Real Estate Investing Podcast

Commercial lending, investor loans, interest rates, and types of properties

Memphis loan officer Tina Talarico discusses types of loans for commercial lending, investor loans, interest rates, and types of properties. Today we begin a 3-part series where we’ll be discussing types of loans for commercial lending, investor loans, interest rates, and types of properties. It’s gonna be very extensive, so if you’re interested in commercial lending, buying multiple properties or a single property, then this 3 part series will give you some insight as to what to look for.
Find out more about this real estate investing podcast episode at: https://epmrealestate.com/podcast/commercial-lending-investor-loans-interest-rates-types-of-properties
Contact Brett Bernard at (901) 692-7401 OR Tina Talarico at (901) 826-7218
[00:00:00] Brett Bernard:Welcome to behind the curtain podcast. My name is Brett Bernard and today in the studio with me is Tina Talarico, and we’re gonna be talking about types of loans for commercial lending, investor loans, and we’ll do other segments dealing with interest rates, types of properties. It’s gonna be very extensive, so if you’re interested in commercial lending and buying multiple properties or a single property then hopefully today’s segment will give you some insight as to what to look for. So today with me is Tina Talarico she’s with Capital City Mortgage. She’s a certified commercial loan officer. Hey, Tina, welcome. So tell me a little bit about yourself. I know you’ve been in this business a long time. We’ve known each other, I don’t know, few years.
[00:00:37] Tina Talarico: I have been, in the lending business for over 25 years, a little over 25 years. I started out as a residential loan officer years ago and I transitioned over into commercial.
[00:00:49] Brett Bernard: When you say commercial, you’re talking a broad commercial type of lending or are you specific to a certain type of.
[00:00:55] Tina Talarico: We do a broad type of lending in commercial. However, I specialize in residential cuz that’s what I know and that’s what I’ve done for so many years.
[00:01:03] Brett Bernard: So if I have an investor wants to buy a strip mall, y’all provide financing for that. But majority of which you do is single family, multi-family, rental real estate.
[00:01:13] Tina Talarico: Short term and long term. That’s that’s correct yes.
[00:01:14] Brett Bernard: Gotcha. So when it comes down to the lending, what I’m more interested in is the type of loans. I get calls every day from investors, current investors and new investors that have linked up with us that wanna start buying in Memphis and, they always have the same issue. Last year I had a ton of cash buyers, so I didn’t have a need for a lender connection. This year, now the interest rates are up and , you would think that it would be the worst time to buy real estate, I have a lot of investors that are buying, and they’re all putting loans out. Some are paying cash and refining, and we’ll get into that in a minute. So what kind of loans are available? I come to you as a new investor, I’ve never bought a rental property in my life. I have a good credit scoring some money in the bank and I want to buy a rental property tomorrow. What would your suggestion for me be? What would you recommend I do?
[00:02:03] Tina Talarico: Well, I would recommend you start out with one property and take a hold of it and manage it for a little bit. Get your feet wet first. And then from then on, I mean, you can qualify for as many properties as you wanna purchase regardless of your income. Because we don’t require tax returns. Everything we do is based on the performance of the property.
[00:02:25] Brett Bernard: And your credit score, obviously
[00:02:27] Tina Talarico: Credit credit but we do down to 620. So we do offer loans down to 620. Of course the terms are better when you’re over 700, however, we do loans down to 620. In some cases the loan to values a little bit less, uh, maybe 5% less. We offer 80% on single family, one to four units, short term, long term rentals, which would be short term would be like Airbnb. So we do a lot of that and a lot of duplexes, four plexes. When you get to five units that falls into another realm. One to four units. It, it is pretty slam-dunk deal.
[00:03:03] Brett Bernard: So basically the criteria is pretty loose, I would say to get financing, but is there a particular type of property that lenders won’t touch? Is there a cap on the, or a minimum amount that use required if you’re buying just one house versus if you’re buying 10?
[00:03:20] Tina Talarico: We have some options that will lend down to $50,000. Some cut off at a $100,000 and some of the options out there are at $150,000.
[00:03:30] Brett Bernard: We’re working one now and I think you said the minimum is $62,500.
[00:03:33] Tina Talarico: Yes. $62,500 with 20% down takes you down to a $50,000 loan. So 50,000 is the minimum loan, that we can do.
[00:03:42] Brett Bernard: So if I’m buying a package of 10 and they’re all $49,000, I’m kind of SOL.
[00:03:47] Tina Talarico: Yes, pretty much.
[00:03:47] Brett Bernard: Okay. So let’s discuss the types of loans that are available. I know they’re, you know, I had a text from someone yesterday, asked me what I thought about an ARM loan. I’m from the 2008 era where ARM loans were a disaster for a lot of homeowners, because things collapsed and interest rates shot up and, and all of a sudden they couldn’t afford their home and they wouldn’t foreclosure. So I’m a, I’m an anti-ARM loan person, but in the commercial side and in investment side, I tend to think that ARM loans may not be a horrible product because typically you buy a property, you mortgage it, and then every couple years you’re gonna refinance it to maximize your cash flow. Right? You’re always gonna try to bring your costs down to get more cash flow. So, what is an ARM loan? Most people know an ARM loan is, but what’s the term of an ARM loan. In other words, if I got an ARM loan today when could I refinance that ARM?
[00:04:40] Tina Talarico: It depends on if there’s a prepayment penalty that comes with the loan.
[00:04:44] Brett Bernard: But isn’t there a limit to the prepayment penalty as far as time?
[00:04:47] Tina Talarico: There is, they come in, 1, 3, and 5 year terms. So you can buy that prepayment penalty out or negotiate the prepayment penalty.
[00:04:55] Brett Bernard: Is it a percentage of the amount?
[00:04:58] Tina Talarico: It is. Either you can buy it out. In some cases with extra cash or go with a slightly higher rate. So, we’re talking maybe, three 8ths of a point will help buy some of that out. So typically an investor’s not gonna refinance it within the first 12 months. So a one year prepayment penalty’s not so bad, but, um, if you’re planning on doing anything with the property, just make sure you’re not stuck in that prepayment penalty because the way that works is that, if you have a three year prepayment penalty, the first year you pay 3% of the principal balance to be able to pay that loan off early. You can pay up to 20% annually, towards the principal and not be hit with that penalty, however, if you pay more than 20% towards the principal in the first year, then you’re gonna be hit with that 3%. The second year it goes to 2% and the third year it goes to 1%, and then of course after the three year period is up, then you…
[00:05:55] Brett Bernard:So ARM loans don’t have to be dangerous if you’re smart about ’em?
[00:05:58] Tina Talarico: That’s right. And, I’ve always been, against, anti-ARM you know, would talk people through it and say, are you sure? Because it’s a risky loan. However, it’s not risky for investors. It’s risky for homeowners because they don’t manage their money as well.
[00:06:14] Brett Bernard: The asset’s not producing any income.
[00:06:15] Tina Talarico: Right. And they may not be in a position to refinance the loan when it becomes in the adjustable period and ARM loans are 3, 5, 7, and 10 year ARMs so that means they’re fixed during that period and then after that period they become adjustable. Some of them adjust once every six months, some of them adjust once a year.
[00:06:39] Brett Bernard: So if I do a three year ARM. I have an adjustable period, a guaranteed period of six months after that it can be adjusted up?
[00:06:46] Tina Talarico: You have a guaranteed period of a minimum of 3 years or a minimum of 5 years or 7 years or 10 years.
[00:06:53] Brett Bernard: So ARM loans aren’t bad.
[00:06:54] Tina Talarico: So it’s a it’s fixed during that entire period.
[00:06:57] Brett Bernard: So if I refinance at 3 years when my ARM starts to adjust, I’ve got a prepayment penalty, but you weigh that against your additional cash flow you can create by that’s lowering interest rate?
[00:07:07] Tina Talarico: Thant’s true and, and there’s another plus to that as well. The fully amortized loans are always good because you know, 30 year amortized loan, it’s gonna let you see that cash flow pretty good. However, after that adjustable period, whatever term is left on the loan, for instance, you have a 5 year ARM, when the 5 years is up, it becomes adjustable and, if the market is doing better than what your rate is, it may not adjust at all..
[00:07:33] Brett Bernard: Yeah. ARM loans got a bad name because when the economy started collapsing, the housing market collapsing, interest rates started shooting up, and now all of a sudden a homeowner who had a note of $1,800 a month, it was now 2600 2700 and they couldn’t pay it. And that’s what Glen and I did for a long time over at the law firm. We assisted homeowners in fighting the banks to try to get those, and, listen, I know a couple mortgage brokers who hopefully are in jail, who made a lot of money selling ARM loans, but they sold them under a false pretense. The angle was, oh yeah, do an ARM loan because they made more money on it, but oh yeah, 3 years from now I’ll just refinance you into a permanent loan, so take advantage of this ARM loan. Knowing that it was very slim chance they were gonna be able to find ’em a better product when everything started adjusting upward.
[00:08:19] Tina Talarico: That’s true, and you never know if their income is gonna be the same and this is a homeowner that I’m referring to. Their income may have changed. They may not be able to debt ratio. The market might have turned their house value might not be there. Their multiple reasons why a homeowner. I’m really against a homeowner doing an ARM loan unless they’re very financially savvy and they have plenty of cash reserves. However, I’m seeing a lot of investors right now going with the ARM loans because typically, historically, an investor is gonna keep a loan maybe 5 or 10 years, and they’ll flip it and sell it and get their investment out of it, once that equity grows and turn around, and I’m seeing ’em upgrade little bit more expensive properties. So they’ll sell those, beginner homes that they start with, they’ll draw the cash out of those, sell ’em and take that money and invest it in more homes of another level. I now am a, a fan when it comes to investors on ARM loans. A typical investor does not keep a loan for 30 years.
[00:09:20] Brett Bernard: Sure. No. Well, let me ask you this. We talked about the negatives of ARM loans. What are the. What would you classify as advantages of doing an ARM loan?
[00:09:29] Tina Talarico: The advantages of doing an ARM loan? We offer interest only. So if you’re looking to really turn some cash and see that cash flow coming in pretty good. If you do an interest only, you’re not paying towards the principal, do interest only loan and do an ARM, this is really a win-win situation.
[00:09:46] Brett Bernard: And you can pay principal toward it if you want?
[00:09:48] Tina Talarico: Yes, you can. Up to 20% annually.
[00:09:52] Brett Bernard: But you’re required only to pay the interest on the loan itself.
[00:09:53] Tina Talarico: That’s correct. So, so you have a lower payment, and not only that, you just see more cash flow and so that I’m seeing a lot of that right now, they’re taking that money, there, that they’re saving on those properties, paying interest only, and they’re taking that cash flow and they’re fixing other properties or taking that and putting it back and purchasing more.
[00:10:12] Brett Bernard: Right. Okay. You’ve enlightened me on ARM loans. Like I said, I just got a text from one of my investors yesterday. Somebody you’re actually working with was asking me about an arm loan. I’m like, well, you know, I’m not a big fan, but you know, if you look at it from a cash flow perspective, which leads me into my next, discussion. I get investors a lot, that call me and for the last several years, they’re always focused on market value. Now, market value matters if you’re getting a mortgage because you gotta get it appraised, but at the end of the day, all that should matter to any investors, if the house is worth $110k and you pay $115 for it, but it’s producing $1,500 a month in income, who cares about the market value? Because that asset is going to continue to grow. Comps are gonna grow, values and rent comps are also gonna grow. So in that situation, I would tell that investor, if, if they can get a, a loan based on a hundred, $110,000 value, I would tell ’em to pay the extra $5,000 out of pocket because the ROI is so much better off than what you normally can get in Memphis. The Memphis market’s not slowing down, it’s slowed down some the occupant has, but the investment side is still booming.
[00:11:15] Tina Talarico: It definitely is booming. I had a an investor who sold his properties and other cities. He had a 1031 and he said, Hey, I have six months to spend this money and I need to kind of roll with it. I need to buy five properties quick and in a hurry. And I asked him what brought him to Memphis? He’s from Florida. I asked him what brought him to the Memphis area, had a guy in New York, did the same thing. I asked him, you know, why Memphis? And they said that they bought a couple of properties in Memphis or had friends that bought properties in Memphis and they found that the real estate is, is very inexpensive here. Property taxes are reasonable and they see a bigger cash flow.
[00:11:58] Brett Bernard: You know why Memphis, Memphis is a hot market for a lot of reasons. I tell investors. The main reason for me is because 49% of the people inside city limits rent.
[00:12:10] Tina Talarico: That is so true.
[00:12:11] Brett Bernard: It’s a fact. So when you have a huge renter pool, guess what? Your house doesn’t stay empty long. Well, the faster you can rent a house at top cash flow, cuz cuz renters are competing for properties you’re getting top rent. Well, when you get top rents, guess what happens? That then begins to slowly push up the values. So there’s always a positive side to the Memphis market. In 2008, the investment market in Memphis saw a 18% drop when the rest of the country was 30, 40, 50, 60% and I attribute that to the fact we have a large rent pool. So the investment property stayed pretty firm. I mean they, they lost value. But in let’s see, that was 2008 by 2010, we were already back where we originally started. By 2012 we exceeded it by the 18 or 20% we lost. So whoever bought during that time would see a 40 or 50% increase in value ,rents and everything else. I don’t know why so many people rent. I just know that Memphis is a distribution city. You got FedEx, Nike, Amazon. I mean, the list is long. Worldwide company. Every worldwide company’s probably got a distribution facility here. So a lot of those folks work in distribution, they drive forklift trucks, load boxes, working lower management, work on the line somewhere, or, you know, they’re in the service industry. They live paycheck to paycheck. So yeah, there may be a month where the car breaks down and your rent comes on the 15th instead of the first or the fifth. But the asset itself overall is outperforming pretty much any other market in the country.
[00:13:33] Tina Talarico: And the reason that a lot of those industry workers or other job fields, the reason that they rent is that they are not able to save money for down payment. Sellers are not out there paying closing costs anymore. So they need more out of pocket to purchase now. And, uh, a lot of them have good credit, but they can’t debt ratio cuz they buy the big fancy car and there’s a couple of reasons why that they actually can’t buy. Then some of them don’t wanna buy because they don’t want the responsibility of the maintenance and they don’t wanna be tied down. Another thing that I’ve seen too about investment properties in the Memphis area is they don’t sit vacant for very long at all.
[00:14:15] Brett Bernard: There was actually a news article, I forgot what paper it was in, about a rental housing shortage in Memphis. I know the management company here was getting people throwing applications on homes before they even see ’em because it’s so competitive. They were just throwing application, after application, after them they were spending 3, 4, 5, $600 on application fees, just trying to get a house because it was so competitive. Now it’s slowed down a little bit, and I believe that’s because tenants are kind of the wait and watch like to them. They watch the news every evening and to them, the world’s coming to an end, it’s falling apart. So they’re not picking up stakes and moving anywhere, which is good for investors cuz you’re getting tenants that are staying longer, but all these tenants stay at their job. You know, when the economy crashes, guess what? FedEx, Nike, Amazon. They all still have to keep shipping. They all still have to keep working, which means their employees still have to go to work every day and they have a job. That is way different than some of these other markets where you have so many self-employed people and their livelihoods are so volatile, dependent on the, the market and what’s going on in the economy. FedEx is never gonna stop shipping. Nike’s never gonna stop selling shoes. Amazon’s never gonna stop shipping products. And that those two big facilities out there in Raleigh, you know, people go to work, they went to work during COVID. They went to now the interest rates are high. They go to work cuz the gas prices are high. Inflation’s up. Economy’s not doing well, but they’re still having to go to work every day. So the good news is, is you get tenants that can pay their rent. We do have a number of section eight type tenants in certain areas. Low income, but the majority I would say are the tenants that are in my investor’s homes work at FedEx work at Nike work at Amazon work at St. Jude, or in the service industry somewhere. If you’re listening in a good place to look at is Memphis. My name is Brett Bernard I’m with EPM Real Estate, I am an investment agent. I deal with investors around the world, across the country, helping them buy and sell portfolios here in the Memphis market. I can be reached directly at (901) 692-7401. And then with me today is my guest is Tina Talarico with Capital City Mortgage. She is a certified loan officer and her specialty is in residential, but she also does commercial. So Tina give you your information out so if someone has a question they can call you .
[00:16:24] Tina Talarico: My telephone number is (901) 826-7218 and you could reach me at that number anytime.
[00:16:31] Brett Bernard: All right. So, I would encourage you to reach out to Tina. I’ve sent a number of investors to her recently, on package deals and onesie twosies, and she’s done a phenomenal job of finding the right product for them. And I will say something about Tina versus most loan officers if she doesn’t think it’s a good deal for you, she’s gonna tell you, so she’ll, she’ll be honest with you and say, look true story. I have one investor I sent to you. You told him flat out you might be better off going to a local bank. He did. He went to his credit union and got a better deal and got his loan done. We’re about to close that one. So Tina will be direct and honest with you and I appreciate that about her. So, all right, well, we’re gonna wrap this segment up. So if you’re interested in talking about it, (901) 692-7401, gimme a call or find us online at epmrealestate.com. If you go to that website and go to second picture, which is the best looking guy in the group. That’s me. My my cell number’s on there is a little bio about me. Tina, why don’t you give out your website as.
[00:17:28] Tina Talarico: It’s www.capitalcitymtg.com.
[00:17:29] Brett Bernard: And if we can get you lined up and decide you’re buying, I’ll send you to Tina and she can get your loans set up for you and give you your options. Appreciate you listening today. You’ll have a great day

California-based Realtor & Investor on Investment Real Estate & Property Management in Memphis, TN

Todd Riccio, Realtor and longtime Investor from California, discusses how he became interested in the Memphis real estate market and offers his experiences over the years of real estate investing and management of rental properties here in Memphis, TN.
Find out more about this real estate investing podcast at:
https://epmrealestate.com/podcast/california-based-realtor--investor-on-investment-real-estate--property-management-in-memphis-tn
 
Aaron: Today on the podcast, we have Todd Riccio. He is a longtime investor with Enterprise Property Management and EPM Real Estate, and we're going to talk a little bit about how he has become interested in the Memphis real estate market and maybe even tips and bits of wisdom that Todd has had over the years investing here in Memphis. Todd, you have been an investor with Enterprise Property Management for six years. Is that right?
Todd: Yeah, six years. 
Aaron: It's been a fast six years, right? Like, you really got in at a great time.
Todd: I remember flying out to you, man. Well, I flew out to you and said, look, my goal is to get 40 to 50 properties. I want to get at least one to two a year, and you said right now, when we spoke, you said it's the equivalent of California's 2009, and six years later, you are pretty accurate, man. You know what I mean? 
Aaron: Yeah.
Todd: Because the prices have gone up and the properties that I first bought on Ross Road and stuff like that, that was like $105,000, probably like 250 right now. Just real estate agent out here in California. Obviously, prices make it extremely hard for me to build a portfolio out here. When the average house in Memphis, that would be 120,000, out there would probably be about 700,000 out here. So I knew that kind of branching outside of California would be the best option for me to accomplish my goals of having a portfolio that brings me $50,000, $60,000 a month when I get older. That's the goal right there. That's my 401K. That's my pension. That's my retirement, all these properties.
Aaron: Do you remember what brought your attention to Memphis originally? Like what caused you to look over in our direction?
Todd: I always did a bunch of research. I was going to seminars. I'm always looking for passive income, and Memphis was at that time one of the cities that would always pop up in different websites of best cities to buy rental properties, and Memphis popped up. Boise popped up, Indianapolis popped up, and Fort Lauderdale popped up. I think Scottsdale popped up, but Memphis was one that always consistently kind of popped up to me. Personally, I don't like the Panhandle States. I don't like Florida. Every time you turn on the news, Florida is getting a Hurricane. They're getting flooded. All this other stuff. There's Hurricanes. There's tornadoes. So Memphis was super stable. I remember when I spoke to you, you said, look, Memphis is pretty much an established metropolis. It's gone through its growth stage, and it's pulled backstage. You got Amazon headquarters there. You got Nike, it's growing. They're putting money back into the community. You got the Amazon fulfillment center. You got Shelby Farms. You got all this stuff. So it was kind of one of those cities that have already been established. It's not like an up-and-coming one, and I just felt comfortable. I felt comfortable with you guys. I felt comfortable because I actually flew out and me flying out and checking out the different neighborhoods is just one more piece of info gathering and due diligence, and ever since then, I'm comfortable with the knowledge, and I kind of think that that's kind of one of the things that I respect you on is there's times where I've said, hey, Aaron, what about this area, and you're like, look, I don't even think we could get a roofer out there because the neighborhood is not the best or anything like that, and you need that as an investor because it's not just about numbers, oh, this is a quadplex or a fourplex at this price, and the return is good. You need someone that's boots on the ground. That's, like, you probably want to like, from what you're looking for Todd, this isn't the neighborhood that you would express to me that you wanted or anything like that. I appreciate that info, and I think I'm comfortable after the first couple of them to get in my kind of system now, my numbers and my algorithms and everything, you know what I'm looking for and stuff like that. So it just seems to be working, and if it ain't broke, don't fix it.
Aaron: Yeah, well, one of the things about working with you that I wish that other investors and other clients of mine would adopt is you do have a very decisive approach to investment real estate. You understand exactly what it is that you're looking for. I think that you had a really good start to your run. We bought some single-level homes in established neighborhoods that were built in the 90s, I believe, and you and I discussed this. We discussed in Memphis, what generation or what age of construction is really good for investments in an ongoing manner here, and so you and I talked about how, like we here in Memphis, if you live in Memphis, if you've lived in Memphis for a long time, if you do real estate in Memphis, especially, we have a term out here that we use called new construction or newer construction, and so what does that mean to us? Well, new construction basically means anything to me, at least, anything that's the late 80s or newer, and why is that different? Well, it's different because the technologies that we're putting into houses as we were building them back then are more durable. We're not dealing with poisonous building materials such as asbestos or lead. We're not dealing with shoddy electrical lines, like aluminum wiring that you found a lot in the 80s or late 70s all the way up into the early 80s. You're not dealing with things like I don't know…
Todd: Asbestos.
Aaron: Right, as asbestos. There's a type of plumbing material that the Dow Oil company produced. I think it's called polybutyrol or something like that, which is known to burst. It's like early Pex, and so if anybody knows what PEX is, we improved. We improved code and zoning, and these areas of newer construction are also in neighborhoods that are still highly desired by owner-occupants. And so Memphis being a wonderful town for investment, you can still get in and buy just like you have an investment property, which is right next door to someone who was on their property for anywhere from ten to 30 years, and you want to live next door or an own investment property next door to that guy you don't want to buy in neighborhoods that are all investment properties. You might as well buy a condominium or an apartment if you want to do something like that. But you've been very smart. You're like, where is the value? Right. So I've really appreciated you for that, and then the other thing that I love working with you on is you and I will often get in and we'll talk about a property and it'll get down to $10,000 or $20,000 difference in the price of the negotiation, especially in the last two years. You'll tell me, you'll say, Aaron, I feel like this is overpriced by 20 grand. What do you think, and I'll be like, yeah, I think it is. Your ability to walk away from a contract that's being negotiated and just say, you know what? I didn't like, what I saw, that the deck or the roof looks weird or that skylight looks like it's going to need repair. It's always going to be a problem. I'm just going to walk away. But we know that buyers can use that inspection as an excuse to walk away from something where they don't feel like now that they know the house better, they don't feel like they're getting a good deal, and you're very fast to point that out and say, you know what? I'm just going to pull the plug and walk away, and I love that about you. It's really good.
Todd: Yeah, and the thing is, I'm on property number six and all other five of them that I've gone into contract. I've closed on because I'm also, like, a realist too of, like, look, at the end of the day, it's one-time fixes and stuff like that. But I think also having experience with the five other properties becoming more and more anticipatory of, like, I know that I'm going to get a letter from you guys saying, like, hey, the fence is shot or this that and the other thing and being in this industry, being in the real estate industry for so long, too, I'm all about preventative stuff and pro-activeness and stuff. So very rarely do I ever cancel. But this one I think I was like, look, it's probably like 15K, 16K, 17K to get it even rent ready, and after talking to a couple of agents, they think that it might slow down in November. I don't know if that's true or not, but around Thanksgiving time because I'm always hungry, too to get a minimum of one to two a year. So I'm still on the prowl of getting it. But it has to make sense as well, and the thing is, I've narrowed it down to a single story because me and water after being in this industry, water does not do well with houses and having a second floor. I just get nervous about water leaks through the ceiling and stuff. So single-story brick house for the maintenance, two-car garage, because I just value storage and stuff like that a usable yard, all that stuff where I'm sure other properties would do just as good. But this is just what I feel comfortable with, because you and I always have that conversation I'm like, look, Aaron, I know the rental market is very active right now, and properties are renting pretty quick, but I want the properties that no matter what the rental market is, if it's slow, if it's fast, if it's quick, what properties are going to be in the top 10% to rent out? I don't want the black sheep. I don't want the white elephant. I don't want the ones where in the time where the rental market is good, it gets rented out. But then when it's not good, we're sitting there and stuff like that. So I'm going to pay a little bit extra to be like, look, it's cool to have the two-car garage and storage when it's snowing and stuff like that. It's cool to have the brick and single-story because that's desirable and stuff like that. It's cool to have a yard because they barbecue and have their kids play outside and stuff. So that's also something that I value, as well as your opinion of this is going to be a very active one, no matter what the rental market is as opposed to on the lower end of it when the rental market does slow down.
Aaron: Which it's funny that you should bring that up. So earlier, Todd, you had briefly touched on the fact that there will eventually be a slowdown in the rental market, and I know that your philosophy is obviously to make sure that you have just operable properties that aren't going to require. They don't require a lot from the renter. For instance, in order to move into their relatively simple, relatively basic layouts. There are all kinds of very specific preferences that you have that I think really head off these larger maintenance costs. That's really smart, and I agree with you. I want to go back and talk about storage for a second, at least a one-car garage man. For years you and I have talked about we'll look at a property. You'll say this one came up, the money looks good, and every single property that you send me has at least a one-car garage, which is very, very smart. In Memphis, Memphis is a very typical city of a million people more or less, and so in an urban setting or even a suburban setting that has urban tendencies or an urban demographic, you're going to have foot traffic, you're going to have petty crime, and so having an open carport in a city like Memphis is not a good idea. You know, like in Memphis, you need a garage for the door that shuts, and so you can keep your outside stuff outside, but also in an enclosed area that's secured. So another point that I would make to any investor that's looking to purchase property in Memphis is this if the house that you're looking for or if the house that you find that doesn't have a garage is $10,000, $15,000, or $20,000 cheaper than the house with a garage by the house with a garage. From a rental standpoint, it will always stand out to the renter. We have a great house on the market right now. It's a three-bedroom, two-bath. It's less than ten years old. It has a beautiful brick and French country facade. It was one of the last French country houses that were built here, and it has no covered parking and that it has no garage, obviously, and that poor house is just sitting out there and nobody wants it because they can't like, where are you going to store your stuff?
Todd: Yeah, I kind of base it, even though California and Memphis are different markets, price point-wise. Human psychology, I think, is the same, and I think that after hearing clients out here, garages are huge because even if you're not going to park your car in there, people always have more stuff than they have room and stuff. So it's just having the options. I remember when I first started looking six years ago. There were some properties in central Memphis that have the laundry area outside in the carport area, and I'm like, Look, I don't want that either, because I relate that to the equivalent of houses out here having laundry in the garage, and sometimes when I hear people going when I'm showing buyers around like, oh, I don't want to go to the garage for laundry. I want it in the house. I just associate that with the same thing with Memphis, like, who wants to go out when it's snowing to get clean underwear from your dryer when it's 20 degrees out and stuff like that. So I just basically take my knowledge here and say what's the most desirable and the most desirable is going to be a two-car garage. Its single story is going to cater to not only the younger people that want to, but it's also going to cater to older people that don't want to climb stairs or anything like that. So single story. It's cool because it caters to more people having a yard to just stretch your legs out and stuff and not feel crammed to have kids play around and stuff and then again, the brick facade where there's not wood rot and damage and termites and all that stuff. So I just basically take whatever my knowledge is here and just transferred over to the Memphis properties, because again, at the end of the day, people want the same stuff just as people don't want to go in the garage in California. I'm sure people don't want to go out in the cold in Memphis and stuff, and so we can have an indoor laundry and they could park their car in the garage and walk-in their house with direct access and stuff like that. All that stuff is going to be desirable in my mind for the long term.
Aaron: So there was a time when you and I were looking at these possible purchases, and we found several you would find, especially back in 2015 or so, and you would find four or five comparable in a certain area, and you would say, I'm looking at all of these. Which one of these do you think would be the most reliable? You know, which one of these do you feel like is going to bring the highest rent and obviously be the most attractive on the market, and we used to thumb through a Rolodex of houses that were possible purchases. I know that those purchases have probably become limited as you look in the Memphis marketplace right now. Can you kind of compare markets? Let's even say from 2019 to now, like, what is the difference to an investor when you're looking at the marketplace now versus two years ago?
Todd: Well, I mean, the one thing that two years ago, I think that the good properties and stuff like that from what I saw two years ago, something would go like maybe 5000 over the asking. So if it's listed at like, 149, because up till last year, it seemed like $150,000 was like the ceiling of what these properties could yield that would fit what I'm looking for. But over the past couple of years, it seemed like 150 now is kind of the minimum, and it's kind of surpassed that. So I saw the prices increase. But another thing I've seen is whereas two years ago where if a property was like 149, it would sell for 156 or 155 and go 50. 00, 60. 00 over, and stuff like that where I just wrote an offer on another property and the highest offer with multiple offers was $30,000 over the asking price, and that just blew my mind because I was like, Are you kidding me? That's 20% over the asking price and stuff like that. So that's something that is new to me that I've seen is buyers in the Memphis market are aggressively going over asking, whereas a couple of years ago, they might go over asking, but it would be five, six grand, seven grand, maybe eight, nine grand, but not 30 grand. That was just unheard of or anything. So that's the one thing I've seen. But given that my background is real estate, I also have strategies that I could separate myself to where I can call the shots. For instance, when I wrote the offer, I was like, look, remove the appraisal contingency. I get it. I understand the terms, and I was like, put an escalation clause in which says I'll pay 33,000 over the highest verifiable offer and stuff like that, and that's where the listing agent came back and said, hey, we haven't offered 30,000 over the asking price, and I said, I'm out, you know what I mean? But it gave me the opportunity to know what I needed to be at as opposed to the listing agent. Just saying, oh, you didn't get it. We chose someone else. So there's different strategies that I use here that I use there that really stand out to the seller. And that escalation clause is great, because why not have a seller get 3000 more dollars with no appraisal contingency and stuff like that? So, again, if I could separate myself and write a more aggressive offer, I'm in the know of the risk and rewards and stuff like that. But it's all little strategies here and there that at least put you in the running to see if you want it at that price. 
Aaron: Well, do you put a cap on your escalation clause?
Todd: I don't because I could just walk away, like when the person said we had 30,000 over the asking price. I'm like, I'm out. But the thing is, I've seen when you put a cap, they know exactly where you're at, and so they know exactly where your cap is, and you could tell it. Say, I put offer 150 with a 3000 escalation up to 160 if someone comes in at 162, I'll never hear about it. So it's like, I'd rather not put a cap, and if an offer comes in at 161, they might say, hey, we had an offer of 161. You want to come in at 164. So I don't want to lose the house over two or three grand or anything like that. But when you put a cap in, you're kind of putting a ceiling on your place. So I would rather have no ceiling, and that also makes it difficult for the listing agent to know exactly where you're at because if you put a cap on it, the listing agent knows exactly what you're willing to come up to. If you put no cap, he's kind of flying blind to what he's advising the other buyer's agents of where my offers are.
Aaron: So how are you financing your deals right now?
Todd: I'm financing it with my own cash, 25% down. So $150,000 property probably takes about 30 GS, probably 35 with closing costs and stuff like that. So 35 grand gets another property.
Aaron: So you got, I assume, a line of credit, or are you doing individual mortgages on each property, individual mortgages. So having said that and I know you're probably going conventional and not FHA, and so you don't have to deal with all of the federal requirements for houses to close. And then you've got repair addendums, and you've got all these other things that you have to deal with an FHA loan that you don't have to deal with conventional. So now we know you're fantasy game does appraisal matter to you?
Todd: It does to a certain point. I think that I'm experienced enough to look at a property, look at what's sold around it, and kind of have a pretty good idea of where this thing is going to appraise that. So like the one that I was just talking about earlier, the one that came in 30,000 over. I'm out of that one. But if they came in 5000 over 6000 over and stuff like that, I'm not too concerned about it. I mean, even if it doesn't appraise by a couple of $1,000, I understand you have to pay to play and stuff like that, and at the end of the day, if it costs me a couple of thousand extra Bucks out of pocket, it's not a scarcity mindset. It's an abundance mindset, and I already know that I'm going to make the money back tenfold with just having another property because my main thing is keeping my momentum going and keep growing the portfolio and pushing myself to keep adding to and keep adding to it. I think I'm a good mix between looking at the numbers and being number conscious and stuff, but then also understanding that this is a good property. It's a good property. It's in a good area. If I have to pay an extra two, three, $4,000 to get it. It's the name of the game. I already know that I'll make it back and stuff like that in the next month with all the other incomes I have coming in and stuff, and it gets me one property closer to my goal of financial freedom and stuff. So it's just taking the abundance mindset and not the scarcity mindset because if you're dealing with the scarcity mindset and anything in life, you're always going to be hesitant and pulling the trigger and stuff, and it's just one of those things were being in this industry has really helped me out making these decisions and stuff, because again, I deal with a bunch of buyers out here where they find the property of their dreams, and they're scared to do a couple of thousand bucks, but they're paying 3,000 bucks a month in rent and it's like, look, just bite the bullet and just take a leap of faith and stuff like that. So if it matches everything and it's single-story with a two-car garage and it's upgraded because then I also look at okay, say, I don't get a house as upgraded. Is this what's the cost of the rent-ready one and that's like the other one I canceled on earlier this year. It's like by the time the fence around the whole perimeter was done cutting back the bushes, getting the wood trim of the deck repair, and stuff like that, as opposed to getting a property that's completely upgraded and spending an extra three or four or $5,000 because it didn't appraise but not really putting any money into because it's completely upgraded. I can quickly do the pros and cons and the risk and reward of that.
Aaron: And the one that we were talking about may have only been a month ago. I'm not sure.
Todd: Yeah, it was in September.
Aaron: Yes, it was Southeast Memphis is where we were looking, and that house had zero updates. It was really disappointing, and you were really smart to pull out of that one. I mean, just updating a home in $2019. You're looking at $10,000-$15,000. We've got delays now we've got supply chain interruptions. I don't think we've necessarily seen the effects of the Hurricanes in the New Orleans area affect us as badly as we thought was going to happen. But we had a Hurricane come through about a month ago and it hit the Glidden paint factory. Hopefully, I can say that on-air and not have any issues. But the Glidden paint factory basically had stockpiled paint, as they always do, and the base paint and primer and things like that. But basically, the Hurricane flooded the entire factory, and they said, look, we can ship out what we've got and we can ship the base solution out to other refineries and paint makers so that they can finish the base product and move that out. But they were talking about a 30 to 45-day retrofit, and so we were going to have paint shortages and all of the lows and all the Home Depot and all these stores, my painters, a lot of my painters. They just stockpiled paint. They just said we’re a Glidden company. We're going to buy up this paint and we're going to make sure that we have some in case there's a shortage so that they could continue to work through the winter. So anyway, that's just a random thing that's happening here in the south. We know what you like and we know what you've purchased. How do you foresee the changes in the marketplace if we take the whole foreclosure opportunity out of there, and I think that's something that you and I really need to investigate at a different time. But what are you looking at now? Because we know what was on the market. That was really great. That was rehabbed before. We know what's currently on the market, which really is not upgraded without a huge premium, and to ask and we know that you're not going to overpay and I respect that. I'm not going to overpay either. I'm not going to do it. I'll pay above a little bit for the joy of owning it and operating it and say, okay, I've got my one or my two for this year, but I'm not going to waste 50 grand just for the opportunity cost. That's not a good opportunity cost. Did you buy one this year already? Do we have one under your belt?
Todd: Not this year. I'm going to be aggressively looking around November. November and the last two years. I've closed in December of that year. So like last year I closed December 31, and then I think the year before that I closed right around Thanksgiving and stuff like that. So I'm going to be aggressively looking in the next two or three weeks to be looking again, picking up my one for the year and then continuing to just push and push and push and even exploring the multi-units with you and stuff like that. So just always be open to pulling the trigger if the right property comes along.
Aaron: That's cool. Just so that, you know, Glenn has got a couple in the bag right now. That just came across today, like in the last 2 hours, and they're both Cordova.
Todd: Yeah, for sure, man.
Aaron: Yeah, and that's exciting because we don't get Cordova a lot anymore. But these two, they're slightly distressed, just marginally. I would say 2% distressed, and that two to 4%, and of the value of the house itself, I would say, is cosmetic. So that's cool, and that's just proof right there to anybody listening. There's always an opportunity out there. If you're willing to have a conversation, right, you've got to be open to having conversations with people. You cannot do this on your own. When you listen to Todd and me talk right now, you're listening to two Realtors, and so earlier in our conversation, Todd was talking about how not trusting your realtor can get you into a lot of trouble. Realtors go through a lot of education. We go through a lot of continuing education. Being the principal broker of enterprise, property management, and EPM real estate, I have to take so much more education than even my agents. I have to constantly be paying attention to the news that comes down from our local state real estate Association and from the National Association of Realtors, and really know what's going on. Your realtor is being paid a Commission for their performance. Todd is a performer. There's no question, and he looks for a similar performance with us. Even though our markets are completely different. He asks me very high-end questions, high-level questions that he is asked as a realtor every day. He wants to know as the buyer, what am I getting myself into? What's my risk here? What do you think about this? What's your opinion? What would your experience suggest would be the proper course of action at this time? And then he relies on the information, my feedback, and my insight in order to make his decision, and I love the fact that he faces a lot of his decisions based on what I convey to him, not just his gut. So that's just so, so important. Listen to your realtor. There's a reason why you've hired them. So anyway, just to sort of ask you a couple of questions just to kind of wrap up where we are, and it's been a great conversation with you. Your fingers are on the pulse of what's happening in California, and I think California is kind of a leader in what happens in real estate. Really in the rest of the United States. You guys are sort of on the top end of fluctuations in the national real estate market. What happens in California often informs, the rest of the country as to where the real estate market is headed. You got some weird stuff going on over there like you were talking about earlier, very inventive insightful, imaginative solutions to real estate transactions, lots of technology, the rest of the country, though, like, if you stay away from the coasts, we still deal with hands-on. Right. Like, we want to go to the property, Glenn that we were talking about before. A lot of my agents will meet the neighbors. My wife, who just became an agent, by the way, four months ago, was at a property two days ago, and she was with the buyer who had flown in from New Jersey, and they were looking through the property and who would come out except for the neighbor. Right. So they met the neighbor and they got to ask those questions, right? Like, really important questions. What's your experience here? What would you do differently? What do you think about this property that you're next door to, or do you think they're asking too much? What would you do with this as a rental if you were to own it? Is it going to bother you to have a rental next door? What are your expectations of the community and of the tenant that leases here, and so a lot of that's going on? So back to my question again, when you consider your own business next year, and you also consider your investment business, what are the changes that you see happening in 2022 that you are aware of that you're going to be maybe shifting gears a little bit in order to respond to, and then how does that affect your investment outlook for 2022?
Todd: I just think that there are so many moving parts right now that's all the statistical previous historical data. I think it goes out the window. We have a pandemic going on. You have inflation talk. You have the stock market talk, interest rate talk, Treasury bond talk, jobless talk. You got the borders that are going crazy around the country. You got other countries that are going crazy. So it's one of those things where I just put my head down. I just put my head down and do everything I can and just do better than the year before that and not really sway. I always think of Warren Buffett, where he said, when everyone scared, you go head first and stuff like that and that's kind of what I've been doing even in the stock market right now, like, all the stock of inflation and this that and the other thing I've just been continuing to buy and just continuing to buy and continuing to buy stock and properties I feel like are going to be in the future very productive and stuff like that. I'm getting into electric vehicle materials, raw materials. I'm getting into cannabis stocks. I'm getting into Carnival Cruise Line and United Airlines and Royal Caribbean and cell phone towers because of the 5G with electric cars and stuff. So it's just basically doing you and not really letting outside factors get in the way because there's times where I've seen time and time again people that I spoke to in my career five years ago, six years ago, two years ago, like, oh, the market is still going to dip. So I'm waiting here and they're trying to time the market, and they said that four years ago, I remember I spoke to a tenant four years ago and I was like, look, man, get in, and he was so Gung-Ho that he was getting a good deal on his rental, whereas just say the market value is like $2,000. He was getting charged, like, 1600, and he felt like he was winning the Lotto because he wasn't paying market rent, and that hindered him to buy a property because he was looking at the perfect property and this and the other thing and that didn't come along, and then all of a sudden, another year goes on and that and then nothing came, and then another year. Before you know it, if you would have bought four years ago, he would have had, like, 200 grand equity in this property and stuff like that, and you fast forward, and he's still been renting, no tax write-offs. So a lot of people look at outside factors of the market is going to dip in this, and the other thing. I just go with my plan, and my plan is at the end of the day, I want to have 50 properties by the time I retire, and if you really look at real estate, it might go down. You know what I mean? Look at 2009 when everyone thought the world was going to end in California, and then you fast forward to 2020 and they're above water again, and all the people that held onto their house and was okay with the 30 years the fixed rate at that number, paid and paid and paid and now have equity and now are above water, and the world didn't end, and all the people that short sell their house and gave up on it and thought that it didn't make sense to pay a mortgage on an $800,000 house when it's only 600 and they ruined their credit and they paid for rentals and this and the other thing and they're letting outside factors screw them up. It impacts you so much. So I have a big ideology of, like, make a goal and just whatever the factors are just making an educated decision and stuff like that. But I'm not slowing down whatsoever, because I already know that even if I buy a property that's 180 or 190 in Memphis and it goes down a little bit by the time I retire and stuff, I'm not looking at it to sell it. I'm looking at it as investment, passive income. I want to have about 50,000 a month when I retire, coming into me from all my rental incomes and stuff like that. If rent is going to go up over the next 20 years and I'm cool with this payment, and it makes sense now, then I do it. I don't try to time stuff. It's just it's one of those things where there's so many factors with Covid numbers, China defaults of Evergreen, you got the chip shortage, you got inflation, you got interest rates. There's so many factors that you could pick one and be like, this is really going to happen. But if I just do me, I've done that all the time and I lead with what my goals are, and it seems to work out because, at the end of the day, I don't let fear get in the way. I just say, you know, what if I pay this and it goes down because I also have that talk with my buyers and they're like, well, what if the market goes down 30K? I'm like, well, let me ask you this. If you buy a house and it goes up 30K, you're going to sell it and they're like, no, don't sell it. If it goes down 30K, I'm like, you understand that if you're cool with the monthly payment, you're fine. Right? It's like a stock. You could buy Tesla stock or go Bitcoin. Even Bitcoin was 40K, 45k. It went down to, I think last week 30K, and now this week, it's at 65K. So did the people really lose 10K or did they really gain 20K or are they still cool with what they got and only makers or lose money when they sell it and stuff like that? And when I'm buying these properties, I'm not looking to flip these things. I'm looking at my future 50-year-old self, and when I'm 50 and it's 2040 or 2041. I really going to care that I spent 170 on a property that the next year was 160, or am I going to be happy that I got 50 properties and stuff like that and they're all paying for each other and stuff. So it's always coming from a place of abundance and not scarcity, and the people that I've seen live their life on scarcity are the people that don't live a good life. I'll tell you that.
Aaron: I think you're right. I think that there are a lot of people that make decisions out of fear, and I was reading an article about whether or not we have a balanced economy or an imbalanced economy, and this article that I read gave a lot of different ideas as to whether or not it was an economy that was based on greed or fear, which are the animal spirits which drive the stock market. Basically, it stated that there was more greed than there was fear, which is a good thing. It's a market that's a little out of balance. It's a little look to the positively expecting that things will be even better, and there's a lot of risks that people are taking out there. But at the same time, there's a lot of cash that people have right now, and we've seen that in California real estate, for sure. As I've said previously, that rip effect has gone all the way down to places like Memphis, Tennessee, Indianapolis, Cedar Rapids, other cities that are very popular for real estate investment. I definitely agree with you. Real estate, to me, is a buy-and-hold venture. I think a lot of people watch HDTV and they think I could flip this house. They watch Chip and Joanna Gaines or The Property Brothers or several new shows out there. I obviously don't watch IGTV because I don't know the name of the new shows, but they've got these new shows out there that are like people that are out there flipping houses and they're making money. My favorite shows are the shows where they do show people that lose money, and then they ask them at the end of the episode, they say, does this change your faith in the market or because you lost money on this deal? Some people get their shirts handed to them and they lose that $30,000 or that $40,000 on a venture that was supposed to make them $100,000, whatever because they tried for the fast money, right? I really appreciate your perspective on real estate, and I will say this one last thing. We have had so many houses sell out of the enterprise property management portfolio over the last two years. I would say it's at least 200 houses that have left in my management portfolio. That is a lot for a property manager to lose in two years. Simultaneously, we have had at least 300 houses come on over the last two years. So there are more people getting in similar to you, Todd, than there are people getting out. That's a big deal. I hope our listeners are hearing that I really appreciate you and your perspective on investment, real estate, and your partnership with all of this, and I am looking forward to working with you as the leaves change color and as they fall, things get cold around here. People do not want to buy so much. I think there's going to be an opportunity here this winter, this fall and winter, and then into next year. It's going to be great. So I really appreciate you coming on with us and sort of sharing some of your energy about investment real estate and how you've applied that here in Memphis. We're grateful to you as an investor and as a friend.
Todd: Yeah, man, I appreciate all the insight that you give and it's invaluable, too, because again, the big picture is to have this for my retirement and stuff like that, and you really are the last line of pulling the trigger and stuff like that. Even down to a potential tenant where one of your staff was like, hey, Todd, we got these people and I said, hey, if Aaron's cool with it, I am and you came back and you're like, I'm not really comfortable with this. I value all that because again, what your ideal client is completely different than what California ideal client is, and so I could go and kind of base it on what the ideal California landlord is looking for, and it's going to be different than the Memphis landlord, and so I really value your guys ‘opinion and just the raw truth of it and stuff like that. So, that's all stuff that I appreciate you doing, and I think that we got a good system going on. I'm looking forward to many more purchases.
Aaron: I'm grateful for that. Thank you for that. Interestingly. We're seeing the quality of the local Memphis and Southern tenant coming up, which is unbelievable. It's a really good sign of the local economy and the local demographics doing better. They're more successful in their own business ventures and with their education. You had mentioned major corporations which have relocated to Memphis and are now employing more people. That, of course, is going to continue. You and I didn't even have a chance to talk about the Ford F-150 Lightning plant that's coming into the Memphis area. It's a really cool concept. We could talk about it later. Basically, Ford had a plant here in Memphis that built Model T’s and Model A's and all kinds of Ford vehicles here in the Memphis area all the way up until 1951. I think they sold at that time, and then now here we are, 70 years later, 75 years later, they're breaking ground. I believe next year on the Ford F-150 Lightning platform, which is all-electric. 
Todd: Nice. 
Aaron: This is just outside of Memphis, and so it's going to mean lots of great jobs and new housing, housing developments, and stuff like that. So anyway, we're going to walk through that together and see what kind of opportunities are out there. But thanks again for coming on, and I appreciate your insight as well. It's always very informative and helps me to even educate other investors as to how to do things based on your knowledge and your experience. So thanks for coming on. 
Todd: Thank you for having me.

Real Estate Investor Groups & Real Estate Investment Strategy

COVID brought new challenges to real estate investing over the last 18-months. Aaron Ivey sits down with real estate investor, Chris, to reflect & chat about his investor group, property investment strategy, relationships, and the need for professional property management services.
Find out more about this real estate investing podcast at:
https://epmrealestate.com/podcast/real-estate-investor-groups-real-estate-investment-strategy
 
Aaron: Here with me today, I have a 2-year partner in the adventures of property management. His name is Chris, and he’s a member of a larger partnership that he is in with other investors, known as Round Oak. Round Oak partnership, if you will. Chris is here with me today to talk about operating real estate during the COVID era, the last 2-years of doing property management and real estate investing inside of COVID. So, Chris, I want to thank you for joining us today.
 
Chris: Yeah, Aaron, thanks for having me. I’m excited to join and talk about our relationship and our dealings over the last 2-years.
 
Aaron: Fantastic! Chris, just to start us off, I would like for our listeners to know I’ve laughed with you over the last couple of years, telling you that I often speak to you more than I’ve spoken to my own wife, on a daily basis.
 
Chris: That is a good point. I think you and I, on average, have talked once a day for the last year and a half. Certainly, more than I talk on the phone to almost anybody else.
 
Aaron: Yeah. I actually find it quite endearing that I know when we text during the day, that it’s probably going to lead to a conversation, and I think that, hopefully, our listeners will be able to pick up on just the natural chemistry that you and I have. And there’s a reason why we have chemistry. I believe it’s because you are one of four partners in a real estate investment partnership, and the partner that you are in that partnership is the operating partner. So, when you and I initially met, I understood you as being a decision-maker and an analyst for your partnership, and that you and I were going to be making a lot of decisions together throughout the course of our relationship. So, I was wondering if you could tell us just a little bit about yourself, about how you came to be interested in real estate investing, and how this partnership came about?
 
Chris: Sure, so a little bit about myself. My background is more of an accounting background, I’m a CPA by trade. I worked for a real estate company that manages and owns apartment real estate, and so I’ve always kind of been interested in that and just through friendships, the people I knew from college as well as other people I’ve met within the Memphis area, really started talking about getting and owning some real estate. There was actually a group of guys, again that I went to school with, they started a small organization where they were buying and renting properties. They had a need where another partner was getting out and they needed to bring someone else on, and it was at a time where I was able to jump feet first and I was able to hook up with them. Kind of my role in it, as you mentioned, was because of my background in real estate I agreed that I would work on the day-to-day operations along with another one of our partners, Adam. While our other partners would be more on the backend recruiting investors or looking for deals in the market, that sort of thing, and so that’s kind of how our roles are defined within the partnership.
 
Aaron: Got it, and so it sounds like the partnership came together in a very organic way. You know, if you don’t have good chemistry with the other people you are partnering with in a long-term investment, like real estate investment, then it’s going to be a very challenging partnership. I think it's really cool that you got into this partnership with people that you knew or that you knew of through your personal relationships. And so, when would investors do come to me and they say, well, I'd like to form a partnership with someone in order to expand my buying capacity or share the load of management and debt servicing, and all of this other stuff, I often recommend that they should talk to people that they know, that they should consider and survey their friend and professional group in order to, to think about this people, that would be the most qualified to work with. People with whom they've got a good working relationship. I remember when you and I first met, one of your partners had reached out to me and said, and I didn't even know you as he hadn't mentioned your name yet, and he just said, hey I'm part of a partnership. We own, at the time about 30 houses, some somewhat in flux, you know, around that 30 house range, 25 to 30 house range and he said we need help. We've been self-managing and one of the reasons why I would like for you to be our property manager is because we're all moving and we're all, you know, our families are growing and we're having children or we're sending kids, you know, off to college. We need help! We need boots on the ground, someone who will professionally assist us in the management of these properties. Of course, I signed on, and very quickly I met with you, and your vision for your partnership 2-years ago was different from the way that your vision is now. Do you happen to remember where you were? It would have been January, I think, of 2020 or maybe December of 2019 when we first met and started discussing your plan. It was very different from where it is now. Do you remember where it was?
 
Chris: Yeah. So, you know, back then when we were kind of bringing you into the fold and asking you to help us manage these properties, you know, our goal was to take all these properties that we had, and we had a pretty good mix of properties that were some of what I'll call appreciating assets, where we were holding them, we were renting them, but you know, the long-term plan is that they were gonna continue to appreciate. We had some that were strictly cash flow, you know, in our mind they, you know, they rent well, they provide cash on a monthly basis but don't expect much in terms of appreciation on those. They're in areas that the price kind of is what it is. Our plan was, we're gonna hold all of these properties, we're gonna continue to rent them. Obviously, I hope to grow the rents over time and use that money to pay down the mortgages that we have on the properties and, you know, ultimately just kind of operate these properties for a period of time and then, you know, eventually get to a point where we're selling these properties and paying off investors. Our time horizon on that was was pretty far down the road and I think what you are hinting at here is, you know, over the last, really call it a year, but it really accelerated over the last 9-months or so, we've kind of had a switch and moved up that selling timeline on some of our properties just because of the market and how overheated it's been that, you know, we're seeing on properties that, you know, I called cash flow a minute ago or we didn't anticipate there would be much appreciation. We're seeing appreciation that is sometimes upwards of 100 percent from what we bought the properties at. And so we are currently going through and evaluating all of our properties and taking advantage on some of those where, you know, we feel that the market’s right for us to take our profits on the sell-side, and recycle that capital, whether it's paying off in the investors that we have internally or using that to buy another property in different areas, or just kind of evaluating what that looks like. 
 
Aaron: Yeah. And without going backward in the description of what you're talking about, I think we may even have to have a follow-up conversation later and talk to the Chris of 2018 and 2017 who, you know, before this big boom and explosion in property values. It was that Chris honestly, and your partners at that time, who were purchasing property. Those were the partners who were choosing individual properties. So I don't want to spend too much time today talking about how you came into the properties that you had. You know, I am a little bit curious about how you financed it with your partners because I know there are a lot of people out there that are wanting to do what you're doing, you know, they want to form these partnerships and purchase large packages of properties. And so to kind of stay on your last point you accelerated your desire to sell, so now you've sold out of, let's say that you're still in that 26, 27 property range before this big sale cycle which kind of happened over the last year. You've now sold out about, would you say 13 properties? Are we at that point?
 
Chris: Yes, we're gonna be, by the end of next month, we're gonna be down to about 20 total properties. So we started with about 33, 34 doors. We are now going to be down to about 20. So yeah, that's right.
 
Aaron: At the risk of, you know, showing your hand, you know, as it were, can you tell us your long-term goals for the remaining 20 and then answer the question of, do you anticipate acquiring more real estate and, if so, when and what will that look like?
 
Chris: Sure. Yeah, I mean, like you said, without giving away too much, you know, we have a partnership with four partners and, you know, if I'm looking at 20 years down the road, you know, what I'd love to have, you know, we've got a core group of houses, what that number looks like I don't know. Is it 15 houses? Is it 20 houses? Is it 10 houses? Or is it 50 houses? Again, I don't know exactly what that number looks like. But we've got a core group of houses that are paid off that are providing cash flow monthly and that at some point, when we agree as a partnership because we've got a good relationship, and we say you know what, it's kind of time to end this, let's sell this off and we get a really good chunk of capital back that has appreciated over time that has provided monthly cash flow and, you know, we're able to each take our fourth of that money and, you know, kind of right off into the sunset with it. So that's kind of where we are in terms of the long-term. Now, like I said, I don't know what that number of houses looks like, and I think that that speaks a little bit to the second part of your question, which is, you know, do we anticipate that we'll, we will buy some more houses, you know, and a corollary to that is we anticipate that we will sell some more and the short answer to that is yes, I do anticipate that there will be transactions. I certainly think that we would be interested in buying more houses. As far as timing goes, we're pretty cautious with our money. There is a lot of capital out there right now that 's really driving the prices up and, you know, we want to be cognizant of how we use our funds. Do I anticipate that we will be making a huge splash in the next, call it 6-9 months. I don't think so. I think we think we can find better uses of our capital, either with our investors or, you know, just kind of paying off some maintenance on the current properties and really making them as valuable as we can. I do anticipate that we'll get back in and, when we do, I think we will be more focused on the type of market, submarket really that we’re in and we've had a good couple of years and we've built some knowledge on what type of houses we want. Whether it be, you know, do we want to rent a 2 bedroom house. Do we want to make sure that all of our rentals are 3 bedroom, 2 baths? Do we want to get some duplexes and do we want to look at any multi-family, that sort of thing? And so we've, we've really kind of built our own strategy of what our ideal house looks like. It's a really really tight focus on that as we go into the next buying cycle, whenever the market turns for that. 
 
Aaron: Yeah. And all of that is fantastic and I think that your strategy is fantastic too. It sounds like you’re very, more or less, very comfortable with the completion of your plan for 2020, or 2021 I should say. You went into 2021 and I remember that you called me in either late ‘20, I think it was late ‘20, and you said, hey we're kind of moving - going in a different direction. Then we had a much larger call in January, February of 2021 and we talked about the strategy that you had moving forward, and you were so apologetic on the front end just like so many of my investors. I've got a lot of investors that are like you. They are well structured either in their partnerships or they have cash reserves or they had this long-term plan and the market boom in 2021, just really accelerated that plan. And, you know, for all of our listeners, I think that they understand they have been able to feel this rush in the market. You said with all this capital that's in the market right now to acquire real property, we won't go to deep into it and we're really we don't even have to talk about it, and historically low-interest rates and cost of lending, the money, still to this very day, just feels almost like it's free financing, and that's a huge deal. And if people are able to get into real estate now and lock that in, even with the cost of real estate, they're still able to get an edge as an investor through a low cost of borrowing. So there are so many factors that are just fueling this overheated marketplace like what you're talking about right now, but I'm really proud of Round Oak. I think you guys are brilliant. You know, I've spoken to every one of the main four partners. Of course, Matt, that we've referred to before, was a personal friend for years before we ever got into business and I've really enjoyed working with Matt and I feel like we've got good chemistry, the five of us have got really great chemistry, and so I've really appreciated how you've worked with us over the years. Can you tell me, just to reel it back to property management for a second, how has working with Enterprise Property Management, especially during COVID? How have you seen a benefit of having a professional property management company versus having done it yourself over the last 18 months?
 
Chris: For me, the kind of the biggest thing that is has been very helpful is really on the application and the initial tenant placement process has been a big help with, you know, everything from the background checks to the income checks to the credit scores and everything else, and compiling that information and getting that to us in a fashion that is timely, that is summarized well or, you know, again, I'm a numbers person, that is my background, so being able to see something and just taking that information. Is this person going to be qualified enough to pay the rent on time? and that's one thing that has been extremely helpful. It frees up time from having to try to put out a feeler for a tenant, try to put out an ad on Zillow or you know, something just something out in the cyberspace to find a tenant. You guys have that. You have a pool of tenants that are available and so that, just overarching, has been a big help for us. It has helped improve the quality of tenants that we have. As far as it relates to COVID, and it be the pitfalls and that sort of thing, we've certainly run into some areas where we've had non-paying tenants, some of which have been the direct results of the pandemic, right? They've lost jobs. They've made every effort that they can to pay but they're just unable to come up with the money and then some that have been left at the colon maybe you know, maybe they haven't lost their jobs and that they've taken advantage of the fact that the eviction moratoriums are in place and landlords have no recourse, right? And you guys really helped this kind of walk through that path and understand, you know, where we can get money. You really helped with some of the eviction settlement funds that the local government has put out there. You know, we've been able to take advantage of that a couple of times with a couple of different tenants. And then, you know, we've had a couple of hard situations or we have had to have people move out either they're not taking the eviction they're not responding. I'm sorry, not the eviction, the eviction funds, they're not responding, they're not working in any form or fashion with us and you kind of helped us in those situations where we have to get them out the door and ultimately get the property back or for our team. 
 
Aaron: Yeah, and it's funny to me the things that you just said really have been, in my experience, the main topic of conversation that you and I have had over the last 18 months. In particular, you and I often spoke about the last conversation that we had with a particular tenant or at the very beginning of COVID. Well, I can't say the beginning. Let's say August or September of last year. So about a year ago in 2020, we knew at that time which of your tenants were not going to be paying rent and they had made it very clear or they had stopped communicating. To remind our listener in September of 2020, the initial eviction moratorium, which was based on Fannie, Mae and Freddie Mac loans, if you'll remember that you and I Chris we went through and we were determining like how these loans were financed or how your houses were financed or which ones were free and clear which ones had been financed through a federally back mortgage program. The courts actually closed regardless of the local courts basically saying we can't weed out, you know, we can't help the homeowner or the investor determine if they're loan is federally backed or not federally backed. So therefore we're just going to close our doors. And I remember I had to have several conversations with you as to what our rights were in that situation, and so I had to get my own legal advice, you know, and get that from my attorney and have him tell me what the courts were going to do or not going to do, or whether or not we had to wait, or if we had any rights at all. And then of course, one of your partners is an attorney as well, and this has done very well for himself. And so he actually had to go and do his own research and digging and realized that we weren't going to be able to move forward with those evictions. I want our listener to know that Chris and I spoke about this almost every weekday and then every now and again on a weekend date. And so what I'm so proud of Chris, with you and me, is that we walked through this together on a level that I don't know that many other property managers and investors did. I'm actually quite grateful for your patience as we were learning about what these eviction moratoriums meant, how we were to empower you to continue to operate your investments during the first waves of COVID and the legal response, and the government response in that situation. It was very very challenging and, you know, for the listener, there were several times that Chris and I would get off the phone and we wouldn't have any answers. I would say, Chris, I don't know, I don't know what's gonna happen. I'm gonna find out and I'm gonna write emails and I'm gonna make phone calls, and I'm gonna, I'm gonna do my best to find the answer for you. And Chris was very patient to say, you know what, Aaron, this is very frustrating, it's not your fault, whatever you can do to get me an answer on this I would really appreciate it. Chris, you were a good friend, honestly, throughout that entire process and I wish that I could take that patient part of your disposition, you know and train other investors as to how to see challenges because your group, your investment group, and your houses, your single package, you guys hit more with the challenges of COVID than any other investment group that I work with. And yet, here we are on the back end of those initial challenges and I believe that you have profited more than any other group that I've worked with, and so that patience that you have, during the time of challenge, it really paid off for you. 
 
Chris: Yeah. And I appreciate that and certainly helpful, you know what you and your team and then, you know, your legal counsel and everything else was able to pull together for us. And like you said, there were times where you and I would talk and it'd be, you know, essentially me just venting frustrations at the process itself, right? It was not, like you said, it wasn't really associated with you or anything you were doing it was just, you know, the sort of thing of why did the tenant get this and why did they not have to hold to their end of the contract and, you know, the landlord is stuck, kind of holding the bags especially when you know a lot of the discussion goes around and it's the - the big landlord is the bad guy and they're trying to kick people out and not the face, right? Like, you know, we're trying to work with people and we, you know, the last thing we want to do is set somebody out of their home and put them out, right? But it's the same time we are not, you know, people holding an endless bag of money. We still have mortgages to pay to the bank and we still have other expenses that we have to cover. We want to help, but we also need the other people to uphold their end of the bargain. So, there is a lot of frustration on my end with you, just kind of talking through that dynamic. But, that being said, I do think that kind of came out and in general, we've been very well blessed. Really at the end of the day, we've kind of only had one major hiccup property out of all 30. I certainly don't necessarily want to get into that, but 1 out of 30 is really not a terrible percentage when you look at it in the grand scheme of things.
 
Aaron: Yeah, and just for the listener, I do want to point out one thing that in my opinion caused that frustration and then I want to ask you a question on your way out about your experiences. So on that one house, the eviction moratoriums, the delays, and the courts. If this is one of those things that, you know, for the listener that's not yet investing in real estate, you've read articles about, you could read a hundred articles a day on eviction moratoriums, on communities that are being affected by covid, on job loss, on how this is affecting the average American and what kind of protections are there for that average American, and you can read about it and you can you can think that you understand it. But the reality is you don't understand it until you're put in a position where you have to be a responsible party in that situation. And so Enterprise Property Management is, or, we consider ourselves to be a very responsible party. 
 
We do property management every day. We're professional landlords. We do something that most people would never in their wildest dreams ever want to do, and we have to give bad news, and we have to be constant and faithful and integrous in our work. We are not slumlords. 
So in this situation where the law very clearly stated that we were, as a management company, not allowed to help our investors get the property back because the tenants had rights and the residents had rights, we followed that rule and we said, I'm sorry, and Chris and I had this conversation several times. We literally cannot do anything. I can't, you know, the courts aren't open or the law says I can't move forward. So the residents were protected in that situation and they were able to stay and, hopefully, make some decisions in their own lives as to how to better themselves or how to get that second job or even get a job if they lost a job or relocate their family or whatever. So the government gave them that breather to figure things out and so we acknowledged that breather. The one mistake, or the one troubled property, that we had in that whole situation is where it was unclear to us as the property management company, to Chris as the owner, and to the resident even as to what the direction of the court was. In that situation there was a great deal of complication and let's just say a lot of lessons were learned and now everybody's walked away, you know, more or less from that situation. I was actually interacting with your Realtor this morning about that particular property and it seems like the path out is clear at this point and so I'm really happy that we walked through this together and that and I think even that one's gonna be a success when it's all said and done. So I'm excited about that.
 
Chris: I certainly hope that that is the case, you know, like I said, we've definitely struggled with that one but, you know, we were able to work through a couple of others that, you know, like said we were able to get eviction funds from the city to help, you know, keep tenants in in their homes while still getting us paid, you know, we had other people that we were able to work out deals where they left that the home without getting marks on their record and we were able to get the house back, and then we had other situations where we were able, once the courts reopened, to go through the process of filing for eviction. So we kind of ran the gamut of all the different options from keeping people in to taking funds from the city to, you know, obviously, eventually having to evict certain people. So, we certainly had to run the full gamut there and you guys helped us with that. 
 
Aaron: Well, thanks. You know I think you just made probably the best point of the entire conversation today, which is that you have to look at all of your options. The solution for a non-performing property due to a non-paying tenant prior to COVID was eviction. There was one solution for the investor and for 17 years leading up to late 2019, early 2020, we and everyone in the United States, that was their solution. This tenant has to go, they have to be evicted, we showed up to court, we showed the ledger to the judge, the judge says, yes, I can see that the tenant has not paid their rent. We received possession of the property, possibly a judgment, and within 10 days from that court date, we removed the tenant from the property. Enterprise Property Management's part of that, as a more compassionate person, and hopefully, the listener has been able to hear that Chris is also a very compassionate person. He is as concerned for his residence as we are and he did everything that he could to keep them in the property. Balancing that compassion with your profit goals and your motivation for investing in real estate, which is to make money. People don't get into real estate to lose money, they get into real estate to make it! Chris and I worked together and we researched options and took advantage of several different options in order to retain tenants, keep them in their properties, if that was at all possible, and then if it wasn't possible, did what the law would allow us to do, which is to get the property back. That's a great point. Chris, I'd like to close us out, if you don't mind, with one question. Looking back at your involvement, especially with those 13 or so properties that you've sold, and then you've already told us that you're going to hold on to those cash flowing properties that most of which are paid off, which is super exciting. That's every investor's goal is to have paid off properties that are cash flowing, because it frees you to make all kinds of other decisions as to what to do with those properties and how you want your future to look, and we can talk hopefully in a future episode about your plans to use those properties as your own bank. Lend to yourself to acquire more real estate or do other investments. So anyway, here's my last question for you. Is there anything you would have done differently looking back at the last, well, at your entire real estate investment experience like what would you do differently had you been able to see where you are now, back then?
 
Chris: Yeah, that's a really good question and, you know, part of it, probably goes back to how far back do you want to go, right? There are certainly, you know, looking back on it now, there are certain properties, and it's property types, it's areas, it's locations, it's submarkets. It's that sort of thing that, you know, if I could wave a magic wand and go back 5, 6, 7 years, you know, I probably wouldn't buy those properties and that's, you know, they're kind of personal decisions that we made and, inevitably when you are investing in real estate, you're gonna hit some that are gonna be just home runs, knock it out of the park, and then you're gonna have others that for whatever reason, you made a bad choice on the house and it turned out to be, you had to put a lot of capital into it, it was a high turnover area, you couldn't get a quality tenant, and just whatever the reason or the rationale would be, right? There's always gonna be some of those. So there's some of that, right? If I can go back that much further and change that, I would. But if we go back and we look at you know, our path over the last 18 months and say, alright as we really went about the process of recycling our capital, would I do a whole lot differently? You know? I really don't don't think so. I think we've done a good job of trying to strike while the iron's hot, you know, we've had multiple properties that we've been able to put up for sale and you know, because of the capital that's out there, they've got into bidding wars and the prices have gone up even further than what we thought was a high selling price. We've had some other ones that have sat on the market for a while and we’ve had to continue to drop the price until we got it to a point that, you know, the buyers are willing to take that. I think we've seen some super good highs and seen some lows that have been, you know, maybe not as productive as we thought they would be, but still better than where we thought it was 3 or 4 years ago. As far as the big picture - would we do stuff differently? I don't think so. You know, if you want to start nitpicking, I think on the one we talk about where, you know, we kind of had 1 out of 30 that didn't go well, are there things that we could have done differently? I think so. But you know, you're really getting into the minutiae of the day to day operation. So, I don't think there's a large overall change I would make.
 
Aaron: Well, I would say the same back to you. I think that getting involved with your partnership has been one of the more interesting and rewarding relationships that we've picked up at Enterprise and I'm not at all surprised that the very high level of strategy that you had to employ in order to make sure that your end goals were accomplished, that strategy required that you and I maintained a daily conversation. My profession has only been 20 years long. I can absolutely tell you and you already know this, because I've told you in previous phone conversations, but there's no way that I would have been able to help provide the outcome for you and for Round Oak without your daily investment in conversation with me. It would have been absolutely impossible and looking back, I personally, professionally, feel quite positive about the last 18 months. I feel like the reward has been the experience of working with you to see your success in all of this and so, thank you. Thank you for that. I'm grateful to you.
 
Chris: Yeah. I appreciate that. That's good to hear and, you know, we certainly appreciated the help of EPM.
 
Aaron: Yeah, absolutely. So so Chris I know you've got to go, but hopefully, you'll come back later and we can talk about, in very general terms of course, the next stage of your strategy to either acquire more real estate or even just touch base with you and find out how is owning paid off property benefiting you and your partners and where are you going next? Like, how is owning that real estate assisting you in your future? So again, thanks for coming on Chris, and looking forward to an even brighter future. 
 
Chris: Yeah, Aaron. Thank you very much, I appreciate you having me on and look forward to talking again in the future. 
 
Aaron: Alright, thanks so much.

Screening Tenants: Rental Investments, Applicants, Criminal Background Checks

Tenant screening has many parts and in this episode, Aaron discusses how to properly vet tenants before allowing them to rent a home. He covers criminal background checks, rental history, the credit report, income verification, and he reveals the tricks to identify inconsistencies in the information provided by a rental applicant.
Learn more about our real estate podcast at:
https://epmrealestate.com/podcast/screening-tenants-rental-investments-applicants-criminal-background-checks
 
Aaron: One of the things that we've talked about, and actually I had an investor yesterday evening ask me about he said, Aaron, I've got one last question for you and I said, oh, great, what's that question?  He's said, well, it's a professional question and it's kind of a two-parter. He said, how long have you been in business? Like, how long have you been in property management and in real estate? and I said, well more or less 20 years. He said, okay great. He said, so how do you vet tenants? What is your application process and how do you employ it in order to make sure that the tenant you put into my property is going to be the best suited with the least amount of uncertainty? You know, I want a certain tenant that's going to be there for a long time, and so we discussed that. Would you like to know what I told him?
 
Richard: Yeah, I'm curious about that because I've seen the tenant process as we've worked on it together and we've published things on the website. It's a very complex and nuanced process, but yet you've managed to create a process that is probably as simplified as it can be. So, I'm curious to hear exactly what you told him, and see how that lines up with what I've seen.
 
Aaron: Sure. Well, he wanted the elevator pitch length of the discussion. So I'll tell you what I told him and then we can kind of break it down if you want. He said, so how do you make sure that the tenant you put in my property is going to take care of my property, they're going to pay their rent every month, they're going to communicate with you properly, and it's going to be an overall good experience? And I said, well, here's how our application process works. I said we have a minimum credit score of 625, we go back and check the rental history through a collections agency, which has the capacity to perform a skip trace on all of our applicants. This isn’t just simple plug-in information and get a report back, that we then have to decode. This collection agency, and we pay for this application, goes deep into these people's background, their credit background, their criminal background, that they look at everything. They also often suggest information to us, right? What are you smiling about
 
Richard: Well I’m smiling because now I want to know what you've seen. You know, what are some of the rejects, so to speak, that have come back and you've been like, yeah, I can't rent to that person. 
 
Aaron: Well, okay, so the No.1 red flag for us as a sex offender. I’ll just get right to it. Sex offenders, they're are required, if they are prosecuted and found to be guilty and they serve prison time, once they become a sex offender... and by the way you guys, I'm telling you this as a Realtor. I'm not saying this to you as somebody who is an expert in this field. I'm not a criminal justice expert, okay? But what I do know is that it's my right as a realtor and it's your right as an investor, not to rent to sex offenders. So, if you are a registered sex offender, or have a felony due to a sexually related crime, then you are immediately rejected as a tenant for Enterprise Property Management. Just the easiest way that I can put it, we have had registered sex offenders apply. There are some sad stories, you know. There are some that I won't get into because I don't want to trigger anybody. But there are situations where people were prosecuted, they feel that the judgment against them was unjust, but we can't bend that rule. That is an Enterprise Property Management rule. We will not lease to sex offenders, so that's number one. No.2 is violent crime. If you've been convicted of a violent crime and what we see are guns, drugs, and the drug trade. So if you're a felon and it's been a violent crime, then you're off the table. We will not rent to felons that have been convicted of violent crime. The big one that's very recent, and had been very interesting to the leasing department and me, is identity theft. There is way more identity theft out there right now than I imagined was even the case. We actually had a house this summer for which we had five different applications, by the same group of people using different social security numbers, different copies of drivers’ licenses, and different identities - and it was the same group. We just started laughing. We were like, oh, you want 123 Main Street, right? We know who you are, you know? And we'd go back and we would point it out to them. Melinda, our leasing manager, would get on the phone and say, I'm sorry, this information is not lining up and the professional advice that we are receiving suggests that the person who's applying for this property 1) isn't you. 2) is deceased or does not live and work in the Memphis Tennessee area. 3) your income information does not line up or your resident information does not line up with the information we’ve received from that organization. So no, this application is declined based on lack of valid information and we believe that this is identity theft, and then that person would not call us back again. So we had to process those five applications this summer and decline each one. People will try to get their friends or family to give rental referrals all the time for them. So they'll try to fake where they live and how much they pay in rent and stuff like that. One of the ways that we get around this is both by the collection agency and here internally, we go to the Shelby County assessors office and we look up the actual owner of that property and once we find out legally who hunts the property, where this person says that they rent, we ask to speak to that actual person. If it’s an apartment complex, we don't have to worry about it, right? It's a very official engagement, but if it's in an individual home, which it often is, then we find ourselves calling all over the world to try to get an actual rental referral. This is where it gets really easy for us. If we can't get this person on the phone, we decline the application. It's as easy as that.
 
Richard: Just black and white.
 
Aaron: There it is. Yeah, adios! We can't confirm that you actually rent this property. Now we've had some very upset people, you could go on our, you know, pick a review site, and you'll find a negative review where somebody was declined for an application. We have a job to do! If we can’t confirm the information and that application is accurate, they don't get in. Okay, so back to the list and I'm sure there's like a bunch of other stories that I can tell about funny application rejections and by the way, with fair housing and everything involved, it's a very tricky interaction. So we have to make sure that we are correct in our findings, the state of Tennessee, and fair housing, which is a national law that requires that we keep our rejected applications for several years. So we have boxes and boxes and file cabinets full of rejected applications. We’ve never had a fair housing claim against us - knock on wood! We don't want one, but we do feel like we'd be able to defend our position, when there's a fair housing claim, very easily. 
Rental history is really important. We want to see that the person is going to treat us, or we believe that they're going to treat us, the same way that they're treating their current landlord. So if they have been at their current apartment for 2 years and they've paid late half the time, then that's a reject. If they've paid late 3 times over the course of 24 months, then we call the tenant and we say, hey, how’d that go, like, what happened? Oh yeah, I lost a job or my boyfriend moved out or, you know, something happened. We get the story and we're able to see that that's most likely true. You know life happens. People, listen, life happens! So we try to be flexible where we can, but if someone pays late 50% of the time or, here's the worst offense, if they bounce checks on their landlord. When your rent check bounces that's a terrible sign, and so we have every reason to assume that's how we're going to be treated and so we reject that application. On the credit report if there's a history of evictions obviously that's a rejection on the application. Income. So this one is really tricky. We were just talking about employment. Income is important to us. Applicants need to make three times the amount of rent per month. Okay? And that's just a gross amount. We do like to see lower debt on the credit report. So, if somebody has got, let's say that they make $40,000 a year, okay, and they're trying to rent an apartment that's $795 per month. Well, they’ll probably qualify with proper documentation. That's great. So if they have very little or very few loans on their credit, because we are able to see everything that they are paying debt service on, if there's very little debt service that they're paying out on a monthly basis, then that $40,000 would afford them a house that rents between $700 and $800 per month. The problem is when we get into that credit and we see that they're paying a very high auto note, a car loan, owe several hundreds of dollars in credit card debt, which is also very common. Then, if they have a very high debt load, then we will let them know that it doesn't appear that they're able to afford that property. And we're able to make that decision based on our professional opinion and we will convey that the content of their credit would suggest that they're not able to afford this property. 
 
The other thing is collections are pretty common here in Memphis. What we're looking for when we look at collections, obviously, rental collections would amount to a rejection. So basically, if they owed somebody for rent that they didn't pay, if they owed Memphis Light, Gas, and Water, which is our local utility, if they owe them in collections, well, we know that that means that they're not going to be able to get utilities in their name at the next house until they pay off that collection amount. So that could lead to a rejection. I could talk all day long about what we see when we look at people's credit reports, but it's those kinds of things on the credit that keep them from moving forward.
 
Richard: So that introduces a human element then to interpreting what you're seeing in the credit report and applying that to the other debt to income ratio.
 
Aaron: Yeah. We look at a lot of stuff. So what I'm about to say, I don't want the listener to think is absolute policy, okay? So please nobody call me on the phone and say, well, I heard on the podcast that if you get a divorce and your credit stinks, that you will be given a greater amount of consideration - that's not necessarily true. However, one of the things that we do look at when there is a divorce, is we ask for a copy of the divorce decree. You were talking about being human, you know, we feel like that's a very generous thing that we can do when someone calls on the phone and they say, if it's a let's just say it's the former spouse, right? And regardless male-female, male-male, that doesn't matter. They say this is my situation, I just got taken to the cleaners by my spouse, right? They'll tell us on the front end when you look at my credit, it's gonna be very ugly. You're gonna see a house, right?  We share a mortgage, you're going to see an automobile. I cosigned an automobile for that person. So they'll tell us what we can expect to see and then our response is, you know what, we want to work with you, can you get us a copy of the divorce decree? So a divorce decree and, although we're not attorneys, it basically spells out for everybody, including creditors, what responsibility is whose in that arrangement, that credit arrangement, and we can also see on our credit report when there is a joint account. Alright, so this is an easy way to get rejected if you say, well, we own the house together and I look on that credit line and it does not say joint account. It just says that person's name. Then I'll say, well, no, there's no shared responsibility on this mortgage, it's only in your name. So we look at the divorce decree in the divorce decree will often line up with that. Homeowners have a choice. If they are considering an application where someone is credit challenged, in a situation that's like a life situation, like divorce or my spouse died, right? These people still need housing and they may even have really good jobs and they may also be trying to work through those credit situations. Like, we're selling the house, the house is up for sale, I'm gonna make enough money back to pay, to pay off the months of mortgage payment I wasn't able to make. Great, okay, and can I speak to your realtor? You know, that's our option. So we reached out to their realtor. Hey, I understand that you're selling this home. Is there a way that I could get, and there's a contract on it, can I see a copy of that contract? And so we are a real estate brokerage as well. Those realtors will often send us the contract, okay? And it's scheduled to close when? 10 days. Great. And so we will gather information like this, call the homeowner and say hey, we think this person deserves a chance here. Do you want to consider their situation? A lot of our homeowners will? And then in those situations where people are credit challenged, that applicant will often agree to pay more in a deposit. So they may double their deposit. They may, in fact, at this point everything is negotiable, right? If they don't meet our standards in our qualifications everything's negotiable and, of course, NOT everything. But a lot of things are negotiable.
 
Richard: I think I've seen in the past when I've read things online that in some states there's a legal limit to how much you can ask as a deposit. Is that something that is true in Tennessee?
 
Aaron: I don't think that it is necessarily true in Tennessee, that I'm aware of, but what I will tell you is that we limit the deposit, the increased deposit, to a double deposit. I'm very common sense, in case you haven't figured it out yet. Very, very common sense about everything. So, to my homeowner, who's the one that's gonna make a final decision on a credit challenged application, right? I'm gonna say, look, this either works or it doesn't work. If it works and you want to make it work, and we believe that this person is doing their best and that they're gonna be a good tenant for you, then, let's double the deposit, and that deposit, for the listener, the state law requires that it go into a non-interest-bearing account, which is where we have hundreds of thousands of dollars into deposits, right? And they just sit there, per the law requirement, until that tenant has moved out, and then we do a resolution of the deposit. So, we have a deposit resolution process. How the tenant is able to get their deposit back. Our homeowners do not hold on to the security deposits. That's a really bad habit for property managers and for homeowners to be sent the deposit. You don't want to do that as a property manager. You want to keep those deposits in that non-interest-bearing account. Anybody from the government can come in at any time and say, I would like to see a list of your deposits, right? And we are obligated to show them. Here, the deposits, this is the account, blah blah. There you go. So there's no limitation on the amount of deposit that I'm aware of legally that you can charge here in Tennessee. I believe the things either work or don't so you either take them with an elevated deposit if their credit-challenged, or you don't, and you can reject them and move on to the next application. Here is what is illegal in Tennessee. You may not and, we DO NOT, raise the rent on someone because they are not qualified. So that is the law. Let's say my house rents for $1,000, for example, and somebody comes along and submits their application, they're completely not qualified. I can't say, well you're not qualified so I'm gonna raise the rent to $1,500 dollars, and that's gonna be the rent that you're gonna pay because you're not qualified. That’s not allowed. And the last thing would be pets, right? Like pets are a weird factor when it comes to rental property, and here's why. If you receive an application that has no pets on the application, they don't list any pets, they don't declare any pets. There's a chance over the course of the year to 3 years that that tenant is going to be in that property that they're going to acquire a pet. And I would say it's pretty high, it's about 50:50. So that person, hopefully, if the application is strong is going to be responsible enough, to convey that they have a pet and to pay the pet deposit, and to communicate with the management company about that pet. The other type of application that I love is an application that does declare pets and says very openly, I have these two dogs, I'm going to pay these deposits upfront, here are the vaccination records, and I'm quite happy to do this so that I can have a pet. Well, now we know that there's a pet there at the property, so that's good. The problem that we have with applications is when an applicant fills out the application, does not declare a pet and, within 3 months of moving in, we discover a pet at the property. Now we have a problem. The person can be asked to leave. They can be evicted if they have a pet and they don't declare it or don't pay a pet fee.
 
Richard: So about how long does the screening process take and then at the end of it as an owner, what should I expect from you? 
 
Aaron: That's a great question. So, the screening process for the applicant takes about, if the application is very clean, so, the credit is good, the income is good, the rental history is good. We're able to turn an app in about 72 hours. If the application has some challenges, or if the applicant has challenges, one of the most common challenges we have with applicants is that they are not free during the workday to communicate with us. So we'll call them on the phone and we'll have questions and they won't answer them. We try to email them, maybe they have trouble emailing those answers back. So the number one way to kill an application people is to not communicate. So let's say that the application has challenges, we will communicate both by phone and by email to the applicant basically say hey, we need this information in order to move forward. A common scenario, and when I say common I would say probably happens 3 to 4 times a month, is that we will receive an application, it will be incomplete and it will come with a deposit which means that the applicant intends to reserve their place in line and hold that home off of the market. So we honor that request and that deposit. We were run the application, but if that person does not give us the information that we need, then we can't move forward and we end up having to call the tenant, text, and email the applicant and let them know if they don't take action that they're going to lose their place in line. We've heard all manner of reasons as to why they didn't communicate with us. In the end, applicants have to be available to communicate and they have to communicate with us in order to move forward. A more credit challenge application, I'd say, would take about a week. We ask, as well, for our homeowners to be available to communicate with us, and a lot of homeowners don't want to accept any application except for a perfect one, and so they just reject, reject, reject, until they get that good one. 1) Those homeowners have the right to do that. 2) They usually have a great experience with that tenant. So, you've got to be critical of the applications when they come in. If you're not, then you're just asking for 12 months of headache or 3 months of a nightmare, and we try to prevent that experience for our homeowners.
 

Is a housing market crash coming? Memphis, California, National 2022

Whether you are new to real estate investing or you're a seasoned investor, it’s likely that you’ve heard the predictions of a looming housing market crash. In this episode, Brett and Aaron discuss the likelihood of a housing crash and they present some other factors that other industry experts have potentially overlooked.
Find out more about this real estate investing podcast at:
https://epmrealestate.com/podcast/is-a-housing-market-crash-coming-memphis-california-national-2022
 
Brett: Housing crash! Number one, Richard said expert. There's no housing or real estate expert. In order to be an expert, you've got to be able to tell me tomorrow what's going to happen. Just like a doctor who's an expert heart surgeon can tell me the symptoms, the problem, and how to correct it. So experts are doing the same thing we did, they're giving their opinion based on what they see in the market. While I hear people talk about a crash, yes, I said many times, this next year we're going to see a dip, we're going to see a slowdown maybe 5, 8 or 10%, but these guys that are running around talking about the housing market crash of 2008, all over again, where the housing market is going to just collapse and you'll be able to buy houses for pennies on the dollar and people will be homeless. We're not heading that direction and that’s what I get a little aggravated when I hear these “so-called” experts talk about the crash because what they're doing is they're actually taking people that would be investing today, it's people that should be investing today, and causing them to doubt and to sit and to wait, and then what ends up happening is, the crash doesn't happen and you are now paying more for a property than you could at this year. So, here's my theory. Come January, we're still gonna be rocking and rolling. I think things will have leveled off, coold off. Maybe can get some stuff, a little under market. It'll be more of a buyers’ market. As we get into April 2022 it's gonna pick back up again and it's gonna kick right into insanity where we're buying stuff at $8,000, $10,000,  $12,000 of asking. So if you're gonna be an investor do your investing between October and April 1st. Buy then and then soon as the summer craziness hits, take whatever cash you got left, put it in the bank, and sit and wait. Just take your time and take it easy, because as we get through next summer, and a lot of these current policies begin to take place, and inflation hits that record high and ends up creating a small recession and we start getting into harder times and companies start downsizing and people are losing their jobs. Yes, we're gonna have a housing issue but it's not going to be a crash. It's going to be a correction. It's going to be getting us back to the days of sanity of 2017 and 2018, when a house sat on the market for week before you had offers on it, and you didn't pay way over asking. So my opinion is there is no housing market crash coming. There's a correction coming and that's going to be this time next year and, if you're long-term hold investors, who cares? You lose 5% or you lose 10%. Next year you gain 15. Who cares about the correction? We are not headed for a crash. Now, I didn't see COVID coming, nor did I see Joe Biden getting elected, so I could be wrong.
Aaron: You know, Brett, obviously you and I have read several articles that opposed the notion of a housing crash, you know. So, for our listeners, we're not just shooting from the hip here, like we read. We read every day, articles from, I've talked earlier about, oh gosh, I'm gonna have to look this up to verify this, it's either housingwire or homewire.com. I like them a lot. I like marketwatch.com.
Brett: Well, there's a lot of good articles you can read and if you read into the information they're giving you, you don't have to be a real estate genius to realize we're not headed for some Niagara Falls type of real estate crash. We're heading for a little bit of rapids that we haven't seen in a while and it's gonna be a little bumpy and there's gonna be a little dip in the market here. Places like California are going to get crushed. They will see a housing crisis like they haven't seen since 2008 because of their bubble. Nashville is headed for a housing crisis. If you look at the places where homes are selling for $200, $300, $400 a square foot, there's where your housing crisis are gonna happen because those homes are way over inflated, people are way over mortgaged, and when the economy begins to dip and the value drops, the first people to sell are those folks because they get scared.
Aaron: Yeah, let me give a quick statistic on that. So this is some information I got late last week that wages and salaries of all civilian workers, which are defined as workers in the private sector along with workers for state and local governments but not federal workers. So that was a lot of words, but the point that I'm making is those wages increase 3.2% on a year over year basis since June of last year. Inflation as measured by the CPI, which is the consumer price index, was up 5.4% over the same 12 month period. There's a couple of other statistics that we could talk about.
Brett: And that gap’s only gonna widen, right?
Aaron: That's exactly right.
Brett: And as that gap widens people become less able to pay. Let me clarify my statement. I wasn't saying that rich people are gonna be in financial crisis. What I'm talking about is you take up a state like California and take Nashville. You can take a home out of Raleigh that you paid $80,000 for and drop it right outside of LA in California, and that house… It costs you $350,000 or more. Now, that same person buying that house, and the only reason why I say that is have a lot of investors that come from California, show up, and they're not wealthy people, they live in a little 3 bedroom, 1 bath house in California, and they happen to sell one of their homes for half a million dollars and then come here and invest it. They're not rich. They live paycheck to paycheck. But, they realize, I can get rid of this $500,000 home and go by five or six rental properties in Memphis and make $3k or $4k a month. I guess my point I'm getting back to, I need to get back to it, is that California, the affordability issue of the average person, as soon as the market changes and unemployment goes up, inflation goes up, that's who's going to get hit. All these policies are in place are not for let’s tax the rich. It's basically going to hurt the guy that gets up and goes to work and works 10 hours days, 6 days a week, and lives in a little 3 bed, 1 bath somewhere in California or out on the outskirts of Nashville. You know. Right now you go by 3/1 over there and it's 200 300 400,000 dollars.
Aaron: Right. You know, there are some other factors that are here that are going to play a part in the localized housing correction. So I think that's what we both agree on there are going to be localized housing value corrections.
Brett: Memphis won't be hit as hard.
Aaron: Nearly as hard and so here's a cool distinction. One is, Southern California is, I mean, California is the world's seventh or eighth largest economy as compared to world governments. You know what I’m saying? We hear, and I think statistics prove, that there is a mass exodus out of Southern California, okay? They're moving to Texas, Oregon, all the western states. Tennessee, right?
Brett: Quite a few show up here.
Aaron: We have, and please come. We encourage. Please raise the intelligence quotient of our state. We love working with Californian's, we love your vision. So, the point that I'm making is this, the localized correction is going to be on changes specific to that region, right? And that geographic location. They're going to have a governor change here very soon. Don't know where that's headed. They may have a change in their labor market. They may have a change in the jobs that are being hosted there. One of the things that I hear from Southern Californians more than any other population is this: Well, thanks to COVID I can work from anywhere. So there has been a ton of people up until COVID, up until the Zoom-Boom, the remote meeting boom, and all that stuff, who were required to live in Southern California. That's changing and that effect is going to have a long-term effect on the value of California housing. We haven't even seen the beginning of that yet. So the cool thing about Memphis, though just to bring it back here locally, is that Memphis is full of people who are in the service industry. In other words, I make my money serving people that live in my same city, right? and they make their money serving me. So, we have a community of people who drive work trucks every day and, you know, offer online services and all of these things. So, Memphis actually has quite a robust service economy. That's what's gonna keep us going and though those needs in those services aren’t going to change because of a massive change in the economy. I still need to go to the dry cleaner. I still need to go to the grocery store. I still need my plumber to come out and repair my, you know, whatever. So we love Memphis. That's one of the reasons why Brett is still here. Listener, please understand Brett could work anywhere in the United States and make money. But there's a great opportunity here in Memphis for him to do what he does very well, which is to connect investors with property that they can say, “I'm so glad I purchased that!” in 5, 10, 15 years when they consider what they're going to do next with it. It's a very very vibrant marketplace.
Brett: And I've been a real estate in quite a few areas. Predominantly in Louisiana where I did development and buying and selling. One of the unique things about Memphis, which is why I've been here as long as I have after I moved up, was because of uniqueness of the market. Yeah, I could go anywhere and make money. Anywhere and develop a subdivision but, I tell myself and other people all time, yeah I get asked all time, are you ever gonna be back home? I’m like nah, probably not. If I decide to, I can't right now because Memphis is where it's at. I mean, the ability I have here and the amount of volume and work that I have here due to the makeup and the economy of Memphis and its people that live here. It’s unmatched anywhere else. I haven't seen that kind of opportunity anywhere else. So, you know, I’ve built my business here. 
Aaron: Yeah. To quote one of our favorite investors who's been with us for five or six years, who at one point had 33 properties, just liquidated 13 in order to offset the cost of another investment where he lives. He's telling us that in 2022 he's coming back to start investing again in Memphis. His words, and I love this guy, he said the reason that he bought in Memphis had nothing to do with you or me. It had everything to do with the statistics, and he said that opportunity, especially back in 2014, for him to get in with cash by either in 50% or 100% cash or on his commercial lineup of credit that we got for him to be able to just acquire, acquire, acquire real estate was unmatched by any other city in America. He measures us against places like Cedar Rapids, Iowa.
Brett: Little Rock Arkansas was big for a while. 
Aaron: It was.
Brett: Nashville. I get a lot of questions about Nashville. 
Aaron: It's Little Rock is on one of Yahoo's Top 10 just for housing correction. So, back full circle, back to our question of the housing bust, right? Basically, we don't see it, listeners. We don't see it. We don't see it in the rental market.
Brett: Well, but I think we have to differentiate owner-occupancy versus investment. Okay. 2008 was an oddity that'll probably never happen again. As as it did, it will get close but it'll probably never happen like that again. But, in Memphis when you have, I think the latest statistic I looked at was 48, almost 49% of every resident inside the city limits of Memphis, rents and doesn’t own. The latest statistics. When you have that kind of a renter base, the rental market’s gonna boom. It's gonna continue to boom, because there are always renters looking to rent a house. I've always got an investor wanting to buy a house or an investor trying to sell a house. So that's a constant. What happens in the investment market is people get too tied up in market value instead of rent comps. The only way the housing market on the rental side is going to take a collapse is if we have a massive recession and FedEx has to layoff 5,000 people and Nike and Amazon, they're all starting to layoff distribution people. Yeah. Now we're going to have a crisis, but as long as those companies, stay whole and functioning, the owner-occupant market may have a shift, not a collapse, but a correction, but the rental market is going to stay steady as it did through the collapse in 2008, the average state saw anywhere from 20 to 45% loss in property value. I think at its peak Memphis’ highest point it hit was 16 or 17. The lowest in the nation. The value loss of real estate that caused this collapse of the market.
Aaron: I think from the top to the bottom. So that would be from early 2007 to about 2012, I think that we maybe saw a loss commensurate with the rest of the nation, but it was on the lightest side of it. So, I think 16% is about is about the maximum that we lost over the course of how many years is that? Four? That's tremendous.
Brett: The reason behind that, I believe, is that the renter basis is so massive here that investment real estate kept the housing economy in Memphis from completely going over Niagara Falls, as it did in California, in Texas, and in a bunch of states that got hit really hard. Tennessee got hit really hard. But Memphis, as a city, did not, even Shelby County, did not see that massive crush. So what do you attribute that to? I attribute it to the fact that there are so many people that rent here that the rental market stayed hot, stayed solid, values dropped, guys got better deals on properties, but those properties recovered quickly, why? Because they're cash flow properties. The market value was immaterial at that point.
Aaron: So, one of these days we're going to have to get into what inspires investors to invest.
Brett: Okay, cash flow.
Aaron: Yeah, right now. Right now, that's true. But we're in an atypical marketplace.
Brett: In 2008 was equity. I can buy this for $100,000, it was worth $200,000 last year, it's going to be worth $200,000... I have an investor that I worked for that you know, that did that. They made a ton of money buying up properties, pennies on the dollar.
Aaron: We had one, in fact, if the listener wants to go back, and I forget which episode it is, 7, 8, or 9. Joe Veramontez made some decisions, a great guy. He bought all of his properties on equity between like, you said, 2000 and 2005, I think is when he stopped because in 2006 and, this is why people liken him, this is why people say, oh, we're headed towards another housing crisis. Look, I'm not trying to make fun of you, but the point is they say that where we arel right now is similar to where we were in 2006, right? Gas prices are going up, housing prices are at an all time high. The difference is, what's the major difference with housing prices?
Brett: We did not lend the money to every person that had a pulse to buy $300,000 house on a stated income loan.
Aaron: So that's a government, a federally mandated requirement. Okay, so we had federally mandated requirements once over here, guess who picked up on that? It was the banks. If you look back at the interest rates in 2006, they were 6%, and there there were these weird variable-rate loans where people would pay interest only at least 8-8.5%. We're not seeing that right now.
Brett: The pin in that grenade finally pulled was in 2005 or 2006 when they expanded the federal loan guarantee program and it all started back with the community reinvestment act and then all of a sudden, I forget the senator’s name, but he was on the senate banking…
 
Aaron: Dodd or Todd?
 
Brett: One of those two clowns. Dodd! Anyway, they were threatening banks because they weren't lending enough money to minorities, right? So, what did Bank of America do and Citibank? Well, I mean, the government's gonna guarantee it, so guess what? Here's a new non-stated, no-income loan. You just say, I make 10 grand a month. Great, here's a $300,000 mortgage so you can buy your house? So you took people with no financial skills, no money management skills. You tell them, I’ll give you a $300,000 loan and you can go buy this beautiful five-bedroom house in Cordova and fill it with furniture. The first thing, they’re going to do is think well hell yeah! Okay! Well the rate 6.5%. I don't care. Bank of America doesn't care. Who's backing up the note? The taxpayers. So if that homeowner collapsed or defaults and, we had many that never paid a mortgage payment, when they default, Bank of America then takes that home, forecloses on it, sells it at auction, then the US government, Fannie Mae, Freddie Mac then write a check to Bank from America to make them whole, and who walks away? Bank of America. Meanwhile the homeowner lost their house, the taxpayers sucked up the loss, and Bank of America walked away whole. And I'm not using Bank of America as an example; all the banks did that. The stated income loan was the hinge pin they pulled that caused this domino effect. So the economy started sliding, gas prices went up, and we started getting into a recession. So what happened? People started getting laid off, now they couldn't pay their mortgage, and when those people got laid off and couldn’t pay their mortgage, then all of a sudden they began to realize, wait a minute, that person we laid off. They can't pay the mortgage. Probably should have never had a mortgage to begin with for $300,000. They only make $30,000 a year. That was it. At that point, the snowball had started down the back of that hill and there was no stopping it. 
Aaron: Well then there are two other things that happened then that led to that. One is, I think the philosophy of homeownership was that it was cheap and easy, right? Like everything you just said, it led to the mentality of, it's easy to buy a house, right?
Brett: In your application says do you have a pulse? Yes. What's your blood type? A positive. Great, you're approved.
Aaron: So when they lost that house, that they couldn't afford, and that's the story we heard from everybody. Well, I mean, and because you were in a completely different industry, we won't go there, we've been there. We're gonna return there. But you know the reality is that people said okay yeah, I got in over my head, I lost my house, not a big deal. I'm gonna rent for a couple of years and I'll go right back to it. What they didn't realize is what was coming. That suname of, you know, changes in the federal government, changes in legislation about what a borrow was allowed to borrow, changes in the strength of banks, the closing of all of these banks.
Brett: And the strength of the buyer.
Aaron: Well, but the strength of the buyer was never strong. It wasn't strong in 2006.
Brett: That’s what I'm saying that we're not going to see that kind of class because the strength, the requirements for a buyer today are way more, they're like they were back in the 80s. You really had to have some cash in the bank, or a good credit score, a good job. There are some loans out there that allow you to get away with the lower down payment through FHA, but they're not just giving money away to people that should not be buying a $300,000 house. You know you can't afford a $300,000 house if you make $30,000 a year, the bank knows you can’t, but the banks still gave you the money. So those days are gone. This crash that they're talking about, this dip is all it's going to be, we're not going into that crash. If inflation hits and then we roll into a recession and costs keep going up, yeah, there are people around the country, they're going to be laid off from work, and there's going to be a housing crisis locally. But what you don't realize is in Memphis, this is a distribution city. Nike, Amazon, Fedex, all of these major worldwide distribution centers, that are here in Memphis, are going to have to keep operating. So we're not going to see an unemployment issue or crash here in Memphis. So if you have homes here, don't stress.
Aaron: So like we talked about. We touched on how the labor market is going to be changing in places like Southern California where they have more of an intellectual property marketplace. They are producing and operating systems and they can produce and operate those systems from anywhere in the world. They don't have to live in Southern California anymore. Corporations are loosening up and they're actually saying look, to go back to COVID, we're not going to make you vaccinate, but you're not coming into the office building. 
Brett: One thing COVID taught most big companies is, you know if I'm a CEO of a company, I own a 20-story building to house 5,000 employees, and all of a sudden COVID hits and I have to scale down and run a skeleton crew and have put everybody at home with technology to work from home, and we figure out a system to monitor their work performance and what they're doing on a hourly basis, and we’ve got all that figured out. The firs thing I would say is this building is gone. I don’t need this building anymore. Then the next step of that is, for Bob, who's been working for home, tells his boss, you know what? I'm moving to Houston. I can work from home all day long. I'm just gonna move to Houston. I'm tired of California. So, I think California is in for a rude awakening in the next five to seven years. I think that they have no clue what's coming. What you're gonna end up with in California is, you're gonna end up with a bunch of Hollywood elites in their mansions cutting their own grass.
Aaron: Well yeah, and here’s what I see. Okay, I see in Southern California more stratification of incomes.
Brett: There is no middle class in California anymore. Very, very few spots have a middle class.
Aaron: I could see from a hyperbolic standpoint how you would make that statement. But, I met with an investor Monday of last week, they came in and they would be middle class in California. They're considering relocation here because of the cost of living and because of the economic opportunities, in fact, he himself said a week ago, I could work from anywhere, right? I can work for my California company living here in Memphis. So, they're looking to liquidate their assets there, not only their personal home, but also several other investments, and they already own, maybe 5 properties that they bought at between $60,000 and $80,000, which have now already added between 20 and 30% increase value over the course of the last 18 months to 2 years. The point that I'm making is that they are definitely middle class. I see a stratification happening in the California. I see the state, the red aspect, the conservative aspect of that state, dwindling because they're moving away. So with they become removed from the population, what's left are people who are much more focused on, how can we better organize the state? Instead of stay out of my business, the constituents of California are gonna say, how do I join the California government in better organizing my direction? Obviously, what we're talking about is highly, highly controversial. I still think movies are going to be made out of LA. I there's going to be an elite class, like you're talking about, I think the movie industry is the most popular and profitable industry in the world as far as the amount of effort that you put into it and you return on that investment. So I think California is going to be fine. I just think it's going to shift in who's making the decisions. As far as Memphis is concerned just going back to the, you know, for the listener, service-based economy, these are people that get up and probably do something outside of their homes for a living every day, and we all need that stuff. We all need it. You need it? I need it. And so we don't see there being a housing crash, really at all in the country. We also don't see a major housing crash here in Memphis. That just seems absurd.
Brett: The worst crash in our recent history we massed 16% loss over 4 years. If you had bought a property in 2005, lost 16% in 2008, by 2012, you'd gained another 5 to 6% over those 16% you'd already lost.
Aaron: 16% lost over the course of 4 years and what just happened between August 2020 and the end of July 2021, we increased value 17%. So, that 1 year gain would have offset a 4 year loss.
 
Brett: That’s the key. So, just make sure if you're focused on buying real estate. Actually, if you want to focus on buying a Memphis, go to EPMrealestate.com, go down to the bottom, look for me, Brett Bernard, my cell number is on there. You can give me a call anytime or shoot me a text. I’d be glad to talk to you and educate you on the Memphis market. That's a shameless plug from me, just to try to top Aaron’s.
Aaron: You know what? you're here, right? Like, you're here recording with me. Nobody else is so dude, you get the plug! 
Brett: Yeah. If you're interested in the Memphis market, just give us a call and we'll fill you in on our opinions. But yeah, don't freak out, we're not coming for a crash. We're going to have a correction and that's all it's gonna be. You'll see a dip. It'll come back, you'll be fine. You'll get to see a another day. 

Housing Market Value vs DOW, Tax Changes, & Property Investing for the remainder of 2021

In this episode, Aaron and Brett chat about their experiences day-to-day in investment real estate and provide their analysis of how the housing market is changing, and they also offer up their opinion on the statistics and projections for how the property market will progress throughout the remainder of 2021 and beyond into 2022.
More about this Real Estate Podcast at:
https://epmrealestate.com/podcast/housing-market-value-vs-dow-tax-changes--property-investing-for-the-remainder-of-2021
 
Richard: So day-to-day, what are you guys seeing in terms of market shift? Are you seeing any difference in what it takes to win offers on behalf of investors and what’s your latest assessment for how this year will play out?
Brett: Nothing's changed. The market is still riding pretty high. I think deals are getting a little bit better and we're finding more and more inventory, versus the amount of buyers we have. I've got quite a few buyers, but the inventory’s got a little easier to get your hands on, especially out in areas like Raleigh and Whitehaven where 3-months ago you threw a bid on a house eight grand over asking, and you weren't even close. I'm hopeful that now that we're getting to the end of summer and close to Fall, the investment market which typically slows down, we've set our investors up to rock-and-roll between Halloween and Valentine's Day. So we have a lot of investors sitting tight with their cash, just waiting for the fall to come, the holidays to hit, and inventory to be exceptionally, much better than it is today. Hopefully, that's what I'm dealing with - writing offers left and right.
Aaron: That's great news. You know, I think I saw a note that you sent the other day, or maybe I was listening to a previous podcast episode, and you were talking about how the ratio of the number of offers that you've been writing versus the number of offers accepted has narrowed. The margin has narrowed. 
Brett: So the win-loss ratio is turning finally
Aaron: That's really cool. That’s great news.
Brett: I went back, you know, because when you go on Authentisign, and you're running a new offer, it tells you what number that offer is.
Aaron: Oh, wow.
Brett: So this year, I've written 162 offers.
Aaron: Wow Brett! 
Brett: Now obviously I didn’t win that much, but I think my win-loss ratio was probably 30:70. But this month [Aug 2021] I’ve submitted about 12 offers and it looks like we'll end up with about half of those accepted. So, yeah, the ratio is changing and none of my offers are over asking  now. Before they were cash, $10k over asking, and we still weren't getting them. Now we're throwing $1k over asking, cash, and we're getting them accepted.
Aaron: One of the things that we're going to talk about today is how the fundamentals are changing in the marketplace. I'm not a huge Jim Kramer fan, but for most people who watch, I think he's on MSNBC. Jim Cramer's out there and he is... he's sort of a bear when it comes to the stock market. He wants to caution people. He's hilarious. He's over the top. Sometimes I think he's drunk! But regardless.
Brett: Probably all of those. 
[Laughter]
Aaron: So, the other day he was really slurring his words. It was pretty funny. But he said something really amazing, 2-days ago on MSNBC. He said, maybe we should just trust this market and see where it goes.
Brett: Think about, every time we've had a serious financial crisis in the stock market, even the housing market. It was when people got warm and fuzzy, thinking that the rail car goes up only and never comes back down and, I'm gonna get on it and ride it. As soon as you hit the point where you have guys that drive a forklift with FedEx now getting a stash out and putting money in the stock market. That tells you that the general public has become comfortable with the volatility of the stock market, enough to where people think well, it's at... What's it at now?
Aaron: Are you talking about the Dow?
Brett: Yeah. 
Aaron: It’s nearly up to 36,000.
Brett: This time last year it was, what? In the mid-20s?
Aaron: It’s been flirting. Once Trump got in there the speed at which it went up increased and so it shot up under his time there. Even crazier and, not to get political at all, but under Biden, not only did it not quit, but I believe that the people saw that the inflationary capacity, which is measured by the CPI, showed acceptable amounts of inflation. That being said, and one of the things we're going to talk about today is that the value of the stocks that are invested in right now can be measured by $5 out of every $6 that that stock is trading for, has actual market value or relevance. So basically the investments are sound. 5/6th of the value of each stock that you could purchase on the Dow, is a fundamental. It can be fundamentally supported. So the speculation is only 1/6th of that stock and at its current trajectory, which Jim Kramer was trying to say, for example, is that there's enough fundamental support of the value in the stock market, that you should not be cautious and that you should be all in.
Brett: And I agree with that. I'm a believer that, unfortunately, we're still riding the train that Trump put into motion and I think the current administration is slowly pulling those brakes on it, one piece at a time.  I think when it starts coming to a stop, the stock market is not going to continue going up, it's going to level off,  and it's probably going to have a correction. The housing market is going to do the same, which we talked about in the last podcast episode. I personally believe it's going to start sometime this time next summer. I think we'll have an inflationary period, continue rising values, a hot market, and then sometime next summer it's just going to take, not a dive, it's going to take a dip. It's going to dip down and it's going to level off, and then we're going to go back to the way it was in 2019, when we are selling houses and everybody's fine. You get it for market price, maybe a little under, and I think we're just riding a residual train of economics that I don't think can withstand what's coming. It’s only my opinion. I'm not a stockbroker. I'm not an expert on anything. I want the economy to continue doing well and I want the housing markets to slow down because I think we're in a dangerous place right now. Like we could set ourselves up for a bursting bubble. If we're not careful.
Aaron: I think there are several variations, to use a popular term right now, I don't know if anybody is watching, I think I can say without getting in trouble, the Marvel movies and the Marvel television shows that are out there. It talks about how there are several different possibilities that can happen in the future, based on what's happening.
Brett: There are always several possibilities.
Aaron: I’ve got to tell you something, I had no idea that COVID was coming. No idea!
Brett: No. Some people did.
Aaron: Some folks did, you're right.
Brett: But no. We couldn't plan for COVID. That caught everybody by surprise. At the same time, we can't predict what's going to happen after the Christmas holidays after everybody has blown tons and tons of money, shopping and buying gifts, and we get into the first quarter of next year and the reality of legislation that's taking place now, will begin to set in then. That's why I think we'll start seeing the housing market begin to taper off and then start sliding down slightly. I don't think it's going to be a fall, and then slowly kind of level off. Then, by this time next year, we’ll be sitting here, laughing about COVID and the ridiculous market last year, and will probably be begging for it to come back, or something like that. 
Aaron: Well, let’s throw some statistics on this conversation. In a recent article that came out, there were multiple sources on this article, one of them is fortune magazine. Somebody basically read and digested what was found in Fortune magazine, realtor.com, and also the core logic index. So we're going to talk about a few things. The reason why there's a huge shift in housing right now is that in 2021 we’ve broken some records already and, if projections continue year over year, from August of 2020 to July of 2021, then we're seeing some trends that are going to permanently impact the US housing market, not the least of which is that, and this is probably the biggest figure in here, prices grew from August of last year until the end of July this year at 17% nationwide. And that's a record. They've never done that over the history of record-keeping of what housing prices have done. Over the entire United States. We have some housing inventory fluctuations as measured by realtor.com, not the least of which is that COVID caught us by surprise. By April of this year, inventory was down 53% nationwide. 
Brett: Yeah. Inventory is down because you put a house on the market and, within three hours, you’ve had 22 offers. Of course, the selling of the properties is lower the lower the number of homes are available but, read that next part, which I thought was very interesting.
Aaron: About how inventory actually went up year over year by 3% percent in May and 9% in June, and so what would you attribute that to?
Brett: Well, I think a lot of homeowners that want to sell, even investors who want to sell, the market was super high, but they weren't quite sure, because they realized well, I'm gonna sell my house, I want to move, but if I sell high I'm gonna buy high as  well. Now they're seeing a slow cooling of the owner-occupant market and, listen, this isn't because people ran out of money. There's no houses. It's because kids are now about to start back to school, where everybody's now moving into their new home today, and very few owner-occupants are buying after August 1st.
Aaron: That's true.
Brett: So, because of that, folks that now own a home that they wanted to sell and move earlier, realized now they can probably get a pretty decent price on their house and actually put a pretty decent price down on another home that they want to go to. The people that are doing that today are the folks that don't have kids starting school. They're people that maybe have high-schoolers that can drive to school, and they don't really care if they're living in Collierville or Germantown. The summer crash for homes was because you had people with 5, 6, 7-year-old kids wanting to move to Collierville, wanting to move to Germantown, to get their kids in these schools, and so they were buying homes literally as if they had gold stuff in the walls. Kind of like going... What's that show where they have the storage units and they just bid on it, open it up, and see what's in it? That's pretty much how they were buying these homes. It was just ridiculous. So now that's tapered off, I think we'll see an increase in inventory, all the way around, and like it says there, it'll become a buyer's market. A  little more in a buyers’ favor and versus how it's been this summer.
Aaron: Right. In a couple of more factors that are going to factor into this going to become a buyers’  market, is that the federal government has been protecting homeowners from foreclosure, okay? So we've had these foreclosure prevention programs, we've had forbearance programs that have been required by the federal government with the banks. I'm not sure that the banks are offsetting that debt at all. They're just simply requiring the banks to hold off.
Brett: Well, that ended July 31st. But here's a difference, and I get this question a lot from investors. Why shouldn't I just wait until all these foreclosures start hitting and we have this massive housing issue, and then just pick everything up pennies on a dollar? We're not gonna see that, alright, because Bob and Betty Jones pay $200,000 for our house 7 years ago. They're now behind because Bobby got COVID, was in the hospital, lost his job, and they can't pay their bills. Bank of America, tomorrow, is gonna send them a notice that they're now eight months behind on their payment, right? You don't qualify for a modification, you don't qualify for forbearance anymore. So, therefore, you need to get current or we're gonna foreclose on you. Two things are going to happen: 1) Bob's gonna get pissed off and tell the bank to stick it where the sun doesn’t shine or he's gonna ride it out until the bank forecloses on him. The bank will probably sell the house for $300,000 at auction, give Bob the $80,000 that was there, but the more likely scenario is that Bob realizes he can't catch this up, he’ll get an agent, throw it on the market for $275k, and sell it the next day, pay off the bank,  and move on. So we're not going to have this huge long list of national foreclosures across the country that you can just go and scoop up for pennies on the dollar. I think there's way too much equity in the properties that will be foreclosed on, that homeowners will be willing to take that short-sale, put a little bit of cash in their pockets, and move on. 
Aaron: So, I mean, I do think though, based on what you're saying, that that is going to give an opportunity for investors.
Brett: Sure.
Aaron: And for you and me. Like if you wanted to go and upgrade your house and if I wanted to go and do the same, we probably could.  And in a softer housing market, which is influenced by more inventory, right? Then there are gonna be some opportunities, especially in the foreclosure market, for us to be able to step in as owner-occupants which, for our listener, traditionally the federal government has preserved the rights of an owner-occupant above that of an investor or an institution to purchase a foreclosure. So, that means for Brett and I,, as individuals, if we find a property that's in foreclosure, we find out when it's going to be auctioned off at the courthouse steps, and as long as we've prepared to do what they require of us, we should be able to go there and say, I would like that home and I'm going to bid against other buyers that are going to be owner-occupants, ahead of investors and institutions, looking to purchase those properties. So I do think that there are going to be opportunities and I I think you and I agree that our investors in 2022, starting in 2022. and maybe for a couple of years, are going to be able to take advantage of a new wave of distress buyers, and be able to pick up properties for less than their market value.
Brett: Right, and listen. Buying a home or getting an investment property with equity is obviously a plus. But when you're fighting in a competitive market and you're going up against 10 to 15 other investors trying to get the same home, focusing on the market value is kind of a short sided way to approach this. The way you approach it is: What's my all-in cost and what's it renting for? If it's producing $1,100 a month and you pay $110,000 including all repairs, you're in at a 1%, and that's great. Let's say the market value says it's only worth $95k, who cares? You're getting $1,100 a month for it, you can get your 1%, because what's going to happen next year? That value of that property is going to go to a $100k, maybe $102k, then $105k, and what is the rent going to do? It is going to go from $1,100, $1,150, to $1,195. for you listeners out there if you're not already doing this, focus on the cash flow and you're all in cost and quit worrying about what the CMA says or what the market price is.  I've had so many investors lose deals because they would not go over asking even though the ROI and rent calculations showed they could go up another $10k and still make a cash flow the way they wanted. But they wouldn’t do it, and they kept losing. Smarter investors threw the value out of the window and just went straight with the rent comps and how much money they were going to have invested when they turned it over.
Aaron: Right, and we've seen more of that, you know, Enterprise, as a company, has been very conservative and all the agents that you'll speak to here at EPM Real estate are also conservative. Look, we don't want you to make a mistake at all, but there's a point in the investment curve, where the future benefits of your investment that you're making now, based on projections and value and rent price growth, and all of that stuff, it makes sense to take more risk while you can, absolutely especially in light of what we're talking about right now. Which is that this is the very last year of the Trump tax plan. Next year is the first year of the Biden tax plan. So many people, there are a lot of sellers in the market right now that say look, it means more to me to sell you my house now and not take those major hits on my personal taxes then it will for me to wait and sell it to you next year, and be in an unknown tax year. 
Brett: The issues of the taxes are going to hurt the short-term people, right? The long-term people, whether you're buying and living in it or whether you're buying and holding for 10 years, the new tax plan is not going to affect you. It's going to affect your income, but it's not going to affect your capital gains. 
Aaron: The seller is who I'm talking about. Let's break this open real quick. It is way important for so many of our sellers to get rid of the house this year. So, to our listeners, and I'm very excited about this point, we are in the last 6-months of what could be the most advantageous tax year for the next foreseeable 4 years. Okay. So having said that, for all the sellers that you and I speak with, they are in a closing window. They need to sell this year. So again, I think they're gonna be opportunities for buyers as the market softens a little bit as this housing boom, as some of these articles that we've read say, it is cooling. Dude, I think they're gonna be some great buying opportunities in the 3rd and 4th quarter.
Brett: Sure. I do too. I don't know if the tax situation's gonna be as detrimental. If you sell a home that last year you made $100k on, this year you can make $170k on it, you could still sell it next year, make $170k, pay your taxes on it, and still come out more than you would have last year. So I guess it's really going to come down to looking at the dollar signs for the seller, whether it will work or not, or whether the tax issue will be a bad thing. Now, granted, you're going to give up a lot more money, but you're still going to come out way ahead. 
Aaron: You know, a lot of our sellers that are liquidating with us right now, have multiple properties across the country. So that the net value of, or the net proceeds to their bottom line is actually going to increase their tax bracket.
Brett: That's true.
Aaron: So, just because you and I are selling one house to a buyer. We're assisting, you know we do a lot of buyers' representation, so we're selling one house to that buyer. We have no idea what the tax implications are going to be for that one house to that seller because they're looking at their entire portfolio. Some of our sellers are thinning their portfolio. They're strategically keeping their best houses while selling their marginal ones. Some of our sellers are at the end of their investment life and so they want to liquidate everything while they can. We don't know their 1031 exchange situation. A lot of our sellers are looking to take the proceeds of the properties that they're selling and move them into other properties in Hawaii, or in the mountains, Wyoming, Idaho. sorry. This is such an exciting time and I personally believe that there's going to be a ton of energy in the market. All the way up to December 31st. You and I are going to be getting calls and closing attorneys are going to be working on New Year's Eve, trying to close these houses before the end of the year.
Brett: If I’ve done my job right with my investors, they're all sitting on a pile of cash waiting for November 1st to start hunting. I just had a call with a new guy. He's out of New York, he's got a ton of cash, and he's wanting to start hunting. So I said, why don't you just wait until Halloween? And then, let's look for a good deal for you. I'll find you something that if it's out there, that's worth getting today. But if not, be patient. Wait till November 1st and we'll hit the road and we'll spend every dime of that, and you'll get a much better deal. Because you'll have more inventory than buyers. It's basic economics.
Aaron: I think the month of October is going to be practice buying. I think what's going to happen for you and me and, for our listeners, this is something that Brett and I do all the time. This is really an important benefit of working with us, Investors get to know me or Brett independently and we introduce each other. Brett is in sales and me as property management and we start helping Investors project what the actual return on their investment is going to be. Brett of course is assisting them and saving as much money as possible on the buy. I, of course, am speaking with them about the potential rent growth over the next 2 to 3 years, and we're helping them construct the concept of how that investment is going to perform. So all that to say, I believe that practice purchasing with Brett and with me, buyers, if you're wanting to know what the potential value of properties are, what the return on investment is going to be, start calling us in September and October, particularly if you're looking to make offers in November, that's really crucial. Price fluctuations will be marginal I think between October and November, but the number of properties which can be picked up, that's going to increase. I believe as we move into November.
Brett: Yeah, supply’s going up, the demand will drop, and that'll curb the Super Bowl pricing issue we had this year.
Aaron: A couple more quick statistics as we leave this topic. One is that the core logic index has said that they predict prices nationwide are going to continue to climb from August 1st 2021, in through June of 2022 by an additional 3.2%. So that tells us two things. One, we are still on a growth pattern when it goes to the average home value in the United States. Secondly, it indicates to us that the housing boom is slowing. So this meteoric rise in prices, 17% year over year, ending August 1st, 2021, that that is cooling to now 3.2%, which is a much more reasonable factor of appreciation over the next calendar year. Then the second thing I wanted to point out right before we left statistics is this. It is a proven fact that the cost to rent to the renter, or the rental value of properties, is a trailing indicator of housing value growth. So, and I know I make this point all the time to our investors but, you're a believer, you know? So the reality is that, you know what? If we've got a 3.2% growth in housing values over the next calendar year until June 2022, we are probably going to continue to see rents grow even for a year to two years after that June 22nd point. So, we're going to see inflation in rental costs for several years and, Brett just made this point earlier, you’ve got to take that into account when you consider the future performance of the investment property that you're purchasing.
Brett:  You do it this way. You don't buy stock because it's at the peak. You buy stock in the market banking on it's future, right? Its rise and its increase in value. You should buy real estate the same way. If you go in and buy real estate for what it is producing today, you're selling yourself short because you'll end up missing deals that you could have picked up just by being more aggressive and just working on the cash flow versus all in cost, and get away from the market value. So, don't sell yourself short. When you go out and put in an offer, be aggressive. Look at your numbers, see what number you need to be all-in at, and write an offer $10k over asking, contingent on inspection. Then if you go in there and realize it needs $12k of work, great! Negotiate the price down. Get your all-in-cost at $110k and rent it for $1,100, and be happy. Or wait until that tenant vacates at $900, do all the work and you're in at $110k, and rent it for $1,100. You need to be looking at what your performance is going to be 4 or 5, 6 months from now, when that current lease expires and once you've done all the repairs, and get away from the market value. Market value means nothing to me when you're talking about rental properties, right? If you spend a million dollars on a house, if it only rents for $1,000 a month, it's not a good investment, right? So it works both ways.
Aaron: Well, fantastic. You know, our producer had asked us to talk about what's going on, you know, right now in the marketplace and then, of course you and I do what we do and go down a really good rabbit trail. Yeah. That was good. So I just wanted to tell you a bit about property management. One of the things that I predicted earlier in this year was that the number of homeowners who were dissatisfied with the property manager that they had picked up initially in the first six months of 2021, the previous year 2020, that they would become frustrated with a lack of organization or they felt like the property manager was inexperienced and so they wanted to change property management, and this is a great time to change your property managers. You can only improve. Hopefully, if you're working with a smaller, newer, less organized property management company or, let's say, that your realtor that sold you that house is managing that property while also selling investment properties to other homeowners. Not paying attention to the day-to-day requirements of property management. Now is the time to move. Now's a time to move to a property manager who has been around longer, who has a more mature approach to the public, has more notoriety with the tenants here in Memphis, has a stronger more organized maintenance approach, better accounting, better bookkeeping and, just in general, a better reputation and a better approach to property management. So the point that I'd like to make is that we're covered up in new management calls. I love brand new investors to Memphis. I love talking about what we could do, but also seasoned property owners who have said, I've done everything I can to work with this person, I can't do it anymore. I've given them a termination date, will you take over management? and then the difference in those calls, by the way, when I talk to a new homeowner, it's at least an hour, and then there's introductory paperwork and some other stuff that we do when we end up working with that new buyer for 3-months, and we love it. We love that very much, and want more. These seasoned investors, where they have 8 to 10 houses, they just want one month's accounting to look correct. They're like a 10-minute phone call and then they're done. They're like, I'm sold to the paperwork, I'll sign it, go for it! The number of those has increased tremendously. I would say in the last 18 months, you know, it is specifically in the last 60 days. So that's exciting for us. If you go to our website right now, if you go to MyMemphisRental.com, you'll see 3 houses for rent. 3! That’s out of well over 500. That says a lot about the market but more houses are coming on, there are more vacancies that are coming on, and we are seeing an increase in rental inventory here in Memphis, too. So, both of those things, inventory should go up in both of our realms of real estate. 
Brett: I expect mine too, to jump. I’ll probably end up with about 60 or something houses, maybe 70 this year. Most of that, the majority, that's going to hopefully happen between October and Christmas, which is normally a time I can sleep in and not have anything to do half the day!
Visit us online at: https://epmrealestate.com

Forbearance, Foreclosures, & Property Availability Into 2022

Forbearance, Foreclosures, & Property Availability Into 2022
Forbearance: What is forbearance? How is forbearance impacting the housing market?
As the forbearance program comes to an end and foreclosures begin, how will it affect the availability of property into 2022? In another segment, we will be talking about construction costs in the United States. Why has the cost of lumber gone up and what are the long-term effects on its overall cost? We also discuss ways in which construction in the United States may need to change. 
 
More details about real estate investing and this episode may be found at:
https://epmrealestate.com/podcast/forbearance-foreclosures-property-availability-into-2022
 
 
Brett: In this segment, we're going to be talking about the forbearance program. The foreclosure crisis that is inevitably facing Americans is that it's going to be beginning here, actually, in two days, when the foreclosure moratorium ends on federally backed mortgages. Let’s be clear about that. Federally backed mortgages. If you've got a conventional mortgage with a lender, you probably didn't receive any benefit from the government's moratorium, because those conventional loans from lenders can do whatever they want to do. But if you're loan is backed by the US government and the taxpayers and we say U.S. government as if they are the taxpayers. Actually, your loans are insured by Me, Glenn, Richard, and everybody else in America that pays taxes. If it is underneath that program, then you have a moratorium where they cannot foreclose on you for any circumstance. It doesn't matter why, until after July 31st. Then after September 30th, the forbearance programs end, and we're going to get into that talk about forbearances and what those are, and how that will impact the foreclosure crisis that's coming. I say crisis. This is not 2008. I believe at the end of the day you're going to have about 3% of mortgage holders, maybe 3.5% facing foreclosure, and the majority of those will be able to pull themselves out of it. Back in the crash of '08, you had tens of millions of people in foreclosure and their homes were upside down in values. So we're nowhere near 2008, 2009. So, anybody listening here: Don’t panic.
 
Glenn: Not only that, but the banks learned a lot about how to handle these situations with loan modifications, short sales, etc. They learned a lot about that back in 2008, 2009 up through, 2012 and 2013. So, those programs are going to be a lot smoother than they were.  You and I used to fight that battle every day.
 
Brett: Yeah. For those investors are listening, and your mouth’s watering because you're thinking, oh, here we go, we're gonna have a closure crisis and we're gonna be buying houses for pennies on a dollar. Remember, the housing market is up 20 almost 24%, right? They expected a crash this year. Everybody expected a crash. I remember one specific genius real estate agent locally here in Memphis who said, no, it's not gonna crash, it's gonna go the opposite direction, and it did. It did exactly what I thought it would do.
 
Glenn: It must have been me.
 
Richard: I don't know anybody like that.
 
Brett: It’s because you're from Britain. There are no people like that in Britain. But yes, it went the opposite direction. There's a varying list of factors that cause that issue caused the growth, and there are different opinions about it, but at the end of the day, it went up 24%. So, when the foreclosure process begins on a lot of these homeowners, there's the argument that they're just going to put it on the market, they've got an increase of 24%, if you have a $200,000 house that you bought and have a mortgage on, and your house is worth $240k to $250 now. So, you’ve got equity. So let's throw it on the market and sell it for $235k quickly, to get out of it, and pay the bank off to stave off all foreclosure. Because listen, when the foreclosure clock starts ticking, the bank doesn't care if you have a buyer because they can take that home in the courthouse step, sell it tomorrow, and get all their money, plus make money. I know they claim they can't make money, but they're gonna charge you legal fees, late fees, processing fees, foreclosure fees, and they will eat up every dime of the potential equity and it'll go in the coffers of bank of America, or Citi-Bank, or whichever bank it is. It's not that they're gonna return it. The only thing, if they sell the house for $149,000 and you owe $148,000, by law they're required to return that $1,000 to you. Because they've covered their costs, recouped their money, but the banks...  There’s not an easy way to put it. Listen, there are a lot of shady lenders out there and they find ways to nickel and dime you to death and steal your money when they foreclose on you. 
 
Glenn: Sometimes they just, outright, break the law. And we caught them doing it on more than one occasion.
 
Brett: They do. We challenged them many times in court for doing that, and we won a bunch of those, we lost some but we won a bunch. So when this foreclosure crisis happens, it’s not going to be nearly as big as it was in 2008, but, we are gonna have foreclosures that are gonna be happening. It's inevitable. So, what is your prediction as to how that's gonna impact the market?
 
Glenn: To me? Not much. I mean…
 
Brett:  I don't see it impacting it whatsoever. 
 
Glenn: I'm with you. I mean, there's just not enough of a mountain. Everybody wants to compare 2008 to now. I’m telling you, this is no comparison at all. 2008 was the bottom-of-the-barrel kind of fallout.
 
Brett:  And we discussed what caused that? What caused that was that 80% of Americans had a government-backed mortgage and probably half of those people were given a mortgage simply because they had a pulse, and that's it. That's our government's fault. They created that monster and it eventually came home.
 
Glenn: And more than likely we'll be doomed to repeat it but that's not going to be in our generation. 
 
Brett:  So my opinion is that this foreclosure issue is to create some opportunity for some investors. Maybe some guys that want to buy and flip property. I don't see us getting into a crash, I don't see us getting into a market that's going to take a deep dive. We may have a correction of 8% 5% 4%, whatever it's going to be, but at the end of the day, I think our market is going to stay stable and I believe the correction is going to come from these homeowners or banks, that are foreclosing on the property when they launch them off the courthouse steps. See, the sad truth of it is, when people evaluate the property and its price, foreclosures and all of that, is included in that. So if you have three, foreclosures in your neighborhood and your house is worth $300,000. But those three sold for $250k on courthouse steps, your value has now dropped because you have a comparable that is a larger value.
 
Glenn: The worst thing about the ‘O8 recession was the fact that you had people that woke up and had lost 40% of the value in their home.
 
Brett: And they were working and they were paying their mortgage, but they lost value simply because everyone else went under. So you know, my opinion is, I think the market's gonna stay strong as long as people continue buying, interest rates are gonna stay low
 
Glenn: The Feds are gonna keep them down there.
 
Brett: But they have no choice. If they raise interest rates now, this so-called inflation is gonna get so out of control that it would crush the average American into poverty. It would just destroy everything.
 
Glenn: Well, that's how it impacts our investors because if you have investors wanting to do flips the cost of the construction materials to do a rehab has gone up, probably 40%. So when you factor that into a flip, if you can't get it for the right price, there’s no sense in doing it. And, if the admin then jacks up the capital gains tax, then that's really gonna kill.
 
Brett: But that's good for us, because we compete against flippers all day long trying to pick up property that we're trying to get. Now, there's also a flip side to this that a lot of investors need to pay attention to. Not just lumber is an issue, but materials across the board.
 
Glenn: Sheetrock, shingles…
 
Brett: So you've got a home today that you're renting for $950 a month, the tenant vacates, come September, and you're gonna rent-ready it to put it back in the market. Be prepared for your cost to go up 4 or 5%, or maybe even 8% to turn that house. There's a shortage of lumber and we'll get into that article here in a bit. But Richard sent out an email saying got wood? I was like wow, our British friend’s finally coming out the closet! But let's not get off track. I want to continue on his path of what a forbearance plan is. 
 
Brett: So let's talk about a forbearance plan. A forbearance plan is where you go to your bank and say, hey I cannot pay my mortgage, I'm three months behind, but in two months I'll be back working and I should be able to get caught up. So what the bank does is, it takes your past due amount and, it just throws it up on a shelf, and it's no longer due temporarily for however long that forbearance contract lasts. 6 months, 12 months, 2 years, whatever it is. A lot of people jump into that out of desperation and don't really think about what's coming, because there is a day coming when your contract expires, and the banks is going to send you a letter saying, okay you owe us $7,000, you have until this date to clear this matter up or we will begin foreclosure. Then once you go back to the bank to try and renegotiate that or maybe work out some kind of a payment plan and they will, they'll work out payment plans with you in some cases. But if there's a lot of equity in your home and there's already a lot of cost that has piled up, you know, I don't know how they're gonna handle that, I don't know if the bank is gonna want to work with them because I'm telling you, the lenders can make profit from foreclosure. I know, they claim they can't, and they claim that it's detrimental, but Glenn and I watched [LARGE BANK] screw people completely over. Because there was an ability for them to make money. During the worst time of the crisis [LARGE BANK] turned, was it one point something billion dollars in revenue that year. I will assume that most of that was from all these different fees and garbage they picked up in the foreclosures that they conducted. We watched them purposely try to put people out of their house because there was an ability for them to sell that house and make some additional cash. 
 
Glenn: Well, if somebody comes to you and says, I want to sell you this note, it's $150k, but we're gonna sell it to you for $75,000, okay? But the place is worth $150k and you're like, okay I'll take that. And so you buy the paper and then you turn around and start foreclosure proceedings against the owner.
 
Brett: Because the original note is what you get back, and so you can profit. But you buy is, like you said, $150k mortgage that you buy for $75k, well guess what? You’re owed $150k on paper and therefore, you can sell it for $150m and make $75k. So, this garbage of the banks, you know, being all about the homeowner and the people - that's complete garbage. They're all about money. They have a license to steal from you. Now, I'm not saying that's all banks. We dealt with some very good banks. Very good lenders, that were very cooperative and worked with our homeowners but, your big ones, they robbed people.
 
 
Find out more by listening and subscribing to our real estate investing podcast:
https://epmrealestate.com/podcast/forbearance-foreclosures-property-availability-into-2022
 
 

2021 housing crash? Chat with Memphis Real Estate Investor, Ted Huntington

Real estate investor, Ted Huntington, describes himself as a novice investor. Aaron Ivey sits down to ask Ted about his take on the current housing market and if he thinks we'll see a 2021 housing crash, and Ted shares what he’s learned through his purchase of 6 single-family rental homes in Memphis, TN.
Listen and subscribe at: https://epmrealestate.com/podcast/2021-housing-crash-chat-with-memphis-real-estate-investor-ted-huntington
Aaron: So on today's show, we have a special guest. This is somebody who I would consider to be a friend, and he came into investment real estate... How many months ago was it Ted?
Ted: I would say, you know, it's been a year at least, so pretty recently.
Aaron: Yeah. And the cool thing, you know, hopefully for the listener about Ted as you enjoy our conversation, is that Ted is really smart. Early on in our conversation, Ted called me or we were connected through the realtor that was working with Ted that you've heard on this podcast and he said, hey, you've got to talk to this guy and I'm not going to give away to the listener hat it is that you do for a living, but I find what your line of work just really interesting and our initial conversation, I think lasted at least an hour. And then there was probably a follow-up 30 minute conversation after that and we just immediately clicked, I felt. So this is Ted Huntington. Could you tell the listeners what it is you do for a living?
Ted: Yeah, I basically have a bachelor's degree in computer engineering and I work at the University of California, Irvine, in the library’s I.T. department. So I do I.T.
Aaron: But it's so much more than that, because, to me at least, I've had a lot of friends that worked in IT but they weren't I don't think managing access to the diverse range of information that you are managing. I feel like working inside of the live library information system is completely different than, say, working at a courthouse or working for a corporation. Am I wrong in that?
Ted: No, that's accurate. I think the University, I love working in the University setting. There's a lot of intellectuals, a lot of people interested in learning and then in the library, there's just a ton of information and we help people to access that information. I mean, more and more of it is now in the electronic realm, but we still do have actual physical books and journals there. But yeah, we just seem really a massive transition from physical information books and so on to ebooks and electronic information. Everything now is electronic. It's just really an amazing change.
Aaron: It has been a tremendous transition. I am married to a bibliophile, I think that is the word. Is that right? And we have several built-in bookcases all over our house and she is constantly acquiring more physical books for her to read, for the children to have access to, and to put down and pick back up again whenever she likes. So we're one of the rare families out there that I think are still purchasing actual, written books from Amazon or Barnes & Noble or whatever.
Ted: I don't think you're alone in that. I am also kind of a book collector myself. I especially love old books that are important to the history of science in particular. To me I think that not only are they incredibly good reads and they only are in print, I mean some of them I suppose are now in Ebook, but some of them have been out of print for a long time, but also I think they will be collectors’ items that some point because it's a bit of history. 
The book and a lot of these more famous books and so some of them are lesser known but important. At least in my thinking.
Aaron: Right, and I would agree. It's interesting to watch what it is that my wife will download on an e-reader or on a Kindle. It's almost always fiction or she likes a lot of mystery, like older mysteries, and she's very interested in certain histories. But the books she purchases for us to own are usually about early childhood development or teenager development. It's she wants to actually hold the things in her hands that influence the way that she interacts with the world in her daily life. And so it's been very interesting to see what it is and how she makes that decision and what she wants to hold and then what she wants to download. 
Ted: Yeah, I still buy books, even real estate books because I want to have a book for before I go to bed and reading or something. It’s nice to have a physical book. I don't want an e-reader, I don't know. It’s something about it. A physical book is just a little bit more familiar to me, I guess. 
Aaron: Well, do you happen to have a favorite real estate book that really inspired you to get involved more in investment real estate?
Ted: I've read a lot of the more famous books like Rich Dad, Poor Dad, and you know, there's some that Bigger Pockets has produced a few good books. But there's also like, even some older, I can't remember the names, but like just old school real estate investors, even from the 1950s, and so on. I've read one of those books and I found it really fascinating how much cheaper houses were. They're talking about $20,000 and $10,000 houses and doing the fixer-uppers back then and how to find a good fixer-upper. I really don't have anyone in particular, but I tried to read all of them, especially where there are people who are doing their own property management, and their experiences and their hints. They always have helpful hints. Like, some people have found the free version of team viewer and so on, so they can remote desktop to their home computer when they're on the go. Little text tips and techniques about tax auctions - I didn't know that much about those - and dealing with auctions and other avenues. The many ways that people can get deals in real estate. There's just a ton of different techniques and strategies. My strategy of course, is very, very tame and it's kind of a lazy person's technique. 
Aaron: What is that? What is your strategy?
Ted: My strategy is mostly, I'm a buy and holder of mostly turnkey properties. I don't really do fix and flip or fix and rent, even though there's a lot more money in it. I just kind of like to get into a property and start collecting rent and with minor repairs. I'm willing to pay a little bit more for a nice property. So I’m kind of taking the easy way out, but for me, time is very precious. So I really don't want to be spending a lot of time with contractors and working with rehabs and things like that. I’m a little bit older, so I'm kind of more just hoping for the turnkey, all ready-to-roll type of investment property.
Aaron: The amazing thing is you don't sound older. I'm not sure what you would qualify as older. You don't have to tell us your age, but you just come across as very energetic and optimistic about your view of real estate and your involvement and interaction with it, which is very refreshing. 
Ted: Yeah. Thanks. I am 52. I won’t hide it. But yeah, I think age also is just your perspective. I really am a lover of life and embrace challenges. So yeah, thank you. I try to keep a keen mind and keep my mind active and really interested in history and current events. 
Aaron: Can you tell us about the experiences that you've had this far here in Memphis, just in general? How’ve they been? I would assume they've been positive.
Ted: Yeah, let me tell you the story about how I got connected with you. I wanted to start investing in Memphis. I have seen another investor in Memphis who does a lot of stuff. He has a YouTube channel and he does a lot of Memphis investment and I thought, yeah, that really sounds like a good place to invest. I did a lot of research with Zillow data and found that Memphis prices had been appreciating and all the major zip codes there in the last 3 years and that the rent to value property ratio was high, and so it was a good place to invest. Also, I enjoyed the weather. I think Memphis is in the southern tier of the United States, so it's better. So I set about trying to find property managers and, I think I called and talked to every single property manager in Memphis, and I kind of sized them up on their different policies. There's a lot of different things and issues involved with property management. And, you know, they have to have good communication, they have to be on top of things, and I had a lot of different parameters. It's been so long that I don't really remember all of them. But I went through and I ranked EPM way up there. I thought you guys really have a good professional setup. Ultimately, I found Brett, who I enjoy and is basically my real estate agent in Memphis. I'm happy with him and your property managers, and so that really worked out and I'm very happy with you all. That's pretty much how I got started there and just started acquiring properties.
Aaron: I really appreciate what you have just said about property management. I was speaking to another investor, who's about to come on with us. She's out of Utah, and we were just chatting about property management and investment real estate, and I was speaking to her about a specific topic, some of the challenges that we've had during covid with this sort of uncertainty as to, whether or not, there is a requirement of a tenant to pay their rent, if they're not able to pay their rent, we talked about the private contract that the landlord has with the tenant and should the CDC be able to step in and interrupt that if the tenant is, for whatever reason, be considered to be at risk for being displaced. We just had this incredibly detailed conversation about, you know, the federal government versus contract laws versus real estate ownership, and I finally just stopped and said, listening to myself, only a landlord would nerd out about this stuff. I think about this all the time, I send myself articles all the time that I find online, and so we really love what we do. And I'm grateful that you've picked up on that.
Ted: I think it takes a certain kind of mindset to do what you do there and I think it takes somebody who's really good with management, in particular.
Aaron: Thank you. There's definitely a translation that goes on for the homeowner. So for the listeners, I've never met Ted in person. I look forward to it one day, just coming out to Southern California and just kind of seeing what's there and meeting some investors. Ted is definitely at the top of the list just because I like you and I have already talked about meeting at one point. Having a cup of coffee or a beer, and just get to see your work, your world, which I think could be very interesting.
Ted: Yeah, absolutely. Or in Memphis. I may find myself in Memphis at some point, please.
Aaron: Yeah. I think if we can get through, you know, fall of ‘21 and past the Spring of ‘22 and sort of work our way through this new stage of the pandemic, then, I think we're going to be in a much better place next year. At least my fingers are crossed for that.
Ted: Me too.
Aaron: Can you tell me a little bit about the properties that you own right now? It sounds like you've worked with Brett before, to acquire them, and I think your financing strategies are actually very interesting.
Ted: I pay all cash. I currently have 6 single-family houses. They're all rented out currently in Memphis and I tried to choose areas that I think are good up-and-coming, sort of gentrifying areas. Mostly it's around the Egypt area, kind of where Nike and Amazon are. Just single-family houses and they're all currently rented. I'm sort of a newbie to investing. I have kind of a funny story, I mean, in 2005 I was working in the business office in the library for a very astute business office manager who told me, with housing prices in 2005 going up so much, you should really go and buy a house. I said, well, you know, houses are so super expensive. I can't possibly afford one.  She said, buy a condo. Well what's a condo I asked? I don't even know. This is how clueless I was in 2005. I didn't even know that condos are like an apartment but you own it. That really kind of began my investing career. I bought a condo, and then ultimately years later I rented that one out and bought a house. Then I sold that and bought more rentals and bought my rentals in Memphis. So I'm still really an amateur rookie, newbie investor. But I wish I'd got into real estate in my 20s. I honestly was clueless for so long that now finally, I am starting to realize what a valuable thing investing in real estate is, especially in Memphis.
Aaron: Absolutely, I do want to point something out that you've said that I think most people may be in a different place in their investing career than you are, and I'm gonna make this point. We know that the majority of our listeners, even if that majority is just 51%, are people who are considering getting started in real estate and they don't yet own investment properties and they haven’t really, you know, that their listening, they're reading some books, they're reading some blogs, maybe they're getting their financing together, but they still haven't taken that leap. So something that you've done actually makes you at least an intermediate in investment real estate, and that you've actually done it. I mean what you've done does take risk and it takes a leap of faith, and the fact that you've actually acquired 6 properties in about a year? That is incredible. 
Ted: Yeah, you have to step out of your comfort zone a little bit and I don't think anybody will ever get any gain if they're not willing to step out of their comfort zone a little bit to learn something new. I think that's really the key you have to work, you have to break a sweat, get on the phone, and start feeling it out. That's how. Through talking to the various property managers around Memphis, I started to feel more comfortable about going forward. I think you all answered every one of my questions, no matter how small. So, that's the key. Getting out of that comfort zone and giving it a try, even with just one property, and seeing how it goes. It's really a matter of doing a little bit of work, so you feel comfortable with what you're going to be doing and learning the process. There's a little bit of learning involved, you know, there’s a learning curve, but it's I think ultimately worth it because there are so many people who are afraid of even starting up that mountain. Right?
Aaron: Absolutely. You know, like it's kind of like what we talked about. No. I was talking to somebody else. Again this was another investor that I was speaking to today, right before speaking to you. Investing in real estate is a lot like something I did recently, which I know tons of people have done, it's not that big of a deal. About 4 weeks ago, my son and I climbed to Pikes Peak in Colorado Springs, and the initial part of the climb, which is the first 6 miles from about 5,000 feet above sea level, all the way up to about 8,500 feet above sea level. It was pretty easy. Then as we continued to passed the halfway point, it became kind of difficult until we got to the top. It's 6.5 to 7 hours to do the whole length of it. Ultimately, we were at 14,500 feet above sea level, and the view was incredible. The headache was unbelievable, but it was so totally worth it. But that first step, like you're talking about, that's it. It might even be the most difficult step to take.
Ted: Exactly.
Aaron: You've said just now that you’ve even invested in California, you've had a condominium and a house, I don't know if you're in a house right now or not, but we know that you've got some experience there in California. How would you compare owning real estate in California versus owning real estate here in Memphis?
Ted: Well, I personally only want to own real estate in California in which I will be living and occupying because I am only going to be investing in other states because there are big differences between California and Tennessee, and a lot of the other Midwest states. California is very sort of more tenant friendly and Tennessee is more landlord friendly just in terms of investing. But then also the ROI in California, well, for one thing, there really isn't one! I mean, the price of real estate in California is just so unbelievably high that it just makes absolutely no sense whatsoever to buy investment properties, unless you're really a multi-millionaire. The Midwest is far more of a normal market for somebody with a smaller amount of income looking to get into and start investing in rentals. I far prefer Memphis. I learned a valuable lesson investing in California. I had my condo and the rent coming in could not even cover the property tax and the mortgage payment, and the insurance, and so on. So I was losing, I think, a couple hundred every month and it wasn't cash flowing in any way. It's really the exact opposite in Memphis. You know, you can get into a property without too much and the rent will be enough to make it cash flowing. Property taxes are not outrageous, insurance is not too high, so it's just all around a no-brainer. I tell people, and I have friends, who invest in California, have rentals in California, and I just think it's really a losing battle for most people who are not billionaires. 
Aaron: Yeah. So we've found the same here. When I first got started in investment real estate here in Memphis, this would have been around 1997 or 1998 when my ear was to the ground, then I got my license in 2000, and really started assisting investors. One of the things that I really noticed about the Memphis area, is that there were more people from outside of the Memphis, Tennessee area that were investing in Memphis than there were people that lived in my own community, and I began to sort of learn why that was. I think that people from outside, especially and specifically Southern California - at least 40% of all of our investors live in Southern California - and I think that they've realized for a long time and had realized the same thing, which is that the value-to-rent or the rent-to-value is so much better in the Memphis, Tennessee area, even back before the boom. This most recent housing boom that we're in right now, which kind of started around 2015-2016, you were still able to get almost a one-to-one ratio. Let's say that you had a mortgage on the property and it was an 80% mortgage. You were still getting 10 to 20% above the total cost of ownership, and that would have been, your mortgage, your taxes, and any interest that you're paying: 10 to 20% above that. Now, what's happened, of course, here in Memphis, one of the things that's driving rents up all over the country, is that even though interest rates are at an all-time low that normal owner occupant is having such a difficult time, finding affordable property to purchase here in Memphis. So, they're resorting to renting, because they still want to have that homeownership experience. They're renting property instead of being able to purchase it, because they're honestly fighting investors for these same properties. On the rent growth point, I want to make sure that we get to today and have a conversation about tha. Again, homewire.com had an article that was released this morning and it talked about the rent growth capacity for the remainder of 2021. And it's almost exactly like that figure that I gave before about housing value growth being 12%, for the year and how this is the first time that a number like that has been achieved since 1979, and rents are the same way. We are experiencing what you kind of touched on earlier, that sort of inflationary factor. We're seeing nationwide projected rent growths, which will, in essence, put all of our rental properties at an annual rate of about 10 to 12% overall increase from January to December, 2021, which seems small. But as a property manager, here's a neat thing. One of the things I've been doing lately is just asking for more rent. These properties that are coming in the buyers will say, well I think I can get 12 or 13 hundred dollars per month for this property, and I'll say, you know what, why don't we go and ask for 1500, you know. Let's just go for it and see what the market will support. I'm finding that the market for now at least, is supporting these inflated rental amounts.
Ted: Yeah. It doesn't surprise me. Absolutely rents are going up. I currently rent right now here in California. My rent just went up. So yeah, it's not strictly in Memphis. It's happening all over.
Aaron: Did you say that you own investment properties in other locations other than Memphis? 
Ted: No. Only Memphis currently. I am looking maybe to branch out sometime in the future, but pretty much Memphis is it for me right now.
Aaron: That's awesome. Do you have a vision for next year? Like you're a well-read person? I know that you're a constant student. Just like me. You've got to have been reading articles projecting, you know what the real estate market is going to look like in 2022. Do you have any read on that personally?
Ted: Yes, mostly it's the most important for me in terms of how home prices are going to look here in California...I'm really waiting. Is there going to be a correction or not? I think it will be revealed by 2022 if we are going to see any fallout really from COVID or not, and that's kind of what I'm thinking. I may get into a house or myself and I'm kind of holding off because it's going to be a big house payment and you know, it's going to take all my resources to buy a house at these prices. But yeah, I mean, my plan for 2022 is to buy a house for myself. Most likely, depending on market conditions, if there's no real serious change, I will be going ahead and buying a house. But if we see prices starting to correct, then I will wait and see how far they may go down if they do. But yeah, then probably I'll resume getting back into Memphis rentals. More Memphis rentals. That's kind of my plan for 2022.
Aaron: Well, I think it's brilliant. We've had several investors this year that have done very different, more imaginative, financing techniques and strategies to improve their own home, you know, or apartment wherever it is that they're living or that they want to live on the back of the value growth that they've experienced with their Memphis properties. 
Ted: Yeah, absolutely. Yeah, I can see doing, maybe some cash out refinancing on some of my properties. Currently I've only financed one. All the rest, I own, all cash, and they have appreciated. So yeah, that's a great option if you want to generate some cash for maybe another purchase. That's a great way to do that. 
Aaron: Yeah, I really have no analogy for it but, for the listeners that don’t yet own investment real estate, we've got a little bit of a story to tell you, a secret to tell you. Being in the game of investment real estate. Being in that world is what makes you money. You can't make money off of real estate unless you own it. For instance, a lot of my investors that owned property all the way back, purchasing it all the way back into 2002, 2005. These people who like Ted, purchased and held these properties, during more normal economies, they experienced all the benefits of investment real estate ownership, without seeing this massive value growth. So for investors looking to realize that cash, and take advantage of that value growth, that purchased say around 2014 through 2017. So many of those investors said, you know what, this has been great. I've really enjoyed the last 6 years of owning this real estate and I'm out. They sold, and man, they left the experience with smiles on their faces. They were so pleased that they were able to double their money in 6 years or in 8 years and, for my investors that purchased 20 years ago, of course, they've more than tripled their money. Ted, I totally think you should do that. I think you should cash out refi wherever you want to be, it's great interest rates, you've made great value growth on these things. You gotta do it!
Ted: Yeah, absolutely. It's the smartest, smart move.
Aaron: Yeah. And you know, that kind of dovetails back to what I said before. I actually said these words, I said investing in real estate is hard. And what I meant by that is, is this. I've got a mutual fund, right? And you probably do too. You've got some sort of employer funded investment because of where you work and they feed that maximum matchable amount into your 401k or your mutual fund, your simple or traditional IRA, whatever it is, and they do that every year. You never see it. They take it out of your paycheck and that's easy, right? I’ve got to tell you, even in the midst of this amazing economy, I've been looking at the Dow and watching these value growths, and then going over into my portfolio and looking to see how that's benefiting me, and really there's no major year-over-year benefit. It's not as you know, the high highs and the low lows that are possible in real estate. I do think that real estate is definitely an investment worthy of somebody like you, and your intellect, because you're able to engage it, manipulate it, imagine the possibilities of it, reorganize it if you want to, take out the value, infuse more value. So let's try to end on a sort of a visionary note if you will for 2022, 2023, and let me tell you what, I see, and I'd love to hear your thoughts on it. We do have a coming correction. There are several articles out there from the Washington Post, the New York Times, homewire.com, and politico etc. All kinds of different websites that are out there that are talking about the looming housing crisis. And so, from Memphis Tennessee, which there's only a million people here, what we consider what that housing crisis will look like, here's what we see. We don't necessarily see a correction in pricing. We do see a softening in the contract negotiation capacity of the seller. So basically, the sellers are not going to just be able to ask for whatever they want and get it. Sellers are going to have to have to accept negotiations that are at or around asking price or below asking price. Also, they're going to have to give concessions and maybe even make repairs. So that's new. Right now, what we've been saying nationwide is that sellers just get to ask for whatever they want, and they get it. So, the first thing is that the market is going to soften a little bit. The second thing, of course, is that as these eviction protection laws or whatever we want to call them expire, you're going to see foreclosures. You're going to see houses that are locked up by tenants not paying their rent, refusing to move, not being allowed in the courts to be evicted. They're finally going to be loosened up. There's going to be more liquidity in the courtroom and we're going to see so many more properties available for purchase. That's kind of what we're seeing happening starting in 2022, unless there's some sort of major change that we can't see coming.
Ted: That's great to hear. So, do you think there's going to be price reductions? Or do you think prices are just gonna kind of hold and there's just gonna be softening in negotiation?
Aaron: So I think real estate is stratified, if you will, right? Like, I can just imagine a property near UC Berkeley that you could be interested in purchasing. I imagine it being like a 1930s built bungalow or some sort of really awesome, older construction type property. I could be wrong. I don't know what Berkeley's like.
Ted: Yeah, they have older buildings there that just go for exorbitant prices.
Aaron: Right? And I'm sure they're gorgeous.
Ted: It's in the eye of the beholder. I think it's older houses. Yeah, I'm sure some of them are. Yeah absolutely.
Aaron: Yeah. So, if the same house there that you might be looking to purchase is in sort of the upper middle income to upper income strata, here in Memphis. So you asked if the average prices were going to drop or if there's going to be a softening in pricing, I would say on the lower income strata, absolutely. One of the reasons why. I know some of the properties you purchased. In your price range, sellers are able to get more for those properties than ever before and what I believe is going to end up happening, is that the actual real value of those properties is going to soften to where investors aren't going to be as willing to spend the full asking amount. They're going to go in with home inspections, there's going to be more time for the buyer to be able to get a feel for the property before they make an offer. Right now there's just no time, right? You have just got to jump in, you have to put out that repair contingency, an inspection contingency, and if the house is full of holes, then you say, you know what? I'm not even going to negotiate. I'm just going to walk away because that's the smart thing to do in this kind of market. So I think that the buyer is going to have more time and that's probably the most important thing and I think sellers are going to be willing to wait for the buyer to make decisions, because right now sellers are in a position to where if you don't purchase it and move quickly and have all cash, with no inspection contingency, and you just want to close in one week, that's the kind of buyer that sellers are looking for. So I think they're going to be more sellers that want to say, hey, you know, let me really kick the tires on this house and get a feel for it. I do think, you know, just talking about strata, I think that the upper income housing in Memphis and the surrounding areas, which really start around 750, three quarters of a million, all the way up to 2 and 3 million dollar properties, on average, and of course there are palaces that are so much more expensive. I think that is really where you're gonna see pricing soften because there's just not going to be as much of a demand for that type of construction and, in the middle income housing, it's going to be the same as it always is, just very competitive. So depending on what type of investor you are and how much money you want to spend, and all of that, you're going to  experience something different within that. Here’s the good news! I want to end on a high note, and then if there's anything else you'd like to say, I'd love to hear it. The good news is this... History has proven that rent amounts and the amount of money that the average tenant is willing to pay for real estate, and in our case it's single-family income, is a trailing indicator of overall economic condition. Several articles that I've recently read talked about how rents are following the increase in property values, right? Because rent's are speculative; they are so much more speculative than housing value. You know, housing value is based on the recent sales, recent appraisals, recent refinancing, and recent financing, so that's a pretty set figure, how much that property’s actually worth. Well, rents are speculative. They've got to either come up or drop based on what the buyer is willing to pay. So what’s happening right now in the Memphis area at least, is that there is no product to rent. Basically you can almost ask for whatever you want. As it is a trailing indicator, even when there's a softening in the market 6 months, 12 months, to 18 months from now, rents should remain high for the next, I'm going to speculate, 18 to 30 months if there's a correction. So for people who, like you, own real estate, I would say let's renew that lease, let's increase that rent, let's really take advantage of this great economy.
Ted: Yeah. That's the big question. Is this bull market going to continue in 2022? You know, one interesting thing if you look at the numbers, I'm really hoping that we see a lot more inventory coming online on to the MLS and for sale, because I was hearing somewhere that in 2020, a million people, like the number of people who list every year is very kind of constant, and there was sort of a shortage of a million people in 2020 who chose not to list their property and then add that to the number of people who have not been paying their mortgage who are in forbearance, which is maybe another million or something, just for the United States.  What are they going to do when they come out of this forbearance? Are they going to sell? What's going to happen? Are they going to get a loan modification or whatever? I think there's a good chance and I'm really hoping that we're going to see more inventory. Now, can this bull market of buyers absorb that? That's a good question. I mean there's a lot of demand, interest rates are very low and so, it may well be that yes, there's an increase in inventory, a lot of more houses come online, but the demand is so bullish and so high that it really will not even make a dent in housing prices. I think we'll see that in 2022 and 2023, hopefully.
Aaron:  Yeah, I think we'll see it. I think when we get into the second quarter especially we're able to look back on Q4 of this year, 2021, and Q1 of next year, we will see a two-quarter trend of more properties on the market. I know you're probably reading this or watching this but listeners, I just want to encourage you to look up the National Association of Realtors data that's out there. It's free for you to get. They release it every quarter. For us realtors, they release it every month. They’ll tell  how many new units were put on the market, listed and whether or not that's gone up and down. The same thing for new construction that's also very informative to a buyer for what the climate is right then, and to watch that. I actually agree with you that I think you're gonna see a ton of new property on the market and, on the matter of forbearance, another statistic that I read this morning was that right now anywhere from 0.9 to 1.9%, of all residences are in some form of forbearance.
Ted: It's not a small number. 
Aaron: No, it's massive.
Ted: Yeah.
Aaron: And so, just depending on how those people deal with the fact that they're no longer protected from foreclosure or from some sort of debt collection action against them, it will inform the open market very quickly. One last thing before we go. I hope that we can begin to talk about how to take advantage of the upcoming foreclosure acquisition opportunities that are there. You know, they won't be amazing deals with the foreclosures, but they could be 5 to 10, to 15% below market, and that there's a lot of room right there. So that's going to be fun to watch.
Ted: Absolutely.
Aaron: Well, thank you so much for your time. I know you said it's more or less on your lunch break, which is great. So, I apologize if you're clocking back in late, but, thank you so much for coming on.
Ted: Sure, thank you for having me Aaron. Great to chat with you.
Aaron:  Always a pleasure here as well and I look forward to talking to you more soon.Ted: For sure. Thank you Aaron. Have a good day.

2021 Housing Market Projections, Achieving ROI, & Local Memphis Investor Interview

How do you achieve your ROI goals in today's property investment market? Hear our projections for the housing market for the rest of 2021, and Glenn speaks with Amy, a Memphis-based investor, who describes her experiences of managing tenants for her own real estate investments.
2021 Housing Market Projections & Achieving ROI in Today's Real Estate Market
Richard: So in this segment, we're going to talk about 2021 and where we are now nearing the end of the second quarter. How do you think things are going to go for the rest of the year guys? And how do you see mortgage rates changing and the demand for property?
Brett: Personally, I think that what we are now seeing is a cooling. Not a major cooling, but a little bit of a dip. In the first quarter, we would write 40 offers and get 3 accepted. Now, we are writing 20 offers and getting 8 accepted, so we are starting to see a better advantage for our investors. I still believe the best time to buy is going to be October, November, December, and January.
Aaron: It's been such an odd year for us. I've seen in my own neighborhood recently, in Germantown, an increase in the number of days on market. In my neighborhood in particular, which we would consider a move-up neighborhood, a move-up neighborhood would be your next step up from an entry-level house. Where we live would be like a very nice house. I'd say that we live in a very modest home in Germantown, in one of the more affluent communities in the Shelby County and Memphis area. There are more houses on the market right now. There are for sale signs that don't have those little sliders across the top that say contract pending or sold, or under contract, and those houses have been out there for several weeks.
Brett: The reason being is because almost everybody tried to get their property purchased and get it closed. They get settled in and have two or three weeks for the kids before they are back to school. So the good news for homeowners that are looking for a home, is that there's a lot of inventory now. Not a lot, but there's more inventory than there has been in 6-months for real estate investors. As the owner-occupant market cools, the investor market will cool. I don't know why investors do this, but many property investors, not good investors, but some of these investors follow the leader too much. In other words, they follow them right off of a cliff. 
Richard: So, like lemmings?
Brett: Right. Exactly. So, why wouldn't you wait until the property market takes a little dip and wait to buy in October, November, December, and buy a better deal. I'm hoping these so-called experts that just put out their discussion about how property values are gonna continue to increase, and they predict the next five years is gonna be a substantial increase. I tend to think they're wrong. After all, what drives the market up? It is demand. The demand is eventually going to stop. I believe that the hedge fund groups are the ones that drove the demand for property. Once that took off, then homeowners panicked, they started buying, and they ended up overshooting prices, and real estate prices snowballed. But now all that's coming to an end. So I predict we're going to see some normalcy back in the housing market. I think the so-called experts, who probably have never held a real job, are wrong in my opinion. 
Glenn: Well, and keep in mind that when they talk about the market in general, they're not really talking about real estate investors, as that’s a totally different game. I would never dissuade one of my investors from buying, but I told several of them to wait, until Q4. Wait until the winter or once thanksgiving hits. That's our time to start looking through the end of the year because then you're gonna have more opportunity because fewer owner-occupants are going to be buying.
Brett: When the market is hot as soon as wintertime gets here, what do investors do? They just go silent and cool off. It's the holidays they are going to enjoy time with their family and will pick back up buying properties come April when everybody and their mother is trying to buy. A smart real estate investor needs to be buying between Halloween and February 1st. That's when you need to be buying.
Richard: So if you feel cold, go and buy a house!
Brett: Yes exactly, that should be the new rule. If you're chilly, go and buy an investment property.
 
Experiences of a local Memphis Real Estate Investor
Glenn: Amy, welcome to the Behind the Curtain Podcast. Here we talk about real estate investing in the southwest Tennessee market, and Amy is an investor that's been working with me for a few years, right here in Memphis, Tennessee. I've helped her find a few properties, she's one of the rare local investors that I have. So Amy, tell us a little bit about why you chose to invest in real estate versus stocks and bonds of Wall Street.
Amy: First, I just wanted to thank you for having me on your podcast today. I'm really grateful for this opportunity.
Amy:  So you asked why I was interested in investing in real estate versus stocks and bonds? I'm really attracted to something that I can see and hold, and look at, Numbers on the spreadsheet are not very interesting to me and I don't understand them, at least not how they go up and down. I know that everybody needs a house and I know what I would like to have in a house, so to be able to go and look at those sorts of things and meet and interact with actual real people, that’s just a good fit for me. You know, you said I was local, I do like to go and put eyes on my property and I talk to all of my prospective tenants before and throughout the rental process. So I really enjoy that active aspect of a real estate investment.
Glenn: Well, you know Amy, part of my job is to find the right properties for you. You and I have looked at many properties together that you didn't make a bid on, or that we bid on that you didn't win, and that's just a part of my job for every 10 that we look at. We might find one that works for you and those are the ones that count. So what kind of real estate have you invested in Memphis?
Amy: Well, so far I have two single-family homes and I have a duplex. You found the duplex for me and it wasn’t something I’d asked you to look for, however, it's been my most profitable unit by far. So I'm definitely interested in acquiring more multi-family housing as well as single-family homes. I've never flipped anything, but I'd be interested in doing that because I really enjoy puzzles and decorating and looking at tile, and all that kind of stuff. Rather than split, I think I'd redo and then hold. So yeah, I would repair and hold.
Glenn: So how well have they performed for you?
Amy: Thus far, extremely well! I've never had any vacancies. I started in early 2017. I've never had more than two or three days, that it took me to clean out the property, worth of vacancy. I've been extremely fortunate to have, never had any missed rent payments. I mean, part of that is doing a good job, screening tenants, but all of my properties in Memphis have been profitable and in demand.
Glenn: Did you have any issues as a result of COVID? Do that impact your tenants? 
Amy: I did have tenants that lost their job, but they were all able to get the $600 payment, and while I gave options to help out my tenants, nobody took me up on our offering. They all continued to pay their rent on time. 
Glenn: Well that's outstanding.
Amy: Yeah.
Glenn: What are you looking forward to in the future in terms of real estate? How many more investment properties do you plan to pick up? What's your long-term objective in this?
Amy: Well, you know, eventually I'd like to quit my day job and live off the somewhat passive income. I have been inactively managing it. It's not like I have to go into the office every day. But that's the passive part of it I would say. So I would love to have maybe 20 houses or 20 doors.
Glenn: Right now you have four doors basically? 
Amy: Yeah. 
Glenn: Now, are you self-managing or using enterprise for your property management?
Amy: Well, since I am local to Memphis, and I do enjoy the interaction with the tenants and all that comes with it, I am self-managing.
Glenn: And how has that going for you? Do you have any issues with it?
Amy: Yeah, some days are better than others. Things don't break when it's convenient. So, I've been staying on top of a lot of preventative maintenance, and as I said, I really thoroughly screen tenants before I rent out. So I’ve not had any issues with any tenants. So, it's really just been routine maintenance. Air conditioners break, so getting those fixed when that does happen - but it hasn't been bad. It's been manageable, of course, but it's a thing of scale. I might need to look into services with EPM to help with the volume. 
 
Learn more about real estate investing at:https://epmrealestate.com/podcast/2021-housing-market-projections-achieving-roi--local-memphis-investor-interview
 

Service Level Expectations: Property Sales Team & Property Management

Aaron Ivey & Brett Bernard discuss the expectations for the level of service you should expect from a property management company, as it compares to what you became accustomed to from your sales team. They provide real-world examples where trying to save 2-3% in management fees, has cost a home owner dearly. During the conversation, Joe Viramontez's name came up, so following this conversation we have given you an opportunity to hear our interview with Joe from Episode 0009.
Joe Viramontez joins us to talk about his real estate investment experiences, his bad property management experiences, and he shares how he sought expert property management and hired Enterprise Property Management, Inc. for the past 10 years. Joe also shares stories about his entrepreneurship outside of the real estate industry.
Find out more about our Real Estate Investing Podcast: https://epmrealestate.com/podcast

Top 8 Real Estate Investment Tips

Brett Bernard and Glenn Greene share their Top 8 Real Estate Investment Tips. If you are a seasoned investor or someone just starting out on your real estate investing journey, these tips will help you succeed with investment properties.
Top 8 Real Estate Investment Tips
Understand The Local Market’s Trajectory
Maximize Use Of Proper Technology
Plan For Cycles In The Market
What Is YOUR Idea Of Property Value: Pricing Relative To ROI
Become Aware Of Local & State Regulations
Be Sure You Have Enough Capital
Consider Risk Management: Investment Risk Mitigation
Have Patience. Structure Your Investments For The Future
 
If you'd like to learn more about real estate investor services from EPM Real Estate, Enterprise Property Management’s real estate division, please visit us at epmrealestate.com.
Subscribe to this investment property podcast at: http://BehindTheCurtainPodcast.com
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Twitter: @EPMRealEstate

Raising ROI & Interview with Buy & Hold Real Estate Investor

Is the HOT real estate market cooling? Asking price vs ROI: ways to buy rental investments to maximize ROI. How will foreclosures impact real estate market inventory? We chat to an experienced property investor with investments across the U.S., about his long-term buy and hold approach to real estate investing.
If you'd like to learn more about real estate investor services from EPM Real Estate, Enterprise Property Management’s real estate division, please visit us at epmrealestate.com.
Call EPM Real Estate at 901.671.1015
Subscribe to this investment property podcast at: http://BehindTheCurtainPodcast.com
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Twitter: @EPMRealEstate