Podcast Details

Episode 8

Michael Macon

Join us on a captivating journey with Michael Macon, a seasoned professional who shares his fascinating transition from the corporate world to the realm of real estate investment. Listen in as Michael recounts the trials and triumphs he encountered while shifting his focus from a technology career to securing his real estate license, navigating the hurdles presented by the COVID-19 pandemic, and ultimately finding his niche in property investment. His story is a testament to the allure of the Midwest market, where he found promising opportunities that contrasted with the daunting prices of properties in Los Angeles and New Jersey, highlighting the lure of higher cap rates and his first foray into property investment.

In our conversation, Michael and I uncover the nuanced benefits of investing in Section 8 housing, an area often overlooked due to prevailing stigmas. Through personal anecdotes and shared experiences, we underscore the importance of due diligence in property inspections and the rewards of providing dignified living conditions for tenants. This episode will illuminate the intricacies of navigating the Section 8 program, from understanding the impact of housing vouchers on rent negotiations to the consistent rental income that can potentially exceed market rates. Our discussion is sure to challenge your perceptions and may inspire you to consider the meaningful role landlords can play in the affordable housing sector.

Wrapping up our enlightening discussion, Michael and I reflect on the broader themes of risk-taking and stepping beyond familiar territories in search of greater success in real estate investing. We contemplate the influence of literature on our lives and how it propels us towards the 'great perhaps' of our professional endeavors. Whether you're a local investor or looking to broaden your horizons, this episode offers valuable insights into the complex world of real estate, emphasizing the need for financial prudence and the rewards that come from building new relationships in unfamiliar places. Tune in for a thought-provoking session that will leave you with a newfound appreciation for the intricacies of property management and investment strategies.

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Key Takeaways

1. Transition from Corporate to Real Estate Investment: Michael Macon's journey from the predictability of the tech industry to the dynamic world of Midwest real estate investment demonstrates the potential for a successful career pivot. Despite the challenges of the COVID-19 pandemic and initial financial concerns, Macon's story illustrates that with thorough research, due diligence, and a willingness to step out of one's comfort zone, there are significant opportunities in markets like Midwest real estate, particularly in affordable housing and Section 8 investments.

2. Advantages of Section 8 Housing Investments: The episode delves into the benefits of investing in Section 8 housing, which include the stability of guaranteed income from the government and the potential to earn above-market rent rates. The discussion highlights the importance of landlords in providing quality housing to tenants who rely on affordable housing solutions. It also addresses the misconceptions surrounding Section 8 tenants and emphasizes the landlord's responsibility in maintaining property standards to pass annual inspections and support the dignity of the tenants' living conditions.

3. Strategic Investment Mindset: Michael Macon and the host discuss the significance of investing for cash flow rather than solely for property appreciation. They explore the idea of seeking one's 'great perhaps' in the real estate market by being open to investing in less familiar territories, which can lead to untapped opportunities and greater success. The episode encourages aspiring investors to prioritize financial prudence, explore markets beyond their immediate area, and to value the relationships and trust built with new partners in the industry.


00:00 - Vikas Gupta (Co-host)
This is the Hacking Real Estate podcast, season two, episode eight.

00:30 - Michael Macon (Guest)
You know, you think you end up falling in love with the place and overpaying for it because that's kind of where you're comfortable and you know. So it's great to be able to buy in your backyard and if you can make a business out of that, I think it would be awesome, because I would love to be able to see these properties and kind of, you know, work on them and be there when things happen. But you know, sometimes when you get out of your comfort zone and states you've never been to, building trust with people you've never met, that might be where you'll find the greatest success. So definitely go out and seek not to be cheesy, but seek that great perhaps in your business, and see what else is out there.

01:05 - Brandon Hall (Co-host)
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.

01:37 - Vikas Gupta (Co-host)
Hi everyone, welcome to today's episode of the Hacking Real Estate podcast. Our guest today is Michael Macon. He is a Jersey City native, turned Southern California transplant. He's worked for major brands like American Express and JPMorgan Chase, and he's also worked in growth focused roles for California tech startups. Since 2021, he's been focused on real estate investment specifically in the Midwest. He is a champion for affordable housing and Section 8 living solutions and he has an active voice on social media where he demystifies Section 8 housing and highlights the Midwest's investment opportunities. Mike, welcome to the show.

02:19 - Michael Macon (Guest)
Hi, glad to be here.

02:22 - Vikas Gupta (Co-host)
So, in your own words, can you tell us about your real estate journey?

02:26 - Michael Macon (Guest)
Yeah, so the journey, as you mentioned, started a few years back. My career has always been in large corporations, kind of corporate America, but during COVID there was a kind of a lot of flux in that. So I actually started a new job at a new tech company, a big, up-and-coming company, the day that that company shut down because an employee got COVID. So I'd never been in the office and my entire experience there was remote, ended up working there for about nine months. But the beginning of that remote phase was very tough on me. I didn't really like it. It was a big adjustment. I was stuck in the house. I was in California, away from all my friends and family, and I just really wanted to do something that was more out and about tangible. One of my favorite parts about work was being in the office. So I'm sitting home and I'm seeing all these realtors I know out and showing houses and doing all this really cool stuff during COVID. So when I quit my job, the first thing I did was pick up a real estate agent course, did that for a while, ended up taking me about eight months to get my license. I would see everybody during COVID became a real estate agent. It was really popular as things kind of. You know, things were skyrocketing. People were stuck in the house. Real estate became this really sexy fun thing on social media. So anyway, california was pretty backed up, took me about eight months to get my license, in which case I ran out of money from my job, so I ended up taking another tech job.

I never really got my real estate career as an agent off the ground. I'm making some missteps in the beginning as far as which team I joined, which brokerage I was a part of, and it just all took too much time. So once I got back into corporate America I kind of got readjusted to the remote work, kind of found my niche in my last role and I decided the best way for me to continue in this real estate journey was through investing. I had some cash saved up. I didn't have the time or the energy to become a brand new agent, so I figured, you know, let me try here.

And the pivot I initially wanted to kind of invest where I know, as with most people, you know, you look directly in your backyard, which for me was Los Angeles, and every home with you know a million dollars. And my home home where I grew up was New Jersey, which Jersey City is also at the top of the list of most expensive real estate in the world. So that became really tough. So I really started trying to find opportunities and you know I was still like looking for diamond in the rough. I would analyze tons of properties I mean almost every property that came up on Zillow in New Jersey from, you know, december to January.

At that time period I had in my model, I ran the number as I understood what was going on. I had a property management, had an agent, had everything set up, but it just it just never felt right. It was just too expensive for my risk. Tolerance. Ended up talking to some people getting around and you know I found a niche investing in the Midwest.

First time I actually thought that this was possible. I looked up some properties, put them in an analyzer that I have a little Excel spreadsheet, and I was blown away at how vastly different the numbers were. I'm talking like going from you know cap spreads of 1% to cap spreads of 12, 13%. You know investments of you know $100,000 down payment plus $75,000 renovation to a turnkey property of $25,000 down payment and a 12% cap rate. I mean, it was a no brainer in my mind that I was going to learn here.

So within I would say, five weeks I had a property under contract, had property management set up and I had everything to get my first property. And to me that was just going to be a learning experience until again, as you mentioned, I learned about affordable housing in section eight and I just really started rolling from there and I started building that portfolio and really focusing on that business. And now to me I mean one day I would like to buy a house in California, new Jersey, but from the number standpoint to me it now seems a little bit ridiculous and kind of purposeless. So I really found the niche there and found a team and and yeah, that's kind of been where it is and where I'm now and I have six properties in the Midwest and close on another one hopefully next week and I continue to grow from there.

06:27 - Vikas Gupta (Co-host)
And are they all single family homes?

06:30 - Michael Macon (Guest)
No, I have a mix. I have a few single families and a few multi families. No real particular reason as to why I like the multi families because they have the most cash flow at the end of the day. I want to say the most cash flow, let me say the most revenue, right, the highest rent rentable. But what I found is that everybody wants to buy multi family properties and single family properties were being overlooked to the fact that you know the cap rates on some of these single single families are good and you're buying them at less than half like a single family would go for less than half of what an equivalent duplex would go for. So the equivalent you know equivalent numbers, equivalent rentals single family just seemed to me like a good opportunity. So I went in. I have a few of those now. They've been great.

07:17 - Vikas Gupta (Co-host)
Wow, I mean that's a really interesting story. I think there's there's one part of it, though, that I want to dig into that I feel like you kind of made a jump. Tell us more about what got you into and how you got into affordable housing in section eight.

07:31 - Michael Macon (Guest)
So section eight is something that is really stigmatized. Okay, my first property was a duplex. It was $110,000 purchase price and, based on using tools like rentometer and things like that, I tagged a rent that's somewhere between $8,000, $15,000, based on the quality. Now this place was recently renovated but you know, recently renovated in the Midwest by flippers kind of means like everything as cheap as humanly possible, right, nothing really works once you take possession of the property, but it still looked nice.

08:03 - Vikas Gupta (Co-host)
That's not just the Midwest.

08:05 - Michael Macon (Guest)
Yeah, probably everywhere right.

08:07 - Vikas Gupta (Co-host)
When I was buying. I was looking to buy a home. There was one agent slash flipper that was known in the East LA Highland Park, echo Park area for doing just the cheapest flips and even doing just the open house, and you would see knobs falling off of cabinets, shelves that are slanting down, just terrible, terrible. So I'm not a Midwesterner but in the interests of Midwesterners, having lived in Chicago for two years, it's not just a Midwest issue.

08:43 - Michael Macon (Guest)
Yes, they're not alone. Yeah, no, I actually. It's a sidetrack. I was under contract in one property and, being an out-of-state investor, I often don't even see the property before I take possession. Some of them I haven't ever seen in the inside of ever. But I actually went to the inspection of this one, luckily, because it already had a tenant downstairs, had a tenant upstairs. I didn't want to move and when you look at the pictures on Zillow it looked beautiful Like I was so hyped about this house. It was different than the first house with the section eight tenant, which I'll get back to. But we finally got there and while the pictures looked great, everything was destroyed in the house and the property manager was there. He's like, guys, don't worry, we don't want to cancel the contract. Anything you need fixed, let us know, we'll do. They needed new furnaces because they were both off and it was a summertime, which was fine, but then they were still working on the upstairs unit and we went there and not only were they working through the people living there.

We watched as their workers were on YouTube watching sync installation videos while they're working on the sync. And then we're like dude. And then he's like, oh yeah, the floors are already done. And I look and there's stains all over the floors. I'm like, wait, what do you mean? They're already done. And then I look at the floor and he's like, oh, somebody must have spilled food or something. I was like what is this? The closets, downstairs, or closets? But they didn't have rods or anything. They didn't have shelving. The sink or the shower the kind of knob where the water comes out of was twisted and it was like falling off. They had to like hold it to get water through. It was I don't know. We canceled that contract immediately. That property did sell though, so who knows?

But back to section eight. So again, I bought the property for $110,000. The rentometer had the rent between $850,000 and $1,000. And I was new, it was my first property, I was being greedy, I put nice appliances in there. I was like I'm gonna ask for a top-of-market rent and I'm gonna go for it. So I put it up for $1,000 rent and got only section eight applicants, and in the beginning I still had that stigma of like no, I don't wanna rent the section eight, they're gonna destroy the place, I don't wanna deal with it, blah, blah, blah. So I rented the two tenants at one was 975, and the other was 925. Yeah, so they ended up taking the place and I thought I was great, got top-of-market, got exactly what I wanted. This is awesome.

But then very quickly, meaning like before they even moved in, the problem started hey, I can't pay until I get my deposit from the other place. Okay, hey, can I move in? I'll give you the deposit once I move in. Okay, I'm new to this, I'm being nice. Okay, okay, okay, neither one of those tenants One never paid me a dollar ever and the other one has actually been a pretty good tenant after the first few months.

But it was a real struggle to get consistent communication, consistent income, rent paid in a timely manner. And, again, the first thing, I had to be a victim because I never got a dime from them. So what I learned was when you buy these cheap homes, they're cheap for a reason, right, like nobody's just giving you free money, especially in this game. So when you're buying properties in, most people call them like C or D neighborhood and you're asking for rent that's above kind of the market rent, you know, to try to maximize the profit, it's just not gonna work. You know you're getting people who wanna live in a nice place but have to absolutely stretch their budget as far as humanly possible to make that happen.

So then you know I'm just kind of doing this we put the place back up, we evicted the one tenant and just in my kind of you know, research and looking at other properties and talking to people and using TikTok and YouTube and things like that, I actually found a couple of section eight influencers just randomly on Instagram and you know I followed them. I was like, oh, I'm curious. Like you know, we only got section eight tenants. So it's a big part of the market. Like let me learn more about it. I really knew nothing about it. Like the fact that it's guaranteed income, the fact that there's like a whole voucher process, the fact that anybody can do it, like I knew none of this. So I really just deep dove into that world. I followed a bunch of influencers, one in particular, tim Leek, who I've actually met with and done things with. So since, like really opened my eyes to this world Because, to be honest, a few of the section eight influencers out there are kind of like I don't know skevy.

Like they really talk about just like how much money they make from the tenants and things like that, which is fine, that's what we're all in this for. But this guy was really talking about how it's affordable housing and you know the demographics of people who use it and how like there's a lot of stigma around them. But if you provide them quality housing, they typically take care of it and things like that. I didn't know that you can kind of screen the tenants yourself, things like that. So, anyway, once I determined that, I learned how to evaluate section eight rent.

Section eight basically has a process where the housing and urban development puts out a budget each month sorry, each year in October or September, and then echoes to every zip code in the country where the unique metropolitan areas or townships or whatever distribute that income based on zip code. So you can actually go and see for one bedroom, two bedroom, three bedroom, four or five, whatever what they will pay. So there's almost zero debate in rent. You don't have to use tools like my time there, you don't have to guess, you don't have to look at the neighborhood and kind of understand it. You can literally just go to HUD, see exactly what your zip code would get for a two bedroom and that's it. And it pays top of market. They typically pay something, like you know, 20 to 40% premium not 40% is a little high, maybe like 10 to 20% premium on top of what a standard apartment would get. So, for example, a standard one bedroom, two bedroom, one bath for the house that I'm talking about with a 975, typically went for 850. So I asked for a lot in 975, which is why I got people who really couldn't afford it.

Section eight the new tenant is 1055. They approved. So I would get almost $200 more for that unit. And because the tenant that I chose has very low income, section eight pays 100% of that. So there's no issues and the tenant still covers utilities, just like in any deal. Sometimes that's subsidized by the government as well. They give them some assistance and sometimes it's paid for by them, but section eight determines all that when they look at their income and things like that. So yeah, to me it was a no brainer If I can't afford to invest in really high end homes with people who have great jobs and can kind of pay their rent on time. So my niche has become homes that I can afford with rent that's subsidized by the government, just because it makes it really easy for me as a small investor to kind of guarantee my rent.

And we're also giving homes to people who don't have many other options. The tenant or the new place that I'm under contract for, we put it up for rent. And this woman has gone through two other section eight homes and she's been evicted by section eight because the landlords have failed to live up to their responsibilities. So every section eight unit gets inspected once a year. The landlord gets three chances to fix any issues and if they don't then the tenant has to move. So this poor woman has had to move twice with three kids just because the landlord didn't hold up there under the bargain. So in my mind I'm getting guaranteed rent for the most part. They usually pay it between 70 and 100% depending on the tenants, individual situation and we could talk more about that. But overall with section eight you're giving If you're a good landlord you're giving quality housing to people who otherwise don't get it. So yeah, I found it to be a really powerful program for landlords and if you do it right, it can be really advantageous for renters as well.

16:33 - Vikas Gupta (Co-host)
Well, thank you, I think that was a really great overview of the Section 8 program. I do have a couple of questions, if you don't mind.

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17:25 - Vikas Gupta (Co-host)
Tell us a little bit about that inspection process, Like how owner is it? What are they looking for, you know? Does it require you to invest more than you would have to outside of being in Section 8?

17:39 - Michael Macon (Guest)
Yeah, no, it's. You know, I think, especially in certain cities I invest a lot in Cleveland and there's been a lot of issues with kind of slumlords and things like that. Really, the inspection is basically just making sure the house is livable. I think the inspection I did most recently I think we had to just fix the CO2 sensor. We had to put a new CO2 sensor in. Some of my properties did not have it was not Section 8 before, so this was new, but it didn't have a guardrail. So we put in a guardrail. That was $100.

So it's really just, you know, they just want to make sure that people have somewhere livable. The quality of the fixtures and things like that isn't really top of their mind. It's mainly things like safety to the outlets work. Is there a CO2 sensor, fire alarms, things like that, are there banisters in the right places, are there stairs work, things like that. I haven't had many issues, but there is a checklist that you can get from Section 8, so I'm sure every Section 8 housing authority, each city has them different relays, so, like mine, it might be different from the one in St Louis and things like that. So you should probably be able to get a checklist, but I would say it's. If your goal is to provide livable housing, then it shouldn't be anything that you're not already expecting to put in, and I don't think any fix will be more than you know a couple hundred bucks unless you know something really goes wrong with the property and it's completely unlivable.

19:12 - Vikas Gupta (Co-host)
And do you have to like enroll your unit, or how does that work?

19:17 - Michael Macon (Guest)
Yeah. So the process works pretty much just like renting any apartment. So you put it up for rent on Zillow, apartmentscom, whatever you want to do Craigslist, and then the applicants actually get vouchers. So they go to Section 8, you know, they say, hey, a single mother, two kids. Section 8 evaluates their income and determines, based on their situation, how much they'll be willing to give them for rent. They then take that voucher, do just like anybody else. They go on Zillow, apartmentscom, whatever, look for the apartment of their dreams. Then they come to you with their application. They say, hey, I'm a voucher recipient, I have a voucher for this rent amount. Cool, you do a background check and tenant screening just like anybody else. If you do decide to select them, then you then send their application for your unit to Section 8. Section 8 will approve it. They'll maybe negotiate rent with you, so that happens, but they'll typically approve it. They'll send an inspector out and as quick as the day the inspector gets there, the tenant can move in.

I think the inspection part is definitely an added part of the process and, to be honest, it does slow things down sometimes. You know, to have a physical inspector go to. I think Cleveland has 15,000 voucher recipients. So to constantly inspect these places is a burden. So that might add a couple of weeks to the timeline if you're trying to get a tenant in fast. But again, the rent is guaranteed and it makes it really easy. So yeah, I'd say it's 90% normal and then the inspection is kind of that added 10%. That's a little bit different.

20:52 - Vikas Gupta (Co-host)
But once your unit is in, so like let's say that like you have a Section 8, tenant in your unit, that person moves, you're getting a new Section 8, tenant in. Are you already in or they have to inspect it on? Move in again.

21:04 - Michael Macon (Guest)
Yeah, new inspection.

21:06 - Vikas Gupta (Co-host)
Oh, okay.

21:07 - Michael Macon (Guest)
Because I mean, think about it from their perspective. Right, let's say they inspect your unit October 15th for the yearly inspection and then this tenant moves out in August. You know you're applying again in September for a new tenant. You know that's nine months since your last inspection. Who knows what happened to that property? So they want to make sure that when a new tenant moves in they do a live inspection right then and there.

21:30 - Vikas Gupta (Co-host)
Got it. And then, from a tenant screening perspective, it's this that you get to decide on all the normal criteria that you would decide on.

21:39 - Michael Macon (Guest)
Yeah, I have my Section 8 tenants. I've only had one since I've been using Azibo, but I had our tenants just apply through Azibo, just like everybody else. They paid the application fee and I looked at their record and see all the same things and you get to make the same judgment you can with anybody else. Section 8's goal is to allow tenants to live wherever they want. So you can do all the same. You can call their previous landlords, you can call for references, you see their work history, you see their credit score all the same things.

22:10 - Vikas Gupta (Co-host)
Got it and you said that Section 8, at least in your area, is willing to pay more than a non-section 8 tenant would typically pay in the market. So does that mean that when you're listing your property for rent, you're listing it at the Section 8 price that's listed in that report that you mentioned?

22:31 - Michael Macon (Guest)
Yeah, for sure. I think most people they pay above market rent because they want people to use the program. Section 8 does have a lot of stigma and in general people want to want you invest in real estate you don't have these nice properties that you own and things like that but just doing things with poor individuals and sometimes have a stigma to it. So they really want to encourage people to use it and I think you can see Section 8, typically like CHMA in my neighborhood, has videos and stuff where they talk about the program and why they pay over market. But basically they want landlords to be able to offer their units to Section 8. And because it's completely voluntary, just like any other business, you have to incentivize people to use your product.

So their incentive is the guarantee rent and the above market rates Because if they wouldn't, then chances are not a lot of people would rent this Section 8 just because of the stigma.

23:27 - Vikas Gupta (Co-host)
And then you mentioned that, this particular tenant that you gave us the deepings, your first tenant, they were 100% covered by Section 8. But some folks aren't. So then you're getting, let's say, 80% from the housing authority and then 20% you're collecting from the tenant directly.

23:47 - Michael Macon (Guest)
Yeah. So Section 8, when they look at a tenant's income, the tenant is going to be responsible for up to 30% of the rent amount. And if they want to pay more so let's say they want to move into a nicer neighborhood because of a school district or whatever they can go sometimes up to 40% if it's approved by Section 8. So one, if they want to move into a nicer neighborhood, you can do that too. Sometimes landlords can kind of take advantage and raise the rent and then get them to pay, but typically they'll pay up to 30% of their income. That causes the same issues with typical rent collection. I mean these are lower income individuals. 30% of not a lot of money is a lot of money to them. So sometimes you do have issues where. So my other Section 8 tenant he pays like $750 and owe is about $300. So getting that $300 is sometimes difficult. There's late payments, there's the run around oh, I'll get it to you next week and that same thing with any kind of tenant. So again on Section 8, they give you full authority to handle your unit as you would handle any unit. So Section 8 tenants can be evicted just like any other tenant. If they're late, you can charge them late fees.

And one kind of powerful motivation to get tenants to kind of pay on time and be responsible for your property is the fact that if you do report them to Section 8, they will lose their voucher. So it takes sometimes years for people to get vouchers, so people really don't want to lose them, most people. You get evicted a lot of times if you don't even go through the court proceedings fully, it doesn't go on your record. You kind of move on. But with Section 8, if you get evicted and you lose your voucher, you're one step closer in some cases to homelessness or staying on couches or doing something. So yeah, I feel like the stigma around Section 8 says that they're a huge hassle, a huge pain.

But in my limited experience and in the experience of other Section 8 investors I talked to, people are really motivated to be good tenants. You're always going to find the I'll say it's probably pretty high percentage 10%, 15% that destroy property and are genuinely irresponsible. But for the most part a lot of the people you're renting to are single mothers with kids. One of my tenants is disabled and we've done things to kind of update his properties with wider doors and newer carpets and ramps. So, like these people really don't want to leave these properties.

And I'll give one specific example where the tenant I inherited had a weird agreement where he was paying less than his fair share or his I don't want to say fair share less than what he owed to the previous landlord. And even the paperwork on the property that I got was incorrect and I actually funny enough, they didn't notice it until I started putting my properties in a Zivo and was like wait, the government portion plus his portion does not equal the rent amount. What's going on here? And he was paying $75 a month less to the previous landlord.

Now previous landlord, complete some more, didn't even live in the country had no idea what was going on with these properties, probably never looked at their bank account. And I asked to hey, you got to pay the right amount. I have mortgages and this is not just I'm not this rich landlord like profiting off this. And it took a while to do it. At first I was getting the first month I had him, I think I got the rent three weeks late, and then the next month, I think I got it the month after. I think I got November rent in December and I just had my property manager telling him hey, dude, we know you want to stay here. We're not asking you to leave, but if you can't afford your portion, I will go back to section eight and ask them to readjust. And he knows that if I do that he might get into trouble with section eight.

And even if I want to victim, he might be eligible to lose his voucher. Nobody wants to do that every month. I've been paid on time since. Now, to be fair to him, we are going to ask for a readjustment, with his blessing, because with that additional ask from me to pay that full amount, I think it's stretching him a little thing. So we are going to ask for that readjustment when he at least comes up in May. But it's not going to be anything contentious. It's going to be like, hey, this might now be putting it like the numbers were clearly ran wrong at some point. It might now be putting him above that 30% threshold or he might have lost income, in which case let's work on it, because if you do lose income, section eight will pick up the slack.

28:29 - Vikas Gupta (Co-host)
Got it All right. So you've mentioned a Zivo and in full disclosure we should say Mike works for a Zivo joined us in November. You've mentioned a Zivo a few times. You've also mentioned a property manager, and you've also mentioned that these are all out of state properties, some of which you have never seen the inside. So, with all that, tell us a little bit about the operations. How are you running this business? Who's doing what? How are you managing it all?

28:59 - Michael Macon (Guest)
Yeah, me personally. It's been a learning experience, for sure. So I kind of as I mentioned earlier like found out about this out of state thing and five weeks later bought a property in a place I've never been to and I actually didn't see that property until like six months later. I think the first time I stepped foot in that property was October and I bought it in March. So like I just dove in fully, just finding an agent on Zillow hey, can you look at this property for me? Great, let's put it under contract Within a couple of days.

So I met this agent through Zillow. He happened to have a bunch of properties himself and when I talked to him I was like hey, dude, I really don't know much about how this works. Let me know when I should call in the property management company that I've been talking to and you know, and get them involved in the situation. And he honestly said he was like hey, dude, I've never done this before. I've owned a bunch of properties, but I've been getting these out of state clients coming in, similar to yourself, and I've thought about adding property management, like starting a property management business.

He at first didn't want to even like charge me anything or like do this. He just wanted to do it as a learning experience, so I took it as okay, I'll save a little bit of money using this guy. He seems to know what he's talking about. I put a lot of trust in him and we've been working together now for almost a year. His business has since exploded. He's gotten a couple of other investors and now he's managing close to 50 properties or so and it has definitely been a learning experience and I don't know if I would necessarily recommend it to new investors.

30:30 - Vikas Gupta (Co-host)
When you say recommend it, do you mean working with someone who's brand new to property management?

30:35 - Michael Macon (Guest)
Yeah, yeah for sure. Or even like, if you want a realtor to help you with out of state investing, don't go with a new realtor, because I have to rely a lot on him to explain to me what's going on in the house. You know I get videos. Or if you look at a bunch of houses, sometimes I don't even get videos, but we pretty much. When he breaks it down to me, he knows what I'm looking for, he knows what I want and he knows how to look at a property and explain what's going on because he's done it himself for so long. So he'll explain to me electrical issues and plumbing issues and all these things that I had no idea about. So it's been really good working with him. But some of the things we're growing with together little things, or I don't want to say little things Invoicing, you know I first he would just tell me like, hey, this came up, it's $200.

I'd send him some money. Now, after a year, we have an invoice system where, like, he invoices me once a month for things Rent collection was pretty haphazard. Sometimes people would cash out me, sometimes they would cash out him Like. Sometimes I would try to get them to pay with bank transfer Like it was a mess. Now he collects rent, he sends it to me in one lump sum. So we're kind of building this repertoire together. You know we don't have a contract, like we're putting together the contract, because I was like, hey, dude, we're getting a lot of properties, like we'd have something in paper. So like I'm going through growing pains with him in this business, which for me is fun.

I like to learn. I still take a lot of the management stuff hands on and dealing with section eight, dealing with utilities, things like that. But you know what I recommend another investor to do this? Probably not. I mean, I think I probably spend a lot of money fixing issues that were growing pains and I've learned from but probably wouldn't have happened. Or you know, friends who use professional property managers didn't go through. So it's been fun and I feel like I've learned a lot than my friends who use professional property manager. I learned a lot more because I'm very hands-on. We're kind of going through it together. But yeah, I would say if you're looking for passive income, real estate is probably not the way to go one way or the other, but definitely doing a lot of the work yourself it really does take a toll in kind of learning the process that somebody else who's new is a lot of fun in my mind, but it can get expensive and you know you have to really want to take that journey.

32:53 - Vikas Gupta (Co-host)
So what is he managing now and what are you managing now?

32:58 - Michael Macon (Guest)
Yeah, so he's the man on the ground. He gets all tenant communications, he gets all maintenance requests. He has a network of people who do all the work that we have, paul Merzman, so he does all that stuff. Anything in regards to the business I tend to do so accounting and bookkeeping, all that stuff.

Obviously, like I don't get kind of a neat statement with rent in and expenses out. That's kind of messy. And then anything to do with utilities or a sectionator really things to do with money I try to take on myself. And also like anything I can do over email and stuff I tend to do because I want his time spent at the property and working on the property. I don't want him on the phone with the water company or a sectionator or something like that. So I try to handle a lot of the administrative tasks while he does what's on the ground. But again, as he grows in his property management business he's starting to take on more and even thinking about hiring people to kind of help out with some of the stuff that a more professional would do.

34:04 - Vikas Gupta (Co-host)
And are you paying him a percentage of rent?

34:06 - Michael Macon (Guest)
Actually, to be honest, I refuse to go for free because I want him to have some stake in the game. So in my personal situation I still ended up paying him a percentage.

34:17 - Vikas Gupta (Co-host)
So you, started free and now you're on a much more sort of formalized schedule. It sounds like.

34:23 - Michael Macon (Guest)
So, yeah, it's definitely a very unique, I'd say, situation.

34:29 - Vikas Gupta (Co-host)
So if he's collecting the rent, he's managing all the vendors and all the maintenance. What are you using software like ours for?

34:39 - Michael Macon (Guest)
Yeah, so he collects the rent and basically just sends me a single bank transfer and the vendors and such. He pays and then he invoices me once a month. But again, it's not through a software, it's basically an email with a PDF, his company's letterhead and things like that. So for me software helps reconcile the rent. He sends me a few thousand bucks in one transaction. I need to be able to know what rent is in there, who was late, who was short, what tenant one tenant paid me $8 short last month. I need to be able to see that in real time. And then when he sends me an invoice, that's one transaction out but it's going to be details for six, seven different properties, so, or seven different units. So I use software to make sure that the plumbing cost went to this unit and then this over time I can see like all right, I get once a month invoice from him, I get once a month rent payment from him. But I can look and see exactly who's doing it and that's kind of like a little bit of the business stuff. Right, a lot of the bigger property managers might send you a PNL or kind of have a accounting software in their solution. But for me who really enjoys doing it himself and really wants to be the owner of this business. I don't really want it to be passive income. I want to make sure that I'm on top of that stuff all the time and I have it organized the way I like and things like that, and I attribute things to the places where I want to attribute them and such. So for me it really makes software really makes that easy.

I was doing it in Excel before and I'm a finance guy. I worked in banking. I started in FPNA. Like I thought I knew Excel and I had these fancy PNL and stuff, but it was just such a huge pain to have to copy credit card transactions, put them in the PNL, remember to go do it, and at the time I was using my personal credit card, which wasn't great. So, like all these things now have been so much easier with software where, like I swipe the card, day later I go into my account I can see that there's a transaction on tagged, tag it, and it just makes life so much easier. And that's from somebody who has specialized and lived their life in Excel. It's just, it's a world of difference, great.

36:49 - Vikas Gupta (Co-host)
Well, yeah, I think certainly. I mean, obviously, as the CEO of a real estate software company, I'm a proponent of using software, whether it's ours or someone else's. But you know, I have a Excel personal budget that I built in 2004, where I would like do the copy paste transactions, manually, categorize things, and then I moved it all the software because it's just, it's kind of a pain. Well cool, well, this has been fantastic, and I'm sure there's a lot more we could cover, but we're coming up on time here. So, if you don't mind, I'd like to go into our three standard closing questions.

37:29 - Michael Macon (Guest)
Yeah, for sure.

37:32 - Vikas Gupta (Co-host)
Let's do it All right, cool. So question number one what is your favorite book? And it does not have to be real estate related. Okay, so my favorite book.

37:43 - Michael Macon (Guest)
This is going to be a little bit odd because I'm like an adult now but looking for Alaska. It's a John Green novel. I read it when I it's like a pre-teen novel. I read it when I was like really young, probably like early 20s, but I really talked about getting out there and doing things.

Long story short it's about this kid who lives in paper towns which is another John Green novel, but just kind of like cookie cutter town Didn't really have anything and all he wanted to do was get away, try something different, expand his horizons like really kind of go for it and go big in life. And you know his girlfriend name was Alaska, whatever. But long story short, when I was in my younger years when I read this book, it really stuck with me because I felt the same way. You know, I grew up where I grew up and I actually love where I grew up and it's one of the greatest cities in the world. But I always wanted more and I always wanted to explore more and that book gave me a lot of motivation to get out there and really challenge myself in life and do different things and really push to actually do something like move to California or invest somewhere I've never been or you know, I really fundamentally changed the way I think about taking risks and doing things.

So a lot of people who watch this are probably grown adults and probably won't read this book, but for me personally it really formulated the way I think a lot and one of the biggest impacts from that book was the fact that he loved death quotes, the protagonist, the main guy, so people's final words before they die. And the one that really stuck with me was I go to seek a great perhaps, so just always looking like what's out there, what's next, like you know, what is that great perhaps is a quote that since then has really stuck with me and it's kind of changed the way I see a lot of the world. So really great book.

39:35 - Vikas Gupta (Co-host)
I think I've actually read that book.

39:38 - Michael Macon (Guest)
Yeah, I love it.

39:41 - Vikas Gupta (Co-host)
But it didn't quite have the impact on me that it sounds like it had on you, not a knock on the book.

39:48 - Michael Macon (Guest)
Yeah, I know that that book, that book really stuck with me.

39:53 - Vikas Gupta (Co-host)
Sounds like it. That's great. That's a great recommendation. Well, thank you for that Question. Question number two we actually normally touch on this during the podcast, but interestingly enough we did not. So be curious to get your take. What is most important to you in real estate investing cashflow or appreciation?

40:18 - Michael Macon (Guest)
For me, cashflow for sure. To be honest, I don't think most of these houses are going to appreciate all that much over time. But you know, some of the reasons I got into real estate are stability. You know, I've worked at a ton of different companies and had to leave jobs, been laid off from jobs, things like that, and I never wanted to be put in a situation where I have a family people relying on me and, you know, for some reason I can no longer provide due to that. So for me, one of the reasons to get into this is to kind of have steady cashflow. Also another section eight thing in the background, right, having this.

You know, I think in the past two decades, I guess since 2008,. Houses have appreciated tremendously and what you hear is a lot of people, especially on Instagram, they're selling courses and they say, hey, buy a house, rent it out, and 10 years you sell it for $100,000 more. It's how you get rich. But the landscape is changing and I don't really think that's going to continue. I mean, houses can only appreciate, but so much until nobody can afford them anymore.

So, yeah, I focus mainly on cash flow, because if the houses appreciate, great, but if I can eventually own 30 or 40 of them and it's bringing in me X amount of dollars per month and that's consistent, guaranteed by the government, at least for the most part. Then you really get the financial freedom that a lot of people want. If you're banking on appreciation one day the value can be up, one day the value can be down. A lot of people have made a lot of money on it and I do hope these homes appreciate. But my calculation has more to do with what's the spread on today, not necessarily renting them out and hoping for appreciation.

42:08 - Vikas Gupta (Co-host)
Great, also very thoughtful answer. Appreciate that as well. Our final question is there anything, any final piece of advice or insight you'd like to leave the audience with before we wrap this up?

42:23 - Michael Macon (Guest)
Get out of your comfort zone. A lot of people and I still talk to people to this day because I post on Instagram and they contact me and they ask me questions People want to invest where they're extremely comfortable. All I hear is I'm looking in Florida, arizona, new Jersey, california, I'm gonna do Airbnb's in Las Vegas, I'm gonna do an Airbnb here, because that's what they see and it's very fancy and it's nice. But not every situation is for everybody.

Don't set yourself up for failure where you're buying housing you can't afford, you can't afford the maintenance or you think you end up. You end up falling in love with the place and overpaying for it because that's kind of where you're comfortable and you know. So it's great to be able to buy in your backyard and if you can make a business out of that, I think it would be awesome, because I would love to be able to see these properties and kind of work on them and be there when things happen. But sometimes, when you get out of your comfort zone and stay to never been to building trust with people you've never met, that might be where you'll find the greatest success. So definitely go out and seek not to be cheesy, but seek that great perhaps in your business and see what else is out there.

43:33 - Vikas Gupta (Co-host)
Fantastic. Well, thank you Again. This has been a great episode. Really appreciate the thoughtful answers, the level of depth that you took us through, and I certainly am leaving this with a much greater understanding of the Section 8 housing program than I had before. So great to have you on. Thank you, Mike.

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