The Mad Scientist of Multi-family

by Neal Bawa | Cashflow 2 Freedom Podcast

AJ: So how do you achieve financial freedom, gain wealth and live life on your terms? That is the question and here is the answer. I’m AJ Osborne, welcome to Cash flow to Freedom. Welcome to Cash flow to Freedom, I am so excited to have Neal join with us today. He brings just a massive wealth of knowledge I had, a little while ago a long discussion on markets, what’s going on in investing world and real estate and I was pretty blown away at his knowledge and what he can bring to the table so I am so excited to have him with us, so with that bring him on!

NEAL: Thanks for having me on the podcast AJ, I’m thrilled to be here.

AJ: I appreciate your time and I appreciate our conversations that we had a few weeks ago, you know talking about what’s going on and we’re in such a transitional period I feel in the marketplace in general and you know I think that’s most of the questions we get from our listeners is where to invest? Is at the right time to invest? A lot of people are nervous because we’ve been in such a long cycle upwards, but before we get into that why don’t tell our listeners a little bit about you your backstory and what you do.

NEAL: Awesome! So, I’m not real estate royalty I haven’t done a thousand loans, I haven’t done a hundred flips anything like that. I’m a technologist and I got into real estate in reverse AJ. Most people will start with a single-family rental, I was given a job by my CEO, a brilliant man that was running a technology company, I was his Chief Operations Officer. He gave me a job of building a campus from scratch under his supervision in 2003 and I was terrified and for the next nine or ten months as we build that campus from scratch, I moaned and I bitched and then I complained and I said; “how could this possibly be my job?” And in the next 17 years I’ve never stopped thanking him because what you learn when you build a commercial building that’s a huge project, it was 30,000 square feet when you build it from scratch the learning is incredible it’s like going to construction school and then once I got the hang of it once I really started to enjoy it, I had built 6 different campuses some of them smaller than that big one over the next, I think 8 or 9 years and learned a great deal about real estate that way and so that got my confidence level up and so then I started like everybody else and I should’ve come directly into commercial because I had the confidence, but I didn’t, I chickened out, I started doing single-family good timing, in 2008 bought 10 single-families. I’m a data scientist so I constantly am looking at data and analyzing data and I use data to find the city that have the largest decline from the 2005 peak to the 2008 or end of 2008 trough and that city, surprise, surprise, was in California. So, it was Madeira, California, 20 miles north of Fresno. Prices have fallen there the most. What does that mean? Well in 2005, a whole bunch of farm workers with undocumented income 20 miles from 4-bedroom, 2,000 square-foot, beautiful Kaufman & Broad homes. Kaufman & Broad homes has a lot of money because they just sold them for $250,000 each, their cost to construct was maybe a $100-180,000. Well, three years later, entire portions of the city are empty because all those agricultural workers with undocumented income have left, nobody’s living in these properties and now they’re available for $90,000, brand new properties, brick facades. They’re beautiful, I mean there’s nothing wrong with them. So, I go there and I do the math and everybody is telling me that I am completely insane for going and buying these properties, makes no sense to anybody and people are thinking I’m the biggest fool of all time. But there’s one thing, one thing that didn’t tell me that I was a fool and that was data that was numbers, I looked at the math and I said because $180,000 to build this property, I’m buying it for $90,000 and on day one I can render it for $1000 a month. How can I possibly be making a mistake, right? Nobody is giving me a straight answer except to say; the market is crashing and I was like; ‘how far can it crash?’ So my family told me I was a total idiot and beat the crap out of me but I decided to buy 10 of these homes, all in the same locality and then I hired a virtual assistant in the Philippines and this virtual assistant, two of them actually, it was a virtual assistant a data guy and I told the data guy; I also have one home in Fresno, I want you to find a way to market this home in Fresno so much that I get 20 or 30 tenant leads a day and then I told the Filipino girl that was picking up the phones from all those ads that the data guy was putting on I want you to redirect all of these people that are looking at my Fresno homes, I want you to redirect to the Madera homes 20 miles away, tell them the story! It’s 500 bucks less, it’s a 20-mile drive but there’s no traffic and look at the beauty of these homes, look at this website, look at how huge these homes are. So, you are going to get 600 square feet more of space and you’re going to spend 500 bucks less and live in a brand-new home, you want to do that. I can show it to you any day any time. Before I knew it, all of those homes are rented out so $10,000 in cash flow are coming in on properties that I really hadn’t paid much for, right? $90,000 they were all leverage so I’d basically put in maybe $200,000 at the most and I had $11or $12,000 in cash flow immediately today that cash flow’s over $20,000 as you can imagine rent have gone up a great deal, so that gave me a lot of confidence that what I was doing was making sense and using data and using analytics made all the sense in the world so I started to build on that. I started to write, developed the metrics, now it’s a course that about 10,000 people a year take so I started to develop real estate metrics that basically said; ‘if you go into areas with population growth, job growth, income growth, home price growth and these other metrics, I’ve developed these other metrics and how much of each kind of growth did you need over what time. I developed those metrics and I started teaching them at meetup groups that I was holding inside of that technology campus. I’m still a tech guy working a day job, there’s no investors, it’s just me, it’s my money but I started to share all of these things that I was doing with armies in the Philippines and you know doing data analytics and in figuring out metrics and figuring out the best cities and neighborhoods in the US to invested in. I started doing meetup groups now, that was in 2010 2011 and what was interesting is, I thought maybe 5 or 6 people are going to show up in an evening to listen to this data geek guy but I was a novelty there was nobody else in the Bay Area like me, those like data guy that basically talks about all these things and how you can make money and is not trying to sell anything and so before I knew it, a huge numbers of people would show up at that meet up, sometimes a hundred or 200 people would show up to listen to me then so I kind of became a micro celebrity in that area and then people started calling from podcast and now I’ve done a hundred, people try calling to invite me the conference is to teach there and I’m like; “this is cool maybe this can be my new career when I sell my company”, so when time came to sell the company in July 2013, I had a ready-made career and I went straight into it started buying really large multifamily using my metrics and it’s been good, so 500+ investors, the overall portfolio is over $300 million, last year we did $187 Million in properties, mostly large multifamily, some student housing, some glamping resorts and one storage projects, so public self-storage. That’s kind of the short version there AJ.

AJ: Do you manage them yourself also?

NEAL: So what I do is actually is very unique I’ve never seen anybody else do it so just let say you were buying a multifamily property in a plan to write you would get a proper Atlanta property manager on then I mean 045 people working on the property rights typical i do the same exact thing AJ but then what I do is I hold a secondary management in on top of that p.m. set 2-minute to problem as one that’s no and then one that’s in the Philippines that’s secondary management in its job is not to reduce any cost none of the people in the property are spending less time so I might my expense structure looks exactly the same right inside because me 10,000 or crop lot property to post that layer on what is that layered well imagine if you had unlimited amount of manpower in the Philippines, and they were generating massively feel they are posting on craigslist 10 times a data or posting on Facebook mar at least 20 times a day, they were finding ways to penetrate Zillow and truly and rent.com and rental and show me the right and 50 other engines and figuring out how to get 20 listings not one for property but plenty and so imagine that they ended up with the 40,000 not breathe out like see more like 25,000 can then lead to hear another useful because no property manager in the US can actually process and the thousands of lead they don’t have the man power to do it but imagine is there was also a call center in the Philippines that was open 13 hours a day 7 days a week staff with rotating staff that was processing incoming tenant leads in real-time. 80% of them within five minutes of the incoming it coming in and scheduling appointments imagine what that would do the or occupancy right that is what I do so I have basically to properly management in the things I go delinquency management renewal management community building over time it expanded than to do all of those things that really improve retention and profit or when we started out our focus was simply this, that’s generate a truckload of leads and let’s process them in real time and get more people in the property so that if I’m in a market where the submarkets occupancy is 92%, I’m going to be at 98. why you and I both know that most profit is in the final 6% because there is no expense related to that. So that’s what I do and I started with two people in the Philippines and now I have 20, they are all full time, they’re all employees, no third party. They all work directly to my company.

AJ: So you work out and you know as mean you discussed in the past and the things that were trying to do in Seoul stores with data building the backend data reserved and aggregate all of this that helps us to things like dynamic pricing and capturing this small piece the most people may think is a small piece of occupancy and revenue even know that makes the biggest difference what is that make on the performance so you’re buying these properties you implement you know your system, what is that look like for the performance of the assets?

NEAL: In general, and this is averaged across my portfolio rights some property does better some not as well I’ve been able to raise occupancy on a 250 unit. I’ve been able to raise occupancy by about three and a half percent on average and I’ve been able to raise runs by about $30. If you expressed that in terms of n a y and a cap rate of about six and a half where general ting over 5 million dollars in additional value for every five year project so if it’s a project with investors 14 5 million bucks we’re doubling the value just from this ad on the property obviously has its own benefits and needle theory have eaten your dinner bomb friends you going to all of those things right but on top of that from this three and a half percent increase in occupancy across 5 years and the $30 comes we are creating on a 20 million or property when creating 5 million of additional profit. That is why this is not a cost-saving initiative never tried to save a buck.

AJ: Yeah, you know this is really important for people to hear and understand the wanted things that we have in the cell storage industry that I speak on a lot is the how technology is revolutionizing and asset class that. it was untouched by technology it was so obvious to us in the self-storage industry because it acts more retail and we could be manipulated on the back and algorithms from aggregators like do all things like that the find the best topping customers time frames which we get the man and then placing them revenues dynamic pricing revenue management which exploded with it was really obvious to me that but when I talk to you I like you. subtotal it ever that i never imagine doing it on a multifamily. You actually got me excited about multifamily the reason I was never excited about multifamily is I couldn’t get how to get an edge.

NEAL: I think that’s the key. I’ve always looking for an edge right so I like doing this for multi-family because when I sign one multi-family least extra over and above what I would have normally sign that lead is typically worth 11,000 dollars a year right and if I can keep that up for five straight years at x6 cab I got about a hundred and sixty-five thousand dollars of profit when I sell so that’s about 11,000 x by about 16066 rents. that’s really exciting because you have to sustain it for 5 years you got to be on and every single day that’s why they call centers open 7 days a week and it opens at about 6:00 at 6:30 eastern standard time was a lot more my properties on the east coast I am in California and then it runs until at 7:30 p.m. in the evening so this is really about focus for five straight years to generate the cash.

AJ: Now I need to back this up a little cause I need your help walk other people we talked about this informational but you’re here you’re talking about I look at it as multiple layers right let’s say your call centers the middle layer right and you have the end of the funnel which would be the completion was it property management putting somebody in a unit the center is that middle wider portion of the funnel then the back end of the funnel is the data, right? Now explain to me here what you’re doing on the back end to acquire don’t leads the you’re bringing down into the middle range of the funnel that your call center than is not converting into renters which then we’ll go the property management tool actually to the placing they will get the deposit and you will start sustaining as casual as the first part of the funnel data. explain to me where you’re going what it is and how you find it and how your giving out information to call center.

NEAL: Sure. So lead generation is really the key right so I have a goal of lead generation for properties i pray every property in the portfolio when I generate about 4-5,000 lead to hear that’s a lot elite you can’t generated by simply posting one craigslist ad so I’m going to give you multiple example that have the same thing right our goal is to look at and engine that people used for generating leads and ask ourselves how do I get 10 time last night because I have this enormous monist at so imagine people in the Philippines at spend all day long using VPN’s or virtual private networks to mask their idea dresses to the craigslist doesn’t flag multiple ads as you know be craigslist you if you put the same as twice this in applying a meeting right but what if you had different add with different virtual phone numbers and with different subject lines and you’re putting those ads in using VPN’s 1bp and logs and prints Francisco one logged in from Los Angeles and you’re doing that throughout the day using a cable right that shows you the answer you you’re doing this all day long and now you’re posting on craigslist 8 x what you want to post on List Zillow renting Looking at the first page then I’m going to teach them writing every 90 minutes 12 hours a day what if you are doing that in a way that you and what you were doing.

AJ: Now not just on craigslist you’re going Sankey we have 7 different platforms and we’ll just keep posting on here don’t this frequently as possible.

NEAL: So, rent links to the platform that allows you to click the renew button when you click the menu button on a listing on rent links it goes back to the top right so they don’t think that anyone could be mad enough to have full-time people clicking the renew button every 90 minutes as it happens my man occur in the industry is the mad scientist a multifamily so I have full-time people that are clicking the them renew button 8 9 10 times a day.

AJ: So now they found somebody that’ mad enough.

NEAL: That’s right so there’s fast facets to our hearts skill number one frequency number two renewing the adds if the provider allows it so you know them while I was a renewal 10 and friendly staff as a crow also allows when you also the ones and renewals without you do that the third one is hacks so what we do is each engine gives you the ability to list each property or address once correct? We figures out that most of them if you add commas semicolons hashtags banks in the right place they will allow you to list the same exact property again and will give you lots and lots of leads while pointing out to you that the address may be wrong. pointed out to you that this little orange exclamation marks next to your listing but I still see 500 it coming in from that every year so they still allow it so adding hashtags and commas or adding unit number at the and allows me to take one address and have 15 different listings so now this is hacks and he had different engines different ways.

AJ: Ok so you’re using multiple avenues to get everything from frequency to hacks I’m sure quality your SEO write different tactics like that that you’re using to get your listings to populate on the first page continually and then you are just in this is keeping it in front of the customers and then when your customers clicking’ what is, I think a lot now large amount of potential tenants What is the qualifying process that you have looking person?

NEAL: I get myself in trouble with their house in here so as you can tell if you have an individual’s if you got you know let’s say a young man in his 20s and then you have a family of four people every landlord will tell you I want the family of four people right because the family of four people will stay two and a half years the individual dive on average will stay needy 12-14 months is not has a longer than that they move a lot.

AJ: your long-term value associated is much higher.

NEAL: so fair housing says you got to give it to the young man if it came in before the others, but what of they came on the same day and you only had one unit fair housing then allows you to make it subjective decision it gives the power to the property manager therefore my goal is to bring in sweet spot tenant so often into the property that the property manager can abide by fair housing laws and still pick the people that will say the longest and have the highest credit rating have the best land landlord reviews. I want to give them a buffet of choices so they can legally the right ones and what is that crosses the lead goes hits the Philippines the moment it gets there they always look in there always looking the latest need so whoever off the phone looks at the latest lead to immediately called a laid back here she within 5 minutes 5 to 10 minutes talk to the lead free qualifies them you know baby might get rid of the bankruptcy is and we going to get rid of people that given the credit is 300 or I have no I mean or down payment you I don’t have to deposit. Obviously, the goal is to get rid of that because I’ve wasted a waste so much time you know for the property manager. so, we eat we go through entire pre-qualification process with them and then be scheduled them at the property and then we do something that most properties don’t do text reminder again sayings thank you Your call yesterday we’re looking forward to seeing you at the property on Friday at 10 a.m. and then on Friday at 8:30 a.m. 90 minutes before we repeat the text if you don’t send this to tasks are sure rate is 30% if you send that to text it’s 40%.

AJ: Let’s get some contacts to the process. I know a lot of people listening to this going out so is this what everyone that so for those people that are not in multifamily right out the looking at getting a normally it’s just to someone shows up you give it offering right there is no fallout there’s no sales process to get those tenants or….

NEAL: No I mean time I’ve noticed that somebody some billion dollar company that has some components of this but as far as I know nobody’s ever use the Philippines the way that they have so it is a rather unique across as a week of far beyond this I can spend an hour and what they’re doing it refers to the property the problem as an app to do anything as to clean a polio and off the team again chasing that person to bringing back into the property, right? if the person comes in looks at the property shows interest but for whatever reason said I am not ready to fill out the form is what happened in the US nobody ever called that person again by the onus is on the tenant in our case the property manager checks alpha box in the software and off cause our team chasing him again and thank you really like the property widen your fill out the form all i was looking at the solder properly ok i’ll call you as soon as you’re done with that one i’ll call you in 2 days. change chase, chase, chase, chase that’s how you get tenants.

AJ: do you have historical data on the properties that you’ve acquired and if you see through the transition lot of metrics that I look at I’m looking at lifetime value I know that if I can increase office in revenue and if I can increase the amount of time that is there that brings a lifetime value for tenant that’s the whole goal, right? talk to me more about the end result and you acquiring the property are you looking for how distressed assets are you trying to turn on or you like no I’m just I’m looking for a class properties and I’m and I’m going to get operational improvements.

NEAL: I start about doing a flat properties and operational improvements I’ve never done that yet so the most far I’m looking at c-class properties that are not distressed they’re occupied but they’re under portent et occupied at 86% or 84 person occupancy enough for me to get a proper Fannie Freddie alone I don’t want to be able to I don’t want to be paying cash for a 30 million dollar property rights I will be able to get if full 83% LTC bridge loan that’s typically when I can write and to do that you have them about 85% off even seen more last what I don’t want to be buying is properly . 95 and 96% occupancy I don’t want to be buying you know a classic properly done doing operational improvement I want to combine the bumps that I get from rehabbing units and getting maybe a hundred fifty on and $75 pumps so I want that bomb and then I want my operational efficiency is still feel them out to the max right and I want to maximize both of those networks while b c plus properties and be mine as properties see mine as properly that doesn’t work while I am one of those and end while I’m able to keep that property there is full I’m not able to mess with its delinquency it’s still delinquent because again and quality is not good so I try and stay away from areas where the delinquency levels are high because that’s not something that I can fix with my army.

AJ: how long did you been doing this? Give me time frame.

NEAL: July 2013 was when my technology company was sold and so all of this gotten phased in over the last six step 7 years and it’s really accelerate in the last 24 months.

AJ: how many deals if you don’t know last year?

NEAL: so, last year was 7187 million all together at than 18 projects so one of them is storage and one of them is a glamping resort and the rest are multifamily and student housing.

AJ: what asset classes your process plant the most value to is the one i clearly stands out is this is easier to use?

NEAL: so, I have applied it so far to store multifamily student housing and glamping resorts.
Glamping resorts are unique asset class and I’ll say it works really well with glamping resorts but they’re very small as a class so I’ll leave it alone so off those three unquestionably the one that its work the best for is multifamily with storage the downside as being the ticket price you see with storage you got in 80 dollar ticket price so if the if the tenant stays on average for year you’re looking at a 1000 dollar for sale whereas with multifamily it’s a 10000 dollar pop for sale do i have these efficiencies of scale I still have to pay people exactly the same per hour if they’re doing you know storage for me so I looked at it works so I think I’ll be happy to know that works but you did question was what does it work for best foreign away multifamily.

AJ: and a lot of people listening to this where are these things really where the retro the really hits the road is what a lot of people haven’t seen in the last 10 years and that is competitive markets in the I you know we started investing and we started I’m buying a properties in the early 2000s went through the recession and people are worried about the recession and i mean i actually welcome a time I’m in fact in most of our markets we need it because what hurts our industry most rental based industries it’s actually not the recessions it’s the over supplied markets it’s a customers have too many options and vacancy rates skyrocket and we see that until storage right now so why I love this conversation why I think you bring so much value is that you are a competitive advantage for the asset class the people need to start thinking how am I competing with the eight new proper projects of multifamily that have just come down the road in it we talked about you know some of the differ markets which will get to win but most of the best markets are booming with building yet I mean they are building everywhere everything like never seen before and that’s where a lot of people getting nervous the suit that’s what i believe shirt for me wherever session comes we just make money you know supply limited and then that gives the existing products less competition higher demand feels up but in cheap money good economy which we’ve seen so long drive in a lot of supply brought on that’s where you stand apart it particularly in the multi-family and also be other asset classes but when you’re doing and markets you did you see a clear to better manage what’s the spread that you’re seeing.

NEAL: as I said I’m able to do across my portfolio about three and a half percent compared to taking the team’s off and it’s actually very easy to calculate we typically will not immediately and force the teens when you by the property we want a quarter or to the past so that we have a benchmark like this property runs here and then I put the team in and I wait for about three to four months and then I see the post I see the difference and I use that the calculate my additional net operating income on that property from my post and honestly AJ you hit the nail on the head I’m doing this because I fear what’s happening in the multifamily space 290,000 units of multifamily put new construction are being delivered in 2020 and there’s no way i can maintain my occupancy the same as 2019 because demand is it on 200,000 units for 290,000 are being delivered all those 90,000 units are going to drag down rents and occupancy both at the same time and the only way for me to keep it up his to have an army of people and ben you know a lot of their listeners may not get the minutiae of this bit more but Neal how can you increase of rents by by bringing in more tenants you know isn’t there at like a rental value where’s a good news weather is the storage market or is the multifamily market we’re not selling a car we’re not selling a wide 2018 corolla there’s no actual value right if a person comes in and they like that . the color that’s on the wall of your unit for daylight the fact that is on the third floor they like the fact that their kids school is on the other side or their sister lot stays in your property the value of that you need to them is pretty but higher or more than 200 tires right so you know every single you read and everything appropriate hair is subjective right it’s very subjective so if you have 20 people coming in and looking at a you can definitely get 50 bucks.

AJ: more people don’t understand that the stuff the simple supply in demand and how when you work in the box and the variance and revenue between two different facilities as astronomical i mean later down the road and one of 40% more gross revenue than very difficult if that because it’s just what so everyone that starts scrambling you start looking for ages but how people getting age is they just give discounts and drop rates is not an edge and it’s going to and so for us in the real estate space when you looking at value-creation most people when you’re coming on the market currently today you are buying assets and the sub 6 and a half cap-range and at the top recycle waiting freezes so we’ve had double annoying so markets like with mentioned at the Boise double-digit multi-family rental rate increases to your buying thus after years and then you’re also by their high occupancy now at a 5 cap what are you going to do that the keep about you how are you going to keep that value when you have an over supplied market in a recession you’re the only one that I’ve ever talked to that seems to have found a way to say I’m a business model to sustain cash flows independent of market cycles.

NEAL: I am boosting demand because what I look at that be the demand with the marketplace one thing that i realized our long time ago is ok there 6,000 units on the market and there is 55 minutes of 5500 you lots of them and one way of looking at is well supplies 10% higher than the mountains bad news another 5,500 people in this market that could potentially be renting my 200 unit facility actually have 27 times as many renters as I need all I need is visibility so if I could make myself 10x more visible I create my own demand.

AJ: I love it so much that’s exactly where we are in the space of wheat we talked a lot about the soon it’s it out big your competitions irrelevant if your customers can find them and I’m in a large companies to why this is all relevant in today’s market is in storage specifically this is the name of the game you are basically online covering a making your competition disappear so they don’t exist new customers and to your keying and on the highest value customers and you’re pushing down the low value tenants to go to daughter what is so you have these trying to reach their using data to capitalize they are the only ones they’ve artificially increase their own it the man well to their increasing their demand Increasing their the man with the highest value tenets and we sing a lot of this going on in the rental space and I believe it will cause more consolidation as we sing technology do whenever summon industry right and the question is as how are you utilizing that in your space and how are people when they come on when you’re getting into this game how are you getting a piece of the action which what I will bring me on exit how are you doing deals so are you doing it all by yourself or are you I am in you talk about your financing how are you doing the deals how are you financing details your partners.

NEAL: so I have operating partners but not equity partners so erase all of the money myself and I do I raise the money well I’m a very visible person I got teacher conference is I thought last night at the Anderson conference in san Diego a teacher over 2,000 conferences have a massive marketing team about 800 people of which six are in the Philippines and they create outreach so we are we’re basically doing the same thing on the marketing side that we’re doing for our tenants we are on every channel we have a huge number of people coming into the database others about 12,000 leads currently are modifying the you.com which is our website with the 50 webinars there are people , and to take tax webinars they come in to take senior housing webinars you know as 2007 or single family friends all kinds of an asset protection they come in and take 50 webinar the year and so we’re generating are all investors night so it weird that reason us equity investors explain it to me so they are equity investing for equity ok there aren’t yet he was the first ok so they are getting about 40 million dollars’ worth of equity from investors that are giving me a hundred run at a time on the property side I use a course on its website that’s a very famous website called udemy.com is the world’s largest online course website on udemy.com/realfocus I’ve taken my systems and my metrics or how to find properties and I’ve hosted it there for free and it is actually the most high rank course in terms of reviews on udemy for real estate and 5,000 people in your take that course right now if you go to udemy.com/realfocus you’ll notice 4,000 students are enrolled and I answer their questions from time to time but it is a portable saw those people they use my metric systems and dashboards to find properties and good luck to them because they’re buying in better places using my system but here’s how it is how it works for me the course has given way for free there is no way I don’t even have their email address I give it an aged a 4,000 people are using my technology and general is higher than that some of them will come across properties are too big for them if they come across a five million or property del raise a million by themselves could let them when they come across it 25 million dollar property guests who they call I get emails every day twice a day 3.3 time today with my excel spreadsheet of metrics fill them with summary saying I have found a property and this does really well on Neal Bawa’s metrics would you be interested in partnering with me on this imagine getting that from all across the united states in all the states that I prefer and all I have to do is update the course once a year with cities and neighborhoods.

AJ: it’s so much she because it’s the same thing with what were doing for casual to freedom until storage income you’re doing we’re building an opportunity funnel like you we are practitioners every like i make my money through investing i buy underperform cities within round this time it’s just like you of a front of your customers right you also to create photos or opportunist and i properties there anything else and i love that and i love talking openly about it because i don’t have some hundred thousand or course on trying to follow people to actually trying to follow in opportunities for me to purchase a and do deals with and for anybody that’s was lead to this you everybody should be doing this you should be creating your own photos in your photos to customers now really quit about here in markets and i want to get and a in i want to get into this what makes a good market but markets you’re looking at what markets are becoming oversupply where you’re thinking about putting money all of that that’s just that is absolutely the talk right now everybody’s looking for the danger zones everybody’s going to make sure there being more careful where they put capital which like they just weren’t nearly as worried for years ago.

NEAL: Make sense, they should be white right a lot of markets don’t makes when I look at markets i look for two completely different sets of metrics what is called fundamental strength and the other one is called momentum bright fundamentals of momentum even if you’re investing the stock market this people like warren buffet that the fundamental space investing then there’s all these rocket scientist that I come out in the last couple decades in odoo moment emission testing same time applying its population growth income growth job growth and reduction and crime these five are the fundamental matrix that shows strength in a market so i say a turn that into a course which is that you’re done a course that’s one the mental then what is momentum is when a market appears to be moving even though there is no real reason for the kid moment and disability and all the time because the bus there is core everybody’s telling everybody else price they’re going out so they keep going up until one day . and there are very strong right now Until one day I don’t write I understand is that momentum markets are very fickle they can turn on time so I’m always ready to sell in a momentum market cause I don’t know when the Parthians what you make more money and momentum market so I can tell you a good momentum market at this point if you have an appetite for risk is Detroit Michigan Detroit as lost a million people are the population and continuous population as of last year has more population to you look at that and go all this the terrible market but it has all these empty homes and right now they call me is good and people are willing to pay up so they most profitable market in America for real estate is Detroit only understand that the moment a recession stars that market gets slaughter it doesn’t it hurt it just gets slaughtered you lose all of your tenants people stop paying it’s bad so there’s these kinds of momentum market right started off with the most dangerous 1 which is which is Detroit but there’s others that are momentum markets where the fundamentals are not strong and all AJ but they are they’re doing well and they probably will keep doing well if you have a mass small recession if you have a 2008 i then all bets are so what are those markets that fundamentals are The population bro drop protein come road is really nothing interesting right and son of actual blues a little by the population all the time Cincinnati is another great example right so these are moment the markets they are rising because all ships are rising of them i consider Cincinnati to be the best so that that’s those are five markers i want to give you then you have markets where does fundamentals are strong but the problem is there a reason a lot to let me give you an example of markets where the fundamentals a really strong but it was analyzed you going to be careful the biggest one is Denver so off all cities in America prices compared to 2005 have risen the most in Denver that’s a market to be careful up but it’s fundamentals are very strong all the tech economy and all the other stuff that happening she could keep going for a while but you have to know that you’re really paying in an expensive market your finger if you don’t want Denver another market that has strong fundamental that’s going to be Orlando so as Nashville so these are strong markets there’s a reasons why people are investing in them but they’re really expensive so what I am doing now So what I’m doing now Phoenix is I am pivoting and I’m going to markets that are 20 30 or a hundred miles away from these markets with very strong fundamentals that I got my expensive for phoenix I’m looking at Mesa 30 miles away very fast growing itself but definitely cheaper than phoenix I’m also looking at Tucson 90 miles away from phoenix but there’s so many people frustrated by the high price rises infinite that they’ve started investing in may sign in Tucson, and Tucson has decent ornamentals not awesome light phoenix but all the money from phoenix is moving to do some could it’s cheaper bright so I look at my metros like that I know him lesson Denver but I’m looking in Colorado springs I don’t invest in Seattle but I’m looking in Tacoma and Olympia so looking at the secondary is that are very close to the superstar fundamentally strong primaries what I what I’m trying not to do is like for Orlando Lakeland is about 30 40 miles away that’s a great market to look at now in Florida it’s also 20 miles from Tampa obviously has dual benefits on both side I think those of the sort of market that people need to look at today especially if the market as something known as urban so millennials don’t like suburbs they like a urban suffers they like to go into a suburb that has a downtown core and i like to buy or rent close to that downtown core today want a mini downtown core so we’re going in the suburbs where cities are building discourse up and their small downtown’s rights maybe like just hand buildings r15 look at some restaurants and other stuff that’s a really great by that’s a great place to go to.

AJ: see a lot of the suburbs in Nashville of them are looking properties and their suburbs that in all they’re not that far out but you got out others downtown all. everybody having Breakfast in some places are all sorts of stuff going on.

NEAL: Exactly, if you want to ride a trend because the millennials just came of age as our big you know buying generation that trend will last for two decades so instead of going to suburbs go to suburbs with urban this these are known as servants.

AJ: yeah that’s awesome thank you. I don’t want to take all my I can’t tell you how appreciate if I am for you coming on and just getting so much about you and it really getting people to another way to look and develop a in a philosophy on investing which I think is really important we have the fight you know we have all the basic stuff but things are changing in in your perspective is actually wonderful I really appreciate it where to people go to find you where can I will put this in the show notes too.

NEAL: Sure, so I use the Irish spelling so it’s not “Neil” it’s Neal it’s the easiest way to find me is by simply searching for the words Neal Bawa as it happens I am the only NEAL BAWA on the world wide web so just typing Neal Bawa and enter you’ll see about a hundred podcast and doesn’t the webinars you’ll see my websites and my website so very easy to remember it’s multifamilyu.com I do about 50 data driven by webinars there in all sorts of things I mean all sorts of things anything that catches my fancy I’ll whip it up into a webinar and so check that out there’s a group real estate tool kit there with hundreds of research reports translate the one that i just talked about means turbine is one of two dozen trends that you can ride to success so I tell people now is not the time to back off but now is the time to back or trend another trend that I’m like you guys to think about it but I build the so build to rent build to rent is a very powerful multi-deck a trend that’s only two years old so that trend will continue regardless an extra session is that.

AJ: what is that?

NEAL: I’m actually going to modify my construction plan so I’m building the kind of home that’s exactly right for the long term rental at once to live there 5 years or longer I’m not going to build one amenity that renters don’t want I’m going to build exactly the size for renting and I’m going to hold for 10 years 5 years 10 years you can do this at in a 200 unit you know home dear all homes are you can do it in 5 units but once you realize what the try template is built to rent you’re actually building fairly cheap homes because you’re trying to be sell the home to everybody you’re simply trying to sell to that 1 renter that says i cannot buy my treasures not good at making lots of money I want to live in a nice community for five years for 10 imagine no churn, the tenant pays 25% more than he would pay and at an apartment in an incredible market.

AJ: That’s fantastic! we are going to have you on again thank you so much I appreciate it and everybody go follow Neal what it is stuff I make there’s so much that he offers thank you I really do appreciate it.

NEAL: thank AJ! Thanks for having me on the show.

AJ: Absolutely.

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