Episode 10:
Have you ever thought about truly achieving the financial independence you’ve always wanted in order to provide a better future for yourself and your family? Are you seeking a strategy that is effective when buying and holding real estate? Then today’s episode will provide great insight for you.
After a hefty career in sales, Michael Zuber decided he needed to find a better alternative than the intense grind of a sales career and focus on building his future. One that allowed for a better work-life balance and less anxiety. This led him to start investing in rental properties and outsourcing property management so he could generate an income on the side while also keeping his traditional career. His ‘going against the grain’ methodologies have proven very successful for his real estate investments and today he is excited to share with you exactly why.
On this episode of Multifamily Real Estate Investments with Don and Eden, Michael, the author of One Rental At A Time, shares his in-depth strategy and plans that he implemented for buying and holding real estate in order to generate enough income for him to live a much better-balanced life. Michael shares his take on the current real estate market, his advice for investing in the right deal at the right time, and his business model he applies to invest in the smaller 15-20 units.
Highlights:
- Michael’s Beginnings in Real Estate
- Why he typically invests in the smaller 5-20 units
- How he views the current real estate market
- Current Projects
How to Connect with Michael
One Rental At a Time- YouTube Channel Michael Zuber
One Rental At a Time Book Available on Amazon
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TRANSCRIPTION
Hey guys, today I’m hosting Michael Zuber – as you know every investor likes to do things a little different. So Michael is investing in multi-family apartments but he’s after the smaller ones typically between five and 20 units.
Today I want to realize why and more importantly how.
Welcome to the real estate investing podcast with Don and Eden where we cover all aspects of real estate investing with special attention to multi-family apartment buildings and off-market strategies.
Hey Michael, welcome to our show.
Hey hey, thank you for having me. This is going to be a lot of fun.
I hope you guys are excited because today we have a very special guest. So, Michael, you’ve been specializing at 5 to 20 multifamily units and you’ve been doing that for 15 years. Am I correct?
Yes. I was a busy technology worker worked in sales and realized that it is a very hard career to do for a long time. So I worked very hard during the day saved my money and bought multi-family properties which ultimately allowed me to leave the rat race and quit my job at a relatively young age and left at forty-five. So it is absolutely possible to leave your job because of buy and hold rental properties.
That’s great. So you’ve been going against the advice of all the gurus which is to quit your job and your W-2 so that you can focus primarily on real estate investing. So I mean a lot of people say that you’ve got to quit your job if you want to do it because otherwise, it’s really hard to focus on two things simultaneously. So, for me I mean I’m hearing it’s either you really loved your job right or you are very good at doing things simultaneously.
Well, I think it’s actually probably a third option if we’re honest with ourselves right. I think that Guru message that hustle and grind that message is really tailored to I’ll just call it the people younger than me right. So I’m in my 40s just for comparison sake. That’s a message that college students folks right out of college or high school students love to hear right. So I think when gurus are pushing that message they’re saying something frankly because they want to get a little bit of your money for some course or video or something. Yeah. You know my point of reference was I was a 30-year-old man. I had a family I had already “been successful” at least by my parents’ definition which meant I went to high school when I graduated high school went to college, got an MBA and was making six figures. But what I quickly realized is not only was I making six figures I was spending six figures. So I had nothing to show for my success. And I knew I was in a chosen career that I just couldn’t do for a long time because it was so stressful these 90 day cycles really beat you up and you know I needed a way out and I wasn’t going to be a professional athlete or a songwriter wasn’t going to you know to create something from scratch. So I had to jump in and buy and hold rental properties or real estate is how much you know lots of people get rich. And I just started buying one at a time. And I truly believe that the right answer for most people is to bust your butt during the day. So earn as much money as you can at your job or jobs because there was a time where I had two jobs and then invest in real estate on the side. I believe buy and hold rental properties when you do it correctly. You outsource property management and the rest takes maybe four hours a week when you’re in your build phase because all you have to do is learn your market and track down that one deal and you know you’re doing one deal maybe every six months. So it’s really not a full-time job right. If you’re wholesaling or flipping or you’re building chunk money that’s a job right. You’ve got to choose. But if you’re doing buy and hold rental properties where your volume is two a year that’s not a full-time job. So my job was to earn as much as I could, save which are not a lot of people talk about right, you need to reduce your expenses and then invest. So that’s what we did we did for 15 years replaced to six-figure incomes. And now you know time is what we make of it. And it’s a pretty good life.
Yeah, it sounds like you guys are having fun. So now I know you’re forty-five and you’re retired from your regular daytime job. So what I was curious about is that. Tell us a little bit about your day. So when you wake up in the morning, what do you do right now? Do you have an office still or do you work from home? Do you have people that work for you? So how does your day look like? How many units do you have under control right now?
Yeah. So we have just under two hundred units. I think it’s one ninety-five or one ninety-six it really depends because we’re buying every month and I have a couple in escrow right now. So that’s why I think we are today somewhere around there plus or minus one or two as far as my day. I am a morning person. There are not many days that you will catch me functional after 10 p.m. That said I’m up at 6 a.m. without an alarm clock. Six out of seven days a week no problem. So I’m definitely a morning person. So what I do now, when I get up in the morning is we have a dog so I take care you know what dogs need to take care of in the morning. I love some coffee and the first thing I will do is I will do some content from my YouTube channel. I like to do that in the morning. The house is quiet. My wife’s asleep so I can record my daily content which I try to put out again every day. You know I’ve been doing it for six months now and will continue to do that. I then look at real estate. I’ve looked at real estate every day for the better part of 10 to 12 years so I still look and buy look I mean look in the MLS. I return voicemails from agents or wholesalers or bird dogs that may have left me a voicemail because lots of them are evening folks. And you know that’s my morning right. So I’m doing something on my YouTube channel or something for my real estate portfolio. Probably till nine-thirty maybe ten o’clock each day and then that’s it. The rest of the day is what we want. We typically go to the gym. After that we come home, shower, we go to lunch every day somewhere different. We come back in the afternoon we’re returning phone calls on eviction or some kind of one of our rental portfolios. And then in the evening, it’s probably going out to dinner. We probably go out five days a week and you know we just enjoy spending time together so that’s the average day something for my followers something for my buy hold portfolio something for my rentals the gym. I do read a bunch you know during basketball season I will watch the Warriors games when they’re on. So you know it’s not a very stressful life.
I don’t have any employees. I do most of my work from my home office. Interestingly enough, I am just now buying an office building in Fresno because I think I can help more people. But again I’m not going to have employees, everybody there will be their own business and we’ll work something out, but it will be my office it will be where I brand “One Rental at a Time” because that’s my experience in Fresno. So again I’m lucky enough that I don’t have any great desires for fancy things. I can live very modestly and my bills are covered. So I spend a lot of time thinking about how to give back and creating a physical place called “One Rental at a Time” is it’s something I’m doing now and going to open it up August 1st. So a lot of fun.
Ok. I’m excited for you as well. So you’re doing one rental out on time and not quitting your job and I also know that you are focusing on five to 20 multifamily units instead of buying the 52 up to 100 hundred apartment complexes that everybody is always telling us to buy. Yeah. So the first question I have when we’re digging deep into your business model is why do you choose to buy the five to 20 units instead of the bigger ones?
Well, there’s a couple of reasons. The first and foremost was I never had any desire to complicate my life and I believe going outside and doing something called syndication or things of that nature would add complication.
So everything that we buy is in our name are LLC as are our entities right. I have no partners when we talk about roughly two hundred doors under ownership it is ours and by ours I mean my wife and me.
Right. So I don’t get great energy by saying oh I have two thousand units well. Oh, by the way, I own 10 percent of it. That’s not my thing. It’s not that I don’t like you know the huge building. It’s frankly I’ve never had the capital to go buy one. And the other thing is you rightly said at least in the last 18 months because I’ve been doing this for 15 years the last 18 months to 24 months. Everybody’s talking bigger is better. Everything is priced for perfection. And fortunately, I think a lot of people are gonna get hurt. I think there’s just not very many solid 50 units in above. And if everybody is following Grant Cardone and like syndicators, I think there’s going be a ton of living in partnerships that either take a haircut or they have to hold for 10 extra years because the math does that when things get priced crazy it’s going to end badly. So I won’t touch things that are overpriced and you know back in 2008 that was a single-family home. Today it’s a 50 unit apartment building and I don’t mind telling people that I think today they’re overpriced and I think they’re grossly overpriced especially when people are buying C class properties and lying to themselves about oh we’re going to upgrade it and when recession comes. I’m going to get more occupancy. Yeah you’re going to get more occupancy but you’re going to lose 30 percent of your tenants and your tenant turnovers are gonna kill your cash flow and you know you’re going to lose a ton of money. I’m not trying to sell anybody anything I’m not trying to raise any money so I can just be honest and tell you what I think and I think 50 units and above today is we’re talking in the summer of 2019 they are grossly overpriced and I believe there’s going to be a lot of limited partners that have to take haircuts or lock up their money for five to 10 years longer. So that’s what I think is happening.
Yeah. Well, we are all about saying the truth here in the podcast. So you’re definitely not the first person to say that. And so that is why I’m curious about your model because you are focusing on the fact that it’s funny. So you think they’re not overpriced and you think they’re there is not as much competition. What is it that’s so special about them.
Well, let’s be clear. I think there’s a ton of competition there as well. You know I’ve actually sold two of my 18 unit buildings here in the last six months because I knew what they were worth to me. Let’s just reuse round numbers say a million dollars and what I did is I called up a couple of agents and I actually listed three of my buildings for 30 percent more than I thought they were worth. So in this example of a million dollars, I listed them for one point three and two of the three sold. So if you want to give me an artificial gain of 25 or 30 percent. Great. The third one didn’t sell so great. I kept it right my LTV on that is like 30 percent. So cash flow is great. That said I’m still looking to buy. I just did a 15 unit deal about four months ago but I found that by going direct to sellers a lot like wholesalers do and I offered up seller financing and all of those things. So I still think there are lots of opportunities out there, but one of the things you learn about me just like in 2008 when stuff gets priced insanely. I’m not opposed to selling or more to the fact exchanging the 10 31 exchange is there for a reason. It allows you to shield year 1 taxes and push the basis onto something else. So the 1031 exchange has been a great vehicle for us to maintain our wealth and also to take artificial value when something is overpriced.
Yeah, that’s great. So what are you looking to buy right now?
Well, I only buy things that make financial sense. One of the things that I talk about a lot to my students is I have this yield calculation and I will buy whatever produces the highest yield not what takes the most cash not what’s the prettiest, what’s the highest yield? Sometimes that’s a house sometimes that’s a 20 unit apartment building. I can tell you for the last six months houses are a better investment than multifamily which is crazy the last 15 years of my career 5 to 20 unit buildings have been outstandingly priced and without question the better investment. Unfortunately, when the herd starts chasing multifamily the herd can push prices up. And unfortunately, there’s not a lot of supply right? They’re not building a lot of 5 to 20 units. If there are building stuff it’s a big class a one hundred, two hundred, three hundred units. So the fact is the supply is dwindling. And when the herd follows Grant Cardone or like syndicators prices go up for the first time in 15 years it shocks me to say this but a single-family home produces a better return in most markets than a 20 unit apartment building. And that’s crazy. But I think it’s true today.
That is crazy. OK. So, Michael tell me a little bit about how you find these 5 to 20 unit buildings because I know a lot of people are talking to brokers and to try to get deals from brokers. So are you doing the same thing? Are you talking to brokers to find these kinds of deals or you’re doing the marketing yourself?
Yeah. So you know one of the keys to this business as you know is you can’t just have one strategy to find opportunities. So you know the short answer is I do lots of things. But let’s kind of walk through each of them. First, off most of the five to 20 unit buildings I have found to date have been out of the local multiple listing service not looping it right loop net is kind of a graveyard for listings and they’re all overpriced and things of that nature. So I do mean like your local multiple listing service in the beauty about that is what I’m seeking or searching for when I look there is marketed or mislisted properties because one of the things you learn in this business over time is most people do residential meaning single-family homes. But you know over the course of a year or maybe two years residential agents I have a friend or contact or some acquaintance go ‘hey can you list my building as well?’ And when they do that they make lots of rookie mistakes like one of the buildings I bought I still remember today was listed as a single-family home and I found it because it was listed oddly. Right.
The square footage was over eleven thousand square feet. It had twenty-four bedrooms and 12 bathrooms right. So for me, I’m like ‘Okay that’s probably a 12 unit building and they’re probably averaging 950 square feet.’ Most people would miss that because it wasn’t allocated as multifamily it wouldn’t show up in their automatic searches. So I peruse the multiple listing service every day I’ve been doing it for well over 12 years now.
I still get probably three deals a year just out of mismarketed or miss-listed multi-family properties. The other thing I do is obviously in this business it’s a people business you have to market yourself you have to talk to people you have to network. One of the goals I had, while I was working a full-time job, was I wanted to meet two new people a week every week. So, you do that for a year that’s over a hundred people you do that for five to 10 years that’s five to a thousand people and you become known and you tell them what you’re looking for and you follow up and you send them emails and you just build your Rolodex and you become a trusted known buyer. So you know probably 30 percent of my deals come from off-market listings where I get a phone call before anybody else sees it. So when somebody is trying to sell something and it’s underpriced or it’s in the condition or area town I like there’s a pretty good chance I’m going to get a shot at it before it gets mass-marketed. Which is a great place to be. The other thing I do is, I do talk to people.
I remember a building I just closed this year 15 units and that came from having a conversation with the seller on a six-unit building I bought last year. Last year the seller via wholesaler sold me his building right. The wholesaler made like 30 grand. So they were really happy. And you know I had a building that I wanted to keep but I let the seller know when I shook his hand and I took the keys that hey you know if you have another building which you said he did if you’re ever looking at selling it we should look to do owner financing because I could save you a lot of money on taxes keep giving you in income but also remove the headaches and you know I didn’t think he listened to me because he kind of shook his head and you know this or that. He called me up a year later almost to the day and said ‘Hey do you remember me I’m like yeah you sold me that building on Main Street’ whatever it was. And he goes well, you know you told me about that seller financing and I thought it was a scam and I didn’t really understand what would happen to my taxes because I depreciated that six-unit building to zero. Tell me more about that because I don’t want to pay 50 percent hit. You know this next tax year which he had to pay roughly because he had zero cost bases and a six-unit building so you know he had to pay a fair amount of taxes. So we ended up working it out and the long story short is he sold me one point three million dollar asset for nine hundred grand. He kept roughly a five thousand dollar payment for the next 20 years which is what he thought his life expect to see would be his year when taxes were significantly reduced because I only gave him 50k down, I got a reduced down payment, I got a reduced interest rate and I got a whole bunch of equity. He got a prepayment penalty of five years because he didn’t want me to sell it at least cheaply within the first five years. So you know by talking to sellers you can’t create win-win but to be clear I don’t do mass mailings. I work with wholesalers that do I don’t have any direct employees as I shared earlier. So you know I ‘m probably not as active as I should be but I think I’m doing ok.
I think you’re doing ok too. No doubt about that. So yeah first of all these are very accurate strategies and some of them at least I could see that you’re doing something that everybody’s doing like the first thing and that is to put your name out there and that is probably the most important thing. I always say on the show whenever you do real estate let everybody know that is what you’re doing because you would never know where it’s coming from either from your friends from people that talked about you and said that you’re doing stuff. And so all of a sudden you get a phone call and that phone call is worth a hundred or two hundred thousand you know down the road. So I could totally agree. And so I want to ask you about specifically about these five to 20 units because not every day I have somebody who’s focusing on them. So I want to ask you about the potential value adds all of these units, I know they’re different and I know the value rates are different so you can do the same things you would do in a bigger apartment building and also I want to focus on the management. Yeah. So these two questions are really important for our audience. So I know a lot of people say that you want to buy the bigger units or the bigger apartments sorry so that you can put on-site management and that way you are not required to do anything. So how do you combat that struggle of managing your units yourself or putting somebody to do it where they’re not that big?
Well first off I think anybody who believes that if you just put an on-site manager suddenly the world is better is either new or lying to themselves. Because I have a couple of buildings in the state of California. Anything over 16 units you have an on-site manager. So I have several buildings where I have to pay to have a manager free rent. All of those things. And it’s still management intensive. Right because they are essential to be eyes on the ground but they’re you know most of them aren’t going to be you know maybe they can do light bulb changes and you know to call out repairman it’s tough but they’re not going to be your general contractors you’re not going to want to mess with electricity or plumbing or anything of that nature. Yeah. Okay. So you have a hundred unit building you have to onsite managers but if you think that’s gone you’re not going to have any other management headaches. You’re kidding yourself. The other thing is I’ve invested in a market my entire life that’s two and a half hours away from me. So I’ve had property management since day one. So in a building where I have onsite, I obviously pay a slightly reduced rate because I’m also paying for the onsite. But I’ve been paying property manager since day one since I had only a single house. So I don’t do self-management. I don’t believe in self-management. We’ve already talked about the fact that I had a busy day job. I was paid relatively well so I was going to exchange my very well self-management-paying job for a ten dollar an hour job. So I’ve had property management since day one. And then as far as a value add. The thing about 5 to 20 unit buildings is they’re building them b they’re never gonna be Class A. But you can take these 60 and 70 unit buildings that do have some kind of functional layouts just different right the kitchens are smaller. You know they had it was more boxy. Back in the 70s so with very little investments you can make a choice do you just want to go in and change the flooring and paint and put in new appliances or do you want to update a little bit take out that fake wall that’s just there to box it in the kitchen put in the open feeling create an island or a bar stool kind of layout and there are things that you could take a C class building to assume the area that you’re in supports it and really dress it up for not very much more money. Right. I can dress up you know a 750 square foot two bedroom one bath for sixty-five to seven grand and I could take the rents up two hundred and fifty dollars and they’re going to stay there because what people need to realize is most renters are living paycheck to paycheck. So if you can make this place the nicest rental they have ever lived in. The chances of them leave leaving are slim. And more importantly, they’re going to if you have a good tenant and they’re paying rent they’re going to bring their friends and they’re gonna see hey you’re at your unit has a barstools seating by the kitchen. Oh my God I’ve never seen that right so there’s just little things that you can do to make your you know 20 unit building that was built 50 or 60 years ago stand out and you know I don’t mind that because you know full occupancy and a 20 unit building as it is a good thing and then let’s turnover is even a better thing.
Yeah, that sounds great actually. I mean I can understand why you’re doing it this way. It sounds brilliant, to be honest.
Thank you. Yeah. It worked. You’re welcome. So let me ask you how can other people connect with you.
Well, the best thing to do would be to subscribe to my YouTube channel it’s called One Rental at A Time. I do put out daily content anywhere from successful interviews to real talk to walk through. I put it all out there I need to do something during the day. So that’s what I do and I do that in the morning. If you really want to learn about our story one of the first things I did after leaving the workforce is I wrote a book. It’s called One Rental At A Time itself published on Amazon. I’m proud to say that there are sixty-five five star reviews now which means a lot to me. So people are liking it and it’s not really selling anything it’s just here’s our 15-year journey. This is what we did. This is what worked what didn’t work and what’s interesting about the 15-year journey is it. We rode the wave up, we rode the wave down, and then we rode the return. So you get a full cycle and a half and you know people are enjoying it. So that’s probably the best way YouTube for daily contact and if you really want to get our story go by the book on Amazon called ‘One Rental at a Time.’
Well, Michael, I could talk to you all day because I see your story is so interesting. But yes definitely I mean I’m sure there are many things that we didn’t talk about just as you know you can only talk to all and talk about so many things like you know how you dealt with the crisis back in 08 we did not cover that so I’m sure that’s going to be on your book and anybody that wants to know more buy it and that’s about it. Yes, Michael. So thank you very much for being on the show. I’m excited to be on your show. I can’t wait. Yeah. I would also have a lot to talk about I’m sure. And thank you and continue with your amazing day as a retired man. Thank you very much. All right. Michael always a pleasure. Thank you.
Thanks for listening to the real estate investing podcast with Don and Eden. Stay tuned for more episodes. Till next time.
