179 Are Real Estate Markets Cooling? | Passive Accredited Investor Show | Hard Money Lenders
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This week, Tim Bratz, CEO & Founder of Legacy Wealth Holdings, joins Bill Fairman, Wendy Sweet & Jonathan Davis. This great group of people talks about commercial real estate and as the real estate market is slowly cooling down how does this affect the housing rental market.
Tim is the Founder & CEO of Legacy Wealth Holdings. He focuses on vision-casting, marketing, & supporting his team of “A” players. He has built his company on integrity, fairness, & transparency.
Tim has dedicated his professional life to studying wealth-building & personal finance. Working in real estate, Tim has learned how to create a passive income that allows him to live the lifestyle of his choice. His goal is to educate & empower others to pursue their freedom through entrepreneurship & real estate investments.
0:01 – Introduction: “ As the real estate market is cooling down are rents keeping up?”
1:57 – Wednesday with Wendy: https://calendly.com/wendysweet/wednesdays-with-wendy?month=2021-10
3:18 – Today’s guest: Tim Bratz, the CEO and Founder of Legacy Wealth Holdings
4:43 – How Tim Bratz started in the real estate business?
7:21 – Multi-family investments of Tim Bratz
8:35 – Real estate is still the best investment out there
9:58 – Tim Bratz’s 800 doors
14:45 – Tim Bratz’s thoughts on deflation and its effect on the rental housing market
19:40 – Real estate market’s Legacy Wealth Holdings is investing
21:54 – Return On Effort
23:25 – Money claims from the U.S. government for landlords
28:23 – You rather own more rental properties than just one rental property
28:57 – What is the 1% rule in real estate?
Carolina Capital is a hard money lender serving the needs of the “Real Estate Investor” and the “Small Builder” borrower who is striving to build wealth and generate income for themselves and their families. We offer “hard money rehab loans” and “Ground-up Construction Loans” for investors only in NC, SC, GA, VA, and TN (some areas of FL, as well).
As part of our business practices, we also serve as consultants for investors guiding them to network with other investors and educating them in locating and structuring transactions. Rarely, if ever, will you find a hard money lender willing to invest in your success like Carolina Capital Management.
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Bill Fairman (00:02):
Hello everyone. It’s the Bill and Wendy show, and we’re doing a little housekeeping before we get started and apparently while we’re getting started. So our focus today is, as the housing market is cooling down a little bit, people aren’t in a lot of markets, people aren’t having the overbid.
Wendy Sweet (00:28):
Bill Fairman (00:29):
To get stuff in and you know, our rent lagging. So, um, we’ve got a great special guest.
Wendy Sweet (00:35):
Bill Fairman (00:35):
And we’re going to secretly not tell you who it is until we’re done with this long-winded teaser. So right after this.
Bill Fairman (00:43):
Wendy Sweet (01:03):
Bill’s still has not conquered the fact that the teaser is supposed to be like a teaser, like short and quick, and you know.
Bill Fairman (01:14):
Here’s the thing. I grew up in a family with Wendy involved there’s five kids. And once you started talking, you had to keep going or you wouldn’t get another chance.
Wendy Sweet (01:26):
And Billy being the oldest, he’s the best at it.
Bill Fairman (01:29):
So thank you for joining us on the passive aggressive, Passive Accredited Investors Show. We are Carolina Capital Management. We are lenders in the Southeast for real estate investors. If you’re interested in borrowing money, go to CarolinaHardMoney.com and click on the apply now tab, if you’re a passive investor looking for passive returns, click on the accredited investor tab, don’t forget to like share subscribe, hit the bell. And don’t forget to sign up for Wednesdays with Wendy/
Wendy Sweet (02:12):
My favorite little line.
Bill Fairman (02:14):
After those impressive graphics, Wendy donates 30 minutes per caller.
Bill Fairman (02:21):
Bill Fairman (02:21):
On Wednesdays. So she’ll do a little zoom connection with you, free to anybody that wants to sign up. It’s a, there’s the link. It will also be in the chat we also had, oh, by the way, she’s booked out a couple of months in advance so do it now.
Wendy Sweet (02:35):
We talk about real estate and Jesus. So either those two topics are great.
Bill Fairman (02:41):
We have a chat section to the right side or underneath, depending on the platform that you’re viewing us from. So please, if you have any questions for us or our guests, please do so. Yay! I made it through it.
Wendy Sweet (02:57):
You did, I’m so proud.
Bill Fairman (03:00):
So our theme this week is ask the market’s cooling down slightly.
Wendy Sweet (03:05):
What’s going on?
Bill Fairman (03:07):
Our rents keeping up with that pace. Are they lagging or are they increasing? And who better than to chime in on this subject and then Tim Bratz. He has, I’m telling you, Tim, you are everywhere. Every time I turn my email on, I have an email from you, uh, either for coaching or investing. Uh, anyway, welcome to the show.
Wendy Sweet (03:33):
I’m surprised he’s looking at emails
Tim Bratz (03:37):
Yeah, I got a great team in place, right? So I appreciate you guys. Thanks for having me here. Excited to be here with you.
Bill Fairman (03:43):
And not only is it my business email, but you’re also coming in on my personal email as well. So your team researched my email, apparently.
Tim Bratz (03:53):
I told them marketing team yesterday. I say, I want to be omnipresent. I want everywhere. Everybody looks, they see us and now it’s, well, thanks for not unsubscribing. So I appreciate that. We actually try not to send too many emails, but we do about two a week and we try to add some value. And at the same time let people know we’re buying, we’re selling or joint venturing. We’re raising money. We’re, doing all these different kinds of things. We do some coaching and stuff too, obviously. So, yeah, you know, I think just, I think it’s important for people to know that there’s better returns as you guys know in real estate backed by hard assets, tangible, you know, you got, especially if it’s an equity investments, you know, just appreciation and all sorts of other stuff that can benefit them, that they can’t get in, you know, the stock market and other, other traditional types of investing.
Wendy Sweet (04:45):
Right. Tell us a little bit about what you do and how you got started in this business. Kind of just a precursor to our incredible conversation
Tim Bratz (04:52):
Yeah, I mean, high level is, I was going through college, 03′ to 07. So the market was going crazy. Everybody’s making money in real estate. And that was what motivated me back then. So I graduated from college in 07′ moved out to New York city. I’m from Cleveland, Ohio originally. I live in Charleston, South Carolina, not far from you guys now.
Wendy Sweet (05:10):
Tim Bratz (05:11):
I thought you got involved in real estate by becoming a real estate agent. So I got my real estate license. I started brokering, actually commercial retail leases and office leases and just saw how much money there was on the investment side versus, on the ownership side versus the brokering side. So I ended up, uh, saying, I want to become an investor. And I moved down to Charleston, South Carolina just wanted some better weather and, you know, got all excited and was ready to invest and the market collapsed like in late 2008. And I was like, God, where’s everybody going run from real estate? And I was like, I just showed up. And so I was kind of fortunate because market, you know, the prices had dropped. Everything was bottom of the, very different than today, like essentially opposite, right? Like there’s a lot of capital out there, but there’s not a lot of low hanging fruit type of deals, right? And back 10, 12 years ago, there were deals everywhere, right? You couldn’t walk down the street without walking past three foreclosed houses, bank owned homes, selling for pennies on the dollar, but money was nowhere. And I learned very quickly and after seeing multiple market cycles over the past 12 plus years that I’ve been investing, you gotta be always sourcing capital and always sourcing deals all the time.
Wendy Sweet (06:32):
Tim Bratz (06:33):
And so, you know, we’re focusing on those revenue generating activities. And when I had that awareness, I got started meeting people with money, started pairing that up with deals and getting involved somehow sometimes I’ve lent or I borrow money as, as more of a debt loan. And then other times as like an equity joint venture type partnership and built up a portfolio, you know, there’s a lot of highs and lows and stuff. I can go into the story if he wants to, but essentially fast-forward to today, I have a portfolio of, I was up to 4,800 doors. I just sold off about 800 of like the smaller properties and some more like the C class type properties. So I’m at about 4,000 doors right now, but I’ve transacted many thousands more than that. But my portfolio is a little over $400 million as I sit here today with you.
Wendy Sweet (07:19):
Wow. That’s amazing.
Bill Fairman (07:20):
Now is the majority of that portfolio in the multi-family arena?
Tim Bratz (07:26):
Yep. 90% of is multifamily. I got about 10% of miscellaneous, some office, like small micro office type stuff. I have some sellers facilities, I have some vacation rentals and kind of like unique short-term rental type stuff but yeah, 90% of it’s multifamily and usually in secondary tertiary type markets, I don’t do anything luxury and I don’t do anything that’s in war zone. So I stick to that kind of B class blue collar workforce housing rents average loan.
Wendy Sweet (07:53):
Tim Bratz (07:55):
Wendy Sweet (07:55):
Tim Bratz (07:58):
Afford-right. Not like low-income housing, but affordable housing for the workforce. You know, probably rents that range from low end 600 up to about $1,500 a month. So we probably average 800 to a thousand dollars a month in rent. So right in the middle of the road, I think it’s very insulated when the market’s good. Everybody can afford that when the market shifts a lot of those luxury runners move into more of a workforce. So it stays pretty occupied.
Bill Fairman (08:24):
I was going to say the same thing and that’s the perfect sweet spot.
Wendy Sweet (08:27):
Bill Fairman (08:27):
You’re going to have people moving up the economic ladder. You have people moving down the economic ladder. It doesn’t matter. You’re still right there in the middle to capture all of them.
Wendy Sweet (08:33):
Yeah, that’s beautiful.
Bill Fairman (08:33):
I wanted to kind of back up when you first started to speak about how you saw that real estate really was the best investment out there. And on our show earlier today, we were talking about the current administration, they are trying to tax you on your unrealized gains in the stock market right now. And what interim people don’t understand what interim taxation does to your wealth building.
Tim Bratz (09:08):
Oh, put a chart together and look at that. You would be at like the same way that compound interest benefits you that hurts you like inhibits you. I mean, it just takes your legs out. You can’t even build wealth that way.
Bill Fairman (09:26):
It’s amazing. And I was looking for charts, but I think it’s a Google conspiracy. Cause when I Googled it, [Inaudible] They’re nowhere to be found because they don’t want you to know about it. They don’t want you to know how it’s ruining your wealth building capabilities, but still within real estate, you are having games over time without interim taxation. And at the same time you can throw in cashflow in it and then tax benefits as well.
Wendy Sweet (09:58):
Tim, I’m curious. You sold 800 doors. Talk a little bit about your reasoning for doing that.
Tim Bratz (10:05):
Yeah, absolutely. Great question. I would say, it’s probably a few different things. First was I had some, some partners, joint venture partners who were kind of like the operating boots on the ground who weren’t totally getting the job done. And it just got to a point, they had too much stuff, too many balls in the air and I knew they were going to drop some of them. I said, Hey, let’s get some, clear some things out. So that was not really, market-driven just more of a, you know, a relationship-driven had to make that decision.
Wendy Sweet (10:36):
Tim Bratz (10:36):
And then that kind of, you know, I think it’s really important. It’s why we’re in masterminds. It’s to go and work on the business instead of in the business and really reflect on your business and what have you done and where do you want to be going and kind of create the roadmap, right? Like we don’t know where we’re going. If we don’t have a destination of where we want to go to, and then you gotta think about where you are right now, and then you can reverse engineer the map in order to get there. And I was doing some of that earlier part of this year, realizing that a lot of the smaller properties and the C class properties that got me to where I am, you know, they were stepping stones to set me up for buying a hundred unit plus B class apartments today before though, I just needed to build my balance sheet. And so I was buying everything. I wanted the momentum early on is more important than the actual asset that you’re buying a lot of times. And as long as you’re buying rental properties, you know, it’s hard to mess up a rental property that you’re, you know, that meets the 1% rule really is a great rule of thumb.
Tim Bratz (11:36):
So I was buying just any rental property. 12 unit buildings, 24 unit buildings, 60 unit buildings, 18 unit buildings. And I was just buying and organically growing my portfolio so that one day I’d have the balance sheet to then go and sponsor loans and sign on loans that are for bigger complexes. It got me a lot of respect from sellers, from brokers and from lenders by just having the momentum built up. And so those buildings were great stepping stones to get me to where I am today, but those buildings aren’t going to take me to where I’m going. And they’re really more of an inhibitor than anything else. It was, they’re very management intensive. They’re very, you know, use up a lot of brain calories and managing a lot of those properties and asset managing some of those. And so, you know, take a look at the market. It’s a very opportunistic time for people who have good stabilized cash flowing assets. I think what a lot of people don’t realize in, but you know, the traditional housing market where there’s, you know, owner Rocky pins that people retail, flipping houses versus rental properties is although the market’s great across the board for everybody. If you have a rental property, that’s not performing rental properties, aren’t valued the same way as a traditional owner, occupied property and owner occupied properties value based on the comparable approach and really emotionally driven of what somebody is willing to pay for that property based on what is it worth arbitrarily to them? An investment property is strictly based on the numbers. It’s only based on the operations and the income approach. What’s the income minus expenses equals the NOI.
Tim Bratz (13:22):
And then there’s a multiple of that NOI, that Net Operating Income that the properties valued at. And so even if the market’s ridiculous, like it is right now, even if there’s a ton of buyers there out there, like there are right now, even if interest rates are as low as they are right now, if a property is not performing, it’s not going to get top dollar, like they’re still going to come in, they’re gonna buy it for what it’s worth, not for what it can be and not in the investment side anyways. And, you know, that’s good and bad, right? It doesn’t have the swings that residential markets might have. Investment properties are more stable. It doesn’t have the same highs, but it also doesn’t have the same lows and even when the market’s bad, if you’ve got a great performing property, you can get top dollar for it when the market’s great though, and you don’t have a top performing property, you’re not going to get tapped out.
Tim Bratz (14:10):
So it’s just, you gotta be really good at operations if you’re gonna own rental property long-term, you know, and obviously, fortunately, we’re pretty good at that. And we have a great team in place and all of our assets that we’ve been selling have been, you know, fairly stabilized. We all dealt with some stuff during COVID and, you know, had some non-paying tenants and all that kind of jazz that we had to work through. But we’re very happy with the sale prices of the properties that we have sold so far. And, you know, I think he’s just kind of trimming the fat, refining the operations, taking a step back to make some big leaps forward.
Wendy Sweet (14:46):
So having said that, I really want to get your thought on deflation and what you see might come down the pipe and in that respect and how it will affect your ruts.
Tim Bratz (15:00):
So I think there’s a few things, in Ellison. I took some economics classes, but really, you know, you just look at the market and you understand, you know, how people behave. And sometimes you don’t understand how to behave, but like, you look at a couple of things that are happening in the market. And if you look at history, the American dollar from 1960 to 1990 was devalued because of, you know, inflation occurring and everything and coming off the gold standard and a lot of all the other stuff, it was devalued by 75%. So it CA it took $4 to buy something that could in 1990, that took $1 to buy it in 1960. Devalued by 75%. And then from 1990 to 2020, based on the war on terror and everything else that happened in the bubble, the.com bubble burst, and then the housing, economic burst and everything else that happened.
Tim Bratz (16:03):
It was devalued by another 50%.
Wendy Sweet (16:06):
Tim Bratz (16:06):
So $2, it’s going to cost you in, in, in 2020 $1 in 1990, you know, and that would have cost 25 cents in 1960. So, and then they print a third of all dollars ever made in America last year, right? Over the past 12, 18 months. So like, what does that mean? That means there’s a lot more supply of money, which means the value of money is going to come down and there’s going to be some sort of inflationary period that we will likely go through. Is that going to happen in the next 12 months, 36 months? I don’t know, from a tiny perspective, but it’s gonna, it’s going to catch up to us. And the only thing that rises with inflation is rents. Rents rise the same, the same proportion with inflation, and they go up together.
Tim Bratz (16:55):
So me as I’m looking at my portfolio and my ambitions and what I want to do and stuff right now, I don’t mind debt. I know a lot of people are either pro or anti debt or whatever. Like I think debt, if you know how to use it as a phenomenal tool. And so for me, and especially with commercial real estate, you can get non-recourse debt, which is really exciting. For me, I’ll go, I’m trying to refinance everything right now. Interest rates are super low properties are all stabilized across my portfolio. Almost all of them are. And so we’re just refinancing everything in a longterm fixed rate debt. So that way, between 2021 and 2051 as the dollar is devalued even greater, even more. I know some people like, Hey, I want to pay off my property in 15 years. I just want a 15 year mortgage. I’m putting 30 year mortgages on everything. One cause I’m young and too, because I use cheaper dollars in the future to pay down that mortgage. That is a fixed mortgage, right? Versus dollars today.
Wendy Sweet (17:58):
Tim Bratz (17:58):
So it allows me more cashflow today. And economically, it makes way more sense to pay it down over time and to not prepay those loans. Because you use cheaper dollars in the future, then what those dollars cost today
Wendy Sweet (18:13):
So glad that you explained that there’s so many people that don’t get that. They don’t understand that having that debt is really so helpful for you in the future.
Bill Fairman (18:27):
Yes. And by the way, as your rents do increase over time. So that’s only going to increase your margins because again, you’re paying it with,
Tim Bratz (18:34):
Exactly. Your debt steady, right? And your rents keep on going up
Bill Fairman (18:38):
Future payments with today’s dollars. And, the only thing that I caution people on is don’t mortgage them to the hill because you still need to have a bit of margin in there.
Wendy Sweet (18:51):
Tim Bratz (18:51):
Bill Fairman (18:51):
For just in case situations that come up and you need to sell the property. You don’t want to have to bring cash with you to the closing. That’s the only downside and, you know, 75% or less and most investment properties. I’m talking about single family houses right now, but 75% or less LTV in a property is going to keep you out of most issues. Because there was only a few markets that even in 2008, where the values dropped below 25% of what their original values were. So that will still keep you above water.
Wendy Sweet (19:30):
Bill Fairman (19:30):
I had some really good questions to ask you earlier, but Wendy butted in and get them.
Wendy Sweet (19:35):
Sorry. I’m so sorry. You didn’t write them down?
Bill Fairman (19:41):
No. So what markets are you in?
Tim Bratz (19:44):
We have property 12 different markets, mostly in the Southeast, a little bit in the Sunbelt. They kind of in Texas, in Oklahoma, we have some stuff in Louisiana, a lot, Georgia, South Carolina, and then we have some stuff in the Midwest cause I have a team up there. So Illinois, Ohio. Where else? Has some stuff in North Carolina, Florida. Yeah. So, I mean, it’s, it’s pretty much the Southeast though. That’s, that’s where we like to be. It’s just, as you guys know, it’s more landlord friendly, so they’re not dealing with all the tenant compliance and all that garbage and you know, it doesn’t take nine months or longer to evict a tenant. It takes 30 days, you know, if they don’t pay, it’s very cut and dry down here. And, you know, I’m from Cleveland, Ohio, which when the weather turns, you can’t do any work outside for the next four to six months.
Wendy Sweet (20:33):
Tim Bratz (20:33):
And so down here, you can do work year round outside and you don’t get beat up by the snow and the ice and the freezing temperatures and the salt on the roads and all that kind of stuff. So it’s just property taxes are a little bit lower down here too. In most areas Florida’s actually pretty expensive. Texas is pretty expensive. Insurance can be a little bit more in certain coastal areas. You’re just kind of weighing out all that stuff. And a lot of people think grass is always greener. Number one reason I invest in the Southeast because I’m here, right? I live in Charleston. I know the area, I feel comfortable with it and confident with it. And this is where my joint venture partners are and where I have the resources. So really I just do it because of that. All the other stuff has kind of fringe benefits.
Bill Fairman (21:16):
Well, I mean, you’re correct in the, these are great markets. Even the Midwest that you’re in is a good market, because they’ve always been a good rental market in the Midwest. You didn’t get the.
Wendy Sweet (21:28):
Highs and lows.
Bill Fairman (21:29):
Highs and lows of the values there. It’s a wonderful blue collar community most of the time. You’re not going to get the appreciation that you may get in the Southeast. It just happens to be a hot market right now because of the lower cost of living here. A lot of people are moving here, especially, you know, after the pandemic, people are moving to those states where it costs less to live because they have the opportunity to work out of their homes. I wanted to kind of touch on you unloading a few of your, I don’t want to call them problem childs, but one of the matrix is that we use is a ROE, Return On Effort. So if I’ve got, I got two properties that are making equally amount of money, and one of them is just more of a pain to deal with, that’s the one I’m selling, because I want that good return, the effort. And then the same thing with, you know, your business in general, you have people that you were in business with, it helped you get going were integral in getting that business off the ground and getting to getting you where you are now, but they just might not be the same fit for where you’re going to go. So it’s not just portfolio, it’s the business in general and those are tough decisions to make.
Tim Bratz (22:46):
And I think they’re more important. Like, you know, it’s what is the opportunity cost? I was talking to my COO today, who’s at a 36 unit apartment building that has like a bunch of HUD contracts and all this I’m like, we’re losing out on millions of dollars right now, because you’re at this property either hire somebody or give the property, like I would write a check for $500,000 to give the property away to somebody else to come in and buy it at a deep discount. So I never have to think about it again, because I’m losing millions for that, you know what I mean?
Wendy Sweet (23:17):
I love your buyer.
Bill Fairman (23:19):
Yeah, you don’t have that. You don’t have time for that either.
Wendy Sweet (23:24):
That’s for sure. I’m curious. As a landlord, have you received any money from the government on tenants that haven’t paid? Have you gotten any of that yet?
Tim Bratz (23:36):
Yeah. Yeah. So like in Georgia, our management company is rockstars at it and usually like our B class and A class still workforce housing, but good areas. We haven’t had a lot of tenants that got tripped up because of COVID and their job or anything like that. Then we collect 99.7% of all the rents in those properties in a class areas, different story, right? And we’re chasing rents. There’s a bunch of tenants gaming the system, and it might be like it was 1% the first month. And then it was another 1%. And then all of a sudden it starts snowballing. And now it’s 15, 20% of the tenants are just gaming the system because they know that they don’t have to pay rent and that can mess you up. But the good news is we, you know, the government did come out with some stuff to help the landlords a little bit if you know how to navigate that.
Tim Bratz (24:23):
But our management company was trained on how to do that. And they sat down with the tenants, applied with them, and it was something along like, it was like six months of back rent and three months of future rent or, or vice versa. It was something along those lines. And, um, w w we got a lot of people signed up kind of on those programs. I think they’re kind of nearing the end right now. And, you know, fortunately they lifted the eviction moratorium. So we’re having a lot of conversations with people right now. You know, what I don’t want is I don’t want a mass exodus of tenants, and I don’t want it to turn all these units and outlay all sorts of cash. And although I’m salty with these tenants who did kind of just game the system and didn’t pay because they knew they didn’t have to pay.
Tim Bratz (25:08):
I’m also, I’m almost like I got to let my ego go and do what’s the most economically responsible thing for me and my tenants are me and my investors is we’re having conversations with them now and saying, Hey, listen, okay, all right, you got went over. Here’s the thing. We will not evict you. If you catch, you know, we’ll try to put some sort of payment plan together or some sort of pay 20% of it and we’ll waive the rest of it. And then we’ll, and these were people who didn’t get the subsidy assistance. And then as long as you pay rent, you’re on a short leash though, if you don’t pay rent by the first of the month, there is no, know, wiggle room at all on this thing. So we’re having some of those conversations because I’d rather keep tenants in and just paying rather than having to go through the whole process.
Tim Bratz (25:58):
I mean, I don’t think a lot of people realize like, oh, well, if I can keep my utilities down or this down like that, that’s good. The biggest expense for landlords is tenant turnover. And the more you can reduce your turnover, the greater your return is going to be substantially. And because not only are you not collecting rent, they’ve got to pay an attorney that I got to pay court costs. Then I got to move their stuff into a storage locker for a little bit. If they don’t take it all and then I have to renovate the unit. Then I have to pay a leasing agent to lease it. Then I have, you know, it’s just, there’s so much stuff that comes into it and it sits vacant for another three months, you know? So if you can eliminate or reduce that as much as possible as as much and principled in me as I want to be like, no, get the echo, get the heck out of my properties. I’m not doing that right now. I think it’s way more responsible to just have a conversation, you know, and just to have that dialogue back and forth and try to get them back into a routine of being responsible and paying their payments on time.
Bill Fairman (27:04):
Well, yeah. Being in that business and most, at least a lot of people are trying to make the landlords look,
Wendy Sweet (27:13):
Like the bad guys.
Bill Fairman (27:13):
Like a bad guy. It is business and you have to treat it like a business, but most landlords, property owners are very compassionate people. They try to work with folks, but they also,
Wendy Sweet (27:27):
Have to pay the bills.
Bill Fairman (27:28):
Have a business side to think of. And you know, it’s a shame. Some people fall through the cracks, some people dive through the cracks and they do it on purpose. And you got to weed those folks out
Tim Bratz (27:45):
I’m talking about, you know, the ones that are top of mind, because they’re the biggest problem childs, but really it’s a handful of people across 4,000 units, you know, so overall we’re doing all right, and I don’t want to scare anybody from getting into rental properties. It’s just, Hey, you’re a problem solver. You know, the bigger problems you can solve, the more money you’re gonna make. And the more wealth you can build, the more people you can help. And a lot of other things that come with it. So expect problems and the bigger, the problem, guess what? That’s a big of the opportunity it is. So don’t let it derail you mentally and just stay on track and just keep on solving more problems.
Wendy Sweet (28:23):
Bill Fairman (28:24):
Well, this is why we always tell new investors. You don’t want to own a rental property. You don’t want to own two rental properties. You want to own 10 or 20 rental properties, because you’re always going to have a problem. You just, if you only own one property and that’s the problem, that’s not going to do very well.
Wendy Sweet (28:46):
That’s a problmem.
Bill Fairman (28:46):
If you have a more diversified footprint, then those little problems aren’t going to, they’re going to be little problems.
Wendy Sweet (28:52):
They’re now gonna take you down and, and it’s easily easy to correct those. We do have one question. It’s what is the 1% role? We know what that is, but can you explain that for somebody who may not know?
Tim Bratz (29:04):
Yep. Great question. I mean, you learn this a lot of times early on in owning rental property, or, you know, as you’re watching podcasts and that kind of stuff, I still use it. And I still think it’s a pretty good rule. So 1% is if your monthly rent is a thousand dollars, you would never want to pay more or be all into that rental property for essentially, 100 times that, right? You want your monthly rent to be 1% of what your all into the property for. So if you’re all into it for a hundred thousand dollars, you want to be able to yield at least thousand dollars a month in rent. if you can get $1,500 a month in rent then that means you can pay up to $150,000 per unit per door, per house, whatever that ends up being depending on the asset class that you’re in.
Tim Bratz (29:55):
So that’s typically, if you can meet that threshold, you can cover your operating expenses. You can cover your debt service, and it’ll put some cashflow in your pocket. Obviously the more above 1% you can get it is the better the deal it is. So if you can get one and a half percent, which doesn’t seem like that much more one and a half percent, that’s a thousand dollar rent. That means you’re all into that property for about 65 to $67,000. That means you’re stepping into a smoking deal and just little incrementally above 1% makes a big difference. And like we still use it, right? Like most of our properties appraised for around 1% or, you know, of what the rent is, right? Or 100 X of what the rent is. So we have a unit that rents for $800 a month. It typically appraises for around $80,000. So we use that as a gauge and a barometer, just kind of a quick metric off the cuff to, to know what the value is on, uh, on a building that we’re buying or building that we’re selling or, uh, what we think something’s going to appraise for.
Wendy Sweet (30:58):
Bill Fairman (30:58):
And you know, that’s the beauty of being in the B class, within tertiary markets. You get into the A-class properties. You’re not going to have that 1%, you’d be paying a lot, or your cap rates are going to be a lot lower. And then you get into the larger markets. It’s just more expensive in those markets. The land costs are higher, same thing applies. So you’re in the right markets and you’re in the right class for that math, besides that it’s easy to add up.
Tim Bratz (31:32):
Yeah. It’s not standard across the board if you’re in California. I mean, cashflow is cashflow across the board. It’s really hard to find a 1% type of a deal in California or in New York city or in Boston or in San Diego or Dallas or even, you know, so if the closer you can get to 1% or above 1%, that there’s a lot better of a deal. There’s also something to be said, as you get into like these luxury type of a rental properties, if you have something that rents for $3,000 a month, and it’s a, you know, 1500 square foot apartment, understand that your operating expenses aren’t going to be, I mean, it’s to turn on the lights in that unit, it doesn’t matter if you’re making $500 a month in rent or $3,000 a month in rent.
Tim Bratz (32:26):
It’s a same utility costs. And then, you know, your property taxes are going to be higher, lower based on the cost of the building but your insurance is going to be about the same, whether you’re getting $500 a month in rent or $3,000 a month. So you’re to find that as you get into higher end properties, your expense ratio and the percentage of your expenses that you’re, you know, let’s say of your gross revenue is a hundred thousand dollars in a B class area. My average expense ratio is about 40%. So if I’m grossing a hundred thousand dollars a year in revenue, about 40,000 of that’s going to go to taxes, insurance utilities, maintenance management, and then the other 60% is essentially the net operating income. You got to pay mortgage out of that whatever your investor payments are and that kind of stuff.
Tim Bratz (33:15):
But if you get into more of a luxury type of property, you might have a hundred thousand dollars of gross income, but your expense ratio might only be 25 or 30%. And so pay attention to some of that kind of stuff because, you know, there’s some things that we’re looking at actually in not super luxury, but just higher rent kind of properties that actually we can make it make sense because the expense ratio is smaller. So we can pay a little bit more and spend a little bit more on the mortgage because we’re saving a little bit on the expenses. So I hope that makes sense.
Wendy Sweet (33:49):
Right. Absolutely. It’s good stuff.
Bill Fairman (33:53):
We could talk for another hour.
Wendy Sweet (33:55):
That’s for sure.
Bill Fairman (33:55):
We’ve already gone over almost 10 minutes. Thank you for spending so much time.
Wendy Sweet (34:01):
Yeah, this has been awesome.
Bill Fairman (34:01):
Awesome content. You do have a coaching business. I do like to tell people that Tim does not do coaching to make money in those coaching to teach people and hopefully add folks through his network, that they can do deals with.
Tim Bratz (34:17):
Very much so. Yeah, that’s how it came about. We, you know, just found, there were a lot of people who wanted coaching and we teach them everything. They go and do their own deals. And sometimes they come across deals that are too big for them to get into and we can bring money, we can bring loan sponsorship, we could bring mentorship and it allowed us to get into a lot of deals. I’ve probably around, I don’t know, 2,500 of my units come from students that we’ve joint ventured with and partnered with on different projects.
Wendy Sweet (34:47):
Tim Bratz (34:47):
So it’s been really, really powerful. It’s called CommercialEmpire.com. I appreciate you guys say that CommercialEmpire.com. It’s online, it’s a virtual event. And it used to be live before COVID. We used to charge $5,000 per person for that. And now it’s 500 bucks, same content because it’s gone virtual. We have no overhead anymore. So wow. We do a few times a year. And then, um, yeah, we do a little bit of, we got a mastermind group and stuff too, but come on to that, that’s kind of the first step into how do you scale into buying a lot of rental property and into the apartments and commercial real estate. And we’d like to take the complex convoluted mystical, almost out of reach type stuff thoughts that we all have about commercial real estate early on, and just get them all out of the way, break it down into a third grade level, very elementary of how to work through deals. How do we raise money, how we source off market deals and how you can asset manage those and build real long-term welfare.
Wendy Sweet (35:48):
So your next one, when is your next one or are you just sign up for it, it’s recorded and ready to go?
Tim Bratz (35:54):
When you sign up, you get access to a pass recording immediately. So you can at least kinda go through that. And then our next one, I think is October, hang on. October seven and eight is the live. So, yeah, you sign up, you get access to the recordings immediately. You can watch those over the course of the next 30 days, and then you can plug into the live event which has discussion panels and my team’s there. And we’re answering Q and a live and all sorts of stuff for a couple of days.
Wendy Sweet (36:23):
And do you get a copy of the recorded one that you’re involved in as well?
Tim Bratz (36:28):
Wendy Sweet (36:28):
Okay, awesome. That’s great. And what’s the best way for somebody to reach you if they wanted to reach you directly?
Tim Bratz (36:34):
Social media hit me up on Facebook or Instagram. I’m very active both of those and just shoot me a direct message on either of those. And if anybody has questions, I’m happy to help out point you in the right direction, be a resource, or at least connect you with a resource.
Wendy Sweet (36:49):
Awesome. Good stuff
Bill Fairman (36:50):
Wendy Sweet (36:50):
I’m gonna sign up.
Tim Bratz (36:53):
I appreciate you guys. I next time you’re in Charleston, you gotta hit me up. I’d love to take you guys out to eat and, uh, just kind of hang out and spend some more time together. So thank you for having me. I respect the heck out of you guys, and I appreciate your friendship too.
Wendy Sweet (37:06):
Bill Fairman (37:08):
Again, thank you so much for joining us. I can’t wait to get back down to Charleston the last time Wendy and I were down there. All the Christmas decorations are up in downtown and I was walking around in shorts and flip-flops
Wendy Sweet (37:27):
And we liked that. That was nice.
Bill Fairman (37:28):
All right. Well anyway, thank you so much. And folks, thanks again for joining us on the Passive Accredited Investor Show. I said it correctly this time. We are Carolina Capital Management. We are lenders in the Southeast real estate investors. If you are interested in borrowing money, go to CarolinaHardMoney.com and click on the apply nail tab. If you’re a passive investor looking for passive returns, then click on the accredited investor tab. Don’t forget to like share, subscribe, and hit the bell and sign up with Wednesdays with Wendy.
Wendy Sweet (38:01):
Bill Fairman (38:01):
You all have a great rest of the week.
Wendy Sweet (38:04):
We’ll see you next week.
Bill Fairman (38:04):
Jonathan is gonna do this solo next week because Wendy and I have to travel.
Wendy Sweet (38:09):
Figure names on the other lines.
Bill Fairman (38:10):
That’s right. Take care.