Michael Zuber: Succeed By Making Your Investing Model Match The Market

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Michael has purchased 20 investment houses in California over the last couple years. That’s right. California where everyone thinks real estate investing can’t work. He also owns 100 units in apartment complexes.

I learned, and you will too, the importance of creating a model that matches the market. Take what the market gives you and use the opportunities it presents.

Listen as Michael explains his model and how he succeeds in what many think is an impossible market. You can apply these ideas to where you live too. He logs his investing progress on his web site WealthBuildingPro.

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Damon: Hey, there. I just got back from my work out. I did weights today and I’ll be running tomorrow. I’m Damon Janis founder of Eyes on Investors part of Lifestyles Unlimited, which is the mentoring group for real estate investors. My guest in this interview is Michael Zuber. He’s a successful real estate investor in California. A lot of people think that real estate investing doesn’t work in crazy markets like California or Phoenix or New York, but Mike proves that that’s just wrong. In this interview, he explains his model and how to take your model and adapt it to the market and not try to force your model into the market. This was a really fun interview with Mike, and I think that you’re going to enjoy it.

So how did you hear about us?

Michael: Just trolling the Web.

Damon: Really?

Michael: Just looking for more and more. Yeah. Always reading, always looking for the next thing. I probably watched 40, 50 hours of your guys’ podcasts or radio shows. Read as much as I can. Love what Del and Steve are doing, so figured it was time for me to give back a little.

Damon: Well, that’s great. I appreciate it. I was so happy to see when you reached out and were willing to do this. Then when we talked last time, I found out you were from Mountain View, which is my old stomping grounds. That’s so cool.

Michael: Mountain View is a pretty small place. Went to high school at St. Francis. Right there on Miramonte.

Damon: Exactly. Do you know Springer Elementary School?

Michael: I do.

Damon: I think it’s still there, isn’t it?

Michael: It is.

Damon: That’s where I went to grade school.

Michael: I am probably sitting right now four miles from Springer, the way the crow flies.

Damon: Really? Okay. That’s so cool. I was thinking the house that we lived in when I was little, my parents bought it brand new. I think it was 1970. It’s on Limetree Lane, which is just south of Springer there. It’s a three bedroom, two bath, maybe 1,300 to 1,400 square feet. I think they paid $16,000 or $20,000 is what I remember for that thing.

Michael: Even in this market, it’s worth over a million bucks.

Damon: Exactly. I looked it up a couple years ago, and at the time it was $1.6 million. I’m thinking, oh my goodness.

Michael: California, there’s nothing like it.

Damon: That’s why I’m so happy to talk to you because I know a lot of people think there’s no way you can invest in a state like California. Yet, you’ve got about 20 properties or so right now, don’t you?

Michael: We own 120 doors.

Damon: 120 door.

Michael: We started ten years ago, and we bought just houses and a couple of duplexes. 2001 was a good time to buy, 2006 was a good time to sell. We sold all that and bought apartment buildings, and we’re sitting tight. Lately we’ve been buying the distressed houses again. So we’re buying what I call the “green houses” again.

Damon: You mentioned you’ve got about 20 of those. Is that right?

Michael: Twenty of them done already and got five or six in the works already. So we’re always active. You’ve just got to keeping buying in this market.

Damon: That’s what I’m seeing. Of course, I’m in Houston and the market’s . . . well, I’ll find out more as we talk what the similarities are, but it sounds like there must be some similarities because it’s a good time to be buying here too. I’m thinking this started off great. Let’s just keep talking and we’ll make this the interview. How’s that?

Michael: Works for me. Whatever you want to do.

Damon: All right. I’m really curious. I think the biggest thing I’m curious about is how are you finding properties in your market where you’re able to actually make a profit? Like, can they cash flow? Because the perception is that even though property values have come down in California, they’re still expensive and you can’t get the rents for what you’re paying and all that sort of thing. How do you do it?

Michael: First off, it starts a little bit with the market you select. California is a very large state. I live, obviously, in a very expensive part of the world, in Mountain View, California. But we invest in Fresno and Madera, which is about two and a half to three hours drive from where we live. So first and foremost, it’s where you choose to invest. Live where you want, invest where the money makes sense. So we invest there. We’ve been investing there for ten years. So we know the market cold. We know lots of agents. But it really takes work.

That’s one of the things I like to tell new investors is it take works. It’s not hey I went online or hey, I looked in the newspaper or whatever, and I found five properties. I found one of the five that’s the best and I made an offer. No. I look at hundreds of properties every day, and there are probably three or four that are even close to making sense. It takes a lot of work. It takes talking with agents, making relationships with agents so that they call you, and it takes making shots. I probably make, even today, 20 offers for every three or four that get a decent counter, and maybe I put one or two in escrow. One of the things I try to do is everything I get in escrow, I close because I’m trying to keep my relationship with the agents.

That’s pretty important to me. I never want to burn an agent like that. That way, they call me when they have a property that falls out of escrow. That’s really where I find a lot of my best deals are on properties that are “distressed.” In my market, that means it doesn’t qualify for FHA. Then if it falls out of escrow a time or two, the agents get a little annoyed, and then they start calling people they know that can close. I’ve built up a reputation, I hope, that I value that I close deals. I’d say at least half my deals come that way.

The other half is calling up first day listings and just taking my shots. It takes work, but there’s always new inventory. It does seem to come in waves. I mean, six months ago it was a really slow trickle. I would tell you, at least in my market, there are probably 15 or 20 solid new listings a day. That dreaded shadow inventory is maybe starting to release a little bit.

Damon: When you say 16 properties, are you saying these are 16 properties that might be potential investments, or that’s in the entire market area?

Michael: No. Those would show up in my screen.

Damon: Your filter criteria. What your box is, they’re showing up in your box?

Michael: I’m sure there are hundreds of new ones that I don’t invest in.

Damon: You’re just looking at the ones that are going to work for your model?

Michael: Exactly. Again, my model’s pretty tight. It’s refined. Ten years ago it was the famous 1% rule. Today, I don’t look at anything that doesn’t have a cash-on-cash or what I call yield of 20%. I have a lot of property. The 20% means my down payment, which in this market is 50% for me. So I have a hard money guy who’ll take the other 50%. Then it’s the closing costs, which is about $2,500, and then all my make ready costs. Then the expected cash flow divided by all out-of-pocket, if it’s not 20% or greater, I won’t even look at the deal.

Damon: You’re talking about 20% cash-on-cash return, not capital gains, right?

Michael: No. Cash-on-cash. Capital gains means nothing in the model that I’m using today. It’s a nice thing to do in five or eight or ten years when I take all these green houses and create some more red hotels, but it’s about buying green houses today.

Damon: Right now you’re focusing on cash flow. Way down the road, eventually you’ll sell them or do whatever, and then you’ll take that capital and go back into apartments when that makes sense?

Michael: In fairness, I do look at everything. Just like Del talks about, I do look at apartments. I do look at the 5 to 40 unit buildings to see if there’s anything distressed there. But if it doesn’t hit my 20% return, I don’t bother. I’ve made a couple of offers on some fives and eights, but right now the stress isn’t there. The blood in the streets is in the single family homes and the duplexes. So that’s where I do the deals today.

Damon: Focusing on that. So when you put an offer in, are you typically . . . I guess there are two scenarios I want to ask you about. You said about half the properties are coming from agents that the property fell out of escrow. It didn’t close for some reason and they’re trying to find a solid buyer. The other scenario was the first day it comes up on the MLS you’re getting in there. Let’s take the first scenario when an agent calls you and says, “I have a property that fell out of escrow. Are you interested in buying it?” Are you typically offering less than what the deal was going to be?

Michael: I would tell you of the 20 deals that I’ve closed just in the last 18 months, I can only think of one I paid list price for. I would tell you my average is 20% to 25% under list. The one I did pay list was a first day listing, two houses, one big city lot that I thought was just priced where I would have bought it anyway. In that story, they called me the next day and said they had offers of 25 to 30K over list price. So I pulled the trigger fast and got that one. I don’t pay list price. You don’t have to in this market. I don’t get in bidding wars either. On the first day listings I tell the agents up front that typically when I say my offer and this is my number, I’ll come up a little bit, 500 to 1,000 bucks. But if there are ten offers, I don’t even bother. I say, “Call me when it falls out.” My model just won’t support it.

Damon: You probably don’t want to spend time making a offers if it’s just not going to happen.

Michael: Exactly. My time is more valuable.

Damon: Generally 20% to 25% below what they’re asking for, and that’s in both scenarios, both when an agent brings it to you as well as the MLS?

Michael: Absolutely. That’s just my general starting point. Again, if the number doesn’t make sense in the MLS, I have gone lower. I’ve gone as low as half off the MLS, but that’s because I know that there’s something unique that I don’t think was priced in. For example, it had just gotten broken into or there was a mold problem in one of the bathrooms or whatever. Something that I think justifies it. I will give the agent that information so I don’t seem like just some sleazebag guy who makes 100 offers on everything. I say, “I’m giving you this and this is why. You may not know that it just got broken into and is now tagged in every bedroom.”

Damon: On the financing side you mentioned you have a hard money lender that you’ve partnered with. Is that right?

Michael: Financing’s the hardest thing, as you know, for an active investor these days. Again, my model is pretty rigid right now, so I find distressed assets. I come in with 50% of my own capital. I have a hard money guy that takes the other half. He charges me 9%, ten-year fixed. Actually, now it’s 15 years fully amortized. We agreed on. He’s deep pockets, so that’s taken care of. But again, he only does 50% of whatever the agreed purchase was. Most of the stuff I get appraises for double, even in the condition I’m buying them at. But he only gives me 50 points off purchase, which is fine. That’s the agreement we have.

Damon: You’re coming up with other 50%?

Michael: Absolutely. I’m coming up with the other 50. I’m coming up with all closing costs and I’m coming up with all the make ready.

Damon: Your cash in is actually greater than your lender’s cash in?

Michael: Absolutely. His security is well in hand. He hopes I wake up and don’t pay him.

Damon: You’ve got more skin in the game than he does.

Michael: Absolutely. That’s really why my model has evolved, if you’ve looked at the site, because what I’ll do is after I go get it, make ready. I’ve got a bunch of cash in. I go get it leased. Now it’s just cash flowing like crazy, because unlike prices which have come way down, the rents in my market are stable. They may have fluctuated $25 lower in my apartments, but all my houses are the same. My rents are flat, but prices are 20% what they used to be. So the yields are great. That’s when I go back to my private investors, or sometimes even banks will do portfolio loans for you, and I go and try to find a private money investor that will come in for 10% or 12% for 10, 15, 20 grand increments. That’s how I get some, if not all, of my capital back. So I can take that green house, it’s now functioning. It’s got very little of my own personal equity in it or capital, and I’m off buying the next one.

Private investors like it because they get a healthy return, but most importantly it’s because their money is tied to a functioning asset. A lot of the investors, because I’ve been in the game a long time, they’re asking for private money on distressed stuff, right? “Give me 50 grand plus fix up, and hey-ho, I promise it’ll be great.” No. My stuff’s leased. It’s already been repaired. There are no issues with it. Without your loan, the cash flow is $700 a month. With your loan, the cash flow is $500 a month. Again, you probably hope I don’t pay you. That’s sort of my running joke with my private investors is the deal should be good enough where you hope I don’t pay you. Otherwise, I’m not going to do it. That’s what I’m trying to do.

Damon: That’s cool. Let me ask you this. How do you establish relationships with . . . I mean, so far we’ve talked about you’ve got a hard money guy you partner with, private investors, real estate agents that are bringing you deals. How are you establishing relationships and cultivating that with these different people so that they work?

Michael: It takes time. It’s not something that you wake up with a Rolodex. It comes from being in the market for ten years and telling people you’re in real estate. Over time, I’ve made relationships, again, my market with some writers from the Fresno Bee as an example. Again, just the more contacts you can make, the more agents. I go to the Fresno REI events – even though it’s three hours away and held on a weekday – so more people out there know me. I try and share as much information as I can, much like Lifestyles, Del and Steve do. I actually write up my reports and give free access to stuff, not selling anything. So if people want to see what I’m doing, they can. The wife and I answer any and all questions that come to us from friends. After a while, the network and the beehive expands, and once people start to see the returns and the security, they tell other friends and it sort of goes from there.

Damon: You establish a credibility. That sounds like a big component of that.

Michael: Absolutely. My model doesn’t work unless I put skin in the game. With these 20 houses, we deployed conservatively $300,000 or $400,000 to get them secure before we started going out to private investors. That experienced relationship you can walk through and see the leases. They’re all legit things. It’s not a model that everybody can do, but it’s certainly the model that has worked for us.

Damon: It works in that area too. What I’m seeing is different locations have different ways that you need to do it. An investor needs to have some flexibility and insight into if I target this, you can get it working. I kind of want to tie that into you talked about having a rigid model, and I want to understand and help people that are listening. Why don’t you just try a whole bunch of stuff? Why do you just have a rigid model that you focus on?

Michael: That’s a very, very good question. I tell every investor they have to have one driving criteria or goal, and it can’t be something loosey-goosey like I want a net worth of a million bucks or something just sort of out there. The shot gun approach really doesn’t work. My goal is 20% return on any cash I put out or greater. If the deal doesn’t hit that, I don’t consider it. I don’t care if it’s a McMansion. I still get calls . . . I probably get a call once a month from an agent that I know who says, “Mike, I’ve got the perfect flip house for you.” I go, “What part of our conversation over the last four years makes you think I want to flip a freaking house?” Not my thing. It sounds like another job to me. It’s just not where I want to go.

It’s about not being distracted, because when you get distracted or even worse get bored, that’s when you make mistakes that cost you lots of money and whatever you’ve built can explode. I have a rigid model and I follow it on purpose. When it stops working, I will adjust. I already have a plan for that, because when I can stop buying these houses, I’ll sit back for a little while, let them get back to near replacement costs. Then I’ll sell, which I hope by the time is 50 or 100 green houses, and buy some nice red hotels and be absolutely done.

Damon: That’s awesome. You’ve been doing this for a while. I’d like to go back to the beginning of when you got started in real estate investing. What was your motivation and how did you get started?

Michael: Rewind the clock, 2001. Anybody remember what happened in 2001? Traumatic year. Again, I live in the Valley. I work at a high tech company. So does the wife. We thought we’d figured out the stock market game. We did the whole day trading thing. Worked great for a while, didn’t work great for long. We realized we had to do something else. It just was not the way to go. Real estate became the option. We spent a year looking in the Bay Area for anything that remotely made sense.

It was actually through a contact of my wife’s that we were introduced to the Central Valley, which ultimately became Fresno and Madera, created some initial relationships out there with some friends of friends. We took a trip down there on a Saturday and were shown one house. The guy we were with owned 60 or 70 houses at the time, and he could only show us one. 2001 was a very different real estate market. It was just on the uptick. We weren’t sophisticated. It was the 1% rule. If it was going to rent for $1,100, we can buy it for $107,000. That was it. We bought it. That was the beginning. The cash flow didn’t excel. It was probably 80 or 100 bucks. In reality, it never really did cash flow, because you always have those repairs. It was a skinny deal. It would not be something I would do today, but you asked about the beginning and that’s what we did.

We did a couple more houses and duplexes. Then we watched the prices just soar. 2005 and 2006, Fresno was the number one market a couple years running, like 40% appreciation. We sold all the houses. The first house I talked about for $107,000? We sold it for $269,000 or $267,000, less than three years later. We started moving all our capital into apartments – fives and tens and thirteens and eighteens – and we sat tight for a long time.

The other thing I strongly believe in is when you have capital and you’ve chosen to be a real estate investor, you don’t buy toys. I’ve seen lots of people get in the game, have some luck, and then start peeling off some money to go buy a toy – a new car, a vacation, whatever. It never happens in our world. Every dollar we’ve got in the game, that money tree we’ve planted, we want to be something in the future. We do nice things, but it’s from our W-2 income. It ain’t from real estate.

Damon: Even while you guys are doing this, do you and your wife still work for these companies and you do this real estate on the side?

Michael: Absolutely.

Damon: Interesting.

Michael: It’s nice to have an income, because even if we didn’t have private investors, we could probably still do one a month, maybe one every six weeks with our income and cash flow from everything else. We’re going to keep working. We’re still relatively young. We’re going to keep working until we switch out and get to red hotels. By then, I’m done. Three, four, five years left at 40 and 45K houses, yeah, I’ll keep working for that. Plus, it doesn’t hurt to actually like your job. I’m looking forward to being done.

Damon: Absolutely. I’m just curious. Do you work in technology?

Michael: I work for Hewlett-Packard.

Damon: Because I grew up in Bay Area there, Silicon Valley, I thought I’ll come back and work there after I graduate. I have a computer science degree, so I’ve been programming for years and years and years, but I never got back to Silicon Valley.

Michael: Come on back. You should rent though. Houses are too expensive.

Damon: It is pretty expensive. Some day I’ll be able to afford it. We’re making progress in that area. You’re still working and you’re able to take all the cash flow and capital that you’re getting from your real estate investing, turning it back in there and that’s accelerating your ability to be able to get this all wrapped up once you move into the red houses, I think you call them, or the apartments.

Michael: Green houses. Red hotels. Monopoly, man.

Damon: Green houses, red hotels. That makes sense. I was going to ask you, when you keep talking about green houses, what are you talking about?

Michael: Green houses, red hotels, Monopoly.

Damon; I’m totally with you now. On the apartments then, you purchased some small apartments, 10 units, 13. How do you handle the management of that? Are you doing that yourself, or are you getting other people?

Michael: No. We’re three hours from all of our investments. We actually have a couple of property management teams, roughly split 50-50, so there’s a little healthy competition between the firms for our business. We outsource that.

Damon: On the single family too, you outsource?

Michael: Absolutely. Our job is twofold – find deals and secure capital. Then we pay the management fee and they call us. I talk to them every day. We have 120 doors.

Damon: That frees up your time so that you can get your income from your jobs and all that too.

Michael: Yeah. I mean, it would be a full time job just managing those. Again, live where you want, but invest where it makes sense. That’s what we’re doing.

Damon: When you’re looking at getting that 20%, you’re including the fact that someone else is going to be managing all of these things?

Michael: Absolutely. Up front numbers, everything out of my pocket, so down payment, closing costs, make ready, and then the expected cash flow is obviously rent minus the hard money loan, the mortgage payments, taxes, insurance, property management fee, repair, maintenance, vacancy. All the stuff you hear about. On a typical house, we’ll get $950 for all in expenses. Property management, maintenance, vacancies are right around $200. Throw in another $75 in repairs, just sort of rough and tough. Again, we fix them all up before somebody’s in there again, so there shouldn’t be maintenance for a while unless they break something. Then it’s mortgage payments, tax, insurance, which you’d expect. We’re cash flowing it through about $450 to $500 a door on a house.

Damon: That’s awesome. Here in Houston, the property taxes on a little $70,000 or $80,000 house can be $250 a month. That eats into the cash flow a lot.

Michael: California is a beautiful place. I think it’s 1.2% or something of purchase price essentially. Then there’s that lovely thing you may have heard about, Prop 13, which limits how far it can ratchet up. My average property tax bill is about $400 for each house a year.

Damon: It doesn’t get into your cash flow much.

Michael: No. I budget I think $50 a month, which is high.

Damon: On the repairs, does your management company find the contractors and stuff, or are you doing that to get the work done?

Michael: Obviously, I have established relationships now. It depends on the level. Is it handyman kind of work – paint, carpet, blinds? I bought a property on my site I call the “ugly house” that actually had code enforcement issues, where I actually had to get a licensed contractor and go fill out permits. So it varies. All the money flows through my property management accounts, but you create relationships and guys you trust over the years.

Damon: I’m actually in the middle of a rehab project right now, and I’m trying a new company that I haven’t worked with before to do this house. It’s a 1,600 square foot house. Not a real big job, but there are some good things I like about it, some other things I don’t. What do you recommend for working with the contractors so that your price is right and the job’s getting done on time, it’s getting done right? What’s your experience there?

Michael: It depends on what your end goal is for the house. You haven’t said if you want it to be a long-term rental or if it’s going to be a flip. The criteria are very different. If you’re flipping a house, it’s all about quality. So you pay a little bit more for quality and probably pay a little bit more for speed because time is money. My stuff, make ready, it’s fix anything that’s hazardous. Typically, for me, the outside’s the most important because most people make rental decisions driving by the house. For me, it’s the white picket fence, it’s the grass is mowed, the bushes are trimmed, the exterior’s probably painted if not power washed if it’s okay. The handyman make ready stuff is very different than a flip. Again, I’m not a flipper. It’s not something I do, but I have to imagine that what you want out of your contractor is very different.

Damon: That’s true. In this case, it’s going to be a long-term rental. Specifically what I was thinking of when I asked the question was I sat down, the first time I met with the contractor, and pulled out the sheet that I wanted to go through and say, “Here’s the punch list. These are all the things that need to be done.” He’s doing this on a fixed price for me, and he didn’t want to fill out a sheet and do all that. So what we agreed to was that he would get the house clean and functional, ready to rent. I kind of had to trust him on what his definition of that was going to be. We talked about it and everything, but I feel like I stepped out on a limb to say, “Okay, look. I’ll agree with you. We’re not going to create the list. I’ll let you manage that, but here’s the result that we need to get.” The jury’s still out. I don’t know how it’s going to turn out yet.

Michael: Obviously, the individual is a discrete item, but that’s not a bad approach. I usually have a list of the four or five things that I would consider big things, that if they get missed it’s not 50 or 60 bucks to fix, it’s hundreds or thousands of dollars. I probably wouldn’t have a detailed punch list like 17 blinds and repair these 2 doors and whatever. But I certainly would pick a couple of large items to call it out. I don’t mind being out on a limb, but I want it to be a pretty sturdy limb. I would also probably have an agreement that if we go through the rental process and something comes up 30 days after you tell me you’re done, you’re going to come back and fix that.

Damon: Absolutely. That’s a good point.

Michael: Not a bad idea being out on the limb. Just make it a little stronger next time.

Damon: Good advice. I will take your advice on that. Let’s see what else I have on here. Are you finding big differences between the way you do investing in apartments versus single family houses? Does one lead to the other?

Michael: Certainly one leads to the other. I think you’ve got to take what the market gives you. I don’t think you need to over think it. For most investors out there, it’s about a yield that they can get on their capital over time. Find out what makes the most sense in your market. I’ve tried to buy some more small apartments that have pretty sexy yields on it, but it just hasn’t worked out yet. I certainly plan to do that again. I think it’s going to be, at least in my market, there are a series of waves and I think the apartments are behind the houses and duplexes and quads are behind the houses, and then apartments are behind the quads. I think there’s a wave coming ashore, and I’ll absolutely 1031 again out of my little green houses, like Monopoly, into red hotels. I think there is an order, and I think you’ve got to take what the market gives you.

Damon: I really like that. What you’re saying is, if I can just recap it, is that whatever the market’s doing, you work with it. You don’t try to force your own opinion or experience on it. You work with the market, not against it.

Michael: Let the market give you what it wants to give you. Don’t fight it. Just because you think the ten unit apartments are the best thing in the world, it’s probably not what the market’s giving today. But it may be what the market gives in eight years. Don’t over think it. The market, especially in a distressed state where it’s a buyer’s market, is going to be telling you what’s on sale. I like to buy what’s on fire sale. I like to buy stuff cheap.

Damon: Cheap is good.

Michael: Cheap is good. It gives you a lot of margin to safety, that’s for sure.

Damon: Absolutely. The bigger the margin, the less risk you have is really what it boils down to. You have a website. I went and looked at it. I can’t remember the URL right offhand. What’s your website?

Michael: It’s WealthBuildingPro.com

Damon: WealthBuildingPro.com. You mentioned some of the things that you’re doing out there. I thought it was pretty cool that you’re doing that. So I’d encourage our listeners to go take a look at that. It’s beneficial.

Michael: I took the time to write up some articles that I get questions from friends and other investors, so I took the time to write. Again, one guy’s opinion, so take it for what it’s worth. But more importantly, I’m writing up my acquisition reports, and so I write up what I expected, what happened. I grade the deal, A, B, C, D, just like when you were in school, and I talk about lessons learned. It’s shocking. Even after being in the business ten years, every one of the acquisition reports on a little rinky dink house has some lessons that I’ve even learned. If you’re not in the game, you should probably take a few minutes. The reports will probably take you a minute to read.

Damon: They’re pretty quick reads, but they’re very informational. Really interesting.

Michael: Real estate’s given me a lot. I’ve taken advantage of folks like Del Walmsley and Steve Davis giving out free information, so just a little way I can give back.

Damon: And you have. This has been a really good discussion. Is there anything that we haven’t talked about that you think we should talk about or that you wanted to share?

Michael: Yeah. I think there’s one thing that often gets missed because lots of people think real estate investing is the way to go. It’s the investment du jour. I would tell you that one of the most important things to have is support of your significant other, whether that be a wife, a husband, a girlfriend, a partner, whatever. If they’re not onboard with you 100%, you’re asking for trouble because this business will give you surprises. If you’re expecting cash flow of $500 a month and a water heater breaks and it went from $500 positive to negative $300, you don’t want your significant other to say, “I told you this wasn’t a good thing.” It just tears you down. You’ve got to have support of the people closest to you. Have those discussions up front, because you’re not, in my case, not only taking a lot of capital to put it to work that could do other things, but we’re taking time. We have time that we put to this that we could be doing other things, and if you’re not both fully, fully committed, I would tell you you’re probably asking for trouble. That’s one thing that I didn’t think we covered that I think warrants mention.

Damon: That’s really good advice. In my case, it’s kind of like yours where my wife and I work together on it and she’s supportive of it. What would you say to somebody who doesn’t have a supportive spouse/partner? How can they get that support?

Michael: It’s tough. You’ve got to sit them down and have a conversation. I think you’ve got to talk to them about why a little sacrifice today, especially in a market like this, this market isn’t 2006 and anybody who can fog a mirror is getting a loan. Stuff’s on sale, and when stuff’s on sale, you should go buying. Buy when everybody’s afraid. You’ve got to sit them down and talk about how just taking a little sliver of time or capital or something and putting it to work for the future should be of interest. If they’re not on board, walk them through houses. Show them the reports that we’re writing up. Have them watch the radio shows. You’ve got to get that individual who’s on the fence or negative to see that there are people being successful, because that’s usually what happens when somebody’s negative is they have a friend of a friend who lost a house or they read a story about so-and-so who got kicked out. It’s all true, but it doesn’t have to be that way. Help get them comfortable by sharing other investors’ success stories, whether it be listening to the programs or reading reports or whatever. If they’re not on board, I don’t know. That’s tough.

Damon: Maybe not do it. What you’re saying is if there’s not harmony there and you’re not working together on it, it may not be worth doing.

Michael: I can tell you two things. You will have surprises, good and bad. The bad ones will lead to fights, and you may not want to add that added stress to a relationship. One guy’s opinion.

Damon: Good point. One last question if I might. I just remembered what it was. You mentioned on your website where you’re writing up the acquisition reports, what happened and lessons learned. What’s one of the more interesting lessons learned that you’ve had over these years of investing in real estate?

Michael: Lessons learned, interesting. There are so many. With every house, I learn two or three things. I guess one is don’t always trust what’s in the MLS. I remember there was a house that was written . . . I’m not an agent. I’m just Joe Blow investor guy who goes into a local MLS site that an agent does. I don’t have any special access. It said, “Two bedroom, one bath, one car garage.” But it said 1,500 square feet. In my market, there are a lot of 2-1, but they were 700, 850 square feet, maybe 900. Fifteen hundred square feet and priced okay. It was asking like $52,000, something like that. I said, “There has got to be something.” That immediately went on my list. When we went down the weekend and I always have a list of stuff to see. It was a four bedroom, two bath house, two car garage. Maybe it was added on without permits. Probably, I don’t know. But it looked of the quality like you’d see in the Bay Area, stuccoed house, the whole bit.

Damon: You said $52,000?

Michael: I bought it for $41,000. I offered $40,000 and came up to $41,000, listed at $52,000. And it rents for $1,050.

Damon: Oh my goodness. If you had just trusted the MLS, you would have never looked at it.

Michael: Would have never even looked at it. $52,000 for a two bedroom in my market would rent for $750. A 4-2 rents for $1,050.

Damon: That is so interesting. That’s just amazing. Just last week I had an experience, same lesson learned but opposite. The house looked really good, good price and everything, but it said it was a three bedroom, two bath, two car garage, single family house. At least here in Houston, sometimes I’ll make an offer without going and looking at the property. This one we got our offer accepted, everything looked great, and I went to do the inspection the day after and it turned out that it was a zero lot line house, which is kind of like a duplex. Shared wall and there was no garage.

Michael: Hello?

Damon: It’s like, “I’m sorry, you guys.” I don’t back out of contracts once they’re accepted them, but the listing was wrong.

Michael: One of us was wrong and it wasn’t me.

Damon: That’s right. Good lesson learned. Don’t always trust the MLS.

Michael: Either way.

Damon: That’s right. Thank you, Mike. I’ve really enjoyed this conversation. I’m going to get back in touch with you after the interview. There are a few other things I want to talk to you about. Thank you so much for spending time today, and we’ll have this interview up in a couple weeks. We have to get it transcribed and everything and that takes a little bit of time.

Michael: No problem. Enjoyed it. Thanks for your time.

Damon: Thanks so much. See you later.

Michael: Take care.

Damon: Bye-bye.

{ 7 comments… read them below or add one }

Mike Z June 29, 2011 at 8:06 pm

Brian
Glad you like the site and the interview.
It was fun and I like to share our experience

Reply

lucas January 26, 2013 at 11:33 pm

Mike,
I am very impressed by your success in real estate, I have a few questions I would like to ask you. If you could shoot me an email between all of your busy days that would be greatly appreciated. Keep up the great work and keep writing thanks.

Cheers,

Lucas

Reply

Brian Carter June 27, 2011 at 12:21 pm

Great interview guys.
Mike, I really like your website and I think it is wonderful of you to give back to not only seasoned investors with the priceless advice you’ve learned over ten years but also the simple, straight-forward advice you give to new investors like myself.
I also agree, with your statement about having your significant other 100% on board. This has been, I will say, at least part of my hesitation in getting started. No telling what a little stress over a financial surprise might do to a relationship from the other partner who was never really sold on the idea of REI in the first place.
Again, great interview guys.

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Mike Z June 21, 2011 at 4:49 pm

Pamela, I am really glad you liked the interview it was a ton of fun. Being focus is key because that is the only way you can learn and insure each deal is better than the last one. That said when the market changes you can feel free to change the focus. But in the current market we are likely years away from any meaningful changes so get focused and try and make sure every deal is better that the last and you will be on your way to creating a very nice portfolio of rentals.

Good Investing

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Pamela June 21, 2011 at 2:04 am

I really liked this video … and thought that what Mike said about having a rigid model in place to be very specific and focus on your goals … not to get interested in all the listings that could be a “great deal” … I feel that as a new investor, focus needs to be most important because you can waste a lot of time and money when jumping from one thing to the next … sort of spinning your wheels and not really making headway. Thanks for a great interview & sharing your experience. I will be going to your website to read your acquisition reports to learn even more.

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Mike Z June 15, 2011 at 10:34 pm

Damon,

Thanks for the time it was a lot of fun. Please thank Del and Steve for me as I love what they are doing.

Mike Z

Reply

Damon Janis June 17, 2011 at 6:28 am

Awesome interview Mike, thanks for sharing what you are doing — I learned a lot.

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