Dalip: Welcome to another episode of Real Talk With Realtors. I’m your host, Dalip Jaggy, co founder of Revive. We put this podcast for one objective and one objective only to educate, inspire and motivate those that are thinking about a career in real estate. Even though our name is Real talk with Realtors. We don’t always speak with Realtors. And today my guest is Michael Dominguez. He was a realtor. He might be still be practising, but he was a member of the Remax Hall of Fame. He then now is the founder of Doors to Wealth Real Estate Group. I understand he is releasing or has released a book recently, so I’m stoked to have him as a guest and dive into a little bit about real estate investing. So welcome, Michael.
Michael: Thanks so much for having me. I really like talking to younger investors as they’re getting started in their career. It was a big jump in my life and I’m happy to share that journey and hopefully help some people out along the way as well.
How much real estate does Michael do today?
Dalip: So at the age of 40, then you’re working with a bunch of investors and you’re thinking, hey, I should get my real estate licence and maybe this is a new path for me. Is that the kind of.
Michael: No, I’d actually got my real estate licence. It’s about a year in. I was really fortunate. I met a number of a couple of mentors early on that all told me, whatever you do, become an investor, because the classic line is, if you are really good at your job as a realtor, you’ll make a really good living. If you do a really good job as an investor, you can make a fortune. And that was the mindset I started to take on. And I’m not going to lie to you, part of the reason why I started to buy investment properties is that, honestly, maybe a better realtor. It gave me a lot more credibility with the investors. But I quickly learned the value of real estate investing. And that’s kind of what I shared later on in my book, which I’ll talk about and I share with hundreds and hundreds of agents along the path now, because that’s the way to really build wealth in this industry.
Dalip: I’ll share with you a story real quick. Sure. One of my University professors, I asked him, I’m a software engineer and I was still kind of wondering what should I go into? I asked him, I said, hey, where do you build the strongest wealth in terms of trying to figure out what industry and things like that? And he said, everyone ends up in real estate, literally with his he’s like, no matter where you go at the end, you’re going to be building wealth through real estate. And so that was very powerful. So you’re talking about investment properties, you bought a few and then now, are you not acting as a realtor anymore? And now just mainly sitting as an investor?
Michael: I’m still a licenced realtor and I do the occasional real estate deal. I’m not going to say I don’t, but certainly that’s not my focus anymore. I’ve reached what we call as being the goal is I reached a point of financial freedom with my cash flow for my real estate investments. Plus, I also now do some private lending, some hard money lending and a few other different ventures. And with all of that, I’m now generating far more income than I need to spend every single month. So I’m doing okay. I’m still a licenced agent, but I’m certainly not as active as I used to be.
Dalip: So the evolution of someone to get into what you’re doing, and I’m sure your book speaks into this in detail. You find your first property, maybe it’s a flip, a long-term rental. It’s also kind of glamorised. Like everyone I speak to my age, it’s like I want to get into real estate and investing of some sort. What is your first message? Because once you get in, the doors open up a lot further, like in what you can or can’t do more than what you can do. So how do you advise people to get that first rep in? What is your message or what are your thoughts around that? Absolutely.
Michael: The first thing I want to share is you don’t necessarily want to buy the cheapest property that’s available and the easiest to get into is not necessarily the best option. I advise people, especially those of us that are building our real estate careers. Every hour you’re spending on your portfolio is one less hour you could spend on lead generation, working with your clients, building wealth through serving your client base. So I like to focus on before I buy an investment property, I tried to determine the type of tenant that I was going to be looking for and I was looking for the A plus tenant. And so I looked for a property that could actually be the type of property that a tenant like I wanted was going to want to live in. And so I was tenant first. Then I bought a quality property in a quality neighbourhood and I was able to attract quality tenants and I’ve got a portfolio of twelve investment properties, a lot of duplexes. We spend three to 5 hours a month on our portfolio and we’ve basically become multi millionaires as a result of that portfolio. And it’s a pretty easy hold and it’s changed my life.
Michael: So my advice is to buy a quality property in a quality neighbourhood and long term buy and hold and don’t be messing around with flips and all these high risk, high reward type of scenarios. Just honestly a great property in a great area and you’re going to do really well.
Is it tough to become cash flow positive in the first few years?
Dalip: Yeah. When you’re speaking about this is a long term type of investment vehicle. What I mean is the flip is like, hey, I want to make 30 or 50 or 80 grand tomorrow in the next 60 days. But Michael, you can buy a property. And is it tough to be cash flow positive? You’re looking at like maybe in year three, year five, your rent increases, you’re getting some equity, you refinance, and now you’re becoming making money off of it. It’s tough, right in the first year to be profitable.
Michael: Well, again, I like to find properties in areas where I’m going to have a slight amount of cash flow positivity. That’s something I’m always focused on. That’s what I talk about in the book is I’m focusing on properties with additional dwelling units aka ADU. And by having two dwelling units in the same location, I’m able to cover my expenses and often have a small profit. And I’ve been able to attract some really great tenants as a result of that. And those are the properties that I’ve done so well with. So, yeah, there is a little bit of profits that you’re absolutely right. It is a long term buy and hold play and talking about becoming a again, we’re talking to Realtors that are hopefully building their career. If you can actually reach out to or start to build your database and actually start building some real wealth, does it really matter if your property cash flow is 100 a month or 300 a month or 500 a month? Really, at the end of the day, all of that is insignificant compared to the hopeful hundreds of thousands of dollars you’re going to make as a realtor.
You don’t need that cash flow that much anyway. But what real estate has allowed me to do is because of the leveraging opportunities that real estate affords. And that’s one of the things that’s so unique with real estate versus any other investment vehicle. I could actually leverage that investment of $500,000 purchase. I can come in with just $100,000 down and get a $500,000 asset that can actually carry itself and start the cash flow. And oh, by the way, when it’s things appreciating, it’s not appreciating on 100 grand is best and it’s appreciating on the 500,000 purchase price. So if this thing goes up 10%, that’s 10% on 500,000 or 550, where I’m 100,000 investment, that’s a ROI. And that’s the kind of returns that we’ve been seeing in real estate.
How do you move from real estate to real estate investing?
Michael: Yes, I’m speaking to Realtors today. And again, if you’re not a Realtor, maybe this might still apply to you. One of the things being a Realtor is we’re not really liked very well by the banks. They tend to not want to. We don’t fit their box. Obviously, if you’re just starting out, you’ve done a whopping three deals total. Maybe buying an investment property isn’t the decision you want to make today. But if you can start doing your homework and start to do your research and studying some of the stuff like my book and some of the other stuff that we’ve recommended today or going forward through your podcast, for example, that will get you in the right direction. But to answer your question, not everybody has the down payment money. But one thing that you’ve got as a Realtor is you are an insider trader. Like we hear about this in Wall Street all the time, insider traders that are getting thrown in jail for insider trading in real estate. It’s not only possible, but it’s actually recommended. To become an insider is just such an easy thing to do and we can become that insider and understand the market far better than the general public can.
So as you build your knowledge and your research and your database and all the network of people that you’ve got, you become pretty valuable commodity and you might not even appreciate how valuable you are to another investor. So if, let’s say you’re my money friend, you might come in with a lion’s share of the down payment, maybe even all of it, but let’s even say it’s half. But you might be able to qualify for that mortgage. Now you and I can go into that property together and then Bing bang boom. Within three to six months we’ve got ourselves 50% of a duplex in an appreciated market like Riverside as an example. If I can do that literally just three or four times getting equity and then hold on to those properties for 510 years, I’ve become a millionaire just through real estate investing and this typically will take two to 3 hours a month in terms of management time. And so that side gig hustle is making you a millionaire.
Dalip: I love it. I love what you said about inside trading. It’s kind of speaking to that a little bit more like in terms of maybe specific use cases, what advantages as a Realtor? Maybe doesn’t realise today that they have over an everyday consumer?
Michael: You know, floodplates, you know, different streets, what streets are where you want to be growing and not growing, where there is development happening, you know, if there’s a new subway system or transit system that’s coming into a market. And yes, some of this stuff is general knowledge, but in some cases it may not be that well known. And by you knowing all of these nitty gritty details of what’s going on in the real estate in general, in the community, in terms of development, you can, based on that knowledge can begin to make business decisions according to it’s not speculation. It’s funny how so many times people that don’t understand how wealth happens and how appreciation happens, they think it’s just dumb luck. But by being knowledgeable from the front end, you could be lucky. By buying the right properties in the right neighbourhoods I got lucky buying a property outside of the Toronto area. But it met every criteria that I’m talking about. And I just kept buying here over and over and over again. And now the properties have appreciated immensely. And so these bungalows that I bought for three, four, $500,000 are now worth a million dollars.
And I put 20% down back in the day. It’s done very well for me. And that’s certainly something that’s available. Again, you don’t have to buy ten and 50. A lot of these guys talk about how they buy more houses that I bought, that I change underwear. That’s not what I’m talking about. I’m talking about two, three, four properties is very doable. It truly is a side gig hustle hell of a lot better than driving for REITs and it will make you a millionaire.
Where can real estate investing go wrong?
Dalip: Interesting. Let me ask you this. We’re painting a picture. It’s great. It’s rainbows and unicorns. But when has it ever gone wrong? Has it ever gone wrong?
Michael: Yeah, if you don’t follow the right strategy, where it goes wrong is people decide to buy because it’s cheap. And so if you buy in a tertiary market that’s not appreciating, you’re buying solely for cash flow. What ends up happening is now you’ve got this property that probably hasn’t appreciated 20 years. You buy it, it’s got a host of issues because all of a sudden this property has all this deferred maintenance that the last owner didn’t want to take on. So now you’ve got all of these things that you’ve got to fix. And if you decide to not fix them, then you can’t get the kind of tenant you want anyway. And most of these tenants that are living in these terrible conditions aren’t likely paying rent because their credit score is like three. You’ve got somebody not paying rent, so you see no cash flow. You’ve got a place that’s falling apart and it’s in a market that nobody wants to buy. So if you start doing the wrong steps all the way through, then yeah, it could become a nightmare. But I can tell you that people that have bought and hold in appreciating markets, it’s really tough to fuck it up.
Basically. It really is. It really is. Worst case scenario, you get a major flood issue or a major electrical issue or hell, even if the thing Burns down your current discovered. But in normal type scenarios, if little things happen, you can deal with it. Crap happens in there. For the most part, it goes pretty smoothly.
Should you use property managers?
Dalip: Let me ask you this question. I have a couple of questions I think you’re going to appreciate after this one, but this one is more property management because you speak about Arizona. Austin, what is your take on using property management as a way out of state? It’s kind of scary. Like my father? Hell no. He’s like, I don’t know what’s going on in Arizona, you know what I mean?
How do you overcome those type of things?
Michael: Yes, and I can tell you that as long as you’ve got a property manager and I’ve met a lot of really good ones across North America, and the reality is the property manager will never, ever be as good as a good owner. Operator, it’s not going to happen. And even if you do have a property manager in place, you should be managing the property manager and ensuring that things are going according to Snuff. I still recommend, even if you’ve got a property manager to pop into your properties at least once a year to doing a walkthrough cheque, make sure that the smoke alarms are functioning properly or whatever, like picking a reason to be in the property. Because as good as a property manager might be, it’s important to know what that property manager is doing. That said, the kind of properties that I like to buy are ones that are attracting the 700 credit score, making good income tenant profile. And yeah, crap can happen in there and it could go bad. But I could tell you during the pandemic I had a whopping $0.00 of missed rent payments because all of my tenants continued to make income and was able to pay their reps.
That certainly wasn’t the case on some of the lower end properties across North America, I could tell you that. So going back to PM, I’m a big fan. But if you could buy a property that’s going to take a few hours a month at most in a portfolio of three or four properties, it shouldn’t. Sometimes people can manage it themselves or you can hire a property manager, but just oversee the property manager, make sure that they know what they’re doing.
Dalip: Got you. There’s been some real estate investing has been kind of a glamorised. This is for the top percentage of people. I think there’s some great companies. Whether they’re good investment vehicles is my question to you. There’s like fundraise that came out, you know what I mean? With like micro real estate investing, which is great. And then there’s another one that I came across maybe only a few months ago called roof stock or roof Stack, where they have almost like single family residences with tenant and they’re kind of selling a turnkey property, if you will. These are emerging more and more I see online, right? Yeah. What’s your feedback and thoughts on those type of outfits?
Michael: For the most part, I’ve heard pretty good things. It’s gone as long as things go well, things have been going really well. But my rule of wanting to be the smartest person at the table goes completely against working with a company that they’re sourcing the property, managing the property, doing all the work on the property, finding the tenant. That makes me nervous that I’m just handing my money over and they’re doing all the work. We’re real estate investors and real estate Realtors. And if you become really knowledgeable and I find that when you start to use third parties to invest with, it can be lucrative. But you are putting your money and your trust in with that company. If you can do a lot of the work yourself, which is certainly doable do the homework. Not only will it make you a better investor, but I can tell you it’s going to make you a heck of a lot better realtor. And I could tell you that before I was a real estate investor, I was doing 1520 deals in the year. I was pretty successful. I’m a pretty good salesman. So I was able to do 15 to 20 deals.
But because I was able to niche my business and start working with investors, and they gravitated to me because I was a real estate investor myself. Then all of a sudden, my business quadrupled. And I was doing at my peak, I was doing close to 70 ends in a year. And that’s the kind of business that you can generate as a result of becoming an expert. People are going to be, not because I was helping them buy a house, but because I could actually. I’ve been through the battles and the wars of dealing with investment properties, and I was providing them with copies of leases and an education of what kind of tenant profile to look for. And I was the go to source for my community. And that’s something that any young realtor could become that way, too, within a short period of time.
What do you do after your first investment property?
Dalip: So I built the tech platform, but it was a private REIT, and so it was commercial real estate. And so we were the first to take unaccredited investors, and they can invest like $500 and earn some dividends. But since these different companies have really exploded. But that was a really fun time. I’m kind of just thinking this might be a fun use case because I kind of feel like I’m a young Michael Dominguez right now. So let’s try this. This might be fun. If you’re in for it, I’m ready.
Michael: Let’s go for it.
Dalip: So I bought my own home, and then I bought my first investment property in Austin just about two and a half years ago. So now I’m at a point where this thing is appreciated.
But I don’t know, do I refinance or pull money out? Do I go buy a new property? Once you get your first one and you’re in, I don’t really know where to go from here. Do I just buy another one in a different location and pray that it appreciates like how it did the last two years? So how would you advise me or think about that type of scenario?
Michael: Yes. What type of property is it? Is it just a single family home? A condo? What kind of property is it?
Dalip: Yeah, it’s a single family home.
Michael: Okay. And what kind of rent numbers is it bringing in?
Dalip: Bringing 1500 in rent.
Michael: And what’s the purchase price of the property it was right now?
Dalip: Right now it’s around 400.
Michael: And back when you bought it?
Michael: Congrats, man.
Dalip: That’s pretty awesome.
Michael: Thanks. So even at $400,000, the property might cover itself. But is that property duplexible. Is there a way of adding an additional dwelling unit for that property?
Dalip: No, not at all. Yeah.
Michael: I’m a huge fan of Austin. I’ve read a lot about it. I’ve actually been doing a lot of studying on that particular market. And obviously with all the tech that’s going in that area, I think it’s going to just surge in value over the next few years. So again, I’m a big fan of getting properties in a market that’s growing. So I would double down on my research and my knowledge of Austin, Texas really get to know not just the city in general, but even like I’m saying, street by street really become knowledgeable of that particular market. And then once you feel you’ve got that knowledge, then absolutely, you could continue to buy two, three, four or five properties in that area if you so chose and just make that your mindset.
I would prefer a property that does have a duplexibility or some sort of additional dwelling unit at some time or something that’s already a duplex, for that matter. And my advice is always to get something that is either maybe built post World War II, something that was probably well built when it was built and just get it looking good.
I use the analogy. I say imagine if you took your DeLorean 20 years in the future for any back to the future fans, and you take that DeLorean 20 years in the future, how will that community look? I believe that Austin, Texas, is going to be thriving by leaps and bounds in 20 years. So if you could buy a property today that you are very confident that your DeLorean tells you 20 years from now, it’s going to be a home run. Why the hell would you not buy more of those?
Should you refinance your properties?
Dalip: Do you ever refinance your properties? Because this is like a weird thing. Because I’m like if I refinance now.
Michael: It’s negative cash flow.
Dalip: It’s negative cash flow. Right. And so it’s kind of a weird thing to do. What do you do?
Michael: Yeah. So that particular property because you’re only generating 1500 a month and assuming you can’t get a lot more than that, it may not have been the perfect property to do all of this stuff in. But if, let’s say you could have built out a duplex there and you’re getting 26, 2700 a month, then your cash flow would be insignificant.
But I can tell you how I grew my portfolio. It’s not like I was a multi millionaire when I started this thing. I did have a house right here that I’m in that was worth maybe about $600,000 back in the day and I didn’t have any debt on it. We just simply use that for our down payment money. And for those that don’t know, a lot of banks will take your down payment money from a line of credit from your own principal residence if you’ve already got that, and then they’ll give you an additional 80% loan to value for the financing for the actual property itself. So if you can get 20% from the bank, from a line of credit and an additional 80%, that adds up to 100% loaded value as far as money being borrowed.
So that’s what we did.
We got three or four properties that way. We started to build our portfolio, but eventually, we ran out of down payment money with our principal resident. But because we added duplexes created duplexes in a couple of the properties, we were able to refinance those properties, just like you said. And we took that money and then put it against our line of credit. And then we bought another one. And so essentially what my wife and I did was it took us my goal was to buy one property for ten straight years, and some of them I bought with joint venture partners because I didn’t have the ability of qualifying on my own. But I just kept adding slowly to my portfolio a little bit at a time. And then I reached my goal of ten straight years of buying one property. It wasn’t a goal of buying 863 properties, ten properties. I actually ended up 13. I sold one down at twelve. And that’s kind of how it happened. So my advice to you exactly, that is, even if it takes you another year or two, I would refinance it even with a slight negative cash flow, because it’s been such a home run for you.
Get a second, get a third. And yeah, your age with time on your side. By the time you’re 55, which is my age now, you could be an armchair real estate millionaire.
Dalip: Like, that’s what we’re going for. I love it. I love it. I thought that might be helpful just to go through an actual use case and the level of thinking that was really cool. Okay, this is great. I don’t know if it’s a debate for people listening. If you’re young, getting in your career, do you buy your own home first or do you buy an investment property first? I would love to get your feedback on that debacle, if you will.
Michael: Yeah. I have a whole chapter on my book called The Millennial Profit, where we delve into exactly that subject. And I’m a huge believer. If you can buy again, that Riverside area with an additional dwelling unit bungalow, let’s say by buying that property, I’m living in one unit, renting out the other. That’s the way I’m going. And by house hacking is the term of the day that everyone talks about. And I absolutely would recommend getting started in house hacking. Honestly, that’s a 30 minutes conversation. We can bring you another time. We can talk about it.
But in short, if I was currently renting right now, I wish I was smart enough to have figured that out back when I was in my 20s or 30s because that is such a wealth building opportunity. And what a lot of my clients and friends have done is the first house that they bought was exactly that. Sometimes you’re able to buy a second property that again, had two units. They moved into that one. And maybe the third house they have is their own dream house that they want to live in. But they kept the other two properties of four tenants.
Now you’re 35 years old, you’ve got the house you want to live in. And, oh, by the way, you’ve got two other houses that are paying rent and covering themselves. You own the free properties. You’re on pace to become part of what I call the Triple Crown Club, and you’re on your way to become a millionaire.
Dalip: Was that the Triple Crown Club?
Michael: That’s what I call it.
Dalip: I like it. I love it. Oh, this is great. All right, well, maybe I’m going to invite you back to go into the house hacking. That’s a cool term. I tell my lady all the time. I was just like, I don’t know why I kind of regret buying my own house. It’s good, but I wish I just kind of just rented and just kind of invested and did it differently. But anyhow, you call her your lady?
Michael: Okay. I don’t know. I don’t know. It just sounds fun.
Dalip: Michael, I would love for you to tell us a little bit about the book, but if anybody wants to get in touch with you or learn more, where would they go?
Honestly, if anybody wants to reach out to me and ask me a couple of questions, I love talking to Realtors. One of the things that I’ve offered here in my own local market is for any realtor that’s starting to build a database. If anyone buys ten or more of my books, I will happily give you a 1 hour consulting free of charge and give you some advice, not only as a real estate investor, but also as an investor agents. And like I said, the effort I’ve done with that has changed the fortunes of my life. And it’s funny, when you make a decision to become a real estate agent, you sort of say, I hope I make it. And I really didn’t even cross my mind that I’d be able to retire at 55.
And that’s really what it allows me to do, which is pretty incredible. One last thing. I want to leave you with a quote that Bill Gates said is that people tend to overestimate what they can do in one year, but they underestimate what they can do in ten. That’s really what real estate investing is all about. In ten years you can make a huge difference in your life.
Dalip: Wow. I love that. Thank you for coming on.