February 25, 2020

JF2002: The Benefits of Having a 900 Mile Investment Property with Zach Evanish


Zach helps investors locate and identify properties that fit their goals; whether that is cash flow or long term appreciation. He explains how diversifying where your investment property is located can be beneficial. On average his clients have investment properties that are 900 miles from their residence. Zach also gives out some great lessons on what to pay attention to when buying properties. 

Zach Evanish Real Estate Background:

Best Ever Tweet:

“He said “No”. Go Buy a single-family home, start with that and then from there we can talk about duplexes and fourplexes. How do you think I got these 10-15,  50 unit apartment buildings? I started with a Single Family Home.” – Zach Evanish


Joe Fairless: Best Ever listeners, how you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Zach Evanish. How you doing, Zach?

Zach Evanish: I’m good, Joe. How are you today?

Joe Fairless: I’m good as well and looking forward to this conversation. A little bit about Zach – he’s the Director of Retail at Roofstock; he’s been with Roofstock since the beginning and has worked in the real estate sector for most of his career. Based in Oakland, California. So with that being said, Zach, do you want to give the Best Ever listeners a little bit more about your background and your current focus?

Zach Evanish: Sure, yeah. Like you said, I’ve been in real estate for actually almost two decades now. I got my real estate license in my junior year in college, did my first deal in college, and since then, I’ve done everything from commercial appraisal to multifamily brokerage, to running acquisitions for a real estate mentor fund. Now I’m the Director of Retail Sales at Roofstock, and my team and I are tasked with helping both buyers and sellers achieve their goals through our real estate marketplace.

Joe Fairless: From your previous experience, what experience has helped you best with what you’re doing now at Roofstock?

Zach Evanish: Probably my time running acquisitions for a fund. So this was in 2010, 2011. Just after the crisis, we were buying foreclosures, renovating them and renting them out. We were really the first group to raise private equity with the question of “Can you buy homes in bulk and renovate them at scale?” And then most importantly, can you manage them like a big apartment building?

So I learned a lot of lessons the hard way, but probably the best way just by boots on the ground and buying homes and making the mistakes of maybe buying in the wrong neighborhood or buying a home with small bedrooms and trying to rent it out like a full four-bedroom, two-bath home. So learned a lot of my lessons during that time when I was acquiring all the different foreclosures and short sales, renovating them and then renting them out.

Joe Fairless: Let’s talk about that. So a couple of things you mentioned, buying in the wrong neighborhood. Another is, I think you just said buying small bedrooms. Will you elaborate on that?

Zach Evanish: Yeah, I think sometimes you’ll see, say, a three-bedroom home, and it’s 900 sqft, and you say, “Wow, this looks like a good deal because it’s priced appropriately.” And then when you’re comping it out with the rents, you just need to make sure you’re comping it out with similarly small-sized three-bedroom homes. A bedroom is not necessarily just any room with a closet. A lot of these older 1950s, 1960s homes will have some really small rooms that are basically just big closets, and if your target renter is this family, maybe it’s okay, but tough to fit too many people into those small bedrooms. So just make sure you’re comping it appropriately.

Joe Fairless: Okay, what are some other mistakes or lessons that were learned throughout the process of running acquisitions for the fund?

Zach Evanish: Yeah, some other mistakes – buying near a large industrial facility or buying near railroad tracks or going to a neighborhood at 10:00 a.m. in the morning and thinking, “Wow, this is a great neighborhood. It’s quiet, it’s peaceful,” but without coming back on the weekend or at night to also see what that neighborhood is like. So making sure you’re really getting a full 365 view of a neighborhood you’re buying in. And if you are buying a home near an industrial facility or across the street from a gas station, again, just making sure you’re factoring that in and using other comparables that are in similar situations.

Joe Fairless: When you’re buying in bulk, as I imagine you were buying, what, thousands of homes in certain transactions…?

Zach Evanish: Yeah, I think we bought at least several hundred home tapes from the banks back in 2011, 2012.

Joe Fairless: Right. So when you mention the 10:00 a.m. tour of the neighborhood, I doubt you or team members– and maybe I’m wrong, but I doubt you all were going to tour each of the homes to make sure that the neighborhood was good. Is that accurate?

Zach Evanish: Yeah, it is accurate. We try to do our very best to understand what we were buying. But at that time, it was just difficult when you’re buying that many in scale.

Joe Fairless: So how do you mitigate as much risk as possible knowing that, since you’re buying in so much bulk, it’s just virtually impossible to go do individual tours of neighborhoods on the night and the weekends?

Zach Evanish: Yeah… At Roofstock, we have our data science team that is constantly pulling very granular neighborhood data. I think a lot of that wasn’t around even five or six years ago. So I think using a combination of data to look at school scores, crime ratings, that type of thing, but also having boots on the ground, whether it’s a local real estate agent, contractor, and then in the Roofstock case, most importantly, relying on third-party property managers who can really give you a feel for desirability of that property as a renter.

Joe Fairless: I know this is especially a challenge for investors who are out of state. My first investment properties– actually, every property I’ve purchased as a rental property has been in a city that I wasn’t living in at the time. So that’s even more important for remote investors. Are you seeing more investors buying rentals remotely versus when you first started with Roofstock?

Zach Evanish: At Roofstock, that’s been the theme all around. Really, our goal is to democratize real estate investing, and one of the things that were challenging when building this company is, it doesn’t necessarily make sense for people to only invest in their backyard. One, because if you live in San Francisco or L.A. or Seattle, you’re just not getting any return on your investment if you’re investing locally, but also you want some diversification. I live in San Francisco, but work in Oakland. So my primary residence, my job is all strongly correlated to tech, so it’s nice to invest in places like Cincinnati and Cleveland in Atlanta, which maybe aren’t as strongly correlated, so it’s a nice diversification. So I think throughout we’ve seen people buying homes — on average, I think it’s about 900 miles away from their primary residence.

Joe Fairless: On average?

Zach Evanish: Yes.

Joe Fairless: Okay, that’s interesting. What other trends are you seeing in the real estate market based on your team’s access to the amount of data and the analysis that you all do?

Zach Evanish: Yeah, I see a couple of trends. One, I see a flight to both tertiary markets… So the Austins, Nashvilles, Atlantas of the world, which have been some of the hottest markets over the last five or six years, price appreciation has outpaced rent growth. So you’re not able to get the same type of return cashflow-wise as you were five or six years ago. So there’s definitely a flight towards secondary, tertiary markets, like a Huntsville, Alabama or Augusta, Georgia, places like that.

And then secondly, this is correlated, is just people going more towards the $1,000 to $1,400 home rents, versus either the lower price rents. I think a lot of investors start with lower-priced properties, and then start to see some of the difficulties or management intensiveness of that type of property… Or they’re starting on the higher end properties, either as an accidental landlord or because that’s all they had access to in their higher-priced market. So we’re seeing a lot of people really focus onto those tertiary markets, but also middle of the road, $900 to $1,300 or $1,400 a month rent.

Joe Fairless: What are the pros and cons on each of those three levels that you described – below $1,000, $1,000 to $1,400, and $1,401 and above?

Zach Evanish: Yeah, really good question. So if we start with a lower-priced property, the benefits are the cashflow… You can buy a $60,000, $70,000 home in a Midwest market, say a Cleveland and Milwaukee, and it’s gonna rent for $900 or $1,000. So your cash flow is going to be strong. There’s  generally a high supply of tenants that can afford that type of home.

Some of the downsides are it’s a little tougher to raise rents, because the neighborhood you’re buying in has a higher percentage of renters. So if you want to raise rents, one, your tenant is pretty price-sensitive and maybe can’t afford higher rents, but also they’re going to look around that neighborhood and see seven other vacancies and go to one of those. It’s a little harder to raise rents.

In that mid-tier, say $1,000 to $1,400, these are kind of a total return property, while the prior one was a cash flow property. So total return – I think it’s great because you, again, have a pretty large tenant base. The properties are more in the $80,000 to $120,000, $140,000 range. Some of the downsides are – still a little bit older inventory and you’re probably not going to see a ton of appreciation; obviously, that varies by market.

And then the higher-end homes, when say, we get to $1,400 above– but really when you get to $1,800 or $2,000, there’s fewer renters, so a home can stay vacant a little bit longer. But generally, those tenants are a higher likelihood to go buy their primary residence. So that’s some negatives there, but some positives is you’re going to see generally higher appreciation because these are going to be in more owner-occupied neighborhoods, where you generally see strong school scores, really quality neighborhoods, quality amenities, and generally higher appreciation.

Joe Fairless: What if someone says, “I want cashflow with a good total return, plus I want a property that will appreciate over time”?

Zach Evanish: I want it all.

Joe Fairless:  I want it all, baby.

Zach Evanish: Yes, as we all do… Generally, what we ask is, “What is your primary objective and how long is your time horizon?” My parents have bought some properties through Roofstock using their retirement funds. So cashflow is a big objective for them. They’re looking to replace an income, so they’re focused more on the cash flow properties. Some of our younger investors, we have people who are 23, 24, who make great incomes in San Francisco, who are buying investment properties – they have a very long-term time horizon, so I think they can buy those lower cash flow, higher appreciation properties that generally are just going to barely break even with 20% or 25% down.

Joe Fairless: What’s been some challenges that you’ve had in your position at Roofstock in terms of just either the objectives that you’re looking to accomplish, you came across a couple of challenges. or maybe the type of deals that you all come across, maybe inventories lowered? What are a couple of challenges?

Zach Evanish: Yeah, I think similar to what a lot of investors are experiencing is just a supply-constrained real estate investor market right now. Part of that is just an uptick in owner-occupied market with interest rates being low. It’s just harder and harder to find quality cash-flowing inventory, which is again why we’re starting in to go to some of these secondary and tertiary Sharing markets. So I’d say our biggest pain point is just finding quality supply.

Generally, marketplaces are tough, because you’re always balancing supply and demand, and we want to make sure, as a curated marketplace, investors can buy with confidence, and a big part of that is making sure we have quality supply, that’s been rehabbed professionally, with tenants that have been underwritten correctly… Because again, these investors are buying generally sight unseen from thousands of miles away, and so we really want to make sure they’re buying a quality product.

Joe Fairless: When you’re talking about markets like Huntsville, Alabama, and Augusta, Georgia, what are the metrics that you all look at in order to qualify a market that puts it in that type of category versus a category like Austin, Texas or Nashville?

Zach Evanish: We really try to look at, as you had mentioned earlier, different investor types – someone who’s focused on cash flow, total return or an appreciation investor. We want investors — as soon as they register on our site, we ask them some questions, we hop on a call with them and really help them come up with their hypothesis based on their goals, their time horizon, and hopefully help them fall into one of those buckets. And then once they’ve picked out their strategy, then we can help them connect with a market.

Our data science team looks at things like net move-ins, job growth, overall market appreciation, rent growth, and then we look for pockets of neighborhoods where we say, “Hey, these still have solid crime scores and school scores, but also still offer quality cashflow.” We don’t want to help necessarily Californian investors buy overpriced properties in the Midwest. So we do a lot of diligence on the frontend to make sure people are buying quality properties, that are priced appropriately.

Joe Fairless: When you’re looking at crime and school scores, are they relative to that market or to the US?

Zach Evanish: We have a neighborhood rating, which is a proprietary system at Roofstock. Every property has a rating between one and five stars, and that has five different components, and we get down to the zip code plus two level. So that neighborhood rating will be for a subset of 500 homes. So we get pretty granular with that rating.

Joe Fairless: What do you mean zip code plus two?

Zach Evanish: So generally, a zip code has five digits. But if you get to a zip code plus two level, it’s just a way of looking at the city from a very granular level, and that’s generally every 500 homes will fall into that.

Joe Fairless: Oh, okay. Here’s a little factoid I didn’t know. I always wonder what those extra numbers were after my five number zip code.

Zach Evanish: I asked the same thing. My much smarter data science team was explaining it to the sales guy.

Joe Fairless: Did they roll their eyes?

Zach Evanish: Yes, they did.

Joe Fairless: Oh, damn that. They shouldn’t; that’s a legitimate question. Based on your experience, what’s your best real estate investing advice ever?

Zach Evanish: Wow, great question. The best advice ever – get started sooner. My real estate mentor was actually a client of mine when I was about 27, selling apartment buildings. I was actually selling one of his buildings and he said, “What are you going to do with this commission check?” And I was talking to him about cars and boats and ridiculous things, and he said, “No. Go buy a single-family home. Start with that, and then from there, we can talk about duplexes and fourplexes and– how do you think I got these 10 to 15 different 50-unit apartment buildings? I started with a single-family home.” So him giving me that look and kicking the butt of, “No, you’re not going to go buy those things. You’re going to go buy a single-family home and then we’re going to help you build your real estate portfolio.”

Joe Fairless: Did you?

Zach Evanish: I don’t think I did.

Joe Fairless: You didn’t…? [laughs]

Zach Evanish: No, I did probably—

Joe Fairless: Did you get a boat?

Zach Evanish: No. No boat, but I don’t think I listened to that advice. I think I probably went back to him six months later after more handholding from him and bought my first investment property. It takes me a couple of times hearing something before it sinks in, Joe.

Joe Fairless: Hey, when the student is ready, the teacher will appear.

Zach Evanish: Exactly, right.

Joe Fairless: What was that first property?

Zach Evanish: It was a single-family home in Northern California, in an area called Pittsburgh, just Contra Costa County of Northern California. I think I probably paid $130,000, $140,000. I think it rented for $1,000 or so.

Joe Fairless: Do you still own it?

Zach Evanish:  I do not. I’ve exchanged that one into a 4-plex that I now own in the Bay Area.

Joe Fairless: Nice. What did you sell that one for? Do you remember?

Zach Evanish: I don’t–

Joe Fairless: You don’t remember what you sold your first house for?

Zach Evanish: I don’t remember. I want to say it was $310,000, $350,000, something like that.

Joe Fairless: Okay. And then you exchanged that into a 4-plex?

Zach Evanish: Correct.

Joe Fairless: Cool. And you still own the 4-plex?

Zach Evanish: I do.

Joe Fairless: What are your plans for that?

Zach Evanish: It’s in a really good location in Oakland, so I plan on probably holding that for quite a while. Oakland’s one of those markets that’s just been on fire lately. Potentially even a condo conversion play, I might able to sell those units off individually. The location is just so prime that I feel like the longer I hold it, it’s just getting better and better.

Joe Fairless: You’re going to do a cash-out refi?

Zach Evanish: I don’t think so. I love paying down the mortgage and have very little debt on it right now. Most of my properties, I just continue to pay down.

Joe Fairless: So you touched on your philosophy there, but will you just elaborate a little bit more? I’d love to hear your thoughts, because there’s two schools of thoughts – you cash out, refinance, get the cashback, and then you got little or no money in the property, you don’t cash-flow nearly as much; it’s not as safe, it’s more aggressive, but you can then take that money and go buy more property… Versus your approach, which is opposite. Will you just elaborate more on why you do that?

Zach Evanish: Yeah. I have done the cashout refi, the BRRRR strategy on a couple of properties that I bought at a discount and bought them all cash, and was able to pull that cash out. So if it’s a property I buy with that strategy, I will do that. But what I don’t do is every five or ten years go to the piggy bank and refinance that property.

I do look at my strategy for that particular property and I have cashflow goals that I’m looking to achieve. When I’ve run the numbers for most of my properties, it’s just made more sense to hold on to them long-term.

So yeah, I guess that’s my strategy – if during acquisition I know this is a property that I’m buying at a discount, but in order to get that deal, I need to buy it cash or go hard money or partner with someone, then as part of that acquisition strategy I may do a refi after getting a tenant out or making repairs. But generally, my strategy is to hold on for the long term on the properties.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever lightning round?

Zach Evanish: Yeah, let’s do it.

Break [00:18:48]:03] to [00:19:42]:07]

Joe Fairless: Best ever resource you go to to stay up to date with news about your industry or just to stay sharp professionally?

Zach Evanish: John Burns reports for single-family rentals.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Zach Evanish: Not getting a second opinion on a foundation issue.

Joe Fairless: Please elaborate.

Zach Evanish: So I bought a property which it looked like there were cracks, and I had two differing opinions. One inspector said, “No, it’s just settling, you’re fine.” Another one said, “I’m not sure. I think there could be a bigger issue here.” I was under a timeline, and it was an earlier purchase and got pressured to remove my contingency and move forward, and 30 to 60 days after owning the property I started to see some additional cracks and it turned out there was a pretty significant foundation issue that ended up costing me, I think, $15,000 or so.

Joe Fairless: Best ever deal you’ve done?

Zach Evanish: A deal I bought two years ago in Cleveland. I bought it directly from a property manager and they had a tenant who was on  Section 8, and very motivated seller because of this tenant who hadn’t paid rent. I was able to meet with the tenant, figure out a payment plan and then work with them, and also get that home rehabbed. I bought it for probably, 55% or so of market value.

Joe Fairless: Best ever way you like to give back to the community?

Zach Evanish: A couple of ways – Habitat for Humanity and also First Tee. I’m a big golfer, so I’m a coach for The First Tee program.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?

Zach Evanish: They can email me directly, zach@roofstock.com. Before that, just go to Roofstock, it’s free to register. You’ll see all our different investment properties. We also have a product for accredited investors, new investors, we have a new real estate academy. So really, no matter where you’re at in the real estate journey, we have something for you.

Joe Fairless: Thanks so much for talking about some trends that you’re seeing, talking about the different types of objectives that investors have, and how you walk investors through the thought process for what makes the most sense based on those objectives and type of property. So thanks for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.

Zach Evanish: Sounds good. Thanks a lot, Joe. I appreciate it.

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