Ep624: Litan Yahav – The Risk of Investing in Single-Family Rental Properties

Andrew Stotz 00:02
Hello fellow risk takers and welcome to my worst investment ever stories of loss to keep you winning in our community. We know that to win an investing, you must take risk but to win big, you've got to reduce it. Ladies and gentlemen, I'm on a mission to help 1 million people reduce risk in their lives. And that mission has led me to create the become a better investor community where you get access to tools you need to create, grow and protect your wealth go to my worst investment ever.com right now to clean your spot. Fellow risk takers, this is your worst podcast host Andrew Stotz, from a Stotz Academy, and I'm here with featured guest, Litan Yahav, Litan, are you ready to join the mission?

Litan Yahav 00:44
I'm psyched, man. You're amazing. Thank you so much for having me.

Andrew Stotz 00:47
Yeah, it's good to have you on and I'm looking forward to learning more about what you're doing. Let me introduce you to the audience in the town sold, exited. And a startup decided to invest a lot of money made into real estate mainly syndications and encountered a lot of good problems managing it. That's what led him to build a new startup to solve his problems and similar problems of millions like him. visor, that startup is the platform for investors with complex portfolios to manage cash flows, get insights, and build wealth, the tan, tell us a little bit about the unique value that you are bringing to this world.

Litan Yahav 01:25
Yeah, so I can think of it as I'm a problem solver. And I love solving inefficient problems with technology. Many times in industries I know nothing about. So that's sort of like, I tend to find that when you come to an industry you haven't you know nothing about, you don't have the limitations that many people that are industry in that industry have. And it gives you the ability to sort of think outside the box without having those sort of inhibitions that people in industry have many times you're used to doing things in a certain way. And even though it's really bad and inefficient, you lose a lot of money doing so that's just how we did it for dozens of years. So when you kind of like with a fresh pair of eyes, that sort of like where my passion is finding those inefficiencies, those problems,

Andrew Stotz 02:12
it's interesting, because I was gonna say, it's interesting, because some people do that by let's say, taking over a company and saying, You guys are a mess. And I'm gonna fix this. And you do it through saying, hey, could I come up with something completely different and bring it to this space? Why is it that you approach it that way?

Litan Yahav 02:32
I don't know, there's something in my that I'm wired to sort of, I have this radar for problems that are very weird and inefficient. And I love solving them. I mean, since I was a kid, right, from building a Lego through in the military, where you have to solve complex problems with very limited resources, at least in the Israeli military, and, and through sort of building lean startups, which is what I've been doing for the past 12 years. So anyway, so that's sort of like what, what led me to doing this,

Andrew Stotz 03:02
and tell us just a little bit about visor, and what you're doing with that. So we understand what that's all about.

Litan Yahav 03:09
So, I'll give a brief history because it's important, cuz that's what led us to visor. So basically, after I was in the Navy for six years, went to school started a company about 11 years ago, at my last year of school, I'm well. I'm 40 years old, married, I have three kids. So I'm the older side of those tech founders. But anyway, so we built a company in a weird industry, like I will say, the diamond industry. So something like totally different, we did 3d imagery for diamonds. So that back in 2015, made some money, then 10s of millions of made enough sort of the start to invest. And been doing that for the past seven years since the exit. And over the years, invested a lot of real estate, like you mentioned syndications and private equity and startups in crypto and a bunch of stuff. And at some point for us, and this is our problems, it became a mess. Again, good problems to have, like I mentioned, but it became a mess, like our spreadsheets became insane. And you know, just documents and taxes, it just became really hard. And so we built something for ourselves to manage our wealth, which was more complex than many other people. And then at some point a bunch of friends wanted as well, the same platform we built for ourselves. And we say, Wait, there might be a whole business here. And that's when he said, What a millions of people like us. And that's what visor was born. So visor is basically that platform for people that have more complex portfolios, to manage everything there to get an overview of what they have today, what they had in the past and what they'll have in the future with a lot of automations. We're trying to take sort of the family office approach. So it's essentially a type of virtual family office.

Andrew Stotz 04:43
And so it's not something that's got execution. It's taking data from different sources and basically saying, here's the whole portfolio and this is the key issues you got or something like that, or how does it work technically.

Litan Yahav 04:57
Yeah. So from the back office level Even like when you get as an investor, you get documents from your the, the the investments you're in, and you just throw them into the platform and the platform analyzes the documents and create assets or update assets or liabilities automatically for you, then you link in all your bank accounts. And we automatically track transactions and link them to specific investments so that all the performance and cashflow is updated accordingly. And it helps you project forward how your life will look in the future and based on all of that information. And then it also compares you to people like you in the platform so that you can make better decisions and understand in the world of the private markets, which is very ambiguous, like no one knows in the private markets, really who the good products are and who the bad ones are. Because there's no transparency. And so if we provide that transparency, then people can make better decisions and also communicate with each other based on their investments. And so, so you're right, we are not actively managing any money, we do not advise on specific investments. But with and that's only an order to stay clean and unbiased, they have no conflict of interest. And so what we think there's enough value in creating that transparency and sharing of knowledge between investors to make better decisions.

Andrew Stotz 06:09
That's interesting about comparing to other people. Because I know I I've had a Fitbit since almost since it came out. And the best function of Fitbit is to be able to click on it and say, How's my health and my sleep and my activities relative to other men my age, and it's just nothing better than that. You know, once you've got it together, obviously, the first step is you got to get your stuff together. But once you've got it together to be able to click on that and realize, like, see where you're at. so valuable, I would say almost addictive. So I think that's a really cool feature to have in it.

Litan Yahav 06:47
Yeah. I mean, we're startup, we've been around for two years. And it's a lot of work. But it's really, I mean, when you hear people getting so much value from it, that's just worth all the hard work. And so and I use it. Yeah. I mean, I love it, obviously. So

Andrew Stotz 07:04
I'm thinking do hard things type of thing, like you're taking on something that there isn't probably I was my other question I was going to ask is, where are people going right now to solve this problem? The bank's trying out them with a piecemeal thing? Or there's they're doing it through Excel, or how are people doing it now.

Litan Yahav 07:24
So I mean, essentially, there are, there are about 1500, budgeting apps, and probably in the US alone, like that help get everything in one place. But once your portfolio becomes a little more complicated with that type of those types of investments, it's there's nothing really for you, and then you just ended up building a crazy spreadsheet, or paying someone 10s or hundreds of 1000s of dollars in a year. We're gonna do it for you. And for us, that didn't make any sense. Like why don't we just build something to get into that vacuum and solve that problem?

Andrew Stotz 07:56
Well, for those listeners that are interested, I'll have the link in the show notes. So you can check it out and see if it's suitable for you. Well, thanks for sharing that. I think it's fascinating. And you know, congratulations for taking on what I would consider to be a pretty complex thing and helping people to simplify it in a world that just is constantly going to complexities spiraling to complexity. But now, it's time to share your worst investment ever. And since no one goes into their worst investment thinking it will be tell us a bit about the circumstances leading up to it, then tell us your story.

Litan Yahav 08:28
Right. So my worst investment was after we sold the company, we made some money. And at that point, I just see a bunch of financial advisors and wealth managers approaches to operative manager money, but we were, we're smart guys, we can do it on our own. And we didn't really have much affection for the financial markets, the public markets, we really like index funds. That's what we believe in. So we put our public trades there, but we wanted to get into real estate. And, you know, the funny thing is, so I live in Israel, right? And everyone here does real estate. It's like, it's crazy. But like every second person here does real estate passively and stuff like that. And so, you know, we met with some people and friends and friends of friends and friends of their friends and then starting to say, alright, we can buy these single family homes in Ohio through a guy who does real estate there, and that this full turnkey solution where they they help they help us buy it they they find this a property management firm. That property manager company then finds tenants like alright, we said, Well, me and my co founder was here i Let's buy two single family homes in a suburb of Cleveland, Ohio. I think one of them was like Euclid and the other is maple heights. I think that those are the names of the neighborhoods that we bought. And yes, it was very cheap. It was very cheap. This is back in 2015, I think, to achieve single family homes like each one was like $60,000 and from the get go, like what from the moment we sort of transferred money to these to the title companies and buy it. And hiring that property manager from it just became this long long. I'd say a sequence of unlucky, bad events that just like it was just, I mean, it was a really bad investment experience, which led us to make other decisions. Because at that point in time, we invested, we bought those two single family homes while simultaneously also putting some money into real estate syndications. And so then, just to see how those goes, and you always have this benchmark of well, how passive that is, and how much headache and heartache. And just like sleep is like dealing with these two single family homes. So that's sort of like the backstory of going into this investment. The two of us into a world of passive passively investing into these rental properties, only to understand that there was nothing passive about it, even yeah, having a property management firm. So I can dive into that if you want. Or

Andrew Stotz 11:18
tell us a little bit about how it went, like what were some of the, the errors or the the issues that have been going into them.

Litan Yahav 11:28
Right, so first off the prop. So we started to get emails from the property management firm, about potential tenants. And again, our mindset going into this, and we didn't even see these properties, like we did not visit them physically, it's all like just remote. And our mindset investing in this with these two, our strategies, always find people that we can trust and invest passively and not do it with zero involvement. And that evolves a lot more concrete into that thesis and a lot more out of the active. So it's like, alright, we hired this property management firm. I don't want I mean, I want to be passive, but then, you know, on the every other day, we'll want to call with this property manager company, about tenants that they want to sign leases with. And I mean, I don't know if they're good or bad tenants, I trust you guys to decide if they're good or bad tenants. And anyway, we ended up getting to like a tenant for each of these properties. And then one of them was like, two months in, they're not paying rent. And I what do we do now and then and obviously, you know, they're things are happening. While this is like they there's there's they're complaining about leakages from the roof and in the basement. And then there's on the other property, there's a tree that follows. And so we have to go and take care of that in Ohio. I mean, no one told us that Ohio is mostly winter, right. And so like, when it snows, you can't do anything. And it's and then that tenant that didn't pay out unfortunately, we had to go through the eviction process. But then when they left, they basically ruin the house. And so we have to put money back into the house. And so we held these, we only saw these properties like a year ago. So we held them for like five or six years almost. And we just kept on going through these cycles. And because you're sort of losing money, you say well, maybe at some point, it'll turn up again, and the value will go up. But then we said let's just cut our losses and get rid of them because about three years in and I think five tenants like going in and out of these properties. The municipality started both of them are starting to get on Are they sort of at the knock on our doors and request that we fix things that we'd get these notices from the municipality saying your sidewalk is needs to be paved. Now usually these are things that the municipality needs to take care of. But what happened was because these two neighborhoods were getting a lot of like out I don't know if it's foreign or just like are real estate investors that didn't really live there. The municipalities anyway, let's just there are these people here that they have some that have money look at this as a business, let's just start sort of pushing the stuff that we should be doing to them, because why not? And so we started to get these bills and notices the fix things that were under the municipalities responsibility, but they were pushing it to us. And now you're in and you haven't then then you have to start all right with this type of lawyers and started to sort of lobby against this municipality and say, Hey, what the hell are you doing? This doesn't make any sense. This is looking at every other municipality in the county no one's asking their the properties to fix that type of stuff. So that was like the straw that broke the back of the camel as we say, hey, Ron, so like, that was like Alright, that was let's just cut our losses and sell these properties. And we finally did that like a year or two ago but Also that led us to make a lot of decisions even from the get go that we're not, we're not doing that anymore just because it's not passing, and none. And the risk, like you say is too high. And we can dive into that as well. But anyways, that's sort of the story of that bad investment for us.

Andrew Stotz 15:16
And how would you summarize the lessons that you learned from it?

Litan Yahav 15:21
So one, I mean, it's a more tactical lesson, right? investing in real estate in single family rental properties is never really passive. That's the main lesson. The second one is, when you buy a single when you invest in a single door, meaning a single family home and has one door, one tenant, your risk is so much bigger, as opposed to investing in a property that has multiple doors, and then you're diversifying your risk across different tenants, different doors. And I'm sure that we also had a lot of bad luck. I mean, we've made mistakes, we should have sort of, again, been more active in screening tenants been more active in talking with these tenants going in making sure that everything's alright and making. But we didn't want to be active, we wanted to be passive. And so that was a contradiction. And so we decided, so those are the two main lessons, right? One, it's not, it's not passive to it's highly, it's high risk. Yeah. And when you look at, and I think when you look at higher risk, and obviously higher active activeness, the return has to be exponentially bigger than if you take the risk down and take the past tennis, or make it more passive, right. And for us, it's like this, reminding you that at that same time, when he went into the single family homes, we also began investing in syndications. And the returns were better. And we're like, Wait, hold on, that doesn't work. There's an arbitrage here. Like how is that possible that we're investing in syndications? No, we do. We do zero work, nothing, we just have to. I mean, there is work and vetting and diligence on finding people that are good that you can trust. But once that's in, you just transfer money, and you just count cash coming in, and you're over multiple doors. So this cycle, why in the world? Well, I want to do that again, and when I can do this. So

Andrew Stotz 17:12
let me maybe I'll share some of the my takeaways from it, then. Well, one thing I can say is, on your leg on your app, when you compare yourself to other people, if we compare yourself to a one of my guests, who was one of my first guests, he basically saw an opportunity he was from Pakistan, and he got a call about an opportunity to invest in property outside of London. And he was quite excited about it. And in a very short amount of time, he transferred the money to buy the property, never to see the money again, or the property. So congratulations, you didn't have that happen to you. That's good. But when I think about it, reminds me also of I bought a condo. And I here in Bangkok. And I realized after I bought it and I it was built, it was being built. So when I finally went to kind of consider moving in, I kind of it made sense, it didn't make sense because the size of the square footage of it was like half the size of what I was staying in and I was renting it my current place for like 1000 bucks. And I was thinking to myself, Okay, well, I'll just rent it. Oh, what a trouble it is to deal with tenants and getting tenants and keeping them happy. And then they leave and then this and that. And I just realized after a couple of years I sold it, I was like, I do not want to be in the 10, you know, managing this type of property. And so it really did teach me not to do that for my case. But it also taught me that don't do something like that unless you really scale it. Because you're going to need a lawyer, you're going to need accountants, you're going to need people that are good with the taxes related to this, you're going to need a lot of help. And you need to have the revenue to offset the overhead that you're going to need to be able to do it the idea of just setting up buying one or two. Yeah, if you're a local handyman, and you're in the neighborhood, and you saw this super well pricing, and you can fix it up. It's a little bit different than you know, in this case. So I know I've had other guests on the show that have talked about buying properties far away from themselves and I always think that that is something that just full of risks. So that those are some of the things I was thinking about as you went through it anything you would add to that.

Litan Yahav 19:22
Yeah, I think that I'm not I don't think it's a there's a good or bad decision here and make in buying real estate remotely just understanding the implications. And I living sort of under the four that yeah, you're gonna just generate passive income because that's what they tell you, right? You just buy property you're going to generate passive income. But if you get into it knowing this is going to be hard work. But if I follow through with if I follow through with it and gather more of them and create an operation like you mentioned, and and sort of understand this is going to be an active business like I say it could be it is we I mean it is a bit So you have to look at it as something that you're going to nurture and build and add more properties. Because that, again, if we kept those two properties and bought more in that neighborhood, probably, we would have been diversified we'd have 1015 20 doors, then diversify the risk, somewhat profit more someone profit less, you understand sort of it would admit, but but we didn't go in knowing we had this. Anyway. So it was just a lack of knowledge that we didn't even think about, because we just took for granted that yeah, it's gonna be passive income. So yeah, I agree. It's a lot more than people think.

Andrew Stotz 20:32
Well, and the great thing about this show in the sincerity that the guests bring to this show like you is it helps someone who's facing that exciting opportunity to invest just as you did. They're facing it right now. So let's think about that person. And I want to ask you the next question, which is, based on what you've learned from this, and what you continue to learn, what would be one piece of advice that you would give them person that is pretty excited about their opportunity that they found similar to what you're talking about? What would be the advice you would give them to help them avoid suffering the same fate?

Litan Yahav 21:09
I mean, so I think the first thing is just being that mindset that, you know, when you get in the door, here, they go into something that's a long term active aspect, that has the ability to generate nice returns. But there's also a very big chance that it's going to be a flop. And so if you're in that mindset, you're going to learn, because we bought these two simple families, because we knew it was a learning curve. We didn't know how big of a learning curve it would be. But it's a learning curve, because you're not going to be rich by buying one property, right? That will never work. But if you know, you go, if you go into this process, understanding that it's going to be a learning process learning, it's just one step on that either two more properties, they're not doing it because you understand it's not for you. That's sort of like the blessing that I would give someone who wants to get started in investing in real estate.

Andrew Stotz 21:56
And what's a resource that you'd recommend for our listeners.

Litan Yahav 22:02
So there's only one book I ever finished. And immediately after finishing it started reading again. And that's never split, the never split the difference by Chris Voss. Yep. And it's, it's sort of, it's mind blowing to understand that everything in our life is based at the end of the day on your ability to negotiate from your kids, to your spouse, to your business partners, to your invest, anyone, investors, employees, it's all about sort of communication skills and negotiation skills. And so that was a super valuable book that I love recommending, because it was really, really beneficial to me,

Andrew Stotz 22:45
an excellent book, and I'll have that, I'll put a link in the show notes, I invited Chris to come on the show. And he sent me a message and said, something along the lines of, I'd like to understand how you, you know, could prove, you know, your listeners or something like that. And I must admit, I've just been so nervous to write back to him after thinking about it. So I was thinking, you know, one way of writing back is to say, Well, how would I do that? Exactly. Which is, you know, some of his great tactics. I mean, it's a fantastic book. So I think it's a great recommendation, I hope, I hope I can get him on the show to share his worst investment. And I'll tell him that you've been on the show, and you've talked about, and I think we're gonna get him. So last question, what is your number one goal for the next 12 months.

Litan Yahav 23:39
So my next My goal for the next 12 months is to sell it's pretty obvious for me because I'm building the startup and a startup is a grind, and every 12 months is sort of the marathon or sprint to build faster, bigger bring more value. So my goal for next 12 months is to scale this business to bring value to as many people as possible to secure another round of funding so we can scale even more. That's where like the 12, next 12 months for now,

Andrew Stotz 24:10
double double double. That's exciting. Well, I'm sure you're going to be able to do that because you've got an interesting idea and you're solving a pretty significant problem. And more than that, you're bringing a lot to that problem. So exciting. Well, listeners, there you have it another story of loss to keep you winning if you haven't yet become a member in become a better investor community, just go to my worst investment ever.com right now and claim your spot. As we conclude the tan I want to thank you again for joining our mission and on behalf of a stars Academy, I hereby award you alumni status for joining your worst investment ever into your best teaching moment. Do you have any parting words for the audience?

Litan Yahav 24:54
You're awesome. I love this. Thank you so much for having me. And good luck everyone with you know, I think y'all You don't you're and this is really a cliche, but it's so true, you will never learn if you don't fail. And I really believe in that taking yourself outside of your comfort zone. And finding that way to fail so that you'll get better is so important. So I really appreciate what you're doing with this.

Andrew Stotz 25:15
Fantastic ladies and gentlemen, you won't learn unless you fail. So get out there and try but use the lessons that you learned from the podcasts. And like this one is Episode and all the others where you can put together a lot of stuff that can reduce your risk. And that's a wrap on another great story to help us create, grow and protect our well fellow risk takers. Let's celebrate that today. We added one more person to our mission to help 1 million people reduce risk in their lives. This is your worst podcast host Andrew Stotz saying I'll see you on the upside.