Table of Contents - Turnkey Trifecta with Axel Meierhoefer
Dave Debeau [00:00:09] Everyone, Dave Debeau here with another episode of the Property Profits Real Estate podcast today, zooming in all the way from the outskirts of beautiful San Diego, California. We've got a real estate entrepreneur via Germany now living in the states for a long time. Axel Meierhoefer, how are you doing today, Axel?
Axel Meierhoefer [00:00:30] Awesome. Thank you for having me.
Dave Debeau [00:00:32] My pleasure. So, Axel, before we jumped on the call, I asked you, hey, what's your main bread and butter real estate investing strategy? And I like what you're going to be talking about, because a lot of our listeners are in Canada. Excellent. I'm not sure if you're familiar with the Canadian market, but in centers like Vancouver and Toronto and Ottawa and places like that, property prices are insane in those areas as they are in San Diego, California, which is one of the most expensive real estate markets in the United States. It's way up there, right near your main focus is on buying properties out of state. So at a distance. So tell us a little bit about how you fell into that and what what are the big benefits of doing that versus trying to find deals in your own backyard?
Axel Meierhoefer [00:01:28] Well, there's a couple of things. The reason that we fell into that is because, as you indicated, it would take way more of our own money to even be able to acquire property, even with all the relatively low interest rates and mortgages and stuff that you can get right now. But then the most important thing is really that the properties don't perform by the standards that we set for ourselves, as well as for our clients. We typically trying to apply the one percent rule and people say, why not more? It's because of quality. We want to really provide a high quality three or four bedroom, two bath home that people like to live in that's freshly renovated, so forth and so forth. And to apply that rule for your listeners, just for those who are not that familiar with it, basically means you buy one hundred thousand dollar property and it pays right around a thousand dollars rent per month. Right. And that is that relationship is just pretty much impossible to find here. And so we had to look around and ultimately found, OK, you have to go out of state. And then the big problem becomes, OK, if we do that, how do we keep control? How do we get good tenants? What do we do if maintenance is needed? And what I found is almost more important than than the property itself is to find a combination between the good properties that perform and really high quality turnkey provide us, and I call it the virtuous trying that you need to look for and that I teach my guides to look for to make this strategy work.
Dave Debeau [00:02:56] OK, so walk us through your virtual triangle. Obviously that's something you go into really in-depth with your clients, but give us the thirty thousand foot overview and let people know what is a turnkey property. What does that mean to you?
Axel Meierhoefer [00:03:09] So turnkey property, basically why I love that so much is so much must say sometimes in the eighties. And it's in a residential neighborhood in a city that has a good economic climate, no crime or that kind of stuff. So and it has a good potential to get a thousand dollars per month if it's freshly renovated, brought up to speed. Now from the turnkey virtuous drying perspective, I'm looking as an investor to how can I push as much risk to somebody else before I need to commit my money? And so the first quarter, if they're trying triangle for the for the turnkey provider, is they find the property, they do the research, they have the inspection, they build the scope of work that needs to be done to completely renovate that. They bring it up to code, new bathrooms, new kitchen, new floors, new all the stuff it needs. So oftentimes they get these properties somewhere between 20 and forty five thousand dollars and then they spend another 50, 60 or so, sometimes 70 to bring it up to two. All the things it smells like a new car. When you act, you get the key, which is actually kind of funny because that's really what it means. Turnkey, right. And you get a completely ready to move in the property. So that's the one corner. But the really narrows down the field of of organizations that would do that, including the and stuff like is really that I or we work with you key providers who do number two, and that is they establish the relationship in the context of the sale. So they don't just do the renovation. They also have the relationship in the context, everything that has to do with selling their bank, financing, the title company, insurance, all of that. And then the third corner is maintaining the property as property management. So they find the tenant, they manage the tenant, they manage the maintenance and so forth. And why I call it virtuous triangle is because it creates dependencies that really make it good for us as investors to work with them. Because if you're osseous, if they find the property and they just want to do the cheapest job to sell it,
Axel Meierhoefer [00:05:15] but they are also the ones with this same team that ultimately has to maintain it, then they're shooting themselves in the foot because whatever they don't run away, whether when the tenants get in, they're going to find and they're going to complain. And we only sign contracts where we have one year maintenance guarantee. So anything that they wouldn't do well, which the ones we work with, they know this. Right? So they renovate the properties really well because they. That they are the ones who have to maintain them later on, and that's why they also have no problem to sign an agreement that says, OK, this thing is inspected at appraises above asking price. And for one year you don't have to pay for any maintenance because we renovated the thing. So we are proud of what we did.
Dave Debeau [00:05:56] Dumb question. Why do these guys need you? Why don't they buy these smoking diesel properties, renovate them? They're already finding the town and they're doing all the management. Why don't they keep them? Because it doesn't sound like they're making a huge margin on selling the property to you.
Axel Meierhoefer [00:06:13] Yeah. The one thing that happens in one of the 10 key providers I work with, I literally ask that question. So maybe both dumb. I don't know. But so I said, why don't you just do this for yourselves? Because the owners of the company actually they moved into that area and they live in that area. And they said basically they ultimately tapped out on financing. They got to about 30, 40 property or a single family home, like three bedroom, two bath, four bedroom, two bath. And you get to a volume where you just can't qualify anymore. And part of that, the way they explain it makes sense to me is the money that you're making from the rental income only counts up to 70 percent as income. Right. And so sooner or later, when you have more and more and more properties and more and more and more loans against that, you just don't have enough income anymore to qualify for any new properties. But you can still make money if you do a good job because they make money twice. I mean, not dumb or anything like that. They make money a little bit. And a lot of people in the industry say, well, you're overpaying because you're paying almost appraises. So they make a little bit of money between what they paid for and renovated it for and what they sell it for. I believe they deserve that because they took all that risk and then they made continuous money on the property management. And it's not just that I, an investor or my clients, like the fact that we don't have any maintenance for you because they do a good job. They don't have any maintenance either. Right. So the property management fee is eight to 10 percent. They collect for the whole year. They basically make, if you want to, as additional profit. So they have those two sources of income and that's why they turn it into a business at some point.
Dave Debeau [00:07:53] So actually, you do this activity yourself, but you must have the same problem. Eventually you're going to tap out and run out of money for down payments. You're going to run out of run out of qualifying for these kind of these kind of properties. How do you keep growing your portfolio at that point?
Axel Meierhoefer [00:08:10] Well, one one way. That's two ways. And for one, if I weren't doing exactly what I'm about to tell you that I am doing is I could always have some like I used to have to own a consulting company. Right. So as an investor, I can have another source of income for these guys to basically run the business. They need to run a soup to nuts 24/7, basically. So I have a little bit of a benefit from running out of money because I can still have a separate source of income. Now, the other thing that we actually do besides the consulting work is we have an organization called Ideograms Grow Up. And there I'm basically offering mentoring services and other services, but mainly mentoring to help people. And I love to help younger people. I wish I were 20, 30 years younger and could take advantage of low interest rate and all this stuff. I know. I mean, I think a lot of us, at least I can see this for myself. I would love to be born again, but not so good, like 30 years younger, but know everything I know right now.
Dave Debeau [00:09:07] Body, same brain. That's my
Axel Meierhoefer [00:09:09] new body. Same brain. Exactly. That's perfect. Right. So but what I'm basically getting at is so what we do to not run out of money, to keep investing for ourselves is to help other people learn what we learn, basically to benefit from the fact that nets need to get to where we are. I made a whole bunch of mistakes, lost some money here and there, did some bad deeds, found things that I shouldn't have done but didn't know any better. And so anybody who works with us gets the benefit of mentoring, meaning like I give them all my connections, they up with the same organizations I work with just right alongside. And one of the huge benefits is that they benefit from these relationships. Like when you have a portfolio with a turnkey provider, full five properties already on the books. And I see one of my clients is interested to buy a property, just beat both of us different. Then if you go USF and say, hey, I found you on the Internet, I'm wondering if you want to serve your house. So those are the things. And for the services we get income. We don't do that for free, even though we try to keep it modest. And that's basically one way for us to keep being able to invest.
Dave Debeau [00:10:18] All right. So basically, you do self finance all of your deals. You use your own your own capital. Do you ever partner with people to buy more of these?
Axel Meierhoefer [00:10:26] Kind of we invite people to partner, although I have to say in this building, by I mean, I actually am a big fan of leverage. I know some people are not. But for me, if you were to ask me, how do you see the next five years going, I think the low interest rate environment will continue to be around and I think people start getting some inflation right. And so for me, that is the best environment to have as much leverage as I can get.
Dave Debeau [00:10:51] Very good. All right. So, yeah, it's all around the turnkey. Yeah, it's a pretty sweet deal if you can find a price. So pretty that that you can apply the one percent rule to and somebody has already fixed it all up, it's brand spanking new, they're going to find you, the tenant there, and they're going to do the the tenant and the property management for you and guaranteed no big issues for a year. That's a pretty, pretty sweet way to get it.
Axel Meierhoefer [00:11:15] Yeah, absolutely.
Axel Meierhoefer [00:11:16] And the good thing is for myself and for anybody who works with us, we start with positive cash flow from day one because that is a goal. And behind it, I always call it, like Jim Collins, that he had that big, hairy, audacious goal to get away. And we are there. But I want other people to get there, too, where you don't need to exchange time for money anymore, where you can see I want to do something where it's not a matter of how much do I get paid, but how passionate me about it. And to get there, every little property does that. And we are now at a point where I can literally say, OK, for what? Even living in San Diego area, if I didn't do anything else anymore, the passive income from the properties would be sufficient. Right. And that's why I want to get my
Axel Meierhoefer [00:11:56] clients to question.
Dave Debeau [00:11:58] So for your clients doing these kind of properties. On average, how many of them do they need to hit that number for themselves?
Axel Meierhoefer [00:12:08] I figure most of the time the number is somewhere between nine and 15. Now, it depends a little bit where you live. If you live in an area that is maybe a little less expensive than where I live, then you can probably get there was eight or nine. And if you go into more expensive areas, then you have to have a few more properties. But it also depends a little bit how sweet of it you can you get into, like if you happen to be in a location where there is a lot of appreciation because Jeff Bezos thinks he needs to put another distribution center next to you. Right. Then you can keep pulling money out and do more investments with that property versus another one that just does what you expected over a long period of time. Yes, it pays you. And this is where I'm saying I believe our clients will do even better than the ones in the past have, because when we get a little inflation, that also means higher rental income without higher costs on mortgages. So your positive cash flow will keep increasing, increasing, increasing, which just means you need less properties to get to that kind of Holyland place, you know.
Dave Debeau [00:13:06] Yeah. So when when people are kind of getting in these turnkey properties, I know it's going to be variable, but give or take, what are they? Cash flowing a month
Axel Meierhoefer [00:13:16] right now with a low interest rate environment. One hundred thousand dollar property cash flows around between two fifty and three fifty
Dave Debeau [00:13:23] two hundred and fifty to three hundred thousand three hundred bucks a month. I've got ten of those. You might be making three thousand dollars a month, which is income for a lot of people, that's for sure. And keep taking into account mortgage pay down appreciation,
Axel Meierhoefer [00:13:39] any of those kind of great
Axel Meierhoefer [00:13:41] appreciation, all those kind of nice things that you get with real estate that you don't get with other investments. And don't forget, I mean, I always say if I spoke about this 30 year old person has all that knowledge, right. If you really literally take that person to OK, it takes me let's just be conservative. Eight, nine years to get there. I buy a house every year. Right. But then from then on, not only do you have that income, but as time keeps going, when you're forty five or something like that, you will have the first houses that are paid. Yeah. And so now you're going from three thousand to four thousand a year later you go to five thousand sooner or later by like 50 or so at the latest you probably have ten grand a month and you never did anything different and you just did these initial investments and then you keep servicing them. And I mean, I know most people, they get a little bit addicted to it to say this works so well, I just keep taking the money that I don't need right now while I'm getting the positive cash flow. And instead of buying one, I might be maybe buying two.
Dave Debeau [00:14:43] Yeah, I reinvest.
Axel Meierhoefer [00:14:44] Yeah, we invested. Exactly. And so after eight to 10, 12 years, you typically end up with like 15. If you keep after it, then you can lean back. And that's why I'm saying that's where the point is, where I call it economic independence. No, you can do what you're passionate about and just see how your income is going to increase. And you can go back in history. However, if you want to, people who own real estate wars and whatever happens, they're always the ones who remain on their feet. They have the assets. They can turn the assets into money without having to sell them. It's pretty amazing what real estate allows you to do.
Dave Debeau [00:15:18] Some actual time flies when you're having fun. My friend absolutely will want to find out more about you and this whole turnkey idea. What should they do?
Axel Meierhoefer [00:15:26] Well, one thing come to our website idea, grow dot com for your audience. We also have a little freebie. If you do idea of a dot com forward slash free, you can download a free mindset manual. And and I invite people to go to our YouTube channel because I made a series of YouTube videos that actually explain how to use the mind set menu. Because if you're really committed, if you're motivated, if you're energized to do this stuff, it goes so much easier than if you're in a skeptical mindset. So I invite everybody to learn how to get a positive attitude and mindset and then just rock and roll.
Dave Debeau [00:16:01] So thank you very much for being on the show, Dave.
Axel Meierhoefer [00:16:03] Thanks so much for having me.
Dave Debeau [00:16:04] All right, everybody, take care and we'll see you on the next episode of. Well, hey there. Thanks for tuning into the Property Profits podcast. If you like this episode, that's great. Please go ahead and subscribe on iTunes. Give us a good review of that. Be awesome. I appreciate that. And if you're looking to attract investors and raise capital for your deals, that may invite you to get a complimentary copy of my newest book. Right back there is the money partner formula. You got a PDF version at Investor Attraction book, dot com again, investor attraction book, dot com ticker.