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Keeping yourself nimble is key to thriving in a dynamic market. In this episode, we cover strategy pivots, multifamily turns and consolidating your vendors to same time and energy to make your life easier.

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Transcript

 

grabbag

Thu, 7/8 12:44PM • 26:55

SUMMARY KEYWORDS

buy, multifamily, unit, property, lender, pay, rent, michael, bit, turn, deal, months, building, putting, investor, flip, long, strategy, rehab, tenant

 

Before we jump into the episode, here's a quick disclaimer about our content. The remote real estate investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.

 

Tom:

Greetings, and welcome to the remote real estate investor. On this fun episode, it's going to be a grab bag of topics, we're going to be talking about strategy pivots, we're going to be talking about turns in multifamily. And we're going to be talking about vendor strategies and getting less vendors and aggregating into single vendors by specific trade. My name is Tom Schneider.

 

And I am joined with

 

Emil:

Emil Shour,

 

Michael:

And Michael album.

 

Tom:

And let's get into it.

 

Welcome, Michael, welcome Emil. I love these type of episodes. Because basically, what we did before recording is, you know, we have a list of topics that we plan to get to. And this one is basically we all had three ideas that we liked a lot. And that we're going to we're going to get into so I'm going to let Michael lead the way on this very first topic, and a really relevant topic. As there's economic changes all kinds of stuff. It's the it's around strategy pivots.

 

So Michael, I'm gonna go ahead and let you start this grab bag, topic number one on the concept of strategy pivots.

 

Michael:

Thanks so much, Tom. Appreciate that.

 

So I think it's really important in just general real estate investing to have an idea of where what lane you want to go down, because as a lot of investors know, there are so many different ways to, quote unquote, invest in real estate. And that can mean different things to different people.

 

So there's the buy and hold their short term buy and hold, fix and flip, BRRRR investing, wholesaling, there's so many different avenues to go down. So I think it's really important to pick one or two and really focus there because otherwise, I feel like you could just get spread too thin, especially when you're new, because they're each Avenue is so deep. And so picking one to learn and going deep, I think is really valuable.

 

So that being said, personal story from my portfolio is I purchased a property about a year and a half ago. And I brought in a cash partner to make the purchase. I was managing the transaction, they provided the cash to the deal on the flip, rather the rehab, and it was supposed to be a buy and hold and the numbers were like outrageously good. We bought it for a song. My agent was then bragging to all his agent buddies about what we paid for the property. And everyone's like, no way, no way. So it became kind of a talk in the town and I had people offer to buy it off me for more than I paid for it day one kind of thing. Because even paying a little bit more, it was still a steal. So I said no, thank you, we're gonna rehab it, we're gonna get it turned.

 

And basically it was a six unit, we bought it for 90,000, which is like unheard of in this market. It was in Cincinnati, and it had one tenant in place that was paying like 400 bucks a month. And the unit break down the unit mix was really cool. And that there were a couple of three bedrooms, a couple two bedrooms and two one bedrooms. And so you're getting a larger unit count and not having to pay much more in terms of per unit purchase for the for the purchase. So that worked out really well.

 

So we put together a rehab budget, we found a contractor that could do it. They started working, it was going well. And then COVID hit. And when COVID hit everybody came home from work and what we realized we meaning mostly my agent, he said, hey, look, you know what this area is actually quite a bit rougher than I originally anticipated. I'm seeing a lot more activity on the streets during the day and in the evenings. Would you consider selling it? And I said, Yeah, sure if the price was right, let's you know, let's go see what's out there.

 

So long story short, the building has caused a lot of different headaches over time. It's an older building. So we had to make some additional repairs that weren't part of the original rehab scope. Big surprise there. Anybody who's done a rehab, extensive rehab will tell you that there are things that come up so budget for that. So thankfully we did. And so it's just been a bit bit more of a headache than I anticipated, the agent anticipated to rent has been a little bit tougher than we were originally anticipated.

 

So on paper, the numbers look phenomenal. And now that it's getting fully leased, the numbers are fairly phenomenal. But it's just one of those properties. It's more of a headache than anything else and there's just always something going on. And so I said you know what better to sell it, make a really nice profit and walk away. So we're under contract right now to sell that property. It's been in out of contract another time. Due to these the other buyer wasn't able to get financing, but so I'm able to go back with my cash partner, pay them back fully as well as get them a really nice IRR and return on their investment for literally doing nothing other than than funding the deal. So again, it was supposed to be a buy and hold it was gonna be like a 25% cash on cash return even With an all cash purchase, I mean, the numbers on this thing were just phenomenal. But again, it's just been kind of too much of a headache to deal with one thing after another, and I said, You know what, take the profit walk away, my energy and focus is better spent elsewhere. So this is turned into a longer term fix and flip, which the nice thing about that is that it's over a year. So that'll be it should be long term capital gains, as opposed to short term tax at my income level. So it should be a big win.

 

Tom:

I think opportunity costs, right. So like, if you're constantly putting your energy back into this one unit, there's definitely a price to that. And if you can get out now and get a fairly substantial profit, why not?

 

What I think is really interesting about that story, Michael is, right, I think a lot of people have had to strategy pivot in the past, usually, it's the other way around. So in your case, you bought it to buy and hold and ended up flipping it. But in with a lot of the investor that investors that I have talked to, they were fixing, and flipping, and then the prices fell through the roof a lot, you know, 2009 2008, and all of a sudden, they can sell the property for more than it's worth. And they ended up being buy and hold owners.

 

There's a great saying I heard it might have either been Gary our CEO at Roofstock, or it might have been Gregor. But a safe mouse is a mouse that has multiple holes to run to. So it's, you know, if you get so thin and specific on a strategy, like let's say you're fixing and flipping, and it doesn't pencil, if you needed to weather, some storms to hold it, you can get yourself into a lot of trouble. And you know, the biggest place where you get in trouble in real estate, if you're not capitalized enough. So you're running these thinner margin buyer holds. And all of a sudden, the value isn't there, for whatever reason, you really put yourself in a bit of a liability.

 

So you know, as a lot of people say, Oh, is this a you know, good time to invest prices are raising a lot, you know, my input on that on this story is to have that flexibility to be able to pivot your strategy. So, you know, if you're planning to do this flipping, make sure that there's enough room that you can weather the storms for, however long if it turned into a buy and hold, but it's interesting, here's the backwards version of that.

 

Michael:

Yeah, I've always been a buy and hold investor. And so I've always approached deals with that guys and would prefer to never sell until the depreciation is all physically exhausted. And so I just sold a couple properties last year, and I sold the property this year and this will be the next one on the docket. But every time I do it's like, it kind of hurts a little bit. But again, like you mentioned, it's the opportunity cost is is significant on this.

 

And then also something to think about is people always say you make your money when you buy which I agree with to an extent. And so when people are looking at deals I think look to minimize the downside when you can and granted you know, I bought this building for a song I bought it from someone who didn't understand multifamily. They didn't want multifamily so they were willing to part with it.

 

Tom:

Did you say you bought it from a song?

 

Michael:

I bought it for a song for a song for a song. I think that's an expression right? You will say that like I got it for really cheap.

 

Tom:

Oh, I got a song like the first song.

 

Michael:

Yeah. A good deal. Yeah, I, I went I went to the seller and saying to them, and they're like, Here take the property that was Yeah.

 

Tom:

That's new to me. You could be totally making that up. And I would be totally on board. I'm like, yeah, it seems like okay, Bought it for a song? Yep, sorry. Go ahead.

 

Michael:

And we got our first song well, and the dance had to had to include the dance part of it too, because they weren't going to part with it for nothing.

 

Tom:

Totally unrealated sequitur. Have you ever gotten a police ticket from a camera? I think it's the most anti climatic thing. You know, if you're gonna charge me three or $400 I want the show I want the policeman I want to see the lights, you know, get the adrenaline going. Don't just send me a bill in the, you know, that I received two weeks later, with some you know, fuzzy photo, give me good experience that I'm going to, you know,

 

Michael:

That's too funny. zest for life.

 

Tom:

A zest for life, you know, get that adrenaline going, I want to get when I get what I'm paying for anyways. Sorry, continue. You got it for a song and dance!

 

Michael:

Yeah, got it for a song and a dance. And it was one of those things where like I was mentioning I had people offering to buy it for me for like 120 even just like the day after I bought it. And they heard what I had paid for it. So it was one of those situations where it's really tough to lose when you buy it at such at such a discount. And like you could flip it without doing anything and still make a profit. So I knew that there was so much meat on the bone that it was it was going to work out okay. And granted it didn't go exactly according to plan. But again, if you buy it right, it's it's tougher to lose, especially when you have multiple exits.

 

Tom:

Alright, Emil, do you have anything you want to add or can I flip this over onto your topic?

 

Emil:

No, I have nothing to add. I love that story. I remember Michael, when you and I kind of first met I think you had just bought that are in the process of buying it and my, my mind was blown that you could buy a six unit apartment building for $15,000 a door and that was that wasn't even really…

 

Michael:

Like you're a liar you're a liar.

 

Emil:

And like, you know, you look at pictures, I'm like, Oh, this thing must literally just be falling apart and you know, needed some work but not not like, the properties I've seen where they're selling for 15 to 20k a door that like, you know, like, burned to the ground. And you're, you're starting from scratch, basically.

 

Michael:

Yeah, there's no floors. It's just one big building one big shell.

 

Emil:

Yeah, exactly. Exactly.

 

Tom:

So speaking of inexpensive cost per door, and meal. Let's talk about. So you have traditionally been a single family investor transitioning into sprinkling in some multifamily. You. Let's hear you riff on talking about the turn aspect of multifamily. So I think you have a triplex scope. Go ahead and run with this

Emil.

 

Emil:

Yeah, let me let me set the stage. So I bought a triplex in November, I had to change property management companies, I had a property management company after three months did not like what they were doing, went to a new property manager. And I think I annoyed some of the tenants, you know, just change it, you know, they had three property managers in like, three, four months, which obviously sucks for them. But I need to find somebody who is competent. And I can work with long term. And we had a tenant who was on month a month, just get up and leave, we actually didn't even notice No, nothing, we didn't even find out until we had a plumber, they're doing a fix of the sewer line, who noticed that the the unit was vacant when they went to like go knock on the door to to get access to something. And then they told the property management company.

 

So we found out in a really strange way, going through my first turn on this multifamily. And so my property manager did a walkthrough sent me a video, and I'm looking at, you know, I don't I don't think this person was there for more than two or three years. And, you know, you just look at all the damage, you start to size up, like what is the cost of this turn going to be and you start to weigh it against how much rent this units bring in. And it's one bed one bath apartment, probably it was under market rent, it'll probably rent for like, 575, 600 once we get it cleaned up, but you think about like a $3,000 turn, right, which is not agreed, like, that's not uncommon, but you know, there's, there's some work to be done here. So I'll say like 3-4k, you think about like your cash flow you're making on that individual unit and how long it takes to get that three to 4k back.

 

And so it's kind of just like one of these things where, you know, as you gain experience, and you're learning and, and things happen, I'm starting to question like, you know, in multifamily, yeah, you can buy it for cheap, but when you're when your rent is only $600 a unit or whatever it is, like these turns in these, you know, bigger capital expenses, they just, they crush you. And so it's just something that I'm, I'm kind of looking at right now, you know, I've only had this property for six, seven months, we'll see how it does longer term, but it's just kind of one of those feedback loops from like, okay, you know, should I be targeting things where the rent is 800 to 1000, even though it's going to cost me more, just like there's so much more cushion of cash flow that's going to pay for these things.

 

And just, you know, the the percentages on Excel look good. But when real things happen, like you see why a lot of investors who used to buy cheap properties over time, they maybe move to like Class B and it's, you know, for these reasons, I think, at least

 

Tom:

Yeah, I love using rent as a firewall, like a funnel, you know, a filter. Yeah, and I never really thought about it in that context of rent versus what your turn cost is going to be. And being able to I mean, obviously there's there's higher purchase price that you're going to have if you're buying a property with a higher rent. So that's like a little bit of a barrier to entry. But there definitely is a safety aspect of having more meant more rent that you're collecting more money to pay for turns when that stuff happens and potentially having have less time in between turns. not always the case but.

 

Michael:

Emil, I know it's I know it sucks right now, but I can tell you that it does get better. And it's a you have to be as Tom mentioned long term greedy and that $3,000 right now sucks, but something I would implore you to do is get with your property manager and really scrutinize what's going to be done in this turn. And think about putting in more tenant proof type stuff. So if you have to replace the carpet, don't replace it with carpet replace with lvp go put in there something that's waterproof, something you'll never have to touch again.

 

If you have to replace cabinets go put in higher grade tougher cabinet Because tents are rough on cabinets. And so if you have to replace them every single year, that sucks, versus spending a little bit more and getting a higher quality, more durable cabinet, look to do that type of stuff, because you'll do it once today. And then you shouldn't have to touch it again for a lot longer versus you go the cheap route today, you're gonna pay for that over and over and over again. And traditionally, the longer lifespan stuff tends to just hold up better to tenants.

 

And then you can also talk about a larger security deposit. There are counties and state regulations around how much you can charge, but just think about that kind of stuff as well as you're going to be releasing that unit.

 

Emil:

Totally. Yeah, great. Great tips there. Luckily, we have hardwood and tile throughout the unit. So it's not like shouldn't be the big expenses. It's just a bunch of little things and a couple of leaks. And so like I'm just estimating on the high end. Okay, so we have to open the wall is there's a plumber who has to come in plumbers are charging crazy amounts right now. So it's just like, I'm just doing the mental math and like putting it at 3-4k and waiting for full scope of work from them to like, get a get a bid and a budget. But yeah, good. Good tip. I mean, totally. Yes. Agree.

 

Michael:

Since Tom did a side note I want to one too, bid and a budget sounds like that from Austin Powers smoke and a pancake. Bid and a budget.

 

Emil:

I'm curious, like, you know, Michael, you've you've been in multifamily, the longest? Is this something you've kind of experienced yourself? And is now why you're moving into higher quality? Or have you been in class C? And you're like, yeah, you have these things. But like long term, it smooths out and it ends up working out just fine.

 

Michael:

Yeah, long term, it does tend to smooth out sometimes it's one of those things like the first 18 months of repositioning a building, just kind of suck. There's no, there's no better way to put that. And I mean, you're buying, the reason you bought it is because it was somebody was mismanaging it or you saw an opportunity. And so to get those opportunities to flow through the pipe, so to speak, just takes time, this isn't something you can do overnight. And so you might have to turn through some refer tenants to get some great ones, you might have to turn through some refer deferred maintenance to get the building physically where it needs to be. And that just takes time and often money to do so.

 

And so once you get once you get it humming along, it becomes much better. But this is just the speed bumps, learning curves, growing pains that you go through with a non stabilized multifamily asset. If you went and bought something turnkey, you would have paid a lot more for it, and it probably would not have been as attractive to you.

 

Emil:

The other thing I always try to remind myself like every, every time you have a turn, it tests your your mental fortitude, you're like, oh god, why do I do this, just put in the s&p 500. And don't think about it ever again. But it's like this, this is part of it. This is why this is the barrier to entry. This is why a lot of people don't end up doing it. But the people who do and stick with it long term, I think, you know, we know all the stories and that's why they're able to build wealth and all that.

 

Tom:

Speaking of s&p, I thought that I was much more risk tolerant than I was, so I just I refiled a bunch of units very recently. And I like dumped it all into a big index fund. I'm like, a significant amount of money for myself. And I like was just checking it every like 30 minutes I'm like, I can't I mean that's one of the things I really I think I've come to appreciate about real estate is the slow moving nature of it you know, we're talking like a two year leases or one year leases and it's not something for me to look at it every 30 seconds.

 

So anyways, what I did with it I just I started with a an incredibly aggressive allocation of like 100% equities like, but I've moved it because I'm going to redeploy it into buying more real estate into something more conservative allocation, I think it's like you know, 40% cash or 40% equities and 20% bonds or something just watch more responsible and seeing now the market move and like you know, as equities going up going down the bonds are going up it's just like yeah.

 

Emil:

It test your emotions 100%

 

Tom:

I thought I was super risk tolerant but as it turns out, Tom is not!

 

Michael:

Nothing to tell you how risk tolerant you are until you throw your own money away!

 

Tom:

Right yeah, totally totally. But anyways, hopefully all keep updates on the podcast on redeployment movements with that so anyways have any more an adult allocation instead of the fast track? Just give me a crushing.

 

Michael:

That would be great if they labeled labeled those allocations as such like toddler, infant, preteen, adult!

 

Emil:

Stages of life.

 

Tom:

Yeah. All right. So I've finished a recent activity where I'm pretty excited about it simplifying my life. is I have streamlined a lot of the national related vendors in my life where before it was really a hodgepodge of lenders, a hodgepodge of insurance. And a couple of things happen. So one thing happened is a company started buying up my loans on the secondary market, and I found out that they originate loans as well. So what I've done over the last 12-18 months is refinance these loans into this lender and any new loans that I've added, I've just originated them with them.

 

So now I have one lender, good customer service, easy to work with easy to go through refi and application process, you know, a reasonably good portal for getting tax time and all the setting up auto pay and all that stuff. And I'm really happy with how that's turned off. You know, I might be able to shave a little bit of margins, I their rates are pretty decent and origination costs, I think are are reasonable. But just for kind of simplicity, it's it's been a nice little boon to making things a little bit easier by just having one lender instead of this kaleidoscope of lenders all over the place.

 

And I did the same thing recently with insurance. So had a couple of good coaching sessions with Michael, shout out to Michael Roofstock Academy coach, you guys check that out?

 

Emil:

Have you heard of him?

 

Tom:

Have you guys heard of him?

 

Michael:

Yeah, I hear that guy’s a real schmuck.

 

Tom:

Yeah, but you know, he's, he's good. You know, he's, he's, you know, he's good. Just kidding. He's fantastic. Anyways, so anyways, Michael helped me go through this process of identifying, and, you know, setting, talking about important things to think about when setting an insurance policy and shopping around. And what I ended up doing was consolidating everything with my insurance provider that does my cars, my house, and I think my actual monthly cost is pretty similar to what it was, but the coverage is just massively more larger, if that makes sense. It much more comprehensive, where I'm paying a very similar amount, on a monthly basis, but it's just extremely like I think my deductible before was like $10,000. And now it's like $2,000, you know, that pillow at night just gets a little softer and softer. of doing that. And the What am I say? Yeah, the the air is a little sweeter, just having one lender to deal with one insurance vendor to deal with.

 

And in the process, I, you know, discovered they have a really cool underwriting tool where, where if I'm evaluating future properties for insurance, I could just plug it in. And they will come up with a policy without needing any other work. So really great streamlining, both on the defense of the existing portfolios and incorporating them into my future acquisition.

 

So at a super high level, if you're able to streamline your vendors, those national related vendors, be it insurance lenders, I recommend it, I just did it and I feel very good about it.

 

Michael:

Tom, are you able to quantify the time savings that you anticipate as a result of this as opposed to not having to chase down multiple vendors for your renewals? Or is it more so mental cleansing?

 

Tom:

I think it's both, you know, on the time side, like, it probably isn't that much more more work. So I don't know, I'm gonna make up a number, I'm gonna say, oh, it took an extra two hours per year, just because with some lenders, you have to go through a phone tree. And it's just absolutely miserable of trying to like talk to somebody and get information. But where i, where i think on the time, is not a specific time, but the actual, like gumption and doing stuff like I would put stuff off forever, because it's like, I don't want to get into that phone tree of XYZ loan company. You know, I'm saying and just keep putting it off, putting it off putting it off.

 

But now it's like I said, like, the actual time and me doing it probably is really 20 minutes, but oh my gosh, that idea of just sitting on a phone tree for 20 minutes, it just like makes my blood boil. But I'll actually just do it because it's like faster, I can talk to somebody right away and you know, have a good portal that I can do stuff. So, you know, timing wise, like I said, probably not a huge difference. But the ability to get over kind of the mental hurdle of just doing it the ladder as you were saying, big difference.

 

Michael:

And aspect to that I don't think you may be considering is that's managing the current portfolio. But when you go to add additional properties, I think you're going to see a massive time savings there and energy savings because like you mentioned with that quoting tool, now you can just throw a property in there and get a quote, you don't even have to talk to anybody. And so you can pick up the phone when you're ready, say this is the address, match it to my other policies go!

 

Same, you know, and then your lender has all of your docs and all of your files Anyhow, I mean, I just think that you are going to see massive savings both in terms of time and money because you're you're now a bigger client to both of those companies. Both lender and the insurance, you've got a little bit more weight you can throw around and be a little bit more demanding.

 

Tom:

Yep, yep, yep, yep. So that is what I my little topic was anything else you guys want to touch on today?

 

Emil:

I just I love yours, Tom. I think as we get older as our lives get busier as responsibilities and all these things grow, simplification like, just to sleep better at night to not have to like, rummage through four different portals or Like, who do I talk to you for that? Like, I'm glad you brought this up, because it reminds me of some areas where I could do this as well and just get some extra peace of mind.

 

Michael:

I think Yeah, I, I'm gonna double down on that. I think it's makes it so much easier. And I think that the putting it off, leads to sloppiness with regard to just general portfolio management, so to speak. And so if you can make it easy on yourself, you'll do it just in all aspects of life if it's easy, people do it. And so make it easy on yourself to pick up the phone or to do those renewals. I think your your future self will thank your past self.

 

Tom:

So I think on that, you know, putting stuff off it's like it's like a reverse muscle You know, you're like building a muscle to be like that and and discipline that. Like, is that a thing that makes something up for a negative muscle?

 

Michael:

Yeah, totally.

 

Tom:

Thanks, everybody, for listening. I hope you enjoyed. And if you enjoyed this episode, please subscribe like us. Also, as I mentioned before, check out roofstock Academy would love to talk to you guys there. We have over 50 hours of content. We have one on one coaching, group coaching all that good stuff. Check it out, roofstockacademy.com. And as always, happy investing.

 

Emil:

Happy investing.

 

Michael:

Happy investing.