Birmingham Real EstateEpisode 20
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HIGHLIGHTS FROM THE PODCAST:
2:37 - Gray’s background in becoming the Brokerage Director for Evernest 3:41 - Why is it so difficult for Mike the Investor 6:17 - Institutions in 2008 vs now - How it has effected the Mom & Pop investor 7:55 - Speed of institutional buys vs Mike the Investor 10:43 - Evernest owner Buy box to help build portfolios 15:12 - Buy Box possibilities 17:20 - Analysis of a deal: 3 components 18:22 - How are we analyzing the work that needs to be done to the property? 20:48 - The five markets available for these services Please reach out if interested! Fill out our form at evernest.co/pocket-listings Contact Gray directly: gray.hall@evernest.co FULL TRANSCRIPT OF THE PODCAST AUDIO:Matthew Whitaker: When the market first crashed back in 07, 08, 09 and then all these institutions got into the space, they started in places like Atlanta, Las Vegas, some of the harder, bigger hit markets. And since then they've raised so much capital and had so much success that they've also been hungry for more homes. Spencer Sutton: Hi everybody. Welcome back to another episode of the Birmingham Real Estate Investor podcast. I am one of your hosts, Spencer Sutton, and as always, I have my partner in crime, Matthew Whitaker with me. So, welcome Matthew. Matthew Whitaker: Hey, thanks. Glad to be here. Spencer Sutton: So, we're excited, because we've got one of our very own here on the podcast, as this is going to be a heavy... An Evernest heavy podcast, is what Matthew called it. We have Gray Hall with us, and Gray is our director of brokerage. So Gray, man, welcome to the podcast. Gray Hall: Glad to be here. Honored to be here with two Birmingham legends. Matthew Whitaker: There's so much sarcasm on this show. It's just really kind of ridiculous. So, today we're going to talk about, what we would call Mike the investor, who is, in this converse obviously a male or female. The big problem as I see it as is people that want to own 10 to 25 rental properties are having trouble finding deals right now. So, we're going to talk a lot about that. We want to be very transparent that our... We're going to talk about our solution to that. So, if it feels a little bit like a advertisement, it may be a little bit of an advertisement, but we also think anybody who's listening to this can gain value from it. Matthew Whitaker: But at the end of the day, the big problem as we see it, and I think other people are experiencing this as well is, we have a number of investors that are either current clients of ours or are interested in getting into this, and they want to buy more houses, and they're just struggling to find the deals. And so, one of the things we decided was we're going to put one of our best and brightest in charge of figuring that out, and that person was busy, so we elevated Gray instead. Spencer Sutton: I was way too busy so we called Gray up. Gray Hall: I was going to say the best and brightest wasn't sarcasm, but there you go. Matthew Whitaker: And so Gray is now our director of brokerage. Gray, give everybody a little bit of history about you, how long you've been with Evernest, and then we'll get into the meat of the show. Gray Hall: Yeah. From Birmingham originally, so that's where I grew up, and that's how I got hooked up with Evernest about four and a half years ago. I came on, I've been in the property management side for, I guess up until now, and ran every job in the Birmingham market. And then as we expanded out to the Denver market, I wanted to come skiing. So I moved out here with... As we open our office out here then I had the past two years and yeah, moving into this brokerage side, which is super exciting for me. It's something I really enjoy doing, working with investors, helping them, analyze deals, pick up properties. And so, yeah, I think we've got a unique side from just the property management side because that's such a key component of once you get the property, being able to make sure it performs, make sure we're anticipating everything, come up with any rentals. And so yeah, excited to be diving full into helping some investors build their portfolios. Matthew Whitaker: So let's talk about the problem. Again, the problem as we see it is that investors aren't able to buy enough good deals. Let's talk about why, why we think there's currently a problem. Obviously, we've been in the midst of a bull market for quite some time, even with COVID the real estate market still appears to be very strong. Any other thoughts on why that is or what are the reasons people are unable to buy good deals? Spencer Sutton: And let me jump in here just real quick because I think there's another problem and Gray and I were actually talking about this yesterday. We had a zoom meeting and it's not only able to find the deals, but with the market, the way it is here in Birmingham, it's also being able to properly analyze the deals, right? To understand what's good for investors, where the areas are because I get a lot of those calls from investors saying is this a good area? Is this a good area? And so it's really twofold. Matthew Whitaker: Lack of knowledge, kind of boots on the ground knowledge, especially for out-of-state investors. That would be one reason why it's hard for investors to find deals. Gray Hall: Yeah. I think there's like the climate right now. And then you kind of zoom out and say, what's happened over the past five years. I mean the climate right now, inventory is a all time lows in every single market that we're in and every agent and investor I'm talking to. So I mean, there's a lot of stuff that kind of factors to it, but there's been no foreclosures coming into the market. That's all kind of been halted the past year. That feels it, there's also a move towards single family. I think with lockdown, we've seen that. Our house that we're putting up for lease are going up quicker. And so people are wanting some more space. And so we're pretty heavy in the single family side and some of that small multi-family stuff side. Gray Hall: So I think those two things right now are causing inventory to be really low and it's hard to find deals, but it's not going to be the same forever. But I think over the past couple of years, you've seen a big influx of institutional buyers. And so that has made it extremely difficult for mom-and-pop investors, Mike the investor to compete with that because they got a lot of money. They got a lot of technology, they've got a lot of resources to be able to act really quickly, build big networks. And so it's just a lot more competition that we've seen increase over the past... Since the great recession. Gray Hall: A lot institutional capital because it's a very good asset class. And there's a lot of excitement about where the future is going. And so, yeah, it's going to continue to kind of create a lot more competition and so we're trying to think about what are ways that we can compete, just to help people build rental portfolios because we really believe in the asset class. I think it's a good place for investors that want to be in touch to put their money. Matthew Whitaker: Yeah. When the market first crashed back in 07, 08, 09 and then all these institutions got into the space, they started in places like Atlanta, Las Vegas, some of the harder, bigger hit markets. And since then they've raised so much capital and had so much success that they've also been hungry for more homes. And so what they've had to do is go into the more tertiary markets. The Birmingham's, the Jackson Mississippi's, the Little Rocks and just so they can feed the beast because they have so much money. And so what they've done is effectively pushed out the mom-and-pop investor. Matthew Whitaker: And I say that, what we call Mike the investor, the landlord that wants to own 10 to 25 rental homes because they have such a slick system for buying these homes and they're able to buy them so fast and money is not a problem that they're gobbling up inventory. I think the other thing too is speed. If you think about these investors, they're buying houses, six or seven days a week and the busy professional that wants to own 10 to 25, typically only has tie on the weekends. And it's hard for that person to compete on the weekends when everybody else is buying all week. And so their ability to buy with speed really affects their... Helps them buy more houses. Gray Hall: Especially... Yeah. Spencer Sutton: I was just going to say, I think that's a great point. Matthew and I were just speaking with an acquisition specialist for an institution that's buying in Atlanta the other day. And he was saying that they are literally scraping MLS every 15 to 30 minutes. They are digging, this is... It's not like they're looking at it once a day. It's all the time. Matthew Whitaker: Yeah. That's pretty interesting. I thought I heard that too. And I thought man, every 15 minutes, because we were thinking they were getting a daily download poll from MLS and the truth is they know that speed is so important they're getting it every 15 minutes, which is absolutely insane. Gray Hall: Yeah. We've seen that right now in this climate. It's houses has hit the market and you've got to be quick. And we made an offer on a house the other day that just gone on the market and by the time we got our offer in a couple hours later, they already had a much higher cash offer and I'm talking to wholesalers and they were just saying, they put it out there and things are going really quickly. So that might be a little bit moment in time, but I don't know how much would change in the future since it just continues to increase. And so, yeah, speed is the name of the game, but it's also having the time to build out deep relationships with wholesalers, having access to realtors with pocket listings. That's another important component is, just relying on the MLS. And each market's kind of different. As we're talking to wholesalers and people who buy there, each market kind of has their own flow of where deals are going, but you got to spread a pretty wide net and then act quickly to be able to get these deals. Spencer Sutton: Well, I was just going to say to your point, I mean the successful investor in today's market has multiple avenues that they're sourcing deals from. And we even heard that realtors are now advertising and marketing, that they buy houses and then they're turning and going to... Once they get a call, they're turning and going to these institutions. So competition is fierce and at an all time high. Gray Hall: I think part of working with the institutions, I think it's good for people to know and we talked about this in the shed before, but like knowing your buybacks and being ready to pull the trigger. And so I think it do a lot of work on the front end because what these institutions know and they communicate it to everybody and just other investors. I think people to be successful, they know what they want, they know what fits their criteria and they put it out to a lot of different avenues and then they're able to act quickly because at the end of the day, if you're kind of wholesaling a deal, you want to get as most money and be sure it closes. Gray Hall: And so that's a really important component is knowing what you're going to buy, knowing what you wont buy, being able to move quickly on these deals. Being able to analyze, looking at the rents, look at the after repair value, looking at any of the rehab scope, those are all really important factors that kind of set you up for success so that you can act quickly on deals once they do come to you. Matthew Whitaker: So we were analyzing this problem and we were thinking what would be a way that we could use the scale of Evernest as one of the biggest property managers in each one of the markets that we're in and the reputation of Evernest and how could we use that to the benefit of our mom-and-pop clients that want to own 10 to 25 rentals. In other words, if we could pool all the people that want to buy 10 to 25 together and put them under kind of one brand buying houses, that being Evernest, they could leverage our experience, they could leverage our underwriting, they could leverage all of our resources to buy more houses against an institutional buyer and maybe have a chance to compete against them and buy more houses. Matthew Whitaker: So as we were thinking about that, we decided we could come up with, or at least attempt to come up with a solution to do that. So Gray that's what you're working on and would love to kind of understand kind of how you're thinking about it. Maybe even take us through the process we're going through with investors that want to be a part of this. Gray Hall: Yeah, yeah. We're going to try this out in a couple of different markets, but I think it's important to have a manager thinking about this. We get the scenic advantage we're in these multiple markets and so you can have management under one house, but we also, if we have enough buyers wanting to look for deals, we might be the realtor's first call. So it's going to be really important in each of these markets to build out that network. And we're going to do the legwork to be able to do that so that we've got investors and we know their buy box, they're ready and we can be able to send deals out to them on a consistent basis and help do a lot of the work in a timely fashion to help them compete. Gray Hall: So kind of the way we're thinking about right now is, when we're talking to new client, we'll bring them in for an intro call, we'll set them up and we'll kind of talk through their buy box and help them think through that. We'll help them think through things like what year of home and how does that relate to the maintenance in the future? What's their capital? How much capital do they have to deploy? Are they going to be financing, buying with cash? So we're going to go through the whole kind of buy box. Do you have a minimum cap rate? What are their goals because we want to partner with them to help find that. And then we're going to get them loaded into kind of like the system that we're using to where we're going to be able to analyze deals and send them deals that meet their criteria. Gray Hall: And so the vision is building out this really big network, meeting with buyers and finding the buyers who want to build their portfolio and being able to analyze that some of the deals off the MLS that fit their buy box and deals from wholesalers that were coming across. And then eventually too we've got a bunch of houses that we manage and for whatever reasons owners might want to get out of the game, they might want to trade up to different properties. And so we got this other deal source, which we think is a unique advantage for us that we'll be able to send out kind of these pocket listings to investors. And so working on taking people through that process right now, and kind of building out all of those channels to make sure we've got sufficient deal flow to be able to analyze and send those out to people's buy box. Matthew Whitaker: And to be clear, what we're trying to do is this one step at a time. So this is not a fully built out process. The way we see it though, is that we're acting like an institution, but we're basically being the institutional buyer with the solid reputation, but using our investors to buy these houses individually. So let's go through the process one more time. I just want to ask a few questions about it, the intro call. This is one of those things that it's kind of like a no strings attached call, right? Somebody could call up, find out more information from you, Gray or from us and the whole idea is that we kind of maybe go a little bit deeper into the process, especially find out kind of what your goals are, find out what you're looking for. How long do you think this call typically takes, Gray? Gray Hall: Typically 30 to 45 minutes, maybe up to an hour, depending on how many questions they have or what we can kind of tell them about the market. But yeah, we want to make sure this is good stuff. It's a good fit on your side and that we're going to be able to help you get to your goals. And if we're not, we'll just tell you that, "Hey, we're not going to be the best fit for kind of what you're trying to accomplish," because everybody's got different investing goals, but yeah, 30 to 45 minutes kind of no strings attached, happy to answer any questions. And then we've got a list of questions that we'll go through to kind of compile your buy box to get that put into our system. Matthew Whitaker: Yeah. And that's really the underwriting call. We could do that in the first call or maybe the second call, but the whole idea is we're going to find out what you're comfortable with and what your buy boxes is. To some degree you could make a, "Hey I only want a 20 cap rate, and I want 70% equity," and you would never buy a house. Right? So a lot of this too is understanding what is actually available out there to buy. And they're going to get a lot of feedback from us on what is really possible, just because we're out there actively buying houses right now and can see what deals are going for. And we know what it's going to take to buy a bunch of houses. So you may get off that intro call and decide I don't even feel comfortable buying at those numbers, and that's fine, but there's still some great deals out there in the markets that we're looking for, where I think it makes a lot of sense financially to buy a bunch of houses. Matthew Whitaker: Next thing would be, we are using a proprietary software right now to underwrite deals. We have a relationship with a company that is helping us do that. And so we're pretty excited about that. And the whole idea is that we can basically underwrite the deal to your specifications. And so we're going to load that information into the backend of that. And then we're going to start sending you deals. So like Gray said very important for you to know, if you say this is your buy box, you need to be kind of ready to pull the trigger when we kind of turn those on because the institutions are out actively buying houses on a regular basis. Matthew Whitaker: And it's okay if somebody wants to kick the tires for a little while and receive some deals and start to feel comfortable with that, we don't mind that, but you're going to have to jump in the game if you want to buy a house. And so we'll send deals. One of our agents or brokers will be representing you. Actually Gray, you'll be representing a lot of people to begin with in most of our markets because Gray has a broker's license and we'll be getting that in a lot of these markets. So he'll actually be representing some of the first people that come down the pike. So if you jump in early, you might get the benefit of getting to work with Gray. Gray Hall: Yeah. Excited about that and kind of the way it's working right now is we... What we're doing when we're analyzing the deals is talk about that kind of software we're using. There's kind of three important components when you're analyzing a deal and it's making sure you get the rent number right. We manage in all of these markets so we've got a really good feel on what is going to rent for. If this home needs work, are you buying at market or is there... After you do some work there, going to be a higher value than it's at right now, and then what's the work. And so what we're working on sending is kind of an email that highlights, "Hey, this is the purchase price. Based on your buy box, this is what we think you should offer when taking the consider... These are the repairs that we see right now and this is what we can get for rent for it." Gray Hall: And so really helpful information with a link to the property there. And so you can start to look at the numbers and say, I'd like to actually do this with renovations and maybe changing some of the offer numbers on there, but yeah, really helpful to analyze a lot of these deals very quickly and then get them out to you. So you can kind of look at that and see if it's something that you would want to put an offer in on. Spencer Sutton: Hey Gray, that brings up a question, so how are you analyzing the rehab of the property or whatever work needs to be done? Gray Hall: Yeah. So initially when you're kind of doing your first pass at the property, we're looking through pictures, looking on the MLS and we've got a pretty good feel. We do a lot of rehabs on properties, just main properties that we manage. And so we've got a really good idea on the rehab side, what typically costs are going to be there and we're going to be conservative too. Especially the major systems, the roof, and then the HVAC, water heater, a lot of these major systems with foundation. Any signs in there, maybe talking to the agent to understand what do we think the rehab is going to be? And then any of the cosmetic items to get it up to rent ready standard. Gray Hall: And so part of that is understanding the client's goals too of what level they want to bring the house up to, but yeah, kind of first pass you to do that. And then maybe when you're making an offer, you can do an inspection contingency, but we've also got boots on the ground and we'll go out and check out properties that we're serious about and do a write up to get more accurate numbers. So yeah, first pass is going to be a remote kind of estimate. And then second pass we'll be going out to the property, getting the highs on it to really firm up those numbers. Matthew Whitaker: Typically what we're doing is making an offer contingent on inspection. And then once they accept the offer, then we'll send one of our team members out there to do a full write-up. And as long as it is close or less than the budget, then we have a deal. And if not, then we can potentially renegotiate. That's how institutions are buying right now. They're not going to look at every house on the market, they're essentially blanket offering. So we do have the ability to back out based on inspection. The important thing too is to remember we're getting more than just MLS. We're building out the network like Gray said, wholesale network, all these off-market deals. We're also going to be adding what I'm calling version 2.0, which is the deals that are already in our network, where we're managing a house and someone expresses an interest in selling. That should be an opportunity for somebody to pick up another house in an area that they really like. Matthew Whitaker: So very important to understand that we're looking at this as a real funnel and we're trying to get as many deals through it as possible. And that way we can compete with some of the bigger institutions in the markets that we operate. So Gray, we're starting this out, pseudo small. I mean, it feels big, but we're starting out pseudo small, talk about the markets because we've identified four markets we're going to do this in, talk about... Well, really five, if you include where you're sitting. So talk about the five markets that we're going to be working in. Gray Hall: Yeah. So Birmingham is just kind of a natural first place. That's where we started, we've got really deep roots in the Birmingham market. And so we're going to be starting in Birmingham, which is, gotten a lot of notoriety from out of state investors. It's a really great market and we've kind of done some deep dives on the show on this podcast. Birmingham is a really good market. Then Little Rock is going to be the next one. Very similar, smaller, I think than Birmingham. But yeah, similar price points and cap rates that we're seeing in Birmingham, Little Rock, Jackson, Mississippi is another one and yeah, really good cashflow market. Talked to [inaudible 00:21:47] the other day and he was saying that most of the... People buying there are able to beat the cap rates by about a percent and Jackson. Gray Hall: And so, yeah, good market, solid cashflow and then Chattanooga, Tennessee is the other one. Good little city, seen a lot of growth there too, which has been exciting over the past couple of years. And so all of these are very investible markets. That's the term Matthew always uses, but good markets with strong rents to values. And we think there's opportunities to pick up some properties in all of those markets. And we manage in all those markets. We've got a team leader in each of those since we've got boots on the ground and have a really good feel for the rental side, but we've also got contractors and if these houses need work and all of those, and then yeah, Denver, Colorado. Gray Hall: And so Denver is a really hot market for appreciation. So a lot higher price points than all of these other markets, but there's still opportunities out here. There's markets like Colorado Springs down south, Fort Collins to the North. And so all along the front range, just a lot of growth out here. Definitely less cashflow from a cap rate standpoint out in Denver, but there might be higher appreciation just with the kind of the city makeup and people moving there. So super excited to start in all these markets. Yeah. So those are kind of the four or the five that we're starting in right now. Matthew Whitaker: Our vision is to continue to add markets. Obviously, we're in more than just five markets, but the whole idea is that you could almost like a Chinese buffet put together your rental portfolio amongst all of our markets, right? Let's say I wanted to buy eight cashflowing homes and two high appreciating homes. You have one property management company Evernest that manages all of those houses, maybe about two in Denver, four in Birmingham and four in Little Rock. And now you've diversified your rental portfolio. The cashflow houses will pay for some of the breakeven or negative cashflow in a place like Denver. And then that'll allow the Denver properties to really, to appreciate. And places like Denver, I don't see the appreciation slowing down. I read somewhere recently and I know this is a Birmingham show, but I read somewhere recently where there's so many people moving from California to places like Denver just because they're trying to get out of the expensive California world. Matthew Whitaker: And since a lot of people are working remote, they see this as an opportunity to live in a place that they really want to live like near the mountains. So point being, you can diversify your portfolio amongst all of our locations. We're also in Nashville and Detroit, Michigan, Atlanta. And so we're going to be adding these markets too, but we felt like, hey, we need to crawl before we walk. So anybody that wants to be a part of this is going to need to know that we haven't got it perfected yet, but you can kind of see the vision for what we're trying to accomplish. Matthew Whitaker: Obviously there'll be some benefit, I would think, to jumping in with us early especially if you want to buy a bunch of houses. You're going to get to work with Gray. You're going to get to work with me directly because this is both of our, kind of, one of our high priorities this year is to build this engine. And yeah. So thoughts on... If somebody was listening to this and they wanted to be a part of what we're trying to build, what would be next steps, Gray? Gray Hall: Yeah. We'd love people to reach out, the contact info in the show notes. But yeah, we'd love to have the intro call, hear what your goals are, see if we think you'd be a good fit and then we could schedule an underwriting call, which would be the more in-depth call to go over, build out your buyer box. So yeah, people are interested in buying in Birmingham or Little Rock, Jackson or Chattanooga, yeah, please reach out. We'd love to talk and see if we think you'd be a good fit and see how we can help you out. Spencer Sutton: What is that contact information? Let's go ahead and give it to them, Gray. Gray Hall: Email is going to be Gray.hall@evernest.co. Spencer Sutton: Perfect. Gray Hall: That's the way to reach me right there. Matthew Whitaker: Gray with an A and not Gary. Gray Hall: Not Gary, not Greg. I get all of those, but Gray like the color. Yeah. Matthew Whitaker: Gray dot hall at Evernest dot CO. You know the other thing I think is important that we didn't even highlight is if we can build a great network, it also provides liquidity for our investors too. Right? The platform that we're offering kind of version 2.0 of this is, let's say you buy 10 rental houses and you're ready to sell them, but we've built this network where other investors are interested in buying your homes. We ought to be able to provide liquidity for them as well, where they can buy and trade houses across the country if they want to, if we do a good job of building this out. Gray Hall: Yes. That's why I talked about that yesterday. Just a specific area. Matthew Whitaker: No, that was my idea. You all didn't come up with that. Spencer Sutton: No, we already figured this out Matthew. Gray Hall: We knew you were going to talk about it. And so that's why we brought it up. Yeah. I think even knowing the areas too, where I think it's helpful our Evernest investors to know, where is majority of rental properties, and it might not be as liquid of an investment if you wanted to get rid of it. But yeah, I think building where we get investors that we can sell to and buying a turnkey property, not turnkey, but there's a resident in place that we already manage. And so you're not having the vacancy or the repairs, if that doesn't fit your needs. But yeah, I think even local, local knowledge about where the places to buy, if that is a concern of yours, but I think we're going to help out with that problem with, yeah, having investors who are constantly looking for deals and us knowing what they're looking for and knowing what you're trying to sell can certainly help make this a little bit more of a liquid asset. Spencer Sutton: Yeah. And one more thing I do want to say we are, by the time this podcast release, we're going to have a page up that we'd love for you if you're interested in the future kind of version 2.0 of pocket listings from our owners, I want you to go ahead and fill out this information. So you're going to find a page. It's going to be Evernest.co/pocket-listings. And you're going to find a form. You can fill out, give us your information and we will put you on the list and just have your contact information ready if, and that's, if even if you're not ready to actually reach out and talk to Gray. Matthew Whitaker: The whole idea too is that we would probably distribute that via email. Every new deal that comes down, we would underwrite it for them and distribute it via email it. Yeah. Matthew Whitaker: So there'll be a site, password protected just for our clients and we would basically only... That would only be for our clients. So it would be a value to being an Evernest client. Yep. Matthew Whitaker: Well, this has been great. I'm super excited. Now all Gray has to do is execute for all these folks that are about to give them a call. Gray Hall: That's the easy part. Spencer Sutton: I know there's demand for it, really excited. We're really coming through the inventory right now, working very hard on our first few clients and would love to add to that too. So this has been great. Great. Thanks for joining us on the show. Gray Hall: Yeah. Thanks for having me. I enjoyed it. Spencer Sutton: Yeah. We'll have you back. I'm sure on future episodes to talk about this more, as it progresses and grows. So we're excited about that. So that's it for this show. If you haven't already go ahead and subscribe, share it with your friends and then leave us a five star review. If you think any of this content has been helpful to you, make sure you leave a spot star review. We would appreciate it. And we will be back with another show in two weeks.
