JF2307: Investing During Covid-19 And Getting A Discount With Ian Ippolito #SituationSaturday

Ian is a serial entrepreneur; he has built multiple businesses over the years. In 2013, he exited his latest company and started looking for new ways to invest his money. That’s how he came across the concept of real estate crowdfunding. Many companies were promising the moon, but Ian wasn’t sure how to choose the one to trust. Having to manually vet and interview all these investment companies gave him an idea to start Real Estate Crowdfunding Review so that other people could take advantage of his rankings and research.

We chatted about the investors’ readiness to put money into the real estate market during Covid-19. Tune in to learn about the types of investors and the red flags that Ian has been dealing with lately.

Ian Ippolito Real Estate Background: 

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Best Ever Tweet:

“People are now looking at the one or two-year delay as an advantage” –  Ian Ippolito.


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome to the best real estate investing advice ever show. I’m Theo Hicks, and today we’ll be speaking with Ian Ippolito. Ian, how are you doing today?

Ian Ippolito: I’m doing great, Theo. How about you?

Theo Hicks: I am doing well, thanks for asking and thanks for joining us again. Ian is gonna be a returning guest; his first episode was episode 1294, which was over 2,5 years from when we’re recording right now, so it might be three years once it actually airs… So a lot has been going on since then, so we’re going to dive into that today.

Today is Saturday, so we’re doing a Situation Saturday, which is usually a sticky situation that the guest is in, but in a sense, this is a sticky situation that a lot of people are in… We’re gonna be talking about – at least at the time of this recording, the current pandemic, and we’re gonna talk about how people react to that, some of the good and bad, in a sense, asset classes as a result of the pandemic, and then talk about some forward-seeking predictions on where things are going.

Before we get into that, a refresher on who Ian is – he is the investor and founder of The Real Estate Crowdfunding Review, as well as the founder of The Private Investor Club, that has over 4,000 members with over 5.7 billion in investable assets. His website is TheRealEstateCrowdfundingReview.com.

Ian, before we dive into the situation, do you mind telling us a little bit more about your background and then what you’ve been up to since we last spoke about 2,5 years ago?

Ian Ippolito: Sure. My background is I was originally a tech entrepreneur… A serial tech entrepreneur, actually. And I built some businesses successfully, some not as successfully, but over time I kind of improved, and I eventually had a very nice exit at the end. That was around 2013.

I sold that company, and then now all of a sudden my job became “How do I invest my money?” The traditional advice was “Oh, you need to go and put this amount into stocks, and put this amount into bonds, and you’ll be ready to go.” And I do have some money, obviously, in these markets, but I wasn’t comfortable with the traditional advice. I had seen people who had gone through some very tough times following that advice…

I wanted to find something where I could reduce my volatility. That brought me to real estate and real estate crowdfunding, which at that time was just starting to come into fruition. The JOBS Act had passed… So it used to be that you would have to know somebody, maybe you would belong to a country club, or something like that where you knew somebody that could bring you the investment. Now all of a sudden you could just be anyone, and the entire public was basically accessing these investments… And it was really cool, because before maybe you needed to have five million dollars or ten million dollars to get into a piece of property, multifamily or industrial or whatever it was. But now all of a sudden you could put in 25k, or 5k, or sometimes even $500.

So it was a very exciting time. That’s kind of where I came into developing, in 2013, when it was all starting… But at that time there wasn’t much available from the investor point of view. Everyone was saying they were so great, and I was like “Well, which one of these do I trust and put my money in?” So I spent a long time, I spent several months and I hired an assistant, and we went through and we interviewed all the platforms, and I went through all their legal documents, and I interviewed investors, and said “Did you like this one, or did they mess up?”, which was really crucial, because they all said that they’re wonderful. So it created kind of this ranking for myself.

And the word got out that “Hey, Ian has created this… You should ask him for it.” So I gave that out a few hundred times, and I got tired of emailing that out to people… So I said “Look, I’ll just put it out on a website.” Then I created this website, called the Real Estate Crowdfunding Review. The whole point was to evaluate all these different investments.

So that kind of grew, and the industry changed, obviously, over time. It went through some ups and downs. There was a period where funding dried up for a lot of these companies, so there were a bunch of [unintelligible [00:07:00].14]  a bunch of them went out of business… So some bad things happened. Now a little bit more of an upturn after funding is coming back in…

And the deals thing, since you question was what I’ve been doing – so since the last time, I now have the Private Investor Club, which I might have talked about briefly the last time, but basically it’s what you talked about, which is a place where I as an investor, and others, can go, where we source deals. It’s so hard to find good deals. So we bring good deals in, and then we hammer on them. We do due diligence on them, and when you have that many people looking at something, you’ll find the problems, and then we will invest.

So that’s what I’ve been up to. Of course, I didn’t even mention the elephant in the room, which is something big has happened, which obviously is the Covid-19 pandemic…

Theo Hicks: Yes. I’m really looking forward to this, because I’ve talked to people who are active investors, how they’ve reacted to the pandemic, but you’re a passive investor; you get this massive group of passive investors, so you’ve got insight not only from your experiences, but from everyone else that’s in your group’s experience. So let’s dive into this sticky situation…

At the onset, in early 2020, what was the reaction from you and from the passive investors? What was your thought – were you were like “I’m done, I’m not investing anymore. I’m gonna wait” or were you like “Oh, this is not a big deal. Business as usual”, or somewhere in between?

Ian Ippolito: I think the first reaction with almost everyone was just shock, because no one was expecting it… And then maybe when it first started, everyone thought “Well, maybe it’s not gonna be that bad…” And then cases started climbing, we saw what happened in New York and New Jersey, and then all of a sudden we had lockdowns, and businesses were shutting down, and everyone said “Oh, this is for real. This is not gonna be something that [unintelligible [00:08:36].21] five or six other times where there was a virus, and it just never really affected us. So at that point, it was shock. And the majority of people, 99% said “Whoa… Let’s just stop. I’m not investing in anything, if I was thinking of investing in anything… I’m scared about myself. What’s gonna happen to my family, my streams of income? If I have a job, I’m a passive investor with a job, what’s gonna happen there? I might get laid off…” So a big halt was the first thing that happened.

And then on the crowdfunding platforms even, a couple of them were like “We don’t know what’s gonna happen.” They had massive layoffs, and they had been hiring up pretty aggressively, some of them right into it, because business had been so good… They were hiring.

So that was the first thing, which was just “Whoa, this is really dangerous. I’m worried about  myself. I’m not ready to put in any money”, and all the deals that people were looking at were just like “No.” We had a couple of deals that were in progress that people were looking at, and they said “No, no, no.” And those just ended.

Theo Hicks: How long did that period last? Or is it still ongoing for some people?

Ian Ippolito: It’s a good point. For some people it still is, although I think for the majority of people it’s not that way. And it’s because it’s been a very uneven recovery; they call it the K-shaped recovery. Generally, when you are in the upper income, which is the type of person that’s investing passively, most have not been hit very hard. Many of them can work from home if they’re working, or their income is still going good – they’re not affected as badly as some people on the lower-income scale, who’ve been hit very hard.

So at this point in time there’s only very few that are still in that mode, but they’ve kind of switched. So it took about a month, I would say, for people to start processing it. And then you kind of had different camps. We had a group of people that were like “You know what – this seems really terrible, but I think it’s gonna turn around pretty quickly.” So these people were full-steam ahead, probably about a quarter of people, after about a month into it.

Then you had others who were like “I think it’s gonna take longer, but probably in a year or two we’ll be out of it, and these are long-term investments. They could be five years, seven years, ten years… So I’m willing to go into an investment right now, if they have a plan to get across what might be a lean time. Maybe I can get a discount on it; I’m willing to go forward.”

And then you’ve got those that were like “No, it’s too risky. I really can’t see what’s going on; I really can’t understand. How do I underwrite?”

I’ll give you an example – with multifamily, at the beginning when this happened, all we knew is that we had millions more people unemployed. So on one hand, very bad. Normally, horrible for real estate. But then we had all this stimulus happening, where people were getting paychecks, and we had extra-unemployment… But then there were also stories about how that wasn’t getting to the right people, and things like that… So how does all this play out? Really, really complicated stuff. So no wonder everyone had different opinions about it.

Theo Hicks: Sure. So let’s go with the camps of the people who are camp number one, which is like “Full-scale ahead. Let’s go!” and then camp number two, which is like “I don’t really know what’s going on, but it seems like this might be over in a few years, and these investments are 5-10 years, so maybe I can get a discount, or something.” So for those people, what are they choosing to invest in, and then what are they choosing to avoid and not invest in, and then why?

Ian Ippolito: And even there, there’s different tracks people are taking, depending on how much risk they’re willing to take. In any dislocation there’s gonna be distressed opportunities, and then if someone is willing to take the risk of those, it can be very profitable, or it can be a disaster. So you’ve got kind of like the conservative investors, and you’ve got the ones that are more aggressive, in each of those categories.

If we take a look at the conservative investors – they’re looking at multifamily and they say “At the beginning we thought it was gonna take a huge hit. All these multifamily things were just going to go down the toilet.” But so far, that hasn’t really happened. At least not on the class A and the class B. Now, class C is a different story. These are dealing with the types of tenants that have very customer-facing jobs, dealing with retail… These people are experiencing heavy job loss, so class C has not been doing good. But B and A  have held up; a lot of the people in the A can work from home, they can do all that sort of stuff… And with those stimulus checks, a lot of the times the rent has continued to come in.

Oh, I’ll add one more little complication here, which is the fact that a lot of the support, this stimulus and the extra unemployment – it’s about to run out. So when we talk about that third category, people that say “I don’t know what’s gonna happen”, they’re taking that into account.

A lot of people don’t realize this, but there are millions of people that are unemployed right now, especially where I am typically, with investors, and kind of living in that K-shaped world, where everything is fine. There are millions unemployed. And these benefits are running out, moratoriums are about to expire in December or January, so they’re estimating maybe 6 million or 7 million people who are behind on that rent and cannot catch up.  You’ve got millions more who are behind on their mortgage payments and cannot catch up. And  that’s the other thing, they’re like 3-4 months behind. One month behind is probably okay. If you’re 3-4 months behind, it can be big trouble. So there’s probably no way for these people to ever catch up.

Now, that expires in January. There’s been this push  in Congress… They would have to pass a law, to have more stimulus, to extend the moratoriums, to add more unemployment… But there’s been no agreement. And every week I’m looking and saying “Did they finally do it? Did they do it?” No. No. And every week, it hasn’t happened yet. So that’s a big unknown, and that’s driving that third category of people, which are like “You know what – it looks okay now in a lot of classes, but I don’t know what’s gonna happen in January.” So they’re holding off.

Back to the other people – so you’ve got others that are… Maybe I should explain further that you’ve kind of got different asset classes that have done well so far, and ones that have not. And there’s opportunities in both.

You’ve got the ones that have done really well, which are like multifamily, self-storage, mobile home parks – all of these have held up; rents have been doing well. And when I say multifamily, I mean A and B, not C. So people who are ready to continue will continue to put money in those. People who are a little bit more cautious, but are looking at the 1-2 year have gone through an interesting strategy where — okay, rather than buying a class B multifamily, they will look at a brand new construction of multifamily, with the idea of “I’m gonna build this, and in 1-2 years when it’s built, I think all this is gonna be gone, and then I won’t have to worry about it.”

Theo Hicks: That’s interesting.

Ian Ippolito: Yeah. In normal times, that would be a riskier strategy, because “Are you gonna build it on time? Are you gonna be able to make a balloon payment at the end of it and lease up, and make the balloon payment on time? Or will you lose a whole bunch of money?” There’s all these steps. But people are now looking at 1-2 years later as an advantage, and a way to play the whole uncertainty, and to kind of get into it. So you’ve got those.

Then you’ve got the people who are even more aggressive, who say “Okay, what are the things that are doing really badly right now?” That’s hotels. A lot of the retail is doing really badly with these restaurants that are shut down.

At first, some of the medical stuff was doing bad, because they shut down all the elective surgeries, and stuff like that… Still, even hospitals and stuff like that are having a difficult time. So there are a lot of distressed assets out there. So for the people that are really aggressive, they look at those and say “Hey, maybe this is buying at the right time. Maybe this is like being in the Great Recession and this is like buying right at the bottom of 2009. I’m gonna just ride this thing up when things turn around.” But there’s a danger there, because we don’t understand this recession. It’s different than anything else that’s ever hit us before, in our lifetimes anyway. The causes of are very different, and every past recession has these after-effects that have been very difficult to predict. And this one especially so. So there’s a little bit more risk than usual in going after some of these… So someone has to be comfortable with that.

Theo Hicks: One thing I wanna dive a little bit deeper into before we get to this next section, which you’ve already kind of hinted at, which is the future – but just really quickly… When you’re looking at these different deals – let’s take multifamily, for example… What are some red flags that you would see that the sponsor is doing, even if it’s a class A or a class B property? You’re like “Whoa, whoa…” It might be a good deal, but something in their underwriting that they did that was a really aggressive assumption that you were just not on board with – what would be a few of those?

Ian Ippolito: Well, what’s interesting is there’s actually a lot of those I’m seeing right now, where they come back and they just don’t look right. A lot more deals that just aren’t passing the sniff test. Personally, I wanna see a Covid-19 discount. I wanna see something that is compensating me for the possible risk that things could get worse. And what’s interesting is when the pandemic first hit, you had the sellers who were way up here, and then the buyers who were down here… And neither side was willing to budge. Buyers were like “I need a discount.” Sellers were like, “No, no, no. Just a month ago I could have gotten the full price.” So nothing happened. And the volumes on all these sales just went down into the basement.

Well, volumes are still pretty low, but starting to come together a little bit closer. So it is possible now to get Covid-19 discounts, which is nice. For me, if I was gonna go forward with something, I wanna see a seller that is willing to come down, so a Covid-19 discount… It might be 10% or 15% now. Not the 30% maybe that some people are wanting… So if that’s what they’re wanting, this is not the time to buy.

And the other thing is because I think a lot of the people are being forced to purchase at a higher price maybe than they want to in order to go forward, they’re having to structure a lot of these deals with — we’ll call it “extra financial engineering.” Structuring a lot of these extra investor classes, where from an investor point of view you’re taking on more risk than in a plain vanilla deal, with a single class. Single class, you’re first in line to the stream of the profits… Versus these, now you’ve got multiple, and you’ve got someone in front of you that’s taking some because there’s a preferred equity portion, and you get the remainder… And again, it depends on the investor, because if they’re looking for a higher return, that can be it. But I’m a conservative investor, so for me, I see those and I’m like “No, that’s a red flag for me. I’m looking for something more basic.”

And like you said, looking at the proforma, I wanna see the most conservative sponsors right now. I’ve seen some of them saying “No rent growth whatsoever for the next two years.” When I see that, I feel pretty comfortable that they’re gonna hit their projections… Versus other ones that are like “Oh, well, we haven’t been hit so far, so let’s just keep projecting up, up, up.” That for me is another red flag.

Theo Hicks: Thank you so much for sharing that. So let’s wrap up by talking about future predictions, where you see things going from your perspective, plus what you’ve gotten from your group. I was gonna ask you this, but you’ve already talked about it – what would be your prediction if the eviction moratorium and the stimulus runs out, versus what would happen if it doesn’t, and it gets renewed longer? Because I guess those are really the two future scenarios. And which one do you think will happen?

Ian Ippolito: Yeah, that’s the million-dollar question, for sure, and it’s like a  huge polar opposite on what will happen. I guess we’ll go with the worst-case scenario – let’s say we come into January, so now the eviction moratoriums are gone, there’s no assistance for any of these people who cannot make up their rental payments and their mortgage payments.

So you’ve got renters that are gonna be evicted, you’ve got homeowners that are gonna be foreclosed, and the amounts are just scary, because they are in excess of what the Great Recession was. So we’re talking millions and millions of people.

And the other side of this is that there’s been no aid also for landlords, even during these moratoriums. There’s been landlords that have gone 6, 7, 8 months without any rent because of the moratoriums, so they’re hurting, too. So a lot of people hurting. Not even just the people that are paying.

And I’ll add one other piece to that, which is the fact that the other thing that expires – there’s been a moratorium on student loan payments, and that’s been trillions of dollars. So if those start going in, now someone who is unemployed – or maybe they were on the bubble – now all of a sudden they’ve gotta make the student loan payments again. That’s gonna hurt as well.

So worst-case scenario, there’s no help in that, and I can kind of walk you through that. Basically, Congress is not able to pass anything in this lame duck session right now. We have a new Congress that’s gonna be coming in in January; very possible it could be a divided government, in which case very little might get done… So in that case, it may not pass. It’s a real risk.

If this happens, a lot of asset classes are gonna get hurt. These multifamily deals – the C has already gotten hurt. Class C is gonna get hit the worst, because class C is typically the lower income. This economy has just been lower-income people — the recession has been lower-income people get hit worst. But the thing is, when that many people get hurt, it has secondary effects. So now it’s no longer just the person that is working in a restaurant; okay, they lose their job. But now when enough of those people lose their jobs, now the accountant who was okay before and had a higher-paying job – now his firm is no longer doing the accounting for that restaurant. So now his job is in danger. And it just goes up the food chain. So when you have a large enough number, it’s dangerous. So I would be very uncomfortable being in even class B… And it definitely could go all the way up to class A, as far as multifamily.

You’ve got self-storage, which has done very well so far… That one could be okay… Because let’s just say millions of people are losing jobs… In past recessions, sometimes when a person loses their job – let’s say they have to downsize; they lose their house, or maybe they move to a smaller place – they will get a self-storage unit to store their stuff.

Now, if things get bad enough, they will not be able to afford the rents on that; so it’s possible self-storage could do well, but again, hard to say. So probably maybe in that scenario self-storage is looking a little bit better than some of these multifamily deals.

Mobile home parks, which have historically done very well in recessions – unfortunately, the way mobile home parks have done so well is because they’re at the very bottom of the income. The idea is that people can’t afford to move out; there’s no other place to go, so people make their payments. But if this starts  hitting, mobile home parks could for this recession no longer have that special status that they’ve enjoyed.

And then, of course, the ones that are already doing bad – hotels, retail and stuff like that… The more people that lose their jobs, there’s no stimulus payments to pay money… People are not gonna be going to restaurants, people are not gonna be doing that.

So across, real estate I think would be very bad, and in that case probably an investor is gonna wanna be in non-correlated assets, that are non-correlated to the business cycle. There’s things like litigation finance, where it’s based on whether a case wins or loses, and how good you are at picking a case, which has nothing to do with whether the economy is doing well or tanking. That sort of thing is gonna do well no matter what.

Investing in music royalties, which actually ironically in this recession everyone’s at home, and they’re listening to more music. Music has actually improved life settlements, which is this concept of you invest in — I’ll go really quickly, I don’t wanna go over time, but… Basically, you purchase a life settlement policy – someone who wanted to get life insurance and could no longer afford to do it. You purchase their policy, you keep paying it until they pass away, and then you collect. So it’s just a matter of people just dying or not dying. It has nothing to do with the economy, again…

So these are all things that if things go way downhill are still gonna continue to do well. I think there are investors who are positioning themselves right now for that eventuality, where that goes downhill.

Theo Hicks: Let’s end on a positive note, so let’s talk about the other end of the spectrum…

Ian Ippolito: [laughs] Yes, exactly. Because it’s so dire, a lot of people are saying “Look, Congress is going to have to do something about this, no matter what.” So let’s look at that. They’re gonna get together, they’ll pass something… Maybe it’s new stimulus, maybe there’s gonna be a bunch of checks for everybody, we’re gonna have new unemployment benefits for those who don’t have jobs, there’s gonna be an extension of the moratorium, so we don’t have millions of people out on the streets at once… And in that case, things have gone remarkably well so far. So it basically would just be a continuation of the same… Then we have a vaccine – at this point it looks like we’ll probably have two, maybe more; there’s a possibility of a Johnson & Johnson vaccine coming, so there might be three… And maybe this fourth vaccine, the Oxford vaccine… So we’ve got a bunch of vaccines coming, we’ve got some treatments, and things like that… People are expecting things to turn around there maybe in the summer of 2021.

Some of the schedules are getting pushed back. Operation Warp Speed has had some issues with — they didn’t purchase as much of the winning drugs as we would have liked in retrospect, so maybe it’ll get pushed back to fall of 2021… But by then, it might be a complete return to normal, and if we have that protection, a lot of these investments could look at this recession as one of the most mild.  So it really is kind of crazy that there’s just that huge range of possibility.

Theo Hicks: It is, yeah. Well, Ian, thank you so much. This has been very informative. I’ve really enjoyed this conversation; very timely, too… Just to kind of quickly summarize what we’ve talked about – we’ve talked about the initial shock, and then some good and bad investment classes, and then the future predictions.

Is there anything else that you wanted to mention as it relates to what we’ve talked about today, or where we can learn more about you, or where we can learn more about what we’ve talked about today? You are very knowledgeable; I’m sure this is all on your blog, but anything else that you want to mention before we sign off?

Ian Ippolito: Sure. If someone wants to learn more, there’s all sorts of free articles and content on the Real Estate Crowdfunding Review, on real estate cycles, and looking at history, and what tends to happen, and what doesn’t tend to happen… And there’s also the Private Investor Club for those who are interested as well in learning more, and also learning from other people. So I’d recommend someone do those. For contacting me, they can also contact me in those places too, as well.

Theo Hicks: Perfect, Ian. Thank you again so much for joining us today. Best Ever listeners, as always, thank you for listening. Have a best ever day, and we’ll talk to you tomorrow.

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JF2216: Pre-Covid Deals With Charles Seaman #SituationSaturday

Charles Seaman is the Senior Acquisition & Asset Manager of Three Oaks Management, LLC. He is a returning guest from episode JF2081 so be sure to check out that episode to get his full background because today he is going to be sharing his experience with a deal he had before COVID and how he dealt with it after COVID.

 

Charles Seaman  Real Estate Background:

  • Senior Acquisition & Asset Manager of Three Oaks Management, LLC
  • 14 years of real estate experience
  • Portfolio consist of 92 unit apartment in Georgia, & a 48-unit in South Carolina 
  • Based in Charlotte, NC
  • Say hi to him at: https://www.3oaksmgmt.com/

 

 

 

Best Ever Tweet:

“During COVID I learned that If you persist, and you negotiate well, you can get yourself a nice deal ” – Charles Seaman


TRANSCRIPTION

Theo Hicks: Hello, best ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks and today, we’ll be speaking with Charles Seaman. Charles, how are you doing today?

Charles Seaman: Fantastic, Theo. How are you today?

Theo Hicks: I am doing well. Thanks for asking and thanks for joining us yet again. Charles’ first episode was Episode 2081. So make sure you check out the episode to learn more about his background and what he is focusing on today, because in this episode, being Saturday, we’re going to talk about a sticky situation that Charles was in, what the situation was and how he was able to get out of it, and the lessons that he learned.

Before that, as a reminder, Charles is the senior acquisition asset manager of Three Oaks Management. He has 14 years of real estate experience, he has a 92-unit apartment in Georgia, and then the deal we’re going to talk about today is a 48 unit in South Carolina that this sticky situation is about.

He is based in Charlotte, North Carolina, and you can say hi to him at https://www.3oaksmgmt.com/.

Charles, let’s just jump right in to the situation the Saturday. Tell us about this 48-unit deal.

Charles Seaman: Yes, absolutely. As everybody’s aware, the world’s changed quite a bit in the last couple of months. We had this deal under contract, we first looked at it in late January. We got it under contract in mid-February. At that point, the world was in a much different place. Initially, it was a deal that was mismanaged, that had, of the 48 units, 12 vacant units, and it was something that was an operational play that we were able to go in there and do better management; part of our play was going to be filling in the vacant units, and then also pushing market rents, because it’s under-rented compared to what it could be.

Being that it had so many vacant units, it was initially a deal that was going to be bridge financing. What happened is we had a bridge lender on board, we gave them an application fee, we were ready to proceed. And then on St. Patrick’s Day, that was a few days after the pandemic officially was declared, our mortgage broker gave me a call and said, “Hi, Charles. I got some big news here, the other lenders shutting down their entire bridge program, and it has nothing to do with us or with the deal. But just with the overall market conditions, there was too much uncertainty, and they didn’t want to lend to anybody at that point.”

That was the case with most bridge lenders, not just this particular lender, but many bridge lenders in the market.

At that point, we were faced with the situation because we were trying to figure out, “Okay, what do we do?” We were in the middle of our due diligence period, our money had not went hard yet, but we really had two options. Option one was either to terminate the contract, get our money back and get out of the deal, or option two was to work with the seller and see what we could do to potentially make it work for both sides.

The agreement that we came to is, we liked to deal and we wanted to move forward with this deal, but we extended the due diligence period by 60 days, and we also extended the amount of time that our money would not go hard for it. The thought was that with the extra 60 days for due diligence, even though all of our due diligence was really done, basically, it was just a waiting game to see if market conditions would change, and if we’d be able to get bridge financing during that time.

Lo and behold, we’re midway through the extension, and at this point, surprisingly, during the pandemic, the property actually got stabilized and filled up. Around early May, the property became stabilized and we no longer needed bridge financing, so we were now able to qualify the agency debt, which for anybody brand new is Fannie Mae or Freddie Mac. As that happened, it opened up opportunities, because to a point, Fannie and Freddie were more or less the only two major lenders that were actively funding multifamily transactions. So at that point, the property became stabilized.

Also in that period we were able to negotiate a price credit with the seller, because initially – while I’m not a fan of retrading, it was something that I thought we really had to do, because pretty much anybody that had a deal on the contract pre-COVID got some type of credit for it if they still decided to go through with it. I said we’d be foolish not to. We got a reduced purchase price, the property got stabilized and then all of a sudden, we go and we end up applying for agency debt with one lender. The lender gave us a term sheet for 75% LTV, which for the tertiary market was pretty good. We weren’t initially expecting it to be that high, but that worked out great, and they were projecting a 3.7 rate.

All of a sudden, the deal was looking better and better, because initially, we were looking at it as having to get bridge financing. Now we were qualifying for agency debt, we’ll have better leverage, we’ll have lower rate and just overall better terms, so it was starting to look better and better. Initially, we engaged with this first lender, and what happens is they go out there, they do their third-party inspections, the appraisal comes back much better than any of us anticipated it would… And overall, most of the boxes that the lender wanted checked, got checked.

Lo and behold, about a month and a half, two months later, they come back to us, and they tell us that their commitment’s only going to be for 65% LTV, which very much surprised us, because we were saying, “Well, how did we go from meeting most of the criteria that you have, starting off with 75% on a terms sheet, and now we’re at 65%?” We said, “Listen, we’re this far in, and the last thing we want to do is go out and start with somebody else,” because that means just negotiating an extension again with the seller, and just overall delaying the process and spending more money. But unfortunately, we couldn’t get them to budge. I don’t know if it was just overall nervousness from the market conditions the last few months due to the pandemic… But they wouldn’t budge, and 65% LTV wouldn’t work for us, because that would make our returns not as favorable as they were.

Lo and behold, we wound up nixing that deal, and we went ahead with a different agency debt lender. As of right now, we’re recording this, the deal isn’t actually closed, but we should be closing within the next two weeks, so it looks like everything is moving forward.

With this particular lender, they’re going to be right around the 75% LTV and pretty much the same great terms. So what happened is we have a deal that initially started with bridge financing, and that wound up not happening because of the pandemic, and it actually winds up getting better during it.

The real lesson I think I got out of this was that if you persist and you negotiate well, you can get yourself a nice deal.

Theo Hicks: That was a great lesson. Congratulations on still being able to hold on to that deal. Let’s go back a little bit. I just have got a few follow up questions. You said that you got that call, and then you had to brainstorm of what the next move was going to be. How much longer did you have until that money went hard?

Charles Seaman: We had about two weeks.

Theo Hicks: Two weeks?

Charles Seaman: I got the call from our broker on St. Patrick’s Day, March 17th, and our money would have went hard on April 3rd, so roughly two weeks left.

Theo Hicks: Perfect. So you went back to the seller, and you were able to renegotiate an extended due diligence and a hard money date. Did that require additional money down, or did they just accept it, because they wanted to start [unintelligible [00:11:14]?

Charles Seaman: They accepted it. They could see that we were serious buyers, they could see that we had already done over due diligence and everything we really needed to on our end, and they understood it was just a byproduct of the market, and unless they found the buyer who was going to come in there and buy with all cash, that they were probably going to experience the same thing with anybody else.

Theo Hicks: My main question is, talk about luck that the property was able to be stabilized – was that something that you knew they were working on? Did they do that because they knew they wouldn’t be able to sell it to you if it wasn’t stabilized, or was it just kind of a happy coincidence?

Charles Seaman: It was a happy coincidence. We definitely weren’t expecting that, but it gave us another option. Because even in early to mid-May, we were still debating, “Are we really going to be able to qualify for bridge financing?” As soon as we heard the deal was stabilized, we said, “That’s great.” Now we can go agency, and that’s a non-factor.

Theo Hicks: What would have happened if it wouldn’t have been stabilized? Do you think you would have been able to do the deal or would you have had to back out?

Charles Seaman: I think we would have backed out and terminated the contract, because the bridge terms weren’t great beforehand, just because it was a tertiary market. But with the amount of bridge lenders that temporarily suspended their programs, and post COVID-19, the charms would have been even worse, or rates would have been higher, or leverage would have been less, and it just wouldn’t have made sense for us to go through with it.

Theo Hicks: At what point in the process was that purchase price reduced?

Charles Seaman: That was actually reduced right before we decided to go through with it. Right before we told them, “Okay, we’re going to go through with it and not terminate.” I wanted to make sure we can get a reduction because I said it just seemed like we’d be leaving money on the table if we didn’t.

Theo Hicks: Did you do the price reduction because you needed to do that in order for the deal to make sense, or was it a, “I know I can do this because of where we’re at and this is more meat on the bone for us”?

Charles Seaman: It was more just that I knew we could deal because of where the market was at. We could have probably still made it work with the initial number, but it’s even better with the lower one.

Theo Hicks: How does that negotiation process work? Is it just you tell your broker, “Hey, we want to reduce price,” and then they negotiate with the broker and then it kind of comes back to you, the traditional negotiating back and forth on the purchase price? Is that how it works?

Charles Seaman: Exactly, yep. What I do is I initially sent the broker an email with the breakdown of the additional costs that we would have went with, because at that point the property still wasn’t stabilized when we had started that negotiation. We said if we went with bridge, this was the cost compared to what it would have cost us before, and we gave them a list of everything in particular, the lender required reserves.

Even after we went agency, with the lender required reserves it’s still going to be much more than what it would have been before. Now granted, as long as the loans and compliance and whatnot, we do get that money back after a certain point, but it’s still additional money that has to come out of pocket for it at the beginning. I said I understand that’s not the seller’s problem, but ultimately, it can’t be only our problem, because they said if we’re raising all that extra money and [unintelligible [00:14:03].00] the lender for a year or two years or however long it maybe, it’s still money that somebody is coming out of pocket for, so it lowers what we’re able to pay for that property.

Theo Hicks: And then last question, so you said that you had the bridge loan, you didn’t do that anymore. You found an agency loan that had great terms and they changed their mind for some reason, and you had to go with a different lender, which gave you kind of the original term that the first lender gave you.

How long did that process take? Traditionally, it takes two months to go through that entire process. Did you kind of go through that expedited phase?

Charles Seaman: With this particular one what happened is from start to finish we went seven months. So I joked around and told people, it was probably the longest closing we’ve ever had before the deal was closed. But from the time we first looked at it, it was January and we’re going to be closing it late August, so seven months from start to finish.

Thankfully, the second lender was willing to reuse the appraisal report the first lender had gotten, so that saved some time, and it also saved some money, so we didn’t have to pay for a new appraisal. They did require a new environmental, but at least the appraisal was done and they were able to reuse that, so it got the ball rolling and allowed them to get a jumpstart on it.

Theo Hicks: Perfect. Okay, Charles, anything else you would mention about this deal or about your company before we wrap up the episode?

Charles Seaman: Nothing else about the deal, but [unintelligible [00:15:17].24] shout out if they have any other questions? Otherwise, I’ll give people a quick way to reach me.

Theo Hicks: Oh, no other questions. Feel free to let people know where to find you and learn more about you.

Charles Seaman: Sure. Sounds good. One of the things I would say just to give a quick plug, every Saturday afternoon on Zoom I do an underwriting session. For anybody who wants the chance to go through and underwrite a multifamily deal and learn how we usually do it, feel free to reach out. You can either send me a text message at 347-306-3378 or an email, Charles@3oaksmgmt.com, and let me know that you heard me on the Best Ever show, and that you’re interested in joining the Saturday underwriting session.

Theo Hicks: That’s a really good idea. A lot of people want to learn how to underwrite multifamily deals, it’s really cool that you talk people through that, and actual live deals that you’re working on.

Charles, thanks for joining us, again, in this Situation Saturday and walking us through how you’re able to go from having a deal under contract pre-COVID to COVID hitting, and then having to figure out how to get new financing; originally had the bridge loan, that was not going to work out because the lender shut down its bridge loan division, and you only had two weeks until the money went hard. So you had the option to terminate the contract or work with the seller. You extended the due diligence and the hard money date, so you can kind of wait and hope that the market turned around. It didn’t, but there’s a happy coincidence that midway through the extension, the property was stabilized, and so you now qualified for agency debt, so you didn’t have to back out, and you were able to also, at the same time, negotiate a reduced purchase price.

Then you had another obstacle where the original agency lender reduced their LTV from 75 to 65, which obviously is a massive increase in the amount of money you needed to put down. which reduces the return percentage, and they wouldn’t budge, so you went with a different lender, who was able to get you not only better terms than the first one, but they were also able to expedite that loan application process.

The overall lesson was just to be persistent, and do what you can to continue working, grinding, don’t give up and just back out of the deal at the first sign of trouble. And if you are persistent, you’ll be able to do a really good deal, like you did, with better terms, better purchase price, and then you’re buying the property at a higher ROIs.

Charles, thanks for joining us today. Appreciate it. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

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JF2195: Future of Shopping Centers Post Covid19 With Beth Azor #SituationSaturday

Beth was a guest in a previous episode of JF1974 so be sure to check out her first episode to learn more about her. In today’s situation Saturday she will be sharing what it is like to be a shopping center investor during the Covid19 era. 

Beth Azor Real Estate Background:

  • Owner of Azor Advisory Services, Inc. 
  • Has 30 years of investing in retail shopping centers
  • Portfolio consist of 6 centers currently $80 million
  • Based in Fort Lauderdale, FL
  • Say hi to her at: https://www.bethazor.com/ 

 

 

Click here for more info on PropStream

Best Ever Tweet:

“As a landlord, the COVID19 recession is completely different than the ‘09 recession” – Beth Azor


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks and today, we’re speaking with Beth Azor. Beth, how are you doing today?

Beth Azor: I’m doing great, Theo. Thanks for having me.

Theo Hicks: Thanks for joining us again, actually. So Beth is a repeat guest. Her last episode was Episode 1974. So make sure you check that out. And today is Saturday, so we’ll be doing Situation Saturday, talking about a sticky situation that our guest is in and lessons learned, things she’s doing to get out of it. So before we get into that, let’s go over Beth’s background as a refresher. So she is the owner of Azor Advisory Services. She has 30 years of experience investing in retail shopping centers. Herr current portfolio consists of six centers valued at $80 million. She’s based in Fort Lauderdale, Florida, and her website is bethazor.com. So Beth, before we get into the situation Saturday, do you mind telling us a little bit more about your background and what you’re focused on today?

Beth Azor: Sure, Theo. So my background has been mostly retail, 35 years in the industry, started investing about five years in, so 30 years is correct. I’ve owned and operated shopping centers solely in South Florida. My six that I own today are within ten minutes of my house. So I definitely have some market knowledge there and some control. I like to have control. I also train leasing agents, how to lease vacancy around the country for large REITs, private investors, wealth funds, institutional clients, and I’ve canvassed knocking on doors over 10,000 hours.

Theo Hicks: Well, that’s a lot of door knocking.

Beth Azor: That’s a lot of door knocking.

Theo Hicks: So as I mentioned, it is Situation Saturday. So we’re going to talk about the future of shopping centers post COVID. So Beth, I’m gonna let you just take it any direction that you want to start off, and then I can ask some follow-up questions after that.

Beth Azor: Sure, Theo. So in March, when COVID hit, and some of the tenants started calling us, the landlords, crying, “We might not be able to pay our rent,” I held my first rent relief reduction webinar with over 700 people that attended, and I was very firm. “Let them go to their business interruption insurance, hold firm, tell them no”, and I had three since, so I’ve had four in all. And boy, what a change things have made. When the government shuts down your retail and the nail salons cannot open and the hair salons cannot open, the landlords have to pivot, because if those tenants aren’t taking in a dollar, you can’t really be the tough old landlord that we might have been in ’09. People ask me all the time, “How’s this recession compared to ’09?” It’s completely different. It’s a million percent worse, because the government shut down the retailers. They told them, “You cannot open.”

So I had acres and acres of parking lots with no cars in them, and it was very challenging. I went from talking local tenants, mom and pops off ledges crying to me on the phone, to talking to national tenants who had huge balance sheets, who were being rude and saying, “Sorry, we’re not going to pay rent for the next year.” As a landlord, after about three or four weeks of that, probably in the April to May range, I decided that I had to have the local mom and pop day of phone calls and the national phone calls, because I literally had to change my strength and armor and empathy depending on who I was speaking to, and that’s something that, in 35 years, I never thought I was going to have to do. Okay, so today’s my day where I’m going to talk to all my mom and pop, hair salons, barbershops, little coffee shops. Now tomorrow, I’m going to talk to these big-box retailers who have the balance sheet, who can pay me my rent, so that I can pay the mortgage, but are just choosing to be jerks and not doing so.

So that has been a huge, huge challenge, and just looking back and seeing how day one, “We need to be tough”, to now day, I don’t know, five months later, where we’re really propping up some of these mom and pop tenants, because if we don’t, we will end up with 20% to 30% to possibly 40% more vacancy than we had five months ago. And there will be a lot of landlords and lenders having big discussions, because I’m not sure if the lenders want to take back these properties full of vacancy. It’s really sad and scary.

Theo Hicks: So for the mom and pops, when you say helping them out, propping them up, can you get a little bit more specific on exactly — not just what the conversations are like, but what’s the results of the conversation?

Beth Azor: So again, back in the beginning, we were like, “No waivers. Tough landlords. We’re not going to give any waivers. We’re only going to do deferrals,” to now five months later, where we have to give waivers. I had hair salons and nail salons that literally were not open for over two and a half months, not pressing the cash register. So we can pretend to defer the rent for them to pay back later at some future date. But in reality, they’ve lost those sales forever, they’re never getting them back. And even if we were smart enough or the tenant agreed to a 12-month payback of a deferral, how likely is it that they are going to recover to where they pay that back? So we are doing waivers for tenants that weren’t open. Now, I have a sub shop guy that is doing 50% more business during COVID. Dining rooms closed. He has an app, he’s doing deliveries, he’s doing curbside, and he’s killing it. So he’s doing double the sales that he did pre-COVID. So he’s not getting any waiver or deferral and nor is he asking.

So the tenants that are asking, smart landlords are helping and we’re helping in ways of either deferrals and or waivers. With the national tenants, what we’re doing, and even with some of the locals, is if we make a deal, it’s as short term as possible. So hopefully we’ll all get back to some semblance of order soon; and if we can get something in return for the waiver, or the deferral, that would be great.

For example, I had a lease with a Panera Bread, and they wanted to defer, I think, April and May’s rent or half 50% of April and May’s rent to first quarter 2021. So I said, “Sure, but your lease is coming up in two years. I want you to renew now your second five-year option,” and they said, “No problem.” So now I have a seven-year lease left, which is great for me, and all I did was be their short term lender, where I just postponed getting my rent till first quarter 2021.

Theo Hicks: And then in order to get the information to know – so this is more for the mom and pops – to know what situation that they’re in. Is that what you’re talking about on your phone calls and getting an idea of where they’re at, what they can do so you can figure out what the best course of action is?

Beth Azor: That, and then requesting their sales reports. So actually knowing what they’ve done… And there are some tenants that, like the national, some don’t report, and there’s this new tool called geofencing, which is mobile data. I’ve had some national tenants reach out and say, “We’re doing horribly. We are the worst in the chain,” and then you can fill up the geofencing tool and actually see that their traffic is back to where it was pre-COVID. So it’s amazing how technology can help the landlords, much to the tenants’ unhappiness. I did have a few nationals that tried to play a little game with me and then I was able to say, “Hmmm. Look at this geofencing report. I can see how many people were at your store yesterday, and it matches to February’s traffic. So it’s not going to help.”

Theo Hicks: You said that was geofencing, like a fence?

Beth Azor: Yes, geofencing, and it’s mobile data. So in retail, for the last 35 years that I’ve been in business, demographics is hugely important. So when you’ve got a Starbucks or a Panera or a TJ Maxx, or even some local tenants, they come to your shopping centers and they’re interested in leasing space, they want to know what is the income, what’s the daytime traffic, the employee base in the area, what are the traffic counts, etc, etc. Now there are tools… Uber has one and a company called Placer.ai, and they have the ability to target your shopping center and tenants inside your shopping center, and they can provide you with a report that shows how many people were at your Panera Bread or your Starbucks up till yesterday.

Theo Hicks: Wow, that’s crazy.

Beth Azor: It’s crazy, and demographics for the last 35 years were always based on census data, which is only done every ten years. So for us, in the retail industry, to be using census data today that’s based on 2010 in South Florida is completely full of errors. So to have this tool where I know exactly how many people drove into my parking lot up till midnight last night is very, very, very valuable.

Theo Hicks: Perfect. So we talked about what you’re going through right now. What is– and I know this is probably an impossible question, but… So I positioned it to say what are your expectations for shopping centers moving forward, both from the perspective of your existing portfolio and then what your plan is to whether acquire or get rid of some of your existing portfolio?

Beth Azor: So I’m not going to get rid of anything because I love all my projects and they’re performing regardless. But looking forward, my big wish is that we get our kids back to school because the parents need to work and that gives them disposable income to be able to come back and shop at our shopping centers. And while they’re stuck at home, helping their kids homeschool is a problem for the retail world and the economy. So I’m praying that that happens. But to defend against that, I’ve been encouraging and even myself, putting tutoring places even at no rent almost like a PSA, a public service, in any vacancy in a shopping center where we could have a Zoom setting where we hire a college student, and parents can drop their kids off and get a couple hours reprieve at home because if they can work, they’ll get more disposable income and that will filter down to us. They’ll be able to eat out more, go shop more, etc. So it’s schools. If schools aren’t open, what can we as shopping center people with vacancies do to mitigate that and then bring employees back? Because a lot of my small tenants said, “I can’t get my employees back because they need to be at home with their kids.”

So that’s what I’ve been preaching – How can we in the real estate industry help schools and help parents so that we can get people shopping again? I’m predicting 30% of the malls in our world have closed are indoor malls, and I’m predicting that 50% of those never reopen. So us outdoor shopping center, strip center, power center, lifestyle center owners need to shift and start talking to those mall tenants. For example, Sephora and footlocker, those tenants in those markets where their malls have closed will start looking for alternative opportunities and that will be to us, the non-indoor mall people. So I do think that it will shift and you’ll see “Oh, I used to go to that store in the mall”, and you’re going to start seeing that be in a more outdoor, strip center, power center opportunity.

Theo Hicks: And then what about buying? So were you– or what’s your overall recommendation for people who are currently investing in shopping centers or want to get into shopping centers. Is now a good time? Should we wait? Should we not invest? What would you say back to that?

Beth Azor: I think that in the next year to two, there will be a lot of opportunities, especially with CMBS loans because as all of our community lenders have worked with us as our tenants didn’t pay, the CMBS lenders did not. So if you have a loan with the CMBS, a commercial backed security mortgage, there was no deals made, and I think that the tenants don’t make it. There will be a lot of CMBS loans going into default and those will be opportunities. So my recommendation to anyone that’s listening that would like to invest in retail, is retail’s very community neighborhood-based. Like I said my six centers are within ten minutes of my house. So I know those centers, I know the market, I know the other landlords and I know the tenants. I shopped in these markets.

So for anyone that’s interested, pick a little area that you know well. Maybe you own a mobile home park down the street, maybe you own multifamily nearby, maybe you own office buildings. So pick an area that you know and start researching who owns this property. The more vacancy in the asset, the more likely that that’s going to go back to the bank or the lender, and you might have an opportunity to pick that up, and just start talking to retail leasing agents around that property to get information and get knowledge. If your instinct is this was successful before, it’s probably going to be successful again. When I buy, I look for strip centers that are parallel to busy streets. So there’s no L-shaped corner spaces. They’re just flushed to a main street.

I like high-income neighborhoods, high-income demographics where people have a lot of money. So even if they’ve hit a little bit of a hard time, they still have disposable income, and I like smaller– I don’t like power centers, and I’m not really a grocery-anchored center investor. I’m not going to compete with all of the REITs out there that need to invest their money in grocery-anchored. So I look for the multi-tenant, smaller strip centers, 20,000, 30,000, 40,000, 50,000 square feet that are right on the road, lots of traffic, great visibility. That’s where the retailers want to be. They want to have great parking, they want to have great visibility to the main area where there’s a lot of daytime traffic, lots of employee traffic nearby to feed the businesses and the restaurants.

Theo Hicks: Going back to what you said about the properties that have CMBS loans on them, that there weren’t any deals made with those lenders, and so you expect there to be properties going back to the banks. If I want to keep a lookout for that, how do I find those properties? Is there a website I go to, I need to talk to a leasing agent as you said, or someone else?

Beth Azor: I think that you can reach out to the CMBS loan lenders themselves. You can find mortgage brokers and capital market’s investment brokers in your area. Ask the leasing agents who are the top investment sale brokers. They can probably get you in, but it’s really a who you know game there for sure. I don’t think they published lists. There are watch lists, but you need to know who to call to get that information, and it’s a very tight club.

Theo Hicks: Okay, Beth. Is there anything else you want to mention as it relates to shopping centers and COVID or any other call to action you have before we conclude the interview?

Beth Azor: Well, my call to action is go shop local, go out and pick up from your local restaurants, shop your local tenants. Those are small businesses who support our economy all across the country. So shop local, love local. And then if you have any other questions or want any more information for me, I have a website called www.azoracademy.com, and that has a ton of free information. I have over 150 free videos on YouTube under Beth Azor. So anything about retail, leasing, you can find all of the information on either YouTube, bethazor.com or azoracademy.com.

Theo Hicks: Perfect. I’m actually following your advice right now. I’ve got Uber Eats on the way from a local restaurant. So I’m doing what you told me to do already.

Beth Azor: Alright. Good job.

Theo Hicks: Alright, Beth. Thanks for joining us again and providing us with your insights into what you’ve been doing since the onset of the COVID outbreak. The biggest takeaway that I got was you had your days where you talked to the mom and pops where you were more open and listening and sympathetic, and then you put your arm around to talk to the national tenants. You mentioned that you weren’t necessarily just listening, but you were also confirming what you were hearing with the mom and pops. It was by requesting the sales reports to confirm that their revenue had actually gone down or was non-existent.

And then you mentioned that technology called geofencing to check the mobile data at some of your national tenants who claim to have reduction in traffic, whereas in reality, it didn’t. And then you mentioned some of the things that you want to see happen in order to help your residents, people going back to work, how you mentioned how you’re putting up free tutoring in some of your vacant units.

And then you also mentioned that you think that a lot of the malls that closed down aren’t going to reopen. So there’s going to be opportunities for shopping center landlords to bring on new tenants that are traditionally in the mall and you gave some examples of that. And then opportunity wise, in the next few years, you think there’ll be a lot of properties that currently have CMBS loans that will be foreclosed on because there weren’t any deals made with the lenders and in the end, the owners.

And then you also mentioned that if you are interested in buying, make sure that you are buying on centers that are parallel to busy streets, high-income neighborhoods. You don’t like the power centers, you don’t like grocery-anchored, and then it’s very community and neighborhood-based. All of yours are within ten minutes of each other. So pick an area that you already know well. Maybe you already own property there, maybe you live there, and then start figuring out who owns those properties, what their vacancy is right now, how did they perform pre-COVID. Ask your leasing agents to get this information to see if it makes sense to buy.

So Beth, thanks again for joining us. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Beth Azor: Thanks, Theo.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

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The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.

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JF2095: Coronavirus Impacts On May 2020 Rent | Syndication School with Theo Hicks

Coronavirus has impacted the real estate market in many ways from home buying, selling, to collecting rent payments. In this episode, Theo Hicks will be sharing information on how May rent collection was with so many Americans out of work.

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To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow. 


TRANSCRIPTION

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

 

Theo Hicks: Hi Best Ever listeners. Welcome to another episode of The Syndication School series, a free resource focused on the how-tos of apartment syndication. As always, I’m your host, Theo Hicks. Each week, we air two podcasts episodes that focus on a specific aspect of the apartment syndication investment strategy, and for the majority of these episodes, we offer a free resource for you. These are PowerPoint presentation templates, Excel template calculators, PDF how-to guides, some resource to help you along your apartment syndication journey. These free resources as well as past Syndication School episodes are available at syndicationschool.com.

Today we are going to return to talking about the Coronavirus. So we’ve taken a break from that the past few weeks, but I wanted to do an episode that goes over how rent collection was during the month of May.

So I’m recording this on May 20, the data is in. Definitely check out some of the episodes that I recorded last month, either late April or early May, about the Coronavirus and how that is impacting apartments. Those are also at syndicationschool.com or if you just go to joefairless.com and search Coronavirus, you’ll see all the blogs and podcasts we’ve got about that topic. But today, we’re gonna talk about how the Coronavirus has impacted rent collection for landlords, more specifically how it has impacted rent collections for the month of May, because obviously, it has caused a lot of uncertainty for landlords, property management companies, really anyone involved in real estate in general, but we’re gonna focus on apartments obviously, and this is due to things that have to do with rent collections and people losing their jobs, and evictions, eviction halts and foreclosure halts.

So in an attempt to help tenants who may be struggling financially, many states have restricted evictions. It has been a scary time for a lot of investors, because that might translate to less income if you are not able to evict a tenant who can’t pay rent. So obviously, because of all these changes in the rent collections, we’re expecting a lot of people who are saying it’s gonna go down a lot, or it’s not gonna change a lot. Now we have data to support and determine who’s right, and fortunately, it seems like according to the recent rent collection data, landlords may not be as impacted as some people initially expected, and it shows that rent collection is down by only a few percentage points. So just because while the new eviction laws seems scary, the data shows that it’s not as bad as it seems, at least not yet. So let’s go over the data and see how rent collection has been impacted.

So first of all, well, rent collection is down. So it has dropped, but as I mentioned earlier, this was expected. Whenever you’re going into a recession, whether it’s caused by some financial instrument like it was in 2008, or a pandemic, like it is now, typically that means people are making less money, and when people make less money, that means they can’t pay the rent sometimes. But luckily, as I mentioned, the rent collection has not been affected as much as compared to previous economic downturns, and it really has not been as affected year over year either.

So this is for rent collection as of the 6th May. Basically, people who are paying their rent on time. In 2019, by April 6th, 82.9% of rent payments were made, and the next month in May, by the 6th of 2019, 81.7% of rent payments were made. So from April 2019 to May 2019, it was down about a percentage point.

Now moving to 2020, April 6th of 2020, the percentage of rent payments made was 78%, which was about a 5% drop year over year. However, by May 6, 2020, 80.2% of rent payments were made. So it actually went up from April to May. So obviously, April 2019 to April 2020 is down, and May 2019 to May 2020 is down very slightly, but a promising part is that April was lower than May. So rent collections actually went up from April to May. So this increase from April to May seems to be promising, and also for the time being, the spread of virus seems to be slowing down, additional steps seem to have been taken to get the economy rolling again. So in the short term, the worst may be over. April, May have been the worst month. Of course, we don’t really know for certain. Nothing is a fact yet, but what we do know is that rent collection is only slightly down. From April to May, it’s actually going up.

So why is this happening and will it get worse? Well, the obvious reason that the rent collection went up from April to May are those government stimulus checks hitting people’s bank accounts. People get their stimulus checks towards the end of April allowing them to pay their May rent on time if they weren’t able to pay their April rent on time, but of course, right now, as of this recording, this is the only confirmed stimulus check going out to Americans. With our talks right now, I just looked up today, they’re still talking about potentially sending out a second round of stimulus checks, which would obviously be very helpful for June rent, especially because data is showing that 63% of Americans will require a second stimulus check in order to pay bills within the next three months. Although we do know that people do pay their housing bill first, so this is just bills in general… But it’d still be helpful to these people.

So depending on whether the economy reopens, the next few months could potentially be unstable compared to April and May, but the good news is that many states are ramping up unemployment efforts since 15% of the country’s unemployed. So just because they’re not getting stimulus checks on a national federal basis, states are also helping with unemployment benefits. So with all this federal and state help citizens are currently receiving, it’s hopeful that rent collections won’t be fluctuating too much, but again, disclaimer, none of this can be said for certain.

So what about the evictions we’ve talked about earlier? What’s perhaps more important is to know when the current rent collection numbers might go up or down. So not all states have implemented new eviction laws, but many states have, and so it’s important to know which ones they are. For example, there was a recent case in Minnesota where a landlord was criminally charged for evicting a tenant during the pandemic. So states are beginning to require a landlord to allow tenants to live in their properties even if they cannot pay rent. Right now, 15 states have to suspended or changed their eviction laws until further notice with really no end date in sight. So each state’s eviction laws are a little bit different, so make sure that whatever state you’re in, you’re up to date on that. So if you go to Google, then you can set up a Google Alert to “evictions” and then your state name. Each day, you’ll get a Google Alert will send to your inbox, updating you on the eviction laws in your state or examples of landlords getting charged or whatever.

Most states have changed their eviction laws to require landlords to keep tenants in their homes even if they cannot pay rent. So in New York, for example, they declared an eviction and a foreclosure moratorium and prohibited late fees for up to 90 days, allowing tenants to use their security deposit to pay past rent.

So luckily, as I mentioned earlier with the April, May 2019, 2020 data, these eviction laws haven’t seemed to change rent collection too much, but the disclaimer here again is yet; it’s still something that might happen in the future, especially if there’s not a second round of stimulus checks, if these halts on evictions are extended for many months; it really just depends.

I talked about this on some of those previous Coronavirus episodes. Just make sure you’re trying to work with your tenants as much as possible during this difficult time, just because even if you’re allowed to evict them, it might be hard to find a resident currently. So just work with them, help them out as much as you can.

So the last thing I want to talk about is just because you got these eviction changes and rent collections seem to be down year over year, rent growth is slowing down, people are unemployed, everyone just keep in mind that this is going to be temporary. We don’t know when, but eventually, the economy will recover, things will get back to normal and we hope, and we’ve got an article on our blog about this, it’s called, Will Apartments be Stronger in the Post Coronavirus World? Ideally, apartments are going to be stronger after all this is over and we come out of this pandemic, recession, whatever you want to call it.

So overall, rent collections have been slightly affected, but it’s nothing too concerning as of now. Obviously, these are just average numbers. So some places aren’t affected at all, other places are affected a lot worse, but on average, these rent collections have been slightly affected. I should’ve just said on average a little bit earlier. So just be sure that you’re staying up to date on your state’s eviction laws, foreclosure laws, really any changes in laws to the Coronavirus pandemic, and then think of practically how that’s gonna affect rent collections come June, July, August, etc.

So that’s an update on the rent collections. Again, just to go over the data one more time, these are all percentages of rent payments made by the 6th of the month. So April 2019, it was 82.3%, May 2019 was 81.7%., April 2020 was 78%, May 2020 was 80.2%. So year over year, April was down about 5%, May was down about a little under 2%, but looking at the 2020 data, the rent collection in May was higher than it was in April. So we saw a bump, again, due to stimulus checks, but it’s still a good thing to see from a landlord, from a property management company, from a apartment syndication perspective.

If you want that data, it’s from the National Multifamily Housing Council. So you can find June data for there as well. And depending on how June goes and depending on if the Coronavirus is still top of mind topic, we’ll do another episode talking about the June 2019 and June 2020 rent collection data by the 6th of the month here in the next few weeks.

So a little shorter episode, but that could give you time to check out some of our other Syndication School episodes available at syndicationschool.com. We’ve also got our free documents there as well. Thank you for listening, have a best ever day and I’ll talk to you soon.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.

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JF2086: The Many Ways Investors Handle COVID-19 With Scott Westfall

Scott started his real estate career while in college managing properties for others and eventually found a passion towards real estate and began helping others through his own company called CGP Real Estate Consulting where they help identify, purchase, and operate investment properties. Scott works with many investors through his company and has seen how many different ways investors are handling situations during the coronavirus pandemic.

Scott Westfall Real Estate Background:

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Best Ever Tweet:

“Real estate is a business, and if you can take the emotion out of it and go into it with a solid business plan, you should be able to weather these uncertain times” – Scott Westfall


TRANSCRIPTION

Theo Hicks: Hello Best Ever listeners. Welcome to the best real estate investing advice ever show. My name is Theo Hicks, and today we’ll be speaking with Scott Westfall. Scott, how are you doing today?

Scott Westfall: Doing well, Theo. Thanks so much for having me on.

Theo Hicks: Oh, absolutely. Thank you for joining us. I’m looking forward to our conversation. Today we’re gonna be talking about the Coronavirus, how it’s affecting Scott’s business, how it’s affecting investors that he works with, the business, some of the challenges they’re facing, and then things that they are implementing to solve those challenges, and that hopefully will help you during this time as well. But before we get into that, a little bit about Scott – he is the owner of CGP Real Estate Consulting, ten years of real estate experience, six being a realtor, based in Virginia Beach, Virginia. You can say hi to him at cgprealestate.com. So Scott, before we dive into the Coronavirus, can you tell us a little bit more about your background and what you’re focused on now?

Scott Westfall: Yeah, certainly. So I got into real estate and then business, learned it from the inside out. In my freshman year of college, I met a couple who had just inherited a real estate brokerage that was focused on vacation rentals and property management and sales at the oceanfront in Virginia Beach.

Through college, I did maintenance and contracting and project management with them. When I graduated in 2014, I got my real estate license and became the full-time property manager and really vacation rental manager for 120+ properties. I did that for about three years, and through that experience, I got to work with individual and large investors. I got to learn really what makes landlords and investors successful and what mistakes they can make. Through that experience, I came to a point in 2017 where I felt it was time to take the experience and the knowledge that I had and do something a little bit different. I saw a need growing in Hampton Roads for a different service in real estate, and I knew I was passionate about helping others build wealth through real estate. So I decided to put my license in my LLC’s name, CGP Real Estate Consulting, and today we are focused on being the leading expert in area in identifying, purchasing and operating investment properties in Hampton Roads.

Theo Hicks: Perfect. So identifying, purchasing and managing, correct? Those are the three–

Scott Westfall: That’s correct.

Theo Hicks: Perfect. So now that we’ve got our three categories to talk about today, I think the first one we should talk about is managing, and then we’ll work our way back. So how has management changed during these past few months with the Coronavirus pandemic, and maybe also tell us some of the major challenges you’re seeing investors face, and then the types of advice you’re giving them to address those challenges?

Scott Westfall: Yeah. So I would actually break it down into two subsets; really standard yearly rentals, and these presented their own difficulties, and then really a lot of investors I work with, with short-term rentals, vacation rentals, and they’re facing a whole different set of challenges.

So with the yearly rental is really, in Virginia Beach, in April, we only saw out of 60 tenants, four or five paid late, and as a management company, we gave those tenants really to the end of the month to pay their rent without charging a late fee, and made sure we communicated with them upfront.

I have some individual investors who are self-managing their properties, who have had tenants who are unable to pay rent because they’ve been furloughed, and those owners have fortunately been lucky enough to contact their mortgage companies and put things in the rear, so that they’re not missing out right now. And really, a lot of them have still charged late fees,or  are saying they’re charging late fees, but are being very lenient with the whole how they’re going to repay the rent that they owe back. So we can talk more about yearly rentals…

On the short-term rental side of things, those owners are freaking out a little bit. It looks like the summer, which is a bulk of their income here in Virginia Beach and Norfolk, really anything on the beach, seems to be non-existent or very spotty, and so I think those owners are starting to scramble. We’ve seen owners who have gone to just switching these fully furnished properties to long term rentals. They’ve really gone for yearly, and then we’ve also seen some people who are just holding out, waiting to see what happens, hoping to make the best of the summer. I think that right now, conversations we’re having is how can you get creative with your property and still continue to produce income and not let it sit vacant through the rest of this year.

Theo Hicks: So it sounds like, at least, from your circle, of the standard yearly rentals, it sounds like April was maybe, a little bit worse than most months, but nothing too crazy. I’m just wondering, do you have any expectations for May collections and maybe even into June? What do you expect to happen during those months? Then maybe based off of that, also what types of things should investors be doing now if you do believe that collections are still going to be lower during those months?

Scott Westfall: Great question. So I would say that my colleagues were definitely more concerned about May and definitely June, just depending on how long this goes. I would expect that we see the numbers of late payments or non-payments in May to increase, and really the reason that I would say that is because of the feedback we’re getting in communication. I think that would be my biggest piece of advice to every landlord out there, would be to communicate with your tenants and find out what their situation is; let them know that you’re not out to get them, but you also need to plan and protect yourself, and I think knowing where your tenants are will really set you up to prepare for what’s coming in May in June.

Theo Hicks: So just calling tenants, putting notes on their doors. I was talking to someone and it sounds like self-managers are gonna have a little bit easier time communicating because they can actually go out and do it themselves whereas people that have property managers have to rely on their management company to do that, because they don’t really know their residents. Is that what you’re saying too – it’s easier to communicate with the residents and get that feedback that you need if you’re a self-manager, and then how do you ensure you’re able to get that feedback if you aren’t a self-manager?

Scott Westfall: That is a great question. I would say that it definitely does depend on your property manager, and if you do have a property manager, how much communication you’ve been in there with him… But you’re correct in the assumption. Self-managing owners have definitely had an easier time and a closer relationship with their tenants, and getting that information and feel from where their tenants are.

From the management side, we, as a company, have really tried to stay on front of it and have a lot of resources to use to communicate with tenants and to communicate quickly and efficiently. So to that point, how many of them are responding? That is a question. So if you are an owner that is with a property manager, I would say continue to contact them and put the pressure on the tenant to respond and let you know where they are at this time.

Theo Hicks: Perfect, and then switching to the short-term rentals, because when I first started doing these COVID interviews, I felt like everyone I talked to was doing short-term rentals. So I’ve heard some very interesting, creative ways that they’re using their short-term rental properties to continue to make some income.

So you already mentioned people are– they’re switching them to long-term rentals, or they’re just holding out and waiting… Because from all the short-term rentals people I’ve talked to, May, June, July, August are the money months. So what are some other creative things you’ve seen people do to make sure they can bring in some income on their short-term rentals?

Scott Westfall: One interesting one up front that we’ve seen down here is we’ve actually had an influx of people from the North East who have rented the short term rental properties that have been available for March through May, for two months, and have come down in quarantine here, which has really been an interesting thing. But going into that, there is very much an emerging market, at least here in Virginia Beach, for a lot of these vacation beach destination towns for increased service monthly rentals over the summer. So it’s maybe transitioning, and it would be more than what you’d get as a standard yearly rental, but not as much as you would make with nightly rents throughout the summer, but if you can find somebody who’s willing to come and have a whole month-long beach vacation for $6000 when you were making $9000 that month, I think that is a good way to offset it. So looking for people who are looking to spend their summer months at the beach for an increased rate is good option.

The other option too is in real estate, you have price, location and condition, and if there’s no demand, you’ve got to have to use your price lever. So see where the market is at and test the market and see where you start to get inquiries, because there are still people out there looking and hoping to take advantage of the summer being a little bit empty to be able to have a less expensive vacation.

Theo Hicks: Perfect. Okay, so let’s transition into the other two things you focus on – identifying deals and then actually buying deals. So maybe tell us the general feel from the investors you work with. Are they more interested in buying deals right now, just waiting to see what happens, or selling their portfolio?

Scott Westfall: That’s a great question as well. Right now, the demand is more than ever. Real estate investing, in general, has just become so mainstream. So I have not seen the demand slow down. The demand has been there, and it’s the supply across the nation that’s been low, and has continued to remain low. So I feel like it’s been a tightening of supply, but the demand has stayed the same when it comes to investors looking to put their money into real estate right now.

Theo Hicks: It sounds like the demand for the buying is still there, and obviously if the supply is tightening, then people aren’t actually selling. So my next question would be, you focus on single-family homes, right?

Scott Westfall: Yes, single-family, and really smaller multifamily, so 4-units.

Theo Hicks: And then using those as rentals, correct?

Scott Westfall: Correct. Yes, sir.

Theo Hicks: Perfect, okay. So I want to buy a duplex right now. What are some of the main changes that I need to make when underwriting these deals?

Scott Westfall: I think that building into your models and your projections when you’re looking at properties, building in that vacancy rate and even making that vacancy rate a little bit bigger, planning for these unexpected times of no income… I think that what I’ve learned in my experience in real estate is that real estate is a business, and if you can take the emotion out of it and go into it with a solid business plan, you should be able to weather these types of things. So first thing I would just say is tighten up how you are analyzing deals and what you’re being very specific on what you need to cash flow moving forward.

Theo Hicks: Perfect, and then last question would be, people always say that when there’s times of economic uncertainty and people don’t really know what’s gonna happen, and typically once that ends, there’s going to be great opportunities to make some money. So if you had a crystal ball– and again, you don’t have to be perfect here, you can be very general if you want to, but it can be just one thing if you want it to be, or it can be multiple– some of the biggest opportunities in real estate investing that you see in the next, let’s say, six months to a year.

Scott Westfall: The first one is going to be is – on the short-term rental side, whoever can look ahead and see what the renters want, the demand is going to come back, but it’s going to look different, and whoever can look ahead and get ahead of that is going to be successful. So apparently, if you own a short-term rental, get ahead of it, start to think about what it’s going to look like after, because the demand is going to surge back.

In regards to just investing and identifying properties and looking forward, I think the supply is going to increase, but again, the demand is the same. So being patient and being prepared financially for a deal to come. Can you ask me that question one more time, Theo?

Theo Hicks: Yeah. So in the six months to a year from now, what do you think is going to be the next big real estate investing opportunity?

Scott Westfall: Man, that’s a great question.

Theo Hicks: What does your gut tell you?

Scott Westfall: My gut tells me that it’s going to be more of the same, and I think that investors will need to be wiser when they make choices about what properties they’re purchasing. I think there will be tightening on the lending side, but again, there’s going to just still be more of the same people wanting to put their money into real estate, because real estate is a solid long-term investment. Where we are specifically, I would say that, again, more of the same – we’re such a huge military area where it’s very cyclical, and we’re a little bit different than the rest of the nation in that regard.

Theo Hicks: Perfect. So is there anything else as it relates to the Coronavirus and real estate investing that you want to talk about before we wrap up?

Scott Westfall: The last thing I’d say then is that real estate, again, is a business, and if you have a solid business plan going into it, you can weather the storm. I know that it’s tough right now. If you are a homeowner in Hampton Roads or an investor in Hampton Roads and you’re looking to get creative with your property, to figure out how to make it through this storm, and then to continue to be successful moving forward, visit my website, www.cgprealestate.com. I’d love to hear from you and hear how you are handling that.

Theo Hicks: Perfect. Well, Scott, thank you very much for joining us today, and Best Ever listeners, make sure you take advantage of Scott’s offer. Just a few of the big takeaways I had today is you told us how your business is broken into three buckets. You’ve got identifying properties, then buying properties and then managing properties. You mostly focused on managing, because I think that’s where most people are facing challenges today with the Coronavirus.

So you mentioned how it was different for your standard yearly rentals and your short-term rentals, that you do think that May and June are probably going to be a little bit worse than April, most likely… Again, no one can really predict the future, but most likely based on the current trends, May and June collections are going to be a little bit more difficult than April… Therefore it is very important that you are communicating with your residents, so that you know specifically what their situation is, so you’re prepared and you’re not waiting until the end of May and realizing that no one’s paid rent that month. So that’s one big takeaway.

Second was if you’re a short-term rental owner, a lot of them are freaking out, but making sure that real estate, as you mentioned, is a long-term play. So sure, you might not be getting any income right now, but you do believe that demand will come back for short-term rentals, and that whoever is able to predict what that new demand will be like are going to be able to set themselves up for success.

Then lastly, when it comes to identifying and buying new deals, it’s very important for you to make sure you’re underwriting a larger vacancy rate for unexpected times of no income like today.

So Scott, again, really appreciate you coming on the show today and being willing to talk about some of the challenges you’ve seen other people facing in real estate investing. I know it’ll be a value add to the listeners. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.

 

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JF2077: Coronavirus and Asset Protection With Brian Bradley

Brian Bradley is a returning guest from episode JF1811. He has been in law for over a decade and in this episode, he wants to help you understand the best ways to protect your assets and also give some advice specific to today’s coronavirus pandemic.

Brian T. Bradley Real Estate Background:

  • Asset Protection Attorney for Investors, Self-Made Entrepreneurs, Business Owners, High-Risk Professionals, and Affluent Families
  • Sets up systems and strategic teams for our client’s asset protection and wealth management
  • Based in Portland, OR
  • Say hi to him at https://btblegal.com/
  • Best Ever Book:

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Plan before you need it, don’t wait till after an attack happens.” -Brian Bradley


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners and welcome to the best real estate investing advice ever show. I’m Theo Hicks and today, we’re speaking with Brian Bradley. Brian, how you doing today?

Brian Bradley: I’m doing great, Theo. Thanks for having me back on and I look forward to jumping into a little bit of a different talk about asset protection today.

Theo Hicks: Absolutely. So as he just mentioned, he is a repeat guest. So if you wanna check out his first interview and hear his best ever advice and the best way to protect your assets, check out Episode 1811. So this is going to be a Skillset Sunday. So we’re gonna talk about a specific skill that will help you in your real estate investing journey. So we’re going to talk about all things asset protection, and more specifically, we are going to talk about how the advice that Brian can give today relates to the Coronavirus. So before we dive into that, Brian, do you mind giving the Best Ever listeners a reminder about your background and what you’re focused on today?

Brian Bradley: Yeah. So a little background about me – got into law and practice of law around 2008 back when the economy tanked, and I just had to sort of jump into court and figure it out how to sink and swim on my own. So I spent the first three years just purely in court, representing clients for free, which was a great experience. So I got more trial experience and litigation experience in those first three years than most people have in 25 years of experience, just because if you’re representing people to organizations for free, who’s not going to use you?

So then that just trickled down into – well, I like money, I like financing, I like investing on my own, and I got tired of seeing problems walk in the door when it was too late. So I started incorporating asset protection into my practice because I wanted to help people keep what they have and have a stress-free life, knowing when something bad were to happen or negligent happened, that they can sleep soundly, a little bit better, knowing they have the system and teams in place beforehand. So I started building a secondary portion of my practice around asset protection, but higher levels of asset protection for investors and doctors and real estate investors, higher net worth clients, generally around that million-dollar net worth mark or more, or for people who are trying to be full-time investors and how to scale them up to that protection level down the line. I just wanted to get ahead of the problems for people so that they know that there’s solutions for them.

Theo Hicks: Perfect. Thanks for sharing that. So one of the questions I have for you is about lawsuits that you see coming down the line for business owners and investors due to the Coronavirus. So maybe we could talk a little bit about that, but more specifically, in addition to that, maybe you can mention some of the things that people haven’t done that they should have done leading up to this moment that is the result in them being affected by these types of lawsuits.

Brian Bradley: Absolutely. It might be a little long-winded answer to cover some of that, but I’ll try to jumble through it without boring anybody. But it’s a great question and it’s obviously a really big topic, and it’s a really polarizing issue, but people are gonna have to go to work and have to invest at some point, and whenever these regulations start getting lessened, you’re just gonna have to do it the right way. So the key in any crisis is first, you’re gonna have to weather the storm; and what’s obvious is that if income goes down without expenses going down in the same amount, then you’re gonna start depleting your assets. You’ve gotta have some control over your expenses. What’s also critical though, is your assets, and especially your hard assets like real estate, because they give you the ability to subsidize and reduce income to ride out of that crisis. So the last thing that you need is to have a creditor attach a lien or tell you how you’re going to use that asset, when you potentially need to use it to ride out a bad crisis.

So the sad thing is that we now also have to add the liability and cause of COVID-19 to the list of things that investors and business owners need to start planning for. So you want your assets and equity safe. You want to protect your future and your legacy. You didn’t spend all your time building this for it to just go away, but a lot of us just don’t know how to do it. It’s a common pattern that pandemics and recessions or fear of recessions bring on substantial increases in lawsuits. Just look at how many lawsuits were filed in 2008 to 2010 during that recession.

So what we’re looking at through legal bar associations and the litigation arena is a really big concern of a substantial rise in what’s called casualty claims and employee claims, and there’s going to be supply chain disruptions and that’s going to cause projects to not be completed, or just money not be available to pay… So you’re gonna have those lawsuits coming there through breach of contracts, and inability to perform… A lot of other breach of contract claims and administrative claims and internal liability claims of businesses.

For example, we have general liability claims that alleged negligence for failing to protect a customer, or invitee or a tenant, especially if a death is involved, and that can be extended to a family member, not just that individual employee or guests. So what we’re talking about is also a potential rise of casualty insurance claims for negligent acts, and we’re also preparing for a possibility that the insurance industries may experience what’s called negative coverage. So as some carriers are already excluding COVID-19 from general liability coverage because it’s been classified as an epidemic and global emergency, so that gives them that wiggle room out. So that’s going to put you on the personal liability hook because of the World Health Organization classifying COVID-19 as a global health emergency. That’s also going to affect your employer’s liability coverage, and you’re most likely not going to be able to use that as coverage in an event of an illegal incident happening.

So all this makes asset protection and preventative planning even more important, because you don’t want to wait around for something bad to happen. You can’t be ahead of the game; you want to protect yourself before something bad happens and mitigate the risk. So what asset protection does, in this case, is it creates the legal barriers that you’ll need. It levels the playing field if you ever were attacked, and what you need to do as investors or syndicators, landlords or general partners or high-risk professionals like doctors or if you have a high net worth, is talk to an asset protection attorney and start practicing conservative methods of protection and be preventative. Plan before you need it; don’t wait for after an attack happens.

So a breakdown of a few steps that you can take are to recognize if your income is reduced and your expenses aren’t. That’s going to shorten the amount of time that you can meet your obligations, like paying bills and paying payroll and things like that. So next, you need to take steps to protect your hard assets, because those are critical to giving you the ability to weather any storm. You can’t afford, like I said, to let a creditor decide how to use those assets. You need to be the one deciding what you need to do with them.

The final step is to create a plan. So first, you need to reduce your expenses quickly and efficiently, but don’t handicap your business to the point that you’re not even going to be able to give yourself a chance to evolve and thrive. You don’t want to deplete yourself of revenue coming in to actually have a business that can function. So these first few steps you can do on yourself.

The second step is legally securing your assets and protecting them from having a claim attached to them, and that’s asset protection – that involves legal professionals. So some good questions to think about and ask yourself are – do you have employees that are located or traveling to areas where there’s been documented and diagnosed cases of COVID-19? Most likely everyone’s going to say yes to that. Does your business increase the probability of employees exposed to infected individuals? Most likely, yes. Do your employees work in close proximity with vendors or other partners who have given employees a greater potential to contract COVID-19? Potentially, yes. Most likely, yes.

So if your answers to any of those or all of those are yes, then you need to come up with a potential contingency plan on how you are going to manage your business to mitigate these risks. You’re going to have to think about these and talk to some experts and start making a plan to go forward to stay in compliance with the federal guidelines in your state and local guidelines, so that you can decrease these negligent claims. At the end of the day, you want to be able to keep doing business, but you need to keep doing business smartly.

Theo Hicks: Well, thank you for all that. That was all great information and I appreciate how you broke down it. Because I was gonna ask you, “Well, what’s the next step?” So you told us that. “What’s a question to think about?” Well, you told us that too. So I guess my follow up question would be – so you mentioned those three steps, which is, number one, to determine if your income is reducing more than your expenses are, step two is to protect your hard assets so that you’re able to decide what you can do with them, and step three was to create a plan to reduce the expenses, but making sure you’re not handicapping your business. So steps one and three, you said that people can do on their own. Step two, you need to find someone. So how do you find this someone, and then also, can you just find anyone who does asset protection, or is there a certain question that you should be asking these types of people to make sure I’m finding the person who is the right fit for me?

Brian Bradley: That’s a great question. So you’re not going to go to a general estate plan attorney, like someone who just is drafting revocable living trusts and wills, and medical directors, because that’s not asset protection; that’s just traditional estate planning. So you’re going to want to find an attorney who specializes and specifically does asset protection, which is using asset protection trusts, LLCs, business organization type of structures, but specifically to protect your assets.

You just want to find out what percentage of their business is purely asset protection, or are they just dabbling in and then dipping their toes in it? I really wouldn’t want to recommend someone go to a person who does 20% of their practice as asset protection, because they’re not going to be really familiar with the language and the liability and how to mitigate all the risks properly. You want to go to someone whose main focus of their practice purely is asset protection, and then what type of clients do they have. Do they have clients similar to your level of assets that need to be protected, your specific circumstances? If you’re a doctor, how many doctors do they have? If you’re a real estate investor, how many real estate investment clients do they have? What kind of different systems do they use for each? Or are they just trying to sell you one size fits all systems? Nobody’s one size fits all, everybody has a personal issue. So everything has to be created personally.

So I would just say, ask those type of questions and make sure you go to a specialist, just like you would a doctor. You’re not going to go to a general doctor for brain surgery, you’re going to go to a brain surgeon.

Then one of the things we were talking about back before we started recording was the potential recessions and what to do, and it ties into COVID-19 because people have no idea. Are we going to go into a recession or not? I can’t tell you, I don’t know. Half my wealthy clients think that there’s not going to be a recession. Some of them do. Some of them are over panicky and conservative. I see a mix, so I can’t really tell you personally what I think, because I see a different spectrum of opinions… But I’d say it’s just human nature to panic when things are uncertain. But the first thing is just stay calm, don’t make rash decisions based off of news clips.

We’re in a geopolitical instability, but there’s nothing new. We also have things going on with oil in Saudi Arabia, trying to push a lot of cheap oil to hurt Russia out there and take them out of the market. Combine this with COVID-19 and Corona, and we have a really crazy, poisonous geopolitical cocktail going on. So even when you think the world and economy is on fire, like it was just a little bit of time ago, what did we just learn? We can throw a monkey wrench in it for things that we have no idea who saw COVID-19 coming. Then all of a sudden, the economy’s on hold; no one’s working.

So the issue is just be proactive, protect your assets beforehand, even when times are good. And when times are potentially bad, and we see recessions, to recession-proof our assets, one, talk to your financial advisor. Diversify – that’s a great thing, but diversification doesn’t protect your assets. You’ve got to put them into mechanisms like asset protection trust that we talked about in the past, or business organizations, or combining the two of them together to actually give you the protection that you need. It’s not a matter of if a claim is against you, it’s a matter of how collectible you are. So that’s something that you can control, is your collectability. No matter if there’s a recession or good times or bad times, that’s something that’s in your control.

Theo Hicks: Perfect. Then going back to those steps that you can take. So create a plan, reduce expenses, but don’t handicap your business. I’m assuming you work with real estate investors, correct?

Brian Bradley: Oh, yeah. Most of my clients are in real estate.

Theo Hicks: Okay. What types of expenses do you see them focusing on reducing the most?

Brian Bradley: Right now, their biggest concerns are potential financing issues or supply chain issues. Most of them are all business as usual, especially the syndicators and large developers, and my clients that have apartments. Honestly, I haven’t had a single client that hasn’t been able to collect a rent check yet, and we’re not really seeing anyone slow down. Every one of my clients– and we have, I think, overall in the whole system, over 3000 clients, and I haven’t had anybody yet say that they’re having an issue building or collecting rents. So what they’re looking at is just potential supply chain issues with current developments, and what they can potentially do to alleviate that concern right there. Some people are talking about force majeure arguments, and that’s not really going to work. That’s like acts of God, and trying to use COVID-19 as a pandemic as an act of God. That’s going to be a state by state argument, but even those are going to potentially fall through. That’s a whole other episode of a conversation right there – a dive into force majeure as a legal argument.

So I would say other steps that they would do is just practice social distancing, making sure that tools are clean, worksites are safe… Whenever you’re sending out an employee to go, just make sure that you’re sending them out with the equipment that they need, to make sure that they potentially mitigate the contact that they have with COVID-19, and then start working on your supply chain, making sure you stay ahead of it… Because one of the things with  litigation is always, “Well, what did you do to mitigate your risk?” So you’ve got to be planning on this down the line. So that would be maybe talk to your contract attorney on that and come up with some alternatives to your supply chain in case it gets disrupted.

Theo Hicks: Perfect. Is there anything else as it relates to asset protection and the Coronavirus that we haven’t talked about already that you want to mention?

Brian Bradley: Not really about the Coronavirus, specifically, but there is one principle I think real estate and any investor needs to understand. It’s just about legal authority over practical authority, because this is what it comes down to when you ever do get sued… And just the reality is that a judge can do and does do whatever a judge wants, whether you have an LLC or LP. Yeah, they’re governed by state statutes, but those state statutes don’t transfer to other states. So you hope that everything works out in theory.

For example, I have a Nevada LLC and I’m being sued in California – you would hope that those internal shields would hold up, but theory and practicality don’t really ever work out. Practical authority is the power a judge actually has to make decisions, and judges have very, very broad powers and they have a superpower called the court of equity, and they can reach into your assets and seize them, place some liens on them, foreclose them, ordering sheriff’s sales, clearing title… There’s a lot of things a judge can do, and the problem is judges even without legal authority do these things all the time, and even if it’s in direct contradiction to statutes and case law, especially when they’re exercising their magic power, the court of equity.

So the solution to this really is to just try to level the playing field and then hindering the judge’s practical authority over your assets, so that they can’t circumvent the legal process. And you do that with just preventative and strong asset protection planning and having asset protection trusts in place and different layers of protection. So that would be my last caveat of why we really care – the legal system’s messed up. It’s not what it was 30 or 40 years ago. Things we did 30 or 40 years ago don’t apply today, because we’ve had this massive litigation shift by attorneys being able to take on clients commission-based for a percentage, which wasn’t allowed in the past, and attorney advertising, which wasn’t allowed in the past… So it turns the legal field into a business and an industry with a billion-dollar (B) market point. So we just need to realize the system’s not what it used to be anymore, and you need to protect yourself against the dysfunctional system now.

Theo Hicks: Thanks for adding that. So if the Best Ever listeners want to learn more about what we talked about today, learn more about the services you have to offer, what should they do?

Brian Bradley: They can jump on my website, www.btblegal.com, and I have lots of educational videos on there, and pamphlets and brochures to browse through. They can just email questions to me brian [at] btblegal.com. I do free consultations, just because I’d rather have people get educated on what their liability is, and different options; even if you don’t use from me. Most people are afraid to talk to lawyers because they don’t want to pay a consultation fee when they want to shop around, and I just find most people just become google lawyers and are getting bad advice, because they’re not getting advice. So just start reaching out to lawyers and don’t be afraid to contact them, and most lawyers will do free consultations, and that’s what I do, just to educate people.

Theo Hicks: Best Ever listeners, make sure you take advantage of that. Brian, I really appreciate coming on the show today and talking to us about asset protection and Coronavirus. From my perspective, one of the biggest takeaways is that obviously, right now you want to try to do what you can to weather the storm, but at the end of the day, the people who are going to do fine or better during this time are the ones who, as you mentioned, were proactive and protect their assets when things were all fine and dandy, when everything was going smoothly, as opposed to trying to do it now.

So you talked about a few steps we can take – creating a plan to reduce expenses, because obviously if income goes down and your expenses don’t go down, that’s where people get into trouble… But really, as I said, at the end of the day, it sounds like the assets need to be protected. So I guess, do that now, while you still have the chance, because as Brian mentioned, he expects there to be an increase in lawsuits coming down the line, which is typical for recessions and pandemics like this. So Brian, again, I really appreciate you taking the time to talk to us today about this asset protection advice during the Coronavirus.

Best Ever listeners, as always, thank you for listening. Have a best ever day, and we will talk to you tomorrow.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.

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JF2074: Underwriting Adjustments During COVID-19 | Syndication School with Theo Hicks

Theo is back with another Syndication School episode and this time he is going over the adjustments to make when underwriting deals during this pandemic. 

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow. 

Click here for more info on groundbreaker.co


TRANSCRIPTION

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

 

Theo Hicks: Hi, Best Ever listeners. Welcome to another episode of the Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I am your host, Theo Hicks.

Each week we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy. For the majority of these episodes we offer a free resource that will help you along your apartment syndication journey. All of these free resources, as well as free Syndication School episodes can be found at SyndicationSchool.com.

In this episode we’re going to go back to talking about the Coronavirus. We took off about a week or so, and we’re gonna jump back into it because today I want to talk about some of the changes that Joe and Ashcroft Capital are making to their underwriting of value-add apartment deals during and then probably after the Coronavirus pandemic.

The purpose of this episode is going to be to outline the four main changes that Ashcroft Capital is making to the underwriting of new deals currently, and then for the — I won’t say foreseeable future, but at least for maybe the next few months after the Coronavirus pandemic is over.

Overall, the underwriting changes really need to be on a deal-by-deal basis, because different markets have different rules as it relates to Coronavirus. This means that the economy is being impacted differently… But there are a few items – four items in fact – that Ashcroft thinks are important to consider.

First is going to be year one operations. It should be expected that there will be an increase in things like vacancy, bad debt and concessions throughout 2020. And then once things settle down a bit and the economy reopens, it is also possible that some residents will no longer be able to afford living at the property. So the two things – number one, some of the income loss items, like vacancy, bad debt and concessions. When you’re making your assumptions, you should be projecting that they will be higher than usual. Based off of the T-12 or current market rates, you can’t really use those for vacancy, bad debt and concessions right now, because it’s a different environment, and once the Coronavirus ends, it will also likely be a different environment.

Secondly, once the economy reopens, the residents that are currently living at that property – so if you buy a property now, once rent repayment programs are ended, or rent delays are ended, evictions are allowed again, maybe expect to have to evict more tenants than you usually have to, because they’ve just been living there and maybe paying partial rent, or just doing what they could… But once it’s over, they can no longer pay the full amount. That’s year-one operations.

Number two is rent growth. The rent growth for 2020 in the vast majority of markets is projected to suffer, as unemployment rises. But the silver lining is that most of any rent lost in 2020 is expected to be recovered in 2021. From my understanding – I believe I’ve talked about this in one of the episodes – the rent growth is supposed to suffer; rent growth isn’t gonna go negative, it’s just going to be less. I’m pretty sure the most recent calculation I saw was about 1.3% percent, as opposed to 2%, 3%, 4% we’ve been seeing for the past decade or so.

Apparently, this dip is supposed to be temporary… So this dip in rent growth to the 1% range is temporary, and then in 2021 it’s supposed to go back to what it has been before. Obviously, when you’re underwriting a deal, the year one rent growth and year two rent growth should reflect the immediate area and the demand in the market. So obviously, you don’t wanna just use the 1% average. You wanna figure out “Okay, what do the experts think will  happen to rent in this specific market in the next two years?” And then probably be even more conservative and assume that it might be less than that. That way if it’s better, great. If not, then you’re still able to hit your returns to your investors.

Where does this information come from? Your management company. We’ve talked about the importance of your property management company, how to find a property management company, so you can find all that information at SyndicationSchool.com.

Number three is going to be debt. As of right now, most private lenders – these are basically the bridge lenders; the ones that do the 2-3 year renovation type loans – are taking a pause from lending. But lenders that are still active are being extremely conservative with their loan proceeds and terms.

I talked in a previous Syndication School episode about JP Morgan Chase, for example, has changed their lending criteria; this is for residential loans, I understand that, but it’s just an example of a lender becoming extremely conservative. They’re only lending to borrowers with a credit score of 700 or more, and who can put down 20% or more. So that definitely limits the pool of people who can get residential mortgages.

Similarly, other lenders are doing the same for commercial loans. I think one of the biggest changes is the reserve amounts that are required. Now, the agencies are lending, but they are also being conservative on their underwriting and requiring large upfront reserves for debt service payments. So the reserve requirements are changing. Typically, you create an  upfront reserves account called an operating account for unexpected things that happen at the property, but now in addition to that you need another upfront amount of reserves that are a lender requirement.

So more conservatives proceeds should be underwritten, and the underwriting needs to include these upfront reserves, as they will  impact the equity required to fund. So you’re gonna need to raise additional money now from your investors, even though the cashflow is not going to be going up. Typically, if the deal is cash-flowing $100 per door and you need to raise X amount of money, well now that deal might be cash-flowing $75 per door and you need to raise even more money from your investors. That’s why if you’re looking at deals right now, you’re gonna have to negotiate a lower purchase price because of these new lending criteria, and the rent growth, and the year-one operations that I’ve talked about previously.

So what does that mean more practically? Make sure that you ask your lender or your mortgage broker about the new loan-to-value requirements, the new upfront reserves requirements, and other terms that you need before you submit an offer on a deal. So you need to have an understanding of whatever lender you’ve been using or you plan on using, what are the terms of the loans they’re offering, what are the LTV terms, how much money do you need to put down, how much money do you need as upfront reserves, what are the interest rates, what’s the amortization? Is there anything that I need to  know that’s changing, so that I can underwrite my deals properly? Because if you don’t know what the debt is going to be, it’s gonna be impossible to submit correct offers on deals.

And then lastly, for value-add deals, depending on the deal, many owners are pausing their interior renovation programs until the market is restabilized… So when you’re underwriting a deal, it may be wise to assume that the value-add program does not start until the overall market stabilizes.

Now, this is something that’s gonna be obviously up to you, depending on the state you’re investing in, or the local area you’re investing in, if construction is considered an essential service, if construction companies are still working, things like that… But you need to think about “Okay, I plan on going in there, renovating all these units and doing all these exterior upgrades”, but what are the typical ways that you renovate interiors? Exterior renovations are likely fine, assuming that business is essential in your state, but interior renovations is the one that might be delayed because of the fact that residents aren’t able to move out right now.

So again, to summarize, the four changes that Ashcroft are making – and again, these four points came straight from the director of acquisitions at Ashcroft Capital – is the year-one operations. Things like vacancy, bad debt and concessions should be assumed to be higher, at least during year one. Rent growth should be assumed to be lower than  previous years, so whenever you’re underwriting your annual rent growth increases, or even when you’re determining what your rent premiums are going to be, you need to have a detailed conversation with your property management company to determine how to calculate that. So annual income growth is typically 2%-3%. You definitely wanna be underwriting maybe a 1% or 1,5% at least for year one and year two… And then when it comes to rent premiums, again, you have to see what’s the demand for those units in the immediate area? What are the prices on the newest leases in that area? It can’t be leases from a year ago or six months ago, or really even two months ago. It needs to be probably within the last few weeks to a month – what are the rents being demanded for those specific units?

Number three is debt, so making sure you have a conversation with your lender, so you know exactly what types of terms they’re offering on their loans now, including what sort of upfront reserves requirements are needed.

And then lastly, for the value-add deals, understanding that you’re likely going to need to delay any interior renovations until the market restabilizes and Covid is gone, because you’re not allowed to evict people, tenants are probably moving a lot less because of the Coronavirus… So those are four things to keep in mind when underwriting deals.

Obviously, if you are out there underwriting deals, I’d love to hear from you what you’re doing, so we can maybe add to these four points. So if you have any advice, any things that you’re doing differently when underwriting, please let me know by emailing Theo@JoeFairless.com. And of course, anyone who reaches out and I include their information – obviously, it won’t be in this episode, but I’m gonna turn this into a blog post, so I  will definitely give you a contributor status for the blog post, since you contributed to underwriting advice to the document.

That concludes this episode. To listen to other Syndication School series about the how-to’s of apartment syndication and check out some of our free documents, please visit SyndicationSchool.com.

Thank you for listening, have a best ever day, and I will talk to you soon.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.

 

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JF2072: Facebook Marketing During The Coronavirus With Tristen Sutton

Tristen is a certified Facebook digital marketer who is also a consultant for Facebook. He teaches businesses how to effectively use Facebook and Instagram ads. In this episode, he shares many different strategies to increase your leads and how to correctly target the higher conversion client.

Tristen Sutton Real Estate Background:

  • A consultant for Facebook and a certified Facebook Digital Marketer
  • Teaches businesses how to effectively use Facebook and Instagram ads
  • Based in Houston, TX

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Make sure you know who your target market is and always put a call to action in your ads.” – Tristen Sutton


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. My name is Theo Hicks, the host today. Today we are speaking with Tristen Sutton. Tristan, how are you doing today?

Tristen Sutton: I’m doing good. I’m staying safe, sane and sanitized.

Theo Hicks: The three S’es, there you go. Well, today we are going to be talking about marketing, and more specifically we are gonna talk about the things you should be doing from a marketing perspective on Facebook, Instagram, social media, during the Coronavirus pandemic. That’s gonna be the topic of discussion today.

Before we get into that, a little bit about Tristan – he is a consultant for Facebook, and he’s a certified Facebook digital marketer. He teaches businesses how to effectively use Facebook and Instagram ads. He is based in Houston, Texas, and you can say hi to him at TristanSuttonConsulting.com.

Tristan, before we start talking about marketing during the Coronavirus, do you mind telling us a little bit more about your background and what you’re focused on today?

Tristen Sutton: Absolutely. I’m a marketing strategist, like you said, based out of Houston, Texas, and I work with small business owners, and specifically real estate agents, and teach them how to use Facebook advertising to expand their brand, generate leads  and increase open house attendance. I’m a licensed [unintelligible [00:04:18].10] instructor, so the course I teach, Ads University, provides real estate agents five hours of [unintelligible [00:04:24].29] along with an actual training, so they learn how to market for themselves. I’m really passionate about helping this niche out.

Theo Hicks: Perfect. Do you work with specifically real estate agents? Do you work with investors as well, or is it specific to the agents?

Tristen Sutton: Actually, yes, in some of my classes I’ve had several investors attend the course, and they said the things that I’ve taught them in that course has helped them get more leads to some of the properties they’re selling and investing in.

Theo Hicks: Perfect. Obviously, the Coronavirus has impacted real estate in general… Let’s maybe focus on real estate agents first, and then we can talk about investors second… Unless you think that the lessons apply to both. I’ll leave that up to you. So let’s start with agents. Maybe first tell us some of the biggest things that are changing right now, or maybe the most important things that agents should be changing when it comes to the way they’re advertising on Facebook and Instagram and other social media platforms.

Tristen Sutton: Great question. Really what I want agents to understand right now is that it’s a pay-to-play strategy. Posting and hoping on your profile or your business page isn’t gonna get you the leads you need to get to the transactions that you want. We’ve gotta stop using a blockbuster strategy in a Netflix reality, and realize that Facebook suppresses your posts, so you need to put money in some advertising if you wanna reach your target audience.

The second thing would be understanding that Facebook changed the rules. So a lot of the targeting that used to be available for agents is no longer there. That doesn’t mean the platform is obsolete now, you just have to be strategic with your retargeting. So getting people to watch your videos or click on your links, regardless if you’re a buyer or a seller agent, and then retargeting those people… Just like when you click on a website and then all of a sudden she follows you around on Instagram and Facebook – that’s what we need to be able to do to make sure we get our transactions for the  year.

Theo Hicks: So agents can’t just have their Facebook page that they have and just post free content to people, and hope to get leads that way? They need to actually create a paid advertising campaign on Facebook?

Tristen Sutton: Right. So if anyone’s listening right now, look to your Facebook business page, and look at your last 5-10 posts. You’ll see that, regardless of how many likes/followers you have, less than 5% of those people ever saw your posts. It’ll be at the bottom  left, and it’ll say “Page Views” or “Content Views”, and then you’ll realize that “Hey, if I have 1,000 followers but only 20 people saw my post, I can’t grow a business or sustain a business with that kind of reach.” So if you wanna use this platform, you have to adapt with it and realize that to reach the people you want or need, you’re gonna have to put some behind it now.

Theo Hicks: I know that Facebook has different types of paid campaigns… One’s pay-per-click, and then there’s a different one. Is there one that you advise people to use over the other? Is pay-per-click better than just paying per campaign?

Tristen Sutton: No, there are several different objectives. There’s approximately 9 or 10. The four that I recommend for realtors is the reach objective, traffic, which drives people to your website, video objective, which gets people to watch more of your content, and then the last one would be Event RSVP – so if you have open houses, seminars, workshops, anything where you need bodies in a room, run that type of ad. That goes for the agents and the investors as well for the workshops they do.

Theo Hicks: Okay, so you said Reach Ad, Traffic Ad, Video Ad, and RSVP Ad. So I think that Event RSVP and Video are pretty self-explanatory… What is Reach Ad and what is Traffic Ad?

Tristen Sutton: So Reach Ad is more of like a digital direct mail campaign. This is gonna show your content, your face, your brand to as many people as possible in your market or your farm, but it’s not optimized for clicks or cost. So there’s none of that going in. This is more of an advertising play versus a marketing play… Marketing is lead generation, and things like that.

So you can spend at the time of this reporting maybe $5 a day and reach maybe 3,000 a day on their phones, tablets and computers, as long as they have a Facebook or Instagram account.

The Traffic one is optimized to show your ads first to the people most likely to see your ad and then click on your website. So those are the two that a lot of agents use  because they wanna get their brand out there. But then they wanna drive traffic to their listings, or the lead capture sites, things like that.

Theo Hicks: Perfect. And the Video is just a video ad. And then RSVP is advertisement for a specific deal?

Tristen Sutton: Right. So with Video Ad most people don’t know the strategy – you use the video ad to warm up a cold audience. People do business with who they know, like and trust, so the easiest way to do that right now is with video on social media. So you get someone to watch maybe a 30-second video and then on the back-end you can go on Facebook and say “Hey, everybody that watched this video that I’ve just sent out on their phone, retarget everyone that watched at least 50% or more.” Because if they watched half of it, they’re halfway interested, they’re halfway familiar with your brand, and you’re gonna get a much more higher conversion with people that are already familiar with your brand than a cold audience.

Theo Hicks: Yeah. And then the RSVP?

Tristen Sutton: I encourage everyone, whether you’re an investor and you’re hosting workshops, or an agent hosting open houses, seminars, things like that – create a Facebook event page (it’s free). It’s kind of like the Facebook’s version of Eventbrite. You put your information, your picture, a registration link in there… But you can  run ads to drive traffic to that event page, and spend maybe $3 to $5 a day and reach hundreds if not thousands of people. It encourages people to RSVP, and you can use that event page as an incubator to put testimonials, keep content in there… And really, that event page now – you’re using it as your way to do a virtual open house.

So if you can go to your house, social distance, do a video of it professionally on your phone, put the video in that Facebook event page, and now as you’re driving traffic to it, people get to virtually tour the home from the comfort of their home, and then they may schedule an appointment and say “Hey, once this is over…” or “Hey, can I schedule a tour in-person?”

Theo Hicks: What about the actual content of these ads? How has that changed during the Coronavirus?

Tristen Sutton: Hopefully people are doing more video, but unfortunately, people aren’t able to go to the barbershop or the salon, so they may be a little apprehensive about putting their face out there…

Theo Hicks: Seriously…

Tristen Sutton: Right now my beard is out of control. But right now video is still king/queen on social media, and it’s the best way to connect with your audience and the best way to get in front of them. And you don’t have to do long video. You can do something along 15 seconds, 30 seconds, never longer than a minute for an ad. Now, if you just wanna post videos, Facebook favors three minutes. But for ads, I recommend 15-30 seconds. And it doesn’t take long. Introduce yourself, identify your audience, identify a pain point to provide a solution, and then give them a call to action, “Click call or send a message”. That’s it, that’s all it takes.

Theo Hicks: So from these four types of ads, is this something where you wanna have one Reach ad, one Traffic ad, and then one Video ad, and then just continually push those? Or is this something that you refresh every day, every week, every month…?

Tristen Sutton: Great question. I wanna preface that with everyone’s situation is gonna be a little different… But a Reach ad – that’s more branding, so that’s something you just keep on going, and maybe just change your image maybe every 30 days. That way, people in your market area are gonna be familiar with you because they’re gonna see you all the time.

Traffic – that’s gonna be depending on what you’re driving traffic to. Are you driving traffic straight to your listing? Obviously, you’re gonna move those properties, so you don’t need to keep those up if you don’t have the inventory. Or if you just have a general lead capture form, you can always drive traffic to that open house, obviously only when you have a property to tour. So you may not have those going at all times.

And then the Video ads – that’s another branding strategy, so you can always have that going. I recommend leaving ads running for 30 days once you optimize them, to make sure that you’re getting the traffic and the clicks that you want.

Theo Hicks: Perfect. And then – I guess this applies to both agents and investors, but is there anything that applies to investors as it relates to marketing on Facebook  during the Coronavirus that we haven’t talked about already?

Tristen Sutton: 99% of the people I work with are agents, so I don’t have the full aspect of what the investor needs… But regardless, everyone is at home right now, staring at a phone, tablet or computer. So if you know that you have an opportunity, you can reach them right now. And ads are cheaper, because a lot of the large corporations have kind of backed away. Facebook is saying “Hey, we need to still keep this revenue going”, so your money goes a lot further. You spend $5/day and you may reach 800 people now, and on some variables you can reach maybe 1,200 to 1,800 people from the same $5. So now is the time, because you have the access to their attention, it’s where everywhere’s spending time right now, and it’s inexpensive.

Theo Hicks: So basically, everything we’ve talked about so far is what people should be doing… On the flipside, what are some of the biggest mistakes you see people making right now? And this could be as it relates to actual paid ads, or it could just be content that people are pushing out on Facebook or social media in general.

Tristen Sutton: Oh, man… A handful of things. Get quality graphics. It doesn’t have to be a $500 or $1,000 flier image, but use something like Canva.com and just make — crisp, quality graphics are gonna represent your brand. If that’s not your ministry, you can user Fiverr (fiverr.com) and just spend maybe $20 to get a nice, professional-looking graphic.

Videos – people are using videos that are too long. Like I said, you wanna be between a 15 and 30-second timeframe. If it goes longer than that, people’s attention span isn’t there and they’ll scroll past it.

Always put a call-to-action. I always see something like an ad that says “Hey, we have this beautiful 4-bedroom house for sale.” Okay, now what do you want me to do? Do you want me to call you to talk about it? Do you want me to email you? Do you want me to go to the website? Always put a call-to-action, and then just be very concise with your messaging and your advertising, too. Make sure that you know who your target market is, and you stick with that.

Theo Hicks: Perfect. Okay, Tristen, what is your — typically we say “best real estate investing advice”, but we’ll just go with “What is your best ever marketing advice?” And something that you obviously haven’t talked about already.

Tristen Sutton: Stop boosting. Stop hitting that little blue Boost button. Because typically what happens is people don’t typically have a strategy. So my top marketing advice is before you launch any kind of advertising or marketing campaign, write your strategy down. Who do you want to see that ad? What do you want them to see when they see that ad? When they click on the ad, where do you want them to go with it? What do you want to happen?

Most people just say “Hey, I just did a live video tour of this home I have listed. Let me just spend $50 on a boost” and just shoot it out there. And then it’s like “Okay, well who did you send it to?” “I don’t know, I just hit the blue button.” So have a strategy before you spend any money.

Theo Hicks: Would you say Facebook is the best platform for marketing for real estate professionals? I know in your bio it said Instagram as well. Is Instagram just not as good as Facebook?

Tristen Sutton: I’ve actually seen better results with Facebook between my advertising and my clients’ results. Instagram is more of a show and tell, Facebook is more of an engaging opportunity. Plus, Facebook is Instagram’s daddy; they own them. Facebook has 1.6 billion people logging in every day, versus 600 million with Instagram, at the time of this recording, of course.

Theo Hicks: Okay, Tristen, are you ready for the Best Ever Lightning Round?

Tristen Sutton: Let’s go!

Theo Hicks: Alright. First, a quick word from our sponsor.

Break: [00:15:48].14] to [00:16:35].09]

Theo Hicks: Okay, what is the best ever book you’ve recently read?

Tristen Sutton: I’ve recently re-read The Millionaire Next Door. It just kind of puts everything in perspective about how to live below your means and invest in your opportunities that are going to yield you money, like real estate.

Theo Hicks: If your business were to collapse today, what would you do next?

Tristen Sutton: I’d probably go get my real estate license and [unintelligible [00:16:53].05] since I know how to market it. [laughs]

Theo Hicks: So I usually ask “What’s the best ever deal or the worst ever deal you’ve done?”, but I’m gonna change it up a little bit. I know that you give talks on marketing… What is the most unique group of people you’ve spoken to?

Tristen Sutton: I would say it was probably one of my first trainings; it wasn’t real estate related, it was just general business owners… And it was just a lot of individuals that didn’t even know how to use Facebook. Some of them didn’t even have a Facebook business page. So where I’m coming in expecting just to train them “Hey, this is how you generate leads”, it’s like “Well, hey, let’s set up a Facebook Ad account, or a Facebook business page for you, and upload your picture.”

So I would say my first training to general business owners who did not know much about social media.

Theo Hicks: Yeah, it is interesting that we’re living in an era right now where the younger people have always had the internet, and the older generation didn’t. [unintelligible [00:17:44].20] massive disconnect between — you give an iPad to a 5-year old and he can do everything. If you give it to a 7-year old, they can’t do as much as the 5-year-old. It is interesting.

Tristen Sutton: Very much so.

Theo Hicks: What is the best ever way you like to give back?

Tristen Sutton: Of course, I’m a speaker and trainer, but when this pandemic came, I just started reaching out to business organizations, real estate organizations, and started just offering free resources, and  training. I did a Facebook Live and shared it with a bunch of business owners and agents, that “Here’s the tools I’ve used to still market my business. Here’s my lighting setup, my camera setup, all the above.”

When I heard that restaurants were crashing, I did a free training for restaurants where I was saying “Hey, here’s a 30-minute crash course how you can make sure you stay in front of your audience and still get those to-go orders or pick-up orders, so you can still keep your doors open through and after this.” So just giving some free advice and training to those in need.

Theo Hicks: Yeah, there’s actually a bread vendor that just rented a van and just drive around the different hot spots for half an hour increments, and people will still drive up there to do their bread. I thought that was interesting. Kind of like that for restaurants, too.

Tristen Sutton: You know, one of my phrases is “Pivot or perish.”

Theo Hicks: Exactly. Alright, and then lastly, what is the best ever place to reach you?

Tristen Sutton: I wanna do a 2 for 1. So they can text to get a free Facebook Ads workbook to teach them how to set up their own. They can text “freeguide” to the number 31996. That would give them access to the website. It’s a workbook, and we all win.

Theo Hicks: Perfect, Tristen. Well, thanks for joining us today and thanks for giving us your advice and wisdom on Facebook marketing and how it relates to real estate agents and real estate professionals in general during the Coronavirus pandemic.

We talked about how it’s transitioning from — I like your little sayings… “Posting and hoping”, to the “Pay to play” strategy. If you go to your Facebook  business page, you can see that if you aren’t doing paid ads, then you’re getting very low engagement on your posts… And it’s because of the fact that Facebook has kind of changed their rules on that.

We talked about the four different types of ads – the Reach ads, the Traffic ads, the Video ads and the Event RSVP ads.

Something you also mentioned is that when you’re making advertisements for videos, you  wanna make sure that they are between 15 and 30 seconds, never longer than a minute. Then when you’re making content, you want that to be 3 minutes. That’s kind of the sweet spot. And when you’re making these ads, once they’re optimized for 30 days, you mentioned that some of the biggest mistakes people are making for advertising is poor graphics, so make sure you get high-quality graphics. Videos that are too long, as I already mentioned. Not having a call-to-action, and then not having concise messaging and concise targeting of an audience.

And then your best ever advice was to 1) stop hitting the Boost button, and then also make sure that before you  start a strategy, you write it out. Who do you want to see the ad, what do you want them to see, and then what do you want them to do once they’ve actually engaged with the ad.

Again, Tristen, thank you for all that advice and thanks for joining us. Best Ever listeners, as always, thank you for listening. Stay safe, have a best ever day, and we will talk to you tomorrow.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.

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JF2071: Marketing During The Coronavirus Pandemic With Jessie Neal

Jessie has 6 years of social media and digital marketing experience with a focus on Facebook pay-per-click ads. Jessie shares what type of message you should be marketing out during this pandemic and also some general advice that helps investors find more leads. 

Jessie Neal Real Estate Background:

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Consistency, be consistent with your message, with your postings, however, you’re helping people, be consistent. ” – Jessie Neal


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome to the best real estate investing advice ever show. I am Theo Hicks, and today we are speaking with Jessie Neal. Jessie, how are you doing today?

Jessie Neal: I’m good. As I said, I haven’t had a haircut in six weeks, but we’re trucking along.

Theo Hicks: Yeah, I’m sure everyone listening can relate to that. So today we’re gonna be talking about marketing – social media marketing, digital marketing – and some of the things that are changing with it during this Coronavirus pandemic, as well as long-lasting digital marketing techniques you guys can apply once all this is over.

Before we get into that, a little bit about Jessie – six years of social media and digital marketing experience. He’s an expert in Facebook pay-per-click ads, creator of Attacking the Stack, from Fort Mitchell, Kentucky. You can say hi to him at swiftreilease.com/attack.

Jessie, before we get into the Coronavirus stuff, do you mind telling us a little bit more about your background and what you’re focused on today?

Jessie Neal: Yes. I went to school for computer programming and web development, and learned really quick when starting my own business as an entrepreneur that websites didn’t matter unless you could get them traffic. So real quick I had to learn what are the best traffic sources out there; I bought a million courses online and tried to figure it all out, and eventually I ended up getting trained from Facebook themselves six years ago. I got really good with PPC ads for traffic. They did better and were more affordable than your Google ads, your Google PPC. Over the years, that’s changed a lot, and here recently, with the new housing category, all real estate ads have to fall into, we really had to get creative around October and November, to figure out how in the world are we gonna supply leads for our clients and for our own in-house wholesale company the easiest way possible, without really breaking the bank.

We developed  a custom software and a system we call “Attacking the stack”, so what we focus on right now is how do we get around the housing category. Our software has API access to Facebook – hopefully nobody from Facebook hears this… [laughs] But our clients send us a [unintelligible [00:05:09].04] that’s been skip-traced, with all the motivation in the list, obviously. We upload it in our system, Facebook hashes out that list as potential clients, and then we’re able to run whatever ad we want to those people.

We know there’s motivation, it gets us around the housing category, we know we’re targeting very specific people that we’re looking for. But at the same time, we wanna pull all of the low-hanging fruit out of a list, because sometimes Facebook can take some time, and it’s expensive. So what we do is we also do text and RVM through our custom software, and then after that whatever doesn’t come from Facebook, text or RVM then goes  into a long-term email sequence for follow-up, until they’re ready to become a lead.

So our goal is how can we affordably for any investor just starting out that only has less than $2,000 of ad spend to spend on marketing, period – how can we get them anywhere between 80 and 100 motivated seller leads a month. So that’s what we do. It’s really effective. We kicked that off at end of November, and we’ve picked up quite a few clients. It’s killed in-house. We’ve got over 721 motivated seller leads in our own in-house, at [unintelligible [00:06:15].12] CRM right now, from using the exact same strategy… So we’re doing pretty good.

Theo Hicks: Nice. So we were talking about this a little bit beforehand, but how are the leads that are being generated by these Facebook advertising campaigns changing, or how have they changed during the Coronavirus pandemic, compared to six months ago?

Jessie Neal: So we’re actually seeing an increase in leads, and we’re actually seeing an increase on the investor side. Obviously, when you’re using an absentee vacant list you’re looking for out-of-state owners who own multiple properties in a local area that you’re trying to pick up… So now we’re seeing a lot of nervous newer investors who may have only been doing this for a couple of years, that maybe own 4, 5, 6 properties, even as much as 13 properties all throughout Ohio,  that are looking to liquidate, because they don’t know what’s going on. So we’re actually getting a lot of those leads coming in… And a lot of normal leads. People who are like  “Hey, we’re done with this investment property” or “Hey, we can’t finish this flip”, and are willing to negotiate to liquidate right now.

The only problem that we’re seeing in all of this is leads are increasing, but with banks and hard money lenders having all kinds of problems, and holding on to money, and then your title company is slowing down, and you can’t get enough done on the backend. So it’s slowing everything down, even though we’re seeing an increase in leads. We’re still waiting to see whether or not that’s a good thing or a bad thing.

On the lead gen side I think it’s freakin’ great, but obviously, if a lead goes cold because you can’t close on it in 14 days, or three weeks, or whatever, then that can cause a potential problem.

So that’s the main good and bad that we’re seeing during the Coronavirus… But we’re still doing business in-house. I’m still doing lead gen, and we’ve actually seen an increase in clients coming on board since all of this, so it doesn’t really scare me at all.

Theo Hicks: So you mentioned that these Facebook ads during this time are better targeted towards out-of-state owners, right?

Jessie Neal: Correct. So if you’re doing any kind of marketing, I would focus on out-of-state owners that own properties in your area. Find people that own more than 30%, 40%, 50% equity, that own the property for more than five years… More than five properties, more than five years, more than likely they’re probably looking to liquidate.

Theo Hicks: Is that something that I can target on Facebook?

Jessie Neal: No, you can’t. That’s our little trick – you can do ListSource, you can use Propstream, whatever software you wanna use. I’m not trying to put a plug for another company or whatever, but… You download your list, get it skip-traced, and pull your motivation from your list. Then we actually target that list on Facebook. Facebook has the ability — because we have API access, we can actually run Facebook ads just to people on the list. If you were doing this on your own, you probably won’t be able to do it from Facebook; you might be able to get away with it once, but your best bet would probably be to pick up a texting platform or an RVM platform and reach out… Or if you’ve got a cold call team, I would start cold-calling those types of lists immediately. You’re gonna have really good luck with them.

Theo Hicks: Perfect. Out-of-state, five years, more than five properties – that’s kind of the major things you target, using the listing services you mentioned, correct?

Jessie Neal: Yeah, Propstream, ListSource… There’s a ton of ways you can get property data. You can go to county records if you don’t wanna pay for a service. I’m a big fan of paying for a service; it saves time.

Theo Hicks: Since you mentioned that you’re in the wholesaling business yourself, I wanna shift gears slightly a little bit and ask you — first, for some context, are these single-family homes, duplexes, 100-unit apartment communities? What types of properties are we talking about here?

Jessie Neal: Yes, we’re talking single-family homes, smaller multifamily, two-units; on the occasion you  might get somebody with a smaller apartment package… But I would focus on single-family homes. You get a bunch of investors that 2, 3, 4, 5 years ago bought 5-6 properties in the area, have been using them for rentals, and now with the whole “Hey, we can’t charge rents, so this is all done”, people are getting scared, so they’re dropping everything.

Theo Hicks: That was my question… So if I’m in the market to buy a single-family rental right now, how am I creating my rent assumptions?

Jessie Neal: I don’t do rent assumptions… [laughs] So I wouldn’t know. On the lead gen side – I can help you there. But I guess if you’re gonna buy some rentals and hold on to them, you’re probably gonna wanna make sure that you’ve got enough cashflow to be able to keep your current tenants in there until this is all done.

Theo Hicks: So you flip them?

Jessie Neal: I’m a part [unintelligible [00:10:26].05] They’re the ones that actually do the wholesaling, and then Freedom Real Estate group, which is our umbrella, has their own turnkey company and has their own property management company. So I don’t know a whole lot about how that works; they’re the ones that actually got me into the real estate game, out of the medical field.

Theo Hicks: Okay, perfect. So you’re the marketing guy.

Jessie Neal: Yeah, totally marketing. Anything that has to do with lead gen, social media promotion… But I can speak highly on the in-house portion; it doesn’t just work for our clients, we actually use it ourselves.

Theo Hicks: Perfect. I actually talked to someone earlier today about Facebook advertising as well, so I don’t wanna repeat the things that he talked about. I wanna change it up a little bit. Let’s talk about not paid advertising, but just content that people are pushing out as real estate investors in general. What type of messaging should they be using during the Coronavirus?

Jessie Neal: Messaging that’s actually going to keep people calm and help people. As an investor, you need to be showing solutions in how you’re actually helping people, and letting them know that you’re not in this for the dollar. Obviously, we’re all business owners, we’re all entrepreneurs, we’re trying to make money, but we do that by providing real solutions for real people, that are struggling with real problems.

So I would show “How are you doing that”, and go live with it; get as many testimony videos as you can surrounding that topic. It’s probably gonna help you… Especially when all this calms down, people are gonna realize that you’re genuine, and it’s gonna help you long-term for your business.

Theo Hicks: What about just general digital marketing advice for once all this passed? What are some things that from your perspective you see that investors are doing that are really big mistakes, that are holding them back from getting more leads using online marketing?

Jessie Neal: Consistency. Be consistent with your message, be consistent with your postings, whether you’re doing paid ads or not. If you don’t have enough money to do paid advertising and you’re just posting on a page and posting in groups, whatever you’re doing, whatever your message, however you’re helping people, be consistent. Be in there every day. And if you can’t be in there every day, then you need to hire a virtual assistant or have somebody that’s going to help you be consistent.

It is really hard in today’s atmosphere, with everything being social and mobile, to really stand out in the crowd. The only way you’re gonna do that is by being consistent. You may not see results 4, 5, 6 months down the road with some organic traffic, but if you’re consistent over the other guy, then 8 months or a year from now people are gonna remember who you are, because you’re still around.

Theo Hicks: What types of posts do the best? Video? If so, how long? Pictures with caption?

Jessie Neal: It depends on your strategy. Realistically, in today’s market people would rather watch a video that’s entertaining and educating and helpful, than a  post. But in the manner of consistency, do both. It’s really hard for some people to hop on a video and think of something to say every single day. If you can’t, at least do a video once or twice a  week and then post something. Post anything. I don’t care if it’s text, I don’t care if it’s image, I don’t care if it’s a podcast, audio… But do something, every day.

Theo Hicks: Okay, Jessie, what is the best real estate investing advice ever? You can answer that, or you can do your best social media marketing advice ever.

Jessie Neal: Hm, best social media marketing advice ever… Facebook is complicated. Learn it. If you don’t want to hire somebody, Facebook has a bunch of free training that you can take. Learn it. Learn their groups, learn their social postings, learn how to run your business page correctly, get on there and learn paid advertising… It will highly impact once you figure it out and learn it correctly; it will highly impact your business.

Theo Hicks: Perfect. Are you ready for the best ever lightning round?

Jessie Neal: Let’s go, come on!

Theo Hicks: Alright, first a quick word from our sponsor.

Break: [00:14:06].10] to [00:14:54].10]

Theo Hicks: Okay, Jessie, what is the best ever book you’ve recently read?

Jessie Neal: Best ever book… Obviously, I’m in marketing, and I’m real big on not spending thousands of dollars on copywriting, and hiring a copywriter. I like to learn that kind of stuff myself, best headlines and stuff… So there is a book right now “Copywriting Secrets” by Jim Edwards. Anybody who’s an entrepreneur on Facebook – I’m sure that Russell Brunson and all of them have targeted you… But I’ve just picked it up, I’m three-quarters the way full, and I’ve paid for copywriting courses, and I’m telling you, for a free book (I’ve paid $7 for shipping) it has some of the absolute best advice that I’ve ever read. So I hate to do a plug for Russell Brunson and Jim Edwards, but it’s a fantastic book, man. I’d say pick it up, seriously.

Theo Hicks: Okay. If your business were to collapse today, what would you do next?

Jessie Neal: On the real estate side what would I do? I don’t see lead gen ever collapsing, but let’s say that it does… I would go and open up my software system that I own and I would pick another niche, and I would run $1,000 in Facebook ads and pick up clients tomorrow for whatever the new niche is.

Theo Hicks: What is the best ever way you like to give back?

Jessie Neal: Okay, that’s a good one. We’re obviously in Fort Mitchell, KY, and I’m actually from the Cincinnati, Dayton area, and I’m part of a group called Hope Over Heroin… And we have a drug rehab for men called Heritage House. So all through the summer I donate quite a bit of time, being their media and marketing director. I show up on site, hook up LED screens, and do all their media, all their on-site marketing – lights, sound, everything. So anyone who’s hearing this, it doesn’t matter if you’re nationwide, everyone knows somebody who’s struggling with addiction, you can go to HopeOverHeroin.com, or you can go to Cityonahill.com and look for the Heritage House link, and we take guys for free; you don’t have to pay.

So that’s how I give back, by helping both of those organizations financially and with my time.

Theo Hicks: I typically ask what the best ever or the worst deal is, but I’m gonna change it up a little bit – what is the worst marketing campaign you’ve ever seen?

Jessie Neal: Oh, Lord… I’m friends with a guy out in California by the name of Billie Gene. He has some courses called Billie Gene is Marketing. And back in the day, when we were both kicking it off, he had the worst ad I think I have ever seen in my life. It was back when the “Got Milk?” commercials were going on, and it was a picture of his face on a cow, and it said “Got leads?” And it bombed. It did horrible. But it was funny. Big ol’ black dude’s head, Billie Jean as marketing, “Got leads?” on the head of a cow. He ran it for  probably three weeks, spent a few thousand dollars and didn’t get anything from it. No traffic, no engagement whatsoever. So by far that’s probably the worst ad I have ever seen on the internet.

Theo Hicks: Alright, and then lastly, what is the best ever place to reach you?

Jessie Neal: Best ever place to reach me – other than my cell phone, you can find me on Facebook. You can go to Swift REI Leads on Facebook. Just search us. Reach to me on messenger. Or you can go to the website that I think you have posted, the swiftreileads.com/attack. I reach out to everybody who fills out that lead forum personally.

Theo Hicks: Perfect. Jessie, thanks for joining us today and giving us some of your best ever social media and digital marketing advice. A lot of practical things that people can do right now during the Coronavirus pandemic, but also things that people can do in the future, once all this passes.

Just to recap, some of my biggest takeaways – number one, if you are looking for leads right now, the best person to target are out-of-state owners who’ve owned the property for more than five years and have more than five properties. You mentioned for your service you’re able to take a list of motivated sellers and actually target them on Facebook, as opposed to me having to send them direct mailers, or cold-call them myself.

We talked about from a content perspective during the Coronavirus, making sure that you’re providing messaging that’s keeping people calm, and actually trying to help people, so providing solutions to people, and kind of how you’re going through this from what you’re doing, as well as doing as many testimonial videos as you can

We’ve talked about general mistakes that people make when it comes to advertising on social media, and it was really just a lack of consistency; inconsistent posting frequency, inconsistent messaging… You wanna make sure that you’re there, doing something every single day. The best types of posts really vary on what you can do, and the industry that you’re in, but you mentioned it is good to post a few videos every single week, but overall, you just need to do something every single day.

And then your best ever advice is that Facebook is very complicated, but you  need to learn it, and there’s a lot of free training that you can find on Facebook to make sure you’re taking advantage of their marketing as much as possible.

Again, Jessie, thanks for joining us today. Best Ever listeners, as always, thank you for listening. Make sure you check out Jessie’s website, SwiftREIleads.com/attack. Stay safe, have a best ever day, and we’ll talk to you tomorrow.

Jessie Neal: Thanks, guys.

 

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JF2068: Experience Investor Danny Randazzo Shares His View During The Coronavirus

Danny is a Managing Partner at Passiveinvesting.com and Author of Wealth Lessons for Kids. He is also a multi-return guest and can be found on previous episodes JF1447 & JF1684. As you know, the Coronavirus has been impacting several investors and In this episode, Danny goes into how he is handling his business during this pandemic. 

Danny Randazzo Real Estate Background:

  • Managing Partner at Passiveinvesting.com 
  • Author of Wealth Lessons for Kids
  • Became a millionaire at 29
  • Controls over $225M in real estate
  • Based in Charleston, SC
  • Say hi to him at: https://www.passiveinvesting.com/

 

 

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Best Ever Tweet:

“Over the past year, I have really had the opportunity to work “ON” the business instead of “IN” the business.” – Danny Randazzo


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Theo Hicks, and today we’ll be speaking with a multiple repeat guest, Danny Randazzo. Danny, how are you doing today?

Danny Randazzo: Theo, I am doing great. Thank you so much for having me on. I am excited to be back, and hopefully add some value to the Best Ever listeners.

Theo Hicks: Yes, and I think you’ll be able to add value, because we are going to talk about some of the challenges that Danny is facing during the current Coronavirus pandemic. For context, everyone, we’re recording this on the 29th of April.

Before we get into that, a little bit about Danny’s background. He’s a managing partner at PassiveInvesting.com. He’s the author of Wealth Lessons for Kids. He became a millionaire at age 29, and controls over 225 million dollars in real estate. He is based in South Carolina, and you can say hi to him at PassiveInvesting.com. Great website URL, by the way. Did you just find that right away, or did you have to pay [unintelligible [00:03:58].27] for that URL?

Danny Randazzo: We invested in that URL for an undisclosed sum of money, but it has been tremendously worth it when you think about the brand that you and Joe have really built around Best Ever. For us to have PassiveInvesting.com is a huge piece when we talk about what we do in the multifamily syndication space.

Theo Hicks: Oh yeah, I bet. Before we get into some of the challenges that you’re facing with the Coronavirus, let’s catch up, and you can tell the Best Ever listeners what you’ve been up to the past year. So maybe start and say how much you controlled a year ago, and then how many deals you’ve done, any developments that you’ve done in the past year, and then I can ask some follow-up questions on that.

Danny Randazzo: Perfect. Over the past year – and I’ll add in these first four months or so into 2020 – so between 2019 and today, we’ve acquired 120+ million in multifamily assets across the South-East U.S. If you go back and listen to my first episode of kind of how I got started, I wanna say it was episode 961, but Theo, maybe you can correct me if I’m wrong there… It’s been an incredible journey. Over the past year it’s really been the opportunity to work ON the business, instead of IN the business, if you will.

So a couple of high-level and strategic decisions that we made leading into the beginning of 2019 was to solely focus on multifamily and really tighten in on our scope and hone in on our specific property types and property locations. What that allowed us to do was be looking for really good deals in very specific  market and investment criteria in order for us to best serve our investors with great investment opportunities. And having that very specific focus and strict investment criteria has really allowed us to be successful and has carried us through that 2019 period into today, where we really focus on buying assets that are 150 units or greater, built 1990 or newer, in excellent markets like Charlotte and Raleigh, North Carolina, and Greenville, South Carolina, that are priced between 30 and 60 million dollars.

Having that focus has allowed us to acquire about 120 million in multifamily over the last year, and we’re slated to continue that growth in 2020, and as we continue through, to finishing the year.

Theo Hicks: Perfect. Thanks for sharing that. So let’s transition into talking about Covid. One thing that I’m curious about — so you do have a business partner, and I know a lot of people when they talk about finding about business partners that complement each other… I was wondering, so during a time like this, how are you and your business partner deciding what’s the best line of action? Maybe tell us what these conversations are like. Does one person have more control over certain aspects of the business right now, or are you both coming to these decisions together? I’m just wondering what that communication is like.

Danny Randazzo: Yeah. In terms of the business itself, we have a full team of people at PassiveInvesting.com. You have myself and two other managing partners, Dan Handford and Brandon Abbott. And then we have a director of design – that’s my wife, Caitlin, who helps with our value-add projects. We have Brian, who is the director of asset management, and he brings many years of experience. He worked with Aimco, overseeing over 175,000 units under management… So he brings a ton of experience to our asset management team. And then we’ve got Melissa, who is our director of marketing, and Ann, who’s our director of investor relations.

One thing that I always hone in on is the value of a team. Investing in large multifamily properties to have a successful business that buys hundreds of millions of dollars of properties, you need to have a strong team around you. So it’s not just two of us, it’s not three of us, it’s a whole team of people… But we, again, spend time investing and working on the business over the year of 2019, and even into today, where we are allocating roles and responsibilities so we’re not falling behind, and we’re always being proactive in 1) managing our current portfolio, and making sure investors are very well informed and up to date as of the current happenings in the economy, and just in the country in general, with the Covid pandemic.

One thing that was really important to us as a group was making sure transparency and information is always shared with anyone who invests alongside of us in these projects… And putting your money to work is a huge commitment. And then if you have an operator or a general partner who may not be sharing or may be giving quarterly updates, or all of a sudden distributions are stopping because of the Covid pandemic, and you don’t know why, that would be a red flag to me. I’d be asking a lot of questions of that operator.

So one thing that we always really strive to do is just overcommunicate things… And I’m pleased to say that in the month of April our portfolio collections average greater than 96% for April income, and we were able to pay out monthly distributions exactly as planned, from our performance.

So it really speaks to the quality of our management teams on-site, at each property, the quality of our resident base, just having very strict renting criteria in terms of qualifying a potential applicant, making sure that their income, their job history and their credit score are solid to live there… And then number three, it’s having a great property, in a great location, where you know people want to live and choose to live.

So having that team absolutely made it such a smoother process going through the Covid scare. I could not imagine being a single shingle, single-person operation at that time, where 1) you’re trying to manage the asset, 2) you’re trying to communicate with investors, 3) maybe you’re doing some marketing to keep your sales funnel or business funnel going – that would just be very overwhelming in a time like Covid… So to really highlight what we’ve done, Theo, we’ve had a great team in place and we’ve been building that team over the years to get to where we are today. I think one tip for the Best Ever listeners – if you are a single operator and you want to own a lot of single-family properties, or you wanna own thousands of multifamily units, you need to have a strong team around you… So I would heavily invest in building that team.

Theo Hicks: Thanks for sharing that. Let’s transition into something else. How have your underwriting standards and your due diligence process changed on the deals that you are looking at, that you are doing, over the past few months? Because obviously, you did 120 million dollars in acquisitions over the past year and 3-4 months, a year and a half… So obviously, you’re still doing deals, so I’m just curious what changes you’ve made to your underwriting process, to your due diligence process during this time when you don’t really know what rents are gonna be a month or two months or three months from now.

Danny Randazzo: Yeah… Two huge things that stand out to me. Number one from an underwriting perspective is your debt service assumptions. Currently, what has happened since the middle of March through today, the volume of lenders in the marketplace lending on multifamily properties like your size that we look at (150+ units) has drastically been reduced. A lot of CMBS, private lenders, bridge lenders, life companies have hit the pause button in their business. These lenders don’t just lend on multifamily assets, but they also lend on hotel projects, retail shopping centers, restaurants, other things like that… So I would imagine they hit pause in their business to see how their collections would be in terms of servicing their current debt on their balance sheet without needing to give out more loans and increase that debt and increase that volume of servicing.

So the debt underwriting assumption is a huge thing right now. It is a challenging time in the multifamily space to do value-add deals with bridge or private lenders. So one thing I would just encourage the Best Ever listeners to be is very cautious on what type of debt is feasible today. And hopefully, over the coming weeks and months, the lenders will stabilize. We are seeing some good indications that people will be getting back into the business, kind of unpausing, now that Covid has kind of settled in and the hysteria has died down a little bit.

So hopefully, some of these lenders come back into the game and force the agency lenders Fannie and Freddie to be a little bit more competitive. Over March and April of 2020 Fannie and Freddie increased their spreads in rates, because they were really the only lenders doing business, and there was a huge demand from buyers looking for new deals, or buyers looking to refi existing properties… So the rates went up.

We are seeing good signs that rates will stabilize, but if you are looking at an 80% occupied property that requires a couple million dollars in cap-ex renovations, I would be very inquisitive about what type of debt you’re gonna get. Is a bridge loan feasible? What sort of commitment can that lender give you? So that would be a huge thing for underwriting, is get your debt right, because the debt will kill the deal before closing, potentially, or it’ll kill the deal after closing, if the debt is not right.

Number two, it’s really that stabilization time period that we’ve updated in our underwriting. So even if we have a very strong property, with very strong occupancy, fundamentals, and job growth and population growth projected, we’ve done some minor adjustments to our underwriting to be even more conservative with the impacts of Covid. People may not move around as much, potentially, so that could impact occupancy. People could be moving back in with relatives, giving their apartment up for a couple of months if they’re laid off or furloughed… So those are just some considerations.

Our investment philosophy is to always be conservative when we’re underwriting a deal. So if we can increase the vacancy rate in which we are expecting the property to be at, it gives us a lot of comfort and cushion in the investment business plan to ensure that we can maintain the occupancy at the property and be able to run and stabilize the asset, given we don’t really know what’s gonna happen with Covid over the coming months.

Theo Hicks: Maybe you could quickly give us an example of what you mean by change in vacancies… So what have you been typically underwriting, and what are you underwriting as vacancy now? I know it’s gonna be very market-specific, so if you can just give us a ballpark…

Danny Randazzo: Yeah, in terms of a ballpark, let’s say if you were historically underwriting deals at 93% occupancy, when you close and maintain, and let’s just say the property has on average maintained a 94%-95% occupancy rate over the last few years, I would adjust and look at the occupancy with maybe a 7% drop. So maybe you’re looking at 85%, 86% occupancy at  the property, just to give you a level of comfort… And maybe you underwrite that to only remain for the next six or twelve months… And then we can kind of comfortably say in 6 or 12 months the market should be back to normal, so we’ll then assume a 93% occupancy once we stabilize.

Theo Hicks: Thanks for sharing that. Obviously, you’re director of marketing, so you guys are still actively looking for deals… Over the past 3 months or so, have you seen more owners wanting to sell, less wanting to sell, or has it been the exact same?

Danny Randazzo: I would say over the last two months, really when Covid broke in early March, the deal volume has kind of slowed down, where sellers may not be able to sell if they have huge pre-payment penalties with their in-place debt. Number two, buyers may not be able to buy because the interest rates have gone up, the volume of lenders has gone down… And a lot of investors, even if you think about it, whether  you invest with friends and family and private investor money, or if you go with private equity or institutional equity, a lot of those people have kind of just said “We’re gonna pause, we’re gonna see what happens over the next 60-90 days in the marketplace before we make an investment decision.” And while that makes sense in theory, I think there’s still good deals to be done.

We’re in the process of closing an active acquisition right now, which has been a fun learning process for us, going through due diligence with Covid… But I think there’s still really sound investment opportunities out there, and the biggest scare to me is just having money in the stock market when it goes up and down by 20%-30% in a day, which I think would give people a  lot of heartburn, potentially.

Theo Hicks: Okay, and what about from your investor relations standpoint, or whoever is responsible for finding new investors? Are you finding more people interested in investing in apartments, or less, or the same?

Danny Randazzo: Yeah, as the stock market continues on this rollercoaster and really scares a lot of people, we’re seeing a reasonable increase in investor interest. A lot of people are looking for stable investments that 1) are a secure place to store your equity, where it’s not gonna go anywhere overnight. You’re investing in a physical, real asset. It’s not a fictitious piece of paper or an internet technology-based thing. This is a  real asset. You can go there, you can see it. It’s not gonna go anywhere.

Number two, it’s investing in multifamily for the cashflow. So having great cashflow-producing assets — I always think about Benjamin Graham, the mentor and coach to Warren Buffet, educating about compound interest. So if you have money sitting on the sidelines, not doing anything, you’re really technically losing money, because you have the opportunity cost to invest that money, while it may be at a good rate of return; that would b an opportunity cost to sitting on the sidelines.

So if you sit on the sidelines for one year, where your money is not compounding, it really ruins the future value of that equity when you think about what it will be valued at in 30 years if it compounded at 6% or 7% interest year over year.

So having money and having a safe place to put it, like multifamily, is one reason why I invest. Of course, monthly cashflow is great, and the tax advantages that come with multifamily as opposed to really zero tax advantages coming from active investing or from the stock market – it’s just another plus that kind of is a good indicator for my family and my personal wealth to be invested in these assets.

Theo Hicks: Perfect. And then the last question, I guess more on a personal note – what types of things are you doing to make sure you stay sane, stay emotionally grounded during this Covid time? Because it’s pretty crazy out there. I’m just curious, do you have like a ritual you do every night before you go to bed, or what types of things are you doing just to kind of relax?

Danny Randazzo: I love to read. When I was growing up, through high school, I was never a big fan of reading stories or the required school books… But in high school, I stumbled upon Rich Dad, Poor Dad, and other investing books, and real estate books, and I love to read those books. So I stay pretty in-tune and mentally sharp by just reading more.

I’ve got four books that I’m working on right now, simultaneously. One is a shorter story that is less than a hundred pages, and I am about halfway through it. I’ve got another longer book – it’s the story of Jim Clayton, First a Dream. It’s an excellent kind of autobiography story about his Clayton homes, the mobile home manufacturing company, but they are so much more than that, and I’m loving that book right now. I’m almost finished with it.

And then I’ve got two other books that are on my nightstand. So that’s what I enjoy to do. It keeps me sharp, it keeps me sane, and it gives me great ideas for us to implement at PassiveInvesting.com.

Theo Hicks: Alright, thanks for sharing that, Danny, and thanks for joining us today again, and sharing some of the — I don’t wanna say ‘challenges’, but things you’re going through right now with Covid, and some of the changes you’re making to your business. We talked about your underwriting changes, we’ve talked about marketing, and more investors coming in… Overall, really solid advice.

As Danny mentioned, he’s been on the podcast before. He hit the nail on the head with his first episode number, it was 961. So if you just go to joefairless.com and go in the Search function and you type in Danny Randazzo, he’s got his own full page of content on our website, from all the interviews he’s done… So make sure you definitely check that out, so you can learn more about how he’s gotten to where he is, and then you can learn more about him and his business at passiveinvesting.com.

Danny, thanks for joining us today. Best Ever listeners, thank you for listening. Have a best ever day, and we will talk to you tomorrow.

Danny Randazzo: Thank you, Theo.

 

Website disclaimer 

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

Oral Disclaimer 

The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.

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JF2064: A Passive Investors Perspective During The Coronavirus With Travis Watts

 Travis is a full-time investor and the director of Investor Relations at Ashcroft Capital. Travis has written some articles on our blog to help investors during the Coronavirus pandemic we are all going through today. As a full-time passive investor, Travis gives his perspective on what he is seeing in the current market and what he is keeping an eye out for. 

Inflation article

 

Travis Watts Real Estate Background:

  • Full-time passive investor
  • Director of Investor Relations at Ashcroft Capital
  • In 2009 he started investing in multi-family, single-family, and vacation rentals
  • Based in Denver, Colorado
  • Say hi to him and grab a free passive investor guide at Ashcroft Capital

 

 

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“There is always a silver lining, there will always be opportunities that pop up. Look at this as an opportunity to educate yourself” – Travis Watts


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m Theo Hicks and today we’ll be speaking with Travis Watts. Travis, how are you doing today?

Travis Watts: Hey, Theo. I think I know you from somewhere, don’t I?

Theo Hicks: Yeah, I think I know from somewhere as well. If you guys don’t know, Travis is the director of investor relations at Ashcroft Capital. That’s how I know him. I met him at our first quarterly meeting. I’m looking forward to our conversation, because I haven’t been able to have a long conversation with him yet, so I’m looking forward to getting some advice… Just like you guys are looking forward to it as well.

A little bit more about Travis – he’s a full-time passive investor, as well as the director of investor relations at Ashcroft Capital. In 2009 he started investing in multifamily, single-family and vacation rentals. He’s based in Denver, Colorado, and you can say hi to him at AshcroftCapital.com. You guys should all be able to spell that by now.

Travis, before we begin, we’re gonna be talking about the Coronavirus today. Travis has some really good articles on our blog right now, so we’re gonna talk about one of those in particular, and maybe talk about the other one as well.

Before we get into that, Travis, do you mind telling us a little bit more about your background and what you’re focused on today?

Travis Watts: Sure, I appreciate that intro. So I got started in real estate, as probably a lot of people do, probably the majority of real estate investors – single-family. It kind of led to trying to scale that portfolio up… The problem that I had personally, which isn’t applicable to everyone, but I was working a full-time W-2 job, more importantly a 98-hour workweek job, where I was away from home, completely dedicated to that… And as I started trying to scale the single-family on the side, doing some flips and vacation rentals, things like that, it just got to be too hands-on for me, which — I had to go back to the drawing board, learn how to become a completely passive investor, what strategies and assets and things like that existed… And that’s where I ran into syndication investing in real estate.

I made a complete transition around 2015 through 2016, where I was selling all my single-family, I was going all-in into multifamily and syndications… So that’s brought us to the last 5-6 years. I came onboard with Ashcroft to just help spread education around passive investing and what benefits those can have for certain people’s lives.

Theo Hicks: Perfect. Thanks for sharing that. One article that I really liked was your article about inflation, and how people can benefit from the inflation from printing off two trillion dollars in cash… Do you wanna summarize that article? And then if there’s anything else you wanna talk about as it relates to inflation.

Travis Watts: Yeah, and again, I think that article is out there both on the Best Ever Community – I put it out there I think under my Bigger Pockets as well, things like that… So check it out. But the concept is pretty basic, really. This is a topic we could have talked about a year ago, two years ago, five years ago… And that’s just this idea that the Federal Reserve is printing money, every time we’re going into these crisis situations – 2008-2009, now this pandemic here being probably the worst in terms of what we’re gonna see in money printing… But that’s devaluing the purchasing power of the dollar.

There’s a lot of scary headlines out there that you read, about the mortgage crisis, and just what’s unfolding, and all this scary bad news, but here’s a way to look at it in the light of real estate, whether we’re talking single-family, multifamily, whatever. When you’re acquiring debt, so you’re going out to get a mortgage, you’re hopefully getting some long-term fixed-rate debt, depending on what you’re doing, meaning that you’re locking in a payment every month, that’s gonna be due. Let’s just call it $1,000/month for a owner-occupied home, that’s your mortgage payment. So that payment, on the debt side, is never gonna change for 15 years, 30 years, whatever kind of mortgage you get.

The idea is as we move forward and the Fed continues printing and printing, and the purchasing power of the dollar is going down and down and down, you’re basically using cheaper dollars to pay off that debt. So what is $1,000 in today’s money could be worth $200 down the road in the future. So it’s gonna make it much easier to pay off that debt long-term, and more specifically in terms of investment real estate, where tenants are paying that off anyhow. So that’s what the article is kind of about, from a high-level, for those that may not be tuned in. Yes, the Fed has already printed a couple trillion dollars, and that can quickly escalate to 4, 6, 10. I hear all kinds of numbers out there.

The scary thing to think about is — this is how inflation is created. Basically, inflation is the cost of goods going up year after year after year, so it takes more and more dollars to purchase the exact same thing, years down the road. So the crisis here, in my opinion, if you wanna look at the negative side of things, is we’ve got 2019, four trillion dollars in circulation. That’s like our money supply. So if the Fed’s gonna go and print four trillion dollars as an example, then theoretically we’re gonna have some massive inflation kicking in at some point, theoretically a doubling in price… Maybe not today or tomorrow or next year, but down the road.

So if anything, look at this in a positive light – we’ve got all-time low interest rates; it’s a great time to be refinancing projects, and potentially getting involved with real estate, if that’s something that you haven’t done yet or that you’re currently doing. So a little long-winded… There’s still hopefully some value in reading that article, but that’s the high level.

Theo Hicks: Obviously, it makes sense to get debt, but since I’ve got a $1,000 payment and I’ve got 100k (let’s say) sitting in my bank right now, and five years from now that 100k is gonna be worth 10k… Practically speaking, should I pay down my debt on my properties?

Travis Watts: Yeah, that’s a good question. The way I look at it is “What’s my alternative?” In general right now we have a lot of low interest rate debt for things like real estate, whereas a lot of folks might have at this time high interest rate debt. They might have personal loans from a bank, or credit card, or retail debt… Things they’re paying 10%, 15%, 20%, 25% annually on. That’s what I’d be focused on right now paying down.

And what I mean by alternatives – if you’ve got a 3,5% mortgage today, could that money be better utilized if you were to invest it in something that could produce a higher return? Like a 8%-10% annualized cashflow return. So I’m not giving any kind of financial advice to anybody, but it just depends on your situation, what kinds of debt you have, but certainly for the folks that are saying “I have $100,000 in the bank account. I’m just gonna let that sit and ride for the next 10-20 years as my little reserve account”, you’re most certainly gonna be losing a lot of that purchasing power over that time, so I’d be looking for ways — while safely and conservatively keeping your emergency fund in place, certain months of living expenses (3-6 months is what you commonly hear), I’d be looking at places to park that capital, things like real estate, that are kind of a hedge against inflation, somewhat.

Theo Hicks: Okay, thanks for sharing that. Changing gears a little bit – so you are a full-time passive investor… Most of the people I’ve talked to about the Coronavirus are actively investing, so we talked about rent collections, and making sure they can pay their mortgage payments, and asking how much cash reserves they have… But something that I’d be interested to ask you about as a full-time passive investor is are you still seeing opportunities to invest in right now, or has that slowed down? And if so, what’s your strategy over the next 6-12 months as a passive investor? Are you kind of in a holding pattern, are you still looking for deals? Things like that, if you could talk about that for a little bit.

Travis Watts: Yeah, absolutely. I guess the unique perspective or the benefit of not only being an investor with one group like Ashcroft, but being an investor with 14 different groups is I get invited to a lot of webinars, a lot of conference calls, I get a lot of email updates, I get a lot of “Here’s what we’re doing in terms of Covid” and all this kind of stuff… So I have a bit of a broad perspective on what a lot of folks are doing out there.

In general, this interview is taking place mid-April. This is our first real impacted month. This whole Corona thing got real serious towards the end of March, and then rent was due April 1st. So my opinion here is that a lot of people were already kind of set up and primed to pay their rent anyway. They already had it in the bank, or in their savings account… They were ready to go for April. I’m a little more concerned maybe with May and June, and however long we’re in this lockdown, and the economy is shut down, and things like that.

What I have seen more specifically, to answer your question, with these different syndication groups in general is a little bit of wait-and-see right now. It’s a little too early to start calling the shots, it’s a little too early to start saying “Oh, there’s all these new deals popping up, things like that.” It’s hard to look at a T12 statement and have that make a lot of sense, looking at 2019 numbers, when now we’re in this state where we don’t know what our collections are gonna end up being. So I’m a bit of the same mindset.

I did invest in some recent deal that have closed through the March timeframe, and I think one in April… But at this point I’m focused more on making sure I have adequate cash reserves personally on hand, in case things pop up; capital calls, whatever. Or best-case scenario, I just hoard a little bit of cash and then maybe by late summer there’s some deals popping up that make a lot of sense to get involved with, and we’ll have the cash to do it.

So that’s kind of where I sit. It’s a little bit of sit-and-wait probably through April and May, and hopefully we’ll know a whole lot more in June, and hopefully the numbers start making sense again, and the economy starts reopening. But we’ll see. Who knows.

Theo Hicks: Exactly. So definitely wait and see right now. So you mentioned that you’re getting a lot of communications from either deals you’re investing in with all types of sponsors… Do you mind walking us through, as a passive investor, what types of communication you’re getting from syndicators? More specifically, maybe tell us what a good communication looks like at a time like this, and maybe some things that you see and it’s kind of making you worry when you consider a bad communication.

Travis Watts: Something I’d talk about on the podcast is why I like syndicate groups that not only distribute monthly distributions, but hand-in-hand they report monthly. I think in a time like this it means a lot. No one wants to sit here 3-4 months to wait on an update to see how their property is doing.

Some groups to this point that are quarterly that I’ve invested with have literally sent out one communication since this whole thing started to unfold… And I don’t appreciate that. I’m all about transparency and proactiveness, communication… So what does that prompt investors to do? Call. Email. Just bug you to death. So why don’t you just get the information out?

What am I seeing is a lot to do with helping the tenants, helping educate how they can file for unemployment if they’ve lost their jobs, how they can maybe get on some kind of payment plan and maybe make a half payment on the first and a half payment on the 15th, resources for companies hiring in the local area… There’s obviously some businesses somewhat thriving right now. It’s kind of a weird word to use… Amazon’s hiring, grocery stores are hiring… There’s a lot of opportunities. I invest mostly in workforce housing, B and C class properties, so a lot of these folks are in an income range of 30k to maybe 60k/year household income… So a lot of opportunities are available for folks like that, depending on the area where your property is located.

So in general, that’s the communication I’ve been getting – let’s wait and see how collections pan out, and here’s where we are as of today, and how does that compare to the previous quarter. Look,  I don’t need a communication every day, because it doesn’t make a lot of sense, but I think at least a monthly communication is ideal. A lot of groups have been doing webinars, Q&A calls, things like that… And I think that goes a long way as well in a crisis situation like this.

Theo Hicks: Another article that you wrote on the website – and I’m sure it’s on LinkedIn and your Bigger Pockets profile as well – is about the mortgage crisis. Do you mind talking about that for a little bit?

Travis Watts: Sure. That one’s a little more technical. I think there’s a lot of key elements that are just probably better read through the article itself… But basically, what you’ve been hearing a lot in the headlines is things like this mortgage forbearance, or people aren’t paying their mortgages, they’re not paying the rent… Well, the thing is there’s a chain effect here. It starts with, let’s say, the homeowners saying “I’m not gonna make my mortgage payment”. But then what a lot of people don’t understand is that mortgages are often sold. And they’re sold, they’re wrapped up into collateralized mortgage obligations, investments basically that people can invest in, where you’re investing in different tranches, and things like that…

So you’ve got the bank or the lender, you’ve got the tenant, and then you’ve got the investment, then you’ve got the investors behind the scenes there… And it’s like “Who’s left holding the bag here?” That’s kind of what the crisis is – trying to figure out what kind of stimulus is coming for who exactly; it’s gonna start with probably the person that’s supposed to be paying their rent or their mortgage, and then it’s gonna go as a trickle-down effect. But it could completely implode parts of the lending industry… So it really is a crisis in a sense, but… Anyway, there’s much more detail that’s probably better found in the article… But yeah, that was another recent one that I’ve just put out.

Theo Hicks: You don’t have to answer this question if you don’t have to, because I’m putting you on the spot, but I did read recently that Chase changed their mortgage criteria… So they’re only lending to people that have a credit score of 700 or higher, and then 20% down payments… Which seems to be one of the first residential lending institutions to make changes such as that.

I guess my question would be “Do you think that that is gonna be an opening for other lending institutions to also change their lending criteria?” And if yes, what kind of effect do you think it’ll have on the overall real estate market?

Travis Watts: Yeah, I’m happy to give a high-level overview… And that’s kind of how that article ends, that I wrote – what are the practical takeaways here? Well, if you’re selling a home, it may be a little bit harder, for obvious reasons, to get a buyer, just because people aren’t getting out as much, or they  may not be in the investment market space as much right now… But more importantly, to your point, someone who’s qualified. So which lenders are still lending? And if they are, like you said, I think that banks are gonna be tightening up quite a bit right now… Obviously, to lower their risk. They don’t want any defaults, and there’s probably a lot of defaults coming their way.

In fact today – maybe yesterday – was the earnings report for a lot of banks, and they’re in a bad place right now. They see a bit of a grim immediate future here, at least talking through the next quarter. With all of this mortgage forbearance, and people not paying, and unemployment spiking… It’s a tough time to be a bank.

If you’re buying – to your point – you may have to have a little bit better credit, you may need to put a little bit  more down… If you’re selling, it’s a little harder to find a qualified buyer… Obviously, that’s gonna have an effect in the residential space, of course, 100%. But in no way, shape or form, in my opinion, are we talking about something similar to ’08, ’09 housing real estate crisis. That’s not exactly what’s happening this time.

Theo Hicks: Thanks for sharing that. Is there anything else you wanna mention as it relates to the Coronavirus and real estate that we haven’t talked about already before we hop into the lightning round?

Travis Watts: There’s always a silver lining to this stuff. Even ’08, ’09 — yes, it’s bad news, and there’s negativity everywhere, and nobody knows, and where is the bottom, but there’s always going to be opportunities that pop up… Not only in the syndication space, in the publicly-traded stuff… Look at this as an opportunity to 1) above all, educate yourself. This is a really great time to educate yourself. Figure out what your goals are… And it’s a great time to get started. As you alluded to in the beginning of this podcast, I got started in 2009. Well, that was not quite the absolute bottom of the market, but it was pretty near and close to it. And riding the way up over the next decade is helpful, for a lack of better words. It wasn’t the perfect time to get in, but it was a pretty decent time… So just hopefully you can keep your job, and your income, and your business running through this. Hopefully the stimulus money can help soften the blow on that front, and then wait and see what opportunities can come over the next 6-18 months or so.

Theo Hicks: Alright, Travis, are you ready for the Best Ever Lightning Round?

Travis Watts: Let’s do it!

Theo Hicks: Alright. First, a quick word from our sponsor.

Break: [00:19:48].09] to [00:20:50].16]

Theo Hicks: Okay, Travis, what is the  best ever book you’ve recently read?

Travis Watts: I think you just said the title of it – it’s the Best Ever Apartment Investing Book that you and Joe wrote. That’s actually a really great book that you guys wrote. I actually just bought that the other day and gave it to someone who was looking to be a GP themselves.

One that’s kind of a classic, that I’ve recently re-read is Awaken the Giant Within, a Tony Robbins book. I don’t even know when he wrote that. Probably in the ’80s. But man, is it just timeless; great insight and info for self development.

Theo Hicks: If your passive investing business were to collapse today, what would you do next?

Travis Watts: What would I do next… I’m trying to make this as short as possible, but I’ve always been a huge advocate of the FIRE Movement (Financial Independence, Retire Early), which has a lot to do with reducing your expenses and overhead, making as much money as you can make, and investing that into things that produce passive income. I would stay on the passive income route, I would just look for an opportunity to make as much income as I could, and put my focus back there again.

Theo Hicks: Do you mind telling us about a deal that you’ve lost the most money on? How much you lost, and the lesson that you learned.

Travis Watts: Yeah, I invested in something I clearly didn’t know that much about. It was a distressed debt syndication fund. Sometimes I experiment outside of real estate; that was one of the first big experiments I did. I put maybe — I don’t even know; there were two funds, and I put maybe 175k in, and lost (to date) maybe 40%-50%. It could be a lot worse… It’s in a receivership now, so who knows what that will end up being… But it was a rough ride.

Theo Hicks: What about the best ever deal that you’ve done?

Travis Watts: The best ever deal was actually in the single-family space during — I think it was like 2014 to 2015. I bought a house from a bank, I paid 97k for it. I didn’t do anything to it. I just rented it out as is, and I sold it two years later for 215k.

Theo Hicks: What is the best ever way you like to give back?

Travis Watts: My time. Week to week I take calls with all types of people, not only investors, but people looking to house-hack, or do a fix and flip, or become a GP, sometimes an LP… I just love sharing experience, talking through things, handing off resources… I just mentioned the book you wrote with Joe – I gave that as a resource to someone just last week… So just sharing my time.

I just wish that there had been more people in my life when I got started, that I could have reached out to, to say that classic “Hey, let me pick your brain for 30 minutes.” I give people that opportunity.

Theo Hicks: Then lastly, what’s the best ever place to reach you?

Travis Watts: Probably email. Travis [at] ashcroftcapital.com. Or ashcroftcapital.com/passiveinvestor. I’ve got a free passive investing guide there and it connects you with me if you’d like to jump on a phone call as well.

Theo Hicks: Perfect. Best Ever listeners, make sure you take advantage of that, and make sure you check out the two articles that we talked about today. The first one is “How inflation can benefit you over the next decade”, and the second one is “The Mortgage Crisis: Will You Be Affected?” As Travis mentioned, the Mortgage Crisis one goes into more technical detail on that.

Besides those two articles, the one other main takeaway that I got was you talking about the types of communications you’ve been getting from different sponsors… You’ve got some people who haven’t reached out at all, some people that are reaching out a little bit too much. The sweet spot is monthly communication, letting you know what’s going on at the property and being transparent and honest.

I think that is it… Travis, it’s been nice talking to you. Best Ever listeners, as always, thanks for listening. Have a best ever day, and we will talk to you tomorrow.

Travis Watts: Thanks, Theo.

 

Website disclaimer – Should be prominently displayed on website

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

Oral Disclaimer – To be read at or near beginning of podcast

The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.

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JF2062: Commercial Real Estate During The Coronavirus With Tim Karels

Tim is the Owner of Falls Real Estate, he owns and manages $15-20M in commercial real estate and has over 9 years of experience. The coronavirus has impacted everyone in the market and today Tim explains from a commercial real estate perspective how he is handling rent collection and making property improvements 

Tim Karels Real Estate Background:

  • Owner of Falls Real Estate 
  • Falls Real Estate owns and manages $15-20M in commercial real estate
  • Over 9 years of experience in real estate investing
  • Based in Sioux, South Dakota
  • Say hi to him at https://fallsre.com/
  • Best Ever Book: Richest Man In Town

 

Click here for more info on groundbreaker.co

Best Ever Tweet:

“We have to emphasize with everybody but we also have to remember we have our own investors and mortgages to pay and we should look at how we can work together as a team.” – Tim Karels


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome to the best real estate investing advice ever show. My name is Theo Hicks, and today we’ll be speaking with Tim Karels. Tim, how are you doing today?

Tim Karels: I’m pretty good. How about you?

Theo Hicks: I’m doing good, thanks for asking, and thanks for joining us and being willing to talk about what everyone is talking about, which is the Coronavirus. Today we’re gonna talk to Tim about how his business is being impacted by the Coronavirus, and just all things Coronavirus.

Before we get into that, a little bit about Tim. He is the owner of Falls Real Estate, which owns and manages 15 to 20 million dollars in commercial real estate. He has over nine years of experience in real estate investing. Based in Sioux Falls, South Dakota. You can say hi to him at FallsRE.com.

Tim, before we start talking about the Coronavirus, do you mind telling us a little bit about your background and what you’re focused on today?

Tim Karels: Yeah, a little bit about myself – I am born and raised in South Dakota. I’ve been here my whole life, and I absolutely love it here. Our real estate is all focused in South Dakota as well. Right now we’re really just focusing on potentially looking what we can do to improve our properties. It’s really hard right now to look at investing in properties, given the situation that we’re all experiencing… But the labor force is looking for projects and for stuff to do, so how can we use that labor force, often at a cheap rate, to improve our properties, and also try to help the economy and keep people in business.

Right now it’s status quo on the investment properties, but how can we improve those, and focus on how to collect the rent, and the best way to deal with people that might be put into a bad financial situation based on the virus.

Theo Hicks: Perfect. Thanks for sharing that. So before we dive into our tactics, I wanna just set some more context, so people understand what your portfolio is. It’s 20 million dollars in commercial real estate… Do you wanna walk us through how many properties that is, what they are – is it retail, office, medical, multifamily? That way we have a little bit more context, and then hone in more specific questions.

Tim Karels: It’s really just four large properties, mainly consisting of office space. We have some downtown — Sioux Falls is a metropolitan area of about 200,000 people, so it’s not very big, but it’s the largest in South Dakota. We have some loft apartments, we also have some retail, some restaurants, and some event centers.

So it’s a mixture – probably about 75% office and 25% in that specialized retail and apartment and loft. So kind of a mix of basically everything.

Theo Hicks: Perfect. So your two main areas of focus right now are 1) improving your existing properties, and 2) making sure you’re able to collect rent. I actually haven’t talked to anyone who — because most people I’ve talked to are just multifamily… So maybe we can focus on the rent collection part first. Obviously, a lot of retail places are shut down because of the stay-at-home orders and the essential business  orders and things like that… So maybe walk us through how you’re approaching collecting rent on your retail properties specifically.

Tim Karels: We’re definitely working with our retailers. The PPP program that’s come out has 75% to be used for payroll and 25% to be used towards rent and utilities. It’s our focus to try to help as many small businesses in the retail sector succeed, as much and long as possible, understanding that we have to keep the lights on and the building at working condition, even if we’re not getting rent, and knowing that we have our own mortgage to pay. So what we’ve been doing is working on a case-by-case basis, giving these retailers some context in the banking world, the financial world, to allow them to apply for the PPP. We’re not really telling them that they should do it, we’re saying “Hey, you have to do this, especially if you cannot pay rent.”

Once they do apply for that PPP — I know the banks had a hard time rolling it out. It sounds like we’ve already hit 250 billion out of the 350 allocated, and by Friday that’s gonna be hit… So if these retailers did get their PPP in, they got funded. We’re working with them on a case-to-case basis on how we can collect rent, while they utilize the ratios that the SBA has allocated for how they can use those funds.

If they haven’t applied, we’re telling them to apply, and if the funding does run out, we’ll have to probably just defer the payments until they can get that PPP. If they’re not gonna apply for the PPP, then unfortunately they’re not gonna try to help themselves. We will probably just gonna have to go through the legal realm of what happens when somebody doesn’t pay a rent.

So we have to empathize with everybody, we have to try to help everybody as much as we can, but we have to also understand that we have our own investors and our own mortgage to pay, so how can we all work together as a team. Usually, it is on a one-by-one case type thing.

Theo Hicks: Thanks for sharing that. That makes a lot of sense. I know that PPP program is very helpful for a lot of people right now. What about office? My wife works for a corporation who has an office in a downtown area, and they’re all working from home… I guess it depends on what type of a renter you have, but it might just be a little bit different for an office; those corporations can just work from home. The company is still making money, so I’m assuming they can still pay rent… But obviously, you would know more than me, so correct me if I’m wrong, if there are any problems with rents. So what types of things are you doing to collect rent on those office buildings?

Tim Karels: For the most part, everyone at the office/individuals has paid. South Dakota – we’re one of eight states that don’t have a shelter in place order. Now, the city of Sioux Falls – I don’t know if you just saw on the news; we have the Smithfield Pork Processing Plant, which has now become the number one hotspot for Coronavirus sources in the nation… So our mayor and the city council is trying to put together a stay-at-home shelter ordinance for the Sioux Falls city ordinance.

So the economy here was very strong; the offices that we rent out, those companies were all very strong, so I think in the short-term they all had cash reserves to pay for the rent. They too can apply for the PPP program. They don’t rely on foot traffic nearly as much as the retail, the restaurants, and bars, and event companies and whatnot… But how this is different from the financial collapse is that every business is getting affected. Some of them are reaping the benefits, for example exercise equipments at home, beer sales, distribution sales, liquor sales are going through the roof. If you look at even smaller things, such as planning events or wedding and all that stuff are going through.

So there are some offices that might be semi-retail that are struggling, but I think overall, they’re gonna be fine. They’re probably not gonna make nearly as much money, but I think that they’re gonna be fine, given that they can also apply for the PPP, and that it’s not affecting them like some of these retails, that literally overnight went from 100% full-blown/let’s go/balls to the wall, to they lost 90% of their business in 12 hours. It’s just crazy.

Theo Hicks: Yeah, totally. I figured that’d be the case, where retail would be a little bit harder hit than office. I guess depending on the retail too, because as you mentioned, if you were renting to a liquor store, then they probably have no issue; maybe you can ask for a little bit more rent from them, or something. [laughs]

Something else you mentioned too that I really like, and it’s funny, actually my mom was talking about this stuff – what are you gonna do during this time to improve and come out the other side better… And you mentioned that one of your focus, since obviously acquisitions are slowing down  – what can you do to improve your existing portfolio. So you’ve got office, retail, apartments… You can either go one by one, or just overall improvements you’re making. Give us some examples of things that you’re focusing on right now to improve your current portfolio.

Tim Karels: Like I said, we have some exercise rooms and facilities in some of our real estate, and people are feeling uncomfortable going out to exercise facilities that are off-site, and they might even feel uncomfortable going here, but we do have our cleaners go in… So we’ve been buying new equipment; if there’s some shoddy or old equipment, we’ve been replacing that… We’ve been looking at what type of things that will bring some more bang to the buck.

It literally could be just simple things, such as painting, things that you don’t need to bring in a whole crew, because — keep in mind, we don’t have that shelter in place quite yet, so business that are deemed not essential still can come in to work. So we are trying to keep our tenants as comfortable as possible by not bringing in a whole crew, and demolishing and putting up new stuff… But if we can paint, replace countertops, replace flooring, elevator panels, the equipment rooms was a big one… And just stuff that will make a small difference and make the tenants maybe feel a little bit happier, knowing that we’re not bringing in a  whole crew to do it and risk their health.

Furthermore, there’s people out there looking for work. I’ve just had my HVAC system go out in my house, and I called an HVAC company because it’s 28-30 degrees out at night, so we still needed some heat… And I had a guy come in 15 minutes and he basically just said “We’re sitting on our butt, we’re looking for work. If you need some stuff to get done, now is the time, because we can probably get you a good deal, at least on the labor side of stuff.” So I think it’s those kinds of improvements that you can look to do without jeopardizing much health for your tenants.

Theo Hicks: Okay. Is there anything else that you wanted to mention as it relates to the Coronavirus and your business, before we move into the lightning round?

Tim Karels: I don’t think so. I think it’s interesting, because most financial institutions when it comes to mortgages that are due – I think if you’d have someone have good relationships with them and you are struggling with cashflow, a lot of the institutions will hopefully do an interest-only, or maybe defer some payments or move them to the end of the loan… But I really think it’s important that landlords do work with their tenants as much as possible.

I see some tenant strikes going on in the bigger cities, but I also see some landlords that send out unreasonable letters to their tenants… And I just hope that as Americans we see the bigger picture; we know that we’re all struggling, so how can we help each other, and what can we do?

On the residential side, I think the government is taking care of most people, whether you agree with it or not… But with that being said, there’s still gonna be  independent contractors or people that own small businesses that haven’t got the PPP, or they’re a seasonal business and they can’t get what they need, that are still gonna need to be worked with.

So I just hope that other landlords have the passion to work with these tenants, but I also hope that tenants don’t always [unintelligible [00:13:36].21] tenant strike, and hurting landlords that are providing housing, and trying to help people with their businesses, and stuff like that. That’s really all I had to say, and hopefully we can get through this together.

Theo Hicks: Absolutely. Okay, are  you ready for the Best Ever Lightning Round?

Tim Karels: Yes, sir.

Theo Hicks: Okay. First, a quick word from our sponsor.

Break: [00:13:55].19] to [00:14:57].28]

Theo Hicks: Okay, what is the best ever book you’ve recently read?

Tim Karels: There’s a book called The Richest Man in Town. It’s actually written by a guy from Brookings, SD. An individual that worked at Walmart his whole life, who absolutely wasn’t rich, but had the best personality… And it’s changed my life, and it made me look and be more humble.

Theo Hicks: If your business were to collapse today, what would you do next?

Tim Karels: Probably go camping for a month, and just let my mind get clear. I’ve worked hard, and hopefully it doesn’t collapse, but I also deserve a break, I think.

Theo Hicks: Do you go camping in South Dakota somewhere?

Tim Karels: Probably I have to because of the restrictions, but it’s a little cold. So if it collapsed today, I’d probably wanna go somewhere down South.

Theo Hicks: What deal did you lose the most money on, and how much did you lose and what lessons did you learn?

Tim Karels: Probably just trying to get into the house flipping. I didn’t really lose that much money because of the appreciation that houses had, but when you put in your time and effort on it, and you have to pay your property taxes back, pay a real estate agent back, pay short-term capital gains… I looked at the amount of money I was making versus the time I spent, and it’s “What can I do better and become more efficient?” To be honest, it scrapped the whole idea altogether. I think because I learned from it quickly, it saved me tons of money in the long run.

Theo Hicks: And then lastly, what is the best ever place to reach you, and anything else you wanna mention before we wrap up?

Tim Karels: Just my website, www.fallsre.com. Fill out a Contact form if there’s anything to talk about. I don’t know, I just like talking to other people about the investing world. I own a couple other businesses too, and I just kind of like to stay in touch with everybody about anything business. So if there’s anything to talk about, feel free to contact me. If you’d like to have a phone call or if you’re in the area when this whole thing gets done, have a coffee or a beer or something.

Theo Hicks: Alright, Tim, I really appreciate you coming on the show today and being willing to talk about the Coronavirus and how it’s impacting your business. To just quickly summarize what we’ve talked about – your portfolio consists of mostly office. We’ve talked about how most people have been paying their rent; office is not gonna be as impacted as retail is. You kind of walked through what you’re doing on some of your retail properties, which is mostly asking and telling your tenants that “Hey, you guys need to apply for this PPP program, so you can use 25% of that loan to pay for your rent and utilities.”

I also really liked when you talked about how you’re focusing on how to improve your existing portfolio during this time, as opposed to just writing it out, not doing anything. You basically mentioned that you’re trying to do things that make a small difference and make your tenants happy, not having to bring in a full crew to stress them out about potentially catching the Coronavirus.

So again, I really appreciate you coming on the show. Best Ever listeners, as always, thanks for listening, stay safe, have a best ever day, and we will talk to you tomorrow.

Tim Karels: Thanks. You have a great day, too.

 

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JF2060: Coronavirus and Commonly Asked Passively Investor Questions | Syndication School with Theo Hicks

 

In this episode, Theo goes over a recent blog post written by Evan an Investor Relations Consultant at Ashcroft Capital called “Coronavirus and Commonly Asked Passively Investor Questions”. Theo goes over the entire blog post and adds additional value by adding additional commentary from his point of view.

Coronavirus and Commonly asked passive apartment investor questions

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow. 

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“Your investors are more focused on you not losing their money.” – Theo Hicks


TRANSCRIPTION

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

 

Theo Hicks: Hi, Best Ever listeners, welcome to another episode of the Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I’m your host, Theo Hicks. Each week, we air two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy, and for the majority of these episodes, we offer a free resource or document. These are PowerPoint presentation templates, Excel template calculators, PDF how-to guides, things that will help you along your apartment syndication journey. All of those free documents for past Syndications School episodes as well as the past Syndication School episodes can be found at syndicationschool.com.

In this episode, we are going to be talking about some of the common questions that passive investors are either proactively asking or most likely thinking about as it relates to their apartment syndication investment and the coronavirus. So the investor relations person at Ashcroft Capital, Evan, wrote a nice blog post about some of the questions he’s been receiving from investors, and this link was included in the Ashcroft investor email updates this month. I wanted to go over the blog post on Syndication School today and add my thoughts to the post and go into a bit more detail on some of these questions… Because most likely, your investors are thinking about these questions, and if you are sending out monthly emails, then it might make sense to include some FAQ documents, or in the body of the email address, some of these questions that your investors asking, so that you’re not feeling a lot of one-off questions to save both you and your investors some time. So if you want to follow along, you can.

The blog post’s entitled “Coronavirus and the Commonly Asked Passive Apartment Investor Questions”. So I’m just going to read the blog post and then stop whenever I want to add in my own thoughts. As everyone knows, the world has changed dramatically in a very short amount of time. It started with some warnings about a respiratory disease spreading across the Pacific Ocean, but quickly jumped coasts and ground our economy and country to a halt. When I am speaking to our investors – again, this is Evan, not me saying this – my goal has always been to understand their goals and problems first, and then offer solutions for those goals and problems.

So as I mentioned, you’re gonna want to proactively address these things to your investors, as opposed to waiting for them to come to you and asking you questions. It’s your job to think ahead, understand their goals, what they want, and have the questions that they’re going to want to answered; not things that you want to have answered, but what they want to have answered. Back to the blog post.

However, as Coronavirus and the economic fallout has become the only news reported, those goals and problems have shifted from optimistic (retire early, passive income, doubling money) to conservative (how are you protecting my money?). So as I mentioned in the previous Syndication School episode to this one about communicating with investors, sure, your investors care about making money, but in reality, when push comes to shove, they’re more focused on you not losing their money. So I talked about this all the time, about the principle of loss aversion – people are more affected by losing money than by making that same amount of money. So I have a stronger reaction to losing $5 than I do to making $5. Obviously, their reaction’s even more strong if it’s $100,000 or a million dollars. So based off of the Coronavirus and knowing that your investors are focused on you not losing their money, what types of questions do you think that they’re thinking about? So back to the blog post.

So what questions are investors asking: “How has your business model changed?” First and foremost, Ashcroft and our property management partners are abiding by all CDC, WHO, and local jurisdiction guidelines. We are cleaning common areas and model units more frequently, maintaining more distance during showings, and allowing for work-at-home for our employees when feasible. Additionally, on the asset level, we are doing far more virtual showings through tools like Zoom, Skype and FaceTime.

As I mentioned, I’m gonna reference the communicating with investors Syndication School episode a lot. So if you haven’t listened to that one, make sure you listen to it. It’s the one just before this one. So I’m going to call it the  communicating with investors Syndication School episode, without having to say “the one before this one” every single time. But in that episode, I mentioned that for these virtual tours, these YouTube tours, Ashcroft included the links to those in their email updates. So anything special that you’re doing, make sure you’re including the links, so your investors feel as involved as possible. And then obviously, I think it’s pretty obvious that people are following CDC and WHO guidelines, but you can mention that too if you want to. So back to the blog post.

On the investment front, we have always maintained an extremely conservative underwriting standard. Typically, our exit cap rates assume a 10-bps increase in rate per year over our initial cap rate. For example, if we assume that we hold a property for 5 years, the exit cap rate is generally 0.50% higher than our initial cap rate. This makes the conservative assumption that the markets will be worse when we sell than when we purchased the property. So that’s one very important point to make.

So if you did not conservatively underwrite your deals, then those people are having a lot more difficulty right now that people who did conservatively underwrite deals. So a lot of the guys that I’ve talked to in the Best Real Estate Investing Advice Ever show, the regular show, a lot of the people that I talked to about the coronavirus that were obviously facing issues, but were confident that they’d be able to weather the storm was because of their conservative underwriting.

So one example of that would be to not assume that the market is going to be better or the same at sale. Assume it’s going to be worse, which is a higher cap rate, so that’s worth a bet. So even if the in-place cap rate is 5% and then when you sell, it’s an 8%. so it’s 3% higher, if you assumed that 5.5% or 6%, sure, your projections aren’t gonna be accurate, but they’re going to be a lot more accurate than the person who assumed that it’d go from a 5% cap to a 4% cap, or a 5% cap to a 5% cap. Now, the people who conservatively underwrite their deals are looking like geniuses right now. So that is one example, is the cap rate. Evan’s got a few other examples in here, so back to the blog post…

When researching market rents for our renovated units, we historically underwrite rents that are below competitive properties, in order to create projections that we are very comfortable that we can obtain. So what he’s saying here is that when you’re doing a market rent comparable analysis — well, let’s take a step back really quick. So if you have not been conservatively underwriting deals, then this is going to be a great lesson to make sure you’re conservatively underwriting deals in the future. So rather than– if you are facing difficulties right now because of the underwriting, rather than giving up, just take this as a learning experience. Get through it and come out of the other side literally stronger, because now you understand exactly what mistakes were made, underwriting or something else, and just make sure you use all that in the future.

So back to the blog post and talking about the renovated rents. So when you are doing rent comp analysis, the best practice is to determine what the average rent per square foot is for the competitive properties that are obviously close to the subject property, assuming you’re in a major metro area. So let’s say that you look at ten properties that are all fully updated to the same degree that you plan on upgrading your property, and you’ve determined that the dollar per square foot is $2. So rather than assuming that you’re going to get $2 per square foot at your property, you can assume something that’s slightly less than $2 per square foot. That way, not only are you trailing the market leader, but you’re also trailing the average. So if you do that and the projections still net whatever return your investors want, if you buy the deal, then if it is below average compared to the market, then you’re still hitting your projections. If it’s average, you’re exceeding your projections, and if you are one of the market leaders, you’re far exceeding your projections. So that’s huge.

So if something like this happens and rents go down, then you already underwrote lower rent in the first place. So, sure, the rents might go below your projections, but you’re gonna be in a lot better spot if you assumed a below-average rent than if you assumed an average or above-average rent. Back to the blog post.

Additionally, the loans that we place on our properties are generally very flexible and help get us through slower periods. This is why we always stress in the Three Immutable Laws of Real Estate Investing to get a loan that is equal to or greater than the hold period. So if you plan on holding on their property for five years, the loan should be five years or greater. So if you’re doing bridge loans, that’s okay, as long as you have the ability to extend the bridge loan once the three-year period is over. So back to the blog post…

As the markets adapt to a post-COVID-19 world, we will continue to use conservative assumptions when underwriting new potential acquisitions. Depending on the market and property, we may decide to further adjust vacancy, bad debt, rent growth, and renovation premiums to more accurately reflect the recovery of the markets.

So yeah, just– not just continue to underwrite deals the exact same. So sure, you can be a conservative underwriter now, but the conservative underwriting from a year ago might be considered aggressive underwriting in three months from now, especially if vacancy is really low or bad debt is really high, rent growth is really low. So just make sure you’re staying up to date on the market vacancies, the market bad debt rates, and the rent growth projections, so when you begin to look at deals again, you are not just using the same standards as before, because those might be out of date, or are most likely going to be out of date. Back to the blog post.

Finally, for the investments we’re looking at, we have not changed. These Class B assets in Class B neighborhoods have historically shown to withstand recession pressures best. With median household incomes in the $80,000 range, our tenants tend to not be the first hit when economic downturns arise. They have savings and can withstand a short period of uncertainty. If those economic pressures spread and begin to affect our tenant base, it is also affecting the Class A tenants. At which point we get the stepdown effect. When we lose tenants, we are gaining the tenants coming from the Class A properties, since a Class B property has many of the same amenities as Class A – pool, workout facility, in-unit laundry – and are still located in good school districts and near employment bases. These step-down tenants do not need to make as big of a lifestyle change, while saving money on rents.

So what he’s saying here is that if you’ve got Class A, Class B, and Class C… Let’s say, everyone is financially impacted by some events like the coronavirus. Then the people who are Class A are no longer gonna be able to afford Class A, so they’re gonna have to be forced to either stretch themselves to continue to pay rent on their Class A, or take a property that’s maybe not as new, but still has all the same amenities as their Class A property, but the rent is lower and more manageable for them. So they decide to move in the Class B property which is the property that Ashcroft Capital holds.

Now, the people who have a Class B are also financially affected, but the change from Class B to Class C is a lot different than the change of Class A to Class B. So you’re more likely to get a higher percentage of people going from A to B, then you would from B to C, depending on how large of a financial impact it is. But even if the percentages are the same, the people that you lose that go to Class C properties, you’ll gain the same amount from Class A properties. Alright, so that was question number one. Back to the blog post for question number two.

“With all the uncertainty, how are you protecting my investment?” It starts with our conservative underwriting. Then we take it a step further. We run a detailed sensitivity analysis to understand how far off we can slide on rents, occupancy, and cap rates. On a typical deal, our breakeven occupancy in NOI is in the high 60% to mid at 70% range. When looking back at previous recessions, these markets’ occupancy rates bottomed out at 87%-89%. This allows us a certain level of comfort and certainty to maintain positive cash flow and distributions, thereby allowing us to ride out any downturn and never forcing a sale.

So I think that plenty of investors know what the breakeven occupancy is. That is the occupancy rate such that the NOI is equal to the debt service. I think letting them know what that is will relieve a lot of stress or uncertainty that they have about you losing their money… Because if you tell them that, “Hey, we can cover our expenses all the way down to a 65% occupancy rate. In the past recessions, the occupancy rate has never dipped below 85%. We’re always going to be able to cover our expenses, unless something insane happens that’s never happened before.” And then you can show them, “Hey, our current occupancy is this. Our trending occupancy is this, and our current occupancy is 88%. Our trending is 88%, breakeven occupancy is 65%. So you don’t have to be worried until you see occupancy rates in the low 70%, and then it might be time to panic.” I mean, obviously don’t say that, but that’s something in their minds. It’s like, “Oh, okay. Well, breakeven occupancy (explaining to them what that means) is 66%, and the current occupancy rate is 88%, and oh, in past recessions it has never dropped below 85%. So okay, I’m more confident in your ability to protect my investment.” Back to the blog post.

“What are your thoughts on how things will play out?” We do not have a crystal ball, but we do have data from the 2008 recession, which was not only kicked off by the credit crisis, but additionally, we had the H1N1 global pandemic spreading in the spring of 2009. Multifamily as an asset class faired the best of all real estate during the last recession. After their grocery bill, the second bill consumers pay is rent. In the near term, we understand that consumers and our tenants will feel some pain, as everyone is, and we are adjusting our underwriting in assets to account for this with increased vacancy, bad debt and lower market rents. So I’ve already talked about that in previous answers.

Last question is, “Is real estate a good investment in these uncertain times?” We continue to be bullish on multifamily real estate. While people may choose to not open a new retail store or expand their company, needing more office space, people will always need a place to live. When we provide a clean, modern space with all of the amenities of the newly built complex, but at 30-40-50% less in monthly rent – compared to Class A, he’s talking about – we will continue to see strong leasing momentum. Additionally, we are not relying on market appreciation for our investments. We view each property as a standalone business; one which we know how to grow income, regardless of the market cycle. We can add more income by implementing our value-add investment strategy and force appreciation. And that stronger income stream will always have a value to a future buyer, even if the cap rates relax.

So here’s one of the three immutable laws of real estate investing – don’t invest for natural appreciation. So if you invest and assume that cap rates are just going to keep going down, then cap rates go down, [unintelligible [00:17:25].15] to the same value goes up. Well, once cap rates don’t go down anymore, then your projections are way off.

On the other hand, the value-add business model is about forcing appreciation by focusing on the other variable in the equation, which is income. So rather than assuming that the cap rate’s gonna keep going down, the cap rate is kept the same, or in fact even goes up, but the income goes up through the value add program.

So again, as I mentioned earlier, sure, there’s gonna be an increase in vacancy, bad debt, but all those things are assumed based off of the current market and the projections for the market. So using those, you determine, “Okay, well, I might be able to invest $8,000 per unit to increase rents by this much money.” Obviously, the expenses might be a bit higher, but you’re still increasing the income.

As we’ve mentioned, that stronger income stream will always have a value to a future buyer, so even though the cap rates go down – so people are gonna want to buy a property that the income is going up, as opposed to from an owner who just was betting on the cap rates going down.

Basically, what he’s saying is that as long as you’re doing what you’ve already been doing, if you’re underwriting conservatively and not attempting to gamble and buy on natural appreciation, then it might make sense to eventually, buy more properties in the coming months. So again, if you want to read that in full – I basically read it in full – but it’s Coronavirus and Commonly Asked Passive Apartment Investor Questions. I think that me reading it and expanding on it a little bit more, I think this episode will be valuable enough by itself, as opposed to having to read the article.

So make sure you guys check out some of the other Syndication School episodes we have about the coronavirus; these are the more recent ones. We’ve also got a coronavirus landing page. It’s joefairless.com/coronavirus. You can check out our blog posts. Syndication School of course at syndicationschool.com. We’ve got free documents on there as well. Thank you for listening and I will talk to you soon.

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JF2059: SOS Approach to Managing Your Investment During Coronavirus Part 2 | Syndication School with Theo Hicks

In this episode, Theo continues the series on the SOS approach to managing your investments during a pandemic from episode JF2033. The SOS approach is a three-step process to guide you on what you should do during a crisis event, and after it passes. SOS acronym stands for Safety, Ongoing Communication, and Summary. Theo will be breaking down each step so you can have a better idea of what you should do during today’s pandemic. 

 

Part 1 of SOS: JF2033

 

To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow. 

 

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JF2058: Three Perspectives Towards Coronavirus With Jonathan Greene

Jonathan has had 30 years of real estate experience, as an agent, investor, and also a life coach. Jonathan mentions there is a possibility of a second wave of coronavirus and because of this he will be extra careful before jumping in and buying up new real estate. Because of his three unique career paths, he was able to share three separate perspectives on the current market

Jonathan Greene Real Estate Background:

 

 

Best Ever Tweet:

“Now is the best time to work “on” the business since we can not spend as much time working “in” the business.” – Jonathan Greene

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JF2053: 3 Ways to Get Cash From The CARES Act | Syndication School with Theo Hicks

In this episode, Theo shares three ways to get cash from the CARES Act. He explains the 401k distribution, Paycheck protection program loan (PPP), and the Economic Injury Disaster Loan (EIDL) in detail so you will be better prepared during this pandemic. To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow. 

 

Best Ever Tweet:

“Understanding the CARES Act can help many individuals.” – Theo Hicks


TRANSCRIPTION

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.

 

Theo Hicks: Hi, Best Ever listeners. Welcome to another episode of the Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I am your host, Theo Hicks. Each week, we air a podcast episode or two podcast episodes that focus on a specific aspect of the apartment syndication investment strategy, and for the majority of these episodes, sometimes they’re part of a larger series, we offer a free resource – PowerPoint presentation templates, Excel template calculator, PDF how-to guides, something to help you on your apartment syndication journey. All of these free documents from past Syndication School series episodes as well as the episodes themselves can be found at syndicationschool.com.

In this episode, we are going to talk about three specific aspects of the CARES Act, the Coronavirus Aid, Relief and Economic Security Act that was recently passed, three aspects of that that can help you get cash to hold you over if your properties are struggling and you need some cash to pay investors to cover expenses to your mortgage and things like that. So we’re going to go through those three in this episode today.

The first one is going to be some changes they made to retirement accounts such as a 401(k) and an IRA. So if you have a 401(k) and IRA, this applies to you. Obviously, if you don’t, then the other two, I think, will be much more advantageous. But the first change is that you are going to be able to take out a large withdrawal of up to $100,000 from your IRA or 401(k) without having to pay the early withdrawal fee or the income tax right away. So usually, if you wanted to pull money out of your 401(k) or your IRA early, you’d be required to pay the withdrawal fee, which is 10% as well as the income tax on that distribution. Whereas now, you are able to take a coronavirus related hardship distribution of up to $100,000.

People who qualify for this coronavirus related hardship are people who are diagnosed with coronavirus, have spouses or dependents who have been diagnosed with coronavirus or those experiencing financial consequences from the quarantine, which is pretty vague. So the rules are actually really loose.

So if you’re an investor and you’ve seen a reduction in rent, then you’re experiencing a financial consequence from the quarantine, and are able to pull out up to a 100k out of your 401(k) or IRA without paying the early withdrawal fee. So this provision may help, as I mentioned, you, but this is also something that might be able to help your residents, depending on what type of properties you’re investing in. If you’re investing in Class A properties, maybe your residents have 401(k)s or IRAs they can tap into to pay for their rent. It’s another way to pay rent as well. But of course, obviously this is something that can help you as an apartment syndicator, cover expenses as well, and it could also cover living expenses too.

If you are putting everything into a property to pay your investors, but you’re not making money yourself, well, pull some money out of your 401(k) if you need to, to hold you over until the property turns around. The up to $100,000 distribution – not only do you not have to pay the early withdrawal fee, but it’s also tax-free for three years, at which point you need to either replenish the money, put it back into your account or you need to pay the income tax on that. Now, if you haven’t experienced a Coronavirus-related hardship, which if you’re a real estate investor and based off of the loose requirements, you should be able to be considered having faced a Coronavirus related hardship… But let’s say, for some reason, you haven’t, your properties are perfectly fine, your business is perfectly fine – well, you can still access up to $100,000 from your 401(k), and you do this through a loan.

So in the past, if you wanted to take a loan against your 401(k), the max was 50%, or 50% of the vested amount, whichever was higher. With the CARES Act, the maximum amounts has been doubled to $100,000. So the loan process is the same, which means you need to pay back the loan with interest, or else it will be treated as a withdrawal and will be subject to the income tax and the early withdrawal fee. But instead of being able to pull out only $50,000, now you’re allowed to pull out up to $100,000. And similarly, this loan may be used to cover– this can be something that your residents can use to cover rent, you can use it to cover business expenses or living expenses. Plus, you could also use it to potentially acquire a property.

A lot of people use their 401(k)s to buy properties. So you could also take up to $100,000 out of your 401(k) to buy more real estate. So the two 401(k), IRA retirement-related things that the CARES Act allow is number one, if you’ve experienced a Coronavirus-related hardship, you can pull up to $100,000 out without paying the early withdrawal fee and then not having to pay taxes for three years. Whereas before, if you pulled out a 100k, not only would you have to pay the early withdrawal fee, but also income tax immediately. And then secondly is, if you have not experienced a hardship or if you have and you want even more money, you can take up to $100,000 from your 401(k) as a loan as opposed to the previous $50,000. So that’s 1A and 1B.

The second way to get cash from the CARES Act is going to be the Paycheck Protection Program Loan or the PPP Loan. So this is something that is new. The third thing we’ll talk about is something that’s previously existing, which is expanded upon us, the Economic Injury Disaster Loan. But first, we’ll talk about the PPP loan.

So the PPP loan, as the title points to, helps you pay your payroll costs, during the coronavirus. So who qualifies? Small businesses. So this is a small business loan; you need to have under 500 employees. It can be an S Corp, a C Corp, an LLC… It can even be a sole proprietorship or an independent contractor or someone who’s self-employed. So that applies to basically all real estate investors. And then when you are obtaining the loan, in order to qualify, you need to certify that your business has been economically affected, or there’s economic uncertainty to make the loan necessary. So there’s a portion of the application you fill out that you need to basically prove that you are being economically affected by the coronavirus.

With this PPP loan, you can get up to $10 million, but the amount is going to be based on your payroll costs. So in order to calculate how much money you can get as a PPP loan, you want to determine what your average monthly payroll cost was for the past 12 months, and then multiply that by 2.5. So if your average monthly payroll is $100,000, then $100,000 times 2.5 is 250k. So you can qualify for a $250,000 PPP loan.

Things that are included in this payroll calculation are salary, wages, commissions, payment of vacation, sick parental family, medical leave, payment of retirement contributions, group health coverage premiums, state and local taxes. It doesn’t include federal taxes and it doesn’t include payroll costs for those making more than $100,000. And these are things that apply to you and your employees. Obviously, if you’re an independent contractor, you probably don’t have employees, or if you have your property under the single purpose entity, you can still qualify for the PPP loan. It would just be whatever salary wages that you yourself got.

What can the money be used for? Payroll for you and your employees. But what’s nice is, you can also use the money for rent, mortgage obligations, utilities, and other debt obligations you may have. So you can pay the mortgage on your apartments or you can pay utilities on your apartments with the PPP loan.

The interest rate is essentially interest-free; it’s only half a percent, so 0.5%. And the repayment period is two years, and loan payments are deferred for the first six months, and there’s no prepayment penalty, so you can pay it back whenever, and there’s also a way to have the loan forgiven.

So there is a loan forgiveness provision which states that you’re eligible for loan forgiveness for the amounts you spend over the next eight weeks after receiving the loan on certain qualifying expenses. And these qualifying expenses of the business over the eight week period include payroll costs, rent, interest item, mortgage debt, and utilities. So depending on how you use the loan, you could have the majority of it or all of it forgiven, meaning you never have to pay it back if it’s one of these qualifying expenses. And if the amount that could be forgiven is determined by the bank who actually grants the loan, and once you request forgiveness, the bank will have 60 days to approve or deny the loan. What’s also nice is that you are able to have more than one small business loan. So you could get the PPP loan, you could also get the EIDL loan, which I want to talk about next.

So just to summarize, the PPP loan, the Paycheck Protection Program, is for small businesses, so you have to have under 500 employees. That applies to most entities, but you can get up to $10 million. That loan amount is based off of the average monthly payroll for the last 12 months multiplied by 2.5, and the money can be used for payroll, but it can also be for rent, mortgage obligations, utilities, and other debt obligations. Very, very low interest and needs to be paid back within two years. Payments are deferred for six months and you have the possibility of having most or all of the loan forgiven, depending on how you use the proceeds. So that’s number two – the PPP loan.

Third is going to be the Economic Injury Disaster Loan, the EIDL. So the EIDL is an existing program that was expanded upon through the CARES Act. So in order to qualify for the EIDL loan, you need to meet the definition of a small business, which is something that’s organized for profit… and this applies to the PPP loan, too. You have to be a small business, because these are things that are gonna apply to most of you – organized for profit, has a place a business in the US, operates primarily within the US, is independently owned and operated, and is not dominant in its field on a national basis. So assuming you meet those criteria, you meet that definition of standards, the size standards are 500 or fewer people, and then you need to be located in the US. So assuming you meet those three, then you could qualify for the Economic Injury Disaster Loan. I’m not sure what’s easier to say – the Economic Injury Disaster Loan or the EIDL. Well, probably EIDL.

So you can borrow up to $200,000 through this program without a personal guarantee and you can be approved just based off of your credit score. You do not need to prove that you can’t get credit or money anywhere else. So you don’t need to prove that this will be your last resort and you need this loan to survive. If you’re getting a loan over $25,000, then you’re going to need to have collateral, which can be your small business. It doesn’t need to be your property, doesn’t need to be anything that you personally own. And probably one of the things that most people are talking about this is that you can get a $10,000 loan advance very, very quickly to provide for immediate support while you wait for the proceeds from your EIDL loan.

So the EIDL loan, you can get up to $2 million to provide working capital for your payroll costs, debt, expenses like that. The interest rate is 3.75% and the loan term can be as long as three years.

There’s one year of payment deferrals, although the interest does begin to accrue right away. And then as I mentioned, you can get a $10,000 advance, which is effectively a grant. When you request that, when you fill out your EIDL application, it should arrive within a few business days. And the money is yours and does not need to be repaid whether or not you qualify for the EIDL loan. So it seems like it’s just free $10,000 that you can get by just applying, assuming you meet the criteria. I went to the website and it said that it takes about two hours and 10 minutes to complete, but I know a few people who filled it out very, very quickly. So basically for this EIDL loan, the majority of it remains the same of how it was before, the biggest change is the $10,000 advance.

So when you apply, you can get a $10,000 advance in a few days that you do not need to payback. So it’s basically a grant given to you. And then after that, you can apply for up to $2 million to pay for things, assuming you can prove that you’ve been financially impacted by the coronavirus.

So those are the three main ways to get money from the CARES Act. The first is being able to pull money out of your IRA and 401(k) without paying the early withdrawal fee and the larger loan amount that you can take against your 401(k).

Number two was the PPP loan, which will help you cover payroll costs, but also rent and mortgages and utilities and things like that. And then the Economic Injury Disaster Loan, the EIDL loan is another loan that gives you a $10,000 advance. The loan terms are a little bit higher interest rate, but a longer payback period and a longer payment deferral, and you can get up to $2 million for the EIDL loan compared to the up to $10 million for the PPP loan.

So again, those are the three main ways to get cash from the CARES Act. There’s a lot more things in the CARES Act that are going to positively impact your investing business, but I think those were just kind of the main three that most people are talking about now, that we wanted to talk about today.

So thank you for listening. In the meantime, make sure you check out some of our other Syndication School series about the how-to’s of apartment syndication, make sure you check out our coronavirus page on our website – this is joefairless.com/coronavirus, where we post all of our blog posts about the coronavirus and different developments in regards to that, and also make sure you check out some of the free documents we’ve been giving away for Syndication School. That’s available at syndicationschool.com. Thank you for listening and I will talk to you tomorrow.

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JF2051: Real Estate Tribes Approach During The Coronavirus With Travis Smith

Travis is the CEO of Tribevest and shares the story of how Tribevest came to be and explains how they are being impacted by the coronavirus pandemic. He also shares what he is noticing in other tribes and how they are approaching the market. 

Travis Smith Real Estate Background:

  • Founder and CEO of Tribevest
  • He is a partner in several investment groups that invest in single-family rentals, multifamily, and commercial real estate
  • From Columbus, Ohio
  • Say hi to him at: www.tribevest.com

 

Best Ever Tweet:

“When everyone is panicking and selling, our tribes are pulling capital together, so when the time is right, they will be able to take advantage of great deals.” – Travis Smith


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. My name is Theo Hicks and today we’ll be speaking with Travis Smith. Travis, how are you doing today?

Travis Smith: Good, Theo. Thanks for having me; glad to be here.

Theo Hicks: We’re glad to have you and thanks for being here, looking forward to our conversation. As everyone knows, we are in the middle of the Coronavirus pandemic, so we’re going to be talking about that today with Travis, how it’s impacting his business, his thoughts on it and what he is doing to combat it. But before we get into that, let’s go over Travis’s background.

He is the founder and CEO of TribeVest, which he will talk about here in a little bit. He is a partner in several investment groups that invest in single-family rentals and multifamily and commercial real estate. He is from Columbus, Ohio and his website is tribevest.com. So Travis, do you mind telling us a little bit more about your background and then what you are focused on today?

Travis Smith: Absolutely. TribeVest, first of all, just a little bit about the platform. We’re really a collaboration platform for investor groups. You can think of us as an operating system and a banking platform designed for real estate investors to come together, assemble, form and bank together, and ultimately do more as a result of pooling resources and pooling capital. So I’m really excited to talk about that. A little bit of my background – I come from the FinTech space, so digital banking and payments processing was where I came up, and then in 2017, 2018, came full time being the founder of TribeVest.

Theo Hicks: Okay. So do you mind elaborating a little bit more? Give me an example of what I have — I don’t know, $500,000, and I’m interested in investing in real estate, how would I use TribeVest to use that capital?

Travis Smith: Yeah, let me go back to the beginning, which is very relevant today. TribeVest was born from the last global crisis, the financial crisis, the Great Recession in 2008 and 2009. My brothers and I, we were on a fishing trip, quite frankly one that we couldn’t afford, and we were seeing the world changing around us. In fact, my uncle, who we had all looked up to and admired because he had a great job, worked for HP, was traveling the world, and after the Great Recession kicked in, he was laid off and was unemployable at the age of 55. It made us realize that everything we had been told to go to school, get good grades, get a good job and retire and die gracefully wasn’t going to work for us. We always saw real estate as a way to hack wealth without having to give up our day jobs, but we had that same problem that we all have – to break into private markets, to break into real estate, you need capital, lump sums of money that we just didn’t have.

On that fishing trip over a few beers, we had a breakthrough. We said, “Listen, guys. Let’s quit talking about doing real estate deals and address the problem right in front of us – lack of capital.” And in that moment, we said, “Let’s each agree to a manageable and monthly contribution of $500 each.” That was a stretch for us back then, but it was manageable, and between the four of us that was $2,000 a month, $24,000 a year, and that was how we broke in. One investment led to another led to another and led to another, and we look back and we’ve realized that by forming and funding that investor group, that tribe, we unlocked a future we could have never dreamed of, and over time, we were changing our future.

About three years ago, people started to notice, and they said, “Wait a minute, you’re investing in what type of deals? How are you doing this?” Then they would say, “Well, wait a minute, I have a tribe. We have shared financial goals. Can you help us form an investor group too?” And that’s when we thought about it, and said, “Is there a market here?” And of course, we realized, we looked back and we thought, “Gosh, what would we have done differently?” and we would have done a ton differently. Ultimately, that’s how we came up with our initial product, that now hundreds of investor groups are using to form and fund whatever their venture.

Theo Hicks: Okay. So your website’s like a fishing boat in a sense, where people come together who want to collaborate on some particular venture deal, let’s say, a real estate deal… And so they all just put their money together on that platform and then go off on their own to buy the deal? I’m confused on that aspect.

Travis Smith: No, I’m glad you’re clarifying this. Right now, we are deal-agnostic in that most of our tribes and our customers are coming with a pretty good idea of the deal they want to get done, whether it’s a single-family rental down the road that they’re putting together with their neighbors, or they’re participating in a multifamily syndicate, or a commercial deal syndicate, or whatever, it literally could be anything and that’s a fun thing to get into on what our tribes are investing in. But really, they bring the dream, they bring the deal or what their goals are, and we’re helping them facilitate. I think it’s important to point out here, Theo, and maybe you’re picking up on it – what we’re doing is nothing new. We’ve been surviving and thriving as a tribe since the beginning of time, and certainly in real estate, since the beginning there too, people have been coming together, forming groups to get deals and bigger deals and more deals done.

So we didn’t invent the idea of tribe investing, but what we are providing that was missing out in the marketplace, was a neutral third-party platform that took the burden off the members of the group, especially the initiator. It was always trying to figure out how to market the tribe and the deal and, “Hey, this is my deal” and “Come on in”. And now there’s a platform that takes the burden off of everybody, where the initiator could come in, build a vision and a mission for the group, and then share that out to prospective members and invite them in to collaborate, co-create, “Are we aligned?” Then we’re just as proud of the groups that go on to achieve awesome deals as we are the ones that never get going, because we feel like we’ve done our job.

When we are looking back at our initial tribe, when we said, “Hey, what would we do differently?” one of the big things was, “I wish we would have taken more time to align and qualify and agree on our expectations.” We always say more important than the rules are the rules upfront – the how much, the how long, then what, and what if; all those things you don’t necessarily want to talk about or you feel like you don’t really need to – well, you do, and TribeVest helps you do that in a very fun and systematic way.

Essentially, what we’ve done is we’ve mitigated emotion by making sure that you’re taking care of those things upfront. I think you’re picking up on it. Our main value here is we keep the relationship the main priority – more valuable than any of the deals you’re going to be getting done. It’s more valuable than any of the deals or anything are those relationships. Anybody that’s been around long enough or been in the business long enough would have a hard time arguing that.

So this platform is designed for you to come in, align, assemble, agree, and then all those other things that are out there, but we’ve just streamlined them. We made them super easy, we’ve automated. You can file for your LLC in all 50 states. A really unique thing, at least for business partnerships, is once you have your EIN, your LLC, you can open up an FDI business bank account online with your partners, and have access to this tribe view dashboard with all your documents, all your banking activity, your balance. You can propose deals, you can discuss those deals, vote on those deals. So just a true collaboration platform that happens to have the entity formation and the business banking part of it too.

Theo Hicks: Thanks for sharing that. I understand a lot better now what you guys are doing over there. So your company name is TribeVest, so you obviously have a massive network, a massive tribe. I want to transition now to talking about the Coronavirus. So what are the people in your tribe thinking about this right now and how did things affect their investing, their jobs? You mentioned that a lot of people who do this are also working full-time day jobs? So can you just walk me through where your head’s at and where your tribe’s head is at currently?

Travis Smith: My tribe aside, what are we seeing out there across our network and our community is really interesting. I think one of the things that we’re seeing is, we’ve seen a surge in registrations, just over the last three weeks since this happened, and we’re attributing that to a couple things.

First, I think people are thinking about ways to connect with people they care about, and knowing that we can’t do that physically, we can’t do that or get together and socialize in person, we’re figuring out ways to leverage technology platforms that bring us together, and TribeVest also does that. My brothers and I, our tribe, not only is it the reason why we’ve been able to build wealth and be in the position we are, but it’s also our most favorite thing we do together. We’re spread all over the country and it’s what brings us together. It’s the reason why we’re talking on a weekly basis. So just an interesting thing that we’re seeing is this surge in registrations.

I think the other thing that we also empathize with is there’s this mass consciousness happening right now. It doesn’t happen all the time, and usually, it happens during these moments of crisis, especially global ones, where we’re all in similar situations and observing the same news and have the same fears, and it’s an incredible time to rethink your future. Like my brothers and I, during the last financial crisis, we didn’t want to be a slave to our paycheck, we didn’t want to be dependent on our 401(k) on Wall Street, and everybody we knew that was independently wealthy and had true financial freedom was investing in real estate, but we didn’t know how to start.

That’s one of the main things, Theo, that TribeVest enables people to do. It gives people the ability to start; you can form with people you know, like and trust. So there’s confidence and safety in numbers, and then being able to pull capital in a manageable and monthly way, is super powerful.

So one of the things that we do is, even before you form your LLC, or before you open up a business bank account, before you formalize, we give you the ability to start contributing capital in parallel together. So I’m putting $500 a month or $1,000 a month into my personal FDIC savings account. But, Theo, you’ve agreed to that too, and so has Sue and so has Jeff, and we all log into the same dashboard, and we can see collectively how much capital we’re pooling, so that when opportunity does knock, when a deal does come across our table, we have capital and we can answer the door and the opportunity.

So that’s one way that our tribes are taking advantage of it. While everybody else is panicking and selling, our tribes are pulling capital in a manageable monthly way so that when the time is right, they’ll be in a position to take advantage of great deals and build wealth that way.

Theo Hicks: Is there anything else as it relates to your business, your dealings and the Coronavirus that you want to mention before we sign off that you haven’t talked about already?

Travis Smith: Yeah. I think we touched a little bit about it – from change comes opportunity. And the winners of the next year, two years or three years, whatever this is going to look like, are going to be the ones that have capital and are able to reinvest or invest in different opportunities that come from this change. No doubt, we don’t know what this is going to end up looking like, but things have changed, which again means there’s opportunity. So just keeping that mindset and always looking to grow for that opportunity.

Theo Hicks: Perfect. And then where can people reach you to learn more about TribeVest?

Travis Smith: Tribevest.com. They can follow me at @TribeTrav at Twitter. We’ve also built a landing page for your audience at tribevest.com/bestever, and we’ll have special information for them there.

Theo Hicks: Perfect. Well, Travis, thanks again for joining us today and telling us about your platform TribeVest, as well as your thoughts on the Coronavirus. So just to summarize – and I’m pretty sure I fully understand how TribeVest works now – it’s a collaboration platform for investor groups. You call it the operating system and banking platform designed for real estate investors to pool resources and capital. Basically, I, me and a few friends have an idea of a business idea, or maybe we just have a particular deal that we want to do, we don’t know exactly how to get started, we can come to TribeVest and they can help us with all of the things that we need to do to set ourselves up for success including, it sounds like, strong focus on creating an upfront business plan with the correct rules, the correct expectations and the correct vision, and basically help us facilitate that deal.

You mentioned how the idea was born from the 2008 recession, and that you realized that you needed capital to break into real estate. So rather than focus on finding deals, you focused on ways to get capital, and you and your brothers each agreed to do $500 per month, and that’s how the business started. Then what you also mentioned, that I really liked, is that the one thing that’s more valuable than the deals and really anything else are going to be the relationships. You try to focus on that a lot at TribeVest.

Then more COVID-related, you mentioned that you’re seeing a surge in registrations over the last three weeks and you attribute that to number one, people needing ways to connect virtually because they can’t do it physically in person. And then also, the fact – and this is a very true point – that everyone’s really in the same situation; the news is the exact same for everyone, it’s always about Coronavirus. So everyone has the exact same fears, which means it’s a great time to rethink your future and what you are going to be doing once this eventually ends, and that the winners of the next few years and after this ends are going to be the ones that have capital to invest in the different opportunities that come from this change. Obviously, that starts with, as you mentioned, the most valuable thing, which is your relationships and your network.

So again, Travis, thanks for joining us. Best Ever listeners, as always, thanks for listening. Everyone, stay safe, have a best ever day and we will talk to you tomorrow.

Travis Smith: Thanks, Theo.

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