JF2455: Real Estate Investing through Property Analysis with Anton Ivanov #SkillsetSunday
Anton is a full-time real-estate investor who, with his wife, climbed their way to success. They built their 40-unit portfolio through their savings – no partners, no syndications, or creative financing. Anton started buying single-family properties then recently transitioned to multifamily properties in Kansas City, Missouri Market to scale their portfolio faster. He relies on fundamental indicators, economic population and job growth, in high-growth and depressed markets to decide which market he wanted to dip his toe into. In today’s #SkillsetSunday episode, Anton dives into a discussion to dissect his thought processes to build a stable and robust portfolio – by utilizing property analysis.
Anton Ivanov Real Estate Background:
- Entrepreneur, software engineer, and founder of DealCheck.io
- 7 years of real estate investing experience
- Portfolio consists of small multi-family and single-family rentals totaling to 40 units
- Based in San Diego, CA
- Say hi to him at: www.dealcheck.io
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Best Ever Tweet:
“Being sensitive to your tenants is the way to maintain your relationship. You create a positive environment, you are on their side, and if something bad happens, you will work with them.” — Anton Ivanov
Ash Patel: Hello Best Ever Listeners, welcome to the Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Anton Ivanov. Anton is joining us from San Diego, California. Anton, how are you today?
Anton Ivanov: I’m doing great, Ash. And yourself?
Ash Patel: Wonderful. Today is Sunday, so Best Ever Listeners, we’re doing a skill set Sunday, where we talk about a specific skill set that our guest has. Anton is a full-time commercial real estate investor with seven years of experience, and his portfolio consists of 40 units. Anton before we get into your skillset, can you tell us a little bit more about your background and what you’re focused on now?
Anton Ivanov: Sure, I’d love to. Actually, I was on here maybe a year and a half ago and spoke with Joe and we went deeper into our story, so maybe we can put that episode link in the show notes, if anybody’s curious. Me and my wife, we started investing in real estate about seven years ago. We kind of did it more old school. We don’t really use partners or syndicates or a lot of creative financing. We rely on a lot of our personal savings and kind of the money that we can save from our rental portfolio. We started with buying just a few single families here and there. We had house-hacked a duplex in San Diego, bought a few turnkey properties out of state, and then more recently transitioned to buying multifamily property in the Kansas City, Missouri market. That’s kind of still our focus today, just to help us scale a little bit faster by buying more doors under a single roof.
Ash Patel: Do you and your wife still work full-time jobs?
Anton Ivanov: We do. We actually have both our jobs, we have some businesses that we’re really active in… We’ve been really big on still maintaining our incomes and using that to fuel the growth of our real estate portfolio. I think it’s a great strategy that’s actually usually underutilized by many people.
Ash Patel: How did you get to Kansas City, Missouri?
Anton Ivanov: It’s been a long journey. We actually started investing out of state in Atlanta and Birmingham at first, about 5 years ago. Then at one point, I wanted to kind of reanalyze markets and see which city, which state was a little less down the road with the economic recovery from the ’09 – ’08 crash. We kind of settled on Kansas City. I think it has a really good mix of the prices. The prices are not as high as some of these larger cities. But at the same time, it has very good fundamental indicators, the economy is good, the population growth is good… I think those factors are very important to drive rents and prices up over time and create a successful real estate market.
Ash Patel: What are those fundamentals that you’re talking about?
Anton Ivanov: Usually, all the markets in the United States, a lot of them fall into two separate categories. You have your more cyclical, high-growth markets. These are usually along the coasts so Northeast, the West, and California fall into that. You see a lot of price growth in those markets during the boom areas. You can look at California prices, or in Phoenix, and you see just tremendous spikes. But what happens with those markets is a lot of times the prices are just prohibitively high for a long-term rental investor, unless you happen to get in there right on the bottom where the markets crash, which is very hard to time.
On the other spectrum, you have markets that are a lot cheaper. A lot of them are in the Midwest. But a lot of times they’re depressed, they’re smaller cities, maybe with declining population, stagnant job growth… And yes, you can buy a house that looks like it has a 12 to 15% cap rate, but what’s going to happen with that property 10 years from now? It might cost the same, the rent might be the same, and if you factor in inflation and all your rising expenses, it’s not a guarantee that you would actually come out on top if you look at your overall ROI.
So I like to focus my market selection right there in the middle. Find a market first that has strong fundamental factors. I consider that economic, population and job growth. It doesn’t have to be the best in the country, but I like to see a city where people are moving to because of economic prospects, there’s a good, diverse job pool, and that results in population and economic growth.
At the same time, these are kind of closer to the linear markets where the prices are not necessarily as high as some of these other areas like California and New York. They may not be the lowest in the country, but they’re kind of just right for a rental investor to come in, buy properties at a reasonable price, and then see very strong rent and price growth over time, which I think are key qualities in having a strong and stable rental portfolio.
Ash Patel: What are some of the tools that you use to analyze your data?
Anton Ivanov: Property analysis, and that’s actually kind of what I wanted to focus on for this Sunday episode for the Best Ever Podcast… Obviously, you’ve heard that you make money in real estate when you buy. It’s kind of like a cliché, everybody tells you that. Really what that means is, it’s extremely important to be very confident in your projections for cash flow, for long-term buy and hold profits when you’re analyzing rental properties. I see just a lot of investors, they understand that this step is important, but they may not spend a lot of time on it. For example, one thing that I see over and over again in a lot of especially new people, they focus on these rules. We’ve heard the 1% rule, the 2% rule for rent to price ratio, or they use the 50% rule for expenses. They look at a property and they say “Well, the expense is going to be 50% or 40%” or whatever rule of thumb you use. That may be okay for a very cursory, brief analysis. Maybe if you’re just scanning a dozen properties and you want to weed out a couple of them. But the problem with these rules is real estate is so specific. You can look at the same city, even the same street, neighborhood block, there could be two properties with vastly different histories, construction types, the tenants they’re going to have in them, that’s going to create a very unique situation. So when you’re using these rules and you’re really relying on them for your actual final property cash flow analysis, I think you can really get in trouble with oftentimes underestimating your expenses and overestimating your rent and profits.
I always like to be very specific and spend a little extra time on each property. And actually, not just run the numbers, but actually look at all the inputs into the cash flow equation, which is kind of the basic, the rental property profit is your income minus expenses. So look at the rent of the property, and look at every single piece when you’re serious about a property of that equation and actually do some research for each number. If you were looking at rent, for example, a lot of listed properties on the MLS or the one the agent will send you, they’ll have a rent number there. Just somebody, at some point, maybe they made an educated guess, maybe they did research, but they said this property will rent for 1,200 dollars a month. As somebody who is not familiar with the property, you should have really no confidence in that number. That’s at least how I approach it. I look at it, “Okay, somebody put this number down. Let’s go in, actually do some research, and spend 30 minutes trying to understand what the rent of this property is actually going to be.”
For rent specifically, a great resource that I like to use are my property managers that I use locally. If you have a good property management company, they will be the people actually renting the property out. Reach out to them, send them a quick address, property type, bedrooms, bathrooms, square footage, and ask “Hey, what do you think we could rent this property for?” Employ your team, use your resources, and get a better estimate. If you’re not comfortable with that or you want to do something quickly online, there’s a lot of good resources.
We actually just launched the platform called rentcast.io that will give you a rent estimate for any residential property in the United States. You just type in an address, you’ll see comps that are used to calculate it and you’ll see your estimate. So use these resources to your advantage to just be more confident in what you’re putting in those cash flow equations. Because the more effort you put into it, the more accurate your projections will be, and the less likely you will be disappointed after you buy the property and realize “Man, I should have researched this a little more, because this really doesn’t match what I thought I would.”
Ash Patel: Anton, do you use a physical checklist when you evaluate a property?
Anton Ivanov: If we’re talking about cash flow analysis specifically, we have another platform called dealcheck.io. It’s an extremely popular property analysis tool. Whether you use that or you use Excel, I would implore everybody to have a system in place. A calculator, whether that’s online like Deal Check, or your Excel spreadsheet, where every single expense and income item is there. You thought about it, you put it into the calculator. It’s especially important for expenses, a lot of people forget it. Obviously, there’s taxes, insurance, there are HOA fees, there is maintenance, capital expenditures, maybe landscaping for multifamily property, common utilities, financing… So it’s easy to miss certain items if you’re doing this quickly or if you don’t have a set system that you follow. Something like Deal Check, it takes all the guesswork out of it, because all the items will be saved there every time. Every time you run a new property, you’re like “Okay, I should check how am I going to be paying utilities, or HOA fees, or what my maintenance and capital expenditures should be.”
So absolutely, I have a standard set of items that I will always research and look at. Everybody doing this, especially over and over again, you get in a routine and oftentimes it’s easy to miss things. But if you use a tool like Deal Check, or you have a good Excel spreadsheet, or another calculator that you put together, just make sure that for every property that you’re serious about, you run through every single item and spend at least a little bit of time on rent, like we talked about, and then on each expense item. Same for taxes and insurance, don’t just throw like an estimate, “Oh, taxes will be 1,500 dollars.” Where’s that coming from? Is that an actual tax bill that you looked up in the county records? Is this just a number that you think is right? Or is this a number that would work maybe in a different state or a different city? But obviously, every municipality has different taxation rates. Again, just emphasizing that the more time you put into this — and you don’t have to spend a whole day on one property. You can get in the habit of doing this and it’ll get a lot quicker.
As you get more experienced in a certain market, you will know the numbers, what to put, especially for things like maintenance and vacancies that are hard to estimate much better. Especially when you’re a new investor, it’s very important to spend the time so you actually understand what numbers you’re putting in, why you putting them in, and then see the outputs of your cash flow, your cap rate, cash on cash, IRR, and you’ll have much more confidence in those numbers if you do that.
Ash Patel: What are some of the things that you’ve gotten bitten on?
Anton Ivanov: I’ve went through several properties, and this was when I was first starting out. I basically did exactly what I’m telling you not to do right now. A lot of times, I remember — I knew that property analysis was important, I just didn’t put in as much effort into understanding the numbers. And I’ve had properties especially earlier in my career where I bought, and for example, the maintenance or the vacancies that we saw after a few years of ownership ended up being 20 to 25% higher than I anticipated. Obviously, that resulted in lower cash flow and lower profits overall. Over time, it may not be as important, especially if you have that rent and price growth, but I like to be overly cautious during the property analysis phase. If I’m going to estimate something and I know there’s a margin of error, I’m going to put a little higher number for expenses for example, or a little lower number for rents, because I would rather pass on an okay deal and just find that really great one. Because the worst that’s going to happen if you really messed up, and it looked like an awesome deal but you just underestimated things or overestimated other things… A super great deal will just be an okay deal. You’re still good. But if it was an okay deal to begin with, and you kind of messed up your calculations, then it may be actually a bad deal and cost you money. So that’s what you don’t want to happen.
Ash Patel: In your portfolio, what percentage is single-families versus multi-families?
Anton Ivanov: We started exclusively with single families, but now I believe we’re 65% or 70% is all multifamily properties. We’re actually in the process of consolidating some of our portfolio, so we’re selling off some of our single-family homes and just purchasing more multifamily. Not because I think single-family is bad, I think it’s a great way to get started… In fact, I think if you’re trying to jump into a huge apartment complex as a totally new investor, it may not be the best idea for everybody… Although, I think you actually started with a commercial property right off the bat. So it works for some, but a lot of investors, they just see those numbers, see people get on podcasts and say “Hey, I have 400 units.” There’s nothing wrong with starting small in my opinion. I did it, I’ve met many investors who did it. Learned the ropes so to speak, got comfortable with property analysis… Analyzing a single-family home is a little bit simpler, in my opinion, than analyzing a larger apartment complex where we have to manage capital expenditures and cash reserves correctly… So it’s kind of a stepping stone that can work very well to help you learn, and then if you decide to scale your portfolio, grow it further and transition to multifamily, I think that’s a great path that we followed and I think many investors can follow.
Ash Patel: Anton, what are some of the things that you’ve gotten bit on multifamily properties for? Numbers that you didn’t anticipate or just entire items that you left out.
Anton Ivanov: I don’t think we’ve had items that we completely left out. Obviously, multifamily properties, you start to get into a little more overhead expenses. There’s typically, for example, landscaping that the owner is responsible for, there are common utilities, there are legal and administration fees that could be involved, depending on how you have the ownership structure set up…
For us personally, I think maybe the biggest thing we got bit on was the vacancy. I found that in our experience, at least where we invest, multifamily tends to have a little higher turnover. So your tenants leave more frequently and that kind of leaves your vacancies to go up. So nine times out of 10, when I’ve analyzed multifamily properties and I’ve looked at, I always budget a little higher amount per vacancy, just because they tend to attract a little different type of tenant. Maybe people who are just in a transition period, or a little lower-income, and they tend to move more frequently in search of jobs or other opportunities… Where I found single-family homes attract more stable and long term tenants; it’s not uncommon to have a tenant live in the single-family for 10 plus years. But in multifamily we’ve seen a higher turnover. I think this is the case of most markets, or at least based on what I’ve spoken with other investors. So when you’re looking at multifamily, I would definitely say look at the vacancy very closely. Make sure that there is enough buffer built in to help you turn units and account for that turnover.
Ash Patel: Is there a general percentage you use for vacancy?
Anton Ivanov: You know, this is a million-dollar question that a lot of people ask me. I’m going to have to come back to that first thing I said about the so-called rules… We’ve invested in four different markets – San Diego, Atlanta, Birmingham, and Kansas City more recently. While there are some, I think, similarities, I’ve found the numbers to be drastically different, not just for vacancy, but for maintenance, for capital expenditures, for turnovers, for rehab costs. There’s just a wide variance in costs across city markets, but even within a certain city neighborhoods and property types. So I can’t tell you that you should use — for example, in Kansas City for the multifamily properties we typically buy, I like to put at least 10 to 12% of vacancy, with a conservative estimate. On the properties we own, the vacancy is more like 5% to 7%, but I like to put in that buffer, like I spoke, so I may use 10% to 12%. But these are properties in fairly nice areas. Not the best there is, but B, B- class neighborhoods.
If you’re buying larger multifamily apartment complexes, maybe with Section 8 tenants or a much higher turnover, your vacancy might be 15%, maybe even higher percent. It also depends on your management and your property managers skills of filling those vacancies.
It’s okay, I think, to look at and maybe ask other investors, just see what they use for the different assumptions, especially for things like vacancy, which are often hard to narrow down exactly. But definitely, this will be an area where we should spend some more time, maybe again, reach out to if you don’t own any existing properties that you can use for reference in that same area, at least maybe reach out to your property manager or a property manager you consider working with; I think they will be one of the best people to have experience with telling you how often you’re going to have turnover, how long it typically takes to lease up a unit, and you can use that information to help you narrow down that more precise vacancy number.
Again, I think it’s much better to overestimate things like vacancies than underestimate it to make the numbers look better. Because really the only person you’re fooling is yourself; you’ll be the one owning this property. So if you’re trying to fudge the numbers a little bit just to make it look better, convince yourself or your partners that this is a good deal, I just think you’re going down the wrong path. It’s much better to just wait a few months. And it can get frustrating. I know why investors do it. I’ve spent six-plus months before looking for deals, and I just don’t see anything, and I don’t see anything. And instead of laxing my standards, I just look harder because, again, I’d rather wait and find that great deal.
Ash Patel: What are some of the things that you do to combat that high vacancy?
Anton Ivanov: I found that the best thing your property manager, or if you’re managing it yourself, is actually the person who will have the biggest impact on the vacancy. Kind of aside from where the property is located, what types of tenants it attracts, obviously, they’ll have a play… But having a very good property manager who does several things. The number one thing I’ve found is actually communication. It’s something very simple and something a lot of people or a lot of property managers just are not good at, believe it or not.
If a property manager is responsive to the tenants, meaning they submit a maintenance request, or they have an issue, or they need to speak to somebody, your property manager should have a very clear channel for doing this. Text, email, online form… Your tenant should not feel like “Hey, I’ve been calling the manager and I haven’t heard anything about it.” It just leaves a bad taste in their mouth, especially if it’s minus 10 outside and they’re sitting without heat or something like that. They’re going to remember this next time their lease comes up for renewal, and they may very well leave, because they’re just not happy. So having good communication from your property manager or from yourself, if you’re self-managing, is absolutely crucial.
The second thing I’ve found that really helps is being a little flexible with your tenants. This was especially demonstrated, at least in our portfolio, during this COVID-19 pandemic that we just had. I’ve read varying degrees of what landlords did when tenants were unable to pay rent. Ultimately, I think it’s about understanding that these are human beings, these are just people. Even a very good tenant, who’s paid their rent on time every single time, can get in hard times. It is much more costly for you to just be extremely harsh and say “No, you have one missed payment. We’re going to start eviction.” Go through that whole process, go through the turnover, than just work with each tenant, to a degree. You don’t want to have them take advantage of you, but if it’s a good tenant and they miss a rent payment, and you reach out to them, you understand their situation, maybe they got laid off or maybe they have some additional expenses, and you work with them to come up with a repayment plan or some other arrangement that benefits both of you, I think this will go a long way to maintaining your relationship.
Tenants, they speak with each other, they speak with their relatives, and it just creates a good environment where everybody’s happy and the tenants at least know that you’re on their side, even though they’re paying you every month for their rent. If something bad happens, you’re not just going to throw them outside and leave them out in the cold, but you’re going to work with them.
Ash Patel: What specifically have you done for the tenants? Is it rent forgiveness? Or is it repayment over time?
Anton Ivanov: During this COVID-19 pandemic, this was kind of the biggest test, I guess, of all these programs. We’ve done both, actually. For our standard plan included — well, it was kind of three-pronged. The first thing we did, we actually put together a very detailed document, like a few pages of resources that are available to each tenant. I worked this with my property managers. We compiled all the local programs that they can get – rent assistance, utility assistance, unemployment assistance, just basically like a help sheet that they could use to see if they qualify for some aid. I think that a lot of tenants have really appreciated that; they may not have been aware of all the resources available to them. So we distributed this very early on in the pandemic to all of our tenants, regardless of whether they needed it or not. We just wanted them to have these resources.
Then towards the bottom of the document we said “Hey, if you’re having any issues with paying rent, please reach out to us directly.” And obviously, our contact information. For the tenants that did reach out, we didn’t have some sort of blanket plan. We usually work with each individual one. Our typical arrangement was deferred payments. We just judged what was going on. Some tenants, maybe they said, “Hey, we can only really pay half the rent for a few months.” So we would come up with an arrangement where we said, “Okay, we’ll collect just half the rent that you’re able to pay, and then starting with month four or five, or something like that, we would slowly start to collect that rent back.” So over time, they were able to pay this off.
For a couple of our tenants, they were really going through a tough time with the pandemic. They just said, “We didn’t have enough money.” So we actually allowed them to have up to two months rent-free. I don’t think we did it for more than 2 months, but I felt financially okay with doing this, and provided that after the two months, they would go back to normal about their paying.
Ash Patel: This is where that high vacancy number comes in… So you can make these concessions and still be okay with your bottom line, your proforma… That’s great.
Anton Ivanov: Absolutely. Because turnover is very expensive for a landlord, especially when you have a lot of units and it’s a multifamily. Getting a tenant during COVID, and now still in a lot of states there’s an eviction moratorium, so going through the eviction process may take months. If it’s a long-drawn-out process, you have sometimes court fees if the tenant decides to appeal the decision… I’ve never found it beneficial to go with the eviction or just kicking tenants out… Unless it’s a tenant that maybe you try to work with multiple times, you gave them a second or third chance and they just kind of blow it. Obviously, you come to a point with certain tenants, if they’re abusing you or it’s just not working out, that is the correct route. But a majority of the time, again, it’s much easier to just work with the tenant, maybe let them skip one month’s rent, but then continue paying; they’ll be grateful to you.
Ash Patel: I agree 100%. Anton, thank you so much for being on the show today. Great advice. You use your own money to take down these deals and it shows that the amount of effort and the attention that you put into each deal with analyzing it and running your properties, hands-on… Just a great story. Great advice. Best Ever listeners, thank you for joining us. Everyone have a Best Ever day. Thank you.
Anton Ivanov: Alright. Thank you.
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