I attended a meetup about achieving financial freedom through purchasing buy and hold rental properties in California. Michael Zuber talked about how he attained over 150 buy and hold units in California within a short amount of time.

Buy and hold is a long term investment strategy where you purchase a property and hold it to gain the rental passive income profits.

If you’re looking into other methods of making passive income outside of online businesses, this post is for you! I took notes on his talk and am providing them below. This was Michael Zuber’s real estate investing strategy and it may not fit your blueprint, but is always a good idea to learn different perspectives and methods. And as a disclaimer – you should always consult with a financial advisor before making financial decisions.

Achieving Financial Freedom through Buy and Hold Rental Properties in California (Notes from Michael Zuber’s Talk)

5 Uncomfortable Truths

1. Sacrifice is key to long term success  – if you want to get a ton of rental properties, and crush your day job. Live on 50% of your income. Earn, save, invest.
2. You only need to be good at one part of this business. Don’t get distracted by shiny objects. Pick one part and get really good at it. Figure out what you can do time-wise, skill-wise, and money-wise. Pick your thing, stay in your lane, and get really good at that
3. Your personal network matters – Audit and remove negative people. (then figure out who you need to add).
4. Bad things happen in a people business. When a bad thing happens, deal with it and move on.
5. Anyone can be successful in this business – Real estate investing can be wildly successful – he’s seen ex-cons, dropouts, people of all ages get wildly successful.

His Story

• • After Michael’s 30th birthday he realized he didn’t want to be like his colleagues.
  • He tried to invest where he lived, which was advice people preached.
  • He eventually found out about investing in Fresno 2.5 hours away
    • He didn’t know anyone and had no references, but the properties fit the 1% rule
      • 1% Rule = if it rents for $1,000, you should buy for $100k.
    • Fresno had over 500,000 in population for job diversity. You should invest in cities that have half a million or more people
  • His first rental experience would crush most people.
    • Michael bought his first house for $107,000 and it rents for $1,100. In 2 weeks, the tenant’s wife divorces him, and the husband decides to quit his job and drink all day. Michael had no payment after 60 days, and there were huge eviction fees and repair costs.
    • He was still committed to continue investing in real estate, regardless.
  • 15 year journey up a crazy sellers market, real estate depression and the return
    • Lending changed
  • Did a 1031 exchange when asset class got overvalued
    • 1031 Exchange. According to the Real Wealth Network: “To put it simply, this strategy allows an investor to “defer” paying capital gains taxes on an investment property when it is sold, as long another “like-kind property” is purchased with the profit gained by the sale of the first property.” Allowed them to switch their single family homes to 81 units of apartment units.
    • He sold his first house for $269,000
    • Went from 8 to 80 units because single family houses were overvalued and he moved them into multifamily.
  • Buy and hold (exchange)
    • Not active income so you get taxed less!
  • Spends time giving back and turning slumlord properties into pride of ownership rentals for new landlords

Keys to Success

• • Significant other bought in together
    • Joint sacrifices matter for 15+ years. They never upgraded homes, cars, kitchens, etc. Instead, they lived on less to build something
    • Make sacrifices, spend less so you can use that capital to invest.

• • Michael bought when deals made sense even in a sellers market
    • People get scared even when a crash happens
    • Make sure you buy deals that make sense even in a hot market
    • Buy properties even in a sellers market and try to find good deals.
  • He kept learning the market every day for 10 years
    • He had no special connections. Instead he merely bought off the MLS. He bought 60% of his 15 deals this year off the MLS
  • Michael used conservative finance and stopped chasing prices higher when single family homes stopped working in his model
    • Residential lending was really easy last time
    • He puts a lot of money down so that he’s safe and not over leveraged
  • Moved to small multi-families when they were under valued
    • Large syndications are making multi-families too expensive (overvalued). So currently, single family homes are undervalued he finds
  • He found ways to buy when banks said no.
    • Even though he never missed a payment
    • Used hard money first, then used private money
  • Never stopped looking for the next deal
  • Outsourced everything except securing capital and finding deals
    • Built a network of agents – they send him deals. He never stopped looking for his next deal. He outsourced everything EXCEPT securing financing – crushing his job – and finding deals.

Ask These 4 Questions

• What is your buying criteria?
  • You need to be able to answer that and get your criteria down. You need to know what you think a deal is.
  • “I just want a deal” is a bad answer!
• What is an average deal in your market?
  • In Fresno – 4.8%.  list price + estimated rent, sub 5%.
  • You calculate that yield percentage / cash on cash percentage through the following formula: (rent profits after expenses * 12) divided by how much cash you put in.
• What is a good or great deal in your market?
  • For him, a good deal = 6%, great deal = 8%
• What should I focus on and what should I outsource?
  • He outsourced property management work.

Core Beliefs

• Make sure your significant other is 100% on board
• Never buy or create an alligator (negative cash flow)
• Live where you want but buy where the numbers make sense
• Buy affordable housing (below median) don’t let ego make you buy Park Place or Boardwalk
  • B or C neighborhood properties
  • Drove there and scouted. Still goes to Fresno twice a month (3 hour drive)
  • Rule of thumb, would his wife be ok walking on the street?
  • Think in decades, not months or years

• Understand quality differences: slumlord, well used but rented and pride of ownership.
  • Slumlord
    • Boarded up or should be
      • Cash buyer
  • Pride of ownership
    • Turnkey
  • Well used but rented
    • Middle of the road
    • At first he bought this type
      • When you try to raise rent on this type, they stop paying
      • Then they stay for free and you need to pay for eviction
• Cash rich asset poor (CRAP) – is not the way to comfortable retirement
  • Most of us can’t save our way to retirement. You must obtain assets
• Always leverage conservative financing
• Focus on one thing – do not get distracted by shiny new objects
• Real estate is a people business
  • Try to meet 2 new people a week. Do that for 10 years = 1000 people.
  • Deal flow is because of your network

Why should you obtain 4 rentals?

• Financial freedom can seem too daunting when some folks are at zero
• Financing 4 investment properties is relatively easy today
• 4 rentals can change your life
  • 4 rentals free and clear in 30 years
  • You can cash out refi
  • 15 years, you can sell one and pay off the other 3
• Once you get to 4, you can stop or move on to 10
  • At 10 there’s the next lending hurdle. That’s when you have to get creative with your financing.

What Michael is Currently Doing:

• Still adding to portfolio of long term holds, usually via seller financing
• Sellers have depreciated to zero, huge tax recapture
• Installment loans for sellers
• Repositioning Debt and Equity
• Finding slumlord properties and creating turnkey rentals that he sells
• Gives back to real estate investors
  • YouTube channel: One rental at a time
  • Amazon Book: One rental at a Time
• Resources to Check Out
  • Rich Dad Poor Dad
  • Real Estate Guys
  • The Millionaire Real Estate Agent – Gary Keller
  • Fixer Jay
  • One Rental at a Time – Michael Zuber
  • Everything Real Estate Investing Show – Sean Pan

Advice:

1. Figure out your buying criteria
   1. Pick a zip code
   2. Pick your type of property and learn your market (3 bdr/2 bath)
   3. Figure out how many of those are for sale today
2. Look at that list every day for 3 weeks. You’ll see things change. You’ll see price drops, and you’ll get the rhythm of the market
3. Create lists, figure out how long they stayed on the market
4. Be able to answer the following: what’s a bad deal, average deal, good deal, great deal. You shouldn’t make an investment until you’ve determined that.

Conclusion

I loved the advice Michael provided about buy and hold rental properties in California! I believe that there are SO many paths in real estate that can create success, and it’s a matter of choosing one and being focused and persistent with it. It’s the same with passive income. You have to choose a channel that works for you and keep going with it. Buy and hold is still one of my ultimate goals. Ultimately I’m more interested in having a few properties around the world that can generate passive income versus constantly flipping properties (though the profits are HUGE on flips). Let me know what you think about the buy and hold strategy in the comments below!