Investors have many tools in their investing tool belt. Turnkey rental properties are just another tool in your investor tool belt. There are some things to look out for.
Marco Santarelli from NoradaRealEstate.com is here to share how built his real estate investing business AND how to invest with turnkey rental properties.
This is a yellow letter I received from another investor to purchase one of my properties. Check it out and see what you think.
Passive Real Estate Investing with Marco Santarelli
Today I am excited to have Marco Santarelli with me from the Passive Real Estate Investing blog. Marco is someone I recently met, and as we have gotten to know each other better, we’ve found that we see eye-to-eye on just about everything.
I wanted to bring him on the show so you could see how somebody else started investing and started their business.
Is your blog/podcast focused only on real estate, or do you write about other topics?
The main focus of the blog is real estate, but Marco does branch out and talk about different types of investment classes, such as commodities, stocks, and crypto currencies. These other topics are discussed to provide comparison and contrast to real estate investing.
Everything provides a benefit. All investments have one or two dimensions, but real estate investing is multi-dimensional. Marco wants to people to understand how you compare one investment to another.
A Little About Marco Santarelli
Marco Santarelli lives in Southern California. He is married and has an 11 year-old daughter that he and his wife home school, and he has the opportunity to teach her financial education. Marco loves to travel and recently came back from Italy.
Marco loves to talk to other investors and teach others how to invest successfully.
In 2003/2004, Marco acquired 84 units in nine months. He did it so quickly he had other investors reach out to him and ask him to coach and mentor them, but Marco didn’t have enough time.
Marco started finding his own deals and then found them for others. This was how his business was born.
He doesn’t feel like what he does is work. It is more of a game, fun, and pleasure. Every day is a joy to get up and do what he does.
Was your first home a multi-family or single home? How did you get started?
The first unit Marco Santarelli bought was an end-unit town home. He had just turned 18 years old and had to wait to purchase the home because he couldn’t qualify for financing until after his birthday.
He fixed up the home with his uncle and, since this was before the internet, he advertised it for lease by hanging a sign in the front yard.
Marco interviewed potential tenants and picked one based on a gut feeling. He managed the property himself for several years. He knew he could do it. In hindsight, the biggest mistake Marco made at that time is selling that property.
You should never sell your real estate. You could do a tax-deferred exchange (1031 exchange) to unlock the equity, move to another market, and grow your portfolio.
However, if you sell the property and don’t reinvest it and leverage it up into more income, you end up spending it on other things like cars and vacations.
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After your first unit, how did you get into your next one?
At that time, Marco Santarelli had a job and was slowly buying properties. His job paid well, but his accumulation was slow. He was an entrepreneur and started businesses – some were successful and some failed.
In 1999, one of the businesses he was involved in was a dot com business. He and his partners launched it in 2000.
They raised $9.5 million from venture capital funding, brought on a CEO and COO, and were working to take it public.
In February or March 2001, the stock market crashed and the money dried up. Venture capitalists were not funding businesses anymore.
Marco didn’t want to get back into the corporate world and climb the corporate ladder. He was able to take some time off and sustain himself and his family with savings and passive income.
After two years, he received an email from Robert Allen who is a famous author and one of the godfathers of nothing-down, real estate investing.
In 2003, Robert offered a free seminar in Orange County that Marco attended. It was a three-day event and it inspired Marco to get back into real estate full time.
Marco got involved and started meeting investors and buying real estate. He has always been looking for ways to create financial freedom.
What types of homes were the 84 units you bought?
The homes were made up of single family, duplexes, 4-plexes, one 6-plex, and a few small apartments.
In 2004, it was easy to get financing. If you could make it look good on paper, the credit was there. Some of the deals were structured with nothing down. It took a lot of time and effort. You need to be diligent and aggressive with it.
What happened to those properties in during the market crash in 2008 and 2009?
Marco went through a rebalancing and repositioning of his portfolio and he liquidated a lot of them.
In 2006, Marco received a phone call from one of the mortgage brokers he worked with often. At the time Marco had 35 properties in escrow.
The day the broker called, he said the primary lender he used pulled their loan program and they were no longer funding that type of loan, which was a stated income loan. As soon as the broker said that, Marco got the sense that the end was near.
In 2007, there was a lot of speculation going on in California, Florida, Nevada, and Arizona. He decided to start liquidating some properties in 2006. Most of them were cash-flow positive.
Rather than sell the properties and put it back into real estate, Marco took a cash position on a lot of it and some he put into precious metal. He sat back for a couple of years.
In 2009 and 2010, things ground to a halt. It started to pick up in 2010 and really heated up everywhere in 2012.
Looking at today’s investing environment, what would you suggest for somebody to get started with their first property?
At a 40,000 foot level, Marco Santarelli would tell himself, or anyone else, to accumulate as much investment capital and as fast as you can.
This means cut back on expenses, save as much as you can, and increase your income as much as possible. Bank as much as you can and go broke as often as you can.
- Step 1: Build your investment capital as quickly as you can.
- Step 2: With a team, find the right markets that make sense from an investing perspective – they have a sound housing market, a good economy, jobs, job growth, and positive migration. Identify the neighborhoods in that market that have strong tenant demand, appeal, a good tenant pool, a good school district, and low crime.
How would you suggest to someone who is nervous about investing across the country to get over those nerves so they can invest well?
If you were bullish on the stock market and wanted to invest in Coca-Cola, because you believe Coca-Cola is the best deal going, and you live in Orange County, California, are you going to hold yourself back from investing because they are headquartered in Atlanta, Georgia?
Of course not.
It would be a mental block to prevent yourself from investing in it because of that reason.
The same thing is true with real estate. You may love where you live, but it may not be the ideal investment market. It may be overpriced, unaffordable, and you may not be able to get a one percent rent to value, which is a litmus test.
When you strip the emotional elements out of your decision making, and you focus on rational thought and logic, you are running your business intelligently.
You do not need to be able to drive by your property everyday. It doesn’t make it a better deal.
What is one failure you have in your past that can help someone learn?
Never sell your real estate. Either hold it, or, if you need to sell it, take the equity and move it to places where it will work harder for you.
Always take a top-down approach. This is Marco’s sixth rule of his ten rules for successful real estate investing.
Start with the market, work your way down to the areas or suburbs, work your way down to the neighborhoods, then start looking at specific deals that make sense. Do this with your team.
Make sure you consider the location of your property.
Marco purchased in very distressed areas, and the amount of tenant problems and turnover blew his annual cash flow out the window.
The cash flow may have been good, but the turnover washed it out, and the appreciation of the property was very low.
Don’t buy properties that don’t have a retail market. Make sure there are retail buyers for homes. If there are no buyers, there are no comps, which makes it difficult to buy.
Make sure you are working with a full-service, professional management company. Marco found it to be a mistake to work with real estate agents who were doing property management.
You want someone who specializes in management and who focuses exclusively on property management.
Usually I tell my students that you can manage your property yourself. Tell me about Norada Real Estate Investments and why it’s a good option?
Investors fall on a spectrum. On the far end they are very active and they love rolling up their sleeves and getting involved. They want to find the deal, manage the deal, and finance it with hard money.
For these investors, there is better opportunity to build equity on the front end, but there is more risk involved. On the other end of the spectrum is the passive investor.
They want to be direct owners and be engaged in the beginning by finding the deal and doing the due diligence, but when the property is in their portfolio, they just want to collect the cash flow each month and focus on their lives.
Norada typically deals with the passive investor. You need to figure out where you fit on that spectrum. If you are more of a passive investor, Norada offers an inventory of turnkey homes that are tenant occupied, cash-flow positive, fully-renovated, and in good neighborhoods.
Norada’s clients are typically professionals who don’t want to invest in real estate by themselves. It is a great way to fast-track building your portfolio without having to roll up your sleeves.
How do you make sure you don’t get involved with a bad turnkey company?
Check the company’s reputation. You can find a lot of dirt online. Do some research and talk to people who use these companies.
Find out what they are selling. There are companies out there who sell low-cost homes in sketchy areas. The properties may be fully renovated, but you may end up with a lot of tenant problems.
Do not start small by investing in a low-cost property in a bad area. Focus on better quality areas to get a better experience.
How can people find out more about you?
Visit the main website at noradarealestate.com.
Visit the sister site passiverealestateinvesting.com, which is the home of the podcast.
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