Value Add Investing and Seller Financing with Mike Nuss | The Real Estate Investing Club #38

Value Add Investing and Seller Financing with Mike Nuss | The Real Estate Investing Club #38

Gabriel Petersen 0:02
Hello and welcome to another episode of The Real Estate Investing club. Place investors go to learn tips, tricks and stories from other investors in the field. If you feel we provide value to you go ahead and hit that thumbs up, share whatever it may be. And if you’d like for us to cover a specific topic, let us know in the comments or reach out to us on our website. Today we have a very special guest. So buckle up, grab your pen and paper and enjoy the ride.

All right, we are live Mike, thank you for joining us today. How you doing? I’m great man. Thanks for having me. Gabe. I appreciate being on. Absolutely Of course and get us started want to tell everybody you know who you are, where you’re from and how you got started in real estate in the first place.

Mike Nuss 0:50
Yeah, I saw I got lucky I had a really nice career opportunity when I was in high school. So I started in real estate appraisal back in 1897. Bump. Yeah, that worked out Well, little did I know how amazing that opportunity was going to be in and I’m a slow learner. So it took me six years to purchase my first real estate property. So I read Rich Dad, Poor Dad in 2001 read a fizbo book from a local broker here that I was taking an education class for my appraisal side, bought my first house via a short sale in 2003. I didn’t even know what a short sale was, you know, found a fizbo walked in, you know, owed like 220 or 240 on it. And you know, my response was like, I can only pay 200. So no big deal. Let’s just write it up and throw it to escrow. And like six months later, I got a call and said, Hey, we’re closing this transaction. So I bought that as my first investment than a house hacked it rented the basement out to a friend, which was awesome, didn’t know what house hacking was, but obviously loved lowering my rank from 1200 bucks to a $600 mortgage payment. And then in started my own appraisal firm in 2004, and then bought a handful investments prior to the recession. And then in the recession learn a whole bunch of lessons that really form how, you know, my investment philosophy. were my first investment philosophy is today, Dodd Frank hit. And with Dodd Frank, it was kind of like the opportunity for me to switch out of the appraisal world, you know, income essentially evaporated overnight with Dodd Frank and get in, so switch away from appraisals into real estate investment. So and then at that time, because I’ve learned lessons, I actually cashed out in the 401k. So I could buy a $26,000 education package, which was a waste of money, not a waste of money. Education wasn’t worth the 26 grand but it was a great investment in my future. Did my first wholesale in 2010, because I didn’t have much cash left over and no credit, met my business partner 2010 unit partnering in 2011. And then we were really successful from kind of from the get go. And so we started building a real estate portfolio in 2012. He was a licensed broker at some point, I became a licensed manager and that thing created our service companies. So now we have an investment firm, a property management company, real estate brokerage. And then in 2012, we started doing classes for our local Ria. So we were leading a breakout group that quickly became one of the fastest attended the most attended breakout groups. And we didn’t like the direction our local reo was going. So in 2014, when we were changing our name, we were just this investment companies. We rebranded in 2014 to rare bird, rare bird real estate, rare bird property management, rare bird acquisitions. And then we launched that at that meeting into its own networking group as well. And that’s that was Reverend investor network at the time, which we just recently rebranded into investor lab. So that’s kind of us you know, we do buying and holding, buying and flipping a little bit of land development, a little bit of new construction, a lot of creative stuff so we saw options master leases, seller, finance, Subject to, you know, kind of done a whole lot of everything. We have a little hotel so we do Airbnb ease, a little bit of commercial. So he kind of did you know, dabble in a lot, but I’d say our focus really is small multifamily historic multifamily and repositioning multifamily

is kind of our forte.

Gabriel Petersen 4:19
Wow, I love it. That is a I mean, it sounds like you guys, really you have done pretty much everything you can do in real estate. And so that’s awesome. I so just, you know, I’m gonna kind of sum you up in just a real quick timeline here. So it sounds like in 1997, you got started in appraisals, which is an awesome way to start because you really get to see you know, how properties are appraised how the value is defined. From there you you bought your first house in 2003 as a short sale, you didn’t have the money. You’re like, Hey, I only have this much. They’re like no big deal. That’s how much you’re gonna buy it for. Your snack that 2004 you started your own appraisal firm. The Crash hit, you switched away from the appraisal side of the business. Once Dodd Frank went through, and you focus on Aria, our real estate investments themselves. In 2010, you and your business partner joined together. You started property management, brokerage and education and investments, business 2012 going forward to where we are today, where you have rare bird and investor lab. rare bird is your investing side of the firm and investor lab is your networking side where you put on events sounds like nationwide.

Mike Nuss 5:35
Yeah, well, we so investor lab was really just locally live events. So that’s kind of our our good thing is so you know, like bigger pockets online is amazing. We want to bring that atmosphere to in person events. And then with the rebrand of investor lab, we’re actually now launching an online platform and with COVID, we’ve taken things virtual so there there will be some sort of national element to it or just kind of working the kinks out and going that direction because of the virtual portion, but our forte is in person events and that’s what we really like.

Gabriel Petersen 6:06
Awesome. I love it. There’s I mean, there’s a lot to unpack there. So let’s start on the investing side of the business. I mean, you got property management, you got brokerage, you got education, you got investing. Sounds like you’ve you’ve done everything there is to do in investing on in terms of the type of deal. You really like to focus on multifamily. So kind of take us through that that side of the business. What are you guys doing right now? It sounds like you’re trying to do multifamily. Are you doing what’s the size of the deal that you’re doing? kind of run us through that real quick?

Mike Nuss 6:35
Yeah, yeah. So everything we buy is value add, right? So we want to force appreciate everything that we buy. So we have marketing now and various ways that we try and you know, attract deals. And essentially we’re looking for something we can do a significant rehab to and then create, you know, 30 to 35% of equity at the end of the day in there. And then the single families we typically sell, we use that to recapitalize our cash And then pay all of our overhead and our and our salaries and whatnot. And then the multifamily it’s a burn model. So he, it’s either seller finance or burn model. So the idea is to have as little cash into those holes as possible. And then in the hold on to him for a long period of time. So we work in the intercourse, we really focus in a small part of a small part of Portland. So we’ve got about 75 units that are within just a couple miles of each other. So that gives us a real economy of scale. From an efficiency physically standpoint, there’s a lot of efficiency and just market knowledge and not knowing a whole bunch of markets versus knowing our backyard. So that’s what we do. It’s value add, and it’s all off market real estate. So, man, I can’t remember we bought a listed property like one in the past six or seven years. So it was actually just last year. We bought one last year, and that was a change for us and we don’t usually buy from wholesalers either, because professional wholesalers usually don’t leave much profit on the table. But we started buying some of those as we were aggressively expanding this past year but typically direct from sellers and then we’re all about relationships so we like to find those property owners that have multiple properties, create that relationship and then buy their portfolio over a period of time. And a lot of times those sellers you know, they they they’re well financially they’ve got a ton of appreciation they’re looking at a ton of capital gains they really aren’t selling for income they’re selling for lifestyle change. So that tees up seller financing really well. Even if you buy the first one it doesn’t and they don’t want it to be seller financing you create the relationship so down the road the next transactions can be seller financing. So yeah, that’s the you know, I just I love the core Portland I love historic real estate always have had the passion and that’s really what our focus is.

Gabriel Petersen 8:46
I love it. You said some really, really good things that I want to highlight there. I mean, so we do multifamily and mobile home RV parks. And so you know we a lot of this is mom and pops, people who own You know, multiple small parks, but it is once you start developing that relationship, it does kind of open the door to their portfolio. Most people that we talked with, they’re, you know, 60 Plus, they’re kind of at the end of their career and they’re just like, you know, I kind of want to just get rid of these, I want to liquidate them I want to move on to the to the next part of my life. So it’s awesome. You guys are doing the same thing. Tell us off market it’s it’s the main your bread and butter is off market. So how do you go about finding these these portfolio owners? And and how do you go about developing the relationship with them once you’ve first contacted them?

Mike Nuss 9:36
Yeah, yeah. Great, great question. So I’m all about the slow dance. You know, from a from a meeting standpoint, rarely Am I quick to make an offer. You know, I don’t like to discuss price until two or three meetings down the road. So I’ll discuss that first of creating the relationship which is building rapport, building rapport on the phone. It’s tough to do for me, I’m not great on the phone, but in person as being an appraiser that really trained me to be in people’s living rooms talking about real estate. So I think when I look at real estate appraisal, the valuation was great. But that skill set of being comfortable in people’s living room right from the get go is the most valuable skill set that you have in an off market scenario. So build rapport find out what their true goals are, what are they not telling you, that they’re telling you whether there’s their your, you know, their body language, or you’re reading in between the lines. And then it’s more of you know, I have a conversation, which is I don’t have an agenda. And I think this is a great lesson for the audience. When I started in 2010. In in real estate investing, it was my education was very limited to flipping and wholesaling. So it’s all cash, everything’s a cash discussion. Now, when I’m in a living room, it’s more of, hey, I’ve got this whole box of tools. We’re not going to talk about all of them. Let’s talk about you. And then we can talk about these other tools that I have. We’re not going to talk about all of them, just the ones that are clickable. So whether that’s property management brokerage Just education. I’m a commissioner on a rental Services Commission commission. So just educating them on landlord tenant law. So it’s really just bringing a lot of potential solutions to the table and then talking to them about here’s how this one can fit your scenario. Here’s how this one can fit. Here’s how this one can fit. And a lot of times I go into people’s living rooms, or my team does and it’s like, Hey, you don’t need us, you know, the property has no value to add, you’re gonna you put it on the market, it’ll sell in a weekend, you know, just there’s no reason to take a discount to work with someone who needs to make profit. So when you come to the table in an abundance mindset like that, it opens up a lot of opportunities. And so, we do marketing for property management, we do marketing for investments, you know, the the investing, marketing will sometimes turn into property management clients and the property management marketing will sometimes turn into investment clients. So we really like to have that wide wide toolbox. And then as far as finding these property owners drive for dollars is awesome. I’m important as we bike for dollars, here.

Gabriel Petersen 12:01
Portland That’s right.

Mike Nuss 12:02
Yeah, very rarely. So you do that to create lists, we usually do the cold calling off the drive for dollars and then you know, that’s more of a spear gun target. And then we have direct mail for kind of the big net target. And then with direct mail, we’re looking for property owners that are absentee have not had any transactions within the past 20 years. So no refinances or sales, which that way when I go in I know a property free and clear B have lots of capital gains. See probably below market rents, you know, something that just sets up perfectly for either a remodel or a seller finance deal. And then you know, when you understand lots of different tools, you can offer a lot of different things. If you’re just offering cash, you’re essentially asking for a large discount for because you’re bringing cash to the table. And a lot of people can’t do that. When you understand the creative side of it, you know, we pay market value we paid above market value for properties because it came with the right financing. You know, for example, we bought a commercial property, little little commercial properties. probably worth 160 grand at the time he paid 200,000 for it because it was zero percent down really low interest rate, interest only payments for 10 years 20 year ham on the back end of it. Great relationship with the seller that was weird.

Realize that light was so helpful

in a relationship with the seller who’s also a lender and establishing that, that that relationship and that ended up turning into a really good deal when marijuana laws passed and dispensary is created. And now we have a dispensary out it’s our biggest cash flowing property that we paid way too much money for and had no tenant for a year and it was just, you know, a drain on us so but when you structure it the right way you know $600 monthly drain for 14 months isn’t that big of a deal. You know, that’s just like a small down payment on another property. So we really look at that relationship and and what’s the ultimate goal and then just form the transaction around that ultimate goal.

Gabriel Petersen 13:56
I love it that there are a lot of of wisdom gems that you just Put in there. So I’m gonna try to just real quick or revisit that. So it sounds like for the marketing side of things you do drive for dollars or bike for dollars Portland style. And then you also do direct mail. And those are the those are the two main ways you’re you’re bringing in the the lead from the very getgo. Is that correct?

Mike Nuss 14:18
Yeah. And I’d add, I look at acquisitions as it’s a bicycle wheel with lots of spokes. So we also we work with wholesalers, we work with bird dogs, we work with brokers and pocket listings. So those are our bread and butter, but you have to have lots of different spokes. And the beautiful thing about real estate is when you’re a high integrity individual you build a reputation and then that snowballs into you there is we probably went 24 months without sending out any direct mail and we were fine because we just had that pipeline filled through other resources so you got to build that snowball direct mail is a great way to do it but don’t stop creating relationships you know some of we have one broker have an amazing relationship with we go on hikes we talk on you know on a spiritual level on things and he’s consistently bringing us one or two deals a year that, you know, that adds up to 50 to 100 grand profit a year just from one. Friendship really just a really good relationship. And that’s the beauty of real estate, you can make some amazing friendships, like all my friends are real estate investors. And then you’re just propping it together. You’re living life together, you’re growing together. And you know, that’s the beauty the beauty of that community effect that this industry can bring that not a lot can.

Gabriel Petersen 15:28
Yeah, I absolutely agree with you on that one. And I’m i I 100% believe that if I were to rewatch all the episodes, not one of them would say that would would take relationships out of the picture. They all say you know, relationships are the core of real estate, which is why you mentioned it yourself. Integrity is is one of the most important character characteristics that you can have as a business owner in in a real estate industry or an industry any industry for that matter but real estate, specifically you So I’m loving everything you’re saying here so going back to the marketing you said drive for dollars

Unknown Speaker 16:06
drive for dollars

Gabriel Petersen 16:09
direct mail and then relationships obviously and then once you do that it sounds like you’re what you’re really focusing on is absentee owners and you’re trying to develop you’re trying to connect with those people who have multiple properties on who and who you can kind of you know develop that relationship with you mentioned earlier you don’t even mention you don’t even bring price up until the second or third meeting the first first meeting you have with them it’s all just you know Who are you this is who I am you know, I want to know what what your needs are Why are you trying to sell right now etc etc. And then you know, once that price is actually brought up, you start to open the the toolbox that you have for their specific problem. You talk it sounds like you’ve done a lot of seller financing and I hundred percent agree I you know, we usually on average offer 15 to 20% more for seller financing than we do for cash because and I mean sometimes it’s even higher just because of the way it works out you can structure your deals if you push it out far enough you can structure the deal to where it makes a lot a lot more sense for you as the buyer as the investor to pay more and so it works on both sides works at both the the the seller and the buyers and so I love you’re doing that the conversation I found it was difficult for me when I first started, you know, bringing that seller finance conversation up so what are I mean, creative financing is one of the things a lot of people really want to learn more about these days. So what are the top like just the top one tip that you could give for just broaching the subject of seller financing?

Mike Nuss 17:43
Yeah, well you nailed it at the beginning we pay more you pay higher for for seller financing, right because opportunity costs are real. And so the way I always lay this out to the seller is hey, there’s two ways that we repurchase you know, once all cash one seller financing, we purchase purchase all cash. That’s a business business model where we have to get that cash back as soon as possible. And we have to profit from it within that one flip of the money, right on seller financing, we can build wealth or we can create profit over a long period of time. And so if you’re willing to work with us and finance us over a long period of time, we’ll share in that profit with you by giving you a higher price. And instead of us taking it in that first six months, we’ll take that profit over a decade.

Gabriel Petersen 18:25
Gotcha. So you kind of you show them like, this is the business model that we’re working with, you know, if we buy it for cash, you know, this is why we have to actually pay less because we need that cash back quickly because the cash is all out there already. And then you lay it out to them. Look, we can offer you more we can we can put more money in your pocket because of visa to this situation. This is the context that we’re buying it in. So that’s kind of how you really explain to the to the seller so they understand, you know, this is a this is why they’re not they’re not being cheated. They’re not being you know, it’s not some kind of like way to get get around them. It is better for both parties in that situation. Yeah. Okay, so you know, we’ve kind of gone into into your business, there’s so many different aspects that we could jump into there. I do want to move it forward a little bit, because we do try to keep these to around 20 to 25 minutes. So I want to hear I mean, you’ve been here, you’ve been in the business for a long time. You’ve done a ton of deals, I’m sure. So that means you have stories every investor has great stories, um, you know, that just being an investor, you go up or down, there’s, it’s very cyclical, it’s a rollercoaster. So kind of take us to to the valley to the time when you got to the to the bottom at one point, and tell us you know, what was the main lesson that you learned from that experience?

Mike Nuss 19:47
Yeah. You know, for the valley isn’t even one specific field. You got deals we’ve, you know, done terrible on, but really, and this kind of goes to the community aspect and how I met my business partner actually. So that first wholesale that Did in 2010, it was really tough to wholesale is really great is easy to find deals, but to find someone willing to actually put out capital and buy it was tough. And so I found I was struggling and wholesaling, found two guys wholesale two deals to them. And they were creating this business model of essentially profit sharing with a bunch of people. They controlled everything. They had people bringing them deals that people finding deals, got a brokerage construction company, and then they just took the money and didn’t finish any projects or the projects they did finish didn’t have any profit. So I was one of the guys bringing the deals and then my current business partner was the one funding the deals. And so as that really started to go under my partner and my current partners kind of saw the writing on the wall. So he started to distance themselves but essentially summer 2011 You know, it kind of hit the fan at that point. We need to separate and so we decided to create our own partnerships and so leaving that I made it through all the great recession, no problem. You know, I still had some credit intact I still had some cash, leaving that partnership I ended up having to file bankruptcy. And then he had to go back to his people that he raised money from and say, your money has been stolen, I need you to release this lien. So we can sell the property and we’ll pay you back. And so that was the heat. I mean, that’s the valley or the, you know, the valley for us is I’m being crapped he’s tail between the lanes talking to lenders, we still work with us so we can operate and actually pay you back. So that was a huge learning experience on people. Right. And, and, you know, I always had a gut feeling about the one guy in those two. But yeah, and then you see what happens going through that fire and that’s, you know, our superpower really is our partnership. And so being able to go through that with my partner was really key.

Gabriel Petersen 21:46
I love it. So, I mean, it’s going through bankruptcy itself, that’s got to be it’s the biggest fear of most investors is you know, hitting that period. The silver lining in that I mean, especially for you your your background. At the top. And so, you know, it’s not the end of the world. You can back bounce back from that. You’ve already proven itself. But it sounds like the main lesson there you you were in a sour partnership. Nothing on your end it sounded like it was it was the it was the the other parties that were kind of not doing the correct things. But I mean, you mentioned you had a gut feeling. There was something about him something about that guy, he just didn’t fit right. And the lesson was to kind of it sounds like the lesson is to stick with that gut feeling.

Unknown Speaker 22:32

Gabriel Petersen 22:35
when when you’re in when you’re in business with people who don’t have the integrity that you mentioned earlier, it’s just not worth it. Yet in any way you look at it. So I’m glad you made it out to the other side. We’re glad to have you here today. So that’s that’s the valley takes to the mountaintop. You’re here you’re still loving real estate. You’re back at it. What What keeps you know get keeps you getting up out of bed in the morning.

Mike Nuss 23:00
Yeah, that’s a really good question. As we’ve evolved and we become more of a entrepreneur you know company rather than an investment firm watching our employees succeed so we implemented a dream manager program last year. One of our employees by to our employees bought their first houses. One of them is already booted out got more than his down payment back out, he’s house hacking it now looking for another duplex. You know, one of our employees started another business, one of them is getting married. So, really seeing the ripple effect, you know, and like I love we give a lot of free advice. I mean, if education should be free, you give a lot of you know, I get texts like Hey, man, thanks for that call. You just saved me six grand or something like that. Just that happens. And I love to see that because our success is going to come we built enough snowball, it’s going to be there. So watching other people grow is really truly what inspires me. So it’s it’s being so I guess leadership is a great way to start. I’m, I’m really kind of stepping into that leadership role. And I’m absolutely loving that part of life right now. And that just makes it really easy to get out of bed.

Gabriel Petersen 24:08
Awesome, I love it. So being just kind of, I mean, you’re at the helm of the business, you’re kind of taking it in that direction and you’re really enjoying watching people come up being part of their success story, as you’ve already seen the success that you’d been looking for earlier. Awesome. So we are at the tail end of the of the episode here. I want to thank you for coming on. I’ve enjoyed everything you’ve shared, and I’m sure everybody else has as well. For relieved though I do want to hear if someone were to bring you something. Every you know, everybody needs to receive things. So somebody wanted to bring you something What would you want to receive?

Mike Nuss 24:45
Oh, man, that’s a good question. I don’t know. I don’t ever really think of that way. I’m more of a giver than a receiver. Um,

Unknown Speaker 24:55
gosh. Uh,

Mike Nuss 24:57
well, what I really like to receive is Feedback then I help someone so if I’m receiving without I would say I don’t know like a relationship and introduction to someone in my in my in my community that then I can create a relationship for I think that’s probably the biggest gift that I could get from someone that I don’t already have relationship with.

Gabriel Petersen 25:15
awesome i love it And on that note if somebody did want to get in contact with you what would be the best way to do that?

Mike Nuss 25:21
Yeah. So Instagram handles rare bird Mike I don’t get on there a lot. Investor lab on Facebook so that’s our business kind of group pages investor land. Or my email Mike at my rare is a greater good radio as well.

Gabriel Petersen 25:40
Awesome. So you guys heard it if you want to get in contact with Mike reach out to him Mike at rare bird calm. I will also put his LinkedIn profile in the show notes so you can check that out as well. Again, Mike, I appreciate you have been here. I know I can speak for everybody listening and watching. We appreciate the wisdom you shared with us today. For everybody who is joined us on this episode today, we thank you. Go ahead and subscribe share with your friends and we look forward to seeing you guys on the next episode.

Unknown Speaker 26:11
Thanks for having me, dude.

Gabriel Petersen 26:15
Thank you for joining us on The Real Estate Investing club. If you feel we provide value, we would appreciate it if you hit that thumbs up, share with your friends online, whatever it may be. If you’d like to share or partner with us on an investment deal, we are always looking for quality projects, go to http://www.hp real estate investing club comm get contact with one of our partners. Otherwise, I hope you guys have an absolutely fantastic day and I look forward to seeing you on the next episode.

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The Real Estate Investing Club is a podcast and YouTube show where real estate investing professionals share their best advice, greatest stories, and favorite tips in real estate. Join us as we delve into every aspect of real estate investing – from self-storage, to mobile home parks, to single family rentals, to real estate syndication!

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Join us as we learn about these REI pro’s career peaks and valleys and the lessons they learned along the way!

Topics you’ll learn more about throughout our episodes:

– Using the BRRR strategy to buy income properties

– Flipping houses the right way, building quality housing and taking home a large payday

– Using hard money and bridge loans for real estate investments

– How to bounce back from bankruptcy and build a thriving empire in the wake of failure

– How to use property management companies to help scale your real estate business

– The best online and offline tools out there to take your real estate investing business to the next level

– How to do out of state investing without risking your shirt in the process

– Going from broke to 300+ deals in a month (really!)

– Investing in commercial real estate

– Stories about brand-new investors and the lesson’s they’re learning as they take on their very first flips and rentals

– How to use Google Ads and Facebook Ads to crush it in off market real estate marketing

– How to fill your pipeline with off market deals using direct mail, voiceless mail drops, and text blasting

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