Podcast Episode 118 Transcript

Episode 118: Turnkey Rentals Debunked With Eric Martel

Are you ready to bring your real estate game to the next level? My name is James Prendamano. I'm the CEO and founder of Prereal. And over the past 25 years, I've closed over a billion dollars in transactional real estate. Each week, a meeting with outstanding investors, high performing individuals, and visionaries operating in the real estate space. These are the people that are actually out there in the real estate game right now getting it done. This podcast aims at bringing anyone's game to the next level. This is the Prereal podcast. Welcome, everyone, to the Prereal podcast. We're joined today by Eric Martel. Eric is the founder of Martel Turnkey. He's got a tremendous background in real estate, a super approachable way of investing and getting to a place of passive income. You've heard me talk to quite a few guests on the large scale, multifamily. Eric's got a different approach, super approachable, as I said. Eric, thank you so much for taking the time out today. Thank you for having me, James. It's our pleasure. So for those of you looking to start picking up income, producing real estate at a reasonable pace, again, I was attracted to this discussion because the challenges that typically go along with building this type of a portfolio, Eric's team is taking all of that out of the mix and they're doing it in a really methodical way. I want to talk about your initial process, Eric, because I was very impressed with your content. I was very impressed with how you were identifying markets. So I don't want folks to think that you're just grabbing units all over the country and there's not a methodology to this. Right. You guys put a lot of time and energy into sourcing where you want to buy. Can we talk a little bit about that process? Yeah, absolutely. So we wanted to be very strategic about what we wanted, right. Initially when we started investing in this passive income property, our intention was not to start Martial Turnkey. We were just building our passive income portfolio and then we basically started with a blank page and that's okay, well, first, where are we going to buy? We know kind of like we know we need to have cash flowing properties. So let's say where the markets are going to be, where should we buy these properties? And then one of the criteria was we want to have landlord friendly states. So that's the number one criteria for us. And it's proving true here. You're looking in California and you're looking in Washington State and all that. All the new regulations that are coming into play for these landlords and property owners, that worked out well for us. We're also looking for cities, basically that have they're pretty healthy. They have a sustainable growth in population, sustainable growth in business. And the reason why we want to have something that's sustainable, which is like around 1%, is that if you have a city that is growing too rapidly. That means there's like, way too many people that are coming in. And all of a sudden, the price kind of gets out of whack with reality. Case in point, you can look at Phoenix, you can look at San Francisco. You can look at even Miami now, which is the number one, the most expensive city in the US. Because there's so many people. Or you look at Austin. We were in Austin the other day, and it's like kind of blowing up because the demand is so high all of a sudden that we don't know. Like, now we have to build things, and it takes time to build the supply. So for all these reasons, we stay in cities that have a sustainable growth. That way we can find better deals. And then finally it's kind of around at the macroeconomic level, I would say median house price, median rent, monthly rent. We're trying to look for things that are close to that 1% rule, kind of as an aggregate. Of course, there's a wide variation in prices and stuff like that. That's why we're looking at the median house price and the median rent. And then we have kind of a broad range there because really that's going to identify the city. But it's really when we are going to go into each of the neighborhood that we're going to find the real, the right neighborhood for the houses we want to buy. And then in terms of neighborhood, we are looking for about 60% home ownership. We want the tenant, our tenants, to feel like they're part of a community, they're part of the neighborhood. And if it's 60% ownership around, people tend to take care of their houses a little bit more. And it's just great that way. And then kind of like good school as much as possible. Low crime. And we're looking for kind of like workforce housing. So we're looking for BNC class neighborhood where people are they have jobs, they're blue collar workers or whatever. So that seems to work for us. So one of the things that is a reoccurring theme for us is the legislative threats that we're seeing in some of the cities. I'm from New York, and the shift is real folks are now opting to take those dollars and invest them elsewhere because legislatively, what is often we say this a lot best intended and well intended legislation just doesn't play out in the real world in a practical manner. And we're finding folks are leaving and opting to take their dollars elsewhere because it's just too challenging now to navigate those waters. So you guys have gone through and if you check out Eric's Content, he's got a ton of videos. One of the videos in particular talks about a website where he's gone in and he's done the legwork on a bunch of these markets. It's a free resource. It's not his main website, but it's investorlist.com, where he has all of these different submarkets and you can click right in and see population, unemployment rate, median household income, median monthly rent. A lot of the legwork is done for you there as a free resource, which is also something that caught my eye as we were prepping for this, that you're not throwing darts. You really are using a methodology here to identify these assets. And if you were to talk to any, I think, starter investor that's looking to make this transition, that's looking for more passive income that really does want financial freedom, some of the potential Ro eyes on your site 2022 23%. These are real numbers. Yes, they are real numbers. These ones include also the is a net cash flow there's, positive cash flow there as well as appreciation. So we're assuming and actually we display kind of like about a 3% or 4% appreciation, some markets 2%. So this is market depends on the market that you're buying in. But yeah, so you're looking at about 2020 2% returns, annualized returns on these properties. It's pretty significant. It really is. Yeah. The big reason to why we are showing this is that it's the importance once you are, once you use leverage, it really helps protect your wealth against inflation. This is what you want to buy an asset class that is cash flowing and that you can use, you can maximize leverage. This is very important cash flowing because you don't have to worry about it, you're not paying for it. And then the second thing is why you use leverage is because you're basically borrowing money in today's dollar and you're going to pay it in future dollars, which we all know is going to be worth less in terms of purchasing power. So that's what you want to do. You want to kind of like bring in all these future dollars and then get used them today to buy this rental property, a cash flowing rental property. Eric, you're also doing stuff in the blockchain space which I think is fascinating. Can you talk to the audience a little bit about what you're working on there? Yeah, so we basically are launched a tokenized real estate fund. So there's a lot of things happening in the real estate space in terms of democratizing real estate, making it easier for people to go in and invest in real estate rentals. We're the first one that actually are putting a real estate portfolio on the blockchain. So the way that's going to work is that investors can go in and they buy what's called a security token and that token represents basically a share of the portfolio of real estate rentals. That real estate portfolio is all rent, single family rentals, all cash flowing and then it's all professionally managed. So we're going to manage that. We're going to have a professional property management company as well. So all of that is set and we have a solid track record. So your money is in good hands and then on a regular basis, the tokens will appreciate in value. You will be able to basically sell that token at a profit if you want to do that, or you can sell it back if you want your money back. You're also going to get US. Dollars into your digital wallet on a regular basis based on cash flow and the profit of the company. So these are all kinds of different things that we're doing with that space. But the reason why we're doing this is a lot of people that we're talking to, they don't have that $30,000 to invest in a single family rental. So that's number one. They don't feel like being a landlord. They want to stay clean, I would say. They don't want to have to even approving property management things or blah, blah, blah. You want to minimize risk and you want to be liquid. You want to be able to if you need the money, if you invest $20,000 and you need $5,000.01 day, you want to be able to get it out. So we're solving all these problems. So you'll be able to with as little as $50, you'll be able to buy a share of that company. It's going to be you're buying the whole portfolio. You're buying a piece of the whole portfolio, not just buying a piece of one house. You're going to get the cash flow and appreciation, as I mentioned, and then it's liquid. You'll be able to sell these tokens or a portion of these tokens back to us or on the open market when we open the market later on. So this is going to be going to solve a lot of problems that we've seen people have with real estate investing, especially in terms of liquidity and in terms of minimum entry point. So essentially you're doing a raise through a token, which is super interesting. So are you taking the assets that would be associated with that particular token? Are you putting them on the ledger? Are you putting the deeds and the leases and all that stuff on the blockchain or? No, no, we're not putting the so it's an LLC that will own the property. So the LLC is going to be on title and basically we're selling shares of that. The token represent the share of the membership of that LLC. So you're a member of that LLC and based on the amount of tokens that you acquire, that will directly correlate to the percentage of distributions? Yes, absolutely. And are your distributions quarterly, semi annually? Have you gotten that far yet? So eventually we want to make it as fast as possible. So our goal really is, can we do it daily? At the beginning this year, we probably won't be able to do the daily cash flow, but that's our goal is to kind of get to that level right now. We just launched this, so it's going to take a while for us to kind of like put the portfolio together. Not that long, but it's going to take a few months to put the portfolio together and then figure out the cash flow and then the sequence. So maybe the first year we're going to do it, maybe in December, no promises, but maybe in December we do a first distribution and then another. And then after that start quarterly and then maybe monthly and then kind of like shorten it as much as we can, as much as it's easily possible. That's the advantage of the systems that we have is that we can literally do this very efficiently. Everything is there. All the payments are there. We have your wallet, address, we can send you your USBC coins for these distributions very easily. So we are working on an idea on the commercial side where we want to actually take the leases, put them on the ledger, and we envision being able to get our commercial tenants to use the same bank where through the creation of a token, essentially as the rent payments are made, it's the same bank. It's instantly clears and imagine a little ding on the phone right as the tenants are paying their rent. You're getting distributions in real time as it runs down the ledger and cam is pulled out, taxes are pulled out, whatever contingencies need to be pulled out, but it's all transparent. Look, I think that clearly you're super ahead of the curve here. And I think that's the future. I think that everybody now, this next generation technology is so woven in their DNA, the ability to be able to invest in a portfolio through a token get, distributions have that kind of transparency and clarity on their phone in real time. That's the future, man. That's where this thing is headed. Absolutely. I truly believe that Blockchain is going to really enable a lot of these things. I mean, real estate is a big industry and it's been kind of like left untouched by technology for the most part. We have electronic documents signing now, virtual notary. We have access to title and stuff like that online and some of the property information from different counties and stuff like that. But it's very fragmented. It's low tech for the most part and all of that. So I think, yeah, definitely this is the future, like Blockchain on real estate. For many years, I think Blockchain has been looking for a solution. So it's kind of like actually it's a solution looking for a problem. And now I think this the problem we're trying to solve. Blockchain was a perfect fit to solve these problems. Well, I think part of the challenge, Eric, is you had a generation of kids, and I don't in a disrespectful way, that were on the cutting edge of Blockchain, but they didn't have the practical real world real estate experience. And then you've got I know your son is involved in the business. You've got, you know, people at that age group that have enough experience in technology but massive experience in deal making, and that's where we're starting to see the crossover now. And some really neat things are starting to be deployed. So congratulations on that. Where can folks find more information on that piece? So the more information on this is going to be on martelinvest.com. That's martelinvest.com. Eric, thank you for joining us today. Really appreciate your time and best of luck with all of the exciting things you have on the horizon. Thank you, James. It was a pleasure. Pleasure was all mine, as always. Everyone out there, please stay safe.