How To Invest In Real Estate Out-Of-State, With Sensei Gilliland

Serial entrepreneur, and out-of-state real estate investor Sensei Gilliland, attacked his real estate venture the same way he’s approached everything in life: with discipline. Upon launching a successful martial arts business, Sensei realized he could utilize off-hours to earn additional income. Once he grasped the power that real estate has over everything business-related, Sensei dove-in head first.

After months of classes, a few risks, and a little bit of luck, Sensei earned a net profit of $9,000 on his first home (flipped remotely from the opposite coast!). 25 years, multiple recessions, and 10,000 flips later, Sensei runs Black Belt Investors, an education, consultant, and investment firm. Sensei coaches thousands of new investors through their real estate journey every month and he’s here today to share a few invaluable insights.

Stay tuned for details behind his first deal, strategy shifts amidst COVID-19, how to fund great deals, how to forecast profitable markets, and the ultimate strategies for effective outbound and inbound marketing. 

You’ll also hear…

  • Why it’s important to be conscientious when choosing a business partner
  • How COVID-19 is changing the real estate market
  • How to sell the idea of a subject-to to a seller
  • Why it’s important to aim for the equity side first
  • How to extract information from sellers
  • How to answer sellers’ tough questions
  • Why you shouldn’t explain options to a distressed seller until you know them yourself
  • Tips for scaling your business as a wholesaler
  • The importance of spending money on marketing
  • How to stretch your marketing budget
  • How to distinguish yourself from competitors with bandit signs and other marketing channels
  • The risks and rewards of out-of-state real estate investing
  • How to watch for opportunity zones when forecasting profitable markets 
  • Why it’s important to use a property management company (that has a solid record with other investors)
  • How to find great property management companies
  • Why you shouldn’t self-manage
  • Why it’s beneficial to focus on off-market properties 
  • How to execute direct-mail campaigns correctly
  • Why it’s important to push inbound and outbound marketing equally

With mortgage rates at an all-time low, now’s your chance to pull the trigger on REI.

Transcript

Paul:

Do you feel that there’s a lot of gurus coming up in the scenes now out of nowhere?

Sensei:

Yeah.

Paul:

That’s always been the case but right now at 2020, it seems like it’s more abundant.

Sensei:

Yeah. Well, I mean, here’s the thing. I mean, we can talk about this on the show, too. But I always tell people if you’re going to jump in bed to do business with each other, you really need to shop around. Just like if you’re going to buy a home, right? You don’t see the first house and just buy it. You go shop around, you take a look of the neighborhood. You check out the neighbors, you check out the house for sure, inside and out, if there’s any potential, if you want to grow with that house. There’s a lot to it. And a lot of these gurus have jumped on after the recession when it got easy.

Sensei:

Start taking a look at 2011, 2012, these so called gurus that maybe took a course or did one or two deals or self-proclaimed gurus and coming out with whether it’s a meet up or real estate club, an online course or just a sales pitch trying to promote it. But I can guarantee, I’ve already seen that happen back in the late ’90s, kind of went away when we had the .com recession, definitely saw it from 2003 to 2007 and pretty much all of them went away in 2008. And then they jumped back on the bandwagon in 2012 when it’s easy. So my thing is that if you’re going to buy that house, you’re going to do your research. If you’re going to spend money with a guru or some master niche artists in real estate, then make sure that they have been proven to be successful during the hard times.

Paul:

How many recessions have you gone through?

Sensei:

Well, I started from the Great Recession, which was called the Great Recession back in 1990, I started my business. I really started learning in ’93. Jumped in training seminars, didn’t call them boot camps back then but training seminars back in 1994. Bought my first fix and flip in 1995. So the tail end to that recession because we still had short sales hanging around, and then the .com, then our new Great Recession, and now this pandemic.

Paul:

Can we talk about that first deal of yours? How old were you when you fell into it and how’d you fall into that?

Sensei:

Yeah. Actually, In 1993, I was seeking an alternative business. I opened up my first business in 1988, a year after I graduated from high school. So now I’m 19, opening up my first business, which I still own today. 1993 rolls around, I’m starting to look around thinking, “I got to do something else.” Because my martial arts business is all after school programs and my fitness classes are all in the evenings when people get off from work. But I have my mornings and afternoons free. What can I do? What can I do to occupy and generate more money?

Sensei:

I had a vision that I would make a great living teaching martial arts but not enough to become wealthy or retire on. So I decided to start looking at the coin op car washes. I was looking at passive or residual investment opportunities as a business owner. Perfect, open up 24/7, you hire senior citizen for two hours a day, they go and clean up the yards, fill the soaps, and collect the tokens. That’s what I was after. I got the business concept and I understood everything about the coin op car wash but then I was seeking where can I buy or where can I build this coin op car wash.

Sensei:

And now I’m looking at real estate, but I don’t know what I’m looking at. I don’t know what really long term leases are to build a suit to purchasing and who the heck knows what zoning is. I have no idea. So when I started researching about real estate, I learned quickly that real estate controls all businesses. So I ditched the coin op car wash and got into real estate investing. So in 1994, I bought into real estate investment seminars. I spent 32 grand back then. And with that I wanted to buy fix and flip. That’s what I went for. But the seminars offered me wholesaling, they offered me fix and flips, they offered me foreclosures and lease options and asset protection. I was traveling around the country learning all these things and learning how to become a dabbler in real estate.

Sensei:

After spending all that money and taking a look, I just really wanted to buy a fix and flip property. So I heard that there’s an opportunity over in Fort Myers, Florida where people are actually buying fixing and flipping properties. So living in Southern California, I went to Fort Myers, Florida, not really know what I’m doing except to know how to buy low and sell high. I found an investor friendly realtor, couple contractors, hooked up with Bank of America in Fort Myers and purchased a probate property for $42,000. So I had to 10% down that BofA required. Now, from 4,200 bucks, they required three months of reserves. My payment somewhere around 300 bucks a month. So I had that.

Sensei:

I’m now this proud owner of a piece of junk property and hoping and praying that everybody does what they say they’re going to do. Because remember, we didn’t have the internet back then like we have today. I ran into an issue and the issue was the rehab expense. It came out to be a little over $17,000. I didn’t have that in the bank account, but I remember listening to my eight tracks and cassettes that if you’ve got a good deal, money will come to you and it sure did. It came right out of my credit cards. So I pulled money out of my credit cards and I pay for the rehab. And every single month, I would rotate that balance from one card to the next to the next, every single month not having to make one payment.

Sensei:

Now back then, you can rotate balances from one card to the next without being charged a fee. They caught on to people like me so now they charge everybody a fee. But who essentially rehabbed my house? The banks paid for it all. And I look at credit cards as just a plastic hard money lender, typically with better rates, because you don’t have to pay points. So that’s how I ended up doing my first flip. Now, the guy has told me, “Hey,” they said, “We can easily fix this property. List this property for sale and have it sold within six months.” I’m like, “Perfect.”

Sensei:

Now I’m back home in Southern California hoping and praying that they’re doing the right job, because I don’t even have enough credit to fly over there to check out the deal. So I would get updated every once in a while by telephone, and how do I know if they’re telling the truth? Well, they would send me a Polaroid every once in a while in the mail showing me an update on the property. Well, six months go by, it’s not even listed yet. Seven months, eight months, nine months, I’m starting to freak out a little bit. And I finally got the property sold. I received a FedEx envelope in the mail. I ripped it off and pulled out a check for a little over $9,000 in net profits. I did it. I did it remotely and a lot of luck.

Sensei:

I always tell people … People always tell me, “Good luck.” I say, “Luck are for people that don’t know what they’re doing.” And I didn’t know what I was doing. But that’s kind of scarred me for life in a great way. I’m like, “Holy smokes, I just flipped the property from coast to coast. I didn’t even go there to overview the rehab or anything like that.” I made a little over $9,000. And I started thinking about it, I made it just over $1,000 a month passively while sitting back here in Southern California flipping property. So I treated that one property like I treat a can of Pringles, once you pop, you can’t stop. So I had to sort of go out there and buy more properties. And it all started right there in 1995.

Paul:

So you’re an entrepreneur right out of the gate from high school. You’re pretty young age doing this. And it sounds like you built a business in the martial arts and the fitness world as well. So did a lot of those skills transition into building a business in real estate as well? Did that help you?

Sensei:

It did. It did. The part that helped me at that time in the beginning stages was focused on discipline. And not really having to worry a whole lot because knowing that I might get bruised up, I might get a black eye, but I’m still alive and I can still move forward. So that’s where I ended up coming with black belt investors and our tagline is Disciplined Investing. So yeah, I took all the traits, the tactics, and the mindset of martial arts that I’ve been brought up with and pulled it all over into real estate.

Paul:

And you teach a handful of different strategies. You have the remote rehabs, which is what you just described in there, your first deal, rentals, wholesaling, rehab, traditional rehabbing, and lease options. Have you found that there’s been a shift in technique or strategy because of the whole COVID?

Sensei:

Not so much just yet, but I do plan on for it to come. Right now, real estate is still pretty hot. It’s working pretty well. I don’t care where you’re at in the country. We’re doing pretty well. I mean, let’s just say Southern California because that’s where we’re at, right? The properties that are sitting on the MLS, the days on market has extended. However, the values have not dropped. In fact, there’s over bidding on properties right now due to COVID. Because COVID, if anybody is wanting to list their property or it has a property listed during the COVID time and it’s occupied, that’s a slower sale.

Sensei:

But those that are vacant have actually have multiple bids going on because there’s people out there still looking at properties. In fact, today, it just came out that they announced that the mortgage rate dropped down to 2.98%, which is an all-time 50 year low. People are taking advantage of that as they should. But with regards to strategies, yeah, I think things are going to change for the better of however you look for it. Some may look at that like. “Oh my gosh, the market is dropping or sales are slowing down.” For me, that’s a good thing, because then I can step in and maybe the wholesaling tactics and maybe the fix and flips are not going to be my primary strategy anymore, but my creative financing options like subject-to and contract for deeds and land installment contracts, that might take over.

Paul:

How so? Why would that change in the upcoming months?

Sensei:

Well, because people right now are getting furloughed, they’re getting pink slips. They’re not working, if they’re working, maybe they’re small business and not earning as much as they were before. But that debt doesn’t go away. So now they’ve got to make those debt payments and they’re scraping and scrumping to get by and the stupid COVID with everything is just dragging it out much longer than what most people expected. So they’re going to start missing payments on their credit cards or maybe graduate to the HOA payment and eventually it’s going to be their home. And they’re going to basically just dig a hole for themselves, not purposely, but they’re digging a hole for themselves because they just can’t keep up with the debt because the income’s not rolling in.

Sensei:

So with that, they’re going to come to people where … They’re going to come to real estate agents possibly looking to short sell their home or maybe do a deed in lieu. Forbearance is going to be a huge option right now. It’s definitely an option. It’s not the best option but it’s a better option than short sale or deed in lieu or foreclosure. But then they’ll come over to people like me to see if we can work out some sort of program to where they can stay in the house. And if not, they will have to vacate the property but I’ll be able to step in and keep the mortgage in place and offer that property either to myself or another investor or a home buyer keeping that original buyer’s credit in good standing.

Sensei:

That’s key, is teaching people that are in distress to keep their credit in good standing, even though they may have missed a couple mortgage payments or credit card payments. Those little scratches and blemishes on their credit report, they can be healed, but having a short sale or deed in lieu, forbearance, that’s going to mar their credit and this is going to be there for a long time.

Paul:

Subject-to is going to be more, is going to be beneficial. I think a lot of people are hung up on that. They don’t know how to explain that or how to sell subject-to to a seller. So how do you teach your students to sell the idea of a subject-to to a seller?

Sensei:

Well, I always tell them approach the property knowing that there’s equity in it. So subject-to is really focusing on properties that lack the equity, whether it has maybe 20%, 10% no equity. Even upside down in equity, I can still work with those properties. Because at that point, we’re really buying the payment. On the flip side of that, we have equitable deals. That would be your wholesaler, that would be your realtor that’s looking to list a standard property in equity sale. And it could be a fix and flipper that needs equity, it could be a landlord that needs equity. So we have these two sides here where we’ve got an equitable deal and we have properties that lack equity or have no equity, to me, it’s kind of like the yin yang of real estate.

Sensei:

The majority of your real estate investors and home buyers are all on the equity side. So when the market shifts, real estate agents are like, “Uh-oh, what do I do?” Or wholesale is like, “What do I do?” And same thing with a fix and flippers, they’ll get stuck and they’re not sure what to do. But if they know the tactics of the other side of how to deal with properties that lack or have no equity, then they’ll still stay in business and they’re still able to flip those properties out.

Sensei:

So my students, I tell them, “Hey, look, always go for the equity side first.” Let’s just say for instance, you came to me and said, “Hey, I’ve got a property here, it’s my home. I want to sell it.” And you’re always looking for money because you’re in debt. We’re always looking for money, right? So I’ll approach that property and say, “Okay. Hey, I can buy it for X amount of dollars.” Now I’m a wholesaler, so I’m going to need a discount, right? And then that will start to surface with you saying, “I can’t sell it for that amount because I owe more on my mortgage.” So what I’m really doing is extracting information out of you.

Sensei:

Then we go through the whole script and saying, “Okay, what do you on your mortgage or your back payments?” You’re behind on HOA and insurance and taxes and we figure all that out to come up to a grand total of a debt that’s owed against that property. And if there’s equity in it, there might be equity in it. Great, I can still buy that from you and you can walk away with some money in your pocket. But majority of the time, we’re going to find that there’s no equity in that property. And so I’m going to say, “Hey, what? I’m sorry but I thought there was equity in the property. I can’t offer that to you, obviously, because you have this loan balance against you and this debt against you. Would you like to hear about my top program?”

Sensei:

And they’re like, “Top program? What’s that?” “Take over payments program.” And I go right into the script of teaching them that there’s a way for them to walk away from their house without having to come out of pocket any money whatsoever, and without having any more credit blemishes and having to go through the hardship of a short sale deed in lieu of foreclosure, by me taking over the payments for a short period of time as I fix that house up. And now I got to figure out …

Sensei:

I’m going to pause that for a second. Now I got to figure out is this a property that I can add value to and fix and flip it? Is this a property that I can maybe not have to add value but just clean it up and flip it? Is this a property that I can turn into a rental? Doesn’t mortgage payment, rent payment kind of breakeven? No good. Let’s move it over to a lease option to where I get a rental premium and now I’ve turned that negative into a positive.

Sensei:

So now I’m going to put in this filter and figure out which strategy I can use with it. And it’s typically always a way I can do something with the property. So if they can value credit and they can see that they’re going to need their credit because if they go down the wrong path, they’ll lose their credit cards, they won’t have the ability to apply for another loan, personal loan, or a mortgage for years to come. They may want to travel but now they don’t have a credit card, they may want to rent an apartment. When you rent an apartment, it has an application. Have you ever gone through foreclosure? , that can mess them up. They’re going to want to get back on their feet again. So if I can sell them, “Hey, let me take over the payments for a short period of time.” Short period of time to me is two, five, seven, 10 years. Usually I’m right around the five year period.

Paul:

Do you ever get them to ask you the question, “What happens when you don’t make my payment?”

Sensei:

Yeah, all the time, “What happens if you don’t make your payment?” Who’s going to know about it first? They will. Because the loan is still in their name. So they still have access to that account. Now I’m going to shift all the information over to me or to my buyer to where they have access, but their name, the distressed seller’s name is still on that mortgage. So if I miss a payment, they’ll be alerted. And then they’re going to come back to me and say, “Hey, you missed a payment on my property.” Well, if I can’t make that payment anymore, then I got to come up with a strategy. So that strategy, maybe it’s been a year and a half already, COVID’s past, values are up, I can sell that property, get them from underneath their mortgage.

Sensei:

Or I can do a sandwich deal. Maybe I’m leasing the property and I can release it to someone else keeping me in the middle and charge a premium on that. So I won’t ever go to a point where I’m going to hurt that person. But worst comes to worst is, “I’m sorry, I can’t make the payment anymore. Here’s your house back.” But think of it this way, they’re already missing payments. I came in and saved them on their credit. Their worst case scenario was to do something that’s going to damage their credit. All we did was just go back in time and start that all over again. So more than likely, they might be able to refinance that time, maybe resell it with a real estate agent. I can get it sold, I can release it to someone else. There’s a solution to it. And that’s the thing that most investors lack. They just don’t know the strategies behind except for buy and sell.

Paul:

Now going back to negotiation example, is that a strategy that you always do? You don’t talk about options until you’ve exercised or talked about the equitable option or the sell at a discount option?

Sensei:

I won’t explain options to the distressed seller until I actually know the options myself. So in the very beginning, it’s about data collection. I got to extract as much information from them as possible without making them feel overwhelmed. Because remember, they’re distressed. If they’re selling to me a property subject-to, they’re distressed. And I don’t want to add more weight to their back so I’ll do the heavy lifting, but I will need to extract some information so I can make an educated guess on the debt amount that they owe, and then I can go research on the after repair values and the days on market and all the other things that I need to know in regards to resale.

Sensei:

Because my number one intention is to quickly flip this property. I’m in it for the quick buck. And so sometimes I can’t quickly flip a property because now we’re in a downfall of a market. So in this case, I might step back and sell this to a rent to own situation or owner finance over to another purchaser. So I’m not going to, “Here’s my hand, here’s my deck of cards.” Because it will overwhelm them and they won’t understand. Have you ever seen an advertisement out there that says, “We’ll buy houses, cash or terms.”

Paul:

Right. Well, no, you don’t. It’s all cash.

Sensei:

Okay, so you see cash a lot. The term I want to bring up is that the term side is that back in the day in the ’90s and the 2000s, everyone put cash or terms. Cash means equitable side, terms means creative financing. But as a distressed seller or a seller, they have no idea what terms means so we kind of get away from that and we just focus on what you just said, the cash side, and then we bring up the terms. Because what I did was set them up. More than likely, if they’re calling me off as some advertisement where I’m targeting distressed sellers, I already know that they don’t have the equity. I already know that they don’t have the cash. I want them to realize that yeah, I don’t have the equity, yeah, I don’t have the cash, yeah, the strategy is not going to work. Black Belt Investors is right. That’s the lesson.

Paul:

I’m interested to know about your own operation. Because it sounds like you’re kind of guy that really digs deep into the seller, figures out what they need. Now, do you scale that out? Like a lot of other wholesalers do have acquisitions … I really don’t know about that side of your business, if you actually scale that out or you just do everything yourself right now?

Sensei:

No, I don’t do everything by myself. Because we’re a company that’s done over 10,000 flips, 15,000 doors. So I’m not saying, “We’re this big,” because we’re not. I’ve been in the business 25 years and with that, we’ve been able to scale to a point where, yes, I have a team here in the office and remote that helps with acquisitions, that helps with strategy, that helps with agreements, that helps with evaluations, that helps with intel intake. No, I don’t like … There’s no way I can do it all by myself. Thank God, I’ve got a solid team. You know what I mean?

Paul:

Right. Okay. I mean, you’re a serial entrepreneur. So you’ve built all these multiple businesses. So tell us about how to scale that part of your business if you’re a wholesaler. I mean, I don’t meet many wholesalers out here in Southern California that have very large operations. It must be a difficult thing to do to scale that out. I know I’ve written standard operation procedures and hire people in and it’s a very difficult thing to teach people that. So what are some of your tips for that?

Sensei:

Well, I think number one, is get out of the w-2 mindset and get out of the cost versus return on investment factor. Listen, I’m just going to be dead honest. Most wholesalers go into this niche because they don’t have any money. Now I’m a wholesaler. By heart, I’m a wholesaler and my foundation in the business is wholesaling. I have a little bit of money. But most of them get into it because they don’t have any money. And so if they don’t have any money in wholesaling, that means they don’t have any money to set up the business properly. They’re doing everything themselves.

Sensei:

Second thing is that people look at, “Well, gosh, I got to do direct mail, I got to do bandit signs.” All these general remedial ways of marketing, but they are cost-effective but they won’t even spend money on that. And if they do, they’ll put up 10 bandit signs and say, “Well, it just doesn’t work. I’m out of business.” Well, okay. When it comes to marketing, there’s consistency. So there’s no marketing budget. And if you’re going to get into any business, you will have to have a marketing budget, you will have to have consistency. So don’t blow your wad of cash all on one marketing campaign. You’ll have to stretch that out. Now, there’s a lot of free ways to do that, trust me. There’s a ton of ways to do this.

Sensei:

I mean, how did we get connected here, Paul? I mean, yeah, I know you’ve taken a training from me back in the years past. I’m not sure how you got connected with me there, but most recently is through social media. Right? What does that cost there? So I have a social media manager that manages everything. So they put up all the fancy business stuff so when you see a dumb post, that usually comes from this guy right here. I have to do the fun stupid stuff, they do all the marketing managing stuff. But the cool thing, the combination between the two makes Black Belt Investors in Sensei Gilliland look real and untouchable. Not untouchable, but touchable.

Sensei:

So where you reached out and connected with us and said, “Hey, you know what? Gosh, we took training together a few years ago. You got some stuff. Let’s connect.” At wholesaling I can do something as simple as that. But number one thing, going back to your question, Paul, lack of money, they’re afraid to spend money because they’re going to like, “What does that going to cost me?” Versus, “If I put X amount of dollars into it and I expect X amount of dollars, here’s my return on investment.” But they just white knuckle their money to death and they just add a business before they even started.

Paul:

Now moving into your remote rehabs, you’re big on Ohio so I’m interested to know, I’m curious about why Ohio? I mean, there’s a lot of buy and hold people out there. I’m curious to know why are people going out there.

Sensei:

So here’s the thing with me. I mean, I started, like I explained in the beginning of this conversation, I started out remote, California to Florida. Why did I start out remote? Because I could not afford to buy here in California. Everything that I wanted to buy here, I had to add an extra digit to. That’s not affordable for me. So I went out of state. Does it require more work? Absolutely. Is it scary? Yes. Does it inherit more risk? For sure. But it also has a reward if you learn how to mitigate that risk and if you are calculated risk taker. Now, with that, when I started 1995, I had people following me around saying, “What’s this guy doing flipping houses out of state? It was unheard of.” And as far as all the research data out there, it says that I’m the second oldest company in California that offers turnkey investments outside of our borders.

Paul:

You said you’re the second oldest company to do what?

Sensei:

All the research out there shows that I’m the second oldest company in California that offers as state properties, turnkey investments. And that first company is out of business. So with that, I have been able to forecast markets, learning how to forecast markets, to learn how to get into a market that’s undervalued, that has a lot of potential of up ticking. And so I have invested from coast to coast, from Florida to California to Hawaii and I move like a slow Nomad. I get in there before everybody else gets in there. And then the cities tend to build themselves up, investors hear about it and when we’re about two thirds of the way to the peak of the market, we liquidate most of the properties, not all, liquidate most of the properties and we move over into another undervalued market. And I have a great track record of doing this with market after market after market.

Sensei:

So you mentioned Ohio. Ohio is a market that I got into 2010. People thought I was freaking nuts. Ohio? Why would you go to Ohio? Oh my God. Well, we didn’t start investing until 2011. We didn’t open it up to my investors until 2013 until we actually tested and tried the market and figured it out. Because you got to learn a lot of different dynamics when you’re within a certain market. You got culture and demographics and economies from one city to the next can change quickly. Everybody in real estate that’s been in real estate knows that you can be on one side of the street and you step on the other side and the market drops or goes up. So we had to figure all that out.

Sensei:

Now with that, we were able to get in before all the medical moved in, get in before all tech moved in, get in before they started building up the downtown area to design it for millennials. So we’re able to get these properties dirt cheap. When we’re selling properties turnkey in the suburbs to our investors at $30,000, today, they’re at $70,000 to $100,000 just six, seven years later. And that’s still undervalued because if I took that $70,000 property that we would sell today in the suburbs and trail it back to the peak of the 2006 market, the peaks they were selling for $220,000, $230,000.

Sensei:

And a lot of people say, “Well, who cares what the peak of the market was in 2006? What does that matter?” It matters a lot. And if you tell me that, then that tells me you don’t know a whole lot about real estate investing. Because my multi-millionaire investors always ask me, “What did it sell for in the peak of the market in 2006?” They’re not asking me, “How much cash flow am I going to get this month?” That’s the beginner, novice, and intermediate investor. So when we look at the peak of the market and say, “Well, this property sold for 130. How much can I get it for today?” You can get it for 70 grand. They see that there’s a gap there between 70 and 130.

Sensei:

And when you’re in an emerging market, that appreciation pushes up and it’s going to get to that 130 and eventually, it’s going to surpass at 130. It’s just like take a look at the properties and the primary markets of, let’s say, Arizona, Las Vegas, California, North and South, Boston, New York, Florida, Texas, those markets, how many of you out there wish you would have bought more properties back in 2010? And how well off would you be here in 2020? Exactly. So now we’ve had that same opportunity, because the real estate market in Cleveland is about seven to eight years behind in the real estate cycle compared to the primary markets.

Paul:

Are there any other indicators, employment, anything like that, that affects where you put your money?

Sensei:

Well, absolutely. So when we were researching the market, Cleveland has always been known as the ugly sister of Detroit. Detroit is automotive. It’s a linear economy, they focus on automotive. If anybody’s my age or older, you’ll know that you’ve gone through a few recessions to freaking automotive companies and Detroit always have to get a bailout. So Cleveland would manufacture the auto parts, motors and parts of cars and then ship them across the … I was going to say ocean, it’s like an ocean but Lake Erie over to Detroit, and Detroit would put the cars together.

Sensei:

Well, every time Detroit fell apart, Cleveland fell apart. And Cleveland said, “You know what? We’re freaking sick of this. We’re tired of losing money. We need to diversify.” So they start making parts for airlines and water vessels and commercial type of vehicles. Then they started to diversify even more. So if you go back to 2014 and you listen to the governor at the time, John Kasich, he was campaigning for president on the Republican side. So during the RNC campaigns and debates, he said, “Look, Ohio was the 47th, 48th worst economy in the United States.” So true. But they brought it at that time to the seventh best economy in the United States. And Cleveland is leading the pack.

Sensei:

Why? Because they got business-friendly. Business-friendly from small mom and pop businesses to very large, large corporations. And they gave lots of incentives to these large corporations and mom and pops businesses. And so you have Cleveland Clinic that was not in Cleveland that decided to take over Cleveland. I don’t care where you go from, south to east to west, you’re going to find Cleveland Clinic buildings everywhere. You’ve got the tech industry. Tech was not known in Cleveland, but now they’re calling it the second Silicon Valley. Why? Because the tech industry is there because of NASA and because that’s the home of NASA and they’re there for the medical industry.

Sensei:

Cleveland Clinic is not just the only ones in town. There’s UA hospitals and they have over 600 microbiology facilities there as well. So with this growth that’s happening, this is rapid growth. I’m talking they started building in 2013 to today’s date, has been tremendous. So you’ve got war zones in low income areas that have been completely torn down and these medical and tech industries have built new cities. It’s amazing what they’ve done.

Paul:

So you really have your ear nationwide to the market and listening in. What resources are you paying attention to on a daily basis to research these markets?

Sensei:

I’m definitely not doing on daily basis. I’m not a stock guy. Stocks you got to keep your ear to the ticker every day. Real estate is a very slow moving vehicle. Stocks are jagged up and down every single day, but real estate is a very slow rolling hill type of thing. So no need for me to keep my ear on it on a daily basis, not even really on a monthly basis. But more of a quarterly basis is what we’re looking at. So we look at a few different trends. And let’s just go back to the Cleveland market because you mentioned it. The Cleveland market was flat for decade after decade and then they just start sliding down the hill because it was an old Rust Belt town, building steel, making automotive parts.

Sensei:

Now, they’re on an upswing. Why? Because of what I’ve just mentioned earlier. But when you start building industry, then there’s jobs and wherever there’s jobs, your vacancy rate drops and your home sales are up. And so we will watch these industries where they’re getting ready to move to and a lot of that comes from which government? Whether it’s a local government, a county or city government to a state government, to where they’re opening up opportunity for these business to come into. Kind of like opportunity zones, all after opportunity zones.

Sensei:

So we watch and see where they’re going to be moving. And we want to know from the building departments and the state of what’s happening. We watch those trends and then we try to, “Okay, people are making shifts. Let’s get into this market.” We get there first and where most people would turn their nose up and say, “I’m not going to buy over there.” And the next thing you know, everybody’s all over it. I’ve done that with El Paso, Texas, San Antonio, Cape Coral, Florida, Phoenix, Arizona, certain areas in Honolulu, Hawaii. We’ve done it in Ohio, Kansas City and Indianapolis, when people turn their nose up to it. And next thing you know a few years later, everybody’s marketing.

Sensei:

I mean, I challenge anybody here listening, go back and start looking at magazines where I’m in advertising my services from 2008 to today’s date. What was I advertising back in 2008, ’09 and ’10, ’11 and ’12? Phoenix, Arizona where nobody wanted to be, because it was a depressed real estate market. It was ghost towns. And you know what? They were the first ones that bounced back after the post-recession. Take a look at Indianapolis and Kansas City, exact same thing. And then when we moved our money from Phoenix to Kansas City out of those two areas, over to Cleveland, people were like, “What are you doing over there?” Don’t question. Just watch if you don’t believe me.

Sensei:

What’s ever happening right now? Well, I’ll tell you what. I’m sorry. Wall Street Journal just came out June 6th saying that Cleveland is the number one city in America to fix and flip properties. Forbes came out and said Cleveland is the number one area in the market for rental properties. Bigger Pockets just came out, I believe this week, saying that Cleveland is the number one market for rentals. So everybody jumped on the bandwagon. I expect that. I’m not saying I’m the guy, but I’m one of the guys.

Paul:

Now on that, on out of state rentals, there’s a lot of material out there not to particularly on self-managing. Do you teach self-managing or is there a method … This is always a negative to people out here in Southern California about investing out of state is, “I can’t self-manage it so I don’t want to invest at a state.” So what’s your particular way of managing out of state rentals?

Sensei:

Well, there is a method and the method is don’t self-manage, because … I don’t care, listen, I don’t care if I have a house in the same block that has a rental property next to my home. I’m not going to self-manage that because I am going to self-sabotage my portfolio. Why? Because people that want to self-manage, I can guarantee do not know the state tenant landlord laws. If you don’t know them, your tenants know them better than you and they’re going to run you over. So don’t self-manage because you might save your 8% or 10% month fee, but it’s going to cost you a heck of a lot more in the long run.

Sensei:

So I say use a property management company that has proven to do well by other investors. And listen, I get it. People are afraid to invest remotely because they can’t drive by their Phoenix property and watch the rocks grow. It’s important to them to drive by it. I can tell you right now, the majority of investors that I have easily, 90% plus have never even seen their property physically, because it’s all about the numbers. So I say do the research as you’re searching markets, you’re searching property management companies that fit your criteria as a property manager, and hire them and pay the darn 10%. It’s going to save you a lot more money in the long run.

Paul:

What’s a simple guide to finding that property manager then?

Sensei:

Simple guide, I’ll keep it very simple, okay. Call the local REIA. Not a meetup a REIA, a Real Estate Investment Association. You can go to reia.com. Actually it’s called nationalreia.com. Go to nationalreia.com, figure out who’s the president of the local REIA, and ask them who’s an honorable property management company that has integrity behind them. That’s one way to do it, right? And other ways is to call large real estate firms out there, your bloom people like REMAX or your yellow jacket guys like Century 21. Now call those guys and ask, “Hey, who do you refer as property management?” And if they’re all pointing in the same direction, that might give you a good idea who might be good in the area.

Paul:

Sensei, that’s our mark right there. And if you want to keep going, if you have anything else to say, man, please do if you have any last words. And if you have any other … I know the COVID is here and you probably don’t have any seminars coming up. Or maybe you do. I don’t know.

Sensei:

Webinars. Everything’s online right now. Paul, I’m getting ready to take off for vacation tomorrow. I’m not going to bury my head in the sand and worry about COVID. So I’m going to go on vacation anyway. So we’re going to go down to Cabo for two weeks. I shouldn’t call it a vacation because I always work my vacation so I call them workations, but I’m still going be working but once I get back, webinars kicked back in and I’m going to be teaching people how to build a five year rental retirement plan. But they can always go to blackbeltinvestors.com, click on the Events tab, and you’ll see a list of upcoming events, whether they’re live or online. That’s one thing that your listeners can do. Then secondly, I don’t know, are your guests interested in a free offer?

Paul:

Of course. Of course.

Sensei:

Well, good. Then I got two for you. First offer, number one is that I always offer a one time free 30-minute strategy session on a phone. So if anybody out there wants to learn more about buying and selling properties, whether you’re a wholesaler fix and flipper or going towards purchase options or buy and hold strategies or private money lending, write down all your questions, go onto my website, blackbeltinvestor.com, click on the free strategy session, and book it. Okay?

Sensei:

I’ll do that one time with you, after that, I’m going to be swiping your credit card beyond that. And then the second thing I have for you is that if you email or call in and mention the podcast from Paul, we will email you out a calculator to calculate your return on investment, whether it’s a fix and flip or a buy and hold strategy. Same thing that we use in the office every single day when we’re doing it, so you’ll get the exact same thing. We’ll do it free.

Paul:

I appreciate that, man. That was great. That was an awesome offer. Awesome interview. And hopefully my listeners take advantage of that. I appreciate being on here.

Sensei:

Well, I appreciate the invite and I hope your listeners got something really good out of it.

Paul:

They definitely did.