The United States has a very unique real estate market. People in the US might not realize it, but this is one of the best places to invest in real estate in the world. The US has great financing for real estate, great rent to value ratios, and affordable properties in most of the country. Reed Goosens is from Australia and always had an interest in real estate investing, but investing in Australia is extremely difficult. The minimum prices in Australia are over $300,000 for a property and it is almost impossible to cash flow. The banks are requiring as much as 40 percent down for the investors as well. Reed knew he wanted to buy rentals, but also knew he needed a different part of the world to invest in. As a structural engineer he had a job that allowed him to travel the world. On this episode of the InvestFourMore Real Estate Podcast we talk about how Reed started investing in US real estate as an Australian citizen and how he has moved on to syndicating large apartment deals.
How did Reed Goosens get started investing in real estate in the US?
Reed wanted to start buying real estate in 2009, but it was not until 2012 that he actually bought his first investment property in the Unites States. Reed bought a duplex in Syracuse New York that needed some work, but was a great deal. Reed continued to buy multifamily properties on the East Coast and build his portfolio. Eventually Reed decided to go after bigger and better deals. He started to invest in large apartment complexes with other investors. This is commonly known as syndication.
How did Reed get started syndicating apartment complex deals?
Reed is an Australian citizen, but he now resides in the US. He has a US girlfriend, who he is engaged to, and he will be a US citizen soon. Reed has faced challenges being an Australian citizen that we will get into soon. When Reed wanted to invest in big apartment deals, he found he needed a mentor for people to take him seriously. He found a mentor, learned the game, and bought his first deal in Houston Texas, which was a 250 unit apartment building.
Reed found other investors to fund the down payment and gave them a preferred return of 6 to 8 percent. Reed owns 30 percent of the deal and the investors own the rest. Reed buys properties that are mismanaged or under performing, fixes them, raises rents, and then plans to sell in 4 to 6 years.
What challenges did Reed face being an Australian citizen?
Reed bought his first investment property for $38,000 with cash. Reed could not find a bank that would lend to him, because he was not a US citizen. However, after doing some research, fixing up the property, and renting it, he was able to refinance with a local bank in New York. Reed says the key to financing properties as a foreigner is finding local banks. However, the banks will not give the best rates and terms to foreigners, because they see more risk. The banks may require 30 percent down, over 6 percent interest rates, and it could take months to close. That was one reason Reed moved into syndication with other investors, it was easier to finance the big deals than the small ones as a foreigner.
How can you contact Reed Goosens?
Reed has started a website and podcast to help educate others on how to invest in large apartment buildings. You can find it right here: RSNpropertygroup.com. Reed also gives us a few parting tips for foreign investors.
- Make sure you get a US tax id number
- Make sure you have a US bank account
- Make sure you check tax laws in your country and the US
Build a Rental Property Empire
Thank you to everyone who has bought my book: Build a Rental Property Empire. The book is one of the top ten best-selling books in the general real estate category on Amazon. I am just behind Donald Trump and Gary Keller! Amazon has my book at super low prices right now, because it has been selling so well. Paperback is less than $13, which is lower than I can price it myself. I don’t know how long that price will last, but hopefully Amazon keeps the sale going for a while.
[00:00:58.8] MF: Hey everyone, it’s Mark Ferguson with InvestFourMore. Welcome to another episode of the InvestFourMore Real Estate Podcast. Today, I have a really cool guest on. I think he’s going to teach a lot of us, a lot about international investing. Reed Gossens is from Australia. He is currently residing in the US but is still an Australian citizen. He’s invested heavily in US real estate. I know many of my listeners are curious about how to do that, how to go about investing in US real estate from another country. Reed is with the RSN Property Group. Thank you so much for being on the show. How are you Reed?
[00:01:29.2] RG: Good day Mark, how’s it going?
[00:01:30.1] MF: I’m doing awesome. Doing awesome. I’m glad you could come on and share some of your knowledge with us.
[00:01:34.3] RG: Hey man, thanks for having me. It’s always awesome jumping on other people’s shows. So great to be here.
[00:01:39.1] MF: Cool, well the first thing I always like to ask about it get some background, some history on how you got started in real estate investing. I know you started out in Australia, you came here for school I believe but has the real estate bug before that. So can you give us some background on how all this started?
[00:01:53.7] RG: Yeah, sure. A little correction, I didn’t come here from school actually. I actually came to the United States for love. My girlfriend is from America or my former girlfriend, she’s now my fiancé. But my background is in structural engineering. I graduated from ’07, hit the corporate world, was traveling around the world for a little bit with the structural engineering job. After a couple of years of travelling, I headed back to Australia in 2009 and just sort of was in my cubicle and I was like, “Look, I can’t believe I am going to be doing this for the rest of my life. I’m two years out of college, I’m 24, 25, there’s got to be more to give.”
I felt like I had more to give to life than just working for a boss and who answers to a board of directors and I just felt very much like a very small cog in a massive machine, which was my job and so I just started really racking my brain on what I need to be doing. My dad actually said to me, “You know, you’ve got get your money working for you.” I said, “Well how the hell do I do that?” And he said, “You know I have been investing in real estate,” but he sort of was dabbling in it, nothing serious and I just started picking up some books and one of the books that I picked up was obviously Rich Dad Poor Dad and that was very influential in my career today. And it was the “aha moment” of this makes so much sense.
Fast forward a few years, my girlfriend had studied in Australia at the period of 2011 and end of 2011 she finished that and I really wanted to live in New York City. So we packed up our bags and headed across to New York City. I didn’t have a job, I didn’t have anything like that. I hit the ground still being a structural engineer, I didn’t have a job in New York City, found a job, which was awesome and then just started like really getting in and hitting real estate networking events in New York City and coming from Australia, I thought Aussie had some great real estate networking events. Well I’ll tell you what mate, New York was like on steroids.
It was awesome and I met so many awesome people and the real intrigue to the United States and a lot of your listeners will be interested, is that in Australia, the barriers to entry are a lot higher, the barriers to entry into the real estate markets. So you can’t find a $100,000 property that cash flows $300, $400, $500 bucks a month and so that was really like, “Wow, this is powerful.” And I started buying a few small duplexes and triplexes in upstate New York whilst living in New York, and that’s sort of how I got started investing in real estate and then it sort of snowballed from there.
[00:03:59.3] MF: Very cool. So before we got too far into this, I’m curious, are you still in touch with the Australian real estate market at all? I know for many years it just was shooting up and up and up. Is it still doing that? Has it calmed down at all?
[00:04:11.5] RG: Yeah, that’s a really good question and someone asked me the other day, he’s like, “How do you make money in Australia Reed?” I said, “Well look I’ve been investing in the US for so long now I’ve kind of forgotten how to make money in Australian real estate.” Just to give your listeners a little bit of context, Australia is very, very small population wise. We, throughout the recession in 2008-2009, we were insulated a little bit by a mining sector and since then, we’ve had a lot of international buyers come and inflate prices.
Think of Los Angeles real estate or New York real estate but all over the country. There’s no crappy $100,000 houses. There’s none of that, the minimum entry would be maybe 250 to $300,000 and it doesn’t cash flow. So the ratio of your rent to purchase price cap rates, which everyone’s sort of familiar with, it’s a lot different. And so you can’t go and buy a single family house and expect it to cash flow in Australia. The way you do make money is by doing a splitter blocks or small land development stuff.
In terms of how the market is going, there is supposed to be a correction but this correction has been coming for many, many years. With interest rates being a little bit, just looking to go up, the Australian Dollar is weaker against the green buck, the US dollar and there is sort of an anticipation for myself that there is going to be correction soon. The disconnect between wages and the prices of property in Australia needs to correct itself. And there will be, I believe that there will be a very similar thing that happened in the United States will happen in Australia. That is, people would be underwater if the interest rates rise. So hopefully that answers your question.
[00:05:41.0] MF: No that’s really great information and one thing in the US, we are starting to see prices rise pretty high in many parts of the country and I think we’re seeing the same thing where incomes aren’t keeping up with the rising housing prices but they aren’t building enough houses to meet demand. So I am just wondering, houses all going to shake out with prices going up? There is no inventory but then people can afford it. It sounds like Australia has been going through that for quite a while and I mean it’s just tough to know how it’s going to all break down.
[00:06:10.4] RG: Yeah and look, at the end of the day, no one has a crystal ball and so if you try and look at the market, you try and look at international markets like the United States and see where people went wrong. The ninja loans back in the day is definitely that not as bad as ninja loans in Australia but there’s probably people in Aussie that are over leveraged. I do know that, I was talking with someone the other day, that we have a lot — the condominium industry is really quite large in Australia and so typically that’s the first step that someone comes out of college, they may buy a small apartment building. Or a small apartment in an apartment building.
And the banks are now requiring a lot more deposit. Typically it’s been here 20 maybe 25%. They are now requiring upwards of 40% on a deposit, and this is on a two bedroom, one bath, brand new apartments. And it’s because there’s a lot of inventory that’s going to be hitting the market or has hit the market. So they’re thinking prices aren’t going to go up so that’s a way to the banks sort of hedge that bit and say, “Well hey if you are going to borrow money from me, I expect you to put more money into the deal,” if that makes sense?
[00:07:09.7] MF: Wow, actually my next question was going to be how loans differ in Australia from the US? Because in the US, it’s pretty easy for many people to get a 30 year fixed loan but in most countries, that is just not the case and in the US, you can put five or 3% down and it sounds like it’s much different over there.
[00:07:26.9] RG: Yeah and it’s on an investment property, I meant to say, that the 40% was starting to crop up. If you’re a primary resident, yeah there are still a lot of incentives to get into a house at a lower interest rate and there’s a lot of what’s called first time home owner grants in Australia where the government does help you, give you some money towards the deposits and there are some smaller loans like your Freddie and Fannie or your FHA loans here in the United States.
So there’s similar programs. I was talking more about the investment side of it when people look to buy investment properties for the kids or international like the Chinese come in and buy a bunch of Australian properties and forcing to value up because they don’t really care. They just want to place their money in an asset that their government won’t steal from them.
[00:08:09.9] MF: Right. No, it’s a very unique situation there for sure and I know the west coast in the US is seeing a lot of that too where foreigners are coming in and buying properties because it’s a stable asset. Like you said, they know it’s going to be there in 10 or 20 years.
[00:08:23.5] RG: Exactly.
[00:08:24.5] MF: So you came to the US, you started investing in rental properties, duplexes, multi-unit properties, one question I get from people all the time is, “How do I buy properties when I am not a US citizen?” I know it’s legal for foreigners to buy properties here but I know usually the biggest tipping point is getting a loan. So did you get loans on those properties?
[00:08:44.0] RG: Yeah, good question. I didn’t, no. The credit was tough because I had a nonexistent credit score, right? And this goes back to the barriers to entry here in the United States. So I think my first property that I purchased was a duplex for $38,000 bucks, that’s it. So I had that amount of money to go and buy that property straight off the bat but I had analyzed a few other places in the market that I was buying in.
And after a period of year, I could prove to the local bank, now this is key, a local bank. Not a big Bank of America or Wells Fargo, that I have produced some rental income and then I could then re-apply some of my money out of that. You know, only a little bit like $20 grand but then in that period, that year I was able to save a little bit more and then buy a house number two or property number two.
There are different ways to buy properties here in the United States with and there are companies out there. There are lending groups that will lend to international investors and if you would like me to summarize it, I’m more than happy to do because part of my business is helping international investors obtain financing and there is a number of ways you can do it. As they say, there’s a number of ways to skin a cat. You’ve just got to know and be educated on that particular aspect of it.
[00:09:47.2] MF: Right yeah. If you would summarize, give us a few pointers that would be awesome on how foreigners can work with some banks here to get loans.
[00:09:54.5] RG: Sure thing. So the first and foremost is what’s called institutional size money or banks and they’re like your HSBC’s and your Goldman Sachs. These are for, if any of your listeners out there are high net worth individuals, they are foreign and they live in a foreign country and they have a portfolio of real estate in a foreign country, I know HSBC has a program and I know Goldman Sachs has a program that you can leverage those portfolios to buy US real estate.
Now there’s a caveat. It has to be of significant value the portfolio and I don’t quite know what it is. It will be in upwards of a million dollars of existing portfolio. They will also require, they don’t look at anyone if you’re not going to be putting at least three to $400,000 down as a deposit. So think of what you can buy if you put down a three or $400,000 deposit down, that’s a large property. It’s either a luxury mansion or you are going and buying a huge multifamily deal.
That’s option number one for the high net worth individuals. There is a second option and the more Americanized banks, the guys that aren’t international, US banks, Bank of America. There are some banks out there and I don’t want to give away all of my cards because that’s part of my business is that they will lend to foreign investors. But you will have, you’ll be a lot longer closing time and approval process. So it should be expected three to four months.
There’s a lot more hoops to jump through and you will be required to put a lot more down probably between 30 to 40% down and your interest rates will be in the order of six to 7%. These are sort of more conventional loans. What I do advise some people, if the deal makes sense, it really is depending on the deal. There is a third option, which is hard money. Hard money can be used quite effectively for international investors and it just really depends on the deal.
You can go in there and use hard money, rehab the property or do whatever you need to be doing to it and then in 12 months’ time, you’ve build up your credibility with the local bank. You then refinance your money out of it and pay off the more expensive debt and you get the cheaper debt. There’s a fourth option is obviously, I do this a lot, and that’s syndication and that’s partnering with the local people on the ground to get involved in real estate deals here in the United States. So there are actually a lot of options for international investors. It’s just about educating oneself on how to go about doing it and being educated in that.
[00:12:01.8] MF: Yeah, that’s great information. I was jotting down some notes while you were talking. When you first bought your first duplex, you said it was about $38,000. How did you figure out a market to buy in? Did you just kind of buy closed to where to happen to be or did you do just a ton of research to figure out where you wanted to buy?
[00:12:17.3] RG: Yes, that’s a really good question. So when I first rocked up to New York City, I did a bunch of property tours. Baltimore I did, I went down to Pittsburgh. I knew I couldn’t obviously buy in New York City. I didn’t have that much money. I had like maybe $50 grand that I had just saved that over a period of a couple of years. So nothing flash there and because I couldn’t get there, I couldn’t leverage that money. I was thinking “Oh I’m going to get leverage it straight away,” and I had a big reality check.
So I was saying to myself, “Okay, I am learning how to analyze more small families in terms of expense ratios, in terms of what I need to pay to get cash flow.” That’s what I wanted, was cash flow. So I really needed to hone in on a market that was within driving distance of New York City and I end up choosing Syracuse, New York. Now not for any major particular reason that it had a university, it had some employment and I could find houses in the order of $40 to $70,000 and I could cash flow from those houses, costly neighborhoods.
I cut my teeth on those things. A lot of lessons were learned. Now some deals were good and some deals weren’t so good and I’m not going to sit here and pretend that everything was rosy and whatnot, it wasn’t. But doing that, I got my feet wet right? And that was the major problem I was facing because I started, I’d picked up Rich Dad, Poor Dad in ’09. It wasn’t until the middle of 2012 that I actually purchased my first property.
That’s a long period of time to be analyzing, to be reading, to be really getting familiar and I got to a point of analysis paralysis and I just needed to pull a trigger on something because, as they say, throw yourself in the deep end and start swimming. So it’s all well and good to be theoretical on how to analyze a property and how to run a property but it’s not until you get knees deep in an actual deal that you;re just going to really learn so yeah.
[00:13:56.3] MF: Do you still have that rental?
[00:13:57.9] RG: I still have that rental. I’ve still got two there actually. One of them I had to sell and the other two is still going strong.
[00:14:03.3] MF: All right, very nice. I know I was thinking I don’t know if I would ever sell the first rental I bought just for sentimental reasons, but we’ll see what happens. So you had the multi, duplexes, smaller multi-family. It sounds like it took you a little while to buy your first one and to buy the second one but things, it sounds like, moved much more quickly after that. How did that evolved into where you’re at now?
[00:14:23.8] RG: Yeah, again another very good question and it got to the point where what I realized Mark was that I got to, I was buying these duplexes that were a little bit under marketed value, they needed some tender loving care. They needed a bit of sprucing up, and what I found was, just with the duplex for example, I was able to go in there, spend five, $7,000 bucks on a $38,000 property, do up the, you know, fix of roof, put in some new carpets, give it a little bit of a lick of paint, just spruced up a little bit.
And by doing that, I was able to increase the rents on that property by $70 or $80 bucks a month and that was quite powerful and I was like, “Wow, that’s an awesome amount of cash flow bump in my pocket,” right? And I was like, “This is incredible,” and a buddy of mine had come down from Canada and I was sort of boasting to him like, “Hey guess what? I’ve got these couple of properties in upstate New York. I’m killing it,” and he’s like, “That’s great mate! I just closed in on an 80 unit deal.” And I was like, “You closed a what?”
And anyway, he got me started, talking to me about forcing appreciation in commercial real estate and essentially applying the fundamentals of what I was doing on my duplex to larger deals and that really opened my eyes. Now you asked how did I scale it? Well it comes down to other people’s money, OPM, and I needed to start syndicating because not everyone just has a boat load of cash they can use by themselves and start buying a ton of properties.
Everyone will eventually run out at some point and I was really intrigued by the multifamily space and I then started developing a brand and I started branching out into understanding how to buy commercial real estate. And that’s sort of where I segued into buying and participating on a large multifamily purchase in the beginning of 2015. That really set me on this track of buying a lot of multifamily deals ,which I’m now doing today.
[00:16:06.7] MF: Now when you say commercial, do you have any true commercial or is it all multifamily residential?
[00:16:12.6] RG: Sorry, yeah multifamily residential. It’s not true-true commercial, not yet anyway.
[00:16:16.9] MF: Right, okay and when you began syndicating, I know I’ve had a few people on the podcast who have been syndicators, I mean it’s not an easy process to get all those investors together and find deals. What challenges did you find when you were trying to syndicate and find these larger deals?
[00:16:32.1] RG: Yes, that’s a good question. There’s the old adage, I’m sure people have been on this show talking about, “Oh if you get a cracking deal, you’ve got to have investors coming through the door.” And people who say that, and no offense to anyone who’s said that on this show, is I’m going to call BS on that. Because typically, you start raising money and you don’t have a track record, it is very hard to get someone to commit to investing even if it’s a cracking deal.
And so the biggest thing I learned quickly was that I needed to align myself with people, a mentor, other partners who knew how to do business, the multifamily business. So I got myself a mentor and that was what really got me on track to then leverage his experience and their experience to go in and participate in syndicating a deal. I’m still confident. Now that I’ve got my own brand and my own seminars and podcast myself but its constantly evolving. You are always are looking to add other investors and to your data base to then be able to go and close on more deals. So the more investors you have, the more deals you can close on and it is a constant process.
[00:17:31.1] MF: Yes, I agree and can you share with us some of the deals that you’ve recently done or have worked on?
[00:17:35.8] RG: Yeah, sure thing. So the first deal was a 250 unit deal in Houston, Texas and the power of going and buying something, which for all your listeners out there, I value cash flow. Cash flow is king in my world. It makes so much sense to me that when you buy commercial real estate, the banks are more looking at the performance of the property rather than you as the borrower to service the debt. Because god forbid if I fall over tomorrow and die, my commercial properties will still be able to service the debt and so that was really, really important.
Then on the other side was like, “Well I can go in and fix up these apartments,” right? And instead of increasing my rent on two, on my duplex I increased it by $80 bucks a month each. If I had 250 units, and I know that is a big jump, but even if you had 50 units, that’s still a huge economy of scale and that was really, really powerful. So that’s the first deal I’ve been involved in. The second deal was a deal early this year, it was a 320 unit deal and we’re about to close on 296 units at the end of the month here. So coming up to three major deals.
[00:18:37.5] MF: Wow, congrats! That’s awesome. When you form these deals and you have these investors, are you giving them a percentage of the deal or are you just paying them straight interest rates? How are you compensating them for the money they invest?
[00:18:49.1] RG: Yeah, sure. So we do two things and this actually goes back to your question of “how can international investors get debt here?” So our investors bring to the table the down payment, roughly about 30%. We will chip in of that 30% about 5% of our own money but what we bring to the table is one, the deal. We find the deal, we do it all. But secondly, we bring the debt to the table. So none of our investors are signing on the loan or anything like that.
It’s us as the general partners and we will own 30% of the deal and the investors will own 70% of the deal and we will give them what’s called a preferred return, which means that the first 8% of cash flow whatever that preferred return might be. It might be six, it might be seven, it might be 8% ,will go straight to the investors and then we will get an asset management fee for running the deal and making sure that everything goes smoothly. And then from thereafter, anything over that we will split it 70-30 based on the equity position in the deal. That’s typically how we structure our deal.
[00:19:44.2] MF: Okay, yeah that makes sense. On that deal in Houston you did, I don’t know if you want to share this or not, but do you mind telling us what you bought it for and then what you think you’re able to add in value by going through and reworking the property?
[00:19:56.2] RG: Yeah, I’d be more than happy to share some numbers with you. So this particular deal was built in 2000. So it was actually a relatively more recent deal, if that makes sense? But it was in a class C area, class C-plus area. So we picked it up for $56,000 a door and for everyone who is listening out there, when someone says a door, it just really means per unit. So we had 250 units times 56, so I think it was like $14.1 million.
We saw that the rents were a good hundred dollars under market value and what it really was is that the property manager was out of state and because they were out of state, they were sort of non-existent, they were absent and the property needed a bit of tender loving care. It wasn’t designed overly that well and it’s just basic stuff like updating the fixtures and putting in new cabinets. People valued that and they were then in turn were going to pay more to live there.
So we bought it in May of 2015, so that’s a bit over a year. We’ve completed 75% of the renovations and we’ve projected the increase in rents to be about 75 to $80 a month. On all of it, we’ve out stripped our projections between 95 and a $110, depending on the size of the unit, over what the current rent was. So we’re really, really happy with that and we’re projecting to now refinance the original debt out of that and pay back some of the investors because we have increased that cash flow so significantly and we’ve decreased the operating expenses.
We were able to force the value of the property and we’ve held it for long enough where the bank, the new bank is called Seasons, was happy enough to say, “Yeah, we will come in and replace the current debt that is there with slightly cheaper debt.” We’re all happy then, it’s a win-win situation for everyone.
[00:21:41.3] MF: Nice and in Houston I know is a pretty hot market what are cap rates down there? Seven percent, are they higher, lower?
[00:21:47.5] RG: Yeah, we picked this particular property up at 7.1% so going back to the cap rates here, if anyone is listening or understands that, is like the NOY, we’re looking to increase the NOY. For every dollar you increase NOY, if it’s at a 10 cap, you’re going to increase the value of the property by $10. If it’s seven cap I think it’s 14.1 divide it by 0.107 whatever that is, but it’s $14. But that’s kind of how we look at it and that’s how the bank values it and yeah, it’s roughly seven about 7.5%.
[00:22:19.1] MF: Right, so you’ve gone from $56,000 a door to probably $70 to $75 roughly at the top of my head do you think?
[00:22:25.5] RG: Maybe that much of a gain, I have to look back at what they valued it. Obviously there is theoretical and then what the bank will appraise it for. It does appraises on the NOY. But the banks, let’s face it, the banks are always going to be more conservative. So yeah, it definitely was a bump in value there enough to refinance the portion of our equity out of it and pay back the investors who have been involved. And they will still own a percentage of the deal. They just have some of their original equity back sooner rather than later and they are all loving that.
[00:22:53.2] MF: Right, awesome. Now are you planning to keep this forever? Do you have an extra strategy at some point?
[00:22:58.3] RG: No, we’re not. Because when you start raising capital, people want, first and foremost, they’re going to invest because they like you. They like you, your story, they like the team that you’re surrounding yourself with and to be honest Mark, at the end of the day they don’t give two hoots about the deal. They want to make sure that you are trustworthy and so when you do that, they want to see an exit strategy or strategies.
And, you know, one about exit strategies is to increase the value over a shorter period of time. Typically between 18 to 24 months and refi some of the money back to them and at the end of the period of four or five years, it’s projected that their equity would have increased it, a significant amount that we will look to sell the property. So we’re typically looking to hold between four to six years. That’s currently what we we’re projecting.
[00:23:46.4] MF: All right, that makes sense to me. I like to hold my properties but I don’t have investors behind me who want their money back and I sold two of my rentals this year as well because our market is just so crazy in Colorado. It didn’t make sense to hold everything.
[00:24:00.3] RG: Right.
[00:24:01.4] MF: Awesome. Now are you just focusing on these bigger deals now or are you still doing some smaller deals for you personally or you’re just doing the big ones?
[00:24:08.9] RG: Yeah, a good question. I have created a network of people and part of my business strategy is that I want to be the guy who people come to, who international investors come to that want to get involved here in the United States and part of the reason that I syndicate is because I can provide that debt and it takes away a lot of the uncertainty for international investors.
So in saying that, the apartment market is very hot in certain areas. I will be looking to do some smaller deals, but also be looking to do, as I said cash flow is king in my world, so maybe some mobile home parks or some storage units. There’s a lot more opportunities coming my way as I’ve been doing these deals. So there is definitely, and as markets change, I need to be a broad, a few different asset classes. But generally in the commercial “arena” and looking for value at play, and stuff like that.
[00:24:56.3] MF: Okay. This is moving back a little bit, but one question I wanted to ask as well is when you first bought your first property, that was the duplex, were you managing those yourself? Did you hire a property manager? How did you take care of the tenants?
[00:25:07.6] RG: Good question that was all through a third party property management company up in Syracuse. Again, I have learned through all the research and all the books that I was reading that it’s just a line item in your expenses. You’re going to have repairs and maintenance, you’re going to have taxes, you’re going to have insurance, you’re going to have property management, you’re going to have utilities. That was just a line item and I think I pay about 7% of the rental income and they took care of everything.
They had the general contractor in house, so they could, if anything went wrong, you needed to replace something, he was straight out there and I got a bill for it and it is what it is and so, similar sort of scenarios on how we operate now on the larger stuff. All the fundamentals are the same whether you’re in small duplexes or single families or you’re in large 250 units. The same sort of fundamentals apply.
[00:25:49.9] MF: Right, it baffles me that an out of state property manager was managing a property that large. I don’t know, I guess that’s why you were able to get a good deal on it.
[00:25:59.0] RG: Yeah, it’s also got to do with a number of other factors. It was owned by a REIT, a real estate investment trust and REITs, because they’re typically large and they may have 15-250 unit properties in their portfolio, they can tend to fall asleep at the wheel a little bit and let things slip by the way side and not keep up with deferred maintenance and stuff like that. A small group like us, well we just sort of picked off one deal at a time. We’re more focused on that trying to really, really maximize the net operating income of that particular property. So yeah.
[00:26:31.8] MF: Great, that makes sense. Reed, really good information. I’m sure there’s a lot of people here who want to hear about how you do work with foreign investors or I’m sure you don’t limit yourself to foreign investors either. I’m sure you would love to work with United States investors as well. But how do you work with them? How do you set up your company to help them invest in these deals?
[00:26:50.1] RG: Yeah, so I have a handful of international investors, but the majority of my investors are American. I guess being Australian, having the Australian accent, it’s just from a marketing point of view. But in terms of how I help international investors get set up, there’s a process involved. Now whether you invest in one of my deals or you go off and buy a couple of small single family properties, the process is the same.
That is, you need to go, you get what’s called an ITIN number, an Individual Tax Identification Number and that’s essentially the same to the IRS, “Hey US government, I want to pay you taxes. I’m not an illegal alien in your country but I want to do business here. So I am going to apply for ITIN number.” From there, you’d then go and open up an LLC. You then go and try to open up a bank account and you want to then transfer your money from international currency into those bank accounts and then you’re ready to rock and roll and start looking at some deals.
I help my international investors through that entire process. A lot of the guys who are investing with me have already got a set up like that. So they’ve already done with the hard yards, but I can definitely advise and I use my third party consultants to help people do what I’d like to call the back end stuff before you start buying.
[00:27:57.0] MF: Right, and then what is the best way for people to contact you or find you if they want to talk to you about this?
[00:28:02.1] RG: Sure thing, you can just hit me up on my personal e-mail, its [email protected].
[00:28:12.9] MF: And I will have all that information in the podcast notes as well so people can reach you easily. Really great information. Before we leave are there any tips or one thing you can mention to foreign investors who are looking to buy in the US and have never done it before, don’t really know where to start? I know you just gave quite a few tips on how to get started to set up the actual investing, but I mean as far as what to expect with US real estate versus maybe if they’re in Australia?
[00:28:36.6] RG: Yeah, good question. Look, people come to the United States for yield. They want good safe yielders. The underlying factor is that the American dollar is the currency of the world to having, one of your investments in American dollars is fantastic. Two, you get a good yield on your investments. And three, it’s a safe government compared to other international and the Arab world and Africa. There’s a lot of people who reach out to me in the Asian countries who want to invest here because of all those reasons.
So what to expect, you’re going to expect that you come here to get a good yield and a good return on your money. So that’s what people come here for. The biggest advice that I can give to people is, align yourself with good credible people. Don’t just take anyone’s word for it. There’s a lot of sharks out there, use Google to find out if they are sharks. It’s just very simple. A lot of people have been burned, international people have been burned by shoddy operators, don’t accept that and make sure you do your homework.
[00:29:30.8] MF: Nice, great information and yeah, being in the real estate investing space, I have no percentages or any proof to back this up, but it sure seems like there’s a larger amount of sharks in this industry than many other industries. There is a promise of quick wealth out there that draws a lot of people into the business.
[00:29:47.2] RG: Yeah and I want to say that real estate isn’t a get rich quick. It’s a long hard slog and you need to know what you’re doing and so don’t take that lightly. Educate yourself guys.
[00:29:59.2] MF: Right and I think your story and I started out very similarly. When I started investing I bought one in 2010. Then it took me almost another year to buy another one. But once you get that first property and the second property under your belt, it becomes so much easier and you can move much faster. But I think if people try and force things too quickly before they’ve bought or they only have one, they can get themselves into trouble. If they, like you said, you don’t take your time, you don’t go through the ropes of learning about it.
[00:30:23.3] RG: A hundred percent, I think it comes down too, the biggest thing is in my business I will analyze 10 deals, I then will look at or walk maybe four of them and I may put an offer in on one and that’s the sort of numbers you’ve got to be doing to get yourself familiar with. It’s a lot of work. It’s not sexy, but it’s just the way that you make smart investments and that’s how I tell everyone to operate and if you don’t know excel, get to learn excel because you’re got to need to when you’re analyzing a deal.
[00:30:49.4] MF: Right, great advice and great information and the one thing I try and tell my listeners and readers is if you can know your market or the market you are investing in better than anybody else or at least as well as you possibly can, that gives you a huge advantage and the research and looking at deals is really the best way to do that.
[00:31:06.1] RG: Exactly, yep.
[00:31:07.2] MF: Great. Well Reed anything else to add before we head out of here? We’ve got a lot of great information, done an awesome job.
[00:31:12.8] RG: No man, thank you for having me. If anyone is more interested in, I do have a podcast myself. It’s more geared towards the international investors because I am Australian. It’s called Investing in the US, it’s an Aussies guide to US real estate and it’s not just for Aussies, it’s for everyone. But I do try and mark myself as the international guy because I am international.
[00:31:32.7] MF: Well that makes it a little easier. So I will make sure that I get those notes in there as well for the show and yeah, thank you so much for being on. Great job. I appreciate you taking the time and yeah, I’m sure we’ll talk again here soon.
[00:31:44.2] RG: Thanks Mark, I really appreciate it and have a great weekend.
[00:31:46.6] MF: All right, you too. Thank you again.