How COVID has changed real estate investing | REIal Talk | EP. 39

Foreign.

Everybody welcome. It's Chris Sanino again. I'm here with Mark Woodring. This is a real talk. That's Real Talk with real estate investors, episode 39. Yeah, we've been here. Yeah, 39. Yeah, we've done quite a few of them together. I know I've been on a couple, you've been on a few more. So, yeah, really happy to be here. So today we're going to be talking about COVID 19 and I'm sure you're tired of talking about COVID Yeah, I've heard that somewhere. But no, the effects of COVID on real estate changes for the good, the better, the worst. All the above. And how to kind of navigate that as a real estate investor. Just a few points. I mean, we could have probably talked for hours and hours on this topic, but just the key ones for the people that have done business with us or thinking about doing business with us here at Freedom Real Estate, family of companies and kind of what to expect and what to look for and kind of where our headspace is at to try to help you. First topic is hard tangible assets, real estate. It's a little bit different than you were saying. It's a little bit different than just stock, bonds, mutual funds. Right. You want to touch on that a little bit?

Yeah, absolutely. I mean, so even though amidst Covid, interest rates are still relatively low.

Right.

So borrowing money is easy. You have a great interest rate on properties. Property values are still continuing to go up because again, people need places to live.

Right.

I mean, one of the things that you're going to see, you know, whether it's here in Dayton and Cincinnati or anywhere throughout the United States, is that because of COVID like push pushing, some individuals having to work from home, you start realizing that your home isn't exactly workspace friendly so that you need a home office or you need your kitchen redone so that it doesn't look bad maybe for imaging or whatever reason. So people are looking to get out of their homes. And then just even with that, maybe people are refinancing homes to pull out equity to purchase passive income, you know, because that's one of the things we do, obviously, the turnkey properties.

Right.

And you and I had talked and touched on that as well, is that, you know, investors prior to Covid were of course interested in passive income and that. But now we're seeing that people, you know, you're staying home more often, you can maybe browse a little bit in between your actual work and, and you start taking a real look at how can this asset pay off. To me, it's something that you have. It's going to be increasing in value, you're going to get some income from that and you start putting together a game plan of how you're building your portfolio.

Yeah, you said a couple of things there I kind of want to touch on. So for those of you who don't know, I manage Independence Property Management, which is one of our seven companies. Seven or eight companies. What day of week is it we might be at here? So seven companies and you know, obviously so I have the mindset of a property manager and how to grow assets and make them perform. And so you touched on, you know, like people that had a, you know, a three bedroom house for a husband, wife and maybe two small children. All of a sudden now one or both parents are working from home, they don't have an office space immediately. They're like, well, we need to have utilizable space for this specific thing because our situation's changed. Pops isn't getting up and going to work at 9 o' clock in the morning or whatever time people go to work these days. So they need to get a bigger place. So that makes, you know, agents like you and me a little bit more able to serve them, but also means that now there's demand right, in our market. So even through Covid, real estate has been booming. People are buying, there's more people interested in buying than there are people wanting to sell and or more than are being built. There's only so much land, right. And then the flip side of it is if you can't buy or you're not in the economic position to purchase because seeing people aren't, then there's rentals, right. Which is a huge opportunity for people that are actually okay in their home but have residual income or they have the assets available to purchase real estate and provide housing, which is one of the things we do here, we provide housing. So there's demand to purchase. Not very much on the market to purchase. I'm sure you could back up, back up on that. And then there's a huge rental market demand. So I mean we, in the midst of COVID we probably rented 140, 150 units last year.

Right?

Now some of those were new acquisitions that weren't like turned over. But that's a big, that's a big deal. That's a lot of leases, it's a lot of people moving into new areas to accommodate the changing household size and demands.

So some people, and I Don't know if you see this or not. When, when the rentals. Sometimes you go to sell your house just because you think it's at the top of the market. Which right now, I mean you never know. Every day could be the top of the market. And so you sell your house, you don't have another house to move into. So you may have to rent for a while to and make sure that you get that next house that you're going to. So.

Right.

I mean the rental market is something that's never going away. You know, people always need the rent. Dayton and Cincinnati is a great area. A lot of people are coming and going. I mean Dayton's just a great market for rentals in particular, you know, low taxes. I mean we're here in the Midwest so they're not outrageous rents. And we have a ton of businesses showing up here in Dayton. I mean I'm pretty excited.

Yeah that feeds into, that feeds into security, real estate even. I think even last week there was a, there was an article that Danny, our co founder posted in one of our group chats that I, I picked up through some investment network. But like there's, there's Hollywood companies that are moving to Dayton. I'm setting up camp and studios here in the next year. Middletown, one of our sub markets between Dayton and Cincinnati. They're, they're building this huge entertainment multi complex that's going to have all sorts of entertainment and I mean expecting some serious job growth in that, that market. There's a lot of things coming. I think we had like a full podcast about all of the, the potential in Ohio. But that feeds back into like people got have to have a place to live.

Right.

So the, I mean ultimately it comes down to like people are buying, people are selling, people are renting and they're doing it from a long term position. Covid its effect on that changes people's decisions on how they're buying and how they're selling. Their, their reasons are different why people are renting, what people can afford, when they rent or when they buy have changed. There has been some interesting at least on the rental side. There's been some interesting problems we've come across with verifying income because people are their immediate job loss or they were working 40 hours and now you know they're only being able to clock 20 or 30 because you know the companies that they work for can't sustain employees or it's the other side, other end of the spectrum where they have limited employees. So the ones that are willing to work, they're working 50, 60 hours a week. So we've had some interesting, like verification for applicants. Residents have been long term tenants, have all of a sudden had substantial job loss sometimes even because their kids are at home and they can't afford childcare. And now they've also lost their job because they can't. They are having to call off, take care of their children. So there's been a lot of things that have kind of gone into the rental side of things that have made it difficult. But at the same time it can still, it's still very rewarding. Even today we had a client that we've kind of mentioned previously that had a portfolio that was struggling. Actually out of the six of the units that he had and he had a diversified portfolio with us, he had a couple single family homes and a couple duplexes. Over the course of the last year, all of them have gone vacant except for one.

Right.

And then the one that wasn't vacant, she is going through some familial issues due to Covid and a few other things that have affected her income. So then all of a sudden she's not paying. Now this owner is in a lot of pain and we can sympathize with that. And it's, it's a bit of a, I mean you've been involved with some of it, you know who I'm talking about. And it's been, it's been hard, it has been hard for me to help navigate because it's, it's. I completely understand and feel what he's going through, but it was also something that was not really avoidable. Like it was, I mean, three people losing their jobs or having issues with payment because, and sustainability and other things. It's a, it's a real thing. The good thing is like today we got a pretty substantial check from a, from a local agency that's going to help that person catch up on their rent. So they're going to catch them up, they're going to pay them forward a few months and she's set right. And the owner's going to get a check and he's going to be happy and that, and that person is going to have a place to live and some security to their asset or this asset they live at. And that's just some of the real pains that we've gone through and our clients have gone through. So rent collection is a bit of an interesting thing. I will say that we, as I pm, and our owners that we represent, we were actually fairly fortunate there Were lots of people that had to get evicted over time for nonpayment if they were not able to do the necessary steps to get assistance. But overall we're still above like 93% occupancy overall for the year and 7%. There's a lot of acquisitions in there, people that we haven't rented initially. So there's a lot of, there's a lot of interesting things going on there. But post Covid, there's still a lot of money, a lot of assistance out there for people that have had income loss.

I was gonna say, have you seen, you know, rent change going up, Down.

Yeah, up, yeah, up, up, up. Yeah. Part of that, like we were, we were talking before this, that a part of that is, you know, the rents are set not only by market and market demand, but also appreciation of the asset, the value pricing. So on your end, I'm sure you can assess that the prices are inflated a bit, probably substantially. Some of that's real, some of it's not. I know we've had some appraisal discussions over the last few months, but it's the same with rentals. I mean, actually for investors, there's the 1% rule that we talk about a lot, that your rent prices should be within 1% most of the time.

Of.

The value of the home. So if the value of the home goes up, the value of the rent goes up. Now, we're not going to estimate this with Zillow. Okay. But you know, what you read online doesn't always what the rent is like. You have to do your due diligence and that's what we do. So we manage 530 properties roughly, or units. And so we, we manage enough that we're able to kind of pull off of what our performance is to see what the market's like. And, and we gauge that against the actual assets in the market and see what other companies or other owners are getting in the same market. But overall they've increased quite a bit.

Yeah, I know that, you know, when we were taking a look at some of the acquisition side and doing that one to one rule, it was getting tough.

Right.

Because again, the home values were going up and the rents were not going.

Up to the same rate.

They weren't. So what you're saying, saying for, you know, our future investors and current investors is hang in there.

Yep.

Right. Like you see a positive future, you know.

Yeah.

Coming from this, that, that rents are going to start ticking back up as well. So it's going to even that out. That 1% rule.

Yeah.

Definitely be some properties still to be acquired and you know, as we grow.

Right.

I mean, so.

Yeah, yeah, yeah. Positive outcome. And you know, you mentioned like, yeah, I'm gonna use an example. If we have $180,000 home, you know, doesn't mean we're getting 1800 rents. And you know, you and I have that conversation quite a bit like, hey, Chris, this is what I'm looking at. This investor wants this. Let's be real. What are the rents? I might come to you. And I think we've had this conversation like a. Realistically, we're not going to get more than 1200 for this. You're like, oh, come on, give you 15. Give me 50, man. And I was like, no, I mean, reality is like, next year, two years from now, when I go to rent this, it's not going to run for 15. It's not going to run for 16. It could.

Right?

But we want to grow into that.

Right?

You don't want to. You don't want to buy pants that are perfect fits right now. You want to. You want to grow into them. Right? Right. So. So it's the same thing. It's like, you know, the rent says have 1200 is a high end. We're going to see some appreciation there. We're going to see some, you know, fingers crossed, value increases if we work the market right. But we want to be able to. To protect our investments and our investors and make sure that it can re rent on the back end. So we.

We're gonna.

We're gonna be comp Competitive with renting, but we're also gonna be real. I could definitely go and say, yeah, I'll rent for 1800 all day long. We may even get $1800. But when that tenant moves in a year, two years, three years down the road, is it gonna rerun for that or in a worst position down the road? We want you to be in the best position possible. So Covid definitely has made that conversation. In this. In this building, when we're talking about acquisitions and before we even get having that rent discussion, several steps along the way. So we're setting the expectation clearly of what to expect. And then even after the sale and during the sales process, when I'm introduced to the owners officially in an official capacity, it's some of the same thing. It's like, hey, like this. We've done this analysis. We talked about this many times. This is what I think the rent is. This is what I would do. This is what you can expect we didn't do that a year and a half ago.

Right.

I think. And it's not because we couldn't. It's just that there wasn't much of a need right now. There's a need. Hey, I'm really nervous. This property is $180,000. Is the rent where this and this. We start talking about things deeper than cap rate investments where looking at a measly 6%. Okay. Well, the reality is, is like, if we get the rents here or the property forms this way, we're sitting at.

An eight or a nine. Right.

So. So it kind of changes how we go about discussing the sale of the property and what it's supposed to do.

One of the things you touched on is, you know, here in this building, I mean, the reality is for our current investors and hopefully future investors, you know, one of the things that happened during COVID is we were here.

Yeah.

I mean, like, we were boots on the ground here at our properties, handling that for clients. Again, we're not selling property that's outside of our immediate vicinity. Yeah.

Yeah.

So, I mean, I think that that's something that, you know, our future investors and current investors should be happy that, you know, during COVID and even after Covid, we're here, we're boots on the ground. And so, you know, the market, like you said, we're coming to you, we're coming with, you know, we can guess what we think the rates and rents are going to be, but we want to verify, you know, with the 500 doors that we have, like, what are we actually collecting in those neighborhoods? And so I think that that's something that, you know, I wanted to touch on, obviously.

Right.

Brief touch, and just say, like, hey, we're here.

Yeah. So, you know, you just mentioned, you know, like, during COVID like, our office became flexible. Now, for those of you that don't know our employee count and how things are structured here, we have, I think we're approaching 40 employee. Some somewhere around 40 employees. 40, maybe 50 employees across all seven companies. Some local in the building. We have. I mean, your office is just five down from mine, some virtually both in the United States and overseas. Very diverse team, different demands, different needs. Technology played a crucial role in getting us through Covid and helping us serve our clients, all of our stakeholders, vendors, residents, owners and employees. It's been, it was a learning curve, I think actually. Most recent technological change as we migrated everything over into Google. So we're now. This is not a sponsorship for Google, by the way. However, when you Use Google to search what sponsorship means. You're welcome Google. So when we migrated over to Google Suite, you know, it was a learning curve for all of us, like trying to learn how to do the chats and the integrations and Google Drive, like things that you would take for granted and just use normally. Like all of a sudden we're all in the entire company on the same system. Beyond that, like Zoom, we always kind of use Zoom a little bit before we switch over to Google Meet. But all of a sudden all of the meetings are virtual.

Right.

We had flexibility office to be able to work from home for. I mean, I know you have children, so you were having to be there for your children more than normally before that. And me, we had family and things, you know. So being able to have the flexibility, working from home was nice.

You guys change your lockboxes. I had to learn how to get into these properties.

Oh yeah, yeah, yeah, yeah, you brought up. Yeah, good point here. So in the middle of this, like In January of 2020, we started kind of messing with this idea of. It was probably before January, but we started messing with the idea of auto showing. Right. So instead of sending an agent out to walk the property with a potential resident, when we're leasing a property, doing it on a showing box so that they are able to punch in a code, get a key, go view it themselves, put the key back. So we were kind of experien with a couple systems and we weren't. It was more of a like hey how can we save some, Spend a little bit of money but save a lot of time type thing.

Right.

And then Covid just put that into hyperdrive. It immediately became a very, a big need. Otherwise we were not going to be able to get things done efficiently. Social distancing. Our governor shut down the state for like four months. I mean it was a big deal where we weren't able to. We wouldn't have been able to perform the way we need to unless we caught up with tech. Yeah. And so we put in place a couple systems that allowed us to do, continue to do showings respect, social distancing standards still allowing the option to have agents show up and show the unit if needed. Of course, all precautions, masks, all that good stuff. But that put us in a much better position. Now post Covid, where we like our, our top leasing person isn't even local. Like she does all the administrative back end stuff and leases properties daily.

Right.

Without ever seeing the property in person. And that wouldn't have been possible if we weren't kind of pushed that direction. It probably would happen eventually.

Right.

We would have figured it out, but it would have been like, okay, we have a need right now. We need to be able to get there right now. I know in your end, like, even you guys already use like DocuSign and all that stuff, but I've noticed that we've had less closings in the office.

Yeah.

More of them are completely, completely electronic online closings.

I mean, so.

Yeah, people. People wiring money all over the place. Yeah, exactly.

A lot of international, right?

Lots of international recently. Yeah.

People investing here in the United States and Ohio in particular.

Right, yeah. So technology has been on our side for sure. And I think it'll continue to be. I mean, we're very tech. I mean, even now, like, we're on a. We're in a studio inside of this office and we have lights and flash and bang. And technology has been a real major help through covet. And I think it's going to continue beyond that now that we know and we understand how. How powerful can be. You know, it's. We talk about. We talk about the COVID thing quite a bit, but I think overall it's put. Take all the negative and bad and the media depiction of all of it, I think we'd all agree we're much better people and businesses and we provide a much clear and direct service coming out of it. I mean, we. I think we started two. Two companies. I think we started two companies last year. I feel like it was two companies. It may have been one. But, you know, the growth is the year of growth and we've done quite a bit. We're on track to do our. We're finishing up our best year ever. And next year we're already sandbagging some pretty good stuff, rolling out. I mean, yeah, quarter one January is gonna be killer.

Right.

So. But I mean, that's all. That's all because we had the opportunity.

Right, Right.

And Covid slowed us, but didn't defeat us, and we came out better on the other side. And that's one thing that's amazing about this team of people here at Freedom Real Estate is that all of the great minds and, and the heavy hands, the hard workers that we have roll the punches.

Yeah.

And we're able to think of the fly.

I think, I think one thing and you just kind of touched on maybe think of it, is that, you know, during COVID I think we acquired more staff.

Right.

People that maybe left other jobs, came here and brought their, you know, their, their winning Personalities and brought something to the team. And, and so again, us as a company growing right out of COVID because of maybe, you know, another company's loss or misfortune. We gained some positive traction there. And so, you know, I know that we're optimistic for, for 22 and.

Right.

And that things, things are looking good. I think you're right. I think you nailed it. We, we learned a lot from COVID We learned how to be more efficient, embrace our technology, you know, perfect systems. And, you know, I think we're delivering a great product for our investors. So I'm really looking forward to it.

Yeah. Yeah.

Next year is gonna be a killer because kind of pull this full circle for everybody, you know, what now.

Right.

So we're, I mean, I, I, I know we have a couple variants. I'm not, I don't work for the cdc. I'm not a doctor. I don't have any specialized degrees in as I'm a, I'm definitely not a doctor, man. But, I mean, we're not done. Covid's not finished.

Okay.

It's still kind of swinging. And as it's going down. Right. So there's still a lot of space and that we have to learn as investors, as professionals in the field, we're gonna keep taking those punches and we're gonna keep being in the battle with you. But what can you do now?

Right?

Right.

So first one is get educated.

Right.

Talk to people you trust. I always extend my hand. I'm not going to put my phone number out there because I don't know who's out there watching this. So you put your phone number on the Internet. I did that once. That was a bad decision.

Right.

But if you need to get a hold of us, you have, you have ways to get a hold of us. There's probably some contact information in this, in our channel here. But one of the biggest things you can do to help combat and position yourself to come out better. You know, we talked at the beginning about, you know, investors at home able to start scanning through, make some plans for what they can do with their savings Account or their 401ks, are now being questioned because, you know, companies aren't weren't performing well, you know, what they can do through retirement, and they're starting to migrate and think about real estate investing and diversifying. The number one best thing you could do, get educated, talk to people that know what they're talking about and diversify your portfolio. And I know we talked about that in other podcasts, but in the Example of the owner that had some pains, what is going to allow him to succeed is a diversification of having different types of assets. You know, we talk about vacancy rates, like, if you have a single family home and they're affected by some pandemic.

Right.

They. You could potentially go from 100 occupancy to none.

Right, Right.

Thousand dollars of income and month and rents to none overnight.

Right.

However, if you have 5, 10, 15 portfolio properties.

Doors.

Doors, yeah. So single family, multifamily. Get a couple duplexes, quads, larger complexes, if you can. Then when you're affected by the low percentages of those that were actually affected in our portfolio, you're still performing at a high. At a high cash flow position, and you're able to take those punches a little bit better in stride. I know that on our end, owners that have experienced, have gone through this 20, 20, have come out in a position where they're a little bit more empathetic to the residents, too. They're like, oh, hey, they're. They're late this month. Okay, well, let's just let them kind of work it out. We'll give them to the end of next month. We'll allow them a little bit of time because it's. It's been hard. Even if people didn't lose their jobs, it's been difficult. So I encourage our investors, our future owners, current owners, talk to mark. Talk to C.J. talk to me. Let's. Let's get you some different investment strategies going. Let's try to supplement your income a little bit.

Absolutely.

It is. It is definitely a big deal. Multifamily is a big win. I know that's a. That's a space that we're still growing into as an organization, but there's definitely benefits in having more.

Sure. Absolutely.

Yeah. All right.

Well, that's all we have today for Covid and how to manage the change and how everything's changed since Covenant. But we like to end these things by saying invest smart and live happy. Take care.

Thanks, guys.

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