September 23, 2025 • 26 mins
Chris Heller’s rental journey started more than three decades ago, and the secret to his success has been patience.
Year after year, his tenants paid down his mortgages while his properties quietly appreciated. Over time, he sold off smaller rentals and traded up to bigger, more valuable ones, building lasting wealth along the way.
In this episode, Chris shares how recognizing market cycles has given him an edge, allowing him to sell in hot markets, buy into undervalued ones, and grow smarter with each move.
Today, with a smaller portfolio that outperforms his larger one from years ago, Chris explains why sometimes less really is more.
He also reveals the key signs investors can look for right now to spot great opportunities, and why the smartest move in real estate often isn’t about speed, but about timing.
https://rentalincomepodcast.com/episode540
Thanks To Our Sponsors:
MidSouth HomeBuyers – Turnkey Rentals In Memphis & Little Rock. Instant Cash Flow On Day One. (Priced between $100,000 to low $200's)
Ridge Lending Group - Making investment Mortgage process simple and stress-free.
Rental Accounting Software Made Easy. Free 30 Day Trial
Year after year, his tenants paid down his mortgages while his properties quietly appreciated. Over time, he sold off smaller rentals and traded up to bigger, more valuable ones, building lasting wealth along the way.
In this episode, Chris shares how recognizing market cycles has given him an edge, allowing him to sell in hot markets, buy into undervalued ones, and grow smarter with each move.
Today, with a smaller portfolio that outperforms his larger one from years ago, Chris explains why sometimes less really is more.
He also reveals the key signs investors can look for right now to spot great opportunities, and why the smartest move in real estate often isn’t about speed, but about timing.
https://rentalincomepodcast.com/episode540
Thanks To Our Sponsors:
MidSouth HomeBuyers – Turnkey Rentals In Memphis & Little Rock. Instant Cash Flow On Day One. (Priced between $100,000 to low $200's)
Ridge Lending Group - Making investment Mortgage process simple and stress-free.
Rental Accounting Software Made Easy. Free 30 Day Trial
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
The inspiring interviews with today is Top Landlord, this is
the Rental Income Podcast, and now.
Speaker 2 (00:08):
Damnly Chris, why do you think real estate is such
a great investment?
Speaker 1 (00:14):
Number One, Most of the time when we're investing in
real estate, we're using leverage, so we have the benefit
of that. You know, we buy a five hundred thousand
dollars property with a one hundred thousand dollars down, but
we have this five hundred thousand dollars property that's appreciating
at three or four, five, seven eight percent a year,
and over time that becomes significant. Now a rental property
(00:38):
is even more advantageous because we're also collecting rent, and
that rent is doing two things. It's it's paying for
the property right, it's covering our mortgage, covering our debt.
And if we buy it right, there's there's additional or
excess cash flow. So now you have the ROI from
(00:59):
that cash flow on your one hundred thousand dollars investment
and the appreciation, and when you add those two together,
you can get oversized or outsized returns compared to other
things that you could be investing in.
Speaker 2 (01:12):
Chris has been investing in rental properties for a long time,
about thirty five years, and the key to his success
has really been time just buying properties, letting time go by.
As those properties appreciate, he'll sell them and trade up
to a better property. So on the show today, we're
going to figure out just how important time is with
(01:35):
investing in rental properties. Joining us on the show today
from Austin is Chris Heller. We'll take a quick break
to thank our sponsors. We'll come right back and we'll
talk to Chris. Are you thinking about investing in rental properties?
But maybe you don't know where to start. My friends
at mid South home Buyers make it simple. For over
(01:55):
twenty three years, they've been selling fully renovated, turnkey rental
property in Memphis and Little Rock. We're talking new roofs, plumbing, electric, kitchens, bathrooms.
Everything is brand new and done right. And here's the
best part. Every property comes with a well qualified tenant
in place before you close. That means you get cash
(02:17):
flow from day one. Plus Midsouth continues to professionally manage
the property for you after the sale, and they back
it up with two powerful guarantees. You get a one
year total maintenance warranty and a lifetime occupancy guarantee. Personally,
I've bought five properties from them and I couldn't be happier.
(02:38):
If you want to talk to someone that's been through
the process, feel free to reach out to me. I'm
happy to answer any questions. Or if you're ready to
get started, just go to midsouthhome Buyers dot com. That's
midsouthhome Buyers dot com. It's a lot of work to
find a really good rental property, and when you actually
find that property, you want to make sure you're working
with a lender that can get that loan closed. The
(03:01):
lender that I recommend is jay Lee Ridge from Ridge
Lending Group. She's a nationwide lender and her specialty is
helping investors' finance rental properties. She has a ton of
loan programs and she can find something customized to you
for your situation. If you want to find out more
or you're ready to get started today, just go to
Ridge Lendinggroup dot com. That's our Idge Lendinggroup dot com.
(03:26):
N MLS four two zero five six. Tell us about
your portfolio. What does your portfolio look like.
Speaker 1 (03:34):
Now? It's changed over time. I've gone from owning twenty
or thirty rentals to you know, consolidating. Now I own fewer,
probably you know, a dozen or fifteen, but they're they're bigger,
more extensive, more valuable properties because of you know the
(03:56):
effect of time on those investments and the the and
also because I've used a strategy of ten thirty one
exchanges to roll those into the bigger, better properties.
Speaker 3 (04:11):
So walk me through that.
Speaker 2 (04:13):
Why is it better to have a smaller portfolio than
a bigger portfolio? Is it just easier for you to
manage or what was your thinking in going smaller.
Speaker 1 (04:24):
It's certainly easier to manage, right, Fewer is easier, But
that wasn't the thinking, you know, that wasn't the reason
for it. The reason was when you own a property
over time, and I've had I've owned properties long enough
to for the mortgages to be paid off. You know,
maybe I bought them with a fifteen year mortgage or
it was a thirty year mortgage, and we took the
(04:46):
access rent and you know, paid down the principal mount.
So when you have a property that you know, I'll
go back to some of the early ones, a property
that I bought, and I'll just use round figures. Let's
say I bought it for two hundred thousand, and then
I may have bought it with you know, thirty thousand
dollars down or something, and over time that property is
(05:08):
paid off and appreciated value. So let's say now that
property is worth six hundred thousand dollars and I have
no debt on it, but and the rents have increased
but not at the same rate as the appreciation. So
I may have been getting just like based on a
cash on cash return in the early days, I may
have been getting eight, nine ten, But now because all
(05:32):
I have all that cashlow, that's six hundred thousand there,
you know, my cash on cash return may have dropped
down to four or five percent, meaning that if I
took that six hundred thousand and just calculated what my
positive cash flow was, you know, it's a four or
five percent return. So then you know, it's it's natural
(05:53):
to look at and say, Okay, if I took that
six hundred thousand dollars property and sold it and bought
a yah, a million dollar property or an eight hundred
thousand dollars property that had significantly higher rents or significally
higher revenue from the rents, I could you go from
maybe a four or five percent cash on cash return
(06:16):
to a yeah, an eight percent, right, So it was
more of just a natural evolution of trying to maximize
my returns versus, you know, trying to get the fewer properties.
Speaker 2 (06:31):
Yeah, that makes that makes a lot of sense. So
when do you know that it's time to trade up?
Like when is a return just not good enough that
you really should think about about trading up to a
better property?
Speaker 1 (06:47):
Yeah, There's there's two things I think that I that
I look at. You know, one is, as I just mentioned,
you know what my what my current return is. You know,
if I'm maximize the rents and I've maximize my current return,
are there other properties that that I could roll into
(07:10):
that would give me a better return? And the second
thing I look at is just the market conditions. You know,
am I am I looking to do that? Is it?
Am I a trough at a low point in the market?
Am I a peak at the high point in the market?
Am I doing it into a market that's appreciated? Am
I doing it to a market that's that's declining? So
(07:34):
it's a combination of what my return is and what
the market's doing. My preference always is to do it,
you know, in a in a trough or once a
market started to turn and it's starting to appreciate, because
you know, then you have capture more upside versus you know,
a lot of people fall into the trap of you know,
(07:57):
selling it the peak of the market. Be goes, oh
my gosh, my proper these were so much now. But
if you're going to reinvest in the same market, you're
also reinvesting at the peak and you have more, you know,
more downside risks.
Speaker 3 (08:11):
That way, how do you how do you combat that?
Speaker 2 (08:14):
Are you investing in different markets?
Speaker 1 (08:18):
I'm invested in different market. There's two ways to come
bat it. One is investing in different markets. The other
is is taking a long term approach, right, so you know,
and it's been a little different in the last cycle,
but you know, typically the real estate cycles that we
saw from way back from even the seventies and eighties
(08:39):
were you know, these seven to eight year cycles, and
so you know, I remember, I'll give you an example
in two thousand and five in San Diego. One of
the things I did on a monthly basis, i'd watched
supply and demand. In two thousand and five. Now it
(08:59):
was I seen as a shift starting to happen. But
I also knew that, you know, we'd been in the
same market since nineteen ninety seven, Like ninety seven we
hit the bomb of a market, and things were on
their way up. They're on their way from ninety seven
to five, and so I knew we were, you know,
we were probably you know, approaching the peak. But then
(09:21):
I actually thought based on the data of supply and demand.
So in two thousand and five, I asked myself a
simple question of all the properties I own, which ones
do I want to own for the next ten years
and which ones do I not want to own for
the next ten years. And you know, there were four
or five properties that I didn't think made sense to
own for the next ten years, and I sold those
(09:43):
in two thousand and five. Now, in two thousand and five,
I had no idea two thousand and eight was going
to be, you know, the global banking crisis that it was.
But in retrospect, you know, it was a it was
great timing to do what I did, and I knew
it was good timing because of you know, seeing the
(10:04):
shift in the market that when two thousand and eight happened.
Then then it looked like a genius move.
Speaker 3 (10:12):
Right right?
Speaker 2 (10:13):
But all right, so in two thousand and five, you
sell the market in San Diego is is is a
really good market. It's overheated. But where do you go
to avoid the inevitable crash that was coming?
Speaker 1 (10:28):
Like?
Speaker 3 (10:28):
How did how did you protect yourself?
Speaker 1 (10:30):
Yeah? So in two thousand and five, the properties the
there was a I bought into the same market, but
I was there was an opportunity purchase. I came across
and let me define what I mean by opportunity purchases.
Every once in a while, you find a scenario or
(10:52):
an opportunity that's just you have to you have to
act on it's too good. I had come into contact
with a guy who lived in Chicago that owned a
property in San Diego. He said, hey, I want to
sell it. I got a renter in there. I don't
want to mess with the renter. I just I had
it appraise last year for this price. If you give
me that price, I'll sell it. I said done. Yeah,
(11:15):
it was his appraisal. I think it was low. It
was also a year old. And I said, you look,
I think if you sold the property now you could
get more money for it if you put it on
the market. He said, yeah, I don't want to put
it on the market. I can't do it with the tenant.
D DA DA DA said, all right, as long as
you're aware of that, then we'll do the steal. So
(11:39):
even though the market went down in two thousand and eight,
I bought that property for so far below the market
that I was fine, and I bought it with the
idea that it was going to be a long term hold.
I paid six hundred and sixty thousand dollars for that
property and sold it in. They sell that in somewhere
(12:01):
around twenty twenty, and you sold that for one point
nine million dollars.
Speaker 2 (12:08):
Wow, Wow, that's incredible. So then when you sold that property,
like what changed? I had you know that that property
had done well for you, that that property had appreciated
a lot.
Speaker 3 (12:22):
How did you know that.
Speaker 2 (12:23):
In twenty twenty that was the right time to move
to something else?
Speaker 1 (12:29):
There again another opportunity purchase. I was in Austin, Texas,
you know, working and living part of the time, spend
time between there and San Diego, and a property got
came on the market and the agent listed it incorrectly
(12:49):
listed as a sort of as a farm, and really
it was just a very very nice lot on the river.
And uh and and I also believe he mispriced the properties,
so there was an opportunity there. To jump on that opportunity,
(13:11):
I needed to liquidate that San Diego property in ten
thirty one into this this property.
Speaker 2 (13:18):
So I guess like the thing that I'm taking away
from this is that there's always opportunities. You just got
to always be looking for him and when you come
across them, be ready to pounce.
Speaker 1 (13:31):
Yeah, I think that I think that both those are true. Right,
you have to be watching, looking, having having resources to
who you know and whether they're agents or people in
the markets that you know can can tell you about things, right,
and then yes, being able to act and be decisive
(13:52):
in those decisions.
Speaker 2 (13:54):
So are there certain neighborhoods that you like buying in?
You know, I've realized you're buying in different cities, But
are there types of neighborhoods that you've found perform better
than other neighborhoods.
Speaker 3 (14:10):
Yeah, Look at the.
Speaker 1 (14:13):
Generally speaking, I want a property that the real estate
itself is in an area that's going to continue to appreciate.
So I bought properties in Eugene, Oregon or the University
of Washington. There's the properties that are within walking distance
(14:36):
to the university always have high demand. They have high
demand from a realm perspective, and they have high demands
from an ownership perspective. And as long as that university
doesn't go anywhere, which I like highly unluckily it is,
then that demand is probably not going to change. Right
(14:57):
in Montana, where I properties you know, walking distance to
the downtown and walking distance to all the things that
people you like about the areas is it's something that
has universal appeal. And when you have that universal appeal
where almost everyone likes something, then you're always going to
(15:20):
have good demands for it from an appreciation standpoint, and
you know it demands for the real estate and you
know renters that want to want to live there too.
Speaker 3 (15:30):
Right. Yeah.
Speaker 2 (15:32):
Do you think appreciation is more important than cash flow
or are they both important?
Speaker 1 (15:41):
It's a great question if we had If your answer
was you had to pick one, Chris, I would choose
appreciation because the power of appreciation is so much greater.
But they're both important. Now, if I've bought properties that
didn't cash flow. Yeah, I mean I tend to thirty
(16:04):
one small four plex that I owned in Oceanside, California
into a condo, a brand new condo that was being
built next to Petco Park in downtown San Diego. And
you know, with the homeownerviews and texas and everything else,
that property did not cash flow, but it appreciated really well.
(16:26):
I think got paid three three ninety for it and
sold it for you know, just under six hundred thousand
a couple of years later. Yes, I had negative cash
flow for a couple of years, but appreciation more than
made it up.
Speaker 2 (16:41):
Right, Right, So when you buy a property, are you
thinking I'm going to own this for a couple of years,
let this appreciate, or are you generally going into a
deal thinking like, I'm comfortable owning this for a really
long time if I have to.
Speaker 1 (17:00):
That's more the majority of time, My mindset is this
is what I'm going to own forever, And now am
I going to keep it forever? Probably not? Right, other
opportunities had come up at some point, it's going to
make sense to roll it into a bigger, better property.
But the mindset is a long term hold and and
(17:24):
you know, every time I've been able to do that,
not some of the time, but every time I've been
able to do that, it has worked out extremely well.
Speaker 2 (17:33):
Now it seems like you own properties in a few
different areas. Has it has it been difficult to learn
those areas, like to figure out like where a good
part of town to buy in is, like when you're
not actually living there, So.
Speaker 1 (17:52):
It can be I own my own properties in you know,
four different states, but each of those states and each
those areas or places I've spent a significant amount of time,
and so I'm very comfortable with with those markets and
the values of those markets because I've studied them so
(18:13):
extensively for so long. So I'm not just saying, oh,
where's a where's another area I could own property or
something that you know, looks like a good value I
And now there's nothing wrong with that, but my preferences
to really understand and know the market, which which you know,
(18:37):
reduces the risk and creates a comfort level for me
that Okay, yeah, this is this is a good one,
or that one's a marginal one, or that one's not
a good one.
Speaker 2 (18:50):
Have you ever had a deal in that workout, like
have you ever bought a property that just didn't appreciate,
didn't produce cash flow, It just was kind of a dud.
Speaker 1 (19:01):
I don't think so that's awesome. You can't think of one? Yeah, wow, No,
I mean the h there was one, but there's one
that sold that actually this closed yesterday. That I probably
waited a year or too long to sell it. And
(19:21):
so the the it wasn't as good as it could
have been, but it was still good. It was still
you know, there was still appreciation, there was still a gain,
there was still a reason to do a ten thirty one.
But other than that, no, they've all they've all worked out.
Speaker 2 (19:39):
So then if someone's looking to buy a property today,
like what what is the most important thing to look for? Like,
how can you ensure that you're going into a deal
that's gonna end up playing out to be a home
run deal over a number of years?
Speaker 1 (19:58):
I think, you know, first of all, I don't. There's
some that you go into and you feel, Okay, this
one is going to be a home run, But most
of them you go into getting okay, this is going
to be a solid double or a triple. You know. Again,
it's looking at the location, is it a location that's
(20:19):
on the upswing or it's on the downward trend? Is
it trending down or trending up? Are people buying in
and fixing up and improving and building and yeah, uh,
you know things are our money is being invested there,
or is an area that's deteriorating? Right, And so that's
(20:39):
one of the things I look at. The other thing is, uh,
you know again, is this an area that people want
to live? Am again? I always have you know, good
demand for you know, for the property when when there's
time to find a new tenant. And and that's you
(21:00):
know another thing I look at. But I'm primarily looking
at like as long as a cash flows, as long
as a cash flows a dollar, if I believe there's
going to be really good appreciation, then you know, that's
one that I'm gonna look at. Now. If I can
get so good cash flow and you know returns in
(21:22):
this the seven, eight, nine, ten percent range, then then
it's a no brainer. Right.
Speaker 3 (21:29):
Do you hire a property manager or do you manage
it yourself?
Speaker 1 (21:34):
I use a property manager in most cases. There's there's
one area where about several properties where I have a
minority partner and then the minority partners in real estate.
And part of our arrangement is because I let him
invest with me on these properties, that he manages them, okay,
(21:55):
and that in other areas Okay.
Speaker 4 (21:58):
It's it's it's worth it's worth it to have a
property manager not to have to deal directly with the
tenants and in those caussules.
Speaker 2 (22:11):
And when you're looking for a property, do you fix
them up? Or are you looking for properties that are
pretty much rent ready when you buy them?
Speaker 1 (22:20):
I'm I'm I'm open to both. So you know, if
it's a if it's a property, it needs to be
fixed up. You know, That's that's part of the math
to do the you know, say, Okay, I'm paying this
for it, but I know I'm going to have to
put this into it. Is it still going to be
worth that? Am I improving the value? Am I? I
(22:42):
did at ten thirty one a few years ago into
a property in Missoula, Montana, because two of my daughters
were going to be moving there, and the homes there
have basements. Many people convert the basements into a second unit.
So I bought that property in the converted the basement
into a second unit. So I immediately created some runtling
(23:03):
count on top of my daughter's living there, and when
I go to sell that property, it will be more
valuable now because there's you know, the potential for two
units or someone can convert it back to one. So
in a situation like that, I'm okay making the investments that.
It just has to make sense. It has to be
calculated into the decision of you know what you're what
(23:25):
you're buying for and paying for.
Speaker 2 (23:27):
So at this point when you're looking to buy a property,
is it always you're selling a property in ten thirty
one ing into the new property or will you ever
buy a new property today?
Speaker 1 (23:44):
There's if it was a great opportunity, I'd figure out
how to buy it, even if I wasn't going to
ten to thirty one. There's there's one other vehicle that
I use, and I have a self directed tension plan
that I'm able to buy properties in. So that's a
that's another way that that I, you know what, would
(24:08):
acquire a property. But the yeah, it's yeah, I think
I would look at if a great opportunity came up
right now, I was like, okay, what do I have
that I'd be okay selling to roll into this and
or you know, can I buy it without selling anything? Right?
And the first first question is can I buy it
(24:30):
without selling anything? That's what I'm going to do if
I have to sell something and it's okay, which which
my rentals am I okay and moving out into this
to to pull it off.
Speaker 3 (24:40):
Right.
Speaker 2 (24:42):
So it sounds like your your portfolio is constantly in flux.
I get anything is you're willing to sell anything if
you find a better opportunity. And it's like you're always
looking for ways to get into deals that are going
to be more profitable, produce more cash flow, and just
(25:02):
be an overall better investment.
Speaker 1 (25:06):
Yeah. I think that's a first statement.
Speaker 3 (25:07):
Chris.
Speaker 2 (25:08):
Thank you so much for coming on the podcast today
and showing us what's possible with rental properties. Well, if
Chris inspired you and you're ready to buy your first
property or you want to add to your portfolio, reach
out to our sponsor Hailey Ridge. She's a nationwide lender.
She has a ton of different loan programs and she
(25:29):
can find something that'll work for you in your situation.
And right now she's offering a free thirty minute strategy
session if you want to take advantage of that. Just
go to Ridge Lendinggroup dot com NMLS four two zero
five six. Thank you so much for checking out the
podcast today. Make sure you hit the follow button and
(25:52):
that way you'll be notified when the next episode comes out.
My name is Dan Lane and this has been the
Rental Income podcast
The inspiring interviews with today is Top Landlord, this is
the Rental Income Podcast, and now.
Speaker 2 (00:08):
Damnly Chris, why do you think real estate is such
a great investment?
Speaker 1 (00:14):
Number One, Most of the time when we're investing in
real estate, we're using leverage, so we have the benefit
of that. You know, we buy a five hundred thousand
dollars property with a one hundred thousand dollars down, but
we have this five hundred thousand dollars property that's appreciating
at three or four, five, seven eight percent a year,
and over time that becomes significant. Now a rental property
(00:38):
is even more advantageous because we're also collecting rent, and
that rent is doing two things. It's it's paying for
the property right, it's covering our mortgage, covering our debt.
And if we buy it right, there's there's additional or
excess cash flow. So now you have the ROI from
(00:59):
that cash flow on your one hundred thousand dollars investment
and the appreciation, and when you add those two together,
you can get oversized or outsized returns compared to other
things that you could be investing in.
Speaker 2 (01:12):
Chris has been investing in rental properties for a long time,
about thirty five years, and the key to his success
has really been time just buying properties, letting time go by.
As those properties appreciate, he'll sell them and trade up
to a better property. So on the show today, we're
going to figure out just how important time is with
(01:35):
investing in rental properties. Joining us on the show today
from Austin is Chris Heller. We'll take a quick break
to thank our sponsors. We'll come right back and we'll
talk to Chris. Are you thinking about investing in rental properties?
But maybe you don't know where to start. My friends
at mid South home Buyers make it simple. For over
(01:55):
twenty three years, they've been selling fully renovated, turnkey rental
property in Memphis and Little Rock. We're talking new roofs, plumbing, electric, kitchens, bathrooms.
Everything is brand new and done right. And here's the
best part. Every property comes with a well qualified tenant
in place before you close. That means you get cash
(02:17):
flow from day one. Plus Midsouth continues to professionally manage
the property for you after the sale, and they back
it up with two powerful guarantees. You get a one
year total maintenance warranty and a lifetime occupancy guarantee. Personally,
I've bought five properties from them and I couldn't be happier.
(02:38):
If you want to talk to someone that's been through
the process, feel free to reach out to me. I'm
happy to answer any questions. Or if you're ready to
get started, just go to midsouthhome Buyers dot com. That's
midsouthhome Buyers dot com. It's a lot of work to
find a really good rental property, and when you actually
find that property, you want to make sure you're working
with a lender that can get that loan closed. The
(03:01):
lender that I recommend is jay Lee Ridge from Ridge
Lending Group. She's a nationwide lender and her specialty is
helping investors' finance rental properties. She has a ton of
loan programs and she can find something customized to you
for your situation. If you want to find out more
or you're ready to get started today, just go to
Ridge Lendinggroup dot com. That's our Idge Lendinggroup dot com.
(03:26):
N MLS four two zero five six. Tell us about
your portfolio. What does your portfolio look like.
Speaker 1 (03:34):
Now? It's changed over time. I've gone from owning twenty
or thirty rentals to you know, consolidating. Now I own fewer,
probably you know, a dozen or fifteen, but they're they're bigger,
more extensive, more valuable properties because of you know the
(03:56):
effect of time on those investments and the the and
also because I've used a strategy of ten thirty one
exchanges to roll those into the bigger, better properties.
Speaker 3 (04:11):
So walk me through that.
Speaker 2 (04:13):
Why is it better to have a smaller portfolio than
a bigger portfolio? Is it just easier for you to
manage or what was your thinking in going smaller.
Speaker 1 (04:24):
It's certainly easier to manage, right, Fewer is easier, But
that wasn't the thinking, you know, that wasn't the reason
for it. The reason was when you own a property
over time, and I've had I've owned properties long enough
to for the mortgages to be paid off. You know,
maybe I bought them with a fifteen year mortgage or
it was a thirty year mortgage, and we took the
(04:46):
access rent and you know, paid down the principal mount.
So when you have a property that you know, I'll
go back to some of the early ones, a property
that I bought, and I'll just use round figures. Let's
say I bought it for two hundred thousand, and then
I may have bought it with you know, thirty thousand
dollars down or something, and over time that property is
(05:08):
paid off and appreciated value. So let's say now that
property is worth six hundred thousand dollars and I have
no debt on it, but and the rents have increased
but not at the same rate as the appreciation. So
I may have been getting just like based on a
cash on cash return in the early days, I may
have been getting eight, nine ten, But now because all
(05:32):
I have all that cashlow, that's six hundred thousand there,
you know, my cash on cash return may have dropped
down to four or five percent, meaning that if I
took that six hundred thousand and just calculated what my
positive cash flow was, you know, it's a four or
five percent return. So then you know, it's it's natural
(05:53):
to look at and say, Okay, if I took that
six hundred thousand dollars property and sold it and bought
a yah, a million dollar property or an eight hundred
thousand dollars property that had significantly higher rents or significally
higher revenue from the rents, I could you go from
maybe a four or five percent cash on cash return
(06:16):
to a yeah, an eight percent, right, So it was
more of just a natural evolution of trying to maximize
my returns versus, you know, trying to get the fewer properties.
Speaker 2 (06:31):
Yeah, that makes that makes a lot of sense. So
when do you know that it's time to trade up?
Like when is a return just not good enough that
you really should think about about trading up to a
better property?
Speaker 1 (06:47):
Yeah, There's there's two things I think that I that
I look at. You know, one is, as I just mentioned,
you know what my what my current return is. You know,
if I'm maximize the rents and I've maximize my current return,
are there other properties that that I could roll into
(07:10):
that would give me a better return? And the second
thing I look at is just the market conditions. You know,
am I am I looking to do that? Is it?
Am I a trough at a low point in the market?
Am I a peak at the high point in the market?
Am I doing it into a market that's appreciated? Am
I doing it to a market that's that's declining? So
(07:34):
it's a combination of what my return is and what
the market's doing. My preference always is to do it,
you know, in a in a trough or once a
market started to turn and it's starting to appreciate, because
you know, then you have capture more upside versus you know,
a lot of people fall into the trap of you know,
(07:57):
selling it the peak of the market. Be goes, oh
my gosh, my proper these were so much now. But
if you're going to reinvest in the same market, you're
also reinvesting at the peak and you have more, you know,
more downside risks.
Speaker 3 (08:11):
That way, how do you how do you combat that?
Speaker 2 (08:14):
Are you investing in different markets?
Speaker 1 (08:18):
I'm invested in different market. There's two ways to come
bat it. One is investing in different markets. The other
is is taking a long term approach, right, so you know,
and it's been a little different in the last cycle,
but you know, typically the real estate cycles that we
saw from way back from even the seventies and eighties
(08:39):
were you know, these seven to eight year cycles, and
so you know, I remember, I'll give you an example
in two thousand and five in San Diego. One of
the things I did on a monthly basis, i'd watched
supply and demand. In two thousand and five. Now it
(08:59):
was I seen as a shift starting to happen. But
I also knew that, you know, we'd been in the
same market since nineteen ninety seven, Like ninety seven we
hit the bomb of a market, and things were on
their way up. They're on their way from ninety seven
to five, and so I knew we were, you know,
we were probably you know, approaching the peak. But then
(09:21):
I actually thought based on the data of supply and demand.
So in two thousand and five, I asked myself a
simple question of all the properties I own, which ones
do I want to own for the next ten years
and which ones do I not want to own for
the next ten years. And you know, there were four
or five properties that I didn't think made sense to
own for the next ten years, and I sold those
(09:43):
in two thousand and five. Now, in two thousand and five,
I had no idea two thousand and eight was going
to be, you know, the global banking crisis that it was.
But in retrospect, you know, it was a it was
great timing to do what I did, and I knew
it was good timing because of you know, seeing the
(10:04):
shift in the market that when two thousand and eight happened.
Then then it looked like a genius move.
Speaker 3 (10:12):
Right right?
Speaker 2 (10:13):
But all right, so in two thousand and five, you
sell the market in San Diego is is is a
really good market. It's overheated. But where do you go
to avoid the inevitable crash that was coming?
Speaker 1 (10:28):
Like?
Speaker 3 (10:28):
How did how did you protect yourself?
Speaker 1 (10:30):
Yeah? So in two thousand and five, the properties the
there was a I bought into the same market, but
I was there was an opportunity purchase. I came across
and let me define what I mean by opportunity purchases.
Every once in a while, you find a scenario or
(10:52):
an opportunity that's just you have to you have to
act on it's too good. I had come into contact
with a guy who lived in Chicago that owned a
property in San Diego. He said, hey, I want to
sell it. I got a renter in there. I don't
want to mess with the renter. I just I had
it appraise last year for this price. If you give
me that price, I'll sell it. I said done. Yeah,
(11:15):
it was his appraisal. I think it was low. It
was also a year old. And I said, you look,
I think if you sold the property now you could
get more money for it if you put it on
the market. He said, yeah, I don't want to put
it on the market. I can't do it with the tenant.
D DA DA DA said, all right, as long as
you're aware of that, then we'll do the steal. So
(11:39):
even though the market went down in two thousand and eight,
I bought that property for so far below the market
that I was fine, and I bought it with the
idea that it was going to be a long term hold.
I paid six hundred and sixty thousand dollars for that
property and sold it in. They sell that in somewhere
(12:01):
around twenty twenty, and you sold that for one point
nine million dollars.
Speaker 2 (12:08):
Wow, Wow, that's incredible. So then when you sold that property,
like what changed? I had you know that that property
had done well for you, that that property had appreciated
a lot.
Speaker 3 (12:22):
How did you know that.
Speaker 2 (12:23):
In twenty twenty that was the right time to move
to something else?
Speaker 1 (12:29):
There again another opportunity purchase. I was in Austin, Texas,
you know, working and living part of the time, spend
time between there and San Diego, and a property got
came on the market and the agent listed it incorrectly
(12:49):
listed as a sort of as a farm, and really
it was just a very very nice lot on the river.
And uh and and I also believe he mispriced the properties,
so there was an opportunity there. To jump on that opportunity,
(13:11):
I needed to liquidate that San Diego property in ten
thirty one into this this property.
Speaker 2 (13:18):
So I guess like the thing that I'm taking away
from this is that there's always opportunities. You just got
to always be looking for him and when you come
across them, be ready to pounce.
Speaker 1 (13:31):
Yeah, I think that I think that both those are true. Right,
you have to be watching, looking, having having resources to
who you know and whether they're agents or people in
the markets that you know can can tell you about things, right,
and then yes, being able to act and be decisive
(13:52):
in those decisions.
Speaker 2 (13:54):
So are there certain neighborhoods that you like buying in?
You know, I've realized you're buying in different cities, But
are there types of neighborhoods that you've found perform better
than other neighborhoods.
Speaker 3 (14:10):
Yeah, Look at the.
Speaker 1 (14:13):
Generally speaking, I want a property that the real estate
itself is in an area that's going to continue to appreciate.
So I bought properties in Eugene, Oregon or the University
of Washington. There's the properties that are within walking distance
(14:36):
to the university always have high demand. They have high
demand from a realm perspective, and they have high demands
from an ownership perspective. And as long as that university
doesn't go anywhere, which I like highly unluckily it is,
then that demand is probably not going to change. Right
(14:57):
in Montana, where I properties you know, walking distance to
the downtown and walking distance to all the things that
people you like about the areas is it's something that
has universal appeal. And when you have that universal appeal
where almost everyone likes something, then you're always going to
(15:20):
have good demands for it from an appreciation standpoint, and
you know it demands for the real estate and you
know renters that want to want to live there too.
Speaker 3 (15:30):
Right. Yeah.
Speaker 2 (15:32):
Do you think appreciation is more important than cash flow
or are they both important?
Speaker 1 (15:41):
It's a great question if we had If your answer
was you had to pick one, Chris, I would choose
appreciation because the power of appreciation is so much greater.
But they're both important. Now, if I've bought properties that
didn't cash flow. Yeah, I mean I tend to thirty
(16:04):
one small four plex that I owned in Oceanside, California
into a condo, a brand new condo that was being
built next to Petco Park in downtown San Diego. And
you know, with the homeownerviews and texas and everything else,
that property did not cash flow, but it appreciated really well.
(16:26):
I think got paid three three ninety for it and
sold it for you know, just under six hundred thousand
a couple of years later. Yes, I had negative cash
flow for a couple of years, but appreciation more than
made it up.
Speaker 2 (16:41):
Right, Right, So when you buy a property, are you
thinking I'm going to own this for a couple of years,
let this appreciate, or are you generally going into a
deal thinking like, I'm comfortable owning this for a really
long time if I have to.
Speaker 1 (17:00):
That's more the majority of time, My mindset is this
is what I'm going to own forever, And now am
I going to keep it forever? Probably not? Right, other
opportunities had come up at some point, it's going to
make sense to roll it into a bigger, better property.
But the mindset is a long term hold and and
(17:24):
you know, every time I've been able to do that,
not some of the time, but every time I've been
able to do that, it has worked out extremely well.
Speaker 2 (17:33):
Now it seems like you own properties in a few
different areas. Has it has it been difficult to learn
those areas, like to figure out like where a good
part of town to buy in is, like when you're
not actually living there, So.
Speaker 1 (17:52):
It can be I own my own properties in you know,
four different states, but each of those states and each
those areas or places I've spent a significant amount of time,
and so I'm very comfortable with with those markets and
the values of those markets because I've studied them so
(18:13):
extensively for so long. So I'm not just saying, oh,
where's a where's another area I could own property or
something that you know, looks like a good value I
And now there's nothing wrong with that, but my preferences
to really understand and know the market, which which you know,
(18:37):
reduces the risk and creates a comfort level for me
that Okay, yeah, this is this is a good one,
or that one's a marginal one, or that one's not
a good one.
Speaker 2 (18:50):
Have you ever had a deal in that workout, like
have you ever bought a property that just didn't appreciate,
didn't produce cash flow, It just was kind of a dud.
Speaker 1 (19:01):
I don't think so that's awesome. You can't think of one? Yeah, wow, No,
I mean the h there was one, but there's one
that sold that actually this closed yesterday. That I probably
waited a year or too long to sell it. And
(19:21):
so the the it wasn't as good as it could
have been, but it was still good. It was still
you know, there was still appreciation, there was still a gain,
there was still a reason to do a ten thirty one.
But other than that, no, they've all they've all worked out.
Speaker 2 (19:39):
So then if someone's looking to buy a property today,
like what what is the most important thing to look for? Like,
how can you ensure that you're going into a deal
that's gonna end up playing out to be a home
run deal over a number of years?
Speaker 1 (19:58):
I think, you know, first of all, I don't. There's
some that you go into and you feel, Okay, this
one is going to be a home run, But most
of them you go into getting okay, this is going
to be a solid double or a triple. You know. Again,
it's looking at the location, is it a location that's
(20:19):
on the upswing or it's on the downward trend? Is
it trending down or trending up? Are people buying in
and fixing up and improving and building and yeah, uh,
you know things are our money is being invested there,
or is an area that's deteriorating? Right, And so that's
(20:39):
one of the things I look at. The other thing is, uh,
you know again, is this an area that people want
to live? Am again? I always have you know, good
demand for you know, for the property when when there's
time to find a new tenant. And and that's you
(21:00):
know another thing I look at. But I'm primarily looking
at like as long as a cash flows, as long
as a cash flows a dollar, if I believe there's
going to be really good appreciation, then you know, that's
one that I'm gonna look at. Now. If I can
get so good cash flow and you know returns in
(21:22):
this the seven, eight, nine, ten percent range, then then
it's a no brainer. Right.
Speaker 3 (21:29):
Do you hire a property manager or do you manage
it yourself?
Speaker 1 (21:34):
I use a property manager in most cases. There's there's
one area where about several properties where I have a
minority partner and then the minority partners in real estate.
And part of our arrangement is because I let him
invest with me on these properties, that he manages them, okay,
(21:55):
and that in other areas Okay.
Speaker 4 (21:58):
It's it's it's worth it's worth it to have a
property manager not to have to deal directly with the
tenants and in those caussules.
Speaker 2 (22:11):
And when you're looking for a property, do you fix
them up? Or are you looking for properties that are
pretty much rent ready when you buy them?
Speaker 1 (22:20):
I'm I'm I'm open to both. So you know, if
it's a if it's a property, it needs to be
fixed up. You know, That's that's part of the math
to do the you know, say, Okay, I'm paying this
for it, but I know I'm going to have to
put this into it. Is it still going to be
worth that? Am I improving the value? Am I? I
(22:42):
did at ten thirty one a few years ago into
a property in Missoula, Montana, because two of my daughters
were going to be moving there, and the homes there
have basements. Many people convert the basements into a second unit.
So I bought that property in the converted the basement
into a second unit. So I immediately created some runtling
(23:03):
count on top of my daughter's living there, and when
I go to sell that property, it will be more
valuable now because there's you know, the potential for two
units or someone can convert it back to one. So
in a situation like that, I'm okay making the investments that.
It just has to make sense. It has to be
calculated into the decision of you know what you're what
(23:25):
you're buying for and paying for.
Speaker 2 (23:27):
So at this point when you're looking to buy a property,
is it always you're selling a property in ten thirty
one ing into the new property or will you ever
buy a new property today?
Speaker 1 (23:44):
There's if it was a great opportunity, I'd figure out
how to buy it, even if I wasn't going to
ten to thirty one. There's there's one other vehicle that
I use, and I have a self directed tension plan
that I'm able to buy properties in. So that's a
that's another way that that I, you know what, would
(24:08):
acquire a property. But the yeah, it's yeah, I think
I would look at if a great opportunity came up
right now, I was like, okay, what do I have
that I'd be okay selling to roll into this and
or you know, can I buy it without selling anything? Right?
And the first first question is can I buy it
(24:30):
without selling anything? That's what I'm going to do if
I have to sell something and it's okay, which which
my rentals am I okay and moving out into this
to to pull it off.
Speaker 3 (24:40):
Right.
Speaker 2 (24:42):
So it sounds like your your portfolio is constantly in flux.
I get anything is you're willing to sell anything if
you find a better opportunity. And it's like you're always
looking for ways to get into deals that are going
to be more profitable, produce more cash flow, and just
(25:02):
be an overall better investment.
Speaker 1 (25:06):
Yeah. I think that's a first statement.
Speaker 3 (25:07):
Chris.
Speaker 2 (25:08):
Thank you so much for coming on the podcast today
and showing us what's possible with rental properties. Well, if
Chris inspired you and you're ready to buy your first
property or you want to add to your portfolio, reach
out to our sponsor Hailey Ridge. She's a nationwide lender.
She has a ton of different loan programs and she
(25:29):
can find something that'll work for you in your situation.
And right now she's offering a free thirty minute strategy
session if you want to take advantage of that. Just
go to Ridge Lendinggroup dot com NMLS four two zero
five six. Thank you so much for checking out the
podcast today. Make sure you hit the follow button and
(25:52):
that way you'll be notified when the next episode comes out.
My name is Dan Lane and this has been the
Rental Income podcast
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