S2E13 – Investing 101 with Michael Zuber From One Rental At A Time

Are you future investor wondering how to get started investing in real estate? How do you decide if a piece of property makes a good investment opportunity? Should you consider investing out of state? How do you make the numbers work when investing in this housing market? In this episode, we dive into investing 101 with Michael Zuber from One Rental At A Time to not only help you become a better home buyer in this crazy housing market but also help you become The Educated HomeBuyer.

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Connect with me 👇 Jeb Smith (huntington beach Realtor/orange county real estate) DRE 01407449 Coldwell Banker Realty ➡I N S T A G R A M ➳ https://www.instagram.com/jebsmith ➡Y O U T U B E ➳https://www.youtube.com/c/JebSmith

Connect with me 👇 Josh Lewis (Huntington Beach Certified Mortgage Expert) DRE 01209148 Buywise Mortgage M:714-916-5727 E: josh@buywisemortgage.com ➡I N S T A G R A M ➳ https://www.instagram.com/borrowsmartjosh ➡Y O U T U B E ➳https://www.youtube.com/c/buywiseborrowsmart

Connect with Michael Zuber – https://www.youtube.com/@OneRentalataTime – BUY One Rental at a Time https://amzn.to/3jt3JFx

📩 – info@theeducatedhomebuyer.com

👕 – Merch – https://jebsmith.myspreadshop.com/

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For Show Notes, See Below 👇

[00:00:00] Jeb Smith, Huntington Beach Realtor: Hey guys, welcome back. Today we’re gonna do something a little bit differently. We’re going to be talking to an author, an investor, someone who was recently featured in Fortune, uh, when it comes to investing. And the reason we’re gonna do this content is because we have a lot of listeners out there.

Interested in investing. Maybe they own a home already looking to buy their first rental property. Maybe they own a rental property. Looking at the market going, how can I make another investment property work with all the craziness out there? So what we wanted to do is bring a professional on. Someone that not only talks about investing, but actually has their money where their mouth is.

And that is Mr. Michael Zuber. He is the author of One Rental at a Time. This book right here, if you see it, and has a YouTube channel where he talks about investing in real estate. So today we’re gonna take that conversation a little bit. And, I’d like to introduce you to, Mr. Michael Zuber. 

Mike, welcome to the show.

[00:00:55] Michael Zuber, One Rental At A Time: Hey, Jeb. Hey, Josh. Thank you for the opportunity. Uh, I think home ownership is the most proven path to wealth. It certainly is something that saved my family when I was growing up because my mom and dad used the GI bill to purchase that first home in the seventies and without that, You know, life would’ve been very different because we suffered through the recessions in the eighties and it was that house that kind of got us through and ultimately is the asset that allowed my mother to enjoy her retirement year.

So, the homeowner, is a big deal to me. So I’m, I’m happy to have this discussion. 

[00:01:27] Jeb Smith, Huntington Beach Realtor: And Josh, that’s something that we talk about all the time. how important home ownership is to long-term generational wealth. How homeowners have a 44 times greater net worth than those are renters. And we were even talking recently about, what is it, 60 to 65% of people choose to be a homeowner at some point in their life.

And so, This is a good segue into, either buying a home for you to live in today, and or buying an investment property. And Josh, Mike, some people are choosing to live in the market where they are. Like here in Southern California where we are, it’s very expensive to buy a home to start with.

And a lot of people don’t have, say the money for the down payment. They don’t have the means to be able to purchase that property, but they don’t wanna move to an area that’s less desirable. They still want to live. And so some people are choosing to live here and take that money and actually invest in an investment property in other areas, which we can talk about more in today’s episode as well.

[00:02:29] Josh Lewis, California Mortgage Broker: Jeb, one of the things that you said there, whether you’re buying it as a primary residence, whether you’re buying it as an investment, one of the reasons why real estate has this reputation for building financial foundations, for building wealth for many people is that it’s really, I like to call it the leveraged investment for the common man.

almost none of us will go out and buy stocks on margin or do options, that type of stuff. You have your 401k, you put some money in mutual funds, and whatever that goes up is what you’re going to make. Real estate [00:03:00] has made exponentially more wealth because most people on your purchase, you’re putting three, five, 10% down, so you have 10 to one leverage on that. 

So if a house goes up 3%, you made a 30% return on your money. Investment the same. And the cool thing is normally if you’re investing in a on margin in your stock, you’re paying that interest or you’re paying the interest outta the growth on the investment. with a rental property, the tenant is paying that for you.

So there are some very well-founded reasons why real estate has this reputation for building a financial foundation and for leading to long-term wealth. And Michael it’s really interesting that you mentioned your family and what that did for you. My mom never made more than $1,500 a month in her entire career.

My dad was a school teacher. He passed a couple years ago and we were actually going through his documentation I saw he switched back to school teaching after the divorce. And in 1981, 1982 he was making $24,000 a year. So combined, my parents were making about $3,000 a month. But they were fortunate in that both of them, were able to have a home.

Homes were considerably cheaper at that time, and we were not owning in areas that were expensive. But flash forward, we’re 40 years on, and that’s made all the difference in everyone’s world. They both lived very comfortable retirements because they didn’t have to worry about putting a roof over their head because time and amortization took care of that for them.

[00:04:25] Jeb Smith, Huntington Beach Realtor: And Mike, you, you’ve been fortunate enough to be able to retire off of investing. And, and this has become your full-time income, passive income, however you wanna look at it. And I don’t think that’s the goal for most people out there. Maybe it is. And I think it’s a fantastic goal to have.

But I think the conversation today is more around the person that is just starting that journey. Somebody that’s looking to invest. Where do they start. In a market where we’re still seeing, you know, yes, home prices in a lot of markets are coming down a little bit, but we’ve seen affordability actually diminish because of interest rates going up.

So even though house prices have come down year over year, the payment on those properties has increased substantially because of that rise and rate. So if I was a first time investor looking at the market right now, what am I looking for? What are you looking for as somebody out there that still is trying to invest in real estate?

[00:05:17] Michael Zuber, One Rental At A Time: Yeah. So there’s a lot of things that, that we could talk about here that, and I think they’re all important. So I’ll list them and let you guys point me at. 

So first and foremost, lots of folks that follow me are like you talked about, Jeb. We live in expensive parts of the world, right? I’m in the Silicon Valley.

My journey starts in 2001 after reading Rich Dad, Poor Dad. Unfortunately, everything that I read next was, invest in your Backyard. So I spent a year, I mean 52 Sundays. Every Sunday for 52 weeks. My wife, Olivia and I would go and drive around the Silicon Valley trying to find a cash flow positive house.

They didn’t exist in 2001. [00:06:00] They don’t exist today. I did not know that. So after 52 weeks, which she is just a wonderful woman for letting me do that for a year, she sat me down at the kitchen table and said, we’ve gotta do something different. So what did something different mean? It means that either:

A – we were gonna give up on it.

B – we had to find a new market. 

I chose B cuz I wasn’t ready to give up. I was still a believer. But I had no evidence yet, but I was still a believer. Then the question was, she’s like, “okay, great. Where do we go?”

What very few people know about my story is I hate flying, like terrified of flying, and oh, by the way, my day job meant I was on four flights a week, so it was this weird combination of scared to death four days a week and making a living. So there’s no chance in hell I was gonna get on a plane for my rental properties.

So, okay, there goes most of the country. So then we pull out a California map and we draw circles. And ultimately two and a half hours away from our home was a market called Fresno, California. So, we’re not outta state, but we are certainly out of area, right. To go look at one house it’s a five hour day, minimum.

But that changed our trajectory. Low and behold. After that, we find a market on Norris Drive. We buy it for $107k, rents for $1100. So it changes my life. So we can talk about that. Another thing, I do not believe the story of bigger is better. I think talking about portfolios of 10, 20, a hundred to a thousand is intellectually dishonest. I believe most people change their future with four rentals or less. It is that simple. 

And then finally, I think we’re in a very interesting housing market, especially given the very recent collapse in the regional banks. I believe there’s only one lender who is going to be comfortable lending going forward, and it’s Fannie and Fred Mae or Freddie Mac and Fannie Mae, because interestingly enough, they’re actually under conservatorship, so they’re not for-profit organizations.

They are essentially government owned lenders. So in the near term, 90 days, six months, first time home buyers probably have a leg up because they’re gonna go through Fannie-Freddie, where investors have to go through regional, the big banks. It’s gonna be harder lending standards. It’s a wild time to be in real estate.

And then finally, my life doesn’t change. I learn what average is in my buy box. My average today is about 6%. I don’t do average. I want to do only great deals, which is 2% plus. So I want to get an 8% cash on cash or return on capital. I call it yield on my money, or I don’t buy it. I write lots of offers. I network, off market, seller financing, whatever I can.

So there’s kind of four topics that you guys can choose where we go, but I think all of those are relevant to today’s market. 

[00:08:47] Josh Lewis, California Mortgage Broker: Jeb, let me kind of go this direction. Tell me what you guys think. You said a very similar story to a client that I helped do a cash out refinance on a rental property last year.

She thought the rate was crazy. At the time it was almost [00:09:00] 4%. So cash out rental condo, we would all, give our left arm to have a sub 4%, cash out refinance today. Came from Jeb’s YouTube channel. Had reached out to me. The broker that she had been working with wasn’t really getting back to her and guiding her through this. Told her she was crazy for doing it. 

But, she has the one rental property. She lives in Riverside County, but a nice part of Riverside County. So is it Silicon Valley prices? No. But that Temecula, Murrieta area is appreciated. Higher prices. 

So she has the cash sitting there, and when we run numbers and look at her buying an investment property, the numbers are just like you’re saying, it just doesn’t pencil out. She would be feeding it to the tune of two, three, $400 a month. I’m like, to me that’s not the investment. 

[00:09:42] Michael Zuber, One Rental At A Time: Never do that deal. No alligators. 

[00:09:44] Josh Lewis, California Mortgage Broker: So we’ve talked about her going out of state and she doesn’t have a fear of flying or a dislike of flying like you have, but she’s like, “I don’t know anything about it. My realtor’s familiar with Utah. We’ve looked at Utah. It’s highly appreciated as well.”

So if you were talking to that person that has enough money for a 20% down payment, their comfort level is here in California. We see markets like the Bakersfield area, much lower. Fresno, Visalia, Tulare much lower with good rents. Within driving distance within a day.

If the world falls apart and you need to be there, you get in your car and three, four hours later you’re there from Southern California. You wanna talk a about that client a little bit and how you would advise them or just sort of what your program and advice and system would tell them to be looking.

[00:10:30] Michael Zuber, One Rental At A Time: Yeah, I think there’s a couple of things there that, that I wanted dispel. So I don’t know if you guys have heard things like this, but one of the most common thing I get from Silicon Valley buyers who instantly go outta state because they don’t realize there are other cheaper places of California within driving distance, is, I can’t tell you how many times I have heard this exact quote, “Michael, you don’t get it. I could buy a house for less than the cost of my Tesla.” 

I am sorry, but when did that become a reason to buy? You can go broke, buying cheap. I have known more people that got hurt outta state investing because they did it too fast. Somebody with money burning a hole in their pocket that wants to almost repel it.

I get very, very nervous. So I appreciate that you guys are coaching. I appreciate that you’re looking, I love the fact you’re running the numbers and if it’s negative cash flow, you don’t do that deal. I would tell most people, certainly if they’re learning right, it’s not in your backyard. I think driving distance is wonderful.

The whole key to out of area or out of state boils down to your investment in building a team. Is the team going to tell you bad news? Right? I built a decent portfolio over 20 years, but it starts very painfully. I fired the first five property managers cuz they didn’t work. It just wasn’t working.

So I had to build a team. I chose Fresno cuz it was two and a half hours, but I knew no one. I had never been there. [00:12:00] It’s a big city. It was about 600,000 when I started. It’s about a million people now. So it wasn’t a town, it’s a city. I think most people would do themselves service, getting in their car and driving.

Getting on a plane to go to your market. It just adds to the yearly costs. A plane, a ticket, an overnight stay. Food. It’s just like when, especially when you’re beginning and you’re cash flowing, $250, $300, $500 bucks, one flight eats two months of cash flow. Where a tank of gas doesn’t. 

But to me it’s all about the team. When you go out of area or outta state, it’s not the market. I’ve seen plenty of people go broke in good markets, and I’ve seen plenty of people do great in bad markets. Right. A market that would be on nobody’s top 10 list is Gary, Indiana. Unemployment’s high income is down, but I know plenty of people that are crushing it there. Cuz they built a team. They have the network, they do those things. 

So, I think a lot of people don’t like to hear this, but going outta state, outta area is work. And it’s not the deal, it’s the team and then the deal. So it’s kind of two steps. That’s how you de-risk that, in my opinion. 

[00:13:05] Jeb Smith, Huntington Beach Realtor: Now you said something really interesting right there in that, there’s people that you know, that are making money in areas where unemployment is rising and on the flip side, when I think of investing and I’m not a big time investor by any means, but I think of finding areas that have stable jobs, companies are moving to the area. 

You’re looking for areas that have things that are going to drive the economy there. Maybe not immediately, but over the long term because you want some support there. Are those things that you’re factoring in or not really factoring in and more looking at the play on the property itself versus the economy around where that is located.

And it may be a combination of both. 

[00:13:44] Michael Zuber, One Rental At A Time: Yeah. For me it’s all about the numbers to kind of, to be just blunt. I want to know what the average yield on a deal is and maybe in a rough market, maybe the average is 12. And another market it’s eight. I think any market that shows up on Fortune or Forbes or Realty Trac or whatever it is, as a top 10 list, it just increases competition. With competition comes dumb money. 

And, again, I’ve seen plenty of people go broke in the best markets. I mean, I’ve been doing this long enough where Texas was the right answer, right? My journey starts pre, pre five years before the last bubble. So I saw the runup. I’m sitting at the top of the Runup in 2006 with eight homes. Just eight.

I have a choice. Everybody’s telling me California’s gonna crash. Bruce Norris tells me it’s gonna crash. I’m paying attention. So we fly out to Texas, everybody tells us to go to Texas. I don’t like the fact that property taxes reset every year in Texas. That’s a red flag. We don’t buy. Instead, we 1031 and we sell all the houses.

We move into apartments. It’s a genius move with very lucky timing. So again, I don’t think you have to chase markets. I think you need to do the work. I think too many people bounce around. How many times have you known investors, say, “Michael, [00:15:00] I got it. I’m going to San Antonio.” and then I call him two weeks later, I’m in Memphis, and then I’m in Nashville. And then I’m in, I don’t know, Utah, Provo, Utah, whatever. 

People need to it, it takes time. This investing thing is hard. People make it look easy and it make it look like a microwave. It’s freaking hard people. I remember in 2021 I wrote a hundred offers and got nothing. Getting great deals is hard.

So I, I generally suggest people double down, triple down in doing the work, right? I think I, you know, If you’re bouncing around markets every 60 or 90 days, you’re not learning anything, in my opinion. And you’re probably going backwards cuz now you’re getting confused. Oh, was that Texas or was that Tennessee? Was that Florida? I don’t think people dive in enough personally. 

[00:15:46] Josh Lewis, California Mortgage Broker: Michael, you mentioned something early in this show that I think’s really important. So, First of all saying Gary, Indiana. Jeb has a realtor friend in Indiana. Jeb was looking at buying some stuff in Indiana. My mom bought a duplex in 2020 in Speedway, Indiana.

It’s done very well for her. The cash flow’s awesome. It’s up 20% in that timeframe. That’s market. That’s not her being a genius. But that worked out very well from that perspective. So talk a little bit about the difference. Most of our hopeful investors that we talk to, say, “cool, talked to a Realtor. They’re sending me stuff outta the MLS. They’ve set me up on a search”… 

To me as an investor, as a flipper. I start with that perspective. I always want discount to market. Whatever cash flow looks like. If you can get a 20, 30% discount to market now, first of all, you’re most likely gonna do a rehab. So you have nicer inventory that’s gonna get you better yields. And you have a little bit of a cushion there on the way in.

Is that a piece of what you’re looking at when you’re analyzing numbers? Trying to find off market deals, before they hit the MLS where you can get a discount, build some equity into it, and improve your cash flow and get the numbers working in your favor.

[00:16:55] Michael Zuber, One Rental At A Time: For me, it’s all about cash on cash returns. So let’s define what that is. Cuz again, of course I want to deal. But it’s not the most important thing, so it’s really a very simple division. The top number is expected yearly cash flow after make ready, after remodel, fully burden reserves, property management, all of that.

So at some number, there’s a monthly number, multiply it by 12. The bottom number is more interesting, how much cash comes outta my account. So simply said, that’s down payment, closing cost, and make ready. A lot of people don’t include that. So again, you put that in, the market’s gonna produce a yield of 4, 6, 8, 10, 12, whatever it is.

I want to do somewhere between two and 4% better than average. I hate average. I think anybody looking on the MLS can do average. I wanna write creative, I wanna structure the deal. I wanna get seller carry, I wanna get credit, I wanna do whatever I can cuz I can play with lots of levers to drive that yield calculation.

Is it great to get an off market below market so you can add value and still be under market and make a spread? Of course it is. But for a buy and hold investor, not the most [00:18:00] important thing. In fact, I tell this story all the time. I actually overpaid for a property 20% because I got the seller to carry back a 30 year mortgage at one.

I give a rat’s as what the purchase price. 

[00:18:13] Josh Lewis, California Mortgage Broker: I can one up you on that, Michael. We bought a fourplex in Long Beach. Uh, in 2010. We got we got 0% on it. They didn’t want 30 years. They wanted a fixed payment, but it ended up paying it off in 14 and a half years. We paid off in in 16 years, so it was 2016 it will be done. 

And I think some of that is, is what people are not familiar with. They’re familiar with MLS, talk to a loan officer, get your normal loan. They don’t know that any of these things happen. Without knowing the story on yours, I know there’s some version of this.

On ours, it was a fourplex. The gentleman had inherited and he inherited another one. He had four of his buddies renting from him. They all liked to drink and smoke weed together. They didn’t like to pay their rent together. 

So for him, he needed the money every month and he couldn’t collect it from his friends. So he had a problem. He gave us his problem and we solved his problem by giving him $3,000 a month for 16 years.

[00:19:11] Michael Zuber, One Rental At A Time: There you go. 

[00:19:11] Josh Lewis, California Mortgage Broker: So in that instance, and he had the number in his mind, he wanted, I want to say the number was like 600 for the property, and it was probably $510-520k at the time. But I penciled it out. I showed my partner that I own the property with, I said, “listen, if we got it at you know, 10% under market and put a 15 year mortgage on it. Here’s what your payments are. If we pay him his price and give him what he wants for 16 years, it’s $3,000 a month. And we’re cashflow positive from day one. Are you good with that?”

Yes, sir. 

And she hadn’t thought of that. She hadn’t thought of it. She’s not a numbers person, she’s a realtor. She knows properties, she knows rent, she knows that type of stuff. And we go through it and she goes, I’ve never looked at it that way. I’m perfectly comfortable paying that. 

[00:19:48] Michael Zuber, One Rental At A Time: Yeah. And I think the reason both of these example is important is cuz I think for the next two, creativity is gonna win.

In 2020 and 2021 where you could put a sign in the ground. Neither of our deals happen. Somebody else buys it out of the MLS and pays more. But you did yours in ’10. I think mine might have been ’12. Whenever that was. The same thing, right? When the market slows down, when people get scared, creativity wins.

But for me it never changes. I’m a buy and hold one rental at a time guy. I don’t care if it’s a house or a 20 unit apartment. I use both of those cuz that’s all I’ve ever bought. It’s about the cash on cash. 

[00:20:26] Jeb Smith, Huntington Beach Realtor: And I think something is really interesting happening in the market guys, in the fact that the last three outta the last four deals I’ve done have been off market deals.

They’ve come to me through the way of a referral from another agent, friend, family, whatever it is. I’ve been able to put deals together off market for one reason or another. Now, would some of these properties had hit the market at some point? Maybe. But this isn’t just me. I’m having conversations with other agents locally saying, listen, , we’re doing off-market deals all day long, 

So that brings a different dynamic to the market at the moment in the [00:21:00] sense that we have an inventory issue in a lot of markets out there. Right. There’s just not enough supply. And so if you’re a would be investor, somebody looking to go to the market to find a deal, chances are you’re gonna have a lot of competition.

Just in the inventory bucket alone, just because there’s not a lot to choose from. So, michael, when you look at the market, you mentioned you and your wife driving around for a year looking for a cash flow opportunity. Now, back in 2001, that that probably looks different than it does today.

[00:21:29] Michael Zuber, One Rental At A Time: For sure.

[00:21:29] Jeb Smith, Huntington Beach Realtor: But what are you, how are you trying to find a deal? Are you sending out mailers? I mean, you’re not door knocking properties at this point in your life. So how do you come across deals? You mentioned networking, you mentioned some other things, 

[00:21:39] Michael Zuber, One Rental At A Time: Yeah, so when you’re in the business 20 some odd years, you should have lots of ways to attract deals.

So I talked, I think earlier about 2021, writing a hundred deals out of the MLS, cuz I look at my market every day. I’ve been doing it for 20 some odd years. I might have missed five or six days in that span. That’ll never change. That’s the beauty of real estate investing is once you learn, you could do this until the day you die.

So it’s not like playing professional sports or something else where you age out. So I’m glad I have that skill and I’ll never stop. But I’m also a proven entity. I speak at local meetups. I have a YouTube channel. I frequently do content on Fresno. I actually invested in buying an office building in Fresno where I give discounts on rent to real estate agents.

I network with banks and lenders. I survived and thrived in the last crisis, so I’m working with regional banks in Fresno. I’m talking to the presidents of the banks. Saying, yep, I’m here. Here’s my financial statement. I stacked a bunch of… so lots of ways you can attract deal outside of the MLS, but I will never ignore the MLS because I don’t know about you guys, but I got irritated with the crash bros dominating the channel last year.

So I took on a challenge around Thanksgiving because of a Yahoo Finance article that said 87% of buyers think it’s a bad time. I said, “time to go”. So I bought two properties between Thanksgiving and Christmas. I’m flipping ’em both. I bought both for 30% under market on the MLS. Everybody on the planet had access to ’em.

We got 30% under. Plenty of margin. Did full gut rehabs. Moved on. One’s already exited with a $40,000 profit. Others in escrow will exit in three weeks with a $60,000 profit. So the crash bros gave me a hundred grand. Just cuz I got irritated. So you can buy on the MLS. I’ll never stop. But 2021 no deals outta the MLS, but six deals off market. 

So never stop networking. One of my seven rules is meet two new people a week. Never stop meeting two new people a week. 

[00:23:38] Josh Lewis, California Mortgage Broker: So Michael nearly every MLS deal looks the same. You, you searched, you went out and you looked at it. There was a listing agent, you or your representative made an offer to it. But almost every off market deal is a little different.

So you bought six off market last year? What are some examples of how you came across that seller? How the deal came together? Were there any agents involved? You principal to principal with the seller, what did those look like?


[00:24:00] Michael Zuber, One Rental At A Time: I would tell you half of ’em involved, an agent at some level, right?

We may have come to agreement, but the seller was more comfortable going through an agent. It’s he or she to pay. So whatever you wanna do is great. All of them go through title. Escrow and title. I would never do a deal off market or on market without that personally. So I’ll go through escrow and title, make sure I have title insurance.

One was a past buyer, right? They have a, they have a portfolio. I bought others, so they came back. Two were wholesalers, right? They send out a mass email. I was the first to respond. Two came from agents. They’re called pocket listings. Basically if, if you are a buyer, whether you’re experienced or not, and you’re not telling everybody what your buy box is, you’re missing out.

Cuz both of these people knew what I bought. I bought before. They brought it to me, closed at their number. It was great. And the last one actually was a neighbor, right? I saw that they had a for sale by owner sign in the window when I went back to check my property. So I knocked on the door and said, “what are you thinking? I own that one. I’d love to own this one” and, and we worked it out. So I think those were the six stories. 

[00:25:02] Jeb Smith, Huntington Beach Realtor: It just shows you there are opportunities out there in the market. They’re just, again, creatively you’re able to find them. Now with that said, there’s a lot of people out there, on YouTube and other platforms talking about subject to deals and you mentioned the word creative multiple times in this episode.

So when you’re thinking creative financing in the current environment, what does creative financing look like? Maybe you’re not an investor that has a huge amount of money, but you’re somebody willing to hammer the pavement, get out there and try to find deals. you’re coming across these, how can you maybe get the seller to cooperate? What are things that you can do to help put yourself in a better position?

[00:25:40] Michael Zuber, One Rental At A Time: Yeah, so I only ever talk about what I’ve done. I can obviously theorize about stuff I haven’t, cuz I, you know, I learned like others. So, creative financing to me, given my past history is seller financing. So seller financing all boils down to does the seller trust you?

If the answer to that no is no, then there’s no deal there. If you get to a point where they trust you and you can talk about it, seller financing is the right answer for lots of sellers. And unfortunately, most agents simply don’t understand that. Let me explain. There’s lots of reason seller financing can be a great answer.

One, if you’re of age and you’re getting out and you’ve depreciated your building to zero, you know all of that. If you sell your property for cash, a discount or list, it doesn’t matter. You’re gonna have a huge and gigantic tax bill. You could very easily walk away with 30 or 40% less in your pocket than you were expecting.

Capital gains, depreciation recapture all legit. Seller financing can address that at least at some level. Next one of the things that happens is people get used to monthly cash flow, hence selling for a big lump of cash does not meet that. Maybe they wanna have cash flow, a monthly payment where they’re the bank versus the landlord can give [00:27:00] them continuous monthly payments.

Second, a lot of times people are exiting when they’re just tired of being a landlord. So it’s more about getting rid of a headache than doing something else. And then finally, people don’t understand this, but every seller I have dealt with, I have asked this question, what are you gonna do with the cash?

Most of the time, Jeb and Josh, they’re like, “I don’t know. I’m gonna leave it in the bank.” And if you really get to talk to ’em, most of them will admit that they are afraid their family members are gonna come and beg, borrow, whine to get pieces of it, because who needs $500,000? You’re 70 years old, you don’t need that.

I need this, I need that. Can you help me here? Can you help me there? So again, there are a lot of reasons sellers don’t want that. So A – you can spread out their tax liability because it’s called an installment loan. You can keep it, uh, monthly income because you’re getting, you’re sending them a mortgage payment.

You can remove the headache problem because again, they’re the bank. I’m the operator. Now the headaches are on. And then finally they don’t get a lump of money. They get a little money, whatever they’re comfortable with, and then they get payments. So seller financing is the right answer for most people, but unfortunately agents get in the way sometimes because they think they’re not gonna get paid or they think it’s illegal.

Yes, I’ve heard agents say that. They think it’s illegal. And frankly, investors like me we’re terrible at. Pitching it, right? We hear creative financing. We hear seller financing, and we’re putting it on every offer. Here’s the deal. If there’s no equity, what are you doing? I mean, seriously, what are you doing people this is not how the game was worked.

Do some more work. Don’t just hear some words on TV and think every deal matters. So, I think seller financing is great. Some of my best deals are seller financing. I’ve bought entire portfolios that way. It’s great. 

[00:28:42] Jeb Smith, Huntington Beach Realtor: I think it’s interesting too that you say that Michael, cuz I, I know a lot of people that are potential sellers. Investors that own property and people just own property in general and are looking at the market going, “if I sold this, I have nowhere to put that money.”

[00:28:53] Michael Zuber, One Rental At A Time: Exactly. 

[00:28:54] Jeb Smith, Huntington Beach Realtor: I don’t have another property to roll that money into, therefore I’d be paying capital gains or having the headache of trying to find something within a certain period of time. Therefore, I’m just gonna hold onto it. So if you’re listening to this and you know, of these people out there, these are potential opportunities for seller financing.

Like Mike was mentioning, just they have to have some equity in the property. In fact, the more, the better. Um, just cuz it makes it a little bit easier for you as a buyer out there. But again, I think these are great ways for, would be investors or somebody looking to buy that next investment property to get in the game.

[00:29:29] Michael Zuber, One Rental At A Time: Yeah. 

[00:29:29] Josh Lewis, California Mortgage Broker: Jeb, let me throw a specific example in that sort of makes your point, Michael, that a lot of times it would be the best thing for the seller. But they don’t know it’s an option. And even if they do, they get scared. They think someone’s trying to take advantage of ’em. I have a family member of mine, had a 50, 60 unit apartment building in Washington State.

He turned 65. He was a contractor, so he was the handyman. He did everything. He’s like, I’m tired. I don’t wanna be the property manager. And, and I don’t trust anyone else, so I’m not gonna turn it over to a property manager, a maintenance company, any of that. [00:30:00] I’m selling the property. Soon as he sells, tax time comes, he writes a $300,000 check.

So we still hear about Obama charged him $300,000. And I tell him the tax code looks look the same before Obama came to office. And very similar. So it could have been you paid Trump, you could have paid Biden, whoever was there, you were paying them. Because you chose to sell. Now, in his instance, had about 3 million of equity on a 3.5 million sale.

Even at three and a half percent interest on a 15 year note, he could have done it as a 30, could have done it a 15 year, it would’ve been 15 to $20,000 of cash flow coming in with a much smaller tax bill. 

[00:30:35] Michael Zuber, One Rental At A Time: Oh, much smaller, may, maybe zero depending on everything else. . 

[00:30:39] Josh Lewis, California Mortgage Broker: Yeah. And now he’s no longer an owner. None of the headaches, none of the problems, but he has that cash flow. So until the time he’s 80, $15-$20,000 a month coming in. Instead, he got the lump sum, paid a big tax bill, and he’s been sitting here complaining about the performance of his investments ever since then. And you, you’re just like, Oh, okay.

We could have walked our way through that, but he’s not an abnormal seller. Most of them, they, I would say they’re not aware of the option at all, and once they become aware of it, they feel like someone’s trying to pull the wool over their eyes a lot of the time. So much to your point of saying it’s, it’s on us as the potential investor to give them an unbiased and clear view of what that looks like.

[00:31:16] Michael Zuber, One Rental At A Time: Yeah. A again, a lot of new or rookie investors get excited cuz they see the gold at the end of the rainbow. If this is the way I’m gonna get rich, no money down. Sellers, they’re not gonna jive or vibe with you if you’re coming in with that kind of attitude. Um, no, it’s an amazing out.

And again, he would’ve lowered his tax bill. He would’ve maintained his income. Again, I, it, it sounds really bad to say this, but it is so true. In your example, a two and a half million dollar lump sum of money is a problem. It’s a problem. They’re gonna have to put that somewhere. And oh, by the way, if you put it in the market at the wrong time… it is what it is.

[00:31:53] Josh Lewis, California Mortgage Broker: Even if you said, Hey, I’m gonna be super safe, I’m putting it in bonds. Well, at that time, what were bonds yielding? Two and a half, 3%. Now with bonds yielding four and a half, five, 6%, you’re underwater. If you wanted to absolutely sell those bonds, you’ve lost 

[00:32:05] Michael Zuber, One Rental At A Time: what’s happened to the banks balance sheets. Yeah. You’re underwater 22%. 

[00:32:08] Josh Lewis, California Mortgage Broker: Yeah, exactly. 

Which that, that kind of circles us back to another thought. So they’re in, in Washington state, they have community banks. You’re talking about you have relationships with some community banks in the Fresno area. Mm. We don’t really have ’em in Southern California.

I don’t know what you have in the Bay Area. I mean, they’re a handful, but they’re unique business banks. They’re not really lending to consumers. You had mentioned earlier in the show that Fannie and Freddie are really the only option for investors even in the area like Fresno, where you’re seeing some community banks, they’re not doing a whole lot of residential lending to investors?

[00:32:36] Michael Zuber, One Rental At A Time: Well, again, you gotta, you gotta be very clear a moment in time. If you look at their balance sheets for q4, which would’ve the last ones we can go get, they were doing plenty of lending. What we are seeing right now in the moment, they’re not lending. They’re scared, they gotta rebuild capital, right? Their balance sheets aren’t as pristine as they thought they were because they have mark to market versus hold to maturity. 

There’s lots of stuff going on. I believe the commercial banking or the regional banking system, which [00:33:00] was 50% of the market in commercial and 60% in resi, won’t be that way by the end of the year. So this is a slow moving train wreck. I believe that as investors, we have to get ready for extra 5% down.

Higher credit ratings, higher interest rates. So it’s not like things will stop, they’ll just be more expensive and more down. Which I’ve been through. Right? I’ve been through two, dude. I remember a time where you could only get four loans. Yep. That was, that’s how long I’ve been doing this. I mean, how many people watching this don’t even know what I just said?

I, there was a, 

[00:33:30] Josh Lewis, California Mortgage Broker: How many people still still think that’s the rule? 

[00:33:32] Michael Zuber, One Rental At A Time: No. There are some people, like, it’s now 10… 

Lots. Yeah. Lots will still say, “well, I, I already have four loans. I can’t do em.” I go, “well, it’s 10, you’re fine…”, what, who are you sure? 

[00:33:41] Jeb Smith, Huntington Beach Realtor: Yeah. 

[00:33:41] Michael Zuber, One Rental At A Time: Yeah. Trust me, you’re fine. At least as of today, 

[00:33:43] Jeb Smith, Huntington Beach Realtor: I actually did loans prior to doing real estate, had a mortgage company in the whole thing. And one of my investors back in 2005, 2006, at that time, owned about 70 properties and he was maxing out with every lender. It was a complete nightmare to do this guy’s breakdown of, of his real estate owned on the loan application every time he went to buy a new property.

Every time he would call me to buy a new property, I was like, oh my God, buying another property. I hate this guy . Cause it was such a nightmare to go through that whole thing. But he was the guy that you were talking about earlier that would invest in all of these markets across the United States.

So he didn’t have a lot in his backyard. , but he owned real estate in Surprise, Arizona, in Las Vegas, Nevada in Utah and in Kentucky and Idaho and Boise, like all of these different places that eventually blossomed and did really, really well. I haven’t talked to that guy in, 15 years. I don’t know if he still owns it all, but assuming he does… 

[00:34:35] Josh Lewis, California Mortgage Broker: He should be our next guest on the show, Jeb. We gotta get ahold of him and see how it all played out. 

[00:34:38] Jeb Smith, Huntington Beach Realtor: Yeah, he was doing like 5% down on these properties back in the heyday. Barely, you know, barely cash flowing. As soon as they would go up, he would refinance, pull more cash out and buy another property. I mean, this, 

[00:34:51] Michael Zuber, One Rental At A Time: I have a prediction how that story ended. If it’s not happy . 

[00:34:54] Jeb Smith, Huntington Beach Realtor: Well, you know, it’s funny, I need to reach out to him and see if we can find him. But, Mike, we’re gonna end it here. I think that was a great way to end the show.

I think you’ve provided a lot of value to our listeners today. I mentioned earlier in the show guys One Rental At A Time. It’s, Mike’s book. You can find it on Amazon, mm-hmm. , uh, Amazon his YouTube channel, audible, uh, it’s on Audible. Also has a podcast where he basically talks about the same thing in more detail.

Anything else you wanna mention today, Mike? 

[00:35:19] Michael Zuber, One Rental At A Time: No, just thank you for the opportunity. I believe getting on the property ladder, whether it’s a first time home buyer or an investor is life changing? I think bigger and better is a marketing ploy. I think if you get to four, it’s life changing. 

So do the work. Don’t gamble, don’t rush. It is possible in any markets. We’ve been doing it for 22 plus years. 

[00:35:37] Jeb Smith, Huntington Beach Realtor: And as, as we always stay, this is make money slowly. It doesn’t happen overnight. Mike just confirm that and he can show you with his portfolio. So anyway, Mike, thanks for being here. Thanks everyone for listening.

Until next time, Adios!Support this podcast: https://podcasters.spotify.com/pod/show/theeducatedhomebuyer/support

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