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May 23, 2024 | read

127. Applying Warren Buffet Principles to Single-Family Investing at Scale with Nick & Elaine Stageberg

Ben Isley

Nick and Elaine Stageberg are the founders of Black Swan Real Estate, a family-owned and operated real estate investment company with over 10 years of experience owning and managing a rapidly growing portfolio of homes in Oklahoma City, Oklahoma and Rochester, Minnesota.

Today we discuss scaling a single family rental business, the benefits of vertical integration, building a competitive advantage by focusing on select markets, why it’s better to pick up good properties at a fair price rather than the cheapest properties around, why you don’t need to graduate to multifamily in order to scale a rental business, tax strategies, and much more.

Black Swan Mentality and Values

One of Nick and Elaine’s core values is that the real asset in residential real estate is the tenant. The property is a prop that attracts the tenant. Nick and Elaine begin with the end in mind by asking if this property will attract a high-quality residents. They refer to tenants as their business partners – nobody is setting out to invest in a property to leave it vacant, the resident is necessary. Nick and Elaine want to be the property managers and owners that residents want to work with.

Ideal Properties and Residents

Nick and Elaine are generally looking for relatively normal, nice houses that any reasonable person would be happy to live in. Usually the homes aren’t A+ class but will still have nice features such as granite countertops and stainless steel appliances. The homes are usually 50-70 years old, mid-century builds, and are usually in established neighborhoods.

Renovations range from six figures to almost nothing, depending on the state of the home. However, Nick and Elaine are adamant about buying good properties at a fair price. They aren’t as interested in buying poor and neglected properties for a very cheap price. This is a Warren Buffet concept that Nick and Elaine believe is often overlooked by many real estate investors. Many investors look for the best deal on a low-quality asset. Nick and Elaine are fine paying market price for a high-quality asset.

Nick and Elaine target homes that are ideal for owner-occupation because these are the homes that people want to live in and take care of. Owner-occupant-grade finishes are generally more durable. This approach, in general, has provided very low tenant turnover and vacancy across the board for Black Swan Real Estate.

Working with Investors

Investors that come to Black Swan are generally looking for a tax advantage. Many investors are also physicians. Black Swan also has equity and debt options for investors. Black Swan speaks with investors individually and structures upcoming deals to align with their goals and needs.

The equity vs. debt option is generally circumstantial. For example, some investors may be investing with a retirement account, with UBIT and UDFI implications. However, note investing from a retirement account doesn’t come with these penalties. The note investors get a fixed rate of return regardless of the market.

Nick and Elaine temporarily halted acquisitions in March and April due to COVID, but the demand is still high and supply is still low for SFH’s, so they’ve resumed operations.

Why SFH?

Nick and Elaine don’t see themselves ‘graduating’ to multifamily assets. They feel they have the systems in place to continue growing in a healthy way. Their properties are producing great returns and their investor and tenant base is on board with their vision. They feel these highest-quality tenants are only found in single-family homes. In their experience with an apartment complex, the residents are generally much needier and more dependent on property management.

With the demand so high for single-family homes, they can be sold quickly. Steeper discounts can be found as well. In general, entrances and exits are easier and cheaper in single family, and there’s usually a good opportunity for value add. In multifamily, a fairly priced asset with room for value add is tough to come by.

Learn more about Nick and Elaine and Black Swan Real Estate: https://www.blackswan.realestate/

They also have a free Facebook group and course: https://www.blackswan.realestate/sas