GI10: Successful Turnkey Investing in U.S. Real Estate with Marco Santarelli

Marco Santarelli is an investor, author and the founder of Norada Real Estate Investments – a nationwide provider of turnkey cash-flow investment property.  Since 2004, they’ve helped thousands of real estate investors create wealth and passive income through real estate.  He’s also the host of the top-rated Passive Real Estate Investing podcast.

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Announcer: Welcome to the Global Investor Podcast, a show that focuses on helping foreign investors enter the lucrative US real estate market, host Charles Carillo combined decades of real estate investing experience with a professional background in international banking to interview experts in all areas of US real estate investing. Now here’s your host, Charles Carillo.

Charles: Welcome to another episode of the Global Investors Podcast. I’m your host, Charles Carillo. Today we have Marco Santarelli. Marco is an investor, author and founder of Nevada real estate investments, a nationwide provider of turnkey cashflow investment property. Since 2004 they’ve helped thousands of real estate investors create wealth and passive income through real estate. He’s also the host of the top rated passive real estate investing podcast. How are you doing today, Marco? I’m great. Charles, how are you doing? I’m doing well and it’s great to have you, uh, on on the podcast and I know you have a lot of experience, not just in turnkey but also of working with international investors. So I think will be great value for, for all of the listeners. And a couple of things. When I was looking over your website, it said you started investing in real estate at age 18 how did that happen?

Marco: How’d that happen? I took Ash and I’ve, I’ve always had a fascination from as early as I can remember with money and wealth and you know, a friend of mine actually said that you’ve always wanted to be rich. I don’t know if I would label it that way, but certainly I just knew the value of, of having wealth and being financially independent. At the end of the day it’s, I didn’t want to go to school. I didn’t want a job. I wanted to have time freedom. And I think most of your listeners and you and my myself, that’s what we ultimately want. We want to be able to live our life in our own terms. And in order to do that, you need time freedom. But how do you get time for you and do you have to have financial freedom? Well, how do you get to financial freedom? Well, one of the major milestones is to achieve financial independence. So I figured if I can get to that point, then I can, you know how that time freedom and do what I want to do. So long story short, I just educated myself in my teens and then when I was able to qualify for financing at the age of 18 I’d bought my first rental property was an end of unit townhome. I fixed it up, didn’t need a lot of work, but it needed work, put a sign in the law and there was no internet back then, so I couldn’t advertise online, but I took paper applications. I interviewed these people not really knowing what I was doing, but ultimately placed. The tenant kept that property for a number of years and I did very well with it. The biggest mistake I made was actually selling that property years later. I took a big profit out of it, but the problem was is I was stupid in the sense that I didn’t know what I knew today. I could have reinvested those, those funds, but I didn’t.

Charles: Yeah. Hey, you became an agent afterwards for a couple of years.

Marco: Yeah. I continued down the path of real estate investing and being an entrepreneur with some success and a lot of failures. But that’s how you learn, right experiences the greatest teacher. But yeah, ultimately I got my real estate license, not because I wanted to show for people around in the back seat of my car, showing them houses, which I did, but it was really just to have access the MLS and uh, and being able to learn the industry and the trade better for myself. And so today I’m a broker, but you know, it was all those little stepping stones over the course of years.

Charles: When did you decide to go full time in real estate? I imagine with right after this deal, this age when you’re 18 but you were, became an agent, then you went full time to real estate investing in your early twenties

Marco: no, actually I, I w I was really more of an entrepreneur than an investor. I’ve, I’ve had a lot of S I have had a stream of, of, of businesses along the way, mostly small businesses, many of which either folded or fail that, but gained a lot of experience in education from, it was the greatest teacher that you could possibly have. I learned far more from my, my endeavors in being an entrepreneur than I did going to school. But along the way I just knew that investing was important and so I dabbled with the stock market. I taught myself, you know, technical analysis on how to invest in the stock market. I continue to invest in real estate, but really the turning point was 2003 when I got an email from Robert Allen who was a well known author, you know, he’s written and coauthored about 20 different books, but he was one of the grandfathers of nothing down real estate.

Marco: And I don’t know how I got on his list, but I got this email in the middle of 2003 they had a two day, we’re actually a three day free seminar in orange, California in September. And I had time on my hands. So I decided to go and that really was the turning point. I decided to invest in their boot camps, which were anywhere from $15,000 to $35,000 but there was 2000 people in the room and half of them were running to the back with credit cards in hand, you know, investing in these bootcamps. So long story short, I ended up going to all these different cities to, to get this continuing education in real estate. In many cases I knew more than what the instructor was talking about, but it was the kick in the pants that allowed me to put the pedal to the metal and purchase at that time, 84 units, 84 doors in a nine month period.

Marco: So because I was really hitting the ground running, investors were coming to me saying, Hey, can you help me? I’d like to do what you’re doing. And they were spending the same kind of money as I wasn’t going to the same places they were getting the quote unquote education, but really not pulling the trigger. So I didn’t want to be a coach or mentor. Ultimately I said, look, I see deal flow, I can help you with the deals that started and I started packaging, you know, and that was really the niche that ultimately became the existing business today. So to answer your question, it was 2003 2004 that it really decided to go, okay, steam ahead full time. And that’s what I did.

Charles: Yeah, it’s amazing when you go to the, some of those events and a lot of people are just getting started at LA Cuellar transitioning, locked in or trying to get all their w two and a lot of people haven’t taken any action. So if they, you’re speaking to them and you’ve taken action. It’s kind of like a magnet and a, it’s funny you say Robert Allen and I remember that my dad used to have those in my Carleton sheets as well, not the main food. They kept on selling his program for years after he died and he, my dad was like, this guy has been dead for years and they’re still selling the program on like infomercials and stuff.

Marco: Well that’s so funny. Carlton sheets actually would renew and repackages product about once every year for a number of years. And I remember I ordered it one year and then like two years later it was old brand new shiny package with CVS instead of cassette tapes and so I ordered it again.

Charles: Yeah, yeah, that’s, that’s great. Yeah. I remember Robert Allen has a thing called multiple streams of income, which was one of his, which was a really, it really kind of defined how to, how to make money in any type of business or, or a Mitt create wealth blog. When I was looking over, your website’s very interesting cause a lot of, not just not just turnkey guys, but also a lot of syndicators they’ll focus on like one, two, three, maybe even four or five markets. And I was looking at was like almost 25 markets that your company Norada real estate focuses on. And I was, I was wondering how that all works, how are you able to do your due diligence on it and then also narrow it down to neighborhoods and ultimately properties.

Marco: Yeah, that that’s really a good question. And it all comes down to my fifth rule in my 10 rules of successful real estate investing, and that’s to be market agnostic. When you understand that the country is made up of over 400 metropolitan areas, you realize that every real estate market is local. And what happens in let’s say Tampa, Florida, where you’re, where you’re at is different than what happens in [inaudible], let’s say orange County, California, which is not a city, it’s a County, but it’s different than what happens in Detroit, Michigan. So when you understand that markets are different and they have different dynamics, economics and fundamentals, then you should be picking your markets based upon what those markets are capable of and the health of that market. And that’s why we’re in multiple markets because we are marketing Gnostic. That’s my fifth rule, is to be market agnostic.

Marco: So if you want your investment capital to work as hard as possible for you, you shouldn’t be looking in the markets that make the most sense from an investment perspective, from a fundamental perspective. And so this, this is why we’re in more than one market and every market provides kind of a different result for you. Some markets are very linear, the re they’re very slow moving and we call those cashflow markets or linear markets. And then you have markets that are experiencing very strong growth like many of the markets in Florida for example, where if you were to buy property today and it’s in a strong stable area, it’s going to ride along with that major trend within that market in terms of price growth. And so those are growth markets and now it gives you more appreciation potential and often it comes at the expense of less cashflow or a lower rate of return. So you need to ask yourself, as an investor, what am I interested in or what do I want to build my portfolio on? And the answer to that question will determine whether you should focus, you should focus on a growth market or a cashflow market or maybe a hybrid of those two.

Charles: Now you have boots on the ground in all the different markets that you guys, I mean, you must have a system in each, each market where you’re sourcing deals, you’re evaluating them, you’re rehabbing them. You have that in every one of those markets that you guys, uh, work with on your website.

Marco: Yeah, that’s exactly, and that’s very perceptive of you. Yes, you do have to have boots on the ground, but it’s more about the systems. You know, you have to have the right systems and when you have the right systems in place, and that’s what I developed back in 2003 and 2004 when I was investing from Southern California over 2000 miles away in markets from Florida as far North as Michigan. Once you have the systems in place, then you can put the people in the right seats on the bus. And so the people are critically important because you have to have the right team of people that work well with you and that you trust and that are not going to rip you off. Because that’s happened to me on a number of occasions. But yes, systems and people are critically important. People think that real estate is about properties, not so much.

Marco: It’s a people business, not a property business, the properties of the vehicle, but the people are what make it work and happen. And so when you, so a property comes in and you guys are handling actually, you know, picking the property, making sure it’s still at the right price, the rehab, getting it all set. So it’s exactly turnkey for your investors that fit the makeup of what mixes of appreciation and cash flow for that market. Is that correct? Exactly. Yeah. So there’s no formal definition of what turnkey means. This industry kicks that term around and, and, and really nobody’s ever defined it. We took a stab at defining it. It’s on our website of what we believe turnkey really should mean and the minimum standards that go along with that. For most people turn, he really needs just a rent ready property. There could be deferred maintenance items, there could be issues, but it’s performing.

Marco: There’s a tenant, it’s cashflow positive, you know, that that is what I refer to as a rent ready property. And that’s okay. We sell some of those, but most of what we have available is turnkey. And so when you’ve renovated the property, you’ve gotten new mechanicals, the roof is either new or has at least let’s say seven years of usable life. That’s when you can start to say, yeah, that is what I’ll call as a turnkey investment. And this is good. It’s great for, for a lot of people it’s not for everybody. Some people like to be active real estate investors and pick up a hammer and swing, you know, swing and fix their properties. And that’s okay too. You know that that’s just a different strategy. In terms of building your real estate portfolio and what type of properties does your company focus on purchasing?

Marco: So I’d say 90% of what our clients are actually purchasing and accumulating to build their real estate portfolios are single family detached homes. We love single-family and that doesn’t mean there’s anything wrong with multifamily or apartments. I’ve invested in those as well. They’re just a different type of product within this asset class. And they all have their, you know, there are nuances and pros and cons, but, but single family homes are the most abundant, especially in a very tight environment right now that we have where supply is low, demand is high and we don’t have a lot of inventory around the country for apartments or fourplexes or duplexes or single families. But the single families make up the largest percentage of the housing stock in the U S and so it’s abundant. It’s easy to understand, it’s easy to fix up, it’s easier to finance. And because of all those things, it’s 90% of what we offer and what our clients purchase. But duplexes and fourplexes are out there. And then of course, if you can find the right deals, like what you do, where you have apartments and you syndicate those deals, you know, those are great opportunities as well. It just involves a lot of work on the front end and due diligence to find and vet those deals. And, but once you find them it’s great because the money will follow.

Charles: Yeah, the financing and definitely on single family houses is the easiest. I mean you can put, you can do so many of them. You can fantastic 30 year, no balloons. It’s, it’s fantastic. You can’t beat that at all on any type of real estate.

Marco: It’s really hard to beat worldwide for you know, your global listeners. The fact that the United States is one of the few almost, I don’t want to say the only country, cause I’ve heard there is another country that offers a 30 year fixed rate product. But the point is is it’s pretty rare. It’s very hard to find a 30 year loan. The amortize the mortgage at a fixed rate, it’s, it’s an unheard of. Product is actually an anomaly and it’s unique to the U S

Charles: now you have a software for doing underwriting and it’s called or it’s called deal greater. What does that, it’s your, it’s your trademark software.

Marco: Yeah, so it’s a proprietary algorithm and a, it’s on our website right now. We’re repositioning that with the rebuild of the new site that’s launching in about a month or so. But essentially it’s an algorithm that takes into account three major factors that there’s other factors that play into it. And that is really just the overhead overall health of the market, the growth potential that market, the neighborhood grade, the property sits in, which is made up of other elements and then the financial performance. And so really it’s just a weighted algorithm that blends those things together and comes up with a score from one to 10 and 10 being, you know, you’d never see a 10 but 10 is like a perfect ideal scenario for an investment.

Charles: And for, I’m just wondering where, when you’re picking out properties, I know we were talking beforehand about Palm Bay, Florida, just to just the town in central Florida and where do you have like on a map somehow before it goes into this deal greater where if a deal comes in, if it’s within some constraints of neighborhoods before you even look at it or do you fully review the deal before saying

Marco: that’s okay or that’s not going to work well, we have a buy box, you know, a range of parameters that we give our boots on the ground or teams that are either building the product, if it’s new construction or renovating the product if it’s a distressed property or something that you know, needs to be turned into a turnkey rental property. And so they have a, they already know what we expect in terms of cap rates, cashflow, neighborhood grade, which is typically in the range of from B minus on the low end to an a on the high end, the median or the bulk of what we ended up selling are probably B plus neighborhoods. Uh, that’s kind of the sweet spot or the middle of the Belker because it gives you from a neighborhood perspective, the greatest, the greatest ability and appreciation potential while still on the other hand having a reasonably favorable, a rate of return.

Marco: Whether you measure that by your cap rate or by your cash on cash return. So you want that cashflow cause that’s the glue that keeps your deal together. And at the same time you still want growth potential. And really it’s, it’s kind of hard to have all of the both because when you have more of one, you tend to give up on the other. And that’s just the way markets are because you, as you go into a class, neighborhoods do, you have stronger appreciation potential and often better stability, but because they’re more expensive, the rents don’t scale as as fast as the prices do. And so you give up on, on that cash, you know, the cash on cash return in the cap rate. So I hope that made sense. That was kind of,

Charles: it makes perfect sense because in that it’s a great area to focus on head step B2B. Plus you have, first of all, it’s a single family house, so you have a higher, longer retention compared to an apartment, but you also have, I mean, somebody renting in that grade of neighborhood, unless they’re buying their own house and that’s their future role. I mean, they’re staying there. They’re not going to, it’s not going to be someone I imagined that moving every 12 months it’s going to be. So that’s fantastic. For your investors as well, you have a quite the portfolio yourself of properties. What do you usually are, are, is the most of your properties in, um, of your portfolio and single family that you want [inaudible]

Marco: for your family? Yeah. Yeah. Right now I’m in the process of acquiring about five single family homes in Wisconsin, which is, we have Wisconsin on our website. It’s really the [inaudible] Addison, no, Milwaukee, the Milwaukee market. I get that confused with Madison because I’m looking at Madison as a secondary market in Wisconsin to offer rental properties. But I always, I should say always, I like to test the market out before we open it up to investors. So I have to make sure we have the right team in place and the systems are in place. So right now I’m in the process of purchasing a small portfolio of properties that we’re in the process of renovating as we speak. And so that will lay the foundation for us to open up that Milwaukee marketplace once, you know, once I close escrow and things are moving. Okay.

Charles: Yeah. So that’s a great way of testing out the market is doing it yourself. I mean I imagine your, your investors like to hear that, that you have a track record in that area and especially you can pass them off now to the property manager and everybody else that’s involved with running the property after you sell it to them. So, um, so you work with a lot of investors and a number of them are international and I wanted to find out kind of since we focused on international investors here, investing in the U S what are usually the goals or what are the concerns that you have when you speak for the first time and the first few times to a potential international investor?

Marco: What are my goals for them?

Charles: No, their goals. What are their goals? Usually when they’re coming to you and they’re saying, I want to park some money into U S real estate, I want to, you know, what are they looking to do normally?

Marco: That depends on where they come from. Cause if they’re coming from a place like China, it’s really a capital flight. They’re trying to get their money out of the country and place it in the U S you know, just for safety. Many times they’re not even looking for a rate of return. They just want to park it elsewhere. And so this is why so many international investors and I say investors in quotes are not actually investing. What they’re doing is they’re just purchasing real estate site on scene, like new construction, um, properties and condos just to, to move their cash. It’s just like capital flight. But a more prudent investor, someone who’s actually investing for a rate of return is, is, is looking for a stability. And often they get mesmerized by the primary or tr primary. Um, tier one markets like Los Angeles, New York, San Francisco, these are very, very expensive markets for, for different reasons, but, but they’re attracted to that because they feel comfortable or safe.

Marco: It’s familiar to them, even though it’s not the best choice. From an investment perspective, the best opportunities are typically in secondary markets. You know what I call a tier two market. And sometimes even in the tertiary markets, which are more outliers of the secondary and primary markets, that’s where you can find affordable housing that rents for a, a, a number high enough on a monthly rental amount that it generates positive cashflow and the rate of return. So if you’re an investor and you’re looking for rates of return, that’s how you’re going to achieve it. So the expectations are D are really dependent upon where they’re coming from and what they want. It’s their goals. Uh, I would think that a lot of the people that we end up talking to are not trying to just move capital out of one country to put it in ours. They’re actually looking for a stable investment that will generate income and grow in value over time. And that’s, that’s really how you should be investing. Don’t speculate, invest for cashflow. Right? Yeah.

Charles: Yeah. That’s very interesting. When they, when a new investor comes in, you’re able to refer them to all the different, uh, parties that are required for them to invest, whether it’s a lawyer or a CPA, you’re able to kind of put them in touch with everybody. Obviously the property manager after they purchase in the air, you have said, but you kind of handle helping them get all their ducks in a row before they purchase. Is that correct?

Marco: Well, all those things are in place as part of the systems we were talking about before, before we even have a conversation with them. So ultimately when we provide them advice and counseling and they’ve narrowed down the market that they want to be investing in, uh, for whatever reasons they, those are, you know, those are the discussions they have with their investment counselor here. Um, everything that they need just unfolds because we have them available. We have all the lenders. They could possibly need, even if they’re international investors, like there are financing options available in the U S for foreign national investors. So those are you know, resources that we have available. We put them in touch with those people and you know, they’ve, they decide they want to do business with in terms of financing, property management is typically plugged into the assets. So the properties are often least they’re cashflow positive, they’re professionally management, professionally managed and you’re just taking over that management. So you’ll just have a new management agreement with that property manager. And so when you close escrow, you know, you, you, you have a performing asset, another performing asset in your portfolio. But anything that someone would need from asset protection attorneys too, CPAs to the, to the lenders and mortgage brokers. Yeah. That stuff is part of what I refer to as that turnkey real estate investing experience. It’s just part of that solution.

Charles: Now you mentioned the financing, which is very interesting. What do you usually see for options? Is it like 50% from an international investor or what do you see that kind of is normal traditional for safe single family, let’s just say?

Marco: Yeah, that’s a good question Charles, because that can change from month to month. Right now lending has become much more liberal. There’s a lot of loan programs out there for investors. So as a foreign national you can get financing. I’ve seen some pretty aggressive stuff where it’s as little as 25% down, which is pretty amazing cause that’s much like our conventional financing here for us residents. But as a rule of thumb, I would just budget or, or, or just assume that you’re looking at 30% down, which is still very favorable to get 70% financing. If you can get 70% financing at a rate, that’s probably starting in the 6% range, which is really only about 1% more than what we have as um, you know, conventional financing or portfolio financing for ourselves as a residence. That’s very, very attractive. So, um, yeah, and these are 30 year loans and they’re still fixed rate. I mean there’s different loan products out there. You can also do five and 10 year fixed where it becomes adjustable after the fact.

Charles: Yeah, that’s interesting. I’ve seen 50% I haven’t really seen 30 that much. But yeah, as everything’s getting a little bit more open liberal on the financing, as you said, I mean there’s so many different programs that are available that’s really great because 30% you know, commercial property, it’s normally 25 to 30% for a U S site. So for foreign investor at 30% it’s very, it does, I mean it’s very comparable. I wanted to touch base on a couple of things here with your, you have a podcast. Tell us a little bit about, I mean you almost have 200 episodes. It’s called passive real estate investing and um, I was looking through a few episodes. I listened to a couple of what w what are you guys usually, um, what do you focus on there? I know a number of different topics.

Marco: Yeah. So I, I titled the passive real estate investing, cause I, I talk about everything real estate investing related but with a slant towards the investors who don’t want to reinvent the wheel and they don’t want to be an active investor swinging a hammer, finding the stressed assets, dealing with situations where they’re taking on more risk, longer, longer development times dealing with contractors and all that stuff. A lot of people out there, and you’re familiar with this being a syndicator, you know, they have investment capital, they want to get into a deal. They want to have a, a good investment with a good rate of return and continue to live their life because people have their careers, they have their family, they have their hobbies and friends and you know that that’s really where they spend most of their time. They don’t want to be going through a massive learning curve and having to reinvent the wheel and find, you know, properties in markets that they’re not even familiar with to try and create an investment portfolio. When it’s 70 or 80% of the way done for you, then it becomes that much easier. So those are the things that we talk about on the show is how to be successful, how to invest and how to be successful and what to know and what to learn and what to look for. So the focus is passive investing, passive real estate investing. Um, but we compare and contrast that to everything else. So anyway, I’m not sure if I’m answering your question.

Charles: Yeah, no, it’s just to give an idea of exactly what it, you know, what it is so people can check it out and it’s great. I was, I mean there’s, there’s a number of different topics, so it’s, it’s something that I’ll link to in the bottom of, uh, of the episode notes. But it’s one thing, as you were saying about just turnkey in general and people, they might think when they’re, Oh, you know, it’s searching for the deal. That’s time consuming. Well that’s, that’s one thing. But the other thing too, where turnkey comes in is that building the team is very time consuming. And you don’t know when you’re building a team and you’re like, I want to purchase six months or a year from now. You have no idea what the, what the credibility of that person is unless or that company, until you’ve actually utilized them. And unless it’s coming from a referral from someone says, Oh yeah, I’m, you know, they’re managing the same type of property that you’re looking at buying or they find the same properties for me or they do this kind of lending or financing. So to have that all lined up is a savings before you even contact the broker, you know what I mean? Looking for a deal. So that’s, um, that’s, that’s definitely another, another. Plus. How do people learn more about Narada Nevada real estate in your investments that you have currently available?

Marco: Yeah, really it’s just our two websites. We have tons of free information and resources and downloadable guides and we have a, uh, a book coming out in a couple of months that’ll be given away for free as well. Uh, so as long as you’re on our newsletter, you’ll get the announcement for that. But the two websites is Norada real and that’s spelled N O R, a, D, a Norada real And then the website, which is the home of the podcast is passive real estate you know, just like the name of the podcast.

Charles: Okay, well perfect. Well thank you very much Marco for being on the podcast today and what I’ll do is I will put all the links and all the contact information provided in this episode. I will put it into the notes and also the notes of podcasts and notes of YouTube. So thank you very much and um, I look forward to speaking to you soon and we’ll look forward to reading your book as well since I’m on the, on the mailing list.

Marco: Thank you Charles. This has been a lot of fun. I appreciate you having me on. Thanks Marco. Bye bye.

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Links and Contact Information Mentioned In The Episode:

About Marco Santarelli

Marco Santarelli is an investor, author and the founder of Norada Real Estate Investments – a nationwide provider of turnkey cash-flow investment property.  Since 2004, they’ve helped thousands of real estate investors create wealth and passive income through real estate.  He’s also the host of the top-rated Passive Real Estate Investing podcast.

Norada Real Estate Investments, founded in 2003, helps take the guesswork out of real estate investing.  By researching top real estate growth markets and structuring complete turnkey real estate investments, helping you succeed by minimizing risk and maximizing profitability. Norada works with a number of international investors who are interested in directly investing in US real estate.

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