Adiel grew up in a family who was involved in real estate and was privileged to dinner conversations where he learned valuable principles. He shares how he went from starting in silicon valley and switching to different markets like Las Vegas, Portland, Phoenix, and Oklahoma sharing all the lessons he learned through being in different markets and why he was so nimble.
Adiel Gorel Real Estate Background:
- CEO of ICG, a real estate investment firm
- ICG has purchased over 10,000 properties
- Based in San Francisco, California
- Say hi to him at: https://icgre.com/
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Best Ever Tweet:
“My first area of focus to invest in is sunbelt states, large metropolitan areas, and where the ratio between rent and price works” – Adiel Gorel
TRANSCRIPTION
Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and 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, Adiel Gorel. How are you doing, Adiel?
Adiel Gorel: Very well, Joe. It’s a pleasure to be on the line with you.
Joe Fairless: Well, it’s a pleasure to have you on the show, and looking forward to our conversation. A little bit about Adiel – he’s a CEO of ICG, a real estate investment firm. ICG has purchased over 10,000 properties. Based in the San Francisco, Bay Area. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Adiel Gorel: Of course, of course. Well, I was born into a family that was in real estate development, so as a little kid, whether I wanted to or not, I was privy to the dinner conversations… And two things that I could hear that my family regretted were the following. One, “Why didn’t we buy these properties ten years ago? We should have.” And the second one is “Why did we sell these properties ten years ago? We should have kept them.” As a little boy, I kind of had the idea that probably homes and apartments do people good.
I was actually a high tech guy. I came to the Bay Area to go to Stanford, I taught at Stanford… Then I got my first job at Hewlett Packard Labs. And when you work in Silicon Valley, you get paid quite well, but when I looked at my colleagues – I was a young guy – who had been there for 20 years, I didn’t see anything impressive on the financial front; usually, they just owned their own home, and a 401K. I said “That’s not gonna be the case with me.” Due to my background I started buying rental homes right there where I was living, in Silicon Valley. That was in the 1980’s. Yes, I started when I was one year old.
Joe Fairless: [laughs]
Adiel Gorel: I’m kidding… So the only problem is in Silicon Valley the numbers were not friendly, even in the 1980’s. In other words, the rents were too low relative to the crisis. Now, in the 1980’s there was an unwritten rule “Never buy more than 30 minutes drive away from where you live”, and everybody was following it. And I said “You know what – if I follow that rule, I’m not gonna buy very much”, and I wanted to buy on a sustained basis.
So I went to Vegas and I discovered homes that I could buy for four times less, but they rented for more than half. Now, that was completely different. So I started flying to Vegas — it’s about an hour-and-a-half from the Bay Area. I was flying there every weekend. It took me a few months to get my bearings, but pretty soon I had a management company that I liked. I tried two until I found one that I liked… And then a broker… And I was buying properties.
I was always an aggressive guy. In that first year I bought 22 properties.
Joe Fairless: Wow…
Adiel Gorel: By the way, it’s not as impressive as it may sound. This is the 1980’s in Vegas. The average property I bought cost about $40,000, and Fannie Mae allowed you as an investor to put 10% down only. So if you do the numbers, it’s not that impressive. Maybe it’s mpressive that I did it, instead of going to seminars all the time and not really doing anything, like my friends… But the end of that year, many of my Silicon Valley friends said “Hey, we wanna do it, too.” I said “Sure, do it.” They said “No, no, no. We want you to help us.” I said “Why?” “Oh, you’re already in Vegas, your managers…” So I led a group of maybe 20 people from Silicon Valley, and we bought over 250 properties over a period of about 3,5 years.
We didn’t buy them as a group. Each person bought their own homes… But the Swedish engineer from Silicon Valley who only bought one home, because he was a little scared, enjoyed the same clout as if he had bought 250 homes, because the service providers, the managers, the brokers knew if he was not happy, he will tell me, and then I won’t be happy, and they could lose 250 homes. It was very simple. And when Vegas went up very sharply in about 1997, we stopped buying there and we moved to our second market, which was in Portland, where the property taxes are very high, but the prices were so low that it worked.
Starting an infrastructure the second time around was much easier, because when I talked to property managers when I was interviewing them, and they saw this young guy saying “Oh, we’re gonna buy a lot of properties”, they say “Of course, of course. You’re not gonna buy anything”, I said “Would you like to get on the phone with Vegas managers?” And once they did, of course, they came back on their hands and knees, “Yes, we wanna work with you.”
So we worked in Portland until the boom. You’re probably familiar with the boom of 2004 through 2006, that preceded the big bust. But the previous boom was from the end of 1988 through the year of 1989. So when that boom came, the prices in Portland really went up, and we moved the whole thing to Phoenix. We moved to Phoenix in 1989, and by that time I started getting a lot of attention. “Who is this crazy guy from Silicon Valley who’s buying out of state?” and I started getting invited to speak in various clubs and places.
One of the lectures was a reporter for the San Francisco Examiner, which used to exist back then. In the Sunday paper there was a huge article — the whole thing blew up. Finally, I was having so much fun that I left my entire high-tech life – and we’ve been doing this for 35 years now. Phoenix became our biggest market. Over 21 years, me, my investors, my friends bought over 3,000 properties. And nationwide, in the U.S, over the 35 years, my investors and me and my friends have bought more than 10,000. But the principal is the same.
We have an infrastructure in the market that I considered good – and we can talk about that in a second, what I consider good… And of course, if we are buying in a market that we bought 1,500 properties in, and you come in, Joe, and I connect you to the brokers and the managers, you carry the clout of 1,500 homes, even though you’re just buying one home.
Joe Fairless: Yup. That makes sense. So from Vegas, to Portland, to now you’re still focused on Phoenix…
Adiel Gorel: No. Phoenix is not good anymore, because Phoenix —
Joe Fairless: What are you focused on now?
Adiel Gorel: I really should talk about what markets are hot. We bought in Phoenix from 1989 to about maybe 2012… But Phoenix now has gone up in value, from 2012 until now, by 160%. At the same time, the rents went up only 20%, so Phoenix doesn’t work. Vegas doesn’t work. Dallas doesn’t work. Austin, Houston, Nashville, many good markets do not work.
My criteria of where to buy are pretty simple – I’ve been a student of the demographics in the U.S. for decades, and if you look at the U.S. census, you can easily see the part of the country that the demographic growth is the best is what I like to call the Sun Belt states. The Sun Belt states are states like Nevada, Arizona, Texas, Oklahoma, Louisiana, Florida, Georgia… Where the sun shines, in the South.
Not only are these states the ones with the biggest growth and demographic growth for the future – and we can talk about why, but we may not have the scope here – they also happen to be states where they are pro-business, which also means they are fair to the landlord… Unlike the state of California, for example, the state of New York, which are very harsh on the landlord. But these states are very good for the landlord, they’re affordable… So my first criteria is Sun Belt states.
The second criteria is pretty self-explanatory – it’s large metropolitan areas. That’s because you have job diversity and industry diversity. If one factory, god forbid, goes out of business, there are many others. So large metropolitan areas in the Sun Belt states.
The third criteria is where the numbers work, meaning the ratio between rent and price makes sense. And as of the month of April 2020, it does not make sense, as I said, in some of our classic markets like Vegas, like Phoenix, like Dallas, like Austin; markets where we bought many thousands of homes do not work. So what does work now?
One market that does work right now is the Oklahoma City market. If you look at the map, it’s not that far from Dallas, and yet the prices are a lot lower than Dallas. The rents are somewhat lower, but not that much. The property tax is 250% lower than in Dallas, and they have the lowest unemployment in the whole United States, out of all the big cities in the U.S. Of course, now we have the crisis, but I still believe their unemployment is quite low relative to many of the other big cities.
In addition, they’ve found enormous reserves of oil and gas no far from Oklahoma City. Of course, oil is super-cheap now… I don’t look for things like this, but it’s just an extra that you get. A strong economy… And we are buying brand new homes. I like to buy brand new homes. It took me a while to realize it. I started off, as all new investors, as a cashflow cowboy, buying old stuff in not-so-great locations, but I learned – you buy in good areas only, and you buy brand new homes, that come under warranty… So we are buying brand new homes in Oklahoma City, from about 150k up to about 190k. And they rent well. Typically, the 170k home would rent for about $1,400/month, with very low property tax. So that’s one market that works.
Another market that still works is what I would call Central Florida. Well, the Orlando market is too high now, for the same reason that the Phoenix market is too high. And the Tampa market is too high. Between Orland and Tampa, we have bought a few thousand properties over the years, but they’re too high. However, between Orland and Tampa there is growth, and it does make sense there. North of Orlando there’s very interesting stuff as well; East of Orlando, including on the shore, and South of Orlando. So the prices there are different. The prices are between 200k and maybe 225k, except there’s one pocket North of Orlando where there are properties to be had for as low as 140k; and we can talk about that.
And then another market that still makes sense – there are parts of Atlanta (it’s a giant market) that do not work anymore, but there are parts that do. So that’s another market.
And our most expensive market right now is the Raleigh-Durham market, the Research Triangle in North Carolina. The prices there would be between 200k and 260k, but they still work, and of course, it’s a very popular market. We also buy in Baton Rouge, Louisiana, where the rents ratio is good… And pretty much, these are the few markets that right now in 2020 make sense.
Joe Fairless: What part of Atlanta works?
Adiel Gorel: Well, again, it’s not a formula. It’s not like you say “Oh, you only buy in the South”, but it is true that parts of the South of Atlanta work. But one thing — this is an important question, Joe, that you just raised… I live in the San Francisco, Bay Area, and I learned a lesson over the 36 years that we’ve been doing it. I like to build trust with my teams in the field, with the people with whom we work, with our brokers and managers, and listen to them. So I listen to what they say; just like you, Joe, would be a super-expert on the area where you live – your street, your city. I listen to them. So when I work in Atlanta, I listen to what they say as to what would be a good area.
Joe Fairless: You clearly have a lot of experience and knowledge about a lot of markets, and you’ve been at this for a while, so I know we’ve got a lot to cover and a lot to learn. So you mentioned some markets that performed really well and then you got out of… Let’s talk about specific deals, and we’ll talk about a couple or 1 or 2 that have done really well… And on the flipside, I would love to learn about a deal that maybe you lost money on. So let’s talk about what deal did you lose the most amount of money on, and what can we learn from that.
Adiel Gorel: Well, I try to keep things very simple… I like single-family homes – and I hope you don’t mind, Joe, I’ll give about a minute segue before I answer, because it’s relevant.
Joe Fairless: Sure.
Adiel Gorel: Single-family homes not only are the most liquid real estate, because that’s what all families want, but in many parts of the U.S. they’re still quite affordable. The American dream is a single-family home. But when I began – you can hear that I speak with an accent. So sometimes you can see things when you speak with an accent, which means you come from another country, that local people can’t see. When I started investing, I could not believe, I thought it must be a mistake that you can get loans in this country… Which, of course, you all know very well, but to me it was mind-blowing. 30 years fixed. That means the monthly payment and the mortgage balance never ever keep up with the cost of living.
When I speak in Europe, people think I’m joking. They say “No, that’s not possible. You have inflation in the U.S. Thirty years ago you bought a postage stamp for 4 cents, now it’s 50-something cents. 30 years ago in San Francisco you went to the movies for $2, now it’s $14. You have inflation. You wanna tell us that somebody’s gonna be crazy enough to lend you money for as long as 30 years, where the payment and the balance never change? If that were to be true – which we don’t believe it is, because it’s impossible – it would be the biggest gift, because your loan balance and your payment would be eroded by inflation constantly, until you don’t have to wait for 30 years. Until in 14-15 years your loan is gonna look like a joke”, and that’s exactly true. So really, it made a difference in the financial futures of thousands of people so far.
Here’s a typical story – I have a friend here in the East Bay who’s a doctor. He bought properties with us primarily in Phoenix in the beginning of the 2000’s. He was in his ’40s. He calls me up a couple of years ago – when he was 58; he’s now 60 – and he says “Here’s what one of my typical homes in Phoenix looks like.” He bought 19 homes. He started with one, bought 19. Right now it’s worth about 300k, and the mortgage still has 14 years left, and it’s 47k. See, that’s what happens. The mortgage is only 15% of the value of the home. It never kept up with inflation, while everything else did.
So he sold three of his homes, paid the capital gains, paid off the little 16 loans… And he said “I know I’m a doctor, but I’m not working anymore. That’s it. I have 16 homes in Phoenix, free and clear.” That’s the vision. I’ve seen it happen thousands of times. It doesn’t have to be 19 homes. I have people who changed their life with two homes, with three, with one.
So now, going back – I try to make it simple; we buy single-family homes. It’s very simple, it’s easy to rent, and you get the magic loan. So I mentioned before, I like to buy brand new homes in a good area. They come under builder’s warranty, manufacturer’s warranty… Also, it’s easier to negotiate with builders, because they can throw in a lot of goodies, because they have all of the work crews in the field, so you can get better deals. So when I began – you asked me about deals that didn’t go so well – I was, as I said, like all new investors, a cashflow cowboy. I was only going by the cashflow numbers on paper… Because people were like “Oh…!” And clearly, when you buy in a bad area in town, on paper the cashflow looks better. Of course, life doesn’t happen on paper. After the second drug dealer kills the third smuggler, it doesn’t look so good anymore. But on paper, it looks good. So I too, when I started in Vegas, my first homes were little, bad homes in bad areas, that were very old… And luckily, I learned to go to brand new homes, in good areas. And I try to make it very simple.
So those deals, with the older homes in not such good areas, were the worst deals, luckily. When you buy single-family homes and you get a 30-year fixed rate loan, even the bad ones end up working well. I still own about six of those older homes I bought in Vegas back in the day, and as the years went by, they went well. Of course, they don’t have any loans anymore.
Joe Fairless: Right…
Adiel Gorel: Those were the worst deals, because I was, again – and I warn all our listeners here – don’t let the cashflow numbers lead you by the nose. I get people coming to me literally crying with tears; they bought in some market in the North of the country, in a city where the demographic growth is not so good, in a bad area, a cheap home… Why? Because the sheet of paper that somebody prepared showed cashflow.
Joe Fairless: So with some of those earlier Vegas homes – about how much did you lose at most, on what property?
Adiel Gorel: I actually didn’t lose. The only way that I lost, if you wanna call it loss – when I began investing, at the beginning of the 1980’s, the interest rates were 14%. Yes, 14%. And I was putting the minimum down, the thing they would let me, which was usually about 10%. You don’t have to be a big mathematician to calculate that when you put only 10% down and your interest rate is 14%, you’re gonna have a negative cashflow. So that was the so-called “loss”. But I was working as a Silicon Valley engineer, well-paid, so I could sustain the loss.
The tax laws were different back then, so I could write off the loss, not like I can do now.
So after taxes it was still a little negative, but I had a very clear idea in my head that as the years go by, the mortgage payment will never change, because it’s fixed. But the rents will change, with the cost of living, and that’s what happened. So within a few years we became breakeven, which for me at that time was cause for celebration, because I knew it was only gonna get better from now on, and then positive.
Of course, the rates didn’t stay at 14%; they went down to 12%, and 11%, and 10%. I remember the happy day when rates went to single-digit. What a celebration that was. We all refinanced everything to 9.95%. What a day that was…
Joe Fairless: Yeah, different perspectives… [laughs]
Adiel Gorel: Different times, yeah.
Joe Fairless: Just so I’m clear, you’ve been investing since the 1980’s, and you haven’t really lost a large chunk of money, say over 15k-20k, on any deal?
Adiel Gorel: There was one time that I lost when I was a passive investor in somebody else’s syndication. I joined with an expert and we formed a syndication, and he bought apartment complexes. That was a segue from the single-family home that I bought… And some of those apartment complexes went well, and a couple of them ran smack into the recession, so on those two I lost; I don’t know if 15k or 20k, but probably I did. But again, that was an excellent lesson for me that single-family homes are so powerful, so simple, and the loans are so good. Don’t go out of that realm. That’s been what I’ve been focusing on, not just for me, but for everyone else.
Joe Fairless: Wow, that’s outstanding, to be investing for 3-4 decades and not having a loss of more than 10k-15k on your own portfolio, not factoring in any passive investments that you did with partners.
Adiel Gorel: Yeah. The only loss is where the passive investment, the syndications where an expert joined us; because I’m not an expert in apartment complexes. And to me, that was a clear sign to stick with what I know. This has been working for decades now. A lot of people’s lives have been changed.
Joe Fairless: Based on your experience as a real estate investor who’s focused on single-family homes, what’s your best advice ever for other real estate investors focused on single-family homes?
Adiel Gorel: Absolutely… I talked about the three criteria of when to buy. But when you buy an investment single-family home, here’s what I advise you do. You put no more than 20% down, you get the 30-year fixed rate loan… Assuming that some of you cannot qualify – I have a lot of foreigners, we can talk about that. You use trusted property management firms. If you want, I’ll be happy to connect you with firms and teams and infrastructure. We don’t charge for that, by the way; it’s not gonna cost you. And then, once the home is rented, that’s the most important part. Now you do the hardest action for a human being to do – nothing. That is so difficult for people to do – just sit there. You have a home, you bought it, you have a loan, the tenant is paying off the rent… Just sit there and do nothing. People read in the newspaper, then they read in this, and then they go to a seminar, and they wanna sell, and refinance etc. Just do the most important action – nothing. It’s also the hardest action.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Adiel Gorel: Please.
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Break: [00:26:23].16] to [00:27:06].16]
Joe Fairless: What’s the best ever way you like to give back to the community?
Adiel Gorel: Well, you know, I’ve been an investor for 36 years, and I own a lot of single-family homes myself. To me, the absolute best way I can give back is doing exactly what I’m doing with you now – letting people know that there’s a simple way; you don’t have to complicate it, you don’t have to take a lot of courses and go to seminars. Just buy a simple single-family home, rent it out, and do nothing. And to put that word out, like I did in my PBS show, Remote Control Retirement Riches – which, by the way, I could send you a link to it; it was really fun – I’m giving back by helping people do exactly what I did, because I see what a life-changer it can be.
Joe Fairless: How can the Best Ever listeners learn more about your business?
Adiel Gorel: People can learn more about our business by going to our website. It’s called ICGRE.com, and they can get in touch with us.
Joe Fairless: I enjoyed learning about your market selection approach. Sun Belt states that are pro-business, large metro areas, looking at the ratio between rent and purchase price, as well as the property types that you purchase – brand new homes – and you mentioned different reasons why, as well as specific markets, based off of the criteria that we discussed. Oklahoma City, Central Florida, parts of Atlanta, Raleigh, Durham, Baton Rouge.
I enjoyed our conversation. I hope you have a best ever day, and talk to you again soon.
Adiel Gorel: Joe, it’s been a pleasure. Thank you so much.
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