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135: Is Real Estate as Good as Gold?

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I have written and talked before about the value of gold. What is the real purpose of holding gold anyway?

Gold bugs will argue that gold is the only real money and that’s why they hoard it. I think that’s fair. Gold is money and if you just want to keep some money around gold is not a bad way to do that.

Not only is gold money, but it is essentially the anti-dollar. In other words, as the dollar continues to degenerate and dilute, gold remains constant. In other words, gold does not go up in value. It’s the dollar and other fiats currencies that go down in value relative to gold. 

But is gold the only “anti-dollar”? I would make the controversial argument that real estate might actually be even more of a hedge against the dollar.

After all, owning real estate is a hedge against inflation because rents go up to counter-act the effects of diluted fiat currency. That, in turn, increases net operating income and thus…the value of the dollar value of the real estate. So it’s doing pretty much the same as gold except it is throwing off cash flow along the way.

Now here is the kicker, inflation erodes debt. So, if you financed that real estate not only are you benefiting from the hedge against inflation but the dollars you borrowed have effectively become worth less over time. In other words, if you borrowed $100K 20 years ago that is worth a lot less in terms of buying power than it is today. That loan you took way back doesn’t seem like much money anymore in today’s dollars.

If you didn’t get this part, read it again. It is critical. Inflation erodes debt. So, with real estate you are getting not only the inflationary hedge of the real asset and the cash flow, but you are effectively printing your own money by letting inflation erode your debt.

Simply put…this is why people get rich with real estate.

Now, you know that I am a multifamily guy. I invest and sponsor syndications. For a variety of reasons, if you are an accredited investor with a full-time job, this might be the easiest way to invest in real estate.

But…that’s my bias. There are others out there like my friend Dean Graziosi who was in my course, Your Roadmap to Real Wealth, that own thousands of houses.

The important thing is that you should listen to as many opinions as you can—preferably from people who know more than you—and make your own educated investing decisions.

In the single family home space, there are few people who know more than Marco Santarelli and he is my guest on this week’s Wealth Formula Podcast. 

Make sure to tune in to this episode as he makes his case for single-family turn-key rentals homes.

Marco Santarelli is the host of the Passive Real Estate Investing show — the show where busy people like you learn how to build substantial passive income while creating wealth for the long-term.

Marco Santarelli is also the creator of DealGrader™ – a scoring system that measures the investment quality of a real estate investment, giving you an overall snapshot of its profitability and investment risk.

He purchased his first real estate investment at the age of 18.  He successfully handled the entire rehab and property management of his first property without ever taking a course or reading a book on the subject.

Marco went on to get his real estate license and sell residential real estate for three years before leaving real estate sales to pursue other active business ventures.

Because of his love and passion for real estate, and desire to help others succeed in building their wealth through real estate investing, he eventually returned to real estate investing and founded Norada Real Estate Investments in 2003.

Today, Marco Santarelli is a licensed California real estate broker and runs a successful real estate investment firm focused on helping other investors build wealth through the power of real estate.

Shownotes:

  • Marco Santarelli’s background
  • Tightening before 2008
  • Seeing real estate as gold
  • Is it a good time to be buying single family real estate?
  • What should you look for in a turnkey provider?
  • Noradarealestate.com

 

Interview transcript:

Buck: Welcome back to the show everyone. Today my guest on Wealth Formula Podcast is Marco Santarelli. Marco is well-known probably to many of you. He’s an investor, author and the founder of Norada Real Estate Investments which is also a Wealth Formula Podcast sponsor and the nationwide provider of turnkey cash-flow investment property. Since 2004, Marco and his team have helped thousands of real estate investors create wealth and passive income through real estate and when it comes to single-family homes, Marco is the man. Top-notch investing prowess, Marco also of course has a top-rated podcast called Passive Real Estate Investing which likely a number of you listen to as well. Welcome back to the show Marco, how have you been?

Marco: Buck thanks for having me back on I’ve been great! I’m excited to talk to your audience and help provide some valuable content for them. How have you been?

Buck: Good, good. I’ve just been back from Thanksgiving holidays trying to get back into the whole, it’s tough after the holidays and it’s disorienting because especially after Thanksgiving you got Christmas coming up and it’s like the sprint to Christmas and all that business. But you know, so you’ve been on a couple times before but it’s been a while and I just wanted to kind of give a little bit of background on you and maybe some of the things that we haven’t touched on, for example you know how did you get into real estate in the first place and ultimately end up starting a company like Norada back in 2004 yeah?

Marco: Yeah well I’ll be brief about that because I know we’ve talked about that in your previous episodes. But long story short I jumped in to real estate investing when I was 18 years old. I just knew it was the right thing to do. So I bought my first property kind of like what you see on HGTV today you know you know with Flip or Flop that show’s called, I’m not a big fan of those shows and I know some of these guys that do these shows. But long story short I just knew that buy and hold real estate was a true wealth creator because I looked around at people that own real estate and they lived a comfortable life, they had passive income, they had cash flow. What was the common denominator? They all had real estate. So I knew that was the thing I needed to do so I bought my first rental, I fixed it up, put a sign out on the lawn. There was no internet back then so you know it was all paper and pen and signs. At least I managed it myself and held it for a number of years and if there was a lesson to be learned from that one rental that I walked away with it was this: never, never, never sell your real estate. Yes you can exchange a tax free do a tax-deferred exchange and that’s a great thing, but the mistake I made is I bought this $40,000 ish rental that’s worth about $400,000 today and it would have been cash flowing about three thousand a month free and clear at this point in time if I kept it, I didn’t keep it. So that’s the lesson to be learned from my very first dive at 18 years old into a real estate. But you know you fast forward that into 2003 and then I got sort of back into real estate investing in a very heavy way and I purchased 84 doors in nine months, most of it being single-family homes duplexes, fourplexes.

Buck: What year was that?

Marco: ‘04

Buck: Okay yeah alright got it. So this is like you know before the meltdown.

Marco: It was about three to four years before the so called meltdown that what we refer to as the Great Recession and I saw that coming in 2006, I mean we’re getting off on a tangent here from your question which is completely fine, but I got a phone call in 2006 from one of the key mortgage brokers I was working with and he said Marco, this is after years after I started Norada Real Estate and we had lots of clients, we were helping people get into properties in different states around the country, he goes hey this loan program is being pulled. It no longer exists. The lenders pulled it. All the clients you have in underwriting which was 35 at the time are basically SOL, they have no financing. So we had to scramble to find other lenders to step in and take over those those loans those underwriting transactions. But when that happened a second time, I knew that was it. The credit was being pulled, lenders were getting skittish, they were pulling back on their stated income, no income no asset no job loans what we call ninja loans. So all the credit was being pulled back and I knew that that was the sign that lenders lost confidence in the market and they didn’t want to be overexposed even though they were overexposed and and sure enough within a year or two, you know Lehman Brothers, the stock market crash, Lehman Brothers got pulled out from the stock market because they went bankrupt and on and on the list goes.

Buck:  Well that’s fascinating because you know the story I usually hear from people is that you know even up until the point of meltdown that the banks were lending hand over fist, but you’re saying that they were you were starting to see some level of tightening before the proverbial thing hit the fan.

Marco: You know I think what happened is lenders were probably starting to pull back on investor loans before they were pulling back on homeowner loans, which is really reverse I don’t want to say reverse psychology but it actually it doesn’t make sense because you would think that they would pull back on homeowner loans first and investor loan second because investors are certainly far more responsible from a business perspective and from a financial perspective in general terms than most homeowners who are getting into homes that they really can’t afford or shouldn’t be purchasing. So we as real estate investors are more responsible with that credit and you would think that they would continue to lend to us and pull back on people who were purchasing their first home or you know upgrading in their principal residence right.

Buck: And you know to that extent – I mean a number of people were using the same loans, I mean they were using your typical homeowner loans to buy multiple properties as well so there were still ways to get in at least for a few homes. So you know I’ve never really asked you about exactly kind of what happened in your world or when everything went south, like what happened? How did how did people, the investors that you had in the turn-key world over there, did a lot of them get hit hard or were they relatively sheltered from a lot of this because you were not doing necessarily a lot of the variable loans and some of these interests only type floating rates and all that?

Marco: That’s a good question. It’s funny because very few people even ask that question. I basically put investors in two camps. We’ve got the camp that are more what I call speculators, almost want to say gamblers, but those are the people who are swinging for the fence, trying to get a home run in terms of appreciation. So they’re looking at capital gains they’re looking at price growth. That’s fine, if you are also in the second camp, and those are the investors who are focused on cash flow. They have income and they have enough what we call debt service coverage ratio which I know you and probably your entire audience are fairly familiar with. But that’s really the excess over above your net operating income that you have to service debt on the property. So if you’re cashflow positive and you have enough margin in there to weather through these these real estate cycles or recessions you’re going to be fine because the cash flow is what I call glue. It’s the glue that holds your deal together. So regardless of what’s happening in the market, regardless of what’s happening to the price of the property whether it’s going up or down, you can weather through these economic storms or these real estate cycles. So the key is to be cashflow positive and have enough cushion or margin there where you’ve got all your expenses and your debt service covered and if you’re in a good market or a great market, you’re gonna survive. The people who suffered and got caught with their shorts down are the people who didn’t have positive cash flow, couldn’t service the debt, couldn’t carry the load especially if they had more than one property, because I remember the investors that were purchasing 15 new construction homes back then and guess what, the market crashed, the floor fell from under them, they had five ten fifteen homes that were just being completed in terms of construction, they weren’t in a good neighborhood or a good market for for rentals so they couldn’t get the properties leased, and when they did get the properties leased they didn’t have enough income or cash flow to service the debt and have something left over. So they were negative on equity, they were negative on cashflow and guess what they didn’t survive. So those are the people who handed the keys back to the bank, walked away from the properties and in many cases filed for bankruptcy.

Buck: You know it’s interesting that you talk about that distinction because people are a little bit nervous about the potential asset bubbles that we have right now. Across the board really including real estate and I often get asked this question: how do you invest in this environment? And you know my take is still very much I look at real estate the way, I think some people describe gold, okay? I know it sounds ridiculous and but I do because if you think about it this way when as you know I’m in the multifamily game and if you go to Dallas or something like that, you see some of these people, some of these some of these you know multi-million dollar complexes being taken down by Chinese money and they’re paying cash and they have virtually no cash flow, right? Why are they doing that? Because it’s a hedge against inflation. So that’s really what they’re doing. So if you look at real estate that way you could have something that as long as you are not irresponsible with your debt, in other words you’ve got decent cushion there, debt coverage ratios and all that you’re talking about. But in addition to that that you’re not over leveraged in that it can be something that really is like gold right, except you’re throwing off a little bit of cash flow. I’m a little bit different than you that I don’t focus so much on cash flow. I want there to be cash flow but I want there to be an appreciation play as well. To me the cash flow is the safety net, right? It’s gonna be what allows you to weather storms. If you’re getting decent cash flow that means you’re probably not over leveraged. But yeah I mean it’s interesting, I’d love to get your take on what I’m saying, but if you think differently…

Marco: Well I think for the most part we agree, you know they referred to real estate as the ideal investment. You’ve got income. So I put cash flow at the top of the list. If I was to rank things in order I put cash flow first. It’s not always the most important thing, but it’s certainly the most important thing in terms of your ability to have a stabilized asset that’s generating income and then growing in terms of equity over time. So number one is cash flow. The second thing is the equity growth through the amortization so that’s just a normal function of servicing the acquisition and paying off the debt and really it’s not you paying, it’s your tenant as you know. The third is over time you have appreciation. Now that could be forced as what you might do with your apartments and your syndications. You force some equity, you grow, you cut your expenses and you increase your revenue. But in terms of residential real estate when you’re talking one to four unit properties, that appreciation is based on comparable sales in the area over time. Even though they fluctuate they go up over time. And even if there wasn’t a reason for that growth in the area you’re still gonna have the push in price because of inflation, because you were dealing with sticks, bricks, concrete, copper, and over time the cost of the materials go up. So the replacement costs go up and that just naturally increases the the value of that property. And I know you want to interrupt me here so go ahead.

Buck: No no no. Inflation I mean that’s basically what you’re doing and that’s where the to me the comparison to gold is, right? Why buy a piece of gold if you can buy real estate if you don’t and get cash flow off of it and appreciation because you’re still hedging the economy ultimately it’s doing the same hedging inflation rather, why not just have something that’s producing income at the same time?

Marco: That’s well that’s at the crux of it. They’re really two major differences. Look. I stacked gold and silver okay, so I’m involved in many different asset classes. But here’s the key difference when you’re looking at precious metals: yes they’re an inflation hedge however there’s been two major key differentiators between gold silver and real estate. Number one is there’s no cash flow for metals as you know so yes you have an asset but you don’t have income. The number two thing is that the metals market in fact you can make an argument that virtually every commodities market is manipulated. It is manipulated by the markets and by the powers that be that are behind you know these large institution and industries, whereas with real estate it’s really hard to manipulate it because we’re talking about a market that has natural supply and demand forces and so if all the houses are selling for $150,000 around you, all things being equal you’ve got a hundred and fifty thousand dollar home, you cannot just go in and you know short the market and change the price overnight like you can with a lot of commodities and metals that we’re talking about.

Buck: Right. So let’s let’s talk about the current environment right now. You’re interested in getting into the single-family home market which is again not something that I have a lot of experience with. What does it look like out there in terms of let’s say prices, in terms of you know what’s going on with financing options etc., I mean is it is it a good environment still to buy single-family homes?

Marco:  Well this is going to sound like a biased answer, but it’s a great time to be investing whether you’re investing in single families fourplexes or apartments. What’s important is the market, the neighborhood, and the fundamentals or the numbers on the the deal that you’re looking at. So here’s the problem that we’ve been seeing. Inventory has been really tightens getting tighter. Why? We have a shortage of housing and we’ve had a shortage of housing for many years in this country. We need about 1 million to a million and a half with a million new household formations every year. The problem is we’re only producing about 750,000 units per year. So every year were in a deficit and that deficit is growing. So we’ve got a shortage of housing in terms of rentals and for new household formations or new homes for people to move into including the new homes for you know first-time homebuyers. So that’s a big problem. As an investor we’re finding it harder and harder to find distressed inventory to fix and put back into the market as you know what we’ll refer to as like new or turnkey rentals. So demand is increasing we’re getting more calls from investors for rentals, single-family duplexes, fourplexes but at the same time we’re finding inventories to be tighter and tighter. In an ideal world I don’t I would only want three markets to be in and four in terms of cash flow and three markets to be in in terms of capital growth or just stronger appreciation potential, that’s a total of six markets. Today as I talk to you we’re in 22 markets from Atlanta all the way through to…oh man I want to say Tampa Florida, I mean that’s kind of the spread and the reason we’ve had to go wide is because we don’t have the depth in terms of inventory. So that’s how we’re making up for that problem. So the challenge is one shortage of inventory, two is as you know on your well-aware book cap rates have been compressed right across the board from single-family to apartments, moreso in the apartment space than in the single-family home because you can be very nimble when you’re investing in single families duplexes and fourplexes, you can go to secondary markets, you can look for new secondary markets and you can also expand out into tertiary markets which are the kind of the smaller certainly more boring type markets, I say boring in quotes, but these markets give you the cap rates that you’re looking for, not necessarily always the growth, but we’re looking for both. We’re looking for markets that have that cash flow and have the growth potential for those that want it. So challenge number one supply. Challenge number two strong demand both from investors looking for rentals and from people looking for homes. From a financing perspective, credit is very accessible and available but interestingly enough, even with the mortgage rates having inched up this year and we expect it to inch up two more times into 2019, it’s still incredibly cheap financing. If you’re at five and a half percent for a 30-year fixed-rate loan for an investor, we’re talking investment loans, not you know for principal residence, that’s still still lower than the historical norm which has been I believe around seven percent. And when you run the numbers, guess what, if you’ve got the cash flow, you cover your operating expenses, you cover your debt service and you still have a good margin left over, there’s no reason why you shouldn’t be getting all this cheap financing the question is how much of it do you want. The answer to that question is as much as I can get. So those are some of the challenges we’re seeing but you know the face of real estate investing hasn’t changed today compared to what it was a year ago, compared to what it was in 2012 which was roughly speaking the bottom of the market in most local real estate markets. The difference has been the change in inventory, the change in price, and the change in the market that you would focus on as a real estate investo. Now I don’t know with you in terms of apartment complexes and syndications is if you’re seeing the same type of thing as we are in the single-family space, but that’s typically what we see you know on a day to day basis.

Buck: Yeah I mean you know I think with multifamily my approach very much right now is to look at what can you do when you have compressed cap rates? Well you basically can make a plan that you’re gonna be you’re gonna be okay whichever way markets turn. And to me one of the best ways of doing that right now is to be somewhat moderate in terms of leverage and then have a plan for a significant value add and I think you can still make it work because then what you’re doing is with the value add and that increasing the net operating income you’re effectively de leveraging on top of taking moderate leverage. I think that’s the way to play the market right now and be safe for the long run. But let me ask you in terms of specific markets, what are some of your favorite markets? I mean I know you have sort of your cash flow markets, you have your appreciation markets, give me it give me your top two or three markets and why you like them.

Marco: Well that’s a podcast episode in itself but…

Buck: Oh we like to be efficient here you know.

Marco:  I love efficiency okay, we’ll be concise. So in terms of the 22 ish markets that we’re in right now and we ebb and flow in these markets just because of what we talked about a minute ago in terms of inventory or their lack thereof. The markets we’re seeing the strongest price growth in right now are places like Boise Idaho, Atlanta Georgia, Indianapolis, Kansas City you know right in the heart of the Midwest, Jacksonville Florida, Salt Lake City, Dayton Ohio of all places. So these are very strong appreciating markets. They have a lot of momentum right now they’ve had momentum for over a year. We’ve seen five to 10 percent year-over-year appreciation rates as a whole I’m talking about the MSA the metropolitan area, not necessarily down to the local neighborhood level which is important to consider too, but those are the markets that we do a lot of business in and investors really like because they’ve got great numbers, great rental market, they have a good story, there are fundamentals there in terms of jobs and job growth we have net migration that’s driving these markets. Now when you look more at Dallas as well, although Dallas is cooling off, it’s still got you know a lot of drive in momentum in it, but there’s been an interesting change in Dallas from this year over last year. We’ve actually seen quite a bit of a pullback in that market in terms of price appreciation and inventory. Now those are the markets I would refer to as growth markets or hybrid markets. We love those markets as long as you can get the inventory and the cash flow. On the flip side on the other end of that equation is what we call linear or cash flow markets. Those markets are you know the tried and true Memphis of the world you know Huntsville, Cleveland, Jackson Mississippi, Chicago is a hybrid market. It’s kind of a mixed bag, you’ve got pockets in there that are really focused on cash flow and you got pockets in there that experienced great growth but then again it’s a very large metropolitan area and that’s your hometown so I’m sure you’re familiar with that. Birmingham Alabama is a great stable cash flow market, Oklahoma City, Montgomery, I mentioned Memphis what else is there, the Quad Cities area like the Davenport, Rock Island, Moline area that’s a good very stable market that gives you good cash flow. It’s a little bit pricier right now but we like that as well. So I threw a lot at you here Buck, you know like I said we’re talking 22 markets.

Buck: Everywhere is good.

Marco: But the key put it in perspective, I’m talking 22 markets out of 404 markets that we track, okay? There’s 404 metropolitan areas that we track on a quarterly basis to see what is going on. So like I said in an ideal world I’d only want six three in terms of growth three in terms of cash flow and that to me is less brain-damaged than trying to track 22 or 404.

Buck: Right. So one of the so one of the other questions I had for you and I don’t know if this is something that you’re seeing opportunities or in single families opportunity zones. Have you, you know what I’m talking about here with the the Trump tax of the capital gains basically rolling capital gains from other investment into real estate in areas that are, that they’re basically trying to gentrify, did you see much of that in a single-family? It’s tricky I think but I’m curious if you’ve seen much of that.

Marco: Yeah so on December 22nd of last year that new tax law that went into play the tax cuts and Jobs Act what they referred to as the TCGAA, that designated this opportunity, I say opportunity in quotes, of these opportunity zones which are really a state mandate to identify economically distressed communities within the state where investors can come in with new capital and improve or gentrify regentrify who those areas. So these are areas that may be eligible for preferred tax treatments. Let me let me rephrase that. You as an investor get preferred tax treatments if you invest into these areas. So I don’t know if you’re involved in any of the opportunity zones right now but these areas have been nominated, many of them have already been approved by the Secretary of the Treasury and so the only way to invest in these areas though is you need to invest in a fund, an opportunity fund that takes that capital and then puts it into those areas. So I have yet to see a project come out of these opportunity zones, I can guarantee you there’s gonna be a ton of them, I saw this happen about ten years ago with what they refer to as opportunity or Go Zones back then they referred to them as Gulf Opportunity Zones or G.O. GO Zones for short and there were tons of projects in the Gulf so I expect to see a lot of projects come out of this.

Buck: Yeah interesting stuff. So one of the things you know going back and is that very clearly different from 2004 when you first started Norada is that the whole space of turnkey providers has just exploded. I mean you probably were really one of the first guys who are really providing this kind of service, right? I mean now it’s everywhere and I’m curious kind of your take on, people are starting to evaluate different providers. Obviously we think you do a great job and and I personally think you know what you’re doing and I know I can trust you and all those things but when people look at a turnkey provider, what are some of the things that they ought to be looking at because not all of them are created equally.

Marco: Buck I’m not sure if that was intended as a as a lowball softball question…

Buck: I think it’s not really a softball question really I think it’s one of these things where I always say that when people read Robert Kiyosaki’s book when they read Cashflow Quadrant or they read Rich Dad Poor Dad, they get super excited, you know I’m gonna invest in real estate I’m gonna get some cash I’m gonna buy some houses but then the question is wait so now what do I do right? So I guess turnkey for particularly for individuals who are interested in single-family who maybe don’t have access, even a multi-family, it’s a great way to especially get into real estate for the fair initially but they don’t know, it’s all noise. I mean I don’t know how many just happened to end up on their email list and I’m getting blasted all the time and not.

Marco: Yeah it’s a good question and I didn’t intend to give you a hard time about it

Buck: It’s like we’re covering everybody on the show you know.

Marco: Yeah no it’s a good question, it’s a good question and I have a good answer for you. Let’s go back in time a little bit here and look back at 2003. At that time there was really only one, I started the business in January of 2004. I was literally the second company that I would label as a turnkey property provider especially on a national basis. There was only one other company out there which I’ll call a competitor in quotes. They’re still around today but they’re a shell of what they used to be and I love them and respect them and actually the two principals of the company are friends of mine and I love them to death. But there was only one other company in my backyard at the time so in it when I started this business I really wanted to push the term and phrase turnkey and even to this day some people still don’t understand what turnkey real estate investments are and turnkey real estate investing so it’s my job to educate people. And it’s my fault if enough people don’t know about it. But I did market the snot out of that term for years. What ended up happening is as the real estate market was hot and getting hotter in ‘04 and ‘05, a lot of people came out of the woodwork just as you mentioned a minute ago saying that there’s quote all these turnkey companies coming out of the woodwork. Now guess what, most of those people I say people, are real estate agents or local brokers that are trying to get into the space to address the need of real estate investors, they don’t have a complete solution, they have pieces but they don’t have the education and the service and the know-how on how to service clients properly. Second a lot of these people are local in scope so they have one tool in their toolbox and all they can talk to you about is the market that they live in or operate in, whereas you know being on a national basis we can we can be unbiased and we can talk about different markets and we can cater markets, neighborhoods, and properties to the needs of each individual investor. But here’s what happened in 2006 when the market started to cool off and then we ultimately had a crash, all these so-called competitors and I say 98% of them disappeared. I literally only had about one maybe two competitors at the time after the Great Recession, which was great because we were one of the only players out there. Now you fast forward again ten years down the road, you know 2018, we’re seeing the same thing happen. Are we gonna have a recession? Absolutely. When is it gonna happen? I don’t have crystal ball. If I had to guess I’d say in two years or less, we’re gonna see another recession. We’re gonna have another correction in the real estate markets because real estate markets are local so we’re going to have a whole bunch of interesting fluctuations and corrections. But we’re gonna see all that happen again. History repeats itself or at least it rhymes to what has happened in the past, so yes there’s going to be a lot of these people who don’t have a reputation or have a bad reputation that are going to implode they’re going to disappear, there’s only going to be a few players left, we’ll be one of those people we’re one of the largest companies out there doing some of the most most volume, if that’s proper grammar, in the country today. We have a great reputation and I do everything I can to preserve and protect it. So the key is have a good reputation, protect yourself, service your clients well stand behind them and watch their back, if things go sideways or go bad step in and help them, that’s what we do, fortunately not every day because most of the time things go well. But look at the end of the day the number one person is your customer, it’s your client, you have to help them and service them and protect them and watch their back. That’s who we care about the most, but the providers and property management companies and all those people that we work with have to come in second place, yes they’re important but they come in second place.

Buck: So there was, no I can’t go into details on this because I don’t want anybody to try to sue me, but there was a very high-profile person who is in the turnkeys, I was not unaware of any of this until it was brought to my attention by my mastermind group, my Wealth Formula Network group, that’s at Wealth Formula we have these bi-weekly calls and and one of the guys on there was talking about how he had bought some houses from this group, and again very high profile etc. and they ended up, it ended up looking like it was some kind of a Ponzi scheme because he was getting checks in the mail and then suddenly they stopped and then he actually went out there and flew out there to see these houses which he had never seen and the houses look like they’d never been renovated and certainly nobody was ever living there, yet he was getting checks. How, I mean you just talked about, of course reputation etc. Man so much of this world is you and I both know is marketing, right? And that’s kind of what I’m trying to get at here is like how do you avoid that, like how do you avoid that kind of situation where, and I don’t even know if this individual who owned this company knew what was going on, but I know it happened and I’ve got a few investors in my group who lost a lot of money.

Marco: I have a comment and a tip.

Buck: You know what I’m talking about, by the way.

Marco:  I know exactly who you’re talking about and we in our company here, we have I have six investment counselors, a transaction coordinator and two other assistants. We jokingly say that the individual you’re referring to and they’re his company is one of our best marketers because we get a lot of calls from investors that are talking to this company talking to that company and talking to the company that you’re referring to and they ultimately come to us or come back to us saying hey I spoke to them or so-and-so and I didn’t feel comfortable or I didn’t like the product they were selling or something was fishy or and looked online in the online forums and I read a bunch of bad stuff and they do a little more due diligence and they realized oh my gosh they’re in a class-action lawsuit or this is going on or that’s going on and just because of that, the story and the reputation or you know tainted reputation that’s out there, they end up coming to us so we jokingly say that they’re our best salesperson or marketers because they’re driving business to us.So I guess the comment I’m making is that you need to do your due diligence and ask questions which is part of the tip I’m trying to give people is this, put your thinking hat on, don’t be emotional, be logical, ask questions, do your research, there’s a lot of information online. You know I think I can say you know Bigger Pockets on your show because it is a well-known public forum. I have a love-hate relationship with Bigger Pockets because the great thing about it is you know you can have a hundred different opinions that’s great, but the thing I hate about it is you have a hundred different opinions and they’re nothing but opinions and sometimes people are chiming in not knowing what the heck they’re talking about. But the thing is is there’s always a small percentage of people who really do know what they’re talking about and they’re posting factual information with references and links to other sources of information so you can do your research and your own due diligence. So at the end of the day take your time, don’t rush into investing, source out the right people that you need on your team because team is critically important as Kiyosaki says you know real estate investing is a team sport and I firmly believe that so take your time do your due diligence you know vet the people you’re talking to so you know who to work with and just be careful because there are some slimy people out there. But here’s the other tip, now I actually have two tips now I think about it, the second tip is a lot of the product that I’ve seen and that I know that this person or company you’re referring to has been selling it to this day still sells, is what I semi-lovingly or jokingly say are “crack houses”. I say that in quotes because you know a lot of times when you look at 40, 50 even 60 thousand dollar homes in most markets in the United States they’re actually in very sketchy neighborhoods what I’ll often call CC, sometimes D class neighborhoods and I know you’re gonna have a lot of brain damage and headaches by investing in those areas, you’re dealing with a type of tenant a demographic of people that love them or hate them have a lot of transition and turnover and in trouble and they change jobs often and they don’t make a lot of money so you know even $500 a month in rent is often one third of their monthly income so you know you’re not dealing with the probably the best type of tenant class that you want to service as a customer being a real estate investor so look, I’m not, you know I’m just calling a spade a spade, it is what it is, but we have kind of a rule of thumb in our company that if it’s under seventy, seventy-five, maybe eighty thousand dollars, we’re not going to touch it. We have a few of them but we should generally don’t sell anything under seventy five eighty thousand dollars because I just know the type of neighborhood it’s in and I don’t want to be there.

Buck: Yeah absolutely well great. Marco you know this has been great. We’ve had you on a couple times that this was a unique discussion. I think we hit a lot of things that were I think we’re useful topics to to to consider. So Norada, is it NoradaRealestate.com? Norada.com, how do how do we get there?

Marco: I am trying to buy that domain Norada.com. I know the company owner. But no because they’ve had it for the longest time waiting for me. But NoradaRealEstate.com. I don’t think it means anything is just a very brandable name with a very strong psychological impact. It actually went through a psychological evaluation as part of 100 names and believe it or not Norada came out at the top of the list of 100 prospective names for a company.

Buck: No kidding.

Marco: So I borrowed it from them and so Norada Real Estate Investments is what it ultimately became.

Buck: Well when next time I want to try to you know sell something I’m just gonna keep saying Norada periodically.

Marco: Yeah but the domain name just to be clear NoradaRealEstate.com or PassiveRealEstateInvesting.com those two sites to link to each other.

Buck: Fantastic. Marco thanks again for being on Wealth Formula Podcast.

Marco: Thank you ever so much it’s always been fun.

Buck: We’ll be right back.