. I wouldn't touch a pool. You don't want that. But I knew in Arizona, with our hot summers, you know, five months of the year, people want pools very desirable. I didn't really have a philosophy on the type of property I was looking for at the time. This one was cheap. Before all the real cheap properties hit the market, it. Cash flowed. I didn't know what it meant to maintain a pool. The pool maintenance was the responsibility of the tenant in the lease, which was another early mistake I made. And I didn't really have problems with the pool at the time. Sure, I worried about liability. They had young kids. I got an umbrella policy. It was definitely a concern, and it was something that I was watching over to see if, going forward, if I purchase additional properties, would I go with the pools or not?

You mentioned an umbrella policy for those people who don't know what is that.

So an umbrella policy is basically a secondary insurance policy that's in addition to your primary lia over the house that covers you above and beyond whatever your liability policy may be. So it'll say something like your liability policy, you'll have $100,000 liability, first hundred thousand dollar, your regular insurance covers you. Anything after that, the umbrella kicks in and the umbrella has a wider.

Blanket of what it covers than a regular policy may.

And does somebody just go to their insurance broker and talk to them about this or are there a special companies that just do umbrella policies?

Both. You can go to a special company or you can go to your regular provider until you have around 10 properties. Every provider is different. You can get into the residential insurance. And it's easy. Once you get over a certain number of properties, everything becomes much more complex.

Yeah. And I'll add to that that you can get an umbrella policy if you just own your home. You can just get a traditional policy and get the umbrella on top for, you know, x amount of additional insurance. So it's always helpful. That's right. Well, so on the $62,000 property, we. Go ahead. The property has, has now had some of these issues and you had mentioned this 50% rule that, that we talk about.

So, you know, to you, and the reason I'm bringing this up before I kind of even get there is, you know, I think a lot of our listeners are new real estate investors who probably will do the exact same thing that you did and the exact same thing. And I'll probably speak for Brandon and everyone else who jumps into real estate without really knowing everything.

No, I was perfect when I started.

Yeah, clearly. I mean, we don't account for all this stuff. So the surprises to you above and beyond, you had already mentioned you didn't really investigate the capex. Right. The need to, whether it's the roof or the AC or the ventilation or any of the capital expenses. What other kind of surprises whacked you on this thing?

Certainly being in the world of being a landlord and being responsible for everything. You know, I was getting here I am sitting at a corporate job in meetings with CFOs and clients and my phone's ringing off the hook telling me that the door doesn't close. You know, and I'm sitting here thinking the door doesn't close. So what doors don't close? I got doors that don't close in my house. Why do I have to fix that? I don't fix my own house. You know, my wife's telling my wife's got a honey do list.

Not a big deal. Why do I. Why is that my responsibility?

And yet he's still married, by the way.

Very understanding life.

So, you know, trying to figure out what's really my responsibility and what's not my responsibility. At first I was somewhat standoffish thinking, hey, none of this stuff's a big deal. You know, fix it yourself. You know, fix change the light bulb yourself type deal. Then I realized, hey, a lot of this stuff is my responsibility. If I'm going to do this, I better get a network. I better figure out how to get this stuff fixed. Fixed. Right. And keep these relationships with my tenants.

Yeah, yeah, that's true. You know, that's a little bit different than. I mean, that's pretty much my philosophy now is the idea of I need to fix these things for my tenants and kind of in a opposite way of looking at it. We had a show a few months back with Darren Sager and he talked about. He makes his tenants do everything. I mean like, if there's a door, they gotta fix the door because, you know, they're the ones living there. And I never really, I don't know, it's just kind of a different perspective. And I think that a lot of it goes to his tenant base, which are higher income. You know, they're renting three $4,000 properties. It's much different than renting a 7,800dollar apartment. So I think a lot of it comes down to that. But. But I'm always exploring that issue, even to today. I've been doing this, what, seven years now, and every day I have a conversation on should I fix this or not? Is it my responsibility to fix this and do I charge a tenant or not? I mean, for example, and I just want to get your opinion on this. I had a tenant a few, I don't know, a couple months back and he broke a shower door. Just shattered it somehow.

Was this one of those plexiglass?

Yeah, yeah, those like glass shower doors on, like on just a shower unit, not on a, like a bathtub shower. Shatters a thing. Whose responsibility is that?

Now?

He says in the middle of the night it fell off.

Yeah.

And shattered.

Course that's what he said.

That's what he says.

Yeah.

I can't prove it one way or another. What would you do? Do you, do you pay for that? I think I might have even asked this on a show a while ago, but I don't know either. What would you do?

You know, it's going to depend on my relationship with the tenant. If I have the tenant in there, you know, on a long term lease, two years, it's been three months, they pay on time, they tell me in advance if there's issues, if there's a good working relationship with the tenant, I'll probably bend over backwards and I will fix it, you know, write it off to Goodwill. Right. I know that they broke it. I had this exact same situation with a sliding glass door. She said it just cracked, right? It just cracked and broke in the middle of the night. You don't know the real truth, but what you don't want to do is you don't want to get into a bickering match over a $500 repair. Does that $500 hurt? Sure it does. But at the end of the day, you want the long term tenant, you want them to be happy. And what I found is, particularly in the beginning of a lease, you got a, you know, good, what you think is a good screen tenant, they're going to be there a long time. Show them that you're a good landlord, show them that you're going to go out of your way. Show them that you're going to make the repairs and it'll buy you peace for the remainder of the lease. Is what I found after that. You know, what seems to be the most difficult and complex tenant in the beginning? If you go out of your way and show them that you're serious about the business, you're serious about landlord, and you respect your tenants, you respect getting stuff fixed in a timely manner, they back off after that. You know, it goes along with training your tenants and you can train them in a good way as well.

Yeah, well, I have nothing else to ask because he pretty much nailed everything that I was going to ask in that singular statement right there. No, it's true. I mean, I mean, you know, ultimately the idea is, you know, if you, if you're respectful to people and kind of take care of them, that they're mostly going to.

Become good tenants. And that's not always true, of course.

It might be the, if you give a mouse a cookie kind of tenant I talk about sometimes. Yeah. If you do something nice for them, they're going to demand the next thing and the next and the next.

There's a fine line.

There's a fine line and you can see if that's coming. You can see if, you know, if that's the type of tenant that's bickering and you fix something and there's no, thank you. No respect. They just move on to the next thing that they want. They start demanding and demanding. Then I'll put a line in the sand and say, hey, this was not part of your lease when you viewed the property. This fence or whatever you're asking for was not there. And I'm always playing the role a property manager. I'm not the owner of the property, and so I'm the middle guy. And I always say, hey, you know, I'd love to do this for you. I totally understand. You know, if I were in your shoes, maybe I'd want the same thing. But the owner just doesn't see this reason as a reasonable request. And here's why. You know, and it's a lot easier than me being, you know, this rich, mean landlord that. That's trying to save money on their backs. You know, it's, hey, this owner isn't really making much money after paying the mortgage. He's lucky to break even. And so every request you make, this owner is losing money. So, you know, there's a fine line that I gotta play being in the middle of both of you. I wanna keep you happy as a tenant, but I also have to be reasonable for this owner.

Yeah, yeah. And so that's one of those techniques that a lot of landlords will follow. It actually has stirred up quite the debate on bigger pockets. I know Brandon's on the same side as yours where and I formerly was not. And then I switched over to that side where, you know, I, you know, I'm the manager, I'm not the landlord. Because in the end, I mean, people want to hate on the landlord. They really, really want to hate on the landlord. And if you're the manager, like you said, you're the middleman. Now, is there a fuzzy line somewhere in between? Well, it depends who owns the property. Do you own the property or does your company own the property? And so I was going to kind of ask about that, you know, and we'll get into kind of what's going on after. After this second rental of yours. But presumably you're buying your properties not in your own name, is that correct?

My first properties were in my name when I kind of wrote a more detailed goals and business plan to expand this business. I quickly started opening LLCs with the state of Arizona and putting all the properties in LLCs. Also got a property management company doing business as on a separate llc where the property management company runs all of the. All of the properties. All the leases are in the name of the property. Management company. So I have really two shells. An LLC that owns the property, and then a property management company that has an agreement with the LLCs to manage the property. Interesting. The face of the property to the tenant is the property management company.

That's almost identical to how I have mine set up as well. I've got the LLCs and I've got a property management LLC that everyone know. Everybody knows, you know, open Door properties. That's, that's the, that's the owner, I guess, is what everyone thinks, that's the manager. So it works out well for me.

And, and are you using the, are you doing an LLC for each individual property?

You know, I was, and then it got to the point where I was, you know, spending a lot of time opening these LLCs, and it got. Right now the way it is is I probably have two to three properties in each llc.

Okay, can I ask how many, how many total, like units now do you have then or properties or.

Right now, 68 units and we're managing about 85. Nice.

And that's just in the last, what, four years, right?

Four years, yeah.

That's awesome. That's awesome.

Since 2009.

So you've got your own properties and you're managing some properties for other folks as well.

Yes. So while I was quickly expanding, I had a couple friends in the Bay Area, one of which was my boss in the corporate world. And he had dabbled in real estate. Back in 2006, he bought a condo in Scottsdale, I think it was, I don't want to give his information, but it was 350 or $400,000 two bedroom condo with an atrocious HOA. And he was underwater on it. They were all selling for about $100,000 come 2009. And every time he would come down to Arizona for meetings or whatever, he would always, you know, complain. Oh, you know, this property, it's so bad, I'm losing money. Why did I get into it? What should I do? Should I short sell? I said, you know, why do you keep complaining? Why don't you double down so you got, you know, you're losing 10%, your ROI is minus 10% on this property. Buy another five that are kicking out 15, 20% ROI. You won't even notice that that property is losing money. Yep. He had kind of this aha moment and he's like, wow, you're right. And I sat him down in front of my computer, showed him the properties that I had. What, what I was renting them for what I bought Them for. And it was kind of this light bulb went off and he was just one after another. He was ready to buy and he was. He expanded his portfolio pretty quick and I would source these homes for him. Most of the houses he bought were properties that I bought in my, what I call first generation of purchases. He bought them off me, probably a wholetail price at the time. It was more than I bought it for, but less than retail. They were quick cash deals. And I would come to him, basically I would find a property that I would like, one or two that had higher ROI or meta profile that I was targeting. And in order to raise funds, I would sell one of my older properties to him for cash and quickly either 1031 or buy the second property. So we were both building on each other, utilizing each other's. We didn't have a partnership or anything like that, but I was getting out of one property, giving it to him and moving into, you know, selling one, buying two type deal.

You know, you mentioned the concept of doubling down, and that's something that I, I love that, that concept of if, you know, a lot of people buy a bad property. A lot of people got into real estate during the height of the market and they screwed up just like, you know, your, your boss may have. And you know, a lot of people use that fear to never get into real estate again. But that's kind of like the person in the stock market, right, where the stock market crashes and they get scared and they sell off all their property. It's like.

That's right.

Yeah. The smart ones, then they're like, oh, the stock market crash, I'm going to buy up a whole bunch more that way. When it goes up every, you know, a rising tide lifts all ships. Same thing with real estate, but.

But now my question on that whole double down was did, did you have him? Well, did you recommend that he hold onto that property, that loser property, and get other properties to offset it? Or were you telling him, dump that sucker and get in on some other better properties at a cheaper price?

No, my recommendation was to absolutely keep his property. He would have lost money. On paper, it's clear that this was not a time to be selling. Remember, this was 2009, 2010. The sky was falling.

All you heard on the news was how bad of an investment real estate was. All you heard was how, you know, nobody's building. There's ghost towns everywhere. Stay out of Arizona. Our population's no longer growing. It was doom and gloom everywhere. So it was really a kind of A contrarian play. But my advice was, hey, keep this. Your value will increase eventually, but double down to the point where your negative return as an entire portfolio will turn into a positive because the returns out there were so great. He was somewhat hesitant following being in the Bay Area, not seeing what was going on on the ground. But all it took was a couple local drives. Here's some of the properties I own. You know, here's. I'd show him one that I'm remodeling, one that's rented. You know, I'd show him kind of exactly what I'm doing. And he was a numbers guy as well. Another cpa. He saw exactly what it was and it was. It was common sense. Common sense.

What about the argument of taking the capital and even though you lose, you know, some of your money, but taking that, selling it, and using that cash to reapply towards other properties? It sounds like he had other cash available, so it was kind of irrelevant.

Well, he had other cash available and there was no capital out of that property. So he bought it on a conventional loan. His down payment and any equity he might have had in it was long gone. So he would have sold it, he would have lost it, he would have damaged his credit. And for a mid-40s year old guy with a lot of assets, your credit is gold. Last thing you're going to do is damage your credit to get out of a deal that's very small to your bottom line network.

I got you, I got you. All right, cool. So you've clear built up a pretty nice portfolio. You started with this, we'll call it the 62k pool property. What happened next? You suddenly got the fever and you're like, okay, you know what, I don't want to flip. I want to start building a buy and hold portfolio for long term cash.

How did you build up this criteria that you have? What are the criteria that you currently use and how did things start to grow from there? Because I think a lot of our listeners are like, okay, cool, I could buy one property, but then what? And how do I start building this and how do I plan it?

Sure, sure. So after that first one and I started seeing real returns, real rent checks, I got the fever at that point. I said, okay. And this would have been probably, you know, February, March 2009, our inventory was skyrocketing. I was actively looking at the market. What were properties selling for, what were properties renting for? And I said, okay.

Looking at the analytics and the pure metrics of the real estate market, in metro Phoenix, I looked at, I still remember this one graph that showed income as a proportion income to real estate prices. The ratio of income for the metro Phoenix area to the cost of real estate and the relationships over the past 30 years. And that real estate always Arizona is a cyclical market. Very fast ups, very fast downs. But it would always fall at a very specific ratio which was defined as equilibrium. Okay? And over the 30 years it was always homes were always trading at that equilibrium price. Well, lo and behold, by the end of Q1 2009, we were probably 70% below that equilibrium price. So what I saw was that we were, the market had over corrected to a point where it was just, it was just a no brainer. It was a no brainer. So I said, okay, how long is this window gonna last? How long am I gonna be able to buy property and can I buy enough property? After that first house I realized, hey, this is nice, you know, this thousand dollar paycheck coming in every single month. It's a nice little supplement to what I'm doing. But at the end of the day, I don't want to work 9 to 5 until I'm either sick or have to be retired or get corporate downsized, which is all I saw around me growing up. So I said, how do I get to critical mass and how many houses is critical mass? And what's the profile of home that's going to get me there? And I didn't really know what that profile was at the time, but I knew I wanted to stand out in the market. So I did research, just periphery, Craigslist, what are other people renting? And everybody was renting the same profile of property. It was a 3, 2 newer property renting in my East Valley region that I was focused on for around 900 to $1,000. And I said, okay, if I could buy this type of house and I got to compete with everybody else on the market that's so desperate to rent their house because they can't sell it, how long is it going to take me to rent and what's going to be my competitive advantage? And so I quickly came to the determination that my sweet spot was going to be a minimum of four bedrooms. I wanted a four bedroom because I didn't see the amount of inventory in the four bedroom segment as I did the three bedroom segment. And then small things that would attract tenants, things like, things that people like in Arizona. RV gates, pools in law units, different things that would make my house stand apart, that wouldn't be a part of that mass. Okay. The second step I made was to bail out of California. I said, makes absolutely zero sense for me to hold this house that I bought for $800,000. I still had equity in it. The California market hadn't cratered yet. And I realized that my risk of holding that house compared to my, compared to my potential gains of moving that money into Arizona real estate simply didn't make sense. So I quickly sold my California house, captured about $100,000 of equity that I had in that. Now I had a small bankroll to move forward on purchasing quickly. On the Arizona. On the Arizona market.

Nice.

Sorry, were you still working your job at this point?

Yes. So I was working my job. Worked my job all the way until the end of 2012. So at that point I'm, you know, property managing. I got one house at this point, so I'm property managing that house. I'm on talking about real estate agents, you know, contractors, brokers. I'm kind of in, in the real estate game at this point and working a pretty demanding job. And so, you know, there were a lot of detractors around me. You know, I had my best friend who I hired at the company who was, had an office right next to me saying, you're going to lose your job, dude. You know, you're risking a good high paying job for what? You know, for a lot of risk. My parents kept saying, you know, don't risk your job, don't risk your job. And to me, I saw it completely different. I saw it as an opportunity of a lifetime that prices are so low right now and the return is so high. And, you know, I come from an economic mindset where, you know, at the end of the day, all profits fall to nothing. So I knew that if I'm able to get 20% returns right now, that that's not going to last long. I don't care how much inventory is coming, I don't care how many foreclosures are on the market or scheduled to come on the market. As soon as others see that I'm getting 20%, they're all going to jump in, be it hedge funds, be it anybody else. And hedge funds. You weren't in our market yet. Nobody was in our market. Everybody was kind of licking their wounds at the time. The real estate investors that were active in 2004-2007, they were wiped out. They were just kind of like, whoa, what happened? They were out of it. So there were investors competing, but I kind of had the market to myself for this Small window. And I saw my biggest risk at that point wasn't losing my corporate job. My biggest risk was not buying enough properties to get to critical mass while this window was open for me. I saw that when you were completing.

Yeah, you know, I just talked about that with a friend of mine who's kind of like my. My real estate mentor out here, and we talked about, you know, one of the reasons sometimes I feel like my. My business is a little bit chaotic is because we.

We.

And he feels the same way. Sometimes it feels like there was such opportunity during that time. All I could concentrate on was, we've got this window that I'll never see again for the rest of my life, buy whatever I can. And like, both of us just went on this buying spree and you kind of did the same thing. Like, that was the focus was. Was buying it. We can figure out how to manage it now. Now I've moved into that phase of my kind of career, but interesting hearing somebody else say that as well.

So I've got a couple of questions that come out of the past few things that you're talking about. The first thing is you had mentioned your competitive advantage, and I think that's something that we don't probably talk about enough on the podcast. I don't really see us talk about enough on the site. You said you had focused on, you know, these four twos. You had focused on RV gates and, you know, kind of looking at what's the demographic of the average person who's going to buy, who's going to rent a property in this kind of area that nobody's kind of renting to right now. And you found this hole. And I want to, you know, I guess I just want to dig in on that a little bit and see what kind of advice do you have for other people who. Yeah, everyone's like, well, you know, the three twos are pretty much pretty bread and butter.

Investor properties. But you want a different approach. You said, well, yeah, that's great, but everybody's there. Where is everybody not? How do people go and find where everybody isn't?

Yeah, I think that's absolutely critical.

You start by looking at what's on the market. What are your competitors renting, what are they renting it for? And then you work backwards and say, are these landlords even profitable? So they got newer inventory. They got stuff built in 2000. You know, about what that sold for. You know, that they spent, say, $120,000, and, you know, they're renting it for 1,000 bucks. And you're saying, okay, are they making money? Probably not. Okay, so is that the model that I want to follow? Probably not. You know, and then there was a different mindset back then. Their model was, hey, the cost of construction is $200,000. I'm buying for 120. I'm getting a fabulous deal. Right, Right. That's not what I wanted to do. I wanted cash flow to replace my corporate income. I was very focused on that. That's what it had to do. So I had to have the highest roi. Okay. I had to use leverage while I had it, and I had to have a competitive advantage that would allow my properties to rent for the top dollar. So what I was doing, I was buying. My first round of purchases ended up being somewhat older properties. I'd say early 70s, maybe late 60s, mid-70s type deal. But they had, they had things that people wanted. Like I mentioned the RV gate, that there'd be a pool. And what that would allow me to do is to rent that home that may be older, maybe not in as a desirable neighborhood as all my competitors, but I was getting the same price. So I was renting for 1200 or 1300, where I was buying for 60 to 70 because I had features. You know, I was in a non HOA community, which was also very important to me to not have HOAs. I was in a non HOA community.

And that's, that's rare in Arizona too, isn't it? I mean, Arizona is like flush with HOAs, almost everything, right?

Absolutely, absolutely. Very rare. And at the time, having hindsight, you know, I was able to build a profile and go after that profile because there was so much inventory and there was. So, you know, you're able to do this today. You take kind of what's given to you. Yeah, but.

What I ended up with was these properties that had these features that, you know, like one property had an in law suite, you know, well, no one else on the market had that. So a property probably without that in law suite with that age and that neighborhood may have rented for 900, but I was getting 1250, you know, which was similar to 2000, what someone might get for a four bedroom, 2,000 square feet built in 2000 that he had to pay 180 for. I only had to pay 50 for mine. But because I had that feature, I was able to really squeeze ROI out of these properties.

That's great.

The problem I had after this kind of first generation of purchases that I found was, yes, I was getting higher rents, but I wasn't attracting the tenants necessarily.

That I wanted. Okay, so I'd have a house that may have been bigger, but it was bigger because it had two or three unlicensed additions. And yeah, that's one of the reasons I got it so cheap. But lo and behold, these additions started falling apart, these houses started falling apart, these tenants started moving in second and third families. And so kind of this first generation of purchases. And what I did was I went back and said, okay, my goal after the first purchase was to acquire unique desirable properties, maximize my roi, and buy them as fast as possible. I'd gotten to about four or five at that point, and I looked at my short term goals and said, am I, am I reaching them on an ROI perspective? I was. But over the long run, I could start seeing these capital improvements, these issues starting to really eat away at me. And I knew that over the long run, perhaps this wasn't the exact profile of property that I needed. Gotcha. So with the help of my wife, we kind of sat down and said, hey, are we buying the right profile of property? Is buying the cheapest property at this point really the smartest thing to do considering how much equity we're buying into and how bullish we were, that three, four years down the road these properties were, would be worth so much more? So we kind of took a 180 at that point. This was probably by mid to late 2009 after we acquired kind of our first batch of properties. We said, hey, this profile, you know, we like that we're buying properties that are unique. We like that we're getting this kind of roi. But we want to buy newer, conforming standard type properties that still have some features but don't have all the unlicensed additions. What I call functional obsolescence. Right. So it's got to have a garage, it's got to have two bathrooms. And so the sweet spot that we found was early to mid-80s, which was before the prevalence of HOAs, established neighborhoods that were close to job centers that had again, four bedrooms, had the garage. Most of them had pools, corner lots, RV gates, and kind of those features. And they cost a little bit more. You know, instead of buying them for 50 to 60, like the first generation of properties, these were costing 65 to maybe 85. Okay. So the ROI on paper didn't look as good. But what I quickly realized that in reality the ROI was through the roof.

Well, you're plotting over 30 years at this point, or 20 or whatever it is.

Yeah, you know, exactly this Reminds me of that post that Ben Labovich wrote on the blog, what, a week ago called like, don't bring that one up. It was called like newbies, take Note, don't buy $30,000 houses. And that was exactly his point was by buying these cheap, cheap, crappy houses, you are effectively setting yourself up for failure later on because of all the, the weird things that come along with them. And yeah, that, that. I think they have almost 200 comments now in that article. I just tons and tons of debate on whether or not that's a good or bad idea or not. But so I'll link to that obviously in the show notes@biggerpockets.com show 60.

But yeah, no, that was, it was, it was a good article and I think you bring up a good point. But I mean the whole, the whole premise of it is, you know, I, again with, I think about the newer investors and the new investors, like, well, they're always thinking short term. Most don't really see the light 10 years out, 15 years out, 20 years out. But when you're buying and holding, the word is buying and holding. And you're holding and you have to put that into the picture and you have to really run the numbers 20, 30 years out to see what you're holding onto. And if you're buying a crappy property and not fixing it up immediately, not putting new roofs on and not replacing boilers and water heaters and all that stuff, you're going to have to do it at some point and it's all going to come back down the line. That's great. I wanted to jump back to something you had mentioned earlier. You had said something about the real estate agents that you work with.

I think it's a big question that a lot of real estate investors have is how do I find these properties? What do I do? Do I go find one agent? Do I go find 15 agents in 15 different areas? Do I set them to compete each other? What are you doing on that front? Clearly you're using more than one agent by your use of the word agents.

Or maybe my advice is simple. Get your license. Get your license. It's easy. It doesn't take a lot of time. It's cheap. My wife, who is a big partner with me in this, she got her real estate agents agent license early in the process. I think by 2010, at the end of the day.

Real estate agent I personally don't think is an investor's best friend. It's just a lot of work, particularly then, you know, making I'm making 10 offers a day. I'm making a lot of offers sight unseen. I didn't. I just simply didn't have time to go and look at every single one of these properties. Especially since it was multiple offer situations. It was highly competitive even back then. So last thing I could do was to drive around town and look at 40 houses. So I'm having them send out offers sight unseen. Then lo and behold, one of these offers sticks. I go look at the house and it's not. Doesn't fit what I'm trying to do. The agent's upset, you know, I gotta wait for the agent to get the lock to get into the house. And I was losing a lot of agents. It was kind of a revolving door. You know, houses would come up on the MLS or wherever it was, and it was, you know, he couldn't make an offer till tomorrow. By then the house was gone. So it wasn't advantageous to us. It was, at the end of the day, we had to control our own deals.

Were you doing any marketing to find deals outside of the mls or were you finding most of your properties from MLS or maybe even auctions?

You know, I was never, never did any yellow letters or any marketing or anything like that. We got our deals in the beginning from the mls, and then as we built relationships later on in the community, deals would come to us. Also had relationship with a couple early. They weren't even hedge funds. It was just a group of guys from Texas who had a deal with Fannie Mae.

They were buying basically $1 million for 30 properties. And these were Fannie Mae properties that were on the market for probably.

90 to 180 days. Some were bad, some were good. They were buying blind packages throughout Arizona. 30 houses for a million dollars. And they would get their houses and their exit strategy was land contracts. So they wouldn't touch them, they wouldn't fix them. They would simply put up signs that say own to rent, and they would get tenants in there. So I built a relationship with them. And what they would do is every package they would buy, they would send me their list and they'd let me cherry pick three or four of these. And so pretty much, you know, they buy them for 30 each. They'd let me cherry pick, I'd buy them for 40, you know, something along those lines. But they were still, you know, last MLS price was probably 60 or 70. So I was still getting it way below what I thought was retail at the price. And it was kind of a win win scenario for Both of us. And it was a nice way to get some wholesale property.

Nice, nice. So what I'm hearing is not only are you not marketing, you're literally the way you're finding deals is by having relationships with people. I mean that sounds crazy, isn't it? I mean how could you find properties just through relationships?

That's how it works in real estate. Especially now when inventory is so hard to find. You've got to leverage those properties, you know, and the guys, the days of just buying on the MLS are over.

So how do you, how do you build those relationships? How does somebody who's a new investor who's like, you know what, okay, I'm looking at the mls, there's not a lot of stuff out there. I've got a property or two or none and I want to build a relationship so I could kind of get this so called funnel of potential properties coming my way. How do you do that?

You know, it's difficult and everybody will give you a different answer of how they did it. I personally don't think I was the best at doing that. I didn't have time with the corporate job, I didn't have time to go to all my local rea meetings and work, call around a bunch of brokers. And it was the natural relationships that I built along the way. The portfolio lender that got me to the 10th loan and the people that they knew that may have been selling properties. It was a real estate agent that had purchased, that had helped another investor purchase property or sell property that connected me. It's contractor that works for another investor. It's kind of people you meet along the way, keeping your ears open, being respectful, you know, finding what people have and horse trading at the end of the day.

Gotcha, gotcha.

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All right, you had mentioned critical mass. Your whole goal here is this mad rush to pick up these properties before you know you're priced out of the market. How did you do it? I mean, you know, either you made a hell of a lot of money and I'm going to tell my kids to go be a cpa or you use other people's money or loans or borrowed or begged or stole. I don't know what you did, but how did you, how did you get the cash to buy buy up all these units and all these properties? How'd you do it?

Well, it was really a confluence of events. So my first four were standard conventional Fannie Mae, Flagstar, GMAC type loans, no issue at all there. I had good credit, good high paying job and contrary to popular belief, people with credit and income were able to get loans back then. So I got my first four there. Then at that point I had discovered BP and the whole concept of portfolio.

What is that? What's, what's bp?

Bigger pockets. Oh.

And I, I think my first post, I think my first post at that time was, you know, how do you get past this four property wall? You know I lenders telling me you're, you know, we can't lend to you, you got four loans, you're, you're a pariah. So it was, I think Joel Owen said, you know, call around, call a regional banks, you'll find somebody, somebody, you'll find somebody lend. So I found a regional bank that happened to be literally across the street from my office, built a relationship with their broker explaining them exactly what I do, what kind of investor I am, what my goals are, what I'm trying to get to. And they said, hey, we'll fund you as many as you need. You know, as long as these properties, cash flow and you're buying them, well under appraisal, appraised value, we don't have a limit. Okay. So at that point then my eyes just opened and I said okay, now I can take this to another level. So the first batch of properties I purchased with the equity for my California sale, then the cash flow started building and I had a good corporate income. I didn't have a lot of expenses. My home in Arizona wasn't multi million dollar mansion with a big mortgage payment. So I didn't have a lot of expenses. And so I had a little bit of a bankroll at that time combined with the 35% down loans that the portfolio lender was getting me.

How much was it you said? 35% down?

It was 35% down. Okay, well it was 35% of purchase price plus the repair. So if I spent another 10,000 on repair or whatever, they'd give me 35% of that as long as I could prove the repair.

Okay, okay, cool.

So if you have 68 units total then I mean that was the second round. How many did you pick up in that second round? And are we just doing single family homes all the way to 68 or what happens?

No, no, no, I see that that would be pretty tough. Yes, the first 10 got me to was through the portfolio and I think the first 12 and then once I got to 12, the portfolio lender Gave me a call and said, hey, I'm sorry, rules changed. We can't fund you more than 10 now. Even though we keep all these on our balance sheet, 10's our limit. So you're basically cut off. So I called around another bunch of banks and no go. I couldn't find any more lenders at that point. And I hadn't had real estate on my tax returns for more than two years at that point in time. So again, I was back to pariah status with the banks. I was pretty much cut off. Luckily, at that time, the company I was working for got an offer to purchase, to basically sell the company. So a large, large public concern basically started negotiation with, with our management to buy out our company. And I was, I'd been with the company for eight years. I was an equity holder with some stock options. And I saw the writing on the wall. I said, hey, if we sell this company, you know, I'll get a nice little check out of this and I could really take real estate to the next level at that point. So we, about eight months later, we sold the company and I got that check.

So you didn't have to quit your full time job. Your full time job quit you and left you with a nice fat paycheck to go with it.

It left me with a paycheck. They said all the right things. Hey, we want to keep you. No problem. I knew the writing was on the wall. I didn't care. Again, I was in a rush for time. It was a land grab. I knew even if we didn't sell the company that my days would be limited one way or the other.

At that time, we sold the company. And that's when this was. So what happened in our market? Once I got to about 12 SFRS, we had that tax credit that Obama, I think it was $7,500 owner occupant tax credit. And that really had an effect on our market. All of a sudden you saw primary buyers jump right back. And so all these deals that I was getting for 60, 70 thousand dollars in renting for 1400 bucks, they disappeared literally overnight. And so there was probably a three, four month stretch where I'm like, whoa, is this window closed on me this fast? But what happened at that time? The single family window closed. And this was another pivot point. So I talk about pivot points all the time, is that having goals is important and having long term goals is important. But looking at them, for me, my goals are one sheet of paper. I want you to pay for the strategic imperatives that says, what am I going after? What asset class am I targeting? What's the price range? You know, how am I going to get there? You know, how am I going to pay for them? How am I going to buy them? How many do I want to buy? And I look at it and I say, okay, if that window has closed and I'm not able to purchase these, what am I going to purchase? Or am I going to completely refocus and maybe get out of real estate? You know. So at that time, the SFR game was quickly closing and I didn't know if it would come back after the tax credit or it was gone forever. But the multifamily had opened. And so what you saw was an on was a flood of now fourplexes, duplexes, you know, 16 unit, 18 unit, 32 unit complexes coming on the market that had generally lagged before. It takes a little bit longer to foreclose on those for whatever reason they got tied up. But now those started hitting the market. So I made a pivot point. Even though I hadn't been a multifamily investor at the time, I educated myself on what does it mean to be a multifamily investor? What is a, you know, what's going to be my competitive advantage in this, in this market? And kind of took everything I learned from the SFR game and applied it to the multifamily and said, okay, this is going to be the year that I'm going to start acquiring multifamily and kind of put single family behind me.

Nice, nice. So how did that happen? I guess what came first?

So what came first? There was a four plex or no, it was a five plex that came on the market through, I think one of the auction sites that was, it was, it was five units. And what I liked about it is it was very similar to what I was doing with sfr. So with multifamily, what I didn't want is I didn't want the Standard, you know, 1960 built owner pays for all utilities, all one bedrooms, you know, that I don't want to say tenant class, but that where I'm competing against every single multifamily owner. So I was again looking for something somewhat unique where, how am I going to keep my units filled? So what I liked about this specific was that it had a great mix of units. It had two large three bedrooms, it had a two bedroom and two one bedrooms. So it was a diverse mix. There were some things I didn't like about It. There was a lot of risk there. It was in a complex of 10, five plexes where one owner had owned eight of the buildings, and two owners own the other two. And all the owners were in some stage of foreclosure because they had purchased during the height between 200 to $250,000 per fourplex.

Whoa, that sounds like a mess.

Or per fiveplex. So it was a mess. So I'm looking at the first. First. The first one of these 10 that came on came to the market, and I think it was priced at $60,000 or 55.

This is 55 or 60k for the 5 units. 5 units for all 5 units. $60,000.

All 5 units.

Now, these are these, like. I mean, are there walls inside these properties? Yeah.

No. This is 2010 now.

I don't care what year it is.

Hold on.

16,000. Five units. We're not in Detroit now, are we?

No, no. That's what was so great about our. Wow.

Oh, my.

I will say this wasn't. It's not like this was, you know, class A downtown Phoenix. This was Pinal county, which was one county over from Maricopa County. It was in a economically depressed at the time area.

It was $60,000 for five units.

Well, six. I ended up buying it, I think, for $42,000.

So $42,000 for five units.

I can hear your.

Your New York accent coming through there, Josh.

Is it anger?

It's not anger. It's like the angry guy at the street yelling, like, throwing hot dogs.

Hold on. I mean, wow. Unbelievable.

That was. That's what I was thinking. But there was a ton of risk there.

Oh, sure.

And. And I tried to get partners and say, hey, let's try to buy all 10 of these buildings. And no one would touch it, even at those prices, you know, my gross rents, I calculated, would be close to 2,500 bucks, 23 to 2,500 bucks. But there was a ton of risk there. There were nine other building things that were decrepit, that were in some state of foreclosure, 100% unoccupied. There wasn't one tenant in there. Each unit needed work. They needed roofs, the plumbing. I mean, it was. It just wasn't maintained for the past five years. Weeds. So there needed to be an HOA set up, you know, for whoever ends up buying other buildings. There needed to be an HOA to pay for common area maintenance. There was a common area pool, a common area office, this 4.4 acres of land. So as you can imagine buying 15 Plex in a community of 10 of them where you just don't know what's going to happen to the other nine. There's a lot of risk there. Even though it's $60,000.

Yeah, well, I'm going to jump in because I had that exact experience. And so I had four families. And what happened was, it was in these areas that I paid nowhere close to as little as you paid. However, these properties were decrepit, they were falling apart, people were moving out. And what was happening was I was being surrounded. So this property I had was being surrounded by properties that were vacant, that were becoming problem properties. You had people sitting on the stoop all day doing drugs. And in the end, I said, you know what? I don't have the fortitude or the intestinal fortitude to stick around. I wasn't gonna buy all the other properties. I wasn't interested at this point. I was like, I could either buy everybody else and clean up the whole area around it, or I gotta get the hell outta here. And I just. I ran. I was like, this doesn't make sense. Before it goes, you know, before I can't even attract a single tenant. I gotta go.

That's right.

So it is a challenge.

Yeah, yeah. And the risk there, it doesn't matter if you're buying it for 40,000 or you get it for free. Right. If you can't make money, who cares how cheap you buy?

That's why I rip on Detroit and I take some of it back. But in the end, that's exactly why we warn people it's not about how cheap the property is. Those numbers are awesome. I was busting chops about it, but in the end, it doesn't matter. If you get a $60,000 property and you can't fill it, then you've got a loser.

Yeah. Or if it falls apart on you constantly because it's so old and run down. So, yeah, so that was the challenge. And I didn't know. I mean, it was. Was. I didn't know. Do I want to get into multifamily? Do I want this class of tenant? Can I handle, you know, the hoa? Can I? You know, there was just so many question marks, but in the day, I jumped in, you know, got it fixed, got it remodeled, and got it filled pretty quick, you know, sat down with a lawyer, wrote up new HOA documents, became the de facto president of the hoa. And mind you, I'm the only owner now. There's still nine empty buildings. I own One of them, yeah. But I'm. But now I have the hoa and I have control, and any new owner that's gonna buy over there has to go through me. And I knew the other nine would be coming up. So it's kind of like an experiment. It's like a mob boss. Yeah, pretty much. Pretty much. Right. So. So it's a. Hey, you know, can. Can. Can I do this? Can I do this fourplex? Can I deal with this class of tenant? Can I really realize this gross $2,500 income, and what's that gonna net out to at the end of the day? Yeah, you know.

So did you buy the other nine? I mean, I'm guessing you started to accumulate some of the other properties, or maybe I'm wrong.

So it's actually a funny story. I was telling Brandon about this a while back. I actually. In this complex, I bought and sold these buildings four times now, all of them. So I bought the first building, I fixed it, and I rented it. Then a second building came up. I bought that one even cheaper. I think about that one for 38, and it was in worse condition. Fixed it and rented it. Right? And I'm managing it all at the same time with my sfrs and holding down the job. And these. I got to tell you, these units and these tenants were driving me absolutely crazy at that point. But now I'm all in, right? My chips are in. I got two of the buildings now. It's like, each time one comes up, it's like I got to buy it as a defensive move, right? I don't want someone else coming in. That's going to ruin my investment. So I bought my third building, and here I am on 15 units, right? Seven more that are going to be coming up. And I had a lot of money.

Into these complexes because of the repairs and everything else. The tenants were driving me absolutely crazy. At that time, an older gentleman who was working with his church group came in and bought the fourth one that came on market. And so now he's paying into my hoa, and I'm sharing kind of the hoa. I'm sharing the common area, maintenance, the whole nine. He bought the first one. He bought the. The fourth one that came on, he bought. Then he bought the fifth one that came on. Then he bought the six. So after about six months in, he owned three, and I own three. Okay.

Yeah.

And so, hey, you said.

You said that was a. You said. Sorry. You said that was a church group, right? It was a church group that was like a Charity. Kind of like some kind of ministry thing going there or. What was that?

Yeah, it was convoluted. So he. He was kind of shady. He was trying to. He was trying to.

The church guys.

The church guy, yeah. Believe it or not. Believe it or not.

Was it. Was it a youth minister named Brandon Turner? I mean, I'm just checking.

What he was doing. He was doing. They wanted to place, you know, single moms, rehabilitated drug addicts, that kind of stuff, these units. And to me, that was just a red flag.

That never. That never works. That never works.

Doesn't go well.

So what he did. And he was. He was just. He was just running a train wreck over there. I could see everything was falling apart. And so what he said is, hey, Serge, I'd love to buy the. Those three buildings off you and consolidate and eventually own the entire complex for our church. So he was raising money from the church group to buy these units, and he was trying to use it as kind of trying to make all his side income so he'd have a unit that wasn't church related and he'd be making income off that.

Shady. Shady.

That's right. That's right. So I said, okay, you want them? Fabulous. You know, you can have all of them. So I sold the three to them. I think I sold them each one for $70,000. I was into each one probably for 55, maybe 60. So I didn't make out. But I tell you what, driving home with, like, the last time I had visited the property, I was just the excitement of being out of that project. Wow, that was great. I'm glad I sold, right?

Yeah.

So I took that money and said, okay. I didn't really like that multifamily experience that much, but I see the writing on the wall. I see that multifamily could be profitable. It could work. I like that. You can take a multifamily, you can get it cash flowing, and it's gonna be worth what a function of that cash flow. I like that principle. So I found another project which was 3, 4 plexes in a row in a somewhat rural area.

What kind of area, Brandon?

Rural. I saw that coming.

But it was three, four plexes in a row. And what was fabulous about it, again, all each unit was 1400 square feet and three bedrooms. So again, kind of something different where I could compete with the SFR class because of the size. These were all individually parceled, and these were all townhomes. So I bought. You're gonna love these numbers, Josh. I bought the first one. It was again, they all came up in separate times. No HOA about the first one for $29,000.

This was a fourplex.

A fourplex? Yeah. And these were. These were, I mean, flat roof.

So when you say fourplex, you're not. You're not talking about like a single house with four rooms. You're talking about a. A building with four individual properties that could be rented out. It's not.

This was a 5,500 square feet total.

12 bedrooms.

Was it made of Legos?

No, no. Stucco. 1979. Built all separately. Metered for water, all separately, all utilities separate. Nice curb appeal in a rural neighborhood right off the freeway. And who was.

And who was selling it? I mean, was this owned by the bank at this point, or was it just somebody who was out of. Out of their luck or stupid? I mean, who sells?

This one was Fannie Mae.

These were all foreclosures. One was Fannie Mae. I bought one from Fannie Mae. I bought one at auction and I bought one at trustee auction. One from Fannie Mae and one from my quasi hedge fund from Texas.

And the Fannie Mae. How do you buy a property from Fannie Mae? Just for those people who don't know.

There'S a number of ways. Now you just go to Homepath. You can see what they're selling, what foreclosures they have.

Homepath.com right?

Yeah, homepath.com and then just put in an offer through a regular agent. I think at that time, Homepath didn't even exist. It was just coming. Coming online. But what was happening at that time was a lot of this inventory was getting stale for Fannie Mae. And after it would sit, sit on the MLS for whatever six months, they would offload it to one of the auction companies, you know, auction.com Hudson and Marshall, Williams and Williams, there's a number of them. And what they would do is they would basically run it through and sometimes you get lucky and. But Fannie Mae at that point was taking pretty much any offer they could get. Once it got to that point, once it sat on the market for a long time, any offer they can get, and it was. Listing price was, I think, 99,000.

And you offered them what you say, 20, 20, 29.

We got it for 29. Yeah.

So it was listed for 99. You put an offer at 29?

No, no, I think I tied it up at 36. And then I was actually having reservations at 36. I was like, I don't want, I don't Want this big remodel. I don't want to have to fix the roof. I don't want to have. It was, I mean, it was, it was insane. I mean, the roof was caved in, the windows were broken. It was vandalized. It was a wreck. But I saw the potential and I was actually gonna, I was actually, I remember I was in Disney World with my family and I was supposed to close. And I'm telling my wife, I'm like, I'm not gonna answer the phone. I'm not gonna close this. I'm gonna lose my thousand dollar deposit. I don't want to do this. I don't want this remodel. I don't want to deal with this. I'm getting tired of real estate. And the agent kept calling me, calling me. I wasn't taking her call and she left me a message. Serge, this is the last call. Fannie Mae's willing to sell it to you for 29,000. I will only take $7,000 off if you close by the end of the month. If you close by the 31st, which was like, tomorrow, I'm like, ah, call her back. I'm all fine, I'll take it. $29,000. Let's do it. And that, that turned out I still hold all three, four plexes. And those turned out to be the best investments of everything I've made. They've been, I've been able to attract elderly retirees primarily from out of state. Average rental is $700. I pay zero utilities. I fixed them up with tile and made them very rent, rent, long term friendly. So I'm not constantly doing remodels. They're always, you know, 95% occupancy, always occupied. And they're just a cash cow for me. They're fabulous.

Fantastic.

That's awesome.

That's awesome. All right, so we're now in these, these mid size units and rumor has it, rumor has it there's, there's kind of a pop up. So all of a sudden you decide. I don't know how the story goes, but, but I've got in my notes here, there's a unit in the. Was it 30s, it sounds.

That's right. So I was finishing my, the 12 units, finishing that, getting it loaded. And I'm saying, okay, I can see the potential of multifamily at that time, the older man. Back to the complex where I had three buildings that I sold to the church group that was a complete failure at that point. Right. He had consolidated seven of the 10 buildings.

For 32 units. And he had, you know, drug addicts in and out. He had. Of course, everybody was taking advantage of him. Right?

And he was taking advantage of everybody. Yeah, it was a mutual terrible. Yeah, yeah, sounds good. Yeah.

So he said, hey, come down to the complex. Meet me in the office. Let's talk. I said, all right. So I came down to the complex, and it was a wreck. I mean, feral cats everywhere. Probably 200 cats.

Brandon's house, that's not.

I have, like, three of my own and, like, seven outside. That's not 200.

I mean, this guy. This guy, he was quick to tell me that he's been investing for 40 years and he knows everything and blah, blah, blah. But he was making every mistake in the book. I mean, trading rent for H vac repair, trading rent for flooring repair to people that weren't qualified to do it. I mean, just every mistake in the book. And he said, listen, I can't do this anymore. Let me sell these back to you. And I said, you know, I'm not interested. I'm not interested in, you know, in taking 32 units. I don't have the money to do all these repairs, to do all this. He said, well, what would it take? You know, how much can I sell this to you for to be able to sell it to you? So I gave him a number, and he laughed, and he said, absolutely no way. You know, that's so much. I'd have to take such a big loss, and my investors would have to take a big loss. And I said, well, I understand. You know, if you want, we'll list it for you on the market. You know, we can slap a coat of paint on it and see what we can get. And the market was still bad at that time. It was slowly starting to recover and hadn't heard from him since. And I maintained the relationship. You know, I'd call him, see how he's doing. How can I help? You know, can I get you. I have an extra bucket of paint here. I can help you. It's kind of donation. Everything was through donations. He was using the church, you know, getting donated carpet, donated paint, donated everything, right? So, you know, I maintain contact with him. And then out of the blue, I get a phone call, you know, in my office, still in corporate America. And the guy says, hey, remember that number you told me if you can come to close on Friday, this was a Monday with that number, I will. I'll sell them to you. My eyes got wide open. I said, well, that comes out to really low number per unit. I don't really want to talk numbers at this moment because this complex is for sale. But so he agreed to it. He was having health problems. He tried to sell it somehow through a broker, and then some of the deals fell through, and he needed the money quick. He had investors at his throat. He had to pay back some of his investors. I said, okay. And when I told him, okay, I didn't have that money in my bank account. So I'm sitting here. So I hung up the phone, and I said, okay, how am I gonna come up with this amount? Buy Friday? So I called my friend that I had been selling some property to in the Bay Area that. That I spoke about before, and I said, hey, I got this opportunity. Seven buildings, 32 units. How would you feel about buying two of the buildings? I'll buy five. You buy two. That'll bridge me to what I need. And maybe if you. If you don't like the experience, I'll buy them back from you at a later point in time. We'll figure it out. It's cheap enough, he said. So at that point, we had the relationship where he didn't even need to look at stuff. He said, hey, if you say, it's a good deal, Serge, I'm on board. Let's do this. So he. He kicked down a big portion of it. I paid for the rest. I still was running the hoa. So even though I sold him the three buildings, I was running the hoa.

You were an absentee HOA president?

Yeah. Yep. Because he couldn't do it. I had the system. I had the accounting software. I was doing it. So it was a natural transition. I purchased the 32 units from him. Ten of the units were held by my investor friend. And I quickly set to turn it around. I said, okay, you know, I'm gonna need to kick out the classic turnaround plan. You know, I just put it all on paper. What do I got to do what? In order for me, I knew that 32 units should be worth well over a million dollars. Maybe not in that market at that point in time, but clearly that's what it should be worth. So I said, okay, working backwards, if my exit is going to be, say, a million dollars, where does my net operating income need to be?

In that location. Investors I knew would command around a 10% cap. So I knew my net operating income needed to be around $10,000, meaning I knew my gross income needed to be in the $20,000 range, which it wasn't even close. To at that time. So I said, okay. To get it to the $20,000 range, what do my rents need to be? What are my big expenses that I need to contain?

What capital improvements do I need to make? What kind of tenants am I going to be able to get in here? And I realized it would be a one to two year project. I'm now about over two years into it and I'm just about there. I'm at 100% occupancy.

Wow.

I set up a. One of the first things I did was I contracted with a company that sub metered all the utilities. So what they did is they came in, they installed sub meters on every single unit. Okay. And they took the town bill for water as well as trash and sewer, and they basically subdivided it. So what they did is they said, okay, here's what it costs and transitioned to bill the tenant. So what they do is they build a tenant for actual water usage and a rubs based system for the sewer and trash all on one bill.

I continue to pay the town for the water usage and they go after the tenant for the water, trash and sewer. So I'm basically in essence getting a 100% reimbursement from the tenants.

Wow.

Wow.

So on. The first thing that comes to mind really quick is that.

Investors get a bad rap. And you look and you see this guy Serge here, who's basically taking this property. 32 units that have been dilapidated, filled with junkies and people who aren't taking care of it. And he's putting all this money in to improve the neighborhood. I don't know, it constantly hits me that why do investors. There's some bad ones, but look at what we're doing, look at what investors are doing to improve neighborhoods. And you're the classic story of just that with this. And I wish more people would look at investors in a different light. Just hearing these kinds of stories like you're putting a lot of money into to fix things up and improve things.

I want to tell you, it's been incredibly rewarding. When I'm on site, I have police officers that I built relationships with, say, wow, what you've done with this place and what this complex has done for the community for five years. It attracts so much drug use and activity that now, you know, I'm screening tenants. I got good tenants in there. I got nice green grass, swimming pool, families.

Yeah.

It's just the dramatic change to a community has been tremendous and very rewarding.

And then. And then really, really quickly, you had 32 units I'm guessing somewhere around 32 of them were occupied by somebody who probably wasn't paying rent. How was the process of throwing all those folks out? I'm guessing you threw them all out or had to evict or something. And when you're evicting that many people. Units, was that just like. I could see that there being kind of riots on the street.

Well, no, you know what? It was actually pretty easy. When I got it, it was about 30, maybe 40% occupied. The church group was occupying one building, and I told them, day one, hey, beat it. You know, this isn't.

This isn't very ungodly of you, by the way.

You're not living for free. You're not living for free. Fifteen people in the unit supposedly, you know, feel sorry for me. It wasn't that. That wasn't happening. So that. That was quick. One of the first moves I made was I had. There was a resident manager who had lived there in the past, before. Before the kind of. My first round with the complex, who was working, who was part of the church group, who was part of the church, who. The church got to be the resident manager. But she was fabulous. She was, like the only person there that was very responsible, understood it. She had moved. She couldn't stand working with the older guy who was the previous owner, and she had moved with her husband to Montana. And so one of the first things I did was reach out to her, get in touch and say, hey, you know.

I'm getting these 32 units back. I want you there. I want you on site. She was a resident of the town, born and raised there, knew everybody in the town, knew all the bad players, all the good players, had, you know, knew the police officers, knew the church, knew the high school teachers, knew everybody. So for me, that was a huge advantage in, you know, screening these people. Everybody's gonna come and tell you, hey, I'm great. I have a job, et cetera. She knows if this person says they're working at subways, she knows if they're working at subways. If this person's a drug addict, she knows they're a drug addict. So I got her back. I gave her a free unit, and I paid her what she was worth. You get a lot of these people that say, hey, well, it's only 32 units. You can't really afford. You don't have economies of scale. You can't afford to have a resident manager. You can't afford to have someone living in a free unit. And my response is always I can't afford not to. I can't afford not to have somebody on site, eyes and ears for me, that can tell me what's happening at my property at all times. And just little things like trash. You talk about trash, you can't have trash on the. On the floor, you know, and who's gonna watch over that for you? It's not gonna be your tenants. It's gotta be somebody that has your best interest in mind. And if you're not paying them. Right, that's not gonna happen.

Yeah, that's really good advice. I want to touch on that and I want to go back, actually. I need to go back and talk to you about the RUB system. You talked about sub metering your water. I mean that if what I'm thinking of what you're talking about, you're talking about each tenant then pay their own water, which means you don't have a water bill or garbage bill anymore. Is that correct?

No, that's not correct. So me as the owner.

Ouch.

Here's how. Here's how it works. Here's how it works. As the owner, I set up a water. There's one main meter, right? And that main meter goes to each and every unit, and each and every unit has a shutoff in the first, okay? The city comes and they do a meter read on that one main, and they bill me for that water, okay? So what I found was happening was my utilities. My water usage ate up all my cash flow every single month. With that many buildings, there was always a leak in one of the buildings, or if a tenant was mad, they'd leave the water running and it would equal literally like a 700 to a $900 bill every single month. One of the buildings would have that, God forbid, two or three of the buildings. You know what I mean? It was terrible. And I looked at it, I said, this just can't continue. So the city continues billing me, okay? The company that I engaged went over there. They set up a sub meter on each and every one of the shutoffs in front of each unit. And that meters the water usage per unit. I incorporated into my lease that the tenants are responsible through this company to call the company upon. We shut off the water before the tenant moves in. The tenant moves in. In order for them to get their water turned on, they have to call this company and say, hey, this is my. This is the meter read as it is today. This is when I moved in. Set me up with water so the tenant thinks they're dealing with a city Or a municipality or utility. Right.

They don't know that. It's just kind of a pass through. So then my resident manager goes, turns on the water, unlocks the key. At the end of the month, the company sends their representative, reads the meters and sends out a professional bill with the water usage plus an allocation of this sewer and trash to the tenant. The tenant then has 30 days to pay.

And if they don't pay, they call my resident manager and we shut off the water.

Wow.

Simple as that.

And you still, now you're still on the line for the water if at that point they fail to pay. Correct.

If they fail to pay, then I'm on the line for the water. That's right. So for example, a tenant gets in, you know, gets into economic difficulty, doesn't pay rent, you know, midnight move out, they leave a water bill. I'm paying that water bill regardless. That's just bad thing.

So it doesn't follow them. It's not tied to them or their credit report.

Theoretically it is. I know what water consumption they use, so I add it to their final tenant statement. So say they booked in the middle of the night, they didn't pay me last month's rent, and give me 30 day notice. They owe me $700. I'll tack on $100 in utility. Hopefully they have a job. If I screen right, they have a job. And so I'll get a judgment and I'll hand over the file to, to my collection attorney who will go after them for the $700 plus the $100 utility.

Garnish, wages, and eventually, hopefully get some of that back.

Well, so here's what excites me about that. And I mean, I have, my water bill at my apartment complex is about $1,800 a month. My garbage bill is a thousand a month. That's $2,800 a month. I'm gonna get really nerdy here, so people might wanna, you know, ignore me for a second, but 2,800amonth times 12 months is $33,000 a year. I'm paying 33,600 a year. I'm paying. If I could transfer that to my tenants, not only does that give me an extra $33,000 a year in cash flow, at a 10% cap rate, that increases the value of my property. $333,000, right?

Absolutely, absolutely.

So what's the downside? Why doesn't everybody do this?

I'll tell you what, you know, and you can look in the forum, it's.

Got to Be expensive to do, right?

Well, the contract I got didn't cost me a dime. So the way it works with the company that I'm using, they have their own meters, they came, they did all the installations for free. They signed me to a four year contract. They charge $5.95 as a rental per meter and $5.95 per unit for the read fee. But here's the greatest part about it.

That's nothing.

Well, that gets added on to the tenants bill the tenant.

So the owner basically pays nothing. It's a no brainer. It's a no brainer. The downside, the downside, and you'll see the debate is if you're in a competitive environment, if you're in a city where there's a lot of multifamily and all your competitors are paying for water, sewer and trash, then theoretically your tenants gonna say, well, why would I, why would I have, why would I be on the hook for utilities when I can go across the street and not be on the hook for utilities? And that was my main concern. I had a lot of debate and I didn't know if I wanted to do this. I had a lot of debate, you know, would I lose tenants? Would my occupancy rate go down? How would, how would the tenants react? And here's what I found. I've had zero impact. So what I did is in essence, I did market research on. In this town, there's really two other large multifamily players. I got their list of prices on their three bedroom, two bedroom and one bedrooms which I offer. I was already cheaper than them. And so what I did is I still raised my prices, but I made sure my prices were about 10 to $25 cheaper than them. Okay? And I advertised it, said nothing about utilities. I just advertised it as 25 bucks cheaper than them. So we get a lot of people calling, you know, look at the units. And I made my units marketable. I made sure my units were clean, showed well, that's always important. You know, you don't want to rent trash. And then they show up and then they'd ask questions, you know, what does the owner pay for, what not. And.

My resident manager who was doing the showings, I trained her, I said, this is exactly what you say. You say, tenant pays for all utilities, just as is standard for every single single family home. No different. And if they give you kickback and say, hey, you know, well, ABC apartment next door doesn't make you pay for that. You say, well, hey, that's why we're able to keep our prices low. And that's why we're able to offer the most competitive.

Amenities, units, square footage. What we offer is the best in town. And being able to conserve utilities. Hey, we're conservationists here. We care about water. We're in Arizona. You know what I mean? We care about that.

Yeah.

And what we found is that allows us to have the best offering. And tenants say, okay, that's fine. And for whatever reason, I can't tell you why, you know, but they just don't notice when they're shopping for an apartment. All they care about is what is the rent, what is the rent? What is the moving cost?

So let me ask you this. So, you know, on multis, I would never buy a multifamily where I was responsible for water ever, ever, ever, ever again. I've lost so much bloody money thanks to tenants just turning the tap on or, you know, leaving the hose on or whatever it is. The only thing that I could imagine would be a sticker shop shock. And ultimately, it's not really your problem or responsibility. Oh, my God. I had no idea water costs this much money. I've got my sink on all day. I've got my tub filled. I got to get out of here. Has that resulted, just out of curiosity, and you having any minor headaches? I mean, it's not your headache again, because that's their problem.

But honestly, maybe I don't even know about it, but I've never had a tenant tell me I'm leaving because the water bill's too high, or I'm leaving because somebody else else pays for utilities, and I don't. Yeah, I tell my resident manager at Move in, you know, I'm a follower of, of that book landlording on autopilot. You know, you train your tenants right up front. You show them. I have my resident manager sit them down and say, you need to budget for utilities. You need to budget for utilities. Your water bill on moderate usage is going to be 30 to $40 a month. Your sewer and trash is going to be another 20 to $30 a month. You need to budget for that during the summer. Air conditioning costs are very, very high. Don't come complaining to us that our air conditioner is broke because your bill's 400 bucks. If you run your air conditioner at 72 degrees, it's going to be 400 to $500. So you need to budget that. So we tell them that up front. And then it comes down to screening appropriately and making sure that they have a job and can pay for it?

Yeah, yeah. You know, definitely. All right, so you got this 32 unit. It sounds like you're putting it up for sale with. Tell us really quickly. And we're going to kind of move on to the next section of the show here.

What's the plan here? Forward? You've got all these units. You got this one big building that you've turned around. You're selling, hopefully. Good luck on that, of course. And do you continue to add multifamily for turnaround? Where do you go next?

Our multifamily market has become so saturated, and the returns are. The cap rates are ridiculous. The stuff I'm seeing selling is just, you know, what do you see? I'm seeing four plexes that I probably wouldn't have bought for $40,000 selling for a quarter million dollars. Ben Labovich wrote about this in his syndication as well. You know, kind of this fake numbers out there in the multifamily segment. It's just so pervasive. You really have to be an owner, operator to know what the real numbers are. If you're going into this blind and never owned a multifamily, particularly an older one, there's going to be people that get hurt. There's going to be people that get really, really hurt. So I'm not seeing anything in multifamily, and I've been an opportunistic investor. I'll take what's given to me. So I'm again on a pivot point right now where I'm looking for to get out of my market. As far as the counties that I work in, the cap rates just aren't available anymore. We've had such tremendous appreciation out here. So I've taken my network, built a small network of contractors and agents and such in a county that's south Southern Arizona, where there still are some deals on newer single families. Again, rural areas. There's a military base down there. So I did my research on the demographics, the growth, and I'm starting to purchase some single families down there. At the end of the day, though, I'm really at an inflection point where it's, do I grow this business and systemize it and hire employees and get to the next level, or do I slow it down, you know, figure out the management aspect of it and be happy with the cash flow?

Gotcha.

Yeah, gotcha. Gotcha. Wow. I mean, this is probably our longest show yet, but I still have like 500 notes that I want to get to so we're gonna probably have to, you know, wrap it up fairly soon. But let me ask you a couple more questions that I really wanted to get to specifically because I'm selfish and I like to know things that help me. So how do you actually the specifics of your business? You mentioned a resident man and that you have a property management company. Do you also have, like, employees, handymen on staff, or do you hire them out? How does kind of the actual functionality of your business work?

The first thing I did was buy a property management software. I use Buildium, which has been fantastic. I couldn't imagine life without it. That was the first thing. The second thing set up the legal framework for a proper for legitimate property management company. I have my resident manager that manages the 32 units, and I also pay her on top of that to be basically my operational manager for the single families. And so what she does is she's basically the call center. So if a tenant has a problem with a maintenance request or whatever, has an issue, wants to yell at somebody, they call her. They don't even know I exist at this point. She also does all the turns and all the movements, all the moving or the tenant walkthroughs, tenant inspections. So what I did was I kind of worked backwards and said, okay, what are the touch points in this business that need me that I'm spending a lot of my time in, and how do I get out of those? And I narrowed it down to tenant showings, which I absolutely can't stand. That's the worst part of the business, in my mind. I can't stand showing units. That's a tenant showings, tenant phone calls, maintenance requests, basically all tenant contact. So I offloaded all.

So you don't like people?

I just don't like hearing complaints. I don't like showings. Showings drive me crazy. But that's a whole other tangent, right? So what she's allowed me to do is offload the touch points that can't be automated. Okay? Everything else that could be automated, I automated. So tenants are. All my tenants are trained. Do not call me. Do not call my operational manager, emergency or not. All tenant requests are filled out online. So they fill out their tenant requests online. It emails me. It emails her and in some cases emails my vendors. I have a list of specific vendors that I have for each regional area that I'm. That I'm in, gets the email, and my operational manager will either just simply forward that email to the vendor for that. Maybe it's an H vac Repair. She's got the specific list of vendors that are pre authorized. I got price lists that are agreed upon. She'll simply forward that to them. The vendor will call the tenant schedule, get it done, invoice me, I'll do it. So for me right now, the remaining touch points of the business are really accounts payable, accounting, journal entries and managing my operational manager. So really one employee.

Okay.

Okay. All right. That's awesome. That's actually really, really helpful.

So yeah, Fantastic. All right, well Serge, I mean this is fantastic so far. Really, really great information. We are going to.

It's time for the fire round.

That's where I get interrupted by our angry guy. Yeah, actually, yeah, it is the fire round. All right, so Brandon, alright, the fire.

Round is the part of the show where you know this. We ask everyone questions directly from the forum. So we're gonna fire these at you and you can fire them right back. So question number one for a buy and hold investor. Does it make more sense to sell when the market seems to be peaking and then buy again when it drops, or just to hold continually and ignore the market?

You know what, I'm a believer that you hold your best properties, that you look at the performance of each property every single year and when the markets are high, you use it as an opportunity to basically sell your worst performing properties, lock in the gains and perhaps buy better performing properties or buy a different asset class altogether, or invest out of state or invest where it makes sense for whatever you're doing. But to just blindly say I'm going to buy and hold.

Sometimes doesn't make sense. You sell your dogs, you keep your best properties, but you're always got to be looking because it's never, it never works out how you thought it would when you bought on paper.

Tweetable topic right there. That was awesome. Awesome. All right. How can I estimate how much expenses will be on a multi family property?

Oh my God.

I started 60% water or no water. I mean people, people talk about the 50% rule. I just haven't seen less than 60%.

Wait, wait, hold on, hold on, hold on, Serge. Because, you know, because a lot of really experienced real estate investors say that that's crazy. You know, I get 20% on my properties, I get 10%. 60% is not an unreasonable number to see.

Here's the thing, it's not unreasonable. The problem with multifamily, you have pros and cons. People always talk about the pros. One roof, people under, all in one place, easier to manage, etc. Etc, but, but you don't hear when your Average rental is 500 bucks. Well, guess what, there's still two sinks, there's still two toilets. There's still all the components in there, are there? And when you're only making 500 per unit, the repairs still need to happen, you know what I mean? So there is something. Depreciation is real. These things do fall apart. These things do need to be repaired. When you're only making $500, your expenses add up. Now you have a lot of other expenses that you just don't have on single family. You don't have, have trash, water, sewer, landscaping, the grounds maintenance, the million other things, you know, bedbugs. I've never had bedbugs in a single family house. But in a multi family.

Don't move into Serge's properties.

He's dirty.

I meant like I think I hit 62%, I think for, for last year for my expenses before taking in the mortgage. So yeah, I mean definitely the 50% rule wasn't enough for, for my property, especially with that $33,000 a year utility payment.

And you probably did well at that 62%.

I'm happy.

Well, let me ask you, the two of you then. So on these larger multis, what would you say would be a safe assumption for a new multifamily investor? We say 50%. On single families generally, if you can find a 50% property, you're in really good shape. Odds are it's going to be great, but you're still going to do the due diligence. What kind of screen would you set for a big multi? I mean would it be 60, would it be 55, 70, what do you think?

You know, I think it would depend on the class of the asset. You know, certainly a class A asset that's less than 10 years old, that's sub metered for everything, probably 50% may be reasonable. You know, there are other multifamily. This is what multifamily investors just really need to grasp. There are certain multifamily properties that simply will not make money. I don't care how cheap you buy them for, I don't care what they are. If they're in the wrong location, they're the wrong age, they're built the wrong way, you can get them for free and you will lose money every single year. And you've got to understand that because everyone wants that crazy screaming bargain. And in this game there's so many traps. Half of these multifamily I look at, I say, wow, I wouldn't take that for free. Literally. It's a liability, it's not an asset. A lot of these buildings are liabilities.

There's a wise investor. I once heard say that you can go broke buying good deals. I thought that was very, I guess, fundamental in my education growing up as a real estate investor. So very true. All right, let's go on to the next question is would you invest in an area that had a slow population decline?

You know what? I probably wouldn't. That's one of the big things and that's one of the reasons I love Arizona. Our population has been continuously growing. We had a blip during the recession where we didn't. Our population did not grow. But to me, population, income and jobs drives real estate. Simple as that. Simple as that. Then you got to look at other factors. Obviously, is there new building going on? How are you meeting the demand of the population growth? But if you have population growth and you have job growth, that's music to a buy and hold investors ears. I mean that's the first thing that I look at. And I've never invested out of state. I've been stuck on Arizona. I love the combination of low property taxes, cheap insurance. Scorpions.

Are a problem. But you know, it's, it's got a fabulous combination for the real estate investor. You know, no snowstorms, no freezing pipes, no nonsense. No nonsense with 3% tax, 2% tax like in Texas. I mean, every state I look at, I just can't get over some of these, some of these factors.

You don't want to buy property in New Jersey.

New Jersey. Oh, man.

Imagine that. Yeah. All right, all right. So sorry, Jersey. I had to pick on you at some point.

Do you think there's a way to do some minor renovations to a unit that's occupied? And do you have any tips on that?

Minor reservations to a unit that's already occupied?

Yes, sir.

If it's occupied, why renovate it?

Good point.

I see no point. You rented it as is. Why would you, why would you renovate it? To have, to have your tenant destroy it.

Hey, don't get mad at me. I'm just reading what the guy wrote.

Cheese. I've never done it. I guess there is. I guess there is, but it's just. It sounds like a big headache.

I tell you, I had a. I had a unit that was, was rented out and the unit was fine. And at some point there, in between, there was a giant hole in the kitchen floor. Like, I mean straight up. Like.

The thing had to Be, I don't know, the size of a big gallon garbage pan, garbage can. And like, how, how do these things happen?

I know.

Yeah. How does that happen? Well, you know, I just fell through. You didn't fall through, dude. What'd you jackhammer that sucker? I mean, like, that doesn't just kind of happen. So.

Yeah, I had a tenant leave a boat in one of my pools. You know, it was a midnight move out.

I got a boat just floating in my pool.

Like a 15 foot boat. Like a real boat?

Like a real boat. I'm like, are you kidding me?

That's funny now, now you go spinning in the, on the beach, on that thing, right?

Oh, God, that's crazy.

That's crazy. All right, cool. Well, listen, so we're gonna move on to the last section of the show here, which is the Famous Four. And the Famous Four. We've got the same four questions that we'd like to ask everybody. And I will start. What is your favorite real estate book? And I think I know what it is.

You know, I like that, that landlording on autopilot. It was a good one. You know, just a good kind of reality check. Also, there's one, One of the Kiyosaki books, the real. The Real Book of Real Estate, where he's got his advisors talking about. In my beginning of my career, that was nice because it was very broad. A lot of different types of, of real estate and the CPA talking and the lawyer talking and kind of the, all the assets. I liked, I liked both of those.

Yeah, I don't think any, I don't think he said that one, but that was a good one. It was, it was different than most real estate books I'd read because it was much bigger picture. So cool. What about your favorite business book? Non Real Estate.

Know what I like the Jim Collins, the Good. From Good to Great.

Okay. Yeah.

What sets apart different leaders? Also the seven habits of Highly Successful people. Covey.

Yeah, Good stuff. Right on. Cool.

All right, Josh.

Yeah.

This is me. This is hobbies. What, what kind of hobbies? What do you do for fun?

I'm big on hiking. Got a, got a house out in northern Arizona area in the woods. About an hour and a half out we go hiking and there's, there's lakes out there and got a, got a nine month old baby.

Congrats.

Kind of a homebody right now, you know, and spending time with the family.

Right on. Excellent, Excellent.

All right, final question from me. What do you believe sets apart successful investors from those who fail you know, starting.

You know, starting. You know, I hear about this analysis, paralysis, thinking, waiting for the right deal. It doesn't matter if the first deal is bad. At least you learned starting is the big one. And then I'm not big on getting too caught up in a big 10 page business plan. Lay out five bullet points of what you want to achieve on your first round and then be quick to pivot. Pivot every time. Take the market gives you. You know what I mean? Don't try to force a strategy on a market that that's not receptive to that strategy. Take what the market gives you. That's great. Are you a out of that if it doesn't work?

Are you a Lean Startup fan? The book Lean Startup. I was gonna say you sound like a Lean Startup guy. I love the Lean Startup amazing book.

Take what the market gives you. Yet another quotable topic here. Yeah, for sure. All right, Serge, it was awesome. Listen, so before we let you go, how can people find out more information about you?

You know what, I'm on bp. That's the big one. Bp. I'm on Facebook. All the social media just holler, holler at me.

Yeah. All right. And we'll point a link in the show notes to your profile@biggerpockets.com show 60. And for everybody listening, if you have any questions for Serge, definitely make sure to hit them up in those show notes@biggerpockets.com show 60. Serge, thank you so much. It's been a pleasure and we'll look forward to seeing you around on biggerpockets.

Nice. Thanks for having me, guys.

All right, thank you.

All right, everybody, that was Serge Shukat, real estate investor in Arizona who has hopefully blown your minds about single family and multifamily buy and hold real estate investing. There's enough information in there to I don't know if you haven't taken notes or if you didn't get anything from the show. I think you're probably well on your way to doing very well.

Cool. Yeah. Great show. I mean, I have a whole two pages of notes here just while we were recording it. Just note after note after note of things that I need to go look into. And I already looked into the sub metering thing already, just hitting Google and I found there's a company in Seattle that'll do it. So I will be calling them as soon as I hang up the phone here.

Awesome. Good stuff. Good stuff. All right, guys, well, listen, we hope you enjoyed the show. Biggerpockets.com show60 and that's biggerpockets.com show60 where you can reach out to Serge, ask him any questions. Otherwise, jump on the site. Get active. Get involved. Invite your friends. Tell them about the podcast. Help people that you know who are trying to build their wealth and improve their lives by introducing them to bigger podcasts pockets and helping them learn how to be successful. Let everybody know who we are, what we're doing and hopefully we will see you again on the next show. Show 61. Thanks for listening. I'm Josh Dworkin signing off.

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