Create a 7 Figure Passive Income with REI in under 10 years with Zach Lemaster

Zach Lemaster is the Founder & CEO of Rent to Retirement, the largest turnkey real estate provider in the world.  In this episode, we are going to talk about creating a 7-figure passive income with Real Estate investing in under 10 years, 3  stages of financial independence, and how to change your family trajectory forever!

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Create a 7 Figure Passive Income with REI in under 10 years with Zach Lemaster

Shannon Robnett  00:37

Hey, everybody, welcome to another episode in Season Two of the real estate rundown. Today we’ve got a great show for you. We have got Zach Lemaster on with us today. And this episode is going to be from Zach’s experience, from his point of view on how to create a seven figure income passively with real estate, and do it in less than 10 years. And we’re gonna follow the steps that Zach took. Zach, welcome to the show. How are you?

Zach Lemaster  01:14

Hey, Shannon, pleasure to be here. Thank you for having me so much.

Shannon Robnett  01:17

So, Zach, you are like most of us in real estate you got involved in real estate? Because of some little purple book, right? We all know that to be the Rich Dad Poor Dad book. But that’s not what you grew up thinking you wanted to do with your life. Tell us a little bit about your journey from how you got, you know, where your career was headed and what what kind of got you started in real estate?

Zach Lemaster  01:43

Yeah, absolutely. It’s been an evolution over time. And we’re super thrilled to be where we’re at today and glad we chose the real estate asset class to focus on but I have a background in health care. My wife and I are optometrists by education, we went to school in Portland, Oregon, that’s where we met. She’s actually Canadian. I was on scholarship with the Air Force. So when the Air Force as a captain for seven years after graduating optometry school to practice optometry there, and then moved out to Colorado to own and operate private practice. After I fulfilled my commitment with the Air Force during that entire time, we were investing in real estate because we got the bug even when I was in school, read the purple Bible, as you mentioned. And, you know, decided that just changed our thinking about I was the first one for my family to even go to college. And so I just thought that hey, I was very proud of myself, this is what I wanted to do. But then that changed my thinking about investing in money in general as it does for many people, as you mentioned. So I mean, the first house we bought was a duplex, I used a VA loan, this was in North Dakota so where I was stationed, and really from there, I really liked the idea of real estate as an asset class, every single year. And this is about 15 years ago. Now, Shannon, every single year since that first duplex that we bought, we purchased more and more real estate, either in number of doors or value. Just because we’ve set ourselves a goal. We started strategically investing in different markets, not limiting ourselves to investing locally because there was better opportunity in other markets. And we liked diversification. And that allowed us to build a portfolio to the point where we were able to replace our our active income as optometrists and retire from that career field and move into the full time investing space, investing in different locations.

Shannon Robnett  03:26

Well, first of all, thank you for your service. That’s, that’s always, you know, something that is a bit of a gift back to our country. So I appreciate that. And I can’t imagine why might not North Dakota wasn’t your primary market, right? I mean, that’s a great place to cut your teeth because you’re always going to have service people coming in. I have friends who did that exact same thing. Because wherever there’s large air bases, there’s always people coming and going in as a large contingent of, of renters. But you know, you mentioned that, you know, you’ve been doing this now for about 15 years. What was it that really got the bug going? I mean, we all start with Rich Dad, Poor Dad, and I’m actually going to be hanging out with Robert Kiyosaki this weekend doing some stuff but you know, the reality is what was it that turned you on that let you know that, “I’m a smart guy, but I can do better than Optometry?”

Zach Lemaster  04:25

The writing’s on the wall was just where we started to see that. Real estate is scalable, where it’s not time associated with optometry, even if we were hiring in other doctors, which we did, but I mean our time we were wearing multiple hats, right? Your practitioner you’re basically compensated based on your time in the chair. And if we weren’t really working, which we were always working, but we were really receiving compensation and that’s scaling that over time real estate is beautiful, because there’s a lot of different things you can do in real estate, but really the idea is that you’re providing consumers residual income. And but you’re also strategically growing that and scaling it over time with the ability to grow your net worth through using leverage. You know, we talked about all the different ways you earn income, right through appreciation, debt reduction, tax benefits, depreciation, cashflow, all those things are compounding over time. And then we additionally took the tax benefits. That’s where like, so I guess in our, in our journey here, the first duplex we bought was a big pivot point as a milestone for us because we’re like, oh, we can live for free, right, we have a tenant pay our mortgage. Then from there, we got to the point where we bought more single family and multifamily and we’re able to replace our expenses, then we continue to scale to get to the point where we were able to replace our active income. And this happened over many years. It wasn’t overnight, but it was staying consistent to our goals. And then it was to the point where it’s okay, well, now we’re active investors, this is our full time in business, assisting other investors to do the exact same thing that we did. And now we’re making more money just actively through that. Now, we need tax advantages to offset those. And there’s no better asset class in real estate when it comes to taxes, doing things like you know, the accelerated depreciation 1031 exchanges, opportunity zones, it’s just goes on and on. And so I mean, that  was really the big point where it’s like, hey, we can make significant money actively in real estate more than we can in the health care profession. But beyond that, we can actually set ourselves up for generational wealth to pass on to our family through the tax advantages of real estate. So it’s been multiple, you know, kind of years.

Shannon Robnett  06:32

Well, and that’s kind of you that’s kind of the thing, you get sucked in on the cash flow, right? You get sucked in on the appreciation. And there’s, you know, you mentioned something over this has been over years, and you know, we’ve had a real surge in real estate, the last two or three. And a lot of people think that real estate is a get rich, quick. And it’s not, as you know, it’s a lifelong journey. I’ve been doing this for 28 years, 29 years, I’m second generation, you know, on the construction and development for generation in real estate sales. I know that it is a generational thing. And it’s not a get rich quick, but it is a get rich opportunity to create that generational wealth and create the one thing that you mentioned that you’re buying back your time, that’s the one thing that it doesn’t matter how much money you have, you only get so so many revolutions around this rock, and your time’s up, and you’re going to either spend it doing, you know, Optometry, which you loved, I get that, but you know, you’re not in control, somebody else is logging in and saying, hey, you know, for $200 an hour, I’m gonna buy your time and you’re able to buy that freedom back, you know, and then then real estate, like you mentioned, begins to create problems, right? It begins to create tax problems, right? And nobody likes paying taxes. But when the check needs a comma, and then it needs another couple of zeros, and then you’re starting to look at all of those things that you’re paying out. And even with all of that, there’s, you know, you’re still feeling like, wait a minute, I’m getting the short end of the stick. I’m making money here, but now I’m paying all this stuff. And that’s where I think that a lot of people miss the boat on where that accelerated growth really comes from. Right? I mean, cash flow is awesome, right? Cash Flow pays the bills today, right? But you’ve got to get that to a place where that cash flow is a total NOI to you net operating income, net of taxes, because you’ve mitigated that, you know, you mentioned you rattled through a couple of quick things, you know, with a bonus depreciation with 1030 ones with opportunity zones, you know, what are some of your favorite strategies that you like to do with your personal portfolio? Before we get started talking about the business that you’ve created out of this monster that came out of a purple book? What is it? What are some of your favorite ways to look at how you’re looking at your year in advance, when you’re sitting down doing doing your planning for tax purposes,

Zach Lemaster  09:01

Our entire investing strategy on the personal side right now is built around the tax strategy. I mean, taxes are the biggest expense that any of us are going to pay. And that’s the easiest way to give yourself an significant raise. I love the idea of even if you’re saving a small portion of taxes, obviously, the more the better. But you’re able to say getting that money to Uncle Sam can take that money and actually earning a return on it. Right? That’s where we get this huge compounding and exponential growth is actually taking that money and reinvesting it so you’re you’re growing your portfolio and earning a return versus just paying it.

Shannon Robnett  09:47

And that’s what Warren Buffett says right? Compounding interest is the eighth wonder of the world. And when you’re taking that, you know that $10,000 Check you are going to write what was the down payment on your first duplex?

Zach Lemaster  09:59

Well, we had VA loans, it was actually zero. But typically 20, you know, 20% 25%, down whatever. Yeah,

Shannon Robnett  10:06

So you know that that $20,000 Check you were gonna write allows you to buy $100,000 asset, yeah, it’s going to protect you from another $20,000 Check that you’re going to write, that’s going to allow you to buy another one. And that’s the compounding effect that allows you to build and make it scalable. You know, you also mentioned that real estate is one of the best asset classes to scale, because of the ability to borrow, you know, I mean, when you’re looking at the fact that the bank will partner with you, for a fixed return, and allow you to only bring 20% of the money to the deal, and they will take a fixed return. I mean, that’s an incredible partner, right? I mean, that’s, a lot of people don’t think of that. But that’s, that’s you can’t get that partnership out, anybody else

Zach Lemaster  10:54

Well let’s run the numbers, then just to your point. I mean, if you have yet $20,000, to invest, and you put that in stocks, or whatever the case is, and you have a 5% increase after a year one, you would have earned $1,000. Right now you have $21,000, using leverage is a huge benefit of real estate where you invest that same $20,000, you buy $100,000 house, that house goes up 5%, that’s $5,000 of realized equity. And that’s a 25% return on your money. That’s not even considering cash flow, debt reduction, tax benefits and things like this. So leverage is huge, especially in the high inflationary environment that we’re in right now, right want to be leveraged responsibly. But that means that the money that we’re taking out at today’s dollar value will be devalued over time, we’re paying the bank back with less money, you know, that’s money that’s worth less over time, but our mortgage doesn’t change, rents will go up and things like this, but it’s just using leverage strategically and responsibly, to really be able to scale your portfolio. And people don’t often think about that that way. Maybe they don’t understand inflation fully. But I mean, that’s, that’s why interest rates right now, don’t matter to me, we’re still buying, we bought more real estate, just like I mentioned, beginning, we bought more real estate this year than we have any prior year, even with current interest rates.

Shannon Robnett  12:07

Well, and that’s where, you know, I was just pulling up the S&P 500, average return from 1957 to 2021, was 11.8%. Right? If you’re looking at that 11.8%, just to put a real number on your $20,000 deal, you’re still only $2,200, right? And then in order to get that you’re going to pay taxes on that, right. So now Uncle Sam is going to come in, and he’s going to take 400 bucks of that. So now you really only have $1,800 to go back into for next year. Right? So but when you’re doing that same thing with real estate, you’ve been able to scale that for sure. And I completely agree with you. When people come to me and they go, Oh, my God, oh, my God, look at what interest rates are doing. I’m doing this when interest rates were eight, nine, right, I’ve seen 9%. And so where we’re at is not uncharted territory. It can be dangerous if you ran your pro forma based on being able to refinance at 5%. And so you’ve got to have some of that seasonality that comes with experience, right? You’ve been doing this for 15 years, you’ve seen it right. You probably were licking your chops couldn’t believe your good fortune when we saw 5% interest rates, right? And then the stupefying things that happened, we went down under three. Right. But that doesn’t mean that that’s where it’s going to stay. It was something that you obviously took huge advantage of as did I. But when we’re coming back to this this area, what is it that makes you think that interest rate doesn’t matter? I know, but what is it that you think that makes interest rate not matter?

Zach Lemaster  13:43

It’s just a number in the equation, you know, and you just really need to look at okay, does it still cashflow it? And to your point? I mean, if you if you look back at the historic interest rates, I mean, there was a point in time, I think we were interviewing with Richard Duncan, who was talking about investing back in the 80s, where interest rates were like 18 19%, and he was still buying a bunch of real estate actively, you know, so it’s, and now I think this by the way, this is a good thing, right? Like this is not sustainable to have interest rates where they were that that was the norm that’s become the norm in people’s minds, but like this is actually normalizing the market. This is a good thing. So it’s necessary. But yeah, I mean, interest rates are just a number on paper, you still run your numbers, but you need to look at the global picture and have a strategy and plan of what is your long term goal because yes, interest rates may cause the cashflow to be a little bit less than say, if it was five or 4%. Whatever the case is, but you’re still having an appreciating asset, you’re still taking out leverage having the tenant pay the loan down like we do having the tax benefits and depreciation. You know, that is actually the more important aspect. We’re were fortunate enough to have an active business where we earn significant income, but our goal every single year is to buy enough real estate using leverage to offset all of our active income through accelerated depreciation. And then in the future when we sell those if and when we will 1031 those and scale up. And that’s I mean, again, compounding effect over and over. But you need to have the plan, if you’re just focusing on focusing on interest rate and just focusing on cash flow, there’s so much more to real estate, you just need to understand that.

Shannon Robnett  15:25

Well, and you know, the other things that happen, you know, the causation of higher interest rates have to be higher rents, right? I mean, we didn’t have enough supply. Three years ago, we didn’t have enough supply six months ago. And now, whether it was single family, or, you know, or rental properties, right, there just wasn’t enough in the marketplace, which was causing price inflation. Now, they’re trying to stall that out. But really all they’re doing is they’re converting people that were buyers six months ago, into tenants for a longer period of time. So now, there’s more. For you and me, there’s more people knocking on our door, there’s more scarcity, scarcity creates price increase, right? We’ve seen that with gas, we’re seeing that with all kinds of things right now. But the reality is, at the end of the day, if you can get into cash flow now, we’re going to continue to see for quite some time, I think you can agree, price increases, right in rents.

Zach Lemaster  16:24

No one should compare this to 2008. There seems to be this idea sometimes that people look back at that as like a standard or typical, or almost expected type of real estate scenario, in no way shape, or form. Are we close to what? What happened with that scenario, to your point, the biggest thing in the market is actually supply and demand to drive rental and home prices. And we are already in a position where we have an under supply and over demand for housing. And that’s that’s not getting any better. Over time, interest rates will affect people’s ability to buy houses. And it will either take buyers that were trying to buy a higher price point and move them to a lower price point, or it will move people that were buyers into renters, as you mentioned, we are very intentional Shannon, and where we invest the type of locations and asset classes. And generally speaking, we invest in middle class asset your B class housing, which are the most type of recession proof asset class you can have. Because it’s, you will always have housing demand and always have renters and right now in this type of environment, even even more renters, and we’re seeing, we’re still consistently seeing a strong increase in rents. I mean, that’s also what happens in an inflationary environment. You know, but the big picture is real estate, to your point early on, it’s a long term type of investment, interest rates right now and where things are at today. I mean, if you buy a property and it’s in a good location, and it has positive cash flow, and you’re using leverage in the tax benefits, like you, like you should, you’re doing the right thing. You should not be concerned, your goal is not to flip the property. I mean, potentially whatever real estate avenue you’re going down, but the people that might be in putting themselves in a risky position would be people that yes, need to plan to exit within a short period of time or need to plan to refinance out at this rate of like, you know, getting into these variable rates, things like this, but long term real estate buy and hold, don’t be so short sighted. The fundamental stay true.

Shannon Robnett  18:21

You know, it’s funny, too, because you mentioned you buy in, in certain areas. And you know, we’re, when we’re recording this, we’re coming up on an election. And I don’t want to talk politics, but how much weight do you put in the political environment, all of the market you’re looking at?

Zach Lemaster  18:40

Well, we most certainly invest in areas that have landlord friendly legislation, mainly Midwest and southeast, these are areas that, hey, we got to evict a tenant, we, we need to be able to do that in a timely manner. Right. That’s an important aspect, also invest in areas that have favorable tax structures. You know, so yeah, politics does play into it. In terms of where we want to invest, that’s not the only thing. Of course, those are phenomenal criteria. But we want to invest in areas that have that are in the path of progress and have population economic, economic growth, that have a diversity of industries in these areas, not just relying on oil or gas, or whatever the case is areas that have high rental demand relative to home prices, and strong rental appreciation. So those are the markets that we’ve been successful with and in many years through any kind of economic cycle and will continue to invest in those areas.

Shannon Robnett  19:26

You know, it’s funny, too, because there was, you know, of the last five recessions real estate’s only been affected in two of them, you know, the 2001 recession and the 2008,2009 recession, obviously, and everybody does go back to the 2008 – 2009, and if they really took the time, like you said, to study it, they would see that there are so many differences in what’s going on now. This reminds most people that have been in real estate like the late 70s, early 80s recession, where we saw runaway inflation. We also saw, you know, runaway interest rates, and then, you know, housing prices and rents followed all of that because there is that cashflow component that goes with this. Let’s transition just a little bit. So you got hooked on the little blue or the little purple book, you started doing this, you started scaling out of that you replaced your passive income or you used your passive income to replace your active income, then you found yourself building a business that you’ve mentioned a couple of times, tell me a little bit more about what it is you have built out of your own personal need.

Zach Lemaster  20:31

Yeah, I mean, rent to retirement is our turnkey business. We are a turnkey provider, where we, you know, either rehab or build properties lease and manage them in the best locations for investors to you know, scale, diversify their portfolio get started investing in real estate, and it’s an easy stepping stone, where they don’t have to do everything on their own. We’ve already done the heavy lifting. But I mean, that really the foundation of our business came from our own success as investors essentially, as I mentioned earlier, we really would allow us to scale to replace our active income to get to that milestone was diversifying in different markets, where there’s better opportunity. And I think diversification is essential in general, but especially being a strategic investor to identify the best locations to invest in. So we started doing that it took many years to build our teams and systems in these different areas. Just personally investing. And then we had a lot of friends and family and colleagues that were looking at it saying, Hey, we see what you’re doing in real estate, we want to do the same thing. But we don’t have the time, we don’t have the know how we don’t have the energy. Can you just like, help us? Can you just invest? Can we just invest with you? And so we were that kind of naturally parlayed into the turnkey business because it was just a matter of like, Hey, we’re already doing this for ourselves. It’s just scaling up a little bit to bring on other investors, there’s a lot of deals we passed on just because we couldn’t take them on or we didn’t need to. And so then we offered those to our investor clients. And we saw the demand for that. That’s, that’s a huge need just globally for investors. And so that was a birthplace of rent to retirement.

Shannon Robnett  22:01

So let’s talk about turnkey. Let’s, let’s drill down into this a little bit, because we hear the term and, you know, I mean, what does that mean, to me, I’m, who, let’s start with this, who’s your typical clients

Zach Lemaster  22:15

In turnkey is one of these buzzwords and it’s really ill defined. So when when we define turnkey, it’s a property that’s newly built or fully renovated, leased and professionally managed, with our team in a location that we’ve identified to be a productive investment location based on the criteria we mentioned previously, the average avatar for our client is someone that either wants to get started in real estate, they don’t really have the experience, they want need a little bit of hand holding and use it as a stepping stone, it’s easy for them, or it’s they’ve never invested out of state, this is their first time investing out of state. And that can be rather daunting. And so this is an easy way for them to walk into a system that’s already established with a track record and build a successful portfolio, I would say that’s the average client is just someone who wants to be a passive investor or someone who wants to get started to get started out of state, or the active investor that is already doing a lot of stuff in real estate, and they want to scale and diversify their portfolio quickly. And this is a great way to just add in properties without taking up a bunch more time.

Shannon Robnett  23:14

So really, what you created was you created passive income for yourself, found yourself with more properties than you could possibly buy, decided that friends and family and everybody else that saw you as an ophthalmologist and thought maybe they should look into what you were doing right had to throw in the dad joke there. But but then you were able to create another stream of income, because you’re purchasing, renovating and or commissioning the build. So there’s fees involved there, you’ve got a management company that there’s fees involved there. But it allows someone that’s brand new to the business or brand new to real estate, or just doesn’t know the Dallas market or whatever market you’re in that might not North Dakota market to be able to step into that market and say, Yes, I’d like three, and they’re able to look at it and say I’m paying $200,000 My rents are going to cover because they’re already in place rents, I’m able to see that with the mortgage rates that I can get today, I’m going to have $120 in cash flow, it’s all completely taken care of it’s managed, it’s done. I just have to step up, create the ownership by taking out the loan personally. And then obviously, the contract comes with you as a company, and I’m just gonna receive dividend checks, make my mortgage payment, create my own K1s and all the rest of that as far as the active art of that is all handled by your team.

Zach Lemaster  24:48

Yeah, absolutely. And it’s I would say when we talk about turnkey it’s at least with our business model, it’s much more beyond just selling a done for you kind of property in a good location. We spent a lot of time with our clients to help them map out investment strategy and plan and that’s on an individual basis. Because everyone’s in a different position. Everyone has different goals, timelines, resources, you know, different retirement vehicles they want to invest through. So we spent a lot of time and we built a large network. And again, out of our personal investing of real estate specific CPAs attorneys, people that will do 1031 exchanges in cost segregation studies, if they want to explore that we really want to take a comprehensive approach to assist people in building out a long term strategy and plan. Most of the stuff that we most the turnkey properties that we focus on are short or long term, single family and multifamily. But we do a lot in the space, we have short term opportunities, we do have syndication opportunities, if someone wants to do investment, syndication, you know, we have a lot of different things, creative financing options for people as well. So our goal is to add value to anyone that comes into our network and assist them in scaling their portfolio or getting started.

Shannon Robnett  25:56

You know, and one of the things that I hear and I hear this consistently with people that are successful on the level that you are with real estate, is that that strategic part, you know, it’s one thing to sell somebody a property and, you know, wave goodbye and head on down the road. It’s another to create that understanding of what is it you want, as an investor? How can I position our company to work with you to create the kinds of opportunities that you’re looking for that allows for your success? Because the reality is, that’s where a lot of the done for you, I think, misses the mark. Because yes, it’s done for you, but it’s dropped off at your front door. And then you know, it’s like getting something like at IKEA, there’s some assembly required. And there’s, there’s not the follow up. And a lot of people get disillusioned with real estate because they hear about all this stuff. But you know, and then they go back to their accountant and their accountant maybe isn’t real estate savvy, or they talk to their accountant in February. And their accountant goes well, yeah, we could have done that last year, if we’d have known right. And so I see that there seems to be a large education component with what you do, that keeps people coming into that space and taking care of what their need is, so that they’re getting to their goal, which is creating a better customer for you. Because you’re giving them what they asked for. You’re giving them the strategies that work for them, you’re giving them the result that they look for, they look at it and go, Oh my goodness, I’m working with Zach here. And this is actually happening, and I’m getting the tax benefits and all these things are coming together. So there’s, there’s really a lot to that. What do you think is the secret sauce with your company? That when you’re when you’re meeting with that investor, you’re creating a strategy, what is that secret that you are imparting to them that makes them, gives you that stickiness and that return customer product?

Zach Lemaster  27:59

You hit the nail on the head Shannon and it’s the education aspect of it. It’s staying involved with them. Because yeah, there’s so many people out there in the real estate or turnkey space that do this just they’re selling assets. Right. And, and they’re not really helping the client build a plan and a strategy. I mean, selfishly, we want the client to come back and continue to do business with us, right? No one is in this game to buy one single family or duplex in the Midwest or southeast. I mean, people are looking at real estate, I think from an objective standpoint of trying to replace their active income, build consistent residual income, potentially leave their job, at some point leave a legacy to their family. And that takes planning over time. So in that takes a portfolio of multiple houses, that is strategically built. So we spend ample time with each one of our clients, to make sure they have the right strategy and plan in place. And those goals are dynamic, right? Things change over time. And so it’s important to have some that you can bounce those ideas off of. Yeah, and we have a really stellar reputation that I’m very proud of, because this is my baby. You know, I spent a lot of years building it. I encourage anyone to Google us and look at reviews we spend. And that’s the number one thing is we spend time with people to help them build out that plan.

Shannon Robnett  29:09

Well, and I think that that’s, you know, that’s the thing, you know, you created a team and just as important as your property manager is your tax strategist is right. I mean, and, and a lot of people don’t understand the difference between an accountant and a tax strategist, right, they keep I get this question a lot, you probably do, too. Do you have a good accountant that can get this stuff done for me? Well, I think three quarters of that is providing the accountant with the strategy that you want to implement, because accountants don’t get offended accounting people in the audience here but accountants 95% of them put things in boxes, right. They’re very organized. They take what you did there forensic in the sense that you know, you come to them in February and there’s nothing they can do with the results. It just organized it and file for you. But if you’ve involved that’s strategic person. And you’ve talked with someone like yourself that says, hey, you’ve got three different kinds of products. You’ve got this, you’ve got this, you’ve got this. Here’s your strategy, based on what I hear you saying, you’re really delivering above average results, because you’re talking about a 20 to 30% delta on the purchase, right? When you’re eliminating the tax man, like we talked about at the beginning of the conversation, you know, so, when you’re doing those kinds of things, you have to be creating raving fans, right? What is it that you see happening in this next… Do you see your business accelerating through this tumultuous time in the market? Do you see it kind of plateauing? What do you see coming in the future with your turnkey business?

Zach Lemaster  30:49

I just want to touch on your tax point, because that was so huge, I hope no one missed that point on the on the accounting side, we hear often from clients that oh, well, my CPA didn’t guide me on this or didn’t recommend this as if that was an expectation. And that’s not really fair to the CPA, because to your point, they are just really what we refer to as CPAs as defensive, right? They’re defensive in nature, they are taking your information, and going through it and in filing for you. But yes, the tax strategy, that’s a different person, that’s a different professional, who’s helping you plan for the future, and then you initiate that plan and bring it to your CPA. And so that’s, that’s so essential. A lot of people are unfamiliar with, they assume that the CPA will give them all the tax advice that they need. But that’s not really appropriate. Right, you know, but anyways, to your question about where we’re headed. I mean, we’ve grown every single year, just from, you know, word of mouth, obviously, the past few years are just crazy real estate market actually like to see a little bit more of an even playing field in, in the real estate market now. I think we are just being extra conscious and meticulous right now on the strategy of specifically where we are investing, we really are focusing, I mean, half of what we do, actually, right now is build to rent and new construction. Often those are opportunities where you can have, you know, significant immediate equity when the house is completed. But we’re doing that by investing in the locations that we really are seeing population trends go through. I mean, I’m happy to name a few markets if you’d like but with these areas, yeah.

Shannon Robnett  32:19

Tell me where you tell me where you like.

Zach Lemaster  32:21

We’re very bullish on Florida. We build in Texas and have a lot in Texas and Alabama. Different areas like Birmingham, Huntsville, but but Florida, we’re very active throughout the entire state, you know, southwest and southeast Florida. Mid like around Orlando and Ocala area, we have a team in Pensacola. Um, these are all areas like Southwest Florida, where we just had a hurricane come through. Yeah. And actually, that’s everything was fared fine. We didn’t have one single investor or any of our own that we had to make an insurance claim on Fortunately, for everybody, but those areas like we saw a 22% increase in rents over this past year. And if there’s anything that hurricane caused, it’s either is exacerbating the supply issue that already existed, right. But those are the types of…

Shannon Robnett  33:08

You’ve got to you’ve got the trifecta, right? You’ve got the natural disaster, you’ve got rising interest rates, you’ve got lack of supply. I mean, you couldn’t squeeze that market anymore if you want it to.

Zach Lemaster  33:18

It’s been the path of progress. And I think those are the areas well, I mean, we’re active in the Midwest, as well. And like Ohio, and Missouri and Indianapolis, those are areas where they’re just getting bread and butter rentals. That always will be they’re not going to crazy appreciation, probably. But I mean, it’s it’s all about building a diversified portfolio across multiple markets.

Shannon Robnett  33:39

You know, the other thing too, that I love about what you what you’re doing a lot of it sounds like is the build to rent product, you know, because you’re getting brand new. I mean, there’s only so many times you can put lipstick on that pig. And then you’ve got, you know, unexpected expenses, like furnaces, you know, those aren’t cheap roofs that need to be replaced, because they’re they’ve reached the end of their useful life, you know, you’re paying more, usually per foot to buy new, and you’re getting more, you know, it’s one of those that are you buying the extended warranty on your car, right, because you know that you’ve got, you know, three to five years that you’re gonna have really no problems with that new product, where three to five years in something that’s a 19. I mean, this is a 1973 month, right? It needs an overhaul, right? So you’re looking at those kinds of things. And I see that being such a great market and such a viable product type. Because it’s necessary. And I think that, you know, I’ve had a lot of experience with people that come to me after they’ve designed a project with an architect. They’ve got a million dollar budget, they got a $2 million dollar set of plants, and when they realize that they can’t have what they want, they don’t do anything. Right. And I see this exacerbation of that product type where people were poised. There was a lot people that they’ve worked hard, they’ve cleaned up their credit, they were going to be buyers right now. And they’re not, but they haven’t given up on the three bed, two bath, two car garage dream that you’re now providing. And that’s where I see a huge component of build rent is satisfying. You know, because you’re still able to get that. When you do build a rent like that. Are you going in and purchasing all subdivisions? Are you purchasing large numbers in the same area? How do you scale that?

Zach Lemaster  34:30

In the locations that we’re focusing on, they’re generally like pre parceled individually owned lots. So it’s a lot of like infill, we have micro economic analysis on like, specific locations within a market that we want to focus on. But it’s not a community type of development, we may have some continuous houses and a few on a street or something like this, but but it’s generally identifying a location where there’s just generally high demand and a lot is kind of a little bit developed already. That way we can start construction sooner, a lot of infill.

Shannon Robnett  36:00

Yeah, I know that there’s a lot of people that are going in on a larger scale, like the syndication model, going in and buying, you know, 150 house subdivision. It’s very similar to doing an apartment complex, except that each is on its own title lot. You can, you can have that individuality, when it came time to sell, you could parcel off what you wanted, or whatever. And that’s really kind of where you always see the struggle to scale on the expensive side, because, you know, you’ve got different kinds of toilets over here, different kinds of faucets over here. So when you’re trying to do warranty work, you’re driving all over town. How do you guys cover that in what you’re doing to stay tight? Stay sharp with the numbers? Because I know you’ve already figured this out. I just want to know.

Zach Lemaster  36:49

Yeah, and when we talk about kind of infill lots, I mean, we’re not this is all probably within a 30 minute radius, fairly close. And so I mean, just having a full time maintenance team is not so..

Shannon Robnett  37:00

You’re laser focused. I mean, when you go into a market, your laser focus, I mean, 30 minutes in some towns is only two miles, depending on

Zach Lemaster  37:07

My no traffic. Yeah, but But yeah, generally speaking, it’s yeah, 10 to 10 to 15 miles. These are these are areas small geographic locations, that still have a good amount of inventory of land available to be developed. And I think that allows for economies of scale, to be able to go in and effectively and efficiently do maintenance and monitor things like this. And, and like you said, new construction, fairly minimal on the attention to detail with with consistent maintenance stuff that you need, I think in construction, when people really think about turnkey, and they want to be a true passive investor, and not have to, because you still need to actively, you’re still owning real estate, right? Like you still hear about tenant issues, even though you have property management setup, like still gotta manage your manager. And so I think new construction is probably the best way to go for someone that really wants to be passive. Because you don’t get builder warranties. You don’t need any maintenance calls, get longer term tenants, typically better appreciation, better appreciation, rents. We’re huge fans of of new construction build to rent.

Shannon Robnett  38:09

Yeah. And, you know, that’s been my business for, you know, 28 years is building new and, you know, we’re building we’ve got, I think, three, four, large scale multifamily that we’re building out for those exact same reasons, right. I mean, you’ve got a water heater that, you know, just went in, and you’ve got at least a two year warranty with the subcontractor before your maintenance, people have to kick in and take care of it. So there’s a lot of opportunity there to really trim your expenses, which really boosts your NOI, I mean, especially in a market where you’re giving up maybe a little bit more to interest rate, such a key point. And you know, it’s back to you get what you pay for, you know, you might be able to buy the 20 year old house down the street for $110,000 versus $210,000. But your rents are reflecting that your tenancy is reflecting that all of that comes through and your bottom line, I think you could probably make the point really strongly that your bottom line is stronger on the build to rent even though the product cost initially more.

Zach Lemaster  39:11

When people are looking at performance. Just remember that’s projected, anticipated return year one.

Shannon Robnett  39:19

People are finding that out in the market today. People are figuring that out.

Zach Lemaster  39:24

So you may see a you know, a Midwestern property and we sell these to, you know, and just quite frankly, the numbers do look better on paper, but always want to consciously remind people that to your exact point on a long term debt property may outperform from a rental perspective in the first couple of years. But when you factor in maintenance over time, capital expenditures, you’re on the long term basis and appreciation and less turnover and things like that, that the new construction and just generally investing in a better quality neighborhood and things like this will outperform long term even if the numbers don’t look as attractive and it’s more expensive out of the gate. So it’s okay to buy a lower ROI lower cash flowing property with the idea of holding it long term. And I think you’ll probably be more successful employees to be successful long term doing that.

Shannon Robnett  40:11

Yeah, I totally agree. And then that keeps you in that, you know, solid B, maybe a minus category, because, you know, especially when you hit inflationary markets, like we’re in now, right, I mean, we’ve had probably arguably one of the most dramatic turns in, in history from, you know, $2 gas just 15 months ago to where we’re at now, I mean, that is huge when you’re talking about the tenancy and who’s in a, in a C minus property, right? That’s a huge portion of their income. It’s still a large chunk for a B tenant. It’s inconvenient for an a tenant, right? But you’re starting to see the A tenants Look, maybe I can save a few bucks and move to a B class property, the C tenants there, we’re starting to see delinquency rates rise and those kinds of assets. I mean, nationwide, you’re seeing that trend. But with the Bs, you’re kind of in that solid sweet spot of, I don’t like it, but we’re going to be fine. You know, it’s not going to change our life, the fact that we’re $400 a month more for groceries, right?

Zach Lemaster  41:14

So it’s a balancing act. And I think you’re right, that’s I mean, that’s, that’s the area we focus on, because it is the sweet spot where you get a decent tenant quality, you can still be in a good neighborhood class, you still get appreciation, and yeah, you know, you have less turnover. So I think that’s, that’s definitely the area we focus on.

Shannon Robnett  41:32

Zach, what is the number one thing that people come to you, that seems to be the number one stumbling block as to why someone hasn’t started investing in real estate? That is probably your most common objection, if you will, that you’ve got to solve to get them started. They’re poised, they’re ready, they understand they’re just stuck. What is it? What’s the number one thing there?

Zach Lemaster  41:57

The biggest thing that I see just generally is fear. You know, the fear of the unknown, fear of what could happen fear of like, and we go through this, like whatever the case is, right? Recession, interest rates, definitely, we get a lot of feedback about interest rates, we have to have the same discussion that you and I had about long term investing, and really actually going through and fear comes from, I think, in my opinion of not understanding, and not having a plan or multiple plans in place. Like if you run the numbers, the practice we go through is just actually run the numbers, right? Like look at people hate the idea and hearing about a higher interest rate than where we were at a year ago. But it’s like, okay, well, let’s put numbers to paper and actually look at how that performs. Does that mean you need to put a little bit more money down on the property making me your cash flow numbers? Possibly, okay, so be it, maybe it doesn’t, let’s look at the global picture of where you’re going to be in 1, 5, 10, 20 years with conservative appreciation, debt reduction, leverage tax benefits, depreciation. And when people actually go through the practice of understanding the numbers, then it becomes less of a fear factor. And we get it. I mean, everyone goes through analysis, paralysis, investing out of state, it can be daunting, like, where do you start the shiny object syndrome, he’s got so many things you can do in real estate, so many different markets to invest in. But at the end of the day, you just got to buckle down, and have a plan and execute it right, the first couple of properties you buy, or the first couple out of state, really, in my opinion, are less important financially, but mentally and emotionally, they’re huge. It’s dramatic, because it gets you in the mindset and allows you if you don’t get into those first couple, to build your own confidence, you’re never going to be able to scale and build a large portfolio long term. So that’s the biggest objection, I would say,

Shannon Robnett  43:38

You know, you mentioned emotional and I have to completely agree with you there because the first purchase that most people make in real estate is for themselves. And it’s about is the kitchen right? And is the school district, the perfect one for little Johnny and, and you know, is the backyard big enough for the swing set, and all those things that are emotionally driven? That price is not really the primary concern when purchasing that now you’re shifting that and most people associate it at least at the beginning. And my wife hates this, by the way, she absolutely hates this because I look at our own personal residence in the same light is my personal residence of that benefit to me, you know, and we constantly battle that but there’s that emotion attached to it and most people’s experience with real estate before they start working with someone like you or start working with, you know, their own things. Is that fear? Because is it going to our tenants going to love it, you know, are they is it going to be the right school? Is the paint the right color? You know? Do they like the carpet when in reality tenants don’t kind of have they don’t have that emotional attachment, but we as owners do, you know, so you bring up some really good points. Zach, what would you say to people that are on the fence listening to this right now? What is it that you’re saying to them right now for call to action?

Zach Lemaster  44:59

First of all, if You’ve been sitting on the fence for quite some time. I mean, we hear a lot of people that are trying to time the market, right. And there’s always an excuse; COVID I mean, whatever the case is, I mean, there’s always something in the media in the news. So turn that off, focus on your own individual investment plan and your goals. And stay laser focus to that, and just take action. If it means buying a property, just buy that first one. Don’t overcomplicate it and overthink it. Real Estate. It’s a long term investment. It’s a lifelong journey. We always tell people, I mean, this is something that we’ll be doing the rest of our lives teaching our children to do. And hopefully have generations like you, Shannon that are, you know, in the game for a long time and passing on that knowledge, but it’s really knowledge is power, and you earn that knowledge to firsthand experience. So if you’ve been sitting on the fence, if you’re concerned, or you have questions or objections, talk to the right people, right. It’s all about networking, and get answers to that. But ultimately set yourself a goal, and then just do it. If it’s one house a year, then so be it get that done. I mean, that’s really I mean, we’ve all been there, right? We’ve all had those fears and objections that hold us back. But you need to be able to ever overcome those. And you got to take action. It’s not about timing the market, it’s about time in market and real estate is a long term game.

Shannon Robnett  46:16

Yeah, completely agree. You know, I, we’ve all seen the people that tried to time the market, and they usually wind up being the last one in and the first one out at exactly the wrong times. Right. So your point is exactly right there.

Zach Lemaster  46:31

We’ve interviewed a lot of people, too, that are very successful investors in real estate and businesses in general. And Shannon, I’ve never met a single person that says, Oh, I just got lucky and time to market. Great, you know, but what every single person does, and we know that there’s more millionaires made in real estate than any other asset class, and especially today, but what everyone does say that successful is that I consistently invest in real estate throughout all market cycles.

Shannon Robnett  46:56

Yeah, no, and that is entirely true. You know, anybody that got involved in the peak of the market in ’07 that still has the asset is doing okay, today, you know what I mean? And that’s just because they went through the heart of the fire they held on they were consistent, they continued to show up and do what’s necessary. Zach, I really appreciate the knowledge you’ve been dropping today. It has been eye opening for me to hear that you know, not only did you get involved in real estate, then you created your own portfolio. Now you’re doing what I love to do, and that’s educate others so that they can create that financial freedom themselves and you’re doing it to the level that you are that makes it makes it brainless. I mean, you don’t even have to make you just have to show up, talk to Zach, get your plan put together. So guys, if you really enjoyed it as much as I did, shoot me an email [email protected]. I will get you connected with Zach and you can find out where you can find this guy. Get plugged into his system and learn more about what he’s doing because, guys, he’s making it so easy that I mean it even a caveman can do it right to steal from GEICO there but you know, really appreciate you showing up Zach and educating our listeners, guys. Don’t forget to like, share, and subscribe to the real estate rundown wherever you get your podcasts. leave a review. I’d love to hear your feedback. And once again, Zack, thank you for your service. And thank you for showing up today.

Zach Lemaster  48:18

Thanks so much, Shannon. It’s been a pleasure.

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About Zach Lemaster:

Zach Lemaster is Founder & CEO of Rent to Retirement, the largest turnkey real estate provider in the world: He is a seasoned real estate investor who has accumulated a large portfolio of rental properties across multiple markets including single family, multifamily, commercial and new construction. 

Zach is a licensed Optometrist who practices on a volunteer basis. Zach started investing in real estate while working as an Optometrist & Captain for the US Air Force. This eventually allowed him to retire early from his career in medicine to be a professional investor by strategically investing in markets that maximize cash flow, appreciation & equity.