Hey, everybody. How's it going? This is Seth Williams. You're listening to the REtipster podcast. Today, I'm talking with Matt Love from SDIRA Wealth. That's S-D-I-R-A Wealth. So most of the people who listen to this podcast are entrepreneurs and real estate investors. They're used to hunting for deals and creating value and staying actively involved in their business. But eventually, a lot of investors start asking a different question, and that is, what happens when I don't want to do this forever? How do you take active income and turn it into something that can keep working for you long after you've stopped chasing the next deal?

Well, Matt works with investors who want to invest in long-term buy and hold residential real estate without taking on all the responsibilities of finding properties and managing renovations and hiring contractors to fix things up and screening tenants and coordinating property managers and all that stuff. We're going to talk about a model that combines new construction, build to rent rental properties, professional property management, financing options, and even self-directed retirement accounts. We're also going to dig into some of the tougher questions like what can go wrong in these kinds of deals? And who is this strategy actually for and who should avoid it? And whether owning a new construction rental property is really a passive investment. So if you've ever wondered how buy and hold real estate fits into long-term wealth building, or whether it's worth it compared to continuing to do active deals, this conversation should give you something to think about. So Matt, welcome to the show. How's it going? Hey, it's going great, Seth. Excited to talk to everybody today about what we do and yeah, dive into all the fun stuff. Because like you said, at some point you want to stop chasing deals, you need a passive income source to make that happen. So it's what I love to help investors figure out. So before we go much further, we got to talk about the name of this company, SDIRA Wealth, I think is how you pronounce it, S-D-I-R-A. So like, where did that name come from?

Yeah, great question. And don't feel bad for not pronouncing it right, because it's an acronym. So it's like Latin, you know, there's not really a right or wrong way to say it. But we did start out a lot really helping people figure out how to get invested into self-directed IRAs. So that was a big part of it. But for us, it really stands for strategically diversified in real estate assets. So we really want to help clients figure out how to get into that model and how to escape kind of that 401k trap, and understand really how to use real estate effectively to help build wealth. So that's really where that all came from. Yeah, totally. And when you say 401k trap, so what makes you say it's a trap? So I think I wouldn't say trap. I would say that I feel like a lot of times people are sold this dream of a 401k, being able to provide for them in retirement. And that if I just contribute, my company is going to match me. By the time I retire, everything's great. And I'm not saying that it can't happen. But what I'm saying in the experience that we've had of doing this for the past 25 years and talking to thousands of clients is.

No one is really close to that mark to retire with an average 401k. So I think having some diversification, owning some hard assets, if you have a 401k, great, utilize it. But it was never meant to stand on its own as a means for retirement, right? They were always set to be part of a pension or something along those lines that would help you build wealth. What specifically does SDIRA Wealth do? Is the idea to, I won't even say, go ahead and explain it. Let's hear from your perspective. Yeah, we get that question a lot. I mean, at the end of the day, we're a builder and a developer. So instead of us going out and selling to the general public, we're actually building and developing properties specifically designed for investors. So our model looks different. We're going into markets and we're really trying to determine if this is going to be a good area to build and develop and build appreciation and have those aspects for clients. But also we're looking at how well this will perform as a rental property, what jobs are getting added, what the population metrics really look like, and really diving deeper into those areas.

Of the real estate environment of those communities. So at the end of the day, our investor is going to get a heavily researched market to know, OK, this is going to be a good play now and it can cash flow today. But it's also a good long term investment because we want this to be the traditional buy and hold method.

But where clients are going to be able to get that advantage of working with the team that's done all the work. So it sounds like you figure out which market or markets to build these properties in. And what you're building is basically developments or a development. So like a chunk of land where there are several lots in that development where you build single family rental properties. And they are built with the intent of being used as rental properties, right? Bingo. Yeah. So we're building it from the ground up and we're choosing materials that are better suited to be a rental property. That's another big thing is, you know, if you buy an average home off the street, like it probably wasn't originally designed to be a rental property. Right. It was somebody to live there as their primary residence.

So these are, you know, choosing better materials on the interior, the exterior, things that are going to save you money down the road. But as far as the communities go, I mean, we really are strategic on that. You know, it wouldn't go into a community of 300 rentals. You know, that wouldn't be as sustainable. We really try to look at where we're building in the neighborhoods. You know, we really like to target B-class neighborhoods, high growth areas, top school districts, things where we can see a lot of potential long-term growth as well. But yeah, we're really selecting those. So sometimes we might work alongside of another builder and just do part of our properties inside of that development. Other times it might make sense to do enough of our on our own we're looking at the absorption rates and and things along that side too when you are building developments like this uh not every single house in that development is being built by your company and they're not all being used as rental properties but it's more like certain ones here and there are so it's kind of like speckled throughout other uh owner occupied properties is that accurate, yeah in certain communities we do it that way if there's a like a large demand in an area we might do an entire community that's just us right i think it always is going to depend on what that specific community looks like what we're what investor we're really trying to track it for too because.

Like you mentioned with the self-directed areas we help a lot of clients in those so we'll actually build property that's specifically designed for retirement account, or if you're looking for tax strategy where it's, you know, cost segregation and we're trying to maximize the depreciation in those windows, we're building properties specifically designed for that. So we're looking for the right land to structure ratio. And there's so many things that go into it, but we're always trying to figure out what's going to be the best model for investors. So when you know you are building a property to be used as a single family rental property, what exactly do you do differently when you're building it? Like, is the design fundamentally different in some way?

Or like, are there specific materials you would use for a rental that you would not use otherwise for a owner occupied property? Or tell me some of the differences there. Yeah, that's a great question. I think with it starts really from the designs perspective and the land and the research we've done there. And then what we look at at building out that community. So what's the end game of that community actually going to look like? Because what we want to determine is, okay, if we're going to build this, this home here, we're going to make sure that this is something that the renters in that market are going to be attracted to, right? If we're in a community that's, like I mentioned, maybe it's surrounded by a lot of, you know, prominent schools that people want to go to, we might design maybe a three bed or a four bed to attract bigger families. And we want to look at the square footages that bring those. So we work closely with our teams to determine what that looks like.

From there though like i mentioned we're choosing you know a lot of times all brick exteriors not because it's the most cost effective but it's going to save you a ton of money down the road, we're using luxury vinyl plank flooring all throughout so it's a high traffic durable waterproof flooring that's easy easy to work with from a rental perspective, you know we're doing custom cabinets that you know are higher quality than your builder grade you know we're looking to upgrading HVACs. I mean, we look at every little detail and then build things specifically to market too. Like if we're in a dry area, we might decide to do zero scape landscaping because if you were to get sod installed and your tenant forgot to water it, you might be replacing sod, right? So there's a lot of details that go into that, but we try to think of everything. Do these properties have basements or crawl spaces or is it just built on a slab? How does How does that normally work? We've found over the years, SLAB is definitely a lot lower risk, easier to work with from an investor standpoint. We wanna really just try to minimize the cost and potential future issues. So yeah, majority of it's all SLAB.

How many square feet are these things typically we've ranged anything from you know as small as like 1100 square feet up to you know 3000 square feet or higher if it's a duplex, i think it's just like i mentioned we want to try to figure out what's going to be the best model to build there and what's going to be attracting the most renters who want to stay there too so it can change by by market. It can change by area, but that's, that's typically the range. Yeah. So you, you occasionally will build duplexes as well. Yeah. I mean, that's a, that's a really good tool for a lot of clients that want to benefit from kind of having that multifamily edge to it where you have a couple income sources, but it still gives you the flexibility to resell. So, you know, we, we built in one of our markets right by a, a military base. Duplexes do really well there because if you ever want to resell it you have a lot of people that will house hack right they'll live on one side and rent out the other so you're still able to take advantage of that that retail market and the appreciation going up.

Do you have any pictures of what these things look like like is there a listing somewhere if my audience wanted to go check out okay that's what we're talking about that's what it looks like and the size and the floor plan and that kind of thing, yeah you know it's i get that question a lot we're not like a normal brokerage where we're just gonna list every available home that we have coming to market. Most of the time, how it works is like, as we're finishing up a development, like most of those properties are already accounted for. Like we have a wait list and then most of the time, there'll be a few that come out. But if we were putting them up on the website, they're gonna come down pretty quickly because they're already sold.

As far as like what they look like, what they feel like, there's a lot of walkthrough videos that we have on our website. So you can actually see what they look like. We do have examples of the property. I mean, we're not shy away from showing you what they would look like. Anytime you hop on a call with our team, we're able to kind of give you a feel of that. And most importantly, we really invite a lot of clients if they're able to, to go visit the properties, meet the team. We do those tours constantly. And we're also able to do virtual tours if you can't make it. But through the whole process too, you're also getting appraisals, inspections, you get to do your normal due diligence on the property as well. So I think it's just ultimately finding.

We like to look at it first of like, okay, is this going to, this model going to work for you? And then let's figure out what's going to be the best property for you to start with. So then we can narrow that down a little bit and then we can kind of start going over the numbers and the photos and everything. If people do want to see one of those walkthrough videos or any pictures, I'll try to get what I can from Matt and I'll include it in the show notes for this episode, which is retipster.com forward slash two eight six, include links there as well as links to a bunch of other things that we're talking about here in this episode. So when somebody buys one of these properties, what exactly are they buying? Like, I assume they're getting like the deed to the property. It's not like they're buying into some LLC that, you know, owns the property with other people. It's like, no, no. Like if I buy one, I am the owner. It gets deeded in whatever name I want. And if, and when I want to sell this thing and move on, like I can sell it whenever I want to. Is that kind of what we're talking about here? A hundred percent needed ownership.

I think that's really where you're able to get full advantage. Like, you know, you're not splitting profits with a different, you know, company and you're not sharing in that, that equity, like this is all yours. We think that's the path of true wealth. And that's where we really started to kind of focus in on this. And that's, I think, where we separate ourselves the most from a normal REIT or syndication, because when you have the true ownership and you have a team that's supporting you, like you said, you get to decide when you want to sell it. You get to decide when you want to pull the equity out. You get to decide, you know, how you want it to be operated, whether maybe you want to do it as a midterm or a long term or short term, whatever fits your model. We're here as a guide to really help make sure whatever path you choose.

It's going to be most successful because we already have the people that have ran it that way, already have the data, already have the teams. You know, it's a it's kind of a one stop shop to make sure that you have everything you need around you. And speaking of one stop shop, it does seem that's one of the big advantages you're able to bring is that you can kind of control a lot of the process from end to end. Whereas if I was going out trying to buy my own rental property, there's all kinds of different people who influence that process. You know, there's the realtor I buy it from, and then there's the person who's selling the thing and the house itself. And then I got to go figure out who my private manager is going to be. And then this and that is just, you know, it's all over the map. And if I've done this 10 times, I know what I'm doing. But if it's my first or second time doing it, or especially if I'm doing it in a new market, there's a lot of different variables that can impact my experience and trip me up in terms of the decisions I'm trying to make to do this thing right.

So when it comes to property management, I know that's a huge component that makes or breaks this for pretty much any rental property owner. How does that work? Like, do you manage the properties or do you tell me which property managers I should go and work with? Or how do you help assist in that process? So when we're looking at property managers, one thing we found over the years is that most markets or most neighborhoods actually have good teams that are already working there. If you can discover what those teams are and what they're operating, what they're doing, and that's where we really partner with them. So they become our partners in those areas where we have monthly coordination. They're sending us data. We know how their performance is. We're able to give real-time feedback to clients. So it is a partnership there. Because you don't want to go into any market only having one option, because there's.

Businesses change, you know, people retire, their kids inherited, you know, the business owners sell companies, things can change. So we always want to make sure we're staying on top of that for a client or for an investor, because we want to make sure when you go into a market, you have.

A list of vetted teams that we know have done a great job with clients and hit our performance standards. So you're able to kind of go in and say okay well part of our process we're going to help you make sure you pick out the right team for you and you get to have that team but knowing that okay we've already worked with them for many years and and had them get their feedback monthly we stay on track of performance, so then that way you know ultimately, when you're you're you're ready to buy your property okay well i have a, reliable team that i can trust and if 10 years down the road that ever changes, I know I can rely on, you know, to have a new team in that market too, to help if I needed to switch over. And that's really what we've been trying to focus on lately is adding that additional layer. We have a customer service team now that helps support our clients even ongoing throughout the life of the ownership of the property.

We just see that as a big value add for an investor because not only do you need the strategy.

One of our portfolio managers of how to build that, but you need the service there as well to make sure you're staying on that path and to make sure you have everything. Or if you have a warranty question, you have somebody else that you can rely on. So it really is building a whole team around you so that you can be informed, make good decisions and have this as an investment that you don't have to worry about being the daily operator of. So it sounds like, you know, you've got a lot of connections with local property management companies and there's some real like relationship equity at stake. Like they're not going to burn one of your clients because that's going to make you not send more business to them, right? So like, they really have a vested interest in making your people happy who buy from you. Am I on the right track with that? Exactly. And that's why I say include us, include us as much as you need to. I mean, we trust our teams that have done that. But there's ever communication issues, or there's ever, you know, a question you need answered, you know, you're here to have us our support, that you're absolutely right. I mean, we send a lot of volume, you know, we're a volume builder. So they don't want to ruin that relationship and they take care of our clients really well.

Yeah. And even if things just aren't going well in general, you've got customer service reps that can like help fill in the gaps and figure out a game plan, right? It's not like, yep, sorry, good luck, loser. You're on your own, figure it out. It's like, no, like you'll sort of help in that process, right? Exactly. I would say that's a big differentiator from us and, you know, any other kind of turnkey provider is that.

We're always doing quarterly calls with our clients and just making sure that that process is staying on track and you're hitting your goals. If we hop on a call and you tell me what your goals are and let's say you need a few properties to get there, well.

That's a journey. You know, it's not something that's going to happen overnight. And we want to be there for that process, because if we can make you a better investor into this model and make you more successful, well.

It's going to probably come back to us, right? You're going to want to work with us again, buy more property. And we're also going to want to, you're going to want to tell your friends and your family about it. And that's what we built our business on. It's all been oral word of mouth, I think, in partners that we've worked with. So it's been great. So when I first heard about this idea of build to rent rental properties, I had heard about this like I knew it existed years ago. But even back then, it just didn't compute in my mind because every rental property I've ever owned was just like an old beater that I bought at a huge discount. And to me, that was the attractive part of it was I could buy this thing for super cheap, pay to fix it up and then kind of limp along with it. But the problem is, you know, when you buy a hundred year old rental property and you kind of put lipstick on a pig, like it's still a pig at the end of the day. And it wasn't designed for that. There's all kinds of flaws with it. And for the most part, I kind of just have to be like, well, okay, I don't care. They're still going to keep paying. My property manager will do this thing. The numbers still make sense. But the game kind of changes a lot when you're talking about a brand new property that was actually designed to be a rental property. I mean, just in terms of like deferred maintenance, like there is none. The thing is brand new, right? Like how many years does this kind of thing typically go before a property owner starts seeing things that they do need to pay for? Like, you know, for example, a new roof. I know that's usually a biggie that gets people or like a new furnace or a new hot water heater. Yeah.

Like, can a purchaser of one of these things go like the first 10 years without any major upgrades to pay for? Is that like a fair expectation or how does that work? Yeah, I mean, I think that's a great question because really that's what we're really trying to mitigate with what we build. I mean, there's always going to be repairs. Don't get me wrong. Like it's a house, it's living, it's breathing, you know, a tenant's going to break something, you know, those things happen. But to have a warranty and to have a brand new build, you're minimizing so much. I mean, you have a brand new roof and you're talking about a hundred year old home, like you mentioned, they might add two roofs in that timeframe, let's say, but you're on a time clock where everything's starting from fresh, from start with us. So, I mean, we have clients that have had properties for decades with us now and they haven't had a change of roof yet. But I think for the side of it that you want to look at is what we try to prepare clients for is like, okay, well, at some point you will have costs, dishwashers, you know, average lifespan, five, seven years, right? You're going to have to eventually replace that.

When we build in our model and we're talking to you about owning this property, we're also educating you on how to plan and save for those things. Because the nice advantage is you do have a long runway before you're going to need those expenses. So it gives you plenty of time to start saving up and using some of the income from the property to set aside. So by the time you actually do need an appliance or the time you do need to make a bigger repair, it's just as well down the road when you've had plenty of time to build up reserves.

And that's what I think when we, when we went out and we were like, okay, we want to do a new construction.

That was it because that provides so much stability. If you're going into this game and you're trying to figure out how to start going and all of a sudden in year two, you have a HVAC that you have to completely replace now. That could have wiped away the past two years of cashflow for you easily.

If not more. And now it's set you a little bit back to get your next property. Whereas now we have a very predictable timeline of like, all right, now we're going to know what expenses are going to come up for you, help you prepare for those. But that's going to be pretty far down the road before you're thinking about anything major, like what you're talking about. I did a review of this money management platform called Baselane. By the way, listeners, REtipster has an affiliate link to them if you want to check them out, retipster.com forward slash baselane. And I got a blog post review I'll share in the show notes. But if you're a rental property owner, it's probably the best bank management platform I've seen because it's sort of toes the line between managing your money to actually being a property manager. And I won't say it's property management software because that's not what it is. But you can like get background reports and credit checks and you can set up automation so that money automatically transfers back and forth without you having to do it. You can set up separate accounts for each individual property that all lives inside one account. It's just very well thought out if what you're doing is running a rental property business. But aside from things like that, is there any like helpful software that you ever recommend to people? Like, hey, because you now own this property, this might be helpful for you. Check that out. Anything come to mind? Most of our management teams use Appfolio, where they're going to have a way for, you know, you to have visibility of the income that's coming into the property you're seeing the money that's going in money that's going out.

And then you have a system to kind of get all your reports at the end of the year. So whether you're giving that to a CPA or you're doing it yourself, you have a good system. But, you know, that allows you to manage multiple properties into, you know, one software tool. I think what you were mentioning is can take that even a step further. But from an organization standpoint, yeah, I think AppFolio is the one that's going to be able to keep like, you know, your go to with your manager of that. You know, we work alongside Connect Invest to help people save up more money, with some of their earnings. So you can kind of, I'll give you the link for that if you want to chat with them too. But you know, that's been a great tool. I think, I think you're aware of that as well. Yeah. I've actually, I've done a review of Connect Invest as well. I'll include a link to that video and blog post as well. If anybody wants to check out what Matt is talking about, it's totally worth knowing about. And using myself for two and a half years. Great tool. Another question related to this whole idea of building a brand new property to act as a rental in my mind, one of the potential drawbacks to that is like, well, what if the cash flow is terrible because I'm paying for a brand new property? You know, like I'm not buying this at a discount at all. Like I'm paying the full sticker price to buy this thing. So like.

What is the cash flow typically on these things? Or maybe the cash on cash return or cap rate? Like what do those numbers look like? And what should a person expect if they want to build up their portfolio this way with new construction? I'll back up a little bit. So one of the nice things about working with the builder and the developer, what we do has a different advantage to it from the pricing upfront anyway. So if you think about a normal new construction build, right, you're going to go in, you'll go to the builder. Or let's say it's $250 and then there's always a little plus sign right after it, right? Because once you add in even things like fans, if you want to do tile instead of carpet, if you want to upgrade anything beyond BuilderGrade, they're going to step up those costs. And sometimes they do incentives and fun things like that. Where we get a bigger advantage is that when we go in and we're saying, okay, across this neighborhood or this community, we know we're going to use a high traffic luxury vinyl plank flooring.

Well, we're going to get that at a volume discount that the builder can't even get that at because we're buying it in so much volume. So we're able to pass on savings to investors that way, too. And you think about every material I just mentioned, like the brick, the zero scape, whatever that looks like. When you get that, if you were to get the same home done by a traditional home builder, it's significantly more expensive than getting it from us. So we try to lean into that first. But when we run the numbers and we're looking at it i mean we're going in with an expectation we want a minimum of you know six to nine percent cap rates to really make sure it's effective, because after any loan after assuming you know planning for all of your taxes your insurance all that that we want a positive cash flow we're not going to go into a market unless we can hit that, because you know it is more about the the long-term benefit of this but the property needs to operate and needs to be self-sufficient. You need to be making some income off of it. So that way, ultimately you have, you know, some tools to help you pay off that property quicker. Our plan is to really help clients get to retirement as quickly as possible. So if we can increase the cashflow there, show you some ways, some strategies to do that.

That's the best path. But I would say, don't go into this assuming you're going to make a crazy amount of cash flow off anything. And I think I talked to a lot of people right now, and I think that's hard to find anyway, right? With the way interest rates are and where prices have gone. We're designing our model to build in any economy and to work with any interest rate, because that's where we want it to be effectively for you and give the most value, right? Let's say I want to buy one of these things right now. What is my process? Do I book a call with you? And then do you have properties ready to go right now? Like I can go buy one right now. It's totally complete. Or it's like, no, no, you kind of sign up and then we'll build the thing for you. And then a year later, then you can buy it. Like, tell me how this process works. That's a good question. Whenever people come in, they're like, all right, I got to wait, you know, six months for this thing to get built. No, and that's a big advantage too of what we do is we're actually building property constantly. We're in four different markets right now, actively building homes. So we're always going to be building out inventory. Now, what I mentioned before is your, your specific situation might match up to a market or a property type better than a different property or market, depending on what your needs are. So we're going to definitely do that. First thing is like a discovery call to figure out, okay, number one, what are your goals? Does this fit you? And hopping on a call with our team or myself.

That's my main objective. Like, I don't want you to hop into this if it's not a good fit. This again, we're taking on clients for a long time. I want to make sure this is a good relationship and I can really understand and help add value to where you're at. But once we kind of understand, okay, well, this makes sense.

Long-term buy and hold strategy is going to fit for you. This is what your goals are. You know, from there, we really just break down the strategy of how we're going to do it. You know, are we leveraging an account or property to do it? Do we need to set up a self-directed IRA? You know, are we doing a tax strategy? So then we really go into the nuts and bolts of it. Okay. Here's how we're going to make this work and how we're going to buy the property. And then from there, you know, we're, we're already going to go ahead and start picking out the specific markets and giving you all the data that we've done and really start matching you up with, with the property that you've, we both feel like is right for you. Right. So from From there, that's where we already have those properties coming available. So right now at the scale we're at, we're releasing inventory about every one to two weeks. I mean, the summer is a nice peak time for that, so that's great. So just depending on when you're coming in, you might be on a wait list for a specific property, maybe for a few weeks or a month, just depending on what we're looking for. But once we're able to find that property type, match you up with it, I mean, we can get it going.

We're able to get you closed in 30, 45 days. So if you started today and you're like, hey, Matt, I'm ready to go. I mean, realistically, within 45 days to 60 days, you're closing on that property. By the way, if anybody does want to book a call with Matt or anybody at SDIRA Wealth to talk more about this, REtipster does have a referral link. You can find that at retipster.com forward slash S-D-I-R-A. And that's also linked in the show notes for this episode. Again, retipster.com forward slash 286. But just to clear up any confusion that people might have. So I don't have to own this property in the name of a self-directed IRA, right? Like I could, but I could also do my personal name, an LLC, a trust. Like I can do whatever I want. You name it, we can help you do it. So as long as it's legal.

Yeah. And you mentioned that you're building in four different markets right now. So what markets are you building in and why those markets? So right now, primarily, we're focused on Texas. I mean, if you look at it from a landlord business friendly perspective, it hits all the marks. You know, it allows you to have a management team fully run that property. It's non judicial, no state income tax. And we've looked at the markets that really have seen a lot of population growth, you know, that the landscape of Texas has changed quite a bit since COVID. And there are markets that got overbuilt and oversaturated, and we see prices coming down and rents not keeping up. So we're already ahead of the game on those areas. I think right now we're really excited about some of our markets in West Texas. We're seeing a lot of good job growth, a lot of steady population growth, and we're looking for markets that are specific to.

Those things like we want to, we want it to be able to handle any type of economy. You know, we're not going to go into a town where they have one factory that, that employs half of the town, right? Like that whenever you have any economic stability and that, that can suffer, you're, you're going to be hurting as a landlord in that market. So we're looking at for areas that are diverse, all that. But I mean, right now we're, we're really building in four markets across Texas, Lubbock, which nobody's heard of, but it's actually the biggest city on the west side of Texas. Midland, which has a big energy focus right now for domestic energy production. We're looking at Abilene. It's closer to Dallas, right outside, about two hours outside of there. And then also in Houston, we're seeing a wave of development and jobs getting added there. I mean, they added around 120,000 residents last year. So good timing on a lot of those things. But even from there, we're digging into the sub markets of those areas and really trying to determine what it looks like. So if I want to buy one of these properties right now, how much cash do I need? Like how much liquidity should be ready to go before I get ahold of you?

So I think it kind of depends on what property type you want. When we're looking at it, anything that we build, we'd love to stay always below the median. There's a lot of room for growth there. Median home price is what, 420, 430 right now. So average property for us, I would say it would be right around like the 200 to 250 price range. But depending on the market, it might go up to that closer to that high threes, low fours. I think if you're going into an investment and you're looking at it, I think you want to figure out a, what makes sense for you doing down payment? Is it 20 or, or, or 40 or sorry, 20 or 25% and really what, what the cashflow and all those numbers are going to look like. So I would say, you know, if let's say it's a $250,000 home, right. And you're putting 20% down, you're gonna need about 50 K as a down payment. And then you want to plan for some closing costs.

But that's it i mean you're not paying us any finder fee you don't have to pay any broker fees no commissions on that and then we're building in a ton of incentives around that, so i think that would be a good starting point but that could be like you mentioned that could be in retirement account it could be equity that we're using like in a heloc we've helped clients figure out lots of different strategies to figure out the best way to get started and that's, that's the call right like that's the original call it's like how can you make this work if you need to start planning for this well if you don't have 50k today, doesn't mean not to book a call with us because i'd rather show you the path on how to get your first rental property and then you know we stay in touch and you figure out a way to get there, the people that do that i think it's been amazing to see because it's literally changing their lives because they they have a clear path now of what to do and, you know the book in the background there really lays that out and i'll make sure Seth gets that for everybody in the audience today that, you know, once you book a call, you get a copy of that as well, uh, sent over. But the, the main points of it is like, how do you get your first one? How do you keep scaling? And for the average investor, you know, five rental properties is all you really need. You know, if you're, if you're looking to replace about a hundred thousand dollars in passive income a year and you need about, you know, a little over 2 million in net worth.

You can get that done with five strategically picked properties. Not saying you're going to be, it's not a get rich quick scheme. You're not getting there overnight, but, you know, really just trying to position those properties properly, letting the tenants pay down, do the work. I'm sure everybody in the audience has either heard of or read Rich Dad Poor Dad. So, you know, it's a game, right? Like we just have to keep getting into those assets. So when it comes to the financing of these properties, who's handling that? That's not you, right? You refer me to other lenders in the area who can offer the loans that I need to buy these things? And if so, what are the typical terms on those loans look like? Let's talk about the financing piece of this. Yeah. So financing is a big advantage of working with our team. So as a developer, we've built a lot of relationships with lenders, right? We use them. We have a lot of accounts with them, a lot of volume we send them. So we get a lot of really good rates and incentives working with those lenders. So you're actually able to come and we can help you set up with our lending team, which has a network of over 150 different lenders that we work with. So we're going to shop around and get you the best rates. We have all the different loan products.

We have the traditional conventional financing for investors. We do DSCR loans, commercial loans, portfolio loans. And we're even helping with non-recourse loans, which is the type that you need inside of a retirement account. So we have everything there covered. Now, if you love your lender and you've been working with a guy, you know, in your neighborhood for all, you can absolutely use them. We're not saying you have to only go with our team. You know, we just really try to use our relationship to help leverage and get you a deal, but we're not making anything off of the lending side of it. We're trying to help the investor get the best product so that you can keep saving more money and.

Building that out. So it sounds like whether I need to put down 20 or 25% ultimately just depends on which lender I work with, what their requirements are. I guess probably my own credit worthiness, things like that. A lot of our lenders too, like we have the ability to help get you the best terms on that. And when the properties that we build, if the debt service ratio hits at 20%, you know, we're good. We can get that loan done. That's what we look for in all of our properties is can it be done that way so.

I think for you as an investor it's like well do i want 20 or 25 that really determines like you know do i want a little bit more cash flow today to try to pay off that loan a little bit quicker or do i just want to try to get into my first property as fast as possible and then know that you know my cash flow is going to go down a little bit so that i can just get started so that's a conversation i like to have too because you know we can do both options for you if you're ready to get started just know that you know if you're closer to retirement or you're wanting to use that, if you put that 25 down, you're going to minimize your loan a little bit. You're going to be able to pay it off quicker. So really from there, it just comes down to timing for you. So like who is the typical investor who buys these properties? Like, is it a person with a certain annual income or like, I don't know, trying to help people self-identify and realize, oh, I could do this or, oh, maybe this isn't for me because of XYZ. Is there a typical buyer of these types of properties and what do they look like? I would say there's not a typical buyer. I mean, they all share one thing in common, which is they want to use real estate to start getting path to financial freedom. But I have all the stuff.

So my average clients, construction worker from New York who operates a crane. Um, I have a developer that has over 800 properties. I have chiropractors, dentists, doctors, lawyers. I have just everyday tradesmen. I talked to a client this morning. He works for, um, Ryobi. I mean, you, you name it. It's really just about like, do they share a common goal around, all right, I want to get started in real estate.

And do they have, do they need a team to help them on that path to make it more passive because real estate's been around way longer than we've existed. I mean, you can go buy a property today, Seth, and run it as a rental property. You don't need us. But if you want to have a team where it helps you scale and helps you grow and gives you the strategy and all the other pieces and has provided all that network and that research with you, that's where we really can help because I can take somebody from zero to five, if that's their goal, or I can take somebody who's at 50 to a hundred in a short amount of time. It doesn't matter. The same principles, the same strategies approach. Now, how we look at those portfolios might be different, but at the end of the day, it's just, how do I get the property? How do I focus on taking care of it and making sure it's a good product in the right area? The time and the teams will do the rest, right? Are you seeing people do cost segregation studies on these properties after they buy them? Like, Is that a common thing that people do? Oh yeah, a big beautiful bill last year, right? Brought back 100% bonus depreciation. We've been insanely busy because of that. A lot of our clients go.

To us for that that specific tool because if you're really looking to get the most out of your rental property and really if you're paying high taxes we work with a lot of tax strategists tax attorneys cpas, their teams and they'll have clients come to us that says like hey this client's going to need you know a couple properties this year for cost segregation well, they can bring that client to us and we can find the right properties for them but also, on top of that we're going to get the cost segregation report to them for free one of the advantages that we have again from our volume is that we can get those reports done at no cost to an investor because we already have the teams that do it no matter what.

So that's a big incentive is not only do i know this property is going to work but now i have the tax strategy behind it to get it executed and i'm not just sending if i'm a cpa i'm not just sending a client out to the wolves to say all right, go find a property. Good luck. So yeah, very good. Yeah. And for those who might not be familiar with what cost segregation studies are, and Matt, if I'm wrong about this, jump in and correct me, but it's basically just a report that you can put together that isolates which part of your real estate can actually be depreciated much faster. And then you can capture all that depreciation in year one right away, instead of having to wait years to do it. So if you need a big tax write-off, like right now, you can through a cost segregation study. And normally when you do that, you have to have a specialist go in and look at the whole property and figure out, okay, the doors are worth this and the kitchen appliances are worth that. And, you know, really make all these line items of how much value is tied up in the assets that can be depreciated faster in which ones cannot because it's part of the real estate. But when you're building new construction like this.

It's actually pretty easy because you have the invoices for everything because you just built it. So it's not this big laborious process of like trying to figure it all out because like you've got the cost documentation right there. So that's part of what makes this a perfect fit for a cost seg study. Is that right? Absolutely. Because your biggest chunk of depreciations in your first 15 years. So you're buying a 15 year old property that maybe had a couple of things redone on it. I mean, could be a good investment, but you're minimizing the tax side of it. But to take a layer on top of that, well, now you have a team that's going in looking at property from the tax, the cost segregation perspective. So when we build, we're looking at land to structure ratio, too, because you can't depreciate the land. So if we're going in and we're building a maximum benefit to a client there, but then also let's look at those those 15 year window items. Can there be upgrades in there that make sense for a landlord to? Maybe we upgrade the countertops from quartz, I mean, from granite to quartz. You know, a little upgrade like that might be a $5,000 difference in your tax, you know, your cost segregation study.

That's the advantage of having that all done by a team that's focused on that. Again, you can have all those things done and that report can be beneficial to you. So if you already have rental property, you haven't explored that avenue, definitely hop on.

Where a lot of people come to us and their CPAs is, okay, well, how do I move that from passive to active? That's a whole other game too for income. So definitely talk to us about that because if you have a lot of active income, you're those high income W-2 earners, there is a way to figure out how to utilize that for you. We just got to make sure it can work. And you know, the CPA that you're working with understands it and they know how to do it as well. But yeah, it's a powerful tool. I love it. In your mind, are there any people who should not be trying to buy properties like this? Like who is this product not for? I do think that it can fit in everybody's portfolio specifically.

I feel like where we probably don't match up the best with is the diy people that want to that love the hunt they love the chase they love getting the deals, and they're also in a in a bigger hurry to get there, right so if if i'm you know going in and i'm doing tax liens and i'm doing buying foreclosures and i'm doing the fix and flip model and i'm after those those things where i can i can use my sweat equity to really get me a deal and, maximize the savings and I'll go in and I'll do the work. I'll research the markets. You know, I know every realtor in my neighborhood, I do those things and they're really active. That's probably where we can't really add a ton of value to that because you're already doing the work. Kudos, right? Like that's amazing. And I love people that are like that because that's, that's fun. Like, I mean, I, I love those things about real estate too. So I, I have a soft spot out my heart for him, but sometimes that doesn't match our model because you're really going in and having a team do all these things for you.

Now there is a good bridge on a lot of that, right? Where I have, I have clients that do fix and flips constantly and they make strong income, off of those. They've been doing it well and they've had good deals. And then they have all this additional capital. Well, where we start peeling some of that off is that, you know, maybe their market that they're in, isn't the very, the most landlord friendly. Like one of them that I'm working with that lives in DC. So he doesn't really want to be a landlord in that DC metro area. It's really tough to get it done there. So he'll take some of that capital that he makes and, and put it into long-term. Portfolios that, that work for him by our team.

Those can, can be managed passively, but he's still doing his active work in it. So I think you just got to figure out what, what's the right tool and how you're going to utilize it. Maybe you're not there yet. Maybe you're still working on, you know, the next deal and focus on that, which is fine. But I think if you're getting to a point where you're, you're going deal after deal after deal, start thinking to yourself, okay, what's my exit strategy on this? Because if I, if I get older, my market becomes shifts and it's not as favorable for the fix and flips as it once was. Do I have a plan B of what I'm going to do and get that? So I think always looking at that strategy makes a lot of sense too for people. But yeah, hope that answers the question. Do you often see people who are doing 1031 exchanges and they're selling another property and because they need to move fast, this makes a lot of sense for that? Because like the property might be ready to go and they can move quickly. Like, is that a common thing you encounter or is it not necessarily a good fit for that? I personally am working through five 1031 exchanges as we speak. And then our team has as many more than that. But yeah, we do a ton there, probably hundreds a year.

1031 exchanges is probably one of our specialties. I'll give you an example, one we did back in April. So retired pharmacist, hey, he owned his building, he was making income off of it, but didn't want the building anymore. Of the new pharmacists that took it over wanted to buy it. So he's like, okay, well, my problem was, okay, well, I have income that he's living off of that we need to work on getting done quickly. So what we were able to do was line up and pick out the property before the close. So he went under contract on the exchange, started the diligence process. The person was getting their lending. We were picking out the property and getting his lending work done.

So he was actually able to close on his deal, his pharmacy, close on that on a Wednesday. We were able to close on his property on a Friday. With us and then we had a tenant that was moving in that weekend so talk about seamless as minimal disruption, that's the advantage that we'll be able to bring for you because it's brand new you don't have to worry about it not passing, you know inspection contingencies you don't have to worry about it not you know the seller backing out because it was their family home and you decided you want to buy it because it looks like a good investment and they have somebody else in their family wants to buy it now. I mean, there's so many things I've seen over the years, but we're really after that to make it as smooth. So yeah, I would say if you're doing an exchange, absolutely talk to our team because that'd be probably one of the smoothest experiences you've had. And for those who might not be familiar with 1031 exchanges, or maybe they need a refresher, I've actually got a couple of different, resources I can link to in the show notes, but the long and the short of it is the reason you do a 1031 exchange is because you can basically sell a piece of investment real estate. And, you know, when you do that, normally you would pay a big tax bill if you're making any money from that thing. It could be a massive tax bill depending on how much money you make. But with the 1031 exchange, it allows you to basically not pay taxes as long as you're able to roll that money into another like-kind property, which is basically just any other piece of real estate.

But one of the drawbacks with this is you've got a fairly tight timeframe. I forget if it's six months or what it is, but it's, do you remember what the timeframe is, Matt? How many days you have to identify the property and then actually close on the new property? Yeah. So once you sell it, you have 45 days to identify your new property. What I'll tell people too, is you want to go into it before you go to contract. Once that money touches your hands, Uncle Sam's coming after you. So make sure you have a qualified intermediary. There's, there's a ton of good, uh, deferred.com is another good company that does an online resource. It's free. There's ways to do it that way, but. Yeah. Make sure you have your intermediary. You have that 45 day window and then you have another 180 days after that to actually close on the property. So get the identification done, but why wait six months to lose out on cashflow? Like let's get it done quick and start making money. And this kind of thing, I mean, just thinking about it stresses me out because I know how long it has taken me sometimes to identify the right property. And I don't want to be rushed into something that isn't actually the best thing just for the sake of not paying taxes.

I don't want to pay taxes, but I also want to get the right thing too. And I actually had a podcast conversation episode 167 with Scott Saunders, where we talked all about why this timeframe exists and all this stuff. But this kind of thing is a great answer to that problem, assuming you want to invest in.

Like, for example, my self-storage facility, if I sold that thing right now and I've got a million bucks, I got to put it somewhere.

Like, do you have four of these things ready to go in the next six months? Then I could say, hey, Matt, get them ready for me. I'm going to need it. Like, is that a realistic expectation? Yeah, we can get the property designed and built out and done and executed in that timeline. Because that's the thing. We're not relying on you to come to us and say, hey, Matt, here's my starter capital. Can you go out and build it for me? like we're using our own capital to go in and build it we know these markets we know our clients who've been doing this for 25 years so we know what to expect every year now the sooner you can get communicating with us if you're thinking about an exchange and you even just want to explore that the better we can have to build you out this specific portfolio that's going to mix that but yeah i mean we've done exchanges you know up to 26 million dollars i mean it it just depends on what you're looking for. We can find a solution for you. Just looking at this from the standpoint of cashflow, I always get excited by that idea of just creating streams of cashflow. So let's say there's a property, one of these properties, the purchase price is what, $250,000? Is that what you said is a normal price? It's a good median. And if I'm putting down $50,000, I don't know what the typical monthly rental income would be based on that when you factor in vacancy and deferred maintenance and all this stuff, or, you know, repairs and that kind of thing on a house per house basis. Like if I just buy one house and I look at what the loan payment's going to be, how much net rental income would I make per month from one of those purchases?

Any idea what that comes out to?

Yeah. So after all expenses, we want a minimum of 4% cashflow at a minimum. So on that example, it might be a few hundred dollars a month, right? This isn't something that's going to go in and, you know, change your life dramatically from day one. And those are the things that I would look at is like, well, do you want a high cash flow rental property that maybe is just that, right?

It's maybe it hits that 1% rule, but it's an area that maybe not be appreciating well, but I always have renters. You know, I think of like a Section 8 property that's, you know, I got guaranteed income every month that's coming in. I know I'm going to have to deal with some vacancies, some repairs, some maintenance, things like that. So i might plan a little higher for those things but maybe you know i only had to invest like a little bit of money to get that that return those properties we build too we have some higher cash flowing properties that we can do that if that's what you're after i feel like though with the state of the economy when being in a housing shortage and going into the top markets in the top areas you seth you could sell stuff on ebay and make 200 a month right don't don't buy a rental property for that or $300 a month, whatever it looks like. I would buy the rental property in those markets because of what's there and what's growing and where that home's going to be. You're going to make more wealth off of the appreciation of that home going up over time and the tenants paying off that mortgage for you than you will on cashflow in most cases. But maybe your first one is just a cashflow vehicle, but you need to have a balance to that portfolio because then you want some, trust me, you want some of the property without headaches do. In retirement, they're going to be way better for you than having to worry about.

Every single month having an issue or a repair. So I think it's just planning those things out and figuring out what it looks like for you. When we were on our first call a month or so ago, you were showing me a spreadsheet and you were talking about how the cash flow is 4%, but that's not it. It actually goes up to 12% when it's 4% appreciation, 4% equity pay down. What were the other things that go into that 12% number that, You don't see it in the form of cash flow, but it's still a 12% monthly amount. Remind me what that was. Yeah. So we show clients how to build that real estate builds wealth four different ways. It's called the four streams of income. And I'm sure there's other people out there that have coined that term or used it. But number one way you make money in real estate, everybody knows about it. Cash flow, right? That's one tool. So let's say you're getting 4% there. The other piece is that you're getting principal reduction. So if you have that property leverage, right, you have a loan on it, you have a tenant that's now paying down that mortgage for you. They're paying that interest. They're paying that payment. So as long as it doesn't matter if you have a 16% interest rate, if the rent's covered by the debt, like you're building, right, you're making income.

But principal reduction is the other one on average with the 30 year fixed loan, you know, that's mostly what we'll do is you're going to pay down about 4% of that year over year to where that principal reduction is getting hit. And that's something that gradually increases over time depending on your schedule. So, all right, now we're up to eight. Well, if you look at a normal depreciation schedule, that's the third one, depreciation is, well, even if you don't use cost seg, well, now you have standard straight line depreciation every year for the next 27 and a half years. So you can save yourself another 4% that way just by using the depreciation on that property. And like, it's something that IRS allows you to do. So now we're up to nine. Now, the fun one too is the appreciation because you're leveraging your dollars. So let's just say you had a property that appreciated 3% year over year. I think national average is like 4.7 right now.

But if we're at even 3%, well, if you've only used a quarter of your own money, but you put 25% down, and we'll make it easy, let's just do $200,000 home. All right, so you put 25% down, you put 50K down on a $200,000 home. Well, if that goes up in value, 3%, I'm getting the return off of the value of the property going up, not what I invested. So if I'm looking at that $200,000 home and it's gone up to $206,000 now, I've made $6,000 off that. So that's where you can 4X or 5X, if you're doing 20% down, your returns on appreciation. And that's where you start to see significant growth. So when you actually break down the numbers and you look at appreciation, cashflow, principal reduction and depreciation for factoring all those things together. That's what you really want to look at the picture, because those are all things. Now, they're not tangible in your bank account every day, but those are tools that are working in the background to build your wealth. Now, I've heard you talk about building wealth versus simply generating income. Is this what you're getting at when you say that? Like the income is just a little piece of it. The building wealth is all these other things that go into it long term. Well, if you have the wealth, that'll generate the income no matter what. So if you operate or you control.

You know, two to $4 million worth of real estate and you get that paid off and you have that, I mean, you could, you could sell all your properties with us and just put it into the, the, the mutual fund now at 4%, you know, 5% and you're okay. Right. But you're starting your 50 K and that mutual fund at 5%, it's going to take you a long time to get to 2 to 4 million, right? That's why you got to use leverage. You got to use the bank's money as much as you can when it makes sense, right? Not every situation, if I'm retiring tomorrow, might not make sense to leverage all my dollars, right? But if it makes sense for your specific situation, we absolutely want to, because we're helping you attain that wealth number first, because then you can plug it into whatever you want. But if you If you keep it in the properties, it'll give you that passive income that you want. But what we teach clients too is that if you don't have to use the cash flow today, put it back into the investment, put it back into the property until you're ready to use it. Because the $200, $300 that I mentioned.

If you're applying that towards your principal, you're going to get it paid down a lot quicker every month, right? And then you can unlock what we call the real cash flow, right? When you have over $1,000 a month, $2,000 a month coming in, that's cash flow that I can actually use now. That's not just me playing around with a few hundred dollars and trying to rob Peter to pay Paul on my investment properties. I want to make sure that this is something that can sustain me and my family, in retirement. And that's why we strategize on that piece, too. It's like you got to figure out how to acquire it, but also pay it off to where you can really utilize the cash flow. Yeah. And there's this thing called the Freedom Five formula. And I assume that means buying five of these things. Is there something magic about that number? Or like, why five? Does something happen or unlock at that point? Or can you explain more about that? Yes, there's a special thing that happens now.

Now, I think that's just what we found over the years that hits the mark for most people. But your formula might be a, you know, freedom eight formula, it might be a freedom 20 formula, it might be a freedom to formula. Like the freedom five formula was really just designed off of Justin, our CEO, his personal experience in real estate and getting to his freedom number through that. So he talks about that in the book and the principles that we use as a company to really help clients focus on that. But I mean, for average everyday people, you know, $100,000 to $120,000 a year in passive income can be a way better retirement. And that's what Fortify Properties will actually do for you. But that's where talk to our teams, do that call, we can figure out what that property number actually looks like for you. Because if you're a high income earner and you're $300,000 a year to live off of, then you're going to need more than five properties most likely to hit that. And we'll figure out the play for it. Well, if somebody wants to get started with this or just talk to you about it, I know one place they can go. It's retipster.com forward slash S-D-I-R-A. Again, I'll have a link to that in the show notes for this episode. That's retipster.com forward slash 286.

Matt, as we close this thing out, any final thoughts or anything else to talk about that we haven't mentioned yet? Or does that kind of sum it all up? No, Seth, you've been great. I think I would just, you know, you have a lot of people that go after different deals and I've seen your community and you have an amazing community and they're always looking for that. But, you know, I think my last note for people would be really just to figure out how to build beyond that next deal for you. Where can you go from there? And how do you build out a passive income for yourself? Yeah. Awesome. Well, again, folks, check out the show notes, retipster.com forward slash 286. Thanks again for listening and watching. And we will talk to you again in the next episode. Thanks a lot.