The SFR Show

In this episode Mark Woodling and Tom Schneider talk with Vincent Ash From the Indy Chamber about the Indianapolis Real Estate market, economic developments and what is happening in Indy in general. 

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Transcript

Mark:

All right, ladies and gentlemen, welcome to the remote real estate investor. I'm Mark Woodling. I'm here with Tom Schneider. And we have Vincent Ash here with us today from Indianapolis in the Chamber of Commerce. So we really wanted to bring him on to give him a bit of a background on why investing in Indianapolis is something that really any investor should want to be interested in. So I think this is a good opportunity to not only hear from us, but really get one of the local experts who has an idea of what's going on in the market that we don't get to see or read about in your daily news.

Theme Song

Mark:

So, before we jump in with Vince, I want to run over some numbers about Indianapolis. So, Indianapolis consists of a pretty broad range, the populations 876,000 people as of 2019. So, the greater MSA is actually 1.8 million. So Indy alone 876,000 versus the greater population 1.8 million people and the population is growing at 1.3%. So the median household income is $64,200 number of units is 867,000 single Family properties, of that 58% are owner occupied in 32% are renter occupied, leaving about 10% that are currently vacant. So as for home price and rent, existing home values have actually gone up 7.2%. The effective apartment rent growth is 3.6%. home value at entry level home is on average $163,900. The existing median home price is $227,000. And the median for rent as of December last year was $1,259. year over year rent growth is 4.7%. And single family gross yield on average is 9.6%. Home occupancy rate is 95.4%. And apartment occupancy rate is 94.7%.

Vincent, why don't you give us a little bit of information about who you are and your position with Indianapolis chamber.

Vincent:

Absolutely. So my name is Vincent Ash. I am the director of Indianapolis economic development for the city and our county that we are also associated with I have been at the chamber for a little bit over two years now. I'm very much an Indy, local, Indy native, I moved to Indianapolis when I was five years old and pretty much been born and raised there. Prior to my role now at the chamber, I worked for Simon Property Group as a financial analyst. For those who are familiar with Simon, one of the biggest rates in the country and probably internationally as well. But I worked as financial analyst for them, no do a real estate transactions and then moved over to the chamber. My role as director of develop Indy is we basically are the economic development arm for the city of Indianapolis. So we work on business attraction, business expansion, real estate, real estate, redevelopment projects on a larger scale, looking at multifamily projects and things of that nature.

We also work very closely with the mayor's office in the city, on any economic development policies that they are looking to, you know, change or implement or modify. So overall, we have a pretty big scope. We do have a person, our team that focuses on business retention, we have an ombudsman that helps facilitate, you know, permitting, and regulatory and zoning questions. And then we have a project manager that focuses on retail. So we're touching a lot of different phases of economic economic development overall, it has been very successful, pretty respected throughout the city, not only as the economic development arm develop, indeed, but also as an indie chamber, having a lot of businesses that's associated with us as well. So that's overall what we do and kind of my role at the Indy chamber.

Mark:

So if there's anything that comes up, let's say that there's new business opportunities in Indianapolis, you're probably the first person to hear about them and really understand, you know, new companies that are moving to the area, new jobs that are coming in. And frankly, you're kind of a salesperson that's trying to bring in those companies and really make Indianapolis look as attractive as possible.

Vincent:

Absolutely. Yes, I'm not a salesman, but Trey, but I have to do it. For this job really just as like an attractive mechanism. I think the state does a good job of attracting people to Indiana. Fortunately enough for Indianapolis believe 60% of the GDP from the state is located in our in our central region, Indianapolis region. So overall, our state depends on our capital as well, Indianapolis, and as has been Bode very well for, you know, everything that we've got going on for us in the overall,

Mark:

That's great, well, this is a perfect conversation to be having. So let me just get in a little bit about really what we're looking for, you know, we all want to understand kind of the macro level economics of what's going on in Indianapolis, but we don't need to go into like population trends and jobs, income, you know, cost of living particularly now, but we're looking for you really, some of those nuggets of information that make any out of state investor feel like there's a level of confidence that they can have not just in buying into the city, but eventually they're going to be buying into real estate and owning, you know, brick and mortar and renting out, you know, properties in the area.

So, you know, maybe you can give us a little bit of an idea about what we're not hearing in the news, you know, and what you're seeing in the local economy that somebody in, let's say, on the West Coast isn't good to hear about. So maybe give us some general economic highlights. And maybe we even start with a little bit of a COVID-19 impacts and what you're seeing, since that's such a relevant topic.

Vincent:

So COVID-19 is affected everybody in the world and Indianapolis was was not any different for that. We did realize that, you know, it did affect a lot of our small businesses. And particularly, we look at our restaurants, our breweries that have been very successful here in Indianapolis, but those have been impacted the most Well, COVID is our as our restaurants or personal services. Are you looking at Barbara's beauticians? So overall, from a covid impact, our small businesses were hit the hardest, that we did some very innovative things at the chamber. As far as some traditional lending, as well as you know, help collaborate with a CDFIs to do paycheck protection programs that help keep these businesses afloat.

We also are doing like a reimbursement grant now, overall, to kind of help those small businesses and they've been very appreciative of those efforts. And it has honestly kept a lot of our businesses being able to stay open. Throughout the midst of this, I will say from a, from a broader scale, we're looking at some of our corporate, you know, attraction projects, or some of our expansions and growth that we've been able to see. I will say there was a pretty much a slowdown, I would say in April, I think as companies would kind of figure, trying to figure out what they will plan and planning on doing. But I kid you not. And I thought I was gonna be twiddling my thumbs throughout COVID. Because I was like, there's no, nobody's making a large capital investment, like going for it. There's no way I'm going to be busy, I was really just looking at ways that I could pivot and help out and other avenues going for so but we weren't, we didn't say very busy, stay very busy overall, when we looked at from our industry standpoint, Indianapolis is very diverse. And that was has helped us be pretty successful.

Mark:

So Vincent, maybe give us a little bit of a background of what Indianapolis is really known for, you know, that the jobs in the area that you see are really growing are just some of the basic highlights of why people are moving to Indianapolis because we know it's been growing a ton. We've seen rent growth, personally from Roofstock’s point of view really increase and seeing a lot of investors moving to the area and wind to invest there. So yeah, give us a high level and kind of walk through what you see. Indianapolis as in your eyes.

Vincent:

Yeah, absolutely. You know, kind of, as I was saying, from an industry standpoint, Indianapolis is very diverse. So that has really allowed us to be recession proof to an extent. When you look at 2009, we've been able to maintain a steady growth, when you look at you know, most of the rest belts, cities when manufacturing is left, you know, early 2000s and in the 90s a lot of those cities, you know, struggle, overall industry standpoint as being diverse, has been very beneficial.

So some of the major industries that we have here are looking at life sciences, pharmaceuticals, so Eli Lilly is a major anchor in our city. They employ about 440 thousand people just in our city alone. So you look at them and offer Eli Lilly have a lot of other pharmaceuticals or drug manufacturers that also have located here in Indianapolis and we kind of have sort of a life sciences of here. Not only that our tech scene has been exploding here lately. Look at Salesforce, and we are their second largest office globally outside of San Francisco and but we have a lot of different startups that are here indeed that are continually to grow. One of the one of those reasons why tech is is kind of booming here is from a cost standpoint, cost of living is very affordable here. But the main thing the main driver is workforce.

So we are within 70 mile radius, I believe we have close to 100 different it's a major college institutions. In particular, you know, some major ones Purdue I, Indiana University, all State University rolls home and Butler's located in Indianapolis, we have 40 institutions that's just located in Indy overall. So from a workforce and talent perspective, tech companies feel like they can attract a talent by locating here. So that has been very well received and our startups are continually to grow. High Alpha is a big venture group that's here indeed is very strategic about helping growth those hundred companies that they have been associated with Xylo being one of those startup companies that is growing, we just got an announcement that Kanos which is based out of Belfast and Ireland is going to grow here in Indianapolis and make any Annapolis their main hub.

So from a tech scene, we have been we have grown a lot. So when you look at life sciences, like a tech, we can look at our aerospace Rolls Royce and what they do from you know, manufacturing, engineering and aviation standpoint, they're headquartered here have about 44,000 people are that are in Indy. And then on top of that, logistics, we have the second world's largest FedEx, probably soon to be number one outside of Memphis because they are landlocked. So from a logistics standpoint, we are also growing. E-commerce is even more important now throughout the midst of COVID than it ever has been.

And we have seen major growth in pretty much all four of those sectors to even throughout the midst of this pandemic. And so it bodes well overall, from a diversity standpoint, the industries that we have here in Indy, allowing us to continue to be able to grow where our hospitality industry our convention industry is very in service industry is very huge here in Indianapolis, our convention center is we have Gen Con every year, you just looking at some of the announcements that we had recently from a sports standpoint, and they were supposed to have NBA All Star game in February, I don't foresee that happening with a pandemic going on. But you have NBA All Star game, we have Final Four, we have the big 10 Football Championship, the National Football Championship, all within, I think, a couple years of each other. And Andy has been very good at hosting big events, and our sporting industry has continued to be successful. So even though we see, you know, some downturns in our sports, in our hospitality, as being able to continue to grow in life scientists, tech logistics, aerospace has been has an other, you know, advanced manufacturing jobs proven us that we can, you know, stay resilient, and really recover and continue to grow throughout the midst of any type of downturn in economy.

Mark:

Oh, that's important. No, that's really, really good to hear. I mean, we want to see every market thrive and come back. But we know you guys are set up for it with it right infrastructure. And, you know, I agree these low cost of living areas are just really what people need, you know, people leaving San Francisco and saying, I can have a quality, quality lifestyle, but for half the price. It's so great. Well tell me a little bit about maybe what is happening, and we don't see it today. Maybe there's some new opportunities or you know, what's trending maybe with a kind of new interest in the areas or anything that you give us some, some intel on that others quite don't know quite yet, but is considered public knowledge.

Vincent:

I can say from a real estate development standpoint, we have been getting the attention of a lot of out of state developer. And so we have a lot of new pretty big projects lined up. One of those is a remodel of a former Coca Cola bility Hendrix Commercial Property Group, which is based out of Wisconsin is actually nearing completion of that project, which should be I believe, at the end of this year, basically took a Coca Cola bottling plant made it a mixed use, work, live play type of environment. There's a couple of tech companies that's going to be located there. They have all new independent restaurants that are new to Indy that will be there but they're no franchises, which is I think we're pretty big for is having a lot of local restaurants and local breweries very, a lot of very good ones. But this development alone really wanted to focus on the independent aspect, bringing new concepts in, they have an independent like film theater that's going in, that's going to be a part of heartland Film Festival.

And so they they have other retail components associated with it, but we were seeing a lot and we have we do have some other projects, you know, lined up from a you know, real estate related redevelopment standpoint, where companies and developers are coming in finding you know, properties, you know, like a former Coca Cola bottling plant and remodel it and refurbishing it. And we like I said, we have a few of those as well. We really kind of hit stream with a lot of multifamily developments, like I said, a lot of outside of the state developers are interested in, the good thing about indie is that we really haven't hit that significant, you know, density or high rise. But there's so much potential to do that. And developers are noticing that. So we got more high rises developments that's coming into our downtown core. Of course, that's where, you know, most people most take people, you know, want to locate and want to be in downtown. And the good thing about that is, is that they can live downtown, but also stay outside of downtown and still really have any type of lifestyle they want.

I would say, and I usually say this to any business or company that we have coming into Indianapolis, you can have any lifestyle you want, within a 30 minutes drive. And when I say 30 minutes drive, I mean 25 miles, yeah, I'm not, I'm not talking about, you know, six miles like that you get like in California, six miles will turn into a 45 minute 30 minute drive is going to be about 25 to 30 miles, you can and you'll have that any type of lifestyle you want. If you want to live downtown, you can live downtown, if you want to live in a suburban, you know, style, like a house, you can do that within 30 minutes drive up downtown, if you want to live on a farm, you could do that within 30 minutes drive downtown. So you have all these different mixes, and then you have these neighborhoods, of course, that surrounds our downtown area that are, you know, seeing significant investment, redevelopment of their homes, you know, appreciation values continue continually to increase as well.

So, we have a lot of cool pockets that's outside of downtown to a lot of good neighborhoods that have you know, the retail, the restaurants, the bars and things that people want to be around, that are growing, you know, significantly as well, and then even more pockets just continue to pop up. So it's been, it's been great to see, you know, it comes with its challenges as well, you know, making sure that we're not, you know, increasing poverty, we're giving people access, you know, to those quality jobs and stuff as well. So, we do focus on that, as well, making sure that you know, we don't leave, you know, some of our residents that are here behind, and we're helping grow them and scale them up as well. So, but, uh, but overall, it has been tremendous growth, from a real estate standpoint alone, you know, over the past, I would say three years, it's been pretty much boom, and then looking at some of the projects that we have lined up the next, you know, five to 10 years is going to look completely different.

So now is really the time to really look at Indianapolis, long heart and look to see ways to you know, really invest into the market as it still continues to go up. You know, I have colleagues that live in California as well. So and understanding how much you know, real estate costs in California compared to here, I'm like, you could live like a king, if you if you move to the Midwest. You know, for half a million dollars you can live like you'd be in a close to a mansion. So understanding that dynamic dynamic as well. I mean, that's, that's why you see a lot of real estate development that's happening here. So from a cost standpoint.

Tom:

One of my favorite parts about these market spotlights is learning about the specifics of these little neighborhood pockets. So, you know, within talking about some of them, you mentioned the kind of core downtown is there like specific names of different boroughs? Like I'd love to, you know, for you to kind of touch on like this specific area. And like, you know, if you threw a dart on a dartboard like where it is relative to kind of like downtown, like, how'd you categorize that?

Vincent:

So I'm going to be biased and talk about my neighborhood first. Yeah, of course. Yeah. So Speedway Indianapolis, for those who are not familiar is home to the Indianapolis Motor Speedway, the biggest sporting venue in the world that you know, is home to the Indianapolis 500 which of course will be without fans this year, but it can hold up to 400 to 500,000 fans at one time, I think 100 runni, Indianapolis 500 have 500,000 people. So our community that we have here outside of race weekend. It's a great community. It's just west of downtown. It literally it takes me a 12 minute drive to get downtown to work. Because as I as I work downtown to and commute to me is pretty important. I don't have to worry about hopping on a highway just hit the streets and I'm there within 12 minutes.

So Speedway is a great community, great school district. A lot of new redevelopment projects are happening in Speedway. I'm about five years ago, they were very critical to them to reinvest into their main street which is just adjacent to the track and we got de Lara which is a Italian car manufacturer for IndyCar. So there we have Daredevil brewery that came in big was brewery and other brewery came in AJ Foyt who's a famous racecar driver has a winery that's located on the strip. And there's a lot of mixed use new mixed use development that's going in as well. So that corridor has been great. It has been received very well by the community.

But there's also a lot of other plans for some projects that are really going on now really, you know, to that point as well. So Speedway is a great community highlight fall Creek place which is literally just north of downtown. So if you look at a downtown map, we have a highway system and goes around downtown. So it's just north of the Interstate, if you're looking at a map so that area has been seen significant investment I mean, we're thinking you're talking about houses 10 years ago, that was around 100 hundred and $50,000 that are now worth 600 $700,000 so that area has been a very cool pocket and you can kind of see the growth this is happening right around the area is you know, expanding on that neighborhood and new redevelopments going in there but they have nice you know, cafes and eateries very neighborhood feel in that area Broad Ripple which is north near I will say obviously focus on College Avenue 65th street so a little bit further north north in our city, that area has always been very well received very well. A good neighborhood has a good main strip with a lot of different restaurants and bars.

So those those three are pretty significant Fountain Square area which is just south east the downtown is another area that has been you know, has been booming. If you watch hg TV and are familiar with the show good bones, they are really flipping and redevelopment homes in that in that area of Fountain Square and Bates Hendricks that area as well has you know some local music that areas more like entertainment has some smaller music venues for live concerts. More of a cultural center that I think than the rest of the other neighborhoods. But overall, I believe those four neighborhoods are probably the biggest and have seen the most growth but you are seeing a lot of other different pockets like you know popping up or whether that be you know, Riverside Park which is just northwest of downtown area has like three golf courses but they're you know, redoing a one of the golf courses in putting in an amphitheater that's gonna cost like $15 million, and really making the quality of life type of feel more neighborhood type of feel a couple breweries have went in along with close to there as well.

So we have a lot of different a little more pockets that have been starting to see a lot of more traction. But overall, those neighborhoods are kind of like the biggest, like probably the highlights in Indianapolis outside of our downtown and they have been seen significant increase in investment over the past few years.

Tom:

And 30 minutes from everything. or excuse me, 23.

Vincent:

Yeah. And I kid you not I when I say 30 minutes, you can hold me to that get anywhere in Indianapolis in about 30 minutes drive, whether I'm going to Southside want to get north or if I'm downtown and you know, want to get home to the suburbs I pretty much a 30 minute drive so close. Well, I hate being stuck in traffic.

Tom:

Yeah, I think I've been an indie a couple of times and love it, man. Yeah. One of the things that really stood out to me is some of the investment in the downtown like there's this I think they call it a Riverwalk.

Vincent

Yeah, our canal, right.

Tom:

Yeah, yeah, it was it was this, like, how many miles is that? What did it look like? very new to this, it looks like a big investment for the government of building some some cool features. Go ahead.

Vincent:

Absolutely. So our canal was actually built in the 90s, late 90s, early 2000s is when is when it was kind of built, it was kind of built very proactively without a big plan in place at the time, but it was like, hey, let's just build a canal where people can you know, run and have a good time on over the past. Like I said, probably about seven years, we've seen more mixed use development that's been popping up activating the canal front way retail, or there's a workout facility that's down there as well very, like a niche type of workout facility and it wasn't really a franchise. So you have more, you know, restaurants that's popping up to activate the canal is about three mile radius.

So if you like running is a good place to go running on as well. I think one of another like big initiative that we have here in Indy, is we do have a river that runs through Indianapolis is called the White River. And the master plan associated with that is pretty aspirational. And a lot of people are focused on it, and making that a reality and really utilizing the riverfront as a asset, which a lot of times I think in years and pass in history has almost looked at as as a boundary or barrier. And you look at that pretty much real estate redevelopment across the nation. You know, the highways, railroads, and you know, rivers are kind of looked at boundaries or barriers but really looking at it, utilizing it as an asset. And we've seen a significant development around it.

We will continue to do so. You know, cleaning it up, make sure allowing people to be able to even swim in it is as bad as A plan for the past 15 years, which is now coming to fruition where people can actually, you know, safely you know that you be in a water, what has been historically a big industrial city, you know, that has effects, but that has been cleaned up. We haven't seen more development around that as well. So since we don't have a lot of natural resources, like, you know, like Denver mountains in or California and things of that, you know, utilizing natural resources as assets that we do have, and being able to build around those.

Mark:

you know, Tom invents it, we were actually in Indianapolis just last year, Roofstock did a property tour, where we read a 50 passenger bus drove through some of the major neighborhoods, like you're talking about Speedway, it just saw what the real estate looked like when and toured some of the properties. But what struck me as being real interesting was we drove through a few opportunities zones, and of course, you know, opportunity zones, that's really where there's a ton of investment because there's some tax breaks that investors can get. But what I always noticed was how many little coffee shops and little hipster spots are popping up alongside of those opportunity zones. And so you saw the live in you know, the communities were becoming more of a walkable area, you know, they had the the walkability to the coffee shop, maybe tell us a little bit about what you've seen and changes with opportunity zones, and how that's affected Indianapolis in general.

Vincent:

Absolutely. So just a little background about opportunities zones, once that program was rolled out by the federal government, pretty much I believe 80% of census tracts within our city was could qualify for it. So of course, we submitted them all. So to state then, of course, the state hand picked different census tract to kind of focus on so once they did that, our downtown is actually a qualified census tract, the state basically had to determine and predict not only, you know, out of what can qualify for what we can use, but where do we predict investment will happen. And I think they did a very good job of, you know, predicting that. So opportunities I was we have seen a lot of investment, we have seen quite a few like multifamily developments utilize this and have, you know, went adjacent to where those coffee shops are when adjacent to you know, kind of where the eateries and breweries are already located. And it really just enhancing overall the feel and walkability to neighborhood.

You know, to that point, we have been a major, major focus on mass transit here in Indy, we do have bus systems, but now we have a bus rapid transit line that has dedicated lanes, so it's not getting stuck in traffic, and the station's more feel like a subway style nation that have just a bust up on a corner. So those are bus rapid transit line has been very well received. The current one that we do have goes south from our university of Indianapolis, it's just south of downtown all the way up to Bravo area, and it hits quite a few opportunity zones. The next couple that we have going in, goes alongside of those new opportunity zones as well, we have one as going east to west, from West Washington Street, all the way out through downtown to the airport.

And we also have one that is going from downtown, out to the northeast think fishers Lawrence Lawrence area as well. So the way those opportunities also set up has been great. And we really are now you know, building our mass transit infrastructure, you know, around those opportunities zones and kind of enhancing the, you know, walkability and you know, the feel of it, you know, you don't necessarily have to own a car to be able to get around and get where you need to go. So that's important to us as well. But yeah, the neighborhood fields has been becoming very popular, very well received overall. And, yeah, we have a ton of coffee shops, but a lot of good local ones, a lot of good local coffee shops and breweries. So everything has been very well received

Tom:

both sides of it. I love it. You're reading my mind. I was going to ask about, you know, local transit and some of that, you know, just one last question on the opportunity zone, asking for a friend. So an opportunity zone, it's just a big tax advantage that the government gives or how would you define the scrape benefit that's catalyzing so much growth?

Vincent:

It's a tax advantage that the federal government is able to add a capital gains tax that you're able, basically savings that you're able to benefit from so but the program was to peak investment into distressed areas. So that was the intent of the program was to spark investment in distressed areas. And like I said, it's been very well received. Our downtown is one You know, a lot of projects specifically as told us you know, they're focusing on that from a business attraction standpoint, a lot of companies have also said like, yeah, we want to be located in opportunity zone as well to take advantage of you know, the savings that they'll be able to benefit often from as well. So it's been very well received. A lot of people are using it here locally, I'm sure across the nation but the good thing about Indianapolis being you know midsize city cost of living is great question. Life is great. People really see it as opportunity. I hate to use that word again, but a big opportunity to utilize, you know, that program.

Mark:

Yeah. And Tom, the way I look at it as, as an investor, you don't need to be the one necessarily taking advantage of those tax advantages. But you can sure piggyback off of everybody else's investments and really just see what's trending. And I think that's the, that's always the key, what's trending, where are people investing a lot of money into, and my eye is always, you know, see if you see a Starbucks, it's a good sign. If you see a coffee shop, it's a really good sign the breweries, yeah, that's a home run. Now, this is great. Vincent.

And so, you know, in in regards to some of those pocket markets, you know, we like to tell our viewers and, you know, our listeners, what are those markets that are really going to be kind of that next up and comer because a lot of the the properties sold on Roofstock are, are in, you know, more workforce housing type neighborhoods. So it may not be the the bars, breweries and coffee shops that we're looking at. But more of, you know, what are some of those areas that you could give our listeners some insight on that will be great investments, just because of maybe the new companies that are moving into those areas, or that significant investment that that may be going in based on opportunity zones?

Vincent:

Yeah, absolutely. So yeah, that's a good question. And as I mentioned, some before, like the Riverside Park, which is north east, I mean, northwest of just the downtown is pretty ripe for real estate development. be quite honest for you, there's been a lot of investment from a corporate level is a district called 16. Tech, which is really like a collaborative nature for r&d for companies located for r&d purposes and Life Sciences. This literally just south of where all these homes are located. There's a massive plan for you know, the part like I said, we're redoing it $50 million into the amphitheater, now the master plan over was like 100 and $50 million literally sits in between two universities.

Do you have any any you have IPY? There's located downtown, and you have Mary University, and that is also a growing University in Indianapolis as well. And yeah, this neighborhood, which actually I grew up in, so but I grew up in a neighborhood, and you see the growth that's happening pretty much on both sides of it. Residential really hasn't caught up really, at this point in time. But you have seen some people being able to come in here, and you know, taking advantage and investing into that community. So I would definitely mention that one. There's definitely neighborhoods, adjacent to fall Creek place that has been seeing a lot of growth, a fog replaces just north of downtown. So you look to, you know, the east of you know, that neighborhood, you can see significant growth as well. So, I think those are two neighborhoods, and really just focusing night, last night religious liberty, those two, but the good thing about those two is, those neighborhoods are very close to downtown.

So you could really just take a radius around downtown, probably, you know, 334 miles, even our Near East Side, as east of downtown has seen significant investment, significant growth as well. But from a real estate standpoint, you know, could still use some investment. But you see the commercial, you see, you know, you see, you see to the breweries, you see the companies, you see, you know, the cafes, but you know, from a single family home, there's a lot of, you know, distressed properties that could still, you know, be taken advantage of. So yeah, you could literally take a radius just downtown, probably a mile or two radius, you know, I would say two to three miles and just kind of focus in on that geographic, those geographic areas that, you know, probably are the next to pop that have started, have started seeing some significant growth. Some of those neighborhoods are, you know, a little bit more fluid, but, you know, the ones that chase into it are the ones, you know, that are getting there. So I those are definitely some of the ones that I would say, from a real estate investment standpoint, as you should probably focus on and move for, like here at NAB as a term of investment.

Mark:

Oh, that's great. Well, I think my only last question would be, you know, in terms of the vision, let's call it the 10 year vision of where Indianapolis is planning on going, you paid a really good picture of what what's happened, how it's changed what's going on in the near future. But what do you think about in 10 years? How would you see Indianapolis growing?

Vincent:

Continue to see a lot of growth? And like I said, I think our tech, I think our tech sector tech industry is gonna continue to grow as you look at the Midwest, you know, from a cost standpoint, and from a quality of life standpoint, I think we can compete with Chicago, but they just, you know, just have the the cool factor, I guess to it. So I think we compete with them. Both. From a cost standpoint, Indianapolis makes the most sense. So I think a lot of companies are starting to realize that especially even from Tech, the tech companies, but from 10 years from now, I think overall economy in from industries that's here and indeed will continue to grow. I think there's going to be a big shift from the big major superstar cities to some of the smaller midsize like a second tier cities.

I see us as one of those one of those cities, you know, we're being very proactive of making sure not only are we growing our economy overall, but as you mentioned, some of the, you know, the workforce housing that you know, that your investors probably typically invest in, also making sure that we're doing a good job of, you know, skilling up those residents, you know, we have been very innovative and some of our policies and looking at inclusive growth, and making sure that we're growing our middle class and making sure that we're giving people that are in poverty, access to quality jobs. So as a whole, you know, we can continue to grow, like I said, you know, there's economy as we grow and grow, if you look at it on paper, he's like, Oh, this is any office is doing great, like they're growing, you know, but, you know, there's been, you know, some cons to that, you know, you look at our poverty has grown a little bit as well. And so we have been very, you know, like I say, innovative and noticing that early working with Brookings Institute and other policy makers to make sure that we curb that and we're growing and an inclusive manner.

So not only are we continue to grow our economy, for higher skilled higher wage people, we also are growing middle school, middle class as well, who were decrease in poverty, like all of those are major, importantly, focused focus for us, I think, overall, a 10 years from now is going to be very well received, not only from an economy standpoint, and I think the growth that we're gonna be able to achieve, but also from a talent workforce, enable to attract diverse groups of people come to our city, which we think we've done a solid job on, but could be better, like most cities, probably you could say, I'm kind of a perfectionist, you know, some of those things, but But yeah, being able to attract very diverse groups of people, I think those are, you know, the neighborhoods, especially, when you look at cities and municipalities like this, people want to live around diverse groups of people. And so being able to, you know, focus on those being able to grow those will, will continue to help help our tech industry will continue to help, you know, our life sciences and R&D industry will will continue to help us attract, you know, you know, the college students that are already in our region, you know, VA Indianapolis and live here long term.

So I think from a growth standpoint, you know, Indianapolis 10 years from now is gonna look totally different from what it is today. I know you all visited last year, you can probably already seen like, Oh, yeah, this is pretty cool place, I think 10 years from now is going to be on a entirely different level. And, you know, probably looked at the way Nashville is looked at, or maybe looked at, even similar to Chicago and in some instances or Pittsburgh, I really think like, oh, I know, it's my job. And I could be a little bit biased. But I think the trajectory that we're going on some of the policies that we have in place and some of our vision, we're gonna be able to achieve those goals and Indianapolis is going to continue to be successful.

Tom:

The last thing that I want to touch on is some of the points of interest and you'd mentioned one of them that Indiana Indianapolis Speedway, the Indy 500, the Indianapolis Colts, I think I remember and running on that little River Walk I think there was like a Hall of Fame. What other would you say would be like, you know, destination driver points of interests? Which was that? Did I see a Hall of Fame? Did I see a Hall of Fame?

Vincent:

I think you’re talking about the NCAA Hall of Champions.

Tom:

Hall of Champions Sorry, sorry.

Vincent:

The NCAA is located here in Indianapolis. So their headquarters is here is on the canal wall and they have like a Hall of Champions like museum adjacent to it so that area because there's a couple of museums in that area as well that has been you know highlighted and that are are great to go to our children's museum is probably one of the best in the country has received multiple awards of being able to do that so…

Tom:

Is it like dinosaurs or what's what's in the children's?..

Vincent:

There is a huge dinosaur and outside of it, you may have drove by and seen it. Yeah, so there's a huge sometimes dinosaurs right outside of it but I think what we kind of preach not only you know are we gonna see are we a city where you come and have fun like but from a family aspect to like you know, I've been to other cities and I'm not going to knock any of them but I've been to other cities with like my family I'm like, just cool for like, you know, Millennials like this is great for younger people, younger professionals but like I can't see myself raising a family here and I think Indianapolis does a good job of making sure that is family oriented. As well as being able to go out have fun so I choose museum is great.

New Fields is our art museum. They have tons of great pro programming that go that goes on there year round. So like in the winter, they have like a winter lights thing. That's pretty cool. That's very well received family friendly, but also you can indulge and have a drink while you're walking around checking out you know, the winter lights. So New Fields is great army. Our museum is great. We have of course he said it. You mentioned coats. You have the Pacers that are here in Indianapolis. So our NBA You know, you know we've had our walls over a few years but you know, we always compete in from a basketball standpoint Indiana that's just basketball. You just enriched in basketball culture from so our Pacers are an attraction standpoint as well. Like I said, we NBA All Star supposed to be here February. I think they're just gonna probably shift the schedule back due to COVID for everything. Let me see we have a triple A baseball team. So not professionally, but triple A has the best attendance and all of minor league baseball.

Tom:

That's that park is awesome. I remember it's like a sunken diamond right in downtown. That's Yeah.

Vincent:

So it's pretty cool. So yeah, that area. We have, of course, our White River State Park, which is just along the river next to you know, our victory field where our baseball team plays that where they have a lot of concerts here as well. We have another outdoor music venue a little bit north of the city area called Noblesville. It has a host a lot of concerts. So of course, we have the track, trying to think of some other ones. Our airports been like rated top 10 in the country for the past, since it's been built as our airport is always very well received.

Tom:

Yeah, big international…

Vincent:

So I would say those are pretty much the biggest highlights. And then of course, we have our cultural districts, our trails we have, I think we have over 95 miles of trails throughout throughout the city. Connect connecting different districts and the ones that kind of mentioned mentioned before Fountain Square, Broad Ripple mass app is a pretty nice hub downtown, and Indiana Avenue as well. So we have a lot of different from a cultural standpoint, like work live play type of field. I definitely have to mention Eagle Creek is one of our biggest parks. It has a reservoir on it. So it has a lake bring a boat to some kayaking, as well as trails that you can highlight is bigger than Central Park in New York, that our biggest park that we have here in the city, nice restaurant, right that sits on the reservoir called Rick's boat yard. I highly recommend that literally just went there just Friday with my family.

So beautiful, like ambience, you know, feet. So we're setting as you know, over the reservoir. So we have a lot of different pockets and a lot of nature things that we kind of highlight guys, reservoirs, another one of them were from a neighborhood but they have restaurants and things over there as well. That's just north fish's area, which is in our region. It's not an Indianapolis proper, but it's a suburb has has exploded, you know, top golf course. Then you get to IKEA. That's a big win. So does IKEA is up there. Oh, so yeah, officials, district officials have been community has, you know, seen a lot of new development, they got some nice mixed use developments that's in that area as well. So I know it's not my job to advocate for other municipalities within our region. But that…

Tom:

Being a good guy.

Vincent:

Yeah. Advocate for our region.

Tom:

That's awesome about IKEA going in. I mean, that's one of my strategies is just to follow where these big corporations that have the budget to identify these up and coming areas, like let them do the work. So my very last question is, and you've already used an example on that of that restaurant that's on the lake. That sounds really awesome that I definitely will will check out but if I'm going to go visit Indianapolis, and I have one meal to get where would you recommend me going to?

Vincent:

Man, that's a tough one. I think I may know the answer. It's a steakhouse. But it's a steakhouse. So you got to go St. Elmo’s here one. So you definitely have to go there, I would say depends on your taste. I will say we was courting a tech company. They you know, they didn't want to really go high in you know, so you know, we took them to a barbecue joint, so, okay, so you know, you gotta I gotta know what you feel but i would i highly do highly recommend if you have one night that you have to go to St. Elmo’s

Mark:

Where would you go the visit? I kind of threw that out at you but where would you go what's the what's your spot?

Vincent:

Man as I say I like I like hole in the walls. So that's kind of that's kind of my go to so

Tom:

You're good company. Where's our hole in the wall, we gotta blow them up!

Vincent:

Go, you gotta do some barbecue at King Ribs is just west of Indianapolis at on 16th street like heading out to Speedway. I kill myself because I like come downtown workout more workout at Orange Theory and then like I got to drive up 16th Street and smell one one of our donut famous donut places Long's donuts they smell it as I'm driving by and then I gotta drive by King ribs know that too. So it's like I'm like shooting myself but…

Tom:

You got a bunch of sweat points from orange theory

Vincent:

I can indulge but yeah, that's that's what I would go to King Ribs. That's that's kind of what I would go to for me. We have no shortage of restaurants.

Tom:

Love it.

Vincent:

Well, one quick thing I'll throw out I saw the website downtown indy.org it's a great way to like really learn about you know the details of some of the the neighborhoods you explained. Somebody wanted to do a deep dive, but maybe Vincent, give us a little bit of maybe tell us where to go for the Indy chamber if people want to do a deep dive because we can provide a lot of highlights, but we'd love to, you know, have people go there, if you recommend going directly to the website?

Vincent

Yes, I'm gonna give you a few websites that you could go out and check out downtown indy is a good one that highlights the downtown area, and things in restaurants in our downtown corner, visitindy.com is a their organization just promotes on tourist attraction just for Indianapolis. So our museums, our parks, different events, as well do317.com basically will show all the different concerts and things that we have going on, and different other beer festivals and things like that, that we have going on as well. So do317 is a good website as well. I will say you know, since COVID, we have had too many events. So like like the rest of the nation. So I'm very much looking forward to being out going out to a sporting event or things of that nature. But I will say those three websites are probably the best websites to utilize to look at happenings happen, indie,

Mark:

Dnd what's indies indie chambers website that people can visit as well.

Vincent:

So it'll be Indychamber.com. And if you want to, we have different tabs, we have a lot of different organizations like we advocate, legislative. So we have policy team, we have a small business department that does lending games, free small business, poaching, of economic development, focuses on attraction. So if you want to see highlights of different companies that are coming here, feel free to click on the economic development tab, check out either develop Indy, which is a nap which proper, which is my team, or nd Partnership, which is our regional team that advocates for our region.

Mark:

Well, I'm a big fan of always visiting a city's economic development website that they get shows the major companies focused industries, quality, quality of life cost of living, and a ton of economic data a little bit high level. But again, it can really get into some specifics. So I always recommend that people go check that out. But hearing from you directly, I think is always the way to go. So appreciate your time today. Vincent, this was absolutely fantastic. And looking forward to maybe doing a catch up with these days soon and see what else is going on post COVID-19 once we get through all this.

Vincent:

Yeah, I appreciate it, Tom and mark. And definitely we come to any next time, feel free to hit me up. And we can catch up. This has been a great change of pace, doing this, having this talk with you. And not so you know, in the grind of work. So this is good change of pace. I appreciate the invite.

Tom:

Awesome. Get some barbecue. Awesome.

Vincent:

Thanks, man.

Mark:

Thanks, Vincent.

Mark:

Just want to say a big thank you to Vince for participating and giving us some insight in a way that we really don't get access to on a daily basis. So this is definitely a privilege to have people like him on to really give us an idea of not only what's happening today, what's happened in the past, but what's going on in the future state of Indianapolis. So great, big thanks to Vince and looking forward to doing this again.

Tom:

Happy investing

In this episode, we continue our series of how to select and vet strong team members. This week we discuss the CPA.

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Transcript

Emil:

Hey everyone. Welcome back for another episode of The Remote Real Estate Investor. My name is Emil Shour and I am joined by my co hosts,

Tom:

Tom Schneider

Michael:

and Michael Albaum.

Emil:

And today we're going to be continuing this series we've been doing lately on building out your team. So how do you find and vet the different players on your quote unquote real estate investment team. In today's episode, we're going to be tackling the CPA, which stands for certified public accountant for anyone who's not familiar. So let's hop in.

Theme Song

Emil:

All right, before we get into the meat of the episode, the meat and the potatoes, meat, potatoes, the salmon and, the salmon and couscous. Let's go with that. We have some people leaving us some awesome reviews I want to give a quick shout out to so recently real estate financial freedom wrote,

“The show has the feel like we are sitting around a table talking shop about real estate, they do a good job catering to beginner but also go into depth into more complicated real estate subjects. If you are thinking of investing out of state, this is the podcast for you. This podcast makes real estate feel very approachable.”

Emil:

Thank you so much love the review, we'll try to give everyone a shout out if you leave us review was mentioned at the end of the episode. But please leave us reviews. We love them. And we'll give you a shout out in a future episode.

Michael:

Thank you so much.

Emil:

Alright guys. So we usually tackle three questions on each one of these episodes, which is when in the process? Should you look for this individual? How do you source them? And vetting questions to ask them to make sure you're choosing the right person? So let's start with the first one. When in the process of acquiring, let's call your first rental property, do you need to go out and find a CPA? What have you guys done

Michael:

Now. Now .ow now now

Emil:

All right, Mr. delay?

Michael:

I think that first question, it really depends. I chat with someone in the academy a few weeks ago who does their own taxes, they prepare their own returns anyhow, using, you know, TurboTax, whatever. And so they said, Yeah, I already understand how taxes work, I understand tax works. And so adding one rental property to the mix is not a big deal whatsoever. So they've been doing their own. So if that's you great, but if you don't prepare your own taxes, or you want to go hire a professional to do it, I think it can be really great to have that conversation as soon earlier in the year as possible. Because as we all know, taxes are due in April for the year prior.

And you can't really do a whole lot of changes after the fact. And so chatting with a tax professional as you're getting started in owning real estate is going to set you up to have some really good habits and makes tax time so much easier for everybody involved. So I would say as soon as you're considering real estate, talk to a tax professional about how your personal situation might be affected by owning real estate, what some deductions look like and what your overall taxable basis might look like as a result of owning real estate and how that might change as if you previously didn't. So I don't think it's ever too early to start that conversation. Tom, what are your thoughts?

Tom:

Yeah, my thought is just kind of on the first piece of this is something that you could file your own taxes and talking to people in Academy, asking about the stuff. My advice is always, you know, it's worth paying that money for a professional, there are a lot of tax benefits with real estate, you get the three DS depreciation deferral and deduction. And you really want to squeeze as much juice as you can out of those three. And it's difficult if you don't have that specific real estate experience. My wife's a tax attorney, but we still hire someone different does, you know international tax, which is very abstract and interesting.

But my point is, real estate tax specifically, is there's a lot of fruit on the tree that you want to harvest. And you want to take advantage. So it's worth paying that money to find somebody. So timing wise, you know, it doesn't have to line up with any of your acquisitions. There is some neat stuff that Michaels talked about in the past will try to sound cool doing cost segues and stuff like that, but

Michael:

Nailed it.

Tom:

I mean, as long as you give yourself some leeway before going into tax season, I would say that's the real kind of timing and doing it hire a professional who has real estate specific experiences is important before tax season. So that's my timing two cents.

Emil:

I like it. I'm going to take the counter point. And I'm going to say that this is a person on your team who, Yes, you can look for them early. But I think there's so many moving parts earlier on to focus on your property manager which market you're going to invest in finding an agent if you take that route that I think the CPA can come a little bit later. I think a lot of fuel can get caught in all the nitty gritty of I should check off all these boxes. And it's like focus on educating yourself and then get that first property. I think the accountant can come a little later. So I'm gonna take the counter point,

Michael:

I think it's a really good point to make a meal and that who you ultimately work with can totally come after the fact I think it's really important that somebody at least have the conversation with a tax professional about a like how does real estate affect me personally, because I hear about it all the time. But I don't understand. So for me taken, you know, an average deal, whatever that looks like in your market, or wherever you think that might look like for you as a buyer, how would this affect me because I think it gives a really good insight and helps a lot of people purchase strategically based on some of the tax advantages that they may or may not qualify for. But I 100% agree that the actual person doing the tax returns can totally come after the fact.

Emil:

That's a good point. So also, I think when I bought rental properties I chose to that was the first year I hired a CPA to do my taxes. It was like I started doing some, like some side project consulting stuff as well. And so that makes me W2 mix with rental properties. I was like, You know what, I'm just going to give this to a professional, make sure I'm doing it a correctly and be getting maximum deduction so that I save as much as I can. I think we said all the time, a good CPA, they will save you way more than you actually pay them yearly.

Michael:

And I'm just curious, do you guys use a CPA on any kind of retainer or annual program or you just pay them for the time that you use when you speak to them? And then for the tax return? How does your program look?

Tom:

With my CPA, it's sort of a one time event every year I you know, it's not any sort of like recurring contractor engagement, I could like, use them one year and go somewhere else, but they already have a lot of my information. So it's, it's a lot easier to have some continuity with them. I've been meaning to do a little bit more like a consultation of kind of lifting up the books on all that I have within because right right now I basically just send them all my information all by my 1098 for my mortgage, my 1099 for property managers, I send them all that information, and they just come back with a nice, clean, albeit like pretty long tax return, just because there's so many moving parts that they understand. I've been meaning to do kind of more of like a like an engaged consultation and and have answered your question. But what I do with right now, it's just every year, just a one time do the going through the exercise, but no more strategic stuff. But I'm just something that I think I probably do this year on the list of things to do.

Michael:

Do it, do it? Yeah, it's really worthwhile to do that. That planning portion of things. And then what about YouTube? You pay them like an annual fee? Or do you just do the tax return fee? And then the hourly stuff?

Emil:

Yeah, it's just the paid to do my tax returns. But I'm probably in a unique situation that my CPA is my brother in law's very good friend. So I can always ask him stuff. And he's really cool about it. But he used to charge me a lot less like he was very inexpensive to start, I think like, friend discount. And I told him this past year, I was like, I asked you a lot of questions throughout the year, our taxes are getting more complicated, like just raise that fee that we normally pay you and he was like, I've never had anyone asked me to charge them more. But thank you. So you know, it was like he's become more consultative throughout the year. And I just want to make sure like, I'm compensating him so he's not like goddamnit Emil's texting me again, right.

Michael:

You don't want him to feel like you're taking advantage.

Emil:

Exactly. So I was like charging us more. And it's still like totally reasonable. So that's kind of how we have it set up with him.

Michael:

Great.

Emil:

How about you?

Michael:

Oh, yeah, I'm just hourly, and then whatever the tax return is at the end of the year, and so I'm chatting with my CPA several times throughout the year, kind of about next moves and strategy type stuff. We don't really have this formal sit down session where Okay, we're gonna talk strategy about what it is, but I'll call him up and ask him Hey, you know, cost seg, do you think that would have a big impact on my, on my taxes this year, and talked about the numbers and yada, yada, yada. So there's definitely expense ongoing expense throughout the year, but it's just whatever the hourly fee is, however long the call is, that's what that's what I pay him almost like an attorney. And it works great. And I I think it's well worth the money. I'd say it sucks when I get the bill. But I think it's it's money well spent. And it's a deduction to keep track of the…

Tom:

Yeah, it’s a deduction it is for listeners who are newer, Michael has a lot more moving pieces on within his projects. He's doing multi families doing, you know, all kinds of stuff. But at least for myself, it's a much more simpler engagement of kind of the the annual thing, but I think as you go into more complicated deals and structures, there is more meat on the bone for going through with your CPA. So he would be on the further end of the spectrum of kind of more, I guess, opportunity for tax savings and more more need for higher engagement.

Michael:

Right, right. Right. Yeah. more need for planning, I think. Yeah, absolutely. My first couple years, my first one, I had a handful of deals was not nearly as frequent or this often. So I think it's a really good point to make, Tom that this is going to be a pretty person that you probably won't speak to very regularly when you're first starting out.

Emil:

Yeah, good point. All right. Let's move on to the second part of these episodes where we talk about,

Michael:

We've got about a minute 50 left to cover these next topics. Good luck.

Emil:

All right. So moving on, we're going to talk about how do you source CPA? How do you go about finding someone who could be your potential CPA? So how did you guys go about it?

Michael:

I called around a bunch of different people. I was using this guy that my dad was using, with a big firm down in LA. And he was, he was really thorough, and he was really good and he was really expensive. And it just got to a point where I was like, Yeah, I just can't, like afford you. Slash need that level of service. So they provide all kinds of stuff. And a lot of that's baked into the cost of the returns. So I went and found my own person. And then that didn't work out. Well, I had a bunch of problems with the IRS because this guy was a pain in the butt. So then my brother found someone he liked down where he lived. And so I was using him and I have been for the last several years, and he's been great. He's a smaller shop, but really knows his stuff has a lot of real estate clients.

So it's been a really good fit since but trial and error and we're going to share here in a minute, some of the interview questions that you can ask a CPA that I wish I had thought of a couple years ago when I was going through this process, because it would have been a lot less painful. Tom, what about you?

Tom:

Yeah, so using the same framework that I used in the last episode in sourcing a CPA, I think at the top of the pyramid is personal references is a great place to start and then pass there would be professional references. Oftentimes, a partner with a CPA is an attorney. So you know, if you have an attorney like oh, what CPA recommend, or do you have a CPA like, oh, what attorney you're like, they're oftentimes working together. The third level would be forums Roofstock Academy, that's a place where within our private Slack channel, we talk about vendors and CPAs pretty regularly, or at bigger pockets or friends there have a great forum. And then lastly, just general online research. I sourced my CPA from a reference a gentleman named Paul Kidwell, who was one of the early employees at Roofstock. Think he was our like VP of data, something just super smart guy. He's an advisor. I’ll stop now, but I got my CPA reference from me.

Michael:

Emil, I know you shared already that your brother in law's best friend, was that the first one that you use? Or did you have some trials tribulations leading up to that point?

Emil:

No, I wish it was more of a science that I could divulge sort of listeners, but I've known him for years, too, before we ever actually, like needed his services. And he's a good guy. And I was like, he was the first person I thought of when we needed a CPA and just let him run with it. And he's been great. So yeah, it was more of just going with my gut. Somebody I know. You know, I mentioned like, this is what we're doing. We're investing in property out of state and he was like, totally comfortable with it. And he's been he's been awesome at handling it. So

Michael:

Right on.

Emil:

Yeah, our situation is a little easier.

Tom:

I’m gonna give a shout out to my CPA, though. So I use Iryna CPA accountancy Corp. And she's awesome. So just a little free advertisement, something like Yeah, why not? Why not sure these people she's located out of Oakland and in Northern California, but her website is irynacpa.com. And I've used her for the last, I don't know, five, five years or so. And she's fantastic.

Emil:

Yeah, my CPA is Dan Ratynets. And he's at Eichenbaum, Comer & Ratynets.

Michael:

Awesome. And I've been using Josey Schenkoske with Bianchi, Kasavan & Pope and they're out of Monterey, California. They go by BKP and Associates.

Tom:

Some love, some love shout outs.

Michael:

Yeah. So I just want to give a kind of real quick personal anecdote from when I was going through my trials and tribulations trying to find a CPA. So I went from that really expensive one that my dad used. And then I was sourcing my own. And I found this guy, he was a one man operation. I went met him and we talked and he goes, Yeah, I can totally take care of all of this. And this is my accounting firm. That that totally sounds like he knew what he was talking about. No problem. My personal return, including all my real estate stuff was gonna be like 400 bucks.

I was like, Wow, that's amazing. That's cheaper than h&r block. And so I got, you get what you pay for, two years later to get to another account. And he was like, Yeah, but I don't know. Like, what this guy did. This is not at all right. And so I had to pay for it to be corrected after the fact. So don't go with the cheapest option. That doesn't necessarily mean it's the best by any means. So look to that people above and beyond what it costs.

Tom:

I love the phrase penny wise pound foolish and you know, you might be like, Oh, this is awesome. I'm gonna save a couple hundred bucks doing this. And I bet you the pain the butt of going back and trying to fix that stuff, you know, know what the market rate is. And typically, we're just going to give super broad ranges But usually, I'd say like 1000 bucks is a pretty if you have a less complicated going up to I don't know what do you think the range Michael?

Michael:

Couple thousand, depending on how complicated that is?

Tom:

Anyways, I think oftentimes, you're going to get what you pay for.

Michael:

Totally, totally. And keep in mind too, for everybody listening. These are West Coast, California Bay Area prices that can totally range as you go in different parts of the country. I feel like attorneys and CPAs often have relatively similar pricing. So at least has what I found here in California for the most part.

Emil:

All right, so let's wrap it up with questions to ask that in questions to make sure you're going with the right person. You guys want to go through a couple of questions that you really like asking?

Tom:

Yes. All right. I got my question. First one is they need to have real estate experience and what kind of profile of customers they have is so important. I don't want to be somebody kind of break In this type of market as a CPA, and there's a little bit of specialization, so knowing that the other thing that's really important is what states they like have coverage in. So, Oh, am I stealing Michaels? That's cool, it's good, good, good,

Michael:

I'll get better ones at the bottom,

Tom:

I'm gonna leave you scraps. So if I have properties that are in, you know, Florida, Georgia, Pennsylvania, Ohio, I want to make sure that that my CPA has some experience there and has done in file in those different states. So yep, I took those two. Let's take it from there.

Michael:

I like asking the questions of what are your various rates? We touched on this earlier, but do they build by the hour? Do they build by the form, that's typically seen, like an h&r block style will build by the form. So if you have big we'll see that's this dollar market, Schedule E that this much and then ask if there's a flat rate option, that's a really, really important one to find out. But like I mentioned, that's not the only deciding factor.

The other thing I like to ask CPAs is what can I do in advance that will make this process so much smoother and easier for you? Do you want a shoebox full of my receipts? Do you want an Excel doc with all of my expenses, because that's how I work best? And so just having that open communication on the front end of Hey, this is what my system looks like, is that gonna work for you? A lot of new investors have kind of the benefit of they might not have any systems yet set up. So they can tailor their system to work well with whatever their CPA is looking for.

Emil:

I get the real scraps, guys got nothing. Good luck. The only thing to add there would be, I think ask them if they work with other investors. That's a good one. I think Tom grab that already. Right. He said about other states or like being able to fund this now. His first one was about investors. All right. Okay. So I got a real bottom of the barrel you scrape. The only other thing I would ask just going off of what we talked about earlier, is expectations around like you asking questions or consultations throughout the year, right. So some people will say, this is my hourly rate. Or Yeah, you know, if you have any questions, no problem, just call me whatever asking that and getting the expectation right up front plane. Another good question to ask.

Tom:

I'm gonna sneak one more in references, don't sleep on the references. So perhaps ask if they have a client sort of a similar profile, if they wouldn't mind sharing email to basically check on that. That is just such a high ROI with regards to value. If you can talk to someone who has a similar situation, they like working, I recommend not sleeping on references.

Emil:

It's such a good one that I don't do enough. It's like such a good best practice. That is, you say, Don't sleep on it. I think you're stressing it because it's really easy to sleep on. But it's such an important one.

Michael:

Yeah, references. I think across the board is one of those things that it's so easy to physically do it, myself included. Don't do it enough. I don't know why that is. I have no problem talking to people. I've no problem picking up the phone and calling. It's just one of those things.

Emil:

Yeah, I don't know either.

Michael:

Yeah. If anybody has an idea about why Neil and I can't call references, please leave us a rating review. Let us know in the comment section what we can do better.

Emil:

Oh, wow. We're to wrap up that episode. All done.

Emil:

We'll see you on the next one. Happy investing.

Michael:

Happy investing.

Tom:

Happy investing.

In this episode, we continue our series of how to select and vet strong team members. This week we discuss the CPA.

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Transcript

Emil:

Hey everyone. Welcome back for another episode of The Remote Real Estate Investor. My name is Emil Shour and I am joined by my co hosts,

Tom:

Tom Schneider

Michael:

and Michael Albaum.

Emil:

And today we're going to be continuing this series we've been doing lately on building out your team. So how do you find and vet the different players on your quote unquote real estate investment team. In today's episode, we're going to be tackling the CPA, which stands for certified public accountant for anyone who's not familiar. So let's hop in.

Theme Song

Emil:

All right, before we get into the meat of the episode, the meat and the potatoes, meat, potatoes, the salmon and, the salmon and couscous. Let's go with that. We have some people leaving us some awesome reviews I want to give a quick shout out to so recently real estate financial freedom wrote,

“The show has the feel like we are sitting around a table talking shop about real estate, they do a good job catering to beginner but also go into depth into more complicated real estate subjects. If you are thinking of investing out of state, this is the podcast for you. This podcast makes real estate feel very approachable.”

Emil:

Thank you so much love the review, we'll try to give everyone a shout out if you leave us review was mentioned at the end of the episode. But please leave us reviews. We love them. And we'll give you a shout out in a future episode.

Michael:

Thank you so much.

Emil:

Alright guys. So we usually tackle three questions on each one of these episodes, which is when in the process? Should you look for this individual? How do you source them? And vetting questions to ask them to make sure you're choosing the right person? So let's start with the first one. When in the process of acquiring, let's call your first rental property, do you need to go out and find a CPA? What have you guys done

Michael:

Now. Now .ow now now

Emil:

All right, Mr. delay?

Michael:

I think that first question, it really depends. I chat with someone in the academy a few weeks ago who does their own taxes, they prepare their own returns anyhow, using, you know, TurboTax, whatever. And so they said, Yeah, I already understand how taxes work, I understand tax works. And so adding one rental property to the mix is not a big deal whatsoever. So they've been doing their own. So if that's you great, but if you don't prepare your own taxes, or you want to go hire a professional to do it, I think it can be really great to have that conversation as soon earlier in the year as possible. Because as we all know, taxes are due in April for the year prior.

And you can't really do a whole lot of changes after the fact. And so chatting with a tax professional as you're getting started in owning real estate is going to set you up to have some really good habits and makes tax time so much easier for everybody involved. So I would say as soon as you're considering real estate, talk to a tax professional about how your personal situation might be affected by owning real estate, what some deductions look like and what your overall taxable basis might look like as a result of owning real estate and how that might change as if you previously didn't. So I don't think it's ever too early to start that conversation. Tom, what are your thoughts?

Tom:

Yeah, my thought is just kind of on the first piece of this is something that you could file your own taxes and talking to people in Academy, asking about the stuff. My advice is always, you know, it's worth paying that money for a professional, there are a lot of tax benefits with real estate, you get the three DS depreciation deferral and deduction. And you really want to squeeze as much juice as you can out of those three. And it's difficult if you don't have that specific real estate experience. My wife's a tax attorney, but we still hire someone different does, you know international tax, which is very abstract and interesting.

But my point is, real estate tax specifically, is there's a lot of fruit on the tree that you want to harvest. And you want to take advantage. So it's worth paying that money to find somebody. So timing wise, you know, it doesn't have to line up with any of your acquisitions. There is some neat stuff that Michaels talked about in the past will try to sound cool doing cost segues and stuff like that, but

Michael:

Nailed it.

Tom:

I mean, as long as you give yourself some leeway before going into tax season, I would say that's the real kind of timing and doing it hire a professional who has real estate specific experiences is important before tax season. So that's my timing two cents.

Emil:

I like it. I'm going to take the counter point. And I'm going to say that this is a person on your team who, Yes, you can look for them early. But I think there's so many moving parts earlier on to focus on your property manager which market you're going to invest in finding an agent if you take that route that I think the CPA can come a little bit later. I think a lot of fuel can get caught in all the nitty gritty of I should check off all these boxes. And it's like focus on educating yourself and then get that first property. I think the accountant can come a little later. So I'm gonna take the counter point,

Michael:

I think it's a really good point to make a meal and that who you ultimately work with can totally come after the fact I think it's really important that somebody at least have the conversation with a tax professional about a like how does real estate affect me personally, because I hear about it all the time. But I don't understand. So for me taken, you know, an average deal, whatever that looks like in your market, or wherever you think that might look like for you as a buyer, how would this affect me because I think it gives a really good insight and helps a lot of people purchase strategically based on some of the tax advantages that they may or may not qualify for. But I 100% agree that the actual person doing the tax returns can totally come after the fact.

Emil:

That's a good point. So also, I think when I bought rental properties I chose to that was the first year I hired a CPA to do my taxes. It was like I started doing some, like some side project consulting stuff as well. And so that makes me W2 mix with rental properties. I was like, You know what, I'm just going to give this to a professional, make sure I'm doing it a correctly and be getting maximum deduction so that I save as much as I can. I think we said all the time, a good CPA, they will save you way more than you actually pay them yearly.

Michael:

And I'm just curious, do you guys use a CPA on any kind of retainer or annual program or you just pay them for the time that you use when you speak to them? And then for the tax return? How does your program look?

Tom:

With my CPA, it's sort of a one time event every year I you know, it's not any sort of like recurring contractor engagement, I could like, use them one year and go somewhere else, but they already have a lot of my information. So it's, it's a lot easier to have some continuity with them. I've been meaning to do a little bit more like a consultation of kind of lifting up the books on all that I have within because right right now I basically just send them all my information all by my 1098 for my mortgage, my 1099 for property managers, I send them all that information, and they just come back with a nice, clean, albeit like pretty long tax return, just because there's so many moving parts that they understand. I've been meaning to do kind of more of like a like an engaged consultation and and have answered your question. But what I do with right now, it's just every year, just a one time do the going through the exercise, but no more strategic stuff. But I'm just something that I think I probably do this year on the list of things to do.

Michael:

Do it, do it? Yeah, it's really worthwhile to do that. That planning portion of things. And then what about YouTube? You pay them like an annual fee? Or do you just do the tax return fee? And then the hourly stuff?

Emil:

Yeah, it's just the paid to do my tax returns. But I'm probably in a unique situation that my CPA is my brother in law's very good friend. So I can always ask him stuff. And he's really cool about it. But he used to charge me a lot less like he was very inexpensive to start, I think like, friend discount. And I told him this past year, I was like, I asked you a lot of questions throughout the year, our taxes are getting more complicated, like just raise that fee that we normally pay you and he was like, I've never had anyone asked me to charge them more. But thank you. So you know, it was like he's become more consultative throughout the year. And I just want to make sure like, I'm compensating him so he's not like goddamnit Emil's texting me again, right.

Michael:

You don't want him to feel like you're taking advantage.

Emil:

Exactly. So I was like charging us more. And it's still like totally reasonable. So that's kind of how we have it set up with him.

Michael:

Great.

Emil:

How about you?

Michael:

Oh, yeah, I'm just hourly, and then whatever the tax return is at the end of the year, and so I'm chatting with my CPA several times throughout the year, kind of about next moves and strategy type stuff. We don't really have this formal sit down session where Okay, we're gonna talk strategy about what it is, but I'll call him up and ask him Hey, you know, cost seg, do you think that would have a big impact on my, on my taxes this year, and talked about the numbers and yada, yada, yada. So there's definitely expense ongoing expense throughout the year, but it's just whatever the hourly fee is, however long the call is, that's what that's what I pay him almost like an attorney. And it works great. And I I think it's well worth the money. I'd say it sucks when I get the bill. But I think it's it's money well spent. And it's a deduction to keep track of the…

Tom:

Yeah, it’s a deduction it is for listeners who are newer, Michael has a lot more moving pieces on within his projects. He's doing multi families doing, you know, all kinds of stuff. But at least for myself, it's a much more simpler engagement of kind of the the annual thing, but I think as you go into more complicated deals and structures, there is more meat on the bone for going through with your CPA. So he would be on the further end of the spectrum of kind of more, I guess, opportunity for tax savings and more more need for higher engagement.

Michael:

Right, right. Right. Yeah. more need for planning, I think. Yeah, absolutely. My first couple years, my first one, I had a handful of deals was not nearly as frequent or this often. So I think it's a really good point to make, Tom that this is going to be a pretty person that you probably won't speak to very regularly when you're first starting out.

Emil:

Yeah, good point. All right. Let's move on to the second part of these episodes where we talk about,

Michael:

We've got about a minute 50 left to cover these next topics. Good luck.

Emil:

All right. So moving on, we're going to talk about how do you source CPA? How do you go about finding someone who could be your potential CPA? So how did you guys go about it?

Michael:

I called around a bunch of different people. I was using this guy that my dad was using, with a big firm down in LA. And he was, he was really thorough, and he was really good and he was really expensive. And it just got to a point where I was like, Yeah, I just can't, like afford you. Slash need that level of service. So they provide all kinds of stuff. And a lot of that's baked into the cost of the returns. So I went and found my own person. And then that didn't work out. Well, I had a bunch of problems with the IRS because this guy was a pain in the butt. So then my brother found someone he liked down where he lived. And so I was using him and I have been for the last several years, and he's been great. He's a smaller shop, but really knows his stuff has a lot of real estate clients.

So it's been a really good fit since but trial and error and we're going to share here in a minute, some of the interview questions that you can ask a CPA that I wish I had thought of a couple years ago when I was going through this process, because it would have been a lot less painful. Tom, what about you?

Tom:

Yeah, so using the same framework that I used in the last episode in sourcing a CPA, I think at the top of the pyramid is personal references is a great place to start and then pass there would be professional references. Oftentimes, a partner with a CPA is an attorney. So you know, if you have an attorney like oh, what CPA recommend, or do you have a CPA like, oh, what attorney you're like, they're oftentimes working together. The third level would be forums Roofstock Academy, that's a place where within our private Slack channel, we talk about vendors and CPAs pretty regularly, or at bigger pockets or friends there have a great forum. And then lastly, just general online research. I sourced my CPA from a reference a gentleman named Paul Kidwell, who was one of the early employees at Roofstock. Think he was our like VP of data, something just super smart guy. He's an advisor. I’ll stop now, but I got my CPA reference from me.

Michael:

Emil, I know you shared already that your brother in law's best friend, was that the first one that you use? Or did you have some trials tribulations leading up to that point?

Emil:

No, I wish it was more of a science that I could divulge sort of listeners, but I've known him for years, too, before we ever actually, like needed his services. And he's a good guy. And I was like, he was the first person I thought of when we needed a CPA and just let him run with it. And he's been great. So yeah, it was more of just going with my gut. Somebody I know. You know, I mentioned like, this is what we're doing. We're investing in property out of state and he was like, totally comfortable with it. And he's been he's been awesome at handling it. So

Michael:

Right on.

Emil:

Yeah, our situation is a little easier.

Tom:

I’m gonna give a shout out to my CPA, though. So I use Iryna CPA accountancy Corp. And she's awesome. So just a little free advertisement, something like Yeah, why not? Why not sure these people she's located out of Oakland and in Northern California, but her website is irynacpa.com. And I've used her for the last, I don't know, five, five years or so. And she's fantastic.

Emil:

Yeah, my CPA is Dan Ratynets. And he's at Eichenbaum, Comer & Ratynets.

Michael:

Awesome. And I've been using Josey Schenkoske with Bianchi, Kasavan & Pope and they're out of Monterey, California. They go by BKP and Associates.

Tom:

Some love, some love shout outs.

Michael:

Yeah. So I just want to give a kind of real quick personal anecdote from when I was going through my trials and tribulations trying to find a CPA. So I went from that really expensive one that my dad used. And then I was sourcing my own. And I found this guy, he was a one man operation. I went met him and we talked and he goes, Yeah, I can totally take care of all of this. And this is my accounting firm. That that totally sounds like he knew what he was talking about. No problem. My personal return, including all my real estate stuff was gonna be like 400 bucks.

I was like, Wow, that's amazing. That's cheaper than h&r block. And so I got, you get what you pay for, two years later to get to another account. And he was like, Yeah, but I don't know. Like, what this guy did. This is not at all right. And so I had to pay for it to be corrected after the fact. So don't go with the cheapest option. That doesn't necessarily mean it's the best by any means. So look to that people above and beyond what it costs.

Tom:

I love the phrase penny wise pound foolish and you know, you might be like, Oh, this is awesome. I'm gonna save a couple hundred bucks doing this. And I bet you the pain the butt of going back and trying to fix that stuff, you know, know what the market rate is. And typically, we're just going to give super broad ranges But usually, I'd say like 1000 bucks is a pretty if you have a less complicated going up to I don't know what do you think the range Michael?

Michael:

Couple thousand, depending on how complicated that is?

Tom:

Anyways, I think oftentimes, you're going to get what you pay for.

Michael:

Totally, totally. And keep in mind too, for everybody listening. These are West Coast, California Bay Area prices that can totally range as you go in different parts of the country. I feel like attorneys and CPAs often have relatively similar pricing. So at least has what I found here in California for the most part.

Emil:

All right, so let's wrap it up with questions to ask that in questions to make sure you're going with the right person. You guys want to go through a couple of questions that you really like asking?

Tom:

Yes. All right. I got my question. First one is they need to have real estate experience and what kind of profile of customers they have is so important. I don't want to be somebody kind of break In this type of market as a CPA, and there's a little bit of specialization, so knowing that the other thing that's really important is what states they like have coverage in. So, Oh, am I stealing Michaels? That's cool, it's good, good, good,

Michael:

I'll get better ones at the bottom,

Tom:

I'm gonna leave you scraps. So if I have properties that are in, you know, Florida, Georgia, Pennsylvania, Ohio, I want to make sure that that my CPA has some experience there and has done in file in those different states. So yep, I took those two. Let's take it from there.

Michael:

I like asking the questions of what are your various rates? We touched on this earlier, but do they build by the hour? Do they build by the form, that's typically seen, like an h&r block style will build by the form. So if you have big we'll see that's this dollar market, Schedule E that this much and then ask if there's a flat rate option, that's a really, really important one to find out. But like I mentioned, that's not the only deciding factor.

The other thing I like to ask CPAs is what can I do in advance that will make this process so much smoother and easier for you? Do you want a shoebox full of my receipts? Do you want an Excel doc with all of my expenses, because that's how I work best? And so just having that open communication on the front end of Hey, this is what my system looks like, is that gonna work for you? A lot of new investors have kind of the benefit of they might not have any systems yet set up. So they can tailor their system to work well with whatever their CPA is looking for.

Emil:

I get the real scraps, guys got nothing. Good luck. The only thing to add there would be, I think ask them if they work with other investors. That's a good one. I think Tom grab that already. Right. He said about other states or like being able to fund this now. His first one was about investors. All right. Okay. So I got a real bottom of the barrel you scrape. The only other thing I would ask just going off of what we talked about earlier, is expectations around like you asking questions or consultations throughout the year, right. So some people will say, this is my hourly rate. Or Yeah, you know, if you have any questions, no problem, just call me whatever asking that and getting the expectation right up front plane. Another good question to ask.

Tom:

I'm gonna sneak one more in references, don't sleep on the references. So perhaps ask if they have a client sort of a similar profile, if they wouldn't mind sharing email to basically check on that. That is just such a high ROI with regards to value. If you can talk to someone who has a similar situation, they like working, I recommend not sleeping on references.

Emil:

It's such a good one that I don't do enough. It's like such a good best practice. That is, you say, Don't sleep on it. I think you're stressing it because it's really easy to sleep on. But it's such an important one.

Michael:

Yeah, references. I think across the board is one of those things that it's so easy to physically do it, myself included. Don't do it enough. I don't know why that is. I have no problem talking to people. I've no problem picking up the phone and calling. It's just one of those things.

Emil:

Yeah, I don't know either.

Michael:

Yeah. If anybody has an idea about why Neil and I can't call references, please leave us a rating review. Let us know in the comment section what we can do better.

Emil:

Oh, wow. We're to wrap up that episode. All done.

Emil:

We'll see you on the next one. Happy investing.

Michael:

Happy investing.

Tom:

Happy investing.

In this short clip Danny Plueddemann explains to us what a master lease is, how it works and why is may be a great option for remote real estate investors.

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Tom:

Hey listeners, Happy Saturday, we're trying a new thing where we're doing little micro episodes. And today we're going to be talking a little bit about the master lease as a little something over the weekend. We're here with Danny Plueddemann. And Danny, tell us about the master lease.

Danny:

Yeah, yes. And most people think there's two options you are you going to self manage or hire a property manager, like, those are the only two options out there. And this is a third option, and it's better is better for me as a property manager, and usually is better for them. So yeah, I'm your tenant. So instead of hiring me to be your property manager, you rent the place to me directly. And I'll hit you up for discount on the rent for a long term lease, and I'll try to sublease it and it's for something higher, and I'll try to make money on the spread.

If I'm smart, if I'm doing do a great job, if I'm an awesome property manager, I'll make some money, but I'm responsible for that payment, whether the property is occupied or not. So I'm taking on all the vacancy costs, and I'm taking on a low maintenance cost. So I'll fix whatever's wrong, I'll pay you whether it's vacant or not. So there you go, steady income, and then I got skin in the game, you know what I mean? If I really care about, you know, property, managed to say, I'm gonna care about your property, just like mine, maybe, you know, but everybody understands that you're the one making the mortgage payment, the place goes vacant, you're the one who's replacing the water heater, if that breaks, so that's your problem. So this is the way you know, for, you know, really savvy investor that, you know, I know, my NOI is gonna be this much, can you match it? Beautiful, I'll do it.

The asset is the tenant, you know, the house, a vacant house is a liability. So if we can focus on the tenant, and do a good job for the tenant, this is a strange business because we you know, the tenant is one that pays us, but the landlord's one that hires us. So we're always caught in between here's always posted, you know, we have to we have to deal with the landlord wants to know whether they're telling us to do the right thing or not. They're the one who hired us. So we got to do it that way. But then the person that paying us is the tenant, so we know how to make money. So anyway, that's kind of a long answer.

Tom:

Yeah, it's an interesting program, you know, talking about different types of leases out there, and you miss out on a little bit of downside of if there's some major rent depreciation, but it's a little bit of a hedge of just, you know, vacancy where you're collecting that rent month in and month out,

Danny:

Ideally, rental prices will go up. And I would benefit from that. On the other hand, if rental prices go down, like that in 2009, then I would take it on the chin, so we could but for the long term leases, I'm happy to build in this call an escalating lease where every five years it goes up 100 bucks. Hopefully, that'll cover your increases in taxes and insurance. Yeah, hopefully, there'll be some rental appreciation. And yeah, I can pay more, the longer the lease. And I think that's how much can you pay? Well, one way to do it is keeping good records. What did you net? What you net the last three years?

And if you had a turn, if you had an eviction, if you had anything that you'd probably net and you know, 60 70% of the gross? So absolutely, I can just match that. Another way to explain is what would you factor in for maintenance, vacancy and management, and, you know, just I'll just throw out the 10% for management 10% for maintenance, and 10% for vacancy. Maybe I'm high there's a lot of different ways to break it down between, you know, turn cough capex costs, BlackRock hedge fund, they're factoring 8% for maintenance, I thought that was interesting. And they started out at 6%. And then after they bought 20,000, single family homes, I think, a pretty good data set. Everybody's trying to figure out what their net would be. But that's another way to do it. And you know, maintenance is the biggest frustration between property managers and landlords. You know, there's just a high level of trust, I'm spending your money. Why aren't you getting any money this month? Well, because I replaced your water heater, why aren't you getting my next and this is a huge level of trust, huge source of potential conflict.

Michael:

Danny, I love this concept. I think it's really cool. I've got some triple net lease stuff in my portfolio. And I love it. I mean, frankly, it's the easiest stuff ever. Just curious because this is kind of a modified triple net lease like Tom was alluding to. So I could see someone who hears this concept and say, well wait a minute, you as the property manager are renting this property from me and then turning around and subletting it, so couldn't actually be in your best interest to cut corners on expenses. So that way you make a better return. What would you say to someone that asked you that question?

Danny:

That's great pushback. Thanks. What I would say is if you're worried about Yeah, deferred maintenance, I'm not gonna keep it up. Let's do this. Michael, instead of doing a five year lease, let's do a 15 year lease,

Michael:

Boom, problem solved. I need you in the Midwest, Danny, this is great.

Danny:

Yeah, and that's how I'm doing like when I do a turn, when I'm doing a master lease, I'm going to spend more money than than the owner would have. I'm going to get the carpet out of there. I'm going to put an lvp for example, right. But I know how to take care of the tenant, I know how to keep the place occupied by keeping the tenant happy. That's the asset. Now I can just focus on the tenant. And I can you know, do the right thing without worry about anybody looking over my shoulder. And that's the key. That's the key to making this because if you're not a good property manager, don't even think about signing a 15 year lease, right? You're gonna lose your shirt.

Michael:

You're gonna get cooked yeah.

Danny:

And you know, I know it sounds cocky. I think I'm good enough property manager. I know how to do it. That's cool. You got triple net lease. Are those commercial or residential?

Michael:

Commercial. Yeah. I've never heard of property managers doing this master leasing. Do you know of many others across the country that do? Are you kind of a unique beacon in this department?

Danny:

No, I heard about it from a guy named David Tilney while he was in Colorado Springs. He's since moved the Florida. Yeah, but isn't shortlist isn't shortlist, I mean, I can give you half a dozen names of people that are doing it. Most property managers don't want to be on the hook to pay for maintenance.

Tom:

They got to be good, or the, you know, the pm is going to be in the hole. I don't know, I think it's a really interesting lease, especially as a remote investor to kind of take that worry away from the day to day and it's like, you know, I have my lease, it may not be as high of a return if I was, but it's a way less risk and just kind of…

Michael:

It’s guaranteed, I'm doing something quite similar in investing in Portugal. And they do they just exactly like you do we call it a guaranteed return. So keep it over 4% 5% return on your money. And we'll take care of everything we'll manage it will lease it out. And we're just going to arbitrage make the difference on it. And if you're happy with the guaranteed return, we're happy with, you know, ours and everybody walks away happy. So I think it's a really cool model. To your point, Danny kind of speaks to the property managers competence. Because they're putting their money where their mouth is. Yep, you can manage this thing. Great. Do it and let's see you pay for it.

Danny:

Yeah. And that's why it has to be long term lease, like five years a minimum, because any given year, even though I'm a great property manager, I'm just being cocky, but I might have an eviction and I might replace a water heater that you're sure I'm going negative. But that's okay. I got four more years. I think I can do it. Yeah. But you know, if you're thinking about selling your house and one or two years, that's a good reason to just hire a property manager and not do a master lease because it really does need to be a little bit more long term for the noi to even out.

Tom:

Thank you Danny. And as always, happy investing.

In this short clip Danny Plueddemann explains to us what a master lease is, how it works and why is may be a great option for remote real estate investors.

---

Tom:

Hey listeners, Happy Saturday, we're trying a new thing where we're doing little micro episodes. And today we're going to be talking a little bit about the master lease as a little something over the weekend. We're here with Danny Plueddemann. And Danny, tell us about the master lease.

Danny:

Yeah, yes. And most people think there's two options you are you going to self manage or hire a property manager, like, those are the only two options out there. And this is a third option, and it's better is better for me as a property manager, and usually is better for them. So yeah, I'm your tenant. So instead of hiring me to be your property manager, you rent the place to me directly. And I'll hit you up for discount on the rent for a long term lease, and I'll try to sublease it and it's for something higher, and I'll try to make money on the spread.

If I'm smart, if I'm doing do a great job, if I'm an awesome property manager, I'll make some money, but I'm responsible for that payment, whether the property is occupied or not. So I'm taking on all the vacancy costs, and I'm taking on a low maintenance cost. So I'll fix whatever's wrong, I'll pay you whether it's vacant or not. So there you go, steady income, and then I got skin in the game, you know what I mean? If I really care about, you know, property, managed to say, I'm gonna care about your property, just like mine, maybe, you know, but everybody understands that you're the one making the mortgage payment, the place goes vacant, you're the one who's replacing the water heater, if that breaks, so that's your problem. So this is the way you know, for, you know, really savvy investor that, you know, I know, my NOI is gonna be this much, can you match it? Beautiful, I'll do it.

The asset is the tenant, you know, the house, a vacant house is a liability. So if we can focus on the tenant, and do a good job for the tenant, this is a strange business because we you know, the tenant is one that pays us, but the landlord's one that hires us. So we're always caught in between here's always posted, you know, we have to we have to deal with the landlord wants to know whether they're telling us to do the right thing or not. They're the one who hired us. So we got to do it that way. But then the person that paying us is the tenant, so we know how to make money. So anyway, that's kind of a long answer.

Tom:

Yeah, it's an interesting program, you know, talking about different types of leases out there, and you miss out on a little bit of downside of if there's some major rent depreciation, but it's a little bit of a hedge of just, you know, vacancy where you're collecting that rent month in and month out,

Danny:

Ideally, rental prices will go up. And I would benefit from that. On the other hand, if rental prices go down, like that in 2009, then I would take it on the chin, so we could but for the long term leases, I'm happy to build in this call an escalating lease where every five years it goes up 100 bucks. Hopefully, that'll cover your increases in taxes and insurance. Yeah, hopefully, there'll be some rental appreciation. And yeah, I can pay more, the longer the lease. And I think that's how much can you pay? Well, one way to do it is keeping good records. What did you net? What you net the last three years?

And if you had a turn, if you had an eviction, if you had anything that you'd probably net and you know, 60 70% of the gross? So absolutely, I can just match that. Another way to explain is what would you factor in for maintenance, vacancy and management, and, you know, just I'll just throw out the 10% for management 10% for maintenance, and 10% for vacancy. Maybe I'm high there's a lot of different ways to break it down between, you know, turn cough capex costs, BlackRock hedge fund, they're factoring 8% for maintenance, I thought that was interesting. And they started out at 6%. And then after they bought 20,000, single family homes, I think, a pretty good data set. Everybody's trying to figure out what their net would be. But that's another way to do it. And you know, maintenance is the biggest frustration between property managers and landlords. You know, there's just a high level of trust, I'm spending your money. Why aren't you getting any money this month? Well, because I replaced your water heater, why aren't you getting my next and this is a huge level of trust, huge source of potential conflict.

Michael:

Danny, I love this concept. I think it's really cool. I've got some triple net lease stuff in my portfolio. And I love it. I mean, frankly, it's the easiest stuff ever. Just curious because this is kind of a modified triple net lease like Tom was alluding to. So I could see someone who hears this concept and say, well wait a minute, you as the property manager are renting this property from me and then turning around and subletting it, so couldn't actually be in your best interest to cut corners on expenses. So that way you make a better return. What would you say to someone that asked you that question?

Danny:

That's great pushback. Thanks. What I would say is if you're worried about Yeah, deferred maintenance, I'm not gonna keep it up. Let's do this. Michael, instead of doing a five year lease, let's do a 15 year lease,

Michael:

Boom, problem solved. I need you in the Midwest, Danny, this is great.

Danny:

Yeah, and that's how I'm doing like when I do a turn, when I'm doing a master lease, I'm going to spend more money than than the owner would have. I'm going to get the carpet out of there. I'm going to put an lvp for example, right. But I know how to take care of the tenant, I know how to keep the place occupied by keeping the tenant happy. That's the asset. Now I can just focus on the tenant. And I can you know, do the right thing without worry about anybody looking over my shoulder. And that's the key. That's the key to making this because if you're not a good property manager, don't even think about signing a 15 year lease, right? You're gonna lose your shirt.

Michael:

You're gonna get cooked yeah.

Danny:

And you know, I know it sounds cocky. I think I'm good enough property manager. I know how to do it. That's cool. You got triple net lease. Are those commercial or residential?

Michael:

Commercial. Yeah. I've never heard of property managers doing this master leasing. Do you know of many others across the country that do? Are you kind of a unique beacon in this department?

Danny:

No, I heard about it from a guy named David Tilney while he was in Colorado Springs. He's since moved the Florida. Yeah, but isn't shortlist isn't shortlist, I mean, I can give you half a dozen names of people that are doing it. Most property managers don't want to be on the hook to pay for maintenance.

Tom:

They got to be good, or the, you know, the pm is going to be in the hole. I don't know, I think it's a really interesting lease, especially as a remote investor to kind of take that worry away from the day to day and it's like, you know, I have my lease, it may not be as high of a return if I was, but it's a way less risk and just kind of…

Michael:

It’s guaranteed, I'm doing something quite similar in investing in Portugal. And they do they just exactly like you do we call it a guaranteed return. So keep it over 4% 5% return on your money. And we'll take care of everything we'll manage it will lease it out. And we're just going to arbitrage make the difference on it. And if you're happy with the guaranteed return, we're happy with, you know, ours and everybody walks away happy. So I think it's a really cool model. To your point, Danny kind of speaks to the property managers competence. Because they're putting their money where their mouth is. Yep, you can manage this thing. Great. Do it and let's see you pay for it.

Danny:

Yeah. And that's why it has to be long term lease, like five years a minimum, because any given year, even though I'm a great property manager, I'm just being cocky, but I might have an eviction and I might replace a water heater that you're sure I'm going negative. But that's okay. I got four more years. I think I can do it. Yeah. But you know, if you're thinking about selling your house and one or two years, that's a good reason to just hire a property manager and not do a master lease because it really does need to be a little bit more long term for the noi to even out.

Tom:

Thank you Danny. And as always, happy investing.

Tom and Michael talk with Danny Plueddemann from Home Vault Property Management about the Charlotte Market. 

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Tom: 

Greetings, and welcome to The Remote Real Estate Investor. Today we're here with Danny Plueddemann, when we're going to be talking about the Market of Charlotte.

Tom: 

Okay, before we get into the interview with Danny, we're gonna hit on some numbers talk about the quantitative aspects of the market and Charlotte. So at a very high level, the population in Charlotte is 872,000 people. This is from the Census Bureau in 2018. The greater MSA population in Charlotte is just over 2 million 2,054,000. This is from 2020 from macro trends, and we're seeing a population growth of 4.21%. And this is also from macro trends, the median household income, and this is from John Burns is $63,400. And this is an improvement from last year. That was it 63,000. The number of units we see in Charlotte is over a million This is 1,049,329. And as a breakdown of ownership, 60% of the properties are owner occupied, while 31% of the properties are renter occupied, and then the remaining eight percentage is vacant homes. A little more information on home prices and rent, the existing home values is increased 7.6%. And this is coming again from John Burns in the September 2020. Report, the home value for entry level home is at $214,000 700. The existing median home price is 286,700. And both of those metrics are again coming from John Burns. The median single family rent is that $1,388 again from John Burns, and the year over year rent growth is 3.7%. And again, this is coming from John Burns, the home occupancy rate is that 93.4% and the apartment occupancy rate is 93.7%. Again, both of these metrics coming from John Burns. Danny, thank you so much for coming onto the show. Before we start getting into Charlotte, let's get a little bit into yourself. Let's tell us a little bit about your background. What makes you an expert. What are you doing in Charlotte today and all that good stuff.

Danny:

Thanks, Tom. Yeah, so I call Charlotte my adopted hometown talking about that I've been here longer than anybody else but 20 years and everybody hears a transplant everybody's I'm a Yankee that knows the Yankee till I moved to Charlotte. But yeah, I mean, in property management, I worked for the big banks for a while I did mortgages for a little while. I've been in property management for last 15 years. We just did a exciting merger so we're Home Vault property manager in six different markets, five different states. So that's really exciting. I am the Chief Investment Officer which I'm trying to decide what my job titles I think I told you I like yours Tom, your Investor?

Tom: 

Yeah, that's right. Director of Investor Education, getting help helping people out in the business to serve.

Danny:

Yeah, I might steal yours. It's funny as I was doing my email signature yesterday and Chief Investment Officer sounds so pretentious that I changed it to investment guy and I was like, man, nobody's asked that's not serious enough. Yeah, so now I'm an investment officer in my in my email signature. But yeah, property management focus on helping the landlord so if you're happy landlord I want to help you buy more properties. If you're not happy I want to come come up some alternatives for you either you know buying the property from you selling to one of our existing clients, Master leasing the property something to take away the pain points that's what I'm doing now.

Tom:

Alright, let's go ahead and jump into it. So the market of Charlotte so as a first step tell us about kind of the main primary cities and some of the core principal cities within the metro go ahead and yeah, let's let's do it.

Unknown Speaker 

Yeah, Charlotte is a great town. Let's see here. We're about as far south as you can be and still have four seasons we got winter, spring, fall, summer, that's fun. Just but everybody's from somewhere else. That's the fun thing about it. We got Florida halfbacks people they thought they wanted to retire in Florida was too hot. So they move halfway back to New York, they're in Charlotte. Now. surrounding towns are like, like Gastonia Concord, Kannapolis up north. Gastonia is West, Monroe down south.

Michael:

So Danny. I'm gonna jump here for just a second. So I lived in the Bay Area, California outside San Francisco for a long time. Tom's a bay area guy. Everybody knows the bay area for Silicon Valley. Most people move to the area for tech. So is there a similar draw for these transplants out into Charlotte or is it kind of a mixed bag?

Danny:

Yeah, there's some cool comparisons with California. We can we can talk about that. Yeah, job. So finance sector is the biggest, biggest employer we have. Bank of America is headquartered here. Wells Fargo used to be headquartered here before San Francisco stol it from us. Yeah, so the first gold rush actually wasn't in California. It was in Charlotte.

Michael:

Really?

Danny:

Yeah. So there's, we're still we're still competing. And I was gonna ask you guys If you if you don't know, I'm going to say Charlotte is the second largest bank in town after New York. But I think we go back and forth with San Francisco. Who's the bigger after?

Tom:

I didn't realize there were so many parallels with San Francisco and Charlotte, the gold rush the huge financial sector. Sorry for interrupting.

Danny:

I think it's related. I don't know this for sure. But you know, we have a mint here like since we had the mines here, the gold mines here that were us men here, there's a man in San Francisco. I think that's the connection. They're just after they had the mint there that attracted the banks. And yeah, we're huge banking town. That's what we're known for. By the way, we're the first ones to declare independence. A lot of people don't know this. But for us, Independence Day is may 20 1775. Everybody else celebrates June, 4 of July, we had a declaration of independence, unfortunately called the resolves, like we do here by results. So that's horrible marketing. Nobody's gonna pick up on that. And then we lost the original. So that was, you know, we don't get any credit.

But yeah, we're the hornet's nest of rebellion for England's that's why we at the Charlotte Hornets basketball team. And then for the Gold Rush, like the UNC Charlotte, University of North Carolina Charlotte university that the mascot is the 40 Niners the miners 49. So that's kind of the connection there with San Francisco. I'll tell you what's different, you know, San Francisco, you got the ocean on one side, and then you get the mountains on the other side. So as far as supply it’s really limited, we don't have that we got we were in the Piedmont Valley. So we can we can grow any direction, every direction. So there's no limit there. So there's much more supply. So obviously, that's keeps prices down. Atlanta is the same thing. They can sprawl and they have been forever. So a lot of investors looking at Atlanta when they're trying to figure out what Charlotte's gonna look like, in 20 years. They go hang out in Atlanta, and look at the traffic there. And then, you know, eventually the barrier to growth, its growth is traffic, you know, every exit get farther from downtown is a little bit more expensive.

Tom:

Well, that's a good transition question. So talking about the major transportation within Charlotte, so there's big international airport. Why don't we touch on that, you know, trains, planes and automobiles like kind of the different major infrastructure as it relates to travel?

Danny:

Well, you guys can tell I'm a history buff. We got a lot of trains here because we had a lot of textile mills here after those cotton. So yeah, we got trains going north and south here with originally was to take cotton everywhere. It was actually a big rail yard then the Civil War, the Confederates used this as a rail yard. And then yeah, the airport's huge, American Airlines has a hub here. So you know, if you're flying anywhere in the southeast, you probably come through Charlotte. It's just the way that airlines schedule things with what's it called a Hub Network, something like that. Yeah. So yeah, and then you're exactly right. You know, the trucking. There's a lot of big trucking companies headquartered here for the same reasons I think it's just the trains come in trucks take them out. There's a lot of transportation is it's helped us diversify the economy from banking a lot,

Tom:

You know, kind of, I think, as Michael was alluding to, there's a lot of universities in like, the tech space has been a really booming piece as well.

Danny:

The bad guy is Riley. I think you're getting those confused with rally because they got some better schools up there. You know, there's UNC Chapel Hill Duke. So that's like the Research Triangle. And we're competitors with rally sorta Right. I mean, they got the government center there. They get the more famous schools were more like the commercial side of North Carolina, business, commerce, banking. That's kind of our reputation here.

Michael:

And Danny, were you involved in as an investor in the real estate space before getting involved in the property management business?

Danny:

Yes, I was doing mortgages. I had a great run with the mortgage. So after big banks, I started my own mortgage company. So that was 2000 2001. And I had a great write up for the mortgage business. And yeah, I was buying properties. And I was selling them on an option given people option to buy them and I had for about 2025 properties in my name when the market crashed in 2008. I had all these houses sold, quote, unquote, they're sold to people that they realize they're upside down, everything dropped 20% across the board, they realize they're upside down. And so they call me up. Danny, you got a problem. Your house is the roof is leaking. I had a rough ride down. Hopefully I learned a few things. Yeah, like a lot of property management get started at that time, nobody could sell their house. So we have what are called accidental landlords or reluctant landlords, you know, they got relocated to Florida, they're upside down their house. So it was a great time to grow a property management company nobody could sell.

Tom:

That's so funny. You mentioned that one of the other property managers from Birmingham, the exact same story they were fixing, flipping and then accidental landlord really like enjoy the grind of it going back on the different you know, talking about Charlotte and some of the different areas. I'm looking at Google Maps right now of Charlotte. And I'd love for you to define some different areas as it relates to general strategy. So what areas within Charlotte you know, someone's looking at Google Maps would be more of a cash flow play, which one would be more appreciation which one would be more in the middle? Are there any kind of up and coming areas so?

Unknown Speaker 

As far as cash flow I’d say the west side. And so and the reason is it's lower income, more industrial, the airport's out on the west side, if someone says they found a deal with it with a double digit cap rate in Charlotte, they're probably talking about the west side. There's some people making money on the west side, there's a little more drama. A little more, you know, higher evictions, lower income your copper pipes might be, might be more gone if it gets gets vacant. That's the west side.

Tom:

Yep, near the airport.

Danny:

And there's pockets of exceptions, of course.

Tom:

Do you guys manage a lot of properties in that area?

Danny:

Yes, our service areas within an hour Charlotte will manage any property, we do have a flat fee, minimum $90. So that ends up making us more expensive if the rents $500. And I'm charging $100 management that's like 20% management fee, that might be kind of expensive.

Tom:

Yeah,

Danny:

That's kind of how we need to do it to be profitable. Whereas if the rents 2000, I might be the cheapest property.

Tom:

Sure.

Danny:

That's just kind of how it works with the flat fee, we got a few different fee options. But to answer your question, yeah, I mean, I don't mind managing low income and class C, whatever you want to call it, we got to have a class A landlord, I'll throw that up. There's class C landlords, the classy landlord with a classy property is not going to work.

Tom:

Yeah, So how about is just kind of general within Charlotte? Is there much of a section eight footprint throughout the different areas

Danny:

There is there's like an eight year waiting list to get on organises a huge demand for it. Yeah, we do manage some Section A mostly the ones we inherited, we're not going after it, there's a few technicalities that make it hard to manage third party was section eight. This might be a little bit in the weeds. But let's let's just say I'm managing a property from Michael. And then there's an abatement. So they take away the rent. But I'm also managing a property for Tom. So income comes in for Tom, section eight thinks I screwed something up. So they're gonna withdraw money from my account to cover Michael's bill. But the money in my account was actually Tom's money. It's a nightmare. So I got to front the money to stay in compliance with the real estate commission. Anyway, that's just like a cork that makes it really hard to manage section eight.

But if the investor understands that, and they put up a reserve, that's way around that there's an abatement, they grab the money, you just got to have that reserve. But there's pluses and minuses I don't you guys like section eight, you guys have section eight properties.

Tom:

I've done it. And it has been successful and haven't had any issues with it one way or the other. I'm not strategically like always looking for it or going against it.

Danny:

For sure, it's nice to get the check from US Treasury, you can't complain about that. If they're covering the whole amount, that helps a lot. You know, if they're making a partial payment, you know, like, let's say the tenants, you know, the tenants are on the hook for 150 bucks, and then section eights paying 850. So you get the 850 but you don't get the hundred and 50 do you get some hard decisions to make? Are you gonna spend $300 in eviction to collect 150. But it can be good, you still need a tenant screening. I mean, one one tip there is, you know, you don't have to do screening as far as rent collection income, that you're going to get the income, but meet them at their property where they're at right now. So you know, we got some things for you to sign where do you live and come over there, and then see how they're keeping up the place. That's the only thing that's gonna kill you and you got to do the repairs. I mean, if they're tearing the place up, you can say, well, that's tenant responsibility. Okay, well, the tenant doesn't fix it, the inspector comes and puts it into abatement. Anyway. So you better fix it like it or not fair or not, you better make an inspector happy. So anyway, there you go. Those are some of the pluses in mine. Yeah,

Tom:

Got it. So we talked about the west part of Charlotte What is going on? You know, South Charlotte East Charlotte North Charlotte, I'd love Yeah, I kind of thought that there's an area that's more kind of up and coming or it's more of an appreciation play. I'd love you to touch on the kind of the different pockets as you'd say

Danny:

South Charlotte is most expensive. So that would be like, you know, a blue chip stock. You know, it's gonna be solid investment, harder to cash flow. Just south, the Uptown there's Myers Park. I was just walking my kids there the other day lesson neighborhood there. You know, they'll buy a house for $850,000 tiny house built in the 60s, tear it down, build up a $2 million house so that's the most expensive area. Yeah, Meyers Park freedom Park area. That's beautiful. You see 100 year old oak trees, just beautiful neighborhood. It's pretty expensive all the way you keep going south south park Valentine pretty expensive,

Tom:

How about pineville or outside of that 485 kind of circle. Is that where it starts price starts dropping off a little bit as it remains.

Danny:

It does drop off but you got to go a long ways because yeah, you know, the neighborhood's past 45 South they're real popular to waxhaw weddington they got these deals where you know the minimum lot sizes one acre, now I'm gonna be able to build an apartment there. So it encourages expensive housing. You got to buy a lot that big.

Tom:

Got it. How about east of Charlotte?

Danny:

My favorite street is CENTRAL AVENUE driving out uptown Vietnamese restaurants, Mexican restaurants, a lot of diversity. A lot of older neighborhoods. Blue Collar neighborhoods.

Tom:

Is that like East away or is that still Charlotte as a city?

Danny:

That's Charlotte.Yeah, I'll throw out some numbers there. I think you get five 6% cap rate. And East Side. I think you're looking at two to three on the south side.

Tom:

Got it.

Michael:

And what about and how about a purchase price there on the east side?

Danny: 

For a single family home? You're probably looking at 250,000 for a three bedroom, two bath that you could rent for 12, 1400 a month.

Micaheal:

Okay, great.

Tom:

And how about the last but not least North Charlotte?

Danny:

Yeah, just north of Charlotte is a little rough. Actually. That's where I live. That's also an industrial area. But this Arts District you hear about NoDa. North Davidson. That's a take off on Soho are trying to be like New York. So that's RT real trendy, real expensive and then and then go farther north. Those are expensive neighborhoods too. So you tell my Morrisville, Huntersville, Davidson area. You get the late crowd there. Lake Norman's real popular place to live. You got the peninsula club. You got Trump's got a golf course out there. A lot of the Charlotte Panthers Charlotte Hornets, professional athletes, they live on the peninsula on Lake Norman, that's a real popular area.

Tom:

Got it. And how about kind of the last general region question? Is there any areas you would say that, you know, you mentioned you guys manage homes up to an hour away? That's a little bit more in the deep cuts like maybe it's not in Charlotte proper, but man, this is kind of an up and coming area as an investor some place to look at to buying houses?

Danny:

I think so i think you know, when you're talking about that 1% rule, for example, for the most part of thing you got to go 45 to an hour away from Charlotte. Yep. So Kings Mountain just got approved for a casino. That's an interesting market. Yeah, about 45 minutes west of Charlotte, the neighbors are some on the north side. There's a proposal for light rail to go up to Davidson. Yeah, we had a really cool light rail that's, that's gone through South and North. So it goes from UNC Charlotte, North, down to 45, the outer circle on the south of Charlotte, and wow, that's done wonders for property values there. Yeah, there's just these a class a brand new apartments, they go on forever, on the light rail, that's really a lot of development. So if the same thing happens on the they call it the red line, they don't have the funding for it. So I don't know if it's gonna happen or not. But they got it on paper

Tom

That's good feedback around Kings Mountain, which is just east of RGB, just west of Gastonia, which is the city just along 85. Some other questions around owning properties in Charlotte, and the theme of investor friendly. So I'm gonna put this in a few different categories. So with investor friendly, let's first touch on rent control. Is there an aspect of rent control in Charlotte?

Danny:

No, I actually listened to your podcast with Matt Whittaker in Birmingham. That was interesting. And I agree with what he was saying as far as let's it's a progressive city and a conservative state, you know, for the most part pretty landlord friendly. I would say North Carolina, if you ever go to eviction court, there will be attorneys there from legal aid, representing the tenants. So that's something unique to Mecklenburg County, you better you better have dotted your i's and cross your T's because you're going to go head to head with an attorney. So it's landlord friendly, the state laws and then Mecklenburg County is probably the strictest as far as a tenant friendly. There's no control. Yeah, every once in a while an HOA will have a restriction on a percentage of rentals that's that may be more common like a condo uptown. It's not common at all on a subdivision but yeah, with an HOA anything can happen.

Tom:

Sure, you're reading my mind and I think you kind of answered it already. Is there is you know, outside of condos and townhouses Is there much of an HOA footprint in through development that's been done so in common to find properties that are an HOA as per single family?

Danny

Yeah, all the newer neighborhoods have a choice and they're the devil. So

Michael

I'm sure you love working with them as the management side of things get another nasty gram for garbage cans being left out or you know, what have you.

Danny:

Exactly, I did Hoa management a little bit. That's really hard job. Basically, you know, there's one person is who wants to be president. And that's usually a volunteer position and they just got a lot of time on their hand. So they don't work. They just sit at home and get things wrong. And that's the first as a property manager, that's the person you got to make happen. And they want a pitbull, you know, they want somebody to get just as angry as they are like, you know, they call me up Danny, the neighbor has their garbage cans out like you saying, and it's Tuesday and when you get really angry because it's Tuesday.

Tom:

there's a lot of things out there to be angry about but you know, garbage cans on the street that's not a good one that's not a good one to be angry about.

Michael:

That is not top of the list by any means.

Danny:

HOAs will always send the notice to the owner like property managers can be the buffer for most thing that notice will always go to they will always send it to the address on tax records. So then owner just need to forward those complaints to us and we'll take care of those get involved in that kind of thing.

Michael:

You brought up a really nice kind of segue transition, talking about tax records. What property taxes look like, in Charlotte.

Danny:

They're good compared to California, I guess.

Michael:

It's not hard to be good in that department.

Tom:

And that probably in Florida in Texas, I would assume because they're, you know, no income tax in Florida in Texas. So property taxes are super high. Go ahead.

Danny

Yeah, that's true. So it's about 1.2% of tax value. So if the tax rate is $100,000, you can expect to pay about 1200. dollars for property taxes.

Michael:

Okay. And this is a discussion I have with students all the time in the Roofstock academy about how to determine what the tax value is, versus replacement costs and insurance versus purchase price, because these are three numbers that are so often mutually exclusive and have nothing to do with one another. So if somebody buys a property in Charlotte, for 200,000, is the property tax basis likely to change? Or is there some regular frequency for an assessment that is independent of the sale price?

Danny:

There is an assessment? It's a good question. It's every I want to say seven years is not that often, I might be wrong, I might be five years and general the tax value is lower than the market value. And that's where you want it. You want your tax ID to be as low as possible. That's, that is a very common Miss misconception there. And then will it go up? Probably, probably, but it hasn't gone up that much. I mean, and then you can dispute it, you can send them an appraisal, it's Yeah, that's a little side hustle in itself, helping people dispute their tax values.

Michael:

Yeah, absolutely. Absolutely. Just to get a kind of flavor of the market. If someone buys a house, on the east side for 250,000, the rents are 1200 bucks. Mm hmm. ballpark, any idea what their assessed tax value might look like on that property?

Danny:

Less. So the market value is two to 50? I wouldn't be surprised if the tax value wasn't like 170.

Michael:

Okay, and then it'd be 1.2% of that. 170.

Danny:

Mm hmm.

Michael:

Okay, even if I bought it, you know, it got assessed last year at 170. I bought it this year at 250. That assessed value, that's the taxable value isn't going to change until they do a new assessment five or seven years down the road or what have you.

Danny:

That's correct. You're you purchasing the property, you won't change anything. Eventually, they'll do an assessment by zip code, bless their hearts are not gonna be appraised every property, they gotta take a stab at. conserve everything. I think they know that, you know, most people are gonna dispute it. It's also I even when they raise it, I think it still stays pretty conserved every once in a while. Have you surprised somewhere, but tax general is less significant less than market value?

Michael:

Okay, really good to know.

Tom:

One more tax related question is I know, sometimes when we are evaluating a property, you know, we'll use some global assumptions for an area say that, like 1%, or whatnot, and then we'll hit this little pocket in a neighborhood that has this school special assessment that for whatever reason, like this little jurisdiction is like, way more expensive. Is that common? Or have you seen that in Charlotte?

Danny:

No,

Tom:

No snakes in the grass, I guess, I don't know if like expensive property taxes stuff?

Danny:

If you do have a special assessment, it's gonna come from the HOA. And we had those like with the condo kind of thing where it was brutal back in 2010. Nobody was paying the mortgage, nobody's paying their HOA dues, and they need to put a new roof they need to raise 50 grand and everybody gets an assessment for $500 a month only pay for the roof. That's the only kind of special assessment I've heard of I haven't seen that come from city, a county here in Charlotte

Michael:

What do insurance costs look like in Charlotte?

Danny

Thanks for asking. Because I sell insurance, we could dig deep into that if you want, but dwelling is just cheap, 45 cents for $100 of coverage. So if it's $100,000 house, that'll be you know, 450 bucks in a liability policy and other 300 bucks get a million dollars for liability and put your property manager on as an additional insurance? are you guys doing that? I know, you guys got property managers.

Michael:

Every single one good.

Danny:

Are you doing that Tom?

Tom:

I need to do that.

Danny:

You absolutely need to do that. Otherwise, you're it's like sending a vendor out there without insurance. If there's a lawsuit, then there, everyone's gonna be looking at each other cross eyed who's got coverage here. And it could be it could be your insurance company doesn't want to cover the property manager, the property management insurance might cover it, but then sue your insurance company, it's so much better just get on the same page, because you are going to get sued together, I promise the landlord and the property manager the attorney is going to list everybody who's ever touched that property in the last five years. So you're gonna be sitting in the courtroom together, get on the same page, your put your property manager on it as an additional insured. That's my public service announcement.

Tom:

Love it.

Michael:

Danny, I was just having this conversation yesterday, actually with a fellow investor. And I dealt with the exact same thing. And they asked the question of why and I explained it probably less eloquently than you had, but I explained this to them. But I want to hear from you. Is it additional costs to that?

Danny:

No. And that's a good question. And it's confusing, because every once in a while someone call their insurance agent and put the property manager and they'll say, No, we don't do that. And that means you're talking to their captive agent who focuses on personal lines. It doesn't understand commercial lines. It's very, very common, but you should get a discount. You should call you Hey, I have a professional property manager here. So was a throat you know, American modern foremost, ASI, those are all insurance company, they will give you a discount, just check the box, I have a property manager, it will cost you less, there's less liability, less risk for the insurance company if they know that it's professionally managed. It's not an additional cost. It's less, it should be less

Michael:

Fantastic. Tom, you just got your money's worth. And then some out of this episode, man. I did I

Tom:

Love the tangents that some of these go on.

Michael:

Okay, cool. And I've got a timely question. Because I think again, another question I get and probably Tom gets as well from Academy members and just investors in general is COVID is still affecting the country. And so people are constantly is now a bad time or a good time to invest. Because there's a eviction moratorium and folks are losing their jobs. So they have a tough time paying rent. What are you seeing in terms of occupancy? physical and economic? As far as the property is your property management business?

Danny:

Yeah, so I didn't want prices to drop. I didn't want to go back to 2010. But I did think they were going to and I thought there's gonna be a huge opportunity, and I was wrong about that. Demand is stayed strong. Yeah, if you got a three bedroom, two bath within Charlotte 250. Under, it's gonna fly off the shelf demand is strong. The hedge funds haven't gone away lots of new york money, and they're happy with two 3% cap rate. You know, obviously, they're factoring in appreciation or whatever. They're affecting them for their numbers. But there's a lot of competition there's a lot of people don't want to buy in Charlotte, and they're paying cash. So now the market has not drop. Yeah, evictions, some of the lower income properties got hit harder. I think apartments got hit harder, you know, our average rent. It's 12, 1300. I think that's, yeah, that's I think that's been true across the country. Yeah, I'm in a lot of Facebook groups with property managers, we were all holding our breath. What's it like to manage property when you can evict somebody? Right, but you know, and there are just a few people taking advantage of it. I'll just say one from like, 2% to 4%. So but it's not that high. And I think everybody that cares about the credit, they understand that, you know, okay, I don't have to pay my rent. But that doesn't mean that the bill just goes away. You know, one day, they're gonna open up the courthouse and the bill still gonna be there. So, you know, people don't want that kind of uncertainty. For the most part, everybody who can pay is paying. But yeah, it's been really confusing. Actually, right, right now, nobody knows what do we all the eviction attorneys are in town are calling each other. We love to charge late fees.

Tom:

What it's going on?

Danny:

They don't know what's going on.

Tom:

So I'd like to touch on some points of interest in Charlotte. And these can be you know, Parks, museums. I know the Hornets which just learned about how their name was came to be. What are some of the major attractions and poles within Charlotte?

Danny: 

Yeah, so Charlotte isn't typically a tourist town. You know, we got whitewater Center, which is really cool for like kayaking. It's like a artificial whitewater River. That's really cool. really unique. We got Carolyn's that's an amusement park. And that does bring in some regional kind of tourists. And we got some uptown fun place. There's some cool museums up there are museums. I love uptown. And we call it uptown By the way, because downtown is too negative, you know, we need to try to put a positive spin on this. And it is a little bit higher geographically, but that's there's no downtown and Charlotte's uptown. We're two hours from the mountains and three hours from the beach. So that's kind of fun. If you want to make a day trip to the beach, the mountains you can do that. As far as tourist kind of attractions that's more common that someone come in and do the beach or the mountains then then Charlotte

Tom:

Or the lake like Lake Norman, you're talking about earlier.

Danny:

Yeah, Lake norm is a blast.

Tom:

I have my last question. Here is kind of a fun thing and talking about different markets. Or you can get one meal. Danny, you can get one meal in Charlotte, where are you going? And what are you ordering?

Danny: 

I'll go to Lang Van. It's a Vietnamese restaurant on the east side. And I'll get some pho soup

Tom:

I love it.

Michael:

Chicken beef or seafood.

Danny:

Beef.

Michael:

Good deal. Good deal. Tom, Like a good Pho?

Tom:

Oh, love Pha, can't get enough.

Michael:

Yeah. Danny, thank you so much for for hanging out with us and giving us such a great market insight. If folks have additional questions about home vault property management or about kind of Charlotte as a whole what's the best way for folks to get in touch with you?

Danny

Yeah, thanks so much, [email protected] and we just did merger we're still doing redoing our website. So you know our Charlotte website is still smartshieldpm.com. Smartshieldpm.com.

Tom:

Awesome. Well, I want to thank you so much, Danny for coming on and sharing with us and our listeners about the Charlotte market.

Michael:

This was great. Danny, thank you.

Danny

Big fan of what you guys are doing. Thanks so much.

Tom:

Awesome. Thank you.

Michael:

Thank you. Take care.

Tom:

Thank you, Danny for coming on. Love to learn about the market in Charlotte and all the other fun facts that you brought with you. If you enjoy this podcast, please subscribe, give us a rating all that good stuff really helps. And as always, happy investing.

Tom and Michael talk with Danny Plueddemann from Home Vault Property Management about the Charlotte Market. 

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Tom: 

Greetings, and welcome to The Remote Real Estate Investor. Today we're here with Danny Plueddemann, when we're going to be talking about the Market of Charlotte.

Tom: 

Okay, before we get into the interview with Danny, we're gonna hit on some numbers talk about the quantitative aspects of the market and Charlotte. So at a very high level, the population in Charlotte is 872,000 people. This is from the Census Bureau in 2018. The greater MSA population in Charlotte is just over 2 million 2,054,000. This is from 2020 from macro trends, and we're seeing a population growth of 4.21%. And this is also from macro trends, the median household income, and this is from John Burns is $63,400. And this is an improvement from last year. That was it 63,000. The number of units we see in Charlotte is over a million This is 1,049,329. And as a breakdown of ownership, 60% of the properties are owner occupied, while 31% of the properties are renter occupied, and then the remaining eight percentage is vacant homes. A little more information on home prices and rent, the existing home values is increased 7.6%. And this is coming again from John Burns in the September 2020. Report, the home value for entry level home is at $214,000 700. The existing median home price is 286,700. And both of those metrics are again coming from John Burns. The median single family rent is that $1,388 again from John Burns, and the year over year rent growth is 3.7%. And again, this is coming from John Burns, the home occupancy rate is that 93.4% and the apartment occupancy rate is 93.7%. Again, both of these metrics coming from John Burns. Danny, thank you so much for coming onto the show. Before we start getting into Charlotte, let's get a little bit into yourself. Let's tell us a little bit about your background. What makes you an expert. What are you doing in Charlotte today and all that good stuff.

Danny:

Thanks, Tom. Yeah, so I call Charlotte my adopted hometown talking about that I've been here longer than anybody else but 20 years and everybody hears a transplant everybody's I'm a Yankee that knows the Yankee till I moved to Charlotte. But yeah, I mean, in property management, I worked for the big banks for a while I did mortgages for a little while. I've been in property management for last 15 years. We just did a exciting merger so we're Home Vault property manager in six different markets, five different states. So that's really exciting. I am the Chief Investment Officer which I'm trying to decide what my job titles I think I told you I like yours Tom, your Investor?

Tom: 

Yeah, that's right. Director of Investor Education, getting help helping people out in the business to serve.

Danny:

Yeah, I might steal yours. It's funny as I was doing my email signature yesterday and Chief Investment Officer sounds so pretentious that I changed it to investment guy and I was like, man, nobody's asked that's not serious enough. Yeah, so now I'm an investment officer in my in my email signature. But yeah, property management focus on helping the landlord so if you're happy landlord I want to help you buy more properties. If you're not happy I want to come come up some alternatives for you either you know buying the property from you selling to one of our existing clients, Master leasing the property something to take away the pain points that's what I'm doing now.

Tom:

Alright, let's go ahead and jump into it. So the market of Charlotte so as a first step tell us about kind of the main primary cities and some of the core principal cities within the metro go ahead and yeah, let's let's do it.

Unknown Speaker 

Yeah, Charlotte is a great town. Let's see here. We're about as far south as you can be and still have four seasons we got winter, spring, fall, summer, that's fun. Just but everybody's from somewhere else. That's the fun thing about it. We got Florida halfbacks people they thought they wanted to retire in Florida was too hot. So they move halfway back to New York, they're in Charlotte. Now. surrounding towns are like, like Gastonia Concord, Kannapolis up north. Gastonia is West, Monroe down south.

Michael:

So Danny. I'm gonna jump here for just a second. So I lived in the Bay Area, California outside San Francisco for a long time. Tom's a bay area guy. Everybody knows the bay area for Silicon Valley. Most people move to the area for tech. So is there a similar draw for these transplants out into Charlotte or is it kind of a mixed bag?

Danny:

Yeah, there's some cool comparisons with California. We can we can talk about that. Yeah, job. So finance sector is the biggest, biggest employer we have. Bank of America is headquartered here. Wells Fargo used to be headquartered here before San Francisco stol it from us. Yeah, so the first gold rush actually wasn't in California. It was in Charlotte.

Michael:

Really?

Danny:

Yeah. So there's, we're still we're still competing. And I was gonna ask you guys If you if you don't know, I'm going to say Charlotte is the second largest bank in town after New York. But I think we go back and forth with San Francisco. Who's the bigger after?

Tom:

I didn't realize there were so many parallels with San Francisco and Charlotte, the gold rush the huge financial sector. Sorry for interrupting.

Danny:

I think it's related. I don't know this for sure. But you know, we have a mint here like since we had the mines here, the gold mines here that were us men here, there's a man in San Francisco. I think that's the connection. They're just after they had the mint there that attracted the banks. And yeah, we're huge banking town. That's what we're known for. By the way, we're the first ones to declare independence. A lot of people don't know this. But for us, Independence Day is may 20 1775. Everybody else celebrates June, 4 of July, we had a declaration of independence, unfortunately called the resolves, like we do here by results. So that's horrible marketing. Nobody's gonna pick up on that. And then we lost the original. So that was, you know, we don't get any credit.

But yeah, we're the hornet's nest of rebellion for England's that's why we at the Charlotte Hornets basketball team. And then for the Gold Rush, like the UNC Charlotte, University of North Carolina Charlotte university that the mascot is the 40 Niners the miners 49. So that's kind of the connection there with San Francisco. I'll tell you what's different, you know, San Francisco, you got the ocean on one side, and then you get the mountains on the other side. So as far as supply it’s really limited, we don't have that we got we were in the Piedmont Valley. So we can we can grow any direction, every direction. So there's no limit there. So there's much more supply. So obviously, that's keeps prices down. Atlanta is the same thing. They can sprawl and they have been forever. So a lot of investors looking at Atlanta when they're trying to figure out what Charlotte's gonna look like, in 20 years. They go hang out in Atlanta, and look at the traffic there. And then, you know, eventually the barrier to growth, its growth is traffic, you know, every exit get farther from downtown is a little bit more expensive.

Tom:

Well, that's a good transition question. So talking about the major transportation within Charlotte, so there's big international airport. Why don't we touch on that, you know, trains, planes and automobiles like kind of the different major infrastructure as it relates to travel?

Danny:

Well, you guys can tell I'm a history buff. We got a lot of trains here because we had a lot of textile mills here after those cotton. So yeah, we got trains going north and south here with originally was to take cotton everywhere. It was actually a big rail yard then the Civil War, the Confederates used this as a rail yard. And then yeah, the airport's huge, American Airlines has a hub here. So you know, if you're flying anywhere in the southeast, you probably come through Charlotte. It's just the way that airlines schedule things with what's it called a Hub Network, something like that. Yeah. So yeah, and then you're exactly right. You know, the trucking. There's a lot of big trucking companies headquartered here for the same reasons I think it's just the trains come in trucks take them out. There's a lot of transportation is it's helped us diversify the economy from banking a lot,

Tom:

You know, kind of, I think, as Michael was alluding to, there's a lot of universities in like, the tech space has been a really booming piece as well.

Danny:

The bad guy is Riley. I think you're getting those confused with rally because they got some better schools up there. You know, there's UNC Chapel Hill Duke. So that's like the Research Triangle. And we're competitors with rally sorta Right. I mean, they got the government center there. They get the more famous schools were more like the commercial side of North Carolina, business, commerce, banking. That's kind of our reputation here.

Michael:

And Danny, were you involved in as an investor in the real estate space before getting involved in the property management business?

Danny:

Yes, I was doing mortgages. I had a great run with the mortgage. So after big banks, I started my own mortgage company. So that was 2000 2001. And I had a great write up for the mortgage business. And yeah, I was buying properties. And I was selling them on an option given people option to buy them and I had for about 2025 properties in my name when the market crashed in 2008. I had all these houses sold, quote, unquote, they're sold to people that they realize they're upside down, everything dropped 20% across the board, they realize they're upside down. And so they call me up. Danny, you got a problem. Your house is the roof is leaking. I had a rough ride down. Hopefully I learned a few things. Yeah, like a lot of property management get started at that time, nobody could sell their house. So we have what are called accidental landlords or reluctant landlords, you know, they got relocated to Florida, they're upside down their house. So it was a great time to grow a property management company nobody could sell.

Tom:

That's so funny. You mentioned that one of the other property managers from Birmingham, the exact same story they were fixing, flipping and then accidental landlord really like enjoy the grind of it going back on the different you know, talking about Charlotte and some of the different areas. I'm looking at Google Maps right now of Charlotte. And I'd love for you to define some different areas as it relates to general strategy. So what areas within Charlotte you know, someone's looking at Google Maps would be more of a cash flow play, which one would be more appreciation which one would be more in the middle? Are there any kind of up and coming areas so?

Unknown Speaker 

As far as cash flow I’d say the west side. And so and the reason is it's lower income, more industrial, the airport's out on the west side, if someone says they found a deal with it with a double digit cap rate in Charlotte, they're probably talking about the west side. There's some people making money on the west side, there's a little more drama. A little more, you know, higher evictions, lower income your copper pipes might be, might be more gone if it gets gets vacant. That's the west side.

Tom:

Yep, near the airport.

Danny:

And there's pockets of exceptions, of course.

Tom:

Do you guys manage a lot of properties in that area?

Danny:

Yes, our service areas within an hour Charlotte will manage any property, we do have a flat fee, minimum $90. So that ends up making us more expensive if the rents $500. And I'm charging $100 management that's like 20% management fee, that might be kind of expensive.

Tom:

Yeah,

Danny:

That's kind of how we need to do it to be profitable. Whereas if the rents 2000, I might be the cheapest property.

Tom:

Sure.

Danny:

That's just kind of how it works with the flat fee, we got a few different fee options. But to answer your question, yeah, I mean, I don't mind managing low income and class C, whatever you want to call it, we got to have a class A landlord, I'll throw that up. There's class C landlords, the classy landlord with a classy property is not going to work.

Tom:

Yeah, So how about is just kind of general within Charlotte? Is there much of a section eight footprint throughout the different areas

Danny:

There is there's like an eight year waiting list to get on organises a huge demand for it. Yeah, we do manage some Section A mostly the ones we inherited, we're not going after it, there's a few technicalities that make it hard to manage third party was section eight. This might be a little bit in the weeds. But let's let's just say I'm managing a property from Michael. And then there's an abatement. So they take away the rent. But I'm also managing a property for Tom. So income comes in for Tom, section eight thinks I screwed something up. So they're gonna withdraw money from my account to cover Michael's bill. But the money in my account was actually Tom's money. It's a nightmare. So I got to front the money to stay in compliance with the real estate commission. Anyway, that's just like a cork that makes it really hard to manage section eight.

But if the investor understands that, and they put up a reserve, that's way around that there's an abatement, they grab the money, you just got to have that reserve. But there's pluses and minuses I don't you guys like section eight, you guys have section eight properties.

Tom:

I've done it. And it has been successful and haven't had any issues with it one way or the other. I'm not strategically like always looking for it or going against it.

Danny:

For sure, it's nice to get the check from US Treasury, you can't complain about that. If they're covering the whole amount, that helps a lot. You know, if they're making a partial payment, you know, like, let's say the tenants, you know, the tenants are on the hook for 150 bucks, and then section eights paying 850. So you get the 850 but you don't get the hundred and 50 do you get some hard decisions to make? Are you gonna spend $300 in eviction to collect 150. But it can be good, you still need a tenant screening. I mean, one one tip there is, you know, you don't have to do screening as far as rent collection income, that you're going to get the income, but meet them at their property where they're at right now. So you know, we got some things for you to sign where do you live and come over there, and then see how they're keeping up the place. That's the only thing that's gonna kill you and you got to do the repairs. I mean, if they're tearing the place up, you can say, well, that's tenant responsibility. Okay, well, the tenant doesn't fix it, the inspector comes and puts it into abatement. Anyway. So you better fix it like it or not fair or not, you better make an inspector happy. So anyway, there you go. Those are some of the pluses in mine. Yeah,

Tom:

Got it. So we talked about the west part of Charlotte What is going on? You know, South Charlotte East Charlotte North Charlotte, I'd love Yeah, I kind of thought that there's an area that's more kind of up and coming or it's more of an appreciation play. I'd love you to touch on the kind of the different pockets as you'd say

Danny:

South Charlotte is most expensive. So that would be like, you know, a blue chip stock. You know, it's gonna be solid investment, harder to cash flow. Just south, the Uptown there's Myers Park. I was just walking my kids there the other day lesson neighborhood there. You know, they'll buy a house for $850,000 tiny house built in the 60s, tear it down, build up a $2 million house so that's the most expensive area. Yeah, Meyers Park freedom Park area. That's beautiful. You see 100 year old oak trees, just beautiful neighborhood. It's pretty expensive all the way you keep going south south park Valentine pretty expensive,

Tom:

How about pineville or outside of that 485 kind of circle. Is that where it starts price starts dropping off a little bit as it remains.

Danny:

It does drop off but you got to go a long ways because yeah, you know, the neighborhood's past 45 South they're real popular to waxhaw weddington they got these deals where you know the minimum lot sizes one acre, now I'm gonna be able to build an apartment there. So it encourages expensive housing. You got to buy a lot that big.

Tom:

Got it. How about east of Charlotte?

Danny:

My favorite street is CENTRAL AVENUE driving out uptown Vietnamese restaurants, Mexican restaurants, a lot of diversity. A lot of older neighborhoods. Blue Collar neighborhoods.

Tom:

Is that like East away or is that still Charlotte as a city?

Danny:

That's Charlotte.Yeah, I'll throw out some numbers there. I think you get five 6% cap rate. And East Side. I think you're looking at two to three on the south side.

Tom:

Got it.

Michael:

And what about and how about a purchase price there on the east side?

Danny: 

For a single family home? You're probably looking at 250,000 for a three bedroom, two bath that you could rent for 12, 1400 a month.

Micaheal:

Okay, great.

Tom:

And how about the last but not least North Charlotte?

Danny:

Yeah, just north of Charlotte is a little rough. Actually. That's where I live. That's also an industrial area. But this Arts District you hear about NoDa. North Davidson. That's a take off on Soho are trying to be like New York. So that's RT real trendy, real expensive and then and then go farther north. Those are expensive neighborhoods too. So you tell my Morrisville, Huntersville, Davidson area. You get the late crowd there. Lake Norman's real popular place to live. You got the peninsula club. You got Trump's got a golf course out there. A lot of the Charlotte Panthers Charlotte Hornets, professional athletes, they live on the peninsula on Lake Norman, that's a real popular area.

Tom:

Got it. And how about kind of the last general region question? Is there any areas you would say that, you know, you mentioned you guys manage homes up to an hour away? That's a little bit more in the deep cuts like maybe it's not in Charlotte proper, but man, this is kind of an up and coming area as an investor some place to look at to buying houses?

Danny:

I think so i think you know, when you're talking about that 1% rule, for example, for the most part of thing you got to go 45 to an hour away from Charlotte. Yep. So Kings Mountain just got approved for a casino. That's an interesting market. Yeah, about 45 minutes west of Charlotte, the neighbors are some on the north side. There's a proposal for light rail to go up to Davidson. Yeah, we had a really cool light rail that's, that's gone through South and North. So it goes from UNC Charlotte, North, down to 45, the outer circle on the south of Charlotte, and wow, that's done wonders for property values there. Yeah, there's just these a class a brand new apartments, they go on forever, on the light rail, that's really a lot of development. So if the same thing happens on the they call it the red line, they don't have the funding for it. So I don't know if it's gonna happen or not. But they got it on paper

Tom

That's good feedback around Kings Mountain, which is just east of RGB, just west of Gastonia, which is the city just along 85. Some other questions around owning properties in Charlotte, and the theme of investor friendly. So I'm gonna put this in a few different categories. So with investor friendly, let's first touch on rent control. Is there an aspect of rent control in Charlotte?

Danny:

No, I actually listened to your podcast with Matt Whittaker in Birmingham. That was interesting. And I agree with what he was saying as far as let's it's a progressive city and a conservative state, you know, for the most part pretty landlord friendly. I would say North Carolina, if you ever go to eviction court, there will be attorneys there from legal aid, representing the tenants. So that's something unique to Mecklenburg County, you better you better have dotted your i's and cross your T's because you're going to go head to head with an attorney. So it's landlord friendly, the state laws and then Mecklenburg County is probably the strictest as far as a tenant friendly. There's no control. Yeah, every once in a while an HOA will have a restriction on a percentage of rentals that's that may be more common like a condo uptown. It's not common at all on a subdivision but yeah, with an HOA anything can happen.

Tom:

Sure, you're reading my mind and I think you kind of answered it already. Is there is you know, outside of condos and townhouses Is there much of an HOA footprint in through development that's been done so in common to find properties that are an HOA as per single family?

Danny

Yeah, all the newer neighborhoods have a choice and they're the devil. So

Michael

I'm sure you love working with them as the management side of things get another nasty gram for garbage cans being left out or you know, what have you.

Danny:

Exactly, I did Hoa management a little bit. That's really hard job. Basically, you know, there's one person is who wants to be president. And that's usually a volunteer position and they just got a lot of time on their hand. So they don't work. They just sit at home and get things wrong. And that's the first as a property manager, that's the person you got to make happen. And they want a pitbull, you know, they want somebody to get just as angry as they are like, you know, they call me up Danny, the neighbor has their garbage cans out like you saying, and it's Tuesday and when you get really angry because it's Tuesday.

Tom:

there's a lot of things out there to be angry about but you know, garbage cans on the street that's not a good one that's not a good one to be angry about.

Michael:

That is not top of the list by any means.

Danny:

HOAs will always send the notice to the owner like property managers can be the buffer for most thing that notice will always go to they will always send it to the address on tax records. So then owner just need to forward those complaints to us and we'll take care of those get involved in that kind of thing.

Michael:

You brought up a really nice kind of segue transition, talking about tax records. What property taxes look like, in Charlotte.

Danny:

They're good compared to California, I guess.

Michael:

It's not hard to be good in that department.

Tom:

And that probably in Florida in Texas, I would assume because they're, you know, no income tax in Florida in Texas. So property taxes are super high. Go ahead.

Danny

Yeah, that's true. So it's about 1.2% of tax value. So if the tax rate is $100,000, you can expect to pay about 1200. dollars for property taxes.

Michael:

Okay. And this is a discussion I have with students all the time in the Roofstock academy about how to determine what the tax value is, versus replacement costs and insurance versus purchase price, because these are three numbers that are so often mutually exclusive and have nothing to do with one another. So if somebody buys a property in Charlotte, for 200,000, is the property tax basis likely to change? Or is there some regular frequency for an assessment that is independent of the sale price?

Danny:

There is an assessment? It's a good question. It's every I want to say seven years is not that often, I might be wrong, I might be five years and general the tax value is lower than the market value. And that's where you want it. You want your tax ID to be as low as possible. That's, that is a very common Miss misconception there. And then will it go up? Probably, probably, but it hasn't gone up that much. I mean, and then you can dispute it, you can send them an appraisal, it's Yeah, that's a little side hustle in itself, helping people dispute their tax values.

Michael:

Yeah, absolutely. Absolutely. Just to get a kind of flavor of the market. If someone buys a house, on the east side for 250,000, the rents are 1200 bucks. Mm hmm. ballpark, any idea what their assessed tax value might look like on that property?

Danny:

Less. So the market value is two to 50? I wouldn't be surprised if the tax value wasn't like 170.

Michael:

Okay, and then it'd be 1.2% of that. 170.

Danny:

Mm hmm.

Michael:

Okay, even if I bought it, you know, it got assessed last year at 170. I bought it this year at 250. That assessed value, that's the taxable value isn't going to change until they do a new assessment five or seven years down the road or what have you.

Danny:

That's correct. You're you purchasing the property, you won't change anything. Eventually, they'll do an assessment by zip code, bless their hearts are not gonna be appraised every property, they gotta take a stab at. conserve everything. I think they know that, you know, most people are gonna dispute it. It's also I even when they raise it, I think it still stays pretty conserved every once in a while. Have you surprised somewhere, but tax general is less significant less than market value?

Michael:

Okay, really good to know.

Tom:

One more tax related question is I know, sometimes when we are evaluating a property, you know, we'll use some global assumptions for an area say that, like 1%, or whatnot, and then we'll hit this little pocket in a neighborhood that has this school special assessment that for whatever reason, like this little jurisdiction is like, way more expensive. Is that common? Or have you seen that in Charlotte?

Danny:

No,

Tom:

No snakes in the grass, I guess, I don't know if like expensive property taxes stuff?

Danny:

If you do have a special assessment, it's gonna come from the HOA. And we had those like with the condo kind of thing where it was brutal back in 2010. Nobody was paying the mortgage, nobody's paying their HOA dues, and they need to put a new roof they need to raise 50 grand and everybody gets an assessment for $500 a month only pay for the roof. That's the only kind of special assessment I've heard of I haven't seen that come from city, a county here in Charlotte

Michael:

What do insurance costs look like in Charlotte?

Danny

Thanks for asking. Because I sell insurance, we could dig deep into that if you want, but dwelling is just cheap, 45 cents for $100 of coverage. So if it's $100,000 house, that'll be you know, 450 bucks in a liability policy and other 300 bucks get a million dollars for liability and put your property manager on as an additional insurance? are you guys doing that? I know, you guys got property managers.

Michael:

Every single one good.

Danny:

Are you doing that Tom?

Tom:

I need to do that.

Danny:

You absolutely need to do that. Otherwise, you're it's like sending a vendor out there without insurance. If there's a lawsuit, then there, everyone's gonna be looking at each other cross eyed who's got coverage here. And it could be it could be your insurance company doesn't want to cover the property manager, the property management insurance might cover it, but then sue your insurance company, it's so much better just get on the same page, because you are going to get sued together, I promise the landlord and the property manager the attorney is going to list everybody who's ever touched that property in the last five years. So you're gonna be sitting in the courtroom together, get on the same page, your put your property manager on it as an additional insured. That's my public service announcement.

Tom:

Love it.

Michael:

Danny, I was just having this conversation yesterday, actually with a fellow investor. And I dealt with the exact same thing. And they asked the question of why and I explained it probably less eloquently than you had, but I explained this to them. But I want to hear from you. Is it additional costs to that?

Danny:

No. And that's a good question. And it's confusing, because every once in a while someone call their insurance agent and put the property manager and they'll say, No, we don't do that. And that means you're talking to their captive agent who focuses on personal lines. It doesn't understand commercial lines. It's very, very common, but you should get a discount. You should call you Hey, I have a professional property manager here. So was a throat you know, American modern foremost, ASI, those are all insurance company, they will give you a discount, just check the box, I have a property manager, it will cost you less, there's less liability, less risk for the insurance company if they know that it's professionally managed. It's not an additional cost. It's less, it should be less

Michael:

Fantastic. Tom, you just got your money's worth. And then some out of this episode, man. I did I

Tom:

Love the tangents that some of these go on.

Michael:

Okay, cool. And I've got a timely question. Because I think again, another question I get and probably Tom gets as well from Academy members and just investors in general is COVID is still affecting the country. And so people are constantly is now a bad time or a good time to invest. Because there's a eviction moratorium and folks are losing their jobs. So they have a tough time paying rent. What are you seeing in terms of occupancy? physical and economic? As far as the property is your property management business?

Danny:

Yeah, so I didn't want prices to drop. I didn't want to go back to 2010. But I did think they were going to and I thought there's gonna be a huge opportunity, and I was wrong about that. Demand is stayed strong. Yeah, if you got a three bedroom, two bath within Charlotte 250. Under, it's gonna fly off the shelf demand is strong. The hedge funds haven't gone away lots of new york money, and they're happy with two 3% cap rate. You know, obviously, they're factoring in appreciation or whatever. They're affecting them for their numbers. But there's a lot of competition there's a lot of people don't want to buy in Charlotte, and they're paying cash. So now the market has not drop. Yeah, evictions, some of the lower income properties got hit harder. I think apartments got hit harder, you know, our average rent. It's 12, 1300. I think that's, yeah, that's I think that's been true across the country. Yeah, I'm in a lot of Facebook groups with property managers, we were all holding our breath. What's it like to manage property when you can evict somebody? Right, but you know, and there are just a few people taking advantage of it. I'll just say one from like, 2% to 4%. So but it's not that high. And I think everybody that cares about the credit, they understand that, you know, okay, I don't have to pay my rent. But that doesn't mean that the bill just goes away. You know, one day, they're gonna open up the courthouse and the bill still gonna be there. So, you know, people don't want that kind of uncertainty. For the most part, everybody who can pay is paying. But yeah, it's been really confusing. Actually, right, right now, nobody knows what do we all the eviction attorneys are in town are calling each other. We love to charge late fees.

Tom:

What it's going on?

Danny:

They don't know what's going on.

Tom:

So I'd like to touch on some points of interest in Charlotte. And these can be you know, Parks, museums. I know the Hornets which just learned about how their name was came to be. What are some of the major attractions and poles within Charlotte?

Danny: 

Yeah, so Charlotte isn't typically a tourist town. You know, we got whitewater Center, which is really cool for like kayaking. It's like a artificial whitewater River. That's really cool. really unique. We got Carolyn's that's an amusement park. And that does bring in some regional kind of tourists. And we got some uptown fun place. There's some cool museums up there are museums. I love uptown. And we call it uptown By the way, because downtown is too negative, you know, we need to try to put a positive spin on this. And it is a little bit higher geographically, but that's there's no downtown and Charlotte's uptown. We're two hours from the mountains and three hours from the beach. So that's kind of fun. If you want to make a day trip to the beach, the mountains you can do that. As far as tourist kind of attractions that's more common that someone come in and do the beach or the mountains then then Charlotte

Tom:

Or the lake like Lake Norman, you're talking about earlier.

Danny:

Yeah, Lake norm is a blast.

Tom:

I have my last question. Here is kind of a fun thing and talking about different markets. Or you can get one meal. Danny, you can get one meal in Charlotte, where are you going? And what are you ordering?

Danny: 

I'll go to Lang Van. It's a Vietnamese restaurant on the east side. And I'll get some pho soup

Tom:

I love it.

Michael:

Chicken beef or seafood.

Danny:

Beef.

Michael:

Good deal. Good deal. Tom, Like a good Pho?

Tom:

Oh, love Pha, can't get enough.

Michael:

Yeah. Danny, thank you so much for for hanging out with us and giving us such a great market insight. If folks have additional questions about home vault property management or about kind of Charlotte as a whole what's the best way for folks to get in touch with you?

Danny

Yeah, thanks so much, [email protected] and we just did merger we're still doing redoing our website. So you know our Charlotte website is still smartshieldpm.com. Smartshieldpm.com.

Tom:

Awesome. Well, I want to thank you so much, Danny for coming on and sharing with us and our listeners about the Charlotte market.

Michael:

This was great. Danny, thank you.

Danny

Big fan of what you guys are doing. Thanks so much.

Tom:

Awesome. Thank you.

Michael:

Thank you. Take care.

Tom:

Thank you, Danny for coming on. Love to learn about the market in Charlotte and all the other fun facts that you brought with you. If you enjoy this podcast, please subscribe, give us a rating all that good stuff really helps. And as always, happy investing.