We have all heard about, seen, and some of us have felt a massive shift in the real estate market in the past 18 months. What do we do? Where is it headed and where do we look for advice and inspiration?
How about a seasoned real estate veteran like Maureen McGarry? With over 25 years of experience, she has seen more than one cycle of ups and downs. Like me, Maureen focuses her time on investors and in this conversation, she will tell you why.
She will deliver her time-tested strategies for service, proving most good real estate agents act as your assistant until they can prove the right to become your agent. Maureen became so good at serving long-term rental investors, she invented proprietary software to help automate the process and make finding opportunities extremely easy for both the agent and investor.
Sun Tzu says that Strategy without tactics is the slowest way to victory and Tactics without strategy is the noise before defeat. Listen for both strategy and tactics here because that is what is essential moving into a shift. Pivot, learn new skills and act now with the wisdom of those who are smart and battle-hardened. If you want the best investments in the Min, St Paul area, there is no better than Maureen McGary.
The market does not determine your income, it determines your strategy – listen to Maureen and learn one easy way to get started working with long-term inventors.
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Maureen McGarry | In A World Of Spoons, Be A Swiss Army Knife
We have all heard about and seen and some of us have felt a massive shift in the real estate market but what do we do? Do we listen to a guy with a shaggy beard on a show? Do we look for where it’s headed? Do we look for advice and inspiration from somebody like a seasoned veteran, Maureen McGarry, with over 25 years of experience who’s seen more than one cycle of ups and downs? Like me, Maureen focuses her time on investors, and in this conversation, she’s going to tell you why. She will deliver time-tested strategies for service, proving that most good real estate agents act as your assistants until they can earn the right to become your agents.
Maureen became so good at serving long-term rental investors that she invented proprietary software to help automate that process to make finding opportunities extremely easy for both the agent and the investor. Sun Tzu says that strategy without tactics is the slowest way to victory but tactics without strategy are the noise before defeat. If you want the best investments in the Minnesota St. Paul area, there’s no better than Maureen McGarry. The market does not determine your income. It determines your strategy. Listen to Maureen and learn one great way to get started working with long-term rental investors. Thanks and enjoy the ride.
Maureen McGarry, how are you?
I’m good. Thank you.
I thought we would jump right into it and talk about real estate agents, what they need, and some tips for them as they enter a potentially tumultuous next little bit in their careers. When did you get your real estate license? When did you start in the business?
I started in the business in 1991. I got my license in January 1995. I started in an executive suite leasing company as an underling, and then I ended up managing that whole company. That’s when I got my license because I was subleasing space. It’s similar to a shared office space or the WeWork style that everybody talks about. We were doing that back then.
It’s co-op working or that sort of thing. How did that go? What was that business like to run?
It was great for me at the time. I was in my twenties. It was an incubator but not officially an incubator. In one office, I had lawyers. I got legal advice whenever I needed it and I got some tough skin because you have to argue with them every time you have to sign a new lease. I met all kinds of other businesses. Some were startups, sales offices, or different businesses. I got to a point later on in that career where businesses would come to me for advice on small businesses, “We’re thinking of starting this business. What does it look like? What do you think?” I would give my advice on what to look at. Here I was running a business, plus I was working with all these small businesses.
You were coaching entrepreneurs at the time too.
Back then, we used fax machines and copy machines a lot more. Cell phones were coming in but we had all that equipment there for them to use. I don’t think they do that as much anymore.
Was that co-op space a lucrative business model?
It can be. It also can be tough because it’s like any real estate market. It has its ups and downs. At one point, I had a waiting list in one of the buildings, and then other times, I would have empty spaces. It’s like any real estate. You have to keep marketing and stay on top of what’s going on.
In any real estate, you have to keep marketing and stay on top of what’s going on.CLICK TO TWEETIt was Robert Kiyosaki who said that buying real estate is the easy part. Managing it is the hard part. One of the cool things about talking to you is that you’ve done both because, in addition to making a career out of selling real estate and working with investors, you also own and operate your management company for long-term rentals. How long did you do all that? Did you move right from managing the co-op space and getting into long-term leasing? Tell me about that.
I had transitioned out of that into residential sales and some investment sales in the late ’90s and early 2000s. When I started seeing non-cashflowing investment properties, I stopped selling them because I couldn’t make them make sense in my head. Why would you buy something that lost money every month? People would tell me, “It’s going to appreciate. There’s going to be an upside down the road,” but for me, that didn’t make a lot of sense, and I had a hard time convincing my clients to do that. I sold mostly residential for a while, and then we know what happened. The market came crashing down.
Talk about your business during that time though. We could draw a lot of parallels for agents in this market and extract some overall skillsets that people can use to be able to push forward.
What you have to do in real estate, and the nice thing about real estate is you can do all kinds of different things. You don’t have to sell. When the market was slow and things weren’t selling, and I live in Minnesota, having a vacant house in the winter year is deadly. It’s dangerous because if the furnace, the battery, and the thermostat go out, you have frozen pipes, and now you’re talking about tens of thousands of dollars of damage. I started going around with bags of batteries to vacant houses and finding thermostats that were off.
I would call the agents and say, “The heat is off. It’s 20 below outside. Do you want me to pop a battery in here?” They would fall over crying. They were so happy, and then I would say, “Do you have time for a conversation?” What I would do then is I would put folks into the houses and stage them, and they were short-term renters then. They would stay in the house, live there, shovel the snow, or cut the grass while the house was on the market, and then when it sold, they would move on to another one. It was a great service. It worked great for all those folks who had empty houses because that was not a good place to be.
That was the mid-2000s up until the market changed, and things started selling again. I worked with a lot of short salers. I worked with a lot of folks who were losing homes that they had bought back when they weren’t cashflowing and then they were underwater on them. One day I was in my office here, and I had five different people that day all losing properties because they had bought them at the peak, and then they were underwater. They weren’t cashflowing. Most of them were crying tears.
They were investors who were losing their properties.
When you say investors, these were married couples. These were single people. These were people who bought the stuff. One couple bought some properties because they wanted extra income to pay for their son’s special ed. These are not high-net-worth people. These were people who struggled to get the properties in the first place, and now they’re not just losing the property. They’re losing a lot more with the properties. I worked through that with a lot of my clients when we went to banks. We worked out deals to try to avoid foreclosure if we could. We worked out short-sale deals.
For people who don’t know what a short sale is, this is when you sell the property for less than what’s owed on the property. You have to negotiate with the bank to make sure that they will take less. There are a lot of issues in some cases. Depending on your lender, there might be a judgment against you. Even though they may release the lien, they may not release the liability.
I’ve seen that happen in our market but it seems like back in those days when it was a hardship thing, it seems like banks were willing to release the lien and the liability but then there might be still some tax ramifications if there was a gift of equity, a charge off, or something like that. I don’t know why people call them short sales. They take longer than any other transaction.
They’re very long sales.
At any point in time, the lender couldn’t change their mind or a new employee got hired. You had worked out a deal, and then it didn’t meet their discount threshold. There was a lot of negotiation during that time. We all ended up having to become short-sale experts in some form or another. What was your experience like? Was it pretty easy? Was it tedious?
First of all, there was this overwhelming feeling for most people that these banks needed to sell these properties, and they should take whatever somebody was willing to give them because they had so many of them. They have to get rid of them. That’s not the case at all. You’re not dealing with a person. You’re dealing with a business. There are no feelings. There’s no hurry. They don’t care if you buy their house or not, and they don’t care when it happens. All the normal things that you would expect to happen in a transaction with a normal human don’t happen in a short sale because you’re not dealing with a human. You’re dealing with a corporation.
It’s company policy and employees who are showing up with a stack of files on their desks, and you’re lucky to get any attention even if you’re the one on top.
There is no urgency on the bank’s part to sell or short sale them or work with you. I had much better luck with the local smaller community banks because we could go in, meet with them, and lay things out but the bigger banks were always a chore. It’s getting people on the phone and tracking down who to talk to and what the situation was but for the most part, I was able to get most of my clients out of those properties to get a waiver so they weren’t going to get sued down the road. You probably aren’t going to but having that piece of paper makes it a for sure thing.
Let’s pause for a minute because, in the news, everybody thinks realtors are super rich. There’s a lawsuit in Missouri and Kansas saying that realtors colluded to change their commission amounts. There are so many HGTV shows that make real estate investing sexy and that make real estate agents out to be more glamorous and wealthier than they deserve. I’m sure there are a few that are but in my experience, realtors are advocates. They truly are for their clients. There are a lot of realtors out there who need a little bit of help with class and general overall business sense. They try to be attorneys. They try to force things into place rather than work for the deal and work for our clients in the deal.
I generally have so many times in my life as a real estate agent felt undervalued. It’s a job where I have to fight to prove to everybody how much value I provide. The only people who realize that are the people that I’ve done business with in the past. That’s why I’ve always said that this business is about creating raving fans because the rest of the world thinks that we’re like car salesmen.
I would joke and say, “We realtors have to get up and wash the slime off of our skin. It regenerates. We’re slimy people. We have to wash that all off so that we can go out and do business,” but nothing that you said at all equals that. You showed up in a down market and provided strategies that help people out of a financially tough position. They were emotionally distraught in your office crying. At this time, one of the things that you didn’t say is that the seller has no commission to pay us. This is a short sale. We’re having to negotiate with the banks how much we’re going to get paid on this deal.
We can bring buyers or negotiate with other real estate brokers who have brought buyers and get their commission negotiated too because they’ve got buyers. They’re trying to do the deal. We’ve got a relationship with the banks and the seller. You’re advocating with your seller trying to make sure that they don’t get sued. Nothing that you’ve said makes me think that you are glamorous, wealthy, and have too much money. Maybe you are all those things but you are a true advocate for your client.
It’s so special to hear that because that’s the message that needs to get pushed out more by NAR and some of these other advocacy groups for real estate agents. That’s why we drink a lot of time. It’s such a stressful gig. Every single person that I’ve done business with is like, “This is extremely stressful.” You bond with your clients in such an incredible way because it’s such a stressful situation and you are that guiding light for them that says, “This is when we need to worry. This is when we don’t need to worry. Here’s a strategy. I’ve been in this situation a dozen times. Here’s how we’re going to handle this.”
You want to be on the operating table with a doctor who has seen a lot of stuff and knows how to handle an emergency when it happens. That was you back in that time. Probably no one has told you what a phenomenal person you are and how you’ve used your knowledge and resources for good. We need to hear that more as real estate agents because we hear so much of the other, and it’s tough sometimes to live in that environment.
I am a real estate broker and I have been since 2003. If people don’t know what that is to be a realtor, you have to work under a broker. I’m a broker. I can work for myself or anybody else. There are many times when I get a deal going and somebody sends me an offer. They have written it wrong, or they have done something that I could say, “We could take advantage of this situation.” The first thing I always do is talk to my client because they need to know what happened but then they always agree with me that we need to do the right thing.
Let’s use a real-life example for a home inspection deadline or something like that.
There was a home inspection deadline and they scheduled the inspection after the deadline. I could have said, “That’s fine. Whatever you find is going to be not my problem because you’re after the deadline.” It was a tight deadline and we knew that. The agent needed to send me an amendment changing the timeline for the inspection but I didn’t get that. I talked to my client and said, “Here’s the deal.” They said, “We don’t have anything to hide. We’re not afraid of their inspection. We should do this the right way and give them the extra time.” I went back to the agent and said, “You have to send me an amendment so we can add some extra time here.”
Otherwise, if the deadline passes, they have no recourse. It’s good that you talked to your clients first and gave them the option to decide what they wanted to do. That’s true advocacy but sometimes as real estate agents, if we advocate for the deal with our client’s permission and full communication, getting to the finish line is as much of a success for both parties because that’s what both parties want.
I’ve always wondered why buyers, sellers, and their agents become so adversarial. It’s funny to me how much mistrust people instantly go to in a real estate transaction. They’re like, “This is what they’re trying to do.” The buyer has as little experience as you do, Mr. and Mrs. Seller. In some cases, there are some attitudes that come up but I like being an experienced agent because I’m not worried anymore about the things that can happen in a real estate deal. They’re things that happen and they can be fixed, whether it’s termites or broken pipes. Everything can be negotiated.
It’s too cold for termites. One thing I always tell my clients when we start working together is, “You need to figure out what your win is. What is your win? Is it buying your dream house? Is it buying your first investment, tenth investment, or whatever that is? Stick to that goal.” Your win might also mean that the seller or the buyer gets to win too. We don’t care what they walk away with. It doesn’t have to be a win-lose situation. It can very well and it should be almost a win-win but let’s not get ourselves wrapped up in, “What are they thinking? They’re trying to get us. I don’t want them to get away with this. I don’t want them to win. I want to have the last word.”
That’s not what it’s about. It’s about your goal. Let’s stick to that. As long as we get our goal, we don’t care how the other side feels. Hopefully, they’re happy but we’re not going at it to beat them. That’s not our goal here. If you want to beat somebody, join a soccer team. We’re not here to beat the other team up. We’re here to get your goals and needs met. Once they think about that, then we start negotiating price, for instance. We’re down to $1,000 and everybody is like, “What the heck.” Stick to your goal and what you want. Don’t think about them getting the last word. If this works for you, then it works for you. Don’t worry about whether it works for them or not.
Stick to your goals and what you want. Don’t think about them getting the last word. If this works for you, then it works for you. Don’t worry about whether it works for them or not.CLICK TO TWEETI’ve always described the closing process as having a baby. I’ve never personally had a baby but I’ve been there with my wife holding her hand. You know what I’m talking about. I’m like, “Sometimes this is going to be painful but I’m here for you to white-knuckle my hand while we’re going through it and to encourage you.” Sometimes it’s messy. Sometimes we need doctors to come in but in the end, we all get what we want and move into a new chapter of our lives, which is very special.
When I was negotiating short sales, I would have to hold a seller’s hand while they had to bring $20,000 to the table to be able to liquidate their asset so they could move to Arizona and be with their grandkids, which is what they wanted. That was a stark contrast to when there were fifteen buyers for every property. It’s interesting for people like us who have been in a full cycle of the marketplace. What similarities are you seeing that you’ve been in a down market? The market has shifted and it’s in an odd place. I don’t even want to say it’s in a down market. We’re in a suppressed market because of interest rates but tell me what your opinion is of all this.
It’s interesting because we are seeing interest rates back up to where they were in the early to mid-’90s. Most young buyers have never seen anything like this. They think the interest rate is out of control. What I’m seeing for investors is things are starting to sit longer. Even though prices aren’t dropping significantly, at least in this market, when something sits longer, that’s when you start being able to have some negotiation ability.
It’s a normal market. A lot of people think this is bad but there are still buyers. Real estate is a need-based asset. It’s a product that people need to move into because they have had another child, blended a family, or moved. It happens that we need to relocate from time to time. We’re transient people. We’re humans. This is what we do. People pass away and people get divorced. They have needs. They liquidate assets. That’s always going to need to be there.
When a market driver happens like interest rates or a massive wave of foreclosures, which tanks property values, people become upside down in their properties. They don’t sell or they can’t sell, which is the case. Few people will volunteer to get out of a 3% or 4% interest rate and move up to a bigger house. They want to because it’s not as affordable. They will stay in their house, add on a room, or remodel because it makes more practical sense. People get more frugal in times of uncertainty. What that does is it creates a pent-up demand in real estate.
People don’t realize it but to all these agents who are leaving the market, this is the best time to educate yourself, get your systems down pat, and do the things you never had time to do before because you were running so crazy. When the market comes surging back, and it will, you will be ready to receive your unfair share of business because you treated your business like a business. What do you think of all that?
This is a great time to come up with some new strategies because that’s when you can think, “What are the needs out there? How can I beat them?” That’s what I’m looking at in my business. Buyers are strapped for cash. In this market here, if you wanted to flip a house in the last few years, forget it. You had to go knocking on doors to find something. There are houses sitting on the MLS that you could flip easily. The reason is that buyers don’t have the cash to do that. They want something that’s done.
You have to start getting versed on all these different things, what buyers are looking for, what sellers are looking for, and how you can meet that need. When the market was crazy and every property was getting ten offers, how many offers were you writing for one client, 15 or 9? I remember. You probably do too. It’s one offer for a client doing the job 1 time, not 15 times, and getting paid.
That’s the other nice side of the market leveling out. You’re going out, looking at properties, and saying, “I thought about it. That’s the one I want.” You write an offer and buy the house. You’re not up against twelve other offers. There is a lot of time to learn some of that but there’s also a lot of opportunity. Investors have been waiting for this market for a long time.
When did you start working with investors? You started with a small management gig and then got into residential sales. At what point did you have this a-ha, “Investors are who I want to work with?”
It’s funny because I always did. The first property I ever bought myself was a duplex and I didn’t even have a real estate license at the time. I was in my mid-twenties. I thought, “I don’t know what I want to do in the next several years but if I buy a house and decide I want to go back to school or something, I don’t want to have this big mortgage.” I bought a duplex.
After I put the offer in, there was a story in the newspaper here in St. Paul. There’s a picture of the house I’m buying. There’s a whole story about how smart the buyer is who’s buying this duplex. It’s running all the numbers on this duplex. It’s a whole story about buying investment property and how brilliant the buyer was because these were the numbers, and this is what was going to happen. I’m thinking, “They’re talking about me.”
I moved into that and my brother moved in next door with his buddy. After about a year, I said to my brother, “I have my real estate license. I can’t take your money anymore. You have to buy a place.” I started selling the investment property of family and friends, and that’s when I got started on it. The funny thing is most of them still own those properties. When the market turned, I backed off a little bit, and then when it came back, I was back in it. Being in the commercial leasing space, I wasn’t afraid of the leasing piece and the management piece that sometimes people are afraid of. It didn’t scare me at all. I lived in one half, and I had a tenant in the other half.
Getting into working with investors wasn’t about you 3X-ing your business. It was more about, “This works as a process for me as a young person to build wealth and a little bit of equity. It works so well for me so I’m going to talk to my family about it,” because they’re in the closest proximity to you. It sounds like you even challenged your brother a little bit and said, “I can’t take your money. You need to go buy a place because this is a good thing for you.” You put his needs before your own because it would have been nice to have a good, easy, and long-term renter in there. Is that how it worked? You saw the value of owning an asset.
I was in my 20s and all my friends were in their 20s. We all have jobs. We’re making money and paying rent. I’m saying to them, “You can buy this duplex like I did, live in one half of it, pay almost nothing, and rent the other half out.” They’re like, “Tell me more.” That’s what I did. They referred people to me and that’s how the business grew. It was that ability to say, “If I can help these people I know, then they will tell other people.”
It’s the sphere of influence everyone is always talking about but then that grows. In my business, I offer property management to my investors and they love it. I have a lot of clients that never see their properties. They buy them sight unseen. They have never seen them. I buy and manage them so they don’t care what they look like. They look great. Don’t get me wrong. It’s a financial transaction.
Have you ever bought stock on the stock market?
Did you ever see that?
We were conditioned in real estate because it’s such a tangible item to want to see it. Sight-unseen properties in the past few years were all that our folks were buying because there was no time for people to come to a second home destination to look at it. What we would do is book tours. Investors would come, and then we would tour them around and show them, “These are some subdivisions. There’s nothing available but we want you to have a mental map and put eyes on these so that when we call you, it’s time to put in an offer.”
Sight-unseen properties are a function of the investor client, which is why real estate agents are so essential. They bought property from you sight unseen because they knew you and trusted you. You had a track record of success, not just for them but for their friends or your book of business. When you can say that as a real estate agent to repeat customers, isn’t that the game in real estate? We’re all out to go find raving fans so we can get that repeat and referral business.
If you’re a brand new real estate agent, and you’re 1 to 3 years in the business, this is the toughest time in your business because you have to create everything. If I got jumped back into the residential real estate business again, I would buy a book of business. I wouldn’t generate it myself because it takes way too long. After you get to about year five, and you’ve done a good job and you’ve had good training or you’re with a brokerage, a mentor, a team leader, or a coach, it’s going to help you put those systems in place.
There was no greater feeling to me than right around year 2 or 3 when I got a referral from somebody who I had done business with. For me, it was a function like, “Why am I spending all of my time and money marketing for one client who’s going to buy 1 house every 5 to 7 years? That’s the national average. Why not work with investors who are going to buy one house a month?”
I was trying to feed my family and serve investors. When the market crashed and nobody could buy anything, I said, “I’m going to be of service to millionaires. They need to make a return on their money.” I figured out how to get them a return on their money in the short-term rental business model prior to Airbnb. It was exciting for me to be able to see results in people so fast, have them come back and buy another property, and then use those tools for myself. Managing long-term rentals can’t be a rewarding business yet you did it to serve your clients.
I’m a big believer that you have to understand what you’re buying. The biggest problem with investment properties in my opinion is that they’re not managed well. One of the things I see all the time is they’re under-rented, meaning their rents are not where they should be in the market. People sometimes think, “I’m doing my tenant a favor. I’m keeping their rents low. They don’t need new blinds on their windows. They don’t need a new faucet. We will tape that one together.” That isn’t how tenants think. They would rather pay what they’re expecting to pay for a market and have a nice place.
You have to understand what you’re buying.CLICK TO TWEETI’ve had investors start from nothing where they don’t have any properties, and they have come to me and say, “This is what I want to build.” I enjoy putting those pieces together. I’ve had some that start and buy a few duplexes. We renovate them, raise the value, sell them, and buy bigger, and then we have big apartment buildings. Management is a key piece. I’m not saying realtors should go out and start a management company because it’s not for everyone but I am saying that if you’re going to sell to investors, find a management company that does a good job, knows what they’re doing, knows how to price things, and keeps things at market.
See their properties. How do they keep their properties? Do they keep them nice? Are they dirty? Are they well cared for? That’s who you want to set your clients up with once they buy. If they’re going to self-manage, that’s one thing but my clients aren’t self-managing anything. They need somebody that they can trust to manage it. You need to make sure if you’re selling them a property that’s going to cashflow, you have a manager that’s going to make sure that’s going to happen. If they’re keeping the rents low and charging an arm and a leg for the services, it’s not going to happen.
It’s a full-circle thing. You have to look at the big picture. I love clients buying things sight unseen because it’s a quick process. I go out and vet the properties. We have FaceTime and WhatsApp. I can get them on a video and walk them through it, and they like that. It’s the trust that the management is going to be handled correctly. The numbers that we’re expecting to hit are going to be probably hit.
That’s the critical piece for investors. If they’re making money, investors’ first thing should be to look at the numbers, not the property. If you have an investor who’s saying, “Let’s look at a bunch of properties,” you need to sit them down and explain to them how to be an investor because the first thing you should worry about is, “Are you going to make any money on this property?”
You have to get past the whole, “I like the property. It’s pretty. I like where it’s at.” That’s not what it’s about. It’s about, “Is it rentable? Is it flippable? Is it in a place where other people are going to want to live? Are there issues with it that’s going to make it hard to rent?” I’ve turned down a lot of properties because I said to my clients, “This is going to be hard to rent. There’s no bathtub in the house. It’s hard to rent a house with no bathtub.”
Especially to somebody with kids. We would do the same thing in the short-term rental business. As developers creating inventory, we were so thankful for it but then they would turn around and ask us, “What do we need to put in these properties?” A lot of people shower when they’re on vacation but these are families that are coming and staying in these properties. We’re like, “You have to have a couple of bathtubs in here because somebody has 2 and 3-year-olds, and they bathe these kids. You can set them down in the shower but kids get slippery in the shower. You need to set them down and take care of them a little bit.” Did you use spreadsheets to educate your buyers? What process did you use?
I started with some spreadsheets. I encourage my investor clients to have the ability to do due diligence. Sometimes I give them spreadsheets. A lot of times, they come up with their own. I analyze every property before I even send it to them and say, “Here’s what this property can do.” I have one client. He’s always like, “I’ll tell you what it’s going to do. I’ll get back to you after I’ve run the numbers.” I like that because he’s satisfying himself.
I morphed those spreadsheets after a while into a technology that I developed to find investment property faster because anybody who’s ever used spreadsheets to analyze investment property knows that it’s very time-consuming, and you can’t get through all the properties. You can analyze 10 to 12 an hour and there are 68 duplexes in that neighborhood for sale. How do you know which one is the best one to buy? I developed software that analyzes everything on the market and then tells me, “These are the best 10, 20, or 60 based on what that investor’s criteria is.”
When I started analyzing investment properties, I used worksheets. I would make copies in a class that I took of a workbook that I bought and use handwritten worksheets. For me, creating an Excel spreadsheet was a massive automation. You’ve taken it one step further and hired a software developer to develop some software. Describe exactly how it works. Is it an investor or an agent that is using it?
I use it within my business. Let’s say that you wanted to buy a rental property in Minneapolis and you were going to finance it. We would put in the terms of your financing, your interest rate, how much you’re putting down, that type of thing, some information on, what you’re looking for what your price range is, if you want a duplex, a single-family, or whatever it is you’re trying to rent out, and the area that you want, whether it’s a county, a ZIP code, or whatever that is. We can put in things that we want to budget for.
For instance, if we know we want to set money aside as a townhome association does and have a capital expenditure budget, we can put that in. If we have maintenance budgets, we can put those in or leave that all blank but a lot of investors will say, “I want an 8% cap rate. I want a 7% cap rate or higher.” We can put in the cap rate and a cash-on-cash return, which is the return on the cash you put down. I like to look at this with investors who are financing. If you’re putting $100,000 down, what kind of return are you getting on that $100,000?
It goes into the MLS and searches everything that meets those criteria, for instance, single-family homes in that price range, and comes back with however many that it deems would return that cap rate and cash-on-cash. That’s what it does. I have all the numbers and information. I can send those right out to my clients. A lot of times, even from there, I’ll do more due diligence on those properties because I want to know exactly what I’m sending them. By the time I send something to them, they could buy it. That’s where I’ve taken it. One of the things I want to make sure of is that if they’re buying something, are they buying the best property? How do you know that if you haven’t looked at all properties?
It seems like that’s what your software gives them the opportunity to do. If it goes in there and analyzes all the properties, you save that investor half a day and yourself maybe two days. We would have people come to the brands in the Tri-Lakes area, and we would drive them around the lake for an entire day but if we had software that plugged right into our MLS and said, “There are four properties that meet your buying criteria. Let’s look at those four,” if one of them fits the bill, then you’ve saved everybody a lot of time. That’s phenomenal.
We’re leaving the information age because information is available for free to so many different people. We’re entering an automation age. I didn’t read this anywhere. This is generally what I feel as I observe the world I live in. It’s so forward-thinking of you to develop that. You developed it with your money. You hired a developer. You invested your money to do it for your clients originally.
It came down to, “Do I hire a bunch of people to come and sit and analyze properties?” I assumed someone had already done it and I couldn’t find it anywhere. There’s a lot of software out there. You will have one-by-one properties. It gives you some detail or analytics on an individual property. If I have a client in Toronto that’s buying here that’s not coming here, I want to be sure that I’m showing them the best properties, not just a couple that work but the best ones that work for them. This allows me to do that.
I’m not expecting another huge crash like we had in the 2000s but I want to make sure that they’re going to have the cashflow. I always build in what I call a plan B, which is if you’re planning on flipping the property, and you can’t flip it, can you rent it? If you’re planning to rent it, and you’re having trouble renting it, can we sell it? What are our options? If the thing that you thought you were going to do isn’t working out, what’s our other option?
Multiple exit strategies seem to be the name of the game in the real estate world. We get to analyze that first-year rate of return before we buy it and that’s a cool thing. We don’t get a chance to do that with stocks because it’s all guessing. We don’t get a chance to do that with bonds and any other type of investments that we might make mutual funds but with real estate, there’s a trajectory there. There’s a historical income record. There are a lot of factors.
There are data points that allow us to predict with a great deal of accuracy what the future is going to do, barring any weird virus that hits the planet, interest rates that go up twelve times in a year, China doing this or that, or bombs going off in some country. It seems like every two years, there’s something nationwide that happens that freaks people out and makes life a little bit hard to predict but real estate tends to be a relatively predictable asset class. You’ve made it easier to find and locate properties in your market. What’s your plan with your software? What do you want to do with it?
I’m looking to expand it hopefully nationwide. I would like to get it in every realtor’s hands and eventually every investor’s hands because it comes down to understanding what you’re buying ahead of time. In the course of my management, I’ve had a lot of people bring me properties and say, “I want you to take over and manage this for me because my current manager is no good. I’m not making any money.” I look at it and say, “You’re not going to make any money.”
“Here’s the hard truth.”
I’m not one to sugarcoat things. I get that a lot from people. You didn’t sugarcoat that for them. You didn’t buy something that was going to ever make you any money. What we need to do is figure out how to survive and tread water with this thing. Do we sell it? Sometimes we go out and buy a bunch more properties to boost it up. We’ve got revenue coming in from other properties that can support that one too. It depends. I would like to get the software out to every realtor. Frankly, it’s a no-brainer with investors when I show them the software. They’re done. They don’t interview anyone else.
I’m shocked at the number of times I’ve heard from my clients who worked with other people who said, “They sent me a bunch of listings.” When we talked about cap rate, their eyes glazed over and they didn’t know what we were talking about. I do feel sorry because I know I searched for all of the investment classes I can for realtors. It’s hard that there aren’t many but realtors need to understand. If you’re selling a duplex, you need to understand what you’re selling, or frankly, you have no business selling it.
I thought that 100%. When I was a residential agent, if I got a rare commercial deal, I would talk to a commercial agent and partner up with that person to make sure that the client was protected and that I was not the lead on the property but that I was there to help manage and strategize because I was learning as well. It was worth it for me to pay 50% of that commission as an education so that I could learn and get better. As a short-term rental authority coming up since 2006, I’ve had a lot of people who want to learn the information. Other realtors would come to my area, buy a property, and then not need you anymore but that’s okay.
We do a lot of giving because you reap what you sow but that’s how I was able to grow my brokerage from such a large volume not just in production but in agents in such a short time. It’s because I was willing to teach in a down market and a normal market so that by the time we got to a hot market, I had 40 agents that were out there kicking butt. It was great. It was a beautiful thing.
I’m like you. I want to take that expertise to the largest population possible because I’ve always had a heart for real estate agents and investors. I know real estate agents have it tougher than what they’re given credit for. I also know that investors are in large part the ones that you described. They’re people who are looking to get an edge in life and they want to pay for something. They want a life that they can’t provide for themselves working a 40-hour-a-week job. They have goals for their family that they want to see come to fruition. They do that by taking risks.
A lot of times, Wall Street and our government don’t take into account what it feels like to be on Main Street and to have to take that risk and leverage yourself to the hilt to be able to make a couple of thousand dollars a year in cashflow, put that away, refinance, pull cash out, pay for a deck that’s rotting off of a property that you bought four years ago, reinvest the money in the asset, hope that it continues to go up in value, and hope that you will be able to continue to have renters.
It has been very difficult for the average Joe to find something that’s going to give them that edge in life. Real estate has always been that. That’s why I’ve always had both feet in real estate as an agent and an investor. That’s why I love agents and investors so much because I’ve seen the incredible power that it has given them as individuals to compete with. In my case in Airbnbs, why should Paris Hilton get all the money? She’s wasting it and blowing it. She doesn’t even know what life she had but if the investors that I talked to had half the money that she had, they would be much better stewards of it.
That’s what I want to see. I want to see more intelligent people who are better stewarding their money because they’re better moms, dads, and citizens. They seem to care. It’s surprising to me how I do come across somebody who’s infected with the love of money. It’s disgusting to me, honestly, when I see how many opportunities are out there and how many standup people that I’ve had the great privilege to work with in my career, and then you come across somebody who would slit your throat for $2. It’s hard to choke down sometimes.
I always figure it’s not worth it. One commission isn’t worth any of that. The majority of investment property in this country is owned by mom-and-pop. That’s a fact despite everyone thinking that corporations and hedge funds are buying everything. That’s not the case. The idea that all landlords are rich sitting in their ivory towers is not true and the fact that they make a lot of money isn’t true either. They’re leveraging themselves and putting themselves out there.
The difference between real estate and stock is that if you lose your money on the stock, you’re out. You’re done. You hit rock bottom. Real estate can keep taking and that’s what happened in the 2000s. It ruined people because it went far below what they had spent on it. It is a dangerous asset if you don’t understand what you’re doing in this mindset, “My mortgage with taxes and insurance is $1,200. I can get $1,800 for rent. I’m making $600 a month.” That’s not accurate.
You need to understand what you’re buying. I don’t want to scare people but I go on these chat groups all the time. I can’t even respond to a lot of them because they’re in other states and I don’t know what their laws are. Some of the things I see people doing boggle my mind and it’s because they didn’t know what they were doing. They’re self-managing. They don’t know how to deal with something that’s going on if the tenant is doing something or if there’s a problem. I had a conversation with a neighbor. He owns six investment properties and manages them himself.
His wife won’t let him buy anymore and I said, “Why won’t she let you buy anymore?” He said, “I work on Saturdays at them and she doesn’t want me working on Sundays.” I said, “Why don’t you hire someone to manage them for you, and then you could buy as many as you want?” He says, “I’m not going to pay somebody else to manage them.” If he found out what I charge to manage, and I usually only take on my clients as management, he would be shocked, and his wife would have probably signed the contract if I handed it to her so she got it back.
I’ve had the same issue with real estate agents who are driving themselves crazy because they have nine deals working and they won’t pay $350 per transaction for a transaction coordinator to help them manage the deal, or they won’t hire a part-time admin or a full-time admin. We don’t understand the value of our time. We understand the value of our money but we don’t understand how much money we could buy with our time if we were to buy it back for such a low price.
It doesn’t make you lazy. It makes you smart. I have a lot of brothers. I took over one of my brother’s properties that I sold them years ago to manage a couple of years ago. His rents were sorely undermarket and the tenant was leaving. I said, “This is what I’m going to price it at. It’s going to be this much.” He said, “You’re crazy. You’re not going to get that.” I said, “I’m going to get it.” He said, “You’re not. You’re crazy.” For the next week, he called me all hours of day and night saying, “I don’t think you’re going to get that. You’re out of your mind.”
Finally, I said, “Do you not want to make any money? What’s the deal here?” He says, “I want to make money.” I said, “Why are you telling me I can’t do it when I’m telling you I can?” He goes, “Do it. Go ahead.” I said, “I will,” and I did but he had it in his head that it couldn’t happen. His property was not worth that much. I was like, “You have a great property in a great area. It’s worth that and more. Don’t undervalue it.” We undervalue ourselves sometimes. Don’t undervalue your property. Realtors shouldn’t undervalue themselves either. I agree with you. If you need it, get help because it shows up at the end of the day with your clients if you’re juggling too many things.
It shows up with your family and all the things you want to do with your time. It eats into that. It’s so good to talk to you because you’ve got so much experience in the marketplace. We train a lot of new agents. There are a lot of new agents entering the market because they want to change their lives and real estate is a great way to do that. People are like, “Why are you training new agents? It’s such a tough time for them to get in.” It’s because I started in 2006, 2007, and 2008. You’re not going to convince me that it’s a better time to come into the market. I’ve got belief in myself that I can make it happen.
I believe in new people when they come in, and a lot of times, that’s all they need. My belief is enough for them. For you to have somebody who believes in you is like having rocket fuel. Being able to wake up every day and know that there’s somebody who believes in me, and they’re willing to share their resources, their secrets, and the the lay of the land is so special for people. Investors and agents need that more than anything. Are there 1 or 2 things, a mindset, a tactic, or anything that you could send them off with to give them a gold nugget in their pocket?
I had a realtor. I had a mortgage person who owned a mortgage company. Experienced people come to me and say, “I’m embarrassed but I don’t know what a cap rate is. I don’t know what return on investment or ROI means. I don’t know what to do. Can you explain this?” Don’t be afraid to ask, get the information, and ask questions.
I’m happy to talk to anybody who needs help because that’s how we learn. Sitting back and pretending like you know it all isn’t going to help you. I was fortunate. Early on in my career, I had a broker who knew it all. He wrote some of the laws here in Minnesota and trained me very well. Not everybody has that. If you’re interested, reach out. If you have the ability to help other people, then do it.
Somebody can reach out to you if they want to buy an investment property or have it managed up there in the St. Paul area, or if somebody wants to come along and help you expand the software that you’ve developed nationwide, then they can reach out to you for that as well. Maureen, it has been great talking to you about real estate strategies. You’re a wealth of knowledge and a great human being. I always enjoy speaking with you.
It was great to talk to you. I feel the same way about you, Jeramie.
Let’s do good. What do you say?
That sounds good.