Our Real Estate Investing Model in Detail

by | BiggerPockets.com

The questions I get most frequently via email from the BiggerPockets audience are:

– Can you tell me more about your model?
– Why do you think it works?
– Can I copy your model in my market?
– How can I participate in it?

Instead of responding to emails weekly around these topics, I thought I would take the time to write up a detailed review of our model.  I will take you through a specific deal we have just locked up and hopefully answer the majority of the questions we receive.

Step 0: Learn your market and establish relationships

Our model starts with doing the homework required to understand what a good deal means in your market and establish relationships with multiple agents.

By putting in the leg work up front you can quickly understand what a good deal means and you can put yourself in the path of success by establishing relationships with agents who control the inventory.

When you spend quality time with agents that control the inventory, you can share with them specifics on what you looking for.  When they trust you and they know you will close on deals, they will bring you into the deal flow. They will show you what is available, what is coming and what might be a shaky escrow.  Investors who can get in the deal flow with the most agents will find the best deals!

Step 1: Purchase a Property at a significant discount for Cash

As an example we just locked up a tremendous deal because we were in the “Deal Flow” with a particular agent.  We were presented with the opportunity to purchase a Tri Plex for only 65K.  The Tri Plex is a single building with three units, one of which is two bedroom, one bath unit and two of which are one bedroom, one bath units.

We agreed to pay 65k cash and close quickly.

Step 2: Repair Acquired Unit

The units are in relatively decent shape given they have been vacant for a year.  Two of the units just need a good cleaning, new carpet and paint and they are ready.  The third unit needs some attention in the bathroom as the subfloor needs work.  But all in all, we are looking at under 12K for all the make ready costs.

Once complete we will receive between $1,600 and $1,750 in rent.

We may have a surprise or two arise during the make ready process, however, given our initial price point we have plenty of security and cushion.  Regardless of any surprises we will make sure the Tri-Plex is a safe and secure building for our tenants and a great long term investment.

Step 3: Lease Unit

We will stick a for rent sign in the ground and start marketing the property on CraigsList as soon as we clean up the yard and paint the outside of the building.  I want to get as many people interested in the units as I can while we spend 2-3 weeks repairing the units.

If the trend holds, we will actually have at least one and probably two of the units rented before we have completed the remodeling.

If we have any vacancies post make-ready, we will run ads in the newspaper, and we might offer a move-in special or other promotions to fill up the building.

Step 4: Secure Passive Investment

The most important step in our model is to recycle our capital by offering a secure long term return to a passive investor.  Some past investors have chosen to invest cash while others have used their IRA.

Either way the investor gets a secure 1st Trust Deed and 10% Interest Only Note that pays them every month for the next 10 years.

Each investment is different, but on a deal like this Tri Plex a Passive Investor will lend between 48K and 60K.  The payment on said loan would be between $400 and $500.

We could certainly afford a higher payment given our low end rent expectation is $1,600 but we never want to over leverage our properties.  We believe this type of margin of safety gives our passive investors the security they need and deserve.

Our Passive Investors’ downside risk is they get a building already repaired for about 80% of our invested capital which is a tremendous deal if you ask me (Given I already bought the deal at a tremendous discount).

Step 5:  Recycle Capital

Repeat!  We never spend our real estate capital on anything but more real estate! We work with agents and get in the path of deal flow and find the next tremendous deal.

Our 5-step model takes work but once you have done the upfront homework of learning your market and establishing relationships, it can become a lot of fun. The real key is securing passive investors to recycle your initial capital.

I offer double digit returns on purpose because I want them to work with me.  I have had several emails asking why I pay 10% when I could offer 6-8%.

While it may be true that I can offer less, I won’t because I want the passive investors to profit from this relationship.  Plus, does saving 2% on a relatively small balance really save you that much?  If your deals are that skinny then you need to do different deals.

Everyone should win if you follow my model.

Hope this additional detail provides better insight into our model.

Good Investing!

About Author

Michael Zuber is an active buy-and-hold real estate investor who still has a full-time job. Michael is not an agent or broker, and simply uses the internet and agent relationships to drive his business. He currently averages at least one deal a month and has developed laser focus on his 5 step process.


  1. Larry Andershock on


    Good stuff, thanks for sharing.
    I heard “Uncle” Tony Alvarez speak last night at IRCA-Los Angeles & I can see his influence on you in step 0.
    Gotta love the REO Mentor.

    Question on step 4 – cash out. Just so I am sure I understand once property is repaired & hopefully rented you’re offering Private Investors a 1TD for up to 80% of the ARV (Market Value)? so you can put the money back to work somewhere else correct?

    Are you using Private money to acquire & rehab the properties as well (so you then pay off their note)? And if so is it easier & cleaner to do the purchase/rehab financing separately.

    Larry Andershock

  2. Hi Larry

    Tony is my hero and I consider him a good friend.

    As for step 4. No we use our own capital to purchase said investment. So if you follow my model you will need to start with some cash

    Good Investing

  3. Hey Mike, I like your willness to share. I do question why you choose to do what you do when you recycle your capital. What are the benefits to offering an interest only option. Does that then just have a balloon payment? I believe you would be able to get a commercial loan at a much lower rate. I believe this would easily accomplish the goal of recycling capital for much cheaper. I think I personally would offer such great terms for my close relatives to give them a secure retirement outside of the equity markets.

    Is this choice to set up your financing this way a way to give back? If not I’m missing the financial advantage.

    Thanks again.

  4. Hi Kyle

    First Question. Yes after10 years their is a balloon. My guess is I will be in a position to 1031 exchange most of my cheap houses and move the equity into apartment buildings to increase the cash flow. But worse case I’ll jkust get a bank line or sell one and pay off 2 or something like that as I have a huge equity base today let alone 10 years from now.

    Second question: you would think lending on deal like I do would be a no brainer for banks but after years of fighting it I have given up. For one thing they don’t like small loans, too much paper work. Second they want 6 months of seasoning minimum and most want 1 year so I couldn’t extract most of my capital with their loans. Plus the payment on 40K at 6 or 7% Full Amortized is really not that much differnt than 10% I/O.

    Plus I find people really like earning 10% and the security I give them so it works for all parties and I don’t need cut my interest rate to make my deals work as I don’t do skinny deals

    Hope that helps

    • Mike

      Thanks for your response. I am not at that stage yet. I have a couple rentals, have done a land contract and am starting my first flip at the end of the month. I always try to plan years ahead and take a good peak at decades ahead. Your strategy gives me a lot to think about.

      I can understand how it would difficult to have a bank make this no brainer deal. I still think there is a better way as you are leaving a huge chunk of money on the table. Since capital replacement is very important in your model, I would consider lowering cashflow by making the “loan/investment” to be principle and interest. This would save you from having a timeline at 10 yrs out on NEEDING to make such a capital infusion.

      From reading your answer on the first question, I, inmy humble opinion, feel that you havn’t fully worked out how that will all play out. I know it is difficult and complicated as doing multiple deals over time really complicates things. I feel it would be beneficial to play this out and focus on the worst case scenario (as in no capital appreciation and strict lending standards for example) then gameplan how to succeed either way. I could be mislead as a short answer is hard to judge on. I don’t have any great ideas on this but I would look into forming a REIT, and seeing what type of flexability that could offer you. With a long term focus as I see you have, I think their could be some real benefit of inbestigating that route.

      Congrats on your success and thank you for your willingness to share. Most importantly for me thanks for your conversation with me, I am always looking to learn and help others to learn if I have the chance, although in this areana I’m usually learning 😉

      • Hi Kyle,

        Thanks for the response and interest. I appreciate your thoughts, suggestions and questions. As you might imagine I actually have fairly detailed plans for each property and each investor but given our volumne it is tough to write about each caveat in quick way.

        Keep up the good work

  5. The most important step in our model is to recycle our capital by offering a secure long term return to a passive investor. Some past investors have chosen to invest cash while others have used their IRA. –> Still a newbie in the business that goes without saying there are still a lot of things to be learned. Real estate investment can be quite tricky and it pays to learn very useful information from investing models such as these. Thanks for giving an insight. 🙂

  6. I wish you could expand on – Step 4: Secure Passive Investment

    It sounds like you are creating something similar to an asset-backed security. Why are you setting it up with a 10% interest payment when bank financing alone is much cheaper?

    Why are you borrowing below the value of what you invested? Didn’t you add value by renovating?

    • Hi Eric

      I don’t know the technical details behind an asset backed security but my guess says I am not. Instead I am simply creating a loan on a property we previously owned free and clear.

      As for bank financing you would think it was e3asy but it is not as most banks don’t want small loans and they take way to much time.

      By offering double digit returns I believe it attracts passive investors to want to learn more. I am certain I could offer less but I don;t want to as I want all parties to prosper in my business model

      Good Investing

  7. I really like this method. I’ve been working on a strategy similar to this one, it has really fleshed out some of the particulars. I really liked your statement “I want the passive investors to profit from this relationship”.
    I feel like there are two holes.
    1- 65k +12k+ closing costs ( 3k?) = 80k your only collecting a loan for max 60k? That means each deal costs you approx 20k. Is this typical? since your initial investment is out of pocket, wouldn’t you eventually run out of money?
    2- How many deals can you do each year? What is a typical turn around? Since it is all coming out of your pocket you must have a very large fund pool to work from.

    I’m sorry if I miss read anything or missed something, I really like this system & I will probably do something similar, so any clarification would be appreciated.

  8. Hi Rusty

    Very Fair Questions. First this is a real deal I am working on so I gave all the actual numbers. I try to target no less than 80% retrun of my capital and I would say my avedrage is 90-95% with several at 100%.

    In the end each deal must stand on its own as I never want one property to risk others.

    I still work full time and have a nice stream of positive cash flow coming in already so I can keep fairly liquid and jump on opportunities as they arise.

    I have done 3 deals already this year and have 2 more in the works. If I had to guess I could probably do 20 deals without issue.

    As I said above the most important part is finding Passive Investors that like the model and security.

    Good Investing

  9. Rusty Thompson on

    Makes sense. I have a full time job, but only 2 properties that cash flow well. Even if I had a similar system set up , I would have to target properties that I could get a 100% to 110% final loan on while still maintaining the investors 20% minimum margin on appraisal. In my area I actually don’t see this being a problem.

    Have you ever considered lowering your cash flow requirements a little to acquire properties that will appraise for higher than what you have into them? There by reducing your out of pocket costs.

  10. Ok Michael, I’m definitely late to the party.

    I’ve read most of your posts and will finish the rest soon. I’m trying to make sure I understand your model and have a few questions:
    1. Your growth in cash is solely from monthly cash flow?
    2. Looks like your deals meet or exceed the 2% rule on rents. Do use this, or a similar criteria as a filter?
    3. Do you observe the 50% rule for expenses?
    4. Do you reserve for major repairs?
    5. Do you ever place a 1st TD in excess of your cost? In other words pull $ out of a deal?

    Sorry to hit you with all of these questions, I promise not to abuse the privilege in the future 🙂



    • Tod

      1) no cash flow + income from my day job. I still work full time

      2) 2% rule is fine everyone needs to set their buying criteria. I use cash on cash return
      3) yes
      4) yes
      5) sometimes but the deal has to be really good as need to maintain margin of safety

      Good investing

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