Hi everyone, have you ever had any interest into understanding value add opportunities? Well, today, I have a guest who's not only a real estate investor, a house flipper, and also has experience in property management, he's going to give us his insight and knowledge. Please welcome Matt the lumberjack landlord. Super excited to be here on it's it's, it's awesome love the channel love how in depth you get for your folks and so excited to be here. So excited to answer any questions that you and your viewers might have. Awesome. So let's just jump right into it. First, can we just hear a little bit more about your real estate journey? What maybe you're focusing on today? Sure. So my real estate journey was I've been doing this for a little over 20 years, I spent about I've been in tech for 25 years. So I went from Tech making some money in tech and going where am I going to put this and didn't like the stock market, like the fact that real estate was a physical asset, like the fact that you know, it was a hedge against inflation, and basically was a, you know, extremely well paying dividend stock, if you will. So love that about it was a big fan of Monopoly when I was growing up. And so yeah, so it was one of those things that kind of, you know, came together nicely. But my journey now over the last 20 years in real estate is we've got almost 30 buildings where 70 ish units right now. And that's always in flux. And then you know, we've done flips, we've done, you know, value add properties, where we buy them, and they're just complete and total junk. I'm the fan of buying the worst one on the best Street and redoing it, you know, because that's where you get a lot of the tree, you can get a lot of unearth value. And then what I'm looking at right now is quite frankly, you know, one of the things that I believe is going to occur in this market is is a slowdown, I think that I don't think it's a crash, I think it's going to be a slowdown, myself and other experts, we talk all the time, and we think that it's a slowdown coming. But you know, with that slowdown comes from a red hot, you know, 100 mile 120 mile an hour pace, right? It becomes inefficiencies in the market. So I think that there's gonna be opportunities in this market when if people can know their market understand what they're looking for. And essentially, I do what's called creating a buy box and a rent box, which is understanding the kind of properties that I want to target understanding what they're trading for in those markets. And then the same thing on rents, understanding what those units are renting for in those markets. And that's how we then put together the magic of this is a property worth buying? I see and what is your market? And how like deep into your market? Are you like? Do you look at only specific streets? Are you looking at the whole entire city? How do you observe it? Oh, great question. So we so we started off with one zip code. Now we are for zip codes. And so that grew over time, but it was understanding the one zip code making sure that we had the process, you know, both having kind of engineer slash software backgrounds, it's one of those things where it's, you know, kind of process, everything's process oriented, you know, garbage in, garbage out, but good in good out, largely speaking. So it was really just a matter of understanding what our process was around that single zip code, the time the you know, looking at what the values were. And when I say values, it's not talking about price, it's actually talking about value. So when you're looking as an investor, I'm always looking for what's that I call it the ROC, which is our OC return on capital. So I'm always looking for what the ROC is. And my return on capital on single families is particularly in my area isn't quite frankly, that good. So I owned a few of them, they were usually flips that I got into and said, You know what, this is such a nice neighborhood session, this area, I can get decent rent here. And so this is just one of those decent appreciable assets that will sell when the markets really hot. But that was kind of the approach that we've taken so far. Got it? Got it. So then say if I'm like an engineer, I'm brand new into real estate. And my mindset is, well, what's the best zip code? Do I just look at all neighborhoods across the entire United States? And, you know, plug in cash flow, whichever one has the most? I'm going to go for it. Is there a limitation to that approach? I think the limitation is time. I think the funny thing is, is that you know, what I love about working with engineers and software engineers in particular is you can take a database approach to it. And you could probably consume all the data in the states and actually come up with an algorithm that actually then says, here's the area that you should be investing. For me, I'm more on the soy I love that approach. But I'm on the other side of it as well, which is I want to be able to touch feel smell. I want to be able to get my hands on that, and so one of the models that we had in the very, very beginning for us was actually a rule that said, if it's not within a half an hour of where we live, we're not going to touch it. I needed to be able to get there in an emergency. And there is something to be said, for doing something remote if you find a fantastic area, and you can build a team around that. That's pretty tough to do when you're doing that remotely, and that's your very first deal. That's a pretty daunting and scary task. Because I've just heard so many stories of people just getting absolutely crushed with either fees or bad maintenance or bad tenants or damage. I like to be able to do a drive by when I'm out picking up pizza. Yeah, that makes sense. And it's essentially just like knowing if you're only 30 minutes away from it or so you have a more in depth knowledge of what pockets are good. And what Yes, aren't. Yep, exactly. when something comes up in one of these city, you know, and one of the things that we do business in, there are roads that we do avoid, or that we take a drastic discount to the to the asset. You know, we look at a asset we just say, all right, well, yeah, I mean, the numbers work, but I you know, that's basically like a demilitarized zone over there. And so, you know, there's some of those areas. And so we tend to not go into those areas, but every once in a while it can be like right on the edge. Really? Yeah, it's Yeah, it's a tweener. Yeah. So we'll say yeah, you know, we'll still if we can still get it at the zone, what I would call the Demilitarized Zone discount, but I couldn't get it. It's right on the fringe. Yeah, it's probably a deal that we'll try and put together. Okay. And then what are some things that you look out for like, so for example, for me, if I'm looking at a property, maybe I'll look at the map, if I can actually go to it. And I see how close it is to a major highway, I like to zoom into the Google Maps. And if it's too close, you know, kind of want to maybe stay awake. So don't be too loud. So what are some things that you may you and your team they look into? So highway certainly certainly is one of them. You know, that certainly has been a thing that we've seen in the past. Usually the things that we look more for our attractors not detractors. Okay. So we're usually on the attractor side. So is it close to a college? that in many cases as an attractor, because we'll actually do a cost benefit analysis looking at this price of living on campus versus the price of living off campus? Oh, no, you know, that's been a huge win for us. We've done a ton of student housing, I know that when my wife was a student, we had a really difficult time finding a landlord, that wasn't an absolute creepo. And so we wanted to kind of bring that service to the market. And so it's nice, because we text message, we Venmo we do all those things. And so people don't feel weirded out, we also let them know, listen, we're not stopping by unless you invite us, or we hear there's a fire, if not one of those two things we're not you're not going to see us. And so really, we look for kind of attractors. So colleges are certainly a part of it. Downtown, you know, in like smaller cities, you know, like the 20 to 3520 to 40,000 count cities, there's usually a vibrant downtown area. And if it is vibrant, then that's something certainly that we look at. We look at is there new development occurring, because that means big dollars are being invested in those areas, and the rising tide lifts all boats, you know, when where I'm from, there's some buildings that just went in that are two bedrooms that are 20 220 500 bucks a month. I love that number. Because Yeah, when I bought my buildings, my two bedrooms, 10 years ago, they were 1000. And now they're 1600 with just doing essentially a lipstick remodel. Yeah, that's terrific value value there for sure. And watching big dollar guys are doing. So where do you find, like, I know, one method of just searching on Google. So one of my areas I used to live in, in New Jersey, South Amboy, I would just type in South Amboy new development. And I could see like, what new buildings or things are popping out. But like what are other ways to find new development opportunities. So as far as new new projects coming on board if you've targeted a town, because usually that's what I've done is I again, we're close. So I know every town within 30 minutes of me in New Hampshire. And so the interesting thing is, is I'm less than 30 minutes from mass and I'm less than 30 minutes from Maine. But I won't do business there because they're not landlord friendly. Which by the way, New Jersey is not very landlord friendly. I know. January. Yeah. So that's, that's the biggest challenge that we look for and look to avoid is, you know, I had my choice. 20 years ago when I was looking to invest, do I invest in Vermont, Massachusetts, New Hampshire or Maine. And as I did my research, Maine was a little bit scary. Mass was a lot a bit scary. Vermont was really just too far away. But still plenty scary. And so New Hampshire was great just because you know they have a little bit Different have a tax structure, ie property taxes are much higher because we don't have an income tax and we don't have a sales tax. And so property taxes are significantly higher. However, it does allow the state to align better with the landlord, because I'm saying they want their property tax. Okay, so you're giving a lot of great info here. You're looking at property taxes, the landlord laws, the development part about the colleges, too. So let's take a transition here. And let's say, you know, you've given me like this info, I decided to read some other knowledge. And I've discovered like, what my market is going to be 30 minutes away, but it's a area that's thriving. Now, least for someone like me, I've only done turnkey properties, where I've lived in it and rented it afterwards. But I'm ready to take that next step into value add opportunities. So what would be maybe the best way to start getting your feet wet into that? And what to look out for? Sure. So in value add, now are you talking about basically finding something that's more dilapidated? That actually needs some work done to it? Yeah, I'm not sure if I'm ready for full gut rehab, maybe Sure. Like cosmetic like redoing a kitchen. That's from the early 2000s. Yep. Yeah, so we call so we call them basically, we call it a lipstick, which is just like it sounds, lipstick, which is just you paint, maybe some flooring, maybe cabinets, maybe you know, some new fixtures, new lighting, fixtures, things like that. And then we'll do gut. And then we'll even do gut and then additions. So we've got a, we kind of cover the entire spectrum. There's a bunch of stuff on the website that actually I walked people through my flips. And I showed them the different materials to use. Because there's materials that we've used that we recognize that there's we also look for value in material. So we're not just looking to buy the most expensive or buy the cheapest, we're looking to buy something that gives us the best value for what we're buying. So as you're as you're looking, you know, like I said, I think the big things are the three biggest expenses that we find, because you're in the northeast, three biggest expenses we find are going to be roof. Yeah, they're going to be heating system. And then it's going to be usually kitchen Kitchens and Baths. Okay? So those are the three big ones. So I'm always looking at when I'm walking in the door to a to a new prospective building. First thing I'm doing is stepping 15 steps away from the building and taking a look at the roof. How is it a triple tab shingle? Is it a metal roof? Is it a rubber roof? Is it a, you know, architectural shingle roof? That starts to tell me what I really need to start understanding and knowing? Then look at the heating system? How old is it? Is it one pipe steam? Two pipe is it forced Hot Air Force hot water, and then starting to evaluate through that process because I know how much each of those costs to see redo. So that's what I'm kind of doing as I'm walking through the property. And then as the the rest of the journey through is then looking at the kitchens Was it something that was you know, Home Depot, Lowe's special, you know, cardboard, like that wafer board stuff that you see at the bottom, a lot of cabinets that are kind of below grade, or that or that oak cabinet that's just uglier than sin. There's a reason they put those in because they were cheap, and it was assembled. You know, and so for us, one of the things that I did was I got with a cabinet company and worked with them over the course of years. And now we've probably done 50 kitchens with them. And you know, we kiss some frogs first, I won't lie. we kiss some frogs first. But a lot of times you can find vendors on Craigslist and things like that, that actually only have a warehouse. And so they do they don't do just in time type of stuff, which is where we really were going to pay a lot of your money. But those are some of the things that we've done. So you know, we've not the cost of our kitchens, they used to cost us about 10 grand now they cost us about 4500. Oh, wow. Yeah, so we've done a really good job of the way that I look at my what I call my party board, which is the property and what we're going to do with it. The way I look at the party board is it's a bunch of knobs and levers. And most people only look at the expense side or they only look at the income side. So you have to get really good at doing is looking at both and then assessing value that you can associate to each of those items to say, Alright, if we spend a little bit more get a little bit nicer of a kitchen, yes, we can get a cheap kitchen done for 2500 bucks or 3000 bucks. But we always tried to build to an A minus Class A big case. So we're even creating value for our tenants. That's what we like so much about the process. I see. So just jumping right into that piece of understanding How much of an upgrade should you do? Like you're saying you do a minus four? b b quality attendant? You said? Yeah, so we do a minus quality product for a B price. I don't have a tenant. So we're looking at a tenant because we can get them because So as an example, so I had a property that I just finished. We posted it on a Thursday night. By Sunday night, we had 460 inquiries. Wow. Yeah. So what are they saying that we overpriced it. Where did you post it on Zillow? So literally, it was majority of that was Craigslist, apartments calm and Zillow, Zillow, and I think there was one other one, but usually for us, believe it or not, we actually spend most of our time will just because Zillow now cost money. Craigslist in our area doesn't it might in some other areas where I think it's like five bucks or 10 bucks or something. It's pretty cheap. Yeah. But for us, Craigslist is still free. And so we get probably, we have probably 90% of our tenants from Craigslist, or 80%, from Craigslist. 10%, from other than the other 10% is just referral. And actually, this year has been nuts, because I think we've probably been 80% referral. And all now Yeah, we've just, we've grown a lot. And because we treat our tenants, right, because we have good product because we have the right support staff to go over and fix things every once while people see my beautiful, luscious beard show up at nine o'clock at night to get their eating system going again. And so we can do that. But because of that, it encourages people to say, Listen, this guy's on it, he's going to take care of me. He's not here to be my best friend, but he is here to be a great landlord. And that's what I love. So we have a lot of renewals this year, our renewal rate was right around 94% over 70 science. So yeah, big number. And that's what we really try and go for. And it's been really successful so far. Where What are you using to track that renewal rate? Excel spreadsheet? Yep, some lame. Still lame. Hey, Excel has its place. And that's it does? It does? Yeah, that's its place. And so I have, you know, like every other day to geek out there, I've got this massive spreadsheet that I just use, if they're just Google at every once in a while, you know, at night, I'm like, that's so good. I think we need to get like 8% more than that, you know, based on what we just were up on our taxes. And so I really run our business, you know, from that spreadsheet, and then just what I know about the market? Got it? And how do you feel about say, if you're like, what point of your real estate journey? Do you feel like, you're only allowed to scale if you have the right tools in place? Um, I guess like Excel spreadsheets in the in the beginning? Yeah, I mean, in the beginning, like you want to be dialed in on that first house, like you want to be dialed in on that first house, you want to know you have the Excel spreadsheet, you want to know that I mean, contractors are going to come and go as we've gone larger and larger and larger. What's really neat for us is that once we find some that we really like, and they're not the cheapest, but once we find some that we really like, and that is easy to work with, we actually stick with them. So I've had the same plumber now for 18 years. He's done almost all my stuff. And he's not the chest, saying electrician, we've had one now for four years, the one that we had before that we had for about five years, no one before we had that was there since the beginning. In fact, I was his second customer, as opening up as an electrical company. So I think that process is really, really, excuse me really, really important. You have to be able to manage expenses, you have to be able to manage costs. Yeah. And you really have to understand, you know, before you tackle a new project, what the unforeseen might be as well. It's tough, because you don't know until you don't know. And that's where, you know, the the school colors are black and blue. Yeah, but, you know, you try and learn from other people's mistakes as much as possible. That's why a lot of the stuff that I produce is some of its talking about the number side of it. But I have a ton, you know, probably 15 or 18 videos based that we've done on rehabs showing people this is what you should be looking for in a rehab for a product. Because I've made the mistakes. I bought the cheaper product and watch it fall apart in three years. And guess what, then I had to pay 45 bucks an hour to have new stuff put in. Yeah, that was a loss. So it's you know, it's important to understand, like the background knowledge of how to do everything beforehand, learn from mistakes, but also don't look to repeat them. Yep, absolutely. say if, yeah, safe. I'm someone who's now going to check out your channel and wants to know, like, where to get started, like what, which video? Should I try to look for first or a playlist? Yeah, I think that I think it depends on what part you're diving into, honestly, because I think like I literally just posted a video this morning. That is saying, Hey, if you're looking into real estate, here are things that you need to make sure you're understanding about our current world. Right. eviction, moratorium being excited. You probably need to have more cash than you thought you did. This is not something to do, living in the margins or like what I call a squeaker, you know, it's something, you don't want this one to be kind of close, where you kind of like wincing a little bit like this is gonna be close, do not do that in this market. There's gonna be opportunity for sure. But largely speaking, I remember the opportunity that came about after the Oh, eight Great Recession. So I've been investing for 20 years. So I saw basically the.com bubble burst, I then saw the runaway train, I then saw the Great Recession, I then saw the great recovery. And then I saw the steady climb. And then I've seen the insanity over the last, you know, 24 months, the pandemic insanity. And so I've bought and sold in all of these markets, one of the things that I tracked very closely is something called the affordability index. Okay. The affordability index is available for pretty much every single state out there, and it's usually put together by your state's Board of realtors. So New Hampshire is New Hampshire is like nh RA, which is New Hampshire realtor Association. And so it's always a.org. But you can look it up. And then they'll usually have a spreadsheet that shows you here's the affordability index, the big thing is understanding kind of over the last 15 to 20 years where your markets been. Because what you're looking for is, and this is what I love talking to engineers about right is you're looking for that comparative analysis. Yeah, you're looking at saying, am I historically hot? My historically called Am I in the red zone? am am am I in a zone where it's like, you know what, it can go up or down or okay. And so that affordability index is something that excuse me, I look at a lot, just because I'll actually sell properties. And so New Hampshire right now. They scale it between like one and 200. And when the way it's scaled is anything over 100. So between 102 100 is how many p the percentage of people that make the median income, they can afford the median sales price of the house. Okay, and so it's a good way to understand Are you getting into an expensive market? And so we just broke our record, which is now we're a one on one, which means we're a one means 1% of people make the median that make the median income can afford a median house 1%. That is a sad. Yeah, it's a bad market to buy it. And so I'm not buying single family houses now unless they're flips. And I'm quite frankly, not buying flips now, because who knows what the world's gonna look like in the next six months? But yeah, my evaluation and looking at it as I look at that affordability index, and I just because I don't like an asset in a market, doesn't mean I don't like the market. So I've been buying a lot of duplexes, triplexes quads, because the return on capital is extremely good there. Okay, the the five to 20 unit buildings, the price per unit is ridiculous right now. The single family home is ridiculous right now, but the twos threes and fours they actually show really strong return on capital where I just bought an MLS deal that has almost a 20% return on capital. Yeah, that's incredible. Yeah, it's it's, you know, I wish I had some query that actually, I could just show me that because I did all the work myself. No, that's a really good point. That's not just like, Alright, single family doesn't work here, this whole market, it's, you know, scrap it, you just have to find, potentially, if there is an asset that works. Yeah. So to that end, you know, we'll actually look and we'll evaluate what's the return on capital, or what's the monthly price that we're going to get on a single family, versus what we're going to get on a unit in a duplex versus what we're going to get on a unit try and unit in the quad. And usually the larger, you know, the the larger number of units in a building, usually the price per unit goes down, even if you're upgrading it on the same quality. But what's been most interesting is, you know, we've seen the the price of a duplex unit versus the price of a single family home. Now the differential down the differential is less than 10%. Okay, so at that point, if I'm buying a single family home for 300, but I'm buying a duplex for 450. But my rent differential is 8%. Well, then I just got 290 2% units versus 100% unit. Yeah, and I only paid 50% more. That's where I'm saying that's where we're actually looking at evaluating asset class in a given market, because we don't throw the baby out with the bathwater. I see. I see. I thank you for breaking down those metrics that really helps. And for your knowledge this far, before we get into how to find you. I do want to ask you, do you have any daily habits that maybe you do every day to get you started and get you in the right mindset? Yeah, I mean, I think every day, every day I look at my market every single day without fail. If you look at the last 20 years, I've missed Even the days my kids were born, I still looked at my market. It was that because it's, you know, it's kind of, you know, 1520 minutes. And that gives me enough of a broad view of what happened in the market. And that broad view that I'm able to create ensures I'm staying in touch. But it also makes sure that if there's that opportunity, then I'm spending 10 or 15 minutes more on that one opportunity. And not every day, is there an opportunity? You know, I have, I have three towns that I'm in, but I have really kind of four different asset classes or three different asset classes, I've looked at single family, two through fours, and then five pluses. And so I look at all three of those asset classes in all three of those markets. And so it's nine searches. So every day, I'm looking at nine searches, but I'm so stone cold in my market, I know exactly what I'm looking for exactly where value is, and can usually look at it. And you know, for the for the last few months, it's not been hard to get through my entire market in 10 minutes, because it's a bunch of, you know, overpriced nine searches in 10 minutes. Yeah, it's pretty quick. Yeah, cuz you know what, we'll find the job because as you know, for the last six months, there wasn't a lot of you know, prior to the end of June, there wasn't a lot of coming on the market. That's true. So it was so thin, you know that those nine searches might only met me 20 things to look at 25 rooms to look at. So for those nine searches, I was literally having days, where I was only getting results rendered for four of those searches. So it made it pretty quick. Now that's got a lot more time in, I'd say in the last few weeks, that's definitely started to take up kind of the July timeframe. There was a lot more there that we were starting to get through and so that was definitely longer. And we bought I think we we bought 334 so we bought four since June verse. Wow. Yeah, because they were just and three were on market and one was off market. That's awesome. Yeah, it's fine. I think you forgot on on Michaels Uber channel a few said that one of them like he did like all cash or like all like that, or some finance. How did you? So I am major anti all cash? I hate all cash deals, but I do them. But I do them. Right. So it's one of those things where it's you know, if you're starving, but you don't like chicken? Do silly chicken. Yeah, cuz I'm starving. And so we've done some cash deals. The reason I don't like cash deals is because usually on your exit, when you refi out, I don't like owning anything, I want to own it, I want to have a mortgage on it. I don't like anything owning anything free and clear. Because the worst way to build your business is use all cash and no leverage. Yeah, because I'll outgrow anybody 10x if they're using all cash and no leverage. So the key is healthy leverage. And so when you buy a house for cash, and then you try and refinance out of it, you're likely from your bank. And I'm a little bit different, because I'm over that 10 number with Fannie Freddie so they won't take any of my loans. So I have to find privatized lending, which is people that portfolio my loans. And so for me, I have to evaluate at a higher a higher rate. Number one, so where other people are getting mortgages right now, and you know, to seven to eight to nine, I'm paying four and a quarter, and I'm happy. So I'm paying significantly more on a percentage wise, but as I also look at the deal, they're only gonna give me usually 70% loan to value. So if I'm buying it for 200, or buying it for I'm sorry, one I just bought for about 300. I'm going to put 30 into it, it'll appraise for about four for 10. Well, when I go to refi it, I'm only going to get back what I paid for it, I'm not going to get back to 20 or 30 Grand i put into it for a project. So now I've left that 20 or $30,000 behind there and I love them because I like to recycle my capital. Yeah. But that's that's one of the things to look at. So not a lover of cash deals. I'll do it if that's the way for me to win. But if I can win without it, I try to say yeah, use leverage. Awesome. Where can people find you Matt? So lumberjack landlord calm and lumberjack landlord on YouTube. We're pretty active out there. Also, Mike Zuber channel one rental at a time. He's fantastic. He actually retired from software. So he's he's a lot of fun to watch. We kind of because we grew up in the same business. We kind of have a lot of fun talking about that. But he's great. His book is excellent. It's a must read. But yeah, so one rental at a time with Mike. Mike Zuber and lumberjack landlord calm and lumberjack landlord on YouTube, you can always find me telling you the truth and hitting you with hard facts. Excellent. Thank you so much for your time. I'm happy to do it. Thanks, Ariel.