The Good Stewards Real Estate Podcast: Recent Episodes

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Background and Power of Buy & Hold with Students:

2:20: Bill stumbled into student rentals at the age of 35 and came across a house across the street from the University of Oregon where he could turn a 3-bedroom house into a 5-bedroom house.

5:30: That first house Bill bought was $80,000 and over 30 years has put $175,000 into it and it’s now worth $950,000, cash flowing $6000-$7000 a month. That’s the power of real estate investing.

8:39: Student rentals require a different mindset than traditional market stuff. There’s way more turnover in a shortened period of time.

Managing Student Rentals:

10:20: By January, we’re asking students to sign a new lease and make sure they know they’re moving out. We then hit the ground running in February getting those houses rented for the following school year.

13:40: The bedrooms are usually kept nice, but the common areas are destroyed.

15:30: We rent the entire property, not rent by the room but like to set up a “house manager” in our houses to be our go to point of contact.

17:20: We start our rehabs and turns the moment school is out, but over the last 10 years have staggered the move out dates. We know cleaning, painting, carpet, etc. all have to be prescheduled.

Strategizing Student Rentals:

19:20: Hone your efficiency in general. Every single day lost is the day of a rent lost.

21:30: We’re always upgrading a little bit so we can keep up with the changing market.

24:40: You don’t have to be across the street to start investing in student rentals. There’s different circles around the campus that still make it accessible by walking, biking and driving.

27:16: You can do student rentals in different markets, but we think it’s geared more for a college town.

Follow the Path of Progress:

30:11: Subscribe to your local business journal to keep a pulse on the early conversations or commercial investments in areas that could gentrify.

How To Succeed With Student Rentals:

31:50: Be careful if your only option is renting to students. You need multiple exit strategies.

33:17: One of the most important things with buying student rentals, you need to be sure the timeline lines up to where you can rent it out for the upcoming school year.

35:01: Make sure you’re marketing to students. Dorm mailers, Facebook ads, ads in the student news paper, using an online program endorsed by a university, etc.

35:00: Bottom line, if you want to treat this as a business, you have to have access to where all of the business has done.

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Position of Leverage in Negotiation:

1:54: Life is negotiation, and the better you are at negotiating, the better you will be at life.

4:25: It's okay to ask for what you want in a respectful way.

6:15: We always need to be willing to walk away. The person most willing to walk away is usually the one who'll get the better end into the deal.

Motive for Negotiating:

8:15: when you make a seller an offer and they hit you with a “Let me think about it”, in their mind, they have their house in your money.

10:48: What is the key to finding out what is motivating a seller in particular?

13:40: For sellers, it’s often more about the freedom or the flexibility in quickly getting out of the house or apartment.

16:20: In Ryan’s typical negotiation, he’ll come up $1,000 or $2,000 for every $10,000 - $20,000 - $30,000, the seller is coming down.

18:35: You don’t want to be negotiating with yourself. If the sellers don’t counter, then we can’t really see where we're at from a negotiating standpoint and that's not going to end well.

Anchoring For Leverage:

21:13: Anchoring is a psychological concept where you can use a numerical or qualitative “anchor” to position yourself at the start of negotiation.

23:26: Every seller underestimates actual rehab costs. Leverage that as another critical anchor point since you know the actual rehab costs.

25:13: Use your phone, pull up the retail costs for a new roof. Your guys can likely do it cheaper, but you can leverage that better cost.

Weakness In Negotiation:

29:55: Confrontation is hard, but you need to push one step further. If they say no, ask “well what could you do?” This keeps dialogue open.

31:48: Don’t get wrapped up in the story where you end up overpaying. It’s happened to all of us.

33:45: The best skill you can have in this part of business is empathy. Being able to put yourself in someone else’s life situation to be able to identify their point of view.

Books Mentioned:

16:14: Never Split the Difference by Chris Voss

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Finding Any Dirt:

1:36: It's worse to have an apartment full of tenants who aren't paying anything and are causing all sorts of problems and have an apartment full of...no one.

2:50: You want to make sure of what they reported to the IRS. If anything seems off there, it probably is.

5:10: You should never rely on a proforma, which is just an estimate and they will always be in the seller's favor.

6:33: Schedule E’s are part of the 1040 IRS form which is where income or loss from rentals, royalties, S-Corps, partnerships, estates, trusts, etc. is reported. Basically not “earned income” but investment income only.

8:32: You want to see their list of capital expenses for at least the last year for two reasons. (1) you need to see how much they're spending and (2) you need to see whether they're correctly capitalizing things.

10:43: Pay attention to utility costs. What tenants would pay and what the landlord would pay.

Contracts & Analyzing Property Actuals:

13:11: Write up 30-30-30 contracts that are in your favor. 30 until the contract is hard, 30 to line up financing and 30 days extra for something that might come up.

16:23: You want to look at the rent roll and get copies of all the leases. Look for rent price, deposit amount, late fees, when the late fee is charged, pets, etc.

19:28: Talking with the property manager is always a good point of contact.

20:50: Ryan has seen a lot of landlords spend their security deposits, so make sure to pull those out from proceeds .

Inspections & Holding Your Emotions:

24:30: You don’t need an inspector to walk through every unit, but maybe 1 for each building.

26:50: Get a 3rd-Party inspection to go over key systems and the units the sellers don’t want you to see.

30:21: If there are red flags, regardless of how much work you’ve put into it, let the property go. The “Well I just spent X money” is going to keep going.

32:12: Include a letter of intent (LOI) before the contract so you clearly dictate what you’re anticipating.

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Property Tax Discussion:

3:07: Property tax is one of the taxes we can help try and control on our own.

4:58: Property tax bills are a matter of public record, for most states. Review the records, determine how they’re calculated and evaluate to see if it seems reasonable or if you should challenge it.

8:15: In Indiana there are homestead tax breaks. So you would pay 1% of the assessed value, but if you're an investor, you pay 2%. Alot of investors don’t often factor in situations like that--know your laws.

10:55: The easiest time to appeal your property taxes is when you purchase it.

Surprise Tax Hikes:

12:11: In Kansas City the county screwed up one year and our property taxes saw an average increase of 70%. So we got very familiar with the county office and challenged just about every property we had.

15:12: In all, property taxes only went up by 20% in Kansas City. This worked out because Stewardship Properties has a system in place ready to monitor it.

20:14: Call up your local county or government office and ask questions. You’re going to get some great information.

22:23: Make sure you're getting all the exemptions you qualify for.

Facing and Understanding The County:

25:00: Sometimes you won’t be successful in lowering your property taxes.

27:10: Texas doesn’t have any sales tax, but they’re pretty greedy with their property tax. Seemingly every year, the county tries to double property taxes.

28:33: If you’re wanting to invest out of state, talk to people who have owned for 5-10 years to get an idea of the property tax environment.

Disputing:

29:55: The best thing to have when you go to dispute property taxes is your purchase documents. .

32:27: After all the appeals Andrew has done, he’s never seen the committee go above the original property taxes.

33:45: It’s great to get used to dealing with local government so you learn the ins and outs of how they can best serve you.

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Agent VS Non-Agent:

2:01: Ryan is the only one of the Good Stewards who’s licensed, but Amanda has considered it.

4:00: Be careful of the trap of becoming an agent and getting commissions as kind of your source of income--commissions are quick short-term money.

6:45: If you are going “direct to seller” as a real estate agent, you have to tell any person you talk to that you are a realtor.

9:10: Being an agent is one of the very best ways to get into real estate investment. Property management is another good way.

11:01: In Oregon and Kansas City, they’ve built up a lot of great relationships with agents that bring us short sales, distressed property situations or other deals that aren't going to work well on a market. They interim give us comps.

Zillow Is Usually Off:

13:05: The MLS has the best data because they fine agents who don’t upload correct information. Zillow on the other hand may utilize some of the MLS data, but they’re largely using information from 3rd parties.

14:20: Zillow claims to be within 2% of the actual sales prices. But in our experience it’s usually been 10% in either direction. One went as high as being 32% off.

MLS Tools:

17:00: Ryan’s favorite tool is utilizing the saved search function. Set a search for specific property types, listing expirations, etc and let the MLS basically prospect for you.

19:00: There’s really just two ways to get deals on the MLS. Be the first to make an offer or look at data points, going back in time and making “offensive” offers.

22:09: The best strategy for newbie’s on the MLS is setting a particular farm area, property type and then look for what listings have expired over the last 2 years. The best thing is that these properties have since appreciated and you can use that as leverage to get the deal.

24:20: The best feature of PropStream is the equity filter--Ryan uses it all the time.

Larger Complexes and Commercial:

25:50: These types of properties are usually acquired through relationships. You can utilize the MLS to identify who the players of those deals are. See if there’s one agent that usually gets those contracts.

27:10: You want to be the guy who’s everyone’s go-to in your market and get in on their pocket listings. If they know you’ll close, you’ll reap the benefits.

Not Having Direct MLS Access:

29:17: In Eugene, OR, it’s pretty easy to determine comps since the market is so small.

31:43: The Eugene team has even leveraged one of their broker relationships to mail letters in their name. He doesn’t do much work, but he’s someone we can bounce ideas off of on what it would take to get the property to top shape for a retail buyer.

35:00: Bottom line, if you want to treat this as a business, you have to have access to where all of the business has done.

Tools Mentioned:

23:15: Skip Genie -- unlimited manual searches for skip tracing.

23:58: PropStream -- “The poor man’s MLS.”

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Wealth By Buy and Hold Is Slow:

4:20: This is a get rich slow thing, but not too slow.

4:50: You can flip or wholesale to get to buy and hold.

6:17: Look at your portfolio's needs when determining what to do with a property. Can you take on a project or do you need the liquid cash?

Considerations for a Buy/Hold Strategy:

10:24: Andrew’s goal is to keep everything as long as it’s not too expensive to cashflow.

12:30: You have to have diversity in your portfolio, A to C minus class. That’s one of Ryan’s mistakes when he started out.

14:48: Niche, group home story in the expensive Portland market.

17:10: AirBnb can work, but be careful.

20:22: Anything that helps you build up your cash flow is what it’s all about.

22:17: If you are in a more expensive area, don’t give up. Think outside the box and ask yourself if you’re really committed to this buy and hold model.

Survive Till You Thrive in Buy and Hold:

26:13: Analyze your deals up front to determine if you’re doing a cash out refinance or if you’re into the property for 75% ARV on a mortgage. Does it still cashflow? You’ve got to make sure it’s paying for itself.

28:50: Ryan looks at his buy and hold portfolio as a really cool 401k. But on the transactional side from wholesaling, wholetailing and flipping is the “now money”.

30:45: Where you make your, your good, large chunks of money is in the appreciation. In the debt pay down in the depreciation, the tax benefits, and then occasionally you get a really nice cash out refi check.

31:38: Real estate's always generally tight when you're using the BRRRR strategy. People expect just tons and tons of cash flow when you have debt on the property, especially early on, are just kidding themselves. Treat it with patience.

34:52: What thriving in Buy and Hold looks like.

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What’s Going On With Commercial:

2:30: COVID has exposed people that have been leveraged with a lot of debt and highlighted the ones that are well capitalized and able to make it through.

4:51: There’s going to be a lot of vacancy if it hasn't already from an office standpoint. From a retail perspective, COVID has opened up a tremendous amount of opportunity for people that want to get into the restaurant business.

8:45: Anything with a high labor model, like a restaurant, is going to take a while to come back from. But the low labor model like carwashes and gas stations remained open and will still trade in higher multiples.

10:14: Ryan wonders if we'll see people spending more on their homes since the work from home model is more widely acceptable and they’re not commuting as much.

12:00: With the hard hit areas with expensive rent (the Bay Area), they’re having to hold out longer now. Millennials aren’t patient, so it will be interesting to watch those markets.

Who’s Buying and Selling:

14:20: Thomas act’s as an acquisition and dispositions manager for buyers and sellers. He’s usually flipping these to private equity groups, institutional buyers and individual one-off buyer’s or sellers.

16:30: A lot of commercial investors are one block away from success in commercial real estate. Specifically with car washes, traffic counts, accessibility and site visibility is crucial.

Due Diligence for Commercial:

18:20: in residential real estate, sometimes you can cross the street and you're in a bad area, then you just subtract 5%, 10%. With commercial, that could be 50%.

21:51: The gas and carwash business is so fragmented compared to restaurant retail. You’ll find a lot of mom and pop style operations as well as the institutional-types.

24:45: If you’re wanting to start out, don’t start with a new build. There’s alot of hurdles with that. I’d recommend letting a tenant drive the acquisition.

28:00: A lot of the best commercial opportunities that you can flip or assign a contract to, are not going to be on CoStar, LoopNet or on the MLS. They're going to be something that you drive by and see that they just closed.

Tools Of The Trade:

30:00: CREXI, commercial real estate exchange is a great resource to find comps.

30:54: ESRI-STDB, ESRI site to do business is great for finding demographics and traffic counts.

32:00: Land Vision is a great resource to give you all property details including the owner information.

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Adding Value to a Property:

2:30: every time you look at a property in your mind should be, “How can I add value to this property, this situation?” And sometimes you're adding value by rectifying a problem.

4:40: Different people respond to different things. Perhaps try a direct mail campaign directly from the realtor?

6:00: It's a good idea to go out and take a look at what the new builders are doing and see what you can add to your properties that people want.

9:10: We pay Sherman Williams $150 to advise us on the colors and trends anytime we flip a house to a retail buyer.

Selling to Retail Buyers:

13:00: One thing that's really cool about older properties and why they are so desirable for flips is especially in the pacific northwest is that they tend to be on bigger lots while new construction is crammed together.

15:40: The longer you hold a property you intend to sell to a retail buyer, the more expensive it is. There’s a lot for a limited payout. Get contractors there quick and limit your holding costs.

18:53: For something that’s being wholetailed, Ryan looks for little to no work required, builder grade or something that needs a major systems update like a roof.

Maximizing Value Add:

20:30: The most obvious form of value add is to see if you can easily go from a 2-bedroom to a 3-bedroom.

21:45: With basements, we don’t usually finish them unless it’s a walkout. Egress windows are incredibly expensive.

23:18: Always ask if a garage conversion is permitted. If it’s not, you’ve got to take it out.

25:17: The way people live changes, it’s cyclical.

ADUs, Title Companies, Narrowing Focus:

26:10: Cites are particular with ADU’s and we get around it by renting out the entire property and leaving it up to the renters to decide what they do with the additional unit.

30:19: If a title company ever tells you that there’s a glitch, you need to pay very close attention to what that glitch is.

32:00: We’re really talking about rentability here, by adding value and making sure you’re meeting the market demand, you’re going to be able to rent to quality tenants.

34:45: As Stephen Covey would say, begin with the end in mind.

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Starting Out:

2:00: Starting out, you’re the one doing everything. Marketing, meeting with sellers, analyzing deals, etc. It’s easy to get stuck in that phase.

4:45: How comfortable are you going to be IF you’re not doing everything?

6:44: It’s a lot easier to delegate things if you have a process and system of monitoring the results.

10:00: At a certain point you have to ask yourself if you’re the bottleneck? Does everything have to run through you? If so, you need to put yourself in a position to leverage others expertise.

The Critical Hires:

13:55: We’re really focused on one kind of person we want, an acquisition’s specialist. Someone who can leverage our time and efforts to find great deals.

17:40: I would expect a bare minimum when you're starting out. You need to be able to guarantee somebody about $2,000 a month minimum.

20:00: you just want to make sure that your people are incentivized in the same way that you are.

23:15: With a disposition hire, they need to be good on the phone and with investor-centric relationships. Their job is to phrase deals in a way where it’s attractive.

27:17: When Ryan started, he had a buyer’s made up of two people. You don’t have to have a huge list to get started.

29:00: For admin hires, they need to be able to pay attention to the details and make sure all the pieces are in place.

General Principles:

33:14: The right people on your team are people that you want to make feel good about working for you.

36:43: If you're having success and you're growing, you also want to be cognizant that you don't hire too many people too fast, too quickly.

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What’s Keeping Us Moving In This Market:

2:30: We saw the upward pressure in the market. Homeowners pulled their properties off the market, which has kept inventory low.

5:10: Conventional wisdom is to pull back off the market, but Ryan’s team nor the Eugene team hasn’t scaled back their business.

7:15: Buying at the best of your ability is Stewardship’s form of dollar-cost averaging.

9:00: The margin of safety is a very important indicator of the soundness of a business.

11:05: We talk all the time about being able to get deals at price points that make sense for you. Why stop if they still make sense for you?

12:00: People are perpetually sitting on the sideline making sure they don’t catch a falling knife.

14:30: Amanda has a different perspective, it may not make sense for you to start out your investing career right now. Everything moved so fast and in our case, economies of scale are working in our favor.

17:00: Every investor should have at all times multiple exit strategies and contingency plans.

Government Regulation Has Increased:

21:00: Real estate investing kind of mirrors business, and you want to be in a market that is pro-business. Educate yourself on the local laws and regulations.

23:30: Anytime there is more government regulation, there are usually unintended consequences.

What Banks Are Doing--Student Rentals?:

24:26: The one thing that helped Stewardship through 2007, 2008, 2009 was keeping a pulse on the market of financing for buyers. At this point, it hasn't really dried up, but it could.

27:50: Focus on expanding the number of banking relationships whenever you can.

30:30: One of Stewardship’s four bankers said that they’re watching the Universities closely and probably won’t refinance our student rentals.

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Terms May Shift, Build Your Banking Relationships:

4:18: Market shifts have moved rapidly in the last few weeks and banks may change their minds based on the information of today. This is whyThe way to approach your issue is to understand that it's going to happen. Now you understand why it is so important to build and then nourish your banking relationships.

6:30: Every bank is different in the same way that every investor, every agent, every property, every seller is different. Other banks are still lending.

Due Diligence During COVID-19:

8:00: Always go through every single unit in an apartment complex. In the event of COVID, these procedures have changed, so make sure you have a clause in your contract to extend closing if you’re unable to complete your due diligence.

11:30: If you were considering or in the process of purchasing pre-Covid, don’t close post-Covid without additional due diligence. Ask yourself, “What if the residents in there no longer have jobs?”

13:41: Renegotiate the price and retrade only if you need to.

15:10: Negative cash flow is a losing proposition because there is no guarantee of appreciation. Especially iIn this market because of Covid-19 since there is possibly a guarantee of depreciation. You better be confident that the area is going to appreciate.

17:30: If it isn’t cash flowing, can you fix it? Reduce utilities, add a bathroom and increase rent, etc.

20:28: When a market crash happens, having cash reserves (1) makes you antifragile and (2) gives you the ability to jump onto future opportunities in a down market.

24:21 Never see your equity as cash reserves. Equity protects you from going down, but having cash reserves is what makes you antifragile.

Will Coronavirus Kill BRRRR?:

27:16: Remember that the market was already tight in a lot of markets going into COVID. We’re watching for what will happen to the supply of foreclosures once the courts open back up and start processing them again. Will that increase supply? Will demand change? This is what affects home prices.

29:05: Bottom line is we don’t know. There were already signs of an impending recession to begin with last year. Home values were hurt the worst last recession and will probably not be hurt the worst in the next one.

31:00: The general rule of thumb is when you're buying on the upslope, you want to be aggressive. When you're buying at the peak, you want to be careful. When you're buying on the trough and upslope, you want to be super aggressive.

Books mentioned:

Antifragile, by Nassim Taleb

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COVID-19 And Your Strategy:

2:00: Things change, and you may need to change at this time. There’s a common saying, the only constant is change.

3:30: You might be in Seattle, or a market similar where they’ve recently extended the eviction ban by 6 months after the stay-at-home order has lifted. You should contact your lender on the properties that you're having difficulty collecting rent, they likely will be pretty understanding if they’re local.

7:22: The general rule of thumb is you want to focus, you want to stay focused on your niche, master that niche and be a master of one trade and not a jack of all.

Developing Your Strategy:

10:54: It’s critical to have your business built on a firm foundation and your strategy should guide you. Not to say that you can’t add additional strategies, just shoot bullets, not cannonballs as Jim Collins would say.

15:20: When developing the strategy at the beginning, it will be something that you have to build and work towards and create as you go along. General business mindset in general, nothing is ever complete, you're always working towards something.

When Opportunities Arise:

17:34: Say COVID is really impacting you right now, you still don’t want to radically change things. Do your due diligence and execute with excellence as best you can.

20:50: After you’ve niched way down, you’re now an expert and can start to niche up. We’ve got a solid financial base after 31 years.

24:47: Ryan found a 12-plex that looked to be a great opportunity, but ended up being his most expensive lesson he’s made. Always verify deposits.

27:45: Buying other people’s problem is not Amanda’s favorite

29:40: Part of your strategy is really building up to it. And then part of it is making sure you're in the position to cover all the bases.

When Things Go Bad, Which They Will:

32:10: Even if things do go bad, knowing your exit strategy is less stressful when you have options.

35:00: Ryan looks at it, kind of like a race car. Things are going to run great, then something explodes and then you rebuild that piece. You're going to get further down the track, you're going to get faster, but something else is going to break.

If You’re Starting The Process:

36:44: Realize it’s a process and there’s a lot of trial and error. At the same time, be conscious of who you’re taking advice from and that they’re people who are where you want to be.

Books mentioned:

Good to Great, by Jim Collins

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Why We’ve Sold In Indianapolis:

2:50: We bought a vinyl village era property a year and half a go that never was an issue renting out, but we felt that it would be good to elevate our cash position given the time of uncertainty.

4:56: Our net profit was $42,000-45,000 which can cover a lot of residents who decide to stop paying rent.

6:12: This is a great example of solid preplanning. I’ve been a motivated seller before and that’s a bad place to be.

9:00: If you’re plan is to manage a large portfolio, your time counts for something. You can only manage so much and your growth is going to be limited if you hold on to it.

Why We’ve Sold in Springfield, OR:

11:19: We got a bit better than vinyl village property under contract last week. Bottom line, it’s hard to cashflow in the west coast. We think this is a good flip candidate at a purchase price of $200,000 and reno budget of $20,000.

13:45: The good news for the Eugene area is that the university of oregon is planning to reopen for the fall semester, though is expecting about 15% less students.

The 38-Unit Development Property in Portland:

17:00: We bought a piece of land 2 years ago and planned a 38-unit development. But we’ve done everything wrong on this project. It’s hard to figure out how to manage a property when the city requires a certain number of units dedicated to affordable housing.

19:57: We didn’t do our due diligence on this one as we might end up with millions of our own locked into this deal. But we’re pivoting this project to be affordable housing and if it still doesn’t work out, we’ll sell it.

21:49: sometimes you sell a property to pull in liquidity. Sometimes you may have to sell one to stop the bleeding.

23:50: Buy and hold is multi-faceted with segments of business dedicated to acquisitions, overseeing rehab, property management, and then lending. It takes a very rare and special person to be good at all those areas, most aren’t and it takes years to master.

$2k Profit Flip in Kansas City:

29:00: Making smaller mistakes is always better, and even the larger mistakes we’ve still been able to keep.

30:22: We blew through the reno budget because of dry rot issues. We had originally planned to BRRRR this property, but we just had too much cash in the project at that point to make it a good buy and hold. So we listed it.

32:24: We didn't have to sell that property, but we were kind of trying to hold ourselves to a different standard.

33:32: When you get a bigger portfolio, keeping your cash reserves strong and your liquidity strong so you can stomach a rainy day and jump at opportunities. BRRRR is all about an accumulation of decisions for your business.

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State of Business Discussion:

1:45: we got a deal under contract on Monday, had it assigned by Tuesday. Um. Wholesale deals are still closing.

3:24: I think we've closed since COVID three properties. We've closed a couple of refinances that were in process. We've started refinances, um, during this process.

4:55: I have heard from various investors that, uh, banks are getting tight with LTVs and lines of credit.

8:10: I read an article on a study of rent paid in April saying that 35% of people didn't pay their rent. And then if you read in their article. When they did the study the previous year, it was like 25% of people were late, so really there was a 10% dip based on their data.

11:00: Ryan’s team has 17,000 pieces of mail going out in May, while many investors are holding back and expects that to translate into eight or nine deals. With values, our team dropped down to 70% of ARV initially, but first-time home buyer inventory hasn't changed, so we're back at 75%.

15:45: Of the people that couldn't pay, our group has had communication with about 80 to 90% of them. They've been really proactive about communicating their circumstances

Is Airbnb an Opportunity?:

20:20: Most people who bought Airbnb properties overpaid, over remodeled and over furnished. That's why those investors are in so much trouble as the only way they were cash flowing or breaking even was off of that premium.

23:05: really good thing to just keep in mind of building your business on the back of an industry that you don't control or on the back of another company that's susceptible to issues or changes.

24:45: I would say if you're going to get into Airbnb. Maybe you have properties that you can rent out conventionally and maybe you choose to Airbnb them, but you know, you can drop back to that.

What We’re Doing Now:

27:00: The best time to start buying is right before you hit the trough. That way you've got a little bit of lead up, but you don't want to buy right at the beginning of the down point, so Kansas City isn’t buying too much just yet.

28:20: every legit buy and hold investor I know has overextended themselves then started to struggle with property management or construction

29:30: It took 10 to 15 years to get property management like into a well oiled machine in Oregon.

33:00: You as a business owner have to always kind of be in the driver's seat of your feelings and your emotions, especially kind of on the logical side.

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Market Discussion:

4:15: in terms of unemployment insurance, all rollouts are simply overwhelmed with the volume.

6:01: Stewardship Properties has tried to stick with our regional banks since they’re quicker to respond on our commercial loans. Start with those lenders.

What’s Happening In Mortgages:

9:20: Liquidity is an issue for lenders, primarily because of forbearance, but they are still accepting applications at decent rates.

14:29: When lenders are pulling the plug, these are locked loans. That’s only about 10% of what we do. Business-conforming loans are the other 90%, which are still being written.

17:00: You can’t ask people’s credit scores as an investor, buy you can cross qualify your buyers with their lender for a second set of eyes.

20:27: Ryan has never sold to people that have anything other than cash, private or hard money. But on the retail side, a 1031 Exchange came in with a cash offer 5k below list, last weekend.

23:00: What’s been interesting to see is how Indianapolis has become a cash-heavy market overnight with 20-25% down.

24:15: With COVID-19 overlays, you can still go up to 50% debt to income on a conventional loan.

26:30: You can still get up to 80% on a cash out refinance.

28:47: VA loans are still being done, lenders just don’t know right away if they have someone to service it. So rates are higher.

Title Companies:

30:36: Title companies are “modified” business as usual. Thankfully for Indianapolis and Kansas City allow scanned documents.

What Do The Next Few Months Look Like:

33:49: Eugene Brokers is gearing up for a full refinance season. Rates track the 10-year treasury note, so they think great rates will be around for awhile.

32:40: Contact Matt at 541-359-7212 or by email at matt@eugenebrokers.com.

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Addressing Concerns and Disputes:

2:05: April was sort of the first month that we had to figure out if people were going to pay rent, what they are dealing with and how many of our residents are without jobs.

4:20: We basically said that rent is still due and to feel free to reach out if there is an issue. We didn’t want to extend an open invite, but we planned to give an additional payment plan allowance and waive April late fees.

7:29: With regard to student rentals, we had alot of calls since the University of Oregon closed their dorms and we had an insurgence of rental inquiries. At the same time, we had nervous people reaching out about cancelling leases for the 2020-2021 school year, which is a ways off still.

10:30: If you're struggling with vacancy issues or whatever you had to really think about lowering rents, trying to get on the front side of being as attractive as possible to any would-be residents coming your way.

This May Encourage Changes To Your Process:

11:49: We don't take people who've had evictions. So, we have a lot of people that I think are going to fight tooth and nail to not go the route of ending up with an eviction.

15:41: When you're talking to your residents about these situations, you really want to emphasize that both of your goals are the same for the person to stay in the property and not have them leave.

18:30: If you've been into real estate as a hobby or rental properties as a hobby, this is really time to change directions here. It’s not the time to be informal with your residents.

20:58: Remember, you've got a business on your hands. If every single property you own is free and clear, you still are operating a business. You need to keep that kind of mindset.

25:47: Part of being business owners too is you need to look into the future of who you're renting to. What’s the job outlook like for that industry?

What Are We Seeing In Our Communities?:

30:00: Most people are doing pretty well. They're down a bit, we're down a bit, but it's by no means a catastrophe. And it probably won't be in terms of rental income questions, unless this drags on for another couple of months.

32:40: I'm hoping for a lot of people that this is kind of not necessarily a wakeup call, but a chance to just kind of reassess what they want out of life and really go after that.

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State of Economy Discussion:

3:25: The purpose of the stimulus is to keep us from a recession spiraling into a depression, which none of us want and would make matters all that much worse.

5:10: So many people are being affected even if you’re not. So with that in mind, this has now extended past a “few weeks”, there will be impact.

8:35: The world does sort of feel like everything stopped, but people are still working. We were mid-refinance in several markets, those are still happening.

12:15: Go ahead and think about your absolute worst case scenario so you can just deal with it. If college football doesn’t start back up and the universities don’t start back up, that’s our worst case.

What You Do Now, Makes A Difference:

14:25: I would say now more than ever those that are going to come out on the winning side of it are those who are acting proactively, who are looking at their businesses, looking at the models, figuring out how to tweak them.

16:13: It can be uncomfortable to think about doing something different because in your mind it's like this is how we do things. Reality check is that “how we do things” could have ended two weeks or three weeks ago at this point.

19:30: Back in the recession of 2008, Bill asked two private lenders on a fairly expensive property if they’d be willing to take less in interest from what we owed them. In times like these, having those conversations may be necessary.

Are Home Values Changing?:

22:45: If your business is relying on an FHA loan buyer, those investor-backed loans might be hard to close right now.

23:49: Be careful with flipping right now. CNBC reported recently that home sales could fall by 35% this year.

25:32: What’s your exit strategy? DO you have multiple?

27:40: It’s so hard to guess if prices are going to go to 2008 levels. That happened because of bad lending practices. We're going through something entirely different, there’s not an actual issue in the economy.

29:18: The Dot-Com crash was stock related. It was the only recession in history to date* where home values actually increased.

32:35: The biggest takeaway is that just because you've always done it that way doesn't mean that's going to work now. It’s time to get out of your comfort zone and be proactive.

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Pre-2008 Similarities:

3:21: Everyone wanted to be in real estate in 2005-2006.

5:15: instead of being a “buy and hold” investment company, we had to flip our mindset and say, we're going to start flipping properties and that evolved into a short-sale segment as well.

9:25: By April of 2010, the $8,000 home-buyer credit program ran out and that’s when homesales really stopped. By that point short sale deals were taking 3, 6, 8, even 10 months to close and that’s no longer a lucrative deal.

11:00: Normally you don’t want to make a major shift in your business, but in a recession you may have to.

13:50: Prices had gone down significantly in the country, which meant that there were lots of cashflow opportunities.

Going Forward in 2020:

16:10: We don't know where these types of opportunities are going to pop up from this and from this particular crisis. It could be in commercial real estate.

19:13: We are still figuring things out because I do feel like we're not even quite two weeks into this, but one of the things is we have some deals under contract.

21:15: as business owners, we really have to make the best decisions we can make today based off the data that we have today. Typical closing periods last 30-60 days, so we don’t really know what the ARV of those properties will be.

26:20: Brandon Turner, of BiggerPockets, about what he's doing to kind of lay the groundwork of what is likely coming our way.

28:30: One of the other big things I see happening in the real estate market is you can’t get away with subpar product anymore.

29:42: Amanda made a huge pivot after going through a foreclosure first hand in 2008. In this time, people will make decisions based on past experiences, so I built a house with an accessory dwelling unit that cuts my mortgage by a 1/3rd.

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Maintain Your Perspective:

3:15: Remember, don’t make rash decisions based on fear. If you’re looking to be afraid, you’ll find it, if you’re looking for opportunity, you’ll find that as well.

5:25: People are going to keep living. You just have to look at it from a daily, weekly or monthly basis.

8:33: Hal Elrod’s book, Miracle Morning, is a great book for those looking for perspective.

12:43: Depression is anti-people and anti-movement. So, to reverse the effects of depression, you've got to get around people. You've got to start moving.

Strategy for This Time Period:

14:10: For now, we’re not buying new rentals. We’re not trying to catch a falling knife before it hits the floor. We simply just don’t know where the floor is just yet, so we’re being ultra conservative.

16:17: Refinance! Amanada scored a 3.125% refinance on her personal property from 4%. That’s huge savings over 30 years.

18:23: Now’s a great time to learn how to find your own deals. We’re shifting our marketing to C class or lower since we believe those properties will always be in demand.

21:45: If you don’t know what to do, go out to those people who are still buying.

Cash Reserves:

23:52: It’s difficult to build cash reserves during a crisis or recession. But look into the transactional side of investing to build that up. Wholesaling or wholetailing if you can.

Our Way of Business is Shifting Slightly:

25:40: We’re reducing the 75% rule to be conservative. We’re using DocuSign and ShowMojo.

29:30: We still need to maintain properties and get them leased.

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General COVID-19 Discussion:

5:50: This is not our new normal. This is a very temporary situation.

7:55: You don’t want to make rash decisions that are going to affect people just because you yourself are anxious.

What is a Black Swan?:

12:10: A black Swan is an extremely unlikely event or unpredictable. Like 9/11 for example.

What Black Swan Events Bring:

15:30: The first thing that goes away in an economic crisis is the ability to get credit. So it’s critical to have cash reserves.

19:51: If our residents lose their job and have been great for us, we’re going to work hard to keep them.

25:40: Remember that there’s always going to be value with the assets we’re buying. People are always going to trade cash for something of value.

27:01: Stewardship Properties is not thinking about the worst case scenario right now. We’re planned financially out 12-18 months in advance.

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Why Due Diligence is Critical:

1:40: Due diligence is about as important you can get. And it's even more important when it comes to apartments. You make a mistake on apartments, it just compounds it over and over and over again.

2:53: You want to make your own proforma based on their operating history and the market as well as what you think you can do with the property.

3:50: The idea behind due diligence is basically take what you think is true of the property from your pre offer analysis, your estimate based on the few units you've seen, the financials you've seen, the pro-forma you put together.

Apartment DD Specifics:

6:45: Walk and inspect every unit.

9:00: Get roof inspections, pest/dry rot, perhaps even a Phase One.

13:53: $500,000 HVAC and AC conversion from chiller system story.

15:03: FARE, Future anticipated rehab expenses.

Planning for Turnover:

17:11: Ryan’s “buying an eviction” approach is significantly more expensive with an apartment..

19:40: You’re buying into a community, you’ve got to upgrade the community in addition to the property.

Apartment Repositions:

20:24: The 39-unit rehab was budgeted between $400,000-$500,000. Actuals have passed $2M, but the deal still works out.

24:50: Be conscious of complete repositions, 12-units took Andrew 6 months alone.

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Operate With An Abundance Mentality:

2:00: Bill didn’t start out with money 30 years ago.

3:45: A quadplex across the street from the University of Oregon was one of the first deals Bill quickly tried to figure out how to fund.

6:17: If you have a great deal on your hands, you can probably just flip the contract if you can’t find the money.

7:15: sometimes you don't need the money but to know that you have the confidence that you can get the money is really, really important and allows you to kind of strike while the iron is hot.

9:55: People aren't going to invest with you if they don't know that they can.

Stick To Your Word and Know What You Have To Offer:

11:15: don't over promise and deliver on the promises that you do make.

14:00: We bring stable property management to our lenders.

15:05: Maybe on your first one it's, hey, you bring the cash, I'll do all the work, we'll split things 50-50.

Proving Yourself As A Partner:

18: 40: if you don't have your financials in order, your company's worthless and your deals are worthless.

20:35: When raising private money, especially when you're new, don't be so desperate that you make really, really bad deals.

23:05: Nobody wants to back out of a deal, but if it’s not going to end up being a win-win situation, you’re better off losing your earnest money.

General Talking Points:

25:57: Newer investor first BRRRR deal financing discussion.

28:06: You can get a quadplex with an FHA loan.

30:05: usually we're planning one to two years to get permanent financing placed on it. It’s up to our lenders to call it back based on our rollover promissory note.

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Staff That Has Capacity for Your Vision:

2:28: We really want the people in our organization to be on board with what we’re trying to do.

4:32: When we’re hiring, we’re really looking for people who are looking to grow in our organization.

7:26: It’s important for these people to have the ability to show up and execute with excellence repeatably, not just the first week they’re there.

Mission Statement:

10:25: Are these employees on board with your mission statement? FYI, your mission statement cannot be about making money.

14:40: Make sure that your mission statement is known. To create one, ask key questions that point to your “why” for getting started in real estate investing. Is it to leave something for your kids, philanthropic reasons, etc.

16:40: Page 230 in our ebook discusses some very motivating mission statements from Nike, Amazon, Disney, even Wikipedia. Wikipedia’s motivated Bill to contribute to their fund.

Core Values:

18:08: As an organization, what is it that you’re looking for in your employees, business dealings and what can your employees hold YOU accountable to? This will give you a fair litmus test to hiring and firing too.

Painting the Picture:

23:33: It ultimately is your responsibility to cast vision for your company, staff and yourself included. You need to be able to paint the picture for what the other side of the hill looks like. Paint the picture for a contractor of what you want it to look like.

28:10: Outline your vision, people can’t read your mind. Your staff, as you continue to hire, should have a sense of pride in what they’re doing. They should want to have an excellent end product that they leave behind each day.

Casting Vision for Yourself:

30:30: Don’t fall into a buzzwordy and shallow trap of something like “I want to own a 7-figure business.” There’s not much difference from $999,999 and $1M. That’s very vague. $1M of farmland you can’t lease will bleed you dry. Write out this instead, I want X properties that cash flow by X amount per door.

33:50: Goals have a place and they should be smaller that look toward building a system that builds the overall pathway. As Scott Adams says, you’re always in a state of pre-success failure or pre-failure failure.

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Myth #1: Get Rich Quick Scheme:

2:15: Flipping can get you quick access to cash if you do it right. Generally speaking, you’re probably not going to do it right early on and should expect to lose money on your first flip.

4:27: The word “passive” has become catchy. But there is legitimate passive opportunities for real estate investors. Passive investing is like investing in the stock market, but less risky. But unless you’re a trust fund baby, you’re not likely going to be one to have a “passive” opportunity to building wealth with real estate.

7:10: One key thing to building wealth over the longterm is hiring people in key roles that are smarter than you in those areas. You need to determine if you’re going to be an investor that keeps every dollar by doing it yourself.

Myth #2: The 2% Rule:

8:25: As the market has matured from the crash, the 2% rule is practically a joke. The properties that will actually work in this rule are in what we call “warzones”. Good luck collecting $600 monthly rent on a $20k house.

12:10: Homes in these areas are boarded up, never repaired after a fire simply because it’s not worth it, etc. You can succeed in these areas, but you really need to be a specialist that grew up in a similar neighborhood.

13:51: Even if the rule has evolved to the 1% rule, you simply need to focus your goal toward good cash flow after all expenses while being fully financed at the same time.

Myth #3: Cash Flow Will Make You Rich:

17:14: Granted $100 per unit is pretty good for cashflow, but if you have debt on a property, you’re not going to cashflow that much. Mindsets need to shift toward the debt paydown being the main source of building wealth, not immediately using the cash flow to fund your daily life.

20:10: What makes you rich is that refinance at the 20-year mark. It’s tax-free, as long as you let someone inherit the property at the end of your investing career. If you were to sell the property, you still owe the tax on your purchase plus what you’re into it.

21:47: If you’re pulling all the cash flow to fund your lifestyle, keep in mind that when the times come for another upgrade or renovation, where is that money going to come from? Your reserves.

Myth #4: Rehab’s Will Come In On Budget:

25:53: If you’re trying to cut your budget before you buy the deal to make it work, you shouldn’t buy the deal.

Myth #5: Third-Party Property Management Is A Cure-All:

29:10: There are some great property management companies out there, but remember that managing them is NOT a passive task. It needs to be an active effort of vetting them deeply, make sure they’re screening properly, collecting rent, proper rehab turnovers, etc.

32:00: Try not to select a property management company on the basis of price. It’s hard work. We do it ourselves and doing that alone costs us more than 10%, but we’re our own best managers.

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Insurance Claims:

1:50: Insurance companies are going to ask you a ton of questions and get into the depths of your properties to know the exact risk.

5:27: As long as there’s no loss of life, typically a major insurance claim can be a good thing.

7:03: Ryan thinks that he has bad luck and discusses how he’s had at least 1 major claim a year ranging from arson to floods.

9:05: We want to shout out to State Farm, they've provided us with the best rate and best coverage. But got convinced to switch to Farmers, because of price.

Non-Resident Death Story:

10:00: A friend of a resident climbed up a fire escape, that we had petitioned to be removed, fell and did not survive. We later got our policy canceled from Farmers and State Farm wouldn’t take us back.

Insurance Advice:

13:51: It’s helpful to sit down and talk with your insurance agent, but also be wary that they’ll sometimes fill your head with all the “what if x happens”. So we have a commercial umbrella policy to protect us from liability beyond our property insurance coverage.

16:01: At a certain point, there’s a high likelihood that a quantity discount is in store. Wooster Investments has been a fantastic partner in Kansas City.

18:45: Over the last 30 years, Bill’s seen a number of fires and floods and as long as everyone is safe, there's a real opportunity to go into the property and rehab it with insurance dollars. But when you get the insurance check, make sure to get a second opinion on some retail quotes of what it would cost to rebuild the property.

21:04: If you haven’t filed a claim before, remember that your insurance company really isn’t in the business of cutting a check.

24:10: Make sure that you have coverage for “lost rents”.

27:03: When you do have a loss, you’ll quickly find out if an insurance company is worth it’s weight.

28:17: We have little losses that happen and if we made a claim on every single thing that costs us money that insurance COULD cover, we might get the axe. It’s important to have an internal threshold of are you going to make a claim, what are the values, etc. They are valuing us as a company as well.

31:32: We really recommend finding somebody that you trust and we’ll educate you. Insurance is constantly an education process.

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Outlining Your Path to a Partnership:

4:15: If you’re new, don’t just find any business partner because you don’t want to fail alone.

6:00: Varying skillsets are critical. You should be able to do more by partnering with your skills together.

8:00: There is such a thing as a passive partnership. Such as a lending partner. Or you find the deal and your partner does the work.

10:00: You need to be willing to have the difficult conversations upfront so that you are figuring out how you both communicate in the early stages. Once things get moving, adding money and emotion, you’ve got to be able to communicate well and figure things out.

13:05: Specify what expectations are in the partnership. If you don’t have it in writing it doesn’t help you. Determine who does what in what situation or scenario.

18:20: Stephen Covey has the term “win-win or no deal” essentially saying that if you both can’t find ways to win in the partnership, then you should call it quits.

19:40: Strengthfinders is a great way to determine how people are and highlights what you’re uniquely gifted at. Your strengths are set pretty early on in life.

22:25: Start with a legal document. It’s important.

Unwinding a Buy and Hold Partnership:

26:40: In our out of state partnerships, we bring the lenders and infrastructure, but it’s our partner’s job to manage the day to day and oversee the rental side of the business. If your partner (in this case) isn’t going out and showing properties, collecting rents, etc. It’s time to dissolve it due to unmet expectations. You have to look out for you and your lenders.

30:57: Never, unless someone is unethical or dishonest, burn bridges because Bill has been surprised multiple times in the last 30 years with how things in life come back around.

31:40: Where we really went wrong in the midwest with some partnerships is being under the illusion that this person would be able to learn the other sides of the rental business aside from acquisitions. As an out-of-state partner, we can’t build the business for you, nor would it be fair for Stewardship to, given the agreement.

34:00: One other characteristic I’ve got to have when I’m looking for a partner, they’ve got to be willing to learn and be business-minded.

Finding A Partner:

35:16: Get out there and network. Go to investment groups like a REIA and find people likeminded with similar goals. Also be on the lookout for A-Players in your organization, they’re going to eventually want a piece of the action.

Books Mentioned:

18:13: Seven Habit’s of Highly Effective People by Stephen Covey.

23:26: Built to Last by Jim Collins.

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The Deal:

5:21: The property was in a neighborhood that is on fire. C-class and climbing quickly with a couple of HGTV shows filming there as well.

6:10: This deal came to Ryan in a backhanded way. He’d been marketing to this guy with direct mail for a year and with no response. But on a cold-calling list, he responded and ultimately a “take me off the list” converted into a different lead.

9:45: The difficult thing here was valuing the property given the rapid transformation of the neighborhood. But, Ryan’s team is always pretty conservative in how they run their comps.

Appraisals:

12:50: The deal wasn’t contingent on an appraisal since there was a good margin for ARV, but going straight to a retail buyer you run the risks of facing a bad appraiser. Since they’re conservative by nature, never expect an appraisal to come in high.

14:46: When you’re refinancing a package, we’ve found that the appraisals usually balance out, some are low while others are high.

The Attorney:

17:05: Don’t ever prejudge your leads. The guy wanted $90k from Ryan but another company didn’t close the deal at $75k. Ryan used this as leverage and offered $45k, given the unexpected outcome of the neighborhood.

19:00: The other guys ended up in hot water with this attorney because they left a clouded title. So we locked in the deal for $45k and the attorney went after them for additional $30k in “lost damages” for not closing.

Contracts:

21:00: Ryan and his team only enforce contracts if it’s an absentee or vacant property, if an owner-occupant changes their mind, that’s totally fine. Ryan just records a notarized Notice Of Interest (NOI) that protects them in the future should they try and sell it to someone else (i.e., the neighbor who out bid you by $10k).

The Art of Wholetailing:

24:15: Wholetailing is all about lowering your risk over something like a flip. Retail buyers are picky, so rather than being stuck for months in a flip, the goal here is to be in and out really quickly.

27:27: How to determine your exit between wholesale, wholetail or flip? What does your workload look like, how many vacant properties do you have, what are your cash reserves like?

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The First Hire:

2:32: You need to know yourself well. Are you a delegator or do you prefer control?

4:37: When it starts costing you money, that’s when you probably need to hire someone. Likely an acquisitions person. Ryan couldn’t make every appointment on time, considering they were 45 minutes apart at one point.

9:45: We struggled initially in the 20-100 property range and recommend a catch-all person. You need a jack of all trades kind of person that you’ll eventually move to a specific area that they flourish in.

6:40: you really need to do a deep dive into your state, that particular HOA, how healthy is it? You know, what are they spending their money on?

A, B, C Players:

11:12: The Jim Collins A, B, and C player perspective when you look at hiring people.

14:45: Make sure to set your employees up for success where they’re incentivized to stick around. To that note, “B minus” and maybe “C plus” players tent to jump ship pretty frequently.

Firing:

19:55: When you’ve got a small business, firing is hard. Someone else or even you may have to pick up the slack.

23:20: Very rarely do people work out after you think this person is not performing to your expectations. Therefore, make sure you be upfront with those employee(s). No one should be surprised due to their firing.

24:34: Put everything in writing, employee reviews, job expectations, specific areas of improvement, etc. We live in a world where you can basically sue anyone for anything.

27:48: Don’t tell someone how hard it is for you to fire them—they don’t want to hear that.

Hiring Process:

29:30: You’d ideally have someone that is sold out for the mission of your company in what you’re trying to do. Ryan bases his hiring decisions off of the core values he uses over most of his companies. Ask yourself, does this person fit the company culture?

36:15: Your goal is to see who the person you’re interviewing is, people don’t really change. So your hiring decision needs to be based information outside of the first impression. “What did you struggle with at this particular past job? Or, How did you specifically help an organization?”

Recommendations:

32:50: Andrew recommends the book Who by Geoff Smart and Randy Street as well as the longer version, Topgrading by Bradford Smart.

34:00: Hiring resources, ZipRecruiter, WizeHire

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The secrets of HELOCS:

2:20: The best thing about HELOCS is that they’re usually interest-free for the first 10 years, which can be a really affordable way to further your real estate investment.

4:25: There’s two good ways to utilize a HELOC, to reduce your interest payment on other debt to by consolidating debt. But the key thing is knowing that this is still money you have to pay back—use it wisely.

7:20: Getting a HELOC can be really, really quick—possibly even in 10 days.

8:51: A lot of private, hard money lenders run their businesses by having HELOCs ready to go.

Multiple Position Liens:

9:50: A home equity line of credit isn’t something that Stewardship Properties would qualify for, but they will put a private lender in a second position loan to essentially do the same thing..

14:26: When we need cash, we use these second position loans to leverage some of the equity. We do regularly utilize bank refinances, but sometimes its not to best time and always costly.

19:40: Specifically on a property in Texas, Stewardship received money from the city for some significant upgrades amounting to $600,000—which also increased the NOI. But because they were locked in on a 12 year loan, that’s a lot of equity tied up.

23:00: Always operate from a position of power by having options. Know the fine print and know what you’re agreeing to.

26:12: To sell a private lender on a second or even third position loans, you have to have a product and equity that speaks for itself. This isn’t shady, we’re making sure the deal is still good even after the second position.

Fan Question at 29:52:

• Pros of using a HELOC, it’s quick and easy way to tap into cash.
• Con is that usually 10 years down the line, you’ll be charged interest.
• Don’t pull a HELOC on a property that doesn’t cashflow.
• Don’t buy out of state properties with a HELOC — that’s too risky.

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The HOA Fee:

2:46: The biggest problem is just the fee. The fees can range in where I live from generally $100 a month to $500 a month, and if you get into the upper end condos, they can get into many thousands of dollars

4:25: I've had $20,000 condos that are, that would rent for $600 but when I took it, it had a $200 HOA fee. And when you run the numbers, it just, the cash flow disappears.

HOAs & Special Assessments:

5:34: HOAs are attached to your title reports. They can assess liens, they can come after you, they can change rules that may affect your strategy.

6:40: you really need to do a deep dive into your state, that particular HOA, how healthy is it? You know, what are they spending their money on?

Strategizing with an HOA:

9:26: you're anchor to the HOA, so you need it to be a good one and you need to evaluate it going in. For the thing you, I mean, there's only so much you can do to try, I mean, talking to neighbors, like, is this HOA reasonable?

12:07: If you’re in a touristy area and think AirBnB sound nice, if you do a short term rental and you're in an HOA neighborhood, you have to make sure your guests understand this. The full-time residents don’t want to see or hear you.

14:09: Lower income areas don’t necessarily think of the hassle factor of selling, they’re more interested in the dollar amount and knowing that they will walk with some money and a clean slate.

Condo Strategy:

18:00: Not being a motivated buyer, it gives you, opens up opportunities and properties. This was the case for Andrew in Kansas City when a 17-condo (out of 35 in total) portfolio purchase came his way.

19:31: In a downturn, I would say condos are the first thing that get hit.

24:45: Condos have been some of Ryan’s easiest deals to wholesale or wholetale. They’re easy to comp and flippers love them.

29:10: But with condos and co-ops, this is probably not a strategy, unless you're a flipper in a high end market. Essentially it should be a component of an overall strategy.

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Key Data Development Questions:

1:02: Where are you actually going to market to? Where are you looking for deals in? Where is everyone else buying? Who are the competitors in your market?

3:54: You need to be just about every wholesaler’s email list that you can find in your general market. Granted 90-95% aren’t good deals, but this is where the valuable data comes in.

5:40: Go into ListSource, select your entire city, find out what properties were purchased over the last 90 days with 100% equity. You’ll be able to preview the data and zip codes for free. Where are the absentee owners buying?

7:15: You can also use the ListSource method to determine what banks have lent in those zipcodes on refinances.

Characteristics of Your Data:

9:26: When you’re building marketing lists know that financial distress, divorce, a job transfer and other socioeconomic issues aren’t limited to middle-class or rougher parts of town. Ryan’s seen a lot more people get in trouble faster in nicer parts of town simply because their burn rate is significantly higher.

12:25: There doesn’t have to be some sort of desperation for someone to sell at a discounted rate, some affluent people just want the easy button. You’re really just looking for reasonable people, not even really looking for motivated sellers..

14:09: Lower income areas don’t necessarily think of the hassle factor of selling, they’re more interested in the dollar amount and knowing that they will walk with some money and a clean slate.

Best Practices:

17:10: Make sure that you don’t mention the reason why your seller ended up on your list before they admit it.

18:50: Some of the best data you can find is directly at the county courthouse. They may even just hand over all divorces.

20:30: The whole point of this is to test theories and if it works, make adjustments. This is how you find niche lists. If you're not willing to do this, you have two options. You can buy off the MLS, hop into bloody bidding Wars and overpay for everything you buy. Or you can shuffle through all the crap that wholesalers are going to send you and try to find the needle in the haystack. Neither of which are great options.

23:04: We’ve discussed this before that if you want to simply buy from a wholesaler, it’s going to cost you. And if the average markup is $15k, at 10 wholesale properties that’s over $100k I’m sure you’d rather have in equity.

Say You’re Not Great with Data:

26:21 You can buy niche lists off of PropStream and you can buy from wholesalers. There are definitely wholesalers out there that don’t value their time as much as Ryan.

28:20: The biggest thing is not how much the wholesaler makes, but how good the deal it is. You really just need to create great relationships with them if that’s the strategy you want to go with. Treat anyone doing the legwork with respect or they’re never going to sell you anything.

Strategy Recommendations:

31:02: Ryan is totally against dishonest marketing or anything misleading that creates a false sense of urgency or is completely fake. Start with a conversation, set your intention and let sellers know how they can reach you.

33:22: You can also use investment-minded real estate agents, but make sure you’re still running your own comps.

Resources Mentioned:

2:54: To determine what companies your competitors are doing business as, you can use a free website called OpenCorporates.

3:35: Another website you can use to search and see where specific people are doing deals is a real estate agent only tool called Agent Pro 24-7.

Books Mentioned:

15:02: Five Stages of Loss by Elizabeth Kubler Ross.

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Buying Portfolios:

2:18: This area is a good spot for somebody who has some experience, who has some resources, who's had some success to really ramp it up because there aren't a lot of investors in that middle area where you can buy a portfolio of five to even five to 50 properties.

5:22: There are two ways to value portfolios. There's, I'd say, the institutional way in the entrepreneurial way. Institutional meaning going to conventions with large hedge funds being the buyers and entrepreneurial where you’re running the BRRRR model at large and analyzing your equity position.

7:26: It blows my (Ryan) mind as somebody who specializes in direct to seller marketing, how few investors will get a deal done and then ask the seller, what other properties do you have, or what are you going to do with this money. You've already paid to get the lead, ask more questions when you’re in front of the seller.

97 Property Purchase Deep Dive:

12:07: This all came about through a commercial broker connection who referred an ad to us and by our general rule of making sure everyone knows what we do.

13:42: We weren’t in a great position to purchase it, but we were persistent in getting in front of the seller to talk about the deal several times discussing our history and why we could manage an acquisition of this size.

15:00: He ultimately cut off negotiations with everyone else and we were able to identify that the most important thing to him in this sale was that he didn’t want to spend the time showing 97 units. This is critical - know what’s important to your seller.

16:15: In Ryan’s case, the 8-unit add on just wanted to be done with the property, money wasn’t a concern and why they ended up financing with nothing down carried out over 20 years. As you build rapport, ask open ended questions like, “What are you going to do when you sell this?”

18:02: On the 97, the terms were good despite having to find 25% down. But Stewardship Properties knew of a family group looking to 1031 exchange their money and tax liability from some investment properties they sold. This led to a tenancy in common agreement, which is essentially each LLC owns 50% of the title.

20:47: Always talk with an attorney when your looking into something to this extent, Stewardship Properties worked out a deal to eliminate the family groups biggest pain point by keeping their tax advantage.

23:04: Remember though that in these deals, you’re inheriting residents that you didn’t place on your terms. In Stewardship’s case, they didn’t retain as many tenants as they anticipated, which led to the mini-rehabs where paint and fixture updates were made to their standard.

41 Unit Portfolio Purchase:

25:07 5 months after the 97 unit, the 40 unit portfolio opportunity came at a time where we had recently paid back a lot of private lenders. We were able to pull 25% together and group private investors into 3 separate closings of 10-15 properties.

27:11: One way to increase a sellers confidence in you coming through on multiple closings, increase or go hard with your earnest money. But don’t allow any earnest money to go hard until you’ve completed due diligence and have walked each unit.

Earnest Money / Cloud Title:

29:00: Your earnest money staying at title clouds the title to the property and the seller can’t sell the property without coming back to you. But say if you’re a seller and the buyer walks and refuses to sign an earnest money deposit release, your title is now clouded and you can't sell it until you figure it out with them. We recommend capping earnest money under the maximum for small claims if necessary.

General Advice:

24:29: Master your properties with a master key, it will make your life so much more manageable.

31:40: Verify rent rolls with bank deposits. Or bank statements or tax terms if you can’t get the deposit slips.

33:14: Always plan for the worst and hope for the best.

34:36: With partnerships involved in these situations or outside, you have to have an honest relationship.

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Preventive Maintenance:

3:22: The Good Stewards all manage their properties in-house. No one else is going to value your properties like you do. No one else put in the work for finding the deals and managing construction.

5:44: You want to set in place regular checkups, water is a properties worst enemy. There’s an 80-20 principle where 20% of the residents will cause 80% of the call ins and energy you’ll have to put towards something.

6:55: Be on the lookout when you go into a property or your maintenance person goes into a property, and that maintenance person should be your eyes and ears every time they go in. They should be mentally clicking things off. Check every water receptacle.

9:02: Look at furnace filters, clean of debris on the AC unit, look for leaks, look for pets that aren’t being paid for, check alarms/detectors. We do add carbon monoxide detectors in our homes, it increases the safety factor for the residents.

Colder Months / Mold:

11:30: We have a large student housing portfolio in Eugene, OR and over winter break, there’s a tendency where residents shut everything off--including the heat. We have a system in place where we go in about a week after the fall term ends for an inspection.

13:42: We have a mold addendum in our lease agreements informing our residents can do upfront to prevent it. Things like venting the bathroom (we hardwire fans into the light switch), keeping furniture out from the wall slightly. We make sure that we use a product called Killz in the paint during the rehab, which helps keep mold spores from forming.

Maintenance Staff:

16:02: Manage your maintenance staff, know how long projects/repairs are taking. Track mileage on company trucks. Monitor the amount of trips to Lowe’s or Home Depot, each trip must be efficient because anytime they’re in the car, they’re not maintaining a property.

18:18: Determine what supplies should be on the truck. What are the common things they keep running into? Do they have the right tools for the job.

19:26: One of the best things we’ve done in regards to maintenance or rehab crew staff is making sure they own their own tools, even if we give them an allowance up front. We’ve found that they take better care of their tools.

Collections and Resident Delinquency:

21:39: Be specific with what’s expected. Spell it out and follow the terms of the lease and do it the exact same every single month so that you're not constantly making agreements with people and then being responsible for holding them to those agreements.

22:45: Remember that the 72 hour notice to cure doesn’t start until it’s posted.

25:15: Nothing will just send your life into drama quite like believing the excuses and not honoring your agreements.

27:00: Whenever you go to court sometimes in eviction court, the major issue that's brought up against people who are renting landlords is that the reason that I have a case here of not paying my rent is because they have not maintained my property correctly. Some states even allow withholding rent.

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Easy to Niche Lists:

2:20: When you want to pull together niche lists including divorce, probate, pre-foreclosure, eviction, tax liens, back taxes, etc, avoid most list brokers for any of these kind of niche lists. Nine times out of 10, they're selling you old data that they've already sold to a thousand people.

4:20: The harder, more difficult lists can perform extremely well. But there are the easy lists for purchase out there where you can be ready to market in as little as 5 minutes.

7:00: The bulk of Ryan’s deals he’s gotten in Indianapolis have come from absentee owners with high equity, an “easy-hard” list. But when you’re marketing at scale, you’re always going to notice more deals coming from these bulk “easy-hard” lists of say 10000 absentee owners. All of this is because there's simply more data to go off of.

10:00: When you start marketing, be ready for the people who may be frustrated that you got their information. Or Ryan’s company CallPorter can simply do it for you.

Seniors With Equity:

11:23: The most lucrative list that sources the best deals is seniors with equity. They typically own a home that’s free and clear where in addition, the property value has gone up significantly all without updating it.

13:05: This list is all about building the relationship, rapport and following up. You must hold their hand through the process, they want to sell but they don’t know where they will go once the home is sold. They may also not know what to do with the money.

15:19: With these lists, if you ever feel like the senior is not all the way there and even forgetful, ask if they have a family member or lawyer you could loop in to these conversations.

Working with Others (Wholesalers):

18:10: Don’t put your business, your financial or retirement goals in the hands of others. Lot’s of real estate investors are waiting for wholesalers to bring them a deal. Don’t expect to get a deal at 75% of ARV from a wholesaler if there’s someone else out there willing to pay 80% of ARV. You’re not going to get any off market deals if you don’t get out there and get in front of people.

20:50: Know the priorities of your business. If you’re not willing to spend $2,500-$7,500 in marketing to source the deal yourself, you’re going to be paying a wholesaler a $15,000-$30,000+ markup. On 5 properties, you probably would much rather have $100k in equity.

22:47: Bottom line is that you should widen your funnel for finding deals, it’s going to be cheaper in the long run. You’re either going to pay up front to a wholesaler or real estate agent or source it yourself by doing your own leg work.

General Advice:

24:37: Ryan believes that most people mess up by either paying too much, not budgeting enough for rehab. But on the marketing side, find your niche and be consistent by targeting that one hard. If you jump around in 55 different directions, it’s rare to be able to market that successfully.

26:41: Another thing to note is that it takes awhile to get your pipeline flowing. Don’t think that you can just try marketing for 30 days and believe that will work. It could take 60, 90, 120 days to close a deal. Make sure you have the resources in place to keep your pipeline going. There’s power in momentum.

31:40: We’re not wholesale buyers usually because we have to have a margin to make this business model work.

32:10: If you’re actually out there looking for deals, you’re in the right environment, you’re “wearing the right gear” and prepared to show up to bat, you’re going to go a lot further than if you’re just kind of sitting on your hands hoping something falls in your lap.

BOOKS MENTIONED:

10:55: Ryan Holiday’s, Ego is the Enemy.

Other notes:

10:28: CallPorter is a call service specifically for real estate investors.

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Don’t cut corners:

2:10: be able to look at what you're doing from a bird's eye view and know that after about 50+ hours, you’re no longer productive.

4:50: In the beginning, you’ll likely be running a lot of things in your head. You should get in the habit of writing it up digitally. One thing Amanda the CFO has mentioned is that stuff doesn't get logged in the accounting software after it's done, it gets logged before we do it.

6:10: As you're just starting out, it's really the time to start building some of this stuff because it's a lot harder to build it when everything's on fire. Look at it as if it’s not in your property management software, it didn’t happen.

Ways to set up systems:

9:00: Make a GoogleDoc that outlines the entire checklist for a property closing.

12:35: You can only keep 7 things in your head at one time. Writing notes down digitally on something like Ryan’s preference of Evernote. Having a daily items checklist of 3-5 things done today, that moves everything forward.

15:00 Running your todo list arranged by a quadrant list, a Stephen Covey term, can also be a good thing of establishing urgency on your tasks.

17:50: An area that failed due to a lack of systems for Ryan involved the term “marketing photos” which means different things to different people. The misstep in the checklist was that his team didn’t check the marketing photos and ultimately were left wondering why a property wasn’t getting rented.

20:00: Have rules in place for your residents. When is the late notice posted? If you don’t follow through on this, your residents won’t think you care or notice. Your team should know that at the 72 hour mark, they know what their tasks are that day.

Property Closing Checklist:

24:39: Make sure to have “checking the rent roll” on your list when you’re about to purchase a property. Amanda once saved Stewardship Properties 150k off the purchase price just because of closely reviewing the rent roll.

26:05: Also add in reviewing rehab budgets, how on target were you? Am I spending too much on like the construction work? Am I spending too much on the vendors, like the carpet and the HVAC, am I holding the property too long?

28:00: The most important system is the system for newer investors analyzing deals. Make sure you have your rules for what you're purchasing and that you're analyzing that systematically of where you're pulling comps from. How are you confirming your rehab budgets? How are you checking what the property is going to pull in, in rent in? Are you using Rentometer? Are you verifying that through current rent comps? Are you looking at stuff on Zillow? Are you looking at stuff on Craig's list? How are you making sure this is a good deal and doing that systematically?

29:05: Lastly, put time on your calendar each year to review your policies. Are they working for you? Systems are never done and may need to be adjusted or added to as you continue to scale your operation.

32:50: To add to that, the same things go for your VA’s, property management group, the lot. What’s going right, what’s going wrong and work through the systems to build something that works.

BOOKS MENTIONED:

10:40: Atul Gawande’s, Checklist Manifesto.

11:50: David Allen’s, Getting Things Done.

Other notes:

16:06: UnrollMe can be a great tool to simplify your email inbox.

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Community and Local Banks:

2:45: primarily your local and regional banks have the lowest interest and the best terms.

4:15: your options are somewhat limited when you're looking for the kind of cash out refinances that we're talking about. A lot of it comes down to whether or not they like you or not.

7:12: Go to REIA’s to ask for bank referrals. You can also use ListSource and DataQuick to find the loans that have been made on properties for non-owner occupied, investor properties.

11:15: When banks review your portfolio, they’re going to look at your appraisals and Debt Service Coverage Ratio (DSCR) of about 1.25-1.5%.

13:26: Be persistent and don’t quit. You’ll likely get told no a lot, but remember that it’s important for the banker to be your advocate when they go to the rest of the decision makers at the bank.

Interacting with the community/local banks:

15:00: Remember that these banks are used to working with ma and pa type investors who are largely unorganized. By being organized and having everything in one place for them, it really sets that professionalism standard.

17:36: Does the bank your speaking with provide loans in the county you’re operating in?

19:27: from the beginning when you're talking to the bank, don't beat around the Bush about the fact also that you might be looking for a cash out refinance

22:19: If you need to challenge an appraisal, don’t be shy about it, but be respectful.

24:32: investors tend to forget how small this community really is so try to operate in a position where you're without blame.

27:13: Ask the bank if there are any seasoning requirements? When are they willing to lend on the appraised value?

28:10: On the topic of the DSCR, this applies to your whole portfolio, not just the property. Ryan has seen a lot of investors try to fudge a deal and if you do that consistently, you may get to the point where your own portfolio is hurting your ability to get loans for yourself.

30:19: maintain a perfect record with the banks you have loans with, it’s a mutually beneficial relationship.

Options outside of Community/Local Banks:

31:45: Each type of bank has different lending criteria. Credit unions usually don’t like the cash out refinance type loan, sometimes Fannie and Freddy will play in this space. Regional and state banks would be the next step up. After those, come the big banks, which do not like this niche loan type product.

32:40: National banks not funded by deposit money would include hedge funds or the Lima One-type banks. These also have their own criteria.

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Leasing:

2:17: We use Rentometer.com when estimating how much we can expect for rent, but usually start on the higher side since we’re bringing a better product to the market. Don’t underrent your property, it’s a common mistake.

4:27: We recommend using RentLinx and ShowMojo to automate the rental listing and showing process. All you have to do is manually list on Craigslist and coordinate pre-lease viewings on occupied properties.

7:51: It’s important to have any leasing leads go somewhere. So with a phone call or text-based listings, you need to make sure you keep tabs on these by using some sort of CRM, spreadsheet or whatever works best for you to keep track of people and who’s doing what. If you need to, use the call service CallRail to keep a record of conversations over the phone.

10:57: Starting out, you have two options. (1) hire a property manager or (2) manage properties as you aquire, which you could probably do up to about 20 units. But when the time comes to hire a property manager, you have to manage them. Remember that this isn’t their livelihood, net worth or future

13:49: Have a good website where everyone can find everything they need. Rental applications, co-signer agreements, maintenance request forms.

Property Management Software:

15:08: We use Rent Manager for it’s robust backend accounting platform, but Appfolio is another seamless, customer-experience focused system. You need to track what’s going on, even though you may be able to handle a few properties in your head, eventually you’ll need to write everything down. Going with a property management software can save you a ton of headaches in the future.

Screening:

20:13: Establish your screening guidelines and stick to them. Make sure you’re following local and federal screening requirements. Knowing previous rental experience is particularly good to know because it’s a good indicator for how people are going to treat your properties and if they’ll pay on time.

22:00: We use a third party software since it’s a pretty time-consuming process and want to avoid any employee favor over one tenant to another.

23:15: Our general rule is 2 years of good rental history, rent is paid on time and their income is 3.5 times rent. But as a multi-market investor, you want to treat each market individually.

26:00: Before Stewardship Properties entered the Kansas City market in 2011, the screening procedures allowed for far more relaxed policies. But when we brought those policies to Kansas City, it really tanked us. We now never make exceptions and hold to the federal standard of not treating one resident from another.

28:13: The only allowances we do make are cosigners if you don’t have the rental history or income.

29:42: Andrew uses Red Star for screening in Kansas City. He wants to avoid any chance of staff putting favor over any applicant.

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Pre offer Due Diligence:

1:52: The pre-offer phase of due diligence is all about determining what you should you base your offer on? This should be a systematized approach where, say, you scale to reviewing 150-200 offers a month, you can’t spend all day on this.

4:00: Andrew has a 26 line item review for pre-offer rehab costs and adds a 20% contingency on top. Don’t talk yourself into doing the deal by making allowances to make it work. Plan for the worst and hope for the best.

7:04: Pull your comparable properties, or comps, on the MLS, Redfin, Trulia, Zillow, PropStream to determine your actual retail value (ARV).

8:23: Ryan plans that he’s buying an eviction. At least get copies of rent ledgers and if you can get copies of lease agreements, the better.

If you’re in a Subject To loan agreement:

12:41: Confirm the terms of the loan. Check the rent ledger, ask questions. “Have you had any sewer/electrical/flooding/roof issues?” Knowing these questions upfront may aid you when it comes to negotiation.

15:50: Since Stewardship Properties wanted to get back out of a flipping strategy into a more buy and hold, the midwest and southeast markets had stronger cashflow than it would on the coasts. And so we (Andrew & his brother Philip) just decided to you know, pack up and start a branch out here.

Post-Contract Due Diligence:

16:05: Post-Offer Due Diligence is all just simply verifying everything you did previously and then go deeper.

20:32: Our offers also have a 30-day contingency that it’s based on an inspection. We recommend going with the inspector when you’re starting out so that you become more and more familiar with what to look out for when you’re touring the property in the pre-offer phase.

25:39: Get a contractor bid as well. Andrew uses a 150 line item sheet when he reviews the rehab costs, largely inspired by The Book On Estimating Rehab Costs by Jay Scott. But sometimes, you may miss something, and that’s okay, it’s always worth trying to get out of a property.

28:00: The $50,000 foundation/mold/asbestos repairs have come around to us before.

BOOKS MENTIONED:

4:11: Jay Scott’s, The Book On Estimating Rehab Costs

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Acquisition Overview:

1:33: There are always good deals. If you look at it from an economics perspective, difficult life situations or lifestyle changes don’t discriminate between markets.

5:37: The general consensus regarding the people we buy from is that they simply just don’t want the property, and that’s not the case. Most of our direct-to-seller deals are largely from folks wanting to hit the easy button. Say they bought a property for a family member and don’t want to deal with the drama, or affluent people are looking to downsize, etc. It doesn't matter what kind of marketing you're doing, if somebody is desperate they're going to call.

8:28: My particular favorite is direct mail and online advertising the reason being these are totally scalable for an average cost per acquisition of under $3,000. They're also totally ethical. They're totally legal. There's no gray area to them at all.

How Stewardship Properties has scaled outside of direct mail/online advertising:

9:58: Partnering with an investment-minded real estate agent. Believe it or not, it is possible to get good deals from wholesalers. But most of all, the hotter the market is, the less opportunities there are outside of direct marketing.

How to get in front of people and how to get them to call you:

13:50: Prioritize the customer experience by making sure your calls are picked up live, that you show up on time to your appointment, you make them an offer like you promised, sending them a thank you card, leaving them with a business card. If you do all of these things, even if you have competition on the deal, if you provide a superior experience, people are ultimately going to sell to who they like.

14:30: The biggest thing is just getting started and getting in front of people. Ryan’s answer to “how are you finding all these deals?” is,

• "how many people have called you and requested a cash offer in the last 30 days?"
• If they don’t have that number, how many people have you called or how many people have you marketed out to?

Why we don’t really use gray-area marketing:

17:30: We get the sex appeal for ringless voicemails, text message blasting being pennies on the dollar. We simply decided to not build our business on gray areas. Granted we do cold call multifamily property owners we’re trying to get in front of, but when you press a button for $1k to blast 10,000-50,000 people, you can end up in hot water.

Our first off-market deals:

19:25: Andrew’s first was found through a craigslist ad in about 2005/2006. The property was a bit more rural being 20-25 minutes south of Eugene, OR.

22:45: Amanda’s first deal came through a former coworker, turned agent, who listed an underrented duplex property in great condition. Raising rents was a no brainer.

24:58: Bill’s first house was bought pre-internet days where he bought a 3-lined classified ad that read, “wanted a house or investment property near campus”. Through that ad came a single family house, right next to the University of Oregon with a significant amount of square footage. Classified ads can still work to this day - if the deals trickle in, it’s not hard for something of that cost to pay for itself.

Extra Tips:

28:40: Open your marketing funnel as wide as possible. If you're not getting good deals. Try something else.

29:19: Don’t be afraid to get out in front of people. Real estate is a people business, network with other real estate professionals, bank asset managers, reach out to for sale by owner (FSBO).

Fan Question:

30:45: The 1% rule doesn’t work in my market, should I buy in-state or out-of-state?

32:10: The main thing is, are you buying at 75% ARV - repairs - holding costs? And could you achieve that say maybe an hour/hour and a half away?

34:13: As properties get more expensive, the ratio to cash flow is less because a roof costs the same between a $50k, $100k or $500k house, so rent-to-cost ratios should only be used to compare within a particular market.

35:05: If you are going to invest out of your market, (1) carefully vet everything (property, management, etc.) and (2), take no assumptions from your current market to the outside market.

36:42: Invest in your area first no matter what. You want to have a first hand knowledge of investment to make a buy and hold strategy work.

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Having a short elevator pitch of what you do and what you offer is paramount to building a private lender network.

Think of 30 people you think may have money with no prejudgement. Private Lenders have more security lending with us because their money is tied directly to an asset with a title, rather than unsecured in the stock market. If anything goes wrong, they own a property with equity built-in.

Hard & Medium Money Lending:

2:42: There's different kinds of private lenders. There's a lot of hard money lenders with higher interest rates and points, points being a percentage of the purchase price. Hard money is what most people think about when they’re starting out, but it’s not the only option.

4:24: We’ve really only seen hard money work for fix and flips. You may approximately have 2-3x the holding costs where you’ll then need to get a deal at something like $0.50 on the $1, minus repairs in order to successfully BRRRR out of it.

7:41: We have built a network of private lenders, what we call “Medium Money” that we secure their money against a property and pay 8-9% interest.

Convincing & Building a Network of Private Lenders:

11:16: Snapchat lost $1B of valuation when Kylie Jenner tweeted that she wasn’t a fan of the 2/2018 update.

12:14: so the point with the stock market that I always lean back to is when people do private lending, they are secured against a property with a deed of trust that's recorded on the county that the property exists in. and what that means is even if we go belly-up and we can't make good on our promise to pay the loan. If we didn’t follow through, we would give the property back to them through a deed-in-lieu of foreclosure.

14:37: Put together a credibility kit that shows, before and after photos. Lots of people watch HGTV, but it’s more fun to watch if you’re financially vested into the industry.

18:30: This is called Trust Deed, Deed of Trust or Mortgage Lending depending on the state you’re in.

21:00: It’s important to constantly be building relationships so that when the time comes you have a list of people you can send the property to. It’s best to be looking for money when you don’t need it.

23:52: The first deal Ryan and Bill did was privately funded through a cold pitch after a meeting over coffee with a local anesthesiologist.

Process from Lending Packet to Liability Insurance:

26:00: In your lending packet, list out the financials, purchase price, rehab budget and the actual retail value (ARV) of the property. Then list out what the rehab includes, provide like-comparable “comps” properties (similar size, age, etc.)

27:00: Once the lender agrees, set the closing with a title company. After that you file a promissory note that includes a personal guarantee as well as a deed of trust, mortgage deed or trust deed (depending on the state) all recorded at the county. Adding liability insurance/being additionally insured is also great too so that both parties are protected.

Our First Lender:

29:42: Ryan’s first lender was a medium-hard money lender, found by happenchance, who offered a 15% interest rate. Rather than having to make him payments, Ryan negotiated giving the lender an equity cut of the deal.

31:00: Bill’s first lender came about after he bought her house and she didn’t know what to do with the money. So he reborrowed the funds on the same house.

32:00: Amanda’s first lender was from her mom who used her IRA funds. There was a couple hundred thousand just sitting, not earning money. She now doesn’t have to worry about it because the interest is paying directly back into the IRA.

33:00: Andrew’s first lender came about with a mortgage broker as they were discussing financing an apartment complex deal that ultimately didn’t go through. But he was just discussing the business model and the broker thought it was interesting. Having a short elevator pitch on what you do and what you offer is paramount.

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The scope of work is to confirm and cross reference your estimate. Managing your own scopes of work allows you to have a very consistent approach while at the same time ensuring that contractors are being reasonable.

Preparing a Scope of Work:

1:30: I've never heard an investor tell me that you know, I just keep overestimating my rehabs.

2:18: Not every property put an offer on do you want to put together an entire detailed scope of work, it sometimes takes too much time. Ryan is sending offers to 150-200 sellers per month, so a 300 line item scope of work doesn’t make sense every time.

5:21: Always be detailed with your scopes so you prevent an opportunity for a contractor to cheat you. Ryan had a fire at one property and a contractor came back with a $90,000 bid. That was literally one line item that said repair house.

7:23: Andrew breaks it down by multiple categories, Pre-Construction, Construction, By Room, Landscaping, Interior and Exterior. The last two would be a Vendor-List (any work being completed outside of the main contractor) and then a final, punch out list of items needing to be done.

9:27: Once owned, the 300 line item sheet as mentioned previously gets loaded into a software called Smartsheet and is then sent out for bids. This systematize your scope process and allows you to control the cost as well as the outcome.

13:11: if you haven't used someone before you should be getting more than one bid.

Employee VS Hired Contractor:

14:51: With the contractor, you know what you're going to pay. With your in-house staff, your hope is that you get them trained up and as you scale, the same decisions are being made over and over.

16:33: Regardless of employee/vs contractor, know what these constructions cost you daily so you maintain efficiency.

Scopes of Work Advice:

19:25: BE DETAILED. Don’t forget the sewer. Get it scoped for $150 rather than not and be on the hook for a $15,000 repair.

22:02: when you're dealing with contractors, you get two out of three speed, cost or quality. Pick two of those and you’ll identify which contractor fits for your business. Good project management, thereafter, allows you to actually raise the bar on all three of those: speed, price and quality.

27:56: Make sure you're not asking them to do a scope when you're trying to figure out if it's a deal or not. We typically will walk through with our contractors and say hey. You know, give me like the quick and dirty on this what we think this is going to cost

30:30: Outline the payment structure in the agreed scope of work. Verify the scope and progress as you complete the project before issuing payments.

How To Find Contractors:

24:26: Pull competitor permits, go to Home Depot at 6am, go to a REIA and ask other investors or there might even be contractors there looking for work. You can even go “driving for contractors” by driving by worksites that look like they’re going well.

BOOKS MENTIONED:

3:08: Jay Scott’s, The Book On Estimating Rehab Costs

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As the US has entered the longest economic expansion in history, a market correction is bound to take place in the near future. Stewardship Properties shifted the business during this period and also entered the Kansas City market.

The one thing that will insulate you better than anything else in a recession is having a healthy cash flow. The people that got hurt had bare land that wasn't returning anything or commercial properties that were empty.

Show Notes:

The market is pointing signs to a future recession:

1:20: We are currently in the longest expansion in American history. We just I think in July we set the record and now we are kind of uncharted territory. The fed just dropped interest rates.

4:50: the yield curve flipped and was inverted about a month ago to August to 2019. what this means is that the return on the yield on short-term bonds is higher than the yield on long-term bonds, which means people don't really trust the economy in the long term.I think it was December of 2005 that it went at the yield curve inverted and then the recession began.

10:20: I do not think this will be a real estate crash like 2008. That I think will probably be yeah, it'll be the bond market, student loans, the car market a combination of things maybe the stock market but real estate will be pulled down with it.

Restrategizing in the middle of a recession:

13:05: we had to stop our buy-and-hold strategy and we moved into more of a flipping strategy and even that was difficult because as that recession gained so much traction, buyers had a hard time finding loans because lenders got so frozen up.

15:50: Since Stewardship Properties wanted to get back out of a flipping strategy into a more buy and hold, the midwest and southeast markets had stronger cashflow than it would on the coasts. And so we (Andrew & his brother Philip) just decided to you know, pack up and start a branch out here.

Finance Strategy in the middle of a recession:

18:30: Our price point on a house in Kansas City was fifteen or twenty thousand dollars, you know, those are a lot of houses that we still own that didn't need, you know, they needed some work, but we were still renting them for 600, 700, 800 dollars a month. The numbers worked on a from a cash flow perspective and we could afford to leave the private financing on them for the long term because the cash flow worked.

22:19: When asked about lending in Kansas City, all of our private lenders said No at first and then they all came back. Don't be a pest but kind of a pest when you know the numbers are so strong. We’re loaning say 225,000 in Oregon and they could loan 55,000 in Kansas City and yet get that kind of rental return, they felt much more comfortable

BOOKS MENTIONED:

25:29: Jay Scott’s, Recession-Proof Real Estate Investing and The Book On Estimating Rehab Costs

Other notes:

25:49: Don’t stop just because we’re currently in the peak and could see a recession in the near future, just make buying with an equity margin a priority.

27:35: With a direct-to-seller strategy, you can pivot with the market and adjust your target actual retail value (ARV) percentage you’d be willing to purchase the property.

30:00: Use “Dollar-Cost Averaging”, buy wisely today based off the data you have today, don't speculate, don't Fudge arvs, don't underestimate how much repairs you have.

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If you don't run this like a business you're going to sell to one of us at a discount later. This episode discusses the most lucrative aspect of the BRRRR process, refinancing.

This is your opportunity to pull your cash out and move onto the next investment:

2:30: The BRRRR method is all about leverage, but it's all about letting somebody else foot the bill for you.

Commercial Loans on Residential Properties:

4:14: The ones that are going to be most open to you are the ones who have a specific loan product that they're willing to offer. Remember if you're a homeowner, they're looking to you as a homeowner is getting a loan. But when you're borrowing on a commercial loan, they're looking to the property.

7:14: We are usually looking for a lender that's going to loan at least 75% of the loan based on the appraised value. What’s the seasoning process, how long do you have to own the property before they will turn around and loan you based on the appraised value?

Establishing A Relationship:

11:48: you really want to earn the banker’s trust make them turn them into your advocate when they go to speak to the underwriter or anyone else going to the committee approving the loan. Earn that trust by coming very prepared with all business documents, property portfolio, rent roll, etc.

15:45: Accounting is critical to help establish a strong relationship position.

Appraisals:

20:00: You usually only get one shot with one bank at an appraisal. Meet appraisers at your property, don’t let your tenant potentially tell them all the things wrong with the property.

22:13: Are you going to share your actual numbers? Sometimes it’s important to note you spent $100k in a rehab. That said, no lender really wants to be on the edge of a 1:1 percent debt service coverage ratio if your rents are breaking even.

Other financial strategies :

27:35: Get market rent for your rentals. The minimum Ryan is looking for is a 1.25% rent to cost ratio and we hold to that rule really pretty hard because it translates pretty nicely to covering the debt service coverage ratio.

Key Takeaways from Hosts:

32:49: If you have the option to spend the time to complete a 30k flip and pay taxes, why not try and get a really good BRRRR deal for the same 30k and avoid taxes?

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Set your Criteria--It’s like a job interview, find out why you shouldn’t hire your renter as a tenant:

2:00-8:00: Don’t discriminate or break any laws. They could be federal, state, local, etc. The cost of a bad resident is far far more than the cost of a vacant property.

Are you running property management or hiring it out?:

8:22-9:00: Be careful, interview property management companies. Our kind of Mantra is nobody's going to care about your properties as much as you do

9:27-15:46: What is your process? Write it out. Are you including utilities? Do you have a website so people can easily apply to be a tenant? Are there application fees? What’s your pet policy?

Determine Rental Agreements and Eviction Process:

16:25-23:00: The feel of that move-in process for your resident. You want to be good. Start off with a good impression with set expectations for both parties. What’s your eviction process? “I'm not allowed to give you a deal that I wouldn't be willing to offer others.”

“Residents” VS “Tenants”:

23:14: A tenant is what the court calls somebody when they're getting evicted while someone who we’re fortunate enough to have paying our mortgages for us as a resident?

Not-Horror Tenant Stories:

29:55: A lease renewal is a good time to have people who’ve had a positive experience leave a Google review.

Key Takeaways from Hosts:

32:24: Be consistent, treat your property management like a business

33:38: Watch out for the careful ways that people phrase their pet breeds.

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Your Rehab Team Is Critical To Finances:

1:00-5:30: Your team of contractors is critical. As many say, there’s never an investor that’s budgeted too much for a rehab. You have 2 options, you (1) didn’t budget well enough and are over or (2) you’re under rehabbing your property.

5:31-11:00: Facing overages to your budget up against the overall financials and appraisals. What is the ROI for the overage? Does it make sense to cut bait and retail the property to cover the overages made?

What’s Your Rehab Strategy? General Contractor Or Employee?:

11:15-14:00: Should you hire a general contractor or rather an employee?

14:05-19:00: Quality of your rehab process, why you may include granite? Hardening strategies? Why your pet policy may shift your process.

19:15-24:00: Bill Syrios uses employees as general contractors and sees this as a strategy to keep them focused on the property they’re currently completing, not wondering where the next contracting job will come from. This is also an opportunity to raise a team up from inside your business.

Perks and Caveats:

24:30-27:00: Ryan Dossey’s experience with a single contractor that’s busy enough that he essentially works exclusively works for Ryan’s team.

Building Your Team:

27:00-end: Get references, people aren’t going to recommend someone who screwed them over. Can you preview properties that they’ve completed work for?

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Show Notes:

Buy-And-Hold isn’t Flipping:

1:00: You want to buy something generally and rehab it to the point that you'd be willing to live in it, but you're not trying to make something that is going to shine. This is not your dream home. You're not buying in higher-end neighborhoods. You're not buying for homeowners, you're buying for residents.

The Homicide House:

9:03: On this particular deal we bought it for about $64k. Our rehab was right at about $45k-50k. We ended all in for about $115k. This one was a bit of a risk because of its uniqueness of having an 8-car double stacked garage. We come to find out from the neighbor across the street that someone was murdered in the house and stored in a crawlspace under the kitchen.

12:50: We were looking at about $800-$900 a month based on comps, and at $115k all in, that would make this a bad deal. But we stuck on a $1500 rent price.

Refinance:

16:23: We just didn’t know exact financials with this property. But we ended up expecting a $160k-170k appraisal but the appraisal came back at $224k and with a 75% to value, cash-out refinance, we walked away with a nice check in hand.

18:33: BRRRR works better than you know had we flipped this property. Let's say we made 50k how much of that's gone to taxes immediately? With the BRRRR strategy, we've got a cash flowing asset that's going to pay down the debt and cash flow every month.

Strategy Recommendations:

19:30: This is not a no money down strategy. If you do, you have no margin for error. When I started I was looking for no money down deals when I had no business doing a no money down deal because I had no money, right? Something breaks, you're screwed. It takes longer to rent than you think it's going to, you're bleeding cash that you don't have.

21:50: Buy and holds or the BRRRR strategy really doesn't work with hard money. It's too expensive.

BRRRR Finance examples:

24:56: Now if you're new at this you might be able to get an FHA loan for a long for a long-term financing. There may be other options, but we're looking for commercial loans on Residential Properties and that is definitely a loan product that not every bank is comfortable with.

What the hosts are up to:

27:07: Oregon market is doing a lot of loan assumptions (kind of like subject to) where maybe we find a borrower that's in distress and has a great loan on their property and we're able to bring their loan current, do some repairs, take over their loan, slip into an ownership position.

29:41: Indy market is in growth mode.

30:48: Kansas City market is working on several refinance packages.

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