Real Estate Niches in the Riches

Mike Hambright (00:00.174)
Welcome back to the show. Today I’m here with my good friend Richard Gonzalez. He is dominating the San Antonio market. We’re really going be talking about dominating a market in a time where a lot of real estate investors think the grass is greener on the other side of the fence, going out into new markets, changing their exit strategies, maybe even changing asset classes, or maybe even getting out of real estate. He’s done some amazing things by staying just laser focused on very specifically, not even all of San Antonio, just a very small area around the downtown area of San Antonio. So really interesting focus here.

Great guy, great operator. so Richard, welcome to the show. Hey, thank you for having me, Mike. Yeah, I’m excited to. We just started talking again. We haven’t talked for a few years and started talking again recently when you rejoined Investor Fuel. And you’re doing the same thing that you were doing in the years past when we talked, so just kind of further along. excited to kind of share your story today and learn about some of the things that you’re doing that are working well and maybe learn from some things that haven’t worked so well too, I guess. Yeah, absolutely. That’s kind of what we do. Yeah. Hey, tell us a little bit about your background for those that don’t know you yet. Yeah.

So I’ve been a full-time real estate investor for the last 10 years before that I built Iran a merchant services company out of Los Angeles So we focus on credit card processing for small businesses. Okay most of my clients were Latino based a kind of serious that ideas The beauty salons that type of thing. So during that time I said where else can we go outside of California where there was a good demographic and

Texas popped up, so San Antonio in particular had a big demographics and with a lot of potential for growth. So the move paid off. I opened sales offices in Houston, Dallas, and San Antonio. And for the first two, three years, I mean, we were expanding tremendously until the payment app started coming out, Square, Stripe, and a bunch of others offering zero.

transaction fees, monthly service fees. And my business relied on those type of income. So I was pretty much, my attrition was going through the roof. Luckily, at the same time, one of my best friends was living with me, and he was a real estate investor, but went bankrupt and the OA crashed. He lost millions of dollars. So he’s now living with me in San Antonio. I tell people he was the one sleeping in the couch.

Mike Hambright (02:22.701)
And I’m watching this guy literally rebuild his wealth, net worth, in front of my own eyes, buying cheap vacant lots near downtown. And within the first two years, he literally had 15 to 20 properties. And I just started seeing him flip them for 50, 60, 70. There was one lot in particular that he flipped for, he bought it for 10,000, sold it for 110.

And that was it. That was the screw that turned in my head. I’m like, I don’t know how this thing works, man, but I’m going all in. And that’s when I pivoted to real estate. That was about 2015. And since then, I also got into the vacant lot business, sold my lot, and then got into the rentals. Fast forward today, obviously, we have a pretty big portfolio in downtown, and we’re very niche specific, right? We’re buying just everything around.

that we can get our hands on and just continue to build our portfolio. Yeah. And you’ve got around 200 rentals or so? Yeah, 200 plus right now. Yeah, and growing. talk about this idea of staying laser focused on really is just one or two neighborhoods, right? It’s a very small area. And I think we’re obviously recording this right now in DFW. There’s 8 million people in DFW. And there’s plenty of real estate investors here.

that I know that are like, this isn’t big enough, so they start going into outlying areas. it seems like real estate investors generally feel the need to go further away or out farther. But you’ve ratcheted in more so than anybody else that I know, quite frankly. So just talk about how that came about and how you are able to maintain that, because it’s easy to feel like the grass is greener. Let me just go out to the suburbs. Let me just go over to this area. But you haven’t done that. No, absolutely. So from an operational perspective and building a rental portfolio,

I think it’s no different than investing in big apartment buildings, right? You have one building, you have all your tenants, your maintenance. So it’s just doing something similar, but doing it in the single family space. And that’s been a big benefit. So I think in my career, I literally have purchased two properties outside of my zone, my operating zone, and they’re the hardest to manage, the hardest to make ready. They’re just something, you know, some intricacies, management.

Mike Hambright (04:44.877)
I mean, all of our properties are basically around my office. So can step in there at any time, whether we’re doing the rehab construction. And it’s just kind of like having that shadow, right? Where the boss can pop in at any time. And it makes a huge difference. So I think also from a collection perspective, again, we can go on and on of all the comparisons of why it makes it a lot easier, especially we’re already in a business that, you know, it’s pretty challenging to manage rentals, maintenance.

You know repairs etc. So When I when I started, you know, obviously that was the area that I began with so I basically pulled all of the the non owner occupied properties And then just started marketing to them doing the yellow letters back then yellow letters work phenomenal I was actually handwriting them for a while then I hired a couple people to do the you know to do it for me

And that’s what it was. It’s basically been the same list ever since. It’s just now condensing because now more homeowners are taking over the area. I just happened to also identify that that area that I was marketing to was the biggest area for rentals. So it just let me know there was less owner occupancy in that area. now it’s transitioning back.

to more home ownership. That’s why the values have gone up tremendously. Now you’ll have almost $800,000 house next to $100,000 house. So it’s still a little spotty. It’s up and coming. So you have to be able to hold on until it’s fully identified. Yeah. And part of this is, you said this right in front, which was fascinating, is it’s

It’s like I own a bunch of multifamily. And obviously, the name of the game with commercial or multifamily is usually value add. Like, how do you force appreciation by improving it? And that’s exactly. I mean, I own a rental portfolio here, but I don’t have any houses on the same street. And mine are spread across 15 different cities, right? So like suburbs of Dallas. But you can really force appreciation by owning several houses on the same street. You can start to push up those values, right?

Mike Hambright (07:05.917)
Big time big time. I think he you know, especially doing the burr method Once the comp start they start using the comp some of the comps happen to be properties that you did, right? so again going back to There’s many reasons and many benefits to be able to be laser focus, especially when you have that many transact I mean sorry so that many properties You know, we’re also in the short-term rental space. So we have you know a little bit over a hundred short-term rental So that also controls the pricing

Right? We can definitely push some people out if we need to, you know, because we can drop the rates across the board. you know, it’s almost like just being in your own little island and just controlling the economies at that point. So, yeah, it’s amazing. So if you have a couple hundred, do you know in the markets, the neighborhoods you’re focused on, like how many, what is the total population of houses that you could in theory buy? Yeah, I think in, I think my marketing list at one point was

about 1,500 properties. So 1,500 properties in that specific zip code was my target market. And then from now, maybe there’s down to 500 that are left that haven’t been sold or resold and others that own occupied. So at some point, you get them all, right? Or close. And so I guess with a marketing list that small and a target that small, you know the exact owners.

if they’re ever gonna sell or why or why not, you know probably their age and what pushes their buttons or you probably know who some of the complainers are that you’ve got these short terminals. Like you know everybody that is your prospect probably, right? Yeah, you pretty much know every house. If somebody calls me, they tell me they have a property under contract. What street, what block, you’re already, you’re like,

Google Maps you already know. Yeah, okay the 1000 black. Okay, so I have two properties on that block You know XYZ so it makes it a lot easier to From a buying perspective because you’re able to pull the trigger right away In other words if a property comes available today on MLS I mean we don’t need to get we could almost buy sight on scene quote unquote Yeah, you know just based on square footage The lot size and the street

Mike Hambright (09:29.325)
You know so we’re making almost quick decisions just based off that versus any any other investors probably gonna have to go in there You know get it get a get a couple quotes on the rehab They got to do some you know comparison stuff like that, so it makes it a lot a lot easier, but that by that time I mean we pretty much already got it in contract And it gives you that competitive edge. Yeah, so you talked about economies of scale so obviously with the Management side that makes a lot of sense because they’re all right there

You could almost like a hotel just have people push their cleaning cart down the street to go to the next house for the short term rentals. But also with acquisitions, do you even have an acquisitions team? Because you know what you’re buying, but if it’s based off of you probably know the house as soon as it pops up. Talk about some of the efficiencies of your team of having a small targeted area that’s kind of your farm area. Yeah, at the beginning, had all the entire marketing team. I had the acquisitions.

transaction coordinators, et cetera, because again, it was a buying frenzy. Now, 95 % of my properties are coming in through wholesalers. So I think now because I’m more established in the market, more people know that I’m buying in that particular area. So there’s dozens, if not hundreds of wholesalers in San Antonio. So if something pops up in that neighborhood or those zip codes, at the end of the day,

somehow is going to still route back to me. if somebody, mean, sometimes there’s a daisy chain of like three, four wholesalers on the HUD. And that’s how it works. So that’s why I don’t do too much direct to seller at this point. Again, I’m focused more on the operation and the deals are coming my way through wholesalers. mean,

You know, I’d rather pay. In other words, that’s where I’m at now. Before, maybe I couldn’t pay. You know, I needed that extra 500 grand to repair the roof. So I needed to do my own marketing and get the lowest price possible. But at this point, I understand the value of somebody getting a property in a contract following with a potential seller for like a year. You know, so.

Mike Hambright (11:42.382)
whatever fee they charge at the end of the day, if the numbers make sense, I’m going to pick it you’re willing to. I say this all the time. A lot of our real estate businesses are like several businesses tied together. have a marketing business, a sales business, operations. then depending on if you have rentals or you’re fix and flipping, you’ve got a construction company. So it’s almost like a bunch of companies tied together. And if you don’t have to do the sales and marketing piece, and you’re willing to pay a little bit more for that, then it makes your life easier.

Absolutely. So let’s talk about, I know one of the challenges that you faced is, so now you have this big rental portfolio. Property values have gone up, up. And you’re positioned right next to downtown, right? So that’s going to keep happening the more that downtown. Because talk about the San Antonio market is not, the downtown area is not quite as developed as other major Texas markets like Austin, Houston, Dallas, right? But when that happens, your values just keep hockey sticking up, right? So then I know the challenge is,

Your rents don’t move up as fast. Yeah, the tax value do the taxes do the insurance everything goes right up with the value but the rents are climbing up so Talk about how you’ve kind of overcome those issues. Yeah, it’s been one of my biggest challenges So I still remember 2017 to 2018 was one of the biggest jumps in value wise Literally properties doubled literally overnight, but also my property tax bill tripled if that makes any sense so

But the rents didn’t. The rents basically stayed at the same amount. So it almost was pushing me out of the market. So what I had to do is basically go into the short-term rental model and then transition some of those properties that they were in the better locations and maybe the better blocks and then move them over to short-term rentals, which, once again, now we’re getting into hospitality, building another.

business and like you mentioned I literally had to buy two laundromats just in my area that were existing just to be able to run my operation. there’s a huge operation behind that but that was one of my biggest challenges. Luckily like I said I was able to take a year to really figure out how to build the systems for short-term rentals, get in the rooms and groups with big operators and learn all the

Mike Hambright (14:06.507)
software’s tech stack You know strategies and stuff like that and then finally finally figured out the secret sauce and it was working I think that right now we’re still even super hosts with as many short-term rentals Which is something that’s not even possible. So it just lets you know Kind of the level of detail right to be able to replicate the same experience over and over

And again, we could do a whole other pocket just on short-term rentals. But that’s definitely another animal. So for me, it was more of a necessity to be able to get the rents up, get the cash flow, and at least be able to maintain hold onto the properties. If you think about, mean, everybody, there’s always examples of people that did really well on the stock market or somebody that bought Apple a year after it went public and has made a lot of money. But most people sell before then.

And that’s kind of the game you’re playing is like having the fortitude to hold on for as long as possible. we’ve got a, there’s a guy, I won’t say his name because I don’t want to shame him on a podcast here, but there’s a guy that’s in Investor Fuel. I’ll tell you who it is later. That somebody gave his son 100 Bitcoin when it was a dollar and it went up to $2. And this guy in our group sold it because I guess 100 % return. I don’t even know what this is. And he sold it at $2. $2 a coin. you know.

the people that hung on, the people that bought it at a dollar or even at $50,000 and have hung on this long, you question all the time whether you should probably sell them. But if you’re playing the long game, you just keep finding ways to hold on, Yeah, think anybody who’s been in real estate long enough has seen the appreciation of just real estate. mean, just my own family moved to California.

And they only bought two properties and they did good again holding on to real estate for 30 40 years. Yeah getting it paid off and You know the the the valleys out there, you know are ridiculous So you could just imagine, you know, maybe San Antonio in 20 years 30 years I think it will be no difference than Houston Dallas Austin which I mean those downtowns are already fully identified. Yeah, you know

Mike Hambright (16:22.733)
I don’t think you buy a teardown for 300 grand these days than any of those metro areas. So San Antonio is still a little bit behind the curve. But again, like you said, it’s how do you hold on and building those systems around, making them be able to cash flow. So that’s my main focus now. Now I’m even putting two properties on each lot. Just again, just minimize the risk and try to really increase the.

You know the cash flow is that is that if you build if you have are you are you tearing down and rebuilding or are you? Fix and flipping what’s there or what do you typically do? I’m mostly Taking a property that’s existing adding square footage and that might also mean that I’m gonna add a second unit to the property Yeah, so like an ad you or always a separate house or yeah as long as as long as it’s zone You know for multi unit then or maybe meaning I can put two properties on it. Then I’m gonna do

units it can it can be an ad you But the beauty is that even and there’s really no limit to what the size of the ad you can be So in my opinion is really just two properties as long as the zoning is there so And again, these are the things that maybe I didn’t look at ten years ago, and that’s maybe something I would have Done the highest and best use of the part of the lot. Yeah, which now

it makes it more important because as as values are going up, everything’s tying, you know, interest rates are higher than now. It even takes you to another level where you’re like, OK, I can be just doing single family. What if the short term rental market, you know, keeps going down? It’s changed also in the last couple of years. So by adding, you know, a couple of units in there, you can do one short term, one long term and again, just minimizing some of the risk. Yeah. So.

That’s been the biggest change this year for me. So I really rebuild these properties. The average age of a property in downtown San Antonio is at least 100 years. I used to say it was 100 years. Now that I’ve been in real estate this long, I’m like, every house is about 100 years now. 1920, 19, early 1900s. So how do you navigate working with the city? Because they, on one hand, if they’re looking at

Mike Hambright (18:45.447)
increasing property density so they can have more people in area. There’s some cities that want to work with investors, and there’s some cities that see you as a heavy hitter, but they can have a power trip and try to control you. So I’m sure that you’re large enough to where you’re dealing with talking with city officials and zoning and things like that. How do you manage that in a way to where you’re a partner with the city versus

some outsider that’s doing things that they don’t necessarily want you to do, or they have a power trip. I can tell you a bunch of stories about different cities that I’ve kind of dealt with. But generally, the cities are difficult to work with. So are you finding that? Or are they kind of easy to work with? Or how do you manage that? Yeah, think San Antonio, it’s a big city, four largest city, but it’s still like a small town, right? So it’s a small town feel. So a lot of the people there been there a long time.

So building those relationships with them is basically is definitely key. Yeah, I mean at this point we probably have a Close to a hundred thousand building permits in the database. So we pay our fees And again when you have so many completed projects and you’re doing everything by the book You know, there’s still challenges at the end of the day because even the city is adapting to those changes to you know As they’re becoming a bigger city

So there’s a lot of confusion, you know, you might go in to the the development center and one person might tell you X the next day somebody tells you why because again, it it’s still new and and that’s one of the things that also drives me is that I think Eventually, there will be more regulation. There’ll be more red tape. But right now there’s an a window of opportunity I mean when I started I mean you can literally demo a house without a permit now you

you change something, I mean, they’re pulling up on you and saying, hey, we’re checking out your permits and you know, you’re going to get fined if you don’t. So I’ve been seeing those those transitions in the last couple of years. So for me, that that that gives me that urgency where it lets me know, man, it’s still fun to build. But I know it’s going to get to a point where kind of like the big cities try building in L.A. right now, try building in these big metros. mean, I know builders out there that takes them a year to get there.

Mike Hambright (21:07.191)
building permit. Yeah. So when I hear those type of stories, I’m like, holy moly, I have to floor it out here. mean, I’m, I mean, I can get a building permit in about a day and a half. That’s amazing. Have you had any risk of, I mean, in, in Dallas, they outlawed, short-term rentals at one point. And I think it all got overturned, but, obviously there’s been other cities too, where they just, the city just comes in and like outlaws it. And that would, that’d be painful for you, I assume. So have you, have you had any risk of that? mean, San Antonio.

especially proximity to downtown, they have a lot of hotels along the river walk. I’m sure the hotels hate short-term rental owners. Have you had any issues there? And you’re never going to know. But how’s that landscape been? Yeah, the short-term rentals, San Antonio is very pro it. Obviously, there’s rules that you have to do. And more than anything, it’s the density. So right now, they’re only allowing up to 12 % density per city block.

So basically one out of 12 properties on a city block face can be a short-term rental. So I also see it almost like liquor sales. If you have a restaurant and you have the liquor license, well, it’s going to be difficult for somebody else to get the liquor license next to you. there’s already too many on that. So do you have a permit for that? OK. And then they limit other people from They limit it. Absolutely. So that’s another reason why, you know,

getting into the short-term rentals now might be a better benefit down the road. Because I think it’s going to come down to a point where if you want to do short-term rentals, you really can’t, unless you’re going to take the risk of running it without a permit. But it’s going to be nearly impossible at that point. Yeah. So what are some things you do to force appreciation? If you’re in a neighborhood, you have a balance. mean, don’t want the taxes associated with the property values going up, but you want the property values to go up because your net worth goes up.

So how do you balance that and what are some things you do to kind of force appreciation in your situation? So definitely making the multi unit strategy to offset the tax with the cash flow is going to be my main strategy. And just adding square footage. basically, my typical project will be a property that’s maybe a two bedroom, 1,000 square feet. if I keep it as a single property, I might go to

Mike Hambright (23:32.366)
2000 square feet if it’s a multi unit, I’ll be near the 3000 square feet So that’s that’s my bread and butter basically project that I will do all day as long as a lot size the in the original property, know is It’s a certain price, right? so I think I think just buying right is probably the the most important because what you do with the with the land and the existing building it’s all going to determine on

how you bought it because you can spend 500,000 on a renovation but if the value max value or is capped out at 300, then it doesn’t make any sense. So that’s one way to basically offset the taxes. Also San Antonio has a lot of incentives. When you do historical projects, they will freeze the taxes for 10 years. To the previous value that was last assessed.

So in other words, they’re incentivizing investors to renovate these historical homes and give you the tax benefit. I enjoy doing historical houses. It’s a little bit, they’re more complicated, right? really have to, basically everything you’re going to do, you have to put it in writing to the smallest detail. it takes a lot of process. And I presume they have specific standards. You have to stay inside, kind of restore some of the historical.

Absolutely, absolutely can’t change the window door keep all the Ornaments that the property has yeah I once knocked out a chimney and I had to literally replicate it back and I Remember when I hired the contractor I said look I’m not paying you for the chimney I’m paying you for a replica and I’m willing to pay Whatever it costs and he pulled it off. So yeah So I made all the mistakes, you know Working on historical homes in the past, but now I think we’re you know

With the experience, you get better at it, and now we enjoy it. Yeah. So what’s the end game for you of this strategy? At some point, it’s not. Obviously, the rental markets. I think appreciation is going to continue to happen in most areas, especially in Texas. And I think the rents are always going to continue to lag because affordability reasons are going to continue to make Texas markets and a lot of markets more and more unaffordable than they used to be, at least.

Mike Hambright (25:58.646)
So the game for you, what’s the end game like? Where are you going here? So right now we’re obviously in the growth growth phase, right? I think eventually there will be a phase where we’re either going to sell off some of the portfolio, pay off the rest. But but but at the end of the day, that that’s the goal. The goal is to hold on to them until, you know, it’s the right time to sell. And I’m sure there’s going to be other opportunities, other.

arenas that you know you reinvest whether that’s getting into apartment investing or You know I don’t think it makes sense just to you know pay a ton of tax selling right, you know properties So there has to be a strategy for that I just think it’s you know, like velocity money has to keep growing. Yeah somehow so there’ll be there’ll be opportunities I think in the future to invest in maybe, you know bigger properties sure we’re now

It’s less management, know, intensive versus like right now you got a hundred roofs. You got a hundred of every, you know, 500 toilets, that type of thing. So it’s pretty, pretty challenging. Yep. And how about for you? What’s, what’s in your future? Just to continue. It’s not, you’re so focused. I assume it’s just to continue to focus on what you’ve got going on here. Yeah. My, my, my next phase, I think at the end of the day, I’m going to, I’m going to get into the educational space too.

where going to help out other individuals with my experience and help them build a rental portfolio. So I think there’s a lot of people out there that have had success in their trade, whether they’re a professional contractor or teacher or whatever the case may be. And they know they want to invest into real estate, especially rentals. And I know I can help them with that. So at the end of the day, I’ve gone through the ringer.

Right? I’ve been in lawsuits. I made every mistake you can imagine. So I think that people can really piggyback off that. And again, it goes back with my values of giving back. So I think that that’s in the near future. And I’m focusing on it right now. That’s why we’re doing podcasts. We’re doing social media and just kind of letting people know that we’re out here. Yeah, that’s awesome. So if folks wanted to learn more about you, connect any of those things, whether they’re in San Antonio or anywhere else in the world.

Mike Hambright (28:21.581)
Where can they go to connect with you? Yeah, follow me on Instagram at TheRichardGonzalezSA. And I love to connect with you guys. I partner up with a lot of people. So I’m an open book at this point. Yeah, that’s awesome. We’ll add the link down below. So thanks for joining us today. Hey, I appreciate it, Mike. Good to see you. Yeah, yeah. Guys, there’s a great lesson here in terms of just staying focused. It’s so easy as an entrepreneur to think the grass is greener. Things get tough, and then you move into something else, or you go try something else.

The reality is the real wealth, the money that will be made for you, is to stay focused and work through those kind ceilings you hit and just get better, better, better. Because if you go jump into something else, that’s going to get hard at some point, too. And if you basically are just a quitter that every couple of years you jump into something that seems easy, you’re really never going to move forward that much. So hope you got some good value. Make sure you’re following Richard. We’ll add a link down below in the show notes here. Great guy. He’s doing some amazing things. So I appreciate you joining us today. We’ll see you on the next show. Awesome.