417 | Building Wealth Using Financial Diversification with Marco Santarelli

Building wealth remains a goal for many business owners and people in general. There are many paths to wealth. Some are better than others. Some are safer than others. Today’s guest is Marco Santarelli, founder of Norada Real Estate Investments. Marco shares how you can think about diversification in your journey to building wealth. We talk about different asset classes and focus on passive income using real estate. Tune in to hear about building wealth.

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417 LITT featuring Marco Santarelli

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Target Audience: Marco is an investor, author, and founder of Norada Real Estate Investments. A national real estate investment firm offering turnkey investment property in growth markets nationwide. He is also the creator of DealGrader. He runs a successful real estate investment firm focused on helping other investors build wealth through the power of real estate.



Marco Santarelli: The Transcript

Disclaimer: This transcript was created using YouTube’s translator tool and that may mean that some of the words, grammar, and typos come from a misinterpretation of the video.

Leaders in the trenches and your host today is Gene Hammett.

Gene Hammett: Hi, my name is Gene Hammett. I’m the host of leaders in the churches. And my big question for you today is how do you diversify your holdings as a business owner or a founder? Well, you may be thinking that the stock market is not giving you the returns that you deserve. I know that’s the case for me when I look at my statements. You have probably thought about you have too much invest inside your business. Well, there’s a great answer to that. I really look at real estate with my own business and my own money. I used to own properties. I don’t own any more now, but as the business has gotten better as, things are doing better, I started thinking about the diversification of that. And I really think, a great conversation with you to look at real estate with passive income.

Gene Hammett: So we’re going to talk to Marco Santarelli with Norad real estate investments and he is sponsoring today’s episode, but he’s also going to give you insight around how to look at these properties, what they mean, what the key metrics are behind it. I have fascinated when I talked to him, you know, after the recording, so I recorded some of that especially for you that I’m going to give it to you as a bonus if you ask me, I’ll give you that special piece of that because it gives you some of the key metrics of what’s important in different neighborhoods and what the 1% rule is. But inside this episode, we talk about his business and why you want to diversify, how to diversify and sort of some of the team metrics around how his team is able to support hundreds of deals per year. So this interview with Marco Santarelli will tell you all about how to diversify your holdings.

Gene Hammett: Hi Marco. How are you?

Marco Santarelli: Doing great Gene, how are you?

Gene Hammett: I’m excited to talk to you here at leaders in the trenches.

Marco Santarelli: I’m excited to be here. I’m looking forward to sharing some valuable content for you, for your audience.

Gene Hammett: Well, I’ve already let our audience know a little bit about you and why we’re going to have you here, but I’d love for them to hear it in your own words. So tell us Marco, who it is you are and who you serve.

Marco Santarelli: Sure. So I consider myself the real estate investor. You know, a father, a husband, and someone who just loves real estate and creating wealth, especially when it comes to passive income. So I started investing in real estate specifically when I turned 18 because that’s when I could qualify for financing. And that was the first rental property I ever purchased. And you know, the saying goes, you know, the writing’s on the wall. So at that point in time, I did pursue real estate both as a career temporarily, but as an investor. And I had my fair share of successes and failures with small businesses over the years. That’s just the best education you can possibly get is that real-world experience. It’s not just booked smarts. It was actually street smarts. But fast forward to 2003, I got back into real estate investing in a very heavy way.

Marco Santarelli: In 2004. I acquired 84 units, four doors in nine months. And it was easier to do it back then than it is today because credit was much easier to acquire back then. But that was really what created a system that I share with everybody freely to help them do the exact same thing. And that is building a real estate portfolio. But you know, I built a model or a framework, a business framework around that and built a team and you learn how to manage a team properly. And with that model in place, I’m just putting out a lot of free content to help educate people about wealth creation and passive incomes. So when you ask who am I, it’s really a combination of many things. It’s a combination of being a serial entrepreneur, a teacher, an investor, and author. And just someone who wants to spend time as much, as much as possible with friends and family. And that’s where the whole financial freedom piece comes in.

Gene Hammett: I want to talk to you a lot about your team, but I want to understand the business for our audience here because the reason why I’m having you here is because I was thinking about diversification, specifically my own business and as a founder and as I’m actually technically cofounder cause my wife’s with me on this, we have a lot invested in this business coaching and advising others speaking out there publicly running this podcast. It is really heavily overweighted into the business side. We do have some investments. It’s not that much and I haven’t been feeding into it mainly because my returns on those investments have been just atrocious. Uh, can I share with you what they were and that might help you understand where I am and I recommend anybody that’s not really paying attention to their investment accounts too? I’m not saying check it every day and look at every, every stock tech that goes buttoned down. Cause I just couldn’t, we don’t have the time to that. But every quarter when I get my statement and plugging it into a spreadsheet and I’m looking at it over time. And so in 2017, we did pretty well. We did just under 8% which is not bad, right? It’s that great, but it’s not bad. It’s kind of on par. And then I looked at 2018 and I was almost 9% down and so I actually have less money in their account now than I did two years ago.

Marco Santarelli: Well, you know, if you ask a lot of people and you read a lot of articles, they’ll typically say that the long term average of the market is 10% now that’s a nominal rate, not the real inflation-adjusted rate. And that also takes into account certain assumptions that you’ve got in and certain years and you stayed in, you weren’t trying to trade or flip in and out year after year. But let’s just say that’s true that the long term average is 10% and that’s what they use as the headline rate is what they call it. But depending on what you believe inflation to be, you know, two, three, even 4% each year, you’re really only making, you know, six, seven, maybe 8% per year, inflation adjusted. The reality is I think I talked to a lot more people that are underperforming those numbers, then actually achieving those numbers.

Marco Santarelli: And you know, of course, there are variables like your financial advisor, the years you’re in, how much you’re adding to your position, et cetera. Um, if you’re a firm believer in the stock market, that’s fine. Um, you know, I’m not going to argue with you, but I think for those people who are seeing their 401ks in Iras underperforming, they need to take a serious look at what they’re doing in terms of investing now and for their longterm future. And second, the need to consider the possibilities of diversifying into other asset classes that can, a help whether the, the fluctuations and volatility of the paper assets, the equities market and to add to their rates of return, whether it be immediate returns that we call cash on cash returns and longterm returns, which comes in the form of equity growth. And then something else that you don’t get in the stock market that you do get in investment real estate. And that is to appreciation which allows you to write off or write down or defer or even eliminate your tax impact on that passive income. You can’t do that in other asset classes. And actually what the new Trump Trump plan that was passed recently the most tax-favored asset class in the country today is investment real estate. It used to be oil and gas, but now it is clearly investment real estate.

ADVERTISEMENT: Hi there, this is Gene. I’m the host of leaders in the trenches. I wanted to give you a free gift. I’ve been working with audible for almost a year now because my book published last year and I’ve been listening to audible books for probably three or four years. I really love it. And I wanted to give you a free gift. If you want a 30 day free trial of audible, all you have to do is go to audibletrial.com/leadersinthetrenches that will give you access to any book you want. You don’t have to buy the trap of success, which is my book. You can buy any book you want. So if there’s something you’ve been wanting to read, just don’t have time. Make sure you go to audibletrial.com/leadersinthetrenches. All right. Back to the interview.

Gene Hammett: Well, that’s the reason I have you here, Marco because I’m not the expert in this. I’ve owned a couple of properties, flipped them, wanted to make them into rentals and they never really worked out the way I wanted to. And I haven’t done that in decades, literally. But I wanted to talk about diversification specifically in this. And I want to talk to you about the team and how you structured this, but just give, um, you know, I was quite impressed the way you’ve set this up. You know, in 2018 you said you’d done over 400 deals. How is that even possible? and maybe tell us how you work to be able to do 400 deals.

Marco Santarelli: So it comes down to having the right team that you surround yourself with and having the right systems in place to be able to transact. So think of our company as a real estate brokerage. I run the operations. I shouldn’t say I’d run the operations, I oversee the operations. So I’ve got a team of six investment counselors. They report to one individual who is my right hand. She is essentially my assistant slash operations manager slash transaction coordinator. Then I have two assistants and one marketing person plus myself. So we’ve got a team of 10. Everybody’s been assigned if you will, a role of functional role. It’s not so much about titles around here. You know, we all know how to run the business, but we all have a functional role and that is tied to some sort of accountability. There are numbers in place, but because I started doing this in 2003 and 2004 and I was living and still am living in southern California and investing literally 3000 miles away and buying properties in different states that I to this day still never seen with my own eyes.

Marco Santarelli: In order to make that work, you have to have the right team of people in place and to the right systems in place, you need a framework or a model to make that work each and every time successfully. And so that’s the model of the team that I put together. We work well together cause we’re clear on who does what. And in order to be able to move forward to 500 properties per year, which was originally your question, it’s just having that system in place and being able to take each investor that comes in and works with us as our client through methodically laid out steps. Check, you could literally check the boxes because I have a two-page checklist and they follow along if they want to. But when you’re detailed enough and you map it out clearly and specifically, and you have metrics tied to everything that allows you to measure your progress and success, then it works virtually every time. And if that’s what you have to have in order to do 400, 500 deals a year,

Gene Hammett: And it’s impressive when I hear you say this because one of the things that I think about is I could go do it on myself, myself, and I could figure out my way through one or two. But you have this, this knowledge of not just one or two, but literally, hundreds if not thousands of these transactions. And you’re able to see things that I, I haven’t even thought to look for.

Marco Santarelli: Yeah, we call them landmines. We don’t want you to step on land mines. I mean, I’ve done my fair share of mistakes. We all make mistakes. It’s, it’s to be expected in the beginning. But if you work with people that are trusted advisers, you assemble the right team around you. And that’s ultimately what we’ve done is assemble that team to shortcut your learning curve and your success curve. When you do that, then you avoid stepping on the landmines and making the same mistakes that other people do in the beginning. You know, there’s that saying that if you, it refers to mirroring, I think Tony Robbins was talking about this, or you want to duplicate success or achieve the same success other people have duplicate what they do, doesn’t mirror what they do. And so why reinvent the wheel yourself and try and find the right people to work with and identify the right markets and neighborhoods and properties and property managers and all that stuff when it’s already done for you. It’s put together. So if you can shortcut your success and you can, reduce the length of time it takes for you to get to whatever target or a goal you want to get to, why not? Why not take advantage of that?

Gene Hammett: Well, you had talked about asset classes and I know there are different classes within the real estate world, you’re mostly toward passive income. Tell us what that means to you and how is that different from, you know, what we see on TV?

Marco Santarelli: Well, in general terms, active income and passive income are different in the sense that active income is typically earned income. It’s, you’re putting your time and you get paid whether it’s per hour or salary per year. That’s earned income. The unfortunate thing with earned income is taxed at the highest tax brackets. And so it’s not the most favorite type of income. Passive income, generally speaking, is income that comes in, whether it’s a portfolio or passive from rental investments that come in each and every month, week, quarter, whatever it may be. Um, it is, it is a favorite better in terms of taxes. But also you don’t need to get up in the morning in order to receive that income every week or month or quarter. So passive means it’s passive. You put in the investment capital or put in the time, we’re both to create that stream of income and then it comes in like clockwork and it’s, it is better in terms of, um, you know, it’s being tax favored.

Marco Santarelli: The taxes are less, he could virtually be zero. It can go down as low as zero. So that’s conceptually at a high level, when you’re talking about real estate, the difference between active and passive is this active income is where you roll up your sleeves and now you’re taking on the risk and the responsibility of assembling a team, finding a distress asset, whether it’s from a distressed seller or foreclosure, you know, to distress property, fixing it up, which means you’re adding value and then either holding it as a rental for cash flow or you’re flipping it and creating a chunk of cash. That’s the act of approach. The passive approach is where you come in at the tail end of that process. So now you’re acquiring an income producing asset right from the get-go, whether you’ve renovated it or not, or you’ve purchased it off the MLS or to rent ready property, you buy it through a turnkey real estate company like ourselves.

Marco Santarelli: You’re, you’re basically getting an asset from day one that is cash flow positive, that doesn’t have deferred maintenance. That’s the passive income approach to real estate investing. That’s my favorite. That’s where I like to be. I’ve done both lots of it. I flipped hundreds of houses. It’s not as sexy as it shows on TV shows where, you know, if flip or flop, fix this out. So, you know, I know some of these people, by the way, Ken Courseden, he’s a really good friend of mine. I mean, I know these people. I know that this is reality TV and so they’re showing you the stuff to get you jazzed and excited about it. But the reality is its work and that’s why it’s, it’s an active approach to real estate investing, but it’s only investing if you keep the property for cash flow. If you flip it, you’ve created a business. It’s a job and all you’re doing is creating chunks of cash. And then when you do with that cash, you need to make a decision. Do I put it in the stock market? Do I invest in buy and hold real estate for streams of income? You know, it’s a, you got to understand the difference between passive and active.

Gene Hammett: Well, I appreciate you describe that to us. You know, I was looking through some of the guides that you have created because I wanted to get a real deep understanding of what this is. And you mentioned in there that there’s only a few reasons why you would have a property that’s not cash flow positive. So maybe share to us what cashflow pub positive is in real estate. And then what’s that one reason that you, that stands out more than others of why you should that you would go negative.

Marco Santarelli: So first of all to, to answer your first question, you know, the passive income part, they’ll say, let’s talk about cash flow to have cash flow coming in from a property. And I’m talking about net income, meaning after all expenses and budgeting for everything. This is what you do. If I’m throwing out a lot at you know it’s okay. Just understand the concept here but when you take the rental income of a property, you deduct what you’re forecasting, budgeting to be a vacancy. You may not have a vacancy and it may not be vacant for years, but you’re going to forecast the fact that one day you’re going to have a vacancy. It’s called the vacancy allowance and you deduct that and then from there, you deduct your, your main expenses which are property taxes, insurance, your property management because you’re going to have a management company managing it for you.

Marco Santarelli: Remember this is a passive real estate investment. You are going to enjoy your family, you’re going to do your work on your career, do all the stuff that you love to do, not manage properties but you deduct that and then you also budget for maintenance and repairs. The number of your leftover, the true net net, net number is what we referred to as your cash flow or in other words your net income. That is true spendable cash that goes in your pocket every month. That’s how you calculate the cash flow or the rate of return on a property. And then, you know, there are other metrics we can talk about if you want to, such as your cash on cash returns and all that other good stuff. And that’s how you ultimately ended up comparing it to the stock market and what you’re invested in elsewhere, whether it be a business, the equities, market, stocks, bonds, mutual funds, et cetera.

Marco Santarelli: So that’s the cash flow question that you had. Now the exception to answer that there really shouldn’t be an exception, but there is one exception. I’ve done it and I’ve seen people do it. And this is really where you have to have thick skin and an understanding of the market where you’re purchasing that property. If you are purchasing a property that is appreciating in a strong appreciating market and you strongly believe that the appreciation of that market will continue, um, then you can make the argument that you can acquire that property for whatever, 20% – 25% down. Let it continue. Appreciate, even though at the same time you have a negative cash flow. So it may be costing you one, two, three, $500 a month, negative cash flow. But what you’re gaining month after month and over the course of the year in terms of equity growth from appreciation far exceeds your loss, you’re real dollar loss.

Marco Santarelli: Then you can make the argument that that would be good, a good deal. I’m not going to say necessarily an investment because the exit strategy, keep that in mind. The exit strategies, you’re going to hold it for one, two, maybe three years, and then sell it essentially what you’re calling a flip. And so what you gain and capital gains on the sale should far outweigh the loss that you’ve made by feeding this beast every month and every year. Now that’s called speculation. It’s, it’s, I have these 10 rules of successful real estate investing that breaks one of them never speculate because if you’re chasing after appreciation, you’re essentially gambling. You’re, you’re speculating. You have to have the cash flow in addition to the appreciation which you do get over time. That’s just what happens in an inflationary environment, which we live in, in this country and in fact in this world. So what I’m saying is this, you need to be very sure that you’ve done your research and nobody has a crystal ball, but you gotta be very confident that the market you’re in is going to continue to be strong and grow for at least the foreseeable future, which means one to two years. It’s really hard to predict for three years.

Gene Hammett: Well, I appreciate you sharing that with us because I thought it was interesting in the guide and I know you that you make that available to people. Where can they find that guy?

Marco Santarelli: Yeah, it’s a 40 some page document and it’s a, it’s like a mini ebook really. Uh, it’s available as a free download on both of our websites. The easier ones to remember is passiverealestateinvesting.com because that’s an easy domain name. Our company’s domain name as Norada real estate and N-O-R-A-D-A Noradarealestate.com. But passive real estate investing is the home of our podcast and the document is available here. The two sites linked to each other.

Gene Hammett: Well, perfect. I wanted to share that with our audience because I really did feel like, I knew a little bit about real estate and it was showing me a lot of the reasons why to look at it. And I’m fairly versed in this now and I can have a much more educated conversation with someone like you, Marco, because as a family we really are looking at, we have so much tied up in our current, I record the podcast from the house, but it’s something that we’re looking at because returns in the stock market and haven’t been what we want them to be. Uh, and, uh, that guidance really helped me. So I appreciate you walking us through that. When you think about your team, um, you mentioned some of the principles that have been guiding your growth, walk us through. Do

Marco Santarelli: you know some of them, those leadership principles that could help us? Well, the first thing you need to do is simplify your organization. A lot of people like to create these org charts and they put titles on it. That’s actually the wrong way to create an org chart. What you should do is take everybody’s name completely out of it and create an organizational chart that is essentially a functional chart. So what you do is you put the functions in the boxes, not the names or titles, and when you do that, then you know what your business does. You know what the different functions are, you know there’s marketing and marketing can be subdivided into different areas. Then you have operations and then you have financed. Those are the three top-level categories of your business. Then what you can do is you can sub subdivide those into a smaller kind of like if you’ve ever seen it was network marketing charts where you have a circle of top and then you have a couple of circles underneath it and so on and so on.

Marco Santarelli: You kind of map out the major functional areas and then after you’ve got that clearly defined, then you start attacking people’s names to it. In other words, what you’re doing is you’re assigning those functions to people once you’ve got them all assigned to people. In your organization, then you start attaching numbers to it so you can make them accountable. There’s the metric, the measurable or the KPI, the key performance indicator that lets you know if you’re on track every week, every month and every quarter and that’s how you want to measure it. What is, what are our deliverables or targets this week, this month and this quarter. And you could even, depending on the type of business you run, it could even be daily and maybe you have daily targets because you’re talking about, you know, microtransactions, you know, you’re selling something online or you know you do so many procedures a day or whatever the case is, but you, you, you attach numbers to it and you make everybody accountable to that.

Marco Santarelli: And then they, of course, need to report to whoever they report to every week and every month and every quarter on those deliverables. Now, what helps you grease the wheels of your organization are creating systems. I and also delegating. I’ve had a problem, much of a controlling person that I always have a problem delegating. And when you learn to delegate you, you free yourself up to focus on the more important thing. So learning the art of delegation is important. And the way I do that is, I decide whether the thing I’m looking at, I have to eliminate. I look at whether it can be eliminated entirely first. If I can get rid of it altogether, that’s huge. Then I try to automate it. If it, if I can’t eliminate it, I’m going to, I’m going to automate it. I’m going to find a way to put a system or tool or a, you know, a software as a service, something in place to automate that function or that task. And then lastly, I’m going to delegate it. If it’s something that’s on my plate and I need to free up time because it’s really not something I should be doing, then I’m going to delegate it to somebody. And if I don’t have that somebody, maybe it’s time to look for that somebody. So learn to delegate and systematize your business. All of that together creates a very good framework to run your business in.

Gene Hammett: Well, I’m glad we squeezed that in there because I think the combination of what you’re doing and you know, kind of the level of transactions you’re running, where most people are doing, you know, one or two or three a year, you’re able to do hundreds and really created a business to support others that want to be in passive income real estate. I really appreciate you being here. Again, where can our audience get the guide that you were talking about, Marco?

Marco Santarelli: Yeah, so the easiest website to remember is passiverealestateinvesting.com. That’s the one main website and then all the properties that we have, not all, but most of them are put on Noradarealestate.com and N-O-R-A-D-A Noradarealestate.com.

Gene Hammett: Perfect. I appreciate you being here and sharing your insight as well as your principles for leadership to help you grow and as you say, grease the wheels. So thanks for being here.

Marco Santarelli: Thank you. Gene, it has been a lot of fun.

Gene Hammett: Wow, what a great interview. I really enjoyed listening to this. Very different than what we’ve had before. Again, this is a sponsored post, interview, but I really wanted to share with you this insight because I believe in diversification. I believe in real estate and I believe in passive income. So without further ado, go ahead and get the guy that he mentioned. It’s at to passiverealestateinvesting.com and you can get some insights and details so that when you come and look at properties, you’ll have a lot more knowledge around it. He walked me through the database, he walked me through a lot of the ways in which he looks at properties, really smart stuff. So hopefully if you’re interested in that, if you’re ready for it, you’ll take a look at that guide. And, uh, go ahead, sign up now passiverealestateinvesting.com as always, lead with courage. I’ll see you next time.

Disclaimer: This transcript was created using YouTube’s translator tool and that may mean that some of the words, grammar, and typos come from a misinterpretation of the video.

In this episode we’ll cover:

  • Real Estate with Passive Income
  • Financial Freedom
  • What Cashflow Pub-positive is in Real Estate
  • Negative Cashflow
  • Organizational Chart
  • Top Three Level Categories of a Real Estate Business
  • Good Framework to Run your Business



And lastly, please leave a rating and review for the Leaders in the Trenches on iTunes (or Stitcher) – it will help us in many ways, but it also inspires us to keep doing what we are doing here. Thank you in advance!

If you want more from us check out more interviews:

Transformational Leadership
Productivity Tips
Best Selling Author Interviews

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