The biggest thing is just getting started and getting in front of people. There are always good deals--it doesn’t matter what metro you are in. It comes down to your marketing, and with scalability in mind, direct mail and online advertising have worked best for us to lock down deals at about $3,000 per acquisition FAN QUESTION: The 1% rule doesn’t work in my market, should I invest in-state or out-of-state?
1:33: There are always good deals. If you look at it from an economics perspective, difficult life situations or lifestyle changes don’t discriminate between markets.
5:37: The general consensus regarding the people we buy from is that they simply just don’t want the property, and that’s not the case. Most of our direct-to-seller deals are largely from folks wanting to hit the easy button. Say they bought a property for a family member and don’t want to deal with the drama, or affluent people are looking to downsize, etc. It doesn't matter what kind of marketing you're doing, if somebody is desperate they're going to call.
8:28: My particular favorite is direct mail and online advertising the reason being these are totally scalable for an average cost per acquisition of under $3,000. They're also totally ethical. They're totally legal. There's no gray area to them at all.
How Stewardship Properties has scaled outside of direct mail/online advertising:
9:58: Partnering with an investment-minded real estate agent. Believe it or not, it is possible to get good deals from wholesalers. But most of all, the hotter the market is, the less opportunities there are outside of direct marketing.
How to get in front of people and how to get them to call you:
13:50: Prioritize the customer experience by making sure your calls are picked up live, that you show up on time to your appointment, you make them an offer like you promised, sending them a thank you card, leaving them with a business card. If you do all of these things, even if you have competition on the deal, if you provide a superior experience, people are ultimately going to sell to who they like.
14:30: The biggest thing is just getting started and getting in front of people. Ryan’s answer to “how are you finding all these deals?” is,
Why we don’t really use gray-area marketing:
17:30: We get the sex appeal for ringless voicemails, text message blasting being pennies on the dollar. We simply decided to not build our business on gray areas. Granted we do cold call multifamily property owners we’re trying to get in front of, but when you press a button for $1k to blast 10,000-50,000 people, you can end up in hot water.
Our first off-market deals:
19:25: Andrew’s first was found through a craigslist ad in about 2005/2006. The property was a bit more rural being 20-25 minutes south of Eugene, OR.
22:45: Amanda’s first deal came through a former coworker, turned agent, who listed an underrented duplex property in great condition. Raising rents was a no brainer.
24:58: Bill’s first house was bought pre-internet days where he bought a 3-lined classified ad that read, “wanted a house or investment property near campus”. Through that ad came a single family house, right next to the University of Oregon with a significant amount of square footage. Classified ads can still work to this day - if the deals trickle in, it’s not hard for something of that cost to pay for itself.
28:40: Open your marketing funnel as wide as possible. If you're not getting good deals. Try something else.
29:19: Don’t be afraid to get out in front of people. Real estate is a people business, network with other real estate professionals, bank asset managers, reach out to for sale by owner (FSBO).
30:45: The 1% rule doesn’t work in my market, should I buy in-state or out-of-state?
32:10: The main thing is, are you buying at 75% ARV - repairs - holding costs? And could you achieve that say maybe an hour/hour and a half away?
34:13: As properties get more expensive, the ratio to cash flow is less because a roof costs the same between a $50k, $100k or $500k house, so rent-to-cost ratios should only be used to compare within a particular market.
35:05: If you are going to invest out of your market, (1) carefully vet everything (property, management, etc.) and (2), take no assumptions from your current market to the outside market.
36:42: Invest in your area first no matter what. You want to have a first hand knowledge of investment to make a buy and hold strategy work.
Connect with the Good Stewards:
Ryan: The biggest thing is just getting started and getting in front of people. I learned more on my first off-market deal. I got then like any book could have ever told me.
[00:00:12] Intro: Welcome to the good Steward podcast. The only podcast dedicated to seasoned Real Estate Investors who want to maximize the cash flow potential in their business. We are Buy and Hold investors with a thousand plus properties in markets across the U.S. who bring an insider's view into the nitty-gritty details of real estate investing. If you're looking to develop the mindset teams and systems that can dramatically build your real estate business and net worth, you're in the right place.
[00:00:45] Ryan: Welcome to this episode of the good stewards podcast. I'm Ryan dossey.
[00:00:49] Amanda: I'm Amanda Perkins.
[00:00:50] Bill: I'm Bill Syrios
[00:00:52] Andrew: and I'm Andrew Syrios.
[00:00:53] Ryan: Today, we're going to be diving into the topic of Acquisitions. As we all know, it starts with a good deal and we're going to get into everything with related to sourcing and locking them down. I'm really excited to cover this topic in particular because this is really my zone of Genius. Actually feel like more of a marketer than an investor at times but I'm going to walk you guys through kind of some of the do's and don'ts.
[00:01:17] But before we dive into that we definitely do want to connect with you. Be sure to visit us at thegoodstewards.com. Subscribe to the podcast. Make sure to snag your free copy of our ebook, don't make a profit create a fortune.
[00:01:32] Now I want to start this out with talking about the fact that there are always good deals. Doesn't matter what Metro you're in. It doesn't matter how competitive it is. There's kind of this like funny thing where all investors think that their Market is uniquely difficult. Um that you know, there's no deals in their Metro whether they're in Nashville, Colorado, Los Angeles, somewhere in the midwest. I get a kick out of anytime I named markets because I know you're sitting there thinking, "Oh, he didn't say mine, so mine is special." It's really not. There's always going to be people going through difficult life situations, lifestyle changes and it doesn't discriminate based off of Economics. One of the best ways I've heard this put is tragedy doesn't discriminate based off of income bracket. So if you're extremely affluent, if you're on a tight budget, you know divorce still happens job loss still happens. I would actually argue that in more affluent neighborhoods something like a job loss, when you have significantly higher burn rate can be a pretty big problem.
[00:02:42] So, you know historically we're typically dealing with people that are motivated, but I want to qualify that. A lot of people think motivated means desperate. It's simply means somebody who's looking for kind of the easy option. Andrew. I don't know what you guys have seen with this, but I know a good amount of the deals we've bought, these have actually been nicer properties that are often even owned by more affluent people. They're just kind of looking for the Easy Button.
[00:03:11] Andrew: No, we just buy crap.
[00:03:15] Ryan: Okay, that's fine. That explains a lot.
[00:03:21] Andrew: Back when we were flipping houses in Oregon just just after the crash, most of what we were doing where people you know being foreclosed on type of things. They would do short sales. They had no equity with the bank would take a big cut when we came to Kansas City for first couple of years. It was almost all REO's and so like the bank owned properties is real estate real estate owned. It's just a property owned by a bank or HUD or Fannie or Freddie. And I would note and say these these institutions weren't desperate but they also just had an enormous amount of inventory and they just tried to dump it and it was just bureaucratic and they often miss listed them or listed them lower, they didn't care. And so there were a lot of good deals to be had there there really aren't in that market anymore.
[00:04:02] Then we kind of move more towards buying portfolios and those are really really specific to particular, I think we'll probably have deep dive podcasts on that later. And now we're moving into I think the area that you're the most the you've specialized in the most with your personal genius. Is that how you refer to it?
[00:04:22] Ryan: I mean, I guess yeah, I think
[00:04:25] Andrew: you get the genius award and the humility award we'll give both to you.
[00:04:29] Ryan: Thank you,
[00:04:30] Bill: you know, I think we've all shopped at 7-Eleven bought, milk at 7-Eleven when we could go to Costco.
[00:04:37] Andrew: I've never bought milk at 7-11.
[00:04:39] Bill: Alright, a burrito. You always want burritos or hot dog at 7-Eleven, right? When we could go to Costco and buy it for a whole lot cheaper.
[00:04:47] I think there are times in our lives. We just want convenience. We want to get it done fast. We don't want hassle. And that's where a lot of sellers find themselves. It might not be any kind of desperation. They just want to get on with life. They're willing to to shop at 7-Eleven, but we're only Costco buyers. We're only wholesale buyers. So that's when, it caught when a 7-Eleven seller meets a Costco buyer, that's that's a situation we want to be in an acquisition.
[00:05:18] Andrew: I mean Ryan your normal seller, it sounds like correct me if I'm wrong, is some out of an out-of-state absentee owner who has a house. They just don't want don't really care about and want to get rid of as quickly as possible with no hassles. Is that what I say, is that your average or you know, I mean, I know you have a lot of different types, but what you say, that's probably the most common?
[00:05:37] Ryan: So actually no. So that's kind of the general like consensus as most people think, you know, they just don't want the property, I'll kind of tie into what you mentioned with buying a portfolio.
[00:05:48] Most people who have a large portfolio of the size you guys have purchased. These aren't people that are like, oh gosh somebody just please take this house from me. It's such a burden to own. No, it's cash flowing for them. A good amount of what we buy are people that are local they may have a really common one is like they bought a house for a family member and they're tired of the drama. We get a lot of like job transfer type stuff. And then we also get a lot of affluent people who are retiring, downsizing. They just kind of want to hit the Easy Button. We'll talk about kind of getting in front of sellers here a little bit, but I think a big part of why we're getting these I mean, we've got deals that I think our newest was built in 2014. Brick three-bedroom two-and-a-half-bath attached 2 car garage that we bought for like Pennies on the dollar.
[00:06:39] It all comes down to your marketing.
[00:06:40] Andrew: We bought a house from 1881
[00:06:42] Ryan: My oldest is 1890. So you win.
[00:06:47] Andrew: I want one pre-civil war but I haven't quite we haven't been able to find one not I've actually don't really want that.
[00:06:53] Ryan: It's like hand carved beams.
[00:06:56] So I kind of use the analogy when you're getting in front of sellers of like an apple tree. It doesn't matter what kind of marketing you're doing, if somebody is desperate they're going to call. Whether that's like the deceptive third notice your cash offer has expired postcard, which we don't do, or if it's more of like a higher-end handwritten custom type piece. If somebody's desperate they're going to call but what we've really done with our marketing is we're getting the people at the top end of the tree. These are people that have options. They a lot of them are real estate brokers or they have a real estate broker in their family and they just don't want to go through the hoops. We actually toured a house this week, in Indy the average price points like $150k.
[00:07:38] We toured a $900,000 home. And the reason we got into this thing, guy called us and said, hey I owe 600 pay off my mortgage and it's yours. It's not a deal for the reason about to get into. But the reason this guy didn't want to go through a real estate agent, his wife left dog in the house that destroyed like eighty nine hundred square feet of carpet. And the dogs fine, so for anybody who's an animal lover, no worries there. But this guy was really successful ER doctor and was just ashamed of the condition. We had a lot of that stuff and we also get a lot of like, the family situations where you know, we can be the bad guy of like yeah, they just made me an offer I couldn't refuse so they're not having to tell you know, their son. Hey, your 27 it's time for you to get a job, right?
[00:08:28] So getting in front of sellers, there's a lot of different ways to do it. My particular favorite is direct mail and online advertising the reason being these are totally scalable. They're also totally ethical. They're totally legal. There's no gray area to them at all. Um, it's kind of like those old school functions you did in grade school like you put in X and Y comes out the other side.
[00:08:55] Our average cost per acquisition is under 3 Grand. So we're putting 2500 to 3000 in the front and it's spitting out a rental property on the back end. Or we also wholesale stuff that comes in that's just doesn't meet our criteria. So one of the things with direct to seller marketing you'll have people call you and ask you for a cash offer on something you'd never want to own as a rental property.
[00:09:15] So we will sell off that stuff as well. Andrew anybody else anything you guys have done or are currently doing to get in front of sellers?
[00:09:25] Andrew: We have I mean we did a lot of direct marketing back when we were in Oregon. We started doing direct marketing here at on two separate occasions, and we got a little bit but we just stopped because we were inundated with enough deals as it was. First with the REO's. And then with the then with the, you know I don't know if anyone remembers Back 2010 11 12. I mean, it was just just REO is everywhere and I have nostalgia for it even though that was a terrible time. Other than the fact that it was taking candy from a baby.
[00:09:58] Bill: One thing. We did find in Kansas City and we also found a couple in Oregon and that is an investment minded real estate agent. This is a person who is probably not oriented towards homeowners finding their dream home. But but has the criteria that we have in mind particularly when you're looking at multiplexes.
[00:10:18] There's a you know, if you can find somebody who is a kind of a partner with you to look on your behalf. You know, it's not going direct to seller which I do think is the best way to go, but it is another part of the funnel and it's really enlarging the funnel of acquisition that you want to do. If you don't feel like you're getting enough good deals, you're looking on the MLS you're talking to non-investment minded real estate agents. You're kicking some tires here and there you just got to open the funnel as wide as possible and.
[00:10:53] Andrew: Now I completely agree with that. I think we've had a lot of ways without having to do direct to seller marketing even though we're going to start doing that because these ways have gotten more they've dried up more and more so. we've had one is just, you know trolling the MLS looking for every single property that makes sense and we have an investment minded real estate investor agent as you said. And gotten to the point where I can just send him out to get a quick estimate of what the repairs are and then I can kind of put together and shoot offers that way we troll through Craigslist. We've, shocking as it may sound, you can actually get good deals through wholesalers, but it almost always happens in one way and that is if you have a relationship with a wholesaler where they come to you first. Then you can get that then. Yes, they got to get their margin. But if they know that you can close quickly, and one of the biggest problems wholesalers have is these investors who talk a big game but can't do anything there under a short time frame and then all of a sudden they've you know, they thought they had the property sold and they don't so.
[00:11:52] If they trust that you can close, they often come right to you before they shoot out their email blast to everyone where you getting all these you know, I'm on I'm on a lot of lists. So I get a lot of junk sent to me, but when they call then sometimes yeah, I can get good deals with wholesalers. But I would say one of the key things that I have seen is that it, and we've also bought on the courthouse steps before that's another way to do it that, unfortunately usually gets dominated by one or two key players and usually I think they pay too much because they're just trying to bully everybody out of it. But the more I seen like. The hotter the market is, the less opportunities there are outside of direct marketing. I think so as we've seen the market get hotter.
[00:12:37] The REOs have gone away. The wholesale leads have gotten harder to find or the good ones have. Craigslist and MLS and just scrolling through there for the exceptions more and more and more rare and of course the the buying on the courthouse steps becomes more difficult because there aren't nearly as many foreclosures.
[00:12:55] So I think the more the hotter Market gets the more difficult it is to do anything to really get any good deals outside of direct marketing and that's I think that's. I mean, it sounds like Ryan you pretty much are doing direct marketing since you started but is that your experience?
[00:13:11] Ryan: Yeah I missed the whole like easy REO section.
[00:13:15]Andrew: It wasn't easy!
[00:13:16] Ryan: Okay.
[00:13:16] Andrew: It was kind of easy.
[00:13:17] Ryan: I missed the people waiting for me to make them an offer. So I kind of came in after that but I view that as a huge blessing because it made me get creative right from the beginning. How can I get in front of people, how can I get people calling me? How can I stand out? How can I be different? And I know Facebook has gotten a lot of heat lately. But I do take one thing from their business model and that's prioritizing customer experience when you're doing direct to sell or marketing. So making sure your calls are picked up live, making sure that you show up on time to your appointment, making sure that you make them an offer like you promised, sending them a thank you card, leaving them with a leaving them with a business card. If you do all of these things, even if you have competition on the deal, if you provide a superior experience, people are ultimately going to sell to who they like. I think for anybody who is kind of starting and deciding to take on this Acquisitions piece, as opposed to going through one of the other avenues that Andrew mentioned, the biggest thing is just getting started and getting in front of people. I learned more on my first off-market deal I got then like any book could have ever told me. Because it's one thing to understand the concepts Concepts. It's something different to have actually negotiated a good deal, gotten it under contract, found a title company, taking it kind of through the whole process.
[00:14:34] So I think. The problem with most investors when it comes to this like piece, they want to be wealthy, they want to own assets, they want to be a real estate investor, but this where do I find the good deals chunk tends to trip them up and my recommendation is just to kind of get out there.
[00:14:50] Andrew: Absolutely. I mean, I think there is the paralysis by analysis problem. I think like you just read and reread and you should do that you need to do that. But I mean, it's like you're basically really, you know, if you're you're trying to learn a musical instrument or learn how to play a sport or something like that. You need to learn the rules and the basics. But you could you could read about basketball for for years and years and years. But until you actually step on court, you're not going to get anything.
[00:15:16] Ryan: Until you get stuffed on the court, you don't really know what's up.
[00:15:18] Bill: I think that boils down to making offers, you know, for 100 offers, which you should be able to do within a given amount of time. You might get 10 decent responses of that. You might get three people, three sellers who are seriously negotiating with and out of that. You might get one really really good deal. So it's a numbers game when it gets right down to it. How many how many offers are you going to make on properties? And if you're doing direct a seller marketing, I don't think you have to go through a hundred of them. But the more the merrier because ultimately you're looking for a big needle in a haystack but it is a needle in the haystack. But yeah, there's a lot of needles that are you just gotta got to keep looking and hustling.
[00:16:08] Ryan: Yeah, I think the first question that I typically ask anybody who reaches out to me, and like "how are you guys finding all these deals?" First thing I ask them is, "how many people have called you and requested a cash offer in the last 30 days?" And if that number most of them they don't, they don't have that number because they haven't done anything. And then the next option is okay, if you're not getting anybody calling you, "how many people have you called or how many people have you marketed out to?"
[00:16:34] Which I want to kind of transition into our next point on that and that's how to Pivot your business. You know Andrew is a really good example of in Kansas City, they started with buying ah Rios and pocket listings and is that dried up they moved over to portfolios. And now they're moving kind of into our wheelhouse of the direct to seller marketing piece. And there's kind of a big trend in real estate investing right now, especially in the direct to seller side for just cheap cheap cheap leads.
[00:17:07] So that leads to some things that are gray. They're not necessarily illegal, but they're not really legal. If you look at it things like, you know cold calling. Different states have different regulations. Are you abiding by the Do Not Call List? There's a whole argument to be made of, you know, you're not actually trying to sell them anything, so it's fine. Not a position I'd like to argue in a court of law. You have things like text message blasting or RMS-ringless voicemails where they just get a voicemail their phone rings for like half a second. kind of the sex appeal to a lot of this stuff is it's Dirt Cheap you're talking like anywhere from a cent to five cents to make a particular contact, versus when you're looking at something like Direct Mail where you're at a dollar or so a piece. It can be pretty tempting. I think I kind of speak for all of us on here when we've just decided not to build our businesses on Gray areas. You know, don't get me wrong. We do some cold calling to very very specific multifamily owners. I've got a hit list of 51 properties that I'm currently chasing and we're doing everything we can to get in front of those people.
[00:18:13] But the problem comes into when you know with one click for a thousand bucks, you can hit, you know, a couple thousand people or 10,000 people or 50,000 people. You can kind of end up in some hot water as I've seen with some people I know lately. So just kind of you know, quick quick disclaimer, you know pivoting is one thing but make sure you don't build your business on a gray area. Like bandit signs for me, kind of a big no no. I don't believe you can claim that you are bettering a community or investing into a neighborhood that you're littering in every Saturday night or every Friday night at like 2 a.m. So the inspector doesn't catch you, right? So, you know, I think we're pretty big fans of operating within the confines of the law, but doing that in a way that's scalable and profitable.
[00:19:06] So I'd like to just kind of go around the the circle and let's just talk about everybody's first off-market deal they got. So if you could kind of hit on where it came from, lead Source, anything notable or kind of comicable with it?
[00:19:25] Andrew: The first off, I can't actually remember the first off Market one is one of the ones we did in that internship back in the day if you remember that Dad. I do remember one in particular that was down in Dexter that we got we had. I think that an ad on Craigslist and and we went down there and it was he was firm in his price and this happens every once in a while where they want a certain amount of money and it's way below Market, but they you know, and it's just like it's just kind of handed to you. And so, you know, it was it was Dexter has no comps. I mean, there's like nothing around it. So it's your kind of you kind of going, you know, there's an art and a science to this. There's one other comparable sort of but it was much bigger properties for much of there's a lot more money. And he just kind of felt like this property. You want to be very very hesitant to rely on your gut in my opinion. You want to have firm numbers, but you don't always going to have them especially if they're I mean, Dexter for those who don't know, who which will be everyone watching this, is a small town about what? 40 minutes south of Eugene?
[00:20:30] Bill: Probably 20
[00:20:31] Andrew: 25
[00:20:32] Amanda: 20 minutes east of Eugene, Oregon.
[00:20:34] Andrew: Okay. It's been a while. I've been in Kansas City for years.
[00:20:36] Bill: It's a vacation destination that everybody should be
[00:20:41] Amanda: There's a reservoir.
[00:20:42] Andrew: But anyways this yeah, there's not much there. There's a little bit there's enough. It was just a house we're going to flip but. It is one of those things that it was a small house on a big plot on a big lot. What we could see around that sold that was not similar but it had sold for substantially more and so, you know, I think the way I look at it when I'm comping properties is the less the less less sure I am in the price the bigger the range it has to be and so the more the better deal we need to get because if I don't have good cops that means the range is bigger.
[00:21:15] Like I can say I think this property is worth a hundred fifty a hundred sixty but. I think the range is now, you know, the standard deviation or whatever is like 30,000 or 20,000 or something like that instead of say something where it's cookie cutter, I think it's worth a hundred sixty and it's worth between hundred fifty five hundred sixty-five.
[00:21:30] And so that one it was just a matter of like it was sort of you have to have some confidence that you know, it's the you do not have a crystal ball. This is not it's a you know, there's this scientific element to it. But there's also kind of a you know, a feel to it
[00:21:44] Ryan: interpretation.
[00:21:45] Andrew: Yeah, you've got to get that comfort with and so like this one, we waited too long because I kept trying to comp it. I not not that long. It was couple, like we should have bought it that day. We ended up buying like two getting onto contract two days later some like that but. Yeah, it was just it was it was sort of every once in a while. They come in at a price that makes perfect sense right at the beginning. Don't rely on that is very rare, but it has happened to us a couple times.
[00:22:11] But I guess with the one interesting thing about this is just how it was particularly rural properties are semi rural properties, it can be hard to nail down exactly what the prices. So you kind of have to you have to be you have to get better deal, but you also have to kind of learn the feel and it just kind of comes with time.
[00:22:29] Ryan: I love how you mentioned what it comes in at because one of my favorite things that we see is when a property comes in for like $155,783 and it's like, oh that's exactly the zestimate. I wonder where they got their number from. Amanda, what about you?
[00:22:45] Amanda: Oh, well, I mean I wouldn't say it was off Market. It was just kind of a random. I was on social media when evening and it was a lady that used to work with and she's now a real estate agent and she listed duplex and quick math said each side of the duplex was probably four or five hundred dollars light in rent, you know, it wasn't an awesome shape. I wouldn't say it was a slam-dunk home run but it's a solid property and you know raising rents right off the bat but doing a little bit of rehab thousand dollars a month is a pretty, pretty easy way, especially, you know in the market that we're in so it was solid I wouldn't say it's by any means a home run.
[00:23:29] Ryan: That's one of my favorites, older landlords who are afraid to raise rent. You've got to make sure you treat your business like a business if you start to even slip into that like, oh she's been here for, you know, three years now, I want to keep her. You really have to make sure you're raising rents at the end of leases and following the market trends. I mean don't raise rent if rent hasn't gone up. But the amount of properties we've bought that they've been three four hundred, we bought a 12 unit that each unit was a hundred a hundred and fifty bucks below fair market rent and they were in really really good shape. So it's like from day one, there's huge value add to this. So I think that's a good thing to look out for the thing that you know, they've owned it for a while. They don't want to raise rent. I think it's like people are so afraid of the confrontation that they're like how I make enough money. This is fine, but you really want to make sure you treat it like a business.
[00:24:20] What about you Bill? You've got you've been investing for longer than I've been alive. So I'd like to hear your war story.
[00:24:26] Bill: Help our listeners are not looking on YouTube at the comparison between our ages but actually my first house when I got to Eugene, I bought four houses and sold three of them overtime in Portland before I kind of restarted. This was actually 30 years ago now August 24th, 1989 was the first house I bought in Eugene. And so we've crossed the 30-year anniversary in our company that we're all kind of associated with here stewardship properties.
[00:24:58] This house. Okay. This is the good old days when there is no internet, right? And so I put ads in the classified and particularly i was targeting campus properties. And so it was East Eugene where most campus properties are at. And I the ad read save the commission and caps. It was a three line ad because I always tried to save money. So I jammed everything into this three lined ad: "wanted a house or investment property near campus". Bill and then my phone number and I got a call from a fellow who had bought the house. Well this family actually bought the house in the year I was born. Okay. This does date me 1954. It happened to be the same year I was born. And he and his family had come to the end of its they're moving on obviously and they saw this ad and they were excited about saving the commission. That's 6% right off the bat that they wouldn't be paying. And I think that is something we have to offer when we go direct to seller. However means we find ourselves talking to the seller is that there's an immediate savings between all of us and we can call that 6% of the asking price.
[00:26:16] So he and I sat down and I saw in the house something that he did and there's a tremendous amount of square footage that was not being used particularly when he thought of a campus rental and campus rentals are all about how many bedrooms and how many bathrooms you have, particular if you're talking about house. And so what was a three bedroom house became a seven-bedroom house
[00:26:42] Ryan: You really crammed them in there like hot pockets and a microwave.
[00:26:47] Bill: It was a large closet anything
[00:26:50] Andrew: else?
[00:26:53] Bill: Anyway, so we saw two different things. He sold it to me on the basis of kind of a family house and I bought it on the basis of what it could be a campus rental property with a lot more rental value. But that was my first direct to seller purchase and it happened to be over 30 years ago now so.
[00:27:11] Ryan: It's a neat pivot though looking at something that has the potential different use and your value of it being different, you know, because most investors I would have looked at that right would have been like a 75% - repairs. I'll give this guy this whereas, you know, his asking price is a little bit different when you're going to, you know, cram 7 poor souls into a closet very very cool.
[00:27:37] Amanda: It's not a closet. He finished out the basement and added bedrooms.
[00:27:42] Bill: Egress windows. Yeah, you name it? Although we did chop one the master bedroom did become two and it has kind of a thin hallway there. It works. It's a block away from campus for crying out loud students love it.
[00:27:55] Ryan: That's right. People are paying for location in a situation like that.
[00:27:58] Bill: Let me tell you that. Three line ad. In the last 30 years has really paid for itself. Just just to let you know.
[00:28:06] Ryan: I actually I'm glad you brought that up because I know people that that's still a strategy they're using. They're getting into kind of the cheaper, you know, take one gas station type newspapers and paying for a front page ad which is I mean a couple hundred bucks and people snag those sit down, read them, see it and I know people that are still pulling deals off of that same model, right?
[00:28:28] Obviously economies of scale comes into play there a little bit only so many people are going to pick that thing up and read it versus sending somebody a letter. But again, I mean if deals trickle in it's not that hard to make something like that pay for itself.
[00:28:40] Bill: Yeah. Again, it's opening the funnel up as wide as possible. If you're not getting good deals. Try something else try something else, you know.
[00:28:48] Ryan: I think one thing I've noticed in particular that people kind of struggle with. Real estates of people-to-people business. It's a belly-to-belly business. I've heard it described an organ as porch time right people want to know who you are. They want. They want to get in front of you. I don't imagine we'll ever get to the point where there's like a, I mean there's already for sale by owners, right? But those are never good deals. I don't think they'll ever get to a point where retail homeowners are like, okay. I'm going to list my house on this website for half of what I want, but it's really what I would take it's never going to be that easy.
[00:29:19] So you can't be afraid to get out there get in front of people build relationships and just kind of see where stuff comes from. Whether that's networking with, you know, other real estate professionals like we've talked about whether it's talking to asset managers at Banks or you know, even reaching out to things like for sale by owners,
[00:29:38] Bill: you know, can I make a confession here? I've held this for 30 years and maybe it's time to get off my chest.
[00:29:44] Ryan: I'm ready
[00:29:44] Bill: on this particular deal that I just described. I brought my lovely wife Teresa along with me. You're talking about porch. Porch time negotiation so, you know, I never said that we were going to move into this, our happy little family, that was never something that was explicitly mentioned. It just kind of you know, and then of course Teresa later on realized, why was I there?
[00:30:16] Well, that
[00:30:17] Ryan: was she like 9 months pregnant at the time too?
[00:30:20] Bill: Very awkward conversation. We were looking for a house, but I knew that was not going to be the house would move into that would be a rental property.
[00:30:28] Ryan: You know, that's totally fine because you didn't you didn't mention, you know, you're going to live there. I know a lot of investors that I'll even send marketing that's like my wife and I are looking for a house and it's so easy to see through but bringing your wife to the negotiation close. Definitely smooth. I don't think my wife would be on board.
Jandy: Hey good stewards, this is Jandy, and I'm the producer and showrunner for the good stewards podcast. And today we have a question that's on the topic of Acquisitions. And it comes from Cody in South Florida where he is in a hot Market where single family homes and multi families are not that great as far as the one percent rule. He wants to know if he should pursue his market and find deals or if he should risk building a team out of state.
[00:31:19] Ryan: So I think for starters it depends what you mean by rent to purchase. Purchase if you're talking like ARV comps. I don't think that works in any of our markets. I couldn't go pay retail and expect to cash flow now.
[00:31:35] I will kind of counter that with there are investors making this work in the most competitive most expensive hottest markets in the country. You just have to figure out the niche in San Diego for instance. There's three or four families who own 5,000 units. That's a lot. You have a lot of people that will tell you you can't cash flow in Southern, California.
[00:32:00] Apparently you can it just depends on when you're buying, how you're buying and ultimately I think comes down to getting good deals. Now in markets like Oregon, which I'm sure bill can chat about with Eugene, you may not be at a 3% rent to cost Ratio or a 1.2. Even you may even be a little bit below the one but I think it comes down to are you ultimately getting good deals. And that's are you making offers and getting properties at 75% - repairs - holding costs or - what you hope to make if you're open to flipping it? So ultimately I'm a big fan of going into your backyard or finding a satellite market finding something that's an hour/hour and a half that you can commute to that has maybe more favorable terms better demographics, but you can physically go put your eyes on it reason why I hold that point of view.
[00:32:57] Literally can't count the amount of California investors that have called me with properties they've bought in the midwest that I've then made them an offer for a fourth of what they paid cash for it for a year ago. Right? So it's pretty hard to like virtually, go out of state, which Andrew you could talk about this. Stewardship wanted better cash flow. So went from Oregon to the Midwest but that required Andrew physically moving and leaving there.
[00:33:26] Andrew: Yeah, and I mean I would say like it's kind of an interesting dichotomy between Oregon where my dad is and Missouri. We'd still by in Oregon some it's just harder to find those deals and they don't cash flow quite as well. But the same time there's an upside on the appreciation. I would I don't like these percent to cost ratio rules. I mean, I think they're kind of very the 1% is a very vague rule of thumb the 2% rules absolute trash never use it. It will just send you right into war zones.
[00:33:55] Bill: Tell our folks what the 1 and 2% means.
[00:33:58] Andrew: It's one percent. $1,000 rent one percent of the costs a hundred thousand. So $1,000 rent is a 1% of $100,000. That's a one percent rule right there to communicate at least a thousand dollars are going to be on to a hundred thousand.
[00:34:13] As stuff gets more expensive the ratio to cash flow is less because you're you know a roof cost the same on a $100,000 house in a $50,000 house in a million-dollar. Well, okay, maybe if they go ridiculous on it with the bay windows and whatnot, but. Maintenance items don't go up quite as fast, insurance doesn't go up as fast, taxes generally do, but most of those things don't go up as fast turnover, expenses Etc. Vacancy actually goes down. In some ways turnover expenses go down. Rougher areas, the older houses and people tend to treat them a little bit rougher. So the rent cost ratios should only be used to compare within a particular Market. Like this general area and I even more submarket this general area. What are the rental cost compared to this house in this house and like a very broad rule of thumb. I would agree with Ryan try to invest in your backyard. There's there's with some exceptions but usually not there's there's always something there that you can get and if you are going to invest out-of-state you need to do so, two points, very carefully vet the property, go there and vet the property, vet the property management company, do your research online Etc and take no assumptions from your current market to that market. There will be a major temptation to so points to those prices are, "oh! It's only $25,000 for house." And that doesn't matter.
[00:35:40] Ryan: I think your dad's favorite quote is, "You couldn't build this for that much."
[00:35:45] Andrew: You also can't rebuild it for that much when the tenant burns it to the ground and so.
[00:35:52]Bill: That is the real problem because you can rehab your Equity right out of the property when you have a turnover in these lower income houses. If somebody's rough on it, all of a sudden, like Andrew is saying, you know a bathroom renovation in San Francisco cost as much as it does in, you know, Louisiana, Kentucky. Louisiana, Kentucky, let's say. Louisville, Kentucky. Maybe I should say. So, I mean you got to be very careful in these lower, you know, not necessarily lower end housing. That you realize that the expenses are going to be pretty close to the same. So a good deal becomes a bad deal really quickly when your property gets beat up as Ryan and I have talked about you got to be very careful going out of state.
[00:36:42] And I would do it first, no matter what, in your own area. So you have a real feel for investment and you have a real feel for property management and rehab and all the expensive things that have to happen to make a Buy and Hold strategy work before you go out of state. You want to have first-hand knowledge about it. Not not not jump out of state into some cheap Market that you think is is going to you know has incredible returns.
[00:37:08] Ryan: I'd also highlight. Avoid lower end areas, especially if you're out of state. I mean if you're an out-of-town investor and you buy a property in A-/B plus area in a Midwestern market and you're into it for 75% of what it's worth and hire a property manager. You're probably going to do okay. We're people getting a lot of trouble is the the sex appeal of the C, C-, the d-class assets of like, oh my gosh, my cash on cash return is 4,000%. Good luck ever collecting it.
[00:37:40] Andrew: Yeah, I'd say rule of thumb is just whatever whatever class of property you know, that is the lowest you go in your own Market take it up Step at least. So if you're if C plus is the lowest you'd go and in your own Market B- maybe even B should be the lowest you go on an out-of-state market.
[00:37:58] So guys, I really think the main takeaway I would make here is just get started start kind of taking some action getting in front of people making some offers if you really want good deals. If you're trying to use the BRRRR model, buy rehab, rent, refinance, repeat that us here at Stewardship just absolutely abuse. It all starts with getting that good deal. And when I'm wholesaling stuff I can price it at 80 85 % of ARV doesn't work for me but there's buyers that'll buy on that margin. So you're always going to be competing with people that will overpay when you're looking at wholesale deals or when you're looking at stuff off the MLS.
[00:38:41] So really you need to get in front of people. You need to become a like cash buyer for realtors with their pocket listings for clients that don't really want to list, but you know you can. You can find stuff on Market. But I was actually looking at my numbers and 80...like 89.4% of all of my properties have been purchased off Market, direct to seller the other small percentage are some of the deals that maybe I shouldn't have bought. We ended up a little thinner a little tighter than I would have loved.
[00:39:16 ] So, you know get out there. Start pounding the pavement. Take action. Get in front of some people. You never know what's going to happen. I want to just kind of close out here and thank everyone for tuning in to this episode on finding good deals. If you liked what you've heard remember to like and subscribe on our podcast site over at thegoodstewards.com.
[00:39:35] Make sure to snag your free copy of our ebook for more info on us to connect submit any questions. Head over thegoodstewards.com. We really love to connect and see kind of what you guys want us to dive into next.