Lessons Learned Going From Local To Nationwide Investing

Guest on Passive Real Estate Investing Podcast

It’s my pleasure to welcome Stephanie. Welcome to the show. Stephanie is a busy mother with a full-time job and she happens to be a passionate real estate investor. She’s also one of our clients here at Norada Real Estate. Having invested in real estate for over a decade, Stephanie has grown into other ventures including real estate syndications. Through years of property management woes and landlording drama, she has learned the secret of passive real estate investing. Now she wants to shout out from the rooftops, which is great because that’s what I want to do too. She’s passionate about wanting people to learn about the opportunities that can change their life through real estate. Stephanie, welcome to the show.

Thank you. I’m glad to be here.

I’m glad to have you on here because I want to talk a little bit about your journey and the experience you’ve had, both with and without us, some of the choices you made, to help our audience by sharing some of the criteria that you either had or came up with through that journey. A lot of people don’t start off with investment criteria. They just go with the flow and then define it as they go. We try to help them with that but at some point, you need criteria. Let’s begin with you. You have an interesting story. Tell us about your real estate journey. Let’s start there.

I fell into real estate investing back in 2008. I wasn’t even in tune with what was happening in the market there at that time. I had met someone. I had always wanted to purchase a rental property. I just bought one. To your point, I had no criteria. I just did numbers to make sure that the expenses of the property, minus the rent that I would come out ahead is what I was going for. I purchased that property and the only rule I knew about real estate at the time was this false notion that you have to invest in your local area so that you can manage the property and see it and go hang out with your tenants. That’s what I was thinking. It’s a bad idea.

Local To Nationwide Investing: The rule that you have to have a property in your own backyard just isn’t true.

I’m going to walk you through a series of mistakes. I had no criteria. I just jumped in and did it. I also decided that I would be a great property manager and landlord. How hard can it be? I did not explore doing any property management, which I have a job, I have kids. It gets another job that you take on when you take on property management, but I didn’t take any of that into account. I had this property and I enjoyed the cashflow and the tax benefits. I took some money out and bought a couple more, then I managed those as well. That went on for about six or seven years and I had these rental properties and I managed them myself.

I did the turnover’s myself, I collected rent, I took the phone calls, all the things that you do.

All of the things that people who want to invest in real estate, the reasons they don’t do it because they’re like, “I don’t want to get a call about a toilet running,” and that kind of thing. I also purchased them in a not so great market here in Colorado. I would call them low C-minus markets and that made cashflow good, but it proved to be an issue with turnover and tenants. Tenant quality was pretty low.

Those six years were pretty rough. I love the benefits of real estate, but I was becoming very fatigued as a landlord. The market started going up and I started listening to more podcasts and learning more. I learned that this rule I had for myself that you have to have a property in your own backyard just wasn’t true, that you could go to better, more lucrative markets and do it that way.

I started researching, “What if I exchanged my Denver properties in other markets that are better cashflow market?” I came across your company and the idea of turnkey. I started analyzing, “How would I go about doing this?” I had some choices, so I could pick a market and find a realtor in that market, find a property manager in that market, find a lender in that market and do it that way, which seemed a little overwhelming and daunting to me. When I came across you guys, I realized you had the system in place and these relationships in place, where I didn’t have to build a team in other markets. Through the work you have done to already build these teams up, I could start investing in different markets rather quickly.

That’s the short story of how I got from being an investor in my own market to expanding doing turnkey by making that decision.

You said a lot in that few minutes there. You painted a great picture of the journey of where you started, the frustration you had with self-managing, the false belief of having to invest in your backyard because the “guru” said so. You gained some experience in doing that. You learned what management is like and the purchase process. It’s not that you were in a negative situation that way unless you had a negative cashflow but fortunately, you learned a lot from that journey. Do you still have those properties?

No, I’m in the process of 1031 and exchanging them into other markets.

That’s probably a smart strategy, especially if you’re equity-rich and cashflow-poor on your properties, which a lot of people are especially in the coastal markets and the expensive markets around the country. They gained a lot of equity over the years and now they’re under-utilizing it. They essentially have no return on that equity and they could re-deploy that into other better deals and grow their portfolio, which is a great strategy. You could have started anywhere. You could have started with wholesaling, rehabbing to flip, rehab to hold, more of the active approach as we call it. Did you start there? If you did, why did you choose to start with a buy and hold rental in your local market versus some of these other more active approaches to investing?

It was the only one I was most familiar with. I always thought that flipping with a handy guy that we’d do his own handy, his or her own handy-work and that’s what flipping was. I realize now it’s like a marketing business and I do flipping with my son, but I did not start there. It’s rental properties. Having that income and that cashflow is what I was seeking and a place to put my money to grow it.

You started off doing everything entirely on your own and then you chose to purchase what we define as turnkey rental properties. That happened only when you discovered the fact that turnkey real estate investing existed and turnkey rentals are a thing because up until then you didn’t even know about it.

Local To Nationwide Investing: No one can help you look for something if you’re not clear on what you’re looking for. I was reading books about investing out of your market and those books center around creating a team out of market. I was like I’m going to pick a market and then I’m going to go there and I’m going to develop all these relationships and do it that way. I became aware of this thing called turnkey and then learned that there are turnkey operators in the markets.

Then there are you guys that brokers, between a lot of turnkey operators. That also opened up a world to me that I don’t have to go out and go to a market. I could go to multiple markets and diversify my cashflow. That was exciting to learn that aspect.

The key point, the unspoken point there is that by doing so, whether you do it on your own or with an organization like ours is you become market agnostic. You don’t end up being married to one particular market, nor do you end up talking to anybody that is essentially biased towards their own local market and only can “sell” you stuff out of their own toolbox. When you step back and you realize there are over 400 markets in the United States, each one of these markets is local and do their own thing. It’s like looking at the stock market. Different companies are doing different things at different times. The question is, what are the best deals to be looking at? Not that I’m advocating investing in the stock market, but it’s just an analogy because it’s the same thing with real estate.

Different markets are doing different things and even the sub-markets in neighborhoods within markets are doing different things. To be able to detach yourself from a local market and be market agnostic is a huge advantage as a real estate investor. Now you can choose those so-called best markets and maximize your returns and put your capital to the best use possible, which I know you’ve discovered over time because you started locally and then you expanded. That’s good.

Another thing I love about not just a local market but for example, in Memphis, I work with two turnkey providers that you facilitated. Instead of just me picking a turnkey in Memphis and working with them, I’m limited to their inventory and to their opportunities. Where through you, I have access to multiple turnkeys even in the same market. That’s also very helpful.

That’s also a form of being agnostic. It’s not just the markets, it’s being agnostic to all the service providers that we work with. Not to sound like I’m pitching and plugging our company, but whether you work with us or do it on your own, you should be agnostic yourself and have multiple lenders, multiple title copies, multiple property managers. Even if you’re not working with them at the same time, at least you have a plan B or a backup for anybody you do need to work with. That’s a good thing. Now we’re talking about markets and markets are important. Investors often don’t know where to start. How did you pick the markets you invested in?

Being in Colorado, I would consider this appreciation market as opposed to a cashflow market. I wanted to move my equity from all the appreciation it has collected over the years to cashflow because I want to create a passive income so that I can live off the passive income. Where prior to that, my strategy was appreciation and grow it as much as possible.

My strategy has changed now to cashflow. I’m looking in markets that are cashflow markets, in markets that have high job growth and high population growth markets that have diverse employment. A lot of employers are in that market so that if one does one industry or one employer has an issue, it doesn’t slam the whole market. Those are my criteria. Also, there are some markets that I call the hybrid market, so they cashflow and they appreciate. I’m trying to diversify. I would consider Memphis a pretty high cashflow and Kansas City, maybe a little hybrid. I’m trying to diversify based on the market criteria as well.

I was going to ask you about that and you started answering the question about what your criteria were for choosing your properties and also how did you pick the properties that you purchased? You started to lay down a foundation and it had to do with the market jobs in that market. Did you have criteria for the property itself?

The three-bedroom, two-bath, single home property was where I started from and certain price ranges depending on the market because they obviously vary by market. Per market, I picked a price range that I was looking for in that market. That’s where your team is super helpful because these properties are in high demand, it’s helpful to communicate your very specific criteria to the partner on your team so that they can have their eye open for it. Jennifer was able to then tell me about properties before they even made public consumption. Being specific about what you’re looking for is crucial to this process because no one can help you look for something if you’re not super clear on what you’re looking for.

Local To Nationwide Investing: Keep learning, expanding, and growing your portfolio in whatever way you can.

It’s my sixth rule of successful real estate investing is it’s to have a top-down approach. You start with the market because every market is a little different. It has different drivers and different fundamentals and some are more based on cashflow and some of them are based on greater growth potential. You start there and then you work to the sub-markets and you worked to the neighborhoods. There is a lot of free information out there.

You could do your own due diligence, but if you’re working with a team of people that are experts in that local market because they live and work there, then it fast tracks and accelerates the ability for you to decide the market, the neighborhood and the types of properties that you’re going to be working with. You did the right thing. Maybe you didn’t start that way, but you learned that quickly and you became more of a master investor to be able to make that process part of your own due diligence process. That’s the right thing.

The mistakes helped me because when you’re deciding actual down to the neighborhoods and you’re deciding, “Do I want A, B, C neighborhoods? I didn’t want C-minus difficult neighborhoods.” I learned that lesson and I know the turnovers are a lot, which are costly. I learned all of the lessons from that. That made it easy to say, “Yes, I’m going to target B neighborhoods, working class. That’s what I want to do.” Those mistakes helped me mature along the way.

What a lot of investors don’t realize is that one of the costly factors of owning investment real estate and this is where you lose your cashflow for the year or for a period of time, is on that turnover. The fewer turnovers you have, the more you’re going to pocket, the more cash you’re going to keep in pocket. Also, it’s not just the loss of revenue that might be two weeks to a month to two months, depending on where you are, but it’s the cost of the turnover to clean and maybe do some repairs and replacement of certain items. They’re costly and it can eat up the cashflow of your entire year. If you could have a tenant stay for two, three, even five years or more, that’s ideal.

If you’re in an area where you have a tenant turnover every year, you can almost assume that you’re going to have zero cashflow for that year. You might have equity growth, which is great but if you’re in a sketchy area, and this is why we shy away from your C, C-minus, D-plus neighborhoods is if you have more than one turnover year, which is possible, and you have lengthy vacancies, you’re going to be negative cashflow. That might be okay if it’s temporary and short term because you can make it up in years to come, but it’s not fun to be upside down and having to feed your property money every month out of your pocket just to keep things floating.

I also learned the high value of the property manager. I meet a lot of real estate investors that were like me and they’re like, “I’m going to only manage my own properties.” It isn’t that hard 90% of the time, but the big costly mistakes that you’ll make, the other 10%, I’m not an expert. This isn’t my job. Property management isn’t my passion. If I did the math, I would have saved a lot of money not doing my own property management. When you go of state, you’re pretty much forced to hire a property manager. That’s where I learned that I love having property managers. Even if I purchased in my local market, I would never manage it myself again.

That’s a great revelation. Some people don’t learn that early enough and they think that they should be managing their portfolio. I know people that do it successfully from afar, like from 3,000 miles away. It’s not that it’s not doable. It is doable, but most people don’t know how and a lot of people don’t want to. They probably shouldn’t because they should be focused on continuing to build their portfolio, finding the next deal, spending time with their family, their friends, pursuing their career and go to Johnny’s soccer game on the weekend. Investors break down into two categories. There are your newbies or your new investors, then your seasoned. For those that are just getting started, this is a client tip. For those with small portfolios who are just getting started, what advice would you give to those newer investors looking to start a growth?

How I approached growth is through partnerships, meeting and leveraging other people’s learning. I just described six years of my life that I’d never get back. If I had sought out people that had already done what I wanted to do and got advice from them and learn from them, then I could have fast-tracked those hard times, which costs money and time that you don’t get back. People that are interested in investing and that haven’t done a lot of real estates investing need to seek out education. Your podcast is fantastic. There are a lot of free resources out there where you can start learning and get up to speed and start meeting people that can teach you more and help you go through that process faster and less painfully.

Tied in with that and something that I probably should have asked you a little bit earlier. Did you have an issue with long distance or out-of-state investing at the time when you first discovered it? Was it one of those things that you thought I don’t know if I could do that or that’s a giant leap or did you say, “Why didn’t I think of this sooner?”

Local To Nationwide Investing: Buying houses sometimes is scary and seems risky.

I told you I had that belief that I learned back when I started this that one of the must-do of being a real estate investor is to be in your own market. I never questioned that weirdly, but when I started learning about investing, I immediately was like, “Why wouldn’t I do that?” I’m not a control person, so I don’t need to drive by my properties. I would rather not drive by them. The idea of them not being close itself was fine to me. It was more that I had this belief and I didn’t know it was a thing, but once I started hearing about it, that’s when I was like, “Definitely, that’s the next step to scale.”

I thought about asking that now because we’re talking about new investors or people just getting started. That is a common objection or hurdle that people tell themselves is that, “I can’t do it. I need to see it or be able to drive by it.” How do you invest out-of-state or long distance? It’s done every day by hundreds, if not thousands of people. It’s a commonplace. It’s just you’re not taught it or it’s not talked about that much.

I hear all the time with fellow investors and I tried to convince them because I feel that strongly about it. You shouldn’t be managing your own stuff because you don’t do it that well and you have other important, more important stuff to do. Why are you insisting on buying things in Colorado that you’re not cashflowing? People have a block to that. For all of those reasons, they can’t fathom going out of state. I have been doing it and I found none of those things to be true.

For those more seasoned investors to continue growing, because let’s face it, some people already have five or ten or even twenty or more properties. What would you say to those guys?

I say keep learning, keep expanding, keep growing your portfolio in whatever way you can. I started my turnkey journey just buying some properties and then decided I’m going to take my Colorado properties, re-shift that capital to even do more properties. One of my properties is buying three duplexes in Fort Worth. That one door is now six doors. That’s the kind of thing seasoned people can start to think about is how are you going to grow what you currently have because that’s a great way to do it.

That can be a slightly more advanced strategy because people don’t start there, but once you start investing and you have a portfolio. Now you have equity to work with, plus maybe some cash on the side, now we can start having those conversations of how do we accelerate what you’re doing and magnify it. That’s when you start to see the snowball effect. All of a sudden, you go from one to three, to five, to ten, to twenty properties and it can happen in a matter of a few short years.

It helps alleviate the pain with turnovers. If you have three properties and one turns over, you feel pain with that. There’s a cost associated with that. If you have ten doors and one turn over, it’s less painful, which is one reason why I like apartments because you’ve got a lot and those turnovers aren’t hurting you as much.

You keep referring it in terms of the number of doors, which is a great way to look at it. Regardless of the mix of your portfolio, whether it’s made up of single-families, duplexes, fourplexes or even apartments, when you look at it from a total unit count and in terms of doors, it smooths out those vacancies or turnovers. One turnover on one property, regardless of whether it’s an apartment complex or a single family home. I hear this all the time from investors where they say with a fourplex, “If I have a vacancy, it’s only 25% vacant.” You’re looking at it from a property perspective, not a total portfolio count. If you have 100 units, whether it’s one apartment of 100 or 50 duplexes or 50 or 100 single-family homes, one vacancy is one vacancy. It’s 1% of your total portfolio.

It’s smart to look at it in those terms. One other comment I want to quickly make is that as your portfolio grows, and you alluded to this, it becomes easier to manage those cashflow swings because they disappear into the background. When you know and expect turnover and vacancy, you’ve budgeted for it, you’ve got reserves on hand and you’ve got a larger portfolio, which comes in time, but you’ve got the ability to weather through ups and downs, whether it’s your portfolio, the local economy or the general economy. You can weather through any hurricane or storm if you build your portfolio right. Would you agree with that?

I agree, yes.

It is said that experience is the greatest teacher and a lot of wisdom is gained by experiencing many different things, compared to just acquiring knowledge through schooling and books and even podcasts. If you look back, what would you have done differently when you got started in those first couple of years?

I would have definitely done more learning and education. I just shot at the hip. I intuitively thought that’s a great idea and did it where. Thankfully, my numbers worked out, but buying a property correctly is important. Making sure not just what I did with the rent covers the expenses, taking into account cap-ex and maintenance and all of that into your numbers up front is super important, because if you have one property and the broiler goes out, you’re very bumped. I would have learned more before jumping in. I didn’t do that. Thankfully, I learned as I went along.

I know what you’re going to say. Are you happy with your accomplishments to date?

Yes, definitely.

That’s good, you’re on the progress path to financial freedom. You saw the light.

I was sitting on those properties just landlording for so long. I’ve learned about so many opportunities that I didn’t know about, one of them being turnkey but others also. I’m passionate about real estate and the fact that passive income can give you freedom and your whole life can change. I wish I knew that earlier, but I’m glad I know it now.

How was your experience working with our team? It’s a self-serving question, but it’s good for people to hear from an actual investor and client and person that we’ve worked with to share their experience.

My experience with your team has been phenomenal from the very beginning. I’m still engaged with your team. I close on a duplex in Fort Worth. I’ve been on a journey with your team maybe almost a full year from when I started. The engagement is great. The education and quality that your team provides is great, not just your direct team, as far as who advises you, but also all of the operators that you have engaged with. I’m in three of your markets and everyone has been fabulous and my experiences are different and great. Also, the fact that one of the great benefits of not going directly to an operator is if I were to have an issue, I feel comfortable that I could come to you and you would help me resolve it. That’s important and helpful. My experience has been top notch with working with you all.

I appreciate that and I’m glad that was all unsolicited. Share one piece of wisdom or advice you’d like to give everyone if you have one.

My one piece of advice would be to keep track of your mindset. If you are wanting to get into investing, even if you’re a seasoned investor, keep track of the things you’re telling yourself and your mind, because it can be scary. Buying houses to people sometimes is scary and seems risky. That’s why I find some people are staying in the stock market overinvesting in real estate because they’re scared of real estate when I think they should be scared of the stock market. The way to keep track of your mindset is to be aware and then learn something about it, because that something scary, someone else has done. Learn something so that you can change your mind about it. That’s what I see when I talk to investors is they’re scared of real estate and their mind needs to shift so that they’re open to other possibilities, because I don’t want people to miss out on this opportunity.

People need to understand that they’re not the first, second, third, tenth or hundredth person going down this road. There have been tens of thousands of people, so you’re not the first. Follow other people’s successes and copy or mirror it as Tony Robbins would say, “Mirror other people’s successes so that you can achieve the same results.” That’s very well said. Stephanie, I want to thank you for your time. This has been great. I appreciate you taking the time coming on. Tell our audience how they can either contact you or find you. Where are you located online? Whatever you want to share.

I have a website, NewHeightsInvestmentGroup.com. I am a multi-family syndicator and you can find out more about me and more about that on my website. I also have a new podcast called Frenzied to Financial Freedom, which is targeted to women who are seeking financial freedom, either through creating businesses, side hustles or through real estate.

Stephanie, thank you for taking the time to come on. This has been great. I’m so stoked that you’re having great success and your experience has been good. Thanks once again and we’ll continue working with you.

Thank you. Have a great day.