Real Estate Investment Opportunities Series - Southern Impression Homes

Welcome to another real estate webinar here at the White Coat Investor. Our guest today is Jim Shields, the founder of Southern Impression Homes. Jim, welcome to the webinar.

Hey, Jim, good to see you. Thanks for having us.

You know, Jim, your company is somewhat unique among our sponsors, and I think we should spend. Before we get into your presentation, let's spend a few minutes talking about the merits of the method of real estate that you and those who work with you use, which is essentially turnkey properties. And I've talked many times with White Coat investors about the spectrum of real estate. And on the far left end, you've got people who are basically building their own properties from the ground up and then renting them out and managing them, et cetera. And on the far end, people who are investing in a. In a mutual fund, an index fund of publicly traded rates, and everything else is in between those two things. Yes, and one of the beautiful things about, you know, a turnkey property is it's kind of found at the midpoint in that scale with a lot of the benefits of individual ownership of properties, and yet a lot of the benefits of being able to still invest very passively.

Yes.

So what do you see as the advantages of, you know, a turnkey property over investing in, you know, individual syndications or even a fund of syndications?

Yeah, it's a great question. Well, first off, I think one of the most proven ways to make money in real estate is to own rental property long term. It's just so many people have done it. It's one of the most proven. And if you do it right, I think one of the easiest ways to make money, even if you put a few things in line. And this term, Jim, as you know, turnkey investing didn't even really exist until about the 08 meltdown and how this turnkey happened. This turnkey term was there was lots of deals all over the US from all these foreclosures coming out, and there were people that were not in the area where they wanted to invest, calling people like me and my partner Chris and his father to say, hey, can you get us some houses and fix them up and manage them. It was literally that generic. And that's exactly how the turnkey model happened. I live in California, I live in New York, I live in Chicago, and I want to invest like, let's say where we are in Florida. I can't be there. But you could find some companies like ours that would find the deals, renovate them, and then manage them long term. So you're Getting all these pieces into place, where, let's say you're in Orange County, California and you want to buy property in Tampa, Florida. Well, that was hard to find the agents and to find the subcontractors and the management or try to manage from your, you know, from afar yourself. And so companies like ours were born where people just started to say, because my, my partner Chris and I were investors. Well, how do you, where, what houses do you buy? How do you fix them up? Who manages your property? And so this is how the turnkey model started. And the advantage to that, Jim, is, is what you said, all that guesswork, it doesn't matter if you're going into a market and you're buying one house or 100 houses, you need the same team players to complete the deal and to see it through long term. And what I found is the turnkey model will help buy back your time if it's done correctly, if it's done with the right type of properties in the right area, with the right management. And all the nightmares. You and I first gotten into this game many years ago hearing about terrible tenants and bad areas and, you know, broken toilets and leaky roofs. All those things can be definitely minimized greatly by the turnkey model.

Yeah. So clearly there's advantages of having somebody out there to help you to own the individual property. But I think the real advantage over, you know, a more passive solution, you know, a syndication or a fund is control. You've got control over the property.

Yep.

You know, you don't have to worry, well, when's the syndication going to return my money to me? Well, your money gets returned to you when you choose, when you decide to sell the property.

Exactly.

There's, you know, that control. You want to hold on to it for 25 years, you want to hold onto it until you die and give your heirs a step up in basis. You can do that, whereas you're not going to be able to do that, you know, with a private real estate fund. That's just not going to happen. It's going to, you know, close in five or ten years or whatever. I mean, there's some that are a little bit more evergreen, but even so, that's, that's not the way they're designed. Whereas when you're buying the individual properties, you have that control to manage real estate in the most tax efficient way to do it, which is basically to depreciate, exchange, depreciate, exchange, depreciate and eventually die and leave that to your heirs with the step up in basis. And you can do that with turnkey investing while avoiding, you know, the hassles of having to find the property and having to fix the property and having to manage the property and having to sell the property. Yeah, very cool part in the spectrum for those who.

Who.

Who are looking for then, you know, you know, the benefits of individual ownership and control without the hassles of doing so, because that's what keeps people from buying the properties themselves. Right. It's not that the minimum investment is too high because it's no higher than it is to buy into a syndicated apartment complex. No, it's the hassle they're worried about.

Yeah, the hassle. And the stories, Jim, and we know them. And a lot of those stories are true. And like, I know we've done past episodes, we've talked about the kiss of death. The kiss of death for a lot of investors, successful medical professionals that, hey, I'm busy with the practice. It's going well, but I know I need exposure to real estate. In the past, they've been sold into a very simple recipe of not good properties with a lot of deferred maintenance in bad areas with poor management. Now, to your credit, I believe we're the only turnkey specialist that's ever been invited into White Coat community because we built our business model on the exact opposite. In fact, we will only do new construction. We go to a certain formulated area of growth and safety, low crime, and have management already in place. And so what I've seen a lot of people, Jim, either they get completely scared of the stories or they become one of the stories, at least so many of them. And what we've tried to do is create a model that completely takes a different path than the stories we hear. And the beautiful thing is, you don't have to own a lot of rental property to really increase your wealth. In fact, I tell people it sounds really cool that, oh, Jim's done thousands of deals. And they're like, well, what would you do differently? I know you've asked me that. I said, jim, I would own less of better quality if I could go back 25 years. I mean, what does that tell you? I did all these deals and this and that. I'm like, gosh, I could have gotten a lot further along if I had just done higher quality, better properties all along instead of just being almost like a deal junkie. And that's kind of the formula we put together for the people we work with in the White Coat. You don't need a ton. Just get Solid, well placed assets that are well managed, that are in good condition that you can look long term with and they'll be there for you when you sell your practice, they'll be there for you, possibly with generational wealth. I mean, what you just said, Jim, that's my entire wealth strategy. Everything you just named, I'm going to exchange, I'm going to depreciate and hopefully along the way I'm going to die. And I'd love my children children to take over what's left.

The other big advantage, I think over a syndication or particularly a fund is, you know, the state tax return burden. You know, I mean, I have funds that might send me K1s from eight states.

Yeah.

You know, and you end up filing taxes in eight states. Well, the cool thing about, you know, turnkey is you know exactly where you're buying it and where you're going to have to file a return. And in your case, you know, the properties you're putting up are in Florida, which is a tax free state. No, there is no additional state tax.

No.

Which is not insignificant. If you paid to have your returns filed in multiple states, it is a not insignificant expense and hassle every year.

Yes, that's very true. Going from being in California to Florida, Jim. I don't miss state income tax, let me tell you.

Yeah, for sure. All right, well, you prepared some slides. Let's spend some time learning a little bit more about your company and your experience and Southern Impression Homes and then we'll do some Q and A at the end.

Okay? So again, my name is Jim Shields. I'm a partner at Southern Impression Homes. This has been a decade project of doing turnkey investments. But instead of fixing up old homes, which is the way the turnkey model started, we provide new construction rental properties to individual investors to help them build their wealth, prepare them for a future that they can lean on and hopefully have more time with their family. The sweet spot for us, as you know, Jim, is we build single family homes, duplexes and quads, all residential real estate that we can get the best financing for and have some of the best fundamentals in our investing space. Now, one of the things you'll see with us here too is we are heavily in Florida, in several markets in Florida, but you're not going to see us in Miami. You don't see us in Tampa and you don't see us in Orlando. And I'll go over affordability, index and cash flow in a little while. But we are there to find markets that are Poised for growth. And we look for five factors that I'll discuss, and that's economic growth, population growth, a good affordability index, desirability and healthy supply and demand. So we go to second tier markets in Florida where we're experiencing all of those growth factors, but the buy in is a much more affordable, which not only gives you a better safety for the rental property you're buying, but also better cash flow. Again, that's economic growth, population growth, a good affordability, which is going to be key in the next few years. Is it desirable? What's drawing people to the area? And as builders, you want healthy supply and demand. We want to go where there's a shortage of housing. And that's those second tier markets in Florida that we focus on. So the way that Jim and I actually met was through Don Warner, a friend of mine. Don's invested over $40 million into our deals. And I've also spoke with him the same way I have for White Coat Community and not only real estate, but also some of our family principles and Dyn Dynamics. Don was the one who bridged the gap between us because Don runs a great fund with White Coat. But for when people want to say, well, look, I'm in a great real estate fund, I'm invested in the S and P. I'd like to own some of my own property. That's why Don got Jim and I and the White Coat team together. Because Don said, these are the guys, these are the guys that I trust to actually build. If you want to own your own properties, these are the guys that I would go to. So we always appreciated that. And a lot of, you know, I go through different stories that you've probably seen on some of our things. Here's Tom Toussnot, who's actually a part time person with us. He came out of retirement. He's been retired for a few years now. Through the cash flow, him and I became good friends because of the commonality where I actually donated a kidney to my father. His wife received a kidney about eight years ago, so we always held that. So Tom is one perfect example of someone who invested in our program and now is semi retired due to it. Mina, again, a great infectious disease doctor in New York City. She is increasing her cash flow and Young, has a young family, great doctor, but she's seen something for the future that she doesn't even lean on now. But when down the road she wants to sell a practice, it puts her in a better position. And we work with over 1,000 active investors. I'm just giving you a few of the examples of people that have succeeded with us. And our job is very simple, Jim. We find the deal, which is the land, we finance it and we manage it so we know where to build. We get it built for you. You don't need a construction loan, you don't need to buy land. We have all that for you. And one of the biggest things we've seen is we finance the deal. So a lot of the White coat community, as you know, Jim, now are using our own in house financing where they're seeing our mortgage rates go almost 3% below what average banks are offering. So we provide the financing and the management. You can find a property in a great spot, but if you don't have management in place, you really can put yourself in a deficit very quickly. You need management in place, especially if you're afar. Overall, we're just at under a billion dollars under asset management from our new construction turnkey rentals. And along with that, we have about 56 million in annual recurring revenue that our investors participate in. We're very proud of that. We've created almost 200 million in equity for our investors just in the last two years. We've got over a thousand current investors that we're working with and that grows on a weekly basis. A lot of White Coat community people in that which we're greatly appreciative for. We've built over 9,000 properties and those 9,000 properties host well over 10,000 residents. So we're really doing our part, I believe. And again, that's how we met Don over at DLP was we're providing this housing, the affordable housing, the workforce housing has really been missing. You know, the big builders don't want to do what we do. So we're happy to fill in the gaps to do that with our single family duplexes and quads. And this is not just done by me or my partner Chris. We have a team of over 120 people in house and that's growing on a daily basis. So we want to keep that for not only Florida, but we're actually expanding now into Texas and Tennessee. We have at this time, Jim, just over 5,000 lots in Florida that we plan to build out for our investors. The average minimum investment, if you want to start investing with us, is 80,000. I always tell people, you know, some people that might be a stretch for right now, the stage they're in, but again, for people that are kind of established, this is a good starting point where we know for so Many others. If you have this, we can start to build your rental portfolio for you in good cadence and with good results. Those 5,000 lots, we are currently, currently building those out in those key markets and we're able to do that. You know, there's been a lot of talk about builders that are not able to build right now, not because they're not good builders, but because they are not able to get the financing with banks. We are one of few builders of our size. We're a mid sized builder. We have zero bank debt, no bank debt at all. Which is a very good thing to know for if a company is solvent or not and able to actually finish your builds. Because we were partially acquired by Sumitomo Forestry a little over two years ago. Jim, I know you remember that when we were discussing it, it was a very exciting time. Because Sumitomo is over 300 years old. They retain a piece of ownership of our company and Chris and I can run it in our autonomy the way that we want, but they bring in lots of resources and support and they're right now building 17,000 homes annually worldwide. And what that means for our investors that we work with in the white coat community, that has allowed us to get better deals and pricing and quality, better service and just an overall better future for the property rental portfolios we're able to put together for you. And we're now on what's called a continual build cycle. What that means is sometimes you hear about, okay, I'd like to buy a duplex in Florida with you. So say Palm Coast, Florida. A lot of the times you would have to put up a deposit and then wait 10 months to get the project done or maybe even get a construction loan, you don't have to do any of that. If you're looking to buy, let's say, a duplex with us in Palm Coast, Florida, we're finishing our projects on our own dime every day. And you can close on one of these in less than 30 days. Because we're on this continual build cycle. You don't have to take any risk of pre construction. You don't have to get a construction loan. You just step in with the permanent financing qualifying at the end and let us take the risk. People say, well, how have you performed in the last five years? Well, if you had invested $250,000 five years ago in the S&P 500, which I encourage, I do myself, you would have made about 10.5%. That's a really solid return. If you had invested in a good Real estate fund, let's say dlp, you would have maybe earned on some of the better funds. 13.5%. That's a great return. Now here's what I like about active participation in owning real estate. If you had invested $250,000 into our build to rent program, our turnkey new construction rentals in Jacksonville, Florida, one of our main markets, you would have earned just over 69% annually on your money. This is something I really like to show. All three of these options here, Jim, are good options and are ones that I personally invest in. But just like it's showing on the right, there is a reason why the largest hedge funds and institutions in the world come to guys like you and I, Jim, to raise money from us and then pay us a return so that they can own real estate. They go out, they borrow our money, they take it, they go out and buy real estate, they hold it, they do their thing with it and they pay us a return. I always tell people, please don't confuse that you're having to take on a second or third job with owning some rental property. Because if you do it right, you don't. But if you never plant these seeds into your own rental property portfolio, this is what you can leave on the table. And again, I think you'd be cutting yourself short. And again, 90% of all millionaires became so through owning real estate. I read this Andrew Carnegie quote 26 years ago. When I first got into it, I said, huh, I kind of like those odds. How do I get involved? So let me tell you a couple things I've learned. First of all, adventure is my key thing. It's my real estate. If I hadn't started this, I came from very middle income family, I would have never been able to have the adventure. Adventures all over the world. Jim and I have had lots of great conversations comparing notes of some really cool places with my five children, my wife, a lot of you in the white coat community. Thanks to people like you. I was the only one in my family with the position of finances and recovery to be able to donate a kidney to my father. We got an extra 11 years out of him before he passed away. What a blessing. But again, all of this was paid for by my real estate. A lot of, you know, even wrote a best selling book with my wife about family life. Now I never expected to do that. It's something we're very proud of. But why this is important to mention now is this project was all funded by my rental real estate. And our recent book Which White Coat is involved with. This was a USA Today bestseller. This is one I recommend to everyone. And Jim, as I told you, anyone who writes to the email on here, that'll be jayden8summers.com will receive a free copy of our book. It sells for $22.95 at Barnes and Noble. We're going to give it to you in the White Coat community for free because it's going to show our principles of real estate investing and it's going to show how we've tried to blend our family life with it. Because what I saw was I don't want you to be successful just in your practice or with your real estate portfolio, but successful at home. And I think there's ways that you can leverage the two together and get great results. So it's not only my story, my wife's and my business partners and a lot of our staff, but many of our clients as well are in this book. So I think you'll really enjoy it. Now, I'm going to tell you a couple of quick pitfalls that I've seen in the real estate market today and you want to be aware of. Okay? So the number one pitfall I'm seeing right now, Jim, is buying the wrong type of property. This is absolutely detrimental to especially medical professionals. I think they get preyed upon by people saying, hey, how could you go wrong? This Property only costs $80,000. You know, don't just. You could buy it cash. You can't go wrong. This is the biggest mistake and pitfall I see is, is professionals being thrown into properties not in their area in very so, so condition and not in good areas. And what I see happen is you buy these types of properties, you have so many issues, the turnover, the, the toughness of managing extra repairs that by year three, you own a few of these properties for three years because you buy a few of them. People say, oh, you know, buy a few of them. How could you go wrong? And you buy a few of them, they really just suck you dry for a few years. And you raise up the white flag by year three and say, hey, just sell these at a loss, get rid of them. And this is something that we're really trying to change because it's been a big thing in our industry. What we encourage people to do is buy the right type of. Of property and buy less of them. Don't try to buy extra cheap properties just because they're cheap. That can be the absolute kiss of death. So, number one pitfall is, you know, the wrong type of property. And the second thing which couples with these cheap properties is investing only for cash flow. You'll normally see when people are trying to offer you these types of properties. I know Jim has had many of these types of property providers knocking at his door and he's always said, no, hey, I can get you this really high cash flow. But then when you look under the hood a little bit, they're the exact type of properties I just described to you. Bad condition, not so good areas, very, very questionable if the cash flow actually perform for the numbers they're showing you. And something I always like to make clear, Jim, with owning real estate. I love cash flow, but it's only one of the ways you make money. And you were already alluding to some of the other ways with you know, debt, pay down, depreciation, the exchange method and equity and growth is the biggest. So when I've looked at my last 25 year span and the money that I've made, I've made good money in cash flow. I've made really, really, really good money in long term buy and hold equity growth. And I don't depend on appreciation, but man do I do my best to get in its way. And if you're only investing for cash flow, you might not plant your seeds in those more poised for growth markets into, into a little bit better of properties because you're just focused on that immediate cash flow upfront and that's where you get caught into the three year curse. So yes, cash flow is important, but if you only invest for that, you might be going into the wrong properties and you'll want to double check. And then the third thing, just talking about this early on, another show that I was on is analysis paralysis. You know, I remember the first real estate classes I went to and I've stayed in touch with a few of the people. And this is from again, almost about 25 years ago. There's a couple of people that have remained friends and they've never done a deal, they've never bought a rental property. And I can tell you that, yeah, it's not a straight line. There's been some ups and downs, but for the most part things have moved in the right direction. And history shows that for owning the right type of rental real estate, all of them regret it, all of them regret the analysis paralysis. So I tell everyone, if you are interested in owning rental property, that's with us or with anyone else, don't get too caught in the analysis paralysis. Learn some key fundamentals, some key parameters and work with those. But you don't want to be like so many other people that I know from 25 years ago, 20 years ago, 10, 15, five years ago, like we just showed that chart analysis paralysis has lost more people money than actually taking action. And this is something I know can be especially hard for our busy, hard working medical community, especially in this kind of realm. But it's something that if you can get through this and make some educated decisions and action steps, it can pay off. And we've seen that happen. Now something that I want to add, Jim too, is I know there's a lot of talk at the White Coat event and just the overall markets, financial markets, about the institutional buyers in residential real estate. That is true. But we do build for some of the larger institutions and hedge funds. We prefer the main street investors like yourself because again, we love to see these personal portfolios being built and the success that comes from them. But these stories that are saying that all the institutional buyers, forget it, we can't beat them, is just not true right now. In fact, one of the last events that I got invited to speak at, there were about four or five large institutions there that I was on stage with, speaking on a panel with, and they said they had about $900 billion on the sidelines waiting to come into the residential market. Now I think that's a great thing because when money goes into a market, it obviously gives it attention. And if you already own property, that can be great. But these guys are stuck on the sidelines right now. One reason, because their insurance premiums, what you and I can get on an insurance premium for a house that we buy, is way different than what an institution can. And even more important is this financing. So as I said, we have our own in house financing, which has made a huge difference. Again, I encourage you to shop your own mortgage companies. And you'll see we're normally coming in about 3% below what average mortgage companies are. Something called a builder forward commitment that we can pre buy mortgages for our clients on houses we build. Key. We cannot offer these rates to our commercial institutional buyers. So that means the rates that you're able to get through something like our in house financing, you gotta tack on probably another 3 to 4% for them. So they, even though they're big and they have money, they can't make the numbers work. So that means right now, until rates drop, and we are seeing, I'll talk about that in a minute, potential rate drops, these guys are stuck on the sideline where the Main street investors like myself and you guys can buy with our own residential mortgage financing and get deals to pencil that the institutions cannot. It's a very interesting and exciting time for us smaller investors to actually be able to outplay the bigger investors. And I'm going to give a couple predictions around that for 2025. Jim, we've been looking into this a lot with Chris. You know, we've had lots of things from James Burns, who works with Sumitomo and some other really key real estate economic advisors. And we're seeing some very cool things for 2025. First off, it's the end of an election. Anytime you get off an election. Here's what I've learned in my last 25 years. People are either happy so they take action or they're ticked off so they take action. But man, after an election they take action. So we're expecting the real estate activity to really grow in 2025. And what's going to be caused from that, which is already existing, is an inventory shortage. Now this is really important to understand. I mean supply and demand is what really drives prices or rents. We right now are going what looks like in about six to eight months in inventory shortage and I'll tell you why. So this is a Fed chart and we can get you copies of our slides. But what this shows is permits that are issued and we were already behind on workforce housing since 2008. Believe it or not. We've still not caught up on that. I know Don at DLP does lots of different talks on this and we agree totally that look, we're behind on workforce housing and that only got worse, guys, when the rate shot up in June of 2022, I mean those rates went hockey stick the wrong way. We're at now what, a 26 year high. That puts a lot of builders on the sideline to make the numbers work. So the permits being issued have gone way down. In fact, if you look right to the right of here, that February of 2023 is when the permits peaked and now they've been on a downward spike. If you're seeing it's going down, down, down, down. So what does this mean? I could talk about this for an hour, but I won't. I'm not going to bore you guys like that. What I can tell you is this. In the beginning of this year of 20, end of the first quarter, a lot of homes and properties and multi unit rentals came on the market from what we call Covid inventory, meaning there were delays getting the supplies and all of it came out, that slowed down our absorption rate from about an average of 30 days on the market to about 65 days to fill a rental. We're already seeing that go down. And to get through inventory from permits being issued, it's usually about a one and a half to two year to two year absorption. And then from six months it goes down from there. And once things are absorbed again, it takes about two years to re rev that engine for the permits being issued. That means that when all of this inventory that's been released or is coming out from this last spike, by about mid next year, from what we're seeing, all the analysts are saying there's nothing the supply coming that is meeting the demand because Florida markets we're in still have great growth people moving there every day, but there's nothing behind it to keep up with that amount with what's actually coming on the market. So an inventory shortage can be a very exciting thing for properties you already own. And also we feel if you get in before the shortage starts, there could again, we don't depend on appreciation, but we try to get in its way. That's a sure tell sign that there could be growth in both values and in rentals. Now what you want to do with this inventory shortage, obviously is go to areas that are having high population growth. Now, the highest population growths that I've seen right now are Texas, Tennessee and Florida. We focus on Florida for the reason of. I remember a mentor of mine saying that, you know, population growth can cover up small mistakes. And when you have lots of people, you know, the wind's at your back coming into an area. That's very helpful. In fact, the reason I compare Alabama and Florida here is I like the Southeast. I think the Southeast has great building fundamentals and needs. However, we have decided not to go into Alabama at this time. And I think this chart will show you why. That population growth is just too small for us. We want less risk that is too risky for us to be building new properties in an area where it's more of a very, you know, flat. We want to go where there's that growth of hockey stick. And so this is absolutely key and something you want to look for for your investing career. Again, whether it's with us or someone else. You want to be aware of this and follow this. And affordability. That is the second predictor that I have that's going to control the real estate market. You hear it from Jim all the time. Talking with dlp. Workforce housing is key. The affordable housing is key. People say, is there going to be a correction in the market? And I say absolutely. In some of the markets, some of the more emotional markets, the numbers have gone up so high there's zero cash flow. The affordability index, which I'll show you how that works in a few minutes, is out of whack. So we wanna stick to affordable markets. And if you can find affordable markets, you're in a good position. I mean, we already know that the Federal Reserve and people that we follow are saying, they said it's time to cut rates. We're expecting four to six rate cuts over the next 12 months. Now that doesn't mean we're gonna go necessarily down to what it was in 2020, but it could be a very exciting time to get rates down to help with your buy ins. Even better. And even without these rates starting to go down, let me show you. Before the rates even started to drop about two months ago, the median sales price a year ago across the US was 480,000. Now before the rate drops even happened, the median sales price was 418,000. So we've already seen a correction downward in the affordability, which is a very good sign for people who are looking to get in also mortgage payments to income ratio. A year ago, the average family would be spending 57% of their income on their mortgage payment. As of last month it was only 48.9%. That's a really healthy drop. And these are the things you want to look at that affordability is key is will the real estate market continue to flourish? Will it still have more growth potential? Affordability is key. So that's coming not only from the pricing, but also the mortgage payments. People's incomes have gone up and also the rates are finally going down, which everyone is very excited about. So you have to look for those two things and look at them together.

Okay, we're going to move into the Q and A section now. Jim, one of the unique things you do at Southern Impression Homes is you build from the ground up. I mean, you're building these properties and the first owner is the investors here and the first tenant is the people you're putting in there for.

Yes.

When you do that, starting from the beginning with all new stuff, how long should people really expect before they're going to need to put significant capital into these properties? I mean, roofs wear out, air conditioners, ovens, microwaves, fridges, water heaters, all that stuff wears out eventually. How long should they plan before they're going to need to be bringing capital to put into these properties.

That's a great question, Jim. So there again, we all know there's a big difference between structural and cosmetic. So structural. Let me tell you a little number we always look at for our people. If you buy a new construction home with us and you decide to sell the next seven to 10 years and you're listing it with a retail agent from your experience, Jim, if a new home buyer comes in, a first time home buyer and says, oh, I want to buy this house and it's only 10 years old, normally you're not going to have to do anything. You know, if you sell a house that's within 7 to 10 years old, most first time home buyers will say, wow, that's great. I don't, there's not much I have to do here, I'll take it over. This is a newer home. So again, a lot of people sell properties within seven to 10 years. I like to look longer term. But from what we see besides cosmetics, if you're selling properties forward in seven to 10 years of the structural, you should not have to do much to the property. And from what we're seeing Jim, overall are in the first few years there's very little maintenance to our properties because the way we design them. But then even so we found that our new construction model compared to our old fix up properties, those maintenance repairs are about 70% less. So we feel the first three to four years there really should be very little to nothing unless there's tenant damage that obviously we can go back to the tenant for, but there should really be not much at all. And then for the way we build it, we're looking to avoid any structural stuff for at least the first 10 years. So when you're saying significant a roof, again you're saying a roof can cost a lot of money. We haven't had with our 10 year span now roof running out of life unless there was some sort of tree fell on it or something. And that's when insurance gets involved. But at this time we're looking out 10 years on the structural stuff in the first few years. You really shouldn't have much maintenance or repair in those first few years. Again, that's why we went to new construction. We've really seen that plummet compared to our old house model.

Now you're building mostly in Florida, so I don't think we can talk about Florida real estate without addressing the H word. Let's talk about hurricanes and what that means for investing in real estate in Florida.

Yes. So we've done lots of webinars on this brought on some of our insurance experts. This is the big question. You know, remember I was in California investing for years. I got used to earthquakes, and now I had to come and deal with this big H word, like you said. And here's what I've learned. Not all properties are created equal. And I know I've talked about this. I've actually done some of the slide presentations with videos at the White Coat event. There is a big difference between a property built 2004 or newer and a property built in 1954. And I'll tell you why. In 2004, Big Hurricane came through Punta Gorda, Florida. It decimated it. My dad had relatives down there. Really sad. And the government stepped in and they changed the rules. They said, done. Okay, we're going to change this from moving forward. If you're going to build a new construction home, it's got to be built on higher ground with stronger structural design. So back in the day, in 1950s, Jim, you and I could build a house at two feet above sea level, let's say, which is, for common sake, very low. That's not a very safe amount. But today, you have to build that up to 13, 14. 14ft above sea level, where we do. And as builders, I got to tell you, we complain like, oh, that's a lot of dirt to bring in. Dirt's expensive. And we whine and complain a little bit until a big hurricane comes. And, you know, the last hurricanes that have come through in the last year, we haven't had any water intrusion from flooding. None. Because. And again, it's happened in our areas. We build in Fort Myers, we build in Punta Gorda. All these areas have had the direct storm hit, and we did not have any flooding or any major issues. The reason why is because we're on that higher ground with stronger structural design. And so when you're able to do that and couple that with. Although we're in coastal communities, Jim, there's a big difference between having a home a few miles inland from the coast or right on the coast. So, like, right where I live, Jim, as you know, I live 10 seconds off the beach. I'm on a small barrier island 10 houses wide. I take a risk. I stay well insured, but my investment properties, you know, a few miles inland, their insurance is much lower and take much less risk. So I always tell people, look, beachfront waterfront property is some of the most valuable in the world, but that also holds the highest risk. And so we don't focus on that. For our build to rent model, we don't we build in coastal areas, but a few miles inland we build stronger structural design that's required now. And instead of going at that old 2 or 3ft above sea level, we're now 13, 14ft above sea level. And that makes a huge difference not only to the results because we've always tracked them, sent out a lot of videos with some of our active white coat people who are very relieved on the last few hurricanes, especially in southwest Florida, to show that we had no damage. But we also get rewarded from our insurance companies. People are shocked to say, how are you getting insurance so cheap in Florida? Well, again, my house here, I was built in 2004. If you go down the road, Jim, on my little barrier island, there's a few cottages there that were built in 1954, 1957. There may be a third of the size of my house. Their insurance is seven times the amount because it was built differently and it's at 2ft above sea level where my house is at 14ft above sea level. Does that all make sense?

Yeah, absolutely. You know, even beyond insurance, even beyond hurricanes, I've heard a lot of people talking about difficulties getting insured in Florida. Are your investors having any trouble finding insurance for these properties in Florida?

Not at all. And that's been the funny question where when I hear this, I always say which properties and who are you? Because two people I've heard say they have trouble getting insured in Florida. One are the larger institutions because insurance companies say, woo, you guys own too much property. We don't want to take any more risk with you. But the other is people that are trying to buy older properties that don't fit what I just told you. They're in low lying areas, they're very coastal or close to the waterfront. That's where I've seen the problems. But with our make and model, and I think it was last month, we brought on the insurance expert we use for probably 90% of our properties. His company's been great. He explained exactly why there's no problem. Because insurance companies are about risk analysis and we've been through a good amount of hurricanes since. We're in 12 different markets now for the last 10 years and we haven't had to make any large claims. So the insurance companies say, gosh, we want to invest with that group, group more. And so we haven't seen it with our properties. Have I seen it for the property I just described, a little cottage on a barrier island that was built in 1957. Yeah. You're going to pay 7x what I pay for four times the house. But that's on that type of property because the insurance company is all about risk and they see that as a high risk for flooding and for notwithstanding wind issue. Very cool.

Now this may not matter since most of your investors are now buying houses that are already built, but have you been running into supply chain issues building the houses and is that seem to lessen over the last year or is that still continuing?

You know, the supply chain issues were absolutely horrendous. If you remember Jim. 20, 20, 2021, beginning of 2022. It's really loosened up. And the good thing for us as you know, with us, you know, getting this partnership now with Sumitomo, we've been able to really dial into some very strong supply chains and it's put us in a great position. So we're not seeing that issue at all. Right. Right now.

How much do you find your investors are needing to put down on these properties in order to be cash flow positive? Is 20% enough or are they needing to put down 25 or 30%?

The average our investors put down for our in house financing program is 25% and 25% with our, our program will cash flow the property. At least that's what we've seen on 95% of our property properties, especially in quads.

Very cool. And that's a pretty cool program. You've got to be able to get the financing 3% below market. You want to give us any more details on that? I mean it sounds like you're basically lining it up before you even build the home.

Yeah. So we are now in the money buying business, Jim. We have to. What this is called is a builder forward commitment. And what that means is if you have a certain balance, balance sheet. And now with being partners with Sumitomo, we have a very healthy balance sheet with no bank debt. So we can go to a bank with our positive financials and we're able to negotiate with them to pre buy large tranches of mortgage money. And we have to pay for this upfront, but we're able to buy that for the houses we're building and selling and then we can turn around to our investor base and as they buy a house we can offer them this in house financing. And again, a lot of them are saying, oh my gosh, I went to my bank for the duplex I'm buying and they quoted us at seven and a quarter. You're quoting us 3.75 and that's the advantage of this builder forward commitment. It's a very niche product that not all builders can qualify for. But our goal, again, is to get you the best rates as possible upfront so we can get the property cash flowing on the right track. Right away, a lot of people are saying, oh, I want to wait for rates to drop. The great thing with having our program, we're already pre dropping the rates so you don't have to wait when everyone else. We think there's going to be a frenzy. Like I said, by this time next year, you don't have to wait for that.

Yeah, very cool. All right, Jim, I think we're. Our time's becoming short now. What have we not covered today that White Coat investors need to know about investing with Southern Impression Homes?

I think it's just again, like we talked about, Jim, you do a great job of, of bringing in multiple strategies to help give them a financial base and a financial success for the future. Rental property does not have to be the nightmares that you've heard of, especially when you dial into programs like ours. And it's worth that little bit of one to two hours, which is the average that people have to manage their portfolio with this, our rental portfolio, working with their property counselor, their property manager. But you're talking one to two hours of one of the most proven leveraged techniques in real estate investing. And I encourage you if you want to learn, whether you're working with us, of course we want you to work with us, but go elsewhere. Get a copy of our book. I mean, Jim was interviewed for the book. It's a really great starting point to learn about principles. But don't believe the hype. Don't believe the stories about, oh, gosh, if I own rental property, I'm going to create a second or third job for myself. I'm going to get, get stuck with terrible tenants and all these issues that can be. But again, we try to make those stories be obsolete and have had a lot of success with the white coat community doing so.

Very cool. Now you can get more details about investing at Southern Impression Homes by going to whitecoatinvestor.com Southern and Jim, thank you so much for your time on this webinar today.

Great to see you, Jim. Thanks for having us. The hosts of the White Coat Investor are not licensed accountants, attorneys or financial advisors. Advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to yourself.