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Welcome to the West Side Investors Network, WIN, your community of investing knowledge for growth. This is the Real Estate Professionals Investing Podcast. For Real Estate Professionals by Real Estate Professionals. This show is focused on the next step in your career....... investing.
Welcome to the Westside Investors Network. WIN, your community of investing knowledge for growth. This is the Real Estate Professionals Investing podcast for real estate professionals by real estate professionals. This show is focused on the next step in your career, investing. Thank you for listening.
Intro speaker:And please, if you like our content, rate us on your podcast provider. Just a quick disclaimer. The views and opinions expressed in this podcast are for educational purposes only and should not be construed as an offer to buy or sell any shares or securities, make or consider any investments, or take any other action.
Trent Werner:Welcome back to another episode of the Deal Deep Dive segment on the Westside
Trent Werner:Investors Network podcast. I'm your host, Trent Werner. In this segment, our featured guests will share their unique stories on a specific deal they've invested in. We will dive deep into finding the deal, financing the deal, writing an offer, and the due diligence.
Trent Werner:Do us a solid and smash that subscribe button, leave us a rating, and share this episode. And now, let's dive deep. Welcome back to the Westside Investors Network podcast. I'm your host, Trent Wharton. On today's episode, we are joined by Zach Lemest, CEO of Rent to Retirement.
Trent Werner:Today, Zach's gonna share about how he turned his optometry career into a full time real estate investment business, where rent to retirement will help investors find out of state a class turnkey deals and set it all up for you, guide you in the right direction, connect you with the right people. And we're gonna hear about how some of those connections can create pretty good deals on A Class properties in today's current market. Now let's welcome Zach Lemaster. All right. Welcome to the Westside Investors Network.
Trent Werner:We got Zach Lemaster, the CEO of Rent 2 Retirement joining us today. Zach, thanks so much for taking the time to chat with us.
Zach Lemaster:Yeah. True. I'm excited to be here. Thanks for having me.
Trent Werner:So Zach has, accomplished what I think a lot of our listeners and a lot of people want to accomplish, where you're in a career and you want to get to real estate full time. You maybe start while you're still working that career instead of just going head first, and burning the ships and going right for it. So I want to talk with Zac today about how you accomplish that goal of getting full time in real estate and being able to practice optometry when you want and for the good of the people. So
Zach Lemaster:Yeah. Go for it. Well, I mean, just to kinda, yeah, fill you on my story. The first thing I'll say, Trent, is that I never had a goal to replace my income. That was actually not something that was an ambition of mine.
Zach Lemaster:I really enjoyed optometry, and I'm still passionate about that. My wife is also an optometrist. And but now we have the ability to practice really just, yeah, on a volunteer basis. We have a lot of humanitarian efforts that we put our energy into. We set up cataract clinics internationally in underdeveloped areas that don't have access to eye care.
Zach Lemaster:But my point is is that, you know, we're able to do that really, like, on our schedule, and we're actually able to have a bigger impact globally because of what real estate has allowed us to accomplish. But yeah, I never anticipated to like replace my W2. I know that may be an ambition for a lot of people, and that, like, that's great. But you can still, I mean, regardless of really what you wanna do out of real estate, real estate can fit multiple different aspects of your lifestyle really, and it can start as a side hustle. That's a beautiful thing.
Zach Lemaster:But yeah, so my wife and I were optometrists by education. We met in school. I was on a scholarship with the Air Force, HBSB scholarship, so I was commissioned as a captain in the Air Force right after I left optometry school. I practiced optometry there for, I I don't know, 6 or 7 years, that's where I started investing. I started investing in real estate just because, I mean, like many people I probably read a lot of the books and the Rich Dad Poor Dad stuff and just was like, hey, this seems like an interesting thing and I could understand real estate, it's tangible.
Zach Lemaster:First house I bought used a VA loan, no money down, bought a duplex, lived in half, rented out the other half. And this is probably about 14 or 15 years ago at this point when I bought that first house. That was my first primary residence, and I just got hooked. I liked the idea of buying an asset using other people's money, I. E.
Zach Lemaster:The bank that a tenant basically pays off for you over time. And then you get all the, you know, the appreciation, the tax benefits, and benefit of leverage, and things like that. So the next year after that, we bought a few more deals and just consistently bought real estate. I didn't have, like, necessarily a big plan, and we went slow in the beginning. We invested locally to start.
Zach Lemaster:But there was a pivotal moment, Trent, where we started to look out of state in different markets that we found better opportunity, areas that were more conducive with our goals, areas that have better appreciation, and just better opportunity to really, like, take advantage of real estate and the path of progress. And so we started to invest out of state across multiple different markets. And you know, there's obviously some bumps in the road with that, but we kind of figured it out, always improved our systems. And that was the birthplace of Rent to Retirement. We kind of built this business by accident just out of necessity of building a systematic way for our own investing to find the best markets and build the teams and systems in those areas so we can strategically invest in areas that offer the best returns, you know.
Zach Lemaster:And we had a lot of friends and family and colleagues that were like, Hey, we see what you're doing in real estate. Can can we invest with you? Or can you help us? We don't have the time or experience or local market's too expensive, whatever the case is. And we started to help them just follow the same path that we did.
Zach Lemaster:And fast forward, you know, probably from that point about 10 years later where we're at today, you know, we obviously have a pretty robust company that helps people buy deals across the country where the returns are attractive, and we have all the teams set up so they can be, you know, somewhat passive. You don't have to self manage or do everything from your own on the ground floor. And so, yeah, that's kind of the story. I mean, we're across 18 different markets and, you know, we'll probably do about 800 doors this year. But, I mean, I've always just kept my nose down and just kept investing in real estate and doing more, right, even though I didn't necessarily have the plan to be where at today.
Trent Werner:I got a couple questions for you from the early years when you and your wife were first getting started. When you were first starting out, were you focused on assets that had better cashflow or better appreciation when you were first getting going to those first handful of deals?
Zach Lemaster:Yeah. It's interesting because and that is a spectrum. I think a lot of people, like, think it's either or. I've come to find out you can you can actually have both just in the right market. And that's really where we focus today is like new construction.
Zach Lemaster:But in the early years, I would say and I think this is probably true for a lot of people is I would really just focus on cash flow because that's tangible. I wasn't too forward thinking. I was just like, Hey, if I have, you know, whatever, $400 a month in net cash flow, if I can buy 10 of those houses, that's $4,000 a month, that'll be $48 ks a year, pretty much tax free because of how real estate works, right? So that could be the equivalent of 60 ks or 70 ks earned income. But I was like, yeah.
Zach Lemaster:So that makes sense and it's tangible. Those were the early years. In future years, I learned that you actually truly build wealth in real estate focusing more on like, cash flow is a byproduct where you focus on, you know, appreciation, the tax benefits, and, like, how to strategically scale and trade up 10.31 cost seg, those those types of things. But early years, yeah, cash flow.
Trent Werner:And the reason I ask that because I think a lot of people, like you said, are focused on cash flow to start because it is tangible. One thing that I've noticed from my wife's perspective, she's a nurse and I don't know if it's just the industry or people that have, you get paid every 2 weeks. A lot of people tend to think on a monthly basis. And so if they see the cashflow coming in every month, that just lines up with their thought process on finances in general. But to your point, you know, being able to get both is great, but in the early years, I've, I have experienced that the appreciation side, while you're still working and making money from other avenues, typically is more beneficial down the road.
Zach Lemaster:Yeah. And I couldn't agree with you more. And that's a good point. Most people do think on a monthly or biweekly basis because that's the income and expenses, right? You're kinda, and there are a lot of people that live paycheck to paycheck, you know?
Zach Lemaster:And if you can, you know, carve out some extra money to invest, like that's kind of the first step. But yeah, learning about appreciation and like understanding I don't think I truly knew the math of real estate. I don't think I truly understood in the early years how real estate worked long term. We refer to real estate as the ideal investment and that's an acronym for all the ways you earn income. So I is cash flow, right?
Zach Lemaster:That's your income. D is depreciation and tax benefits, which now honestly, that's the most important thing we pay attention to because we have a successful business and our goal is to buy enough real estate every single year to completely wipe out our taxes, which can be accomplished with real estate if you do it strategically. E is equity as the tenant pays a loan down. A is appreciation. As you mentioned, all homes go up in value regardless of short term fluctuation.
Zach Lemaster:And then L is leverage, being able to leverage properties. That's what really separates real estate out from other asset classes. But yeah, I think most people think about cash flow because it's tangible, they can see it, they can feel it, they can calculate it. But if you learn how to run the math and understand before thinking like 5 or 10 years what a property could be, I think that will affect a lot of the decisions you make early on in investing. And most people are not trying to retire tomorrow off of cash flow.
Zach Lemaster:Right? So to your point, if you're having a W2 income and a job, like, that's a really good thing to be able to qualify for good loans, to buy properties with with a 10 year plan or whatever the case is.
Trent Werner:And you've mentioned depreciation and the tax benefits a couple of times. And in your example, you said, if you can cash flow $400 a month and get 10 of them, that's 48 ks a year. Obviously, neither of us are tax professionals. So there's my disclaimer. Can you give a high level overview of when you understood the tax benefits and depreciation, and like you said, buying enough deals to wipe out that income?
Trent Werner:And what's your high level overview or your benefit to investing in real estate on a tax depreciation side?
Zach Lemaster:Oh, man, Trey, you're gonna get me going here. I could, you cut me off because I can talk all day about this. And I do on our, you know, YouTube and podcast stuff, because we bring in our tax professionals to actually, you know, break this down for people. But I think in general, if we're talking big picture, there's 3 main things that really separate, 3 main tax benefits. There's a lot of tax benefits, and I won't even get into like the estate planning and the step up basis where you can, you know, perpetually defer depreciation and never pay taxes on real estate potentially, but like just in the early stages.
Zach Lemaster:So, one is cash flow where we refer to that as tax free income. If you're leveraging property and you're accounting for all your expenses appropriately tax, insurance, your mortgage, your normal depreciation, which everyone takes, all the expenses, all the taxes, all the stuff on the property, those are all tax deductions, right? Those are all write offs. And so the reality is what I've found is that most property that we buy, even though we have positive cash flow, that cash flow is tax free because it's just the normal write offs. And so that's really powerful if you think about it, especially if you live in a state that has, you know, taxable income, but even just from a federal standpoint, like, taxes are the biggest expense we're all gonna pay in our life, and that's the easiest way to give yourself an immediate raise.
Zach Lemaster:That then you can have more tangible cash capital to go and invest and invest in other assets that have additional tax benefits, and you get the snowball. So that like, just paying attention to the tax benefits allowed us to really scale our portfolio to the point where we were able to replace our active income. I would say that's the one thing that allowed us to truly replace our active income. And professional income, right, doable professional income within 5 to 6 years is utilizing the tax benefits. So if you have $100,000 of income from your rental portfolio, that's probably the equivalent of $160,000, $170,000 of earned income, possibly more depending where you live, right?
Zach Lemaster:That's extremely powerful. So that's the one thing, it's just tax free cash flow. The The next thing is 10 31 exchanges. This is absolutely huge, right, and this isn't going away. I know there's a lot of 10 31 exchanges, and the IRS, I'll say this too, the IRS incentivizes us as real estate investors to stimulate the economy, to create jobs, to create housing solutions for people.
Zach Lemaster:So the IRS will always incentivize us as real estate investors to go out and do these things that they are incapable of doing themselves, that's the benefit of being in the real estate industry. 10/31 exchange, basically you buy a house for $100,000 later it's worth $200,000 you sell it, and normally you'd have capital gains on that if you hold it for longer than a year, which can be dramatic on your income on that property. But you're allowed to roll it into more property, you know, and defer those capital gains, which you can do perpetually forever if you structure it appropriately. That's really powerful because instead of paying, you know, whatever, 25% on your profit, that's an extra 25% that you don't have to pay and you can reinvest in more real estate that, again, has additional tax benefits. So, we did a lot of those.
Zach Lemaster:You know, the first portfolio of properties that we created within the 1st 2 to 3 years, you know, we let those build equity over time through appreciation and the tenant paying the loan down. And then within 4 to 5 years, we went through our first 2 1031 exchanges, and we were able to double our portfolio size, almost triple it, without putting any more capital in. Right? We just used the equity, and then we reinvested the equity and, like, double our portfolio overnight and increase our cash flow. And that's kind of the scalability way.
Zach Lemaster:Now a little bit higher level, what we do because we're, you know, actively involved in real estate, real estate professionals is currently we use accelerated depreciation as the kind of 3rd big, big impactful thing. And again, there's a lot of tax benefits, but those are the 3 most impactful things that I think that anyone can do. And that's basically where you're taking a property and you're accelerating because you take depreciation over on residential 27 and a half years. Normally, that's a huge tax benefit for the property. But what you can do as a real estate professional or if you're operating short term rentals is you can take a portion of that in year 1 against all income sources, against active w two income potentially, and that can be extremely powerful.
Zach Lemaster:So if you buy a $1,000,000 worth of real estate, that's a handful of single family or one multi, whatever the case is, our studies usually come in about 30% of accelerated depreciation. So on a $1,000,000 of of real estate, you could have potentially a $300,000 tax deduction that offsets all of your income sources. Right? And that's just accelerating that depreciation because that's money you would otherwise give to uncle Sam that can now you have to reinvest in. There's a lot more to that, like this year where it's 60% bonus depreciation, things like that.
Zach Lemaster:But those are kind of high level, the big most impactful things that has helped us.
Trent Werner:So you obviously started investing in real estate, got very familiar with the tax benefits from real estate, and that's when you were able to scale, like you said. When did this rent to retirement concept start coming into play in your career, in your investing career?
Zach Lemaster:I think this was probably about year 4 of our investing, or 3 to 4. This is basically I mean, that's when the concept was born, not necessarily when we started the company, but we were investing out of state. So I was stationed in North Dakota with the Air Force at the time. Excuse me. We had bought a few rentals locally, and as I mentioned.
Zach Lemaster:But North Dakota is not like the highly sought after market, right? I mean, it's got okay cash flow, somewhat decent appreciation, but we started to learn about other markets where there was just, like, better opportunity, where rents were increasing significantly more, where there was more affordability, we had lower price points on better quality assets that had better appreciation year after year, which we, you know, found out. Like, hey, because I think this would be true for most people, and this is what our company serves to try to help people with today is that, like, it's okay to start in your local backyard. But, you know, as you grow and diversify, you do wanna be diversified. Most successful investors have a diversity of portfolios and assets across the country.
Zach Lemaster:But, I mean, it's probably likely that there's other markets out there that are more conducive to your goals or just have better returns in your own backyard. Simple as that, right? And the markets are always changing. So once you kinda open your mindset to looking across the country at these different opportunities, you can make some, you know, bigger moves and make your goals more efficient. So that's what we started doing.
Zach Lemaster:And like I said, it wasn't easy at first, but we built a process to first identify markets that fit our fundamental goals, be in the path of progress, landlord funding legislation, low taxes, all these things. We wanna be in growth markets. And once we started to focus on those areas, we're like, wow, we're really making bigger moves in a shorter period of time. And that's where people are like, hey, like, can you help us? You know, so a lot of our colleagues, even our first two investors were like optometry colleagues of ours, that just we just talked about what we were doing.
Zach Lemaster:And then we figured out like, hey, we've already had the framework for a way for us to invest out of state, building all the teams, the management, the lenders, finding the local areas that fit our goals, and consistently doing that over time and opening up new markets. And so then we're like, hey, there's a larger need for people that wanna invest out of state and access different markets. And then we put a team together, started marketing publicly, opening up to other investors, and that was kind of the the birthplace.
Trent Werner:Yeah. And I think, I mean, from my own experience, I've always I'm located in Oregon, Portland Metro, and so I'm sure a lot of people that are listening know that the, the landlord tenant laws are definitely tenant favored here. And so I've looked out of state, but it is daunting because I'm not familiar with these other markets. I don't know how to identify them very well, and it would take me a lot of time to get comfortable and and meet the right people in those markets. And that's where rent to retirement has bridged that gap for a lot of people that want to get out of their own backyard, but maybe don't have the time or the resources or the skills to go find those markets.
Trent Werner:How do you connect these people with these these new markets that maybe aren't their backyard?
Zach Lemaster:And by the way, I went to, do you know where Forest Grove is?
Trent Werner:Of course. Yeah.
Zach Lemaster:Yeah. Right right past Hillsboro. So that that's where I went to optometry school. I was in I was in, Forest Grove. So I love Oregon.
Zach Lemaster:We're in Denver. If we weren't living here, we'd probably be there, you know. But like I said, same thing here. It's difficult to invest locally for all the same reasons. But yeah, so I guess for the investor, like, our motto is to make the best deals across the country accessible to everyone where we handle everything for them.
Zach Lemaster:And I'm not saying real estate's 100% passive because sometimes people associate turnkey with, Oh, it's not 100% passive, but it is on the passive end of the spectrum when you're talking about like tangible physical assets that you're owning. So we, I mean, we first, you know, identified the markets that fit our investment criteria. Geographically, we tend to be focused in, you know, the Midwest, Ohio, Missouri, Indiana, and then majority in the Southeast. These are more growth markets, and that's all new construction. We mainly do builds to rent single family and small multi.
Zach Lemaster:And so we have fundamental market criteria that we decide on to build a team. Either we partner with locally established teams from builders and managers, or we'll build our own team in that area once we've identified that that's a quality market. And then we'll offer consistent inventory, new construction inventory, to our investors that they have access. These are off market deals, they're often steeply discounted. We talked a little bit about like, you know, buying properties on the new construction below market value with unique loan structures that we're able to accomplish.
Zach Lemaster:So they're possibly 5% down into the properties or less, sometimes 0% down because we're piecing all the things in place, the lenders, the insurance providers, the inventory, the property managers. And then our team is helping guide them through the process of first understanding investing out of state and really what is the strategy for them. Everyone has individual goals, criteria, timelines, resources, so we want to help them build an investment strategy. If you're a brand new investor and this is your first property, turnkey is a great option because you're avoiding a lot of those common pitfalls and mistakes. Or if you're a first time investor out of state, like, to your point, there's, you know, a lot of different things to think about, local regulations and laws.
Zach Lemaster:How do you even identify the right market? So our goal is to already have done the research and have the established teams where we can match you with the market that meets your goals and kind of give you the help you walk through that strategy to, like, how are you gonna get to a to z? Let's get you into your first couple properties. Let's make sure that makes sense. How do we maximize tax benefits?
Zach Lemaster:What are the creative loan structures? And how do we help you scale over time? So it's literally just tapping into our established networks and teams that are in the diversity of areas we're we're operating in.
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Trent Werner:Uptown syndication is now offering a syndication coaching program for you to take your real estate portfolio to the next level. This is your opportunity to have experienced syndicators, AJ and Chris Shepherd, coach you on your way to controlling your real estate investing future. Our coaching program will provide you with the tools and framework needed to begin syndicating real estate in your target market. Go to uptownsyndication.com today to learn more. So, Zach, let me ask you as someone that in my own market, I have the the team in place to buy a deal that needs a face lift and and able to force that appreciation myself through renovations, and then obviously renting it out and holding in my portfolio.
Trent Werner:As an investor like that, if someone says, you know, I'm used to that, but all I have is turnkey properties, albeit typically at a discount or below market value. Where is the where is the benefit in terms of buying a turnkey rental where I know one of the benefits is you don't have to deal with the headache of renovating it. But what would you tell someone that's in a position like I am of turnkey versus something that you can afford you can force appreciation on?
Zach Lemaster:Yeah. And and I would start by saying, Trent, that it may not make sense. Right? This is a this is a specific investment model that serves a specific niche for the right investor, but it can fit in multiple scenarios for the investor depending on their short, long term goals. For someone like yourself who's an active investor, you're actively, you know, rehabbing deals and forcing appreciation and then doing some creative things with whatever it sounds like cash out and then holding them as rentals and having a great ROI, that's fantastic.
Zach Lemaster:And that takes a lot of work, and it's a full time job. And there's volatility with that, right? And for a newer investor, potentially, that could be a very risky thing and challenging thing to do. I think a lot of people actually jump into flipping too early and, like, get in over their head, or they just don't have the time and experience to deal with that. Where it may make sense for you, though, is if you're looking to diversify into other markets over time.
Zach Lemaster:You have your active real estate business. We have a lot of active professional real estate investors running, you know, 7, 8 figure businesses, but they still buy with us because it helps them to easily diversify and scale their portfolio. Because buy and hold real estate, I mean, buy and hold is where you build wealth over time and financial independence. So regardless of what you're doing in an active career or active real estate business, this still provides an opportunity for you to easily and systematically diversify into other areas that make sense for you and and to scale. We also have a lot of investors on, like I mentioned, on the tax side that they're making great income on their their W2 job or their real estate business, and they just need an efficient way to, like, buy more real estate, to not take away time from their W2 or their active business to maximize their tax benefits.
Zach Lemaster:Right? So that could serve that purpose. Turnkey really makes sense for people that are newer investors. They wanna avoid the pitfalls, newer investors out of state, people that are you know, they have capital, they don't wanna be actively managing properties, people that wanna diversify, business owners like yourself that, you know, do wanna utilize that. And I will say, you know, there's a common theme that or misconception that in turnkey, you're buying at or above market value, and there's no value add, there's no upside.
Zach Lemaster:And that's really just not the case with our at least with our company because we operate 2 ways. 1, we're builders, and we build our own inventory, But we also partner with national and regional builders because as a community, we have 100 of thousands of investors in our community that are buying, you know, 100 and thousands of properties every single year. So we have a lot of buying power as a community. So we can go to these national builders, which we've already established, like Doctor Horton, Toll Brothers, Lennar, whatever, and who build all across the country and say, we actually work with their wholesale division instead of their retail division and say, you know, we commit to x x 100 of houses that we're gonna buy that year because we've cherry picked the markets that we know to be the best markets where they're already building, and we can get steeply discounted prices because of that. We're the 1st company to work with institutional builders and get institutional type of discounts that, like, a Blackstone would get because they're buying 100 of houses and pass those discounts on to the individual investor.
Zach Lemaster:So there are some creative ways that you can buy below market value and come into 30, 40, $50,000 of immediate equity where maybe you can't cash out refi day day 1, but you're, you know, you're expediting that process where you already have that initial equity to be able to do something with earlier on.
Trent Werner:Yeah. And that's I think that's one thing that's really cool about your model is to your point, you said typically if you're buying turnkey rentals, you're you're kinda letting time do its thing in terms of appreciation. Whereas if you are able to come in with some equity right off the bat, yes, you're going to let time do its thing, but you have some equity in there aside from just the cash that you're putting in upfront, which is which is something that I don't think a lot of people offer or know about, at least, you know, in this space. I didn't know about it until I did some research on rent to retirement and obviously talking with you here today.
Zach Lemaster:Yeah. We have and, you know, if I could just go a little bit further on that trend. So, I mean, like I said, every investor has their own unique strategy and goals that they wanna achieve. But our goal is to help them put that into place, right, and visualize their strategy and build that out. So like just to use a property example, if someone has a $300,000 property that's probably about average price point.
Zach Lemaster:We have new construction anywhere from 2 to 400,000 give or take. We have some stuff that's rehab that's less than that. But average new construction A class house, 4 bed, 2 bath in the southeast is probably $300,000 it'll probably run out between $24 to $26100 a month. So have an 8% to 12% cash on cash return if you're using conventional financing, but that's the standard deal structure. But if you're looking at some of these creative deal structures, so let's say a $300,000 house has a 10% incentive on it, and our incentives probably range anywhere from 5% to 12% deal dependent.
Zach Lemaster:Plus that $300,000 house with a 10% incentive, you as the investor get to utilize that however you want to. And this is where gets really creative and interesting, and we are the only company doing these types of things because of our relationships and economies of scale that we've built. So, a $300,000 house, 10%, that's 30 ks. You can take that as an immediate price reduction to come into immediate equity. That will help you have a lower loan amount, help you cash flow better, possibly cash out refi or sell quicker, right, because you already have kind of that you're ahead of the game with that equity.
Zach Lemaster:And that house will appraise all day and be sold retail at 300,000 or higher consistently, so it's true equity. Or but you don't have to take it. In fact, most investors don't. Because the other options you can do with that 10%, that 30 ks is you can use it to buy your rate down. I mean, we have people buying the rates down into the mid threes right now, which is like, we're never gonna get there in interest rates again, right?
Zach Lemaster:On a 30 year fixed loan, Yeah. That's a lot of money to buy the rate down, but some people wanna do that because then they're gonna cash flow the heck out of it. Or what most people do is actually take the capital back at closing. Like, you can literally get 10% back at closing, and that's where I think where it becomes the most efficient because that's covering half of your down payment. Right?
Zach Lemaster:So, you could buy a $300,000 house if you're doing 20% down at 60 ks, you get 30 ks of that immediately back. That skyrockets your ROI and helps you stretch your capital further across more doors. And where it gets really unique is that we have, negotiated with local credit unions, not in all markets but in most, where they have some creative finance options where you can put as little as 5% down on up to 5 investment properties. These are true investor loans, these are not where you have to live in them. There's no PMI on these.
Zach Lemaster:Like, conventionally, you have less than 20%. Normally, you have PMI, right? So this is a true portfolio loan held in house by the local credit unions. We've helped them develop and build out these products, and we've created a consistent pipeline, so they feel confident to keep offering them. But it's a 5% down loan, up to 5 investment properties, you still have to qualify for them.
Zach Lemaster:It's a 30 year amortized loan. It's 10 year term, so it's due in 10 years, amortized over 30 years. No PMI, no prepayment penalty. You can refinance it whenever you want. So think about that.
Zach Lemaster:If we're giving you 10% back at closing on a property, and you're buying it with 5% down, not only are you getting your down payment coverage, so you're buying it with no money down, but you could possibly even get money back in your pocket, right? And you can use these incentives however you want. You can do half on the half on the price reduction, half on the cash back, buy the rate down. Most people do a combination, but it's a really unique way where it's like, hey, you can actually acquire A class new construction assets with no money down out of pocket if you really wanted to. The one caveat I'll say is that on a 95% loan, you may not be positive cash flow, right?
Zach Lemaster:You don't only have to put 5% down, you put 7, 8%. There may be a sweet spot for you where you're break even or positive. But just keep that in mind, you have a 95% loan. But it's all about, like, how do you structure that to make sense for you? And you can use that structure however you want.
Zach Lemaster:So I just wanted to go through that example.
Trent Werner:Yeah. And I have a couple of questions about that example because I think a lot of people are hearing that and I mean, should be should be hearing that as a great idea and a great way to acquire more assets in their portfolio. So if someone, let's say that's a 10% incentive, we're going to use the same example here. Say someone puts 10% down. And that's maybe allowing them to cash flow and then they get that 10% back.
Trent Werner:Now you're able to basically have no money down aside from some closing costs and whatnot, and still cash flow on an A class property, right?
Zach Lemaster:Yeah. I mean, every deal is dependent, right? Some will have better cash flow than others. Like we have some Ohio stuff that's like 160,000, and, those are rehabbed properties, not new construction, b class stuff. Those will actually cash flow with 5% down.
Zach Lemaster:But, yes, it's up to the investor ultimately what they want want to do. Right? You could put 20% down on that property. It's up to you. We don't care what loan structure you use.
Zach Lemaster:But in that, yeah, you just kinda gotta run the numbers and tweak it to to make sense for you based on what makes sense for you. We have a lot of people that are high income earners, and they're actually okay with negative cash flow because they'll plan to sell or refinance the property within a 3 to 5 year period, but they wanna maximize tax benefits. Right? These are people that earn a lot of money then. Just like we talked about with accelerated depreciation, like, you can create if you bought a $1,000,000 worth of real estate and you had a $300,000 tax deduction, you know, through accelerated depreciation, you could accomplish that with potentially no money down.
Zach Lemaster:Even though you're negative cash flow, you just have to have a plan for that. And our rents in the Southeast usually go up about 6% per year, Trent, which is about double the national average. But, you know, so even though they may start out negative cash flow, I mean, over time, they eventually the rental increase. But, yes, that's a I think that's that's a possible example.
Trent Werner:Yeah. And you've I do have a question on the markets that you're choosing cause you have the Southeast and the Midwest, you just used Ohio and the Southeast as examples. Obviously, the deals are going to operate a little bit differently in market to market. How do you identify your markets that you're going to get into? And I think you said you had 18 different markets right now.
Trent Werner:How are you identifying those markets?
Zach Lemaster:We want to there's kind of and it's multi factorial. We start broad macroeconomics scale from a state level, and then we go really microeconomic into, like, specific MSAs and neighborhoods. Generally, we wanna be in areas where we're below the median house price point, which is give or take 400 k. Sounds cheap for guys like us in Denver and Portland, but, you know, median house price point, 400 k. In the US, we wanna be significantly below that because that's where your bread and butter housing is.
Zach Lemaster:You you have less volatility in those areas. You have the highest demographic for retail buyers and and, tenants, right? So and so that's kind of where we try to try to be in an affordable markets that have landlord friendly legislation that just tends to be, you know, Midwest and Southeast that are below that price point. We wanna be in areas that have a diversity of industries. We don't wanna be in an area that's just solely reliant on oil or gas that could obviously change the economics of the area.
Zach Lemaster:We wanna be in areas where we obviously see the potential for future population and economic growth. And the big thing, I mean, I you really don't have to overthink it too much. I know a lot of people get you know, they think it's daunting to invest out of state, which it can be. You need to be familiar with local laws and regulations. But a big thing we look at is supply and demand.
Zach Lemaster:Economics 101, we wanna be in an area that has an undersupply of housing and where the population's growing. There's a lot of people moving down to the sun belt. So the southeastern markets or areas within Texas, the Carolinas, Alabama, Georgia, Florida, those will be a lot of the southeastern markets that we focus on within specific areas in the state too. Not all areas like Florida make sense. Orlando and Miami certainly do not make sense from what, like, our fundamentals.
Zach Lemaster:So those are kinda some of the things that we look at. And then like on a neighborhood basis, like, we're attending city planning meetings, we're seeing where future jobs and transportation is going, and looking at where, you know, where that affordability metric is that that makes the most sense. With new construction, builders are building in areas where there's an undersupply, right, or they're they're trying to where there's there's high demand. So those are some of the things that we choose in the market. And then we build a team and, you know, start investing in that area and then track it over time.
Trent Werner:Yeah. And as far as the team that you just mentioned, I mean, we've already talked about the builders. We've talked about the local credit unions that you guys have partnered with. I do wanted to ask about insurance and property management. How are you setting those up and are you connecting your investors with insurance agents and property managers, or are they having to go out and find their
Zach Lemaster:own? Yeah. Management is set up in place. We don't do any property management in house. We did at one point, but we found that especially as we scaled it, like, you know, we're we're better off, partnering and vetting air the the teams that are hyperlocal to that area.
Zach Lemaster:So it's not National Property Management. It's hyperlocal to that area. People that really understand the market and are already excelling at their business. They need to have at least 250 doors under management. We go through best practices.
Zach Lemaster:Sometimes, you know, we're able to even improve their management structure with like tenant screening. We're able to obviously negotiate lower fee structure, just like with the builders and the lenders. Same thing with property management and insurance. You know, being part of our investor community at Rent Retirement, you get discounted pricing just because of the sheer volume of business. And so we find property managers in those areas and they manage properties.
Zach Lemaster:These are all long term rentals. We do have some short term rentals, but that's not our main core competency. We focus on long term rentals. You don't have to use these property managers, but they are there for you to use and most people do. And if you wanna fire them or something happens in the future, we have other recommendations for you and help you make that transition.
Zach Lemaster:And same thing with insurance providers. We have a diversity of different insurance providers that, you can get insurance quotes from. You don't have to use them, but we've discounted discounted price points and premiums for to maximize the cash flow on the property, you know, among other things. And I will say on insurance too, because that's a question that always comes up, especially when we talk about like Florida and Southeast is people are always like, Well, insurance has gotten so crazy expensive. In some areas, yes.
Zach Lemaster:Usually it's flood zones or areas that have been remapped as flood zones. And the homes that are being hit the hardest are the old homes, like actually pre 1990, a lot of times where building codes have changed and then all of a sudden it's like, you know, those buildings are not built to stand. Those are the houses that are having like the 3x in insurance costs. Our average insurance cost on a brand new constructed house in Florida is $9.50 annual premium. And that's because they're built not in flood zones and they're built to current standards, right, current building cone.
Zach Lemaster:They're concrete block homes that withstand a 150 mile per hour wind. So insurance is still relatively affordable, you know, if you're not in flood zones and you have a new construction house.
Trent Werner:Very nice. Well, Zach, I wanna ask you too, rent to retirement sounds like a no brainer for someone that is, you know, earning good income, wants to get into real estate, wants to get out of their own backyard and diversify to different markets. What's your favorite thing about your business and what you're able to do for your investors?
Zach Lemaster:I think for us what's fulfilling, because we're not in this business to make money, I mean, admittedly, you know, probably at some point we really were, but we've been successful every single year. I'm passionate about real estate. I'm passionate about helping people accomplish their goals. And hopefully people can see that. We have a lot of 5 star reviews online, that, you know, people talk about the time we spend with them to help them build out the strategy.
Zach Lemaster:But if you remember, I we built this business just kinda by accident in the early years out of our own investing. So I love real estate. I still enjoy optometry, but like I said, real estate, I think you can just do more, right? And You can create a lifestyle. And I think that's a lot what a lot of people want to ultimately do is create a lifestyle where and and it does take work.
Zach Lemaster:Right? Even if you're buying turnkey, guys, this is like real estate is real estate. You will have tenant issues from time to time. Like, it's not a 100% passive. I don't believe there truly is anything that is 100% passive.
Zach Lemaster:But what we really enjoy about working in the industry that we do is how impactful of a difference we can make on people's lives when we teach them about the things like the tax benefits, when we bring these discounted new construction deals to people to help them build a strategy, and it's not all perfect, right, it does not all work out. It's not all sunshine and rainbows. Real estate takes work and takes grit. It's a long term game, but if you stay committed, I believe it's the most predictable path to wealth. And I just love the stories of seeing people where it's like the brand new investor that was nervous about getting started or investing out of state, and they may have been, you know, maybe a little annoying at first because we had some of the conversations.
Zach Lemaster:But they come back a few years later, and they're like, hey, we made a huge impact. And a lot of times those people go out and build out their own real estate business, but we gave them the foundation to help them get started and the confidence to go out and do something great. And being able to have an impact on people's lives like that when we hear those stories, like, that's the self fulfillment and the reward. It's like, I love that. Same thing in healthcare.
Zach Lemaster:I love helping people see, and and that will change their life for a better. And I think you can do the same thing in real estate. I mean, I truly believe that.
Trent Werner:I love it. Where can people hear more from you, Zach, and connect with you and your business Rent to Retirement?
Zach Lemaster:We always want to drive people to our website, so that's Rent to Retirement dot com, Rent to Retirement dot com. We have, you know, our podcasts, our YouTube channel, a bunch of investment calculators, market data, even if you just want to you know, get access to some of the lenders that we talked about because you don't have to go through us to use them. You know, we put out a lot of information available to the general public. If you're listening to this audio, you can text REI to 33777 and set up a time with our team to help you build out a strategy. We don't charge investors anything, we make our money through building and selling houses.
Zach Lemaster:So we spend as much time as we need with you to help you build out a strategy. And yeah, check out the website and all the content we put out.
Trent Werner:We'll make sure we link that, Zac. Thank you so much for sharing today and joining our our conversation.
Zach Lemaster:Trent, it's been a pleasure. Thanks for having me on.
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