Disclaimer: Transcripts were generated automatically and may contain inaccuracies and errors.
Uh, I think the thing that probably irritated me the most is when we were doing due diligence, there was a resident who was a relative to the old owner and his rent was 250 bucks a week. And everything was included, water, gas, cable, internet, electricity. And I asked the broker, I was like, what do you want me to do with this?
It’s like, how can I make this work economically? And so the guy paid rent for three months and then he didn’t pay rent for the next three. And he didn’t turn in his key. So we had to use it.
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Hey, what’s going on with trap? This is James Bryant from better U for you. I’m here with my main man, Jerome Meyers, Jerome. Have we decided what we’re going to call this episode that comes out. We have no clue, random ramblings, durations, random ramblings. So last week we talked about, um, you know, some of the obstacles that people face when getting into multi-family investing.
One obstacle we talked about was, um, education. The other obstacle that we really kind of honed into, uh, was people saying that they don’t have enough money. Um, or don’t have the money to invest in multi-family properties. And, you know, one of the big takeaways is that, you know, really when it comes to investment, um, regardless if it’s education, uh, whether it’s, uh, a real estate investment, we really are investing in ourselves as much as we are in that project.
And so, regardless of what you’re doing, you have to really be ready and willing to invest in yourself. Um, investing in yourself, getting the education that you need, transforming your mindset so that you can be the investor that you need to be. One of the things that you really need to focus on. So, you know, today, you know, we were trying to figure out what we’re going to talk about.
And, you know, one of the thoughts was, you know, we do our separate underwriting for these deals. So Jerome will do. His underwriting with his assumptions, I’ll do some underwriting and assumptions, and then we’ll kind of get together like a mastermind and bring those things together and talk through what the different things are that we saw.
And then we eventually come up with a model that we can both agree on and be able to explain what our assumptions are and why. Uh, coming from a couple of different perspectives, but sometimes, you know, no matter how well you plan, no matter how well you think it out, when you actually get the property in, you’re executing the plan things don’t always go according to plan.
Um, and so we’re going to talk a little bit about that today and just see where this conversation goes. So, you know, Jerome, has this ever happened to you? Kind of what we’re talking about, where you did your underwriting, you have your numbers, you go into it and an executes exactly. As you laid it out.
Every time. I mean, I’m perfect. I know exactly what’s going to happen before I close every single time. I know who’s going to move out in the middle of the night. I know who has bed bugs and fleas. And I know, I know everything before we even get there. HPAC units are going to clock out in the middle of the summer without question.
Okay. All right. Great. And anybody who tells you that nonsense run run fast because the fact that the matter is nobody knows, nobody knows these apartments, a wild ride with man. And so, you know, trying to underwrite to a 10th of whatever percent is. Just absolutely ridiculous, man. You got to have some fat in there.
You don’t know what’s going to happen. I mean, let’s look at Greenbrier, right? So that was our entry into the Greensboro market. Uh, we thought we were going to rehab four units. At 15 right now. Yeah. That was amazing for our top line revenue, but it definitely hurt our capital reserves and, uh, uh, you know, what do you do with that?
How do you plan for that? How do we know that in the first year you’re going to have 15 journals. We had four vacancies. When we took the property over, within a month, we had seven and then we continued to cycle people out because we realized that they weren’t the type of people that we wanted to live in our community, or because we raised rents, they moved away.
And I absolutely knew none of that before we went in, but I did decide that we were going to do a 35% vacancy for the first year. Um, and I was right on that. Yeah. But we also made sure we had some additional contingencies as well in reserves, uh, in that particular one. Yeah, go ahead. We did. No, I mean, we did in that’s your genius, right?
You’re super conservative. And you wanted to make sure that if something happened, I didn’t have to call anybody and say it. I need you guys to send me a check. It’s called a capital call, but this is how it manifests. Hey, I need to send me a check we’re out of money. Can you fix this for me? Nope. Daddy wants no operator wants to call the investors for another capital call.
Nobody. That’s like a call of last resort. Make sure you use the proper terminology, your partners. Ah, this is true JV deal. That is true. That is true. So you don’t want to call your partners asking for additional resources. Um, that’s something you really don’t want to do. So you want to take care of a lot of that upfront, but there are things that you can not plan.
And so it’s not about preventing those things because those things are going to happen. It’s about having some type of a plan and having a cushion in place to be able to absorb it, fix it and move on. So you were talking about Greenbriar, you know, there were four vacant units when, you know, we S we took the property over.
I think you said within the first month they were, what? Seven vacancies. So three, two people moved down in the middle of the night. One person just decided they weren’t going to pay rent. And so we ended up evicting them. But yeah. And then the other piece too, is when you start transforming a property that has been neglected, there are going to be some deferred maintenance issues, but they’re going to be some tenants that don’t want to pay for the additional services that you’re providing.
Um, in that particular one, um, you know, I recall when we did the inspections, talking to people who were saying they had maintenance tickets that were several years in waiting for action, whether it’s, uh, having windows repair, whether it’s, you know, doing something with railings, um, people were really. In a batch in bad shape in terms of getting a response to their maintenance issues.
So we come in, we have the list, we start making repairs while those repairs costs money, and it actually costs money to run these properties properly and to invest in them. And then when you start doing that, you know, uh, some of the tenants don’t want to pay the. Rent this require in order to provide the level of service other tenants, uh, liked it the way that it was so that they could do some other activities.
Um, they are in those units. And so we’ve spent the better part of a year transforming that property and continuing to just change the face and the atmosphere in, uh, just the whole vibe of that committee. Yeah. I mean the one thing, kind of a trick of the trade insider tip for you guys. When you look at the parking lot, you can tell what type of property you have based on the cars is in the park.
It’s sad, but true and not so much like the make and model, but the year of the vehicle matters, um, newer cars mean a little more disposable income, um, broken down cars or vans or cars that look like they’re being worked on in the parking lot is a pretty good indicator of some other things. So, you know, One of the ways that we measure is when you drive by what is parking lot look like, and is that parking lot full in the middle of the day,
having a full parking lot in the middle of the day. So something to watch out, a lot of people working, you gotta have a lot of people working at home. Is that what it is? Uh, uh, Not in the price range that we are maybe for this stuff, that’s, you know, a thousand dollars a month. But, you know, I mean, in that, in that five to $800 range, most people aren’t working from home.
Okay. All right. So what are some other things that you’ve learned, um, or based on your experience at Greenbriar? What were some of the things that you did differently in a deal that you’ve purchased after we purchased green buyer? Um, all the utilities on every time that we do due diligence. Now that’s a non-negotiable and I think that’s the biggest one, because there were just so many surprises in that transaction at the same time that we did.
At the same time that we did the Greenbrae transaction, we bought two quads that were one bedroom, one bath, and. The owner, I don’t want to say he misled me, but he wanted to sweep some stuff under the rug that was ended up being pretty big issues. And one of them was, and I don’t know if I’ve talked about this before or not, but there was a raccoon that climbed into the duct work, fell down into the indoor know.
Oh, wow. And was seared on the heating strips for the form. And so when we were walking through the unit, the resident had all of the ducts or vents taped off and we’re like, this is weird. And then they had window units going. Cause it was summertime. And I was like, this is kind of silly here, but anyway, we ended up in that space outside.
There’s something going on here. I don’t know what it is, but there’s something wrong. Long story short. I told you guys the end of the story, before we got started, the raccoon got into the attic, fell down into the condenser and winter. He was seeking heat. Right? And so this was in, this was in June when we were doing this wall.
So for the six months give or take a little bit, there was a raccoon melted on the HPAC. Wow. Right. So I mean, and he was like it. So we turned on the unit and we got this awful smell that came out and then it tripped off and he was like, oh yeah, I don’t know. It’s just still air. Don’t worry about it.
And so, yeah, we, at the end of the day, we did get a closing concession with them that allowed us to replace a unit if we needed to, because we didn’t know how bad the issue was, but anytime somebody says, Hey, don’t worry about it. You probably won’t you about it. Yes. Yes. You absolutely want to worry about it.
Absolutely. Even if you don’t do anything with the pricing, if you don’t retrade, as some people say is kind of a bad thing to do, uh, you at least want to go in eyes wide open because the worst thing you can do is just accept that there’s nothing wrong. Go into the new deal. And then you’ve got this unexpected expense because nobody likes the surprise.
Like, no, I don’t know anybody that likes a prize bills. They might like to try finding surprise money, but nobody likes whereas bills. Yeah. Like Owen surprise money. We’d like surprise income, not surprise bills. And so, you know, for, so for that property, the one that you P w that we purchased after Greenbrier, which was towns at Lindley park, you know, one of the challenges, uh, on that property.
Is that the former owners ran it as student housing. And so they were renting out the property by the bedroom, but not all of the units had both bedrooms occupied. So there were some that would have, you know, there were a couple of townhome units where there were people paying for the quote unquote bedroom of one year, but they had full access to the whole town.
Because the other bedroom wasn’t rented in within it’s also, since it was set up a student housing, that also meant that all of the utilities were being paid by the owner. And so we’ve had to really go in and transform that property from student housing into a workforce housing model, a soldier role.
What are some of the challenges that we faced in doing that train?
Where to begin my friend where to begin. Uh, so I guess it’s important to say one thing here and I don’t know. It’s it’s painful for me. Right? Cause you go to these places is where the area’s better, but you still see the same issues. You still see bugs, you still see people using drugs. You still see all these things that are traditionally undesirable.
And it’s like, okay, well, All right. We crossed over the street. So things are supposed to be different now, but the fact of the matter is it seems like all these problems are pretty persistent. And for those of you that don’t know Jerome talking about the demographic, look around the locations of the two different complexes that we’re talking about, um, which is, you know, Greenbriar, which is kind of on, in an in-between area.
I mean, right behind where Greenbrier is at is a sweater. Class a, you know, apartment complex that really a butts to our property, but with, on the particular road that our property is on, there are some undesirable elements, one, the extreme ends of the street, and there are some things that were going on on that property that we had to go in and make sure that we took care of, um, the other property Townsend, a, the park is not too far from the university of North Carolina at Greensboro.
And compare to where Greenbrier is at the era as a whole, as much more fluent, but we still ran into the same human condition issues in both places. Yep. And so it’s interesting though, when you look at this, I don’t know if it’s sensitive data census data, or I don’t know who the other reporting body is that some people use, but when you look at that data, The Greenbrier area is ranked a B, and this rain garden properties ranked to see believe it or not.
So, you know, I don’t know what determines the fluence and this particular software product that we were using to look at the different areas, but I just thought that was interesting. Um, but. There there’s so much there. Right? We came in, we knew. So our business plan was, this was a paper. Um, Improvement. We were doing, basically, we were changed in a way that the leases were rented or written.
And by changing the way the leases were written, we thought that we were going to be able to reduce some expenses. And we, in our proforma, we dropped down what we thought our rent, our income was going to be for the sake of. Given us some of that cushion. And so what happened is we re we were able to exceed or meet.
We were able to exceed our rent projections. Um, and actually they, what we’re able to collect today is consistent with what our aggressive proformance said. But we didn’t share that with anybody that joined us on the deal. But, you know, we, I thought we were going to be able to come in and just consolidate units where people were just one person in a unit and that didn’t work.
It still hasn’t worked. Um, people who didn’t have roommates. Didn’t want roommates and they made it pretty clear. Uh, I think the thing that probably irritated me the most is when we were doing due diligence, there was a resident who was a relative to the old owner and his rent was 250 bucks a week. And everything was included, water, gas, cable, internet, electricity.
And I asked the broker, I was like, what do you want me to do with it? It’s like, how can I make this work economically? And so the guy paid rent for three months and then he didn’t pay rent for the next three. And he didn’t turn in his key. So we had to use it. And this is like we have a Hey guys, back in 2016, me and the team decided to formalized dream catchers as an organization to help people achieve their wildest dreams.
If this is you, please visit our firstname.lastname@example.org in order to find out the details of our services and how we can help you become a dream. Talk to you. So I won’t call it dad. We have one person and then the unit and then another person who wasn’t paying. And so we decided before we went into the properties, Hey, we’re going to get everybody on one lease.
Right? So everybody’s responsible for the whole amount of the unit. And that way we don’t have to worry about these issues where one person moves out, one person gets evicted, whatever, uh, that actually is working out really well. And so. We’re we’re walking down the path of the business plan. And as usual, when we get into a project, we get asked the question, are you sure you want to do it this way?
Um, And every time we’ve told him. Yeah. And them is whoever the property management company is. We want to try the business plan that we put together before we bought the property. Well, it might create some issues. Yeah, we understand. But we want to try to do the business plan that we said we were going to do.
It made sense before we bought the property. We don’t see anything that makes it not make sense now. So let’s do, and it seems like we’re getting rewarded for that stuff. Yeah. You know, but I mean, you know, this is a little thing. So when you talk about, you know, level of service and some other stuff, you know, we walked in to that property.
The old property management company cuts the power off the day before we closed, they cut the gas off it’s February three, by the way, they cut the gas off. So people don’t have heat. They don’t have electricity. Fortunately we were onsite when the water company came out to turn the water off. Because that was next.
And so, yeah, there’s some common decency, some common courtesy that we kind of expect when a property changes hands, but we didn’t get much of that there. And, you know, there’s nothing that we can really do, but we do have to suffer the. Brunt of the blow back from people who are upset and frustrated because well, they can turn on their heat.
I would say it’s just like when we talked about Greenbriar and the issue that we had with making sure that the utilities were owned when we did our due diligence, I think, um, as the case study here is making sure that we have a utility transition plan in place. Uh, w when we closed, when we’re closing on the price, And that the people that we’re purchasing from and the property management firm, um, you know, everybody’s on the same page as we’re moving forward with that, because that’s the, you know, it, it reflected bad on us, um, as the new owners to, oh man, as soon as this property has changed hands, now that utilities are off and people couldn’t do that.
Cause it was still in wintertime. Um, And so it made for a difficult week, you know, they’re on property. Yeah. More like nine days on the gas. It was, it was bad. Nobody wanted me to come out and I mean, but those perfect example, right. Those residents have been mistreated for a while. Um, and there was a young couple there who.
Man. I don’t know. They decided that they just weren’t going to pay rent. So from January to may, they didn’t pay rent. Then they got evicted. We put a judgment on, you know, their social security number or whatever. And so in July they came back and paid everything that they were, they owed it. And so, you know, it, you can pay us while you’re there or you can pay us after you leave, but you are going to pay us.
Yeah. That’s kind of long and the short of it, I mean, or are you going to have a really hard time finding someplace to live with your name being on the lease? And there’s a lot of folks out there that try to practice this cash for keys thing, where they pay somebody to move out so that they can rewrite the year.
I think that’s a bad practice. Because all you do is pass tennis around a residence around who aren’t going to pay their rent. And then nobody can, nobody’s being warned after the bad experience. And I feel like owners, we need to align. I think we need to protect each other because I mean, who wants to get a resident?
Who’s not going to pay.
I deeply desire for there to be some honor and integrity in the game. And it, I don’t think it’s appropriate for me to make that resident. Who’s not, uh, I don’t want to say behaving, but I don’t want to have another word that comes to mind. Have them go be somebody else’s problem. It’s like when you’re at a job and you have someone maybe working on a team, that’s not pulling their weight, but then you give them a glowing recommendation too.
So they can go and work for another unit because then they can be somebody else’s problem. Yeah. Yeah. Nobody wants to do, you know, because you don’t want your name associated with. That person and what they’re doing. And she’s like, you don’t want to be passing around tenants that are not living up to their end of the bargain.
You know, a lot of times we’ll hear and you’ll see the stories about the landlords that are not really holding up their end of the bargain. Um, but there is part of that bargain that that tenant, um, is, is coming to the table to hold as well. So it is a partnership between us as owners and the tenant. Um, and we really want to make sure that we’re continuing to do our part in that partnership because we really do believe in doing well while doing good.
Um, you know, we believe in that we can continue to be profitable while providing a great level of service. In the units that we own express that to all of our partners. We talk about that with our property management firm. And we want to make sure that everybody understands where we are and where we’re coming from so that there can be no misunderstandings about what we’re talking.
None whatsoever. I think we’re very clear on that. Yeah. I mean, if we, if we don’t improve the community, then I think all this is for not right. So back to the challenges there. So. The the outside HPAC units fell in one after another, after another, after another, and after being stressed tests by the may and June heat, it was just all right.
Another service call. Another service call. Oh, this condensers failed. Oh. Let’s get a new unit and let’s get a used unit and let’s solve these issues, but you know, it just, it continues, you know, once you get things in shape and you figure out what the true deferred maintenance is, then you can get a game plan together and execute on it.
But. Until you actually get in there. You don’t know, you can guess, but you don’t know. And I mean, I I’m troubled because I was looking at a deal today for somebody in there, buying it with interest only on Heartland. And that interest only is for three years. And the deal only works because they have the interest only dollars.
And if they ever have to do principal pay down, then the cashflow goes,
is that a sound strategy, I guess, for some. But for me, I mean, I want the deal to work. If you know, you’re actually paying down the debt and you’ve got a home sold it for more than three to five years. Yeah. For that one, I’m not familiar with that deal, but it really depends on the property, the operational plan, what kind of, you know, the turnaround that they have in, uh, getting the forced depreciation?
Um, I would be, uh, a little bit. Concern just with the general investment environment that we have in with the, you know, with the mortgage rates and the different discussions on Fannie and Freddie. And there’s a lot of different headwinds that we’re facing, um, that I would really be concerned if I had a three year interest only.
Um, and then that fourth year I had to refinance or do something because I don’t know, I don’t think anybody knows where the economy is going. Right. But it seems that the headwinds are there, that I would be pretty careful in terms of making that kind of investment in that kind of, yeah. I mean, this was huge.
There’s not all a lot of people that can, that can buy it. I mean, it’s 50 million, so, you know, I just, I always want to be in a place where if I have to buy it and hold it. I want to be able to hold it because the underwriting is solid and I didn’t used to call it underwriting. I used to call it something else, but somebody said underwriting along the way.
And I just adopted it. But you know, doing your actual financial model and making sure that you’ve got some conservative assumptions in there is the only way from my perspective to make sure. That if something terrible happens and like, you have to keep the property that you can actually keep the property without being in dire straits.
And that’s the difference. Yeah. And it’s finding that balance. You know, you’re much more aggressive than I am. I’m much more conservative. So we find that balance in how much reserves need to be there. What’s the actual timeframe for the transition of a property. And as time goes on, our numbers may get closer and closer initially, but it’s that, you know, we’re just coming at it from two different perspectives.
Um, and I think that works and that, that helps. Get us to where we need to go. Yeah, I know. That’s funny that you said, um, what’s more aggressive than you because everybody, I talk to says you’re the most conservative, right. I’ve ever talked to you.
So I think it’s all in the assumptions. It’s all in the assumptions that we make. And I think what you’re more aggressive on and I think it’s, you’ve been proven, right. Is the ability to grow rents. I think that’s one of the things that I’ve been like, are we really going to be able to work that fast? And you’re like, yeah, well, this is what we’re going to, this is the plan and what we’re going to do.
And you’ve absolutely been proven right on that. Uh, for me, I’m always making sure that we have a slightly extra cushion on expenses or that if we’re going to transition from paying utilities to. The tenant paying utilities that we have a reasonable transition. Like it doesn’t go from, we’re paying a hundred percent of the utilities in month one to them paying a hundred percent in utilities a month, three.
It’s not going to work that fast. Unfortunately, no, nothing. It works as fast as I want. So I mean, you know, like, We’re just, we get on here on these midweek talks and we’re talking about the deals that we’ve done. We’re talking about random thoughts and things that we have. And if you have any, if any of the listeners want to connect with us and maybe share some thoughts on this podcast or any of the other sessions you’re on, what’s the best way for them.
To connect and even ask them questions. And Hey, if we get your questions, we’ll, we’ll ask the questions and we will answer the questions, uh, when we do our next session next week. Oh, cool. That now we’re, now we’ve got a Q and a show. Oh man, we’re going to start having people call into the show next, this egg.
Okay. Have him pop in. Oh man. That’s that’s sophisticated. I don’t even know how to do that, but yeah, we’ll call the tax guys. I mean, we got them on call, right. Anyway. Um, yeah. So I’m on LinkedIn, right? So Jerome Myers, M Y E R S. I’m the only one in Greensboro, North Carolina. And I’m the only one that says I buy and fix broken apartment businesses.
So, you know, you can reach out to me there, or you can hit the developing west site stuff, the EAs three, so D three V3, lop I N g.com and hit us on the contact us form. Yeah. So we would love to hear anything. Suggestions for topics for us to talk about on these rambling midweek sessions, uh, some topics or questions that you want us to answer the next time that we do this podcast.
I think that would be great. We’re absolutely looking forward to connecting with you. Yeah, man. And if you are interested in getting, you know, that inside access close Facebook group is growing every single day and. You know, we’re starting to curate the content in there. And I mean, I like it. People introducing themselves from all over the country it’s is it’s pretty exciting, man.
Um, but that’s a way to connect and get more frequent interaction and actually have two way communication instead of just checking us out via the podcast. And so how are they going to find out about that? Oh, so there’s a website called Meyers methods. M Y E R. M E T H O D s.com. And you can register there for that.
And, um, there’s a bunch of other stuff that’s coming. We’re doing a, uh, a beta test on our multi-family investing course. And so we’re going to select a few people to help us go through that. And I’ve actually have five people that want to sign up today. So that was pretty cool considering I just flipped the message out there.
That’s cool. Um, so let’s, uh, Yeah. I mean, Myers method is developing with the easiest threes are LinkedIn and you know, we’ll go from there, man. All right. And anybody that wants to connect with me to talk about, uh, coaching, you know, breaking through your limiting beliefs, getting you to the position where you’re ready from a mindset perspective to move forward with your investing activities, you can reach me at better at betteryou4u.com.
We want to learn more about dream catchers. We used the word fight. Patrion should be real that if you can think of someone who would benefit from the type five opportunity and are willing to share what we’re doing with him, we would greatly appreciate it.