Unheard of home prices: $225,000+/- in Portland! John Laine - Breaking Barriers- Home Affordability!

Are you one of the many busy professionals working in offices day in and day out? Do you wonder how some people grow their wealth fast, retire early and play on work days? Well, you're in luck because Ginny Bolling hosts this show Pivots of Prosperity where she interviews people that can do just that play on work days. Many guests have become financially free. She also interviews people that are on their journey and people that are in support roles like attorneys, contractors, brain brokers and others. Commercial real estate is the common element. She is on a mission to be sure. Busy professionals know they can own substantial commercial properties too, like apartments, self storage facilities and others and not have to do the work managing them. Passive investing is the key. Syndications are the typical method. Tax write offs are some of the biggest rewards. Ginny and partners find the deals, build a strong team and business plan, then offer the investment opportunities to passive investors. New episodes are released every Tuesday at 12, so watch for new releases. If you want to get involved, let us know. You need to get pre qualified to hear about most deals. See the show notes for contact information.

Hello, Hello. Jenny Bowling here with Pivot to Prosperity brought to you by Pivotal Real Estate Investments where we help investors build wealth and income through commercial real estate that also improves communities. And today we have John Lane as our guest. John, welcome.

It's great to be here. Thank you for having me. Jenny. This is, it's good to catch up and talk shop.

Yes, it is. It sure is. And shoot, I didn't ask you if you wanted me to read a bio, much less if you had one handy. So I'm going to let you introduce yourself, John Lane.

I bought my first house when I was 19 years old. I was pushing a broom for a carpet cleaning company and was tired of moving and so I decided I $2500 down payment. 19 years old. I'm 57 now. So like 35 plus years ago I bought my first house and that got me started. I've done $150 million in closed deals. Personally. Like it's been a, it's been a good, it's been a good couple of years. It's been a. I got serious in real estate in late 2001. Like I started as a business just about 20 years ago. Y we just closed a small apartment building like a couple three weeks ago. We're turning it into affordable housing. I, my, my my super passionate and super nerdy. I have a fidget. I always have a fidget in my head. I cannot have an adult conversation without a fidget in My hand. It's like super nerdy, analytical social anxiety. Like, that's who I am. That's who I am. If I were to give you a bio.

So we were talking a little before the show about some of the cool stuff you're doing for affordable housing.

Oh, yeah, yeah, yeah.

And so are all of your acquisitions geared towards your affordable housing program?

Yeah, absolutely. Because, gosh, I sneezed and now I've been tearing because I was able to buy my home super young. That one. Gosh. And I didn't plan it. I had no idea how important that, that one Nucleus moment, how pivotal that one Nucleus was. But buying my house young, I was able to capture compounding interest for three and a half decades. Right. Just one decision. I was able to roll that into another house and another house, and it was, it was, it was transformational in my life. Like, I never planned to be in real estate. It just kind of fell into my lap. But the values, what I've learned, what I've earned, really led me to the path of trying to solve this affordability problem for other people. Right. Just because I got mine doesn't mean I want to hoard it. I really want to help other young people, 25 year olds, buy their first home. And so that's why we started Condo fund. Yeah, we.

That's why you started what?

Condo fund. But yeah, that's why we, we started Condo fund was to. To really bring affordable housing to the masses. Here in Portland, as an example, the average price for a house is five and a quarter. Right. We're selling our condos for 60% less. We're selling them for 200 grand. 225. So we're really, our goal is to solve that affordability crisis.

I'm mentally trying to think of a way to make it a, a cliche for you that your, your condo's snowballing into an affordable housing solution.

It is, yeah. I mean, so we're. So what we'll do, we'll buy a small apartment building, right? We just closed on one. 23 units. We're so this today. 51 weeks ago, we bought our first condo conversion here in Portland. 51 weeks later, now we're selling our units. Right. It's very fast transaction. It's literally in and out in 18 months or less. Right. It's. You have to be able to buy. Right. We're talking to real estate investors. So you got to be able to buy. Right. And have a good basis. And generally speaking, for every, like we're buying properties in Portland at $120,000 a door. And then we'll do the reno, do the, the work, and then sell it for, call it 225. I mean, there's, there's a lot of stuff in there. Our profits aren't that big, but.

So how can, can any, can any investor pretty much find them if at 120 a door? Or is that your piece out of the bigger puzzle, given what you, I.

Already know of your part, have a really great partnership with nonprofit housing providers. Right. Let's take an overview of the affordable housing landscape. First off, affordable housing is a trillion dollar problem, right? Let's just like start from the big macro. There's roughly 50 million apartment units in the U.S. 1 out of 8, and specifically 5.2 million units are managed by nonprofit housing providers. It's a big, it's a big set of numbers. We partner with one organization here, roughly 5,000 doors, roughly 15, 20, 12 to 15,000 people that they house. Right. It's a big organization. They have roughly $500 million worth of assets. And so their business model is to provide affordable housing. And what they typically do is they'll build bigger units and then dispose of their smaller units. And then, and we come along. This is where that compassionate capitalism thing, the last property we bought, there were 12 other offers. And they chose us because what they call mission alignment right there, they see us as a partner for them. We, we collaborating extensively now on helping their residents get on the path towards affordable housing ownership. Right. There's, there's rentals out there, but if you really want to fix the affordable housing crisis, it has to begin with ownership. And so we'll buy their older assets, generally speaking, 30 or 40 cents on the dollar. And that enables us, because we're buying so well, the basis is so low that we're able to renovate the property. We're able to provide what's called preservation dollars in the con in the form of a condo association, homeowners association, the preservation dollars, we renovate the property and then we ensure that forever in perpetuity, there's renovation or preservation dollars available. Right. Most of these nonprofits, and this is a national problem, most of these nonprofits do not have preservation dollars. So they can build something new and pretty and generally more efficient for a lot more people. But their older assets are being neglected, not by choice, obviously, because they want to provide good, clean, home, safe homes. But the, there's so many more line items on if you got a, let's say a 12 plex, an apartment. If you got two properties next door, market rate, run managed and well managed on one side and then the, and a, a nonprofit housing provider on the other, they could be $2 million difference in value. Right. On one side, let's say it's $1,700, $1,800 a month average rent and 70% NOI, 30% expenses. Right? Well managed, well run. On the other side, eleven hundred dollars a month rent. Because it's non profit, they don't want to make a profit. They just want to cover operational expenses. And then you might have line item for staff people, line item for additional services. So their NOI is chopped. Right? You might have, you might have 70% NOI on the market rate property. You might only have a 40% NOI on the nonprofit property.

You said only 40.

Yeah, yeah.

Percent NOI, right. Okay, so 60% expenses.

Yeah. So I mean it's, it's really how these organizations operate. And that enables us to buy at super discounted prices. Let's say this nonprofit is run Same same thing, $1,100 a month rent times 12. Right. Your NOI calculation comes out to about a million dollars, whereas this one might be a $3 million value. So we take that delta, that 2 million dollar delta, and that enables us to buy it well, put a bunch of money into rehab and still sell it at an 80% AMI area median income. So we're still able to sell it to first time home buyers. If you in, in Portland, the example is you got one person working at Starbucks and one person working at Home Depot. If they make 90 grand a year together, they can buy one of our houses.

So and the, you were, I'm talking about something you haven't talked about yet, the down payment assistance part of it. Down payment assistance.

Yeah, yeah. So, okay, so first off, we got this whole idea of the median price in Portland is 525 for a home, right. Our condos, let's say they're selling at about 225, $300,000 difference. And then you, you take the other side of the equation of working with nonprofits. They have a fairly decent bucket full of down payment assistance money. Right. Everybody wants to solve this affordability crisis. So there's individual nonprofits out there with buckets full of money for down payments. In the situation we're working through, we, we're partnered with another nonprofit that's gifting our resident buyers $150,000 per unit. Right? So you got a 225 and you're getting what's called a silent second. Right. No payments, zero interest. As long as you stay in that home for 15 years, they will wipe the debt free.

You're calling that a silent second?

It's called a silent second. There are strings attached to these down payment programs. Right. It's very specific to region, it's very specific to income, it's sometimes specific to ethnicity. So we genuinely do fight pretty hard against gentrification. So a lot of these down payment programs are very specific to regionally disadvantaged areas, which is keeping the people there.

That were already there. Right?

Yeah, yeah, yeah. Portland, Portland's got a pretty solidly checkered past. We basically built a freeway through the African American neighborhood 50 years ago and displaced tens of thousands of families. So these nonprofit organizations are trying to keep the people who are still there there, which I think is awesome. Yeah, yeah, yeah.

And remember I used to work for the highway company and still might here and there. I totally get what you're saying. And then there's a big national movement to try to recover the impact from the highways.

Yeah, yeah. Bulldozed. I'm brown skinned. They bulldozed tens of thousands of homes in brown, brown, black and brown neighborhoods. Like was like just looking at the historical impact of that is pretty tough to watch.

It is, but, but I, I do have to say, just so that it, it's in the record here, when we are negotiating to, to acquire property for roadway and if we have to go to court, we need engineers and experts to testify that the full analysis been done and the corridor chosen is the least cost, least impact. But they don't look at the social side of the impact.

Yeah, I totally get it. Right. I mean our, our highway system, at least here in the Pacific Northwest, because we are so land constrained, every highway we've got is along the path of a river somewhere. Right. That's just. We have too many mountains, we have too many volcanoes, we have too many rolly poly. Right. You're in Florida. Your whole world is as flat as that tennis court behind you. We're super land constrained here. Buildable lands, like that's flat, that's tough to find here.

I gotta get there one of these days. But, but so to that same vein though, you were saying that. Well, there was a couple things I wanted to go back to. Let me let you finish. Go ahead.

Okay, so anyway, so this whole like 225 sale price, $150,000 silent second as a down payment assistant, people are walking in, no joke, with $800 mortgages. That's like $600 mortgage PITI plus HOA for like $850. Now mind you, that's a thousand dollars cheaper than rent. I mean it's, it's pretty impactful. Yeah.

Now you said, I remember the question. Silent second. And, and they don't have to pay it back as long as they stay there. 15 years, did you say?

Correct. So it basically reduces by 300, I'm sorry, 3%, 3 and a half percent, 3.33% every year. Right. So if they stay there for 15 years, it goes. Yeah, there, there are caveats. Right. But it's, it's pretty amazing the idea of walking into with zero down. Now you're talking about like no money down to get into your first home. Like that doesn't happen when that, when the average, the median, I don't know which it is, but the average down payment in, in Portland is $71,000. And that's literally the expense of the mortgage on the properties we're getting. Like, it's just, it's, that's huge.

Yeah, you're making a big difference for a lot of people.

Yeah, yeah, yeah. Where this, this non profit and I, I, we're not to the point yet, but I think next week she's just going to hand us a list of 20 buyers that are already pre approved, already have the down payment assistance program approved and I'll bet you in three weeks we're going to sell all 14 units. In a day. Like in a day.

Be pretty cool.

Yeah. It's not 100% certain of all of that, but now the pieces in place and we're just waiting for the bureaucracy of it to come through.

But that's cool. Tell me more about the preservation dollars to how does that work?

So HOA homeowners association HOAs have to manage the property. So in this particular building. Let me go back. We're in the Pacific Northwest. We are very high likelihood of having an earthquake. A very, very big earthquake. Right. So the, a lot of buildings in Portland are brick and it's called unreinforced masonry. U R M. Right. And so this URM building, part of the 1.7 million in renovation that we're doing on this building, we're putting a $400,000 roof on it. Engineering, architectural, the whole nine yards. Right. Because this is a three story URM building, it has the potential to literally pancake on top of each other in a bad earthquake. And so we have to seismically engineer the roof so that the roof and the parapets all stay together. So that's the part of the solution. But the preservation dollars that come in because we're overfunding the HOA in about 20 years, the building is going to need another $2.5 million worth of structural engineering to seismically retrofit the building. So that's how we're basically creating preservation dollars funded through the HOA we're having. Because the homeowners are getting such value, we're asking them to pay a little bit more for the HOA so that you get this big chunk of money on the back end to pay for the complete retro retrofit. Seismic retrofit.

And did you say in 20 years it should be 20 million to, to do it again?

No. Two and a half million is kind of estimate.

Has that all been proven out? It's, it's been. You've got, you've got data that shows that's the typical.

We are doing what's called, Every HOA has to have what's called a reserve study. Right. So walls, windows, doors, roofing, all. The envelope. It's called the envelope. So you have to do a reserve study to determine what needs to be fixed and when. So our reserve study is not complete yet, but when we finish the reserve study on this particular building, we will have a really close estimate to how much the, the seismic solution.

Interesting. So it's funny because way back in the 80s as appraisers we used to set up, we did the reserve studies and told them how much to save. And then the other reason I'm asking so much about that is my brother is an earthquake specialist with a company called ImageCat out there.

Oh yeah.

He'S in San Diego now, but he was in LA for decades and so. Yeah, and that's part of what he specialized in his retrofitting buildings.

Nice, nice. He's got to be doing pretty well. We've had two earthquakes in the last two months that were sevens. Oh yeah, we're expecting a nine. A nine. At some point in the next a hundred years we're going to have a nine point earthquake and it's going to, it's going to be bad, it'll be devastating.

So in that same vein, let me mention a couple things too that are fun because. Not fun, but because of natural disasters. I attend an infrastructure. Since that's my background, I've gone to some of these things where they address things that are being done nationally for or internationally for, for this. And one of the things that I saw, I'm sure my brother has better examples, but was where there were a lot of seats, bench seats, but what they actually were was you lift it and you get in if there's a hurricane or earthquake.

Oh, wow. All right. This is just like a safety locker.

Yep.

Wow. Cool.

Yeah. Things like that. Yeah, a lot of. A lot of cool ideas like that. But yeah, man, it's scary. I. I only experienced two, I think pretty weak tremors when I lived in la. Back way back, but yeah, that's yet earthquakes.

Really. Up here, it's just one big fault line, and when it snaps, it just. It's like a giant rubber band. Yeah. So anyway, that's the whole reason that we're doing the retrofit now. Like, we're solving the big problem now. And then as time goes by, we'll solve the kind of extra.

That is just amazing that you can put that much money in there and still sell it that cheap. I'm just amazed.

Well, and a big part of that is the affordability complex. Right. The. There's tens of thousands of nonprofit organizations across the U.S. that might be an over. I know that there's 3,300 nonprofit housing providers, but I would say I double that for other people trying to solve this problem. There's 40 or 50 nonprofits here in Portland that are trying to solve this affordability problem. It's big.

You want to show your couple slides there as we finish up here just to cement the concept?

Yeah. Give me just two seconds.

Yeah. That's great what you're doing, Don. It really is.

Thank you. I love. I've been in the real estate world for really 20 years, and this is the most fun I've ever had. Like, it is a true solution. So here's. Let me just make this a little bit bigger. This is. Now, remember, our prices are about eighteen hundred dollars a month is the average rent in Portland. And you're talking less than 600 for the principal and interest, taxes and insurance. This HOA fee may stay at 250. I'm hedging to probably 3 to 350, but it'll still be pretty amazing. And this is for like, there's. There's your down payment assistance. That's the actual mortgage. And because it's literally a like 30% LTV, they're getting super good interest rates. Yeah, this is. This is pretty normal. And then the other piece is how we buy. You were asking that. Oh, I wanted to go to Rent Parity. La la la. There. So this is the other piece, right? Rent Parity. This is our goal. This is the aha moment. If we can create residence homes that are really similar between the apartment price and the PITI mortgage price, then we win. We have solved the affordability problem on a national scale. If we can do this and most cities you're in Orlando, I'm here. Seattle, Tacoma, San Francisco, Atlanta, Chicago, Denver, all of these cities we could do this in because the delta between rent and mortgage is so much higher in most of those large cities.

Yeah, you gotta look. Yeah, it's amazing. So as far as the, the amount of red tape, that's what holds a lot of people back. You're saying you don't have a problem with what you have to do accounting and bookkeeping wise?

Yeah, well. And the big issue I'm going to like the accounting is just the accounting, normal CPA stuff. That's not terrible. Red tape. You mentioned red tape. We are arguably one of the most liberal cities in the country and there is minimal red tape. Like it's not a city issue. The city does not control. City and county do not control condo. Right. It's at the state level and that's codified in every, in every city or I'm sorry, every state in the country. So the, the controls are at the state level. So you don't have to deal with Multnomah county, which is famously hard to deal with. It's relatively easy.

Great. So I know you have a hard stop. I need to ask you the quick question.

Yeah, yeah.

Go right to that there person or event that has changed your life or that you're striving to get to.

Pivotal moment. I had a golf ball sized brain tumor removed about 22 years ago. I was 32 years old and it made me invincible. That was pretty big. Like I am fearless at this point. I don't have a comfort zone. I don't even understand that concept anymore. Like I am like facing mortality early was the greatest gift I could ever have.

Wow.

Yeah. Yeah. In person. Pivotal person. Robert Allen. Robert J. Allen. He was a old school real estate investor. He's famous for no money down. I. When I was sick, I went to a Robert Allen seminar and learned real estate investing. And I made $25,000 on my very, very first deal while I was in chemo in a hospital bed. That was a pivotal moment.

That's terrific. Those are great. Those are great. Yeah. All right. Well.

All right.

We have so much fun when we talk.

We do. We should, we should talk more. Like I, I really enjoy our friendship. It's really a lot of fun. We should definitely Connect more.

And I think you're doing a wonderful thing for a lot of people and, and hopefully you're feeling that satisfaction. And I may. I may try to do something along those lines someday here. We'll see. I know people are constantly trying to pull me into the affordable housing world, and, and I've. I've kind of been mixed feelings, depending on the site, you know, and, and whatnot.

My answer, three states we will not do business in. Florida, Texas, New York.

Why not?

Their condo laws are too hard. Oh, their condo laws are too difficult to navigate. Yeah. You guys had a building fall into the ocean, and since then, the condo laws are way too hard to navigate.

Well, so what that means, though, John, is that there's a lot of condos that are going to end up dissolved because they, they. The money is too great for them to want to fix a lot of them. So they're going to become apartments that Eve. That, that, that the apartment people are going to buy them and redo probably there.

There's such an opportunity in that market for what we call failed condos. Right. If your HOA is here, if your HOA is $500 or more, you have a failed condo, and that's what's going to happen there, because your HOA is going to be $1,000 a month just to fix or retrofit all the. In this. In this case, storm damage.

Yeah. So even just the assessments I've heard for doing the sonar assessment, piece of the report. 25,000 a unit.

Oh, yeah. We just. We've been in this condo for. Cindy bought it 25 years ago. We just paid $34,000 at. For an assessment last, like, December of last year. Um, yeah, condos, There's. There's good and bad in condos, and I hate to do it, but I really do got to go.

Yeah, I know. Thank you much.

All right, take care. Talk soon.