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One Rental At A Time: From Single House To Financial Freedom With Michael Zuber 

GDNI 109 | One Rental At A Time

 

Many of us get into real estate investing, thinking of it as a path to financial freedom. However, for those of us who are still working from nine to five, it can be quite difficult to embark on this path fully. How, then, can we grow our investing business and finally leave our full-time jobs? For Michael Zuber, the answer is through rental properties. In this episode, Chris Seveney invites him to share how he has grown his business, as written in his book, One Rental at a Time. Michael is the CEO and Chief Helper of ORaaT (One Rental at a Time) LLC, a company focused on helping busy professionals get started on the right foot via the Creation of Pride of Ownership Rentals. Here, Michael takes us into his journey, which started as being a full-time employee at 30 years old, growing from a single house to currently about 175 doors. He then shares some of the hurdles many investors who work full-time encounter and the ways they can avoid them. Furthermore, Michael gives great insights and advice on setting up a management company, finding good tenants, being consistent, and more. There is no such thing as an overnight success. If you are not there yet, then take courage in the fact that you’re simply on your way, one rental at a time.

Listen to the podcast here:

One Rental At A Time: From Single House To Financial Freedom With Michael Zuber

I have a special guest. I’m reciprocating the favor as I was on his show. I have Michael Zuber with One Rental at A Time. Michael, how are you?

I’m doing very good, Chris. Thank you very much.

Michael is the author of the book One Rental at A Time. One of the reasons I want to have Michael on is to talk about the growth of his business. It reminds me a little bit like myself. We’re out there to try and help people, assist people in growing and share our story. That’s how I look at it from the note investing perspective and Michael does it with the rentals. Why don’t you tell people about yourself?

Thanks for the opportunity again. My story is you’ll see in One Rental at a Time is I was a full-time employee. I frankly didn’t have visions. I had no grand goal. I was a 30-year-old man who had been burned in the stock market and I wanted to have a better financial future. At the time, Rich Dad Poor Dad sent me on this path to, “If I can get a rental, maybe 2, 3, my life would be better.” That journey began with a house on Norris Drive, which I talk about in the book. It starts horribly but ends up pretty good. That journey from a single house went to 2 to 3. My story starts back in December 2002 before the last crash.

We traded out of houses into apartments right at the peak. We weren’t impacted by that. That’s always fun to talk about. The crash happened. The banks wouldn’t lend and what are you going to do? We buy a bunch of stuff during the crash. It turns around and suddenly everybody wants to be Grant Cardone and bigger is better. People are buying apartments at stupid prices. We sell our apartments at stupid prices. We’re sitting in an environment with a decent amount of cash. We live very modestly. We live below our means. We’re both financially free. When I say both, it’s my wife and I. She’s been out of the game for 5 or 6 years. I’ve been out for a couple of years and now we enjoy life. We do what we want. We like to give back. I’m happy to go anywhere you’d like.

How many doors do you have right now?

The last time I counted, it was about 170 or 175 somewhere in there.

That’s several years of growth, but that’s through at least one downturn. Right now, we’re in some interesting times and you hit upon something too of people buying buildings or buying things because they have the cash. Just because you have the money doesn’t mean you should go out and buy something. When you see people selling stuff at 4, 5, 6 caps and markets that don’t have to justify it. It’s a 10 to 12 market cap. That’s where you see people start getting in trouble. The first question I was going to ask is what did you see as the biggest hurdle going from full-time, which I still work full-time and I manage a portfolio of roughly about 180 notes. We take doors to notes, somewhere in that size. The difference is you’re financially free and independent and I’m not, but what’s the biggest hurdle you had to overcome?

The biggest hurdle for me was my personality. I have grown up in a sales career. I’ve been commission-based sales person since I was selling washers and dryers a few decades ago at Sears, Roebuck back there in Cupertino. I’ve been on a commission plan for a few decades. Back then, I would live weekly because we have weekly numbers we had to hit. If you missed a week, you’d go on the plan. If you miss two weeks, you get fired. I’ve lived in an environment for a few decades where my job was always on the line. You operated at different speeds when you were always afraid of being fired. I had always planned to retire at 50. Life has a tricky way of getting in front of you.

At 45, I was put in an environment where I didn’t like my boss and my boss didn’t like me. I was like, “I don’t have to work anymore.” I send a quick text to my wife saying, “I’m coming home.” That was it. The biggest challenge for me was when you do that, you have two days where you’re smiling. I smiled so much in two days that my face hurt. That’s how much I was smiling. It was, “What am I doing?” I start your mind game. My mind game started getting a hold of me and very quickly I went from smiling to being in a depression. I was depressed. I started feeling like a failure because I haven’t had to get up by an alarm clock in years. I still haven’t.

I’ve been out of work for a few years now. I was still up at 5:45. My body wakes up. I was feeling like a failure. I didn’t have a North Star. I wasn’t going anywhere. I was a week away from accepting a job. I remember sitting there driving home from San Francisco going, “Am I going to get a job so I feel like I’m a success or can I do something else?” That’s where the prod came from, “You should tell your story.” What became a book originally, it was going to be a free PDF. I’m not a great writer. I started writing and it ultimately became a book. I created that YouTube channel, which you were nice enough to be on.

You got to watch the real estate market because it tells you what's going on. Click To Tweet

My North star became helping people. I told a couple of companies that were aggressively recruiting me. I’m going to take the rest of the year, which was about four months at the time. I’m going to see where this goes. If I feel fulfilled, I’m going to keep doing it. If I still feel like a failure, I’ll call you on January 3rd and we’ll talk about the position. For me, the biggest thing was feeling like a failure, which is crazy. You’re 45. You don’t have to work. You live modestly and you feel like a failure. Your mind is the mind that can be toxic.

People asked me, they’re like, “Why still do what you do full-time?” I’m at a point where I could make a conversion, but I enjoy my full-time job. I’m similar to you. I get up early every morning. I’m up until 11:30 at night. What would I do with myself? It’s what would happen. I have kids in school. My wife still works. In several years from now, kids are off college and stuff like that. Maybe get the golf game in and so forth or work on something on those lines and something else. As you said that your mind plays tricks on you. If I was sitting around, not doing things, I go stir-crazy and similar to you, I’d probably get a job just maybe to feel more satisfied from that perspective. Was your wife supportive? That’s another thing. A lot of people who try and make that transition, whether it’s a woman making this transition as well and so forth. In getting your spouse to be supportive, it can be trying. I was curious with you, how did that occur?

As I write in the book and dedicate Olivia, which is my wife’s name in the book. She’s not only been supportive, but she’s been the anchor in many different times. When you play golf, there’s a scene called ham and egg where you have a bad hole and your partner has a good hole. It was very much like that for Olivia. Sometimes I was up, she was down. When she was up, I was down. We complement each other. I gave full credit for our entire journey because we had that horrible experience with that first rental where the tenant moved in and never paid and then destroyed the house. I was convinced she was going to tell me to sell it and take a loss, but she says, “Nope, keep going.”

She not only gets credit from the very beginning. She gets credit throughout the journey. When I decided to leave, spur the moment. I leave the house at 6:45, whatever day it was. Call it a Tuesday or a Thursday or whatever it was. She’s already retired. She’s enjoying it and she’s comfortable with that, but I’m going to work because I like my job. I leave that day, get to work, find out there’s going to be some adjustments in sales career because that’s what happens. I’m going to work for a guy who I don’t respect and who doesn’t like me, it’s toxic.

We have it out and I’m like, “Give me a package where I’m out. I can’t work for you.” I send her a text. She goes, “Come home.” She’s a rock. She’s very supportive. I wouldn’t be where I am talking to you without her. We wouldn’t be financially free without her. Part of the journey that you’ll see in our book is several years in duration. What people don’t like to hear is there was a lot of sacrifice in that several years. As you have more assets and you have more income, you’ve got to keep your expenses low. She was an equal contributor in that and she deserves tons of credit.

That’s one thing I wanted to touch upon. Without spoiling the book, a lot of our audience should go out and get the book and read it because it’s enjoyable with the story. It’s that first rental and some, because one of the things you hear, especially like on BiggerPockets, most people only show off their price, their trophies and the wins. Nobody likes to talk about the losses. As real estate investors, we all know that there are those losses. Sometimes you get scared when you see people posting stuff or doing things. You’re in a similar situation where you try and educate people because the last thing you want or I want is somebody to make a mistake that could be avoided. A lot of times people rush into things. With that first rental and so forth, if you look back, was there one mistake that you thought of at that point in time?

I’ve anchored on this a lot and I’m convinced we did everything right. I’ll share this story here. It’s a part of the book, but it’s not a huge part of it. I share the losses, lots of mistakes were in those several years. We buy a house in Fresno, California, which is two and a half hours away. We’ve never been there. We don’t know anything, but the numbers work. We moved the tenant in. They sign the lease, credit check, reference check and income check. Everything was rosy. They move in. Two weeks into the journey, the family breaks up.

The wife takes off to Arizona or New Mexico or whatever. The husband is not very happy. The husband goes from a full-time employee, somewhere to a professional alcoholic. He never goes back to work and decides to drink every day. In California, that means I need at least 60 to 75 days to get them out. That’s how long evictions take. We lose about three months of income. We are nice enough to take over the house, which we’d already remodeled. We get to remodel again and spend $15,000. Think about that because what would happen to most people?

Let’s pretend you’re a California investor and you’re investing in some Midwest city. That’s what it was like for us. We’d never been to Fresno and your first tenant destroys your house and never pays you rent. We got first month’s rent and we got a deposit. We collected about $2,000. We didn’t see any rent for three months. We had to spend $1,000 on the attorney and then we had to spend $15,000 once they were out. How do you like me now? That can happen. It’s amazing that it happened to us in our first house and it’s even more amazing that we decided to keep going.

That’s the amazing part because most people would sell the house or whatnot because when you look at it from a cashflow perspective, you’re out that money. If you’re getting, $100, $200 a door, it’s going to take $1,200 a year. You need ten plus years before you recapture that money. That’s one of the reasons. I’ll ask this question a little later about where you invest to. It’s one of the reasons why I mix. I have a few rentals. I like to mix them up where I invest in the Washington, DC area because of the appreciation you get better tenants. If you have to spend that $15,000, you’re not banking on the cashflow as much because numbers will tell you over the long haul, “Yes, it’s going to appreciate.” I know you can’t bank on appreciation, but if you’re a long-term holder for twenty years. In most major cities, you’re going to get appreciation. Where if you’re investing in the Midwest, you’re not getting that appreciation and you’re banking on that cashflow and you’re never going to recover.

Without a question. I’ve been asked probably the most popular question I get all the time is, why don’t you invest out of state? There’s always the question of, “Why do you invest in California? It’s not landlord-friendly. The governor’s going to attack your rent control.” My most common phrase is “Learn your market.” When you learn your market, you could dance through raindrops. We got out of single-family homes in ‘06 because they were ridiculously priced. We went all-in in 2010 because they were ridiculously low priced. We got out of apartments in 2019 because they were ridiculously priced.

GDNI 109 | One Rental At A Time
One Rental At A Time: The Journey to Financial Independence through Real Estate

As long as you’re willing to move your portfolio around an up and down cycle is very helpful. That first house to wrap up the story is an awesome investment for us, even though it starts poorly. Why? We bought it for $107,000. We 1031 it and we sell it for $264,000. In three years, we made $150,000. We move all of that money into a five-unit apartment building that we still own. If we didn’t sell, that house that we sold for $264,000 re-trades at $75,000 because it goes up and it comes down. Now it’s worth about $180,000 to maybe $190,000. We sold it for $264,000 several years ago. You learn it. You can take outsize gains and dance through the raindrops.

One of the things that I’ve heard, read and fall a little bit too, is with the real estate markets, people tell you, “Follow what the big REITs do,” like the Blackstones and those big REITs that have more cash than what to do with. You’ll see in these instances about what they’re doing right now and over the last several months they’ve been selling because people were paying ridiculous prices for things. They’re selling stuff at 4.5% cap and they’ve got the cheapest money on the planet. They’ve got money from endowments and insurance funds that all they care about is a 3% return or maybe a little more. Their money is very cheap. They follow the market. They do the opposite of what most mom-and-pop investors do.

The thing the reason I still speak at real estate meetups is because I want to provide value. What I am searching for every time is those questions, whether we let them happen during they’re in my talk or at the end. Back in ‘06, everybody flipped. This is how crazy ‘06 was. People were buying condos. They were getting contracts on condos. They were selling the paper and that condo would trade three times before it was built. Everybody makes $50,000. That was ‘06. In 2019, everybody was a new syndicator, value-add and all of this. Having owned apartments during a recession, those things suck. What are these people doing? We sold an apartment building that needed $200,000 in immediate capital investment. They gave us like a 5.5% cap in a C market. I’m like, “What are you doing?” It closed and we took the money.

I remember in 2006, I was working in Boston’s Back Bay. There are certain areas of Boston, the financial district that is crazy expensive and that bubble kept expanding. This area was in that bubble. We’re building 60 condos for a developer who was a large entity, who backed a guy, who sold an IT company. This guy sold an IT company for $20 million, put his $20 million into this deal. He got some money from a private equity firm to cover about 70%. He had about 25% in the deal or whatever it was. These were front to back condos with elevators that open up. In the back doors, there was an alley and he can’t see anything. He had like one window in the place. These were roughly 1,200 to 1,800 square feet. They were going for $1,000 of square foot, which at the time was expensive. This was in 2006 they started. In 2008, they ran out of money. They weren’t selling. When they were selling and all of a sudden, they started selling at $600 to $700 a square foot. I feel bad because this guy wanted to be a real estate developer. He was great at IT. He made all this money and put everything into the deal. I don’t know if he’s ever recovered from it.

You’ve got to watch the market. The market tells you what’s going on. When the lemmings come, I get out of the way. I get made fun of. In 2019, I’m telling people we’re selling apartments and you should have seen the comments I get, “You don’t know what’s going on.” Suddenly, those comments are very good. Now they’re like, “You did okay.” I’m like, “I look at my market every day for many years.” The market tells you what’s going on.

One thing I’ll mention about the markets is you’ve got to look at it, don’t listen to realtors. I say that with the utmost respect for them. We’ve been looking at an investment property more in a vacation/investment type property. This is an area that shut down where they weren’t even allowing non-resident property owners to get to these properties during the virus. We will put an offer on a place that didn’t end up happening. I’m hearing from agents like, “Now’s the best time to buy. It’s going to be hot, this and that.” I’m like, “Maybe, but I know a lot of people buy in this area who can’t afford to carry this type of home for 6 to 12 months without rent.” There are going to be foreclosures. It’s a reality. It’s going to happen. That’s going to bring pricing down. For realtors, it’s the best market on the planet. Back to your portfolio and stuff, all these doors that you have and stuff, do you have third-party management? Have you set up a management company? How’s that worked for you?

Yeah, we’ve had property managers since day one, 2.5 hours away. I don’t want employees so I’ll never set up my firm. We’ve negotiated nice discounts as our portfolios have grown. I was too focused on being a full-time employee. My job took me around the world. I could very easily be in three different countries in a week. There was no chance I wanted to be a property manager. Even when we had one house, we would pay 10% and consider the cost of doing business.

That’s one of the reasons I shifted over to the notes was the whole tenants, toilets and termites thing that you have to deal with. We take properties back. We still have to deal with, but even for my rentals and stuff, one of them is the right borderline. It’s 45 minutes from me and the other 1.5 hours. The 1.5 hours, I have somebody onsite manage it. The other one is borderline. It’s a condo that we completely renovated. What I do with that one is I hire an agent to lease it out for us. I have a local handyman go over to take anything. When we renovated this thing because it was somebody who lived there for many years, we did everything.

We redid the electrical in the place, on the appliances, everything, the heating system. Even though it was a condo, we still re-did everything. At least I don’t even get a call that says, “The outlet is broken” type of thing. With the expansion and the growth during this time, what was for you that first leap of getting going and then making that jump, as you said, from 1 to 5 and having that comfortability of making that leap. Once you do go to commercial, it is a different animal in how you look at everything. What were some of the lessons learned that you had or mistakes that you made during that time?

We had eight doors so that would be seven properties because one was a duplex, two houses on one lot. We had eight houses. We go from 8 to 80. First and foremost, a real estate meetup gets credit because I didn’t know any better. This is like 2006. We have eight houses. We’re feeling big time because we never imagined we’d have eight. We would have been happy with two, but we kept reducing our expenses and buying the next property. We did cash-out refis to buy more and all of that. Now we’re looking for the next house because we want the next one. You’ve got to remember that the first house was $107,000. Now, they’re going for $250,000. We’re like, “What is going on?” At $107,000, $1,100 rent cashflows, at $250,000, $1,100 rent doesn’t cashflow.

We go to a real estate meetup. An older guy is talking. He’s probably my age now, but I’m his age when I heard him talk. He’s talking about small multifamilies. In my brain, as he’s talking, thinks duplexes, triplexes and quads. I’m like, “I get it.” No, he starts talking about the commercial. I’m like, “What is he talking about?” He was like, “Anything five units and above, it’s commercial financing. It’s this whole other game. It doesn’t have Countrywide and IndyMac. They’re not lending there. It’s different standards, 60% or 65% LTV.” All these new words he’s throwing at me. I’m like, “I thought only billionaires own multifamily and apartment side. I didn’t know any different. I start looking again. I give him the credit to this day. I wish I knew his name. I should know his name, but I don’t remember.

Real estate is not about sticks and bricks. It's about people. Click To Tweet

I’ve never found him again. I start looking them up. That first five-unit apartment deal, here are the numbers. We sell a house that rents for $1,100 for $264,000. The five-unit building we bought was $223,000 and the rent was $3,000. By the way, we get to take all that artificial equity and move it over to this other property, get a commercial loan. Commercial loan, the paperwork is this thick. Residential is this thick. You have terms. Is it 5, 7 or 10? There are all kinds of differences, but for us, it was $1,000 rent at $250,000 or $3,000 at $220,000. We’re like, “Some are good, more is better.” We did a bunch of 1031s over the course of twelve months. We go from 8 to 80, no new equity, no new cash. We were probably at 50% LTV. The market crashes and our net worth goes down, but who cares? Our cashflow explodes because rentals were the thing to own back in ‘06, ‘07.

If it’s a five-unit, you’ve still got one roof as you have on the other one. It might be a little bigger. Your units are probably 1s and 2s or all 1s. It’s like a five-bedroom house. You’ve got five kitchens and everything, but you’ll have some additional expenses. For me, I would much rather have one five-unit than five single-families all day long.

Especially at those price points. Five homes would have been $1 million and I can get five little ones. Now, you do have a higher turnover because something I’ve learned since then is turnover is different. For houses, they stay for a little bit on a little bit over eight years and apartments are about 2.5 years. If you’re selective in your apartments, you can goose that higher. What we look for at least on this building is we look for seniors. We try to make it a senior area. You can be selective and you can orient your tenants, but there are all kinds of stuff. The 1031 exchange and going from 8 to 80, first off, I never thought about it and never read about it. I didn’t know it was a thing. One conversation in real estate meetup changed our life. That’s why you’ve got to keep staying educated because you never know.

You get the 1031s and so forth. Do you also use any IRA or solo 401(k) funds or any retirement funds to purchase anything?

Nope, I never did that. I did borrow. We did all of this at $40,000. That’s all the capital that we had was $40,000. We did borrow from our 401(k). We bought several houses. We bought a lot of houses in 2010 from my 401(k). Check your 401(k), everybody’s different. What I can do is I could borrow up to $50,000 and I could pay myself back every twelve months. It’s what I chose to do. Every year I would pay that back and then would borrow it again. It was cheap capital for me.

You’ve gotten from where you are now starting with $40,000, correct?

Yep.

It’s money and I know people say you do need money in this business, but you don’t need to have $500,000. You’ve got to start somewhere and like the book, it’s one rental at a time. Let it grow, build some equity and then keep going from the next one to the next one.

Let’s tie that out. We got to those eight houses, which we would have been totally happy with. The $40,000 bought us three houses and then the next five came from cash-out refinances.

At that point in time, were you doing everything in an LLC or your name?

We didn’t go to an LLC, which is now multiple LLCs right until about that time. Once we went commercial, we went LLC. We didn’t know any different. We were borrowing in our name and all of that. That’s no longer the case but that’s how it started.

GDNI 109 | One Rental At A Time
One Rental At A Time: Real estate investing is all about learning your market.

 

There are a lot of benefits to borrowing your name. I see people sometimes push everyone towards that LLC. It depends on each person because if somebody has let’s say $40,000 to their name and that’s all I have, why not use your name because what’s there’s to sue? The money is already in the property. With the LLC a lot of times now you have the personal guarantees anyways from that perspective, get the insurance policy or you add an umbrella policy and there you go. I’m dealing with an issue that has a property that took back from the borrower and a tree fell over onto somebody’s shed. Technically based on what the law states, I’m not responsible. They want to question it anyway. I call my insurance company and I’m like, “Yeah, this covered under your umbrella.” You mentioned that you want to shift gears a little bit to where we’re at now. You follow your market daily. I’m curious about what is going in your markets based on the world we’re at now with so much unpredictability.

First and foremost, listings are down remarkably. Historically speaking, I would probably have 40 to 50 listings across the Fresno Metro at any one day that would meet my criteria. Let’s call it 50 so we have some easy math. In the environment of the last several weeks, that has gone down from 50 to 30 to 20 to 12. The last day I saw those 12. There’s no inventory at my market. Inventory is at record lows. It started at record lows and it’s gone further. That’s single-family homes. Value-add multifamily, commercial size, the prices are falling. That transaction volume is not necessarily stopped but is actively being repriced. Fresno is a market where cap rates for quality products should be around 7% to 7.5%. For C properties, it probably should be 10%. They were trading as low as 5.5% across the board. Stuff is being adjusted as we speak.

We’re going to have some commercial properties go back to the bank, I’m convinced. I’ve owned C properties in a recession and it’s rough. That’s happening. Going back to single-families, which again, I’m on record saying, “I think single-family homes are going to be the best investment for the next decade.” On June 5th, 2020, I believe is going to go down as the inflection point. That is the day that the job numbers came out, that people were wrong by ten million. They expected eight million negatives. They got 2.5 positive. We’re going to see an inflection point and what I hope happens back to my point is listings come back. We are missing listings. I’m telling every agent I know to get on the phone and call people. We need listings to come back. If listings come back over the next 3 or 4 weeks, we’re going to be off to the races. If they stay artificially low, something else is going on, but I am watching this actively right now.

In our market, it is the same thing. I live inside an area of a beltway, which has three major highways. I’m in like a little triangle piece of that. Our listings in this area are down by about 50% plus from where everything should be. The stuff that is being listed is flying off the shelves. I was curious because there’s a lot of talk about rent strikes and stuff like that. I work for a commercial real estate company that owns apartments and other things. I have some information regarding how they’ve been performing during this time. It’s not what you’re hearing a lot on the news. I’m curious with your portfolio, have you seen any blips in regards to you’re typically getting 94% and you’re maybe at 90% for rent collections?

I was very nervous about this. I called my brokerage on a weekend. I said, “Where are we at? What are we going to do? Who’s at risk.” That was when California shut down. We were nervous. We didn’t know what was happening. We get through April. Our April collection, if memory serves, was at 97%? May was better than April. We’ll say June so far is on track to be equal to May, but we’ll see. A lot of my stuff is class C. A lot of the benefit is from the stimulus unemployment kicker. We’ll see what happens in August. As of now, knock on wood, it’s okay. Rent strikes certainly could happen. That would likely happen in commercial spaces, probably in New York and San Francisco where there’s more that feel and fervor, but I also believe most of that will be done against slumlords. None of the stuff we have would be anything close to that we overspend on investments. As you talked about your condo, we fixed everything. We spend it all upfront. Bonus depreciation is a good thing. We’ll see. As of right now, knock on wood, it far exceeded my expectations.

That’s what I’m hearing from a lot of people out in the market is commercial, retail, that’s a whole other animal. The retail has gotten hit pretty hard from different things. If you own retail, you’ve had to maybe do some workouts or some types of adjustments there. On a residential, I haven’t missed a beat now. I got a few people I also talk with. It’s very similar. They haven’t missed that beat.

Something you’ll learn in this business is real estate is not about sticks and bricks. It’s about people. I firmly believe when times change and times get tough, they’re going to treat you the right way. The other thing I want to say about tenants is 95% plus of my tenants are awesome. They are hardworking people that want a safe and secure place to live. Two percent or 3% of them on occasion need to be reminded that rent is due. People forget. There’s 1% or 2% that are problems. The good news is California and every state has rules to take care of problem tenants, just follow the rules. All this negative speak I hear about tenants is wrong. Ninety-five plus percent of my tenants are awesome individuals.

From the note investing space, I’d say it’s probably similar to a lot of the investment deals that I have where a lot of these people are distressed where they haven’t been making payments. A lot of them aren’t bad people. They’ve had occurrences happen too like your first tenant, split up, get divorced or whatever. You’ve got certain ones that I have that know how to game the system or play the system and haven’t made payments in years. From that perspective, there are rules that you’ve got to follow to deal with them.

For me, I treat everyone pretty much the same. That first conversation, I give everybody a chance. Everybody gets a chance and if you’re honest, upfront, tell me what’s going on, you’re going to get that chance. If you’re talking off from one side of your mouth to the other, it’s not going to end well. It’s like any business in life. Unfortunately, not everybody is good people, but 95% of people are. That’s one of the things like you mentioned with finding good tenants. Do you have any secret sauce? The property managers do the screening, but do you also review the tenants?

It’s something we’ve done very early on. This is going over a decade ago is I was actively involved in defining what I call The Box. Credit score, reference checks, income-to-rent, all of those ratios, we sat down, we ironed it out. If somebody comes in and they check all the boxes, it’s a yes answer. Don’t involve me. I don’t care. If they fit inside the box, it’s automatically approved. If they miss one thing, they can reach out to me for an exception. If they miss two, the answer is automatic no. I spent all the time creating the box and that’s been very helpful. We probably get five exception requests a year so not very many. Rentals of the quality that we have to get multiple applications. It’s very easy for them to say, “This one had one miss, but we’re going to take this person because everything is a yes.”

I found it interesting because I have a rental up outside of Pittsburgh. It was a property that I had. When we had to do some work on it, I kept telling him, “I want this done.” He goes, “Why are you making this so nice?” I’m like, “It’s one of those things where I’ll put a little money up.” You’ve got to be careful in regards to the rental, but this is an area that I’m getting $900 in rent. I was in the property for like $30,000. I could afford to put some money into it. I looked at him. I said, “Granted it’s a C area but if I have the nicest house in a C area, I will get the best tenant for that property who maybe can’t afford the B area or works in the C area. At least they still have the luxury of living in a very nice place and not have to live somewhere where they don’t have heat or hot water,” or something along those lines. I find that goes a very long way. The same thing when you get applications, new kitchens, new baths and flooring. I never have issues renting any of my places. I get applications, the same thing. It’s for me, I get so many. It’s filling in that box, but also if you’ve got multiple, it’s like, which one is within that box. For you, is it your typical 2.5x or 3x income, credit score and job at a certain period of time?

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It’s 3x rent so we like three. No security. The credit score might be 670 or 680. No evictions are a big deal. They can have a judgment, but only for healthcare, hospital or something. You can get explanations there. That’s what I remember.

Even in the C areas, the credit score, that’s a challenge that I’ve seen in some of these other areas where people have the income. What it goes back to is what you already touched upon. It’s the judgments from healthcare. They didn’t have health insurance and they got a judgment. They’d go to ER. They got $6,000 judgment against them. Student loans are the other one that you see a lot.

I haven’t seen too many student loans. We do see healthcare. That’s usually the exception because if their current on everything else and they have a $6,000 judgment because of this or that, I get it. Those often are an exception.

One of the things I want to highlight that you mentioned several times in this is you watch your market every day. I can get the feeling from you. You follow a certain process and you stick with that process. One of the hardest things in any type of business is consistency. Consistency can lead to a lot of success if you continue to be consistent in doing the same thing over and over again. Is that something that you would agree with as part of having a business?

Yeah, without question. When I go back and think about my superpower, if I were to have one, it is that I can be laser-focused and I’m okay doing the same thing for twenty years. I believe real estate investing is all about learning your market, any market. Pick a number. There are thousands of listings. I firmly believe that 95% of them are bad or average deals as a cashflow rental. I don’t talk about owner occupant’s stuff. I’m like, “That doesn’t make sense as a cashflow rental.” My job is to go and find 5%, sometimes it’s 2% and sometimes it’s 1% that makes sense. Most of the time, my offers are significantly less than asking. I’ve got to find the distressed situations or somebody where cash is more important or all of that.

I do the same thing over and over again. That’s what I teach my students is to get focused on the market, go and learn it. When you do it every day, the market talks to you. What is selling, what isn’t selling, and what is dropping? What people don’t get is yes, I know it feels uncomfortable the first two weeks. It feels a little better at 30 days. If you do it for 60 days, you’re going to be like, “I know what he’s talking about now,” because people want to do more. They start vibrating. They think real estate is easy. They get dollar signs in their eyes. They are like, “I’ve got to do something. I’ve got to be busy.” No, spend fifteen minutes a day looking at a set-criteria and be done. Look at it again tomorrow and then look at it again the day after and go from there.

I forgot what they say is, but to develop a habit, you’ve got to do something for 30 or 45 consecutive days or something along those lines. For people who go to the gym or whatever it may be, but it’s not something that you can do for a day or two or a week. Once you get into the habit, you realize how smooth things and how much you can scale at that point in time. People again asked me, it’s like, “You work full-time and you have this portfolio. How do you do it?” I said, “Because I’m consistent with my habits.” Every morning I get up, if there are twenty workdays in the month, I break it down to 10 to 12 assets per day. The first thing in the morning is I check on those 10 or 12 because again, that’s like collecting rent. You’re not chasing someone down every single day.

Certain ones, you have to follow up more, but it’s like, “I go through those 10 or 12. That takes about 25 to 30 minutes. I put my notes in the system. I check my emails. I always get to inbox zero. I’m a big inbox zero people. I tag my emails. There’s a thing called Yanado. I can tag things in different buckets for invoices or waiting for a reply, or this is in my court. There are probably fifteen of those every day. An hour in the morning and an hour in the evening and that’s it. I want to record videos or podcasts. People asked, “How are you doing it?” It’s to manage your time. It’s my lunch break so I’m taking my lunch break. Any final thoughts for your students and things? What are some of the biggest words of wisdom that you provide for people?

The One Rental at a Time book, YouTube channel and all of that is I wanted to create belief. I wrote the book as a complement to Rich Dad Poor Dad. As I said early on, it changed my life, but it doesn’t tell you how. It doesn’t tell the journey. It talks about a condo in Portland and a condo in Honolulu, but that was it. I wrote One Rental at a Time because Rich Dad Poor Dad set me on a path. I document the history, the ups, the downs, the surprises, and the lessons learned. I wrote that book on purpose because I wanted people to believe that it’s possible. It’s not a how-to book. It doesn’t do how-to. This is somebody’s story from a single house to financial freedom. I want One Rental at a Time to be a belief or hope. As we talked about the One Rental at a Time umbrella student, whatever, is if you want to learn your market, it’s the focus and consistent execution. Don’t follow the herd. Don’t follow the lemmings. They’ll get attracted to BRRRR. They’ll get attracted to Airbnb. They’ll do bigger is better and then that will blow up. One rental at a time is okay.

I’m laughing when you mentioned the BRRRR and Airbnb because it was a thing probably like a few months ago about people bragging about arbitraging the Airbnb. They’ll get the rentals and this and that. Some guys are bragging about it. Someone was talking about the other one that against this completely is people taking credit cards and racking up credit cards to buy houses and stuff. This was at the end of February. This guy was talking about how he took a $40,000 cash advance on a credit card to buy a house. I made some comment. I’m like, “This typically doesn’t end well.”

I had four people on this post completely blast me and so forth and telling me I don’t know what I’m doing. “This is how we make money. We’re going to be millionaires.” I said, “It’s great, but you’re borrowing money at such a high rate.” Even though it might only have a low-interest rate for a period of time, you’ve got zero leverage on that deal and zero tolerance for risk because the thing I always try and push onto people is it’s great that numbers look good on paper, but what is the risk involved with those numbers? You have to measure risk. If you can’t measure risk, you’re not going to be successful in this business. If people want to reach out to you, hear your story, get more information, watch your YouTube channel, what’s the best way for people to reach out to you?

GDNI 109 | One Rental At A Time
One Rental At A Time: Learn your market with focus and consistent execution. Don’t follow the herd.

 

The best way to follow me is I do daily original content on my YouTube Channel called One Rental at A Time so go check it out and hit subscribe. If you want, our story is now available on Amazon and on Audible. The book is called One Rental at a Time.

I’m recommending people to go out, read and listen to it. It’s giving hope. In this world, a lot of us look for hope with everything that’s going on. Michael, thanks for being on. I look forward to talking with you in the future.

Thanks, Chris. Take care.

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About Michael Zuber

GDNI 109 | One Rental At A Time

One Rental at a Time was created because too many of my friends and contacts had interest getting started in Rental Properties but they were just too busy and they saw too much risk. The result was they continued to pile up cash or worse spend it on stupid things. I now call this epidemic CRAP which stands for Cash Rich Asset Poor.

I will look to create 25-50 Pride of Ownership Rentals a year that are fully remodeled, fully leased and very low risk initial investments for first time landlords. I now believe if I can help people get at least 4 Rental Properties that their financial future will be much brighter.

Please subscribe to my YouTube Channel at “One Rental at a Time” as I create Weekly content intended to help investors around the world. Link to Page

https://www.amazon.com/author/michaelzuber
https://www.youtube.com/onerentalatatime

Always remember – Live where you want but invest where the numbers make sense and never buy or create an Alligator Property.

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