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BP Podcast 060: From 0 to 68 Rental Units in Just Four Years with Serge Shukhat

by Brandon Turner on March 6, 2014 · 53 comments

  
Post image for BP Podcast 060: From 0 to 68 Rental Units in Just Four Years with Serge Shukhat

Today we are pumped to bring you one of the most exciting conversations yet on the BiggerPockets Podcast when we sit down with Serge Shukhat, a real estate investor from the Arizona area who is absolutely crushing it in real estate. Serge started with no rental properties just four years ago but has quickly built up a sizable portfolio with a mix of both single family and multifamily properties using creative finance methods and using the cash flow to quit his job.

On this show we cover everything from getting started, choosing single family versus multifamily, tricks for dealing with tenants, increasing the value of your properties, and a ton more. This is definitely  a show you’ll want to take some notes, so get ready to have your mind blown!

Listen to The Show on iTunes

Click here to listen on iTunes.

Listen to the Podcast Here

In This Show, We Cover:

  • How Serge got started while working full time
  • BiggerPockets Podcast _ Real Estate Investing and Wealth Building 9.42.11 AMHow an Umbrella Policy can reduce your risk
  • Landlord responsibilities vs. tenant responsibilities
  • What kind of legal entity Serge uses
  • Overcoming bad deals by “Doubling Down”
  • How a competitive advantage can transform your business
  • Working with real estate agents vs. getting your license
  • Serge’s unique apartment that he’s bought and sold 4 times
  • Hiring a resident manager to help reduce the load
  • How to increase the value of your property by hundreds of thousands of dollars (OMG)
  • And a lot more!

 Links from the Show

Books Mentioned in the Show

Tweetable Topics

“Real estate never works out how you thought it would when you bought it in paper.” (Tweet This!)

“I don’t want to work till I’m 65, sick, or corporate downsized.” (Tweet This!)

“My biggest risk was not losing my job- it was not buying enough real estate.” (Tweet This!)

“You can go broke buying good deals.” (Tweet This!)

“Population, income, and jobs drive real estate.” (Tweet This!)

“It doesn’t matter if the first deal is bad… at least you learned.” (Tweet This!)

Take what the market gives you and be quick to pivot. (Tweet This!)

Connect with Paul

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{ 53 comments… read them below or add one }

hunter March 6, 2014 at 11:16 am

Good podcast guys. Since there is a running joke about Detroit, it would be funny if you threw in a funny sound effect when it gets mentioned.

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Joshua Dorkin March 6, 2014 at 4:48 pm

Thanks, Hunter. We may have to take you up on that idea ;)

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Ben Leybovich March 6, 2014 at 1:19 pm

Great show all. The best since Podcast 14, if I may say :)

Serge – very creative and very inspiring. Concur with your logical approach completely in so many ways. Congratulations on all of the success you’ve had and will have!

Brandon – $1,000/mo for trash – are those gold-plated roll-offs?

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Serge S. March 6, 2014 at 2:29 pm

Thanks for the kind words Ben. The response to the show has been tremendous and I’m glad that so many were able to find value in the podcast.

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Joshua Dorkin March 6, 2014 at 4:49 pm

Thanks Ben!

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David March 6, 2014 at 2:22 pm

Serge, you are absolutely the most impressive real estate investor that i’ve read and heard from. Thanks for all your wonderful advice!

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Serge S. March 6, 2014 at 8:21 pm

David – thanks for listening and glad the podcast was useful for you.

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Samson Kay March 6, 2014 at 4:02 pm

Great show.

Serge, I’m fascinated by the idea of using an seperate submetering service for my water and sewage utility. I think if the numbers work out in terms of cost of installation then I would do this for all my units.

What service do you use? Can you recommend any resources where I can find that service in my home city?

Thanks,

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Derrick Clark March 6, 2014 at 6:27 pm

This was a great podcast. One of the top 5 in my book. I too would like to know a little more about the water metering service you mentioned?

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Serge S. March 6, 2014 at 8:25 pm

Samson – there are providers all over the United States. Many specialize in large HOAs and condo complex’s so there may be some hesitancy if you cannot offer the number of units they seek. The provider should be open to negotiation and generally all costs are absorbed by the end water user. Google “water submetering” and your metro city and hopefully you can find a competent provider. Best of luck.

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Christian C. March 7, 2014 at 12:40 pm

Serge,

I love your idea of water submetering so much that I’ve already contacted a provider in my area. One thing I’m concerned about, however, is how tenant non-payment should be handled. In Ohio, shutting off utilities is tantamount to a lock-out, and is naturally prohibited. Is this not the case in Arizona? Or does the submetering company do the water shutoff?

Thanks!

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Adrian Tilley March 6, 2014 at 4:43 pm

Excellent show guys. I agree with Ben that this was one of the best. This ties in with a post I just wrote on why every business should have a moat (here: http://www.biggerpockets.com/blogs/4524/blog_posts/35333-why-you-should-build-yourself-a-moat).

My only suggestion would be that we hear a lot about how folks got deals in 2009-2010. This is interesting stuff, and makes me jealous I wasn’t investing at that time, but has less relevance as to how to get deals today.

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Serge S. March 6, 2014 at 8:31 pm

Great points and blog post Adrian. I agree with your blog post and every business should identify and execute on their competitive advantage. I also agree that we all love to hear about RE strategies as they pertain to today’s market. The forums are a great platform to seek that information. The podcasts give listeners an inside look into both how an investor got to where they are and what they are working on today. Josh and Brandon do a fantastic job looking out for the interest of both the newbie and experienced investor. Unfortunately with only an hour to chat it gets difficult to touch upon everything.

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gary March 6, 2014 at 6:34 pm

What real estate software are you using?

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Serge S. March 6, 2014 at 8:34 pm

I have used Buildium since the beginning. There are a lot out there and a ton written on the forums as to pros and cons of each. I had to use Buildium by default as they were the only ones that had default HOA management tools. I highly recommend all investors make this investment early in their RE investing careers.

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Mjai March 6, 2014 at 6:58 pm

Serge, provided ton’s and ton’s of helpful information. I found my self taking notes like I was in college. His insight into real estate investing and past experiences will have a positive impact on my future decision making about my real estate investing. Thanks-A-Million Serge

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Serge S. March 6, 2014 at 8:35 pm

Mjai – thanks for the listen and glad you found the podcast useful.

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James Pratt March 6, 2014 at 8:18 pm

Very well done and informative.

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Gerald K. March 6, 2014 at 8:41 pm

Serge,
Lots of great info. Thanks for sharing your experiences with us. With my buy and hold purchases, I always ask the question “Why would someone want to rent this place compared to the other offerings on the market?”. This seems like a very important part that must not be skipped. Finding a good deal with the right numbers is only half the equation. The other half of success is being able to compete with the other rentals in the area, to successfully deal with tenants, and to be able to manage the property.

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Serge S. March 6, 2014 at 8:44 pm

Definitely in agreement Gerald. You know what they say … your tenant will look like your rental:)

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Deena March 6, 2014 at 9:31 pm

Great Show, lots of helpful info. When you talk about the 50-60% expenses for multi-units what are you including in this and how are you calculating percentage? Are you including taxes and insurance in this?
Thanks,
Deena

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Serge S. March 7, 2014 at 1:49 pm

Hello Deena – 50% would be a very general starting point and would include every recurring expense. Property taxes, insurance, maintenance, etc but not including mortgage or interest. Some multifamilies will perform much better than that and others will struggle to stay under 60%. It all depends on the age and quality of Capex done to the property. Most important is the tenant base that the property will attract. If you have a monthly revolving door than that number will quickly spin out of control.

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Keith A. March 7, 2014 at 6:59 am

Serge, Enjoyed the information in the podcast. Especially the smaller multi’s as I am in the process moving from SFH’s to multi’s. I also use Buildium and was curious with your financial background if you use it for financial analysis or something else like Quickbooks, etc. for that?

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Serge S. March 7, 2014 at 1:51 pm

I have been able to get by with just Buildium although it lacks a lot of financial reporting. It gives me the basic property P&L, Consolidated P&L and then I do all my modeling offline on excel from there. Using quickbooks would require entries into two systems as Buildium export to QB is not very robust.

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Tim Tice March 7, 2014 at 7:13 am

A lot of great info, took a lot of notes. As you rent your properties to a long term tent when is ok to increase rent or do you stay the same rates?

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Serge S. March 7, 2014 at 1:54 pm

Good question Tim. I typically will not raise rent on a long term good tenant. Many will tell you otherwise but turnover is such a major expense that I don’t rock the boat. If the property is meeting its financial goals at the original lease up then I’m fine continuing as is. I raise rents if the market is receptive upon organic turnover. This may change down the road.

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Kevin N. March 7, 2014 at 7:18 am

Serge,
Thanks for a great podcast. Even though it’s longer than a regular podcast but it’s well worth it.You had mentioned on the podcast that you have your management LLC over your rental properties LLC for better protections. I’m just curious on why you did that and how is that going to give you better protection? Thanks

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Will M. March 8, 2014 at 8:28 am

I’ll echo the praise – great podcast!

Serge,

You mentioned during your initial buying that you didn’t have “Two Years as a Landlord” so I assume you could not count rents toward income with lenders. If that was the case how were you able to support your DTI during that initial buying spree?

Secondly, You mentioned a few times demographic data factored into your analysis, i.e. “70% below the mean” helped you identify the buying opportunity. Could you elaborate? What parameters do you look at – Price to rent, income to rent?

And where do you go to find this information on your local market?

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Brian Bower March 10, 2014 at 1:58 pm

I want to know how to calculate the equilibrium of 30 year price history as well. Good question Will M.

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Jamane March 10, 2014 at 4:13 pm

Great show. I love learning this information and I’m dieing to get started. Thank you soooooooo much for sharing.

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Austin Mann March 12, 2014 at 4:26 am

Guys – there are so many great podcasts that you do, at the moment, this has to be my all time favorite. I want to thank you both, and Serge of course. Am going to replay and ask my partner to take a listen!!! Thanks!

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Josh Rowley March 12, 2014 at 11:01 pm

Serge, have you done it? Have you replaced your corporate income with cash flow income? Is sounds like for sure when you include appreciation.

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Mark Graffagnino March 13, 2014 at 6:48 am

Outstanding podcast. Made me think a lot about some of the things I’m doing- or not doing- in my own buy and hold business. Thanks.

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Pierre Thernize March 13, 2014 at 10:03 am

Serge, this is by far, IMO, the best podcast so far! Great stuff! Thanks for sharing!

I do have a question for you and one for Josh.

You mention looking at some data of the purchase prices, the rents, and the incomes over the past 30 years. How did you compile these data?

And Josh you joked about buying in NJ. What’s the problem you see, with buying properties in NJ?

And thanks again guys for all the great informations that you have attracted in this site, including the podcast. It really increasing one’s confidence everyday to just get started and keep going as we face challenges in our way to achieving our goal.

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Joshua Dorkin March 13, 2014 at 10:12 am

Pierre – I’m glad you enjoyed the show. I might have been thinking about the exorbitant taxes in NJ if/when I was joking . . . not sure without listening through, though.

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Pierre Thernize March 13, 2014 at 10:16 am

Ok I see! Taxes are really high. Thanks for responding!

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Yuliany March 13, 2014 at 1:11 pm

Great podcast! I was just listening to this and I’m inspired to submeter my rentals in Phoenix and Scottsdale, AZ. I called a couple of local submetering companies and got similar quotes as Serge, $5.75 for equipment rental and $5.75 for reading and collection.

They went to assessed the properties, and told me that all the units already have individual shut off valve and this allows them (the submetering company) to easily put a meter on every unit and to stop service in the case of non payment.

I haven’t raised my rents in a while, I was thinking having the tenants responsible for their water usage is better than raising the rents, since I can not control their water usage. Also, when they are paying for their own consumption they will probably be more conscious.

My questions are:

– Will I be risking losing my long term tenants if I started to have them pay for water?

– If the submetering company stop the water in the case of non payment, how do tenants have bad debt? do they just continue to rent without running water? (in Serge’s case, I found one of your old post on the forum regarding submetering where you said that the metering company did not do a good job collecting payments)

– for my older tenants who are on a fixed income I was thinking to reduce their rent by $20 and have them responsible for their water bill. (will this be a reasonable offer for them?)

Thanks

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Dave C March 13, 2014 at 3:41 pm

Serge,

I loved the show. My best takeaway was that you think of the big picture. Can you elaborate on how you structure pools in your leases. Do you hire a management company or pool guy?

Thanks

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Armaity March 14, 2014 at 7:52 am

Great podcast with super tips and ideas – listened with rapt attention the whole time. Inspires me to finally get started.

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Andrew S March 16, 2014 at 2:07 pm

Serge,

Great stuff. Love your thinking and ideas. Would love to get your thoughts about investing in bay area market ie SF. Since your from this area I was thinking of try to flip or do long term buy and hold. Do you think this market is over heated or do think there are still deals to be had?

I know you said you had that window of opportunity do you think it’s closed now?

Best,
Andrew

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Frank March 20, 2014 at 3:28 pm

Guys, great cast….!

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David March 21, 2014 at 1:34 pm

Serge – you mentioned a 2-3% tax in Texas as a reason you don’t invest there and stay in AZ. can you elaborate on that tax and/or let me know where I can find out more about what you’re referring to? Thanks!

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Andy April 4, 2014 at 7:57 pm

Texas does not have a state income tax, so property taxes are higher compared to most other states and typically fall in the 2-3% range.

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Jordan Thibodeau March 23, 2014 at 12:20 pm

Serge, as said 10 million times, excellent podcast. Re: Water meters, I bought a duplex that didn’t have sub meters, but to my luck, this summer the city will be installing sub meters on my duplex due to a local ordinance.

1:19:30 was hilarious.

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Dawn Anastasi March 23, 2014 at 2:52 pm

Great podcast as I am also a buy and hold investor. The only thing I disagreed with is about not improving your units while tenants are still living there. If you have a long-term tenant, which you advocate having, then making little improvements and upgrades along the way keeps the tenant happy. You can do this when things break so that you’re not disrupting the tenant too much. Two examples:

a) In one of my rentals some tile had come off in the shower area. It was really old tile. And the window in the shower was old and wood and that didn’t make sense. So I put in a new glass block window and ceramic tile surround including new plumbing as long as the wall was open. Then I painted the room to a corresponding color. This means less maintenance in the future for plumbing and the bathroom looks really good.

b) When some wallpaper was coming down in the kitchen, rather than just stick it back up, I took all of it down and painted the kitchen a very nice neutral beige color. It really made the kitchen look so much better.

So a little paint and some upgrades that will help with the maintenance and longevity of the unit, even when tenants are still there, can be worthwhile to do.

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Michael Stroup March 25, 2014 at 9:18 am

Serge, that military town in southern Arizona that you mentioned you might start investing in– are you talking about Yuma?

Great podcast all around.

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Aaron April 15, 2014 at 8:41 pm

Serge, amazing interview. You spoke at length about your operations manager. She seems to be the ultimate sidekick and assistant, who knows your business inside and out and can handle all of the day-to-day managerial duties. Do you ever fear the day that she decides to move on to another job, or even an injury or sickness that calls her out of work for an extended period of time? How do you prepare for that should it happen in terms of immediately picking up all of her duties? Do you have a stand-in person that already knows the job and can take over quickly? Would you have to stand in? If so, how would that affect the rest of your business if you are now suddenly burdened with all of the day-to-day tasks that you previously outsourced to your employee? I wonder this in my own business, but for a large operation such as yours it seems like it would be an even more urgent issue.

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Sylvia May 17, 2014 at 4:32 pm

Hi Serge, I enjoyed the podcast. I am a new investor in Arizona (wish I started when you did!) for someone like me would you recommend staying away from buying AZ multifamily properties? You mentioned in the podcast the prices are inflated and that you are looking at southern AZ (Yuma?) for these…would you recommend this entry strategy? Congratulations on your new baby by the way! We have a 3 week old. Thank you for any advice.

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Patrick May 31, 2014 at 8:32 am

Fairly certain he was talking about Sierra Vista, AZ (A small town just outside of the gates of Fort Huachuca, home of the buffalo soldier and the U.S. Army’s Intelligence school, where the Army’s brightest are trained to find, know, and never lose the enemy.)

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Justin May 22, 2014 at 3:27 pm

I noticed that you discussed HoH and HoA, but I don’t know what they mean? Did I miss the meanings to these abbreviations during this show? Thanks!

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Doug Farmer June 23, 2014 at 8:46 pm

I’m still new to investing, listened to every show up until now and I just gotta say Serge is like a freaking lazer beam. I couldn’t take notes fast enough, loved this show.

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Andy Moore September 5, 2014 at 5:58 pm

This was one of the most informative podcasts I’ve listened to so far.

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Joshua Dorkin September 5, 2014 at 9:27 pm

Thanks for listening, Andy!

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