In this episode of the Hacking Real Estate podcast, tech product leader and real estate investor Zane Harris emphasizes the importance of conducting research and understanding the local market before investing in real estate. He advises that properties located in areas with good school districts can reduce vacancies and attract families willing to pay more. Harris provides great insights into his rigorous process of due diligence, leveraging online tools, as well as his network and team on the ground as he manages his portfolio remotely.
Brandon Hall 00:00
This is the hacking real estate Podcast, episode seven.
Zane Harris 00:04
I went with a suburb of Savannah for a couple of reasons. So one, they have large multinational employers. And so that's something that I found out on Google Maps. I just literally was looking for like national labs, hospitals, military bases, but some of that's personal knowledge as well. And I and I, that's the advice I now give to people in real estate or trend looking to get into it is that, you know, if if you have any distinct knowledge on a market that might allow you to invest more competently than someone who's not from that place, consider it.
Brandon Hall 00:31
Welcome to the hacking real estate podcast where we dive into the stories of seasoned hands on and tech savvy real estate investors. We'll learn the strategies and tools they use to maximize returns and minimize hassle, all while navigating the rapidly changing real estate market. I'm your co host, Brandon Hall and managing partner of Hall CPA and I'm sitting alongside my co host, Vikas Gupta, CEO of Azibo. With our combined 15 years of experience in real estate investing and entrepreneurship, we're here to help you up your real estate game. Let's get hacking.
Vikas Gupta 01:03
Today's guest is Zane Harris. Zane is a longtime tech product person, previously at Wayfair. Currently at Shopify, he is also a tech founder, and is a real estate investor himself with a fantastic setup for self managing his business saying welcome to the show. Hey, how's it going? In your own words, can you tell us a little bit about your real estate story?
Zane Harris 01:31
Yeah, totally. So I've been interested in real estate for a long time. But for me where it really started, I had left the southeast where I'm from, from Atlanta, was living out in San Francisco and had a really good friend also working in product and this guy before the age of 30 had amassed, like, over 25 properties, I think. And I just found myself really looking at what he had built and saying to myself, you know, he works a product job all day long, just like I do, we were doing virtually identical work. And I was like, how do you figure it out? Like if he figured it out, and he can do it, I'm gonna make him teach me that's my my best friend. So that's kind of where it got started in terms of just interest. And I really began just asking questions every time when would come up and where things were I saw real unlock was during COVID. Like a lot of people I was stuck at home, had tons of free time, and used it to do research. I'm just a really research oriented guy. And I like to kind of absorb all the details before I jump into something, especially if there's any risk. So I used all that time at home. I mean, every podcast, you've probably heard of forums, asking my friend more questions also like going out into my network, figuring out what people were doing, what was working, etc. And just getting a feel for the reporting and analytics you could do in the real estate space and like what information was out there. So I used that's really how I use the time and it finally took the leap about a year into the pandemic is when I took the leap become my first property.
Vikas Gupta 02:57
Got it. Super cool story, one that certainly not uncommon to the way we hear about things to help the audience sort of put it in context, what does your current portfolio look like?
Zane Harris 03:08
So today, I have four homes. One is a condo in Midtown Atlanta, which I really taught me a lot. The other three are very different. They're single family homes, and they are in the suburbs of Savannah. And I you know, I've done a lot in Georgia, just being from there. I can talk a little bit more about that.
Brandon Hall 03:27
Yeah, for sure. I also want to know, like, I want to dive into the it taught me a lot comment you just made. So the condo, what did it teach you? What mistakes did you make as you were picking that up and trying to rent it out?
Zane Harris 03:44
Yeah, I mean, it just that property is so different from the other ones. And I really fail fell victim to number one buying something that I liked. Not that my ultimate target market liked. And I'm still to this day, glad to have it. If I ever move back home. There's a great property there that I'm in love with. But, you know, that was number one. Number two, I made a lot of assumptions about the lack of effort that would be involved if there was something like an HOA taking care of things. In reality, it's kind of the opposite. Dealing with an HOA is such a pain, having neighboring walls, neighboring units creates too many problems. So for a variety of reasons. I wouldn't say it was necessarily my ideal investment, but it taught me a lot. Eight, for instance, the type of tenants that you get when you're renting out a condo in the middle of an urban area, a lot of young professionals. Typically I'm renting other people in the entertainment industry or in the tech industry because it's Atlanta, and that's who lives in Midtown. And while I like what they are willing to pay for the property, they turn over once a year, a lot of times that's like just the life of a young professional. And so that means that you have a higher vacancy rate. And so I learned just from that. They also are a lot like me in terms of the profile. They're demanding renters, they want a lot for their money. If something He's not perfect, like they're gonna say something. And, you know, that just comes with certain responsibilities when you're managing the properties and, and for me, I can explain this more when it comes to the single family homes. But in general, I want to be managing the properties. So I'm not looking to do investments that hand over the property to a property manager, primarily because I want to preserve my margin. And when I went about investing that was very front of mine. So figuring out a path to do that was really important to me. I know other people take a different approach. But for me, that was very important.
Brandon Hall 05:31
Interesting. So before we jump into the property management piece, I want to explore the HOA complexities. You know, I guess you could ask how did it make your life easier or harder, but in most cases, HOAs make your life harder. So how, how did having the HOA make your life harder as you were trying to rent this property out?
Zane Harris 05:48
Yeah, I can talk to that. So this property is super unique. It actually used to belong to the actor whose past his name's Paul Walker. And it's unique in that it has a private entrance, private elevator, private parking space, really, really great for renting out to the entertainment industry, especially actors, they love to be able to come and go not be seen it's killer. But what that also means having a private entrance, it's it's on the first floor. It's one of only three condos on the first floor of a 30 story building. And it has its own plumbing infrastructure versus the rest of the building, which has created so many problems. The basically, when there's a plumbing issue, it affects all three of the units. There's different underlying piping. And along the way, as there have been issues that are really up to the building to solve to create long term solutions for it's just been kind of like pulling teeth. You know, me personally, when there's a single family home, if I need to make an investment to get something fixed and have a long lasting solution, I'm willing to do it. And I'm going to do it right the first time. But an HOA for various reasons. They're incentivized sometimes not to whether that's managing the reserve, or what have you, maybe the person managing things on the property just isn't that tuned in. There's a variety of reasons why it just is a little harder to get things done. And one other example, when you have neighboring units, other people's idiocy can lead to issues. So I had a neighbor upstairs who wanted to redo their floors and poured concrete. And when they did that the contractor that poured concrete did it incorrectly and it leaks through the ceiling through a fire alarm and onto my floor and chasing down their insurance, that neighbor just very manual stuff that you just don't deal with when you have a yard surrounding your property and like people further away and just these kinds of headaches that are very unique to condos.
Vikas Gupta 07:39
Do you find that the HOA is more or less are the same sort of receptive given that you lease the unit as opposed to you living in it yourself? Like, are they biased towards residence? Owner residence?
Zane Harris 07:55
This particular building? No. So it's one of the only condo buildings in Midtown Atlanta that allows rentals at all that's really been if it's, you're either building of rentals, or you're building condos in Atlanta, more or less. And that's also what attracted me to this, this building. And, and there are some pros to that. But I would say this building, it's fine. I could see a situation where I could see that happening. But for me, it hasn't really been a problem.
Vikas Gupta 08:19
So you got the condo, you learned some lessons, and then you moved into SFR. Tell tell us a little bit how you you made your first SFR purchase. And what does that look like?
Zane Harris 08:29
Yeah, so pretty much after that process, just looking at you know, the success of it. Because there are some really good things I can speak to about the condo like the margin there and the return is much greater. And I can talk about how I've been able to do that with the condo. But I took a step back. And I basically, for anyone working in technology, especially product, this will be relatable. I took a step back and said what if I took the approach that I take it work to making my next decision on investment here. And so that's what I did I like I sat down, I defined my target market. I said Who are these people? What's their persona? What are they care about where they want to live? What will they pay all of it? Like traditional just user research old school? And so as I was trying to define, you know, how can I get rid of all the things that I don't like about this condo? You know, some of what I just talked about dealing with an HOA that got marked off, I said, I'm not doing that anymore. But other things I said to myself, What is a target market that isn't going to turn over frequently. And so today, for instance, I target pretty young families, typically they'll have a child. And a three, two or three, three really meets their needs. They care a lot about school districts is like very, very important to them, and they're willing to pay more for it, which I found out while doing some research, just asking friends and family that kind of fit in this segment. They really care about the school districts other things like crime ratings important in them access to a highway and like commute routes is another one. So I'm targeting that group because they turn over very frequently but also many of them it's these are their own words their three, four years for buying their own home. So I find They treat the properties very well. They keep them clean, they, they want it to appear as if it is their home, they're probably not mentioning that they're renting to some friends and family, you know. So that's very ideal for me. And so I'm targeting those people. But then when it comes to the actual property, there were also some things that I do a little bit differently. So the age of the condo and, and things like that definitely taught me that you want the internals to not have a lot of issues if you want to keep your objects low. And so whenever I'm looking at purchasing a home, one of the things I'm betting is the age of I have a spreadsheet of all the internals that could be in a home, and the average lifespan from some research I've done and then the actual age of it, whenever I'm looking at a home, I calculate the difference. And I try to basically forecast what my operating expense might end up being for that home based on the age of all the internals that I'm looking for very low OPEX homes typically built after like 1985 stuff that just reliable builds reliable materials, I just don't want to see a lot of things breaking down because that combo of tenants who don't turn over and often don't complain with homes that don't break down equals no work for me. So and that's what that's what we're shooting for. So that was really, that's what the process looked like. It's like how can I minimize all the effort that I'm putting into this one property and not have to go through those things again, and, and tried to really make sure I was paying attention to what the people who would be moving in would would want and ultimately what they pay for.
Vikas Gupta 11:22
Got it. That's super interesting, that that level of detail, and that sort of rigor. So you're right. That's exactly what I would expect that at one of my product leads. So how are you getting this information? Right? Because it's not necessarily something that shows up on a listing. It's not something necessarily that like most agents, unless you have a special one it's going to work with it doesn't always show up on the expect inspection? How are you getting the information you need to do your diligence?
Zane Harris 11:48
Yeah, there are things like you can get a good school rating is like one thing online, you can find good school ratings. And typically, like I'll map on Google Map, a given area. So even before that step, I've kind of gotten to investing in an area with really good underlying economic fundamentals. And so I went with a suburb of Savannah for a couple of reasons. So one, they have large multinational employers. And so that's something that I found out on Google Maps, I just literally was looking for like national labs, hospitals, military bases, but some of that's personal knowledge as well. And I and I, that's advice I now give to people in real estate or tried looking to get into it is that, you know, if if you have any distinct knowledge on a market that might allow you to invest more competently than someone who's not from that place, consider it, consider using that to your advantage. And so for me, I knew Savannah and Atlanta very well. And I thought to myself, Okay, well, what, what do I know about Savannah mapped out a lot louder than large multinational employers. Also, I knew the commuting routes into the city. And there was this phenomenon that I knew about, which is unique to Savannah, there is a large art school there called SCAD. It attracts international students. And it has made living in in towns of Anna extremely expensive, they've all pushed the rent prices up. So what's happened is these young families are hit, they've all had to move out to the suburbs, but most of them want to be kind of close to the city. And so this first section of suburbs that you hit when you leave Savannah, is really where a lot of them are going. And so for that reason, I started looking there, I said, Okay, there's a lot of population movement to this area. There are some good schools, you can quickly get to these large multinational employers overlay that with like crime ratings for various areas, which I can't remember exactly where I got that. But there's heat maps and things like that all over the internet, looked at like, also, this is kind of like you really have to do this manually. But I would look and see like, how far are they from things like a major store like a Walmart just like the things that people in suburbs need to get to like frequently, just to kind of do a gut check on like, what I want to live that far from these things that are going to help me get my day to day done. So again, just putting yourselves in the seat of your end user and thinking like what's going to make this more appealing, but ultimately, the schools matter more than ever. I like that is what matters more than everything. And that's why it helps to target people with with children and thinking backwards into that three, two. So a lot of Google Map is the essence the answer and also for the underlying economic fundamentals. A lot of that's publicly available government data, you can get in on a lot of government websites, trended I tried to get back trends. Looking back as far as I can find, but typically a couple of decades, it's not unreasonable to find that you can kind of see movement to certain areas. You can also see like how the incomes are growing, the education levels, things like that. So I just look for general healthy trends and all the things that you would want like people becoming educated and like moving to an area.
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Brandon Hall 15:15
So can you actually expand on the school district school district piece? Because I've heard this before to elsewhere? That if you can pick up three-twos in really strong school districts, your vacancies, essentially nothing. And you can charge great prices, because families want to be there. You have working knowledge of Savannah. So maybe, maybe that's your competitive advantage, right? You just know. But if you are going into a new market, how would you identify where the strong school districts are?
Zane Harris 15:49
So greatschools.org is a really, really helpful website. But you are correct that the knowing the market itself, and in particular, the network that you've got there, the team that you've got there, everyone I work with, that the maintenance person that I work with, the person who cleans in between tenants, and does various other tasks around the house, they're actually husband and wife, my real estate agent who referred me to them, I was referred to my real estate agent. All of this is like through my network. And if you are from somewhere or have spent a lot of time somewhere for me, I spent summers in college in Savannah. So that's how I knew the market or new people there. It helps you build that team out. And then if you need to bridge a gap in your knowledge, like say that, you know, you're looking at great schools.org. And like you aren't think school is good, but you're not totally sure, based on what you see, you can run that by the agent say, hey, like, what do you know about the school? What are your, you know, people that are buying from you saying, like, what are you seeing, because agents are seeing that too, like they they're hearing people consider that when they do a walkthrough of the home, they're hearing it as a request when people are looking to buy. So I leverage, you know, the people who I'm working with on the real estate side to buy.
Brandon Hall 16:54
I did just pull up greatschools.org. And it actually looks really sweet.
Zane Harris 17:01
Yeah, I knew I knew about that one. Because I was I used to work on an app and a website called rent.com. And we used to look at data overlays that can make renting easier and things like think about what people would consider when looking to rent. And so some of this, I think is also kind of coming natively to me because I've had to think through like the rental process before as a product person. And I'm just doing it now for like the buying of homes.
Brandon Hall 17:23
I'll just be spending the rest of this podcast on Zillow. So see you guys
Vikas Gupta 17:30
Zane, well, we've talked in the past you've you've talked about how important it is to get the right tenant and how much that makes your life easier, you've shared a lot about your sort of ideal customer profile, your ICP, if you will, what, what if anything, do you do sort of in the pre screening and screening phase to make sure that you're getting someone who fits your parameters.
Zane Harris 17:54
You know, here's the great thing about buying something in a good school district, the number of applications I get in the first day for these homes, hundreds, hundreds. And granted, I'm doing a lot of like price optimization up front, there's like multiple sources online to find out what a good rental price is. And I've even done tricks before I don't know, if anybody's ever tried this, it's very similar to a product technique. But I have literally listed a fake property with fake photos in a neighborhood that I'm thinking of buying with a fake price, just to see if I get hit up for for for renting and people that are applying can afford it. And other words, like you know are these are these people that I would like to rent to. So that you can do a lot to figure out what the right rent is. But once you kind of land on it, if you're in a good school district and you've got a reasonable price, you get so many applications that I find I can be a little strict. And so what I mean is, like my promotional listing, it will say right up front, like you need two and a half times rent, you need this credit score or higher, you must apply and pay the fee before you'll even be considered. Now a lot of people would say hey, that's gonna push too many people away, people aren't gonna apply. But here's the thing, if a potential tenant isn't willing to pay 30 bucks to apply, it's probably not my tenant. Like for me, that's the thing is I don't I don't want a tenant who worries about $30 like that, it's all part of the strategy. So like, it also just helps weed a bunch of people out and, and I just really liked that. So for me, it's just the absolute volume of applications that I get, I can just be a little more strict and I do put your strict credit and strict income requirements and then even the types of income that can be submitted. Like I really only take salaried income so yeah, I'm like very strict on it. And it helps me narrow down to I think people that are good in that sense.
Vikas Gupta 19:38
But you're an entrepreneur Come on, man. I know. I know. Brandon, you're gonna love this but Zane, tell us a little bit about your your financial setup and your automation and just how you streamline everything to make your life as easy as possible.
Zane Harris 19:57
Oh, yeah. I mean from platform for perspective I do from the point of promotion, all the way to the rent being paid. So like promoting a property having people apply and pay to apply, checking their credit and their income being submitted, the lease being generated, signed, and then also setting up their deposit and then their monthly recurring pay. It's all through Zillow. So I just do that because honestly, simplicity. And I don't think it matters, a lot of times that it has to be zillo, I just say go towards the platform that can help you consolidate as many of those pieces as possible. And so that's one, one really big one. And then another thing that I do that I've heard other people in real estate do is every single property has a debit card associated and a bank account associated with it. And that just honestly makes my accounting easier. And that's pretty straightforward. It helps me manage, really my expenses coming in and out because I don't use those cards for anything else, but to pay people to work on the property. And so I really love that because I can just always look just at a basic account statement and see money in and out super easy. It's also just makes it easy when exporting to sheets handing it over my CPA, it's like two or three clicks, and my taxes are like done for the year. So I think that's wonderful. And would recommend that, to that people think about like, how can I make this as clean as possible from an accounting standpoint up front, save you a lot of headache, also a lesson I learned from the condo. So So anyways, and as far as just all of the other tasks that have to get done when dealing with a rental property, I use a lot of the the tools and tricks of the trade that you would use in, in r&d or in tech and stuff people are familiar with, like, with cleaners and maintenance people, I set up Google Docs and links to private YouTube videos. And so if they need to know how to get into a property, where the cameras on the property are the did anything about the digital locks, really just anything, I've probably set up an instructional video to show them how to get there. And I've also probably created a Google Doc, it's got a link to it within it just with very detailed instructions. For things like cleaning, I have a really easy to replicate cleaning process that has basically the cleaners go through, then look at a set of pictures for what the rooms should look like after. And I have them basically take all the exact same pictures from the same angle when they're done, send them to me, I've just fed that make sure everything's good cleaning is done. Just again, great set of instructions. If you do it right the first time, you don't have to do it over and over again. And when somebody says, you know, what do you need done? Like, what do you need clean, say you have changed cleaning people for some reason, it's as simple as sending out a doc. So I just really, really tried to put the upfront effort in the instructions, I find just has made my life a lot easier.
Brandon Hall 22:39
I like that a lot. I think that a lot of investors aspire to do that they're probably listening to this going, I can do that. And then maybe like 1% actually does it. But as a as a CPA, as an accountant, I really liked the separate bank accounts separate debit card credit card that you have going on per property. And I think that sometimes people think that can get pretty gnarly at scale. But you know, it's it's the simplicity that it provides you on the accounting side is really incredible. I mean, you can if you can be disciplined enough to use the correct credit or debit card on an ongoing basis, then you don't really have to do accounting, if you're self managing, and you don't have partners. You know, like I do this too, right? So my my rentals, I self manage, and I do the accounting. At the end of the year, you know, I'll run I'll do a bank export, I'll run a pivot table, income in equals revenue income or expenses out equals different categories, and then my taxes are done. So when you don't have partners, and you can self manage like that it works great in when you can segment those properties off into separate accounts. It's super, super simple saves you money on the on the accounting side, like you don't have to pay an outsourced accountant or bookkeeper or something to come in and clean it all up for you because you just set it up from the beginning. I think that where we've seen that breakdown is around like the eight to 10 property market starts to get pretty complex. So be curious to know like, like, do you do you plan on trying to maintain that sort of structure? As you continue to go? Or have you thought about what happens when you hit 810 15 properties? Does that structure start to break down?
Zane Harris 24:34
I actually think it's really likely that I'll move to some kind of dedicated software to manage both the financial side and like promotion at leasing and all the other side. I'd love to get something that's like end to end. I think for me, that's going to happen. My investing is on pause right now for about probably three years. I'm waiting for equity to grow in these properties and I want to stack them I might buy one property in between now and then but my plan right now is to try and move from the four to about seven or eight in a three year period. And so when I make that move, one of the things that I've already anticipated just investing time in is like improving my stack basically, like the tools that I'm using and making sure that I'm optimizing to the greatest extent possible. I think for anything under about five properties, you're fine. Like the view that I get, and chase of all my cards side by side, it's just I mean, it's so clean and so easy to move among them. But I could see if you're getting up to that range of like, eight or more, it's probably a lot. So yeah, I'll make a change,
Vikas Gupta 25:27
Zane, I got a product for you. Solves exactly that problem.
Brandon Hall 25:35
Great. Starts with A and rhymes with Azibo.
Vikas Gupta 25:39
There you go. It wasn't me, you said it. Zane, can you talk a little bit more about sort of how you're viewing the current market environment. I mean, you hinted that taking a pause for a few years. And obviously things have changed quite a bit in the last 12 to 18 months. So any any insight there?
Zane Harris 26:00
Yeah, you know, if I was going with the approach that I would that first condo, which is a lot more hands on, I get a lot more headaches with that. But there's a reason that I haven't sold it. Like my post tax IRR is like 36%, it's compared to the single family homes, it's a joke, like, it's really so much better. But that is because like it's a luxury furnished middle of an urban area unit. And it's a very particular market that's willing to pay more for a furnished unit when they move to a city and, and like I said, it comes with some headaches, I would probably still be investing and things like that, because the return the margin is there. But when I think about single family home, it's one of the things that makes me pause there is just that, I know that my equity will grow in the properties and you know, over time, and so I believe that there will still be an opportunity for me to stock homes when rates are lower. Right now, I just wouldn't want to do it because it would hit my margins, which are already thinner, you know, there is somewhere more like 11 to 15 or maybe 16%. I'm like, like really good and, and I just you know, I just don't see taking a hit on those margins, like a significant hit rate now, because of the rates as worth it. Because I can put my money other places that gets me a better return. So and this is also having the properties that I have, when I think about my entire portfolio investments. Right now the portfolio is pretty balanced. So I'm not really looking to add more in the real estate side immediately, there are some other avenues for me personally, that I can put my money into. But when that's no longer true, and rates come down, and those two should coincide, and hopefully, three or four years will itself cross our fingers. That maybe sooner. But when those things coincide, that's when I'll probably pick things back up. So I think it has been a In summary, like a lot to do with what you're investing in and like what your returns look like and how much work you're willing to take on to get those returns. So somebody who was willing, it'd be a lot more manual may have a totally different view on this market than I do.
Vikas Gupta 27:55
How often do you visit your properties? And did you buy them sight unseen? Or did you buy them in person,
Zane Harris 28:01
I have only seen the condo in person. And that was literally so that I could furnish it. At the time I was working in product at Wayfair. So I got a fantastic deal on furniture at cost pretty much so furnishing it, you know, it was really fun actually. And, and I did that myself and just had a good time with it. So that's really the only one I've seen, lived in it for a few months. And at the time, I was traveling a lot or being beat it for a couple of months after that before finally renting it out full full time. The other ones you have never seen them. I mean, unless you can't like FaceTime. But, but really, that network that I was talking about comes into play huge because when a property is needed, like digital locks, put in little cameras, things like that, because I do all my tours, virtually I'd make it so that I like unlock the door, somebody walks in, the cameras are watching them, I see them go through the unit, I lock up whenever they leave. So I do that's how I do my virtual walkthroughs. And the person is on the phone with me on FaceTime, kind of instructing them about things. Sometimes I literally forget the the actual flow through the home, like where each room is I sometimes forget like is that is that second bedroom, like in the back or is in the front? I feel like look back at photos real quick. Just because I'm physically I've never been there. And you really I just I don't think you have to have physically been there if you have a network that you trust. And if you're if you're asking the right questions during inspection, if you're paying attention to the details, if like me you're going for properties that you think are reliably built and not gonna have issues and you're trying to vet that and then if you have help on the ground that you take care of, that's a big thing for me is it's not just about finding the people that you want to do work for you and then paying them it's for me it's been opportunities to create a strong relationship and so like an example of that, if I can get one would be in my leases and Savannah, there is a clause that if the renters want anything done like they want paint done. They're all required to do their own lawn care. or, if you know really anything they need done around the property, they have to go to my maintenance man first he gets he gets the right to give them an offer first before anybody else. And for for him that's a steady flow of business for like random projects. Similarly, I hire his wife to do anything related to cleaning because she does home cleaning, she does it full time for like Airbnb and things. And I said, you know, every time we need an end up cleaning between tenants, I will always go to your wife. And so these are like the I scratch your back type of things that build relationships. And so when I need a set of keys dropped off somewhere, or someone to just drive by and confirm, hey, like, did that tenant like mow their yard? Do you mind just driving two minutes out of the way and saying yes or no? Like, these are little things that he never minds? He's like, Yeah, absolutely. I've got you. So building those relationships also matters. And I don't know that you could really do fully remote if you don't have some people that you trust in the locations.
Brandon Hall 30:51
You said, you got your start a couple years ago, right. 20? You said 2020 or 2021?
Zane Harris 30:57
What was that now? Yeah. 2021.
Brandon Hall 30:58
Okay. So if you were to like kind of rewind the clock back to 2021, when you're picking up your first property, what are a couple things that you wish you would have known at that time that, you know,
Zane Harris 31:15
Man, I will tell you one thing that I would pay good money to rewind the clock on, I wish I would have made my first investment a quad Plex, you can invest in your first primary property up to four units. And you can put so little down on that, that it makes investing and having multiple units right away that cash flow, it makes it so approachable to so many people, you know, you're putting a very low percentage down with that home. And immediately getting cash flow out of those units. Some people that I've met have, like lived in one unit and rented the other ones out and used it to, to cover the costs. But just me personally, that's that's what I would have done, I would have gotten as many units at a property as I could have up to four. For that first property, I probably another one that I might have considered is maybe buying two, three or four Plex that needed a little bit of work. I'm not big into like full flips or anything. But I have done some like basic improvements like cabinets, flooring, things that don't things that you can let in while you're doing it. And forced appreciation a little bit that way, just for a first project, just because I think that in a very short amount of time, you can take kind of like mediocre quadplex do a little bit of work and you have some like strong margin for strong margin units, which then set you up so much better to be building up cash and then invest later in more homes. I just to me, it can really speed up somebody's journey to having multiple properties. So that's the thing that I would do totally different.
Brandon Hall 32:39
Yeah, I love the house hacking example. That's actually so my first property was a three unit property. I didn't live in it, it was a it was it was actually in Hickory, North Carolina, where I'm from. And I was in DC at the time. But my second property was also a three unit property. And I moved into one of the units rented out the other two. And that was phenomenal. My my now wife actually moved in with me at the time, she was my girlfriend, and then very quickly fiance, and I charged her rent to which she still gives me crap about today. But dude, I was living for free man, it was awesome. It was like the best decision that I had made. And it actually you know, and I know I'm joking a little bit, but it was great, because it eliminated the biggest expense that I had in at the time, I was launching my CPA firm. And so I was just looking for ways to de risk the financial aspect of starting a business. And this was one of those ways to do it. And now I give that advice to anybody that like my sisters are picking up property right now their first properties. They're five years younger than I was now I'm telling them the same sort of thing. I'm like, Okay, you want to buy something that's multiple units, so you can live in one rent the others out live for free? It's an awesome, awesome strategy.
Zane Harris 33:56
Yeah, I agree. And on that note, too, about like rewinding the clock. One thing that I've gone back and forth about when I think about doing things over again, is I've debated when I have pulled the trigger on a property sooner before doing all that research. So one thing that I would say there is like evaluate what you think is your own level of strength in doing research and making decisions. Because for me, personally, I actually think that that's what's led to positive outcomes for most of these homes was taking the time to really learn. But I have met other people who think and act very differently than I do and just pulled the trigger and just said, like, you know, screw it, like, I'm just gonna go for it. And they learned along the way, and they figured it out. And so if, if that's your approach to life, and you see good outcomes from that, I mean, maybe maybe spending a year researching like I did is not necessarily it. And I can tell you if I had started a year earlier, knowing where rates are now I would have more homes. So I go back and forth between the two but I would say like evaluate how you make decisions and how you get better outcomes. Is it being more research driven? Or is it just like learning from experience and then kind of go that direction? That's something else.
Brandon Hall 34:57
actually kind of interesting because I think the have the thought, in the real estate community is just learned by doing, you know, like, like analysis paralysis gets a really bad rap. So it's a you took that more analytical research backed approach, you spent your time digging into the details. If somebody's listening to this, and they're thinking, Yeah, you know, like, ideally, we're targeting tech workers with this who are more analytical as it is. So if they're listening to this and saying, Yeah, I want to spend my time I want to spend a lot of time doing research and really understanding the market. How, how do you know that you've actually crossed that line into analysis paralysis? Like when is the research just too much or even like almost an excuse to not pull the trigger? And does that make sense?
Zane Harris 35:48
I remember along the way, like, as I was learning, there was this pro forma forecasting sheet that basically it was, it was going to help me make decisions like it was going to be what I used ultimately, to make a call on a property. And so during that whole learning journey, one thing I did is my friend who was buying all the properties, I started inputting the information from the properties he was buying into the pro forma. And then asking a few months later, how's that been doing? Like? Is it doing what you thought? Like, are you getting what you wanted, like, et cetera. And that was literally just me testing my knowledge. So that's, that's one way to do it. Then there's other hacky tricks, like I mentioned, like listing fake properties, and just seeing if people will apply to them. You can like, basically, you can create a foundation to say whether or not you're likely to be right, like you can, you can do that in various ways. For me personally, like, I have to look at that situation where I'm doing analysis and then jumping into something on a very regular basis to my job. So I have very high confidence that I could create better outcomes with data. If if that's not a strong suit of yours, I would say that like, just just do it approach may be better. So I like I said before, I was really looking at like, do I see that data makes for better outcomes for me? Yes, I do. Can I point to multiple examples of that throughout my career in life? Yes, I can. And then for me, that's what made me take that approach.
Vikas Gupta 37:04
Yeah. So play to your strengths I like, exactly, yeah. So Zane, we have three closing questions to wrap this up. So far, this has been great. Our first question for you is, what is your favorite book and it does not have to be real estate related.
Zane Harris 37:21
Great. Okay. So I'm not going to answer with a business or self help book because I like I eat those. But people have heard enough advice on that. So my favorite author is his name's Neil Gaiman. He's like sci fi fantasy. A lot of his stuff has been turned to like TV and movies. Obsessed with everything he does, but I think his masterpiece is this collection of books called Sandman. And I've always felt that way. But recently, like even Netflix made a TV show out of it. It's been made into audible audiobooks by Amazon has some pretty great actors, but just the story in general, he creates like, I think the most intricate worlds and does it so well. So I would say check out Sandman Neil Gaiman.
Vikas Gupta 38:03
Great. I really love Neverwhere, you've read that one. Yeah, I think it's a great story. I actually, this is a random aside, but I actually went to this, like random community production, play version and everywhere and somewhere in Hollywood. And he actually showed up to watch it, which was pretty cool. But I guess that's which is one of the benefits of what I get for paying absorbent real estate costs. Second question, cash flow versus appreciation. What do you think is more important?
Zane Harris 38:41
Well, here's a product answer for you. It depends. And so for me, personally, I'm looking more at cash flow. And there's a couple of reasons why. So I mentioned earlier that I've gotten many different investment vehicles, and they have all varying types of risks. You know, I'm a startup co founder, and up until this year, that was not producing revenue. So I looked at that as like the most risky thing I did, then I've got things like a corporate career and consulting. Also things like simple index funds, 401k, I put them all kind of into this middle category of like, kind of reliable, you know, not not the most conservative either at times. And then when I look at real estate, the approach that I've taken, very, very reliable, like, if you think about that single family strategy that I was talking about the fact that I'm not necessarily going for the riskiest and the highest margins, you know, I'm looking to put that in the super conservative category, because I'm trying to balance out my life. So I look at stability. And positive cash flow means that you can get a consistent income stream and that it's a good conservative investment in that way. It also allows you to cover expenses and you know, generate profit over time. So I think that's a positive. I mentioned the risk management but if you another kind of angle to risk management is like cash flow helps you mitigate risks with like vacancies, repairs, unexpected costs. So if you maximize that You've got cash on hand, and you can deal with those things as they come. And then last, if you're really looking to stack a lot of homes and you have strong cash flow, I found out through all my research that eventually when I stack more, having a lot of positive cash flow is going to allow me to have more financing options down the road. And so I haven't really hit that yet. But I know that that's gonna come into play, you know, after eight properties, and when I really want to start stacking aggressively, I'm going to want to have really strong cash flow so that those are kind of like my reasons around why I optimize there. I know other people are all about appreciation. For me, it makes me too nervous. That's not my game.
Vikas Gupta 40:34
Got it? Cool. Well, really in depth answer really appreciate that. I do have a follow up question on that one. If you're optimizing for cash flow, how do you think about the amount of leverage you put on your property and how that affects the cash that you can take out of the business?
Zane Harris 40:50
I personally don't take cash out of the business like for like, I don't I literally let it sit there. And it's all meant for like future investment. So maybe I'm unique in that way. I've talked to other friends who do this. And they do use it to cover like living costs on a regular basis. I don't have a strong answer for that one. Yeah, I'm I'm pretty conservative on like, what I do with as far as taking cash out the business?
Vikas Gupta 41:14
Yeah. Got it. I guess, to rephrase the question, how do you think about how much leverage do you put putting on your investment properties? And what that means for just the overall cash flow profile? Right, so how much are you putting into the mortgage versus putting more upfront equity in order to have you know, less than a mortgage payment?
Zane Harris 41:37
I mean, I pretty much stick with like, what my minimum downpayment is gonna have to be, that's just like rule of thumb. So far, I haven't learned anything alternative, I'm definitely not putting more than 20% down on a property because I'm looking to get more as soon as possible. And because to me, I'm going after properties that will reliably produce cash flow. So the more I get, the sooner I get them, that's what I'm optimizing for. Yeah, I haven't gone past 20% for any reason, or tried to, like, lower the mortgage. But again, but I'm also like buying in areas where based on where I'm buying, and who I'm kind of marketing to, I know I'll get a margin. And I'm testing that ahead of time. So I think maybe if I was determined to like buy in an area where those margins weren't guaranteed, or weren't, I didn't have like high confidence that I could get them I might consider trying to push the mortgage down. I just haven't been faced with that.
Vikas Gupta 42:25
Got it. Awesome. Thanks. Any final closing question, any last piece of advice that you'd like to share with the audience that we haven't gotten a chance to cover?
Zane Harris 42:37
Really just, I was very intimidated prior to jumping into real estate investment about the how much weight it would put on my life in terms of like being able to manage the properties? And like, would it impact like my job or the fact that I do other stuff on the side? Like, could I manage it. And I would just say that it's it's not as bad as you think if you optimize for that. So if that's one of the things that's driving, you're not jumping into it, you don't want one more task, you don't want one more thing to do, you can optimize your way to that solution, whether it's through, you know, going with property management and going for properties, where you can still get a margin that way, you know, or taking the hit on margin, or just managing them yourselves, but optimizing for properties that make that simple. Because that was a real driver of me, in addition to just wanting to do research that kept me from like pulling the trigger sooner. And like knowing what I know, now, it's, it's totally reasonable to manage many properties. I think that I think that my friend I mentioned earlier was managing like 16 years before I got any help. 16. And he went, he went a very similar route with the reliable significant single family homes. So you can definitely you can create a clockwork system if you put the effort into it. And it's just about, you know, putting the upfront effort, you know, optimizing what you can automating. But it's totally doable. So don't be don't be scared of that.
Vikas Gupta 43:59
Well, great. Well, thank you so much, saying I think this has been a fantastic podcast. And we really appreciate you, you know, sharing all the insights, all the learnings and really going deep into how you run your business, how you build your business. Thank you very much.
Zane Harris 44:15
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