Ep #279 – Michael Zuber – The Four Phases of a Real Estate Market
Here is some of what you will learn:
How to choose a property manager
What type of person makes a good multifamily investor
Is there a magic spreadsheet?
Keys to reputation management
The importance of holding your ground
The power of Creating Deals
The value in listening
Playing to your strengths
Understanding the value of your time
The law of the First Deal
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Full Transcript Below:
Michael Zuber– The Four Phases of a Real Estate Market(Ep279)
Rod: Welcome to another edition of “How To Build Lifetime Cash Flow Through Real Estate Investing”. I’m Rod Khleif and I’m absolutely thrilled you’re here. I know you’re gonna get value from the gentleman we’re interviewing today. His name is Michael Zuber and he lives in the Bay Area and has been investing for about 15 years really one house at a time and now he’s up to a hundred and seventy five doors and we’re gonna dig into how he did that. Michael welcome to the show my friend.
Michael: Thank you Rod, pleasure to be here thanks for the invitation.
Rod: Absolutely my pleasure that you’re here. So talk about how you know, I know you didn’t start in Real Estate and I think you’ve got a compelling story that’ll resonate with certainly people in your backyard and as to how you got into this business and why you love it?
Michael: Yeah so I mentioned I live in the Bay Area. Which means that by default, I was in the Tech Sector. It’s just sort of what we do out here. I was an accountant by training. You know, moved out of accounting into some sales roles and you know what really led me to Real estate was really a bust in the stock market right? If you remember the Dot-Com Era and that sort of capitulation that we had. That sort of caught me. And was rather painful sort of a six-figure loss and I realized that was a just a Big Casino and wasn’t gonna do that again. So I went to the local bookstores and just had to find something in. You know Real estate was the thing it was real. You could feel it, touch it, see it .You know to improve it. You know it was an inefficient thing so you can find a motivated seller and add value and rented. So it just made sense to my accounting brain. And I’ve been in love since. And out of the stock market entirely since that I started.
Rod: That’s quite a shift from accounting to sales. That’s actually very unusual, you know typically an accounting person is. You know they like they’re fairly introverted in most cases now I’m gonna get hate mail for that comment but you know it’s kind of an unusual shift. Okay! I think it is. You know they’re more analytical and so really what that tells me is you know you’ve got the best of both worlds there if you’re able to know you’re great communicator and you’re analytical. I mean, good Lord this is definitely the business for you. So those are you listening that fit that bill, this is your game! So what you get started in single Family and where, and let’s just talk about your progression and Real estate if you will.
Michael: Yeah, so I guess I sort of start with “We”. You know the book said 15 years ago, invest in your backyard or at least those are the books that I read and you know if you live in the Bay Area today you’re kind of chuckling because there’s no such thing as cash flow unfortunately there was no things to cash flow 15 years ago.
Rod: Wow!
Michael : It’s just doesn’t make sense. So I had a property. A really intense conversation with the wife about 15 years ago about what do we do right because we were stuck, we had some capital, we were ready to deploy it but we couldn’t make the numbers work in the Bay Area and she was the one. She gets full credit for this too said “ hey you know why don’t we go look somewhere else?” and by the way I knew that I wasn’t comfortable given what happened in the stock market being out of state. So we started drawing circles around Mountain View and we ended up in Fresno, California which is about two and a half hours from where I am with being the first market that kind of made sense right. So we had found a house that rented for 1100 that we bought for 107 grand you can go look it up on Zillow if you want it’s 1818 North Drive East you’ll see that we got it for 107 and we ultimately as we’ll get into later. I’m sure sold that or actually exchanged that for 264 back in the 07-08.But that where we are right, we’ve been in Fresno we’ve been once we sort of planted our flag that we’ve never left. All right we did play with the idea of going to Texas or Nevada or Arizona but given the struggles we had building a team, I just couldn’t imagine doing that again out of state. So we’ve stayed in Fresno and we started in houses and then you know we moved into apartments later.
Rod : Did you start with houses, did you start with plexus. What were some of the first acquisition, and you started with one house I know that but after that, did you, talk about your progression in this business? I mean you’ve got a hundred and seventy-five doors and you know pretty valuable portfolio. How did that all come about?
Michael: Start with that one house on North Drive and then we went, you know one house or so every six months ended up with seven houses and the duplex as we exit into 2008 which is what I call my first phase.
Rod: Okay, and then, well let’s keep talking about Phases. Then so you talk about your first phase, what was the second phase, what was the third phase and where phase are we in right now?
Michael: So for me I look at my career as sort of four distinct phases we’ve talked about the first one, the second one if you remember 2008 this is when Country Wine IndyMac and everybody was having those fancy loans you know the two and twenty eight teaser loans and all of those things and what happened is prices of single-family homes which I was comfortable with became too expensive and the numbers just couldn’t make sense.
Rod: Right, right!
Michael: And my accounting brain just wouldn’t let me buy another one hmm so we were stuck. And then a friend of mine suggested sort of small multi families the commercial market sort of five to ten is what we were talking about.
Rod: Right.
Michael: And that was our second phase. We 1031 out of all the houses in the small multi families. You know 5 to 10 and ultimately up to 18 units right near the peak. So we got all that extra equity out of houses and put it all in the apartment building so we went from 8 units to 80 units inside of about 15 months .
Rod: Nice. And of course your timing was impeccable. And you know who could have forced his force seeing that you know, you couldn’t find houses. So you said “ you know what let’s do multifamily” and you couldn’t have picked a better time. I mean you look like a sage brilliant, you look like Warren Buffett right now. But you know of course I didn’t get that memo so I crashed and burned in 2008 and you know it was ugly. But I call it seminars I have some, I have had many so that was a 50 million dollar seminar for me. But yeah it was painful so are you still completely invested in Fresno or is that your problem.
Michael: Yeah we’re all live in Fresno. I have a place in New York where my daughter lives. We have a primary residence in California or Mountain View and in other than that our arenal portfolio is all in Fresno.
Rod: Okay nice, nice. So do you manage them all yourself? Did you hire some management? Let’s talk about some logistics for that.
Michael: Yeah one of the things, as a you know living two and a half hours away is I’ve had a property manager since day one
Rod: Okay.
Michael: And you know that wasn’t always easy.
Rod: Right. Same person, same one or abuse head you have to roll through some?
Michael: Yeah, I had six in the first six years before I landed on a team that I could grow with and has been with me for the last 10 or so years.
Rod: Oh so you have to kiss a lot of frogs sometimes. But maybe let’s talk now that you know what you know with property managers. Is there something you might have done differently to prevent all that pain six times in a row?
Michael: Yeah I think one of the things that I would look for now is the principle the property manager has to be an investor.
Rod: Mmmm..
Michael: Three of the six firms that I worked with were agents.
Rod : And brokers doing it on the side. Yeah.
Michael: If they weren’t investors, they didn’t think like investors they thought transactions so I would never do that again.
Rod: Okay. Yeah a lot of times you’ll hit somebody like that up and they’ll sneak in a little clause that if you sell it, that you have to list it with them and you know they pull that crap. But okay, so definitely the principle is an investor or anything else that came out of that experience that you could share that might add value to people in the same boat right now.
Michael: Yeah, the other thing that I had to do and again it’s sort of my mix of accounting brain and you know being an extrovert is we did some surprise trips. Right it was amazing what happens when you tell him you’re coming.
Rod: Right.
Michael: First the unannounced. Oh, I stopped by..
Rod: Right.
Michael: We caught some things that were not very good.
Rod: Okay. Just like neglect? or even more areas?
Michael: Hold units were full, that weren’t full.No repairs that we’re supposed to be done were done, and you know suddenly it’s the same water heaters getting replaced twice in a year it’s..
Rod: Okay, so complete fraud. Yeah I’ve had that happen as well, I had some properties in Memphis and I just got you know,really taking advantage I mean I got actually defrauded out of about a hundred grand because you know and I mean that was your whole portfolio. For me it was like a stepchild and my dumbass treated it like that and shame on me. And you know I suffered for it but. So let me ask you this, do you think, you know I think this is a good question to ask you. Do you think there’s a particular type of person that’s best suited for this business because you’re kind of an anomaly so, is there in your view. Is there a type?
Michael: Yeah,I think you know somebody’s gonna be. They have to think long term. If you are excited by the latest investment craze whether it was crypto a year ago or pot stocks now or whatever this is a for you, right? ‘coz your real estate does not get rich quick its get rich for sure.
Rod: Right, oh I like that I’m gonna steal that. I say don’t get -rich-quick it’s become very wealthy over time. But I like yours better, get rich for sure. Okay, heard it first here guys okay.
Michael: And so I think it’s a person has a long time view.
Rod: Yeah no question.
Michael: the other thing is you have to communicate right? Real estate is a people business I didn’t get that, the first five years.
Rod: Right.
Michael: I thought if my accounting brain built the magic spreadsheet life would be you know, I would.
Rod: Oh wow! thank you for sharing that. Guys, and I know there’s some of you listening that are thinking the same thing that I’m really glad you said that because it’s so true. Yes you could do that if you stick with houses. But you know if you start getting into some larger properties it’s a team sport, you know this Michael. You know it’s the people you connect with. It’s the brokers, it’s the, You know of course the property managers and you know I just did a Facebook life post right before we did this interview and I talked about this. And that you know you’re building because it’s not a get-rich-quick thing, it’s not the flash-in-the-pan thing. You’re building relationships, you’re gonna have for a very long time. So be picky, find people you enjoy that are reliable. You know, find them through referrals that’s the best way to find the best people. But you’re building lifelong relationships and you’ve got to treat this business with that mind. I mean with that mind. Said you agree with that Michael?
Michael: Oh I absolutely. I could tell you that there’s plenty of examples where reputation matters. One of the things that I’m particularly proud of is every deal that we have gotten in and in escrow and opened we’ve closed. And that reputation may not sound like a lot today to people but it was everything to brokers during the crash right we got more..
Rod: What is today too? I mean if you’re known as a person closing you’re gonna get the deals. I mean I’ve had people on my show that have, you know 4,000 units and that’s how they live I had one guy Keith I forgot his last name right now but a billion dollars in assets and he’s known as closing. You know so that’s huge.
Michael: Yeah, and you know it’s important for me. Because one of the things that my accounting brain won’t let me do is won’t let me overpay, right? So I often get outbid by people who I don’t know. Just think the property is worth more and most of the time or at least some of the time they don’t close and then I get a phone call and you know we closed at the number that I put out there so it’s..
Rod: And that’s guys, that’s very common and especially in this hot market you’ve got to hold your ground. I mean, I’m scratching my head sometimes at some of these deals that were, you know we’re in final LOI stage. You know best and final and somebody comes in with some crazy high number above us and we’re like, are you kidding me? you know who’s doing your underwriting but more importantly you know what the message there is a lot of those deals come back and that’s the message because they can’t close. The banks aren’t stupid and if they do close the banks probably end up with that property back anyway when there’s a contraction. But yeah you know you want a reputation for doing what you say and being you know, being transparent and honest and you know you don’t want to be known as the person that retrades every deal. You know and there are people out there that do that. You know, and so let me ask. What do you think is the most challenging part of what you do love and what do you not love? Let’s start with what do you love actually, let’s start with that first about.
Michael: Well, so right. So when you think about what I spent 15 years doing right I was a busy professional I traveled 100 nights a year over 200,000 air miles right because I had a worldwide job so I had to get very good at being focused on what I was good at and for me that was two things. It was finding / creating deals and securing capital whether that was my own or others everything else. How else had to be outsourced right from property management to insurance to rehab so all that stuff right. So I had to be comfortable with what I was good at and comfortable letting go which wasn’t always easy right? and you just had to learn to do that and so I got really good at what I was good at and and I love that part of it. I love creating deals because I don’t think you really find deals I think you create deals.
Rod: Hmmm let me stop you there. Guys that what he just said you want to write that one down okay? Because so many deals get overlooked and then when you dig in you see there’s potential in some fashion. And if you want the most successful people in this business are problem-solvers they identify the problem and they solve the problem. Do you agree Michael?
Michael: No question. Okay, you got to be a problem solver, you got to be creative, you have to listen right?
Rod: Nice.
Michael: You know we have two years in one mouth for a reason right and unfortunately that doesn’t always happen out there. People like to talk and beat their chests and you know I’m just as happy to be quiet and listen for a while so..
Rod: And the point there is you’ll. If you listen in question you’ll sometimes pick up on motivation that you didn’t realize was there.
Michael: absolutely!
Rod: And that’s the point he’s making there is you may hear some things like “ wait a minute the price isn’t that big a deal” they just need to close by next week and so let’s put together a solution for their problem.
Michael: Or even the opposite of that. I’ve had,especially in this hot market where you know the cash buyers are coming in and promising ten day closes and all of that. But if they just would stop and listen, they didn’t hear the person say “I want my kid to finish school first right? I want to move it this summer, right?” So I’m like okay, great I’ll give you a 60-day escrow and I’m you know, I’ll lower the price. You know ten or fifteen grand like, take it!
Rod: Yeah. Oh that’s great! I’m really glad you presented that example as well because you’re absolutely right .It can be the reverse. No I love it, fantastic! So what’s the most challenging part of this business.I want to actually serve before he’s answer I want to circle back to something you said that is, You focused on what you were good at and you recognize where you wanted to get help IE property management in this case. But in some cases guys, it may be you know like Michael hears is great at analytics and he can communicate but if you’re one or the other you align with someone that’s bridges that gap. You know if you’re the analytical person maybe you aligned with someone that builds the relationships and all that or the reverse is also true. If you’re the outgoing person but you can’t even spell spreadsheet like me, then you align with somebody that can. I have a Robert, thank God I have a Robert. Because you know, I can read them but I don’t love them. So but anyway, do you agree with that Michael?
Michael: There’s no question. I mean one of the things you know that I’m often, I often get asked is you know you’re two-and-a-half hours away from your market. Clearly you don’t mind talking to people and having conversations. What you know, why don’t you just move to Fresno?. I mean that’s a question I get all the time. Shortly, now I’m retired it’s like “ why don’t you just pick up and move?” when the answer is I’ve lived in Barre, my entire life I’ve grew up literally ten miles from where I live now. I’ve never been outside this area right went to college at Santa Clara worked in the Valley my whole life. So I’m not leaving right? This is where, this is home,this is where it is for me. But the reason I get that side question is I have actually people in Fresno that are kind of like, you know feet on the street, right helping me network and carry the message forward and door-knocking in all of those things. I just can’t do that from this far away right? You know see ?I have people that are you know, limbs or appendages to help me extend reach as well.
Rod: Right, those are the relationships you build and other people you bring in to do these things that they’re not good at can’t do, don’t like to do and you know I did a driving force clip on “Playing To Your Strengths” and I do these clips. You probably don’t know, that I do clips on the motivation. They’re motivational, l but they’re about the psychology of success and one of them is “Playing To Your Strengths”. You know so many people tell you to focus on your weaknesses and build those up. I’m gonna tell you exact opposite. Enhance your strengths and in higher partner whatever for your weaknesses. You’re gonna get much further, much faster.
Michael: No question.
Rod: So what’s the most challenging part of this business for you?
Michael: The most challenging part for me is really, frankly letting go of the details and kind of, you know the day to day and I actually call it the small stuff right don’t sweat the small stuff. It took me, you know it’s embarrassing to say, probably a decade to finally get to that point where I’m like “ okay, that’s it”. You know all hundred dollars don’t even bother me right? It’s yeah, before my accounting brain said no you have to have a general ledger, you have the general ledger for every account it has to credit and debits and asked, and tie up to the penny and I would just, I would lose days every month to a cat. You know reconciling the accounts when oh, by the way my property manager was already given me a report but I had to do it myself.
Rod: And that’s a very valuable message as well. But you’re throwing some really good stuff out here. And guys if you’re doing something that you can hire someone to do, you’ve got it. You’ve got to look at the value of your time and know your time and even though you’re an accountant Michael your time probably wasn’t best served doing the books, it was absolutely nothing. And so guys, those are you listening you know what is the best use of your time. I’m going to tell you today it’s finding deals, there’s so much money out there looking for a home. You know focus on finding the deals building those relationships and you know. Take a look at what you’re spending time and this is me looking in the mirror on this one too. Because there are things I should be doing and still even right now and so I’m glad we have in this conversation. So you know there are a lot of people that listen to my show that know they want to do this maybe they’ve bought a house but they have not, you know gone out there and taking action on multifamily. They haven’t bought a Plex or a five unit or ten unit or whatever yet. What words of advice would you give them? What best advice would you give them?
Michael: Well, I think a lot of people that I talk to and they start talking about apartments writer or commercial write, five and above . I don’t know what it is, it’s then number right. It’s oh my God it’s commercial financing. So it has to be harder, right it has to be more complex. And the answer is no, right? If you have done a house, you can do units easier.
Rod: yeah you know since the crash they’ve made buying a house, financing a house, oh my God they kill a tree when you do. When they give you the paperwork so you know yeah and really glad you said that because I know it seems intimidating but once you’ve done one it’s like my god was that all there is and then the first one’s always the hardest it’s like the law of the first deal. You know it’s always the hardest, always takes the longest, but once you’ve done that first 5 to 20 unit you’re like wow! And then they’re like dominoes boom. And you know then, and then you realize that there’s nothing to be afraid of. Awesome.
Michael: Yeah, couldn’t agree more. The other just were quick, the other thing I would tell someone to do to get that comfort level is they, those people probably already have a spreadsheet that compares single-family homes right, they have a list and goes a property on White Streets not as good as Brown Street. That’s not you could go to Main Street whatever, right? Go out there and find a five or eight or ten unit building, just put it in your spreadsheet and just see how the numbers are the same. Right, they may be slightly bigger, right property manager is slightly bigger, maybe water and garbage and you know these other things but get comfortable with it, at that level and you’ll see it’s.. you don’t add more columns it’s not more stuff .It’s all the same stuff so that’s..
Rod: I couldn’t agree more unless unless you get into larger like where you are but then what you do is you have a 10 unit maybe you give half a month’s rent to somebody to keep an eye on it and you know or you get it into a 20 unit maybe they get a full month’s rent off. Whatever it is I mean you lay it out so that you’ve got eyes on the property, but that’s really the only difference living in that houses. I couldn’t agree more. So if you could go back Michael and tell your younger self, your 21 year old self, is something about this business. What might you say? what might you do differently?
Michael: Well there’s a couple of things I’ve thought about that. A lot being reflective, now the first thing I would have recognized is I didn’t have to come up with all the capital myself.
Rod: Right.
Michael: For the first five years of doing this now. Granted, I had the most easy financing ever right from 03-08 if you could fog a mirror you can get a loan.
Rod: Right.
Michael: It was necessarily a problem but even back then I could have done a lot more if I realized that private money or even hard money was out there right. Because I could have gone, I’ve done more transactions so that’s the first thing then the thing I’m still grappling with today is, anytime I do private money it’s always sort of one investor, one purchase. I’ve never syndicated or pooled or whatever you want to call that to go after monster deals right. I have gotten good at my small pond and you know I never looked at transactions over 20 units and you know, someday I need to grow up and be a big boy and do something bigger.
Rod: Okay, fair enough. So what do you gift, do you know you get people come up to you and talk to you about this business. Is there get a book that you gift more often than not. That’s one of the ways that I know somebody says “I want to learn this business” then okay read this book and then most of them you never hear back from again. To do that or anything like that?
Michael: yeah there’s two right if they really have been and they’re asking intelligent questions the one I recommend at least a few following what I’ve done was Fix Your Jay
Rod: fixer? What is that?
Michael: Fixer JAY, J-A-Y
Rod: Okay.
Michael: He talks about buying multiple houses on a single lot in buying the rundown house and fixing it up. He’s done, yeah you know I should probably reach behind me one of his books out of my bookshelf but so he’s one of the guys and the other one is if you’re a busy full-time professional, something I did right when I retired in February was I wrote a little 80 page. You know free Ebook that I just send around to anybody that asks. I don’t publish it ‘coz I don’t want any costs. I literally created a PDF file and I send it via email of something.
Rod: and what’s it about?
Michael: To my 1 minute of time, it’s the 4 phases in my journey plus 23 you know core beliefs. Many of them we’re talking about here. It’s only 80 pages so it’s not like it’s..
Rod: What’s a.. you know we didn’t circle back up. I’ll make sure and put the link to that in the show notes. We didn’t circle back to the phases, what were those faces again?
Michael: Yeah, so phase 1 was sort of the acquisitions 1 through 8. Case 2 was the “ couldn’t buy anything” so we 1031 we went from 8 to 80, we went to multifamily.
Rod: mm-hmm
Michael: Right, so went to multi-family. So that’s where we sort of stopped. So phase 3 is we took about nine months off, it was the first break we had, since we had started as far as acquisitions are 1031 because it was chaotic right? The world was ending, right.
Rod: Oh I was under a rock man. All you saw was the back of my head under a rock at that time for a few months for sure.
Michael: Yeah, so we were just saving cash probably like most Americans because we just didn’t know what was going on and then at some point prices again in my market because I still watched every day I mean, that’s one thing that people didn’t realize is I looked at my market every day and I had no special access. I wasn’t a realtor I didn’t have somebody’s password. I was on realtor.com looking at stuff and prices were coming down so fast that we were in. Must have been 09 buying stuff below. What my first property was right. That first property on North Drive.
Rod: Right.
Michael: I’m like well, if it was good then it’s got to be good now. So we started buying again and we, you know I told my wife Olivia that we were gonna buy everything we could because the one thing I read in books you know when we started is, you know people talked about the crash in LA or the Texas one or the SNO one is they wish they bought more. I was not going to be that person right when they were just leaving diamonds and piece of the gold on the ground. I was gonna pick up everyone we could, so we were very aggressive during that third phase and we bought everything we could and then the hedge funds came in, or the deep pockets came in and it instantly changed right?
Rod: So what’s for phase 4?
Michael: So phase 4 is the return, right? So we come out of the bottom hedge funds, come in and say thou shall not buy everything that our EO agents have. I went from getting one deal a week to getting nothing for two and a half months because it just changed. They were buying stuff, they basically got to every REO agent so stuff, never made it to the MLS and then that was a return and you know we came into the seller’s market that we are now. I believe just rolling over and coming out of so. So the rollover, the crash, the return and now we’re.. I think we’re rolling over again as we speak.
Rod: Awesome. Well listen, you’ve added a ton of value Michael. Has been my absolute pleasure to get to know you a little bit and we will have all your information on the show notes and I’m very grateful for you taking your very valuable time to be on my show today and let’s stay in touch my friend.
Michael: All right take care.
Rod : Thank you take care.
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