1203: Strategies to Improve Your Cash Flow-EIC Zoom Excerpts-Part 1
Get the guidance you need now.
For more information about how Jennifer can help you plan, develop and manage a strong real estate investment portfolio, book a complimentary consultation.
00:01
Welcome to Episode 3 of Season 12 of the Growing Empire Show. Today you are going to hear excerpts from our Empire Investment Club meetup that was done via zoom where we discussed with other investors, like yourself, strategies for improving those underperforming assets and planning for your exit strategies. So stay tuned.
00:24
Welcome to Growing Empires. Hosted by real estate entrepreneur and trusted investment advisor, Jennifer de Jesus. Growing Empires provides insight to building wealth through passive income producing real estate investments for those who want to build and manage a more profitable real estate portfolio.
00:43
Before we get started today, I wanted to make sure that you understand what you're going to be listening to. The Empire Investment Club was a club that was founded in the beginning of 2022. And it was an opportunity for like minded investors to get together share experiences and challenges and work through situational things that allow them to improve their underperforming assets and make sure that their portfolios are really growing. If you are familiar with any kind of networking events, we initially started over zoom, and today, you're going to hear excerpts from that, that were hosted via a zoom call. In the very near future, I expect that you can see our networking events becoming face to face events, as people get more comfortable with the new normal of today. And until that moment, I definitely encourage you to sign up for the Empire Investment Club, it is an extremely valuable resource for investors, like yourself, we share all types of tips and tricks on how to make sure that your tenants are happy when and when not to improve your assets, when to make capital improvements, how to budget for these things, how to buy, right how to sell, right, literally anything that you can think of regarding your investment property and your investment strategy we discuss. And it's a very open forum where people share not only what has worked for them, but the challenges that they faced, one of the most important things that we can do as investors is share experiences with each other. And that's how we all learn and grow. So whether you do it via a forum, whether you're a big podcastlistener, we have something to offer for you. If you have not done so already, please make sure that you sign up for the Empire Investment Club. And all you have to do is go to Jennifer de su stock comm and click on Empire Investment Club and sign up. It's a free service for you. But it'll bring a lot of value to your investment portfolio strategy.
02:41
So let's jump right in. shall tell us what you think is the most important thing when improving an underperforming asset, what would be one of your biggest tips?
02:51
I think the biggest tip that I would have was making sure that you have a plan on exactly how you want to execute, and basically have a timeline for your asset. What are your goals for it? What do you want to do with it? Do you have an exit strategy? Is it in the frame? And how quickly do you want to accomplish all these things?
03:11
Okay, and the plan is when you put the plan together? Is it prior to you acquiring the asset? Is it hard to even looking for the
03:19
asset? Um, I think that this would be a simultaneous kind of endeavor. I think that as you're purchasing, it's important to think about what you'd like to do with this property. I think at anytime you can kind of adjust that goal as well. So if you have something for a little bit of time you're like this is I'd like to change this and adjust this, you can always do that. But probably acquiring it would be the best time to kind of start to think about what you'd like to do with this property.
03:47
Right? Because you want to make sure that the property will allow you to do it. Right, right and timeframe that you're planning.
03:53
Correct. So depending on the price that you can purchase, that it's going to determine your timeline, that'll determine how much capital you have on hand to kind of handle what you need to do and take it from there.
04:04
How would your plan change? If you're, or will it change, if you're looking to maybe hold the property for two to three years versus 10 years,
04:13
your plan will probably change drastically. If you're looking to flip it quickly. Or to sell it quickly, what you would need to do is maximize that asset as quickly as possible so you can get your maximization out when you sell. But if you're looking to hold on to it for longer term, you have more opportunity and a more lengthy timeline to kind of make those adjustments.
04:33
So somebody told you that they had two years sold the property and they want to get it as high value as possible. What would be some of your your suggestions on how to bring that property up?
04:47
So the first thing that I would do would be to look at the rent roll. I would look at the rent roll and I would figure out how far away we are from market if at all areas that we have improvements where we can increase those leases And I would try to see what would make sense and how much capital we have on hand to make those adjustments to bring them all up to rent market?
05:09
And would you do it all at the same time? Like let's say we just purchased the property and all of the rents are underperforming? Let's say let's say hypothetically, it's a four unit, and they're all underperforming? Should you do it all at once? Would you do it strategically? Is it based on the investor?
05:28
So my suggestion, and it would always depend on the investor, but my suggestion would be to be strategic in how quickly we posted notice, we would love to see if there are any tenants that are not paying it already. When we take over the acquisition, I would see when their lease terms are up, because sometimes we're bound by the lease. So we don't have an opportunity until that lease is gone. But based on those pieces, it would determine how quickly we would be able to get somebody out and bring it up to rent, if that would be the plan.
05:58
Okay. And I guess the part that's upsetting investor is, you know, how quickly do you want to take all your pain, right like, because if you, I guess, if you have enough money to sustain renovations on the property and not collecting all of the rent, I guess you could, in theory, renovate all four units at the same time. So
06:17
that has been a plan that a lot of investors have been able to take. But again, it kind of depends on how much capital you have, and what you're able to do financially. And if that makes sense. Most people decide to kind of stagger them so that you have the opportunity to keep if, for instance, it's a four unit, you would keep three in and move one out, turn it over, get it re rented at the higher rent, and then kind of repeat the process until we're all up to snuff. But in other times, people have just said, forget it, depending on the renovations that are necessary, we would remove each tenant from the building and then kind of go in and all at once. Okay,
06:55
so benefits to doing it staggered are just strictly that you retain more cash flow, operating cash flow.
07:03
Yeah, I think too, there's something to be said for having a building that's not 100% vacant as well, depending on the area and the location that it's in, it might make sense to keep maybe 50% of the occupancy, just so if there are any issues, you're made aware of them in doing the renovations or people on site. But in other cases, it might make sense just a livable building out of their lease.
07:24
That's a good point. So I guess people watching too, you never know who's watching, right? So they know buildings vacant, but we're maybe have a bunch of building materials in there, right? Kind of.
07:35
So maybe it makes sense to have 50% and 50% out just for the safety of the building. And again, it totally depends on the situation. But that would be something I'm there into consideration of when advising somebody on
07:47
what to do there. Okay, so raising rents, we were talking about bringing up the rents to market. So how do we know what market actually is? Sure. So the way that we would
07:57
determine what market would be would be based on the comps that have recently sold. And by sold I mean rent in the in the general locality. So we hold a lot of the market, which is good, because we can kind of know off the top of our heads, but we always go out to the market, see what's on the MLS see what's being rented elsewhere and make that determination so that we can decide what is being rented currently and what a competition would
08:20
be. So you talked about having a plan. And one of the first things that you would do would be to raise rents to improve those underperforming assets. What else would you do?
08:33
I think that with that plan, we would have to be able to
08:38
control the turnover and control those vacancy costs. So we would make decisions about what what can the market withstand? Does it make sense to improve these and to what degree so we can kind of make those decisions to see when we are going to turn it over after those people leave? What is our target market rent, and what it's going to take in terms of repairs and maintenance to get it to that appropriate level?
09:02
Let's just say the unit is in overall good condition. Sure. And there's a tenant in there, I would assume that you always try to pre lease it right, we sit before the one tenant
09:10
moves out. Yeah. And even to that point, what especially in the market that we're currently in what we've had great success in is actually talking to the tenant that is under market and seeing if they have the credentials to stay in that unit. If the unit doesn't need great repairs or anything, you know, COVID condition and maybe they're just pay less than and they have the opportunity to release or they're month to month we can increase rent, and maybe they'll just stay and that would be best case scenario.
09:40
So you've actually just had a huge success with that. Sure did and it was Do you remember off the top of your head what the rent was and what you've got it too?
09:48
I do so we had intended that was under market they were paying about $650 a month and no utilities were included. I had called the tenant I let her know Hey, So you know, your lease is currently month to month, I understand that the landlord does need to increase rent here to keep it up to market value. I will be posting notice on your door. But before we do that, I want to give you the opportunity, would you be interested in staying in the apartment if we could bring in your market rent? And she said, Yeah, we actually were able to increase her rent from 650 to 1150, with utilities than to be on her as part of her responsibility. So that was really awesome. And we were able to skirt the vacancy. We didn't have to do anything with leasing. And she just stayed in, she signed a 12 month lease with us. And she'd been paid. In the same breath of that I just wanted to verify that she had the income to do so. So she was able to send me her pay stubs, and we were comfortable with releasing at that time as well.
10:48
Awesome. I mean, that's, that's a huge jump. And it saved a significant amount of potential turnover costs. Because if I remember correctly, the reason that that particular unit was so grossly below market was that those tenants had been in that unit for quite some time. Correct? Correct. That's a good indication that your turnovers are going to be excessive, because everything's dated and used in a grave, Stan, you know, so so that turnover was easily 1000s of dollars? Likely, if we're guessing. And it wasn't you it was a two bedroom? I guess it's a two a two bedroom? Yeah. So you know, if we were talking, you know, a couple of years ago, I think almost everybody would have, there is zero chance that somebody's going to pay $500 more than they're currently paying for red zero, 10 zero, especially when we're typically in these properties, or a lot of times it'd be in C class neighborhoods, and people live very paycheck to paycheck, right. So to even assume that they could afford it is a stretch and then on top of it to assume that somebody would be so willing to just cough up an extra $500 more a month, and we're talking about a car payment, where you know, this is this is a big chunk for people. So what do you think has changed in the market that creates that ability to now potentially see those significant increases without prompting the turnover? Sure. So
12:18
the demand and the supply, there's been a very limited amount of supply that's available currently. And it's even when we give notice to a lot of these people, as we're kind of strategically planning this out. For instance, I might approach someone and say, you know, we'd like to increase your rent by 200. How do you feel? No, I'd have no, I'm not doing it. There's no way I'm not paying an extra two or $3.15 days later, they're like, Hey, by the way, would you still be willing to give me that lease? I have looked elsewhere, I can't find anything that would be less expensive, or in better condition. So with that being said, might you consider extending my lease? And at that point, the answer is always yes. We're happy to have them. I mean, we know that vacancy is expensive. We know that it's not helpful to anyone unless, of course, the property is in deplorable condition, and then we have an obligation to fix it. But if we can kind of avoid those pitfalls, then we will. But that's what's kind of determining that is that there isn't much out there that's available, that is better condition or less expensive, so they're happy to stay.
13:19
So would your recommendation at this point would be always to try first with the existing tenant
13:24
always try first. You know, it just goes to show
13:27
that there really is no options for renters. Right? Right. It's it's no different than the housing market. It's no different than if you're trying to buy a house live or you're trying to find more investment properties. The amount of inventory that's out there is slim pickins. Whatever you do have has multiple bids or multiple offers on it. rentals are no different. You've got multiple applications. I mean, some of our waiting lists are 20 and 30. People deep on just one one unit. So so times have changed. Yeah, I
13:56
think maybe two years ago, we would judge the success of the unit and see if we were priced appropriately depending on the showings that we would have. And we had probably 15 showings in a week that would be a lot. Yesterday, when we had our marketing meeting, I looked at the stuff that was posted within the last seven days. And we had up to 94 showings
14:17
scheduled in a week. Wow,
14:19
that's crazy. Oh, if I at this point, if we're under 75 I think we might be priced too high, so we're just gonna let it ride.
14:26
The episode will continue in just a moment.
14:30
As an investor, we know it's important to stay on top of market trends and real estate opportunities that add value to your portfolio. We also know that having a trusted source of reliable information to help you stay a step ahead of other investors is critical to your success. If you're interested in having these types of resources, as well as access to me and my team, I invite you to join the Empire Investment Club. A free service that gives you an easier way to make sense of today's and tomorrow's real estate opportunities. As a member of the Empire Investment Club, you'll get access to relevant resources and investment focused experiences such as live interactive webinars, market trend presentations, and investor socials designed to equip you with what you need to succeed. So whether you're an active investor, passive investor, a combination of both or just starting out, the club is where you'll get what you need to build a portfolio you love. To join, just head over to JenniferdeJesus.com, sign up, and we'll see you in the club, where everyone's on a journey to becoming a better investor.
15:28
All right, so we're talking about figuring out how much you're going to spend on the turnovers? Yeah, well, if we're if you're releasing it, so let's say you have a tenant that's in there, and you're pre leasing it, and you secure a lease prior to that original tenant moving out, yep, should your turnover plan potentially change?
15:48
Absolutely. If you have a pre lease, you already have a pre leased a pre leased price. So when you have that price, you already know how much you can essentially spend on that turnover. So if somebody's seen it in the condition that it's currently in, they're willing to spend X dollars, great, we should probably be a little bit more conservative. While we're doing that, I mean, obviously, we want to make sure that it's safe, we want to make sure that it's clean, we want to make sure that it's code compliant. But beyond that, we don't have to do too much. But if we're willing to maximize that rent, then we probably have a little bit more freedom. Or if we can push that rent even higher, we have more freedom in that turnover cost, because that price has not yet been decided. My suggestion would always be to have that end price in mind, so that we can keep control of that turnover and make sure they're not over improving.
16:35
So are we sometimes on when the rent is maybe excessively different? Are we sometimes saying okay, well, if we, if we're successfully getting this price, we will do minimal to no turnover. But if we can't get it by the time the first tenant moves out, then we're going to take it off the market, we're going to really renovate it and then go for a much higher price is that sometimes the strategy? Yeah,
16:59
that would be that is the strategy. Now again, it totally depends on your goal. If you're going to hold it for a long time, it might not make sense to do those additional. And it depends on how much money you have in capital that you're willing to spend on each turnover. But if the numbers make sense, the numbers make sense, that would be a good way to approach it. Okay,
17:21
so let's talk about the current tenants being the correct audience. So we briefly touched on, you know, as long as there's no issues with a tenant, we would try to just get them to extend our lease and potentially at a higher price, how do you know if they're the right people that should be in the unit? Sure.
17:38
So there's some really quick and easy ways to see if they're going to be the proper people that you'd like in your building. And I say that, because they need to work well with others know, very, very quickly, if you take over a building, and Unit Five, four, and three are all complaining that unit two leaves trash in the hallway, and they are really tough to get along with and they're not working well with the group. And that unit three, four, and five want to leave because of unit two, that would be terrible, we would probably want to remove unit number two, first, it's going to be really, really hard to rent any of the other ones if Unit Two is not keeping the property in good condition, if they're being aggressive when people come through. So depending on even their personality might be the reason that they could stay or they could go depending of course, if their lease is up to term, that would be the best way. Also how well they keep the property. If there's damages if there's trash everywhere, if there's people that are on that are living in the property that are not on the lease, they're trying to sublet it that might be a good reason to to move forward with that tenancy is one of the first ones out, gotten under lease
18:47
and on a scale of one to 10. How critical is having the right tenant in the building and the overall health and well being 11. Okay, it's
18:56
very, very important to make sure that you have the right tenants and the right tenants could mean tenants that are going to be longer term tenants that pay on time tenants that maintain your building Well, and again, the tenants that just kind of care about your property like you do.19:11Right. So you're saying essentially, that it's not just about whether they pay rent, because if they pay rent for their neck, now they're potentially costing you more money?
19:21
Absolutely.
19:22
I think that it would be it's you're in a better situation if you have a tenant that maybe it's a couple days late with rent, because you to let you know that they're going to be late and somebody who pays on time but calls about every single maintenance request fights with the other tenants and calls the city whenever someone sneezes down the hallway,
19:41
right. Thank you for listening to our zoom conversation from the Empire Investment Club, where we discussed how to improve your underperforming assets. Make sure you stay tuned to the next episode, where we'll continue with part two and specifically talk about out how to control expenses and planning for your exit strategies. So until next time, take care.
20:06
For more information about how Jennifer can help you plan, develop and manage a strong real estate investment portfolio visit growingempires.com