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Real Estate Investing School Podcast
235. Winning in Investing as a Couple with Mike and Caroline Neubauer
00:54:59
Welcome to the Real Estate Investing School Podcast hosted by Joe Jensen. On this episode, Joe brings on power couple Mike and Caroline Neubauer, who have transformed their lives through real estate investing. Mike, a former firefighter, achieved...
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- [00:00]
Mike Neubauer
I'm not waking up in the middle of the night. I turn my phone off every day at 5pm I turn my clock off every night. I mean, I still get up at 4:30 in the morning, but I don't have to. I could sleep until noon if I wanted to. Right. That's what we built. We built that.
- [00:22]
Joe Jensen
Welcome to the Real Estate Investment School podcast. I'm your host, Joe Jensen. Today our guest is Mike and Caroline Neubauer. Mike was a firefighter to financial freedom in five years through real estate. Started with short term rentals, moved into long term rentals, midterm rentals, developments and syndications. Caroline was a stay at home mom and she became one of the top realtors in less than three years on where she's at $40 million in transactions just since 2021. Needless to say, they are a power couple and we're excited to have them on the podcast today. So welcome Mike and Caroline. Good to have you guys here.
- [00:59]
Caroline Neubauer
Thank you.
- [01:00]
Mike Neubauer
Thanks for having us, Joe.
- [01:01]
Joe Jensen
Man, that's pretty awesome to see, you know, both of your guys success on two different sides and spectrums of the real estate game. But I'm sure those feed into each other much. Maybe we can dive into that, you know, how, how is having someone on both sides of it affected both of your success on each side?
- [01:23]
Mike Neubauer
Yeah, I think, you know, know we started off like most people, you know, kind of dipping our feet into real estate. And then once we started seeing the, the upsides to it, we just dove in head first. Right. And that took us out of the W2 job within, like you said, five years. And once we got out of that W2 through the investing side, we realized real quickly that it would be really beneficial to have one of us on the agent side of things. And so Caroline is naturally much better with people than I am and was the logical choice. So yeah, that having that both sides I think has been, has been really beneficial for us because we can look at deals in different ways and we can also, like, Caroline can help, you know, investor savvy clients a lot better than someone who has never done a deal.
- [02:16]
Joe Jensen
Yeah, that's cool. So, yeah, go on.
- [02:18]
Caroline Neubauer
I was gonna say we've learned a lot too, because of our network. I've gotten to work with a lot of investors who are much more along than us, but just not familiar with Maui. And so we've gotten to see how different deals are structured and just a lot more creative opportunities for us when we make our offers.
- [02:42]
Joe Jensen
Yeah, I love that. So it's Cool. So you started with the investing Mike, you started doing this, and then that was a big impetus. You, Caroline, to become an agent was just so you could be on the other side of it all.
- [02:55]
Caroline Neubauer
Yeah. And also just so that we, like, tax benefit wise, it's a lot easier to get that status with an active real estate license. So it's a little strategic in that way too.
- [03:07]
Joe Jensen
That's awesome. That's super cool. And then like you said, as you're in it and you're doing, I always say, like, action leads to opportunity. And you know, you're doing all these different things and you, you just learn so much. And like you were saying, you see all these different strategies and, and you know, if you're, if you're only doing one thing, you only get exposed to so much. So the more you're doing, you guys can like, it's kind of like one plus one is three with you guys, you know?
- [03:29]
Mike Neubauer
I like it.
- [03:30]
Joe Jensen
That's cool. Well, that's great. So, yeah, let's hear a little backstory. So you guys are on Maui, you know, cheap real estate, just super approachable, no big deal. Not the place most people think of starting their real estate empire. But how, how did you come across it all? Where did it start?
- [03:49]
Mike Neubauer
Yeah, I think if we went back to the beginning, it was while I was in the fire department. We weren't really thinking about real estate or anything like that. I just happened to have a senior firefighter who was dabbling in it, and he had some short term rentals, but he kind of just treated it like a side gig. And he would tell me what's going on with it and whatnot. And I'd kind of look over his shoulder and see what he was doing. And I realized the numbers that he was producing were just incredible. Incredible. I mean, way, way more than what we were seeing in our paychecks as firefighters. So I kind of asked him, like, why, why aren't we going bigger, better, further on this thing? Right. And he's like, you know, it just wasn't for him at that point. He liked the stability of being a firefighter and, you know, so I just basically asked if I could pick his brain. And sitting in the back of a fire truck and living together for 24 hours a day is like, know, I had a lot of time for that. So, you know, I was able to, to kind of learn from him and dive in and, and start, you know, networking and listening to podcasts and reading books and all that fun stuff, all while, like, getting this Knowledge and consuming all of this 247 it seemed like. And so when we were ready to buy our first short term rental, we knew exactly what to look for because we had all the data from him. So, so we knew what was going to provide earns. And this for us was our path out of the golden handcuffs. Which, you know, Maui firefighter is a pretty good job, but like financial, it's.
- [05:29]
Joe Jensen
Hard to get into, it's well high desired. Well, you know, it's like very competitive. It's like, yeah, you're crazy to walk away from it.
- [05:35]
Mike Neubauer
Totally.
- [05:36]
Caroline Neubauer
And then jumping back to your question about why Maui when it is a very expensive market, especially as an entry level. It was our backyard so it made sense to be able to see it, breathe it, touch it within, you know, a 20 minute radius.
- [05:54]
Joe Jensen
Well, and something that I love about it is you. Every market has its strengths and weaknesses, right. And there's obviously an inherent strength if it's your backyard because you just, you know it more intimately, it's more approachable, you have contacts, what's not. And so you guys found, well, what's going to be the best way to approach real estate in our backyard. And obviously, you know, short term rentals probably jumped out pretty simply, not knowing how simply, but as well people want to go to Maui. Right. And so, you know, if you're in some other state, it might be like, oh well, long term rentals are the go to right here. Other places like midterm, you know, and you guys have dabbled in all of it, but that it makes sense you found what's going to be the strongest approach in the area where I already live, that's such a good, you know, safe way to ease in to real estate. Since then, have you expanded into other states when you dabbled in the mid and long term or was those all in Maui as well?
- [06:53]
Mike Neubauer
No, we have actually we started diversifying. So like our strategy was always from the beginning was like how do we get to passive? Right, right. And for us it was, look, we're going to buy short term rentals because we know that that active investing is going to lead to the highest upside, the highest returns. Right. But then as we started making those returns, we were never pulling any money out of the business. So we were always reinvesting that into more short term rentals or whatnot. But the goal was always to get that from that active side of the spectrum to the passive. And so when I would say it was probably in about, what was it, 2020 that we bought? Marina. Yeah, it was 2020. We started, we bought our first out of state property and that was, you know, a single family home that we ended up midterm renting and, you know, just slowly getting more and more passive as we went. And so today everything that we have is, is pretty passive. Even our short term rentals, we've gotten to the point where we've put them into property management.
- [07:57]
Joe Jensen
Really? So you don't manage your own short term rentals anymore. Wow. So, yeah, that's something I interesting point out. You're like, short term rentals is not passive. Real estate, I mean, even long term's not passive, but short term is really.
- [08:10]
Caroline Neubauer
Not passive every couple of days.
- [08:13]
Joe Jensen
And it's funny because everybody comes to me wanting, they're like, I want to learn real estate, I want to have passive income and I just want to do like these cool short term Airbnbs. I'm like, yeah, that's not, it's not quite what you think, you know.
- [08:26]
Mike Neubauer
Yeah.
- [08:26]
Joe Jensen
So that's interesting that you actually have been able to outsource the short term rental after you kind of built your, your long term portfolio. That's awesome.
- [08:36]
Mike Neubauer
Yeah, I mean that, that's a different style of approach. Right. Like we gave up a lot of cash flow to do that.
- [08:42]
Joe Jensen
Sure.
- [08:43]
Mike Neubauer
And it's not cheap. So property management, I mean, you're looking at for short term rentals anywhere from 20 to 25% on average in, in the markets that we invest in. And that's a lot of cash flow right there.
- [08:57]
Joe Jensen
Yeah.
- [08:57]
Mike Neubauer
But we've decided that our time is more valuable than that. So for us, that was our way of getting to a better, a better success point, I suppose.
- [09:11]
Caroline Neubauer
Yeah. It was a transition stage that we always wanted to happen. So there's no great time to close a faucet that's producing. But also it was the time that we could make that move and we had reached the goals that we wanted to. So now it was next, next level. And that was the way we could still do it and still keep a couple of them.
- [09:35]
Joe Jensen
I think it's so cool that you guys are so aligned on your goal that you're willing to sacrifice for, you know, because so many people are like, they're trying to get out of the nine to five, so they get into real estate, but then they lose track of that goal of actual having freedom time, freedom and passive income. Like, because it starts to eat up their life and they start good money with real estate. It's like, wait, wait, the goal wasn't to stop firefighting So I can manage Airbnbs.
- [09:59]
Mike Neubauer
Correct.
- [10:00]
Joe Jensen
The goal was freedom, and you have to sacrifice each step. And. And it's cool that you guys are willing to make that sacrifice. I always say freedom's expensive, you know, and that's just, you know, to go buy all the properties and put all your savings into properties. Expensive. It's expensive to hire property managers, but if you don't guess what you're running, you're owning a job, not. Not being free. So it's just one step deeper, which is really cool that you are. One, that you did it, and two, that you guys are both so aligned in doing it. How has it been aligning your goals and motivations together? Has that been very just, like, natural, or was it kind of like one of you had to get sold on it and teach the other one how and why and all that?
- [10:43]
Caroline Neubauer
I think before, since he was learning so much about this for probably a good couple years, until that point, I wasn't really involved. And then once we. I think you asked me, somehow got me to. To read the Rich Dad, Poor Dad. I don't remember how that came about, but it did shift my mind on how I viewed money in general and not how I was brought up with money. And so I think once we tasted it, we knew that it was a really viable option and we could get really good at what we were doing. And then it just kind of progressed from that.
- [11:26]
Mike Neubauer
You know, one of the things that we have too, Joe, is that we really try and stay in our own lanes. So. So she's really focused on right now building a real estate brand out here to help buyers and sellers buy Maui properties, whereas I'm more focused on the investment side of things. And so, you know, taking that back step to putting things in property management, that was kind of hard for us because. Because that cash flow, letting go of that cash flow, right? So now our properties, a lot of those properties just break even. And it's kind of frustrating, too, because, you know, we. We had been running these things for eight years or whatever it is, and we know how to run them, how to get the numbers where they need to be. And we're seeing property fumbling all over the place, and we want to step in and be like, guys, come on. But at the same time, we want to just be hands off. So it's this delicate balance of, you know, letting go and letting somebody else steer the ship for a little bit.
- [12:34]
Joe Jensen
So how do you justify giving up that much cash flow and the struggle with it, you know, because it's not like you're not working, especially Caroline, you're, you're working a lot as a, as a top performing agent in Maui. You know, is, is the reason to sacrifice that just to free up your time, Mike, so you can pursue deeper investments that will be more passive or, or why justify the, the, the rent loss?
- [12:58]
Mike Neubauer
Yeah, I mean that, that's kind of what it came down to from the beginning was that we wanted to have time, freedom. And so we knew that there's, you know, there's, there's some give and take there. And so when we, you know, when we hired our first employee that, that was a virtual assistant and they can do things 80% as good as we could, but 80% done by somebody else is 100% awesome.
- [13:21]
Joe Jensen
Right.
- [13:22]
Mike Neubauer
And so like we want to make sure, like even if we're getting less Pay, we're getting 80% of our returns, that we could have somebody else is managing the whole thing. I'm not waking up in the middle of the night. I turn my phone off every day at 5pm I turn my clock off every night. Like I, I have, I mean I still get up at 4:30 in the morning, but I don't, I don't have to, I could sleep until noon if I wanted to. Right. That's what we built. We've built that. Right. So handing that off, we still have the income producing properties where it makes sense. And to be fair, like there may be a time that we pull these back from property management.
- [14:05]
Joe Jensen
That's what I was going to say. And you can always just, yeah. You know, you want some more capital, fire the property manager, running yourself for a while, pocket some money and then put them back in place when you want to just have some more freedom, you know.
- [14:17]
Caroline Neubauer
And also it's, it's, that was our goal to. There's never going to be a good time, so might as well rip off the band aid and work on the other things that we want to work on and try it out. So it's kind of where we're at.
- [14:32]
Joe Jensen
Well, I think that that idea carries over to so many things in life. It's like if you're busy on this good thing, you're going to miss out on this great thing.
- [14:41]
Caroline Neubauer
Yeah.
- [14:41]
Joe Jensen
You know, and, and, and it's hard to justify, like you say, because this is good stuff, you know, like it makes sense to spend my time here. But, but then you're like, yeah, wait, is this the end? Is this all I see for myself? And if you're not satisfied with that, then you gotta pivot, even if it kind of feels like two steps back, you know, to get three steps forward.
- [15:00]
Caroline Neubauer
Yeah, yeah. So you guys rebuilding stage, but it's worthwhile in the long run.
- [15:07]
Joe Jensen
Yeah. Well, that's insightful that you guys are able to see that. A lot of people get stuck in that middle stage and never really grow because of that. But you guys have done a lot. You guys have done the short term. You've also done long term, midterm, even development and syndications. Talk about your experience with that. And maybe you could compare them a little bit, what you like and don't like about the differences.
- [15:28]
Mike Neubauer
Yeah. So we are very young in the development game and that is something that we are doing with partners. In fact, someone your listeners probably know quite well, Brody is our partner on a deal.
- [15:40]
Joe Jensen
There you go.
- [15:41]
Mike Neubauer
And so he is running a lot of the day to day operations on the development of that particular product, which is a glamping resort that we're doing out in Virgin, Utah. And we're super, super excited with that and super. We're learning so much because there is so much that we never would have thought of with development. You know, I mean, it's been a year and a half that we've owned the property and we haven't broken ground yet. There's just so much. Right. So. So that has been a learning process for sure. With syndications that's a whole lot different because that is completely mailbox money. And you know, that's something where we have no control, we have no say.
- [16:26]
Joe Jensen
Like you're part of them, you're like investing in the syndication, not running, you're not GMing at your. Right.
- [16:33]
Mike Neubauer
Limited partners.
- [16:34]
Joe Jensen
There you go.
- [16:35]
Mike Neubauer
Yeah. So with that it's, you know, we pick an asset class and we pick a sponsor which is somebody who, you know, runs a syndication, whether it's apartment buildings or mobile home parks or self storage or whatever. And we decide to invest 100,000, 200,000, whatever it is, with that particular sponsor for a set return. And that return may be 7%, 8%, whatever, plus, you know, a payout once, once the property sells or refinances or whatever it may be. So those returns aren't usually as strong as if we were doing it ourselves. But if we have extra cash that we can put into something like that and let, you know, a legitimate big time operator run it, it's a good way to diversify and get yourself into other asset classes.
- [17:25]
Joe Jensen
Yeah, one. And talk about passive, right?
- [17:28]
Mike Neubauer
Yeah, that's as passive as it gets right.
- [17:30]
Joe Jensen
That's as passive. Yeah, you just live there and it is what it is. You know, it's, it's also less in your control. Like you can't control the exit or pull that money if you wanted to, you know, utilize it somewhere else. So you gotta like say pick and choose where you're putting your money and be aware of that. That's always what I recommend to people like, well, should I do syndications? It's like, are you okay not be able to access that money?
- [17:51]
Mike Neubauer
You know, because syndications are great for the right person and those are like, you know, if you're a doctor or you're a lawyer or you got like a high paying seven figure job, you know, you're not going to replace your income with real estate. Not very easily anyway.
- [18:07]
Joe Jensen
And not passive real estate for sure.
- [18:10]
Mike Neubauer
Right. So, so for those kinds of people, if you've got a little bit of cash sitting on the side or even in the stock market and you want to diversify that, I think that's a great way to do that. I think syndications are one of the best. We've seen great returns in the stuff that we've put our money into.
- [18:28]
Joe Jensen
Yeah. Something I really like about you, you keep saying like you're diversifying yourself and that' what I see, it's like, oh, you've got, you know, you've got the money in the, in the development stuff with Brody, you know, doing this like glamping resort, like that's a cool thing to pursue and who knows how long that'll take and what the returns will be. But higher upside and more potential risk, maybe more unknowns. Then you've got this indication where it's just like pretty turnkey for you. Super passive. Don't have any control over an exit or accessing the capital. But you've got your property like say where you could hire a manager or you could fire a manager and you could refinance or you could, could pull a HELOC or you could sell it like you have all the freedom of, you know, traditional real estate investing. I mean I call it traditional. That's what I think of, but I think of investing and it's like, but that's the cool thing is you're dabbling in all of it and so you kind of get the upside of all of it and the downside of all of it and really does even things out. And it's cool to be able to have that, that foresight to be able to kind of expand, you know what you do instead of just doing one thing and kind of missing out on some of the upside of other stuff. Yeah, that's super cool. So what do you guys see next then? Like, what. What excites you right now about real estate investing? Because I know for me, like, after you've done a certain thing for a while, you kind of get, like, bored of it. It becomes almost turnkey. Something that, when you first did, was, like, mind blowing. You couldn't stop talking about it. So excited, like, yeah, bought another little house. Bought another little house. Like, it's not, like, as exciting. It's still beneficial and great. And, you know, the compounding effect of doing that consistently. But what, like, kind of makes you nervous or excited or is, like, getting your brain reeling to, like, learn more about.
- [20:08]
Caroline Neubauer
Well, we have a piece of land, so we do want to do a lifestyle build. And I preface it with that because it will. I call it our money pit. That's going to bleed us of money. And so that's a beautiful thing, but it's also something that's not as priority, but we do want to make it happen. So building a property, designing. We've gone through architecture plans and surveys, and we just. That's a whole nother ballpark for us.
- [20:42]
Mike Neubauer
Totally.
- [20:43]
Caroline Neubauer
Because we're learning a lot and spending, you know, 10 to 20K in surveys alone. And so we're learning a lot about that other than, you know, rehabbing a house or a condo.
- [20:55]
Mike Neubauer
You know, I think, Joe, in addition to that, because that is something that we're excited about is development, for sure. There's a lot of things within the real estate world that excite me, and I think that there's a lot of really interesting asset classes that are speaking to me. Like, I was having a conversation with a friend of mine the other day about assisted living and senior care facilities. Care facilities. I love that space. It's really hard. But there's also big profit to be made in there. And I think one of the other things, and you know this as well as anyone, is that real estate investing is about networking. And when you network, when you go to conferences or meetups or, you know, just listening to podcasts or whatever, connecting with people on Instagram. Right. Like, those kinds of things sometimes lead to amazing opportunities. And so right now we are open to opportunities, and we're excited about the ones that we've seen come down the road.
- [22:06]
Joe Jensen
That's cool. So are you guys actually looking into doing any of the assisted living stuff? Just kind of an idea right now?
- [22:12]
Mike Neubauer
We're in talks, you know, it's a tricky one because we need somebody to manage it. I don't want to manage it. No way.
- [22:19]
Joe Jensen
Right.
- [22:21]
Mike Neubauer
But yes, I would help with the, with the finances of IT and the systems of IT and get it up and running. My thing is, Joe, I like the building of brands and the building of assets and adding that value. But once it's stabilized, it doesn't excite me anymore and I want to hand it off and move on to the next. Does that make sense?
- [22:43]
Joe Jensen
Yeah, it does. You know, I think you see that in a lot of like kind of these visionary people, like they just have this dream they want to go, do they want to build? And then it's funny because some people are like, I want it just stabilized and like enjoy it like that. Isn't that the whole purpose? Yeah, but you have a different itch.
- [22:58]
Mike Neubauer
You know, I want someone else to, to run the stabilized product.
- [23:03]
Joe Jensen
Yeah, no, I love that. And, and that's what's cool about it. And whether it's having a long term property manager or short term property manager, someone running a, you know, assisted living, like you need to have somebody to manage whatever asset class it is. And so it's like once you start to see it all as one, you're like, oh well, it could be this or it could be that. Like it doesn't, you don't have to limit yourself to just one type, you know, like the, you know, there's so many options out there. Yeah, that's awesome. So you guys have done quite a bit of stuff. You, you say your strategy would be buying cash flowing assets in appreciating markets and move from active investment to into passive and invest in lifestyle. I want to talk a little bit more about that last part is investing in lifestyle. And you mentioned a little bit, Caroline, like a lifestyle purchase. Tell, tell me how that can be an investment and not just an expense or a liability. Is buying a home an investment if you're going to live in it? Tell me about the money pit and how you guys view it all in the long term picture as lifestyle investing.
- [24:11]
Caroline Neubauer
Yeah, I mean on paper and the analyzer calendar, it wouldn't pencil but for us like the mental, the type of lifestyle that we want to build, we can see that as a place that would provide that and check those boxes. So is it something that we need to move on right now? No, but it's also something that we can see. Like we never take money out of the business. We always reinvest and we're always Purchasing something else. And at one point it was minimum every six months. And so right now it's kind of like, it's nice to be able to enjoy some of those benefits, reap the rewards of those years of hard work, and this property could really fit those bills.
- [25:02]
Mike Neubauer
So I think to tag onto that, when we talk about lifestyle investing, we. One of the things we look for is in a property. Obviously location is our most important thing, right? That's the old adage in real estate, location, location, location. But for us, when we look at location, we ask ourselves, would we move into it? Right? So is it a location that we want to live in? And then is the asset something that we would move into? So when I told you about the house that we bought sight unseen in 2020, that is a house in Phoenix, Arizona. Now, we had never been to Phoenix, Arizona, but what we decided was, okay, look, properties rent for a lot of money in Phoenix and they don't cost a lot of money. So if we were going to move to Phoenix, where would we want to live? So we did some research, right? So all we knew about Phoenix was that it's hot, it's a desert. So do they have water in the desert? Oh, well, look, there's all these little lakefront communities that are like man made lakes. Oh, that's cool. I'd want to be a. A lake. Okay, well, I'd also want something safe for my family. All right, let's find some gated communities. Okay. There's a few of these with gated communities. And then we kind of dove further and we kind of got a feel of like, well, these are kind of white collar areas. These are kind of more the blue collar areas. Well, okay, I'd want to be in a white collar area. So we found a house in a gated community that sits on a lake with a boat dock in the backyard, bought it sight unseen. And that house produces almost $3,500 a month in cash flow for us today. Now, we've been out there. That house is incredible. We've got a ton of value in it. We've done a little bit of rehab to it. It's probably one of our best producing assets. So when we talk about lifestyle play, I don't want to live in Arizona, but if I did, that is where I would want to live. I know a lot of the people in real estate investing school are from Utah. I love St. George. Where do I love in St. George? I love Ivan's. Okay, so now I want a house in Ivins with The view of the Red Mountain. Right. So these are things that I look at. We're talking about our development project. Well, that house is in Coeur d' Alene, Idaho. And if you've been up to Coeur d' Alene, it's a beautiful place. But what do I want? Well, I want something on the lake or lake view. I want pine trees or, you know, whatever. That's what we got. We got acreage on the lake. So, you know, we're looking at lifestyle as a, as a, as a buy.
- [27:31]
Caroline Neubauer
Box, but also exit strategy. Because if we were to just purchase properties that are 50 to 150k, most likely worst case scenario, we wouldn't want to move into them and we wouldn't really be able to sell them for much more if, if that. And so these are also just different ways to. When we're analyzing what are our worst case scenario exit strategies or do we have to move into it? Would we want to move into it? So, yeah, not for everyone, but that's been our kind of.
- [28:02]
Mike Neubauer
So the way that we look at that too is like, look, if this is something that is exciting to us, it's probably going to be exciting to somebody else too, right. And so that's where appreciation comes into play. And those types of properties tend to appreciate a little bit better than something maybe in the Midwest. Right. And I'm not going to knock anything in the Midwest because cash flow is certainly important too, and you get a lot of that out there. But it's just not the strategy that we follow. We followed more of the appreciating markets and the locations within those appreciating markets.
- [28:35]
Joe Jensen
Yeah. Two thoughts on that. Like, one, it's. I think it's so interesting when you buy something that has like, almost like intrinsic value because it's limited. Right. Like it's on the beach, it's on the lake, it's. It's scarce. You know, a cheap home in the plains of Nebraska. It's like they could just go down the street and build another one. It's the same thing, right? But they can't. There's only so much lakefront. There's only so much of the good stuff that's approachable, which drives that appreciation, you know, which is cool. So you can find something that's unique and has that specialty to it, which are usually the more desirable stuff, you know, like, see, you're gonna have, you know, even if you might not have as many buyers, you get the right buyers and they'll pay whatever, because that's what they actually want. Yeah, you know, we get in that like higher end luxury stuff. Even if you get real extreme, if you get real, real big, it's like, like, you know, crazy expensive. Like the right person doesn't care how much it costs, you know what I mean? But saying all that, how do you make the numbers work? Because I think that's what most people want when they get into real estate. I want to own everything. You just described the coolest thing, the nicest thing, the stuff I'd want. And then what a lot of people find is oh, there's no way to make money on that. Right. And I can't hold my breath for 10 years until it goes up in value. So I'm going to go buy the duplex in the Midwest so I can actually have it pay for itself and be self sustaining and not drain me every month, but actually add to me. How did you guys find it where you're cash flowing thousands of dollars and you got the A class asset you would love to be in?
- [30:06]
Mike Neubauer
Yeah, that's a really good question. And so the answer is kind of three pronged, right? So one is time. And time solves all problems with real estate. The longer you hold on to something, the more valuable it tends to get, especially if you're in an appreciating market. And, and if that's the case, rents tend to go up too. So now your cash flow goes up. Two is, is equity. Our properties we're not buying, we're not using the Pace Morbi strategy. We're not buying with $0 down. We put a lot of equity down into our property properties. We're pretty risk adverse. So we own properties with a little bit of debt and a lot of equity a lot of time and that's not easy to do, but that's something that we've been able to build up to and so we could grow much, much faster if we decided to just kind of try and leverage everything. But instead like we'll have properties that have 50% debt. And, and because of that, that's when it cash flows. Like, you know I mentioned that I'm looking in Ivan's.
- [31:17]
Caroline Neubauer
Well cool.
- [31:18]
Mike Neubauer
Ivan's is great. I would love something to cash flow there. But rents are terrible. The properties are expensive in Ivan. So I would have to put down at least 50% to break even now. Would I do that? Maybe, if it, if it fits in with our investment strategy at the time. But, but that may be like a newer property that we plan on holding for 10, 15 years. And over that amount of time, the rents are going to go up where. To a point where it's going to make sense and the value of the property will go up too. Right. So it's just a different type of strategy. It's one that we don't, we don't have a ton of leverage because we, we keep a lot of equity in.
- [32:07]
Caroline Neubauer
Our properties and we're not trying to race to have as many doors because we are buying more expensive assets.
- [32:15]
Joe Jensen
Yeah, no, that's cool. So two thoughts of that. One, you probably couldn't have done this when you started. I'm assuming you built up to this. And then two, like, yeah, how do you fund these? You know, it's like, yeah, it'd be nice to be able to put, you know, half down on these beautiful homes. And you know, you, like I said, it sounds like you've built up to that is kind of like probably how you funded it. But.
- [32:36]
Caroline Neubauer
Yeah.
- [32:37]
Joe Jensen
But maybe just kind of speak to that a little bit.
- [32:40]
Mike Neubauer
Yeah.
- [32:41]
Caroline Neubauer
So you can give an example of our very first short term rental.
- [32:45]
Mike Neubauer
Sure.
- [32:45]
Caroline Neubauer
That may have either continued us on the path or stopped us on our path with real estate. And coming full circle with that one. We just recently sold that and we 1031 it, it had gone up in.
- [33:01]
Mike Neubauer
But let's give some exact numbers on that.
- [33:02]
Caroline Neubauer
Yeah, you run the crunch numbers.
- [33:04]
Mike Neubauer
We bought a short term rental, a single, no, two bedroom, two bath condo out here in Maui, Hawaii. This was our first short term rental property. We did a cash out refi on our house and we bought that property in cash. We paid 500,540 or something like that for the property. Okay. And this Was what year? 2018. Okay. So we had already built an ohana and adu onto our house here. And so we were getting cash flow from that. So we were saving some of that cash. We, we sold out of some stocks and other investments that we had had. We had been pretty frugal up until this point, but we put all our eggs into that short term rental and we bought it in cash because we weren't able to get a loan on it. So that was 540,000. Now we just sold that property. We put about another 45 into it. So let's say we're all in 5:75 or something somewhere in that range. We just recently sold that property for 1.365 million. Now that's a pretty good return. And that's not a return that is typical in Midwest markets, but it is typical. Not typical. It's not typical anywhere, but in an area like this where you kind of have possible.
- [34:32]
Joe Jensen
In areas like it's not even possible, if you go buy a $50,000 house, it will never be worth 1.3 million, you know.
- [34:40]
Mike Neubauer
Right. And so we were seeing great returns on that as a short term rental. But we also saw the writing on the wall when it comes to insurance and property taxes and all that stuff kind of coming up, we're seeing a compression in returns. So we decided to sell out of that property. We did. We actually did a Re 1031 exchange on that where we bought a property, another one in Arizona, another one in a gated community, another one on a lake. This is a custom home that was built in like 1991 or something like that, or 93, I don't know. But it was beautiful house, very dated. So we took that, we took a million dollars, we bought this house for a million dollars and then we spent another $400,000 renovating this house. And it is cherry. But we paid for that in cash from the sale of this property. Now our intention is to hold it in cash until. And it's being short term rented right now.
- [35:43]
Joe Jensen
And Arizona property. Right.
- [35:45]
Mike Neubauer
This is another Arizona property. So we have one as a midterm, we have this one as a short term and it's in property management and it's probably valued at about 1.6 maybe. So we don't have a ton of forced equity into it because we spent so much on it. But it's a pretty amazing property.
- [36:04]
Joe Jensen
But I found that thing is. I don't mean to interrupt you say, oh, we don't have a ton relative. But you've got like 200,000.
- [36:10]
Mike Neubauer
Yeah. Or 200,000.
- [36:11]
Joe Jensen
You know, it's like. But in reality, like that's hundreds of thousands of dollars. And that's what's cool about paying this big. Is that little bit of an increase or a little bit of equity is a lot, you know, in reality, which is so cool.
- [36:27]
Mike Neubauer
That is true. That is true. So our thought with that was we hold this, let it cash flow, kind of get a year's worth of data on it and then see what makes sense. Like can we refinance and pull out 50%? Will it still. Will it still cash flow if we do that? And then we put that into our Coeur d' Alene build or something else. Right. So we're just moving money around to other assets or the Ivan's house. Right. Like whatever it may be, we can do that with. Or if interest rates come Down. Okay, now it's time. Let's refinance out a whole bunch more because it makes more sense. So you know, it's just, it's really like the velocity of money and where does it work best for us with regards to our risk portfolio?
- [37:17]
Joe Jensen
Well, and that's interesting that you found a balance between like say the velocity of it, like keeping it rolling, but also of being as safe as you want to be, having that ratio that you feel comfortable with. You know, some people it's 100%, some people it's 90, some people it's 50, some people it's zero. You know, my dad's old school, he just literally works for 20 years, pays a house off, buys it, works for 20 years, buys a house in cash. You know, that's a long way to only end up with a couple properties, but that's what he's comfortable with, you know, and so it's like you got to look at your goals. And the one thing I think that's really placed your guys advantage is you're not afraid to play big. You know what I mean? A multiple six figure rehab is, is no joke. You know what I mean? Yeah. How do you feel confident enough in your numbers and in your valuations and your strategy to throw, you know, a million dollars cash and 400,000? You know, these are big numbers for most people, but it does, I assume you feel pretty confident in, in doing it. You're not just doing it blindly, willingly.
- [38:21]
Caroline Neubauer
Part of that we're probably jaded because we're in an expensive market. So when we see homes for 500k or 800k, we're like, wow, it has a backyard. What a deal. You know, I think we are used to seeing different numbers and then also of course with the, the knowledge of neighborhood and data that we've, we've gathered or research that he's done on a market, those just kind of go hand in hand. And the numbers don't scare us, they're just metrics.
- [38:50]
Mike Neubauer
So. Yeah, and that is a good point. Like the house that we're sitting in right now is probably valued at 1.5 million. And that sounds like a lot of money, but this is an affordable housing community that we live in in Maui, right? So like it's just a different perspective. There's nothing under a million dollars on this island. And so when we see a million dollar house In Arizona, that's 10 times the house that we're sitting in right now, like, wow, what a deal. But to, you know, to get to your Point on that, Joe, is like, we are, I'm very much in tune with different markets, a handful of them, and I really try and focus in on if something hits that buy box. So there are two areas of Arizona that I buy in, two communities. Right. And all in, all in, there's probably 300, 400 homes that match the criteria that I would want in those markets. And you know, we don't know because there's no data for these things. So is it going to make sense? Is it going to cash flow? I don't really know. Is it worth putting $400,000 in? I don't really know because it's. We just don't have the, the numbers. We have the numbers from the first one that we bought and we have great cash flow on that. We have a 3% loan on that one and that one we are, we are pretty leveraged on. But the returns are incredible. So, yeah, you know, we didn't know if we would catch lightning in a bottle twice or not. But it was worth a shot. Right. And so why not play a little bit bigger? So this house is a little bit nicer, you know, a lot of it nicer actually in a great community. And if it didn't work out, well, we can always pivot. We can sell it, we can long term rent it. Like when you're playing with house money, which is kind of like the house, we own it in cash, right? So like $100 a month is cash flowing to us, you know, like we're not, we're not renting it for 100 bucks a month. But you know what I mean, Right. Like if we're getting seven to $10,000 a month and we're, our holding costs are on that house, I think around 2000, that's a pretty good return. So we can play around. And if it's, if we're not getting 7 to 10,000 and we're getting 5,000, that's still cash flow. Right.
- [41:24]
Joe Jensen
You're not like going under, you know.
- [41:26]
Mike Neubauer
Not going under with it. So we can, but at, we've gotten to the point where we can try some things and you know, I've read an interesting article maybe about a year ago about properties that are more expensive, more of the luxury market properties. So this was, and this is a couple years old, so take it with a grain of salt. And I don't know if it's true or if it's just true in certain markets. I think the market that this was relating to was Las Vegas. But the article researched Homes that were sold on Redfin that were over a million dollars. And of those, and then it compared them to homes that were less than a million dollars. And of the homes that sold, the ones that sold for over a million dollars appreciated over the previous five years at a much higher rate than homes that were less than a million dollars. So I don't know if there's anything to that or not, but there may also be benefit in investing in luxury markets to some degree.
- [42:26]
Joe Jensen
That's interesting, you know, because you think like, oh, if it, you know, if $100,000 home goes up 20%, like it's $120,000 million dollars, one goes up, you know, 1.2 million. But, but if it's even going up more at an accelerated pace compared. And you know, I'm sure it's like you said, market specific for sure, you know, but I think there's a lot of power in the, in the bigger stuff. And you know, that's what I think is cool about what you guys have done. And one thing that I was like you were talking about, if you're wrong, right, you're like, oh, I don't know what this is going to cash flow. What if some of these numbers are wrong? What you're not wrong about though is you know for sure you have a quality asset, a beautiful home in a unique spot. There's so much value in it that if your numbers or assumptions are off, you're not dead in the water because you still are going to be winning because you own something amazing. You know, if you go buy a $2 million value add multi unit in the butthole of Midwest somewhere, that could be a huge moneymaker cash flow king. But what if it's not? What if you're wrong and then you're stuck with a lemon that no one wants to touch? And that's the difference. Whatever happens, you're not stuck with a lemon, you're stuck with something amazing. Even if you the cash and cash return isn't gold and even if the numbers aren't as lucrative as you would like and it could have been easier to put in the, you know, market or whatever, you still have something dope. And you know that. And that's kind of your safety net. It seems like.
- [43:59]
Mike Neubauer
Yeah, that's kind of been our secret sauce is like just asking ourselves, would we move into it?
- [44:05]
Joe Jensen
I love that.
- [44:06]
Mike Neubauer
What would it look like if we did move into it? So, you know, we rent our places furnished and if they're vacant for a week, for something or two weeks, Or a month. Well, why don't we go move into it for a week? Or a month? Because it's a pretty awesome property.
- [44:20]
Joe Jensen
That's really cool, guys. I love this. We could talk about this forever. I do want to get to some of our final four questions and, and get some of your thoughts there. But if people want to follow you, you know, and, and see what you guys are doing as a family, you know, you've got some really good branding. Like our family invests. I love that. It's not just, I don't know, it's kind of special. I love seeing you, and I've met your whole family and your kid, and it's cool what you guys do, but what do people do to be able to follow you and tag along? Like, I get to.
- [44:49]
Mike Neubauer
Sure. Our family invest is something that we kind of started working on last year, and that's, you know, the point of last year. Our big goal was to get everything to passive. And so when we got everything to passive, we realized, like, we want to be more like Joe Jensen. How do we get to be more like Joe Jensen? So we started a podcast, and it's brand new. We haven't even released anything yet, but we've interviewed maybe eight to 10 people, and it's based on us as a couple interviewing other entrepreneurial couples that we find successful, but also who keep family centered in their lives. And so our family invests on Instagram is probably the best. And then Caroline as a realtor.
- [45:39]
Caroline Neubauer
Yeah. So at Ladyaloha R E I. Yep.
- [45:43]
Mike Neubauer
So, yeah, I love it, you guys.
- [45:46]
Joe Jensen
Yeah, I, I, you know, we talked about me being on the podcast, and you told me I need to go get a girlfriend at least. So, you know, maybe someday I'll get there. But I like that your niche is in interviewing couples. That's fun, you know, and it is different, you know, and everybody has their own pros and cons of, of investing together with a partner, especially an intimate partner like that, you know? So I'm excited for the release of your guys's show and to hear the discussions you guys are having with. With other power couples like yourselves. So that's super cool.
- [46:16]
Mike Neubauer
Thanks, man. Thank you.
- [46:18]
Joe Jensen
All right, you guys can answer these questions as a team, or you can each have your own individual answer for one or all of them, whatever you guys want to do. So if you could send out a text message to the world, everybody's going to get their phone blown up from you guys. What's that text message going to say?
- [46:39]
Mike Neubauer
You want to go first?
- [46:40]
Caroline Neubauer
No, I want you to answer it.
- [46:42]
Mike Neubauer
Pressure is on. That's a good question. I think it would be something inspiring. It would probably be a lyric to some Michael Franti song or something like that. It's a good day for a good day or, you know, whatever it may be, Life is better together or, you know, something like that.
- [47:03]
Joe Jensen
I like that. You want to add on to that, Caroline? Is that good?
- [47:06]
Caroline Neubauer
Yeah. I mean we often refer to life is better with you just like that acknowledgement of the people in your life. You never know what people are going through. And that is kind of one of those premises with our family invests is like invest in your growth, not only in your bank account. And so that's kind of. I think that would be aligned with that message.
- [47:29]
Mike Neubauer
I'm grateful for you. I think that would be a good text. I'm grateful for you.
- [47:34]
Joe Jensen
I would like to get that text from you, Mike. That'd be great. I love it. All right, so question number two. What's one of the most expensive or interesting mistakes that you've made in real estate investing?
- [47:52]
Caroline Neubauer
Probably the Coeur d' Alene piece of land.
- [47:55]
Mike Neubauer
That's not a mistake.
- [47:56]
Caroline Neubauer
That's not a mistake.
- [47:59]
Mike Neubauer
Two, two. One. Probably. Oh, we, we bought a condo. You know, we, we bought this condo. It was. Had a ton of potential short term rental on the beach on Maui. We bought it from an estate sale and it was tenant occupied for like 30 years. And so we, we didn't really know what was in and what wasn't. And so when we opened the doors and got this guy out and, and then started opening up walls, we realized real quickly that this place was put together with duct tape and, and super glue.
- [48:35]
Caroline Neubauer
And two people passed the beneficiaries during our process.
- [48:39]
Mike Neubauer
So it turned out to be like.
- [48:41]
Joe Jensen
Like passed away like the beneficiaries. So like someone dies leaving it in an estate and then the benefic prison that passed, they pass away as well.
- [48:50]
Mike Neubauer
Yes, yes, it was a long, long closing. But what we ended up getting it. We opened up the walls and it had like this chiller system in there for the ac. And it was one of these units where it's pretty rare, but it was, it had central AC throughout the entire building. And so each unit had its own little chiller box or something. I don't even know what it is, but it was so old that you couldn't get parts for it or anything like that. And it of course didn't work. So in order to replace it, we had to get a whole new System fabricated out of Florida, shipped over to Maui.
- [49:26]
Joe Jensen
I think I remember this. I remember we do these conference calls and you were like working on this place and trying to figure out this AC situational.
- [49:37]
Caroline Neubauer
They're not passive.
- [49:38]
Mike Neubauer
Yeah. So, you know, we ended up figuring out a way to make this thing work. And we got it to the point where it turned out to be a beautiful unit. But we knew right away after opening up the walls that this was not. The quality was not there behind the walls. And we knew that there were going to be issues down the road with it. So we, our intention changed from long term hold to 1031 as soon as possible. And so we decided to put it into short term rental. And we did that. We made a little bit of cash flow on it. And then we ended up 1031 ing this on the day of the Maui fires. Actually, we closed on.
- [50:20]
Caroline Neubauer
Oh my gosh, it was closing.
- [50:23]
Mike Neubauer
And we, we ended up 1031 ing that into the deal with Brody. So. So hopefully this will all work out. Well, this is not the worst biggest failure. Hopefully. That's up to Brody, I suppose. I think this could be, you know, actually one of the best investments for us in the long run. It went. It'll go from a potential failure to a potential huge win.
- [50:48]
Joe Jensen
So did you sell it for more than you bought it for? Was there like actual profit there?
- [50:53]
Mike Neubauer
We made profit in it. At the end of the day, we, we did make profit in. Because we added so much value to it. Right? It was. And we bought it. Right. So we bought it well under market value, was off market, did a full gut job. You know, I did most of the handyman work myself in, in the renovations. And then we sold it at the right time too. So we did. We did. I think we made about 200,000 dol off of it, but nice loss, guys. Yeah. Yeah.
- [51:22]
Joe Jensen
Our biggest mistake was making 200,000 on this flip. But it was a surprising headache a.
- [51:29]
Mike Neubauer
Lot in the process.
- [51:30]
Caroline Neubauer
Remember the, the journey on that one? And it was a headache.
- [51:34]
Mike Neubauer
It was a headache for sure. But you know, I mean, honestly, a project like that was. It'll look back, it'll. It'll look really well. But, but you know, we put a lot of money into this thing too. And we had a failed 1031 exchange because we. For a lot of different reasons. So we'll have to pay, you know, we had to pay taxes on that. And so there. We didn't end up clearing 200,000 off of that at the end of the day. It was much, much Much less than that. And, and now we've got, you know, the holding costs with, with the development and all that goes into that. So at this point, it, it's, it's. We've lost money on it, but in the long run, sure, just fine.
- [52:17]
Joe Jensen
Well, and that's what's so interesting about this question. I ask everybody that question. I've gotten lots of answers, and it surprised me how often the answer is like, oh, this whole story. Like, you did all these headaches and surprises and nightmares and deaths and deaths and. And money. And like. And then I'm like. And at the end of the day, they made money. You know what I mean? And I'm like, that's so cool. With real estate, like, the loss at the end of the day, it's like, like still, you know, you still. And especially if you find a way to hold on long term. Like, say you're like, oh, the Idaho one's really expensive, you know. Caroline, you're like, man, that Idaho ones cost a lot of money. Yeah, but the game's not over, right? It's like, we're just getting going on that baby. And so it's like, it's cool that it's like if you can hold on long enough, almost everything's a win, you know? The only real losses I've seen are people. The, the answer is like, they got screwed by a contractor, which, if you look at the big picture, I bet they still made money even with the loss of that contractor on the deal. If you look at the big picture or, you know, they. The only ones I seen real, real loss was a bad timed flip that went way over budget. Sure. Other than that, it's like the losses end up being wins, which is so cool, you know what I mean? In the education and it leads to this next thing in this network, you know, like, I had a deal that was kind of crappy, but then it led me to meet this guy and then he gave me a better deal. It was actually really, really good. So if I combine those. Those, the numbers are actually great, you know, and it's like, it's so interesting. That's one thing I love about real estate investing. So. Okay. Okay, last question then. What is a one word or short phrase to encapsulate why you love real estate investing so much?
- [53:54]
Caroline Neubauer
I would say our word of the year. Elevate.
- [53:57]
Mike Neubauer
Yeah, it's. I mean, it's just opened so many doors and I guess, no pun intended. Right. Like, we have met so many amazing people through this journey, and I know that there's so many amazing people that we still have yet to meet. And, yeah, I think elevate is a good word to put into it. That's what it does for us. It helps us to elevate.
- [54:23]
Joe Jensen
I love it, you guys. Yeah. I mean, that's how we've connected, and I've enjoyed our friendship over the years and seeing your journey. And it's real estate, you know, really does open so many doors in so many ways, and it can elevate your life. I love that. That's beautiful, you guys. Thank you so much for carving out the time. Be out at the beach in the sun. You're sitting here talking to me, so I appreciate it.
- [54:44]
Caroline Neubauer
Thank you for having us.
- [54:45]
Mike Neubauer
Appreciate you, man.
- [54:47]
Joe Jensen
Absolutely. This is Joe Jensen signing off for the Real Estate Investing School podcast, reminding you to think bigger.