Robert Leonard (04:04):
As a stock investor, who has studied Warren Buffett for over a decade now, and that was my main approach to investing. I wasn’t investing in all these companies that a ton of people knew. When I got into real estate, I said, well, why wouldn’t I just do the same thing? In the stock market, we look for opportunities where we’re not competing with all these other people, meaning these companies are typically not as well followed in the news or not as well written about on the internet or social media. So, I said to myself, why wouldn’t I do the same thing in real estate?

Robert Leonard (04:36):
It was twofold. It was that, what Warren Buffett taught me about the stock market, and it was also, I heard a quote, and I forget who I heard it from, I want to say it was David Greene from BiggerPockets, but I could be wrong about that. But the quote was basically, it said, live where you want to live and invest where the numbers make sense.

Robert Leonard (04:57):
Combining that with the Warren Buffett piece, it’s just really spoken to me. For one of my very first rentals, I went long distance. I talk about that a lot on social media, I even talk about it here on the show. But basically, for my first true rental, I went about 2000 miles away, maybe more. I live in the greater Boston area, up in New England, and my first real rental property outside of house hacks was actually down in Texas.

Robert Leonard (05:22):
Why did I do that? Well, because when you’re in the stock market investing, you’re looking, like I said, for places where there’s not as many people, but it still has to be a good deal. Just because there’s no people there doesn’t mean it’s going to be a good opportunity, maybe there’s no people there for a good reason. When you’re analyzing a company in the stock market, it still has to be undervalued, it still has to be a good company, it still has to be a good opportunity. It’s the same in real estate.

Robert Leonard (05:45):
So, I said, where are other investors not investing, that are still good opportunities? When you start to research going long distance, one of the first things you’ll find is that you should invest in Birmingham, Alabama, Cleveland, Ohio, Indianapolis, Indiana, Memphis, Tennessee, and there’s a couple of other markets, but there’s like four or five, maybe six markets that are very, very common or popular for long distance investors, because they’re known to have low property values, pretty strong rents. That’s drawn a lot of attraction from long distance investors.

Robert Leonard (06:24):
When I first started looking into long distance real estate, I said, well, why would I go to these markets? I remember getting asked this, they’re like, “Oh, you’re going to go to one of these markets, right?” I was like, “No, why would I go there? That’s where all of the competition is. I want to find a market like that, where there’s no competition, or much less competition, a market like that, that other people haven’t found yet.” What I did was I analyzed those markets, and I found out what the demographic data points were, that were making those attractive markets, and there was a lot more to it. But some of those things were inventory, property types, property values, compared to rent rates, and how those two compared, because if you can get a low price property for a lot of rent, that typically would be a great rental.

Robert Leonard (07:08):
Then you want to look at crime rates and job growth and things like that. I started to look for those demographics across other cities, and I was taught this strategy by Neil Bauer, he’s been a guest on the show a couple of times now. Basically, he takes a really data driven approach to real estate.

Robert Leonard (07:25):
I analyzed data for about 7,000 cities or so across the US until I found, it was about 10, to 12, maybe 15, that really had met all of the criteria that I wanted. What I loved about these cities was that nobody was talking about them. If you look online, or search across the internet, BiggerPockets, Google, nobody’s talking about any of these cities as great places to invest. They all flew under the radar, but I knew that the demographic data was great.

Robert Leonard (07:58):
That told me there was a good opportunity there. Basically, what I did was I started making offers across, I forget, five, or six or seven of those markets, until one of my deals actually hit. Once it hit, I told myself that I would continue to buy there. My business partner and I got a property in Texas, and one of the markets that we were making offers in and ever since then we’ve continued to invest.

Robert Leonard (08:24):
I’m not saying we’re flooded with deals, they’re still definitely… It’s still hard to get deals because it’s a good market. But we’re not competing with nearly as many investors as you would in Indianapolis, or Cleveland, or Birmingham, or Memphis. We’re in a great market, we’ve had great success in this small market that not a lot of people know about, and we’re just not competing with a lot of investors.

Robert Leonard (08:48):
How do you compete with high profile investors who are scooping up all the smaller deals? Go to a market where they’re not doing that. There are thousands and thousands of cities across the US, find one that fits the demographic data points that you’re looking for, and invest there. It’s worked for me, I’m going to continue to do it. I’ll probably be expanding to other cities soon, or eventually, and I’m going to do the same thing.

Robert Leonard (09:12):
How do you compete? You don’t, you don’t compete with those investors because they have advantages that you don’t. So, you go where they’re not fishing, you go where there’s less fishermen, and that’s how you’re able to get your deals done. I hope that answers your question, Shreddy, and I hope it helps a lot of people listening to the show.

Robert Leonard (09:29):
The second question comes from, I know I’m going to get this name wrong, but I’m going to try my best. I apologize if I butcher it, but it looks like it’s Thenesis [Ballatosis 00:09:39]. Again, my apologies if that is wrong. But the question was, “How do you get comfortable with current valuations in real estate with cap rates at all time lows?”

Robert Leonard (09:50):
I mentioned in my last question, how I was really formed or impacted by some of my stock investing experiences and what I learned from Warren Buffett in terms of how to compete, and how to not fish where there’s other fishermen. The answer to this next question actually also was formed or taught to me from Warren Buffett and some of my stock investing experiences. Here on the show, I talk a bit about how I think I’m a Warren Buffett style value investor in real estate, or I’m a Warren Buffett style real estate investor, or just that I bring value investing principles to real estate.

Robert Leonard (10:32):
These first two questions really illustrate why I think that’s the case. How do I get comfortable with current valuations in real estate with cap rates at all time lows? The answer to that question is by buying good deals. I want to tell a quick story about my experience in the stock market, and relate that back to real estate. Back when I was getting started investing in the stock market, I had a little bit of money. I started investing when I was 18, I’d been studying it since I was about 16… 14 to 16, I’d started studying it. Had been saving up my money so that I could start to invest when I was 18.

Robert Leonard (11:08):
I had a little bit of money to invest, nothing crazy, a couple of 1,000 bucks. But because I’d studied Warren Buffett, I thought that markets were expensive. We were about six or seven years out of the last stock market crash, the housing crisis, and I thought things were expensive, and I thought things were potentially going to crash again.

Robert Leonard (11:27):
So, I sat on the sidelines for a while with just all cash, because I thought that there was going to be a better opportunity. I didn’t like the current valuations, even though there were some companies I liked, and I thought that they were good value, but I was more worried about the market as a whole. So, I didn’t actually invest my money. Took me a few years, and then I eventually did bite the bullet and I invested. Ultimately, I realized I had left a lot of gains on the table for a few years while I sat in cash.

Robert Leonard (11:55):
Basically, I learned my lesson from that, and that’s not to mean you buy at all these crazy valuations, you still want to buy good deals, but you don’t want to not buy just because certain things seem overvalued. If the general stock market overall seems expensive, or frothy, which I would argue it does right now, if you find a company that’s trading super cheap, and you believe in it, that doesn’t mean you shouldn’t invest, and it’s the same with real estate.

Robert Leonard (12:21):
Just because you might feel that markets are expensive, or that cap rates are low, or whatever the situation is, if you find a good deal, that doesn’t mean you shouldn’t buy it, you find a good deal by it. For me, that was a really big pivot, because I basically realized that I can’t time the market, and nobody can. If you find a good deal, that makes sense, and there’s good numbers, you should always buy it, it doesn’t matter what’s going on in the market.

Robert Leonard (12:50):
This was further cemented, because it was taught to me by Brandon Turner at BiggerPockets. Basically, he said, if you’re not investing right now, or at least this is probably over the last year or so, if you’re not investing right now, you’re not going to invest when there’s blood in the streets or the market crashes. Everybody’s saying, “I’m going to wait for the market crash to invest.” His argument was basically that right now, times are so good, there’s so much money out there, it’s really easy to get financing. If you’re not able to invest and find deals right now, and actually pull the trigger on these deals, when there’s blood in the streets, and everything is crashing, and the economy is crashing, you’re not going to be able to buy any deals, because one, you have no experience, and two, financing becomes a lot harder to get.

Robert Leonard (13:37):
If you’re not willing to buy deals in good times, you’re probably not going to be willing or able to buy deals in bad times. That just further cemented the idea for me, and basically told me, if I can find a deal with good numbers that make sense, I’m comfortable with real estate valuations being high across the board, as long as the numbers make sense.

Robert Leonard (13:57):
I couple this with one of my favorite sayings that, I don’t know if somebody said it before me, but I haven’t heard it anywhere else. One of the things that I like to say, or an idea that I came up with is that you can buy a deal for over asking price and still get a good deal. Or you could buy something under asking price and still get a bad deal.

Robert Leonard (14:18):
Asking price is really irrelevant, it’s really all about the underlying numbers and the underlying value. If somebody is asking… I’m just going to throw random numbers out there, but if somebody is offering $100,000 for a property, and I know it can rent for $2,000 a month, that’s a 2% rule, that’s generally probably going to be a good rental property.

Robert Leonard (14:40):
If I’m in a bidding war, yeah, I’ll offer $125,000. What, I had to pay 25% over the asking price, but the numbers will still probably make sense and they’ll still be a great rental. So, it doesn’t matter to me if I paid over asking, as long as the numbers make sense. That’s really the key piece here is, don’t buy a bad deal, don’t buy overvalued properties just to get a deal done. But it doesn’t matter, in my opinion, what’s going on in the real estate markets, as long as you’re buying properties with good numbers that make sense.

Robert Leonard (15:10):
That’s how I’m approaching it. I haven’t stopped buying deals. I just bought a deal last week, I’ll be closing on it this week. We’re looking at adding a couple of more properties in the next month or two. I’m still buying deals right now. But again, the numbers have to make sense.

Robert Leonard (15:26):
I know a lot of people have that question they’re always asking, is now a good time to buy a deal? I hope that answers your question, and thank you so much for submitting your question to me on Instagram. The third question comes from a gentleman that I will probably also butcher his name, but it looks like it is Nick [DePesquel 00:15:45]. Nick, sorry for butchering your name, but thank you so much for your question. You asked, “If you could put 20% down, do you recommend it? Or would you put a lower percent down?”

Robert Leonard (15:57):
This is really going to be personal preference. Math says one thing, but this is more psychology, I think, than anything. If you really run the numbers, I think it could be pretty obvious in terms of what is optimal from a financial perspective. But that’s not always necessarily the right decision. That’s how I used to think of things, it always had to be optimal financially or numerically or quantitatively.

Robert Leonard (16:22):
But I’ve learned that psychology and emotions play a huge role in these types of things. I’ve started to put a bit more weight on that type of stuff. I want to say it depends on the person. For me, personally, I like to put the lowest percent down I can. The reason for that is because I just closed on a property last month, maybe two months ago now, and I got a 2.25% interest rate on a fixed 30 year debt.

Robert Leonard (16:50):
At the closing table, the lady that was doing the closing from the title team said it was the lowest interest rate she’s ever seen on a mortgage. So, why would I put 20% down with such a low interest rate when I could maybe put 5% down instead and take that additional 15% and invest it somewhere else, that’s going to earn me a much higher rate of return than 2.25%?

Robert Leonard (17:10):
Now, that is the optimal financial decision, that’s how I think about it, because I don’t mind having a little bit more debt, or a little bit higher mortgage payment than some people. But if emotionally, you’d rather just have a little bit more safety, by having a lower mortgage payment or having less debt, then that totally works too.

Robert Leonard (17:29):
However, the only caveat that I would have to this is sometimes I would take a chunk of that, and instead of investing the entire 15%, what I actually do is maybe save 10% of that and put it in an emergency fund, so that now my mortgage is covered. Because for me, I like the safety… Maybe I buy a property, the mortgage is $1,000 a month, maybe I take 10%, and I can put that away, and now maybe I have six months of that mortgage covered. Now, I feel super secure, so that even though I have a little bit more debt, maybe a little bit higher mortgage payment, at least I know I took some of that down payment that I could have put down, and now instead of having a lower mortgage payment, I actually have six months or so. Say it could be three months, it could be nine months, whatever the math works out to, but you have these reserves going into the property.

Robert Leonard (18:18):
Then I could invest the additional 5%, or whatever the percentage is that breaks down to, but you’re investing a piece of it, you’re also saving some for reserves, so you actually have some safety. Now, that 2.25% interest rate on my mortgage or low interest rates like that; 3%, 3.5%, to me, it just doesn’t make sense to pay that down as quick as possible, or even to put that much money down.

Robert Leonard (18:42):
For me, I typically personally go for the lowest percent down I can, but I understand how some people are a bit more debt adverse and just want to have a lower monthly payment or lower debt. I think that that’s the right decision for you, if having higher mortgage payment and higher debt is going to not help you sleep at night. Really comes down to what’s going to really help you be comfortable, help you sleep well at night and really help you continue to work towards your goals.

Robert Leonard (19:08):
Nick, thanks so much for asking that question. Now, we will get into the fourth and final question, this also comes from an individual who has a last name that I am probably going to butcher, so it seems like all four of these people that submitted questions that I chose this week had hard names to pronounce, but I’m going to try my best. This question came from Holly [Brueggemann 00:19:32], Holly, if I butchered that, my apologies. But thank you so much for submitting the question and the continued support on Instagram. Your question was thoughts on LLCs verse umbrella policy for a new real estate investor.

Robert Leonard (19:48):
The reason I want to answer this question is because, again, I have personal experience with this, I love this question, and it I know it’s on the mind of a lot of investors. I get DMS and emails from people all the time that reach out and say, “Oh, I just opened my first LLC, I’m ready to invest in real estate.” Because my philosophy on this has changed over the years, I’m looking forward to sharing my story and providing my opinion on it.

Robert Leonard (20:14):
When I first got into real estate, I had this idea, or I thought that I would never buy a property outside of an LLC. This is because I didn’t really know any better, I had no understanding of really how real estate worked, I didn’t know the different options that were available to me, I just knew that LLCs provided some protection, and I knew that I wanted that protection as a landlord. I basically had this idea in my head that I would never buy a property if it was outside an LLC.

Robert Leonard (20:47):
I did the same thing a lot of people do, I went out, opened an LLC at my local state, and tried to buy a property. Basically, what I found was, if you’re buying a property that is less than four units, so one, two, three or four units, you will have a very, very, very difficult time getting a mortgage to an LLC. There are ways around this. I literally just last week bought a property, a single family property with an LLC, but I did not get traditional fixed debt. I went with a little bit more creative debt through a portfolio lender. So, it is possible, but typically, most of your bank’s, 99% of the banks you call your local banks are not going to lend to an LLC on a property that is four units or less.

Robert Leonard (21:37):
That makes it very difficult to get financing. That was my first roadblock, was that it was very hard to get financing on that first property. What did I do? I ended up buying the property in my name, and I said, “Well, I’ll just quick claim deed it to the LLC.” This does violate the due on sale clause, basically, meaning that the bank can call the loan fully due if the property is sold, and technically transferring the deed could activate this clause, because it’s technically a sale from my personal name to my LLC, even though it’s the same person.

Robert Leonard (22:14):
Typically, again, this is not legal advice at all, but typically, that’s not an issue, as long as you’re making the mortgage payments. It does go against your mortgage, so keep that in mind. But a lot of people do it. So, I decided to do that. Then what I found out was that because my property was long distance, I had to also file with the state that the property was in, as well as my local state that I had the LLC in, and then it was going to cost a couple hundred bucks up to $1,000 for the LLC paperwork in the additional state, and the property was going to cash flow like $3,000 a year or so. So, we’re going to lose like a third of our cash flow a year just to this one legal registration, or maybe it was going to cash flow like $4,000 or $5,000, and we’re going to lose $1,000. We’re losing 20% to 25% of our cash flow, just to this LLC registration requirement.

Robert Leonard (23:05):
We were like, “Well, what are we going to do?” What we ended up doing was, through the podcast, actually, I’ve spoken with a lot of guests and asked them what was the best solution? Basically, they said, “Just get an umbrella policy. A lot of times it provides very similar protection, as long as you get good policy, you’re just as well covered with an umbrella policy as you are with an LLC. Just be well insured, and you’re fine.”

Robert Leonard (23:31):
That’s what we ended up doing. My business partner and I bought the property in our personal names, we ended up not quick claiming it? Well, we did quick claimed it, we quick claimed it back to our personal names, and then we just got an umbrella policy with a million or maybe $2 million in liability coverage, and that’s what we’ve done.

Robert Leonard (23:47):
Even as I continue to scale my portfolio, that’s what I would continue to do. The only reason I’ve slightly changed it now is because I’m considering bringing in outside investors. I’ve had some people that are interested in partnering on some deals with me. So, I’m going to need an LLC structure to allow for those investors to buy into the deals. But if I’m just buying deals for myself, or just me and my business partner, with no outside investors, we’ll just keep it in our personal names, and then we’ll just keep our umbrella policy, maybe increase it a little bit depending on how big the portfolio gets.

Robert Leonard (24:22):
For us, we’re just really keeping it in our personal names, way easier to get financing, you get much better financing, much better terms, and you still really get the good protection as long as you get a good umbrella policy. I was shocked to learn how cheap an umbrella policy actually was. I don’t have the exact numbers, but it’s very affordable in comparison to what I originally thought. I thought that the umbrella policy was going to be significantly more expensive than it was, and it really wasn’t too bad.

Robert Leonard (24:49):
Holly, to answer your question, I tend to fall in the umbrella policy side, keep the things in your own name. Again, I’m not a legal professional, IM not a tax professional, I’m not an insurance professional. So, speak with all of these professionals before you make a decision, do your own due diligence, but that was my experience, those are the things that I learned as I’ve grown my portfolio, and that’s how I personally approach it with my own properties.

Robert Leonard (25:14):
I know that question, like I said, is very, very popular from a lot of people. I hope that helps you, guys. I hope that helps you, Holly, as well as everybody else that has that question. If you have any questions about this last piece that I talked about, or really any of the four questions, be sure to send it to me on Instagram, my username is @therobertleonard, that’s just therobertleonard, and I will happily get back to you in the DMS or in a comment on my post. If you want to have your question here on the show, feel free to send it to me and I will pick some in future episodes as well.

Robert Leonard (25:45):
All right, that wraps up the q&a section for this week’s episode. Now, let’s get into the conversation with Mike Russo. Mike, welcome to the show.

Mike Russo (25:56):
Hi, thanks for having me.

Robert Leonard (25:58):
When Billy, who’s your Director of Community Outreach reached out to me, the thing that really caught my attention in his email was when he said, and I quote, “Mike has a certified fresh perspective and potential fix for the likely incoming wave of foreclosures.” I know foreclosures have been on the minds of a lot of investors. So, I’m looking forward to that part of our conversation. But before we get there, let’s start by learning a bit more about you. Tell us your story, who you are and how you got where you are today.

Mike Russo (26:29):
Who I am, is I’m a proud father of five and husband. How I got to where I am today and started in real estate started about 15, 16 years ago, I worked for a really big company and two months into it… It was called [inaudible 00:26:44] at the time and two months into it, my entire department got let go. I was fortunate enough to be offered a position as the Vice President at Coldwell Banker for the Midwest because my company owned Century 21, Coldwell Banker and ERA at the time, it was 2003. Then in February of 2004, we bought the rights to Sotheby’s International Realty and I immediately was moved into that.

Mike Russo (27:06):
I moved to Aspen in 2006 and wound up owning the Sotheby’s International Realty franchise through the crash and into 2009. Really not so much fun. I actually think I coined the phrase that nobody actually needs to own a house in Aspen. In 2010, I became a partner at Concierge Auctions, which is the largest luxury real estate auction firm in North America. I sold my interest in that in 2017. Here I am today with SparkOffer.

Robert Leonard (27:39):
On your website, it says SparkOffer is the only online real estate marketplace where home sellers, buyers and their agents can buy and sell homes directly with one another. To me, when I was researching and getting prepared for this conversation, on the surface, that doesn’t sound too much different than how it’s currently done. We go on Zillow, or a similar platform, then send an offer directly to the seller or the sellers agent. How is your service different, and what is the problem that it’s solving?

Mike Russo (28:08):
Mine’s all done on the platform. You can go to Zillow, and you can shop for homes, but you can’t transact. My goal with SparkOffer was to bring more of the transparency and ease of the auction process into the standard offer process. Today, a buyer can come directly to one of the properties on our site, and they can make an offer right through the platform.

Mike Russo (28:37):
That they’ll go through a basic offer process, and that offer goes directly to the seller. Whether they have a listing agent, including them on the platform, or they’re doing it themselves, it goes directly to the seller. They can have a counteroffer process right electronically on the system. They either come to a conclusion or they don’t.

Mike Russo (28:58):
Really, that is the speed. The other part in regards to the transparency is that anybody that’s following a property on SparkOffer, when an offer is made on that property, they’re immediately alerted that an offer has been made on this property. There were so many times through my history where people would say, “Hey, I was watching that property, if I only knew… ” What have you. Now, there’s no excuse if they’re using SparkOffer, not to know that an offer has been made.

Mike Russo (29:24):
We see a couple of things through that on our platform. Number one, is half the offers are from buyers directly in comparison to the traditional process, most people are going to an agent because they’re not really sure what to do. That’s number one. Number two is 65% of our properties, before this wave of multiple offers, 65% of our properties we’re getting multiple offers, where an offer came in, it alerted the people following it, and usually within 24 hours a second offer would be received.

Robert Leonard (29:56):
How does a platform like this work with different states, having different forms that you need to submit for an offer? I know I buy property in Texas, also in New Hampshire, Massachusetts, when we submit an offer, typically we have a different offer letter that we provide to the seller, and it’s state by state basis. Does the platform like this work in that same way?

Mike Russo (30:17):
Right now, I stay completely away from that, because now if I wanted to go to Texas, Texas, or Colorado, the forms there are provided by the state. If I wanted to use those direct forms, I could because I wouldn’t be violating any copyright, or any other rules of copyright really. Compared to here in Massachusetts, where most of the offer… The offers where I live, by the cape are different than what’s done in Boston. Why? Because the local association is providing the forms, and the real estate agents are using the forms that are customary even in that local pot, it’s not even statewide.

Mike Russo (30:57):
In New York, or in Greenwich, Connecticut, they don’t use offers at all, they email general offers. In our case, we have a two page offer, it would probably be closer akin to a letter of intent, it does say that it’s non-binding, the purpose of it is to really put down, in writing, signed by the buyer, with proof of funds to say, “I want to buy your house, this is what I want to pay, I want a contingency, I want an inspection, I want to get a mortgage.” Whatever it is, but listen, there’s not a ton of terms on these things.

Mike Russo (31:30):
Then, my core belief is two grownups, or three or four, if you will, with the agents involved can take the basis of that and move it forward to standard purchase and sale.

Robert Leonard (31:43):
Does a property have to be listed by a seller on SparkOffer, or can they make a SparkOffer through a property that’s listed elsewhere, and maybe that seller gets a notification and says, “Hey, you have an offer on your property from this platform.”

Mike Russo (31:56):
I wish I could do that. But no, it has to be on our site, because I don’t have the seller’s information.

Robert Leonard (32:02):
For those listening, and I think this might be part of that answer who don’t know what the MLS is. Maybe they’ve heard it before, just not really quite sure exactly what it is, it’s thrown around so often in the real estate space, explain to us what the MLS is and how it works.

Mike Russo (32:19):
That’s a great question. Number one, I will tell you having posted it. I did write about a couple months ago a blog post saying that the MLS is a closed door social network, which is really what it is. The MLS is either privately owned or owned by a local board of realtors. It stands for Multiple Listing Service. It started out as books and it transitioned to electronic today. But what it was really meant for, was that agents would cooperate on sharing their listings with each other, and that there was a basic promise to say, hey, if I put out that I’m going to pay someone 3% for bringing me a buyer, that I was putting that out to the rest of the real estate agents in my area, and that there was some governing body and rules that the listing agent couldn’t violate, and everybody would have basic fair play.

Mike Russo (33:19):
That’s what the history of the MLS is. But what it is, is it is, today, a place where a listing agent, whether that’s a full service listing agent, a discount listing agent, an entry only listing agent, goes and puts somebody’s house for sale, primarily to share that with the other agents in the area that they can have a buyer to bring to that property.

Mike Russo (33:44):
What’s predominantly happening today, and this is a difficult part of the value proposition that listing agents are incurring today, is that they’re being viewed in a lot of cases that they’re only listing the house, somebodies house for sale on the MLS, which besides being broadcast to the other local realtors, it is feeding to Zillow, Trulia, realtor.com, Redfin because they’re a member of the MLS. That’s where the majority of the buyers are looking for property today.

Mike Russo (34:14):
Somebody sees that property, and most of the time, and we’ve got proven use cases with SparkOffer that they call their buyer’s agents and say, “Hey, I’m interested in this house.” But predominantly buyers are finding their own homes on the internet because of it.

Robert Leonard (34:30):
That leads exactly into my next question, where another aspect of what you’re offering is that you promote and advertise the property yourself, if you’re the seller, or your agent or whoever’s placing the property on the platform. One of the things that I personally like about the MLS is that Zillow and realtor.com, Redfin all these other platforms, they do all the work for me as the seller, I don’t have to advertise my property at all. They already have millions and millions and millions of users on their platforms, just like you said, that gives the property that massive exposure already. How is promoting your property yourself more beneficial to you as a seller?

Mike Russo (35:05):
It’s not so much promoting it by yourself. One of the things that I learned from my old business and a lot of people that tend to have used SparkOffer to this point is the MLS and the Zillow have failed them. But it’s not magic. Not everybody’s house just automatically gets absorbed and sold in multiple offers, just because you posted it there. There’s a lot going on, and every market is different.

Mike Russo (35:33):
What I mean by that is, for example, one of our first houses we did was in Lake Mahopac, New York. This gentleman had his house for sale for $3.2 million. In fact, if you go to sparkoffer.com, there’s a white paper that we wrote about this exact use case on the challenge with pricing. The challenge for this gentleman in pricing is that nobody really buys $3 million houses in Lake Mahopac, New York. In fact, maybe they buy a $1.5 million house.

Mike Russo (36:04):
I used to liken the internet to having a storefront on Fifth Avenue. If I have a storefront on Fifth Avenue, and I buy the right merchandise, and I price it right, and I put it in my window, there’s going to be a lot of people going by, and if I’ve met those criteria, they’re going to come in and buy what we have to sell. Works awesome. But if you go two blocks off Fifth Avenue, it’s not so many people going by, and it’s harder to get attention, even if I bought the right stuff at the right price, or maybe I bought the right stuff, but I priced it too high.

Mike Russo (36:39):
Those things affect whether your house is found on the internet today. Those certain people, they need to have a different mechanism or a different strategy and different tactics to have their house found. It doesn’t necessarily magically work all the time.

Robert Leonard (36:57):
Now, I want to get into the conversation that I mentioned at the very beginning of the show, there are a lot of people concerned that once foreclosures are allowed again and the eviction moratoriums are lifted, we’re going to see a massive wave of foreclosures hit the market and evictions taking place. What is your perspective on this? What do you see as a potential fix?

Mike Russo (37:19):
This is something that I have a lot of feeling and passion around. The part that I left out of my initial introduction, is in 2009, I was risking losing my home, I was risking foreclosure, and I had to short sell my house. It was very painful process. Then I went into the auction business, and I was doing predominantly very expensive homes. But after the crash, a lot of these people were also experiencing very difficult times, and there was some type of financial distress, and we were auctioning their home.

Mike Russo (38:00):
There’s a number of things. Number one, we’ve built another platform besides SparkOffer, we actually have built an auction platform, it’s called SparkAuction. I actually think for these people that are facing foreclosure, I have a number of bits of advice. Number one, based on what I’ve seen in my experience, is they tend to wait too long, and they’re just hunkered down and just waiting for the bank to take their house. “I’m just going to live here as long as I can.” That’s a tactic.

Mike Russo (38:30):
The other is, do I take this head on? You can take it head on in a number of ways. Now, one is you can put it for auction and set your own rules, and you can set your own reserve, you can put it out to the marketplace, because there’s more investors than I’ve ever seen in my lifetime out there. The most lead flow that we get for each one of our platforms on SparkOffer and SparkAuction, is investors looking for properties. There’s more out there than ever before. There’s nothing better than to present an open competition that will drive a transparent best price, absolutely.

Mike Russo (39:10):
Number two, a lot of these people that are facing this, God willing, actually have some equity in these homes, because… Right now, that definitely should be the case, compared to what we went through after ’08, which was definitely not the case. That’s what I think from my perspective, it’s take it head on, use tools that work fast, force investors to compete, don’t take offers from just somebody quietly because you feel embarrassment of your particular situation and you’re going to take… That may not be best for you. This might be the only equity to get you restarted in your life.

Mike Russo (39:53):
The other part of hitting it head on, is that if you don’t have enough equity and you do have to short sell it, short selling is far better on your long term credit than going through a foreclosure.

Robert Leonard (40:07):
Things like this are nearly impossible at the time. I think it’s a bit unfair of me to even ask this next question, and I don’t necessarily want people listening to the show to try and time the market. But based on your experience, when do you think the wave of foreclosures is going to happen, if at all?

Mike Russo (40:25):
I think it’s hard to say that it’s not going to happen when you have still nearly 3 million people in pandemic forbearance. To say that it doesn’t happen, I think, would be extremely wishful thinking. I think what you’re going to see first is you’re going to see a wave of short sales first, and then go on to foreclosures. I’m pretty tied into a lot of big companies with relationships over the years, and that’s certainly what a lot of these big companies are planning, that is going to happen.

Mike Russo (40:57):
When do I think it’ll happen? You know, what, it’s really going to wind up in the hands of the administration, the government of how far they can keep kicking the ball down the field, to delay this, and they’ve been delaying it for quite some time for the pandemic forbearance to stay in place. Personally, I think that’s got to probably end sometime mid this year, maybe I know, the President has thrown out there September, and then, start the foreclosure process from there.

Mike Russo (41:24):
People certainly could be in their homes to later this year, if not next year, and in some states even longer. Although I would say, compared to what we went through 10, 12 years ago, the banks have their act together much better. Those delays for maybe a missing signature, or whatever, there was all kinds of stories and levers, there’s a gazillion of them. I don’t think those are going to happen this time around.

Robert Leonard (41:48):
You mentioned that 3 million figure of people who have taken advantage of the forbearance program that’s being offered. I’ve heard similar things, I’ve heard roughly 30% of all mortgages, whatever data source you’re using, it’s a big number. There’s a lot of people that are taking advantage of the forbearance program. At first, when I heard that number, I was like, wow, this is not going to end well at all. Then I started to think about a little bit more, I started to talk to some people that I know, and this is going to be pretty anecdotal, I’d say, but started to talk to some people that I know that have mortgages, and there’s quite a few people that I know, that aren’t necessarily struggling from the pandemic, they’ve still got their job, everything is fine, more or less. But they’ve taken advantage of this forbearance, because they figured, why not? Why wouldn’t I just stack aside this cash?

Robert Leonard (42:36):
Do you think that, that is truly just anecdotal, or do you think that might be a good portion of that 3 million that are in forbearance?

Mike Russo (42:45):
I don’t know. I can tell you that, in the tough times that I had after the last crash, I did get to enter into whatever the program was by Obama at the time to try and restructure my mortgage. I didn’t get to be in it just because I said, so. They made me jump through a lot of hoops. It’s probably like unemployment, right? There’s probably quite a few people that are claiming unemployment that really aren’t unemployed. But I think it’s probably a fair portion.

Mike Russo (43:16):
Even if you’re right, and say, there’s a third of those people, there’s still 2 million people that aren’t.

Robert Leonard (43:23):
Yeah, you’re right. A third would probably be a lot. I don’t know if it’s that high. Maybe it is, maybe it’s not. But even if it was that high, you’re right, there’s still two thirds or 2 million people that really do need the forbearance program. That’s still going to be a major issue. Part of the reason that I was even thinking about this, is because I looked into the program, just so I could learn what they were requiring to do it. I haven’t needed to do the program, thankfully, but it didn’t seem like it was very difficult. It seemed like there were more or less letting pretty much everybody do it without much documentation or proving anything.

Mike Russo (43:58):
I haven’t looked into it, I just assumed.

Robert Leonard (44:01):
Yeah, and that’s what I assumed as well. But it seems relatively easy. But I could be wrong. If you were a new investor listening to the show right now, and you’re hearing all this talk about a potential recession, and a wave of foreclosures. How would you go about entering the market? Would you wait to buy your first deal or is now a good time to start as well?

Mike Russo (44:21):
It’s funny that you asked that because when I left my last auction firm, I actually did start investing more in real estate. I already had owned some single family rentals. But it was my first time actually going and buying a house to flip. I built a couple of new condos. I don’t think that there’s anything wrong with being in the market today.

Mike Russo (44:42):
My number one thing, and some of the best builders, some of the best everything and you always meet somebody that says, “I can build it cheaper than everybody else.” Maybe that’s true, maybe it’s not true. What I will tell you is that successfully investing in a piece of real estate that you’re going to buy, improve and sell quickly. Making your money on that has everything to do with analyzing the market up front, doing a great job of knowing what the market looks like, number one. And number two, how well did you buy that piece of real estate?

Mike Russo (45:17):
Because every time I’ve been around a situation where somebody got hurt on buying, improving and flipping a piece of real estate, they didn’t buy it very well.

Robert Leonard (45:28):
That’s pretty much how I’m thinking about it, too, is if the numbers make sense, then now’s an okay time to buy. I think the issue back then was people were buying deals that didn’t make sense from a numbers perspective. But as long as you buy a good deal with good numbers, I think maybe it wasn’t the perfect time to buy. But as long as it’s a good deal, the numbers make sense. Maybe you even put it through a stress test, I think now’s a good time to buy.

Mike Russo (45:51):
The other thing that I always did with all the things that I invested in, was I looked at it when I bought it, and maybe it’s harder to do this now, even though it’s only been a few years since I was doing it. I used to say, okay, if I can’t sell this, if I can’t sell it for my profit, can I cover my basis and rent it? What does that look like as an alternative strategy? Because if you can only afford this really for a short time, and you wind up not being able to sell it quick enough, and you can’t afford… If the rent’s not going to allow you to carry whatever it is and you can’t afford it, then you have a real problem.

Robert Leonard (46:26):
I want to learn a little bit more about your experiences with auctions and real estate. Typically, when you hear of auction properties in real estate, they’re rundown or being auctioned off, because the previous owner couldn’t pay for it anymore. Whether it be the mortgage payment, property taxes, or something else, you were working with auctions for luxury homes. Were these the same types of transactions that I just described above with just really expensive properties, or was it an alternative way for a seller to sell their house rather than listing it the traditional way?

Mike Russo (46:58):
That’s a good question. They did list it the traditional way, and it didn’t sell. What I tell people in relation to what you would deem the traditional way, and some of the gripes that agents are getting today from their client when their house doesn’t sell, they only tell them to lower the price. Now, going based on what you said, in relation to Zillow, and all these people have millions of people on their website. Well, if you have a list price for your house, and you start dropping the price, and you drop it, and you drop it to the point where somebody sells it, well, that’s a Dutch auction, is what it is.

Mike Russo (47:37):
The people going to luxury houses in comparison, where is it something wrong with them? Do they owe back taxes, all this stuff? The answer is no. I auctioned Michael Jordan’s house in Highland Park years ago, I auctioned Kurt Warner’s personal home in Paradise Valley in Arizona, I auctioned day a spec house for Nick Saban in Georgia. None of these guys were distressed. It’s just that they had a buyer.

Mike Russo (48:03):
There’s two types of auctions, there’s two reasons to auction. Number one is, in today’s world, every multiple offer situation is an auction done poorly. I would tell you, they’re better off doing an auction, number one. Number two, the other type is you have something rare, and not a lot of buyers, and it’s hard to value. There’s a lot of homes in America that meet that criteria, that it’s just something that’s hard to value. I had the fortune after I left my old company to represent a buyer in what is now… It was the largest luxury real estate purchase and auction in America at the time. As of last week, it’s now the second, but the property was in Florida on the market for $160 million, and we bought it for $42 million was the gavel price at auction at that particular… Again, few buyers, hard to value.

Robert Leonard (48:54):
Having dealt with sellers who own some of the most luxurious homes in the country, other than the few that you just mentioned, Nick Saban, Michael Jordan, and I think a lot of people know what they do. What was a common theme you saw in terms of how they built their wealth? Was there a specific thing that many of these wealthy individuals did to earn their wealth?

Mike Russo (49:12):
I used to joke and say there was either one or two things and they’re both actually pretty similar. Either one, they built a company, they built some company, to something fantastic. It ranged anywhere from, multi-billion dollar company to my client that I mentioned that bought the home in Florida, sold his company for $700 million, and other people for $100 million.

Mike Russo (49:36):
They had an idea, they built a company, they worked hard, they built a company, they sold it. Took it public, something like that. The other correlation we used to joke is that the people went to Harvard Business School. But usually they were working in some kind of company equity firm, something around businesses. Those are the two primary things that we saw.

Robert Leonard (49:56):
When you think back on your life, whether it be personally, business or real estate related, what piece of advice have you received that has really had an impact on you, and you continue to use it and think of it to this day?

Mike Russo (50:09):
I wouldn’t say it would be a particular piece of advice that I’ve been given. When I was in Aspen, my business partner had almost died of cancer. At one point he was given 24 hours to live, and that was 15 years ago, he’s still here today. When the market crashed, and we lost everything, that was my guiding light. I basically have three rules that I wake up with every day; I tell everybody that they’re having a bad day, which is, you know what, if you have a roof over your head, and food on the table, and your family’s healthy and safe, then everything’s great. It’s not a particular piece of advice, but it is what guides me.

Robert Leonard (50:52):
Mike, thanks so much for joining me on the show today, talking through a new way that we could potentially see the real estate world changing in terms of buying and selling properties in the future. Then also an insight into auction properties that aren’t necessarily just on the courthouse steps. For those listening that are interested in learning more and want to connect with you, where’s the best place for them to go?

Mike Russo (51:15):
They can go to sparkoffer.com. Email me at mike@sparkoffer.com are the two best ways to get in touch with me.

Robert Leonard (51:23):
I’ll put a link to those resources in the show notes. I’ll put some related resources as well in the show notes for you guys to dive a little deeper if you’re interested in this content. Mike, thanks so much for joining me.

Mike Russo (51:34):
Thank you so much for having me. It was great.

Robert Leonard (51:36):
All right, guys, that’s all I had for this week’s episode of Real Estate Investing. I’ll see you again next week.

Outro (51:41):
Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires by The Investor’s Podcast Network. Every Wednesday, we teach you about Bitcoin, and every Saturday we study billionaires and the financial markets. To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.