Robert Leonard  01:04

Let’s start by talking about your background, who you are, and how you got to where you are today.

Antoine Martel  01:09

I’m currently 24 years old. I live in Los Angeles. And I started getting into and interested in real estate back in 2015. So five years ago, now. This is 2020. My brother actually took me and my dad to a real estate conference, a real estate seminar. It was just for a weekend. It was about flipping houses. We went, we learned a lot. It was up in San Francisco. And we were like, All right, we’re going to go start flipping houses now in San Francisco. 

We took what we had learned and went to start doing this kind of stuff in San Francisco. We’re trying to at least start to make offers on properties, running numbers on deals, etc, etc, etc. After about six months, we realized that we didn’t have enough money. We knew nobody in the business, and we were just like playing in a whole different league that wasn’t ours, that we couldn’t compete in. He only had 40 grand saved up. We didn’t know anybody in real estate or real estate industry. So it was really difficult for us to win any deals. 

Antoine Martel  02:00

After that, I moved to Los Angeles to finish up college. My brother went and became a realtor in the Bay Area. My dad went back to his full-time job. Real estate was always kind of still in the back of our minds at that point. And we knew we were going to eventually get back into it but just didn’t know how, with only $40,000 in our pocket, especially in being in California. So while I was at university, it was kind of my last year at university, my senior year, and I was reading a bunch of books, podcasts, you name it, I was doing it. I was networking with people one on one. I was going to meetups, everything. And started hearing about this whole out-of-state thing. This BRRRR strategy and how people were buying homes out-of-state, rehabbing them, renting them out, and then refinancing them and pulling all the money out of them. And it was super intriguing. 

I started looking at the numbers and looking at these markets out-of-state where you can buy a house for $20,000 or $30,000. And I was like, All right, perfect. This fits my budget now. I can go buy a house for $30 grand, renovate it for $10 grand, and then refinance it out. And my last semester at University down here in LA, I bought that first house, used my dad’s $40,000. I bought a house for 35,000 bucks renovated it for a couple thousand bucks. Just paint and new carpet, put a tenant in place, found a property management company, and then went to a local credit union and did a cash-out refinance. That’s how it all started. And that was back in 2017. So 2015 to 2017 it was literally all just learning and trying a bunch of stuff that wasn’t working. Finally, 2017, early 2017 bought that first house. 

Antoine Martel  03:29

I graduated in May 2017 from college. And then I went to my dad and said, Hey, I can keep doing this and growing the family portfolio after graduation. You just got to cover my expenses. But let me try to figure this thing out. And by the end of that year, December 2017, We had about 10 properties in Memphis, Tennessee. And I was like, all right, this is working. Like we have a small family portfolio that’s making good money but we had run out of cash at that point. When you start with 40 grand, there’s only so many properties that you could buy with, turnover with that money. So we started to raise money and started to do more and more deals with other people’s money. Kind of doing the BRRRR, partnering up with people. 

But most importantly, people started reaching out to us to actually just buy rental properties from us. We now have a small portfolio out-of-state and people wanted to do the same thing, wanted to invest in cash flowing rentals. And so what we ended up doing was actually selling properties out of our portfolio to friends and family. 

g  So I made a janky little website on WordPress called Martel Family Realty posted up our portfolio and started emailing friends and family and people that have reached out to us to go check out the website and we just put all the information out there. That has now grown into what’s now called Martel Turnkey which is a full-service turnkey rental property company. And now we do over, the last year 2018, we did 85 houses and then this year we’re hoping to do over 120. So not slowly, but we’ve quickly been growing the business and started way more projects than we had anticipated now. Hopefully this year we’re going to do around 10 properties every single month.

Robert Leonard  04:59

Let’s dive in that turnkey business a little bit more and then we’ll transition to your current investment portfolio. But for those who may not know what a turnkey property is, what exactly is a turnkey property? And what does a turnkey company do? 

Antoine Martel  05:12

Yeah, great question. So our turnkey company, buys properties, renovates them, rents them out, puts a property management company in place, and then we sell it to our clients. We help our clients get financing, insurance, we give them the property management company on the ground, we help them if they want to get an inspection, and all that kind of stuff. We help them get insurance. You name it, we help them with everything that surrounds that rental property. And we have people already on the ground because we have our own portfolio there. 

So we just essentially refer people over to our clients who were already using personally. And one of the big questions is how does a turnkey company make money. So for us again, I can’t speak for other companies. For us, the only way that we make money is just on the profit of the sale. So we’ll buy a house, rehab it, and then resell it, right? So it’s kind of like a flip for us and we just make money on the profit. That’s it. There’s no other like turnkey fees or service fees or anything like that everything is just wound up into that property. And so a turnkey property to answer your question is, in my opinion, it’s a property that comes with property management in place, has a tenant in place, and then hopefully that company will help you get, you know, the other stuff–financing insurance, inspectors if you need them. 

Robert Leonard  06:20

I know you said that it kind of evolved into a turnkey company from just your personal investments. But why did you want to start a turnkey company from the beginning? Why did you decide to go that route? 

Antoine Martel  06:30

Yeah, yeah, it’s a good question. And there’s no real answer. I mean, people just started reaching out to us. There’s this thing with banks called seasoning periods, right? So this local credit union that we had didn’t really have a seasoning period, but there’s other larger lenders that we wanted to use where we can get better interest rates. And if we were the owners of the property for six months or more, then we can go to a Wells Fargo, Bank of America and do a cash-out refinance with them. They would give us higher loan to values and lower interest rates than that local credit union that we’re using. So if I buy a property, renovate it for the first month, rent it out for the second month, you know, I’m cash flowing in starting in month three, right? 

But I have to own that property for six months before I can do my refinance. So what we started thinking about was, Hey, why don’t we, in the meantime, from month three to month six, let’s just market the property out and see if somebody will come and buy it. We started looking at the numbers in terms of returns for us as well on a percentage basis. So we just thought to ourselves, all right, when the project’s done in month three, we’ll market it all the way up until month six. If nobody buys it, then great. At least we gave it a shot and we can just refinance it and hold it ourselves. 

So that’s kind of how the turnkey business model came about later on. After those first 10 properties that we had, we just started thinking about it more like that. And what ended up happening was that actually, very few properties didn’t sell in six months. Most of our properties sold in month three. and so then we’re like, Hey, there can be a real business here. There’s tons of demand for this kind of thing and tons of repeat business because 80% of our clients come back and buy a second, third, fourth property. So it’s not just a one off sale. And that’s not what I’m interested in either. So a lot of people kept coming back. And it just became a very nice business model for everybody. 

Robert Leonard  08:16

How are you scaling this kind of business? Is it’s something that you just plow the profits back into the business, and it just continues to grow that way and you use the profits to buy more properties?

Antoine Martel  08:26

Yeah, exactly. We’re doing that, we also raise a ton of outside money. So we’ll raise money from private investors who, for example, have a 401k or IRA account, and want to get that out of the stock market. So they’ll lend us money. There’s other people that just have money sitting in a bank account, don’t really want to buy rentals, they just want some passive income. So we’ll pay them for the money that they have in their bank account. So we’ve been using a lot of outside private funding what are called private money lenders. But other than that, there’s not much. 

We don’t use *inaudible* I’ve never used the hard money loan. I’ve never gotten bank financing to you know, that does like a construction loan or a bridge loan or anything like that. I really don’t like those loans. I rather pay to somebody who just has the money sitting in their account. It’s going to be much easier to work with that kind of person. We have been looking into other things like large lines of credit and all that good stuff. But as of today, we haven’t. The only way that we’ve been funding this is our own personal money and the profits and then also raising our money from private money lenders. 

Robert Leonard  09:21

What does that relationship look like with the private money lenders? Are they taking equity in the business? Are they taking equity in the property? Or are they just getting a percent return on top of what they give you?

Antoine Martel  09:30

They don’t have any equity. Essentially, what we’re signing with them as a promissory note. That’s it. So they’re lending us $50,000 to $60,000. We’re paying them 12% annualized return on their money. So 1% a month. So they lend us $50,000. We sign a promissory note, which is pretty much a promise of us to pay them back x amount of dollars plus principal, plus the interest rate. 

The interest payments and what is the interest payment look like in a term of 12 months, normally. So they lend us $50,000 bucks, we pay them $500 per month, which is 1%. What’s going to be 12% annualized return. And normally, our projects, again, are three to four months long. So normally they’ll give us the $50,000. We’ll pay them $500 per month for three to four months. And then once that project is sold, we reach back out to them. Hey, Billy, your property is sold. We have your $50,000 here. Do you want to back? Or do you want to roll it into a new deal? And most of our investors move the money over into the next deal.

Robert Leonard  10:24

So what strategies are you using to find the properties that you’re buying for the third key business? 

Antoine Martel  10:29

Today, about half of our deals still come from MLS. We’re just making a ton of offers on the MLS going through it every single day. So there’s that. Probably another 25% comes from realtors pocket listings. Just realtors that we’ve you know, done 10, 20, or 30 deals with. They’d rather just send their house that needs rehab work to us instead of wasting their time listing it and going through all that stuff. They know that we’re going to pay them a good price, a fair price for it and we’re going to close quick. So they just send the deals to us instead of marketing them out. So that’s another 25%. And then, the other 25% the last 25% is from wholesalers. So we’re in a bunch of wholesalers lists. A lot of the agents that we work with are on those lists as well. So whether we get the lead from a wholesaler or one of our agents does, they send it to us.

Robert Leonard  11:15

That’s really interesting. I didn’t expect you to be able to find a lot of properties off the MLS for this type of business. What did the economics look like for a turnkey business? What have you found to be the average returns on a typical property in a turnkey business?

Antoine Martel  11:30

It would be like a normal flip. So normal flippers are making anywhere like around the 15% range. And that’s how much of a return we’re making on a percentage basis.

Robert Leonard  11:39

What are the typical returns that somebody is getting when they buy the properties from you? I’m sure it varies from property to property, but in general, what are you seeing? 

Antoine Martel  11:46

So those are going to be very similar. So they’re going to be, normally we try to hit 16% for our investors on the cash flow basis. So yeah, very similar returns to what we’re making on the flip side.

Robert Leonard  11:58

When you’re acquiring these properties, how do you determine, if you’re just going to keep the property for your own investment portfolio as a rental or if you’re going to sell it as a property available in the turnkey company? 

Antoine Martel  12:10

Good question. So every time we analyze a deal, we run a scenario A and a scenario B. Scenario A is selling it turnkey. Are we making you know, our numbers? Do we like the profit that we’re going to make from this property? And that has to be a yes. 

Then number two is, if we aren’t able to sell this property, and we have to refinance it, what can we refinance it at? And are we happy with the return of the cash flow of this property that it’s going to produce? Are we happy with that return as well? So scenario A and scenario B need to both be yes’s. And then really deciding if we’re going to keep it or hold it, we don’t do that. Every single property we buy goes up on martelturnkey.com. If it doesn’t sell, then those are the properties that we refinance. Again, there’s very few that haven’t sold on our website that we refinance. I think, in the last year there’s been like two or three. All other properties have been sold and so many have come in and purchased the property from us. 

Robert Leonard  13:04

What do you wish you knew about the turnkey business before you got started with it?

Antoine Martel  13:08

The financing is probably the biggest issue for the turnkey side. For our clients, it’s super easy. If you have a W-2 job or 1099, you have a good credit score, you can go and buy these properties all day long. It’s easy. Once you are, you know, buying these houses that are in livable condition, you renovating them, and sometimes you’re spending and you’re buying a house for 25 grand and you’re spending $30,000 on the renovation. So even more than the property’s worth. And also the total investment is you know, $60,000 or $70,000. So it’s less than $100,000, which is a loan minimum for a ton of lenders. 

I would say that the biggest hurdle and the biggest kind of thing that we learned when we got into this business, it was like damn, there are no banks that really or even hard money lenders for that matter that really cater to this demographic of you know, flipping houses sub $100,000. And still today, I haven’t found a lender who has their prices really bare bones. Because you kind of need it bare bones because the profit dollar amount is very small profit per deal basis. So now if you have two points or a minimum of $25,000 in points or fees that you have to pay to a bank to just get the loan approved, well, there goes 30% of my profit. You know like, out the window just for getting the loan. And now it becomes very challenging to get these things financed for me to go and buy them which is why we’ve been referring to and going to private money lenders instead, it’s just the best route for us to take.

Robert Leonard  14:34

Could you purchase a portfolio of properties that need renovations and maybe use a commercial loan and do a package deal? Have you tried that?

Antoine Martel  14:43

We could, it’s just really hard to get those perfect packages. We bought a couple packages in the past three to four houses. There’s always like two or three good ones and then there’s two or three that you wish you never bought or would never sign your name on. And with every single package that I’ve ever done, I’ve never bought a good package where all the houses worked out. But when I’m doing it one by one, I mean it’s a walk in the park like now we can really dial into the numbers. For some reason, there’s always some garbage you have to buy in these packages.

Robert Leonard  15:12

That doesn’t overly surprise me. And my guess is that’s why they’re selling them as a package because they probably couldn’t get off those other one or two units if they’re selling them individually. So not overly surprised by that. If you were going to start over now, would you start a turnkey company again?

Antoine Martel  15:28

I probably would since I know what I know now. It is a very challenging business and it’s you know, you’re doing a lot of stuff. Whereas, you know, maybe flipping a house may be a little bit easier because you don’t have to deal with a client. You don’t have to help them get financing and help them do this. And you know, you’re not really getting paid for those things, right? We’re just making money on a profit just like a “normal flipper” would. So I would say with what I know now, I probably would. I mean, we’ve helped a ton of people just create some excess income, use the money in their bank accounts to grow a rental property portfolio. 

We’ve helped a lot of people do 1031 exchanges and save tons of money on taxes and, you know, increase their income from $200 bucks a month in California to $2,000 with using the same amount of money. So that’s probably the biggest benefit of this business is you see, you’re really helping people with their passive income and growing their passive income and helping them do that through real estate and through single-family homes.

Robert Leonard  16:22

Is that qualitative piece of big component of it? Because if I hear that you’re making the same returns as a flipper, or similar, but you’re doing all this extra work, I wonder why you wouldn’t just flip it rather than doing the turnkey side of things. But if there’s that component where, you know, you’re helping people, and that means a lot, then I definitely would understand that but…

Antoine Martel  16:41

Yeah, good point. And the one thing I would say to that is that the benefit of me versus a flipper is that my same buyer can come back eight times. Whereas if I’m flipping houses, that one family’s gonna buy one house and boom, be done, right? It’s a benefit. It just takes a longer time to realize those gains, right? So it’s going to take me a couple of years to build that. You know, I’ve been in it for a couple years, but a couple more years to build an even larger brand to even get more repeat business. So the sales get easier and easier as we go down. 

But, you know, when I first started this back in 2017, I mean, it wasn’t easy to sell these things, right? You got to really convince people that this is the right thing to do. Now it becomes much easier. I say, we sold 85 last year. And here’s a whole bunch that we did in this neighborhood. And here’s some clients that have bought houses next door to this one, right? So it’s a much easier sale at this point. But just getting started, it’s a much harder process because it’s much harder process just like a flipper would have because you have to go and listen on the market for rent and do all that kind of stuff. So us and the project length is getting shorter and shorter as we have more and more referrals and repeat business.

Robert Leonard  17:43

Yeah, that’s a really good point, actually, because with a flipper, it’s a one-off sale every time. Whereas with your business, like you said, you have repeat customers which is ideally cutting down significantly on your holding costs and just those additional costs that you have from holding the property if you’re a flipper, and you can’t rest to really find a buyer. But if you have a list of buyers that you’re continually selling to, that should really help with those holding costs, keep them down and ultimately increase your profit margins.

Antoine Martel  18:08

Yeah, I agree. And then also, we also have a scenario, you know, Plan B, right? Which is THE rent the property out and hold it. So a lot of flippers, what’s really scary for me is if I’m going to go flip a $200,000 or $300,000 home and the market properties in the market for six months. First of all, that’s a lot of wasted money. And then second of all, there’s no tenant in there because you can’t put a tenant in there. So you kind of mean to make a hard decision, like, are we going to go and rent this property out now? Or are we going to keep marketing it for rent? So you got to make a hard turn, a hard pivot, and there’s no going back because that said tenant’s going to sign a lease for one year, right?

The other issue with the flippers in that higher price point instead of several hundred thousand dollars there and like $200,000 or $300,000 price point is that those properties don’t cash flow very well either. So even if they were going to go pivot into you know, Plan B, which is going to be rented out, they’re not going to beat the 1% rule, the cash-on-cash return’s going to be pretty bad. It’s going to be less than 10%. Whereas for me, I’m going to, even if I just hold the property and leave my own money in it, I’m going to make, you know, 15% return on my money.

Robert Leonard  19:11

Yeah, that’s exactly what I was gonna say too. Having that turnkey business is such a benefit when you’re buying these properties because you always hear people talk about having at least two exit strategies and your turnkey property gives you that. You can keep it as a rental for your own portfolio or you can run it through the turnkey company. So I definitely think that’s a component of having the company that’s valuable that might not be thought about from everybody. Let’s talk about what your personal current real estate portfolio looks like. 

Antoine Martel  19:38

Slowly we’ve been selling off our personal single-family homes and we’ve been moving those funds. because we’ve actually been selling them on martelturnkey.com. Like the original 10 houses that we bought in Memphis, we’re down to the last couple that we’re selling off because you know, the tenants moved out at different times. But once they move out, we renovate them and then we put them up on martelturnkey.com, sell them. So those first-time properties are slowly being sold off. And we’ve been taking our cash and actually buying larger apartment buildings in the same market. So both in Memphis and Cleveland. mostly Memphis, Tennessee, though we have around 71 units that we bought just last year in 2019, in Memphis, Tennessee.

Robert Leonard  20:21

So talk to us a bit about that dynamic. Why are you targeting single-family properties in the turnkey business, but you’re targeting medium to large multifamily apartment buildings in your personal rental portfolio? 

Antoine Martel  20:32

Yeah, great question. So we, like I said at the very beginning, we started with single-family homes, right? And turnkey rental properties are great for people to get their feet wet to start acquiring single-family homes, to start growing that portfolio. I still think it’s a great place to start. I don’t think that people are going to get rich or wealthy or anything like that from single-family homes. It’s going to just take a lot longer, right? But the benefit of single-family homes is that it takes way less cash to get into the game. $20,000, right? And you can go 20,000 bucks, you can use that as a downpayment for an $80,000 house. You have a couple thousand bucks in closing costs. You’ll be all in for around $20,000 to buy a single-family home in Cleveland, Ohio, for example. So it’s like one of the cheapest ways to get your feet wet, to get into the real estate business, and to use financial leverage. So, it’s a great way to get started. But a lot of people in the US don’t have $300,000 in the bank, $400,000 in the bank. And for example, when we went and bought one of our buildings, which is just an 11-unit building, we bought it for 450 grand, we put $150,000 down, and then we spent $150,000 in renovation. So just for an 11-unit building, I mean, we spent $300,000 just to buy 11 units, right? 

Antoine Martel  21:44

So there’s this barrier to entry once you get into the five or more units. First of all, the financing’s way worse. No more 80% loan to values. They’re at 65%, 70%, 75%. The interest rates that we’re getting are also much higher. They’re not 4.8%, we’re paying 6.5%, 6%. So a lot of stuff changes once you get over that five-unit mark. And also the amount of cash needed it just way more money, right? So like I said in the beginning, we started with just 40 grand. We went and bought whatever we could afford in the real estate business just to get into the game. 

As we slowly had that business grow and slowly sold more and more properties every single month, we then had this cash pool that we can say, Hey, we can put this into more properties for the turnkey business or let’s see if we can do something bigger personally. And slowly we’ve been doing that off to the side and slowly buying more and more apartments just with personal cash because we do have it now. So again, a lot of people in the US don’t have that much money saved up. And for them to really take a big leap like selling their personal home and taking that cash and buying an apartment building, is probably not the best move if you’ve never invested in real estate before. So that’s why we’re doing that personally. It’s just because a huge barrier to entry. I still think turnkey is a great place to start to get your feet wet. So that you can then think about and be comfortable making big moves to get into the multifamily.

Robert Leonard  23:07

Do you ever see the turnkey company selling or turning multifamily properties? Or is the price point being higher just not make it as attractive? Because the investors might not be able to afford them as much as they can think of family.

Antoine Martel  23:20

We do mostly single family, right like 90%, 95%. But well here and there, get some duplexes. So probably wanted every like 10 or 20 properties, we’ll get a duplex. And so those are on the website. Two years back, we bought a four-unit apartment building in St. Louis. We made it quote unquote turnkey and we just sold it up on our website too. So we’ve slowly been testing the waters with doing bigger and bigger stuff. That 11-unit that I just referenced, well we bought for 450 and spent a bunch of money on the renovation. 

We’re actually thinking about selling that and putting it up on martelturnkey.com and really just to see what happens. Because a lot of people will just have you know $20 or $50 grand saved up. But there are some people that do have $100,000,  $200,000 and they’re looking to get something bigger. So, yes, with that 11-unit building, we’re going to test it out, but the smallest building that we have, the rest are like 20 units and up. So we’re going to try it with that 11-unit building once it’s been fully renovated, and the rents have been increased. We’re going to test it with that. I really just see what happens and see if somebody bites on that property and wants to buy it from us.

Robert Leonard  24:26

At the turnkey company, do you take almost like orders from investors? So if somebody comes to you and says, we really want to buy a turnkey property from you guys, we don’t necessarily see anything that we’re super interested in on your website. But if you find something XYZ, you know, be interested and then you find those properties for them, or is that not a business model that turnkey companies usually look into?

Antoine Martel  24:49

Yeah, it’s a good question. We don’t really do that. And then we have people that reach out to us, hey, not interested in anything on the site. Send me when you got some more stuff. There’s a ton of stuff that we have that’s under construction. That’s not on the website, because you don’t have pretty photos yet, right? So there’s a bunch of properties that, you know, when people reach out to us and say, Hey, I don’t like anything on your site, anything else you got coming down the pipeline? And then we share with them stuff we have coming down the pipeline. And a lot of the times those people will buy properties that we have under construction. And then typically, we’ll just extend their contract out a little bit longer so that they can see the photos get the appraiser in there, inspector in there, and give them some more time to do their due diligence.

Robert Leonard  25:27

So on the topic of finding apartment buildings that you’re adding to your personal portfolio, what exactly are you looking for in a potential property?

Antoine Martel  25:35

So for us for the apartment buildings, it’s heavy value add. So for example, what heavy value add means to me is creasing the rents normally like anywhere from 25% to 100%. So that 11-unit building we bought it the rents were $425, we made them $900 per month after renovation. So huge increases, huge renovations to the units, to the interiors and the exteriors. And then once you run all those numbers and all of them make sense, we then want the return or like the IRR, internal rate of return for that property over a five year period to be 15% or greater. So that’s what we’re looking for a 15% return on our money for those larger buildings.

Robert Leonard  26:17

So you’re looking for a 15% IRR, so your total return rather than just your cash-on-cash?

Antoine Martel  26:23

So that includes the cash-on-cash plus a sale. So it’s like buying the property. Year one, doing renovation. Year two, stabilize the cash flow. Year three, stabilize the cash flow. Year four, stabilize the cash flow. Year five, stabilize the cash flow plus a sale, and then taking that profit and getting that profit. So that, over the five year period, I’m looking for 15% IRR. 

Robert Leonard  26:47

Yeah, that’s interesting. And the reason I asked that is because I hear a lot of investors talking about cash-on-cash as being the predominant metric that they’re looking at, not so much the IRR. So it’s interesting to hear that you’re focusing more on the IRR than the necessary cash-on-cash.

Antoine Martel  27:01

Yeah. I mean cash-on-cash is important. There’s a certain cash-on-cash that I want. And that’s typically over 10% for year 2, 3, 4, 5. Year one is really just like a fixing year. So normally it’s breakeven or even just loses a little bit of money, and that’s fine. I mean, I do double-check to make sure that like, the reason why people do the cash-on-cash is because when you’re selling the property, the IRR takes into account the cash flow plus the sale right, which includes the profit. But if your IRR, for example, is 25%, and you’re like, Oh my God, this deal is amazing. It could be because your cap rate is just way too low. 

So for example, we try to put a cap rate anywhere from like 7% to 8%, some people accidentally or mistakenly put in like a 4% or 5% cap rate, which will make their IRR go from 15 to 30 or 25. Right? And then their cash flow in year 2, 3, 4 and 5 just on the cash flow is like 4% or 5%. And so they’re barely making any money. They’re banking, all their chips on selling that property for a 4% or 5% cap rate. And yeah, that’s risky business. So I do a double-check and make sure that the cap rate on the sale is very reasonable. And normally it’s for what we go into the property at. So if we’re going in buying it at a six or seven, then I’m going to go in and sell it and refinance it for a 7% or 8% cap rate later.

Robert Leonard  28:18

For those listening to the show, who might not know what a cap rate is, what is the cap rate? 

Antoine Martel  28:23

Cap rate or capitalization rate is the return you would make on a property if you were to buy it all cash.

Robert Leonard  28:30

Yeah, that’s very simple, but that’s exactly what it is. So how are you finding the deals for your rental portfolio? We talked about how you’re finding them for the turnkey. But how are you finding them for your rental portfolio? Are you using the same strategies that you do in the turnkey business?

Antoine Martel  28:44

No, so it’s very different. 100% of the multifamily deals that we get, have come from broker relationships. 100%. So really getting out there, showing people that you’re legit in whatever way you need to, and then following up with those brokers on a constant basis, consistent basis, letting them know that you’re still waiting, still looking for deals, how much money you have sending them, approval funds, sending them, you know, inundating them with information about why you’re the man. And that’s what you’ve got to do. And I did that for nine months straight every two to three weeks. That’s how I got my first deal.

Robert Leonard  29:04

And I’m sure having the turnkey business just helps your credibility and your reputation without these brokers showing how many deals you’ve done. And that side of the business, I’m sure that helps a bit with finding these apartment building complexes and those brokers just trusting you. 

Antoine Martel  29:15

Yeah, 100%. And if I can go and when I was like reaching out to brokers in Memphis, I’m like, Hey, I own 40 houses in Memphis, they’re all under construction. Here’s a list of addresses. By the way, here’s a proof of funds for a million bucks. You know, it’s like, Okay, well, I think this guy’s legit right? And he can handle also doing heavy construction or heavy value add, because that’s what I was looking for. But everybody’s emailing these brokers asking for heavy value add, right? But nobody is showing that they can actually take on heavy value add. And so by showing them that I was doing all these projects in Memphis, they could literally go and drive by to make sure I wasn’t, you know, BS-ing them, you know, I think it definitely helped bring me to the top of the list or, you know, very close to the top of the list for a lot of these brokers. 

Robert Leonard  30:12

How can someone who’s maybe a little newer than you are or hasn’t done as many deals? How can they start to build those broker relationships?

Antoine Martel  30:20

Yeah, for people that are just getting started, I mean, great. Having rapport is fantastic and having that kind of springboard, I guess, to get into the brokers phone or speed dial is terrific. But if you don’t have that, I mean, even just reaching out to the brokers on a consistent basis and then doing things a little bit differently. So if you have money or one of your partners has money, I would just take like a proof of funds and send it to all the brokers and be like, Hey, I’m interested in buying this, this and this. Here’s my proof of funds. This is going to be my first deal in Memphis, Tennessee, but we’re looking to do plenty more once we get it going. 

And so kind of sell them on the long term strategy. Because that’s what I had to do with property management companies, realtors, contractors, when I first started even just buying my first couple of homes, right? You know, they’re taking a risk on you as well, that you’re going to be easy to work with, you’re going to pay the bills. So I had to do that sales pitch already for the turnkey business when I first started it. And I was selling them pretty much the story of long term growth and expansion and dollar signs and all that kind of stuff. 

Antoine Martel  31:27

And what I mean by that is, I would call people on the ground and you can use the same thing for multifamily. And I would say, Hey, my name is Antoine Martel. I’m a real estate investor from California. I buy apartment buildings, renovate them, rent them out, and then refinance them or sell them later. And you know, you can say something like, I haven’t done any deals in Memphis, Tennessee before but I’m looking to continue to scale up my apartments, I’m looking to buy over 100 units this year. So then they kind of see like the dollar signs flashing. Like, hey, he’s not just looking to buy one building for 10 or 10 units or 20 units and walk away. He’s looking to really build a scalable model. 

And so that’s what I did when I was calling these brokers at the very beginning. It’s, hey, I want to buy a house a month. Not just I want to buy a house. I want to buy a rental. It’s like, I want to buy a house a month. I want to buy it, rehab it rent it out, and refinance it. And then I’m looking to slowly scale up the business from there to all the way up to like 10 houses per month. So kind of sell them on the story and get them ingrained in that kind of vision. I can help you get some more deals that you know other people who just call asking for one deal or not going to get.

Robert Leonard  32:30

Does it help to start with single families so you can grow a little bit of a track record that way with some smaller deals so that you can at least go to the brokers and say, hey, I’ve done five deals, 10 deals, three deals, whatever it may be, on single families and you can at least have that track record before you go to those brokers or should somebody just use what you just talked about and go directly to the brokers and start right with multifamily?

Antoine Martel  32:52

So what I recommend it all depends on how much money you have and you’re looking to invest. So if somebody has like $20,000 to $50,000 then I would recommend just buying turnkey and just getting started there because that’s all you can get started with that kind of budget. You can’t even get into multifamily. If somebody has $100,000 to $200,000, then you have some options. You can do turnkey. You can also partner up with some people with other real estate investors or syndicators, or do something like that. Do joint ventures with people on multifamily apartments because now you at least have a little bit of leverage. Maybe you can do a full deal, a full 20 units, but you can partner up with one or two guys and take down a building yourselves, right? So that’s a good budget to start there.

Then if you have, you know, $250,000 and more, maybe you want to start looking, skip the whole single-family, skip the whole turnkey. You don’t even need a partner at this point. Maybe you do want one but you don’t need one. Because at this point, if you have $250,000 or more, you can go and do your own deal. And I would still start very small. Maybe with something closer to five units 5, 6, 7, 8 units and start there, test out your teams and slowly build up and slowly grow the portfolio from there. But the biggest thing for getting into multifamily again is the budget. I mean, if money wasn’t an issue that I would say everybody start with multifamily. But it’s just not a reality.

Robert Leonard  34:11

I want to talk a bit about how you’re raising private capital from your investors. Specifically, for the rental portfolio side of things, your apartment buildings, because I get this question all the time from listeners and they always ask how they can go about raising private money or finding investors to invest with them. So what are you doing to find those investors to invest in your apartment building deals?

Antoine Martel  34:30

For example, the $100,000 to $250,000 price range is that’s where a lot of the guys come from who want to invest in our apartment buildings. And so the way that I’ve been raising money for that, or the way that I would recommend raising money for that is just networking. That’s really going to be your bread and butter. And even if you haven’t done a deal yet, again, you gotta sell the story of you doing a deal or doing multiple deals and that’s kind of what you have to sell. 

So even if you have nothing under your belt, you need to sell the dream of this building and why you need this person’s money to help you do this kind of deal. So I would say networking, I would go to meetups. I would go on bigger pockets and network as much as you can over there as well. And just go start meeting people and learning from people. Start collecting people and adding them to a spreadsheet or whatever you want and, you know, collect how much money they have, what they’re trying to do, etc, etc. And those people are going to be very key later on. Networking can never hurt. You can never network enough. Literally, you can network 24/7 and you can make a lot of money from those people that are in your network.

Robert Leonard  35:34

What do you think the best way or the number one way to network is, which is somebody really doubled down on?

Antoine Martel  35:40

Message people one on one. Hey, my name is Antoine Martel. I live in Culver City. And I see that you live nearby and you’re interested in investing in. I was wondering if you wanted to get together for some coffee and just share notes. Boom, that’s it. No sales pitch, no, nothing. No, I’m trying to do this and raise money for this and here’s my package, so this. Just say you want to go and meet up with them for coffee. And then just literally share with them every single thing that you’ve been learning or have learned. 

If you haven’t learned anything at all, just go in and be prepared to ask the right question. So listen to a couple of podcasts about things that they’re doing. So for example, they’re mobile home parks. Go listen to a bunch of podcasts about mobile home parks. And then go to that meeting and asked good questions and take one hour of their time. That’s it. And put them on your list as a person who does mobile home parks and is looking for money for their next deal or you know, whatever, you’re going to figure out some pain points, right while you’re in that meeting. And then keep that in for knowledge later because you never know what will happen at the next meeting where somebody wants to invest in mobile home parks, and is looking for an investment opportunity and they have 100,000 bucks. And now you can make money just by being a connector and you can even get a piece of that mobile home park for literally going to two meetings.

Robert Leonard  36:51

So say somebody is able to do this successfully like you’ve done. What is the structure of these deals look like? What have you historically used for your structure when you’re partnering with these outside investors? Are they taking equity? Are you doing 50:50 and then you split everything, all of the profits are 50:50? Are you paying them, you know, interest back on their money like you did in the turnkey business? What does that look like?

Antoine Martel  37:11

Yeah, good question. So for the apartment buildings, it’s a little bit different. Apartment buildings, people invest in those buildings to get equity because it is a joint venture. Essentially, we sign a joint venture agreement, literally. So those investors are getting a piece of the deal. We’re splitting everything 60:40. So we’ll both put 50% of the money upfront. So they’ll put 50%, I’ll put 50% in terms of the capital. But then on the equity, we get 60%, they get 40%. That extra 10% is just for finding the deal, and signing on a loan. And then managing the deal after. So, you know, we’re pretty much doing a lot of the work. They’re coming in investing in those deals partnering up with us. We’re the only one signing on the loan, and then we’ll bring in the deal to the table too. So we’re asking for an extra 10% equity just for doing those two things.

Robert Leonard  37:55

So are you essentially just forming an LLC and then they own 40% of it, you 60% of it, and that’s how the joint venture is structured as well? 

Antoine Martel  38:03

Yep, exactly. 

Robert Leonard  38:04

So you don’t have to worry about any SEC requirements for like syndications or anything like that?

Antoine Martel  38:10

No, because we’re bringing in their sign. They’re just being part of our operating agreement. And then we’re not bringing in like, 17 people, right? Like the last couple of deals have been one or two guys that we’re just partnering up with. So more of a partnership than actual true syndication. You know, we’re asking people for, you know, 20 or 30 grand, and we’re bringing in 20 of them. 

Robert Leonard  38:30

So does the structure ever vary? Are you always putting up 50% of the money? So and the reason I ask is, what if somebody’s listening to the show today hears that and they’re like, well, I don’t have 50% of the money to put up. I was hoping, you know, somebody would fund the deal 100% or 90% or 80%, even, and that they only had to put up either nothing or up to 20%, maybe. Have you done any deals like that? And if you haven’t, what would you recommend for a split? Should somebody maybe go 70:30 towards the investor? Or what might that look like?

Antoine Martel  38:55

I used to do these joint venture agreements where I would bring on investors and they would fund 90% of the deal, I would put up 10%, and we would split the profits 50:50. So if you’re doing a multifamily deal, every deal is a little bit different. And the biggest issue is really the loan, right? So that’s the issue with the whole multifamily thing. So normally, if you’re bringing an investor and you’re kind of just the deal finding guy and managing the project, then you’ll have an investor come in, fund the whole project, sign in the loan for you, and then you’ll get 10% or 20%, or 30%, whatever you negotiate of that deal for bringing him the deal, and then managing the entire process. And then you know, let’s say you found a property management company like bringing those people in as well. So I think that could be a fair setup where you can get into your first deal without putting any of your own money. You’re gonna have to do a lot of work, but without any of your own money, you can make a certain percentage and certain ownership of that deal.

Robert Leonard  39:49

What does that dynamic look like with the bank? You mentioned that briefly there. Who is going on the loan? How does that work if you’re not necessarily putting up any capital or the investors having to go on alone?

Antoine Martel  40:00

So they won’t have to normally the banks do it where anybody who owns 25% or more of this LLC will have to sign a loan. This is just from my bank. I don’t use a government-backed financing, yet. My deals aren’t that big yet. So we can’t go and use like Freddie Mac financing. So we’re using just an asset-based lender. And their rule is that anybody who owns 25% or more of the LLC has to sign on the loan. So for example, if you’re going to go and do this, and you’re going to find the deal, manage the deal, and somebody else is going to fund the whole thing and sign on loan for you, then, you know, you can make 20% or 22.5% and just manage and run the deal. And then the other investor gets the rest of the deal. And then they sign a loan for you. And you don’t have your name on anything.

Robert Leonard  40:42

So in your case, because you’re splitting at 60:40 your investors are having to go on the loan, correct? because they’re over that 25%?

Antoine Martel  40:50

So what we do is we take that 40% and we split it up into two investors, normally. So the one time that we did it otherwise, we had our investor put his personal name and put his LLC. So technically, it was two different investors. But there are some things that you can do to work around it. 

Robert Leonard  41:07

Yeah, that’s really interesting. And I think that this dynamic it’s even harder when you go to single family. And the reason I say that is because if you go to get a regular traditional mortgage, you’re not gonna be able to do that same strategy that we’re talking about. They’re going to want both people on that loan, as far as I know, regardless of how much you own. And in my experience, I’ve read and learned that a lot of people have a hard time getting loans if you’re not related, significantly related to that person. So if they’re not like your spouse. So it might make partnering on deals for single family difficult. Is that your same experience?

Antoine Martel  41:38

Yeah, that’s correct. for single-family homes. I really don’t recommend partnering unless everything is done all cash. Once you get the bank involved on a single-family home, it gets very complicated and very annoying. Especially if we’re doing like government back financing or Fannie Mae financing, it’s very complicated. They ask for a ton of information. So if you’re doing like single-family home flips, you can use a hard money lender who’s going to be easier to work with. If you can do everything all cash and by all means do that. 

Robert Leonard  42:04

And so you were talking about value add and that’s what you’re doing, that’s your main strategy for your apartment buildings. But it seems like value add has become a bit of a buzzword in the real estate industry over the past few years, much like artificial intelligence and blockchain has in the tech space. And with your focus on exactly that acquiring value add multifamily apartment buildings, can you first explain exactly what value add is, how you’re looking for those, and then how you differentiate yourself and your business in a market where increasingly more investors are really looking for those value add deals.

Antoine Martel  42:36

Value add for me is like I said like increasing heavily. And the way to identify them is looking at the current rent roll and then looking at what the market rents are. And you know, if that number is 25% or more or less, then you know that’s a value add apartment, whether it’s going to be you know, renovating all the units, adding washers and dryers for those units or renovating the exterior of the building, you may have to do all of those things to get the rents up. But what we really look for is, buildings for example, that are rented out for $400 or $500 a unit, where we can increase those rents to $700, $800, $900 a year. That’s going to be a value add apartment. 

What a value add apartment is not is some building that comes to us and the rents are the rent roll showing $700 bucks a unit and the market rent is $725. That’s not a big enough spread for me to make good money or to increase the value. And the reason why you want to do the value at apartments, the heavy value add is that you’re increasing the net operating income, literally doubling it. So if the building’s making $100 grand a year and you renovate it and make it make $200 grand a year now, the value of that building doubled. Therefore, bought it for a million you spent $200 grand or three grand on renovation, now it’s worth $2 million, you just created $700,000 of equity by increasing those rents. Now you can go to a bank and do a cash-out refinance and pull all that money out. So it just kind of like the BRRRR strategy just on a larger scale. That’s what we’re doing with the value add apartments and why we’ve been sticking our guns to those value add apartments,

Robert Leonard  44:03

Why do those deals even exist? Like, why are the owners, if they rent can go up that much and there’s that opportunity, why are the current owners not just taking advantage of that doing exactly what you do themselves rather than selling the property?

Antoine Martel  44:16

It’s very expensive. We spend around 13,000 bucks per unit, and that’s pretty cheap. We just got some bids for some other contractors and they charge us $25,000 to renovate one of the units. Now for a small mom and pop landlord, that’s, you know, they’re not even going to spend that much money on a roof. A lot of these guys bought buildings 10, 20, 30, 40, 50 years ago. They’re just living off the cash flow. They love the cash flow. They don’t really care to increase or spend an extra, you know. Imagine, you’re spending $10,000 a unit even and you have 20-units. That’s a $200,000 investment that you have to make now in your building that’s already making you money, and where am I going to get $200,000 from? So that’s the big thing that I’ve seen. A lot of the people and guys who buy buildings from the past just don’t have access to that kind of capital nor do they want to spend that amount of money on a building that they’re already making a “great” return.

Robert Leonard  45:07

Yeah, there could be a lot of reasons like you said. Maybe they just don’t want to spend the time or money doing it. Definitely there are opportunities for that. Clearly you’re making it work. Where can the audience go to learn more about you and all the different things that you have going on?

Antoine Martel  45:21

Thanks for having me. The best place to get in touch with me is probably Instagram. You can follow me there @martelantoine. My website’s martelturnkey.com. If you’re interested in anything turnkey rental properties related and then yeah, if you want to learn more about the apartments or interested in those, then yeah, you can go to Instagram and just shoot me a DM I’ll try to get everybody as best I can.

Robert Leonard  45:41

Awesome, and I’ll be sure to put links to those resources in the show notes. So everyone listening, you guys can go check it out and connect with Antoine there. Antoine. Thanks so much. 

Antoine Martel  45:50

Thanks for having me. 

Robert Leonard  45:51

And now, we’re going into a new segment of this show that I’m excited to be adding. I want to make the show interactive and make sure you all listening to the show are getting your questions answered too. So in this new segment, I’ll be answering questions that we receive from you all listening to the show. Today’s question was asked by William Williams in our Facebook group. He asked, I’ve noticed a lot of the real estate podcasts out there talk as if real estate is the only successful investment a person can make. With your background in both stocks and real estate, do you invest in both? Should people consider assets outside of real estate? 

Before I start to answer this question directly, I want to say that this is such a great question. As a stock and real estate investor myself, I noticed something similar when I listened to other real estate podcast. So now to answer your question. Yes, I do invest in both stocks and real estate currently. And I plan to, indefinitely. I also do think that most people should invest in both stocks and real estate. It’s going to vary from person to person, but in general, I would say yeah. Most people should have exposure to both the stock market and real estate. This is a real estate show. So I don’t want to go into the weeds of stock investing too much. If you want to hear more about my stock investing, you can check out my other podcast called Millennial Investing. I’ll put a link to it in the show notes. 

Robert Leonard  47:07

But I will admit that once I studied real estate deeply and really understood it, I did start to heavily invest in real estate and backed off investing in the stock market a little bit. Growing up, I always knew I wanted to work in investments. My goal was to work at a hedge fund, actually. For various reasons, that didn’t work out for me. But I still had and still do have a passion for stock investing. So I do still spend quite a bit of time analyzing companies and making individual stock picks, as well as investing automatically and passively in ETFs. And I even sell options to generate cash flow from the stock market. But I have less than my allocation to stocks in the stock market over the last year or two and put more towards real estate. 

Originally my entire portfolio both the retirement accounts for my corporate career and my non-retirement investment accounts were invested entirely in the stock market. Once I got into real estate, I decided to keep my retirement accounts from my corporate job in the stock market and continually invest in those every week. And then I’d invest the majority of my non-retirement investment money into real estate.

So William, and everyone listening to the show today, just because that’s what I’ve done doesn’t mean that’s necessarily the best strategy for everyone. But in general, I do think most people should have some of their portfolio allocated to stocks, and some to real estate. If you want to hear your question answered on a future episode, you can post your question in our Facebook group, and I’ll be picking some of my favorite questions to answer here on the show. You can find the Facebook group by clicking the link in the show notes below in your favorite podcast app, by going to theinvestorspodcast.com or by searching Real Estate and Millennial Investing on Facebook, and looking for the shows graphic. That’s all I had for this week’s episode. I’ll see you all again next week.

Outro  48:51

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