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.

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:

Click here for more info on groundbreaker.co

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.

 

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.

JF2074: Ashcroft 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 how Joe and his team at Ashcroft Capital are making adjustments to how they underwrite future 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.

 

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.

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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.

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.

 

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.

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/

 

 

Click here for more info on groundbreaker.co

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.

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.

 

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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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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.

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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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Best Ever Tweet:

“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.

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. 

 

Click here for more info on groundbreaker.co

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

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.

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.

JF2050: Managing and Dealing During The Coronavirus With Shannon Robnett

Shannon has 25+ years of real estate experience owning 500+ properties, experienced builder, and syndicator. His family has always been in real estate where dinner conversations consist of real estate deals. In this episode Shannon shares the ways he is approaching his investors and residents to make sure they are all taken care of and his business stays safe. 

 

Shannon Robnett Real Estate Background:

    • 25+ years of real estate investing experience
    • Developer, builder, and syndicator in multi-family and industrial
    • Currently owns 500+ properties
    • From Meridian, Idaho
    • Say hi to him at: www.shannonrobnett.com  

 

 

Best Ever Tweet:

“Communicate early and often” – Shannon Robnett


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 Shannon Robnett. Shannon, how are doing today?

Shannon Robnett: Good, Theo. How are you?

Theo Hicks: I’m doing good, thanks for asking, and thanks for joining us. Today, we’re gonna be talking about the coronavirus, which seems like everyone is talking about today.

Shannon Robnett: That’s for sure.

Theo Hicks: So we’re gonna ask Shannon how the coronavirus is impacting his business and the things that he is implementing in order to combat it. But before we get into that, let’s go over Shannon’s background. So he has 25+ years of real estate investing experience, he’s a developer and builder of all types of real estate, as well as a syndicator; he currently owns 500+ properties, and he’s from Meridian, Idaho, and you can say hi to him at his website, which is shannonrobnett.com. So Shannon, before we start talking about the coronavirus, do you mind telling us a little bit more about your background and what you’re focused on today?

Shannon Robnett: Sure, Theo. So I grew up in a real estate family, so I watched my parents do deals at the kitchen table and talk about if we sold this, we could buy that. My mom is a third-generation realtor, my son is a fifth-generation realtor, and my dad is a general contractor. So I kind of got that growing up. I didn’t really see that there was much option for me with that background. So I’ve always been about doing deals and putting things together, and we’ve just been able to continue to grow a business that meets the needs of our clients, meets the needs of our community. So with that, it’s definitely kept me busy and given me a lifetime’s worth of work.

Theo Hicks: Perfect, thanks for sharing that. As you mentioned before, you’ve started — so you’re a builder and developer. So you build all types of properties – commercial, industrial, multifamily, retail, but then you mentioned that you don’t own those. But you own 500+ properties. What are those? Are those multifamily, or are those something else?

Shannon Robnett: Currently, we just finished 180 doors. We’re in process, right now, of constructing one particular project of 191. We’ve got another project at 36, and then we’ve got two other projects that total another 200 doors that are under construction. So we develop those, we find the ground, we put the deals together. I also own industrial space. We’ve got multi-tenant industrial buildings all over the valley. But the retail business, the office business is just a little bit different business, and is just one that I’ve chosen to stay out of, and we’re seeing a decline in retail, we’re seeing a decline in shop space, and things like that. So that’s just an area that I’ve stayed away from.

Theo Hicks: Okay, and then all of the other multifamily projects you were talking about, will you then own those or manage those afterwards, or do you then sell those?

Shannon Robnett: Our goal is to build them up and then sell them, essentially to another one of our entities that is a syndication entity. I also do have a property management company, so I keep real tight control on what value my tenants are getting, making sure that we’re more concerned about the bottom line, giving the tenant the experience that they’re willing to pay for, because we all know, at the end of the day, that affects the value of the property through the cap rates. So we’re always, always managing our own.

Theo Hicks: So, for your syndication business, are you raising capital from other people to fund those deals?

Shannon Robnett: We are raising capital from other people. We’ve got a pretty good network. Obviously, we’re always willing to have other people join our projects, but we’ve been pretty good with that. Myverticalequity.com is where our capital raise is centered out of, but our investors that are on our syndications are in the mid-20s for their returns, in their IRR.

Theo Hicks: Okay, yup. So the reason why I was asking you all of those questions is I wanted to see what you were all involved in, so I can figure out what type of questions to ask with the coronavirus. But it seems like you’re involved in everything, so can we take this really in any direction. So let’s start with property management. So you said you have your own property management firm. Before we start talking about communicating with tenants, let’s talk about the operational perspective. I know a big thing right now is collecting rent. So we’re recording this on April 8th. So April 1st was the first of the month, when rent was due. So maybe walk us through how that went, what type of things you did to make sure you were able to collect the rent, what types of concessions that you guys came up with for your residents, or really just walk us through what happened.

Shannon Robnett: Okay. So when this whole thing started coming out, we sent out a memo to our people. It was about the 25th of March, and we hand-delivered it, actually put it on everybody’s door, letting them know that we were interested in understanding if they were affected by it and if they could let us know that there had been some change; maybe there was a letter from their boss or their unemployment filings or medical notice, we were willing to work with them.

So our approach was always to reach out to our tenants first, because we want to maximize that experience for them. So contacting them about this early really put us ahead of the curve, because we started hearing rumblings, we started having tenants come to us, and everybody is afraid of the unknown. They don’t really know what’s going to happen next. They don’t know how secure their job is. So just being able to come and talk with us.

Then when it progressed a little further and we started seeing states shut down and things like that, when we closed our amenities, we immediately told the tenants that in April, that we would not be collecting for the RUBS, nor would we be collecting for the cable, and the internet. So the tenants felt like they were being compensated for not having the amenities. So from there, we were able to really build a bridge with them and begin to continue the conversation. Moving forward, we had about five people come forward and most of them were interested in how this month was going to go, but how next month was going to go. So we were able to build a bit of a forbearance where we reduced the rents here, and then extended them by another year in the property, and spread out the discounted rent over that time period. So they were able to feel like we heard them, they had a choice in how that was going to go, we weren’t looking for a raise for next year, but we were able to spread out the discount of this month and next month over that period of time.

Theo Hicks: Okay, so we’ve talked about the residents side of things. What about your investors? So how did you handle communication with the investors? So these are deals where you, obviously, raise money from people, they’re used to getting their returns, they’re used to things just going as normal. From here on out, you really don’t know what’s going to happen by the end of the month, so what types of conversations, emails, phone calls have you had with them?

Shannon Robnett: Well, Theo, we used the same philosophy with our investors as our tenants, and that’s  communicate early and often. So we reached out to them with an email, letting them know that we didn’t know what was going to happen. However, we reminded them that we did have cash reserves that we could pull from, that we weren’t in trouble of not making our payments this month, nobody had issues with any of those things. And really before they ever got concerned, we took the proactive step with them and just let them know there was no reason to be concerned. And then after that, as always, we’ve really tried hard to stay in front of them, and most of our investors aren’t that concerned, because we are always communicating often.

Theo Hicks: So you sent an initial email. After that first email, how often were you sending emails? Every day, every week?

Shannon Robnett: We gave them an update on the fifth, and then we’re starting to do a weekly wrap up. Hey, here’s how many people we had come in looking for some assistance, here’s what we think to do, here’s how we’re going to handle it, here’s how that would potentially affect cash flow. So we’re going to start doing that on a weekly basis as we move on, just so that we over-communicate and don’t run into issues.

Theo Hicks: Okay, and then what about on the opposite side. We talked about deals that you already completed, that you have a property management company, have tenants, have investors. You mentioned that you’re working in a few development deals. Are those being impacted at all or are those still on schedule, everything is going smoothly?

Shannon Robnett: Well, construction is considered an essential service. So our contractors have been on site and moving forward as scheduled. It has given people a time to pause, as far as jumping into our deals, but it’s also been a funny time because we’ve seen a lot of people wanting to get out of the stock market and coming to us and saying, “I decided I want to invest with you guys now.” So we’re seeing both sides of the spectrum there, where we’ve got people coming into our deals faster than we thought, on stuff that we have shovel ready that we’re moving forward on. Some of the stuff that’s in planning that’s out six to nine months I don’t think is going to be bothered, but right now, we don’t know.

Theo Hicks: Okay. As you mentioned earlier about forbearance – are those conversations you’re having with your lenders?

Shannon Robnett: No, we’re not in a position where we need to have a forbearance conversation with our lenders. We’re just doing that with our tenants and we’re structuring it… Because everybody’s hearing that word in the media, and tenants like to get what everybody else is getting. So having them talk about, “I’ll give you half off of April and half off of May, and then we’ll add it on to June and July and spread it out over the next 12 months. And maybe that requires a lease renewal, but we’re great [unintelligible [00:10:32].28].”

Theo Hicks: Alright, and then another question. Obviously, they recently passed– it was last week, I don’t know time is like a time warp right now…

Shannon Robnett: Right. You’re running in quicksand.

Theo Hicks: I saw a funny meme – January is 31 days long, and then February is really short, it’s 28 days long, and then March is 6000 days long. Something like that.

Shannon Robnett: Right, right. Exactly.

Theo Hicks: But anyways– so they passed the CARES Act. I was wondering if you have investigated it or are taking advantage of any of the loan programs – the EIDL, the PPP loans at all?

Shannon Robnett: Yeah, we have applied for both the PPP and the EIDL loan program, and the reason that we’ve done that is because our employees were really excited when we applied for the PPP program, because they knew that there was an opportunity for additional protection for them, and it also puts us just in a stronger position on a balance sheet to have those funds available if we need them. They’re grants that can be paid back, but if you’re not applying for them, you’re definitely not going to be eligible. So having the opportunity to get the cash while it’s available is definitely, I think, prudent business.

Theo Hicks: Yeah, and then for the EIDL, that $10,000 advance is considered a grant. I don’t think you got to pay that one back, is that right?

Shannon Robnett: That’s my understanding as well.

Theo Hicks: It’s confusing, but it’s my understanding too.

Shannon Robnett: Yeah, and that’s the thing. We’ve applied for this and I’ve stayed in touch with our lenders on this. Everybody’s trying to get to the bottom of it. I know that– typical government, they say, “We’re going to do this,” and then they throw it off onto another agency that’s got to sort out how that actually gets implemented. But from the standpoint that cash flow right now or cash in hand right now is what everybody’s looking for, any opportunity to increase that and have that to work with later is definitely a great option.

Theo Hicks: Okay then the last question, I’ve been asking this to everyone who I’ve talked to this about… Where do you see your industry – let’s just call it, I guess, development – in six months or a year from now or once this is all over? Do you think it’s gonna snap back to normal or do you think there’ll be any changes, and if so, what do you think those changes will be, and then are there gonna be opportunities, just like there were after the 2008 recession that people should be aware of?

Shannon Robnett: I think that we’re going to snap back fairly quickly. The biggest difference between right now and 2008 is that there’s inventory shortages everywhere. So with the inventory shortages, I think we’re going to see it snap back pretty quickly. I don’t think that we’re going to go into an 08′ type recession, because that had a lot of product available. But I do see that there are some people that shouldn’t be in real estate, that are going to get removed fairly quickly… But those of us that have been here for a while that are about staying the course, I think you’re going to be just fine.

That’s the way it is with development. We’re always looking 12 to 24 months down the road anyway. So I see that we’re going to see some positive changes in how the lending market is going to respond to this, because I think that, like most things, lending has been getting a little bit loose and a lot of people that maybe shouldn’t be doing this are getting in the waters which is making it a little muddy.

Theo Hicks: Yeah. I think that’s a common theme that everyone thinks that this is going to, in a sense, weed out the fakers, so to speak, that shouldn’t be investing in real estate. So I guess that’s probably a plus plus, once they do leave and they’re trying to sell their properties. Those are opportunities for people to take advantage of.

Shannon Robnett: Yeah, like Warren Buffett said, “When the tide goes out, you can see who’s swimming naked,” and I think that there are going to be opportunities, but I don’t believe that they’re going to be the opportunities that we saw in ’08, ’09, because most people, if they’re not in a cash flow position right now, they’re not far from it, because they’re not dealing with the vacancy that would require a lot of discount in multifamily. Single-family is still selling very well. In most areas, there’s not enough inventory of that. So if their single-family product comes back on the market, they’ll get snapped up pretty quickly.

Theo Hicks: Alright. Well, Shannon, I really appreciate you coming on the show today and sharing your background, first of all, but also how the coronavirus is impacting your business and some of these solutions you’re putting in place. Just to summarize, from a resident-tenant perspective, you mentioned that you initially sent out a memo, hand-delivered memos – first time I heard about that – to all of your tenants asking them to let you know if they’re going to be affected financially by the coronavirus.

So you reached out to them first and early; it was a theme with communication. You mentioned that once you closed the amenities, you told residents that you would not be collecting for the RUBS or internet or cable. So they felt like they were being compensated for not having the amenities, because as everyone knows, those aren’t a monthly fee or anything. They’re just built into the rent. I thought that was a very solid approach. And then, you mentioned that people who needed help, you extended their lease by a year, and then spread their delayed payments over that timeframe. So that was your repayment strategy.

For the investors, you mentioned that you sent them an email on 5th of April that you don’t really know what’s going to happen, but here’s all the measures we have in place that makes us think we’re going to be okay. We have reserves, we’re not getting any trouble paying any expenses. So just like the tenants, you acted quickly. You mentioned that you’re also doing a weekly wrap up emails. I really like that. So just mentioning, “Hey, here’s what happened this week, here’s who needed help, here’s we’re going to do, here’s how it’s gonna impact the financials, but we were still okay.” So just trying to stay in front of them as much as possible.

You mentioned from a construction perspective — I didn’t know that construction was considered an essential service, so you’ve got your contractors are still there working. You got some people who are not interested in investing, but then you’ve got more new people coming in who want to get out of the stock market because of how poorly that’s been performing.

You mentioned that you applied for both the PPP and the EIDL loans, that your employees were excited about the PPP because of the extra protection that they’ll get, and that it’s good to just to have cash right now, because you have stronger balance sheets.

We talked about your post COVID predictions, that you don’t think it’s gonna be as bad as 2008 because the fact that there are inventory shortages right now, and that you think that once it’s all over, people who shouldn’t be in real estate will have been kicked out, and that there’s gonna be positive changes in lending and lending requirements because it’s been a little loose, which just allowed these people to come in… And again, that you don’t think it’s going to be like 2008 because vacancy was much lower then and inventory was much higher then. So I think that covers everything we’ve talked about.

Shannon Robnett: That’s it.

Theo Hicks: Again, really appreciate you coming on the show and being willing to talk about this stuff.

Shannon Robnett: Thank you, Theo.

Theo Hicks: I’m glad to hear that you’re doing okay. I’m glad to hear that you’re safe. Stay safe. Everyone listening, stay safe. Have a best ever day and we will talk to you tomorrow.

Shannon Robnett: Thanks, Theo.

JF2047: 2008 vs Coronavirus With Chris Clothier

Chris is a partner of REI Nation and he personally owns $12-15M in residential holdings and commercial real estate. Chris has been on the show before on two other episodes, links are provided below. In this unique episode, Chris shares his thoughts on the differences and similarities in the 2008 crash and the current coronavirus pandemic.

Previous Chris Clothier episodes.

3 common mistakes forming a business partnership

Faith will ruin real estate business

Chris Clothier Real Estate Background:

    • Partner of REI Nation 
    • REI Nation manages an $800 million (M) portfolio consisting of single-family residentials
    • Chris personally owns $12-15M in residential holdings and commercial real estate
    • 18 years of real estate investing experience
    • From Memphis, TN
    • Say hi to him at: www.reination.com   

 

Best Ever Tweet:

“You need to be in planning mode, you have to plan for the 10 things that could happen.” – Chris Clothier


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast where we only talk about the best advice ever; we don’t get into any of the fluffy stuff. We’ve got a special segment for you today. We’ve got Chris Clothier on the show and he’s gonna be talking about the differences between 2008 and the current real estate market with the coronavirus pandemic. So, first off, Chris, welcome and good to talk to you again.

Chris Clothier: Yeah, Joe. Thank you for having me. I appreciate the chance to just jump on here and chat with you a little bit.

Joe Fairless: Well, I always jump at the chance to talk to you. I have a lot of respect for you as a business person and as a human being, so I’m grateful for talking to you as well. A little bit about Chris – he’s a partner of REI Nation. REI Nation manages a $100 million portfolio consisting of single-family homes. He personally owns between $12 to $15 million residential holdings and commercial real estate. He’s got nearly two decades of real estate experience, based in Memphis, Tennessee. So, Chris, can you give a very, very brief refresher of your background, and what you do, just for some context for our conversation? …and then let’s talk about your thoughts on the differences between 2008 and what we’re currently experiencing with the coronavirus pandemic.

Chris Clothier: Absolutely. So for those who don’t recognize the name REI Nation, my family founded the company called Memphis Invest, and Memphis Invest rebranded as REI Nation when we moved into our seventh market for managing single-family homes for passive investors. So we started in Memphis back 2002, 2003 range. Today, as you alluded to a few minutes ago, we’re managing over 6000 single-family homes for passive investors, and really our specialty is what’s become known as the turnkey niche. So we are purchasing, doing high-end renovations, then placing long-term residents into those homes, and then we manage them once they are purchased by a investor that wants to be strictly passive. They just want to own the asset, have someone else manage the day-to-day. That’s what we do today. That’s about an $800 million portfolio spread across seven cities in the southeast Midwest area.

Joe Fairless: What are the cities?

Chris Clothier: We’re in Memphis, of course, where we started, and then we’re now in Dallas and Houston, Texas. We’re in Oklahoma City and Tulsa, Oklahoma. We’re in Little Rock, Arkansas, and St. Louis, Missouri.

Joe Fairless: Okay, got it. Cool.

Chris Clothier: And as you alluded to, we were a growing company in the very, very early days of the boom for passive investments, when it was becoming very popular across forums online and across the ability to use the internet to reach out, connect and due diligence on passive investments around the country. We were right there at the forefront of it before the first recession hit.

Joe Fairless: So how did tenants, how did owners react then versus what you’re seeing now?

Chris Clothier: Well, the interesting dynamic between the two is that back in 2008, there were a lot of people that were talking about a housing bust, that there was a bubble that had been created artificially, and that was through people that were buying property that had no business buying property, people that were highly, and even over-leveraged. You just had this inflation of value that there were a lot of people that were warning at the time that it was unsustainable, and then you had suddenly, this slow drip of bad news. It started, of course, with Bear Stearns crashing, and then – I’ve got my dates pretty close to accurate – about 15 months later, Fannie Mae pulling out of the investment market and dropping investors from, I believe, ten properties down to three properties that they would finance overnight. So from a Tuesday to a Wednesday, you went from having an approved loan and a property under contract, to your loan was canceled. Even if you had a closing set for 8 a.m. in the morning, it was no longer closing. So there was this slow drip of a crisis developing and all sudden, boom, one day you had the drop.

What’s happened here now is really a compression of just bad news and fear. But many of the hardships that are going to face the real estate industry as a whole, they’re still in front of us. They haven’t really hit yet. This is a whole new set of issues, from rent and mortgage abatement and some of these other things that are coming up, and the difference right now is that there’s no room to even take a breath. You’re talking about over a two-week period, we went from full occupancy and business as usual, to the likelihood of collecting percentages of rents rather than full rents. Whereas before, you had a little bit of time to prepare and you could see things down the road. This is one of those things that just smacked us all right in the mouth in a fairly short period of time.

Joe Fairless: So what’s your communication approach when, inevitably, you’ve got your customers reaching out to you personally? I know there’s got to be a chain of command where they’re reaching out to their point person, but they’re also reaching out to you too, saying “Hey Chris, what’s going on with my property?” So with 6,000 individual units– that’s a lot of owners. I understand that many owners buy multiple properties, but I’m sure you’ve got some approach where it’s like, “Okay, here’s my message now to my clients, and then here’s my approach, XYZ.” So can you talk about that?

Chris Clothier: Yes. There are 2,000 owners of those 6,000 properties. So you’re talking about a massive number of people, and all are going to have an individual situation to them. So the first thing that we did was we did not rush to communicate out anything. We took our time to absorb, to bounce a lot of ideas off one another. We spent a lot of time understanding what was happening rather than trying to react and put out multiple messages. And ultimately, the message we went out to our client base with was that we are preparing daily.

We remember what the 2008 crisis looked like, we remember the daily grind, we remember the fact that you had to have a plan A and a plan B and a plan C, you had to be thinking through every possible scenario and each way you could react, because there’s so many things happening. Whether you’re a single landlord or you’re a business owner with a smaller business, none of it matters. You have to be in constant planning mode, and what I mean by that is you can’t plan for what’s going to happen, you have to plan for the ten things that could happen, and then how do you react to those.

Then the bigger thing for us, I’ll tell you, we’re very confident right now. Mostly we’re confident because we feel that we have prepared as best we can. [unintelligible [00:07:38].20] I don’t know of anybody that I’ve spoken with out there that had a plan for it to stop a pandemic in this type of scenario. But all of us planned for if something bad were to occur. So all this was was we spent a lot of time ramping up, discussing, training, changing scripts, and by scripts, I mean, we have to know how to answer questions. Now you’re talking about from an owner and a resident standpoint, and we have to practice and practice and practice and practice what our message is, and make sure that we properly plan for the messages we’re giving, if that makes sense. I mean, you can’t just say something. You have to have a plan behind it. “This is exactly what we’re doing and why we think it’s gonna bring us and you the most success.”

Joe Fairless: What is your resident message?

Chris Clothier: The resident message was simpler than the owner message, I will tell you that. The resident message was that — we did not go out with a big message in advance of telling everybody of any plan. Every single resident in every one of our properties knew that rent was due on April 1st. So we did not communicate any mass message of what we were going to be doing in advance. What we chose instead was on an individual one-on-one basis, as residents are calling us, informing us of hardship, we have a list of resources for them, we have questions we have to go through with them, we have verification steps that we have to take, that are gonna verify that you are truly in a hardship. Then, the reality is that right now, housing is massively important to each of these residents. They don’t want to stress about housing.

So, the message becomes, “While rent is due, not paying anything right now really cannot be an option. You have to make some effort towards paying rent while we verify your hardship so that we’re able to fight for you on your behalf to an owner that they’ve done the best they can, they’re doing everything they can to meet their obligation, this is where they’re at.” We try and keep to a minimum the number of people that do not pay any rent for whatever the reason, valid or not. We’re trying to keep that to a minimum. So our message is one of compassion. We have a lot of steps we’re going to take, but you don’t take those steps until the month goes on. So again, nobody’s late with us until three or five days after rent’s due. So right now, nobody’s late.

Joe Fairless: Note to listeners – we’re recording this on April 2nd.

Chris Clothier: There you go. Sorry about that, Joe.

Joe Fairless: We took a similar approach, by the way, with no formalized communication to residents about rent in particular. We have apartment communities, so it’s a little bit different. Certainly, about amenities and social distancing among the community and staffing hours and all that, but that’s apples and oranges right now, so I won’t mix that up into this conversation.

But we took a similar approach where rent was due April 1st, and we’re going to have those conversations on an individual basis now. What about a different approach? Because I saw a post on Facebook – so it’s definitely true – where someone proactively gave all their residents 15% off rent, and they were getting at least from one resident, very positive feedback. For the record, we did not do this, so I’m not saying you should have. But I’m just asking, why didn’t you do something like that?

Chris Clothier: We discussed it. So here we are again, we’re recording on the morning of the 2nd April, and we already know that over 30% of our residents paid on time in full through the first day, and that percentage will grow through the second day and the third day; payday is Friday. There’s a certain percentage out there that are going to pay on time that are not having any issues right now. Heck, Joe, we had over 12% of our residents paid early, before the 1st. So their rent for April was in March, and most of them are paying the 28th, 29th, 30th, 31st those days. They’re making auto payments in their portal. So had we arbitrarily given a discount across the board, we have a fiduciary responsibility to our owners to make sure that we are doing what’s in their best interest too. There will be cases where we have to work with a resident. There are going to be cases where we’re going to have to do discounts and we’re going to have to implore owners to work with them.

So we chose, and we will continue this message to our residents, that those that can pay, should pay, and those that are in hardship should communicate, and that’s the route we’re taking… Because we don’t know what’s going to happen in May or June. So someone who could pay full in April may need help in May. I wouldn’t be able to give them the help that they need then, not arbitrarily cut it across the board. So we don’t know that we’re right, but we are very confident in our approach. So far, it’s bearing fruit. So far– in fact, we have a great plan for those that cannot pay on time, and we have a great plan for those that can, and we’re executing.

Joe Fairless: If I cannot pay on time, and I verified my hardship through the list of questions that your team asks, but I do make an effort to pay; say I paid 10% of whatever the rent is, what happens to the remaining 90%?

Chris Clothier: It’s gonna be again, on an individual basis, but I can tell you on the front end, we’re not here to make late fees and make life more difficult for anybody, and we’re not here to put anybody out of their home when the eviction proceedings are unfrozen. So there are a lot– I don’t have the exact number, but I know it was a good percentage of owners that proactively reached out to us and said, “Hey, I want to help my resident if they need help. I’m in a good position, so I don’t have to have full rent.” And what we’ve told all of our owners is, there will be a time and a place to make that decision. Let’s not proactively reach out, because there’s 6,000 residents here. Let’s not reach out to them to say, “You don’t have to pay.” Let’s review. It may be 30 or 60 or 90 or 120 days down the road when decisions have to be made.

And if we can communicate that the resident had great communication with us, they applied for all the assistance they could get, they applied as much of that assistance towards rent as they could, then I have a feeling that we’re gonna have a lot of owners that say, “Okay, that’s what I’m going to lose this year. Whereas I anticipated making a higher cash return, this year I may not make that cash return, but I reduced my principal, I’ve got an occupied property with a good tenant, I’ve worked at some goodwill, and we’ll just move forward.” That’s what I think a lot of owners are prepared and understand they’re gonna have to do this year, not all of them, but some. Some will be affected that way.

Joe Fairless: Looking back to 2008 and comparing it to today, you mentioned some of the differences at the beginning. But, what are some similarities that you see?

Chris Clothier: Well, I see the unfortunate effect of this compounding of issues that, if I were to guess, I would say that some markets, some neighborhoods, some areas, some classes of properties, however, you want to designate it, they’re going to be impacted by foreclosures months from now. They’re going to be impacted by an increase in vacancy and maybe a decrease in rent. Now this isn’t across the board and each market’s different, but you’re going to see those things happen. It happens slowly. Back during the crisis of ’08, by 2009, 2010, if your market was going to be affected on the real estate side, it was. It took a solid two years, but by then, there was no escaping. If your market was going to see an increase in foreclosures, a compression of rents, a compression of value, it had happened, and I think that’s going to happen again here. This is a completely different crisis, but now, the financial side is going to start taking its toll on the real estate, and people’s ability to maintain and stay in their homes and avoid foreclosure and eviction. So those things, they’re lagging, and hopefully it’s not massive, hopefully we can get through this… Which is a major difference from back then.

At least with a crisis like this, there’s hope of a cure to come out of it, a flattening of the number of people that are being affected… All these different things that we can see that didn’t exist in a way in ’08 and ’09. Back in ’08, ’09, we had no idea what was going to happen next. At least, now we know that with some degree of certainty that we’re going to get through this, and the faster we can, the less effect it’ll have on the number of foreclosures there are and where they occur, and rent rate compression and value compression. I don’t think it’ll be as widespread, but the longer this goes, you can see where that’s going to come 6, 9, 12 months down the road.

Joe Fairless: One interesting thing that I think will take place is the fire sale like we had, after the ’08 crisis – it won’t be nearly like that at the end of this, for many reasons… One of them being people have been squirreling away money, anticipating some correction. They had no idea, I don’t think anyone had the idea it would be a virus. You’d think that they thought that it’d be something else, but people have been squirreling away money and the distress properties that do come up, it is my belief, there’s going to be a lot of competition for those distressed properties. Whereas in 2009, 2010, there wasn’t nearly as much competition because of what you said, the uncertainty.

Chris Clothier: Oh, I think you’re spot on. You’re exactly right. So there’s not a liquidity crisis, yet. So as long as there’s liquidity in the market and there’s appetite for buying, I agree with you, 100%. We shouldn’t see that anyway. And look, between you and I and all of your listeners here, any investor that came through the ’08 and ’09, many of them that I’m talking to, they’re advising newer investors that this whole idea of “This is what we’ve been waiting for, now we can finally get involved in the market and prices are going to fall and I’m going to send out some great deals”, so many of us remember the destruction that came from ’08, ’09, ’10 to lives, to people individually. Certainly, none of us are hoping for that. Anybody that came through that is hoping for a calm, recovery and exit out of this, not something that’s volatile, with high losses. If you invest properly in real estate and you invest with good fundamentals, you can always find good deals. You don’t have to hope for or wait for some massive crisis to make your windfall.

Joe Fairless: Anything else we should talk about that we haven’t talked about as it relates to what’s going on right now compared to ’08 and just your overall approach?

Chris Clothier: The biggest thing I can implore everybody is that it’s not too late to plan. If you haven’t planned yet, that’s okay. Even by the time that you hear this, you need to be planning for what can come next, and worst-case scenarios and how do you navigate those issues. You need to be overly communicating with your partners, with your lenders, with your clients or residents. If this has shown us anything, it’s that we’re pretty weak when it comes to control, which actually is a very strengthening approach. We don’t know what’s coming next. So we get stronger by planning  for everything, so that we’re not surprised. So no matter what happens, we can look back and say, “I’ve got a plan for this and I’m going to execute that plan.” That’s the way we came through ’08 and ’09, and that’s exactly what we’ve done today. We have just very calmly said, “Let’s get to work.”

Joe Fairless: What you said at the beginning, you did not rush to communicate anything; you had conversations amongst yourselves and figured out the approach. What was your response to the owners, to their clients before you had that formalized communication ready to go? What were you telling them in the meantime?

Chris Clothier: Well, for us, we have for many, many years had a program where we call every one of our clients, every month. So we built up this massive goodwill through relationship. So for us, there was no need to rush out because we were already talking to every client, and the conversations that the clients had with us was, “Hey, I know y’all are planning and preparing. I just want you to know that I’m okay not getting rent or help my client out. Let me know when you know what you’re going to do.” So we didn’t have a clientele that was in the dark. We had a clientele that, because we call them every single month — and that was our message. “Hey, we called you every month for the last 12 years for this day, because this day would come, when there would be uncertainty and fear, and you needed to know that we were on top of it.”

So there was not a need for us necessarily to get something out quick, and when we did get something out, we chose to do it by video, which we posted a message that they could all get to. So we put it on a website page so they could get to the message, and the message again was very clear, that (again) we’re confident.

Joe Fairless: Who was talking in the video? Was it just you?

Chris Clothier: It was just me.

Joe Fairless: Just you. Got it. Well, how can the Best Ever listeners learn more about REI Nation?

Chris Clothier: We have a very active blog at reination.com. We have a video series out there to help investors learn and all of it’s free. There’s nothing behind a paywall, you don’t pay anything for it, that kind of thing. I’m also extremely active on social media sites and even on sites like BiggerPockets. So I think I’m pretty accessible. You can come to reination.com, learn more about our company. You can always reach out to me. You can connect to us through social media or through BiggerPockets, and we’re happy to do what we can to help investors today navigate, get through this.

Joe Fairless: Thanks for talking about the macro-level picture, as well as getting the specifics of how you’re communicating with the owners of the properties, as well as the residents. Enjoyed our conversation, as always. I hope you have a best ever weekend and talk to you again soon, Chris.

Chris Clothier: Thanks, Joe. Take care.

JF2046: 11 Tips for Collecting Rent During The Coronavirus Pandemic | Syndication School with Theo Hicks

In this episode, Theo shares 11 tips for collecting rent from your tenants during the coronavirus pandemic. These ideas and tips are from research around the real estate investment community, from some of our previous guests, and from the Best Ever FaceBook community.

 

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:

“During this pandemic, one idea is to apply your tenant’s security deposit towards rent and apply a discount to help your tenant’s out.” – 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: Hello, Best Ever listeners. Welcome to another episode of the Syndication School series, a free resource focused on the how-to’s apartment syndications. As always, I’m your host, Theo Hicks. Each week, we air to podcast episodes that focus on a specific aspect of the apartment syndication investment strategy, and for a lot of these episodes we’ve been releasing free documents as well; how-to PDF guides, PowerPoint presentation templates, Excel calculator templates, things that will help you along your apartment syndication journey. All of these free documents and past Syndication School series episodes can be found at syndicationschool.com. Today, we will be continuing with our coronavirus-focused episodes and talking about how to collect rent. So some tips on collecting rent.

When this episode airs, the first of the month of 1st of April will have arrived, and in previous months, apartments syndicators really knew that the vast majority of the residents were going to submit their rent on time and in full, something that we didn’t really have to think about at all, unless we were just buying a property and knew that tenants weren’t the best and the plans have turned them over. But the majority of the time, they’re going to pay on time; that’s not really something that was focused on. Whereas now with the coronavirus pandemic, a lot of people losing their only source of income, being furloughed indefinitely, laid off from their job, hours cut back, it’s the first time that rent is due during this pandemic time. So we wanted to provide some tips on how to collect rent.

So they did pass the $2 trillion Stimulus Bill, which is going to extend a direct cash payment to certain individuals if you qualify. So it’s $1,200 bucks for most American adults and $400 or $500 bucks for each child, as well as some money for businesses, cities, states and small businesses, hospitals, things like that. So that is obviously one option. If your residents are able to get that direct payment, then that can help them cover rent for a month or two. But besides that, I wanted to provide some other tips on how to collect rent that’s not the direct cash payment that’s coming from this stimulus bill.

In this episode, we’re gonna focus on 11 ways that you can still collect rent during the coronavirus pandemic. This comes from research that we did across the Internet and things that other investors are doing, plan on doing. So that’s where this information came from.

So the first piece of advice came from our Best Ever show community on Facebook, which I highly recommend following or liking if you aren’t already, because we’re posting some coronavirus related content every day and we are asking for people that are currently following the page to provide their input on things that they’re doing. So a lot of active investors are providing some very solid advice, and these first three approaches are coming directly from that group.

So the first came from Justin, and this one’s pretty simple. He’s just going to offer a small discount to residents who pay their full rent early or on time. So if they pay their rent a week early, a few days early, and it’s in full, then he’s going to give them a minor discount. So obviously, the discounts and the timing of how early, it is up to you, but the goal is to motivate residents to pay their rent before it’s even due; so pay it early. That way you have an understanding of how much you’re going to be collecting for that month and in return, you’re giving them a small discount. So that was number one.

Secondly, Justin’s also going to set up a repayment plan for residents who cannot pay their full rent on time or pay their full rent early. This is going to allow residents to make up for their unpaid rent later. So that’s another strategy that I’ll talk about later in this episode about a potential repayment plan, but if they don’t pay rent, then you create some plan for them to repay it in the future before their lease expires. So just helping people out that aren’t able to come up with rent. Justin is offering a small discount if they pay early, and also creating a prepayment plan rather than evicting them, or you’re charging them money with interest or something. So those are the first two strategies.

The next strategy comes from Julie, also from the Best Ever show community. It’s a very unique approach to collecting rent. I believe I talked about this on last week’s Syndication School, but first thing she’s doing is allowing her residents to apply their security deposit towards a reduced monthly rent payment. For example, if you have a resident who owes $1,000 per month in rent and has a $1,000 security deposit, well, what Julie did is she allowed them to use that security deposit to cover two months’ rent. So she discounted their rent each month for two months by 50%, so $500 each month, and they were able to apply that $1,000 security deposit to their rent. So at the end of the lease, they won’t get that $1,000 back, because the $1,000 should be sitting in a bank account somewhere. So you just take money from the security deposit bank account, and deposit that into your rent collection account.

Now in return for this discounted rent and with the ability to apply the security deposit to the monthly rent, Julie was making the residents sign a new lease. So six months or twelve months depending on what their current lease is, as well as sign up for some security deposit insurance. So the service she uses is called Rhino, and it’s $10 per month per $1,000 in the security deposit insurance, and then depending on the residents, she wants to see two to three times, the security deposit amount in coverage. So if they owe $1,000 for security deposit, then they’ll pay $20 to $30 per month for security deposit insurance, and security deposit insurance covers damages and unpaid rent. So if they can’t continue to pay rent, well then Julie can make up for that by having that security deposit insurance and collecting rent that way.

So she had just started this during the coronavirus pandemic and hasn’t actually filed a claim yet so you’ll want to check out Rhino or some other security deposit insurance company. The strategy here is to allow your residents to use their security deposit to pay their rent. Julie did a reduced rate just because she wanted to cover two months as opposed to one month, so pushing the problem away two months as opposed to one month. So you can reduce it by 33%, or you don’t have to reduce it at all. You can make them sign a new lease or not sign a new lease. You can make them sign up for security deposit insurance, you can make them do something else, but the overall strategy is to have them use their security deposit to pay rent in return for doing something else that you want them to do. So that is strategy number three.

The next two strategies, four and five, they came from actually a Best Real Estate Investing Advice Ever Show podcast interview that I did with Daniel, which actually aired this past weekend. So I think it aired the 29th or the 28th of March, and the first tip that he provided is to communicate with all of your residents to understand their ability to pay rent in full and on time. So you don’t want to skip this step. You don’t want to just not say anything to your residents in general. Obviously, you want to communicate them with the safety precautions that need to be taken by them and that you are taking during this time, but you also want to communicate with them about their ability to pay rent, because not every single resident is going to have a problem paying rents.

So you don’t want to assume that every single person at your apartment community is not going to pay rent, and then apply whatever solution to everyone. So if you’re gonna do Julie’s solution, for example, and allow them do their security deposit and reduce the rent by 50%, you don’t want to do that to every single person. You only want to implement some solution for residents who will have a problem paying their rent. For the ones that don’t have a problem paying their rent, you don’t really need to do anything. If they’ve kept their job, if they already work remotely or work for an industry that’s not affected by the coronavirus, then nothing really changes for them. It’s for the people who cannot pay rent on time. If you don’t communicate with the residents, you’re not going to know, and you might end up losing more income that way.

So, Daniel, he had a long-term rental portfolio and he has a short-term rental portfolio, so all of his long-term residents are able to pay rent on time. So since he’s a sales manager, he had the conversation with his residents or he knew from past conversations with residents, whether or not they were financially impacted by the coronavirus. And fortunately for him and his residents, none of them were financially impacted by the coronavirus. They all had their jobs and were still getting paid, and so they were all able to pay rent on time.

Obviously, his short-term rental portfolio was a different story, and that’s something that I’ll talk about in the next tip, but if he didn’t communicate with residents or if he wasn’t a sales manager and didn’t know that all of his long-term residents could pay on time, well, first of all, he might have been surprised come April 1st, but secondly, he might have applied the solution that resulted him losing income that he didn’t necessarily need to lose, because some of his residents might have been able to pay him on time. So this is a very important step, very important tip, which is to make sure you understand where your residents are at financially before implementing or offering some discounted rate to them.

So, Daniel’s other tip was very interesting. So as I mentioned, half of his portfolio consisted of long-term rentals, so 12-month leases, which as I mentioned before, he didn’t expect to be impacted by the coronavirus. Obviously, it’s still really early, but at the time of the interview, he knew that the residents were gonna be able to pay their rent on time.

The other half his portfolio were Airbnb rentals. So obviously, with all the stay-at-home orders, most people aren’t traveling and staying in short-term rentals anymore. I did interview someone in North Carolina, I believe, who said that the little municipalities he said he’s in actually started to ban any lease that was less than 90 days. So short-term rentals are completely shut down in his local area. So for Daniel in particular, since all of his short-term rental clients canceled the leases, he pivoted and is trying to market his properties to traveling nurses, because all of his properties that he uses for short-term rentals are really close to hospitals. But he’s not able to do that for every single property.  Some of these properties are still vacant.

So what he said, and what I thought was really interesting, was that he plans on volunteering up his units to volunteers that are coming to the hospital. So people that work for Red Cross or other professionals that are traveling to the hospital to volunteer and help with the coronavirus. Something he said that was very interesting was that the worst-case scenario is that you would help someone else. So for him, he’d much rather have someone living in his unit and being able to use it to do good than just have it sit there vacant, because he’s gonna lose money regardless. So in his mind, he wanted to help people, rather than to have it to sit vacant. So I thought that was a really interesting, altruistic strategy. So another tip you can use, not necessarily to collect rent, but a way to give back and help people during this crisis.

These next tips come from Brandon Turner over at BiggerPockets. He created a YouTube video with the strategy that he is going to implement for collecting rent during the coronavirus pandemic. He had a five-step plan or five tips, and I really liked three of them. So the first one was to keep an eye out for federal and local programs that will be created to help residents pay their rent. So a perfect example would be the direct cash payments to qualifying individuals in the $2 trillion Stimulus Bill that passed March 27th.

So research online and figure out what other programs there are available. I’ll talk about another program on the Syndication School episode tomorrow or directly after this one, and that was included in the $2 trillion Stimulus Bill. So that was number one, or Brandon Turner’s first tip, which was number seven overall.

Another idea that he had, so eight overall, is to have residents pay rent with their credit card, so very simple straightforward. It allows them to delay paying their rent in a sense, by a month or longer than that, as long as it makes the minimum payment on their credit card bill… And I believe Brandon said that he was going to waive the 3% credit card fee that is incurred when you use your credit card to pay rent on their portal. So you might have to set up a portal or do some extra steps to accept credit cards for rents, but Brandon waived the fee. You can or can’t do that, depending on what you want to do, but that’s another way to collect rent, is to have them use a credit card.

Then his third, which is number nine overall, is to offer his residents an emergency rent deferral program, which he said was a last resort and something that he only brings up if all the other options don’t work. So for his program, as I mentioned earlier in this episode, Justin also had a repayment plan, but he didn’t get into specifics. Brandon got into specifics of his repayment plan.

So what he does is he allows his residents to defer paying their rent for up to two months. And then, once that two months is over, or one month is over, they are able to pay the rent back over a 10-month period. So let’s say, for example, a resident misses their $1,000 a month of rent payment on April 1st and on May 1st. So there are $2,000 in the hole, they’re not allowed to miss it in June. So they must pay their rent in full in June, but they’re also going to owe 10-month installments for the $2,000 that they didn’t pay. So it’ll be $1,000 plus 200 bucks for a total of $1,200 per month, starting in June, and then ending after 10 months. So that’s the plan.

Actually, I think he delayed the 10-month repayment program by a month. So for example, if they’re gonna miss April and May, they wanted to pay 1,200 bucks until July. So they [unintelligible [00:16:13].17] at June, as long as they pay their $1,000 a month, they’re fine, and then starting in July, they’ll give him 1,200 bucks.

A few other tips that I came across – some of these are pretty simple, but one is just to offer free month of rent to residents, as long as they can provide you with a financial hardship letter from their employer, stating that they have been laid off or furloughed due to coronavirus, or a note from their doctors saying that they have coronavirus. So this really could be applied to all these.

So if you want to, you can only apply these types of things to people who can prove that they’ve been hit financially from the coronavirus. So a letter from their employer saying that “Yes, we’ve had to lay off employees because of this reason, and Billy Bob is one of them.” Or, “Yeah, his hours have been cut because of the coronavirus and his pay’s been reduced because of the coronavirus,” things like that. So again, that’s up to you. You can apply these solutions to all residents or you can apply them only to people who can prove that they’ve been hit financially by the coronavirus. It’s really up to you. These are all just strategies that we’re throwing out there. You can use them or not use them.

The other one is to reduce your rents to the point where you don’t make any money, but are still able to cover all of your expenses. So let’s say that you’ve got a 100-unit property and you find out that 30% of the residents have been laid off from their job and can’t pay rent. And then let’s say that the breakeven economic occupancy is 70%. Well, 30 units is 30% of the total units that are there. So if none of those units could pay rent, then you’re at 70% economic occupancy, assuming that all other 70 units are paying their full rent. So you could technically offer no rent to those people and still not lose money. So figure out what your break-even point is and then know that you’re able to reduce rents by that much, but no lower, in order to continue to cover all of your expenses.

So those are the 11-ish tips for how to collect rent or help out your residents during the coronavirus pandemic. To summarize, it was, one, offer a discounted rent to those who pay early or on time. Number two is offer a repayment plan. Number three is to allow residents to apply their security deposit to their rent. Number four is ask residents to pay for security deposit insurance. Number five is to communicate with residents to see who can and cannot pay rent. Six, is volunteer your units for free to coronavirus volunteers. Seven is to use federal or local programs created for landlords and renters. Eight is to ask residents to pay rent with a credit card. Nine is to offer an emergency repayment program. Ten is to provide free rent to residents who lost their job and 11 is to reduce rents to break even.

Now before we go, we did create a page on our website, where we post all of our coronavirus related content. It’s joefairless.com/coronavirus, it’s pretty simple. We update that every single day with blog posts and different articles. So if you’re interested in learning more tips on how to maintain your properties during the coronavirus pandemic, I recommend checking out that.

Also, check out our other syndication school episodes and those free documents. Those are available at syndicationschool.com. As always, thanks for listening, have a best ever day, and we will talk to you tomorrow.

JF2045: How AirBnBs Will Weather The Storm During The Coronavirus With Kyle Stanley

 

Kyle is the owner of Fearless Flipping and has a focus on AirBnBs. He is joining us today to talk about how the coronavirus has impacted his business. One thing he mentions that is helping him during this time is that he doesn’t view his business as an AirBnB business, but more of a short term rental business which is helping him develop plans to weather this storm. Kyle shares some advice that has worked throughout time and is showing how important it is during this pandemic.

 

Kyle Stanley  Real Estate Background:

    • Owner of Fearless Flipping
    • 5 years of real estate investing experience
    • Currently has 11 AirBnBs
    • Located in Fresno California
    • Say hi to him at : https://www.fearlessflipping.com/

 

Best Ever Tweet:

“Utilizing the 33% rule when analyzing deals has helped me stay comfortable during this pandemic” – Kyle Stanley


TRANSCRIPTION

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

Kyle Stanley: I’m good, Theo. Thanks for having me on the show, very excited.

Theo Hicks: Oh, yep. Absolutely, and thanks for joining us, and thank you for agreeing to talk about how the coronavirus is impacting your real estate investing business. But before we get into that, a little bit about Kyle’s background – he’s the owner of Fearless Flipping; he has five years of Airbnb experience, currently has 11 Airbnb short-term rentals, is located in Fresno, California, and his website is fearlessflipping.com. Kyle, do you mind telling us a little more information about your background and what you’re focused on today?

Kyle Stanley:  Yeah, well that’s the keyword – today. So as we’re here on April 1st, it’s not an April Fool’s joke, unfortunately, what we’re going through. So we got to take everything serious right now. Leading up to, I would say the beginning of March, the main focus of my business was Airbnb, and then on the side, I was flipping, doing short-term real estate investments, from wholesaling to BRRRRs to flipping, and we had a really solid flow going. We were on pace this year for three different streams of income reaching six figures. The third stream was education in the short-term rentals and Airbnb business. And then all the madness happened and now, really the big thing has been weathering the storm and figuring out what’s next, but I’m excited about what we’ve been able to do to weather the storm, to be able to make this still a very profitable, short-term rental business and sharing that with your audience today.

Theo Hicks: Yeah, so we’re going to talk about how to weather the storm that is the coronavirus. So that’ll be the title of the episode. So what are some of the things that you’re doing? So you got short-term rentals. A lot of times that I’ve talked to said that the short-term rental business is greatly reduced, or in some locations outright banned. So I’m just wondering, are all your properties in Fresno, California? Are they scattered across the country?

Kyle Stanley: They’re all in Fresno and I think – first of all, I want to just lay a precedence here that there’s a lot of people out there that are talking about Airbnb being dead, short-term rentals being dead, and these people are jumping the gun. They are completely in the mindset of whatever’s happening now is going to happen for the rest of eternity, and that’s just not true when it comes to this. There’s also airlines that are being shut down. Does that mean that airlines will be shut down for the rest of eternity? No. As soon as this whole thing recovers, then everything’s recovered.

But I also know there’s a lot of people that are very mad at Airbnb right now, and the message I really want to bring today, Theo, is that I don’t have an Airbnb business, I have a short-term rentals management business. If you have that mindset, you have the mindset of problem-solving. My mindset right away in the beginning was before I even got any of my properties  – yes, I knew the potential of making $1,000 plus of cash flow was there. We have one property that makes us usually right around $2,500 per month in Fresno, California, of all places. But I also said, “Well, are these recession-proof?” and I think we all were talking about it leading up to this whole coronavirus stuff of, hey, there’s gonna be a market crash, there’s gonna be a market correction, there’s going to be some minor recession. We just didn’t see it coming in the form of a zombie apocalypse, for lack of a better term.

We didn’t really see it coming and hitting us literally overnight. And because of that though, I’ve been very, very happy about everything that we’ve been able to do to weather the storm, and to see results still coming in… And just focusing on the Airbnb side and on the short-term rental side, we added two properties this last month, so we went from eight to ten, and we just added an 11th just a couple days ago. But we went from eight to ten, and we still ended up, after expenses, in the month of March, netting more than any other month that we ever had, and grossing more than any other month that we ever had.

I truly believe that’s for a couple reasons. Number one, I did the deals right. I made sure that I was getting into a deal that would be successful, even during a rough time. Again, not knowing when a coronavirus thing would hit, but just a rough time in general… And then the bigger thing and beyond that is that I knew that if something were to be impacted by Airbnb, let’s say, Airbnb shuts down; it’s a third-party site. I’m an entrepreneur, I’m not a Airbnb employee. I need to find other methods to be able to list my properties on, and by doing that, we were able to still find ways to get people in our properties not through the means of Airbnb, and fill those vacancies and still be close to 90% to 93% booked all in the month of March. And moving forward, we can talk about a little bit more, but now just to weather the storm, nine of our 11 listings are month-to-month rentals, and we’re seeing what happens with the other two rentals just to see if Airbnb will continue to pick back up. So without going too much deeper into that — I don’t want to keep on talking, but that’s the overview of what we’ve been doing right now.

Theo Hicks: Okay. So some of the two things you said were to, one, buy right, and then two was to not rely entirely on Airbnb, have a backup plan. So let’s talk about the first one, which is buy the deals right. So what does that mean? What aspects of the deals were you looking at to make sure that you’re buying them right?

Kyle Stanley: Just like anything in real estate, you’ve got to analyze the deal. So with an Airbnb, I use the 33% rule, which is whatever you’re netting needs to be at least 33% of what you’re grossing. And if you can do that, that means that if something like this happened and you have to take a big hit and adjust your method of how you’re filling your properties, there was enough meat on that bone to not hurt you. So because we had expected– again, let’s just take that rule for example. If I’m expecting to gross $3,000 in a property for the month, then the 33% rule means that I need to net at least $1000 of those dollars. So essentially, what that means is my expenses are $2,000. As long as I can cover $2,000 in a property during a coronavirus, then I know I’m at least breaking even. We don’t want to lose money during this time. We just want to weather the storm, get to even, and then pick back up where we were before.

But the great news is that those properties that, let’s say, I was grossing $3,000 and needed $2,000 in order to cover my expenses, I’m actually at some of those getting as much as $2,700 for month-to-month rentals. So that’s been really, really positive to see that I’m not taking this $1,000 hit, I’m only taking a maybe, a $300, $400, $500 hit per property. So instead of netting at $8,500, maybe next month I’m going to net $4,000 which, during weathering a storm, that’s pretty good.

So your audience knows too, buying the deal — I own five of mine and then I manage three and then I do what’s called arbitraging for three of the other ones, where basically I take over the rent, take over the lease, and sublease it out to other people, and I’m still profiting on those despite what a lot of people are saying. A lot of people are saying right now that lease arbitraging is not a thing, it’s not profitable. I am still profitable on all my lease arbitrage properties, because – again, just doing the deal right.

Theo Hicks: So you said that you have 11 properties in your portfolio… You said that eight were month-to-month rentals?

Kyle Stanley: Yeah. Currently, actually, nine are month-to-month rentals, and then we’re keeping two on Airbnb.

Theo Hicks: Perfect. So, for those nine – and I guess this goes into the second thing that you talked about, which is having other ways to list your properties… So obviously, you’re not listing those on Airbnb. So for my first question is, where are you listing those properties, and secondly, how has your wording changed now that they’re month-to-month, as opposed to Airbnb’s for the weekend or something?

Kyle Stanley: Yes. Our main means which we’re doing it is Craigslist – that’s where we’re getting most of our places;  Facebook marketplace would be next, and then just networking with realtors, property managers, loan officers who have people that need that transition. Maybe they’re selling their house or maybe they’re getting kicked out of one of their homes and they’ve got to transition to find the right place.

So we’re very upfront with everyone, we’re not telling them, “Hey, sign a 12-month lease” with the idea that we’re going to kick them out. We’re letting them know this is furnished, it is a month-to-month rental. We are used to a very profitable Airbnb business, but right now, we’re just looking to use this as a way to weather the storm and to help more local people who are going through some transitional issues that need some help. So we’ve got people in our homes right now that are going through divorce, some are buying a house and waiting to be able to get into that next house. We’ve got some nursing students that are coming in that have been from out of town and need to stay for a couple months…

We haven’t had any first responders yet, but we are opening ourselves up to that as well, and we’re really just making sure everyone knows, you might only be here for 30 days, you might be here if you want for three months, maybe even, God forbid, this thing goes on for a long time, you can be here for three years, but they understand that every month, we have a new evaluation that we’re doing to make sure that they are still a good fit for our property.

Theo Hicks: So of those nine, are they all occupied right now, with that month-to-month lease?

Kyle Stanley: Yes, they are occupied. Seven of the nine are either a family or a person taking up the whole house, and then we had to get creative with some of our bigger properties by renting out room by room, which I thought was going to be really difficult; it turns out that that is not as difficult as I thought it would be. In fact, it’s more profitable and more people are open to doing a room by room, not even knowing who else is going to be in the house, because desperate times call for desperate measures, and those people are definitely in those kinds of situations.

Theo Hicks: That’s interesting. Craigslist is a powerful tool right now.

Kyle Stanley: Yeah, and I guess that’s the big thing. “Oh, Craigslist… That sounds super sketchy.” Well, you know, right now we’ve got to do as much as we can to just help as many people as possible. I think I’m a pretty good judge of character, and at the end of the day if I’m doing room by room, then every roommate has to approve of the next incoming guest as well, to make sure personalities will match.

Theo Hicks: Is there anything else that we haven’t talked about that you’re focusing on right now during this coronavirus time?

Kyle Stanley: Yeah, the first thing is, as you can tell, this really is short-term rentals. It’s property management versus just “Hey, let’s throw an Airbnb listing on there.” So I think for those of you that are thinking about getting into Airbnb or maybe thinking about getting out of Airbnb, the biggest thing right now is, to me, this is getting rid of all of the fakers in this game. It’s getting rid of all the people who just wanted the easy route. “Hey, throw your room or home on Airbnb and get paid a ton of money.” Now that there’s actual work and a lot of these people probably even have a full-time job, they’re probably not doing the things that I’m doing. So that creates a unique opportunity for people that are serious about building their short-term rental portfolio or getting into a short-term rental portfolio, because you’re gonna have a lot less competition on the other side.

And when all this starts to dwindle down, I truly believe that travel, especially to places like my market, Fresno, California – people come here because they have to, not because they want to… And that’s really a good place to be, is when you’re hosting mostly families that are coming into town to see family, or business people, and then the occasional traveler. If there’s a major recession that continues to linger beyond all of this, I’m in a really good position to have a lot more people coming in that need to reschedule things that got canceled, and a lot less competition, so that I can actually raise my rates.  It’s simple, just supply and demand. If the supply is a lot lower and the demand is just as high or higher, then my rates are going to go up.

So I think if you’re in that position — I’m not necessarily talking about the destination getaways per se; I think there’s still a lot to be seen there – the Newport beaches, the Hawaii’s, the Florida’s, all those things where people go there because they want to get away… I’m not sure if that’s still gonna be as strong on the other end of this because of the recession. But for places like mine, where it’s Fresno, California, and other places too, like in Midland, Texas, a lot of business people coming in there, you might be in a really good position to lock something down right now, weather the storm, just cover your expenses, and then on the other side of this you’ve got a very profitable business that you can throw right back on the Airbnb, and have a lot less competition in your area.

Theo Hicks: So you think people should be buying right now?

Kyle Stanley: Again, buying is different in the short-term rentals scenario. So if you’re talking about buying a property, then you got to make sure your numbers are right, for sure. But if you’re talking about arbitraging or managing for someone else, then yes, I definitely think it would be just as good of a time to get in, especially with landlords being really, really open to the idea of getting a solid tenant in there like yourself, that’s going to manage the property and take really good care of it.

Theo Hicks: You mentioned that you bought a property a few weeks ago, right?

Kyle Stanley: Yeah, it’s actually the one that I’m doing the podcast in right now. It’s three units on one lot. It’s not multifamily, it’s just a single-family house with a [unintelligible [00:13:55].14], and then we converted the workshop into another unit, and it’s house-hacking at its finest. It’s fun.

Theo Hicks: So obviously, you bought it amid the coronavirus. How was the underwriting different? Did you underwrite different expenses or a different income? And if so, where did you come up with numbers from?

Kyle Stanley: What terms did I do the deal with, or…?

Theo Hicks: No. So usually you underwrite–  and I’m making up numbers here. Usually this house, in a regular time, would make $5,000 a month. How do you determine how much income would be coming in?

Kyle Stanley: That’s a great question. So I knew my expenses at this place were going to be right around $3,500 per month, from mortgages and then paying back my lender on the furniture. So what I did there is I evaluated it as an Airbnb first, and saw that after year one — because the way that we do our terms, we pay back our furnishing in year one, and then that person is now off the loan; it’s a short-term loan. So in year one, I’d be cash-flowing $600 a month with Airbnb, while living on the property. And then, after year one, we would be cash-flowing right around $1,500 to $1,600 per month, because we would have paid off the furnishing. That was as an Airbnb.

Now that we’re doing this as a short-term rental and month-to-month, I’m at least getting all of my mortgage covered, and then I’ve still got my loan back to my lender, and that means that right now if I wanted to– I don’t want to, I’m in a financial position where I could move out of the unit that I’m in and put someone else in and not owe anything, but I’m okay with spending $1,000 to $1,500 dollars a month to still live in a place, and that’s what I’m doing right now, just to stay where I’m at. But to answer your question, if I’m underwriting it though, I know I could rent out this space that I’m in short-term and cover all my expenses and probably cashflow a few hundred dollars. But if it can get back to Airbnb, and I rent out my unit, the third of the three, then I could be more along the lines of $2,500 to $3,000 a month for this entire property.

Theo Hicks: Thanks for sharing that. And then, one last question before we conclude. So you mentioned that you think that this situation is going to get rid of all the fakers who wanted an easy route. So what do you think exactly is gonna happen to them? Do you think they’re gonna get foreclosed on? Do you think they’re just gonna just sell and then that’ll open up an opportunity for people to buy a short-term rental single-family home that’s maybe furnished for cheap? For those people, what do you think’s gonna happen to them in the next six months?

Kyle Stanley: The ones that have bought the vacation rentals with just the idea of it  working as an Airbnb, I think they’re in trouble, at least for a few years. I think that’s really tough. If you have a, let’s just call it $5,000 per month expenses, and you need this thing to make at least $5,000 a month, I think that’s going to be really tough during any recession, because people just aren’t going to be traveling as much.

Then the other side of it is the people who are just using it as “Hey, this is my primary residence, but I leave on the weekends and I Airbnb it” or “Hey, this is my secondary residence. I only use it about three months out of the year.” I think those people will probably not get hit as hard. But I think the ones that are going to be just okay are going to be the ones that are in markets like mine or in deals like mine that you can put a long-term renter in, and you’ll be just fine. I hope that the majority of people did deals like that, where they can put long-term renters in and be okay. Then for the other people that are doing lease arbitrage like myself, it’s just about getting out of a lease and selling the furniture. So it was a risk of what they knew they were getting into, that if something were to ever happen, if Airbnb shut down, hey, they have a lease. But in a lot of people’s ideas and a lot of people’s minds, it’s a lot better to just have a lease than it is to own a piece of real estate that may not work as a long term rental, so they can get out pretty easily.

Theo Hicks: Yeah, definitely. Well, Kyle, I appreciate you coming out today and being willing to talk about the things you’re doing during this coronavirus pandemic. I think a lot of this advice will be very helpful to people who are doing short-term rentals, doing long term rentals… I think this will also be some very timeless advice as well.

So you talked about how you’re weathering the storm with your short-term rental business; you mentioned that you think people who are screaming at the top of their lungs that the short-term rental business is dead are jumping the gun, and then you got more specific and mentioned that the two things that you did is make sure you did the deals right on the front end. So you mentioned the 33% rule, which means that the money you net needs to be 33% of what you are grossing. So if you gross three grand, you need to net $1000, which means your expenses are two grand. That way, you’ll have meat on the bone to take a hit and not lose money. The other one was making sure you’re not relying on Airbnb and having backup options.

So you mentioned that you’re pivoting to month-to-month rentals for nine of the 11 properties and that you’re using Craigslist, Facebook Marketplace, and then networking with property managers and brokers to secure leases, month-to-month leases on those. Focusing on helping local people, people who are going through divorces, buying a house and waiting to get in, nursing students, and you’re opening them up to first-responders now.

You mentioned how you think that this is going to get rid of a lot of these fakers who wanted the easy route and didn’t want to work hard, because now it takes more work. You can’t just throw something up on Airbnb and get a tenant coming in there.

We talked about how to underwrite a deal during the coronavirus which, I think, is very powerful. So how to underwrite a deal during a “recession”. And that expenses are really set, and you evaluated it as a Airbnb first, and then you’re willing to spend money since you’re living there yourself – $1,500 bucks a month – but you know that if you move out, you would be able to at least break even, and weather the storm, and then once things get back to normal, make your profits again.

So Kyle, I really appreciate you coming on the show today again and sharing what you’re going through with us. Stay safe. Best Ever listeners, thanks for listening and stay safe. Have a best every day and we will talk to you tomorrow.

JF2044: Rent Collecting During The Coronavirus With Will Fraser

Will has been a real estate investor for the past 3 years and has a portfolio of 23 properties all focusing on long term rentals. Will shares how his long term rentals have been impacted by the coronavirus pandemic. He shares the different plans he has in place to collect rent from his tenants and to make sure he helps them out at the same time. 

 

Will Fraser Real Estate Background:

    • A full-time real estate broker
    • 3 years of real estate experience
    • His portfolio consists of 23 properties, 4 he personally owns
    • From Oklahoma City, OK
    • Say hi to him at: will@craftsmanre.com 

 

 

Best Ever Tweet:

“This gives me an opportunity to build a strong and unique relationship with some of my tenants that I wouldn’t have the ability to do otherwise.” – Will Fraser


TRANSCRIPTION

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

Will Fraser: Theo, I’m doing great, man. Enjoying life here, and glad to be on the show. Thanks for the opportunity.

Theo Hicks: Oh, absolutely, and thank you for joining us. Today, we are going to be talking about how the Coronavirus is impacting Will’s business. Before we get into that, let’s hear about Will’s background. He is a full-time real estate broker. He just hit three years of real estate experience.

His portfolio consists of 23 properties, four of which he personally owns. He is from Oklahoma City, Oklahoma, and you can say hi to him at Will@CraftsmanRE.com. Will, do you mind providing us with a little more information about your background and what you are focused on today?

Will Fraser: Yeah, absolutely, man. Well, I took a circuitous path to real estate, like all non-traditional real estate investors did. I studied biochemistry, and that launched into a job overseas, which after I got deported landed me in Oklahoma City. I worked with a startup that was selling things to real estate agents. I realized that most real estate agents, respectively speaking, would not know the difference between a small dark place and a hole in the ground. And what I saw was I’ve got some skills that might mesh well with real estate, so let’s give this a shot.

One of my early clients was a real estate investor. So I saw some of the deals that he was doing, and I was like “Man, that really doesn’t seem that hard.” And I started just kind of emulating what he was doing. Little by little, that grew into what I’m doing today. I’m a residential real estate agent that helps people buy and sell their personal homes. I help investors buy and sell investment homes, and then I also manage my own portfolio that I have… Some personally, like you said earlier, and  some with partners.

Theo Hicks: You said you own four yourself, and then 23 – are those JVs?

Will Fraser: Yeah, what we did is we started out with a JV agreement, and then we started buying in an LLC that we jointly own. But the first batch of 15 properties were purchased with my business in a JV agreement. And then as that relationship grew, we were all going forward more confidently, and then we saw that “Hey, this is something we’d really like to scale together.”

Theo Hicks: Okay, and then are those single-family homes duplexes, triplexes…?

Will Fraser: There are two fourplexes, a triplex, about ten duplexes, and then the balance, our single-family.

Theo Hicks: Okay, and they’re all rentals.

Will Fraser: Yeah, that’s right.

Theo Hicks: Okay, perfect. And those are long-term, not short-term.

Will Fraser: Right. They’re all long-term. One of them – we leased it out to someone who’s Airbnb-ing it. We love getting to partner with other investors and creating win-wins. Somebody came to us and wanted to do an Airbnb in Oklahoma City, and we said “Hey, we’ve got a property that would actually work well for that.” So that’s one of them. So it’s kind of a mixture… It’s a long-term rental for us, but a short-term rental for our tenant.

Theo Hicks: Okay, perfect. So I guess the first question that I’ll lead with, with today being the first of the month that we’re recording this, is are you seeing any issues with rent collections from the Coronavirus on those long-term rentals?

Will Fraser: Definitely. And I think that there’s some of what we could have known is gonna come… Just what I would call the ostrich approach, of tenants burying their heads in the ground and pretending that there’s not a problem, and then you don’t see that rent come in on the first, you don’t see it coming on the second or third… So we’re already seeing some of that. But a lot of what I’ve been seeing that is surprising is tenants reaching out within the last three days to let me know that they’ve been furloughed, their hours have been cut, or they’re struggling… I’ve got a couple tenants that are in the oil and gas field right now, and they’re letting me know in advance “Hey, I’m paying my rent this month, but I just wanted to let you know I don’t know how long I can continue this.” I’ve been more encouraged by those than the people that I know are doing an ostrich right now.

But yeah, I think that everything we’re seeing right now is what we expected to see, but with a little more of the avoidance on the tenant side.

Theo Hicks: Okay. So for people who, as you mentioned, reached out, said that they’ve had some sort of financial hardship, they’re gonna pay rent this month, but they don’t know how long they can keep that  up – do you have any plans on what you are going to do if it gets to the point where they can’t pay the full rent?

Will Fraser: Yeah, that’s a great question. What I’ve discussed is a few different things – one, if they want to pay by credit card, I will eat the credit card fees; so I’ll allow them to put it on a credit card. I don’t encourage that as a Band-Aid, but I do know that credit card companies are offering some forgiveness platforms… That, frankly speaking, they can do because of their size, and I can’t do, because of my size. So I will offer that.

Then another thing that I’m offering is the ability to pay incrementally, and then amortize the balance that’s not paid over the rest of their lease. So with a tenant of mine that’s in oil and gas, I know that if he can skip a month next month, it’s going to put him having more cash on hand to weather a storm… Because he’s looking at Covid-19 and the shutdown – that’s definitely impacting the total economy; and oil and gas is — I have literally just filled up for 99 cents a gallon. That is crazy.

Theo Hicks: Wow…

Will Fraser: Yeah, it was absurd. Like, can we store this stuff, and flip it? [laughs] No, we can’t. But for him, he and I both acknowledged that “Hey, if you can skip next month and I don’t hit you with a late fee, or even a potential eviction”, then he can hold that cash and be a little more resilient in the face of an impending however many months of down… But we can amortize what he didn’t pay over the remainder of his 15 months left on his lease. And he felt like that was a really gracious thing.

He has proven himself as a tenant that communicates honestly and stands by his word, so I wanna be understanding and do the same thing for him.

Theo Hicks: That was a good transition with another question I had… So you’ve got, let’s just say, ten tenants reach out to you and say that “I’ve been furloughed, my hours have been cut, I lost my job, and I’m not gonna be able to pay rent this month.” Do you just take that at face value, or do you ask for some sort of additional documentation to confirm that what they’re saying is true?

The reason why I ask is because I would imagine that with the [unintelligible [00:07:56].10] evictions, people might take advantage of that and just claim that they’ve lost their job when they really haven’t. I was wondering if you’re doing anything extra to confirm, like requiring a financial hardship letter, or anything like that.

Will Fraser: That’s a great question. At this point I’m not, other than just taking note of who their employer is, and then asking some other people… Because Oklahoma City, honestly, is not that big of  a place. So if someone works at Dell and I hear that they’ve been furloughed, that’s  pretty easy to confirm through the grapevine… So just taking note of that.

But at this point I’m not asking for any of those things, and the idea being with tenants that have already proven themselves to be valuable – I hesitate to say valuable or invaluable, but ones that showed the right kind of character and communication tendencies, I wanna come alongside them and extend a trust that should be reciprocated in the months and years to come.

So it’s an opportunity to grab a depth relationally that we’re not gonna get otherwise in a tenant/landlord relationship, that should be great for the years to come. So that’s my idea of extending that trust… But for sure, it’s gonna be manipulated, and I’ve already had tenants reaching out, saying “Hey, I heard you don’t have to pay your mortgage, so are you just trying to play it all close to the chest and get us to  pay, even though you don’t have to pay?”  Like, hey, that was the governor of New Jersey, and the last time I checked, he’s not the governor of Oklahoma.

But there’s a lot of misinformation out there. It gives us a good opportunity to kind of level up and just call a spade a spade. What I told that tenant is “The moment my mortgage is forgiven, I will pay that forward.” Because there’s a reason — if the government froze all principal, interest, taxes, insurance and repairs and maintenance, there’s a real reason. So it would be in keeping with that to say “Hey tenant,  you don’t need to pay this month, because I don’t need to pay.”

But as it is, principal and interest are still due, taxes are still due, insurance is still due, and tenants are calling me more than ever to do repairs and maintenance, because they’re home more than ever. So explaining that to people, “Hey, do you see why all these things are still in play? Which is why we need to collect.” And then a secondary conversation is if for some reason you legitimately can’t pay and we’re prioritizing what we have to pay to make sense, then that’s real, too.

The oil and gas guy – he legitimately is having zero income right now. So yeah, I know no one’s calling you to come do whatever he does in the oil and gas, so that has a real effect… So I wanna live with him in an understanding way, but also communicate very real, so that they can understand the landlord’s side… Because I think a lot of times tenants live in this world as if being a tenant is somehow different than owning a house… Let me flesh that out a little bit. I had a tenant call and go berserk because they didn’t have hot water one night. And at the exact same time I didn’t have hot water at my house, because my hot water heater was out. It took my four days to get my own hot water heater replaced, yet the tenant’s expectation was that it was completely unacceptable for them to not have hot water for two hours. That’s not true if you own the house, so why on earth would you expect it to be true if you are a tenant in a house?

Anyway, so educating tenants on what reality is – we have an opportunity to do that now, that we don’t have day to day.

Theo Hicks: Yeah, and I think a lot of the things you said — I think one of the key advantages people who self-manage will have during this situation, than people who have a third-party company… They can’t have those conversations, because they don’t’ have a relationship with their residents. So I think a lot of the stuff you’re saying right now definitely applies to people who self-manage.

From other conversations I’ve had with people who self-manage – they’re saying that they’re having it much smoother (as smooth as it could possibly be, I guess) than third-parties.

I have  a couple other questions… This is taking a different track, but you have partners on some of your deals – how did those conversations go? At what point did you guys realize that this was something that was gonna have an impact on your business? I’m just curious to see how those conversations went. I’m assuming — was everyone on the same page right away, did everyone come at the realization at the same time? Were there any budding heads? What’s it like being in partnerships during this situation?

Will Fraser: It was kind of an evolving situation, because they came to me as clients, typical real estate clients, looking to buy rental properties… And one of the things that I try to do with everyone is walk through a series of discovery questions, because there’s a lot of different investing philosophies. If you had two different people who say “I wanna invest in real estate”, but one of them means “I wanna make the big bucks in flipping” and the other means “I wanna  buy properties that cash-flow and I wanna hold it for 27.5 years, and then keep swapping until we give our kids a huge gift” – that’s naturally gonna butt heads.

But a lot of people, when they hear about real estate investing and they really just get a hankering to get started, they come full of zeal, but not full of a lot of developed vision… So I try to walk everyone through the process of formulating — if you had a magic wand and you can wave it in ten years, in fifteen, in thirty years, what would be true of your real estate investments, and what role would you play in it?

As I started to do that with these guys, it just became evident that we were all looking at long-term wealth built through wise buy and hold investing. So I thought that was cool, that it had never occurred to us to partner until we started looking at specific deals… And what we’re seeing is the faster you can move on these deals, because the market has just been roaring in Oklahoma City, the better of a shot you have at actually taking it down.

So with them being out of town, with them being otherwise employed, and looking to deploy some of the capital that they generate into real estate… But me being a full-time real estate person, I was able to move a lot faster than they were, so we kept losing deals, because hey, there’s this gap.

So I had the idea – and I remember walking through one deal together, and the idea was “I can buy this and you can basically do hard money lending, or private money lending.” And option two was “You could buy this, and I broker it”, and then option three is “We buy this together.” And then they just kind of looked at me and were like “Huh. What would that one look like?” “I don’t know, let’s flesh it out.” So we just dove into the option of “We buy it together”, and we kicked around a bunch of ideas, and we saw that there was a synergy  there that they were pleased with, and I was pleased with. So we tried it with one deal first, and then we grew that, and then it’s turned into — gosh, I think we said like 30 units off of that one.

Theo Hicks: Okay, thanks for sharing that. But now, more recently, you’ve had these partnerships, and you’re kind of going through a crisis… I’m just curious to see what those conversations are like. Are you guys having weekly calls to figure things out? Was there a couple people who didn’t think it was that big of a deal at first, while other people thought it was a big deal? Were there any issues at all? And if so, how did you get through them, or how are you getting through them?

Will Fraser: Yeah, we’re having about two calls a week – which partially is crisis and partially is we’re all sitting in a very different pace than we have, so we wanna take the opportunity to really lay the groundwork and communicate more… Because most of the time, the partners are all running at a million miles an hour in different directions.

But I think I was the one that was not taking it seriously at first, because I looked  at it as “Hey, this is a coastal thing. We have very few cases in Oklahoma…” I don’t know if you noticed, but it’s not really a tourist destination, or an immigration hot spot… So typically, we’re not hit by the same things that affect New York and L.A.

So that kind of naivety was exposed by the partners, and we’re like “Hey, what are we gonna do when the tenants can’t pay?” I’m like, “Well, I don’t know that that’s gonna happen.” And our partnership – and I think this is in the nature of healthy partnerships, that really drives me to embrace them… Is when I was weak and short-sighted, my partners brought a seriousness that’s challenged me to step up and say “Okay, what are we going to do?” So we started diving deep into the numbers and saying “Okay, do we need to start having conversations with our lenders now?”, to say “Okay, when this happens and we can’t pay, what are we gonna do?” And we got to all get on solid ground with our approach…

And actually, things like that have given us an opportunity to go deeper in unifying our vision, which is going to continue to pay dividends… Because what we decided was “This presents us with an opportunity to grab credibility.” Because one of the things that we run into with the lending side is “Hey, you guys are relatively young and new, so we don’t know if we wanna continue to make [unintelligible [00:16:38].24] loans to you… So let’s weather it a little bit.”

So when you have something like this, where countless people who have been less disciplines are looking at it and they’re saying “Holy crap, we have no money here”, and they’re calling their banks, that creates a panic on the bank, and a stress on the bank. So when the bank calls us and says “Hey, are you gonna be able to make your payments?” and we do every time, on time, then we’re establishing credibility in the fox hole, like the war time, that is going to pay dividends in the peace time… But the partners and I, through these calls and through running stress tests and analyses, we’ve decided “Hey, we’ve got a lot that we can give up before we don’t pay the bank. Hey, we’re gonna give up personal profit.”

So we started going through that priority list of “How do we honor the commitments we’ve made, and establish credibility in this time, that’s gonna pay dividends in the peace time?” So I think it’s been a cool opportunity for that, and I’m thankful for my partners bringing the seriousness that I lacked, because it’s made us a lot more mature as an investing group.

Theo Hicks: Okay. Well, is there anything else that we haven’t talked about already, as it relates to the Coronavirus and your business, that you wanna mention before we sign off?

Will Fraser: I think the importance of communicating ahead of time. And I’m gonna say this as a reminder to myself. When we can see things coming, it does everyone better to communicate up front, as opposed to — I mean, when we ostrich and we stick our heads in the ground, and we’re like “Maybe it will go away”, the problems usually don’t go away without being resolved.

So let’s take these opportunities to have our partnership discussions, to have discussions with our vendors and our tenants, and our landlords if we’re tenants, and call a spade a spade, and talk about reality, and let’s wrestle through those hard things now… Because it’s gonna establish better rapport and better credibility.

Theo Hicks: Alright, Will, we really appreciate you  taking the time to come on the show today, and extra-appreciative for you talking about how you are dealing with the Coronavirus right now… So just to kind of recap what we’ve talked about – we’ve talked about rent collections; you’ve got a mixture of 4, 3, 2-units, and then a single-family home that are long-term rentals. We’ve talked about how you’ve actually had tenants reaching out to you, letting you know that they’ve hit that financial hardship, that they’ll be able to pay rent this month, but weren’t totally sure how long they’d be able to pay rent… So a few plans you have in place is let them pay with their credit card, and eat that credit card fee, although that’s not something that you’re going to encourage. Then allow people to pay their rent incrementally, and then amortize that over the rest of their lease.

You also mentioned that if you live in a smaller areas, it’s much easier to confirm that someone’s telling you the truth. If someone mentions  they worked at Dell, and claim that they’ve been laid off and you know that Dell are laying people off, then you’re able to confirm if they’re telling you the truth.

We also talked about how you approached your partnerships, and how you do two calls a week right now, and that you were proactively planning ahead of time, you and your partners, about what to do if your tenants cannot pay rent. You also mentioned something I thought was really wise, which was that this is a great opportunity to build credibility with your lender if you’re able to make your payments in full and on time. Once things start to come back to normal and you want to buy properties from people who maybe weren’t paying their mortgage payments on time, then you can get financing from your bank, because of all the credibility you’ve built up…

And then lastly, you talked about the importance of communicating ahead of time, as opposed to the ostrich approach that you mentioned, of sticking your head in the ground. That applies to the residents, as well as the investors, too.

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

Will Fraser: Thanks, Theo. Have a good one, man.

JF2043: The Benefits of Tertiary Markets During The Coronavirus With Solomon Floyd

Solomon is the CEO and founder of Reunion Investments. His business focuses on tertiary real estate markets and they currently are working with the department of defense to provide military housing, which basically guarantees rent for his investors. He explains how he is able to help his passive investors get high returns in uncommon markets.

Solomon Floyd Real Estate Background:

  • CEO & Founder of Reunion Investments
  • Managing Director of the CTX Global Real Estate Fund
  • Served in the US AirForce as an Airman
  • Located in Dallas, Texas
  • Say hi to him at : https://www.reunioninvestmentsllc.com/ 

 

Best Ever Tweet:

“Look at these markets and how they operate now in this crisis, and how they handle these issues to be prepared for the future.”  – Solomon Floyd


TRANSCRIPTION

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

Solomon Floyd: I’m doing great, man. It’s been a beautiful day here in Dallas, Texas, and to be honest, working from home has become a lot more manageable.

Theo Hicks: That’s good to hear. Today we’re talking about the Coronavirus and how it’s impacting Solomon’s business. Before we get started, a little bit about his background. Solomon is the CEO and founder of Reunion Investments. He is the managing director of the CTX Global Real Estate Fund. He has served in the U.S. Air Force as an airman. He’s located in Dallas, Texas, and you can say hi to him at Reunion Investments LLC.

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

Solomon Floyd: Yeah, absolutely. My background is, as you said – I’m an airman and entrepreneur from Dallas, Texas, who’s focusing primarily in tertiary markets, and utilizing military and municipal housing contracts to essentially get a form of guaranteed rent to my investors.

Theo Hicks: Alright, so tertiary markets… What types of programs are those, that guarantee rent to your investors?

Solomon Floyd: At the moment Reunion’s biggest focus has been our military rental program, where we use our DOD Housing Contract to house military members in exchange for what would be guaranteed rents. So in times like these, where a lot of landlords are scared, and like “Oh my god, what’s gonna happen to my rent?”, my investors aren’t really feeling that, because from the history of time, they’ve never not paid rent for military housing, and they’ve never not paid military members.

So now, my investments have the ability to wait this out and take their money out of the stock market, put it into more real estate that’s gonna house military members, and get them that guaranteed rental income every single month.

Theo Hicks: So the houses that these military members are investing in – people will come to you and say “Hey, I wanna buy a house that’s essentially guaranteed to collect rent”, and then do you help them through the entire process of buying the house, putting in a resident, managing it, and it’s just a complete passive investment for them?

Solomon Floyd: Exactly. We make it as easy as possible. Reunion understands that no one’s going to be able to make it out to these markets as easily as we are. We already have infrastructure there, our boots on the ground are there, our construction company is there, and our property management facilities are also there. So we make it as easy and as passive for most investors to say “Hey, I wanna help the community grow, and I wanna help these people who service every single day, but I also wanna make money.” That’s a very easy thing to do when you just factor in all the amazing possibilities that we can do.

Theo Hicks: So right now there’s been no issues with rent collection from any of these during the Coronavirus, correct?

Solomon Floyd: Exactly. It’s been a matter of we may have a  little issue on how many people are getting stationed and where now, just because some troop movements have halted… But the people who currently have rentals with us, their rental amounts aren’t being affected.

Theo Hicks: Perfect. I guess it’s really not much to talking about the Coronavirus, unless you think that might change in the future… But you expect it to not really have an impact at all, even in the future?

Solomon Floyd: [unintelligible [00:04:03].18] We’ve gone from doing originally maybe 35 deals a month, to now, we’re coming into April, and I’ve got 62 deals on my table. People have panicked, and Reunion offers them the ability to put their money someplace else. So as the Coronavirus goes – it’s not necessarily about Reunion, but when you really think about it, it’s a place about tertiary markets. Tertiary market investing is something that a lot of people overlook, because the distance is scary. There are so few distance investors out there, at least in these markets that are so small. And these tertiary markets provide you a great ability, especially from any investor’s standpoint; they don’t have Uber Eats, they don’t have Favor, like we have in Dallas. They don’t have a form of technology aspirations toward them… Which means now, they’re relying on the system that we are. Who’s gonna go deliver their food?

You see these people wait in line, and this offers people the amazing ability, especially now that we’re mimicking things similar to 2018, to innovate in these tertiary  markets. There’s still innovation that can be done, whether it’s the rentals technology, self-driving cars, whatever it is. That’s the best part about tertiary markets.

Theo Hicks: What types of returns do your investors make on these types of investments?

Solomon Floyd: For us right now, we are showing anywhere from 35% to 60%. That depends wholly on the investment, but we don’t do anything below 35% ROI when it comes to doing any of our real estate that we’re pursuing.

Theo Hicks: And this is for your company or for the investors who are investing?

Solomon Floyd: For the investors who are investing with us.

Theo Hicks: And that’s 35% cash-on-cash every year, or is that including profits from the sale?

Solomon Floyd: Profits from the sale go up a little bit more. Primarily, a lot of people use our housing for rentals. Sales are a little bit different; they’re a little bit higher, depending on who you’re selling to.

Theo Hicks: So you’re saying that if I invested 100k, I’d be making 35k to 60k every year, in cashflow?

Solomon Floyd: Absolutely.

Theo Hicks: So why isn’t everyone doing this?

Solomon Floyd: I think a lot of people, again, have that fear about these tertiary markets. I can take 100 people up to Wichita Falls, and maybe 25 of them are gonna be like “Oh, man. This is it for me.” I think it’s fear-based primarily, and the thing is, they don’t know much about that market. A lot of people are comfortable investing at home, especially in the economy that we had a couple of weeks ago… But not anymore. [laughs] Ideally, people are comfortable investing at home now.

A lot of people are part of Reunion, so I can’t say that no one’s not doing it, but I can say that more people are getting into it now more than ever.

Theo Hicks: And you said you do about 35 deals per month, and now it’s just exploded more? How are you supporting that deal flow? Have you had to change your marketing strategies, or have you always had more deals than you could buy?

Solomon Floyd: I think right now we’ve definitely had to change the marketing strategy. We were able to go to networking events, go to conferences, speak to people, and now we’re having to pivot to doing a lot more online digital marketing, which is odd for real estate companies, in my opinion… Because you can do most of that in-person. That’s where the connection is made. But getting people to do that next step over the internet I think will be kind of challenging. We’ll see what happens… But that’s just how it is.

Theo Hicks: So what types of online marketing are you doing now?

Solomon Floyd: We’re about to start hitting up YouTube and seeing if we can connect with our investor base ther. That’s where a lot of people are looking at  more real estate things as it grows. YouTube’s becoming a pretty popular channel for real estate investors to see what could happen, I suppose… So that’s what we’re gonna start marketing, as well.

We’re also about to do our first LinkedIn advertising, which apparently is very challenging… So we’ll see how my team does, but I’ve got complete confidence that they can make it happen, if they’ve got me this far.

Theo Hicks: And then what about finding investors? Do you have enough investors at the moment to support those number of deals that you’re needing to do, or are you also needing to pivot your investor lead strategies as well to online?

Solomon Floyd: I think we’re gonna have to definitely pivot the investor strategies online, as well. We are always looking for people to come in. Our newest product that we’ve created was in short-term JV deals that anybody could do in these tertiary markets… Because for us, there’s always gonna be a company that wants to buy these back here in the next couple of months, once everything flattens out, and convert them into a REIT. We’ve already had several companies approach us saying “Hey, if you can get us 100 cash-flowing properties, we’ll come by and buy them in July.” And they’ll put them under contract before everything else is really set in stone.

So it’s basically a guaranteed buyer, where all you have to do is go out and build homes, buy homes. Let’s say I need 100 – I’ll just contact a group of investors and say “Hey, I need help getting these 100 homes built/rehabbed/whatever”, knowing that there’s a buyer on the other end, as soon as they’re done. It’s kind of the perfect strategy for most people.

Theo Hicks: Do you focus on a specific market, or is this national?

Solomon Floyd: My DOD contract extends all over the United States, to every single military base, and tertiary markets exist throughout everywhere in the world, so yeah. Right now we’re targeting 18 markets. We’ve done about 12 overall.

Theo Hicks: If someone wants to do what you do, would they need to have previous military experience, or is this something that your average person could do?

Solomon Floyd: It’s something that your average person could do. For example, a buddy of mine – we were seeing what was happening in Flint, and we kind of thought to ourselves “The root problem would primarily be water filtration. How can you filter that water enough to put it in everybody’s home?” And the conclusion we came to was why don’t we just put three serious water filters in everybody’s front year, and run the water through there, so that way it’s clean on the other side?

We got about ten investors together, and we all put our money together, and I think we bought in total 30 homes. We replaced the plumbing all the way to the street, put in a three-series water filtration system, so that way the homes in Flint, Michigan had clean water. And we just rented it back out to the owners, or if the owners wanted the homes back, they’d buy them back from us. So anybody can do it. Tertiary markets exist for everybody.

Theo Hicks: And what about the DOD contract?

Solomon Floyd: The DOD contract – that’s a little bit harder to secure, but that’s a matter of just doing your own research to figure out what each base is in need of. In fact, if you go through the process of becoming a government contractor, it’s really not that difficult. I wish I knew all the logistics behind that, because I didn’t actually do my process. Somebody else did it for me, and that’s what made my life a little bit easier. But definitely research more into that, because the government is looking for housing, whether it’s military, veteran housing, or any sort of housing.

In fact, the best one to do, that doesn’t require you to be a military housing contractor, or any DOD contractor, is VASH. The VASH is essentially Section 8 for veterans, except with way better perks. It’s only a year that the veteran gets the voucher. The rents are substantially higher, and if any damage is caused by the veteran, the VASH program covers that. So that’s a great one for people to get involved in and help out as well.

Theo Hicks: Okay, Solomon, is there anything else we haven’t talked about that you wanna mention as it relates to your business and the Coronavirus?

Solomon Floyd: No, man. I think ideally most people just need to start looking out for these markets, as that’s where the opportunity is gonna be. When this is all over, I don’t imagine that the real estate markets – they’re gonna pick up again. They’re gonna be exactly where they left off, and that’s exactly the case that we felt every single recession. So explore outwards and help these other communities, and  you’ll be able to see now they will become the benchmarks for investing in the future.

Look at them how they operate now, in this crisis, as a tertiary market, and how they handle these issues, and see where the benefit and the value is, for yourselves and for the people that live there.

Theo Hicks: Alright, perfect. Thanks for sharing that, and thanks for sharing all of your advice today. Solomon does DOD housing contracts that houses military members, and he said that military members have never not been paid, and their housing contracts have never not been paid… So his business is going to be — not necessarily unaffected by the Coronavirus, but it’s gonna be affected in a positive way, because it sounds like he’s getting more deals this month than he had in previous months, due to the fact that there has been an explosion of demand for real estate in his tertiary markets due to Coronavirus.

He mentioned that you can get a 35% to 60%  return on your investment. So people who are interested in passive investing should definitely check out his website and the deals he has to offer. Again, that’s ReunionInvestmensLLC.

We talked about how he has to change up his marketing strategies, which most likely we are gonna have to do as well,  due to the Coronavirus… Because you can’t go to meetup groups or in-person events anymore. So he mentioned he’s gonna use YouTube to connect with the investor base, he’s gonna use LinkedIn advertising as well.

Then he also mentioned an interesting investment strategy, which is to pursue VASH, which is essentially Section 8 for housing.

Solomon, thanks for joining us today. Best Ever listeners, as always, thanks for listening. Stay safe, have a best ever day, and we will talk to you tomorrow.

Solomon Floyd: Thank you so much, Theo. I appreciate it.

JF2042 : Short Term Rentals During The Coronavirus With Avery Carl

Avery is the CEO of The Short Term Shop focusing on short term rentals. She purchased her first property at the age of 26 and became a millionaire at 31. In this episode, she shares how they are approaching the market when it comes to renting out properties during the coronavirus pandemic. She also explains how the different types of short term rentals have been impacted and how she would go about renting properties in cities, rural towns, and vacation areas. 

 

Avery Carl Real Estate Background: 

  • CEO of The Short Term Shop brokered by eXp Realty
  • Top 1% real estate agent and short term rental expert
  • Bought her first rental property at 26 and has scaled to 28 doors
  • Has connected investors with over $125 million in cash flow short term rental investments
  • Based in Pigeon Forge, TN
  • Say hi to her at www.theshorttermshop.com  
  • Best Ever Book: Ego is the Enemy by Ryan Holiday 

 

Best Ever Tweet:

“If you’re a seasoned investor and you have the cash reserve, now may be a good time to find great deals on properties.” – Avery Carl

 

JF2036: Coronavirus vs AirBnBs With Joseph Prillaman

Joe started off selling industrial equipment before going into real estate investing. In two short years, he grew his real estate portfolio to eleven units doing very well and now he is dealing with the novel coronavirus. Five of Joe’s eleven units are AirBnB’s, and in this unique epidemic, he is projected to lose a major part of his revenue if the coronavirus continues through the summer. Joe shares how he is preparing to survive this epidemic as a real estate investor. 

Joe Prillaman Real Estate Background:

    • 2 years of real estate investing experience 
    • Currently has 11 units, 5 Airbnb’s, and 6 single-family homes
    • From Carolina Beach, North Carolina
    • Say hi to him at www.anchoredinvesting.com
    • Best Ever Book: Ego is The Enemy

 

Best Ever Tweet:

“We try to find out what we can reduce right now and any additional revenue streams we can find” – Joe Prillaman


TRANSCRIPTION

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

Joe Prillaman: Just living the dream, Theo. Doing well.

Theo Hicks: It’s good to hear. A little bit about Joe – he has two years of real estate investing experience, currently has 11 units, five Airbnbs and six single-family homes. From Carolina Beach, North Carolina. His website is anchoredinvesting.com.

Joe has agreed to talk to us today a little bit about what he is doing to combat the current Coronavirus, and we’re also gonna talk about things that he did in preparation, so that hopefully he’s not as impacted as negatively as others who are not as prepared for a crisis such as this.

Before we get into that, Joe, do you mind telling us a little bit more about your background, and then we can get into what you’re doing today?

Joe Prillaman: Absolutely. I really cut my teeth in real estate investing in Fayetteville, North Carolina, doing the whole Buy Rehab Rent Refinance Repeat (BRRRR) model, but I originally got started — I used to sell industrial equipment across the South-East, and a lot of windshield time… I cover 11 states; probably 90% of my travel was in the car.

So two years before I’d ever purchased my first house, my sister’s fiancée introduced me to a podcast called The Bigger Pockets Podcast. I got to just hear about real estate, and I just got the bug for it.

Over the next two years I listened to as much as I could, and just through consistency and networking — I really got tons of information thrown at me,  but I was able to jump in and start buying Fayetteville. Since that time, we’ve got five properties there, all done through the BRRRR model. Four of them were purchased off the MLS, one of them was off-market, and the deals really just started to dry up at that time. This was the start of 2019. I just couldn’t find anything that made sense anymore.

So again, through networking and whatnot, we were just able to find a whole new niche in Airbnb, and my wife and I did a house-hack in Carolina Beach, and since then we’re up to five Airbnb units, and just rockin’ and rollin’, living the dream.

Theo Hicks: Perfect. So you’ve got the five in Fayetteville – those are just BRRRR rentals, single-family home rentals, and then you’ve got five in Carolina Beach that are Airbnb, right?

Joe Prillaman: Yes. And then we have our original — so we originally bought a single-family home in Wilmington, which we’ve since turned into a long-term rental as well. So that’s the six long-terms, and all five Airbnbs.

Theo Hicks: Perfect. So let’s start with the Airbnbs. I would imagine that since they’re shorter-term rentals, it’s not a beach, so I’m assuming a lot of the people who rent those are people that are going on vacation to the beach… And now with the Coronavirus happening, not many people are even allowed to leave their homes. So maybe tell us how those properties are impacted first, and then we can talk about some of the things that you are doing or have done in order to minimize a negative effect of the Coronavirus on those properties.

Joe Prillaman: Absolutely. The Coronavirus has definitely thrown a pretty major wrench in our operations. As of literally yesterday, Carolina Beach came out and they have banished Airbnb short-term vacation rentals from the island. Everything that’s less than a 90-day rental term – you’re just simply not allowed to have them at all… Hotels, motels, everything is shut down on the island. So that’s a pretty major reduction in what we’re able to do, and it’s really been crisis mode ever since the Coronavirus came out.

I’d say about 90% of our bookings come from Charlotte, Raleigh, Durham, really the North Carolina area, and travel has completely stopped. Not necessarily because of anything that we’ve done, but obviously the Coronavirus has just shut the whole world down.

Theo Hicks: So we were talking a little bit earlier, before we started, about some creative ideas that you’ve been floating around for those properties… So what are some ideas, whether they’re working or not, that you’ve come up with, for using those properties? Because again, maybe those ideas won’t work in North Carolina, but they might work somewhere else. Also, these might be ideas that once the Coronavirus is over, it might trigger something in someone else’s mind for a new way to use a single-family home. So what are some of the things you were thinking about once you realized that “Hey, we can’t use these Airbnbs anymore”?

Joe Prillaman: Initially, we hit the ground running with “Okay, is it possible to get long-term tenants in here?” but then also “How long is the Coronavirus actually gonna last?” So we immediately switched to “Okay, if we can’t put long-term tenants in here, because if this does pass”, we’re gonna lose a huge amount of revenue in the summer, which is our peak season… It’s a very seasonal market. We make the majority of our revenue from April until about October. So we’re like “Yeah, we don’t wanna put a long-term tenant in”, so immediately we started calling the hospitals, we started calling anyone that would be negatively affected by Coronavirus, to see if “Okay, can we use our rentals as quarantine units, or would it be possible to store people in it?” People that wanna self-quarantine… Really anything we can to generate income on these properties while they’re sitting vacant.

A lot of things that we did as well was we went through all of our processes, all of our systems to see where is money being spent. We canceled all our subscriptions, anything that is going out every month, we just tried to find out what we could reduce right now, and any additional revenue streams that we could find.

We’ve explored using some of our units as, if people are still getting photography done, as staging units, so that people can have family photos, but still be far away from each other… Just a lot of different ideas on “Okay, how can we utilize the asset that we still have, that we still have to pay for, in a time when we’re not allowed to use it for what it’s intended?”

And really, it comes down to sound investing – having adequate cash reserves for rainy days, because this is gonna pass, too. Coronavirus is gonna go away and we’re gonna have another great season, but it’s having sound investing throughout your entire process of “You’re buying for cashflow, you’re securing long-term low-interest debt, you’ve got adequate cash reserves.” That’s all Joe Fairless’ 3 Immutable Laws of Real Estate Investing. All of those type sound investment strategies play out whenever you have something that comes up that you couldn’t expect. And no one could have predicted that this would shut down my entire business right as soon as the most profitable time of the year started.

Theo Hicks: Yeah, I was gonna say, those three things sounded familiar. Joe’s 3 Immutable Laws of Real Estate Investing. So for the cash reserves, when you’re underwriting these Airbnb deals, it sounds like the majority of the income begins in April and then ends in October… So you’re just entering that now. So it sounds like you have adequate cash reserves in general, just to cover those months when you’re not bringing in money… But what specifically is your cash reserve? Is it a monthly thing, is it an upfront thing, a combination of both?

Joe Prillaman: A little combination of both. The original thought process behind the whole thing was we wanna have six months of if we don’t have any income coming in, that we can pay the bills. And that would be more than an adequate amount of time to figure out what we needed to do.

For our long-term rentals we’ve got a similar type fund, but our goal was to have about $20,000 per five units for our long-term. And for our short-term, we were like “Okay, well what would it take to cover all the mortgages, to cover everything and to keep the ship running for six months?” And that’s really what we established from the beginning, of what we needed, and now we’re really thankful that we actually did that.

Theo Hicks: So do you get three months upfront and then you save per month? When you’re initially underwriting the deal, when you say you wanna get six  months of bills covered, what does that actually look like? Is it three months upfront and then every month you save up until you have six months, or [unintelligible [00:09:12].22] you stop? Specifically, how does that work after you buy a property?

Joe Prillaman: Okay, so for us, I was still selling industrial equipment up until January of 2020. So we have been taking all of our income from our properties and from our long-term rentals as well and rolling those back into — kind of feeding the machine, trying to generate a snowball effect, so that we can continue to buy more rentals… And I’ve been living off of my W-2 income.

So for us, with our Airbnbs, what we would do is every time we made money on them, instead of immediately investing everything back we would take a big portion of it and put it into the emergency fund, until that emergency fund had built up to six months of adequate cash reserves. Then we would take that money and reinvest it into other properties, or just use it to make our systems better.

Theo Hicks: Just so listeners understand how important and how powerful having a reserve fund is, maybe walk us through what you would be doing right now if you didn’t have that reserve fund.

Joe Prillaman: Oh, man… Well, I am the crazy guy who’s been living on the beach for free; that’s kind of how my friends know me. But I might be the crazy guy living under the bridge for free. My whole process was I wanted to build up enough passive income and then enough “active” income, because I think Airbnb is definitely active income; it’s more work, it’s more like a job… So I was trying to build myself out into another job.

I went and got my broker’s license, and the whole plan was I wanted to shift into full-time real estate about now. And without those adequate funds like my industrial sales repping job, it’s gone. I’m not doing that anymore. So now this is really going to be – it was planned to be – the only source of income. So not having those six months of backing, I could have been in a really bad situation.

But thankfully, we built those up. I got my broker’s license, we’re gonna go out and figure out how to bring in other revenue streams and really hone in on the sales side… But if we didn’t have something like that right now in a Coronavirus situation, you could really be up a creek without a paddle.

Theo Hicks: Oh yeah, seriously. Right now everyone who talked about having reserves and had their reserves are looking like absolute geniuses. Before I got into the question, there was one thing I was thinking about -this is just me coming up with weird ideas… I was looking out my window and I saw into my neighbor’s office, and how obviously is working from home right now… And the office is set up for one person, but there’s two people in there; it just kind of looked really awkward and uncomfortable…

So I was wondering if anyone out there, any short-term rental people – if it’s even allowed – could rent out their house or rooms in their house as makeshift offices for people, so they’re not stuck at home… If they have to be on phone calls all day, they’re not hiding out in the bathroom with the water running, so they can’t hear the kids screaming in the background… So just an idea; I’m not sure exactly how that would work, or if it’s even legal, based off of the self-quarantining and stay-at-home [unintelligible [00:12:09].05] and whatnot… But just an idea that someone could possibly run with and… Give me credit for.

Joe Prillaman: [laughs] That’s the stuff, you’ve got to be creative in a market like this. When you have volatility, you have uncertainty, you’ve gotta go out of your way to make it happen. And the great part about doing real estate is it’s all about solving problems and helping people. It’s all about the people here. That is gonna carry past this minor dip in the craziness. Because it’s gonna get hard, and it’s all about solving those problems and coming out the other side, and helping other people do it.

I’m a huge proponent of helping other people get into real estate, but they’ve gotta understand that the reason we’re so conservative on our numbers, the reason that we’re all about making emergency funds important is for situations like this. And sure, this one’s a lot worse than anything that we ever expected, but that’s why we’re so conservative with our numbers.

Theo Hicks: Oh yeah, absolutely. Alright, Joe, what is your best real estate investing advice ever? And I think based off of our conversation I know the answer to this… But if you wanna repeat it again, you can; of you can come up with something else.

Joe Prillaman: Yeah, have adequate cash reserves… But I’d also say that probably the best advice is consistency, in my opinion. Being consistent. Go out and meet as many people as you can. You reputation will always proceed you in this business. And tell everyone you know what you’re doing. It’s all about being consistent, and that includes being consistent with your emergency funds. Make sure you have them.

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

Joe Prillaman: Let’s do this!

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

Break: [00:13:56].16] to [00:14:41].17]

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

Joe Prillaman: Ego is the enemy, I’d say, by Ryan Holiday. Great book.

Theo Hicks: Yeah. I actually read that one about a year, a year-and-a-half ago. If your business were to collapse today, what would you do next?

Joe Prillaman: I would start a podcast in a niche type sales.

Theo Hicks: Besides your first deal and your last deal, what is the best ever deal you’ve done?

Joe Prillaman: First deal and the last deal, the best ever deal… Okay. So the best ever deal I did was an off-market single-family home in Fayetteville. It was a 4-bedroom/2-bath home down the street from one of the properties I own. I cold-called the owner out of the blue, she told me she had been wanting to sell it and couldn’t sell it, and two weeks later we had a great property under contract and closed. I ended up paying 61k for it. She was tickled pink, happy as can be to sell it, and it appraised for 97k.

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

Joe Prillaman: I’m really big on teaching other people how to do this. We host a meetup here in Wilmington, which is right outside of Carolina Beach, and since we’ve started (my wife and I) doing the house-hack, two more of our really great friends moved in Carolina Beach, doing the same thing. Hopefully they have adequate cash reserves right now… Also, we love giving back to our local church and volunteering.

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

Joe Prillaman: Best place to reach me is through email at joe.prillaman [at] anchoredinvesting.com. Or find me on Bigger Pockets.

Theo Hicks: Alright, Joe, I really appreciate you coming on the show today to talk to us about your response to the Coronavirus. I think this is going to be obviously very topical right now, but I think what you’re doing is something that can be applied to – or should be applied to – everyone’s real estate investing business from now until whenever real estate investing (if ever) goes away… And that is to have adequate cash reserves.

You talked about how for your short-term Airbnb type rentals the goals is to have six months of bills covered, and then for your longer-term you wanna have 20k for every five doors, so 4k per door.

You talked about how you created this emergency fund, which is to take the income from all of your properties, and rather than reinvesting that back into the properties or paying yourself, taking a large portion of that and apply it to this emergency fund until you’ve reached your six months or 20k per door. You mentioned that you were living off of your W-2 income, and once you hit that number, you left that job.

You also mentioned that because you were doing the short-term rentals Airbnb in Carolina Beach, just yesterday (March 24th, 2020) they basically banished anything that has a lease of under 90 days… So obviously that affects your short-term rentals. You talked about how the first thought that you had was to get longer-term tenants, but since we are entering the most profitable months for Airbnbs (now through October), you decided that that’s probably not the best approach, because if it does go away in the next few months, then you’re gonna be losing out on all that summer money.

So the next thing you did was try to figure out how to generate revenue from these units. You called hospitals to see if they  need to use rentals as quarantine units, you are marketing them as self-quarantine for people to generate income… And then you also explored using the units as staging units, or for family photos. Then you also mentioned on the other end the expense, and you went through all of your processes and systems to see where money is going out and see what you can get rid of, and one example you gave was canceling all of your subscriptions.

Then you gave your best ever advice, which was 1) to be consistent, meet as many people as you can, tell everyone you know what you are doing, and then be consistent with your cash reserves, which was your other best ever advice for this Covid response, as well as just general real estate investing fundamentals.

Again, I really appreciate you coming on today and talking about your journey, and – since you’ve got those reserves, I know it’s gonna work out for you. Others out there, hopefully you’ve got those cash reserves as well. Stay safe, have a best ever day, and we will talk to you tomorrow.

JF2035 : Working Remote During The Coronavirus Pandemic With Jennifer Gligoric

Jennifer is the Co-Founder and COO of Leafy Legal Services and the Co-Host on Leafy Podcast. She also has experience specializing in scaling business with remote staff. She helped grow a digital marketing company from 3 to 221 people in 21 countries in under 18 months. In this episode, Jennifer shares the best ways to go about finding top talent to work remotely and how you should approach management as a remote manager.

Jennifer Gligoric Real Estate Background:

  • Co-Founder & COO of Leafy Legal Services and co-host on Leafy Podcast
  • 20 years experience in real estate
  • From Galveston, TX
  • Say hi to them at https://www.leafyassets.com

 

Best Ever Tweet:

“If your organization is so bad at hiring, that you have people you just can’t trust, then you need to fire those people who are doing the hiring.- Jennifer Gligoric


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m your host today, Theo Hicks, and today we’ll be speaking with a repeat guest, Jennifer Gligoric. How are you doing today, Jennifer?

Jennifer Gligoric: I’m doing great. Well, as good as can be expected. [laughs]

Theo Hicks: Yeah. Jennifer’s first episode probably has not aired yet, because we interviewed her about a month ago and rescheduled three or six months out. You’re hearing this month first, because we are going to be talking about the Coronavirus. She is the co-founder and COO of Leafy Legal Services, as well as a co-host on the Leafy Podcast. She has 20 years of experience in real estate, is from Galveston, Texas, and you can say hi to her at LeafyAssets.com.

She focuses on working remotely, so what better time to go over some tips and tactics for working remotely with your employees during a crisis where everyone is essentially forced to work from home and self-quarantine in their homes.

Before we get into some of the tips and strategies that Jennifer has with us today, do you mind telling us a little bit about your background and how you got to where you are today?

Jennifer Gligoric: Sure. I actually have 25 years of experience in crisis business intervention. Before I became an asset protection specialist and owned Leafy Legal Services, I would be the person that would come into your business and if everybody is on fire and running around, I would figure it out, put out the fires and get you all back on track. That’s what I did.

Then about a decade ago I started to specialize in placing top talent American workers only remotely, and scaling businesses remotely. My biggest scale was taking a digital marketing company from three people to 221 people in 21 countries in under 18 months.

From a strategic HR standpoint, which I have a strong background in that, sales and marketing, as well as asset protection, because I’m a real estate investor and that’s important – but from a strategic HR perspective, being able to be not geographically limited with talent, especially if you can have the entire United States, is a game-changer for most businesses. But it’s a very different skillset. The managers have to manage differently… Everything is different, which everybody is figuring out very quickly right now, as we speak… So I can help you all out, hopefully, with that.

Theo Hicks: Thanks for sharing that. So let’s start general, and then I can maybe dive into more specifics. Let’s just look at it from the perspective of someone who maybe has a business, is used to working face-to-face with their employees… Because I know a lot of real estate investors do work from home, but are used to working face-to-face with their employees. Let’s talk about from a management perspective first – what are some of the things that they need to start doing differently, now that they’re not seeing their employees face-to-face every single day?

Jennifer Gligoric: You have to be a much better communicator than you ever have been before. Utilize technology. We have all the technology for you to be the best possible version of your management self. People that I’ve worked with remotely, who I’ve never met – I know more about them and their personal lives than people I’ve sat across from cubicles. People are gonna figure that out quickly, who’s a good manager and who’s not. You have to be a people person, and that is gonna be very difficult for you guys in tech who are introverted by nature, you wanna do everything by text – you can’t do that anymore. I’m sorry, you’re gonna have to change.

You’re going to need to utilize video communication software, whether it’s Skype, Google Hangouts, Zoom, FaceTime… There are a multitude of free and very cheap platforms you can get everyone on immediately. You need to be able to have that with them and talk to them, because body language is important, inflection is important… Please do not rely on text. You’re gonna find your organization is gonna falter very quickly.

And also, don’t burden your people. You want to set up clear times that they need to be there, when you’re gonna be looking at them, and then let them work. If you do it correctly, you’re gonna see people innovate, and don’t be afraid of that. Welcome it. They’re gonna come up with some unique solutions to whatever problem you are facing.

I was reading the news and there was a pizza joint, and they’re like “What are we gonna do?” They turned the waiters into delivery drivers, the guy was able to get three huge packs of toilet paper, and they sold one thing of toilet paper with every pizza, and they’re actually doing better now financially

Theo Hicks: That’s such a great idea.

Jennifer Gligoric: Yeah. “You get a roll with every pizza, okay? Because we have this crisis.” And then you have people shifting, you have people saying “Okay, let’s make face masks now. Let’s see what we can do.” You’re gonna have the helpful people that are gonna come up with stuff.

So no matter where you’re at, there are ways to pivot, and you need to listen to the teams. That’s why you have to be a much better people manager. But you wanna look at the in the face.

Another thing I’m going to tell you – every single bean counter right now in the corporate world is “We need time trackers. We’re gonna pay these people and they’re not gonna do anything.” Please shut those people up right now. That’s not really going to happen. And if your organization is so bad at hiring that you have people that you just can’t trust, then you need to fire the people that are hiring those people. You need to make a change when it all comes back.

There are time trackers like TimeDoctor and other software – they’re insanely invasive, and they cause obesity, stress… It is going to ruin your goodwill. You wanna use software like Toggl. Now, I don’t get any money for this… It’s Toggl.com. They have a free version, and they have a very low-cost version. It gives the power to the person, they can put it on their phone, it doesn’t run down their battery, and you can at least project-manage from that.

For project management software you wanna use Trello. That’s a real low-cost, easy one to get into if you don’t already have an enterprise software solution. And the majority of the people really suffering right now, let’s face it, are small businesses. The corporations – they’ll figure it out; they have big, universal Salesforce, they have these amazing hundred-grand enterprise software solutions that they’ve embedded, and they can work with remote. For everybody else who’s doing everything in an office, you’re gonna need to find these. Your accounting software should already be online. If it’s not, look at WaveApps.com. That’s completely free, unless you use payroll.

We’re a fan of Zoho. I love Zoho CRM, Zoho Books… Look into it. You’re gonna find that there are ways you’re probably gonna save money during this time, and you’re not gonna have to cut staff. You’re gonna wanna be creative on that.

Slack – I cannot overstate having Skype or Slack for your communications. Slack has free channels. I have run entire businesses with hundreds and hundreds of people worldwide on Slack and Skype. It can be done, you can be insanely profitable. So don’t worry about this; this is a challenge to innovate.

And many of you might actually come back to the drawing board when this is done and say “Hey, we did it. What are we paying this rent for? Why are we paying for this air conditioning in this office? Maybe we could spend that money and take a company trip, and help the environment, and not clog the roadways with Carbon emissions and traffic.” There’s gonna be a lot of companies that are gonna come out of this pivot and they’re gonna be different and much better. So be looking at it from that standpoint, rather than panic. I suggest that highly.

Theo Hicks: I would imagine that we’re definitely gonna be transitioning more to a remote environment, since all the large corporations are forced to work from home, and realizing that maybe we can do this without having to go to the office every single day and meet face to face, by using all of these different technologies that we have at our fingertips… So I appreciate you providing advice on that.

You also mentioned that you have experience going into businesses that are facing a crisis, and I’m sure that — because we talked about a lot of tactical things that people should start doing, but what about the mindset aspect of it? When you go into a business that’s entirely collapsing, I’m sure a lot of people are discouraged; there’s a lot of negativity floating around. Assuming that the same thing is potentially happening with a lot of investors right now – there’s a lot of uncertainty, people don’t know what’s going to happen come April 1st, May 1st when rent is due… So besides these tactical things that we’ve talked about, what is some advice  you have from a mindset perspective?

Jennifer Gligoric: For mindset — I’m gonna tell you, I’m talking to investors every single day right now, because we’re in the protecting assets, and everybody’s like “Oh my god, I should have done this before”, right? But there are two camps – there are the people that are just getting into it, they don’t know what’s gonna happen, they’re over-leveraged or whatever, and they’re experiencing a lot of fear. Then you have the people that see this for really what it is.

So please get out of the fear mindset. I’m gonna tell you, ten years from now you’re gonna be sitting with your investing buddies and someone’s gonna say “Yeah,  I was able to snap up two multifamilies because the person just didn’t know really how to do it, and I was able to get a decent deal on it, and keep the renters that were in there, because I was able to keep them in while things settled down, and that  just springboarded me.”

You’re gonna hear stories ten years from now of people going “God, why did I do it? Why did I get out of the game now? I should have invested, I should have looked at other opportunities, I should have looked at notes.” Because there are people right now that are positioning with all of this, and it’s gonna be the time that people go “Man, if only I could have gotten in at 2020.” That’s the mindset you need to have. You need to protect  yourself, you need to leverage what you can as a small business owner, and hopefully you have been treating this as a business. If you haven’t, then at least the one thing you need to take from this is that this is a business, and treat it like a business. Protect yourself like a business and have the mindset that this business is going to be successful, so what do successful businesses do?

Because I talk to people who are running with sometimes 30-40 properties that they don’t really have a structure; some of them are in their name, they’ve got 10 properties under one LLC, and I’m like, “Oh, my goodness…” And that’s a lot more expensive to fix that than if they would have had the right structure in the beginning and just built from there.

Theo Hicks: You kind of briefly mentioned this when you went through what you’ve just said – you said “People in that second camp, that see what’s going on for what it is, are gonna be ten years from now thriving based off of the decisions they made during this time period…”

Jennifer Gligoric: Oh, more than ten years from now. In ten years this is going to be the people we’ve been listening to that held on to their multifamilies during 2008, and now they are at the top of their game. So they were successful way before ten years.

I’m telling you that now is the time not to panic. There are very specific things you can do. You need to write all your congressmen, your senator, your governor, your legislator; you need to push, since we don’t have a lobbyist for real estate investors really, that I know that you can write, that’s up there… And you need to just write them. You need to utilize any of the moneys that are coming through, treat it like a business, fill out the forms, go to the bank, and use this as a time to not be risky, but to push forward. Instead of turtle, pull back, sell, be scared… Don’t do that now. That’s not what successful businesses do. They stop, they pivot, they reassess and then they see where that can go forward. It might in a different type of investing.

Maybe you’ve just done single-family and you want to do multifamily. Maybe you need to negotiate and say “Okay, now’s the time if I need cash, I’m gonna go to the people that have been renting from me for the longest and see if anybody has any down payment money and see if we can transition them into owning that house. Get me some cash, and then they can get out of the rental game.”

And there are experts like Mitch Stephen, that do incredible podcasts and incredible information that can help you do that, that have mortgage servicing companies. That company can service that note. You’re gonna have to think outside the box, but this is the time to do it. This is an incredible time to think of things different and capitalize on a situation.

And don’t lose your humanity in it. I’m not saying that. Because people hear “capitalize” and automatically it’s a negative connotation now… But I don’t mean it to be negative. I meant take these lemons and try to turn them into lemonade, because you tanking yourself and your company isn’t helping anyone. It’s not helping your family, it’s not helping your community, and it’s not helping this country. You managing to do well is much more helpful in the long run, so focus on that.

Theo Hicks: You mentioned a few opportunities. One of them was note investing, the other one was obviously not panicking and holding on to your properties, the other one was go to your long-term residents to see if they are interested in buying the property… What are some other opportunities you think are things people should be considering right now besides those three that I’ve just mentioned?

Jennifer Gligoric: Well, every single person needs to know the law. I’ve been on Bigger Pockets, so I’m very big on there as far as a contributor, and I listen… And there are a lot of people coming out saying “We’re just gonna evict people. It doesn’t matter what orders are in place”, because there are some areas of the country that have a no-eviction or a stay on evictions. “We’re just gonna tell them to go.” And I’m thinking “Well, you’re just gonna get sued so hard for that.” Don’t be like that. Think about the law that you have, look back on the property that you have, go to the banks or go to the SBA and say “This is what I have right now and this is what I’d like to be able to do, because I need to be able to keep the renters there, if at all possible.” Because trying to turn over an apartment right now is really not what you wanna be focusing on. Not if they were a good paying renter.

You wanna try to keep them in that property until they get back on their feet, and help them. And not overburden them to where they’re angry at you and they’re gonna leave, the moment that things get back on track. This is America. We’re Americans. Things are gonna get back on track much quicker than anybody realizes, because we are who we are. It’s in our DNA.

So you don’t wanna upset an entire complex full of people… Think about what you’re gonna write them, write something reassuring, try to get some money in place to help who you can and be reasonable about it… Those are things that you can do right now. And if you already have cashflow coming in and you already have that, a bank’s going to know that they’re gonna be able to get some money, too. Because everybody is going to be looking for the stimulus money, and eventually they’re going to pass it.

Theo Hicks: What about buying? Should people be buying right now?

Jennifer Gligoric: Yes. I just was speaking to Net Worth Realty, which is the largest realty agency. They’re all over the country, [unintelligible [00:16:24].08] and they only deal with real estate investors. So they buy distressed properties, they sell them at wholesale, and then they have agreements with Home Depot, and contractors, and hard money lenders… So they help real estate investors get in the game, and either flip or rent these properties after they rehab them.

Every single one of the realtors I talked to — a huge office, one of the most profitable offices in the entire Houston area, and every single realtor I spoke to were real estate investors. Some had 20+ properties they were all scanning their own deals. So if they’re doing it and they see the thing, I know everybody else should. They were all very positive about it, because they were investors themselves.

So the person who invited me – her name is Amber Lynn – she had two properties that they were flipping right then. So they weren’t stopping. So they are putting their money where their mouth is. I would look at people like that, that see the trend… And there was an uptick in interest in investors. There was an uptick in people that said “We’re gonna have to buy foreclose notes.” I talked to one guy who had already been trying to negotiate to get foreclose notes, to try to get into that game…

And his thing was “I’m gonna try to work with these people to keep them in the house”, because there are going to be companies that hold notes that won’t be able to float it because their management isn’t good. Well, that doesn’t mean that they don’t have actually good renters, it just means that they’re unable to do what they’re supposed to do at this time, because they just don’t have good management. You’re gonna see that happen, too.

People who don’t listen to podcasts, who are not taking the right advice – that’s the time for investors to come and get those notes, keep the people in the house, and now you have a performing property within 2-3 months. So that’s gonna be another opportunity to look for. There is a lot of opportunity right now, I’m telling you.

Theo Hicks: What about from an asset management perspective? Because you specialize in asset management now. You already mentioned this in the beginning, that people are reaching out to tell you that there’s things they wanna do now, that they should have done already… Maybe just tell us what those things are.

Jennifer Gligoric: Well, if you’re not operating anonymously, then that’s something that you really need to do. That is the first layer of protection. If you have an LLC but your name is tied to it, that LLC is a very flimsy protection. What you want is to have your operating company, anonymous, to where your name is not tied to it, and then you want to operate from one anonymous structure, and then put your properties in another anonymous structure that is not tied to it. When you have that set up, it’s scalable, you’re protected, and in the long run it’s a lot cheaper to do that.

All the  people who are LLC stacking right now – you’re gonna really need to think about that structure… Because even just now, you have all these EINs, all these bank accounts you’ve gotta worry about, all these different properties. Many of you who have many properties, what you’ve done is you’ve put 3-4 properties under one LLC. Well, that’s not very protective; they can all get attached in a lawsuit. And when there is economic instability, unfortunately, that brings out the people who are lawsuit-friendly. You’re gonna get a rash of attorneys, and renters, and all sorts of things that are gonna come out of this. And if you’re protected, you’re gonna make it very difficult for then, because those are the types of people who are looking for low-hanging fruit.

“I know that they own this property, their name is on the lease, their name is on this LLC. That is something I can attach a lien to and I can get recovery.” Because a lawyer needs three things to file a lawsuit – they need the law, they need the facts, they need a recovery. Law and facts can be massaged, but recovery…? If they look you up and there’s nothing to find – well, is that lawyer really gonna spend all that time and money just for a needle in the haystack? Probably not.

Now, on the converse end, if you have a  legitimate grievance and you want to sue someone, and they have actually wronged you, the attorney will take the case; you’ll be able to move forward. So if you’re doing something  wrong, then you’re probably gonna get sued, and they’ll probably win. So don’t do wrong things. These structures are to protect people who are doing the right things against people who are doing the wrong things, not vice-versa.

Theo Hicks: Alright, thanks for sharing that. Is there anything else that we haven’t talked about already that has to do with mindset, opportunities, asset management, managing employees remotely during this pandemic, that we haven’t talked about already?

Jennifer Gligoric: Just be kind. Be kind to your staff. Any kindness that you give right now to the people that you’re dealing with… And I know that if you’re an investor or a business owner, and a project — everybody’s having delays and all sorts of things happen… But just chill for a little bit and give some kindness, and then do what you can on your own end.

Remember – think outside the box, go look for extra loans… I know some people are leveraged to the hilt, but there are gonna be things coming down the pipeline that you can utilize. Don’t close your mind to help and don’t close your mind to an expansion in a time of crisis.

The people who looked at crises historically and said “You know what – I’m bankrupt right now, but I’m gonna move forward”, those are the people that you find that are wildly successful. They managed to get out of it and they managed to do good. So be that type of person.

Theo Hicks: Alright, Jennifer, I really appreciate you coming on and sharing your advice. This is a very powerful episode and I think it’s gonna get a lot of traction, especially during this time, because you gave a lot of practical advice on how to manage employees remotely… You basically said that it’s gonna come down to you needing to be a much better communicator, and utilizing technology to do that. So using VA communication software like Skype, Google Hangouts, Zoom, FaceTime… I think you also mentioned Slack, that you really like…

At the same time, you don’t want to overburden your employees and have 8-hour Skype calls every single day, where they’re working and you’re watching them. So you wanna set clear times for when you’re gonna have your face-to-face meetings, and then let your team members work on their own without using some sort of time-tracking software, because that’s when they’re gonna be able to innovate. You gave a great example of — for some reason, everyone loves toilet paper right now… So – selling one piece of toilet paper with every pizza box. I thought that was pretty hilarious.

You also talked about Trello and Zoho property management software, and then for accounting software  you said the Wave app.

Jennifer Gligoric: No Wave app is accounting, Zoho does accounting… Zoho has a whole suite; they have a lot of things at Zoho. And then you’re gonna have to track some people’s time, you just will, especially if they’re per-project or hourly… But I would suggest Toggl.com. That software is not invasive, it doesn’t bog down their computer… All the other ones I’ve ever tested – and I’ve probably tested every one out there at one point or another in my career; you don’t want graphic designers and then your whole thing freezes because you’ve got Photoshop, and InDesign, and Illustrator, and the stupid time tracker is eating up your resources. So that one doesn’t do it…

And they can use it on their phone while being on their computer. So their phone can be tracking them, and then they write in what they’ve been working on. If you’re a good manager and they do take your directions, don’t have them write paragraphs… But  you’ll be able to see if what they write, what you see in Toggl matches their output. You’re going to have to step up your management game,  you really are. And you’re gonna have to care about people, too. And let them know that you care about them. That shouldn’t be hard, but for some people it is… So work on it.

Theo Hicks: Yeah, perfect. So that’s the managing employees part. We also talked about mindset… Basically, people fall into one of two camps – it’s people that are either just getting into it, or are very over-leveraged, and are kind of terrified and panicking, versus people who see it for what it is, and realize that there are opportunities out there. People in that second camp, ten years from now, are gonna be sitting around, talking about “I’m really glad I held onto those properties, I’m really glad I bought those properties”, whereas people in camp one are gonna be full or regrets, and wishing that they had invested.

From another mindset perspective we said that hopefully you’ve been treating this as a business; that’ll be very helpful, and help you not to panic and realize that, just like a business, you’re gonna push forward. If you have to pivot, you have to pivot, but there are opportunities out there. You gave some examples, like going to some of your long-term residents who’ve rented the longest, to see if they’ve got down payment money to buy the property.

Making sure that everyone knows about the law of evictions, and that even if you’re allowed to evict people, it’s probably not the best time to do that, because you don’t want to upset everyone at your apartment. Instead, figure out ways to keep them there, figure out ways to help them financially and write something reassuring to them to let them know that you’re looking out for them. I know Joe’s company sent a lot of letters with some medical advice from the CDC and WHO.

You also talked about how people should be buying real estate. You’ve got realtors and other people you’re talking to that are putting their money where their mouths are and buying real estate.

Another opportunity will be foreclosed note investing, but making sure that you are working with the people to keep them in the house, as opposed to bringing on a bunch of properties that you might not be able to manage.

Then we talked about the asset management side of things. One thing that people really need to start doing is to operate anonymously. Because when economic instability hits, it brings up all the people who wanna sue, and they’ll go for the people that are low-hanging fruits. They look up your name and see they have 25 LLCs, with 45 different properties attached to their name… They’re gonna be able to go after you a lot easier than someone who owns the same  45 properties, but is operating under an anonymous operating company that’s not tied to them, and then another anonymous structure that the properties are in. They’re not gonna see anything under your name. Sure, they could find it if they dug a little bit deeper, but it’s not low-hanging fruit. So as long as you’re not doing anything shady, operating anonymously is the way to go.

And then lastly, you said just to be kind to the people that you’re dealing with. Think outside the box, figure out ways to find more money, like go after extra loans, and make sure you’re not being close-minded to help, and expanding.

I think I’ve hit on everything we talked about. Jennifer, I really appreciate again you coming on and giving us your expertise on what people should be doing during this Coronavirus pandemic.

Best Ever listeners, as always, thanks for listening. Everyone, please be safe. Have a best ever day, and we’ll talk to you tomorrow.

JF2034 : Short Term Rentals Pivoting During Coronavirus With Daniel Purcell & Jessie Campora

Daniel and Jessie are engaged and have been investing in real estate for the past 3 years. They are also the owners of OACP Property Management, together they own 7 units and manage 5 others through OACP. In this episode, we discuss how the coronavirus has impacted their business in short term rentals as this is the majority of their revenue. Daniel and Jessie have decided to cater to the traveling nursing demographic which has been helping them stay afloat during this pandemic.

Daniel Purcell & Jessie Campora (Fian) Real Estate Background:

    • Owners of OACP Property Management
    • 3 years of real estate investing experience 
    • Owns 7 units and manage’s 5 others through OACP
    • From New Orleans, Louisiana
    • Say hi to him at www.oacppropmanagement.com   

 

 

Best Ever Tweet:

“Stay flexible, don’t be caught in a fixed mindset. There is something out there that you’re able to do to help your situation or others.” – Daniel Purcell & Jessie Campora


TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m Theo Hicks, today’s host. Today we’ll be speaking with two guests. We have Daniel Purcell and Jessie Campora. How are you guys doing today?

Jessie Campora: Doing great, how are you?

Theo Hicks: I’m doing great as well, thanks for asking, and thanks for joining us. Today we are going to be talking about the Coronavirus and how it is impacting different investors’ business. Dan and Jessie were graceful enough to talk about what they’re going through, some of the changes that they are making to get through this… But before we get into that, their background – they’re the owners of OACP Property Management, with a total of three years of real estate  investing experience. Currently they own seven units themselves and manage five others through their property management company OACP. They are both based in New Orleans, Louisiana, and you can say hi to them at OACPPropManagement.com.

Before we get into the Coronavirus, can you tell us a little bit more about your background? And we can start with Dan.

Daniel Purcell: Hey, Theo. Sure. So I’m originally from Cleveland, Ohio. I moved to New Orleans about ten years ago now. My past work – I actually worked in the front office of the NBA team here in New Orleans. I did that for nine years. After Jessie and I met, we kind of had the same goals when it came to how we wanted to keep pursuing wealth from a passive income standpoint and just a future standpoint. We kind of took of from there.

Theo Hicks: And Jessie, what about you?

Jessie Campora: My background is in hospitality management. I actually got my degree in hotel and restaurant tourism from UNO, and  I’m kind of  a serial entrepreneur. For many years I did a mobile personal training business, and I got my first house when I was in my early 20’s. When I met Dan, we kind of decided to pursue real estate. We both agreed that it’s the best way to long-term wealth. So we leveraged my first house, that I’d had for a while, to multiply it into what we have now.

Theo Hicks: Okay. We said that you’ve got seven units, and then you manage five others. What is the breakdown of the units? Are they all single-family, multifamily, short-term, long-term rentals?

Daniel Purcell: It’s a combination of all of it. We try to diversify our real estate portfolio. Of course, as you get into the short-term rentals there’s a lot more risk, as the Coronavirus pandemic has showed us… So we’ve tried to hedge our risk with diversifying.

We have a couple units that are full-term rentals, and then we have the other ones that are short-term. We felt it was a smart idea at the time to just mitigate risk; it’s not minimizing risk, but I guess mitigating risk as best possible, just in case something like this would happen.

Jessie Campora: So we have our first house that we bought together – it was a triplex when we bought it, and then we converted some utility space into a fourth unit. My original property is a single-family, and then we have another double that we just acquired. The other units that we manage are also doubles… So mostly multifamily units is what we have.

Theo Hicks: Let’s talk about the full-term rentals. Now, it might be too early to tell, but is the Coronavirus impacting those at all? Do you know if the tenants are gonna be able to pay rent this month, things like that?

Daniel Purcell: Yeah, so far so good on that front. We actually have one great tenant who pays us ahead of time, so we’ve actually already recovered that from them… But otherwise, I think all of our long-term are in a position where they’re gonna be okay.

Jessie Campora: Yeah, I think our long-term tenants are pretty secure in their jobs. Right now we have two of those, so everybody should be okay in that scenario.

Theo Hicks: Is this something that you know based off of your history with them, that they have their jobs, or did you actually contact them and ask them “Hey, is everything okay? Are you gonna be able to pay rents on time?” Was there any communication with them, or you just know based off of the background that they’re gonna be okay?

Jessie Campora: It’s an interesting situation, because our second long-term tenant we just inherited with the property last week. So Dan’s been in communication with her, and his initial interactions with her were also sort of in dealing with this strange situation that we’re all in right now.

Daniel Purcell: Yeah, and they were positive. She was very positive. They didn’t give us any hint that it was gonna go wrong, or they’re in trouble at all. We were also lucky in our other full-times, because our other tenant – she’s pretty secure in what she does as well. She does a lot of remote business as is, so her workflow hasn’t been compromised at all.

Jessie Campora: We haven’t spoken to her specifically since this happened, but we have a really great relationship with her, open line of communication, so… Of course, if there comes a time where she’s also affected, we wanna do whatever we can. We’re all in this together right now.

Theo Hicks: I have thought of something… So you guys self-manage, basically… And on the other end of the spectrum there’s people who are the owners, but they have  a third-party management company managing all their properties. You guys are also managing other properties as well, so I was just wondering, do you think in a situation like this it’s better to self-manage than to not self-manage? And the reason why I ask that is because it sounds like you guys have some level of relationship with your tenants; you understand what they do for a living, which is pretty helpful in a situation like this… Whereas if you have not been in constant communication with your tenants and you don’t really know much about them, because it’s all going through a third-party, I feel like this situation would be a little bit more stressful. So I just wanted to get your opinions, since you guys obviously do both.

Jessie Campora: I totally agree with that. Really more from a short-term perspective – and I’m probably kind of shifting here, but our latest property management client that we acquired has some other units, and she’s been with a larger property management company and is under contract with them. And we have a couple of her other units that she just recently acquired. And I was talking to her and just giving her some ideas on how we’ve been able to pivot, and some other sources of income, while Airbnb is pretty dead right now… And she’s in a strange position because she doesn’t  really have access to her own listings. It’s all through the property management company. So from that perspective, she’s really kind of stuck between a rock and a hard place right now as far as what she’s able to do with her properties.

So to circle back, it definitely makes a tremendous difference to be hands-on and have the ultimate control over your own properties and have these relationships with your tenants, and be able to handle directly all these cancelations that are happening on Airbnb right now. There’s a lot to be said for that.

Daniel Purcell: To piggyback on that, I guess we’re small in terms of property number compared to a lot of people. I know people that own 150 units, 200 units, they own apartment buildings and complexes… And it’s hard to be personable when you have that many units. That next step for anyone is when you choose a property management company, what is their level of access for you? If you wanna be hands-off – fine, that’s great. You can probably find somebody that doesn’t. But the part that you’re risking is not only the lack of control that you have over your own properties, but you’re risking your own capital at the same time, and it’s hard especially when these black swan events happen, like Corona and whatnot, to kind of recover from that. You’re just kind of sitting there on your hands.

So I think the more you can self manage, the better off you are. I’d agree with Jess on that 100%. I know it’s not feasible for everybody, so if you’re listening to this and you’re saying “Okay, well I have 50 units. I can’t go door to door, it’s gonna take all my time up” – I get that. It’s just having a good relationship with the property management company and setting terms… Because although a lot of property management companies have these steadfast rules and whatnot, they’re still working for you, and I think you have to do your upfront work, so when these events do happen, you’re already covering yourself, if that makes sense.

Theo Hicks: Oh yeah, one hundred percent. I think that’s obviously something you can’t necessarily do right now; it’s gonna be hard to change management companies right now, but… Starting from today, this is something to start thinking about for your business moving forward. So I think this is timeless advice that you’re providing.

Okay, let’s transition to the short-term rentals. You mentioned then Airbnb business is basically gone; you said  you’ve got people canceling… And we talked a little bit beforehand about  what you’re doing to generate income with those properties. So again, maybe just kind of walk us through what’s going on with the Airbnbs at the moment and then what you guys are doing to pivot away from Airbnb and transitioning into something that is gonna allow you to continue to make money while that business is drying up.

Daniel Purcell: Yeah… Just to give a little background for those that aren’t familiar with New Orleans – of course, everybody knows it’s a big tourist town, right? It’s also a huge short-term rental town, and these months are probably the most crucial for any short-term rental owner, because this is peak season in New Orleans. The Mardi Gras through July 4th Essence Fest time – that’s where you make the majority of your money. You’re sold out 25 days out of the month up to 30, it’s increased rates…

So this really hurts the whole short-term rental market in New Orleans. I’m sure it does all around the country as well, but this is just a big time in New Orleans, so… How many days and nights were we trying to think of things, and reading articles, and seeing what other people are doing, and… Kind of what we did after these massive cancellations, and of course, with countries getting locked down for 21 days, three weeks, months, we had to do something. We just can’t let them sit there, because at the end of the day there has to be a way for this to work.

Something we came up with was traveling nurses, and I’m sure it’s not a new idea that we just thought of out of what we were doing, but for us it’s been working. It’s a good transition, because it’s short-term in the sense of you’re not having to sign a year contract with — most nurses are between 30 and 60 days, and that’s a really good timeline for where the experts are saying this virus and this pandemic is going to end, or at least be under control, to where the travel industry starts to come back, and the tourism industry starts coming back.

Jessie Campora: Yeah, we just tried to pivot and think of some creative solutions to this big problem that we have right now, and there were some various things that popped up. A lot of the universities here were telling their students that were on campus housing to go… Just “You’re evicted. Leave”, so that was one avenue we kind of explored, if there were students left here that needed a place to stay… And then we also got onto a website that’s specifically for travel nurses and other travelers who are looking for furnished housing.

So that’s kind of the angle we’re pursuing, and we’re not averse to even potentially long-term renting some of our units. However, we can ride out the storm, and just tackle our overhead is what we’re trying to do at this point.

Theo Hicks: So for the traveling nurses — there’s just websites like that are like the Airbnb for the traveling nurses?

Jessie Campora: Yeah. There’s one that was recommended to us, and then I think I’ll probably list our properties just on a site like Zillow, just for anybody that might be looking for a shorter-term rental. Like Dan said, they’re here for 30 days, 60 days, 90 days, so it’s a great way to get some income flowing, but not be committed for a super-long period of time.

Daniel Purcell: Right. And also, just to finish that thought, we’re lucky that all of our properties that we manage and that we own are near major hospitals. One of our units on the double we’ve just acquired – it’s literally one block from a major hospital that these nurses are staying at. So we kind of got lucky, but at the same time understood where we were, what we were doing, and how it worked. So we’re just trying to add it all up, I think just like anybody who owns houses that are vacant right now, just units in general – trying to just be flexible and trying to find different ways… And hopefully, we help somebody out there that is struggling to find ideas. Maybe that’s hopefully what we did here.

Theo Hicks: I think the traveling nursing idea is something that someone could implement immediately. After hearing this, they can go find the websites and post to Zillow and Craigslist, assuming they’re near a hospital. But depending on what state you’re in, figuring out what are the essential business people who are still allowed to travel, and then target them would be your best bet.

Daniel Purcell: [unintelligible [00:13:56].18] nurses that are gonna be fighting this chronic pandemic, and also people from the Red Cross, and non-profit organizations are gonna be looking for housing for their people, because the World Health Organization is setting up things… I’m not saying in New Orleans, I’m just saying around the United States, around Canada, and whoever is out there listening to this… But there’s options for you, and hopefully this can give you a  little headstart into just opening another world if you haven’t already.

Theo Hicks: What about from a reserves perspective? Do you guys underwrite in reserves when you’re buying these short-term rentals? Because your long-term rentals are fine, but what about for the short-term rentals – do you have a reserve saved up, or is it just continuing to lease these out to travel nurses to cover your expenses?

Jessie Campora: It’s kind of like feast and famine, and that’s what’s really interesting about this whole thing – we made a lot of house musical chairs; we were living in our quadplex and we made the decision to move into my single-family house that’s in an area where Airbnb is not allowed, in an effort to generate some income in the “busy season”.

So if you save up in the busy season to be able to weather the slow season… And we kind of had the rug pulled from under us. We furnished a unit, we did a renovation, we moved out, banking on the busy season being so great… And then it kind of crashed and burned.

So to answer your question, we definitely have reserves, we’re prepared to ride this out for a little bit, but I think a lot of people, especially here in the city, this is what people were counting on to build up their reserves, this 4-6 month  period of time where we have festivals, and Mardi Gras, and all these great things that bring people to the city.

Theo Hicks: Okay. So is there anything else that we haven’t talked about as it relates to preparing for crisis, things that you guys are doing right now to combat the Coronavirus, or  just general advice that you have for other real estate investors out there that we haven’t talked about already?

Daniel Purcell: Yes. Stay flexible. This is the only way I can weather the storm, this is the only way I can help people… You know what I mean? There is something out there that you’re able to do to help either your situation or someone else’s situation. At least something that Jess and I have talked about is “Well, heck, if no one’s renting it (this was a week or two ago), why don’t we volunteer one of our units up for the Red Cross, or whoever that is?” Do they need help? If there’s something to do — the worst that happens here is that you help someone else. If you’re gonna lose money, you might as well not be vacant. You can do something. It always doesn’t have to revolve around money in these cases.

So if you can find a way to generate revenue, do it, absolutely. But if you can’t and you feel stuck – well, I’m sure that there’s people that are helping other people get better, and you’re gonna be able to help.

Theo Hicks: I really like that advice. That’s definitely the best ever advice that someone could follow right now. Dan and Jessie, thanks for joining us today and being willing to talk about things you guys are doing on the fly to combat the Coronavirus and how it’s impacting your portfolio.

We talked about that you have a couple of longer-term rentals, and then you’ve got the rest of your portfolio as short-term rentals… For the long-term rentals, because you guys are yourself managing, you have more control; this is really for both… You have more control over the leases, you have a better understanding of the people who are currently living in your long-term rentals, so you know if they’re able to pay rent or not… And it sounds like for your long-term rentals everyone is gonna be able to pay their rent on time.

Then you have people who pay ahead of time. There’s someone who works remotely and [unintelligible [00:17:41].08] The new person at the property you’ve just bought you’ve been in communication with and they’re also able to pay their rent… So we’ve kind of overall talked about some advantages of self-management during times of crisis like this. You gave an example of someone you know who is working with a large property management company and they really are kind of sitting on their hands, because they don’t have access to their own listings.

Then we went into the short-term rentals and talked about the fact that short-term rentals is very popular in New Orleans, and we are just entering into the peak season of short-term rentals. You guys received a lot of cancelations and you had  to pivot, and you guys spent some nights   brainstorming, thinking of ideas, and the one that you landed on is the traveling nurses… So 30 to 60-day leases.

You guys also had the idea of renting out your units to university students who were asked to leave campus… But for the traveling nurses you said that you wanna post your short-term rentals to nursing websites, places like Zillow and Craigslist… Potentially think about signing long-term leases on your short-term rentals…

And then really your best ever advice was if you can’t figure out a way to make money and generate income, use it to help out other people. Volunteer it up to someone at the Red Cross, or someone to live in… And I liked the way you said it, “The worst that happens to you  is that you’re helping someone else in that case, as opposed to just sitting vacant.”

Again, thanks for coming on and sharing what you guys are doing. I think this is gonna be a very powerful episode for now, but even long-term advice and things that people should think about when they are buying real estate for these Black Swan type of events.

Thanks for joining us, Dan and Jessie. Stay safe out there. Best Ever listeners, thanks for tuning in; stay safe as well. Have a best ever day, and we will talk to you tomorrow.

Joe Fairless