Building Passive Income Through Turn Key Rentals with Marco Santarelli

Building Passive Income Through Turn Key Rentals with Marco Santarelli

Marco Santarelli is an investor, author and the founder of Norada Real Estate Investments a nationwide provider of turnkey investment property. Since 2004, they’ve helped thousands of people create wealth and passive income with real estate. He’s also the host of the Top-rated Passive Real Estate Investing podcast.

What you’ll learn about in this episode

  • Norada Real Estate Investments and how they can help you
  • Foundational knowledge needed in real estate investing
  • Taking ownership to your retirement plan
  • How to make sure your investment is recession-proof
  • Investing with the right partner/people
  • Passive vs. active real estate investing
  • Starting capital needed when investing in real estate
  • Is there room for creative financing with turnkey real estate investment?
  • Can you investment from retirement accounts?
  • Investing with Norada Real Estate Investments
  • Finding and knowing your market
  • Advice on protecting downside risks
  • 3 Critical skills of a Turnkey investor
  • And more!

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Transcript
Brittany Henderson:

I'm Neil and I'm Brittany.

Neil Henderson:

We are a family on a journey towards financial and location independence. Each week, we interview successful real estate entrepreneurs about their chosen investment strategy, and rate it based on how much money it took to get started, how long it took to educate themselves, how passive it is, and whether or not they could do it from anywhere in the world.

Brittany Henderson:

Welcome to the road to family freedom. If you like our show, the easiest way for you to give back is to leave us a rating and review on iTunes, head on over to road family freedom comm slash review for links and instructions on how to do that we would be so grateful. All right, and that thought of us Let's hit the road to family freedom.

Unknown Speaker:

Greetings, friends and families. I'm

Unknown Speaker:

Neil. And I'm Brittany,

Neil Henderson:

you're listening to the road to family freedom. Joining us today is Mr. Marco Santorelli. Margot, how are you today?

Marco Santarelli:

I'm doing great guys. How are you?

Neil Henderson:

We're doing fantastic. It's so good to have you.

Marco Santarelli:

Thank you.

Neil Henderson:

So Marco center really is an investor author and the founder of nerado Real Estate Investments, a nationwide provider of turnkey investment property since 2004, they've helped 1000s of people create wealth and passive income with real estate. He's also the host of the top rated passive real estate investing podcast. With all that said, Marco, you want to give our friends and families a little bit more about your background and what you're focused on now.

Marco Santarelli:

Sure, thanks for the great intro, guys. So what I'm focused on personally, is just continuing to create, you know, my family's wealth, you know, what we might refer to as legacy wealth. But from a business perspective, I am teaching people all the time through our podcast and resources and books and articles, how to create financial freedom, you guys, you know, refer to family freedom. And that's, I love that phrase. It's fantastic. But you know, what do we all want? We want time freedom, how do you get time freedom, you you build your your financial independence through financial freedom. And there are many ways to do that. And I'm, you know, maybe sounding a little biased, but obviously, real estate for me is is a proven, historically proven wealth creation vehicle. And so I love to teach people freely, you know how to do that. And it looks like you guys are doing the same thing, which is, which is great. But that's, that's, you know, the drive on the business side of things. So does that answer your question? Or do you want me to go deeper than that?

Neil Henderson:

No, that's good. But, uh, so talk to us just a little bit about Narada. And what you guys what you

Marco Santarelli:

do? Sure. So from a business perspective, our company essentially is here to help people build their real estate portfolio, so they can create financial freedom and passive income. Because when you have, when you create wealth, and you build passive income for yourself, what you have is essentially financial freedom, if you get enough of it, to cover all your expenses, and then some to sustain the lifestyle that you want now and in the future, then you've created financial freedom for yourself. And so for us, we're really just helping people, in almost a done for you model, create real estate portfolios and markets all around the country with completely turnkey rental properties that are professionally managed cash flow from day one tenants in place. We have the entire team of everything in anything someone would need, from financing to the properties themselves to the property management, etc, etc. So that, in a very quick nutshell, is the value and the service that we provide at no cost to investors.

Brittany Henderson:

Awesome. Awesome. Well, um, so someone, if you've got a lot of services, they're someone that is looking to invest in a property with you or properties with you. What knowledge do they need to have coming into this?

Marco Santarelli:

Yeah, good question. So it's not that they need to be an expert in any way, shape, or form. We know that, that with knowledge on is going to come in at different levels, some people will be a complete green newbie, they just know they have the the desire to invest in real estate, because they know that's the direction they need to go. And they'll require a lot more hand holding and an education will recommend various books and podcasts and whatnot to them, in order for them to get to the next level. But the thing is, is it doesn't matter where you are on that learning curve. You can invest real estate if you have the foundation in place, and we'll make sure that people have that foundation. Surprisingly, most people who come to us already have spent enough time thinking about it and educating themselves to the point where they know, Okay, I understand what I need to do. I just need someone to hold my hand and helped me do it. And that's a matter of market selection, neighborhood selection, assembling a team picking a property, getting financing, going through escrow, closing having management comments into place, you can do that yourself piece by piece, you know, step by step, or you can have someone basically give it all to you. And that's essentially what we've done. We you know, we have all these providers vetted and in place for every single market and every single property. So this is what I mean that we have an almost done for you model is that most of its there, you just have to Obviously take ownership and go through the steps and walk with us through that process.

Neil Henderson:

So when you talk about the foundation, what are what are sort of the foundation? What's the foundational knowledge that you would want somebody to come to the table with?

Marco Santarelli:

Well, an understanding of what real estate is, as an asset class, you don't need to be an economist, but just understand that, you know, real estate is is a hard asset, it's stable, it's rooted, it is managed, it is controllable, it generates income, it is a truly an asset, you can get good debt and put it against it. So you can finance the bulk of that purchase. Really, if people understand cash flow, and the fact that you can put money in your pocket every month, and every year, because you own investment, real estate. That's, that is a lot right there. You know, it doesn't sound like much, but it's really a lot because most people don't really think outside the box of working nine to five and putting money away in a 401k or cell or an IRA. And they think that retirement is all about these, what I refer to as alternative investments, whereas financial planners refer to those as you know, mainstream investments in real estate being the alternative asset class. And that's not really the case. So when you're in this world, tied to paper assets, which are stocks, bonds, mutual funds, in other words, the equities market, you're at the whim of the market, you have no control over it, you you don't have a crystal ball that will give you a forecast beyond, let's say, a month from now, let alone a year. And so unfortunately, you know, not most people who, quote unquote, invest in the stock market or in their retirement account, whether it's their own or through their employer, probably won't have enough when they get to retirement to sustain their existing lifestyle. And that's just a sad reality. But the fact is, is right now is the last statistic I read was that less than 5.5% of people in the US actually saved money, put money away in savings. And that's, that's scary. And then Social Security may not even, you know, be here down the road. A good friend of mine, you might have heard of him. Robert Kiyosaki? Well, he refers to social security as so. So security, because you're not going to get much and it may not even be there by the time you retire. So you need to take ownership and plan for your own retirement and your own financial freedom. And you shouldn't even think about it as retirement, you could be planning for, you know, the time when you turn 55 6065. But the reality is, is you should be planning on how you want to be able to live your life for you and your family in five years, 10 years, 15 years, 20 years from now, that may not be when you're 65. But if you plan now to have a lifestyle, or build a lifestyle that you enjoy and takes care of your retirement, then you're really doing far more than 90% of the population.

Neil Henderson:

So I want to unpack a couple of things. That was fantastic. You know, we often talk here about, to me, there's sort of two schools of thought when it comes to saving for retirement, there's the sort of the income approach or cash flow approach. And there's just the nest egg approach, where you know, you're trying to, you know, build enough of a nest egg and equities that, you know, at some point, when you turn the spigot on, you're going to live on 4% of the portfolio for hopefully the rest of your life. And then there's the income or the cash flow approach, which is you buy assets that are cash flowing. And then once you've reached a point where you have the cash flow that enables you to live the lifestyle that you want, then you're retired, you're financially free,

Marco Santarelli:

Well, okay, so let's just let's just look at those two schools of thought. If you, if I don't know where this 4% comes from, like, you know, this is just a number of financial advisors pick out of the air, it seems. So if you think that 4% interest which is earn, which is still earned income, okay, you know, because you're going to be fully taxed on it. If you if you think you can survive on 4% and let's just say you need $100,000 a year gross to live off of pre This is pre tax, you need a nest egg of $2.5 million, because 4% of that interest will give you 100,000 per year pre tax. So that means you're going to be living off of anywhere from 40 to 60,000 depending on what state you live in. If that's enough to maintain your current lifestyle assuming that you've paid off whatever debts need to have paid off by then then great you know that that may work for you but you know, there's no guarantee that you're going to be getting 4% every year consistently it could be more could be less question is is where you're going to get it and how are you going to get it with income real estate, you know, you can plan far in advance and you know what you're going to have in terms of equity down the road and in terms of cash flow down the road. You know, I always like to use the $100,000 property as the example it you know, a generates $250 a month true net net net from day one if you fully leverage it today. down the road, that $100,000 property might be worth two 300,000. Because it's going to keep up with inflation, but the cash flow from it will also go up because of inflation. So, and then you you amortize the loan. So now you have more cash flow every month, because you're not going to have a loan at some point in time, assuming that's your strategy. point I'm trying to make is that 250 a month becomes 1000 a month becomes 2000 a month in time, well, what if you had 10 houses paying you $2,000 a month, that's pretty good. That's 20,000 a month in in gross income. Well, you know, if you can do that, it's very, very doable for most people, you know, you acquire one house a year. And people can save up enough a household can save up enough to to acquire one house per year, well, in 10 years ago, 10 houses, if you amortize those loans over the next 10 to 20 years, you're going to be sitting on 10 to 20,000 a month and passive income that's far more controllable and predictable than you know, trying to get 4% on, hopefully a $2.5 million savings in your nest egg by the time you retire to get 100,000 a year in gross income. I know those are a lot of numbers. But this is you're comparing paper assets in an area where you can't control versus controllable predictable income in a hard asset that take keeps pace with inflation.

Brittany Henderson:

How predictable is is this kind of asset when you I mean, obviously, we hopefully will not go through 2008 again, but if we go through an economic downturn, what does that look like for someone who has a lot of their investments in like a cash flow property?

Marco Santarelli:

This is this is one of the many, many things that we obviously are going to help investors with when we talk to them, and they have their strategy sessions with our investment counselors. But the answer is actually pretty simple. If you think about it, the people who suffered back in the Great Recession, when we had that downturn didn't actually invest properly. In fact, they didn't even invest. They say they weren't investing in quotes, because what they were doing is speculating not investing. They were buying properties and often building new new properties. in Henderson is a great example that in Vegas, where you guys live, people were buying these properties, new construction, in the hopes of flipping them in six to 12 months. And so they were just creating a chunk of cash capital gains at the at the end of it, well, there's no cash flow there. So if the market is appreciating, and you're, you know, you're going you're selling at the time when the market is still hot, and there's a lot of people buying great, you're gonna make off flipping these properties with chunks of cash. But But if the market flattens or turns on you as it did for many people in Nevada, as it did in Phoenix, as it did in Central California, as it did in Southwest Florida, we had 1000s, if not 10s of 1000s of people caught with their shorts down because they bought this property that can't cash flow positively, so it doesn't carry itself. And they're upside down, the property's worth less than the debt or the mortgage that they put on it. So speculating is a loser's game, especially if you don't know how to time the market. And very few people know how to do that. Well. But when you buy in the right neighborhoods, the right markets and the right neighborhoods, and your property, cash flows from day one. And the rates of return are comfortable enough that the real estate fluctuations in that market and in the economy don't affect you or impact you, then you're going to survive every real estate cycle, you'll survive every economic cycle. And that's really the answer to your question is you buy right and you buy with cash flow in mind, that way you can weather through the storms of anything that comes along a three year recession is not going to impact you because people need a place to live. And if you buy in the right neighborhoods, the right areas, you're always going to have tenants and occupancy in your properties. Yeah,

Neil Henderson:

gotcha. Well, you've said it better than I could. You know, the what I often say is that cash flow is really I mean cash flow, you can live on the cash flow, but cash flow is also what keeps the lights on, it allows you it's what allows you to time the market, because you never want to be in a position of being forced to sell. Because real estate will always go up, almost always given given enough time. You know, and somebody people off they often talk about, you know, in 20 years, what's Apple computers stock is going to be worth versus what is your home going to be worth which one is going to be worth more, I would say there's more, more likelihood that your home is going to be more in value than Apple computers. And that's Apple's a great investment. Nothing, not no knock against apple.

Brittany Henderson:

Right? So when people are purchasing from you, they you're really providing a lot of the knowledge. Are there any sort of challenges that people need to overcome or might come up against? Or are you guys really kind of trying to buffer people from some of those typical challenges if someone was going about buying a single family home, just on their own? Well, we

Marco Santarelli:

want to make sure that you as a client or you as an investor, and whether you're working with us or not, don't step on the landmines that many newbie investors do Real Estate is not that complicated. There are a lot of moving parts and you're dealing with a lot of different people because it's it is a people business, it's not so much about the property, the property is just a part of it. But if you are able to have a clear purchase process, a methodology, a framework, if you will, that you know what to do step by step along the way, and what to look for. And we've literally, you know, I've created a two page checklist, literally, we call it the purchase process checklist. So we give it to our clients sometimes, you know, so they can just follow along, a lot of them understand the process already. But if they're really that green, they could, they could see exactly where we are step by step along the way. And it's very, it's it's very common sense ish, if you will, organized. The thing is, is that there are certain things you want to look for and certain things you want to avoid, like you don't want to buy in war zones, or D class neighborhoods. That's not just an opinion, I just seen time and time again, where people invest in areas where they shouldn't be or they're not comfortable with. And that's just a mistake, because they're going to have problematic tenants, higher turnovers, more costly turnovers. And, and we obviously want you to avoid those mistakes. So we're just going to, I hate to keep talking about us and what we do, but really, it's it's a, it's a proven system that works time and time and time again, with with hundreds, if not 1000s of investors that we've worked with. So avoid the landmines have a clear path on exactly how to invest what to look for and how to be successful, we, you know, we have a framework for that, this is what you should avoid, this is what you should look for. And then it really just comes down to what your personal investment strategy is, because everybody's going to have a, well, we would hope most people have their goals laid out, we'll help you build that. But you're starting at a certain point you want to get to a certain point, the question is, how do we break that down into a roadmap. So when you create a roadmap, you can break that down into smaller and smaller goals, and those ultimately become tasks. And those are the targets you achieve. And what we pull out of that, which is what we're pulling out of your head is, is your investment criteria for one person, like, you know, client a, they might be growth focused, focused, and they'll want to be in markets that still cash flow, but have stronger growth, potential meaning appreciation potential. For others there, they just want boring markets, they want to be in cash flow markets, where it's just predictable cash flow, they're not going to expect a lot of appreciation, it'll just keep up with inflation over time. And that's about it. And some people like the higher class, you know, better neighborhood type properties in the minus communities where other people are fine in the bread and butter, blue collar working class communities that what we'll call it B or B minus. So these are the types of things that will kind of pull out of your head and define and help drive your your decisions as you build your portfolio. That's a long answer to your short question. But

Brittany Henderson:

that's fine. And I want to make sure that you know that that we're asking you these questions to know what you guys do and to help because we want our listeners to really understand that if this is the type of investing they want to do, what what they're really getting into with working with a turnkey, operator, rather than trying to do this on their own. Because it's a different it's a very, even though it's the same asset class, the process is different. So we've talked to some single family home investors that just do it on their own. And, and that's a whole different ballgame than obviously what you guys are doing. So that's kind of what I'm trying to, you know, what we're trying to draw out of you is like, how does this how is this different from, you know, someone else who's doing it on their own? And what what are the benefits or the hurdles that someone might need to get over?

Marco Santarelli:

You want to turn that into a question? We can?

Brittany Henderson:

No, no, no, I just wanted to make sure that you weren't because you said you know, it's all about you, you were saying, you know, you're going back on on what you guys are doing. And that's really what we want from you. So don't feel like

Marco Santarelli:

no, it's a good No, it's a good point. And actually, it's a good question because people do need to ask themselves Am I am I am I am I busy? I mean, you've you've mentioned that somewhere along the line, you made a comment about people who you know, have families and careers and they're busy with doing their thing and they want to spend time with their kids on the weekend and all that good stuff. Well, that's, that's an investor that should be investing in real estate because they have a family in the future. But at the same time, they need to be a passive investor, meaning that they're there. They're not just handing their money over to a financial advisor, but they want someone to help them. Build that real estate portfolio, help them make the right decisions, provide them the team of people that they need the resources that they're going to need the information and knowledge that they're going to need. That's what we refer to as a passive real estate investor. That's the reason I called my my podcast, passive real estate investing. On the flip side, on the other end of that spectrum is what you would might you might call a an active real estate investor, an active real estate investor, someone who likes to roll up their sleeves and get get in and get dirty and do the management and sometimes even do the work. And so that person is out looking for deals, they may be distressed sellers, distressed owners, but some sort of property where they can pick it up, maybe at it hopefully at a discount, add value, and then maybe flip it, but ideally keep it with a tenant in place to generate income. But that's when they're putting up more capital taking on more risk managing a team of people doing some of the work themselves, overseeing the entire thing, taking on full responsibility from the point where they find their and acquire that distressed asset to the point where it is fully stabilized and generating income. So there's a lot more risk and moving pieces for someone who wants to do it actively. They need to make a choice, do I want to be an active real estate investor and be deeply involved and you know, have some brain damage along the way, or the passive real estate investor. And we're going to help people who want to be passive real estate investors, doctors, dentists, other types of professionals, anybody who's quote, unquote, busy, is an ideal candidate for us. We have a framework and a system that we've been using for over 15 years that works every single time. And so that's who we help, we can't help the active real estate investor because we don't have distressed assets to provide them. Yeah,

Unknown Speaker:

gotcha. Makes sense.

Brittany Henderson:

All right. So what do what does the financials look like for someone who is coming to you to invest in these properties? How are they financing these purchases?

Marco Santarelli:

So the short and simple answer to that is, they have the benefit of get being able to get conventional financing between Fannie Mae and Freddie Mac, we have this government subsidized these quasi government agencies where you can get financing that's around five to five and a half percent on a 30 year fixed rate mortgage, that is incredible, when they know that's incredible financing historically and worldwide. So you as an investor just need to come up with 20%, sometimes 25%, depending on how many mortgages you have, on your credit. So the beautiful thing about that is you can put as little as 20%, down on what's the say $100,000 property, maybe $120,000 property, depending on the market in the country, that gives you a very nice three bedroom, two bath home, the the lender will give you the other 80%. So you have 100% of a property, you get 100% of the benefits, you own 100% of it, you have 100% control, but you've only put 20% down to acquire that asset and borrowed the other 80% in the form of good debt mortgage financing, and now your tenants going to pay off that financing over the course of years. At the same time, while you're getting all the tax benefits and cash flow from the property every month and every year. So that is the way you finance it. That's what the numbers look like on the on the financing side of it.

Neil Henderson:

So we're typically, you know, if an average home is $100,000, you're coming anywhere coming in with anywhere from 20 to $25,000. Down, correct.

Marco Santarelli:

Yeah, we like to say, if it's $100,000 property, you're gonna have a $20,000 downpayment, about 2000, in closing costs and title fees and other kinds of miscellaneous costs. And then in the beginning, we like to recommend or suggest that you have two or three months of gross rent put aside as as a reserve like operating capital. So that means to another two or $3,000. So $25,000 is more than enough to get you going on that first $100,000 property. Now, if you're, you know, a high income, high income earner, and you've banked several $100,000. And we talked to clients who literally have millions of dollars, you know, parked away, and they put this much in real estate in this much in, you know, various other types of assets, you can fast track what I'm talking about, if instead of getting one property or maybe two properties per year, why not get five or 10. This year, if you have that ability, well, now all of a sudden, you've created, you know, immediate cash flow times five or 10 properties, and your equity grows faster over over the time, because every year you're gonna have on average, let's say four to 7% more in terms of equity growth, just on the appreciation side. And we don't bank on appreciation that's icing on the cake, you know, we're not going to talk about appreciation, it's there, it'll happen, but it's not the reason to buy. It's cash flow. But then you have the amortization on loan, which you know, your five or 10 tenants are paying down. So that grows your equity plus you have the depreciation, which is a beautiful tax benefit. You don't have to spend a single penny to get that depreciation. So on paper, it looks like you didn't make any money. But in actuality, you have money going in your pocket, because there's true cash flow flowing down into your bank account or into your pocket every year even though you're not being taxed on it if you have a good tax advisor because the depreciation washes out that passive income. That's the beautiful thing about real estate, you can't do that with any other asset class. So whether you do one a year, a 10 year, or 20 year It doesn't matter. The thing is, is you need to do it. It's the best in my opinion. It's the Best way to invest. It is historically proven, it is the most tax favored asset class in the country right now. And it's a proven wealth creator. So so whether they're talking to you guys, or they're talking to us where they're educating themselves, you know, you know, in their office and reading books listening to podcasts thing is people need to take action. So,

Neil Henderson:

is there any room for any kind of creative financing with turnkey, for instance, someone using a HELOC, you know, people have, a lot of times you will have tons of equity in their home. Is there any room for that in turnkey?

Marco Santarelli:

Interestingly, I just got an email yesterday from someone asking that exact question there. They own their principal residence free and clear. And they're asking whether we should put a 30 year fixed rate mortgage on it to pull some equity out or put a HELOC a home equity line of credit on their principal residence to pull some capital out. And then take that and use it as the down payments towards investment property. So the short answer is yes, you can do that. The longer answer is you need to just grab a calculator, a pen and a pad and pencil the numbers out and see, okay, this is what my monthly cost is on that HELOC or 30 year fixed. Plus I have tax benefits on it because I could write off that interest. And if it's a mortgage on your principal residence, you still have the ability to deduct the interest from it. On the investment side, if you're acquiring rental properties, you can see what your cash flow is going to be. And if you're going to pay off the HELOC or the 30 year fixed using income from your rental properties, then you can deduct that extra debt service from the net operating income of your properties. And yes, you'll have lower cash flow initially. But you're still going to benefit in the long term because your rents will increase over time, whereas your mortgage costs are fixed, your equity will grow over time, even though your debt is fixed. But what you should do is have a plan to amortize that loan on your principal residence. So if it's a HELOC, it's interest only you're going to have to have a plan to pay it off in time. And there are strategies to do that they're a little more advanced. And you know, maybe outside the scope of this, this call or this recording, with if you get a 30 year fixed rate mortgage and it's a small mortgage on your property. Well, it's going to amortize itself. Now you can accelerate that and pay it off rapidly and quickly. But there's a plan in place to amortize that loan. So to your question about creative financing strategies, yes, you can do it. You can't get seller financing, if that's what you were thinking that that's just not possible with, you know, with a turnkey rental flip because it's, it's essentially a person, it's a builder or professional rehabber that needs to turn that property over relatively quickly. So they got they got expensive money locked up in that property, they need to pull it back out as quickly as they can. So the interest doesn't eat them up.

Neil Henderson:

Gotcha. So one more question about funding this. Do you have a no the answer to this, but I want to hear you talk about it is that? Do you have people who invest from retirement accounts.

Marco Santarelli:

But yes, it's not what we normally recommend they do to start with. But if it's their only option, then it's something they certainly can do. There's a lot of money's in the retirement world in IRAs and 401, K's that are trapped and tied up and are underperforming. And with the way the stock market is today. You know, I don't have a crystal ball, but it is overvalued, the P e ratios are very, very high. And, frankly, I think we're in a danger zone right now. And it's just we're on borrowed time, it's just a question of when we're going to see a correction and a pretty big correction at that. So when we have that pullback, people are going to lose equity in their accounts, it's going to vaporize overnight. But if you can turn your 401k or your IRA into a self directed account, which a lot of people can in fact, I want to say most people can unless your your hands are tied at your employers because you have a 401k that you can't change. But most IRAs can be changed into a self directed IRA. If those are the only savings funds or investable funds you have, then then it's okay to use that what you give up though, and this is why it's not what I recommend you do first or where you start, you lose the depreciation benefit. So the depreciation on that property cannot flow through to you per on your personal tax return if it's trapped in a retirement account. So that's why it's not the best place to stick to start. But if it's your only option, it's not a bad option. It's just you don't get all the benefits of real estate by investing in real estate within a self directed retirement account. And of course, it's all third, it has to be arm's length. Everything's third party, you cannot derive any personal benefits from any real estate you own in a retirement account. It has to be completely separated from you. Gotcha.

Brittany Henderson:

That makes sense. I'm just curious. So you're talking about that 100,000 120,000 price point is that typically what most of your properties that you're that people are investing in or at or is it sort of fluctuate

Marco Santarelli:

Oh, Yeah, so the the range is roughly about 80,000 on the low end to about 150 to 170. On the high end, that's the range of three typically three bedrooms, sometimes four bedroom homes, single family detached. Now we do have duplexes triplexes. And for plexes in different markets from time to time, it's a harder type of property to find and a lot of our duplexes and for plexes, or new construction, but if you want to look at the average, or the median price of what our investors are purchasing, this is just how the the chips fall on the table. It's 110 220,000. That's, that's the median price, those same properties rent for about roughly 1% of that acquisition. So $110,000 property is going to be renting for roughly 1100 a month plus or minus. And those are just how the numbers shake out.

Neil Henderson:

Well, let's talk about time a little bit. You know, part of what you are the service you're providing, as you are removing the the time commitment, you know, because you're creating for passive investors. But there are some there are some things that that a passive investor needs to do even with a turnkey property, can you talk a little bit about some of those things that they might need to handle both in the acquisition mode, and then the maintenance mode.

Marco Santarelli:

So everybody starts off with with a strategy session with one of our investment counselors, that's really to discuss where you're at what you're trying to achieve? And, you know, answer questions and go over, you know, the services and the process. Ultimately, it works down to be a funnel approach. This is my sixth of my 10 rules of successful real estate investing is take a top down approach. So a lot of people are presented with properties, and they're saying, oh, okay, this is a good deal. Yeah, the numbers look good, the photos look good, the video looks great. Yeah, it's a good deal. But a lot of investors make the mistake of not really putting enough or any consideration into the location, its area, the neighborhood it's in and then stepping back out and looking at the market, you're doing in reverse. What you need to do is start with the market. First, let's look at the Metropolitan Area and see what's going on. They're at a kind of a macro economic level, let's look at jobs and job growth and, and migration patterns and the diversity of the economy and the diversity of industry within that economy. And then let's work our way down to the sub markets, suburbs, and neighborhoods. And we're going to focus on the ones that make the most sense, as an as a long term buy and hold rental property investor, you want a certain type of demographic, you want stability in the area, you'd like to see growth, maybe it's in the path of progress, it's good to see certain types of, you know, retailers and vendors and whatnot in that area. Then you look at the property, yes, the property's important. Yes, you want properties that don't have deferred maintenance and have good rates of return. The process is top down, not bottom up, or bottom only. So that's the process. So it starts off with a strategy session, understanding what we do the markets we're in, let's get into your head, let's find out what you're trying to achieve and map that out. So that's where it all starts. And then and then ultimately, we get to the point where we're we've decided on one market, maybe two, we start looking at properties and you maybe you know shortlist the top three properties that meet your investment criteria. At that point, you're going to put one or two under contract will open escrow, you'll be introduced to different people out in the field, such as the builder or the property provider that we're working with, because we have boots on the ground. And so we want to put you in touch with them, you'll be talking to the property management company and getting a management agreement in place with them. Right from the beginning, you're going to be working with a lender, whether it's yours or one of ours, we're going to recommend three to five lenders and mortgage brokers that do nothing but do investment loans for investors, they specialize in this area and are very strategic about it. So we highly recommend you work with them, you don't have to. But that starts right from the beginning because the financing is a critical part of this acquisition of your investing. So you're working with different people right from the get go. But we figuratively speaking hold your hand through that whole process. As we decide on the market, the neighborhood the property introduce you to our teams get your financing in place. So you're actively involved, you might be putting in anywhere from three to 10 hours. Over the course of let's say six to eight weeks from that first call with us through the process of your financing, and market selection and property selection. Now that's just peppered over the course of you know, six to eight weeks, it's not all in one day. So it's very doable. The longest phone call you'll probably ever have with us in any one setting is an hour sometimes it's a five minute call, sometimes it's a 10 minute call. Often it's email it gets the point where the the phone calls trail off to almost nothing and you know just communication via email because of documentation and questioning just increases until you close and then there's you know, some post close follow up and conversation just to make sure everything is running smooth, any questions, all that kind of stuff and often Those people are now segwaying into their second or their next investment property because they just closed on their first now they're ready for their second, that could be two days, two weeks, two months after that. They're moving on to the next one. So long answer to your question, but really, it's not a longer complicated process. But there is engagement and some time involved in the beginning, because you just can't push a button on a computer keyboard and say, bye. And it's done.

Brittany Henderson:

Yeah, when someone has purchased a property, or they kind of responsible for working with the property management people and those boots on the ground people,

Marco Santarelli:

yeah, yeah, ultimately, you're going to be just dealing directly with the local property management company, a full service property management company, we're always there. If you have any questions, you know, if you have anything to, you know, talk about, or you're not clear on something, we're always there, you know, we're always available because we were your number one point of contact, but on the local level, it's your management company that you're going to be dealing with. And it's not that you're talking to them, like every day or every week, you may never hear from them, you may hear from them once a year, you'll get statements from them. But it's not like you need to be on the phone with them. Their Their job is to manage your asset. And that's what they're doing. And if there's a question or an issue, they'll let you know.

Neil Henderson:

Are there any systems or automations? Have you have developed that help the investor sort of manage their properties and things like that?

Marco Santarelli:

Well, the management side of things, I think I understand what you're asking. So as you start to build your portfolio, you're going to have some sort of record keeping or bookkeeping system in place. Some people use QuickBooks, some people use, believe it or not spreadsheets, there are some online services tools that you can use that help automate and streamline the entire income and expense and management piece of it, which is more like a dashboard, then really a work tool. But it allows you just to keep everything together, and it spits out your tax returns or your tax forms every year, and you just give them to your tax advisor and away you go. So it really minimizes the amount of time you need to spend. Part of it's just communication with your property managers if and when needed. And part of is just tracking your income and expenses once a month. And if that's like five minutes per property, 10 minutes per property, or it could be a lot less than that, if you have automation tools. You know, you might be spending like, literally 15 minutes on a whole portfolio of properties every month, and then you know, tax time you just hand over the documentation to your tax advisor. So it's not time intensive. And you don't need a lot of bigger sophisticated tools to track your portfolio, you know, after the fact.

Neil Henderson:

Yeah. Now, when you talk about is one of the tools you're mentioning stessa.

Marco Santarelli:

Yeah, yes, that's, that's, that's one of the tools, and they're relatively new. But they've done a great, great job in creating automation systems and tools for portfolio management. Gotcha.

Brittany Henderson:

So as far as someone who wants to invest, are they able to invest outside of their own market? I kind of know the answer here. But you know, if we're here in Las Vegas, where are we looking at investing if we want to buy a turnkey property from you.

Marco Santarelli:

So some people are fortunate enough to live in a market where I like to say their backyard is is ripe with investment opportunities. And that's great if that's If that's you, maybe that's the best place to start. Because you're more you're familiar and comfortable with your your market. Now, it's important that you break the psychological part of this with the objective part of it, you don't want to get trapped into thinking that you have to invest in your backyard, because you need to drive by the property every day and see it and be able to put your hand and touch the brick, you know, that doesn't change anything about that investment, you need to put your money to work, where it's going to work the hardest for you. It's no different than any other type of investment. So that might mean that even if you live in Vegas, or wherever you live, you have to choose a market where you're going to have the best opportunities in terms of growth, potential inventory, selection, cash flow, and just opportunities in general. So some of us are fortunate to live in those markets, many of us and most of our clients come to us because they're in expensive markets like California, Seattle, New Jersey, New York, just play in places that are inflated or, or maybe there's just no inventory where they live, or they just need the help. They don't care where they live, like I have the saying live where you want invest where it makes sense. You don't need to invest in your backyard. A lot of the so called gurus quote unquote, will say yeah, you should only invest within a one or two hour drive or radius of where you live. Well, if you're an active real estate investor, yeah, that makes a lot of sense. You know, if you're going to be the boots on the ground or managing contractors, but if you are investing and you're market agnostic as we are, then it really doesn't matter where you live, you just want to invest where it makes sense for you, economically, fundamentally, financially, you know, just that's what you want to do so. So the short answer is it doesn't matter where you live. So the question is, where is your money going to work the hardest for you? And those are the markets that you should be focused on and doing some evaluation on.

Neil Henderson:

Gotcha. Well, you've touched on this a couple of times. But I want to dig a little a little bit deeper about market selection. Because I completely agree with you that it's it's literally where you should start. What are some of the fundamentals that you're looking at, in a market that make it a potential market that you guys want to be putting your investors into,

Marco Santarelli:

generally speaking, the larger metropolitan area, you want it to be at least half a million people that that's what we'll refer to as a tier two market. The smaller markets are sometimes where we go because we can't find opportunity or inventory in other markets. And we'll refer to those as a tertiary or a tier three type of market. But our favorites are the mid tier, the tier two markets, we like to see inventory, we like to see population growth, at the heart of it all our jobs is their are their jobs and their is their job growth, because that's going to drive people in or push people out. So that's a critical factor diversity in the economy, meaning that there's a broad, diverse section cross section of industry within that economy, that local economy, that helps because you don't want to be in a one trick pony market, that's just all oil and gas, because that's going to obviously fluctuate with the price of oil. And you know, it's either feast or famine in those types of markets. So those are the things we look at at the market level. And if you have those things going for you, in addition to obviously having available inventory to invest in because a lot of markets are very tight, like Atlanta, for example. It's been a perennial market for us for a long, long time. And for years, now, we've just had a very, very hard time getting any kind of inventory there. And last but not least, is just having the right team on the ground, the boots on the ground, you know, we you know, we find these people and vet them, and we have teams in every local market. If you don't have have that you really don't have much at all, because you need the people to work with that are going to be helping you execute and and achieve your investment goals. So team is very important to people business, not a property business.

Brittany Henderson:

Well, we sort of touched on this next subject earlier, but where do you think we are in the market cycle right now? Obviously, we know that you can't necessarily time everything, but we you sort of touched on this earlier.

Marco Santarelli:

Yeah. I mean, if we were talking about the general economy, it's nobody really has a crystal ball. You know, you've got guys like Peter Schiff, who's, you know, I've gotten to know fairly well, and he, you know, he's always doom and gloom, everything. So for him, you know, the craps gonna hit the fan any day now. And it has been that way, you know, for years. And you know, what, at someday he will be right. But, you know, the thing is, is, I would say that, on a, on a macro level, you know, we probably have another year or two of good productive hot market years in the economy. A lot of people are saying 2020 is the year we're going to start to see the, you know, a recession of some kind, because we are overdue, we've had, we've had an economy that's just been running hot for many, many years. And it's got to take a breather, at some point in time, it does need to pull back a little bit and just have a breather, let things you know, stabilize. But again, I don't have a crystal ball. But here's here's the point of all that I personally don't care what the economy is doing. I mean, I do, but I don't, because I'm going to look after my own personal economy, not worry about the national or global economy. Yes, it does have an impact on everything you and I do. But I just know that people need housing. And if I can buy and invest in housing that is in good markets and good neighborhoods, and I'm providing the community with safe, clean, functional housing, that they're happy to live in and, and are proud to be there. And I know that I'm servicing them well as my customer, then my local economy takes care of itself. So as long as I'm providing good value, a good service, and I have good product and good properties to offer people, I and I'm in a market where I know that there's a big rental pool, I'll always have my properties leased. So I'm not going to worry about it.

Neil Henderson:

You don't have a crystal ball, and neither do any of your investors. Is there any ways that you advise your clients on protecting their downside risk? investing in these properties

Marco Santarelli:

protecting their downside risk? Well, I think I think what I just said like a minute ago is is the way to do it. Just provide safe, clean functional housing and good neighborhoods, you know that that will always stay least because it has a very large tenant pool and you're kind of in the middle of the bell curve where people in the upper socio economic ladder can slide down into and vice versa, people in the lower strata can move up into as as the economy and times get better or worse. I think that's really how you protect your investments is just Don't go out on the fringe Don't be in the war zones. Don't be in the high end premium a plus type neighborhoods that get hit first and the hardest, you know, when there is a real estate market cycle downturn, just put yourself in the bread and butter areas where you'd have, you know, low crime and just good rental markets.

Unknown Speaker:

Gotcha. That's exactly what I was looking for.

Brittany Henderson:

Alright, so for someone who wants to get into to buying some turnkey properties, what would you say is the most critical skill that that someone wants to get into this needs?

Marco Santarelli:

Well, it's first and foremost is really just the desire. You know, a lot of people think about, well, sadly enough, a lot of people don't think about their financial future until, you know, they get into their mid years. And then they started realize, Oh, crap, you know, I actually, you know, what, if you guys don't mind, I want to read you an email. It's like couple sentences that I just got this morning, literally. So I'll read you just a sense. So this guy says, Marco, I've been listening to your passive real estate investing podcast for almost two years, I always thought I would eventually get into real estate, but assume this would be something I would do after I retire from listening to your podcast and educating myself, I eventually realized that I need to start increasing my monthly cash flow and building wealth now, so I can live the life I want for me and my family, I finally took the plunge and closed bla bla bla bla bla bla. So I mean, if that doesn't say at all, it's like you just need to have you have to know that it's there. Have an understand that you need to take action and do it now. Not later. And and just take action, just, you know, have the inspiration that and the courage to move forward and do it. Yeah.

Neil Henderson:

If you could hit a magic reset button and start your investment career all over again, knowing what you know, now, is there anything that you would do differently,

Marco Santarelli:

start as early as you can buy and hold, never sell? educate yourself from day one, and never stop being student always educate yourself. Those are probably the biggest three.

Brittany Henderson:

And any other advice that you might give someone that is looking to get into this real estate asset that has a job and a family that might apply to them specifically,

Marco Santarelli:

you have two basic options, if you don't want to be the active real estate investor I talked about before. And you know, you want to need to invest in real estate, and you want to be a successful passive real estate investor, you have two basic options, you know, we can chop this up into, you know, multiple different paths forward. But you can partner with other people and invest in what typically is larger real estate like apartments and some, you know, other types of syndications. They're essentially group investments. And you if you know, trust the people you're investing with, and you believe that they're going to do a good job and generate a return on your invested capital, then you can invest in a group investment of syndication of partnership, whatever you want to call it, same thing. Related to that, but not quite the same is you be a direct owner, build your own real estate portfolio, own and manage your managers and let them manage your assets, your portfolio, you have no partners in that scenario, but you're achieving all the benefits of real estate from you know, the income or the cash flow through to the depreciation. So you get all the benefits. Those are really the two main ways to invest in real estate passively, you either be a direct owner, own the portfolio, build it yourself with a team, you're not doing it alone. And that's the turnkey space that we're in. The other is investing with groups, other partners and do the syndication route. You know, they're similar, they have some pros and cons. But they are both very successful ways to invest. So you just need to ask yourself, what is it I want to do and it's not necessarily either or it can be and you know, this and that.

Unknown Speaker:

Awesome.

Neil Henderson:

Wilson, Marco, thank you so much for your time today. We really appreciate your time and appreciate you sharing everything I really enjoyed it.

Brittany Henderson:

Yeah, I did too. If our guests want to reach out to you what's the best place that they can find you? Well, Neil and Brittany, I

Marco Santarelli:

appreciate you having me on today. Thank you so much. This has been great and a lot of fun. I hope we've passed on some good information to your listeners. As far as reaching me and my team was just two websites passive real estate investing calm is the easy one to remember. That is also the home of the podcast the the other side that has all the properties that we have available at any given time is Narada real estate calm no ratas and o r ada nerado Real Estate calm.

Neil Henderson:

And I apologize if I mispronounced that we always get very worked up when people mispronounce Nevada, Nevada, so I apologize

Marco Santarelli:

though. Don't worry about I don't even know how to pronounce it.

Awesome. All right. Well, thanks

Neil Henderson:

again. Marco.

Marco Santarelli:

Alright, you guys. Thank you so much. I appreciate it.

Brittany Henderson:

Awesome. Well, that was Marco Santorelli of nerado Real Estate calm and the passive real estate investing podcast. And that was an awesome interview. I really enjoyed it.

Unknown Speaker:

Yeah. What was the What do you think the key lesson learned from this interview was for you,

Brittany Henderson:

I think the big one was that if you don't have time to actively invest, or maybe if like, you don't have time right now that this might be a good place to start, because you probably would learn a lot, and we didn't really talk about that, but they take you through all the steps, they hold your hands. So you're gonna learn a lot from this process, and then even figure out if that's like the way you want to stay with passive real estate investing, or if you might want to go to the active real estate side. And if you did, you kind of know what processes and what things you need to set up, if you decided you wanted to do, you know, do the, like the bur method for you know, single family homes. So that was kind of my takeaway is that it's a great place to start for someone who really is super time constrained, you know, obviously, everybody's family is going to be different, in how much flexibility they have, and you know, time and where they're at in their family cycle, we before year old, we don't have a lot of time because of that. So maybe this would be a good place for someone like us to start.

Neil Henderson:

For me, the big one was beginning with a roadmap, really having a good idea of where it is that you want to get to. And having an allowing that to inform your investment criteria. For the types of investment you're looking for the market you're looking for. Otherwise, you're just gonna end up all over the map looking at everything.

Brittany Henderson:

Yeah, well, and I think that probably applies to really investing in general, like, you really need to have that destination in mind and get things set out. Because if not, you know, if you are interested in active real estate investing, and we have plenty of guests that have come on and will come on that talk about active real estate investing and how you can do that. That's great. But you want to make sure that you don't end up with squirrel syndrome and that you're, you know, the Hi, we're speaking to the choir. I'm Neil Henderson. You know, you don't want to be like, Okay, well, this is cool. And this is cool. And this is cool. But if it doesn't line up with your roadmap with where you're trying to get to, then then that's probably not a good strategy to go with. It might be part of your roadmap map later. But if you've really got it set out at first, it's gonna give you a good place to start just generally, unless, I mean, really, that's probably a good recommendation for anything in life that you want to do.

Neil Henderson:

begin with the end in mind.

Brittany Henderson:

Yes, yeah. And then set up your your process. I mean, even there's a book that Neil and I tend to trade books, I'll read one that I'm really interested in that I think is really cool. And then I'll say, you know, and it's maybe not quite so much in in Neil's wheelhouse. And so I will trade him a book, you read this one, I'll read one or more of your choice. And recently, he asked me to read atomic habits, and I can't remember the author's name right now. Dreams clear, James clear. So he really talks kind of same sort of thing he talks about, like, you know, having that destination in mind as a goal. But the roadmap for him is the systems that put that in place. And that's really important. And without really having the systems and and those you know, strategies in place. Even if you know where you want to go with that just ends up being kind of a pipe dream. So it's really not just about that destination. It's about that roadmap and the systems that you use to get there. So that's, it's something really important to keep in mind as you go through this journey and make sure that you you don't have that squirrel syndrome.

Neil Henderson:

So as far as someone who's looking to get into this into turnkey investing, what sort of knowledge Do you think they're going to need to start off with?

Brittany Henderson:

Not a lot? I mean, you could have almost nothing at all. I think the basic knowledge is that real estate investments are good. This good, do it? Yeah. No, I really think it's just just knowing that it's something that they want to do, I think is what Marco said specifically, they need to be interested in it know that it's beneficial, have that desire, and then they they will take care of the education going forward or recommend where to continue your education. Alright, so time, how much time to someone need to spend who is investing? Oh, well,

Neil Henderson:

there's there's two, we often talk about this. In real estate. there's sort of two time periods. There's the acquisition period, and then there's the maintenance period. And he talked about in the acquisition period, you're looking at about eight to 10 hours a week for No,

Brittany Henderson:

no, it wasn't eight to 10 hours a week. It was eight to 10 hours over. It was three to 10 hours over six to eight weeks. Gotcha. And so like, an hour a week, gotcha, gotcha hour to two hours, and it sounded like, a lot of that is sort of at the beginning, you're gonna have probably a little bit more time. And then things start to taper off. And it goes to email at some point. So you might have any said the calls were, what, five minutes to an hour hour being the most. So I guess some of those like that our call might happen in that first couple of weeks. And then from there, it's really just checking in or, you know, figuring out those other, you know, pieces, boots on the ground, that kind of thing. So how much money does it take for someone to get started in a turnkey property?

Neil Henderson:

Well, it's typically, you're going to need to come up with 20 to 25%. Down plus, typically a little bit of a reserve to cover the mortgage for three, six months. That's what banks like to see. So if you're looking at $100,000 property, for instance, you're looking at probably needed to come up with anywhere from 20 to $30,000. To get started,

Brittany Henderson:

Okay, that makes sense. And just kind of we talked about in money, that that creative financing, there's not a lot of wiggle room there, but you can do some self directed retirement funds and use those as a capital option. Maybe not as ideal because you can't actually use that for cash flow. But if you you know, if you have that money sitting there and the markets, the markets doing okay, but you want to get more cash flow into it, that would be an okay thing to start with. Or if you have a HELOC, that would be an option. However, you know, you want to make sure that the return on investment, the cash flow is going to be able to cover the interest that you're going to have to pay on that HELOC and that it's going to be be able to be paid back in a, you know, a good amount of time. So that might be something that if you wanted to do a HELOC, that you already have some cash and that that sort of is part of it, maybe then that's just like a smaller part of it, if you needed to increase that cash might be a better option. Okay, so and then is this location dependent? No,

Neil Henderson:

no, it's absolutely the whole point of this is to be able to as Marco said, live where you want and invest where it makes sense.

Brittany Henderson:

Yes. Um, so yeah, so this would be, you know, ideal for someone like our family that has a dream of like traveling the world at some point, you know, if if we're investing in this kind of in this kind of asset, we don't have to worry about it when we go somewhere. Because generally speaking, we might be talking to our property manager once a year. And if it's more than that, it's typically we're not going to have to be doing a lot of work associated with it. It might just be like, oh, like an AC died and they're wanting to fix that. But it's over the threshold of their prerogative for you know, how much money they are allowed to just spend. So, anything else you want to say? Oh, Marco, do you love me?

Neil Henderson:

I do love you very much.

Brittany Henderson:

You're awesome. All right. Well, that was Marco Santorelli with the passive real estate investing podcast and Narada. Investing.

Neil Henderson:

And if you like this podcast, we would really appreciate it if you take just a few minutes and leave a review for us on iTunes. It's really simple to do. Just go to road to family freedom comm slash review for links and instructions. Thanks for listening. We're doing this all again next week. Until then,

Unknown Speaker:

safe travels.

About the author, Neil

Neil Henderson is the co-host of The Road to Family Freedom, a self-storage investor, and avowed proponent of short-term rental house hacking. He founded The Road to Family Freedom to guide busy parents to financial freedom through passive real estate investing.