In this episode, Podcast Host & Community Manager at RentPrep, Andrew Schultz, interviews Devin Redmond of Roofstock. Redmond currently serves as the Director of Content Strategy.
Find out more about 1031 exchanges, what to pay for cash for keys, how to return security deposits, 1099-MISCs and so much more.
Listen in to the latest episode below!
Andrew Schultz (00:00:26):
Hi, everyone. Welcome to the Rent prep AMA session for March, 2023. I’m so glad to have you guys here with us today. We got an excellent show for you. We have actually a special guest, Devin Redmond from Stessa and Roofstock. We’re gonna be adding him in here in just a minute. But before we jump into today, I wanted to just take a quick second and mention everyone that when we do the podcasts, when we do the AMAs, when we do any of our video content, it’s important that you take the information that you gather from these situations, from these calls, and run it by your local team that understands your unique situation in wherever you happen to be in your market, in your investment strategy, things of that nature. You’re always gonna wanna run anything that you hear on a podcast by your licensed professional, your attorney, your accountant, your tax pros, just to make sure that you’re getting the best possible advice for your unique scenario.
Andrew Schultz (00:01:13):
Keep in mind that the information that we do talk about here is more general than anything else, and it’s a good idea to always make sure that you’re reinforcing that information with information that you’re getting directly from the sources that have the best knowledge of what your unique situation is. Just wanted to make sure that we had mentioned that. Welcome to the March ama. I’m glad to have everybody here. As I’d mentioned, we have Devin Redmond on with us today. I’m gonna go ahead and add him in here maybe if we’re lucky. There we go. Hello, Devin. How are you today?
Devin Redmond (00:01:42):
I’m doing good.
Andrew Schultz (00:01:43):
Good. Thank you for rain letting
Devin Redmond (00:01:44):
Us today. Finally, finally, not raining where I am. So thanks for drying out.
Andrew Schultz (00:01:48):
Listen, it’s still snowing here, so I guess we can’t really complain too much. <Laugh>. I would settle for rain at this point. It’s been a pretty brutal winter here in western New York. Devin, do me a favor. Tell us a little bit about yourself, how you ended up working with Roofstock and essa, and kind of go from there.
Devin Redmond (00:02:05):
Yeah, yeah, absolutely. I have worked a number of jobs in real estate. So I started as a tenant rep broker with Jones Lang LaSalle on the commercial side in la when I was, you know, early twenties went to business school in real estate in finance at Cal. And then worked for HS interests on the commercial side for about six or seven years. Mm-Hmm. <Affirmative>. So during my time there, I did a lot of underwriting asset management mostly for office buildings some r and d stuff. And then got into s FFR when I moved over to the the tech slash software side when I, I was employee number three or four at ESSA back in 2018. Wow. Yeah, so I started as director of customer success there. And basically like, it was very, very early days and we didn’t really know what we were building yet.
Devin Redmond (00:02:56):
We knew we wanted to build something around bookkeeping. Mm-Hmm. <Affirmative> particularly for small and mid-size sfr kind of mom and pop investors. And so my job for the first couple years there was, was to talk, go out and talk to investors, understand what their pain points are where the problems are, how they’re doing their bookkeeping how they’re making investing decisions and tracking metrics. Mm-Hmm. <Affirmative>. And then you know, ESSA came out of those conversations. And then a couple years ago now Roofstock acquired essa. And so I’ve had a couple different roles since then inside of roofstock.
Andrew Schultz (00:03:31):
Nice. Very interesting. Tell us a little bit more about ESSA and what is this that they do? Cause I betcha there’s a pretty substantial portion of our audience that has never heard of ’em before.
Devin Redmond (00:03:39):
Yeah, yeah, absolutely. So ESA is a, we like to think of an asset as an asset management layer. Mm-Hmm. So it’s not a property management tool per se, although we have gotten into some property management functions. Mm-Hmm. But it’s basically cloud-based software. We have a pro subscription turnout that has some advanced tools, and then there’s also a free tier. So it’s pretty easy to kind of sign up and check it out. And, you know, one of the things we’ve tried to do from the beginning is build financial connectivity into the core aspect of the product. And mm-hmm. <Affirmative>, a lot of the benefits to investors come from that. So you can connect your bank accounts, you can connect to certain property management data flows mm-hmm. <Affirmative>, particularly propertyware and AppFolio. Everything gets kind of sucked in terms of expenses and income.
Devin Redmond (00:04:26):
And then it’s really easy from there to run key reports like net cash flow reports, balance sheet schedule, real estate owned all those sorts of things. And so it’s, you know a lot of folks get real engaged with it around tax time between January and, and sort of now for the next month or so. Mm-Hmm. <Affirmative> is kind of core season and then you know, the rest of the year also kind of on a monthly basis, keeping up with how you’re doing. Then you can see your performance, you can make adjustments during the year. We found that a lot of you know, this is, these are things that bigger landlords and commercial investors do weekly or monthly, right? Mm-Hmm. <Affirmative> to understand kind of where they’re at. In our early conversations, we often found that mom and pop investors are not as focused on that during the year. Right. They’re dealing with operational things time goes by, then all of a sudden tax time rules around and they realize, Hey, I didn’t even make any money this year. What happened, right? Mm-Hmm. <affirmative>. So ESSA’s in large part, designed to help solve that problem so that you’re always in the know in terms of how things are going,
Andrew Schultz (00:05:34):
Kind of help it recognize it early and course correct before you get to the end of the year and realize that everything’s gone completely sideways on you, sort of a situation.
Devin Redmond (00:05:41):
Yeah, yeah, absolutely. And we know we’ve built other things into the product now. There’s also you can actually open up checking accounts so you can have a checking account per property. Mm-Hmm. <Affirmative>, we do that through a banking partner, so with banking as a service. So there’s, there’s a lot there. I encourage folks to kind of check it out.
Andrew Schultz (00:05:59):
Nice. Very cool. Well, we have a ton of questions here that have come in through our Facebook group over the course of the last week or so. And it’s a whole variety of topics. It’s everything from property management, a little bit of tax stuff thrown in there, some tenant ma management, some tenant selection stuff in there. You ready to jump into it?
Devin Redmond (00:06:17):
Good? Yeah, yeah, let’s do it. I’ll just say quick disclaimer, like, I’m not a cpa, I’m not licensed to give advice, investment advice. I’m not a broker. So, you know, talking from my own experience I am an investor myself. I’ve owned rental property in both California and Hawaii. Mm-Hmm. <affirmative> short term, long term done some fix and flip stuff. But, you know, everything I’m saying is just from my experience and you know, your experience will be different.
Andrew Schultz (00:06:43):
Yeah, exactly. Kind of ties back to what I was saying earlier in the intro. You know, make sure that any advice that you pick up from, I pick up something in pretty much every podcast episode that I research. I pick up something in pretty much every AMA that I host from either my research or from the person that I’m talking to. And you, you have to take that information and then run it by your local team that understands your unique situation before you implement something like that. Otherwise, you’re just gonna wind up in a great big headache. Well, you have the potential of winding up in a great big headache anyway.
Devin Redmond (00:07:12):
Yeah, yeah. Absolutely. Everyone, everyone has a, everyone has a very different risk profile, right? So things that I might be comfortable with other folks have no business doing because of the way they think about money or the relationships mm-hmm. <Affirmative>. So it, you know, there’s a full spectrum there.
Andrew Schultz (00:07:27):
Oh, absolutely. All right. Well, let’s go ahead and start off with this question from Jack. We traveled outta state to Florida and New Mexico in 2022 to look for rental properties to purchase via a 10 31 exchange with our existing rental property in Illinois. The trips were 100% business, and we have plenty of documentation, documentation showing the properties we viewed and the realtors we met while we didn’t buy any property as a result of these trips. Can the travel expenses such as flights, hotels, rental cars, meals, et cetera, offset rental revenue on our existing property or are otherwise tax deductible in some manner?
Devin Redmond (00:08:04):
Yeah, so this is an interesting one. I’m not a C p A, so I’m not giving a definitive answer. But this has come up and I’ve, I’ve spoken with with folks about it. My understanding is that if you don’t end up buying the property, it’s sort of speculative acquisition type work and that it’s not not clearly deductible, right? Mm-Hmm. <affirmative>, so like if you especially if you’re using Schedule E, right? Like everything needs to be tied to an actual property that you own. Right? And so, like, if you don’t complete the acquisition, my understanding is that these are kind of pursuit costs that are not deductible against a specific property.
Andrew Schultz (00:08:40):
Interesting. I wonder if that changes if you’re running expenses through an L L C versus running them directly on like a personal tax return or something like that. I wonder if there would be a change in whether something would be considered deductible or not. Cuz at that point you’re talking about operating expenses essentially. So I don’t know. That would definitely be something that I think A C P A would be better able to answer than either one of us. I can say that my accountant, and again, this is just my personal experience, other people’s experience may vary. I’ve taken trips to Florida to look at properties before. I’ve taken trips to meet investors. I’ve taken trips to conferences. My conferences have always been fully deductible. I’ve never had any issues with that. My accountant’s never red flagged any of that stuff. He was a little bit leery of letting me ride off a trip to Florida where I was looking at property, but didn’t wind up buying anything. But ultimately he decided that we would probably be okay doing that because again, I was the going down with my company and we were looking at it kind of as an operating expense at that point, versus just as a, a speculative expense. So good, bad, or indifferent. I don’t know if that was necessarily the right advice <laugh>, but that’s the advice that Right. That I went with. So you’ve got two different perspectives there, even on question number one as to whether or not something would or would not be deductible.
Devin Redmond (00:09:51):
Yeah. I I do think that education expenses, they’re treated differently than pursuit costs. So those are probably like two different buckets. And I, I know if you end up buying the property, then there’s, then there’s a clearer path to, to deducting it.
Andrew Schultz (00:10:05):
I might have actually taken a class while I was down there, now that I’m thinking about it. Maybe that was the reason that he ultimately let me, let me go forward with it. But I usually, whenever I try travel for, for work purposes, like going to a conference or something like that, I always try to look at a couple properties while I’m down there for no other reason than to see what the local market looks like. Even if I’m not looking to move to Orlando, for instance. You know, it kind of, it’s nice to know what real estate looks like in other markets and really get a, a firsthand experience. So it’s kind of nice that way.
Devin Redmond (00:10:33):
Right, right. And I imagine it may be different if, if your LLC is a single number llc, right. And is treated as a path through path through versus a, a partnership. But I, I, I don’t really know. I do know that your own property,
Andrew Schultz (00:10:47):
Go ahead. No, go ahead.
Devin Redmond (00:10:49):
Oh, I was gonna say, I do know when you, when you do own a property and there’s a path to deductibility, then there’s very specific rules about like separating out your time based on how you spent your time there. Personal versus business. Mm-Hmm. <Affirmative>, you’re supposed to prorate it. It can get a little complicated.
Andrew Schultz (00:11:03):
Mm-Hmm. <affirmative>, yeah. Travel’s one of those things. And the rules for travel change, by the way, in the, and the IRS tax guidelines every single year. So this is a question that you could ask us this year, and you could ask us next year and get two very, very different answers. Because there is some stuff that shifts from year to year when it comes to travel allowances and things of that nature. So I guess the answer to Jack’s question is, talk to your C P A and see what he has to say, he or she has to say. Cause I think that’s the, the best route to go there. Onto our next question from Samantha. How do investors work with properties with no cash flow? Do they put money in every month looking for appreciation down the road?
Devin Redmond (00:11:38):
Yeah, I mean, I would hope you’re not putting in money every month mm-hmm. <Affirmative>, right? It depends on what the CapEx situation is. You know, I had a, a investment in, in Hawaii on Maui that I did with a partner. We closed a month before covid hits, this is two and a half years ago, almost three years ago. Mm-Hmm. <affirmative>. And we put money in, not every month, but almost and it added up to a lot by the end. This was a fixer. We had attended in, in part of the property for a bit, which helped mm-hmm. <Affirmative>, you know, offset the cost. So I think it, you know, it totally depends on what the risk profile of the investment is and what you’re trying to do. But I, it’s definitely true in you know, coastal markets places where, you know, prices are high relative to the expected rent mm-hmm. <Affirmative> yeah, you’re not gonna see a lot of cash flow. And that was sometimes true even when interest rates were, you know, threes and fours. Sure. It’s absolutely true today that there’s not much cash flow mm-hmm. <Affirmative>. And so when you’re making bets on appreciation yeah, that’s, that’s kind of how it goes. So you need to be in a, in a financial position yourself to, to weather that.
Andrew Schultz (00:12:48):
Well, and, and talking about Hawaii as a market specifically, Hawaii has a tendency to be very generational when it comes to real estate, because the real estate costs are so expensive. And correct me if I’m wrong, because I’ve never invested there, but my understanding from some friends that live out there is that essentially a lot of real estate winds up getting passed from one generation to the next, simply because of how expensive real estate has become out there. There’s only so much land, they can’t make more of it, and everybody wants it. So it makes it very, very high value. Is there actually cash flow less? That’s what I, at the end of the day on rentals out there? Or is it a, a situation where you almost have to bank on an appreciation play?
Devin Redmond (00:13:24):
It de it depends. So for short-term rentals, there’s certainly cash flow available. At least there was, you know, on the prices folks were paying prior to 12 months ago probably mm-hmm. <Affirmative>, there’s definitely cashflow there. There’s been good growth. The pandemic was a weird situation where, you know, some things got shut down, but mm-hmm. <Affirmative> daily rates have come back pretty nicely since then. Occupancy is, you know, nineties plus great. From what we’ve seen on in certain places on Alley. I know that’s also true on, on Kauai. A little less so on the big island, A little tougher mm-hmm. <Affirmative>. But on long-term rentals, it really depends how you, how you buy it and what, what you pay mm-hmm. <Affirmative>. So if, you know, a lot of the product there is either resort style where second homeowners, retirees are willing to pay up and, and sort of price investors out. Right. So that’s really tough to get into. Some of the more local areas yeah, there’s opportunities there, but, but as you mentioned, like families tend to hold onto the real estate over decades and centuries even. So, yeah. It’s really a supply issue. You have to keep your eye, you have to be very patient, and when something comes up kind of jump on it.
Andrew Schultz (00:14:36):
That makes sense. Yeah. It
Devin Redmond (00:14:38):
Seems going cap go ahead. You, you’re going incap rate is like, you know, three maybe mm-hmm. <Affirmative>, maybe three and a half, four. And it takes a little while. You gotta count on, on rents moving up a bit over time. Yeah.
Andrew Schultz (00:14:50):
It sounds tough. Honestly, it sounds like the, I I, so I’m in Buffalo, we have cash flow. This is a cash flow market. We don’t necessarily bank on appreciation plays here. And I typically tell my clients not to bank on an appreciation play simply because honestly, the property values in Buffalo up until the last few years have been relatively flat, you know, couple percent a year increase in, in value, and that’s about all you’re gonna get up until these last few years when the market’s been absolutely insane. And we’ve seen, you know, sometimes double digit growth in, in property values here. So I always tell my clients not to bank on an appreciation play in this market, but in that market, it sounds like you almost have to bank on an appreciation play just to even think about getting into the game.
Devin Redmond (00:15:33):
Yeah, I, I think that’s right. You know, you never know what’s gonna happen with appreciation. Some of these wild increases the last few years, right. Probably takes some of the wind out of the sails for the next few years. That’s kind of my thinking about it. Like, there’s been a big run up. It’s hard, you know, it’s, it’s hard to see that continuing indefinitely. Sure. So, you know, I think for some of the stuff I’ve done in Hawaii, like I’ve had other motivations too. It’s a place I like to go. So when I have to go deal with something, whether it’s do work or meet with a tenant or whatever it is, like I get on a plane and go to Hawaii, like I en I enjoy that. So that was part of my strategy and just personally for me, investing.
Devin Redmond (00:16:15):
And then it has, you know, long term maybe I convert it back to, to personal and retire there, right? Mm-Hmm. <Affirmative>. So it has some other optionality that was important to me. But I think that’s, you know, where it gets back to like, there’s this full spectrum of risk profile and investor interests that you know, is very personal and unique to each, each individual. So you know, other places I’ve looked at investing, so like I track the Tucson market, I track the Cincinnati market, and that’s cuz I have family connections there. And so if I had to go deal with something there, I have a re another reason to go and another sort of side benefit. So it’s just, you know, one potential strategy or way to think about where and, and how you invest.
Andrew Schultz (00:16:57):
Now your, your holdings in Hawaii, is that short-term or long-term? Rental
Devin Redmond (00:17:03):
At the, so we sold the the fixer project that I was working on for a couple years. We sold that in September. And so right now I’ve got a, I’ve got three units long term mm-hmm. <Affirmative> in on one property, and then I’ve got a short term down by the, by the coast.
Andrew Schultz (00:17:18):
Gotcha. Okay. And the short term is performing well now that we’re kind of through all the covid restrictions on everything?
Devin Redmond (00:17:24):
Yeah. Yeah, it’s been doing great. We just closed on that a year ago. So we had a pretty good path to revenue right away. We didn’t get you know, impacted by any lockdowns or shutdowns mm-hmm. <Affirmative>. And we’ve seen good rate growth from, you know, we were kind of like in the mid two hundreds a night, and now we’re, we’re kind of closer to mid 300 s mm-hmm. <Affirmative> on average. So part of that’s been kind of how we repositioned in our, our booking strategy mm-hmm. <Affirmative>, and part of that’s just been, you know, growth and rebound in, in the travel industry overall.
Andrew Schultz (00:18:02):
Gotcha. Okay. Very cool. It’s nice to see like short and long-term experience that’s kind of nice to hedge bets both directions in that way.
Devin Redmond (00:18:10):
Yeah. Yeah. I mean, they’re very different operationally. So the short term has been kind of a steep learning curve for me to figure out how to make it work. Mm-Hmm. <Affirmative>, I’m, I’m self-managing that from the West coast mm-hmm. <Affirmative>. So you know, I have a superstar cleaning person and that’s been a, a really big factor in making it work. And then I’ve also found some great, I love the software called Owner Rez mm-hmm. <Affirmative>, which has been fantastic for me in terms of consolidating all my booking calendars and rates, and then they, it pushes that out to the, to the booking channels. So my challenge this year is, is moving. Yeah. My challenge this year is moving off of the, off of the booking channels as much as possible to direct bookings. Mm-Hmm. <affirmative>,
Andrew Schultz (00:18:52):
That makes sense. Yeah. I mean, I think that there’s a bigger, I mean, with any sort of a booking service, there’s always a delta, you lose some form of money because the booking service is taking something off the top. That’s how they make their money, that’s how they stay in operation. So anything that you’re able to book directly, I mean, really you’re talking about a 3% card processing fee, and that’s about it. Like, you’re gonna save a bundle if you’re able to do it in that fashion and, and bring people in for direct reservation. I think there’s a big savings there.
Devin Redmond (00:19:19):
Yeah. Yeah. Between Airbnb and VR R B O, I think, you know, the, their, their average fee take is somewhere between 15 to 18 mm-hmm. <Affirmative>, depending on, you know, duration to the, of the stay and the total booking revenue. Right. So you know, plus the 3% card proc, you take the three out of there, you’re, it’s 15% Delta mm-hmm. <Affirmative>. And so, you know, if you can give half of that back to the to the guest, right? Mm-Hmm. <affirmative> and then keep the rest, kind of split the difference. That’s kind of how I, how I think about it. Yeah. And then over time, you’re also not as exposed to you know, things that like Airbnb decided to do during the pandemic, right? Right. We’re just gonna, we’re gonna send all this money back to your guests. Well, you know, where does that leave you?
Andrew Schultz (00:20:03):
Right, exactly. Yeah. There were a lot of people during that, that, especially the arbiters that were, you know, doing short-term Airbnb arbitrage. There were a lot of them that unfortunately took a real, a real beating when that came down. Just the way it goes, like when you’re running a business on somebody else’s platform, it’s no different than when I list a vacant apartment for rent on Facebook marketplace. It’s their, their platform. They get to decide whether the ad stays or goes, you know, they can shadow banner, they can hide it from people, whatever they want to do. When you’re dealing with somebody else’s platform, you’re always at their mercy, essentially, which, yeah, I think the, I think the move directly to booking yourself is, is a smart move. It’s a big delta there. Moving on to our next question from Randy. After 10 homes, we will have to get creative with financing. Right? I understand that you can only get 10 properties with conventional financing.
Devin Redmond (00:20:56):
Yeah. So this is, this is true. I have not pushed beyond the, the 10 home limit mm-hmm. <Affirmative>, but I have had conversations with folks about this specifically. There’s a couple strategies. So one is you can always go commercial, right? Right. You can go go beyond that and go commercially, you end up paying a little higher rate. Different requirements might be harder to qualify. Mm-Hmm. <Affirmative> you can go with a Dscr R portfolio loan, something that you know, a lo more local banks not gonna sell in the secondary market so they can get more creative there. And then the other option is this sort of like, I guess you describe it as sort of dollar cost averaging up, right? Mm-Hmm. <Affirmative>, you can start to sell off lower price properties and then freeze up some capacity to do conventional loans into more expensive things. You could, you know, use 10 31 exchanges to help you do that. Yeah, that makes sense. Yeah. So that the value of your portfolio is still increasing, not necessarily the number of doors. And I kind of like that strategy because yeah, as your number of doors goes up, so does the, the time you have to put into things.
Andrew Schultz (00:21:58):
Well, and I was like, when you said that, I’m like, that doesn’t make a bit of sense. And then as you explained it, I’m like, that makes perfect sense. It’s the same workload. Oftentimes as you move up market, your headaches go down because the tenant classes change. Yeah. That’s not a bad idea. I can tell you that on our end, what we typically recommend for our clients is we do have a couple of banks here that will do portfolio loans or blanket loans across like an entire portfolio of properties. And there’s one bank in particular in our region that’s very smart about how they do it. They set it up in such a way that, you know, on the front end what your payoff is gonna be. I mean, and they can run ult, you know, new payoff numbers, but you know what your payoff number’s gonna be on each property inside that loan.
Andrew Schultz (00:22:39):
So if you decide to peel off a duplex and go buy a four unit, you still have that ability without having to kill the entire loan. You just pay off that portion of the loan, and then they’ll probably turn around and put your new property right into that loan package that, that portfolio loan. So that seems to work really, really well. Like you mentioned, it is commercial financing, so CDO p you do pay a little bit more on the financing end of it, but it frees up your personal credit so that you can go out and buy more or, you know, do whatever it is that you need to do on your end to be able to free up your financing a little bit more. I think it’s a smart strategy no matter how you do it.
Devin Redmond (00:23:12):
Yeah. Yeah. I, I, I like that. I think the challenge, one challenge right now with this sort of strategy of cycling out of conventional loans is, you know, when rates have really popped, right? So mm-hmm. <Affirmative>, you may have, you may be maxed out with 10 great loans that you don’t necessarily wanna walk, walk away from. Yeah. So to me, that opens up the avenue of going, going commercial and sticking with these, with the, you know, the investments you’ve made so far. If you’ve got a great loan in place until rates go back down and you get some more flexibility,
Andrew Schultz (00:23:41):
Goes back to the saying, Mary, the property date, the rate, essentially, you’re gonna wait until the rates come back down and refinance it. Do what you need to do. Don’t let a good opportunity pass you by. Now, as long as the numbers work you know, in my market I’m telling people, make sure that you’ve got some cash flow coming out of it, even if the interest rate’s higher than what you want, because it’s gonna be so much more attractive 2, 3, 5 years down the road when the interest rates come back down and you can refinance that into a little bit more a little bit more stable mortgage, if you will.
Devin Redmond (00:24:09):
Yeah. Yeah. And I think, you know, one of, one thing to watch out for is like, as rates come down, you know, we’ll, we’ll see how it goes here, but if, if rates stay high for, for a while, right? Mm-Hmm. <affirmative>, it’s, it can create buying opportunities if you have the dry powder. So you know, it’s always it’s impossible to time the market mm-hmm. <Affirmative> you know, something to keep an eye out for. I, the markets I’m watching, things have not mm-hmm. <Affirmative> come off much from their, yeah, their June highs, maybe four to 5%. It doesn’t seem like enough of a discount.
Andrew Schultz (00:24:41):
That’s, that’s kind of what we’re seeing here in Buffalo as well. The market is still really, really strong. We are still seeing properties move not as quick as they were, but we’re all, we’re still seeing a lot of multiple offer situations for maybe you’ve got two or three offers instead of 10 or 20 offers. Maybe you’re going at or maybe a little bit above ask versus way over ask. We’re still seeing transactions moving along, but it’s definitely, it’s slower than it was, but I haven’t seen the pricing come down the way that I would’ve expected it to. With the interest rates going up, I kind of would’ve expected there to be more of an, an inverse there, but not so much, at least in this market, people seem to still be out there. Yeah. They willing, they’re willing to buy, the sellers aren’t willing to sell for what they would’ve sold for in 2020. They still want their 21 and 22 pricing even with these higher interest rates. So again, I think a lot of people are gonna be in a situation where they’re gonna have to buy the property and, and date the rate, and when the rates come back down, you can basically refinance it and move on, or, you know, refinance it and continue to cash flow.
Devin Redmond (00:25:43):
Yeah, I think that’s right. I’m seeing a lot of sellers who would like to sell at a certain price, but they don’t need to sell mm-hmm. <Affirmative>, they don’t have to. There’s not the motivation or desperation there that we’ve seen in, in other down cycles.
Andrew Schultz (00:25:54):
Well, and depending on the seller, they have to have something to move into. So even if they sell you their house for $120,000 more than what it’s rightfully worth, they still need to go buy something else, and they’re gonna be paying $120,000 more than what that property is worth. So it’s right. It’s, it’s gonna be an you know, a little bit of an ongoing thing, at least in, at least in our market. And I think in most markets, it’s gonna be an ongoing thing for probably the next. Everything I’m seeing is saying that we’re probably not gonna see interest rates drop for a couple years. I don’t know, maybe you’d have more insight than I would on that.
Devin Redmond (00:26:27):
No, I mean, it, it changes week by week, right. Depending on what’s happening in the banking system, and you know, what somebody’s saying on, on what somebody’s saying on cnbc. So yeah. Right. It’s, it’s just hard, hard to know mm-hmm. <Affirmative>, who knows, maybe we get a pause here and, and things, things kind of stay flat for a while.
Andrew Schultz (00:26:44):
No, I hope so. Well, I guess we’ll see what happens. I don’t wanna see anything come to a pause, but we had a, we had a long enough pause during Covid, like, we couldn’t move, we couldn’t sell houses, we couldn’t show apartments. I don’t need another pause, <laugh>. All right. We’ll move on to our, our next question from anal here. Hi guys. What app do you use to keep track of all your yearly expenses and write offs?
Devin Redmond (00:27:06):
So, yes. So we’re
Andrew Schultz (00:27:07):
At the corporate level, so we’re using QuickBooks on the corporate side. And then for our managed stuff, we’re using AppFolio. What are you using, you said yourself managing, what do you use to keep your track of your expenses?
Devin Redmond (00:27:17):
Yeah, I mean, personally I use essa mm-hmm. <Affirmative>, you know, I’ve, I’ve got it inside track there, and so understand how it works. And the, the customer service team tends to get back to me pretty quick if I have an issue. So that works for me. <Laugh> I know, you know, a lot of the folks I remember talking to in the beginning, they would use like a Google sheet or a spreadsheet, right? Mm-Hmm. <affirmative> to keep track of things, and it was super messy, especially if you invest with others and have partners mm-hmm. <Affirmative>. so, you know, when I did my fixer, I did that with a partner. I, I set that property up in essa, got the bank account connected that we opened for it, and then I invited my partner in ESSA through the collaborator tool, and so he could see everything was going on with anytime something hit the, the, the p and l where we made a new CapEx investment, it was in there mm-hmm.
Devin Redmond (00:28:06):
<Affirmative>. So that was kind of nice. It kind of cut down on the, the email back and forth that we did. And then, you know, I know, and stuff’s not for everyone either, right? Like sometimes QuickBooks is, if you get into some really complicated stuff mm-hmm. <Affirmative>, and you’ve got the time and the money to allocate, to customizing QuickBooks and want to do, you want to do all double entry, you wanna do journal entries, balance sheet is like super important that it always checks out and gets mm-hmm. <Affirmative>, you get it. Exactly right. Like, you know, QuickBooks is designed to be super powerful and flexible for that sort of thing. Tesa takes a very different sort of opinionated track about, this is for real estate investors who kind of keep it in the fairway to some extent, and don’t wanna allocate the time and the money to learn a whole accounting program or pay a CPA to do it. So it’s the sort of like DIY option, and that’s kind of what’s, that’s what I need right now.
Andrew Schultz (00:28:58):
Mm-Hmm. <affirmative>. Yeah. I know that there are a lot of investors that start off their investing journey using nothing more than an Excel spreadsheet or a Google sheet, or whatever the case may be. And I guess the one thing I would say is, the sooner that you can find a solution that works for you and move to that solution and get away from a spreadsheet that’s not really giving you the data in a format that’s usable the way that you would want it, the better off you’re gonna be. It just, there’s only so much that you can get out of a spreadsheet without having some more advanced programming built into it or something like that. Even breaking things out into categories and things of that nature can get complicated when you’re working from a spreadsheet. But dot, dot, dot, the most important thing is whatever system you use, you use it and you keep it up to date.
Andrew Schultz (00:29:39):
Like, kind of what you were saying with Dessa early on, you don’t want to come in and I’m gonna put my data in now because it’s tax time, and then I’m gonna ignore this until next year when it’s tax time again, because number one, you’re gonna have a ton of work to do. And number two, you run the risk of hitting the guard, the guardrails or going off the guardrails if you haven’t been paying attention. And you may be in a situation where you’re not even cash flowing and don’t realize it because you’re not paying attention to your books. So the best solution is the solution you’re gonna use before you get into anything else. And then I would say, you know, pick the thing that makes the most sense for you, whether it be building em, AppFolio, essa, whatever, QuickBooks not the easiest to use QuickBooks, but it is what it is.
Devin Redmond (00:30:21):
Yeah. Yeah. And make sure you’re, you know, your key partners if you have a bookkeeper, if you have a cpa, that they’re kind of on board and cool with whatever’s gonna be produced from those platforms. And do you think in the, in the beginning too, if you just have one or two properties, like you don’t wanna overcomplicate it, right? Mm-Hmm. <affirmative>, and so setting up QuickBooks, doing the chart of accounts, creating all your own categories, that’s a lot of work. And we’ll, I think, you know, can kind of sour you on the whole idea <laugh> Yeah. Of what is supposed to be sometimes sort of passive investigation. Mm-Hmm.
Andrew Schultz (00:30:52):
<Affirmative> No, absolutely. Well, and for, for most small multis single families and small multi, I think it’s people overcomplicate things a little bit more than they need to. Like, if you look at a monthly statement for one of our clients for any given month, and they own a single family, you’re gonna see income in this column, and you’re gonna see expenses in this column, and there’s a total at the bottom. It doesn’t need to be much more complicated than that. But when you want to take that data and look at it from a year or a two year view or something along those lines, that’s where your spreadsheets start to fall apart. And it’s time for a little bit more robust software, which is, I mean, any of the softwares out there are gonna have excellent reporting capabilities. And I think that’s what most people need when it comes time for taxes, is, Hey, accountant, here’s my, here’s my information. What else do you need to, to tell me how much I owe to the I r s? So, all right. We’ll go on into our next question here. This one is from Denise. Can someone who filed bankruptcy three years ago still invest in real estate?
Devin Redmond (00:31:52):
I have no idea. <Laugh> <laugh>, I mean, yes. I would, I would imagine there is, there’s a path. Is it the mm-hmm. <Affirmative>, sort of like conventional cheapest path to getting conventional financing at a decent rate. I don’t, I don’t know. Right. mm-hmm. <Affirmative>, they, it’s not just about the property, it is also about the borrower, so mm-hmm. <Affirmative> you know, the banks that you would typically go to to get the best rates are gonna be digging in on credit scores and your full kind of financial history, that’s part of the deal that mm-hmm. <Affirmative> that you’re, you know, back stopping these loans. It’s not just rent from the property.
Andrew Schultz (00:32:27):
Mm-Hmm. <affirmative>, what about a situation where somebody finds the right deal and they have access to private money, hard money, something of that nature, would you say, Hmm, maybe we should look at doing this with hard money? Or would you try to avoid that in, in most of your deals?
Devin Redmond (00:32:44):
Yeah, I mean, I think it depends on kind of who you are what you’re good at, what the deal is, right? So I think, you know, I don’t, I haven’t worked with hard money lenders much. You know, they’re gonna dig in as well, right? And kind of understand who you are as a borrower, what’s your likelihood to, to pay this back if, if things go sour at the property. But, you know, if you’re I would say like at, at this point, at that point, it’s all about your network, right? If a, if a normal bank route isn’t gonna gonna pay off for you, then it’s your network. Who do you know, who can you partner with mm-hmm. <Affirmative>, who do you have a, a good trusting relationship with? And then maybe you, you package that up and say, this is my team, and you go to a hard money lender or another financing source to really kind of put it together that it’s this is something you’re aware of and you’re sort of like structuring or building around it mm-hmm. <Affirmative> to make the opportunity more compelling for whoever you’re trying to get funding from.
Andrew Schultz (00:33:46):
Yeah. That makes a lot of sense. When you can actually present it as, look, it’s not just me in the situation. It’s me. Here’s my contractor that’s gonna be doing the rehab work, here’s the property management company that we’ve selected. They’re the ones who are gonna be handling the, the day-to-day operations of it. I think the more people with experience on a deal, it’s gonna make any le lender feel a little bit more comfortable when they see that there’s an actual organized team of professionals surrounding this person. Even if that person might be a little bit, you know from a financial standpoint, questionable either credit damage or something like that, having a good team can sometimes help you get the deal through a bank that otherwise might not, especially with local banks, if you have a local bank we found in our market that knows the local property management company or knows the contractor and kind of says, all right, well, we know that, you know, these pieces of the puzzle fit together and everything is legitimate, maybe this is a risk that’s worth taking in the long run to get this new client, or whatever the case may be.
Andrew Schultz (00:34:43):
So there are a couple banks here in Western York that’ll do stuff like that, but it is getting harder and harder to find, and you basically have to find either a hard money lender or someone who may not necessarily be pulling your credit checks and stuff like that to, to see all of that, I think, to get some of those deals over the, over the finish line.
Devin Redmond (00:35:00):
Yeah, it’s interesting. I had a, actually had a tenant with a bankruptcy on their application, and it was kind of the only thing that, that was a, a little bit of a red flag. And we just, you know, I asked some questions about it, and they were super straightforward and, and forthcoming about, you know, what happened? This was, it was back in like, you know, oh 8, 0 7, 0 8 mm-hmm. <Affirmative> mm-hmm. <Affirmative> when a lot of, a lot of folks just got into tough situations through no fault of their own, right? Mm-Hmm. <Affirmative>, we had a great conversation about it, and they they backed up, you know, what was going on and, and what was happening for them recently. And they, you know, they turned out to be a great tenant for a, a couple years till they moved out.
Andrew Schultz (00:35:39):
No, that’s awesome. And sometimes you really do have to, there’s more to tenant screening than just a credit score. Like we look at the credit score, obviously, but we also look at the overall payment history and okay, is it student loans? Is it medical debt? Is it you’re not paying your cable bill? Like those things all kind of get looked at a little bit differently depending on what the scenario is. And if it’s a situation, kinda like what you were saying where you had somebody that had filed a bankruptcy, but since the bankruptcy they’ve started rebuilding or whatever the case may be, a lot of times you can see that and kind of see, okay, here’s where the cart went off the rails they got back on. Now we’re moving forward sort of a situation. So sometimes it makes sense to take those little risks I call ’em, when you can see that somebody’s really working to improve themselves.
Devin Redmond (00:36:21):
Yeah. Yeah, absolutely. It’s, it’s worth reading the actual report and digging in on, and to understand like, okay, who, who is this person or these people what’s their full story mm-hmm. <Affirmative>, not just their, their stats and kind of what the algorithm kicks out.
Andrew Schultz (00:36:34):
Absolutely. So I do wanna mention before we jump into the next question, I forgot to mention this at the start, if you guys are watching live and you have any questions, you can drop ’em into the chat window. We do have Josh from the marketing team with us on the back end, and he’s able to copy and paste anything into our chat window so we can see it and possibly add some more questions as we’re moving along here. So if you guys do have questions or we want something explain a little bit more in depth, feel free to reach out and let us know. We’re gonna jump right to our next question from Linda. What are your thoughts on Venmo, Zelle or Cash app? I have a new tenant that wants to pay electronically. How do you go about receiving your rents?
Devin Redmond (00:37:10):
Yeah. So there, there are a lot of new options. So for me my tenants in Hawaii, actually, there’s a bank branch up around the corner, it’s like a block away, and they deposit checks straight into my LLC account there. So that works for them. It works for me. The money’s there almost immediately. There’s no there’s no fees associated and it’s, it’s super easy.
Andrew Schultz (00:37:38):
Oh, that’s very convenient.
Devin Redmond (00:37:41):
Yeah. Venmo, I think Venmo and PayPal both have, have problems in terms of like some of the, the ways they’ve, I think started reporting you know, all the funds coming in, and then you end up in like 10 99 situations potentially. Mm-Hmm. <Affirmative>, I think it’s a little bit, I also know like some landlords spending on what the rent amount is, tenants end up having to like break it up into two or three payments, and then you get like accounting challenges mm-hmm. <Affirmative>, and I think it’s, you know, technically against their terms of service to be using the personal features which have no fees for a what is essentially a co sort of business transaction. Right. So yeah, I mean, Zelle, Zelle is kind of quick and easy. There’s some mm-hmm. <Affirmative> increased fraud potential there. If, if somebody gets the wrong phone number, if your tenant doesn’t have all the right contact info, that can be a little tricky. But I know, I know folks who use Zelle and it, and that works pretty well. Well mm-hmm. <Affirmative> there’s also, like ESSA has the built-in rent collection feature now. There’s other online platforms that, that have it built in. Mm-Hmm. <Affirmative>, sometimes there’s a little bit of a delay in terms of ach, but ACH h to me is tried and true and, and very safe.
Andrew Schultz (00:38:51):
Absolutely. Well, and I did pop up on the screen here while we were, while we were chatting, we actually did a video on this, on the rent prep channel the rent prep YouTube channel a couple months back where we broke out PayPal, Venmo, Zelle and Cash app, I think were the four apps that we looked at. And we sat and broke it all down, what’s the fee structure? Can payments be reversed? What are the withdrawal limits? What are the buyer and seller protections and things of that nature. So you can find that on YouTube by searching rent prep payment apps. It’ll be the first video that pops up. It’s a nice video. We spent some time on that one just trying to make sure that we had all the data. Right. And that was actually one of the things that I uncovered when we were doing that video, was yes, there’s definitely a difference between using it personally and using it for business purposes. It’s not terribly complicated to get set up for business purposes. Yes, it might cost you a little bit you might pay a, you know, a percent or two in fees or whatnot, but to have the extra protections built in on the business side, I think it’s totally worth it if you’re going to go the route of using one of those payment apps.
Devin Redmond (00:39:51):
Yeah, I think that’s right.
Andrew Schultz (00:39:53):
Okay. Jumping to our next question. This one is from Shelby. She has a good problem. I have a rental that is cash flowing around $800 a month, but it’s killing me in taxes. What is the best way to reinvest these funds into other properties?
Devin Redmond (00:40:09):
Interesting. Yeah, that is a good problem.
Andrew Schultz (00:40:13):
I think we all want that problem.
Devin Redmond (00:40:15):
Yeah. It’s, it’s it’s part of why you’re investing, right? To get the cashflow mm-hmm. <Affirmative>. So you know, I would say from a tax perspective, like I don’t wanna speak too much to that. It kind of depends on your whole, your whole situation, right? I know some folks try to get to like real estate professional status, right? If mm-hmm. <Affirmative> if, especially if they’re married, and then you can offset against, against more active income on the other side. But mm-hmm. <Affirmative>, you know, I think you accumulate cashflow, right? And depending on how much depreciation you’re taking, maybe you do a, a cost segregation study, right? Mm-Hmm. <affirmative> to sort of rack up the depreciation so that these aren’t like showing as, as, you know taxable gains necessarily in every year. Mm-Hmm. <Affirmative>. And then you know, you take that cash flow, the pile builds, and then you tee up your, your kind of next investment.
Andrew Schultz (00:41:08):
Where do you stick your money while you’re growing your stockpile, while you’re growing your nest egg, if you will? Do you leave it just in a normal savings account? Do you have a, a specific place that you stick it so that it’s growing while you are growing? Or how do you handle your funds in between deals?
Devin Redmond (00:41:23):
Yeah. I’m fairly conservative. I keep excess cash in a high yield savings account. Mm-Hmm. <affirmative>. Just this weekend I was checking balances and making sure that things are, are insured and in the right place, <laugh>. So you do, I guess, I guess you have to pay attention to that too now. Yeah. but yeah, I don’t, I tend to like, prefer to invest in real estate. I have sort of like 401k and retirement stuff in the stock market, and I don’t do any sort of higher octane investing in between real estate deals. So I kind of like to know that, that, that that cash is there, that I’ve got some capital to go do something new when the time is right and I find the right opportunity. So for me, it’s just high, high yield savings account.
Andrew Schultz (00:42:06):
Makes sense. Yeah. It’s three and it’s readily available. You can stamp your fingers and put your fingers, you know, on the money right away. You did mention, you know, paying attention to your banks and what your balances and stuff like that are. It’s worth mentioning, we’re recording this on March 13th, 2023, and literally last Friday silicone Valley Bank was shut down and taken over by F D I C which is a pretty big situation for, for a lot of people. We’ll see what the fallout is of that. It’s a little bit too early to say, but I think we’ll probably at least see a couple of other financial institutions go down along with them. And ultimately I think they’ll probably wind up getting snapped up by another bank. But in the short term, it’s, it’s created quite a bit of chaos way outside the scope of what we’re talking about here, but for context, so that people understand why we mentioned that. I think it’s, it’s relevant to to bring that up.
Devin Redmond (00:42:58):
Yeah. Huge, huge surprise. But for me, it’s also a little bit of a reminder of what I what I love about real estate investing is, you know, I have the deed mm-hmm. <Affirmative>
Andrew Schultz (00:43:08):
To the property, physical, tangible asset.
Devin Redmond (00:43:11):
Yeah. You have the deed everyone needs housing, that’s not gonna change, right? Mm-Hmm. <affirmative>, I have tenants that have a they’re, it’s in demand. People wanna live there, they pay me rent directly. I don’t have a lot of middlemen and other partners in the way mm-hmm. <Affirmative> who introduce additional risk.
Andrew Schultz (00:43:30):
Makes sense. Makes sense. This is probably a little bit more opinion based as a question, but I’m curious to see what your thoughts are on it. This one comes from Paul, is it better to save cash and buy a home every two years, flat out cash or to buy using a loan? I find that using cash, I automatically save about five grand in closing costs. And Brett must be referring to like mortgage recording fees and things of that nature, title insurance and whatnot.
Devin Redmond (00:43:54):
Yeah. I mean, to me, this is really a question about personal risk, pro risk profile mm-hmm. <Affirmative>, and how comfortable are you with leverage? Mm-Hmm. <affirmative>, biggest difference in my mind between real estate and other types of investing is the leverage that you can get even as a relatively inexperienced investor, right? Right. 70, 80% of the deal price,
Andrew Schultz (00:44:17):
You can buy a four unit on an fha 90, 95%.
Devin Redmond (00:44:20):
Yeah. You can go even higher, right? So the, the cost of entry for the asset size that you’re able to be invested in is just very, very low. You can’t get that in in any other investing you know, asset class, right? Mm-Hmm. <Affirmative>. So that creates a ton of opportunity, but also creates a ton of risk because, you know, if, if you, if you’ve got 90% financing and the value goes down by 10%, right? Your, your equity’s wiped out mm-hmm. <Affirmative> now it’s worked out in the last, what, 15 years here, right? Equity values have only gone up. And so that Sure. That magnifies the leverage really magnifies your, your upside there mm-hmm. <Affirmative>. So, you know, is it better? It depends on, on, you know, how comfortable you are with risk. I don’t, I don’t mind the, the additional closing costs on mm-hmm. <Affirmative> on debt financing, especially when, when the rate’s good. And if you’re lock in a 30 or fixed at a good rate, chances are that you may not refinance that. I tend to do, to think of my acquisitions as long-term holds. Mm-Hmm. <Affirmative> doesn’t always work out that way, but at least I, I underwrite them as if, you know, I’m gonna be in it for 10 plus years mm-hmm. <Affirmative>. And so with, in that perspective, with rents, rents hopefully going up and it, it makes sense to, to put that financing on.
Andrew Schultz (00:45:41):
Well, and when you mentioned the, the equity shift, like it’s, that’s something that I kind of harped on a little bit during the covid times when we were talking about people buying properties for 50, 75, a hundred thousand dollars more than the asking price. And I don’t think that was as much of an issue here in Western New York. I mean, we definitely saw stuff going for crazy amounts over ask, but in other markets you hear people saying, I went 150,000 over asking and blah, blah, blah, blah, blah. Okay? If you bought that house for 150 over asking, let’s say that you, it’s single family and you bought it on a va, okay, 0% down, literally any adjustment to the market puts you underwater. Any negative adjustment to the market puts you underwater. And it’s a, in my situation, or in my opinion, it’s very, very high risk to be low equity.
Andrew Schultz (00:46:30):
Especially in times like now, when we’re talking about shifting interest rates, shifting values on properties, things of that nature. I really like to see people leverage using loans. But I would say probably 80, 85% leverage is about as high as I would like to see one of my clients be on a property, simply because if something happens and they need to get out of that property, you know, something changes in their personal life, they need to fire sale all their assets or something like that. Hopefully they have at least a little bit of meat on the bone there, so they’re not necessarily going underwater or short sailing their properties or something along those lines. And the other thing is, I think that leveraging, like let’s say you’ve got a hundred thousand dollars to put towards a down payment. Okay, if I’m gonna go buy one property with a hundred thousand dollars and I’m putting 20% down, I’m gonna buy one asset, one property.
Andrew Schultz (00:47:19):
It could be any number of units, but I can also take that a hundred thousand dollars and split it into four $20,000 down payments and have probably a much wider range of, of assets that I have under ownership. So I like to see people leverage for that reason. Again, like you said, it really does kind of fall back to what is someone’s personal risk portfolio or risk portfolio. There we go. Yeah. What is your personal risk tolerance? Do you like to be more conservative with your numbers or do you like to play things fast and loose and, you know, it’s generally speaking, when you’re playing things fast and loose, I see a lot of people that when the tides go out, you find out they’re not wearing a swimsuit. So that’s my personal opinion. I, I’m for loans, but I think that if you’re gonna loan, I think that there has to be some equity left on the, on the bone there. And I think that, I think you kind of agree with that by the sounds of things.
Devin Redmond (00:48:09):
Yeah, absolutely. I think your point about diversification is, is right on mm-hmm <affirmative>, you don’t want all all the E and it depends what is that equity relative to your other savings, right? Mm-Hmm. <affirmative>, what does that equity represent relative to your W2 income or however you’re, you’re making money, right? Mm-Hmm. <Affirmative> is it tragic if it’s all wiped out because of a market correction? Mm-Hmm. <Affirmative> and or, or is that like, well I’ve got, you know, portfolio 20 assets, they’re different parts of the country. Some are rural, some are urban. If you’re very diversified, then you could afford to get wiped out on one and maybe the tenants are still there paying rent and it cash flows anyways and you can ride it out.
Andrew Schultz (00:48:49):
Mm-Hmm. <affirmative>, actually, it’s funny cuz we have this question from Sean. Thinking about generating cash flow faster, does it make sense to purchase a portfolio of single families versus one unit generating the same income? What’s your tolerance for risk? It really boils down, at least on this question, I think it boils down to what’s your tolerance for risk? Do you want the, the, the first thing I thought when I saw this question was if I have one single family and I have no tenant in that single family, big goose egg for revenue. If I have a portfolio of 10 single families and I have one vacancy, I have 90% of my revenue still coming through, you know, give or take coming through the doors. So from where I’m sitting, I would always rather see multiple pieces of real estate that are performing and bringing cash flow through the doors so that if you do have that one-off vacancy or if something happens where you need to put a new roof on a property that it blew off as a part of a storm or something like that, but insurance won’t cover it, you know, there’s more cash flow coming in to cover the unexpected type of a thing.
Andrew Schultz (00:49:48):
So I always like to see people, I guess I take the more as better approach to a number of doors.
Devin Redmond (00:49:54):
Yeah. I, I think there’s a balance, right? Having just everything in one basket, not, not a great idea unless you’re, you’re able to lose it all. Right? mm-hmm. <Affirmative>, if you get spread out too thin though, and you’ve got a big portfolio and it’s all, all stuff you just acquired, like that can be a lot to ramp up on just, you know, mentally in terms of the time commitment in managing it. So I do think there’s, there’s kind of a balance there. Maybe it’s three or four or five properties, not 10, 15. Sure.
Andrew Schultz (00:50:25):
Yeah, absolutely. It makes sense. Let’s see, our next question from Bernice, how are you preparing and what have you shifted in your investor strategy, if anything for the upcoming 12 to 24 months? And then in quotes, she put recession? And again, again, I think this is probably relevant because we’re literally in a situation right now where, you know, Silicon Valley Bank has failed. I think that people are, we’re already kind of thinking recession, we’ve been hearing it in the media for months now, probably close to a year at this point. What’s changing in your investment strategy, if anything?
Devin Redmond (00:51:01):
Yeah. you know, for me, on the existing things that I own, I’m very focused on, on on cash flow mm-hmm. <Affirmative>. And from a long-term rental perspective, that means just making sure that my tenants are doing good, they’re comfortable that I’m on top of maintenance issues, maybe doing a little bit of extra to make sure that they’re happy and gonna stick around and renew. On the short term rental side, we talked about that. I’m trying to move to direct bookings to create a little more of a buffer case, nightly rates, you know, start to tick down if there’s a recession, I’ve got more room there, right? Mm-Hmm. <affirmative> to still make the same amount of money at the end of the day. In terms of acquisitions I’m just being very patient and, and super picky. So I’m watching a few markets and one of the things I do is I’ll, I’ll go on the mls, like Redfin or something and I’ll, I’ll sort by days on market in reverse order, right?
Devin Redmond (00:51:59):
Mm-Hmm. <affirmative>, and so I can start to see which properties have been on the market, how long and are those numbers ticking up or are they finally finding buyers? And from what I’ve seen, you know, lately, the last two to at least the last like four weeks, January was a little bit different, but the trend has sort of reestablished itself that I’m seeing more price drops, I’m seeing longer days on market. So to me that says there’s no real urgency here, right? You can afford to be patient, there’s no penalty for being patient and sitting out mm-hmm. <Affirmative>. But I’m also not just like totally sitting out. I’m, I’m looking at deals watching the market and trying to understand what the trend line is and when does it start to slow or, or bottom? You can’t, you can’t, that makes sense. Find it exactly. But that’s
Andrew Schultz (00:52:45):
What you’re having. Yeah. Well, and I, I think it has to be not just any deal, but the right deal. I think that there were a lot of deals that made sense in prior markets that don’t necessarily make sense now. Not even like just the cost of rehabbing something has skyrocketed. Like the cost of rehabbing something in 2019 versus the cost of doing that same level of rehab now is probably gonna be somewhere in the one and a half to two times higher than it was in 2019. And that’s just the fact of life is what we’re dealing with, looking at different contractors and things of that nature. So finding a fix and flip type deal, you really have to understand what your numbers are gonna be going into it so you don’t wind up underwater without even realizing it. But the other thing that you had mentioned that I thought was really interesting was staying on top of your maintenance, making sure that your tenants are satisfied, looking for little maintenance things that can be done to improve their tenant experience, or, Hey, I’d really love a ceiling fan in my bedroom, or something like that.
Andrew Schultz (00:53:42):
The most money that most landlords spend in a short duration is during turnovers. Turnovers tend to be the most expensive part of landlording, whether it be the actual physical turn of the apartment or the time with the apartment spending vacant or whatever the case may be. That block of time when you are without a tenant in that unit tends to be the most expensive time for you, is the landlord. So whatever you can do to kind of reduce those times by keeping tenants in for longer periods of time, not having that turnover really does help cash flow in a big way. And I think a lot of landlords forget just how, just how much it sucks to have a vacancy. Especially here in Buffalo, like it’s March, we’re finally starting to get through the winter months, but having a vacancy in January in Buffalo, you’re not finding a good tenant more than likely during that timeframe. So it’s just basically watching money disappear right in front of you. So I, I like that stance of making sure that maintenance is kept on top of, for lack of a better term, you’re staying on top of maintenance, maybe finding little things that’ll improve the property or the tenant experience. Do you see that your tenants stay longer as a result of that strategy?
Devin Redmond (00:54:49):
Yeah, I don’t know that I have a, you know, big enough sample of mm-hmm. <Affirmative> of data points across just my, you know somewhat small portfolio right now. But I think I would say over time, absolutely it’s not just about rent mm-hmm. <Affirmative> it’s also about the overall experience you’re delivering mm-hmm. <Affirmative>. So I think it’s been maybe less important, you know, over the last few years when you could kind of push rents. Tenants didn’t have a lot of options. There weren’t a lot, a lot of other places to go necessarily, especially as people like kind of hunkered down and made their, their homes a little bit nicer during Covid. That’s starting to change a little bit. There’s a lot of multi-family supply that’s come online that those owners and developers are being a bit more aggressive now with incentives mm-hmm. And trying to lower tenants away. So, you know, that’s maybe more of a multi-family issue, but I think it does start to leak into single family rentals as well. Some of those tenants figure out, hey, there’s a new apartment building a couple blocks away and they’ve got some deals going on mm-hmm. <Affirmative> mm-hmm. <Affirmative>. So, you know, the, the calculation is starting to change a little bit
Andrew Schultz (00:56:00):
Mm-Hmm. <Affirmative> Well, and it’s, it’s interesting because we don’t see a lot of single family like new build, single family, like build to rent type stuff here in western New York. So there’s very few people renting what I would consider newer single families here in Western New York. Most of our housing stock, honestly, most of the housing stock in the city of Buffalo is late 1900, or I’m sorry, late 18 hundreds, early 19 hundreds. And then as you start getting into like first ring suburbs, it’s, you know, fifties, sixties, seventies, eighties. And as you kind of go out, you know, maybe you’ll see some newer stuff in maybe the second ring suburbs and things of that nature, but it’s not like we’re seeing a lot of single family stuff being built. It’s a lot, a lot of single family assets being built strictly for the rental market. So single families, I don’t wanna call ’em an oddity in the rental market here, but it’s not as common as it is in say Arizona, where you may have a developer go in and build an entire development that’s built as build to rent type situation. We do a lot more with multi-family and stuff like that out here. So it’s just an interesting difference in what the, what the stock is from one market to another, I would say.
Andrew Schultz (00:57:11):
All right. We got time for one more question here. This one comes from Ed, can I expense an $85,000 new roof on a mixed use building that has 30 residential and 10 commercial units? The revenue breakdown is 70% residential, 30% commercial.
Devin Redmond (00:57:28):
Yeah. I don’t have a whole lot of experience with mixed use. Mm-Hmm. <affirmative>, I would imagine there’s some sort of probation that happens, but definitely a question for, for a CPA on, on, you know, what the, what the sort of aggressive strategy is, what the safe strategy is and, and where you wanna end up.
Andrew Schultz (00:57:45):
Yeah. And I know there’s a couple different ways of looking, and again, I’m not an accountant by any stretch, so I don’t know all the ins and outs and the rules, but I believe there’s ways that you can accelerate the depreciation on certain items and things like that. I don’t know how all of it works. That’s definitely a question that’s probably best best left to a C P A I would say. I think A C P A is probably gonna be best able to answer that one. I know that you can cer it is certainly, it’s a CapEx. I mean, there’s gonna be some capacity in which you can write off some or all of that roof, but I think it’s basically gonna boil down to what the allowables are for that specific property. And I don’t know if there’s a difference between commercial and I guess there is because it would be, the depreciation schedules are different on a commercial structure than a residential. So there would have to be something with it being mixed use, I guess. But I, I’ll be honest with you, that would be a question that would probably be best answered by a cpa. All right. As we pull into the station here, Devin, why don’t you go ahead and tell us how people can go ahead finding you?
Devin Redmond (00:58:44):
Sure. Yeah. So you can get to me through ESSA or roofstock. Right now I’m running the, the content strategy team on the roofstock side. But I, I keep close closely in touch with, with the team atessa as well. So if you, if you sign up for essa, you can actually, there’s a, in the lower right corner there’s a chat box there and you can send me a note there. It’ll get to me I still kind of keep track of all the, all the feedback and kind of take the temperature of the Theesa customer base mm-hmm. <Affirmative> just to understand, you know, what investors are doing how they’re liking the product and, and where we need to go in terms of new features. So that’s probably the best place to track me down.
Andrew Schultz (00:59:26):
Very cool. Thank you so much for joining us today. Stick with me. I’m gonna pull you off screen here for a second, but we gotta get the rest of your video uploaded. I’ll be back with you in just a moment. All right, everybody, thank you for joining us for our March AMA session. We do love doing these. And the best way for you to contribute to these is actually to ask us a question. We actually post these, generally speaking about a week to two weeks before we do them live. So if you have a question, we actually post a link in the event that’ll allow you to get your questioning and beforehand so that we can actually preload it into our software here. But even beyond that, if you are watching these live or even after the fact, you can always drop a question in the comments, and we do try to come back and answer as many of those as possible. Again, thank you all so much for watching. I’m Andrew Schultz for rent prep.com and we’ll see you real soon.