Investing in real estate can often feel like a steep climb. And while every investor is different, many successful investors exhibit similar strategies which are key to their success. Today we are speaking with Pete Neubig, Regional Director for Texas with Mynd Property Management, about the top three reasons he sees for success in the real estate investment market.
Steve Rozenberg: Hey everyone, this is Steve Rozenberg with Mynd Property Management and I am here with my good friend Pete Neubig, who is the Regional Director of Texas for Mynd Property Management. Pete is going to talk today about the top three things that you need to have to be a successful investor in Houston. So Pete, thanks for being here today.
Pete Neubig: Yep, so Steve, good seeing you again. But also not only am I the regional director, but I'm also an investor. I've invested in properties, all sorts of properties, since 2001 in the Houston area. And let's get to it, learn some new things.
Knowing Your “Why”
Steve Rozenberg: All right. So first of all, what is the first and number one thing that you think has got to be established when you're going to be in an investor to start this thing off right?
Pete Neubig: So not only have I found this within me and you as well, but we've also found this with some of our top clients that are successful in real estate. So I've started seeing similarities between all of our top clients that are very successful in real estate. And the first thing I found was, know your why.And so what I mean by that is I'll give you an example. Alright? So I have a good investor friend of ours named Scott. And Scott, what he did was, every time he had a child, he would buy a property. And his why was, “I'm going to buy that property and when that child becomes 18-years old, I'm going to refinance that property and I'm going to pay for their education.” So that's a strong, powerful why and it's a long-term why.Now the first year you have the property, let's say that he had to evict somebody. Now, eviction in Texas takes about 30 to maybe 90 days, the worst case scenario. 30 days, best case scenario. But let's just say on average is two months. Well that's two months that you don't have rental income and if you are shortsighted, you can make a knee jerk reaction—
Steve Rozenberg: Because of the mental stress of getting an eviction and dealing with all that.
Pete Neubig: That is the biggest stressor on any investor. So now, not only are you not getting rent, but you have to pay that mortgage. There's no mortgage forgiveness because there was no rent. So now you're super stressed. And so now you're sitting there and you're paying this note, you have somebody that's in your property, they're not leaving. And so you can make that knee jerk reaction and say, you know what? I don't like this real estate thing. It's not for me. I'm going to get out of it. And now, because only about a year later, you actually lose money on a deal, and because now you want to get out of this property, you're a motivated seller all of a sudden, and now you're going to sell the property at a discount.
Steve Rozenberg: And you just have a horrible taste about investing. And you know what's interesting about that is, the four walls and a roof didn't change. I could buy that deal, not be emotionally attached, and make it run fine. And you're going to go, “wait a second. How did he do that?” My why was stronger than yours. And I didn't let that emotion dictate and sway me.
Pete Neubig: It's like when you see somebody very successful, you don't realize all the trials and tribulations they went through early on. These are just trials and tribulations you're going through. And at the end of the day, the pay dirt is 18 years later, you're going to have your principal pay down, you're going to have your appreciation and you have to be able to refinance—tax free, by the way—and pay for your college education for your child.
Have Investment Rules
Pete Neubig: So that's number one. Number two is, have investment rules. So all of our top tier clients and now you and I follow this because we learned our lesson the hard way—
Steve Rozenberg: We've learned our lessons, absolutely...
Pete Neubig: —have investment rules. So we have a client, we had a guy named Mark. Mark owned 42 properties at one point, but it was interesting that Mark had specific investment rules. So I've taken that and I have investment rules. And so again, there's so many opportunities to buy different types of real estate.
Steve Rozenberg: Especially in Houston.
Pete Neubig: Especially in Houston. You go single-family, you go small multifamily, you can buy rehabs, you can buy condos, you could buy town homes. And so—
Steve Rozenberg: All in the same block.
Pete Neubig: Pretty much, cause there's no zoning. Right? And so what I did is, I established my investment rules and they're separate from yours. And they're separate from Mark's, and they're—
Steve Rozenberg: They're ones that fit you for your goals and your why.
Pete Neubig: Exactly. And so in my investment rules, I call my investment rules the pink elephant. They don't exist, right? So I have like, let's say it's about 15 rules, okay. Now you're not going to get all those 15 rules, right? Now, there's two or three that are what I call the golden rules. They're non-starters.
Steve Rozenberg: Non-negotiable.
Pete Neubig: Non-negotiable. So for example, for me, it has to be at least three bedrooms.And the reason why is, in Houston—and I don't know the markets—but in Houston, if you have something that's a two-bedroom or a one-bedroom, they do not rent as quickly as a three-bedroom or even a four-bedroom.
Steve Rozenberg: And we know that firsthand because you and I have owned them in the past.
Pete Neubig: Exactly. And I also know that because we manage 900 properties in the Houston proper area, and I noticed that all of our two-bedrooms and one-bedrooms—
Steve Rozenberg: They don't rent.
Pete Neubig: They don't rent, they don't rent for a long time.
Steve Rozenberg: And that may not be everywhere else. But in Houston, we know that that is just something that's not going to rent.
Pete Neubig: Correct. The other thing is, you have to have at least two bathrooms. That's a golden rule for me. And I'll give a story. You and I owned a property in Texas City—I don't know if you remember this—and we had it rented and they left after a year and they loved that property. They loved the location. And I remember calling them, I'm like, "Man, why are you leaving?" They were such great tenants. And the guy verbatim said, "Man, we cannot handle this one bathroom anymore. There's four of us now, or there's three of us."
Steve Rozenberg: They had a child or something, I remember. They couldn’t do it.
Pete Neubig: They had two kids and had three bedrooms and it was just too much. And so I wrote that golden rule that day because I've seen it over and over. It wasn't just that one particular property. And I know that one-bathrooms, again, they don't rent.So then what happens is, obviously they're longer on the market, and so, you lose money there. And then, ultimately, what do you start doing when it's on the market? You start lowering your rent. And so you lose money there. So even when you're leasing and even if they do—
Steve Rozenberg: You're making less money. You made less while it was vacant and then you rented it for less. So it's becoming your why—again, going back to your why—your why starts fading as to why you're doing this because you have a property that is not—it doesn't match the Houston market.
Pete Neubig: Also, when you try to resell the property, it becomes more difficult, right? Because other people—if it's not investor and it's, and it's a family, they want two bathrooms. If it's an investor, they want two bathrooms because, guess what? They want to rent it. They want to rent it out quicker. So anyway, the most successful investors that I've seen have these investment rules.Again, I'll just give you another quick one. One of my golden rules is, my single family homes have to be in an HOA. And people say, “why? HOA's are super expensive.” In Houston, they're not for single-family homes. They are for town homes.
Steve Rozenberg: Town homes and condos—condominiums.
Pete Neubig: Super expensive, right? But for single-family homes, they're not. Now, why do I want something in HOA? Because HOA’s, they're kind of pests, right?
Steve Rozenberg: They're protecting your investment. Really.
Pete Neubig: They're protecting your investment. Properties in Houston that are in an HOA, they are kept up, and so those values stay or go up. Properties that are not in HOA are not kept up and we’ve seen property values stay or go down, or not as up, not appreciate as much—
Steve Rozenberg: As the ones that are protected in the HOA.
Find a Great School District
Pete Neubig: And the last one, it's a golden rule for me, Steve, is school district. Okay. So for me, I go to greatschools.org. They rate all the high schools. So I go and look at high schools, mainly. And if it's not a six or above—if it's a five I'm looking at it real closely. If it's a four or below, it's a nonstarter. And if it's a six or above, I'm in. And the reason why is the better the school district, the better the clientele, the better the renter. A better quality renter.
Steve Rozenberg: In Houston, at least, if you get above a certain level in the school district that kind of erases a lot of challenges with a property that has problems and problem tenants and problem areas. It's just kind of as an all-encompassing swipe, is what you and I have seen.
Pete Neubig: What I've found is when the school, the better the school district, the better the paper. What I mean by that is credit. Better credit, better quality residents dealing with less challenges of, I can't pay you, late pay, no pay, eviction, handling your property much nicer—things like that. So, you know, this one I learned the hard way. Because we—you and I—bought like 20-something properties in low—
Steve Rozenberg: low school district areas.
Pete Neubig: Low school district areas, where we had a hard time and those properties didn't appreciate, either.
Steve Rozenberg: No HOAs.
Pete Neubig: No HOAs. And so anyway, it comes full circle. So have investment rules and we can help you create your investment rules. And, as a matter of fact, if you want, I can give you mine and you can post it out there.
And then the last one is, know your market. Now, this sounds like Captain Obvious, right? Know your market. But I'm surprised at how many people just want to buy something and they don't really know the market.
And you could tie this in with the investment rules, but it is a little bit different. And what I mean by know your market, not only do I mean like, okay, what's the sales prices, right? That's pretty simple. But what's the trend? Have they been going up? Have they been going down? What kind of insurance is—
Steve Rozenberg: You just bought a property that you didn't know the market and it affected you, right?
Pete Neubig: Right. What's the days on market for sales and for leasing? Do I need to put in a refrigerator or do I not? I can't tell you how many investors outside of Texas come in and, because in their market there's no refrigerators, they say no refrigerator in this market.
Steve Rozenberg: And here you have to have it.
Pete Neubig: Meanwhile, in specific areas of Houston, you have to have—and sometimes not only do you have a refrigerator, but you have to have a high-end refrigerator. Do you have to have granite countertops or not?
Steve Rozenberg: That's knowing the market. And, one thing that you and I know is, what was very interesting in some parts of Houston, there are some streets that are requiring flood insurance and the street right next door may not require it just because of the way the flood plain is and the way it's written. So, if you don't know that—same thing with wind insurance—you may have a property that you were expecting a certain cash flow, you find out it's mandatory in a certain part of Houston, you didn't realize that and now all of a sudden your numbers are not working for your cash flow of your property.
Pete Neubig: Correct. And that puts an extra stress on you because now one of the five pillars is crumbled with cash flow.
Steve Rozenberg: Yeah. So these are some things that, again, when you come to Houston or any city, but we know Houston obviously, and so this starts again with your why, most importantly. Why are you doing this? What's going to keep you your north star of heading in that direction? Then it's going to be your rules of engagement, of how you're going to buy the property, what your non-negotiables are and what niceties are. And then lastly is knowing the market and understanding why you would or wouldn't buy because of a certain area and what things would make your property stay vacant longer. What things would make your property not get rented by the best tenants and all those things. And it's area specific in Houston itself.
Pete Neubig: Yeah. Cause you might have a property that hits your investment rules, but then you put it in an area that is not the—you don't know the area and it's not the right house in that area, then, all of a sudden, you obviously made a mistake.
And then when you make a mistake, here's the other thing—cut your losses. If you really make a mistake, I don't say like just one eviction, no, but if you cannot get good tenants over a period of years, then you have to cut your losses.
Steve Rozenberg: Yeah. So it's unemotional. So again, I would add to your list, it is a mathematical equation. If the math is not adding up over time, not a knee-jerk reaction, but if it's not adding up over time, and all of a sudden this deal is just not working, it's like owning a stock. At some point you're going to sell the stock. At some point if the house isn't working, you're going to sell the house because the numbers are not working and it's not getting you closer to your why and closer to your goals.
So this is Pete and Steve. Thanks everybody watching. We appreciate it. If you want to find us online, you can go to mynd.co, M-Y-N-D.co, or you can go to our Facebook group, the MasterMynd Real Estate Investment Club. You can go there, you can join, you can engage with people like me and Pete, other investors, find out about Houston or whatever city you're looking for, and you can have conversations and figure out what is best for you and maybe help you figure out what your why is. Thanks for watching everyone. We'll talk to you later.
Success in any business is often rooted in a firm understanding of why you are in that business. Oftentimes, the reason you invest can help you weather the storms you will face. Remembering that reason can insulate you from making emotional decisions and keep your mind on the success of the business or investment, overall.
Secondly, having investment rules can be a great strategy for keeping your why at the forefront of your mind. And while it can be difficult, or sometimes impossible, to not break at least one of those rules, they can be a good guide for making the right decisions to protect your investment.
Lastly, knowing your market is a necessity when investing. Having a clear understanding of the market in which you’re looking to invest and the prospects of potential properties is most important for investors at every level of experience.