The Future of Real Estate: Tenant in Common Deals, ADUs & Middle Housing w/ Mike Nuss

Mike DeHaan: [0:00] Real quick, guys. If you want to take your real estate investing business from 6 to 7 figures in the next twelve months, and you wanna do without being a slave to your business, then you have to check out our scale community. You can get the full details at collectingkeys.com/scale. But very basically, it is a community of like minded investors who are working to become the absolute top tier investors in their market. Along with three coaching calls per week led by Dan and myself, we also have a whole bunch of videos and materials that go into all the different SOPs that we use to run our business on a daily basis. This includes how we manage our sales team, how we hire, how we do our marketing systems, how we get the best assignment fees possible, how we do renovations, how we do all the different kinds of creative financing. And if you are serious about taking your real estate business to the next level, it is absolutely something that you should check out. So go to collectingkeys.com/scale, see all the details, and see if you're

Mike Nuss: [0:57] a good fit. We're gonna form a partnership. I don't know how we're gonna do it. We're gonna form a partnership. You're gonna own some. I'm gonna own some. Here's what I want out of it. It's a really good deal. I want you to bring my ownership to it. So you're going to pay for my ownership. We're going to figure out how to get that done. And I'm going to manage it with my property management company. So I'm using this to build my portfolio to build my property management company.

Mike DeHaan: [1:25] What is going on, guys? On today's episode of the Collecting Keys Real Estate Investing podcast, we have Mike Nuss, who is a really, really impressive investor out of the Portland area. And just a little heads up, this episode does get in the weeds. He is a super, super high level operator and we talk about all these different deal structures that he is currently setting up over there on the West Side Of The United States. And honestly, we went into things that I have never heard of before, like at all. We get into these different tenant and common kind of deals that he's using to structure these partnerships. We get into all these different like land bank and development opportunities he's putting together. And you'll pick it up very quickly, but Mike is an absolute professional when it comes to the real estate game. Like he has literally been doing it since he was out of high school. 100% of the money he has ever made in his life has come from real estate, which is a pretty crazy statistic. And overall, he's just a super, super knowledgeable guy and a very helpful operator. So this is one that you definitely want to be taking some notes. And also, if you have any questions, don't be afraid to reach out to Mike after the show. He lists his Facebook, which is what he's most active on at the end the show. And then also too, he has a podcast and Instagram that you can hit him up there.

Mike DeHaan: [2:35] And just like ask him for some clarifications. Ask him how you can apply the knowledge that he shares this episode in your own business because there is a lot and he is a very, very smart dude. So anyways guys, really, really appreciate you all listening and I hope you enjoy this show with Mike Nuss. Alright guys, we are here today with Mike Nuss out of Portland, Oregon. And I'm super excited for this show because in the little pre show formalities, you were telling us about a real estate strategy that I've honestly never heard of before like at all. Like I've never even like heard it talked about at another show. Me neither. Maybe I'm just out of the loop these days or what. So we're gonna be diving into that here shortly. But Mike, to start off, for people who've never heard about you before, give us a little bit of a rundown about what exactly your business looks like right now and what you kinda specialize

Mike Nuss: [3:24] Yeah. So quickly, I've been in real estate since high school. So I got into real estate immediately through real estate appraisal. I've got a real estate background, or a real estate appraisal background. And so I kinda use that in I leverage that into my real estate investing strategy. So I love acquisition. I'm a deal junkie. I understand highest and best use better than most people because of the appraisal background. Oh, okay. And zoning code. And so then I leverage my skills as a real estate appraiser to then create a little bit more equity than most people would through the development play. And then I absolutely love economics. I learned a hard lesson in economics in 2008, 2009. Learned a hard lesson as an appraiser about businesses and starting businesses and pipelines with clients. And that's what got me on the economic road and the investing world. And I really love finance. And so you combine highest and best use with the development, with the finance brain, understanding how tenants think, property managers think, realtors think, sellers think, which again is just leveraging an appraisal skill set, which is we all have our own perception, but understanding everybody else's perspective and how that then creates their decision making process in a transaction is how you establish market value for something. And so then if you can take that same skill set and then leverage that into owning a business and acquiring real estate and selling real estate, developing real estate, renting real estate, finance discussions, partnership discussions, it kind of all just blends together. So that's kind of my special special sauce. So where I'm at today, we've got a decent sized rental portfolio, property management company that manages all that in house.

Mike Nuss: [5:02] And we do have some clients. I went the route of building the client side of the property management company, which became a big distraction. So we sold that off. Trying to rebuild that in a better route now. I have a brokerage. The brokerage is more investors that have licenses. So it's more of just coaching. It's fun, collaborative coaching, like a weekly coaching call. We don't actually offer services. But that's fun to just talk shop and keep expenses in house and collaboration going. And then I'm developing a large condo pipeline. So on the development side, middle housing, it's a big thing in the Northwest. Minnesota so Portland, Oregon Oregon's a big leader in it. Minnesota's a leader in it, obviously Seattle, then cities like Austin, where we're taking single family zones, building ADUs, duplexes, triplexes, fourplexes, and cottage clusters. And then that's not enough scale to build to rent model, but it's enough scale for a good build to sell model. So that's kind of what I do in the real. And then I flip houses as well. So the way I kind of look at it is you need to make money to buy real estate, or you need to create equity to buy real estate. And so you either do that inside of real estate and then use the equity you create in real estate to buy real estate, or you create that equity through savings or income through another job, and then you use that to buy real estate. And so my chosen path is real estate to create equity.

Mike Nuss: [6:23] And then I use that to leverage and build a real estate portfolio. And the way I kind of define that is forced appreciation. Most of everything I buy is forced appreciation. Whether I sell it at the end or whether I rent it at the end comes down to what's the finance strategy, where are the pool the buckets of capital coming from. Where's my portfolio? Where are the other businesses at? And then it says, Okay, well, is it going into our development pipeline? Is it going to go into the buy and hold pipeline? And so what I look at is our acquisitions company is like the tip of the spear. And then our portfolio, our balance sheet, and our service companies are like kind of that staff to keep it in the air. So I love acquisitions, that's kind of what I do. And then I just peel off as many of those as I can as rentals.

Mike DeHaan: [7:06] Man, that's awesome. You're like a true real estate professional. You have done everything it sounds like. So I guess like to manage all that, you have a lot going on. What does your team currently look like?

Mike Nuss: [7:16] Dude, I'm so proud of my team. We at one point were up to 12 employees. Okay. And it was chaos. It didn't work well. We're scaled down to four. So we got four employees, one in acquisitions, three in property management. Okay. So the acquisitions is also our principal broker. So essentially, I'm the coach and the brokerage. Our acquisitions manager is the principal broker, and so that kinda kinda handles itself part time. But acquisition guy manages acquisitions. My integrator, he does project management and then kind of integrates all the other companies. And then property management, I've got a portfolio manager, a maintenance guy, we're hiring an assistant right now. So pretty lean team at this point Yeah. Which has helped us to kinda get back in a better cash flow state, more profitable, and and ready to start kicking in some more butt.

Dan Austin: [8:01] Yeah. Right. So on that acquisition side of things, I just wanna understand, like, does that look like? I mean, how is that acquisition manager for you, the pipeline, how

Mike DeHaan: [8:09] are they developing that pipeline? Where where do those leads come from? Yeah. So I look at

Mike Nuss: [8:13] the best analogy I like is a bicycle wheel with all the spokes, right? So you need to have a strategy for every spoke. Mhmm. The market conditions, as that wheel goes around, market conditions change, and some of those spokes are faster here. Some of them become weaker, and some of them you pull them out. Some of them you add into. And so as your deal volume changes, you just review where is that deal volume coming from. Then you double down and you and and you kind of play it like and I look at work life balance like this is where it's like a guitar and have different strings, and some of them you quote, you you strum, some of them you don't. Some of them you strum harder and longer, and some of them you don't. And so you create this ecosystem of different leads coming in from different ways. And then the beauty of like duration, you know, I've been in this for twenty seven years now, in the development side for twelve. And so every year we get a couple of repeat sellers, Every year, get a couple repeat pocket listings from agents we work with. Every year, we get a couple more, like, new people getting in that will, you know, give us an overflow deal. The duration gives you this baseline level of deals you're going to do. And then you do your marketing.

Mike Nuss: [9:17] We've got a cold caller campaign. We've got a direct mail campaign. We do drive for dollars. We kind of have our fishing net version and our spear gun version. And we just put all those to use all at the same time. And then what my job is to manage all that is to raise capital, do all the financing side, and then match the buckets of capital to the different types of projects. And and, like, for me, rental portfolio is really boring. I like collecting keys. I love the name of your podcast because the collection part's awesome. Yeah. The the owning part sucks. And so I always wanted to deal with all

Mike DeHaan: [9:51] of you. Just like the thought process. I, you

Mike Nuss: [9:53] know, Brandon Turner had this tweet the other day. He's like, here's what you do at Slippi, and everyone does the same thing, and they are around the same color. That's so fucking boring. Pardon my French.

Dan Austin: [10:02] Very good.

Mike Nuss: [10:02] I like different asset classes. I like different properties in different locations. So for me, I like to be physically close. So two to three miles per radius, lots of different types of neighborhoods, different price ranges, different property types. And it kind of satisfies the deal junkie in me, satisfies the deal volume of now we need to create equity to pay all the staff and then to buy real estate with. But what I really like about it is now you have the ability to raise different types of capital, different buckets of capital. And when you have that down and so you think of it as seeds, right? So you're planting seeds in the different asset classes. You're planting seeds in different partnerships. Well, the capital is like the water that you need to water those seeds. So the different types of water you have, whether it's got chicken manure in it or cow manure or whatever organic stuff, then that water waters the different types of seeds of properties and partnerships. So I kind of look at it as like this chessboard of how can I get all those pieces on the chessboard and then move them around based on my partnership's goals and what's going?

Mike DeHaan: [11:02] I just love the fact that you're from Portland and you described your bunny raising as it how how it needs to be organic. And then I just feel like that.

Dan Austin: [11:08] I didn't like that, I didn't like that.

Mike DeHaan: [11:10] So that's awesome though, man. So I guess like with all that being said, you you said you have a little portfolio, like what does your portfolio look like overall? It sounds, I'm assuming you have a wide range of asset classes in there.

Mike Nuss: [11:23] Yeah. It's mostly small multifamily or some single family land banks. Okay. That's my skill set the most is I grew up in residential. I love residential. It's easy to manage for me. It just fits our asset class. Two to 10 unit properties with a couple of single families sprinkled in. And I prefer historic homes, too. That's my thing. When I was an appraiser, I loved to appraise historic homes. The nice thing about old homes is they're built way too big, and they have these bad floor plans. And you can take these things in a 1,200 square foot one bedroom and turn it into a grade three-two. So you can create lots of value. There's tax incentives with that. And then which in our importance specifically, the historic neighborhoods are the best neighborhoods. They get the best rent. They're the sexiest. They have the most value, the lowest cap rates. And so you get the best value or the equity creation for every dollar you put in. And then I love modern construction. So I like to mix those two of remodeling old homes with kind of a modern flair to it and then building modern construction around it.

Dan Austin: [12:23] When you talk about single family land banks, just so I understand, is that because those are spots where you might drop an ADU and you're just holding onto opportunity presents itself? Or what do you mean by that?

Mike Nuss: [12:33] Yeah. More scale than an ADU. And that's the beautiful thing in Portland. Like, you make this big change to the zoning code. Well, now everybody's land has the ability to do that. It's like, oh, my land's worth more. They change the zoning. Yeah. So is your neighbor and their neighbor and their neighbor and their neighbor. So in more bigger scale. So ideally commercial zone, something where you've got a single family home, you can buy it at a point and the debt load can be managed by the one home that's on it, but you can do bigger scale down the road, ideally 12 units or more. So like I've got a half an acre of good commercial zone in not the best neighborhood of Portland, two properties next to each other, both of them is a duplex, But we can build 60 units of affordable housing there, and our basis is at a point where our cash flows now, there's a lot of equity, and our base is also at a point where now that basis works for a low income housing development. A lot of brain damage. I don't want to go down that right now. Yeah. But ten, fifteen years from now, I'm sure I'll have a development partner that knows that inside now. I love the thought of providing affordable housing, and we have some of it, but I don't want to go through that process. So it's a bank now, and then hopefully we cash in later down the road.

Mike DeHaan: [13:44] Yeah. Awesome. That's very interesting.

Dan Austin: [13:45] That's why I'm gonna start calling some of our portfolios a land bank, that we're not sure what to do with, know. Like some

Mike DeHaan: [13:50] of Yeah, the things that

Dan Austin: [13:51] you hold onto, because you're like, we're starting to see that in our, it's bleeding over to Eastern Washington, the Seattle policy, and the state policy that's getting put out there where, yeah, now you can do ADUs on on properties within the city, they've removed density requirements and stuff like that. So there are some properties that, you know, three to five years might be worth a hell of a lot more than they are now, we're just kinda waiting for the codes and the laws to catch up.

Mike Nuss: [14:15] Yeah. And so in that aspect, knowing that those codes are coming in, and I just mentioned what zoning changed for everyone, so everyone's land value went up. That isn't really the case. There's specific pieces of property that you want to look for. So corner lots, because they've got dual frontage, Alleys, where now you have dual frontage and then you have reduced setbacks. And so the highest and best use I mentioned that a lot of people don't understand. So it's legally permissible. We get that. Zoning code says you can do this. Great. Well, is it physically possible? Okay, now it's physically possible. Is it financially feasible? And typically, everything gets killed before you get to the financially feasible. So if you're a developer and you have that development eye and you go, well, want corner lots. I want an existing residence off to the side. I want an alley location. And specifically, for now ADUs, middle housing, in Portland, we're so dense we had to remove parking. The only way to develop that type of housing is to remove parking. So then I need to be close to parks because we're doing small homes with no yards. I need to be close to public transportation. I need to be close to walkable amenities. And so we just bought 15 of those projects over the past three years and are now exiting them in condos. So now we have all this market research of where do you get the best value for your buck as far as developing these types of things. And so now take that mindset into a market like yours, and you create a custom map.

Mike Nuss: [15:32] Now we're spear gun fishing for those types of properties. You create a custom map of these are all the best development properties based on this single family zoning, and then using a new code, then overlay that with equity. Boom, there's your seller finance list. Go get all the seller financing you can on those lots, land bank them, and then develop them when appropriate down the road.

Mike DeHaan: [15:52] Yeah, that's interesting. So I guess like with all that being said, you know everything gets sort of cut off at the affordability standpoint or makes financial sense. Like that's 100% the case out here. I know Portland has a higher average price point in homes versus here, but like a lot of the rest of the country is even significantly cheaper than Northwest, right? So is like your strategy right now, are you able to do any of these developments, or are you literally just treating it as like a bank and just hoping that eventually the affordability of houses with the cost to construct actually does make sense in the future? Because theoretically it could never come together.

Mike Nuss: [16:30] Yeah, yeah, because construction costs aren't going down, right?

Mike DeHaan: [16:33] Yes, I don't think they will, like why would they?

Mike Nuss: [16:36] And right now is the worst time to develop a build for rent because you got a saturation of competition, financing, you got all those reasons. I built one fourplex, so it's a five unit property, had an existing home off to the side. It made sense. But it was also a ten thirty one. There was equity rolled into it. So are you just buying dirt, building, and renting?

Mike DeHaan: [16:57] Uh-huh.

Mike Nuss: [16:58] Not unless you have a really good deal structure and economies of scale to make that happen. Now with like the condo development project, it's all every project's within a close proximity to each other. And so in 52 total units and 12 to 15 properties, the idea as these exit is, can we hold one? Can we hold two? Like, how does that work? And that's project specific. But you have to get the only reason we can do that is the scale. So Mhmm. It's not a build for rent model by any means. Yeah. But it's also and it goes into the equity. You have to have equity at cash sustainable cash flow. We can all do a seller finance deal. We can do margin on Airbnb. We can do margin on a lease option. We can create cash flow. But to have sustainable cash flow, you need to have equity. So, okay, do one project, create equity of no cash flow, roll that into another project, double the equity, now you have cash flow. Roll that into another project, and you have triple the equity, you have equity, you have cash flow, you have a balance sheet, you have a track record, and now you have a resume to then go maximize and scale that.

Dan Austin: [17:59] Yeah, that makes sense. So let me ask you this then. We're in the same situation in our market, like the build to rent just does not make sense, but the build to sell might. When you talk about build to sell, say it's a a quadplex or whatever's a common thing over there, is there a specific like profit you're looking to exit that you know, okay, we can do this deal as a build to sell?

Mike Nuss: [18:18] Yeah. Typically from a builder standpoint, 30% gross margin will get you a 20% net margin, and that's what you wanna go off of. And to give background, I don't know if you guys wanna get into it, it's

Mike DeHaan: [18:28] not collecting fees at all, yeah, but bought

Mike Nuss: [18:31] a bunch of this land in 2021.

Dan Austin: [18:33] Okay.

Mike Nuss: [18:34] And this was brand new code and then the code didn't come out in time and then the code wasn't what you expect. And then you're designing, you're buying stuff, it's planned to design stuff later and then the code changes, you redesign and then the market crashes, and then the financing changes. And so it's just nightmare of cycle you're trying to get through to get stuff done. So like our performance, you just have to start redoing your performance, and it's like, okay, we have so much equity, which project do we bring to life at the time? And at one point, that was close to $5,000,000 of profit on the performance. It got down to less than $2,500,000 of profit, but now it's coming back to $3,000,000 of projected profit. So it's a fricking roller coaster of the world. Yeah. So you're thinning your timeline, which makes riskier and it's hard to bank on something like that. So yeah, I'm not a fan of developing rentals by any means.

Mike DeHaan: [19:25] Yeah.

Mike Nuss: [19:25] I prefer to buy stuff that you can put. I'm a big fan of stabilizing and maximizing. One of the lessons I learned early on was you try to maximize everything, then it becomes this cash flow management beast and project management beast, it's just stabilizing, maximizing later. Right. Yeah. So I like existing structures.

Dan Austin: [19:45] And that makes sense, the the way you're doing it with like the, you know, if you can get 20% net margin and then roll that into your next one, which would basically create 40% equity, and you find buyers of these turnkey, basically you're building turnkey rentals for people then, and you're finding buyers that are coming in and willing to pay, I'm assuming they're willing to buy at a

Mike DeHaan: [20:03] pretty low cap rate than on like a fourplex or something

Mike Nuss: [20:05] like In that, so what we do is we separate ownership and sell them as condos. Oh. Because they won't, they're not gonna work for investors, and so we sell to owner Okay,

Dan Austin: [20:14] that's what you're doing. Okay, makes more sense. Yeah. Because, I mean, we do see here, where we're at Spokane where people will come in and pay $8,900,000 for something that gross rents at $6 because they wanna park some money and they're willing to get a 3 or 4% return. But that's just not you don't wanna build a business banking on that. Yeah.

Mike Nuss: [20:31] And and there are. Well, flip duplexes, like, I'm flipping a duplex now that I'm gonna sell it for $900 and it brings in Nice. 5,000 in rent. Okay. Yeah.

Dan Austin: [20:43] There's people that like it.

Mike Nuss: [20:44] Yeah. Well, it's an owner occupied style unit, and so you understand. And that kinda going back to the portfolio holding, I love two to four unit properties. Because it's the world of residential financing. It's the world of residential valuation. So it's emotional. You get the owner occupied component. And so you try and buy two to four unit properties, which are residential financing, at a commercial per unit price. And then now when you're done with your renovation, either to rent it or to sell, you've got your residential per unit price because it's two to four. So you create more equity, which then allows you to hold them, or you create more equity, which makes them more profitable on the flipping side.

Mike DeHaan: [21:25] Yeah. Very interesting. Hey. We really appreciate you being a listener of the Collecting Keys Podcast. Did you know that we also are on social media and on YouTube? You should go and shoot us a follow on those as well. You can find both Dan and I on Instagram. I am at Mike underscore invests. Dan is at investor man Dan. You can also find short clips from the show at collecting keys podcast on Instagram. And if you wanna see our faces talking when you're listening to the show or you wanna check out some of our crazy animated adventures we've been putting together into some funny little web cartoons that sort of show the crazy stories that guests tell on the show, then you should go over to YouTube and check out the collecting keys channel. Shoot us a subscribe over there. It really helps in human grow our audience. We really, really appreciate it. Well, anyways, enjoy the rest of the show, you guys. We appreciate you all. I like what you said though when you're, you know, you're looking at these different sort of opportunities, some of the challenges. You said before is like, it all comes down to having like the best deal structure. And I think that's something that probably gets so overlooked these days that it sounds like you're very proficient at is how do you, you know it's not like as black as white as like here's the money and we do the thing and then we get the money back plus profit. But you're talking about doing these equity map overlays with like the good development areas and doing the seller finance and all those sort of things.

Mike DeHaan: [22:39] And I mean honestly you'd probably agree, to do real estate at any sort of high level right now, you have to have that knowledge base and that hustle to figure that out. Otherwise, you're gonna be just out to lunch, right? You're never gonna have any good opportunities anymore.

Mike Nuss: [22:52] Yeah. So, like, creating equity to build a rental portfolio. So right now, I'm creating equity just with my brain and my skill set. And then that I'm using that and leveraging that to build up my rental portfolio now through other partnerships. Mhmm. So, yeah, it's deal structure is everything. And that's the beauty of, like, you know, an abundant mindset versus a fixed mindset, making the pie bigger and then just giving it to everyone versus just I know. Building more pies is I wanna make the pie builder bigger and collaborate with people, and that's deal structure. Totally. Right? If you think of the finite mindset, it's just like, well, we're just gonna make more pies. We're just replicating the same finance structure over and over and over and over again. And you're not sharing that pie, you just have more for yourself. I prefer the other route, which then makes deal structure an absolute must.

Mike DeHaan: [23:42] Yeah. Totally. Now that's super, super interesting. Cool. Well, we already ripped through twenty two minutes. That was awesome channel stuff you have going on.

Dan Austin: [23:49] It's good stuff.

Mike DeHaan: [23:50] I wanna make sure we have appropriate time to talk to the thing that I alluded to at the beginning, which is these ticks that And you're talking so you jumped on here, you started throwing out this term, and I sat here no idea what you were talking about.

Dan Austin: [24:05] Are they related to the bed bug species?

Mike DeHaan: [24:07] Which we're currently dealing with in one of our section eight properties.

Dan Austin: [24:11] Dealing with like a son of a bitch.

Mike DeHaan: [24:13] Yeah, so when I asked you at the beginning what you're most excited about right now, you mentioned that you've been doing these HIC deals. So, what is that?

Mike Nuss: [24:21] Yeah, it's just a tenant in common ownership, right? And so instead of creating a partnership, creating an LLC that now we have a business together that has its own set of business records and its own set of tax returns, a tenant in common is we can share ownership just based on our percent. Okay. And then the way I structure it is, well, I have my property management company do all the pay and collect every penny of income and pay every single expense. And so now my property management company creates a set of books for that one property that then just gets divided by your portion of ownership. And so where it came for me was I love I'm a deal junkie. I love coaching. I've been coaching for a long period of time. And it's this vision of how do I want to become a coach? And I've done a lot of coaching, and I don't like getting people started. Starting with newbies makes me want to shoot myself. I had this idea of really coaching operators, which I love. I love coaching operators. But then, well, that's not a great dollar per you know, coaching is just not good leverage. And I don't like group coaching because I don't think it's as valuable. What I found out was I know a lot of people that are that are wealthy and they own real estate or they own businesses, and I love to just talk finances and economics, very few people are putting their portfolio and their assets to their best use. And what happened was talking to a good friend and his wife, who's a friend, and we're planning on doing some syndications. It's multifamily stuff. And they were selling a property in Kansas City. They needed ten thirty one exchange, and I had a seller finance deal come across my plate.

Mike Nuss: [25:57] And it wasn't a sexy deal. It was good. It wasn't great. But I also negotiated it without ever seeing the property. So I knew I had expandability, but it wasn't something that's easy to tap into. So there's value creation, but that's down the road. It's not immediate. When we finally got it in escrow and then looked at it, was like, oh, well, I can add a bedroom here. I can create the income, make it a little bit better. And so it's like, well now, so at first it was, Well, this is a deal I can just pass off to you. Right? You're in a ten thirty one. I don't like it. It uses a whole bunch of capital. This is really good for a ten thirty one buyer, so I'll just pass it off to you. But when we started evaluating it and then seeing the highest and best use and seeing how low some of that fruit was hanging and how easy it was to get that fruit, and now instead of creating like $100 of equity with $100 of capital, now we're creating $300 of equity with $100 of capital. Well, now it's too good to pass the law. Yeah. It's like, well, I can't just give this to you. But I'm also kind of like, I hate to back out on things like my word matters. We'll let's We're do going to form a partnership. I don't know how we're going do it. We're to form a partnership. You're going to own some. I'm going to own some.

Mike Nuss: [27:02] Here's what I want out of it. It's a really good deal. I want you to bring my ownership to it. So you're going to pay for my ownership. We're going to figure out how to get that done. And I'm going to manage it with my property management company. So I'm using this to build my portfolio, to build my property management company. And I'm then leveraging, like I said, the staff of the SPEAR to then create the equity that now builds the portfolio. So what we did is we structured this ten thirty one where a ten thirty one can they own it personally, but it can exchange into a tick. And so we just made the ownership. And so now it's just smoking beer, deal structure. Okay? So what structure we can only ten thirty one in so much capital based on what's required to close the deal. But it's also a forced appreciation play. You need some cash. So how do we structure a deal based on the amount of the ownership split where they can use some of their exchange money, but not all their exchange money, to then bring money to the deal inside of their exchange, but then bring cash to the deal outside of their exchange to pay for my ownership, right? Because they can only bring in their ownership, but the deal structure is they need to bring in mine. And so what we do is we create a scenario where we create boot in the exchange. So they get cash. They get taxable cash.

Mike Nuss: [28:21] But in this scenario, the asset they're exchanging into is so much more valuable than the crap in the Midwest they're exchanging out of that it still qualifies for all their exchange. It's just the boot that they get. The cash is taxable. Well, again, it's a much bigger asset. And so with bonus depreciation, you cost seg it, you bonus depreciate it, now you get rid of their tax liability, and now they have cash. And so then we can structure it so the cash gets lent to the tick to then do the forced depreciation, and then that loan can create the cash flow to offset the cash flow that they lost in the Midwest. So now they own an asset with me. That asset is in a really good debt position because the equity that we exchanged in and then the equity that we created and then the hard funds we put in in the loan portion of it. So there's cash flow, there's ownership, there's equity, we can refinance it easier. We've created a lot of equity. In this position, it's a property, it's a land bank, so it's a duplex off to the side. We can build four other units on the corner. So it's a great piece of developable property. And more importantly, they've replaced their cash flow. Now they don't have a property manager.

Mike Nuss: [29:22] They have a developer that is an owner that owns the property. So I'm tied to the bottom line. Obviously, I maximize everything from a value standpoint. I want to maximize everything from a cash flow standpoint. And since I'm a finance expert and now I'm a developer, I understand the condo conversions. There's so many different exit strategies we can put into play. We can split off a lot, we can syndicate the lot, we can build it ourselves, we can so they're ecstatic, right?

Mike DeHaan: [29:48] Yeah.

Mike Nuss: [29:48] At the end of the day, they still have cash left over. They have ownership, they

Mike DeHaan: [29:52] have their cash flow, they have more cash flow, they

Mike Nuss: [29:54] have more equity, they have more insight. And they have a partner that's gonna do it all for

Dan Austin: [29:58] Yeah. Wow. Interesting. That's a lot. I'll try to consume all that.

Mike DeHaan: [30:02] Yeah. It's fun.

Dan Austin: [30:03] Yeah. So on the tenants in common piece, to step back to that, you know, like typically you you'd seen this scenario like a JV agreement, or you guys would start like this LLC. The tenant in common's kinda skirts that. Is that still something like when you guys are recording title, obviously you're both on title, or both of your LLCs are on title, however that works, as tenants in common and your lawyer just drafts up some documents showing like, hey, Mike owns this percentage and and he gets that via this person's cash. It's all just recorded document, same thing? Yeah. Okay. That makes sense.

Mike Nuss: [30:35] Yeah, and it's correct. And now you have two decision makers of every property, right? Yeah, So instead of your portion of the LLC that determines control, now you actually have two different owners. That is. So you have to be in alignment. There's the downside is if you're not in alignment and are you not making the same decision. So every deal structure has its downside. Every deal structure has its complications that you know need to overcome. So there needs to be a level of trust, this works because I've known these individuals for a period of time, I've got to try and make them trust me, so yeah.

Dan Austin: [31:09] Right, yeah. I mean, sometimes that could be beneficial because you go into a deal and say you're like seventythirty. You're 70, they're 30, but with an LLC, you always will vote what happens. But 30% for them might be just as life changing as your 70% is to you, if not more potentially. Right? So they might be more just as vested in the success of the operation of this business, but not have any power once they give that 30%. So in this Exactly. You have to both agree. It's like kinda being married somewhat.

Mike Nuss: [31:38] Yeah, it is. Yeah. Because now it's an actual partner you have to agree with well, it doesn't matter if I agree with them or not because they have all control.

Mike DeHaan: [31:46] Exactly. Yeah. So for someone who's, you know, just hearing this concept, what would be like the, I don't know, like the first look, like five second test to see if Explorers might be this even makes sense? Like what is like the basic deal where you can be like, you see it immediately and you can be like, I think a tenant in common could be a good sort of strategy with this deal.

Mike Nuss: [32:07] Yeah. So I'll just kind of give me I can't say exactly, but what are the elements I wanted to do? So the elements I want, here's what I want, and here's what I want for my partner. And I want the right deal to make both those things happen. So I want ownership without paying for it. I want to have the property, the professional property management contract of it. I want to have a forced appreciation play because I don't want to work without forcing appreciation. I want to have cash flow at the end of the day, and I want to have them replace the cash flow that they lost.

Mike DeHaan: [32:36] Yeah.

Mike Nuss: [32:37] And so that's how it becomes a win win. You know, they have the same cash flow to begin with. They have the upside of more cash flow, and then they improved their overall net worth just by purchasing that property. Because now they force depreciated and created more equity.

Mike DeHaan: [32:53] Yeah. So it's almost like like, you know, using other people's money rather like raising money, but it allows them to roll ten thirty one funds in directly instead of having to pay taxes and have like a note or whatever else on it.

Mike Nuss: [33:05] Yep. Just a different form of water.

Mike DeHaan: [33:07] Yeah. Yeah. That's fascinating. So I guess like, would it make sense to do something like this if somebody wasn't doing a ten thirty one exchange or would you be better off doing like an LLC or just having them be, like, a private lender?

Mike Nuss: [33:19] Yeah. Correct. So the ten thirty one is what drives the tick. Exactly. Sure. Okay. Ideally, an LLC, and and now you're it's a voting. It's a much cleaner ownership structure. I don't wanna speak into the tax portion of it yet because I haven't actually filed a tax return on this structure yet, and so I'm uneducated in that arena. But from a control standpoint, it's it's much simpler. It's better in my opinion. Mhmm. And so, again, it's like, well, it's a bucket of capital forced to be in that bucket based on previous actions and at the end of tax code. And so rather than just ignoring that capital, it's like, okay. We'll understand the parameters around that capital and then throw the seed in the ground that that capital is met for.

Mike DeHaan: [34:00] Mhmm. Yeah. That's very cool. And then so I guess on paper with this ownership, are you guys like straight fifty fifty in this purchase or did you structure it based off of the terms that made sense for both of your guys' desires and Yeah. Get work anticipated?

Mike Nuss: [34:18] This is probably a good thing for listeners. I mean, you've got operators that are your listeners, so they get it. But you just talk about what you do and people get excited, and so now I've got four other partners that wanna do this now. And so what I'm explaining is the deal is going to justify how much ownership I get. Right? Because the deal is going to justify how much equity we create and how much cash flow we create. And then the other piece of that is the amount of leverage. So if it's something like the new property, the cash out and we're getting bank debt with amortized payments and a high interest rate, we're going to need to have equity, which means we're going to need to bring more cash, which means it's going to be the more equity I have, the more outside cash that needs to be brought. So in that scenario, there's

Mike DeHaan: [34:58] probably less cash flow, there's

Mike Nuss: [34:59] probably less equity creation. Well, shrinking my ownership portion makes sense to then make that structure work. Versus if it's a higher leverage deal with seller financing, we're creating a heck of a lot of cash flow and a heck of a lot of equity. Well, then now you need less cash resources, which is gonna increase that internal rate of return on that purchase. So then I justify more ownership in that scenario. Sure. So you just kinda run all the numbers to find that sweet spot of what makes sense.

Mike DeHaan: [35:28] Yeah. Man, that's yeah. There's so many options. Right? Like and it's funny because you hear so many people structure things the traditional way. You get a private lender, they make a pref, you have an LP GP split that will have different, what do they call them, like the levels they have to reach where the GP gets paid more, and

Dan Austin: [35:48] like waterfalls and

Mike DeHaan: [35:49] the other waterfalls and that sort of stuff. And like it's what you're doing is, I guess, probably has a potentially fundamentally the same, but it appears like it has a lot more flexibility since they are actually taking time with their property along with you. I'm assuming you don't have to register something like this with the SEC like you would with a syndication or anything else like that. It can all be fully free form, it's a relationship.

Mike Nuss: [36:11] Exactly. Yeah. Because it's even ownership. There's no loan involved, there's no investment involved. They they're just buying this property. So, yeah, you avoid all of that. The other thing is what do owners want? They want passivity, but they also don't wanna give up control. So that's where being an LP is like, well, you get one, but you don't get the other. In this scenario, really have both. Very good.

Mike DeHaan: [36:33] And then so how does this work if it goes sideways? Right? So the deal has problems and you guys have to do a capital call. Is that treated exactly the same where you guys are making capital calls equal to your ownership? Correct.

Mike Nuss: [36:46] Yep. Yeah. Exactly. So essentially, the acquisition's done. We've done the smoke and mirrors to acquire the property. Now it's performing ideally. Right? Well Yeah. The loan is done. If that loan doesn't get us fully renovated and we don't have a performing asset and we need more capital, well then, what are our options? We can say, well, can we borrow more money from you? Do we do a capital call that then is going to be based on our percentage of ownership? Do we go and borrow more money from somewhere else? Do we sell the asset? So it's kind of that same type of scenario, but, yeah, correct. It's gonna be now because our deal is done. Uh-huh. Now we're owners. Right? Our deal to get into ownership's done. That didn't work. Now we have an ownership split that we need to get through.

Mike DeHaan: [37:30] Yeah. How did you learn about this? Did someone bring this to you, or is this just your knowledge, something that's always been on your radar, and you just had the perfect opportunity to give it a shot?

Mike Nuss: [37:38] Over time, another GoBundance friend of ours was selling some properties. I remember meeting him, going to his property and taking a look at his property, and it was the market had just crashed. The neighbor's property sold for $80 more than he was asking, those type of things. And he and he just was really held out on doing a ten thirty one. I turned around my brain around it. I was like, why? You need to go get a loan. It's pretty clear. Get a loan. But he was struggling getting a good ten thirty one vehicle to

Mike DeHaan: [38:03] get into because he wanted to be passive.

Mike Nuss: [38:05] He wanted to be an LP. He wanted to be in a syndication. A lot of syndications don't take on ten thirty ones because of the brain damage on their side.

Dan Austin: [38:12] You

Mike Nuss: [38:12] see? So, 1031s always hard for sellers. We get that even on just the small level world. Well, what if you don't want a replacement property and now you want to do a different type of fund, but then now you got to find the fund that accepts that. And then the funds that do accept that typically have lower returns because they have to pay for the brain damage of allowing that. And so that was a seed that was planted in my brain in 2022. It's like, oh, there's a problem out here. Didn't really think about it. It just came about. So it's like, well, now you know you have kicks, and then this opportunity is here, and someone's in a ten thirty one. And here's where it really comes down to, is the people that you meet in the network. There's this local ten thirty one exchange attorney, Toya Buether, who's amazing. She was licensed in like seven states, just sold her business. But when she broke off, I think she was like the First America, one of the big companies, started a company, we just supported the heck out of her. Came and spoke to our community, did some continued education events, got her a whole bunch of business. She just loves to shoot the shit with me, and we brainstorm, and I love to call her up. I'm like, Toya, I got another one for you. Here's what I'm taking. And she's okay, Mike. Let's do this.

Mike Nuss: [39:15] And, you know, she's a short little Irish lady, talks faster than I do, and and she creates these ideas for me. Nice. So I tell her what I'm thinking, what's wrong with this? And she says, okay. Well, we can't do that, but, you know, if we did it this way, we can get the same goal done. And so you just sword sharpening swords where she likes me because I bring her a crazy idea, which then makes her think in a way that no one else has made her think. She's like Okay. And the beautiful thing was with this partnership, my friends were already they had already sold their property. They were already in an exchange, and it was with Toya. Oh. And so, okay, let's get Toya on the phone, and she just walked us through it.

Dan Austin: [39:54] Yeah. That's just a great example of having that, like, people in your network that you can trust, that you know that you personally are challenging. Challenging. Because she also probably likes doing challenging things because it's just because they're another tool she can offer more clients. Exactly.

Mike Nuss: [40:06] Just like we do, right? And I say this so often, it's probably what I'm quoted on the most, your social capital is worth more than any other currency you can ever have.

Dan Austin: [40:14] 100%.

Mike Nuss: [40:15] So, and this is a great example of that. So again, equity. I didn't do anything. I just had a brain and a system and an idea and then I had the network around it to build in pieces.

Mike DeHaan: [40:23] They came together. Yeah. Awesome. Well, very, very good stuff, Mike. You are, like I said at the beginning, a real estate pro. You are like all in the weeds. Yeah. And it's it's really fascinating to hear how these deals have come together for you. So we're gonna start winding down here as we near the end of our show. So we ask the same three questions of everyone that comes on the show. And the first one, which is the group favorite, is what is your craziest real estate investing story? Since you've been in the game for a while and being out of Portland, I'm sure you have some good ones. Because the Northwest, we have come to find has some unique characters and transaction situations that

Mike Nuss: [40:58] Believe

Mike DeHaan: [40:59] or not, don't exist in other parts of the country.

Mike Nuss: [41:01] Really?

Mike DeHaan: [41:02] We've learned this since we've been in our business naturally. Yeah, like a lot of the weirdos, like it is very much a Northwest thing.

Dan Austin: [41:07] It's just a Northwest thing.

Mike DeHaan: [41:09] Like, totally. Northwest in Florida. But anyway, what's your craziest real estate investing story?

Mike Nuss: [41:13] There's so many stories. My business partner early on was on the cover of the paper because he's being stalked by a what do they call it now? It's what George is going to doctor Phil for his video. Squatters. So squatter raids, right? Squatters. Squatter raids. Yeah. And it's crazy. He stalked him, went to court, had to get a restraining order against him. But he went through the whole especially stole his property from him. And then he had to take him to civil court to get it back. So all that type of stuff happened. I wasn't really involved with that. I was on the ancillary kind of laughing at him and giving him support and went through all that garbage. But the craziest story for me, man, I went I bought this property where reverse mortgage scenario, and you get this, where an estranged so aunt this is how the owner was explained to me, estranged aunt. No one in the family liked her anymore. She burned every bridge. And she had a reverse mortgage. She had a caretaker. She's a hoarder. So she had a lot of animals. She died in the house. The caretaker had access to the checkbook. Didn't tell anybody, just spent all the money in the checkbook. The nephew, who lives relatively close by and was the only person that was ever in touch with her, hadn't heard from her in a few weeks, went and checked on her and he found her in the basement, her animals were eating her. Nice. That was the worst. Yeah. And I went in two, three, four weeks after that.

Mike Nuss: [42:32] It hadn't been cleared out, but the body was gone. It was the worst house. Feel that smell of the day still haunts me. I bet. Yeah. I don't know if that's the best investing story. It's probably the gruesomeness and grossest.

Dan Austin: [42:46] That's pretty bad. It seems standard. It seems on par for what we see in this side of the business.

Mike DeHaan: [42:51] Yeah, for sure.

Mike Nuss: [42:52] That's why investors exist. I know. No homeowners ever gonna buy that.

Mike DeHaan: [42:56] But yeah, I mean we've had our fair share of those too. Yep. I mean the Fed, it's just part of the game unfortunately.

Mike Nuss: [43:01] Especially

Mike DeHaan: [43:03] when older people get involved. Yeah. I mean at least so what was your exit on that one? Did you wholesale that, did you flip that, did you buy it?

Mike Nuss: [43:10] Yeah that one is actually wholesale and that was early on in my career before I really had a whole lot of control of everything that I was doing. So it's more of a partnership and type a wholesale was the exit. Yeah, let's get them started. There you go.

Mike DeHaan: [43:24] Easy enough. Awesome.

Mike Nuss: [43:25] Yeah.

Mike DeHaan: [43:26] Alright, second question. What is the number one tip you have for a small time investor looking to take their business to the next level?

Mike Nuss: [43:32] Talk to as many property sellers as you can. I absolutely love the boots on the streets model. For new investors, get your boots on the street, get in the neighborhood. I just moved into a neighborhood I wanted to move into. I love it. It's historic. Walking the dog. I know all the vacant properties. I know all the beaters. Now I'm creating a list of all the property owners. And so what am I going to do? I'm going to call them all. I live in your neighborhood. I love this neighborhood. I saw your property. It's vacant. Getting in touch with real time property owners that you know have real time problems, which are vacant properties and fixers and hoarder tenants and code violations, that's the key to success. So get the relationship started with the property owner and then expand your pie. Bring in partners. Like, if you don't have all the resources, understand the value you're bringing to the table. If you don't have all the resources to get it done, don't think you deserve 50% of it. It may be an amazing deal, and sure, maybe you get 50% of it, but the one mistake I see a lot of newbies do is they really overvalue what they have. They overvalue the deal they have, and then they overvalue the resources that they're not bringing to the table, or undervalue the resources that other people are bringing to the table.

Mike DeHaan: [44:39] Yeah, for sure. That's what we always sort of emphasize too is building like kind of that lead and opportunity snowball. Whether that's doing it manually hitting the streets, running some marketing efforts, doing things like that, just really starting to find the, I would say, abundance of opportunities that are out there, and then just learning to work them. That is, I mean, it's the basis for every kind of business. Right? You have to have leads if you're gonna have deals. Otherwise, you're kinda just wasting your time.

Mike Nuss: [45:02] Yeah. And align yourself with someone that you can trust that can help you evaluate those opportunities.

Mike DeHaan: [45:07] Definitely. Yeah, that's an underrated comment there too, especially when you're starting out. But you know, half people they listen to Five Bigger Pockets episodes and they're pros. So they don't need anybody else Exactly. That

Mike Nuss: [45:17] I love the people that have started a podcast and a course after buying one property. That's my favorite.

Mike DeHaan: [45:23] Alright, Mike. Where can people find you, follow you, reach out to you?

Mike Nuss: [45:26] Yeah. I put a lot of content, like writing content on Facebook right now. So just Mike Nuss on Facebook. Instagram is rarebirdmike. I do a lot of stuff on that and share with Facebook. I just started a new podcast with three other friends. It's really fun, deal junkies. Really similar to yours where we like to deep dive on actual deals. Mhmm. We don't get into people's background as much as it is. What's the fun talking shot? You know, like what do you do in the background when you're just hanging out with your real estate friends?

Mike DeHaan: [45:51] Nice. Awesome. I love it. Right on guys. Well you should definitely go and give Mike a follow, and actually really enjoy the long form Facebook stuff you do. You ask some really provocative questions. You actually start really like good engagement on there too. And so very rarely do I see people that I think use Facebook in a way that I actually like and you've cracked the code. So you guys go and give him a follow there, check out his podcast. And I will also say you have a really solid branded website built out through your myrarebird.com and your brokerage. I see a lot of different sites and stuff people send me over and yours is one of the best ones, so props to there too.

Mike Nuss: [46:27] Yeah. Man, thank you.

Mike DeHaan: [46:28] Yeah, for sure. But reach out to Mike here you guys, remember people come on these shows because they want you to engage with them. If they didn't wanna hear from you, then they would just stay in their lane and go and do their own thing. They wouldn't be doing the little podcast circuit. So, Mike, really appreciate you coming on the show, and thanks for listening everybody, and we'll talk to you guys next week.

Mike Nuss: [46:46] Thanks, Mike. Thanks, Matt. Appreciate the opportunity.