Michael is a real estate investor in the Bay Area, with most of his properties located in Fresno, California. A buy and hold investor, Michael also has a YouTube channel called “One Rental At A Time,” and a best selling book on Amazon. In this episode, Michael gives us updates from when we last talked including his new commercial property in Fresno and his take on how the Coronavirus is going to affect the market.
As a successful flipper, Michael found himself with lots of time to spare. So he decided to come up with a new kind of flip and turned 45 extremely disgusting, slumlord type properties into the pride of ownership rentals. With an average of $40,000 put into each property, each one got brand new things such as a new kitchen, new floor, new paint, etc.
He then sold them to landlords with traditionally 30% down payment and the properties are leased out. This way, he has helped 25 investors including the neighborhood.
He also decided to do a daily financial show on his YouTube channel and share with his viewers what he read that day and what the numbers mean to him. Recently, he made a big declaration that he’s offering a multi-listing service (MLS).
The property involved two houses located in one lot. It was built probably in the 1940s or 1950s.
Michael bought it for $98,000 and spent $42,000 renovating it. In total including closing costs, it cost him $150,000 for the property. He sold it for $177,000, and it was rented for $1,350.
For Michael, flipping can be too exciting, so he prefers to buy and hold. The advantage of that is he can always profit from the rental income.
Michael got into private money by accident when in 2010, banks wouldn’t lend to him even though he was the ideal borrower.
He put up a website called Wealthbuildingpro.com where he documented every house they bought and what they did with them.
Pretty soon, people started reaching out to him wanting to invest. So people started lending him, and he paid 10% interest.
In 2018, he created something he called 6 and 20. For that model, he’ll put a private investor in place that he’ll pay 6% every month, which comes up to around $500 for a $100,000 property.
Then he spends his own capital doing the repair. This way, the investor is protected, and he has the worst-case scenario covered, which is being unable to sell the property. He can just rent it out for higher than the monthly interest he’s paying.
If he’s able to sell the property, then the private investor gets 20% of the profit.
Michael has been able to leverage much more with the 6-and-20 program. He actually was able to get $1M from 4 people just days after he announced it.
Michael has always wanted to do something more permanent in Fresno. It’s where he has 95% of his net worth located.
He decided to buy a building in Van Ness. The building has 7 offices, open spaces, and a lobby. His goal was to be able to get one deal a month from the property. So he charged only a little bit of rent and got real estate professionals to move in such as 2 different licensed real estate agents, a general contractor, the number one flipper, and someone doing Airbnb
Once the current Coronavirus crisis unwinds, the building and what they offer will be valuable. Michael wants to be known for helping people in Fresno whether they’re property owners in trouble or wholesalers with financing problems.
Michael believes that for the rest of 2020 he’ll be buying more properties off the multi-listing service than through wholesalers. He expects more listings and price drops. By July, he thinks he’ll get more owners accepting his offers. He hopes to be able to buy 20-30 houses out of the MLS this year.
When the market gets cold and becomes a buyers’ market, the MLS is a great place to fish for deals.
April’s been a normal month for Michael even with the shutdown. He reached out and checked on his high-risk tenants. At that time, nobody took his offer for any help, and he was able to collect 86% of his income.
It might be different for May as some of his high-risk tenants have lost their jobs and have requested for payment plans.
Michael had buyers and investors backing out of deals, but with a couple of phone calls, he was able to find other people interested to take their place. So he thinks things just need a little more work to keep going.
Right now, he has 2 properties that will be going into escrow next week.
Michael plans to become more aggressive. He wants to help people, but he will never overpay. He’s cheap and even though nobody has taken up his offers, he believes he’ll be buying properties from motivated sellers very quickly in about 60 days.
With his YouTube channel, Michael has 4 experts from around the country and together they have 200 years of experience combined. Their general feeling about the market is that it will be a slow road back that might take 18 months.
The buyer pool is expected to shrink as JPMorgan Chase Bank just came out and raised their standards for residential loans. The credit score was raised from 620 to 700, they mandate 20% down payment, and they’ll no longer do jumbo loans. This basically disqualifies 80% of their potential loan applicants and other lenders are expected to follow.
Since lending is getting hard, Michael believes that prices will surely go down.
Multifamily properties and syndicators were very popular back in 2018-2019. But Michael predicts that they’ll get crushed, and it’ll go down by 30%.
His perspective on the Bay Area is that it will be very negative. A lot of startups are going to close, and technology stocks will drop. The Bay Area could go down by 20%.
New York could probably go down by 40% since it’s been hit the worst by the pandemic.
Michael’s ultimate plan is to buy as many houses as he can because the market for houses will come back first. Then he’ll sell them via a 1031 Exchange and move his equity into multifamily in 3-7 years.
Learn your market for the next 90 days. Pick a zip code and asset type. Watch the prices and rent.
If you don’t have any money, sell what you’ve learned to others then ask for a 5% joint venture.
When markets roll over and lending gets tight, your only option is to do great deals. You only make money when you learn your market and buy.
There are opportunities in chaos. Things will be painful, but this will also pass.
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