Table of Contents - Don’t Chase Appreciation with Marco Santarelli
Dave Debeau [00:00:08] Hey, everyone, this is Dave Debeau. Welcome to this week's episode of the Property Profits Real Estate podcast. Today, it is my pleasure to be interviewing a fellow Kanuk who is no longer in Connersville. S really remarkable. How are you doing today?
Marco Santorelli [00:00:24] I'm doing great, Dave. It's great to be on here. Yes. No, I moved out of Canada many years ago, so. But I still have a lot of family there.
Dave Debeau [00:00:32] California, right smack dab in between L.A. and San Diego. Beautiful, beautiful country. If you haven't heard of Marco, Marco is a very experienced real estate investor, entrepreneur, pod caster author. My goodness. And he focuses on creating turnkey real estate investing opportunities for folks. So, Marco, I look forward to our chat today and and having you share a little bit of your wisdom.
Marco Santorelli [00:00:58] Well, I'm looking forward to it. Anything I can do to provide value to your audience is going to make my day
Dave Debeau [00:01:03] and I'll make my day to. That's great. All right. So, Marco, first of all, you're from Calgary originally. You're down in Southern California now, live in the Southern California lifestyle. You're a full time real estate guy. How did this all come about? So, first of all, how and why did you decide to get into real estate investing?
Marco Santorelli [00:01:22] Well, it's a good question. And interestingly enough, I actually bought my first rental in Calgary when I was around 18. I can't pick the exact date, but I could probably look it up. But I bought a townhome, fixed it up, leased it. There was no Internet back then, so it was all a sign in the front yard and newspaper advertising, if you wanted that. But I managed to find a tenant and managed it myself. And I kept that property for a number of years and that's when the writing was on the wall. I knew that, hey, I loved being an entrepreneur. I loved real estate and that was my first investment. Then I bought a condo shortly after that with my she's my wife today, but essentially my girlfriend at the time. So we bought a condo together and I just kept the momentum going. But my real estate license sold real estate. But really where that hockey stick curve happened was in two thousand and three. I was already in California, but I was a casualty of a dot com casualty or failure. We built this large company with one hundred and five employees and nine point five dollars million in venture capital funding going down the road of creating the Amazon.com for the country club industry. It was a great idea, but we didn't get enough traction in time before the Nasdaq crashed and so our venture capital funding dried up. Long story short, I got an email in the summer from someone named Robert Allen, who, by the way, most people don't know, is originally from Alberta, Canada, and very popular author. He's the godfather of Nothing Down Real Estate. But I got this email from him. He was putting on a free three day workshop. I went to this workshop and I joined his boot camp and met hundreds of investors. And two amazing things came out of that one as I started investing again, but in a big way, because now I was doing it full time and I had my focus on it. So in nine months, I created the systems to find and acquire investment properties around the United States. And I. I purchased eighty four units, eighty four doors in nine months. And so now investors were coming to me saying, hey, I see what you're doing, can you help me as well? So they just needed deals and deal flow and someone to hold their hand because they were getting the education, but they weren't pulling the trigger and doing it for themselves. And that's how the business was started. So so from where I began in Calgary, after all those years of being an entrepreneur and investing, dabbling in real estate, I really just put the pedal to the metal. And I created a business around the investing I was doing.
Dave Debeau [00:03:42] So tell us a little bit about the business that you're involved in now, so what strategy do you use first thing for real estate investing?
Marco Santorelli [00:03:51] Well, my strategy, which is my favorite strategy, is buy and hold investment real estate in markets that make sense. So I don't chase after depreciation. I don't speculate or gamble on the market, which is actually breaking. One of my 10 rules of successful real estate investing is not to speculate and gamble on the market, but that is my investment philosophy, is buy and hold properties that make sense the day you buy them in markets that have strong fundamentals in economics. And that formula has worked well for me. And that's the same formula that we teach other investors to follow. And we help them and hold their hand, figuratively speaking, and guide them through building their real estate portfolios the same way, because that way you get cash flow. So you have an immediate rate of return. And at the same time, you're growing your wealth, you're creating wealth and growing in your net worth. And that not only leads to financial independence down the road, but it allows you to magnify and grow your portfolio faster because you can take that equity. You can do this in Canada, too, by the way. You can take that equity tax free and grow it and magnify the size of your portfolio as you go.
Dave Debeau [00:04:58] Yeah, exactly. So, Marco, are you focusing primarily on single family home, small multis, multifamily or all of the above?
Marco Santorelli [00:05:07] Personally, I'm involved mostly in single family and duplexes. I do. I have been in and out of small apartments over the years. But as far as a company and what we provide our investors today are single family is predominantly duplexes. And fourplex is second only because the amount of inventory as far as small multiunit properties, it's not as abundant as single family. Single families make up 70 to 80 percent of all the housing stock in us. And that's probably true in Canada as well. But we are slowly moving into the syndication space, which means that these are larger apartment complex investment opportunities for investors to participate in. As a very passive investor, they're essentially becoming a partner, but they're not managing or being responsible for anything. You know, it's exactly what you teach and what you help people do. We're just finding that we're slowly having to move in that direction only because inventories become so tight in markets all across the United States. And this is true for Canada to demand a strong supply is low, pushing prices up, lowering cap rates. So there's cap rate compression. It is a common problem. We just don't have enough housing stock to keep up with the population growth here in this country or in Canada. Yeah, definitely.
Dave Debeau [00:06:23] Definitely not, Marco. You started out, you say you bought your first investment property when you're 18 years old, so it's kind of tough to ask this question. But knowing what you know now, if you're starting over again, is there anything that you'd be doing differently? Don't tell me you'd start sooner because it seems pretty darn so.
Marco Santorelli [00:06:40] Well, what would I do differently? Yeah, age is always a factor because when you have time on your side, it's not just about compounding returns, but it's your ability to take the gains that you make and leverage those into larger portfolios by accelerating the number of properties that you can gain over time. And if you do it smart, you do it right. It'll be amazing to you how fast you can build a portfolio that creates a passive income that replaces your overhead and that now you're financially independent. But if I was to go back and do it over again, knowing what I know today, the thing that I would tell people to focus on is start early, focus on one market, build three to five, or invest in three to five rental properties in that one market. So you have a footprint in that market. Choose a market that has strong fundamentals and appreciation potential. You want to catch a bit of that momentum. And I'm not saying speculate and chase after appreciation. I'm saying have the cash flow and the rate of return right from the get go. So the investment makes sense from the day you buy it. And that cash flow is what I call glue. It's the glue that holds your deal together. So as you have this investment or these these rental properties in one market, you have cash flow every month and every year you're gaining equity. Now, what happens is in three to five years, you can take that equity and you can tap into it, whether it's doing a refinance or pulling that equity out or you sell those properties and you do a tax deferred exchange into more properties and do the same thing over again. But now with a larger portfolio and now you're just multiplying those effects. That's something I didn't know back then that you could do. I was under the belief that if you buy rental property, you should hold it forever and never sell that property that works. There's nothing wrong with it. It's one strategy, but there's also other strategies in real estate. There's just tremendous amount of flexibility in how you can create wealth and create income and and make money in real estate. It's know I want to say there's one hundred and one ways to make money in real estate. There's probably a thousand and one. Yeah, there's
Dave Debeau [00:08:43] lots, that's for sure. I'd stumble across a new one every day, especially when I'm interviewing smart people like you.
Marco Santorelli [00:08:49] Yeah, because of the flexibility in real estate, you can be very, very creative. And in fact, I'm working on a deal right now with seller financing. And if all goes well, I'll be able to acquire a small apartment complex with none of my own cash, no money into it. So this is the flexibility of a real estate. But just buying in smart areas is probably the biggest thing I could say. But there's a follow up to that, a number two, if you will, to your question. And it's tied very closely to the first thing about buying in the right markets that give you upside potential while still having cash flow. The importance of the neighborhood is critically important. In fact, I would go as far as saying that you can mitigate most of your risk in investing in real estate by investing in the right neighborhoods. It's not so much the market as a whole. That's a macroeconomic perspective and where you invest, but you can choose a market that is mediocre, but select the best neighborhoods for investment purposes within that market. And you can be very successful because real estate is not only you know, you've heard the saying all real estate is local and it's very true. Real estate is a very local phenomenon when it comes to investing. But you can argue and prove that real estate is hyper local, not just local. So it's not just the market that you choose. It's the submarket and the neighborhoods that make so much of the difference in your success and your experience in real estate investing.
Dave Debeau [00:10:21] That's very, very well said. It reminds me of a gentleman I know who lives on Vancouver Island, can't remember. It's a really small city he lives in. I can remember of seventeen or twenty thousand people that live in a small city. And for years and years and years, that market was flat. I mean, the city was flat. However, he really dialed in on which were the best neighborhoods and he was able to do exactly what you suggested, their focus on being revenue producing properties in those neighborhoods. And he was seeing significant appreciation, even in a flat market because he picked the right neighborhood. So very, very well said. Yeah, good point. Excellent. Marcal. So I think I might have an idea of this, but, you know, because you're talking about when you first came across Robert Allen and jumped in the same full time and did eighty one units in nine months, as always, you said it was eighty four, eighty four, eighty four units in nine months, which is phenomenal. So does your superpower tie in to finding really good deals or what would you consider. Your your real estate super power to me.
Marco Santorelli [00:11:26] Good question. I don't know what that would be or if it's one thing, but I would say that if I had to just pick that super power out of the air and say, this is what I'm good at, it is just knowing what a good deal is versus what a bad deal is. And anybody can learn this. And I talk about it all the time. It's something I teach in my podcast. It's what we buy investment counselors talk to investors about every single day. And that is essentially it's following my 10 rules of successful real estate investing, which is on our websites. If your listeners are ever interested in reading that, it's there. It's a sticky post. So it's always at the top. But, you know, it's a top down approach. And this is what I do and this is what I tell people to do. And I show people how to do it. So when you invest, don't be mesmerized by the property itself. I've made this mistake early on. I don't make this mistake anymore because I have a better perspective. So the superpower is essentially taking a top down approach, which means you start with the market first. Make make sure you're investing in a market that has a good story is fundamentally strong. There's a reason to invest. There has jobs and job growth. It's got a stable economy, a wide industrial base. So you're not investing in a market like, let's say, Calgary or North Dakota, which is heavily based on oil and gas. Calgary less so now. It's not as bad as it used to be. But back in the 70s, everything lived and died by, you know, by the oil industry. But when you start with the market and then you work your way down to submarkets and neighborhoods and you identify neighborhoods that make sense, you know, you've got the right demographic. It's got the right amount of inventory, a balance between supply and demand. The ratio of rent to price is in line. It's what we call the RV ratio or rent to value ratio. And I know this is hard to achieve in Canada, but ideally the target is about one percent, which means if you're buying, this is easy math. One hundred thousand dollar property. I know you can't find that in Vancouver or Toronto, but let's just say it's one hundred thousand dollar three bedroom home, which they do exist in middle America. You want it to rent for about a thousand a month. That's the one percent rent to price ratio. So if you're in those neighborhoods and you're in what I would call a B class neighborhood, so it's a working class community, mostly blue collar. Some white collar people actually do have jobs, are not relying on government subsidies. It's not all dollar general. You know, you've got a mix of Wal-Mart and Macy's and whatever it may be in terms of amenities, that's a recipe for success. And so that is the formula that I've been following. And it's not that I created that formula. It's just I've come to learn that that is what you should follow as a formula, a recipe. And I don't see that as a superpower, but it's just a model to follow that. I know that one hundred thousand other people have done it with success. Why not follow other people's coattails that have been successful and just mirror and duplicate what they've done? So now you can have the same success as they've had. So that's the superpower is just identifying what works versus what is really a landmine and don't step on those landmines.
Dave Debeau [00:14:31] Yeah, I'm following instructions, following the recipe, and it sounds like you're very, very focused. That's a big challenge. I find for myself as well as a lot of entrepreneurial people. Is that shiny object center right this, that and trying this, not the other thing. So it sounds like you Delta right in figured out what works and that's what you stick to. All right. Well, that's fantastic. Time flies when we're having fun. So as we're wrapping things up here, if people want to find out more about Marko Santarelli and what you're up to with real estate investing in the States, because I understand you do projects all across the country, not just in California. If people want to find out more about you and maybe connect with you, what should they do?
Marco Santorelli [00:15:14] Yeah, well, we have two websites, so really you can contact us and get a bunch of free information articles, downloads, free book coming out, literally. It's a free book, videos, all that kind of stuff on our websites. The primary site is Narada Real Estate, dot com NORAD, Narada Real Estate. That's the mothership, if you will. The sister website is passive real estate investing, dot com and passive. Real estate investing is the name of our podcast and the book that's coming out. So really that's the home for all that. But they link to each other so it doesn't matter which one you go to.
Dave Debeau [00:15:48] Perfect. Very good. Omakase has been a real pleasure chatting with you, getting to know you a little bit on the podcast. Really appreciate you sharing some of your your wisdom and your experience.
Marco Santorelli [00:15:58] It's been my pleasure, Dave. I wish you all the best and all your listeners as well. Good luck to everybody.
Dave Debeau [00:16:04] All right. Thank you very much. And thank you for tuning in. And we'll see you on the next episode. Well, thanks very much for checking out the property profits podcast. And you like what we're doing here. Please head on over to iTunes, subscribe read us and leave us to review. Very, very much appreciated. You're looking to create a regular flow of inbound investor inquiries about your real estate deals, then I invite you to attend one of my upcoming live online demonstrations and you can check that out at Investor Attraction Demo Dotcom Ticker.