Housing Market Crisis Coming to Landlords? Landlords and Investors Please Change your Assumptions

Closed Captioning:

what’s going on everybody it’s matt aka

the lumberjack landlord here with my

good buddies the other two of what makes

the three amigos

how’s it going guys how’s it going mike

going wonderful thanks for asking it’s

friday i know tomorrow’s actually

saturday for you i get it it’s friday

night for dion

yes

it’s awesome good for you guys dion it’s

friday soon to be friday night how’s it

going

again

[Laughter]

we did a live stream last night on um

millennial mike’s channel and i think

people should just pop over there and at

least check out

the first three minutes

when we were live but didn’t know it

because he was learning the tech yes i

was literally on the phone with him

walking him through it and he’s like

yeah we’re not live yet we’re on line

yes and so he’s really cool he’s

gracious he’s leaving that up he’s like

yeah we make mistakes i’m not gonna take

it out it’s great i love it yeah i was

like who is that voice from above oh

wait a second i feel like i’ve been read

a story by that voice

[Laughter]

so anyway the topic i wanted to talk

about first today guys was tenants um i

think that you know as i’m starting to

see things we touched on it a little bit

last night on the video one of the

things that i’m starting to see is

uh broken leases as well as um

slower or fewer qualified renters

right because part of my criteria you

know really my three main things is

credit score above 680 that you make

that you net three times the rent um and

that you have a um that you paid your

landlord the last three months of rents

and i want proof of that um because i

don’t believe that you paid cash so in

with those three criteria what we’re

seeing is is we’re actually getting out

there we’re posting our units um and we

just had one that we posted and it was

250 inquiries in 72 hours

um and it’s like pulling

i get yelled at for not having an

application fee

i’m getting yelled at for not having an

application fee and i said these are the

only three things that i want you to

provide you can provide those three

things i’ll waive the application fee

i’m not going to provide that

information

then you know getting a unit

so

mike talk to me about what you’ve

instructed instructed your

property manager and what feedback

they’re giving you on on what they’re

posting and what they’re seeing in the

market have you gotten any feedback to

that end yeah so it’s you know again

you know daily operator right uh you you

it’s actually your store it’s kind of

funny because you’ve done a lot more

acquisitions the last 12 months than i

have yes right

i spent the last 12 months kind of

rejiggering all my debt yeah i did buy a

couple of units here and there

a lot of my work was focused on trying

to build an adu

because it was a better yield

but that actually gives me the ability

to look at my portfolio

roughly

same same right apples to apples right

same people i had a year ago same

properties it’s not like your situation

where damn it i added 50 doors and i

don’t know who i got and

it’s a lot of churn uh i get a daily

report

of rent collection

uh today versus this today

last month right so every month i can

see what’s going on

and there’s a couple of themes that that

are going on one rent collection is

slower

yeah

now than even four months ago yeah

interesting

uh we have had uh more turnover uh in

the last four months than we had

certainly the previous four months

by a pretty large margin

uh and then finally um

we haven’t had more evictions yet knock

on wood

uh but but um

vacancies you know i hadn’t had a

vacancy go more than 48 hours in like

five years

we’ve had a couple of vacancies and it’s

really weird at least in my market i

only can talk to mine apartments are

slow

okay houses are

crazy yeah all the competitions on

houses houses you could pretty much name

almost any rent

um but apartments which is about 60 of

our unit count they’re slowing down

and

this is kind of what i put out

six months ago like

this this syndication this stupid

assumptions this this

rent’s gonna go to the moon it doesn’t

go up like that

with this this has been unnatural rents

are gonna have to come down

and i

i really do think you’re starting to see

it in um

like the smaller apartments you know

like the the studio the one bedroom one

bath at 580 square feet the two bedroom

one bath you know 600 square feet 650

square feet because again neighbors

right you just don’t want it if you have

to go there

you have to but it’s really weird i i do

think

i think that it’s really it’s really

weird to say this i think the last two

years

were kind of unnatural

because i think rent collections really

weren’t that bad no

and i think i think i think landlords

got spoiled i think i think a lot of

people who have been operating larger

apartments the last two years uh got

spoiled have made horrible assumptions

their debt structure is terrible and

we’re about to see a lot of pain i think

there’s a lot of pain coming to

multifamily i agree dion

i think the tenants

are feeling the pain yeah and it’s

i talked with both of you over the last

couple of weeks about my my perception

of a flaw in the affordability index

if if we’re looking at historical data

on everyone’s wages from last year and

what we’re assuming they’re increasing

affordability index seems off

but when you have work remotely options

people from

huge cities that were making you know

multiple six figures can move to a rural

area save thousands of dollars a month

but pay twice what anyone else was

that’s what my tenants are experiencing

so at the beginning of this year

my last purchase i’m much slower than

you guys i i don’t actually have the

goal to add a whole bunch of units i’m

going to buy one more probably in the

next year or two i bought one last year

but this year the beginning of this year

i spent doing the binder strategy with

all the tenants and i had across the

board a rent increase from 20 was the

the smallest to 28 was the largest so 28

to 28

rent increase at tenant’s request i had

two tenant turnovers which doubled the

number i’ve ever had like in 10 years

i’ve had four

um one person bought a house and one

person moved out of the area

so i get to reset rents to area average

yeah and i have great relationships with

my tenants almost any time i have a

place that’s coming available the

tenants have reached out and said hey

it’s great living here i’ve got friends

can they apply to you know can i get the

link to your place when it comes open

absolutely

i send the link to my current tenants

who had the binder strategy and their

rents went up 20 to 28 percent

and they see the amount of the new unit

that’s next to them

that’s like in the same unit and while i

did some minor upgrades like i put in

flooring and paint i didn’t do kitchen

bathroom guts or anything just the

basics

it’s double

like that’s the amount of rents we can

demand

on a new tenant because of work remote

options so i have three roommates all

working remotely took that for twice

what my 20 to 28 increase was

wow

tenants are going to suffer because a

lot of landlords aren’t like us i think

we keep our rents at or below area

average like we’re not trying to push it

up i mean yeah when you do a complete

rehab you’re going to get area average

rents i totally get that but we’re not

going to our tenants and saying hey

you’re getting a 600 increase in three

months because the rents have gone up

so but there are people who do

absolutely

yep we um with these units that we put

up we i think it was it’s i think now

because we actually had uh two people

break their lease this week

um and so and they literally were like

hey just wanted to let you know i moved

out

it’s september 3rd i was kind of

expecting a call about my rent rent a

couple days yeah

that was not what i expected

you got me

she’s like i know you’re going to keep

my deposit and i go i think that’s kind

of a foregone conclusion but there might

be you’re right

it might be more than that

um but i think again at the end of the

day it’s like and i just asked her i was

like well why’d you move she’s like my

husband lost his job i said oh it’s

coming i said i said

well let let’s try and get you help with

assistance i said i’m not there waiting

at the door ready to post papers

like i’m i want to have the conversation

first i you know uh dion had that story

where they’re basically like hey

pound sand i’m not paying you these

people weren’t doing that i wasn’t

saying that and so i was like let’s at

least have that conversation she’s like

no we’re because we have no idea when

that assistance will run out and we

don’t want to have to move out in the

winter time and i was like fair enough i

was like i get it so we just had the

conversation they said all right i’ll

i’ll keep you posted send me your

forwarding address let me know

um and so it was a peaceful move out

they still broke the lease

but it was a peaceful mop it doesn’t

have to be nasty but i think that them

having the foresight though that

they don’t know how long it’s going to

take to get him a job and at the same

time too it was also a little bit more

annoying they were pretty pretty rough

tenant um one that i wasn’t a huge fan

of they they were you know like they

were the light bulbs out kind of tenant

i’m like you need to fix your own light

bulbs

um but what was really interesting was

there’s no way that guy’s gonna have

difficulty getting a job he’s yeah you

you wouldn’t think he could get a job in

five seconds

like

they’re just using it as the catalyst to

be able to get out move in with their

parents

that’s

yeah that’s what i found out they’re

moving in with their parents and she’s

like and so our bills just go to zero

and i was like yeah i know how that

works yeah there’s a thing called house

hacking i got it yeah i’ve heard i

finally there were videos about that um

so i think what’s interesting is as that

continues to transpire mike are you

seeing more people

reach out for assistance

because i don’t know how that works in

california in new hampshire it’s a very

easy thing to reach out for that

assistance

um

not yet

okay not yet uh

you know the the fresno employment

market is still relatively strong i have

not heard knock on wood

uh about tenants being laid off yet not

that it couldn’t happen i just haven’t

heard about it yeah um

but no not yet

it’s

i mean my my property management company

has a whole list of people that provide

assistance so it’s not unheard of we’ve

done it a bunch of times and are willing

to help when they

basically it’s a two-way street you

reach out tell us they’ll help you

absolutely

um but yeah there’s still be i mean i

haven’t had a broken lease in a little

while but i mean they happen for all

kinds of reasons some good some bad

it happens right so

i just think the economy is going to get

worse i agree and there’s a lot of

multi-family investors who have not been

through owning apartments in a recession

hard

yeah owning single-family homes in a

recession not as hard i agree yeah i

think small multifix fits under that

bubble when you talk about you know

family certainly i think is the best

asset but the two threes and fours like

still works a small part yeah it’s it’s

when you get 10 units and it’s five on

the bottom five on top you got an 18

that’s nine and nine it’s it’s when

everybody’s crammed together and then

you get rising unemployment and people

are drinking at noon and

it’s just it just becomes a problem the

more space you have and the more it

feels like your own home even if there’s

a connected carport or a shared wall

it’s all good it’s that

it’s that let’s get a lot of people

together for 24 hours seven days a week

it’s just

it can lead the problems and i don’t

think many people are ready for it i

i completely agree with you dion are you

doing anything different

in knowing that the economy is going to

get tougher and knowing rents are where

they are are you are you as a cell phone

yeah right i retired from a six-figure

job

so you could spend more time property

managing i’m not missing the course i

could spend more time doing all of the

nothing that i want to

so

building a

a rental portfolio

as you’re building it i think people

should be planning for

prolonged government shutdown pandemic

stock market crash recession

so i’ve diversified

the properties

these small multi-family separated by at

least 10 miles

close to several economic drivers

so that several places would have to lay

off from different kind of sectors so

they’re not all in a tech area they’re

not all at the hospital they’re not

allowed by the college

they’re not all by the base

but

i also diversify the tenant type sure so

in a recession the military might

downsize

but that’s months you know everyone’s

end of current contract doesn’t happen

at the same time it’s not like everyone

signed up january 1st it’s like all

throughout the year people might be

getting out

a recession doesn’t impact retired

people yeah recession doesn’t impact

section 8.

so yes i have a few tenants who could be

impacted and during 2020 i had two who

reached out for assistance from the

cares act and both of them had two

months covered so they got two months

free

never missed a day of work

worked the whole time just went and said

hey can i get some help with rent and

that kareza’s covered two of their

months

so i have a smaller portfolio so it you

know a third of them if they stopped

paying

i would feel it

it wouldn’t it wouldn’t mean i was

pulling money out of my pocket or having

to go to work or anything

so that’s what i’m doing different i’m

i’m planning from

pretty much not day one but like seven

years ago thinking

as i add properties okay i have three

military people i’m not going to

advertise the next couple of days on the

base like i’m not going to advertise no

military like i’m not going to

discriminate but i’m going to call the

housing authority and say hey here’s the

link to my next unit that comes

available next tuesday who do you think

i’m going to get and so i sleep like a

baby

i’m i’m ready with reserves so i have it

if i have a tenant and if they’re

watching feel free prove it who loses

their job gets a demotion gets cut there

gets their hours cut i can work with

them there’s there’s a couple things and

i actually earned one of these from you

matt

and a friend who recently went through

an eviction in washington state if

somebody’s going to get those papers put

on the wall because they’re not paying

or they even send an email i’m not

paying

you’re also required to provide

the resources for rent relief readiness

rental assistance all of the different

options that they have here i think

there’s like nine of them that we had to

put on her wall

and if the tenant isn’t a douche that

just says i’m not gonna pay

of those nine things those papers help

them get the assistance they get to go

look

i’m being evicted they’re getting right

to the top of the list of people to get

helped so i mean there’s like this so

many tiers of things that have to go

wrong that by the time i think that a

portfolio like mine and you guys are

even larger and as diversified if not

more

i’m still and i don’t want to be the

broken record i’m more concerned with

the person who sat back and said i’m not

buying rentals

because there’s a recession coming in

and that my tenant might get laid off

well if you’re not buying rentals and

you get laid off

yeah one income versus multiples mike

any further thoughts on this one

uh again i um

kind of a broken record i’m very nervous

macro 2023 yeah micro olivia and i i

have never been there’s only one year

that likely will be better that was

2010.

2023 could be the best year for olivia

and i most cash deployed lease down

payments most cash flow gained i’m

ecstatic for what’s coming

uh but macro right i have a heart i i

feel for folks uh i think i really do

think 2023 could be the worst economic

year of my adult life and i don’t feel

good saying that yeah yeah i think it’s

going to be i think it’s going to be

tough i think it’s going to be tough

jobs market i think it’s i think all of

that stuff shifts

um and i think that you know we we tried

to be reasonable in our rent increases

in

ironically we were able to stay below

market in a number of them um and i look

at the competition and i’m seeing you

know i’m advertising a a nice three bed

uh one and a half bath

for 2300 and i see literally two blocks

away

some clueless person has a one bedroom

for 25.95

and i was like that’s gonna stay vacant

for a real long time it just it is so

mike tell everybody where they can find

me my friend uh one rental at a time and

if you’d like to join my live streams it

will be 8 a.m on saturday 60 minutes

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love it dion

right here on youtube dion talk

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everybody talking to number two

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