From ZERO to 187 Doors in 15 Years with Michael Zuber

Michael Zuber shares his insights on how to become financially free through rental properties, learning your real estate marketplace, and staying disciplined.

*disclaimer: the information contained below and in the companion audio podcast are intended solely as legal information for personal use and should not be considered legal advice*

Why did you choose real estate and rental properties as your investment?

The answer is I tried stocks first. I was arguably a successful day trader in stocks in my 20s. Everyone was making money back then. It felt great for a long time until it didn’t. I went from making over six figures to losing it all in about 10 days. I felt stuck.

Walking around a bookstore, I realized I needed to do something, which is when I stumbled upon “Rich Dad, Poor Dad.” And that’s how I got into real estate. It’s something you can touch. It doesn’t really lie to you. The things we’re seeing in stocks today are similar to what I went through. Real estate is more tangible. The real estate market moves but it doesn’t drop overnight like stocks. I bought my first property in December 2002 and retired in February 2018.

How do you get started investing in real estate?

Building wealth in real estate starts with learning a market. You make your money when you buy. Every market produces an average return for working class rentals. Your job is to find a great deal; you don’t need to say yes to everything. Wait until you find the deal that is better than the average return. But people don’t like hearing that. People spend a weekend looking online and start writing offers. But in today’s market, that’s dangerous. If you’re not careful, you’ll create negative cash flow, which I call an alligator in my book.

In Vancouver it’s tough to cash flow positive with rental properties. How do you avoid alligator properties in a market like that?

My first property had a mortgage of $1,225 with rent of only $1,095 before any expenses. I did make that mistake. Every month I was losing money. That’s the idea of an alligator property – when you have to pay for it.

I’ve lived in the Bay Area for 50 years and the first thing I did when I got into real estate was spend a year driving around the Bay Area. Everyone said you have to buy a place within a 20 minute drive from where you live. But nothing worked, so we started going farther outside of our bubble until we found Fresno, California. We live where we want but invest where the numbers make sense.

If you live in a ridiculously expensive place, invest where the numbers make sense. For me, that meant I had to drive two and a half hours to Fresno. We were willing to make that investment.

What was exciting about the Fresno real estate marketplace?

There were plenty of markets closer to us that offered similar returns but they were too small for our liking. Any place with just 20,000 people means you’re one hiccup away from being decimated.

• Fresno at the time was half a million people and it’s now at one million – so it’s a growing market.
• Price to rent ratio was good and it had inventory that was moving.
• Size was a big factor for us and I didn’t want to buy in a small town.

How do you plan to retire with real estate? What was your approach?

All I was worried about at the beginning was getting the first deal and, once we got that, getting the next deal. It was only about making the next deal better than the last. My goal at 30 years old was to get to 10 properties. I never dreamed of retiring early. I didn’t think it was financially feasible. I knew I’d have a better future but I wasn’t thinking about retirement.

It wasn’t until year eight or nine when we had about 100 units that we began to think about it. My wife retired six years ago to see if we could live without her income. And we could. But it was never an income or unit thing. It was just about getting the next deal.

Tell us about your book, “One Rental at a Time.”

When you get to about 200 units, you get invited to be a speaker at events. People are excited for you. But when I followed up with those people, they never did anything. The numbers were just too big for them. I felt like a failure. I want to help pull people up the ladder and change their financial future. So let’s start with just one rental. That’s how my book, One Rental At A Time: The Journey to Financial Independence through Real Estate came to be.

How do you find and analyze a deal?

You need to learn your market. I’ve looked at mine every single day for 10 years. Every market has an average return. Fresno is about 6%. Expected yearly cash flow is the numerator and out of pocket cash to buy it is the denominator. I call this the yield. I want my money working harder than the average in the market. I never want to be average. I don’t have to say yes to everything.

This is a dangerous time to be an investor as things are very uncertain. This is the time to learn.

What kind of homes are you buying for your rental investment portfolio?

I traditionally buy affordable single-family homes. I think it will be the best investment asset to buy in the next decade. I do have a mix of multi-family and single-family homes. I also have one condo but I don’t love them as you always have association or strata fees you can never pay off.

Single family homes are the best investment. Multi-family homes were very overpriced and we sold many in 2019. People want more space than an apartment right now. We’re seeing people move to the suburbs to get that space. Multi-family in much of the US is in trouble.

We watch the market. I look at it every day and I’m constantly adjusting and learning.

How has COVID-19 affected your portfolio and your strategy going forward?

This health crisis has shown us that space is good and vertical living is bad. People want a backyard, a front yard and an extra room for their office. It has made the value of houses go up. I am only buying single family houses for the next few years. We’ll see appreciation as people move from cities to suburbia. So that’s where I’m buying.

Is this just for the short term or will buying habits change long term?

It’s all about the employers. Here in Silicon Valley, they’re telling people that working from home is forever. That could change. But if remote working is here to stay, people will move. People in California could move to Nevada and get a raise thanks to changes in income tax. If “work from anywhere” is still the case next year, these buying habits could really take off. It’s too early to tell but it’s all about the employers.

How does mindset play a role in your investing strategy?

For me, it was always about the next deal. I didn’t have time to celebrate the journey along the way. My mindset was always about the next deal.

Secondly, you need to live below your means. We went from spending 100% of our income to just 50%. Income isn’t the only thing that matters. It’s about how much you have left. People need to evaluate their needs vs their wants. I was wasting money on silly wants. Letting go of them allowed me to retire at 45 and buy back years of freedom.

What are bad recommendations you hear in the real estate world?

“Give me your money, trust me!” This preys on people who don’t have time and just want to trust an “expert.”

But learning real estate is not hard. You just have to learn one market. You can do one deal a year. And that will change your future. If you just trust people because of something you saw online or some meetup, you’re being lazy.

Trust yourself. Learn your market. Make your own decisions and succeed or fail on your own.

Another concern is wedge deals; spending money fixing up old homes and banking on the appreciation. But it’s not about appreciation or net worth. It’s about cash flow. It doesn’t matter if prices fall. Once the market falls, people lose their prices when they are betting on appreciation or forced value.

How has failure set you up for future success? Do you have a favourite failure?

The failure that allowed us to start this journey was when we bought our first place in Fresno, renting it out for $1,095/month. Two weeks after our tenants moved in, the couple separated and the wife left. The husband stopped going to work, stopped paying rent and destroyed the house. In California, we can’t get an eviction for over 60 days. When we finally got him out, after lawyer fees and unpaid rent, we were hit with a $15,000 repair bill.

I expected my wife, Olivia, to tell me to sell the place. But she asked if we did everything right. And we did. We couldn’t have known about the divorce. So we decided to keep going. That house ended up being a homerun for us. We sold it for $150,000 more than we had paid less than four years later. And we moved that equity into a building we still own today.

While that house started out miserable, we realized that bad stuff happens in real estate. We double checked our processes and decided to move forward.

What is your advice for younger people getting into real estate?

You are at such a lucky point in life to have found real estate investing. Your monthly expenses are low, maybe a few thousand dollars. The trick to being financially free isn’t income but how much you have to spend to live. If you can keep your living expenses at $2,000-2,500 per month, you can be retired at 30. Learn your market, sacrifice and don’t raise your expenses, invest, save, and earn.

You make the call each day.

• Do you want to expand your monthly expenses?
• Or do you want to sacrifice a couple extra years?

Don’t get caught up in the comparison game and instead, retire early.

In the last five years, has there been a new belief, behaviour or habit that has improved your life significantly?

I retired at 45 and I’m almost 50 now. When you retire at 45, you spend two days telling everyone and your face hurts from smiling so much. But when you realize you’re the only one not working on a weekday, you have to make a choice. I was one weekend away from getting another job because I was depressed. My mind was playing tricks on me. So for me, I had to find something else.

I wrote “One Rental at a Time” to help people and to tell our story. I then created a YouTube channel where I make a few videos a day to try and help even more people. This allows me to feel like I’m still contributing. I can get it all done before my wife wakes up, so we still have the whole day together.

• Rich Dad, Poor Dad – Robert Kiyosaki
• One Rental At A Time – Michael Zuber
• Seller’s Club – Sign up for our Live Wire newsletter and hit reply once you’re on the list to get access to our exclusive Seller’s Club.
• Vancouver Real Estate Summit – What’s Happening in the Vancouver Real Estate Market