How to Invest in Single Family Real Estate

Visit Alexander at: https://www.cummingsrealtors.com/alexander-cruz

James Kademan [00:00:03]:

You have found authentic Business Adventures program that produces the struggle, stories and triumphant successes of business owners across land. We are locally underwritten by the bank of sun prairie. Downloadable audio episodes can be found in the podcast link found at drawincustomerscom. Today we are welcoming, preparing to learn from alexander Cruz, partner of Cr of Maryland is in the real estate business, which let’s break it down here really quick. You can make money in the real estate business is what it comes down to, right? Hopefully. I guess we’ll check with Alexander to make sure. Alexander, how is it going today?

Alexander Cruz [00:00:38]:

It’s going really well, man. How are you?

James Kademan [00:00:40]:

I’m doing really well. I put some pressure on you to help you teach people how to make some money in real estate. Hopefully I did. Okay there.

Alexander Cruz [00:00:48]:

Yeah, I’ll do my best. No promises.

James Kademan [00:00:51]:

All right, well, let’s just start with what is Cr of Maryland.

Alexander Cruz [00:00:56]:

Sure. So, Cr, Maryland, is locally owned and operated investment company in Baltimore, Maryland. Our primary business is the sale and then property management of turnkey rental properties. But outside of that, we do all the classic kind of single family real estate activities. So we also do some fix and flip. We do our own buy and hold set. We don’t sell. And then wholesale as well. Formerly used to have a retail team, do not have a retail team anymore. And right now we’re about 32 employees company wide.

James Kademan [00:01:34]:

All right, well, let’s work backwards here. No retail real estate. Can you tell us why? I have some experience, but I’m going to let you tell us.

Alexander Cruz [00:01:46]:

Yeah, I’m very transparent. So the juice wasn’t worth the squeeze. So for the income that it produced required a ton of hands on activity and process and personnel. So in the COVID year, we were kind of going through some restructure stuff anyway, and it just made sense that we were going to close that arm down.

James Kademan [00:02:12]:

All right, so the people watching understand the retail side is just a typical real estate agent, buyer’s agent, seller’s agent.

Alexander Cruz [00:02:20]:

Exactly.

James Kademan [00:02:21]:

Turn the lights on, tell you where the kitchen is kind of thing.

Alexander Cruz [00:02:24]:

Yes. So the classic realtor model and why it made sense was because we have a lot of home sellers call us that have a house to sell, that maybe we can’t buy it, and the house is beautiful. Why would we buy it? That’s a listing opportunity. So the theory was to be able to capture those opportunities, which it did work, but at the end of the day, we could also refer that lead to an agent who’s not on our team, but that we work somewhat closely with. And now I have no overhead and I have nothing to do. It’s just a hand off and get a referral fee a few months later. Got you. So that made more sense for us.

James Kademan [00:03:03]:

All right, so the employees that you have, talking about them, you have a small army, it sounds like. Are they mostly in the real estate industry as far as white color behind a desk, buying, selling, finding deals, or are they fixing swinging hammers, stuff like that?

Alexander Cruz [00:03:20]:

A little bit of everything. Yeah. So just kind of going through the business, we have an acquisition and sales team, and that is kind of like you said, very much, making deals, buying and selling, meeting with sellers or participating in auctions, whatever the day brings. And then from there we have our construction team of project managers who oversee our renovations from start to finish and deal with quality control and budgeting and all that fun stuff. Then we have a property management team and kind of self explanatory. They manage the 460 plus rental properties that we now manage, fall under their domain, and they’ll manage it from A to Z. Then last but not least, we have a three person accounting team, and they oversee all the bills, all the money in, all the money out TMLS, all that fun stuff.

James Kademan [00:04:15]:

All right. What’s interesting is I was poking around at your website and I loved how simple it was for both a person that was interested in investing, kind of getting involved that way, as well as for the tenants. It’s like, pay your rent here, hey, I got a problem, all that kind of stuff. So I know we’re bouncing around here, but that was such a cool it was such a useful website. It looks good.

Alexander Cruz [00:04:41]:

Thank you. Yeah, it’s awesome. Thank you.

James Kademan [00:04:44]:

I’ve talked with a lot of people that are in the real estate industry, and we answer phones for people that are in the property management side. And some of them maybe it’s a pain intentional because they don’t want people to call them with property management issues. But it’s interesting how you guys set that up. And I imagine that wasn’t like, hey, let’s start a business, get this website going, that there was a learning curve involved in getting that put together.

Alexander Cruz [00:05:08]:

Yeah, I think honestly, still on a learning curve. I’ve been here for eight years. I’ve been in real estate for ten and eight years ago. It was myself and the founder and one other project manager. So we were a company of three. All right. And we were to grow that to where we are today. And it changed a lot along the way. We were really heavy on fix and flip in the beginning, and that was like all that we did. Then we ran really heavy into rentals. We built a pretty sizable portfolio of rental properties here that we then began to sell, and that’s kind of what got us into the turnkey space. So then the focus became selling the turnkey properties and of course had to figure out property management on the way. So, yeah, I think the property management team is probably twelve ish people. Could be a little bit more. And when we first started, I was out showing our first rental property. I was leasing, I was collecting money. We had like a whiteboard on the wall was like our whole system for the first three properties.

James Kademan [00:06:20]:

Sure.

Alexander Cruz [00:06:21]:

Then we’re like, oh, wait a second, this isn’t going to work. So yeah, it’s a constant evolution, right?

James Kademan [00:06:27]:

What got you here won’t get you there kind of thing. Because not everything scales.

Alexander Cruz [00:06:31]:

Yeah, whiteboards included. The whiteboards are great, but yeah, unfortunately we do still have some around the office, but it’s just limitation.

James Kademan [00:06:40]:

I imagine if you’re keeping track of 1020 properties, whatever. Sure.

Alexander Cruz [00:06:44]:

Great.

James Kademan [00:06:44]:

When you got hundreds, now you got a mess. And if somebody backs up their shirt against that thing, now you got a problem.

Alexander Cruz [00:06:52]:

Exactly.

James Kademan [00:06:53]:

Who’s this rent? So tell me about the turnkey stuff. So you’re talking about turnkey rental units. Are you talking individuals or like eight plex? Twelve plex kind of thing?

Alexander Cruz [00:07:06]:

No, they’re all single family individual in our market. They’re townhomes. We call them row homes here.

James Kademan [00:07:13]:

Oh, yeah. East coast? Sure.

Alexander Cruz [00:07:16]:

Okay, exactly. So yeah, DC, Baltimore, Philly, New York, all have a lot of these similar style brick row homes from the early to mid 19 hundreds. And that’s what our bread and butter is because they’re a great structure, but when we buy them, they’re typically old and beat up, which is great because it’s kind of like a blank slate. We can just strip the whole thing down and rebuild it back and that’s really what our primary focus is. And it’s a differentiator a lot of turnkey operators in the world and it’s not a knock, it’s just a different business model. They’re looking for something they can do a really light rehab to paint carpet, appliances and move on. Really not looking for that. And it doesn’t work that well in our market anyway because they are older houses. So I prefer something that we can rebuild back to a really high standard and know that there’s nothing old on it. There’s no deferred maintenance here. All right, so that’s what our model is.

James Kademan [00:08:16]:

Are you getting to the point where you’re taking down walls and stuff like that or yeah, lead abatement gets involved. There maybe some asbestos because these things are hundreds.

Alexander Cruz [00:08:27]:

Right. All of the fun stuff we actually now and for about a year have gotten really good at building back what we call a shell. So this is a brick structure, it has brick walls, but obviously the roof is framing. If you have a property that was abandoned and for many years fell into disrepair, the roof is leaking, leaking, leaking. Eventually that roof gives way. Now the floor joists start to give way, so you literally have to strip that house down to a shell. Brick walls are the only thing left and then rebuild it back. So we’re able to do that now and do it very efficiently. It’s definitely a learning curve there, but it’s credit to my construction team. They’re the guys that figured it out, and now they have it down to a science.

James Kademan [00:09:13]:

So when you say something like that, where they have where they’re that bad and probably East Coast isn’t exactly the cheapest, so I can’t imagine people are walking away from that many. Are you seeing enough properties to actually make a living on that?

Alexander Cruz [00:09:27]:

Yeah, well, the Shell example is probably one out of 15 to 20. It’s not like we’re doing that every single time.

James Kademan [00:09:36]:

That still seems like a lot to me.

Alexander Cruz [00:09:39]:

Yeah, well, both things, there is a fair amount of opportunity. There’s a lot of competition, don’t get me wrong. Pretty much every house we buy, we’re competing with other investors on. It just part of the nature of the beast. But it’s an older market. There are a lot of older houses. It’s a middle class economy for the most part. There’s less of these beat up old houses in DC because there’s so much more money in DC. Just the reality of the different markets. But that’s why Baltimore is much more affordable. So take the good with the bad.

James Kademan [00:10:16]:

All right, so when you first joined the founder, you joined him essentially as just a typical real estate agent or what was your role? Originally?

Alexander Cruz [00:10:28]:

Yeah, for all intents and purposes, yes. A real estate agent to help the company acquire homes and then sell them when we’re done renovating them. So that was my initial role, just making offers, walking houses, and then seeing the sale all the way through once the renovation was complete. So that’s how it started.

James Kademan [00:10:51]:

And then it just evolved.

Alexander Cruz [00:10:53]:

It did continue to evolve from there. Craig is his name. We still, to this day, have a great relationship. We have a lot of similarities. Our biggest difference, respectfully, was age. So Craig was an experienced business person when I met him. I, on the other hand, was maybe not a rookie, but in year two or three. But I was good because I didn’t really have any bad habits. And at this point, I was single. I had a dog and no kids, so I could spend all my time like I was working six, seven days a week. And I loved it, and I still love it to this day. But I put in that grind, especially in the beginning, and wore a lot of different hats, oversell, renovations at different times, hiring people, firing people, basically everything around, running the business at some point I did along the way, which was a great experience and part of why we were able to end up where we are now.

James Kademan [00:11:59]:

Sure. So when you first started with the founder, was the plan to end up where you are now, or did that evolve as the opportunities came and went?

Alexander Cruz [00:12:10]:

Exactly. We didn’t even know what turnkey was until, I think, 2019. Didn’t even realize. Had no idea that it was like this big market nationwide. We didn’t even know. Yeah, it definitely evolved. And we realized, though, as we did our own rentals and as we got introduced to Turnkey, we’re like, wait a minute, this works really well here. Our numbers just line up great. This is a great model for us. So we can provide a high quality product with all the benefits of property ownership and cash flow to investors. And, oh, by the way, we can grow our business. Like, as we manage more and more properties, that becomes a big business in itself, and that’s longer term too. So fix and flip. Once you sell the house, you’re done, it’s over. But in this model, you’re building a relationship with a client that hopefully is going to buy more properties and you just keep growing it. It was an evolution to that point, though.

James Kademan [00:13:15]:

Can you elaborate on the Turnkey for us? Because I have to apologize, I’m not in the real estate world as much as I’d like to be.

Alexander Cruz [00:13:20]:

Okay.

James Kademan [00:13:21]:

And people are buying these properties to rent out to other people.

Alexander Cruz [00:13:27]:

Exactly. So these are investors from anywhere in the country. And I have plenty of people that have bought or are buying their first rental property with us. And then I have other people that own 60, 70, 80 properties, not just with us, but in other parts of the country, too. So they’re buying the property with the total intention of it being a rental and an investment long term. And when they’re buying it from us, we’ve already completed all the renovation work. So they don’t have to go figure out how to buy a house. They don’t have to go figure out how to rehab a house. It’s just pay for it and then start collecting rent and we collect the rent for them. They don’t have to collect the rent themselves. All right, so that’s turnkey it’s hands off. It’s a full service package. Here you go. Here’s properties A, B, and C. Which one do you like? Okay, great. Property B. We start the purchase process 30 days later. They own the house, and now we’re managing it for them.

James Kademan [00:14:28]:

All right, I guess the confusion on my end I apologize for this was who’s it’s okay. Is it the rent? So this is pretty interesting because now I’m thinking if I’m an investor, I give you guys a call and I’m like, hey, I want to get into this real estate game. I have X number of dollars to spend, I want to be in the Maryland market, whatever. And you guys say, hey, we have these properties, they’re expected to bring in these rents, whatever. I imagine the investors then never actually or potentially never set foot in the properties that they own. Is that safe to say?

Alexander Cruz [00:15:03]:

Yeah, the majority do not. We have some people who come visit, but depending where you are, we just had a client come up from DC. Obviously that’s easy. It’s a nice 45 minutes drive.

James Kademan [00:15:14]:

Yeah, right.

Alexander Cruz [00:15:15]:

But when I’m talking to somebody on the West Coast, it’s not as simple as just hopping in the car, but we do a lot of things. We can FaceTime them from the property. We certainly can forward them through if they want to come over and visit. We provide professional photos of every house. So they’re going to get a really good look at it. They’re going to know what it is even if they never physically step foot in it.

James Kademan [00:15:40]:

It is amazing how many people that I interview on the investment side, real estate side, that are making transactions and deals that never saw their property, whatever they’re purchasing in person.

Alexander Cruz [00:15:53]:

Yeah.

James Kademan [00:15:54]:

Which on the one side I’m like, that’s pretty cool. On the other side, I’m thinking that’s a lot of money for something. But then I think there’s employees that I have that I’ve never seen in person, seen them over zoom, but that’s valid.

Alexander Cruz [00:16:08]:

Yeah.

James Kademan [00:16:11]:

I don’t know. Interesting. I guess business can happen as well. Talk to me about if I’m an investor, why am I looking at properties that you guys have in Maryland versus anywhere else in the world? Sure.

Alexander Cruz [00:16:25]:

So it’s really three things I would say. First and foremost is cash flow. Most of our investors want cash flow every month, and on our properties, this can be depending on how you finance, if you’re assuming you’re doing 25% down financing. And of course, obviously, depending on the rate and good credit and all that fun stuff, but they can cash flow five to $600 a month after all the hard expense off the management fee, property taxes, insurance, mortgage payment, et cetera.

James Kademan [00:16:53]:

Right off the bat.

Alexander Cruz [00:16:55]:

Right. So that is the number one reason people say, I want to buy a house from you, followed closely by the renovation work that we do. I’ve gotten that feedback a lot. People that own properties with us are very pleased with how little maintenance there is. I always hear horror stories, yeah, I bought a house here and I had to put a roof on it a year later. And then the next year the HVAC went up and it’s like, I haven’t made any money. Like all my money is going to capital expenditures, which that’s a huge reason as well. The third reason I would say is if you’re looking for an appreciation play, we’re not your market. It’s Florida or maybe Texas or somewhere else. However, unlike some other cash flow markets of the country, our market does have modest appreciation. So in the normal times, ignoring the COVID years of last two years, in the normal times it’s 5% to 7%. So it’s decent. It’s not killer, it’s not 25% like Tampa or whatever, but it is decent. It’s not a linear market. So you really do hit in three positive ways to the investment, and that’s primarily why people are choosing to operate with us. And then I like to think that my team does a really good job and that’s probably part of it too. We have a ton of repeat customers, so I think that does speak to that. We’re far from perfect, but we really try to do a good job for everybody.

James Kademan [00:18:34]:

Yeah, that’s fair. Well, five to 7% appreciation in my world. That’s sustainable, more or less.

Alexander Cruz [00:18:43]:

Right.

James Kademan [00:18:44]:

25%. I don’t see how that’s sustainable.

Alexander Cruz [00:18:48]:

You’re really rolling the dice there.

James Kademan [00:18:51]:

It’s taking chances, I guess, because if that’s your game plan on any form of long term.

Alexander Cruz [00:18:57]:

Right.

James Kademan [00:18:58]:

It’s so interesting. I was thinking eight years ago, I was just trying to think of what you lived through as far as bad times.

Alexander Cruz [00:19:04]:

Right.

James Kademan [00:19:04]:

Because that’s post 2008 and all that fun times.

Alexander Cruz [00:19:08]:

Right.

James Kademan [00:19:09]:

But that’s pre COVID and those, I guess, right before COVID things are going crazy in the real estate world. During COVID what we thought was crazy before is even crazier.

Alexander Cruz [00:19:19]:

Exactly.

James Kademan [00:19:22]:

And now I guess you have to tell me what it is now. I feel like some of the markets settling down, but prices aren’t exactly settling down. So it’s kind of a weird something’s got to give eventually, but I’m not.

Alexander Cruz [00:19:33]:

Sure what it’ll be 100%. It’s such a weird thing. And yeah, of course, I was in college in the 2008 crisis. Yeah, exactly. My partner worked through it in real estate and grew through that time, so I did gain a fair amount of knowledge speaking to him over the years about those times. And then, like you said, I think in probably 2016, the market got a little soft, nothing bad. And then COVID happened, which we were like, we don’t even know if we’re going to be allowed to operate. That was a scary couple of weeks when everything was like shut down, shut down, shutdown. We just didn’t know what to expect. But then obviously it turned the corner pretty quickly. But yeah, now this world we’re in where the interest rates have doubled or more from where they were, but there’s still no inventory and the prices are still high and sales volume is down across the board. It’s like bizarre. And to your point, something should give here eventually, I don’t know what it is. Are rates going to come down? Our price is going to come down, but they have it’s just bizarre. But I think the market did normalize in January, at least from what I can see on our local level. And then what I’ve heard from other investors I know in different parts of the country, quarter four was really slow across the board in January. It seems to have normalized people are kind of settling in, like this is the new normal. So that’s my feeling anyway. I don’t know what you feel.

James Kademan [00:21:10]:

Yeah, I haven’t heard the new normal in a year. That’s funny. Don’t say pivot. Tell me about the competition you have with apartment complexes. I don’t know what life is like where you guys are at. But here I’m just outside of Madison, Wisconsin, every town, regardless, I want to say to a point of size, maybe if there’s sub 2000 people or something like that, there’s apartment buildings going up everywhere. And not just tiny stuff, like huge stuff.

Alexander Cruz [00:21:42]:

Isn’t that crazy? Yeah, that’s here, too. Okay. What’s interesting, though, is at our local level, those apartment buildings are almost exclusively class A and expensive.

James Kademan [00:22:01]:

Okay.

Alexander Cruz [00:22:02]:

So we have always focused on B class tenants, B class neighborhoods. So we’re really not competing because for the rent that somebody’s going to pay for our three bedroom townhome, let’s say $1,800, that gets them like a studio apartment in the luxury buildings. So we’re in a slightly different submarket. There are some affordable apartment buildings around, but not very many. And a lot of our tenants are families, have one or two kids, and they prefer to be in a single family as opposed to an apartment building. So it hasn’t really hit us. But that market is crazy. There’s so many buildings and they’re still building them.

James Kademan [00:22:46]:

Yeah.

Alexander Cruz [00:22:48]:

It’s like it has to be saturated. Right. Like it doesn’t even make sense.

James Kademan [00:22:55]:

I would say easily. I don’t even know how to put a number on that. Thousands of apartments going up.

Alexander Cruz [00:23:02]:

Wow.

James Kademan [00:23:02]:

And my thought is, where are these people living now?

Alexander Cruz [00:23:06]:

Right.

James Kademan [00:23:07]:

A glut of some part of the country where they’re all moving into our neck of the woods.

Alexander Cruz [00:23:13]:

I don’t know.

James Kademan [00:23:14]:

Are people popping out left and right? I don’t know where people are coming from because you always see apartment buildings going up. A few here and there. Right. But this is right. Oh, my gosh. There’s a chunk of grass that’s at least 10ft square. They’re throwing up apartment buildings. It’s bizarre. So I didn’t know if that was just our neck of the woods or if that’s countrywide. I get the impression that it’s countrywide.

Alexander Cruz [00:23:38]:

It seems to me, yeah. We went down to Charleston for a wedding recently and noticed the same thing there. There’s all these fancy, shiny new apartment buildings and the Uber drivers complaining about it. So yeah, it’s very relatable.

James Kademan [00:23:54]:

All right. Interesting. So the place that you have, you find an investor. Investor throws some, I guess. Do you guys deal with financing or is that on the investor to we.

Alexander Cruz [00:24:06]:

Have preferred lenders that we’ll refer people to. Probably about 85% to 90% of our investors will use financing. Okay. Which is honestly what I would recommend to people. You might as well put other people’s money to work. And let’s say you had $200,000 laying around. You could buy one house for $200,000 or you could buy four with financing. I think that diversification makes total sense.

James Kademan [00:24:31]:

Sure.

Alexander Cruz [00:24:32]:

So, yeah, most people use conventional financing, either 20 or 25% down until they run out of conventional loan slots. And then we have a couple of DSCR lenders that we can refer people to. As well.

James Kademan [00:24:44]:

Tell me what that is.

Alexander Cruz [00:24:47]:

Okay, so DSCR lending, the conventional loans are governed by Fannie Mae and their rules. So Fannie Mae says that one individual cannot have more than ten conventional loans. So if you already have ten rental properties with loans and maybe your primary residence or whatever, you no longer can qualify for more. Now, if you have a spouse who also has income, there’s potential that they could qualify for additional, but at the most, you’re going to get 20, assuming that you have enough income to support that. All right. So after that, you have to go with non conventional financing, which is commonly called DSCR, which is totally different. It’s based on credit, and then it’s based on the numbers of the property. So it basically has to cash flow a certain amount with the expenses calculated in. So as long as it does that and somebody has great credit, they’ll get DSCR loans. And there’s no cap. You can get 200 of them. There’s no limit to it.

James Kademan [00:25:47]:

Oh, interesting. So that must stand for something, an acronym.

Alexander Cruz [00:25:52]:

Debt service coverage ratio.

James Kademan [00:25:54]:

Debt service coverage ratio. Okay. All right. Easy enough.

Alexander Cruz [00:25:57]:

Yeah. Interesting.

James Kademan [00:25:59]:

So I get my loan, whatever. I come to you guys, I say, hey, let’s buy some property. After I get that property, you guys manage it for me. Which means you’re finding tenants. And if something breaks, you guys are the ones that the tenant calls instead of me in California.

Alexander Cruz [00:26:17]:

Exactly. And we have a full service maintenance team.

James Kademan [00:26:21]:

All right, so just walk me through that green guy here doesn’t know much about real estate. I buy a property, you guys manage it. Just walk me through. What can I expect? What should you expect of me? And how does money change hands? All that jazz.

Alexander Cruz [00:26:36]:

Yeah. So when you buy a house, we’ll address all this before you actually sign the papers and make sure you understand the process. But the really long story short is, as you’re closing on the property, you’ll have an onboarding call with our property management team, and they’re going to walk them through everything. Here’s the agreement we’re going to sign. Here’s the utility company. You need to create an account with them so that electric will switch to your name in between tenants. We’ll make sure that we have their property insurance on file, their driver’s license on file, things like that. Just all the little paperwork, things that we need. And after that, it’s pretty hands off in that we’ll market the property, we’ll take the leads, we’ll find a qualified applicant, we will sign the lease. The owner doesn’t have to sign the lease. The property manager can sign the lease. We’re going to do everything. It’s completely hands off. So then hey, James, great news. We have a tenant moving in tomorrow. You’ll get paid your rent on the next disbursement date, which is the 20th of every month. We’ll disburse the rent to you. You can view everything in your owner’s portal. We use app Folio now software. You log into your account, you can see all your properties, all your ledgers, all your documents are there. And then that’s pretty much it. We’ll be in touch if there’s a problem. We’ll be in touch three or four months before the renewal time. So we can discuss if you want to renew the tenant and then that’s pretty much it. So people have random questions or need a tax document and things like that. Our team members will help them get that.

James Kademan [00:28:21]:

Got you. So if I got this property, you guys are property managing it? Let’s just say furnace goes out, right? It’s cold day in Baltimore and the furnace goes out. Tenant reaches out to you, and then you have people on staff that will fix or replace that furnace. Or is that outsourced to some HVAC company?

Alexander Cruz [00:28:44]:

So we would dispatch first to try to fix it and figure out if it’s a simple fix. Like somebody accidentally flipped the switch on the furnace and turned it off, which happens all the time.

James Kademan [00:28:56]:

That’s funny.

Alexander Cruz [00:28:57]:

So let’s say it’s not that though. It’s like the whole system blew up and now we need a new furnace. We would use our HVAC subcontractor for that. We have two guys we’ve been working with for a really long time. They do all of our HVAC work. So we would call in the specialist for that if it was like a system replacement. But if it’s a simple fix or just needs a new filter or the coil needs cleaned, our technicians can do that.

James Kademan [00:29:21]:

Got you. So in that case well, I guess either case then do I get a bill? Like, hey, put in a new furnace into this unit here’s a bill for a furnace.

Alexander Cruz [00:29:32]:

How does that work exactly? So our team would reach out. Hey, James, got some bad news. Your furnace blew up and you need a new one. And it’s an emergency because the tenant doesn’t have heat. So we’ve lined up XYZ company. They’re going to install it tomorrow. The cost is going to be $3,000. And then depending on what your portfolio looks like, if you own four properties with us, we probably don’t even need you to pay the money. We’ll just take it from your next rent draw and we’ll always work with people. Give me the $3,000 right now or we’re not installing your furnace. We’re reasonable. Got you. Okay. And it’s not meant to be hard.

James Kademan [00:30:16]:

Sure. And then as far as finding tenants, I imagine, do you get paid a percentage or is it a flat rate per month?

Alexander Cruz [00:30:25]:

We get a percentage of rent each month.

James Kademan [00:30:28]:

Okay, so it’s in your best interest for tenants to be in that place?

Alexander Cruz [00:30:32]:

Absolutely. Everybody’s best interest.

James Kademan [00:30:34]:

Okay.

Alexander Cruz [00:30:34]:

Right. I get a question. A lot vacant properties is bad news for all of us. My team members, certain team members. Are bonus based on occupancy. Okay. Leasing agents, obviously, they get paid when they lease the house. And a vacant property means that it’s another property that my team has to go check on every single week, make sure everything’s okay. The heat is still on. There’s not a leak, everything like that. So we spend a lot of man hours running around checking properties, showing them to prospective tenants. We hate vacant properties. We want everything to be occupied for those reasons.

James Kademan [00:31:13]:

All right, well, it’s interesting. I didn’t mean to insult in asking that or anything like that. It’s just one of those oh, no. In the real estate world, the way for the retail transactions, the real estate agent gets paid, I guess, on the buyer side, they get paid more if the buyer pays more. So somewhat of a conflict of interest there. So, in real estate, I’m always like, where’s the conflict of interest I got to find? So in this case, there’s not one.

Alexander Cruz [00:31:43]:

We’re on the same team for the property owner 100%. Our interests are very aligned, and, yeah, our percentage, if the rent goes up $200, we make a little bit more, but you make a lot of bit more. Unfortunately, for the tenant has to pay more, but it’s just part of renting.

James Kademan [00:32:03]:

That’s the world. Yeah. Here we are. Interesting. So I guess what have you seen the market do since COVID I guess let’s say over the past year. I’m trying to think, when was the day COVID was done? When was that light switch flip? Let’s just say past year, because COVID was a crazy time before then was crazy. Ish time work to do recently in.

Alexander Cruz [00:32:33]:

2020, after we got through, I’ll say April, it started to just go like this. You could just feel it. Things kept heating up. Heating up. Rates were stupid cheap, and that continued all the way through 2021. There was no slowdown at all. I mean, it was almost two full years of just nonstop. But we all started to see it, right? I just traded in my truck, and it’s two years old with 30,000 miles, and I got the same number that I paid for it. It doesn’t even make sense. What is happening in the world where you know what I mean? And then you start to, holy crap. My grocery bills, my utility bills. So inflation buzzword came about. We all felt it, and we could see it. It was pretty easy to see. So go to 2022. I think it was February of 22. We have a monthly town hall. So every month, I stand up in front of the company, try not to make a fool of myself, and we’ll do some updates on things and where we are in our goals and try to bring something to talk about, like the teaching moment or whatever the case may be. So it was that meeting where I was reading highlights of what the Fed was saying they were going to do. I’m like, this is a big deal, guys. This is probably going to change this trajectory of the market. I don’t really know how to be seen, but February 22 is the writing is on the wall. The rates are about to go up. Don’t know when, don’t know how much. So that was the start. Market was still pretty hot, probably through April, I would say May. And afterwards it kept getting cooler and cooler. Now, there was some benefit to it, at least at the local level for us. As rates kept going up and up, we saw a lot of investors just back out altogether. All of a sudden we had less competition, which was like, beautiful. Now let’s pick back up a bit. But that was a nice positive that was happening in this time. And I noticed the people still buying houses right now, they’re all very experienced. They have other properties already. I see all the not in a derogatory way, but the newbies. And people that are maybe not that experienced, they’re sitting on the sidelines, they’re not doing anything. Meanwhile, the experienced people are getting bigger and stronger in this time. That was interesting to watch. I had a lot of interesting conversations with clients and other investors about what they were seeing and feeling. And again, I think now in the first couple of months of 23, it is slowly ticking up a little bit in terms of activity. But rates have also recently gone up, so who knows? All right, fair mortgage rates, I mean, have gone back up in the past month compared to where they were.

James Kademan [00:35:37]:

Yeah, very true. You know, it’s funny because over the past, I don’t know, 2025 years, rates aren’t psycho. They aren’t what they were 40 years ago or something like that. We didn’t have $400,000 houses back then because nobody could afford them.

Alexander Cruz [00:35:55]:

Exactly.

James Kademan [00:35:56]:

Interest James, were like 17% or something crazy.

Alexander Cruz [00:35:59]:

Yeah.

James Kademan [00:36:02]:

Tell me about the transition as an investor, investors that I know, I guess I still can’t wrap my head around this, and I’m hoping you can help me. They buy a property, let’s say they buy one unit, duplex, fourplex, maybe an eight unit. They start going well with that, and then they’ll sell that to buy something bigger and just kind of graduate into bigger and bigger properties. Is that something you typically see? And if you do typically see that, tell me the story of why people don’t just keep those properties that they started with and just add on other properties.

Alexander Cruz [00:36:40]:

I would almost say it’s two different channels. So the channel you referenced, I would say that’s like the multifamily route. Get a four unit, stabilize it, do some improvements, rent it for more, and you sell it, I don’t know, three to seven years down the road. And I think the primary reason people sell them, number one is profit, but number two is most of the financing terms for those deals are somewhere between a five and ten year Arm, so the rates are about to adjust. That’s kind of the beauty of multifamily is you can always be like, repositioning and reselling and growing and doing more. Single family is different because you can have fixed rate. You don’t have to have an Arm product.

James Kademan [00:37:31]:

2030 years.

Alexander Cruz [00:37:32]:

1530 years. Yeah. 30 years.

James Kademan [00:37:35]:

Even though it’s not your primary residence.

Alexander Cruz [00:37:37]:

Yes.

James Kademan [00:37:38]:

All right.

Alexander Cruz [00:37:39]:

That’s the beauty of it, because in that 30 year period, let alone ten years, rents are going to keep going up. Your principal and interest is the same. That’s not changing now. Yeah. Taxes and insurance probably go up a little bit, but not as much as the rents go up. So in the single family path, you can keep acquiring more and more properties and developing your equity in those early properties that you bought. And you don’t just have to make enough money to buy more from cash out of your pocket. At some point, you can do some refinances, pull some tax free money out, reinvest it into more properties. So you start to see that snowball on the single family side, it’s hard to get going, but once you’re going, there’s a definite snowball there that allows you to really continue to do a lot of build a bigger portfolio, if that’s what you want to do, which everyone has a different number.

James Kademan [00:38:35]:

Sure. When you say, pull some tax free money, you’re talking about equity in the property.

Alexander Cruz [00:38:42]:

Exactly.

James Kademan [00:38:43]:

You go to the bank and say, hey, I need a line of credit or whatever with this property.

Alexander Cruz [00:38:47]:

Yeah, okay, got you. And I have a lot of investors that did that, that bought in maybe 2019 or even most of 2020, where in 21 they’re like, oh, wait a second, I paid 150 for this. It’s now worth 200. I’m going to refinance and pull out, like, $40,000 of cash. Now I can go buy another house. And it didn’t cost me anything. All right, that’s perfect scenario.

James Kademan [00:39:16]:

All right.

Alexander Cruz [00:39:17]:

And I had a lot of people do that. It worked really well for them.

James Kademan [00:39:21]:

Nice. Very cool. So tell me, if I’m a starter investor for the people that are listening, watching this, and I’m like, hey, I want to get in the real estate game. What is the lowest hanging fruit for a newbie investor to get involved in? Is it single unit? Is it getting into a REIT or some kind of real estate investment trust or something like that? Or what would you recommend for a.

Alexander Cruz [00:39:44]:

Newbie I’ll say a couple of different things for a newbie well, first and foremost, the question is how much capital do you have to work with? Because if you don’t have any capital, you got to start with that.

James Kademan [00:39:56]:

Okay, it’s a great question. Let’s just say it’s not zero, but let’s say it’s typical. What would be typical? 35 to 40 year old person, because I imagine at that point, they’ve got their residence maybe not necessarily paid for, but they can see when it’s going to be paid off.

Alexander Cruz [00:40:11]:

Right.

James Kademan [00:40:11]:

There’s no fear of having issues with that. And they have enough. I don’t even know what a good number is. Is 40,000 a good number? 50,000? I don’t know what a good number is. Yeah, stuff that’s just like, buy property with somebody else’s money. I’m like, Well, I don’t see a whole lot of people just holding up their hands to give me money to buy property. I’m sure that’s good advice, if I know what you’re talking about.

Alexander Cruz [00:40:38]:

Yeah, to that person. My first piece of advice is you got to start to learn if you haven’t done a lot of homework and have a really good understanding, if you walk out and try to buy a house today and it could go really wrong, you buy the wrong house has all kinds of issues. It’s not the right area. You over leverage or under leverage. There’s a lot of things that can go wrong. You got to really figure out your game plan. So learning from podcasts, or plenty of books, if you prefer to read, but podcasts, I think, are great. There’s a lot of really good people in the podcast universe that are teaching people how to do real estate. And again, there’s different avenues. Some people want a turnkey. They don’t want to buy and renovate other guys. They want to be hands on. Like, I’m going to buy the house myself, I’m going to fix it up myself. That’s how I’m going to get the best bang for my buck, so to speak. So everyone’s different. You got to figure out your game plan, learn as much as you can, and then the second piece I really recommend is finding a mentor, finding somebody who’s already in it, and hopefully you don’t have to pay them. Maybe you do, maybe you don’t. I don’t charge anybody that talks to me, but a mentor can make all the difference. It made a huge difference for me, and I’ve seen it make a huge difference for other people, too. I think that’s how you get going.

James Kademan [00:42:05]:

All right. Very cool. I suppose it’s very similar to the whole mentor thing. It’s very similar to what I tell people that are looking to start a business of any kind is find someone that you can chat with because you would reach out to an entrepreneur and they would say, no, I can’t meet with you. I said either one of two things. They’re not making any money and they’re afraid someone will find out, or they’re making so much money that they just literally don’t have the time. Experience, that’s pretty rare, right? Unless you’re Elon Musk or something like that, where you’re building rocket ships, it’s safe to say you’re shy of time. But most entrepreneurs, you got the time.

Alexander Cruz [00:42:43]:

Absolutely.

James Kademan [00:42:44]:

At least you should. Otherwise what’s the point, right?

Alexander Cruz [00:42:48]:

That’s true. Too fair.

James Kademan [00:42:51]:

So, Alexander, how can people find you?

Alexander Cruz [00:42:55]:

Easiest way is online. Just if you Google Cr Maryland, which should be the first result, occasionally one of my competitors will have a pay per click ad at the top. So you search our name and their website shows up. That’s kind of funny. So don’t click the paperclick ad, go to the next result or the Google Business page right there. There’s a tab on there. They can contact us, they can sign up to learn more, they can also email us directly, call in directly, any of the above are fine, but that’s the easiest way.

James Kademan [00:43:25]:

All right. Very cool. I love it. The whole real estate thing I am in it a tiny amount with commercial stuff, the residential stuff. I see some people, well, a lot of friends are doing very well with it. A couple that aren’t, most of them are doing well. The ones that are not, I think I could have told them not to do what they did, but I think it’s safe to say I don’t know much about it. So it’s very cool.

Alexander Cruz [00:43:52]:

They needed a good mentor.

James Kademan [00:43:54]:

Yeah. You know, that’s name of the game. I’ll have him reach out to you. So, Alexander, I appreciate you being on the show. This is awesome.

Alexander Cruz [00:44:01]:

Thanks, James. Yeah, I appreciate you having me.

James Kademan [00:44:04]:

Yeah. This has been Authentic Business Adventures, the business program that brings you the struggle, stories and triumphant successes of business owners across the land. We’re locally underwritten by the bank of sun prairie. If you’re listening or watching this on the web, you could do us a huge favor. There’s a thumbs up there, there’s a subscribe button over there, but most importantly is that you comment. Let us know what’s going on in your real estate world as far as investing. And of course, share this with your friends that are interested in real estate investing as well. My name is James Kademan and Authentic Business Adventures is brought to you by Calls on Call, offering call answering and receptionist services for service businesses across the country on the web, at callsoncallcom and of course, the Bold Business Book, a book for the entrepreneur and all of us, available wherever fine books are sold. We’d like to thank you, our wonderful listeners, as well as our guest, Alexander Cruz, partner of Cr of Maryland. Alexander, can you tell us that website one more time?

Alexander Cruz [00:44:58]:

Yes, Croftmarily.com.

James Kademan [00:45:01]:

Well, it doesn’t get easier than that, right?

Alexander Cruz [00:45:03]:

No, try not.

James Kademan [00:45:06]:

Past episodes can be found morning, noon and night. Podcast link found at drawincustomerscom. Thanks for watching. We will see you next week. Want you to stay awesome. And if you do nothing else, enjoy your business.