Rentals Are Not Passive

“Rentals are not passive.” That line alone can save you years of expensive lessons if you’re buying your first investment property. We sit down with Northeast Ohio investors Kyle Novak and Danny Nicolino to get specific about how they analyze rental properties and flips across Canton, Akron, and Cleveland, and what separates a deal that looks good on paper from one that actually performs after vacancies, turns, maintenance, and real property management costs show up.

We talk about how they start every evaluation with location and rental demand, then filter by asset type to avoid hidden complexity like old converted multifamily buildings with messy utilities and surprise repairs. They share the practical logic behind choosing ranches and bungalows, how to think about appreciation and principal paydown as the real long-term wealth engine, and why the three biggest drivers of rental profitability are purchase price, leverage, and operations. If you’ve ever wondered why someone can “cash flow” and still feel broke, this conversation connects the dots.

We also break down the BRRRR method (Buy, Renovate, Rent, Refinance, Repeat), how private money and seller financing can get early deals done, and why conservative underwriting plus a padded rehab budget keeps you alive when you miss something on the walk-through. You’ll hear the red flags they watch for, plus their take on “hardening” rentals with durable finishes like LVP and stone counters when it makes sense for the market.

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Transcript

Welcome And Market Overview

0:26

Hello, and welcome back to the Rick and Shauna Show, Property Management Unfiltered. I am one of your hosts, Shauna, and this is Rick. We are with Icon Property Management. We are a local property management company in Northeast Ohio, and we cover Stark Summit in Cuyahoga counties. That's Canton, Akron, and Cleveland. Okay, so as we promised in our last episode, um, we had talked a little bit about um how we start the process of uh, you know, looking at properties when an investor brings properties to us, what we look for and how we approach that. So we promised we were gonna have somebody on this week. So I'd like to introduce uh Kyle Novak and Danny Nicolino, and they are local uh investors that have been in this market for for some time and have been been successful at it. So we wanted to have them on and uh kind of go through how what their process is. So if you guys could just uh tell us a little bit about yourselves and uh we'll get this thing going. Sure. Uh my name is Danny Nicolino. I'm a local investor, as Rick said. Um so started back really heavily started back in like 2016, 2017 timeframe. Uh started with buying rentals and then transitioned a little bit more into wholesaling, if you're familiar with that. And then transitioned into more flipping. But we still buy rentals. So we still do all three of them. And that's the cool thing about real estate is there's always an exit strategy that works, right? So um, but yeah, so I live in Townwidge, Ohio. I'm a father of two, and I also own with Kyle an education company called Roundtown Go. So that's a little bit about me. My name's Kyle Novak. Uh, similar story to Danny here. Um, started in 2017. Uh, started by buying a few rentals while having a day job, started wholesaling, um, found out that's really hard and requires a lot of time, just then pivoted to flipping, and ever since have been flipping and still buying rentals. Um, I have a business partner, Rocco, uh, that I own everything 50-50 with, and then also part owner of Roundtown Go, the uh education mastermind in Northeast Ohio. Okay.

Why Roundtown Go Exists

2:38

Tell us a little bit about Roundtown Go. Yeah. So the big thing, people always ask, you know, why did it get started or why did we start it? And the reason is it's for me at least, it's what I needed when I got started. It was the thing that was missing, right? It was not only the mentor and the education and the stuff that you need to feel confident that you can go out and do a deal, but it's also that community support that you never have if you're just by yourself Googling or looking on bigger pockets. I mean, sure, there's people out there, right? But there's not local people, right? So round time go up now, at least, especially with the nice community that we have. We have contractors, property managers, lenders, other agents, um, just all the different connections you could possibly need. And on top of that, other people are in the business with you. So growing their own flipping company or their rental business, and they're experiencing all these problems. And being a part of this group helps you sidestep landmines that you otherwise, you know, might actually hit and it could sink your business, right? So it's for sure, it just helps you, it just catapults you further faster. Yeah, when we started, like obviously the internet was a thing. It's not like we started 50 years ago and you couldn't find anything, but really I'd say when we started, bigger pockets was like pretty hot at that time. So like that was the thing, that's what I learned off of was just reading forums, watching their podcasts that they started. And then I started trying to network through there, and that's how I did meet a few other local investors, and then we try they tried to put together a little networking group, then just fizzled out. You know, everyone was doing it for free and volunteering. It wasn't consistent. So there wasn't really like a consistent networking group on the same time, you know, that had people you wanted to be around, right? Um, you know, obviously there's your REAs and stuff like that, which were fine. And I did go to those and I did learn some stuff there and meet some people there, but um, I think we almost just needed something a little more fresh, I guess, for lack of better words. So, how did you so if somebody was interested in roundtown, like being part of it, what would they do? Like, would you guys have a website that you could yeah? They can go to just www www.roundtowngo.com and they could just fill the format on there, and there's all of the information about what we do is right on the website. So it's real simple and straightforward. I mean, the big things just to hit them are the net live networking events, right? So all group members get a free invite to those, they can bring guests or whatever. Um, you've got we do virtual calls, we do property walks, uh, we do one-on-one mentorship or as needed with Kyle and I, which is huge. That's that's the I mean our time is super valuable, right? So getting us one-on-one is is crazy. Uh, and then on top of that, I mean, just the actual community inside the Facebook group. So we got our file section that has all of our documents, uh, pretty much anything you'd ever need to run your business. Not only that, but the community itself. I can't harp on it enough. We've had how many people form partnerships, form partnerships. Like they didn't know each other, they both joined, they became business partners, and they're actually still business partners years later, like growing their business together, right? So um it's a great reason for it. So we just want to surround ourselves with people that are doing the same thing, similar morals and values, um, and also have a little fun doing it, and all just help each other grow. And honestly, being willing to share that information with other people in the same, you know, industry, in the same area, even, you know, because sometimes people look at that as rising time floats all boats is the way we look at it, abundance. Yeah, yeah, yeah. That was one of the things that I really liked about you guys. Yes, is that you weren't afraid to like uh share information thinking, oh, you know, somebody's gonna pick up on what we're gonna do, and it's just gonna it's gonna hurt our business, you know. And that was one of the things I was impressed about you guys is that you were willing to share this information. And you know, I will tell you, there's a lot of people that aren't willing to do that. If they have if they have successful and they're successful, they don't want to share it. Right, right. So that's some that's impressive.

Mentorship Without Gatekeeping

6:39

Well, the big thing too is we could give away all of our contacts and connections and we could go find more, and that's cool and everything. But the biggest thing we do is we teach people how to fish, not just hand them fish, right? So if someone's like, well, give me your best contractor, okay, cool. Like if you need someone, I'll give you someone, like whatever, you're in a pinch, like that's fine. Like, we're gonna do that, obviously. Uh, but that being said, it's not gonna help them in the long run because that contractor is gonna fizzle out one day and they're not gonna have the skill set to go find more and vet them properly. So we try our best, not to gatekeep, but to we still want to share and you know help people as much as we can, but we know thinking ahead, like they need to know how to do this stuff, right? Not just be handed the big one, the big one there is private lenders. You know, a lot of people come in not being able to fund deals, and we and Danny really, I wouldn't say we specialize in it, but we mainly raise capital. So that's why we're strong suits. Um, so people are like, hey, can you just send me a private lender? It's the same concept, right? We'd rather teach you to find your own than just give you ours. And second, they're private lenders, so like it's very trust-based. So I don't know if they would even lend to someone that they didn't know anyway. So um, yeah, that's I mean, my dad said the same thing when I told him that I bought ownership of Roundtown Go. He was like, What are you doing? You're just training your competition. And I'm like, There are so many houses out there. Oh gosh, and there's so many, there's just so many opportunities out there, such a fresh outlook. Yeah, I think in turn, yeah, you guys are gonna become the product knowledge experts and people are gonna look to you and it's gonna open up more opportunities. Right, which it does, yeah, for sure. It does, it has for us. We've taken the private lending class from you guys, and it was phenomenal. And we've attended the networking events, which by the way, those are the best networking events that I think that we've ever attended. They have so many, you know, diverse people there. Um, the one that we just did in Cleveland, all new, you know, all new faces. So it's nice to come to these events and know that you're, you know, yeah, you're gonna see some of the regular people that come. And that's that's great too. You get to, you know, follow up and catch up with people, but you also get to see new people. And you guys are always working so hard to get, you know, those people behind the scenes. And I can't imagine what goes into hosting these networking events, you know, and you just put them on for us, and it's great. They're they're the best networking events we've been to. Right. So I appreciate that. Yeah,

How They Evaluate Rentals And Flips

9:05

thank you. Yeah, we're gonna pivot just a little bit here. So, in terms of like when you guys are evaluating a property, okay. So I want you to kind of do the 10,000 foot range because I know this can be long, you know, there's a lot of stuff. But when you're evaluating a property and you're whether you're thinking about making it a rental, you're thinking about flipping it, how are you guys evaluating that property? Um, so for for me and Rocco for rentals, especially nowadays, the first two things we look at is the area. Which area is it in? Is it gonna have strong rental demand? Is it a place people actually want to live or is it a place they have to live? Um, and then second would be the type of house so or type of asset, right? So, like me and Rocco don't love, you know, a 1890s built house that someone converted into a four-unit 50 years ago, and we don't know where all the utilities are together. We don't know there's all these taps, bad electrical, buried stuff. Um, not seeing every conversion is like that, but it's just more common in that. Um, we'd much rather buy a four-unit that's townhouse style, side by side, own entrances, separate utilities. Uh, normally those are built in the 50s or newer-ish, so that helps with some other stuff. Um, same with houses. We prefer ranches or bungalows in good areas uh for rentals. They just have they're the most marketable for resale value and uh rentability, if you could call it. And they normally don't have that much issues, like maintenance-wise. Okay, you know, all your plumbing's on one floor, you're not dealing with running plumbing through drywall, um, all those different things. So that's what we look for in terms of rentals. And in terms of flips, um, we will flip anything kind of anywhere. Um, but in terms of the asset itself, we still prefer ranches and bungalows just because they're the easiest to rehab and sell, in our opinion. Um, but we'll we'll flip anything anywhere as long as the numbers make sense. Okay. Makes makes sense. Yeah. Yeah. So I'll echo a lot of what Kyle said with the location. When I first started buying rentals, I kind of had a differing opinion, right? I was like, well, as long as the numbers make sense and it cash flows, cool. But that's a huge misconception. Is it if it cash flows on paper, it's a good deal. It's no. I mean, yes, it should like in theory, yes, you should have some cash flow, that's important. But um, rental, the money with rentals is made in the long run. It's made with appreciation and your principal paydown over time. If you extrapolate out all the unit turns, the roofs, the furnaces, the tenants not paying, the vacancy, everything. Yes, you can make money, especially if it's not leveraged very heavily, but uh from cash flow, but it is more so much more so the appreciation. So in this market, you think it's more the long game? Somebody looking at playing that game all the way out. Like, if I've got a 10-year mortgage on this, I'm gonna run it all the way out. Is that yeah? I mean, 10 years less, or go ahead. What are you gonna say? It's just tough with rentals. There's so many variables. I I think the two main variables is your purchase price and then your leverage. You know what I mean? Like you could, and then really there's three variables your purchase price, your leverage, and then how you operate it, or how your opera your property manager is doing. I think those are your three ways, three biggest variables to a rental being profitable. Okay. Is your purchase price, did you buy a good deal? And then how much leverage or cash did you put into it, and then how it's operated after that. Because you can you could buy a bad deal, pay it all in cash, um, because you're cash heavy, or maybe have another successful business, and then have a good property manager and actually make money even if you're overpaid. Does that make sense? Yeah, yeah. Now, obviously, I think in the best case, you do all three of those variables well is buy, right? You know, use smart debt and then operate it correctly. But everyone has a different path and journey and financial situation before they get into real estate. So for me, it's kind of what are what are you looking to get out of rentals? Do you need tax benefits? Are you looking for retirement income? You know, what's that situation? So to me, it's a it's a combination of those three variables, right? Personally. So for me, I would also say I prefer to be able to burr out of it. So what that means is if we buy it and fix it all up, and I want it to be able to appraise and still cash flow on the back end, maybe to pull as much as the cash that I have in it out. Because that's usually because I'm usually buying with private money. So I can be able to pay off my private lender, right? So a lot of people, I'm not saying everyone does this, but a lot of people don't think long term like that, like, oh, it's a rental, I can put a little bit down and I can I can not replace the furnace, not replace the roof, or I can skate by without it's got another five years left or whatever. But what they don't realize is you're just shooting yourself in the foot in the long run. Because then two years down the road, you got to replace that. Three years down the road, or ten years down the road, you gotta it's kind of it's very common. And not saying that couldn't happen even if you did it all day one, but it's just less common then. Right. And there's just these less of these giant dips with your cash flow. And it when people say they make a thousand bucks a month cash flow off of a house, I I just I look at them kind of funny, obviously. Trust me. We're always like, uh they come into this market expecting that, yes. Right. It's like yeah, because on paper, I mean, I had a actually you know about it, the four unit I had in Canton. Yeah, I mean, it was on paper a great deal. And I had a really low cost basis on it. So I mean it was kind of a good deal, but cash flow-wise, even though I had super low leverage relative to the value, I mean, cash flow-wise, it was still dog water. I mean, it was it was still not not good. Yeah, uh, be because of the the transient tenants, the a lot of the maintenance issues, the type of asset where it was. It was the area where it was where it's sat because it really wasn't a bad property. So if you could pick it up and move it and you know just fix it up a little bit, you would get different tenants, it would be in a different area, and you would probably clap you know, cash flow more, you could ask more for rents. Correct. I think, yeah, I think with me and Shauna, that's one of the things that we hear the most is that that um people don't anticipate the turns. That's right. Yep, they just think, oh, you know, you just sign a lease in somebody's case, right? Yeah, that's what you do. That's not everyone. Right. And they don't realize the cost of the turn. And if you if you're cash flowing $200 a month and you do a six thousand dollar turn. Right. Yeah, you've got multiple years to pay your turn, but that's right. Then you got another turn or a route or something, which is why I say good areas, right? That's my first thing I'm looking at. If I'm looking at it right now, is if I know it's gonna appreciate in the long run, I know it's gonna be like I know I'm gonna lose in the short term, maybe win, maybe lose, but like it's gonna go like this. But if I know in the long in the next five to ten years that property is gonna be 20, 30, 40 percent more in value, and I've leveraged it, so it's like free money all day. That's great. Right. And you get the tax benefits the whole time. Correct. Sure, yeah, and that's why I think it's that's the definition of having a portfolio, right? Like we do have some stuff in C and D class areas that cash flow better if operated correctly, then we have stuff in A-class areas that on paper cash flow worse, but they're much easier to manage, long-term hold, you know. So, and I think having a mix of all of that is you can kind of just like being diversified in the stock market or anything else. Yeah.

BRRRR Explained And Deal Metrics

16:41

So I wanted to just circle back for a second. You had mentioned the BR method. So for those who are listening that are new and maybe have just heard that term or haven't put it to use yet, can you explain that a little bit? Yeah, so it's just an acronym to buy, uh renovate, um, refinance, and repeat. Right. Okay, rent in there. You gotta renovate. Buy, renovate, rent, refinance, rent. Sorry. I knew I was gonna use this game trip, yeah. Yeah, every time I put you in a spot. Sorry. But it's an easy one, but it's just yeah. So too many R's too many R's. But uh, but yeah, so essentially it's the whole process is really just you you buy a house with either private money, hard money, whatever, fix it up, and then you're able to pull your cash out after you've rent if you've after you've forced the appreciation, got it for rent at a higher value, and it appraises for higher, refinances for higher, and then you can pull your cash out and do it again. Okay. That's that's the concept. Right. Umperties with none of your own money. Right basically. Yeah. And then me and Rocco personally look for $400 a month over the refinanced P I T I. Okay. Does that make sense? So after we refinance out, pay off the private investor, we have no money in the deal, we own this house, um, we have stable debt because we did the refinance, and a tenant's paying X amount of dollars. We look at our taxes, property taxes, insurance, and then principal and interest from that refinanced loan. And the property has to be able to rent for $400 more than that. Okay. And then that allows us to really probably net $100 a month because that does not include vacancy, turns, maybe maintenance. So we've seen a rough average of about $300 a month for us to operate a unit. And that is in-house that's using in-house management. That's what we have our own employees doing that. Okay. Um, I'd say it holds similar. It's my underwriting similar. I mean, with even with icon, so with you guys doing mine, I mean it's still similar as far as cost-wise. Um, there's you know, pros and cons to both, as we talk about all the time. But um, but yeah, so that's I just brought that up to let that's what I look for in a good deal here in North. At least in this this one. You're gonna burr. Okay. So one last question here and then we're gonna move on to another question

Common Investor Mistakes And Myths

18:57

here. But so what do you think the biggest mistake that investors come in on this particular topic? Like, how to what do you think the biggest mistake they make? Like, what are you guys seeing? Like, what's the number one thing that people come into this? So yeah. I actually made a post today of a lot of misconceptions. So they got 15 of them sitting on my Facebook right now. But um, there is one I will mention one thing, and that is that a lot of people overlook things that are detractors from properties, right? So, like low ceilings or train tracks behind the property, or um even not in a flood zone, near a flood zone, more water is gonna get in the basement, even if you're not right, you know. I mean just like weird things like that that maybe is not like advertised or not the first thing you like, low ceilings, if I didn't mention that. So or weird layout, weird, just weird layout in general. Super small bedrooms, yeah, super small. Yep. Things like that, because even if it could rent, right? You're it's appraise right. Um it's likely someone's not gonna want to rent it, and definitely, like more likely, someone's not gonna want to buy it in the future if you were to go sell. Right could you get an appraisal refi because it checks the boxes? Sure, probably. But um, even an appraiser is gonna look at some of those things, so yeah. I just I think that's a big mistake that people make because they're very eager and just want to buy more deals, and they overlook some of those things that I mean, maybe it's not a deal killer, but it's gonna make it five to twenty percent less value, then you just don't realize it, and that kind of you know doesn't make any money. Yeah, there's a price you can pay to make those things work, but people don't take them into consideration. I would say that's a tough question. There's a lot of things I think, but I think people don't know what construction costs. Like they don't have a good familiarity of what it costs to send a plumber out there and snake a drain or replace a main line or you know, replace a roof or do paint flooring. I think a lot of people just don't, especially newer people, just they're eager to buy a property and if it and that's fine, you can buy it and figure it out as you go, but you better have uh some cash sitting around or you know, a backup plan. Right, right.

Estimating Repairs And Spotting Red Flags

21:14

So that would be our next question, I think, is how do you estimate the cost of repairs when you're walking through a house? And what are some of the things that you you know that are red flags that you stay away from when walking through a house to you know make that decision to buy? Well, real quick, I have I want to add one more thing to the last slide. Oh, I'm sorry, go ahead. I it it is this is a big one, and it's this is huge. All right, rentals are not passive. No, rentals are not passive. Can I say that again to everyone? One more time. One more time. Rentals are not passive, even with a property manager company. They take the day to day off, but you still have to manage the manager company, you still have to know what's going on with the asset, still have to make decisions. A lot of people think it's a savings account, and you go buy it and it's just supposed to print money and you never have to put money into it or do anything. It's supposed to ching t ching every month. It's not how it works. It's not. And uh anyone who tells you otherwise either doesn't own rentals or is trying to sell you something. Yeah. Right. That's that's what it that's what was. Makes sense. Good point. No, I definitely agree with that for sure. So I just wanted to say that I think that was an important thing. Yeah, no. Sorry. In terms of construction, though, um for me a lot of it was just on the job learning, you know. But I'd say something that really helped me at the beginning is I paid a licensed inspector and contractor, he was both, he owned a construction company and was a licensed inspector to come walk properties with me that I was going to make offers on. Okay. And then I just started to learn his numbers. And then he gave me a baseline of, okay, you know, I charge $4 a square foot, material and labor to paint a house. And then I could, you know, that was my baseline then, right? And then obviously there's other contractors that charge more, charge less. Um, then quality is a whole different thing. But just walking a property with someone that was a contractor and inspector that knew what to look for code-wise, stuff like that, and then tell me his numbers for it. I did that 10, 15, 20 times. And then I was like, okay, a kitchen is gonna cost me 12 grand for this size. You know, a bathroom's gonna cost me five grand for this size, or whatever the numbers are, right? That depends on the size and finishes and all of that. But right, so if you're not gonna get engaged, it's gonna end up being a problem for you in the long run. Because you might be gonna get away with it for a little bit, but eventually you're gonna get caught because you just don't understand it. You don't understand the excess. Right. Yeah, I mean, I I would say the same. I did do the I did the exact same thing. I paid uh inspector and contractor to come with me multiple times uh to walk houses. But there's plenty I bought without that. I did have a mentor that just kind of taught me a lot of this stuff as well. Um I will say just a very high level, how I typically walk a house, walk around the outside first is what I like to do, so I can kind of see if there's any drainage issues going into the basement, anything to look out for. Then when I get inside, I'm looking at the big stuff if I can, right? So the foundation, foundation walls, any evidence of water damage, will always look up in the ceiling in the basement to see there's tons of stuff you can find there. I missed one back early on. The people had uh all the lights out in the basement. And I didn't have a flashlight, but fortunately, the person I walked and walked the house with did, and the whole ceiling was charred. They had a fire in the basement they weren't disclosing, right? So just all these things that you gotta keep an eye out for. Um electrical box, if it's federal Pacific, you know, that's gonna be an instant switch, right? Because it's it's fire hazard. Um, old mechanicals, the roof you want to take. I've gotten screwed on roofs tons of times just because it's there's always issues that so if you can peek in the attic, that's great. Um, just the big stuff, I would say. Yeah, and most of the time people aren't gonna miss oh, I I need to paint this house, right? Almost every house needs painting. Um, people aren't gonna miss that, but normally people miss the mechanicals, the foundation, um plumbing, pump main stack leaking. If you turn the if you turn the tub on, let it fill up and then let it drain out. A lot of times main stacks like like the old the old cast iron, like they they won't leak unless they have a lot of flow. Right. And then they'll leak. So if you can test that, that's ideal. And then you know, start at the top and then you know, check the basement. Um, yeah, I mean, it's not gonna be perfect, right? If it's an old house, it's two-story plumbing, you just gotta assume some of that's gonna go wrong. But uh yeah, I just try to keep an eye out to that stuff. Yeah, I mean, really, it's it's even after all the houses we've bought, we still don't get it perfect every time. Like we still miss stuff every single house. But the thing is, is we know that. So when we build a rehab budget, we just fluff it, you know, 10, 15, 20, depending on the size. And then that I think that's where people really get burned, is they are stretching their ARV or possible rent they think they can get. They're at the max of what that could be. Then they take their rehab down as minimal as it could be, right? And then they take their purchase price or you know, and pay too much. Um, or they if it's a flip, they take their profit and they're like, okay, I'll make 15 grand if all this goes right, right? That's just a stick for disaster because it's gonna sell for less than you think, rehab's gonna be more, and sit for longer or something. Yep. My rule of thumb is when it comes to purchase or profit, rehab, and ARV or rent, I have to be conservative on two of them. Like I'll stretch one of them and then we'll go from there. But that's how we've taken base hit deals and they turn into home runs because sometimes you get lucky. Right. If you're conservative, it's easier to get lucky, if that makes sense. Right. That's kind of my sense. Yeah, makes sense. Okay, okay.

Rehab Decisions And Avoiding Over-Improving

26:48

Well, so next question here is like when you're fixing up a rental, how do you determine like how much you're gonna put in that property? Like, what's your basis for like, okay, this property, or it could even be as simple as, hey, I don't think this is gonna be a good flip, I think this is gonna be a better rental, or vice versa. You know, you could go either way with it. How do you kind of come up with that? So that's a that's a good question. And we try to make this decision pretty early on for one big reason, is because with rentals, it makes sense to replace the mechanicals like the furnace, how wire tank, or maybe even the roof or something like that. Because again, you won't want to deal with it later if you're gonna own it long term, right? Um, and it's actually gonna bump your appraised value on the refi, as opposed to when you flip it, it may not actually change the appraised value because a lot of times it just comes in at value of sale price, no matter what you do. Right. So, and the new buyer may not care that it's a 10-year-old furnace or a 20-year-old furnace or whatever, the roof's last third of life or something. They may not care. So, and honestly, we found a lot of times they don't care. Yeah, so um on flips on flips, but if it's a rental, I'm gonna do all those things, right? So I'm gonna plan for that probably on the front end. But as far as deciding what to do, um it's flips or rentals, it's basing on the comps, uh uh, simply put. I mean, you're looking at the comps, what do the comps have, and try to do that maybe a little nicer, depending on the area, who knows, you know, or how much budget you have. But um, pretty much looking at the comps and trying to stick to that. Because if you over-improve or over-rehab in the flip or rental, it's usually not going to pay off that well. Usually. There are certain scenarios where it does, but it's rare that without hard data saying that this will sell for more or this will rent for more because I did more to it, there's just no reason to do more. Okay. Yeah, we've same same thing. I mean, we've noticed in the rental market here in Northeast Ohio, you know, we're not renting, you know, 10,000 a month penthouses where you have to have marble or it's not renting. Like, unless you're asking probably here, $2,500 a month plus rent. Like, if you're if you have a thousand a dollar a month rental, they just need clean, clean, safe, operable living. You know what I mean? Like, it's you're not necessarily just because you put marble in there doesn't mean you're getting $1,500 a month and rent. Right. Right. Um, so that's that's how we look at it. We we used to over at the beginning, um, you know, I think me and Rocco both watched too much HG TV growing up and thought everything had to be perfect in a house, especially even for rentals, and that just burnt us over and over, you know. So a lot of times now in rentals, we will keep cabinets if they're working, we will keep um surrounds, ceramic surrounds or vinyl surrounds. Um if it's working, it stays. If it's not a deterrent, right? Right. That's kind of my thing. Anytime I'm doing any sort of construction, it's like, is this a wow or is it like a deterrent? Like, is it disgusting? It's gonna turn people off, or is this super nice and functional and helpful and they will pay more for that? Makes sense. Have you guys ever gone into a property where you went in as a flip and came out as a rent? Where you said, Hey, I just this I don't think this is gonna work. Maybe you underestimated it, or I have done it the opposite way. Where we bought some rentals and we were about to list them, but then we went through a cash, we were cash strapped, we needed the money, uh, because some other things went wrong. So we end up selling the rentals before listing them for rent. Okay. Um, but I don't think me and Rocco have ever bought a flip and then it didn't go well, so we kept it as a rental or decided to change it halfway through. Okay. Yeah, no, I'd say the same thing. You because I mean the the life cycle of a flip is quick, right? So um, if you're gonna flip it, you flip it. Yeah, it's just I haven't yet bought a one that I just decided. No, not really with the exception of my personal home. Hey, I bought it to flip it and then decided I was gonna keep it. So I mean, but that's a very unique scenario, right? Sure.

Durable Rental Upgrades That Pay Off

31:07

Another thing I'll touch on with in terms of construction and rentals is like what I've noticed is there's there's kind of I don't want to use the word slumlords, but like the lower end landlords that are like, hey, I'm just gonna give you basic living, and if it works, it stays. And that way works too, right? There's pros and cons to that way. I'm not saying that's what you should do, but that is a style of landlording. And then there's the opposite of like, okay, we're gonna try and deliver excellent service, excellent communication, very professional, have maintenance guys, you know, like deliver almost a service to the tenant. Um everything's gonna be fixed. You call us, it gets fixed. It's not six months later and your roof's leaking, type of thing, and they charge more, and then maybe also like harden the unit. So that's kind of what me and Rock are doing. It's like we used to never put granite in our rentals um because we just thought we were overimproving, but now we put granite in all our rentals because one, we have a good granite contact, so we're it's all it's only a little more expensive than some sort of laminate. And it's just it's hard to destroy it. Um, so it should last longer. And same with LVP, like we we put LVP flooring in all our rentals everywhere. Um, like so not that carpet doesn't work, it's just it's gonna get destroyed faster. As long as you know that and budget that, then that's fine. But um, I've noticed that's the two main ways of landlording. It's like the kind of the lower end, you get what you get, you know, this is it, and maybe rent's lower, and then kind of the upper end, professional service, maybe third-party management, something like that. Of course, back to your point, it's what's what's around that property, too. So if you're gonna do that, sure it's gotta be somewhere you can do that. And it's demand driven, right? If you have a market where there's zero vacancy, pretty much do whatever you want. Because someone needs somewhere to rent, right? But if it's something where you have to stand out, you may have to do something a little more. Uh so you have to look at that days on market for rents and property sales. But I completely agree with your point on hardening the unit. That's something we do differently with flips and rentals. Because if we are flipping it, we're gonna try to reduce cost as much as we can and where it makes sense, put carpet. Uh, whereas with um rentals, uh, we try to keep it everything hardened if possible. Because it's just easier to clean and turn. Yep. Plus, it keeps the value of your home, which is your long-term investment. So you want to make sure that these things are, you know, they're gonna hold up, you know, tenant by tenant, and that they don't destroy them. I think that's where a lot of landlords mess up too, there is what you just said is they buy it for say 30 grand, they own it for 10 years, and they didn't maintain it. Maybe that same tenant was in there and they got lucky, but most likely not. Most likely they determine probably eight to ten times. Um, and they got a little bit of paper cash flow throughout that 10 years, but then because they didn't maintain it or manage it, maybe they sell it for 50 grand. Yeah, right. Because they let it go to crap. Or they want to keep it and somebody says, Hey, that's great, but this place needs a crap load of work. I'll set now instead of you know taking that money and spreading out over 10 years, maybe it's costing you three or four grand a year. All of a sudden, somebody now says, Oh, it's gotta be 40 grand to get the place up to speed. Which goes and buying in the right area, where even if that was the case, you could still be ahead if you bought in the right area. Yeah, or if you're gonna be able to do that. And most of the time you should be, yeah, you should be someone. That's why I use 30 and 50 if they let it go. But still, to buy some for 30 in 10 years for 50 is not so great, especially if it wasn't cash flowing. So

Funding Early Deals With Creative Finance

34:44

all right. So early on you had mentioned the Burr method. So we went over that and you you had said that you know that's a way to buy a property without uh using your own funds. So going back to the beginning for you guys, did you guys use your own funds or did you um you know use borrowed funds, or how did you do that? Private funds, what was your first deal like? Good question. So my first ever deal was a house hack. So I bought a multi-unit property with an FHA loan, lived in it and rented the other two units out and lived in it for a while, and then eventually moved out and was able to refinance it and pull cash out and stuff like that. Um, but first like true investment where I didn't live in was uh seller finance deal. So that is a really good way to get properties without any of your own funds, and it's kind of like raising private money, but just from the seller, right? Right? Because there's just and then you already it's kind of two in one essentially. Um, but this particular owner, and this is why it's so important to find the motivation of the person that's selling or the person you're trying to get the deal from, because then you can possibly work a deal out with them. This individual is moving to Florida, she doesn't want anything to do with it anymore, didn't want to manage it, but still understood it was a decent property, just wanted a good return, and he actually didn't want to pay the taxes for selling it. So I was like, well, hey, I think I got an idea that could solve this problem. Let me buy it for zero money down, which was awesome. Yeah. Uh sure, I had to put some renovations into it, fix the roof, fix a couple, you know, when tenants moved out, did some work. But I was able to get the property and it did cash flow from day one with zero money down, which was awesome. Now, yes, I had to put money into it, but then eventually a couple years later, I was able to refinance it, pay him off, and it was a great deal, right? Toad big burn, right? Got got not only got your cash back out, but got a lot of additional cash back out, tax-free because it's a loan. Right. As not sold profit, right? Uh, but yeah, so that was like my real first investment deal. Got it. Similar story, honestly. I um yeah, was on bigger pockets, learned about house hacking. I had a good day job, I was able to get approved for a loan. I bought a duplex in green and uh moved in, used an FHA loan, two and a half percent down, three percent down, um and renovated the other side myself, um, and then rented it out and lived there for a year, and then did it again. And then I think the first real investment property, um, I started going to the local RIA, and someone there sold me a deal on half seller finance, half down, and I raised the other half from my friends. So that was my first real deal off market, direct seller with some seller financing and raising private capital from my friends, which is where I would recommend most people, you know, if I were to go do it again, I should say, um, is to go ahead and like just talk to your friends and family, right? I mean, that's what that's what I did to start to raise private capital, just talking to people I knew wasn't strangers. Right. And that's where I got my first like real big chunks of private capital. Okay. So that's that's what I that's what I did. And no, sure, maybe that's not what works for everyone, but it's a great place to start because they already it's it's trust pretty much with raising private capital, people need to know they need to trust you, and they need to see usually that you kind of know what you're doing. Right. Right. So after you do something, they kind of at least have an idea of what you know what you're doing, and you have the confidence and the conviction that you do, and then the people that are your closest friends and family already trust you, hopefully. So they they should, you know, then they have both pieces, right? When it's a stranger, they don't trust you, or and you have to kind of sell them that you know what you're doing. It's a little harder. Yeah, it's a little bit harder. Yeah.

Best Plan To Get Started

38:36

Last question here. So if I'm uh an investor coming in the market, brand new market for me, I'm just trying to figure out how do I get started, what's what's the best plan of attack for somebody to get started in this business? For me, I think the best thing someone can do is figure out what a good deal is to them. Like understand the market. Start even just looking at houses for sale on the market. It doesn't even have to be anything you're actually gonna buy, but at least looking what stuff is renting for, looking at what stuff is selling for, start practicing underwriting to just learn what a good deal is. Like get a feel for the market. If you just go on Zillow and look up houses for sale and buy one of the first ones you see without doing any of that, it's a recipe for disaster, obviously. Um, so I just think getting a like a pulse on the market, right? Like what is selling for a lot, what's selling fast, what's renting for a lot. Um, you know, if you if you go on Zillow and just type in, like, look what's uh for rent, available for rent, and it is there's a million rentals available, right? It's not necessarily a great sign, right? Um so that's what I would say is just because that to me, that's the start of all. You don't have any construction or raising capital if you have no deals. Like finding a deal is the first step to have anything else. So even before you find capital or anything before, you need to understand what I think you need to understand what a deal is. Okay. If you if you're just starting, you just have to know what a deal is. So then when that does come up, um, you can act. Yeah, I see. I think most people make that mistake. They they say, okay, I've got to get my funds in place. I gotta that's a good thing. So a lot of a lot of new people do that joining Roundtown Go, is they are all worried about funds first, whenever in all reality, that's the easy part. If you have a good deal, it will get funded. I mean, it's it's very chicken or the egg, right? It's it's actually harder to raise money when you don't have a deal, in my opinion. Right, right, because then you're just talking hypotheticals. Is he serious? I mean, if you go to your uncle, who you've kind of talked about real estate before, with a deal and say, here's the house, here's the numbers, here's why I think it's a good deal. I think he is there's a lot better chance he would invest with you than if you just say theoreticals. Right. Not saying it's a bad idea to go plant the seeds, right? Right. I we think you know, planting the seeds with contractors and potential lenders, you know, immediately. I mean, that's great. That's a good first step. But like you said, you know, taking action on deal finding is great. Now, I will say too, depends on who you are. If you're someone who's like never bought a property before at all, obviously none of this is legal financial advice. So let's work for you. Right, right. But but what I will say is one of the best things I ever did was to buy that that three-unit property and live in it, right? So house hacking. So if you're a newer investor or someone who or wants to be an investor or someone who's like currently renting, go try to house hack somewhere, right? Like that's that is probably the best and easiest way to get into the game. Because then you live there, you can control the contractors, you can you can play, you can start learning how to manage tenants that are right next door. It's just much easier to learn in that environment. You get to see the whole process, you get to see the whole process, right? They're right right next to you, right? So so I would say that would be my personal. If I were to go do it again, I would do that exact same thing. Um, and now, sure, someone who already has an established house and family, whatever, is probably not moving to a duplex because they want to get sure. But for some in in that scenario, revert back to what Kyle said. But um, if you are younger or just don't, you know, have your renting somewhere or whatever, um, I personally would go that route of just going and buying something. No, it's a big deal, so have to still have to do the same thing Kyle said. Make sure it's good, know what a good deal looks like, work with people like us, you guys, and start under understanding the market and what a good deal looks like. That's immensely important. But um, yeah, I think just taking action, making offers, that's that's really what what the first step is. Okay. Perfect.

Where To Find Roundtown Go

42:48

All right. Um, I think that's it for this episode of the Rick and Shauna show. Thank you all for joining us. Um, thank you, Danny and Kyle. We loved having you on. If you want to know more about Roundtown Go, you can follow them on Facebook at just Roundtown Go or Danny Nicolino or Kyle Novak. You can follow us there. Uh, YouTube, Instagram, Roundtown Go has a page, or just check out our website, www.roundtowngo.com. And we will have those listed on this podcast. Thank you for joining us. Tune in next time. Have a great day.