Posted Wednesday, October 6th, 2021 by Richard Roy
COVID brought new challenges to real estate investing over the last 18-months. Aaron Ivey sits down with real estate investor, Chris, to reflect & chat about his investor group, property investment strategy, relationships, and the need for professional property management services.
Aaron: Here with me today, I have a 2-year partner in the adventures of property management. His name is Chris, and he’s a member of a larger partnership that he is in with other investors, known as Round Oak. Round Oak partnership, if you will. Chris is here with me today to talk about operating real estate during the COVID era, the last 2-years of doing property management and real estate investing inside of COVID. So, Chris, I want to thank you for joining us today.
Chris: Yeah, Aaron, thanks for having me. I’m excited to join and talk about our relationship and our dealings over the last 2-years.
Aaron: Fantastic! Chris, just to start us off, I would like for our listeners to know I’ve laughed with you over the last couple of years, telling you that I often speak to you more than I’ve spoken to my own wife, on a daily basis.
Chris: That is a good point. I think you and I, on average, have talked once a day for the last year and a half. Certainly, more than I talk on the phone to almost anybody else.
Aaron: Yeah. I actually find it quite endearing that I know when we text during the day, that it’s probably going to lead to a conversation, and I think that, hopefully, our listeners will be able to pick up on just the natural chemistry that you and I have. And there’s a reason why we have chemistry. I believe it’s because you are one of four partners in a real estate investment partnership, and the partner that you are in that partnership is the operating partner. So, when you and I initially met, I understood you as being a decision-maker and an analyst for your partnership, and that you and I were going to be making a lot of decisions together throughout the course of our relationship. So, I was wondering if you could tell us just a little bit about yourself, about how you came to be interested in real estate investing, and how this partnership came about?
Chris: Sure, so a little bit about myself. My background is more of an accounting background, I’m a CPA by trade. I worked for a real estate company that manages and owns apartment real estate, and so I’ve always kind of been interested in that and just through friendships, the people I knew from college as well as other people I’ve met within the Memphis area, really started talking about getting and owning some real estate. There was actually a group of guys, again that I went to school with, they started a small organization where they were buying and renting properties. They had a need where another partner was getting out and they needed to bring someone else on, and it was at a time where I was able to jump feet first and I was able to hook up with them. Kind of my role in it, as you mentioned, was because of my background in real estate I agreed that I would work on the day-to-day operations along with another one of our partners, Adam. While our other partners would be more on the backend recruiting investors or looking for deals in the market, that sort of thing, and so that’s kind of how our roles are defined within the partnership.
Aaron: Got it, and so it sounds like the partnership came together in a very organic way. You know, if you don’t have good chemistry with the other people you are partnering with in a long-term investment, like real estate investment, then it’s going to be a very challenging partnership. I think it’s really cool that you got into this partnership with people that you knew or that you knew of through your personal relationships. And so, when would investors do come to me and they say, well, I’d like to form a partnership with someone in order to expand my buying capacity or share the load of management and debt servicing, and all of this other stuff, I often recommend that they should talk to people that they know, that they should consider and survey their friend and professional group in order to, to think about this people, that would be the most qualified to work with. People with whom they’ve got a good working relationship. I remember when you and I first met, one of your partners had reached out to me and said, and I didn’t even know you as he hadn’t mentioned your name yet, and he just said, hey I’m part of a partnership. We own, at the time about 30 houses, some somewhat in flux, you know, around that 30 house range, 25 to 30 house range and he said we need help. We’ve been self-managing and one of the reasons why I would like for you to be our property manager is because we’re all moving and we’re all, you know, our families are growing and we’re having children or we’re sending kids, you know, off to college. We need help! We need boots on the ground, someone who will professionally assist us in the management of these properties. Of course, I signed on, and very quickly I met with you, and your vision for your partnership 2-years ago was different from the way that your vision is now. Do you happen to remember where you were? It would have been January, I think, of 2020 or maybe December of 2019 when we first met and started discussing your plan. It was very different from where it is now. Do you remember where it was?
Chris: Yeah. So, you know, back then when we were kind of bringing you into the fold and asking you to help us manage these properties, you know, our goal was to take all these properties that we had, and we had a pretty good mix of properties that were some of what I’ll call appreciating assets, where we were holding them, we were renting them, but you know, the long-term plan is that they were gonna continue to appreciate. We had some that were strictly cash flow, you know, in our mind they, you know, they rent well, they provide cash on a monthly basis but don’t expect much in terms of appreciation on those. They’re in areas that the price kind of is what it is. Our plan was, we’re gonna hold all of these properties, we’re gonna continue to rent them. Obviously, I hope to grow the rents over time and use that money to pay down the mortgages that we have on the properties and, you know, ultimately just kind of operate these properties for a period of time and then, you know, eventually get to a point where we’re selling these properties and paying off investors. Our time horizon on that was was pretty far down the road and I think what you are hinting at here is, you know, over the last, really call it a year, but it really accelerated over the last 9-months or so, we’ve kind of had a switch and moved up that selling timeline on some of our properties just because of the market and how overheated it’s been that, you know, we’re seeing on properties that, you know, I called cash flow a minute ago or we didn’t anticipate there would be much appreciation. We’re seeing appreciation that is sometimes upwards of 100 percent from what we bought the properties at. And so we are currently going through and evaluating all of our properties and taking advantage on some of those where, you know, we feel that the market’s right for us to take our profits on the sell-side, and recycle that capital, whether it’s paying off in the investors that we have internally or using that to buy another property in different areas, or just kind of evaluating what that looks like.
Aaron: Yeah. And without going backward in the description of what you’re talking about, I think we may even have to have a follow-up conversation later and talk to the Chris of 2018 and 2017 who, you know, before this big boom and explosion in property values. It was that Chris honestly, and your partners at that time, who were purchasing property. Those were the partners who were choosing individual properties. So I don’t want to spend too much time today talking about how you came into the properties that you had. You know, I am a little bit curious about how you financed it with your partners because I know there are a lot of people out there that are wanting to do what you’re doing, you know, they want to form these partnerships and purchase large packages of properties. And so to kind of stay on your last point you accelerated your desire to sell, so now you’ve sold out of, let’s say that you’re still in that 26, 27 property range before this big sale cycle which kind of happened over the last year. You’ve now sold out about, would you say 13 properties? Are we at that point?
Chris: Yes, we’re gonna be, by the end of next month, we’re gonna be down to about 20 total properties. So we started with about 33, 34 doors. We are now going to be down to about 20. So yeah, that’s right.
Aaron: At the risk of, you know, showing your hand, you know, as it were, can you tell us your long-term goals for the remaining 20 and then answer the question of, do you anticipate acquiring more real estate and, if so, when and what will that look like?
Chris: Sure. Yeah, I mean, like you said, without giving away too much, you know, we have a partnership with four partners and, you know, if I’m looking at 20 years down the road, you know, what I’d love to have, you know, we’ve got a core group of houses, what that number looks like I don’t know. Is it 15 houses? Is it 20 houses? Is it 10 houses? Or is it 50 houses? Again, I don’t know exactly what that number looks like. But we’ve got a core group of houses that are paid off that are providing cash flow monthly and that at some point, when we agree as a partnership because we’ve got a good relationship, and we say you know what, it’s kind of time to end this, let’s sell this off and we get a really good chunk of capital back that has appreciated over time that has provided monthly cash flow and, you know, we’re able to each take our fourth of that money and, you know, kind of right off into the sunset with it. So that’s kind of where we are in terms of the long-term. Now, like I said, I don’t know what that number of houses looks like, and I think that that speaks a little bit to the second part of your question, which is, you know, do we anticipate that we’ll, we will buy some more houses, you know, and a corollary to that is we anticipate that we will sell some more and the short answer to that is yes, I do anticipate that there will be transactions. I certainly think that we would be interested in buying more houses. As far as timing goes, we’re pretty cautious with our money. There is a lot of capital out there right now that ‘s really driving the prices up and, you know, we want to be cognizant of how we use our funds. Do I anticipate that we will be making a huge splash in the next, call it 6-9 months. I don’t think so. I think we think we can find better uses of our capital, either with our investors or, you know, just kind of paying off some maintenance on the current properties and really making them as valuable as we can. I do anticipate that we’ll get back in and, when we do, I think we will be more focused on the type of market, submarket really that we’re in and we’ve had a good couple of years and we’ve built some knowledge on what type of houses we want. Whether it be, you know, do we want to rent a 2 bedroom house. Do we want to make sure that all of our rentals are 3 bedroom, 2 baths? Do we want to get some duplexes and do we want to look at any multi-family, that sort of thing? And so we’ve, we’ve really kind of built our own strategy of what our ideal house looks like. It’s a really really tight focus on that as we go into the next buying cycle, whenever the market turns for that.
Aaron: Yeah. And all of that is fantastic and I think that your strategy is fantastic too. It sounds like you’re very, more or less, very comfortable with the completion of your plan for 2020, or 2021 I should say. You went into 2021 and I remember that you called me in either late ‘20, I think it was late ‘20, and you said, hey we’re kind of moving – going in a different direction. Then we had a much larger call in January, February of 2021 and we talked about the strategy that you had moving forward, and you were so apologetic on the front end just like so many of my investors. I’ve got a lot of investors that are like you. They are well structured either in their partnerships or they have cash reserves or they had this long-term plan and the market boom in 2021, just really accelerated that plan. And, you know, for all of our listeners, I think that they understand they have been able to feel this rush in the market. You said with all this capital that’s in the market right now to acquire real property, we won’t go to deep into it and we’re really we don’t even have to talk about it, and historically low-interest rates and cost of lending, the money, still to this very day, just feels almost like it’s free financing, and that’s a huge deal. And if people are able to get into real estate now and lock that in, even with the cost of real estate, they’re still able to get an edge as an investor through a low cost of borrowing. So there are so many factors that are just fueling this overheated marketplace like what you’re talking about right now, but I’m really proud of Round Oak. I think you guys are brilliant. You know, I’ve spoken to every one of the main four partners. Of course, Matt, that we’ve referred to before, was a personal friend for years before we ever got into business and I’ve really enjoyed working with Matt and I feel like we’ve got good chemistry, the five of us have got really great chemistry, and so I’ve really appreciated how you’ve worked with us over the years. Can you tell me, just to reel it back to property management for a second, how has working with Enterprise Property Management, especially during COVID? How have you seen a benefit of having a professional property management company versus having done it yourself over the last 18 months?
Chris: For me, the kind of the biggest thing that is has been very helpful is really on the application and the initial tenant placement process has been a big help with, you know, everything from the background checks to the income checks to the credit scores and everything else, and compiling that information and getting that to us in a fashion that is timely, that is summarized well or, you know, again, I’m a numbers person, that is my background, so being able to see something and just taking that information. Is this person going to be qualified enough to pay the rent on time? and that’s one thing that has been extremely helpful. It frees up time from having to try to put out a feeler for a tenant, try to put out an ad on Zillow or you know, something just something out in the cyberspace to find a tenant. You guys have that. You have a pool of tenants that are available and so that, just overarching, has been a big help for us. It has helped improve the quality of tenants that we have. As far as it relates to COVID, and it be the pitfalls and that sort of thing, we’ve certainly run into some areas where we’ve had non-paying tenants, some of which have been the direct results of the pandemic, right? They’ve lost jobs. They’ve made every effort that they can to pay but they’re just unable to come up with the money and then some that have been left at the colon maybe you know, maybe they haven’t lost their jobs and that they’ve taken advantage of the fact that the eviction moratoriums are in place and landlords have no recourse, right? And you guys really helped this kind of walk through that path and understand, you know, where we can get money. You really helped with some of the eviction settlement funds that the local government has put out there. You know, we’ve been able to take advantage of that a couple of times with a couple of different tenants. And then, you know, we’ve had a couple of hard situations or we have had to have people move out either they’re not taking the eviction they’re not responding. I’m sorry, not the eviction, the eviction funds, they’re not responding, they’re not working in any form or fashion with us and you kind of helped us in those situations where we have to get them out the door and ultimately get the property back or for our team.
Aaron: Yeah, and it’s funny to me the things that you just said really have been, in my experience, the main topic of conversation that you and I have had over the last 18 months. In particular, you and I often spoke about the last conversation that we had with a particular tenant or at the very beginning of COVID. Well, I can’t say the beginning. Let’s say August or September of last year. So about a year ago in 2020, we knew at that time which of your tenants were not going to be paying rent and they had made it very clear or they had stopped communicating. To remind our listener in September of 2020, the initial eviction moratorium, which was based on Fannie, Mae and Freddie Mac loans, if you’ll remember that you and I Chris we went through and we were determining like how these loans were financed or how your houses were financed or which ones were free and clear which ones had been financed through a federally back mortgage program. The courts actually closed regardless of the local courts basically saying we can’t weed out, you know, we can’t help the homeowner or the investor determine if they’re loan is federally backed or not federally backed. So therefore we’re just going to close our doors. And I remember I had to have several conversations with you as to what our rights were in that situation, and so I had to get my own legal advice, you know, and get that from my attorney and have him tell me what the courts were going to do or not going to do, or whether or not we had to wait, or if we had any rights at all. And then of course, one of your partners is an attorney as well, and this has done very well for himself. And so he actually had to go and do his own research and digging and realized that we weren’t going to be able to move forward with those evictions. I want our listener to know that Chris and I spoke about this almost every weekday and then every now and again on a weekend date. And so what I’m so proud of Chris, with you and me, is that we walked through this together on a level that I don’t know that many other property managers and investors did. I’m actually quite grateful for your patience as we were learning about what these eviction moratoriums meant, how we were to empower you to continue to operate your investments during the first waves of COVID and the legal response, and the government response in that situation. It was very very challenging and, you know, for the listener, there were several times that Chris and I would get off the phone and we wouldn’t have any answers. I would say, Chris, I don’t know, I don’t know what’s gonna happen. I’m gonna find out and I’m gonna write emails and I’m gonna make phone calls, and I’m gonna, I’m gonna do my best to find the answer for you. And Chris was very patient to say, you know what, Aaron, this is very frustrating, it’s not your fault, whatever you can do to get me an answer on this I would really appreciate it. Chris, you were a good friend, honestly, throughout that entire process and I wish that I could take that patient part of your disposition, you know and train other investors as to how to see challenges because your group, your investment group, and your houses, your single package, you guys hit more with the challenges of COVID than any other investment group that I work with. And yet, here we are on the back end of those initial challenges and I believe that you have profited more than any other group that I’ve worked with, and so that patience that you have, during the time of challenge, it really paid off for you.
Chris: Yeah. And I appreciate that and certainly helpful, you know what you and your team and then, you know, your legal counsel and everything else was able to pull together for us. And like you said, there were times where you and I would talk and it’d be, you know, essentially me just venting frustrations at the process itself, right? It was not, like you said, it wasn’t really associated with you or anything you were doing it was just, you know, the sort of thing of why did the tenant get this and why did they not have to hold to their end of the contract and, you know, the landlord is stuck, kind of holding the bags especially when you know a lot of the discussion goes around and it’s the – the big landlord is the bad guy and they’re trying to kick people out and not the face, right? Like, you know, we’re trying to work with people and we, you know, the last thing we want to do is set somebody out of their home and put them out, right? But it’s the same time we are not, you know, people holding an endless bag of money. We still have mortgages to pay to the bank and we still have other expenses that we have to cover. We want to help, but we also need the other people to uphold their end of the bargain. So, there is a lot of frustration on my end with you, just kind of talking through that dynamic. But, that being said, I do think that kind of came out and in general, we’ve been very well blessed. Really at the end of the day, we’ve kind of only had one major hiccup property out of all 30. I certainly don’t necessarily want to get into that, but 1 out of 30 is really not a terrible percentage when you look at it in the grand scheme of things.
Aaron: Yeah, and just for the listener, I do want to point out one thing that in my opinion caused that frustration and then I want to ask you a question on your way out about your experiences. So on that one house, the eviction moratoriums, the delays, and the courts. If this is one of those things that, you know, for the listener that’s not yet investing in real estate, you’ve read articles about, you could read a hundred articles a day on eviction moratoriums, on communities that are being affected by covid, on job loss, on how this is affecting the average American and what kind of protections are there for that average American, and you can read about it and you can you can think that you understand it. But the reality is you don’t understand it until you’re put in a position where you have to be a responsible party in that situation. And so Enterprise Property Management is, or, we consider ourselves to be a very responsible party.
We do property management every day. We’re professional landlords. We do something that most people would never in their wildest dreams ever want to do, and we have to give bad news, and we have to be constant and faithful and integrous in our work. We are not slumlords.
So in this situation where the law very clearly stated that we were, as a management company, not allowed to help our investors get the property back because the tenants had rights and the residents had rights, we followed that rule and we said, I’m sorry, and Chris and I had this conversation several times. We literally cannot do anything. I can’t, you know, the courts aren’t open or the law says I can’t move forward. So the residents were protected in that situation and they were able to stay and, hopefully, make some decisions in their own lives as to how to better themselves or how to get that second job or even get a job if they lost a job or relocate their family or whatever. So the government gave them that breather to figure things out and so we acknowledged that breather. The one mistake, or the one troubled property, that we had in that whole situation is where it was unclear to us as the property management company, to Chris as the owner, and to the resident even as to what the direction of the court was. In that situation there was a great deal of complication and let’s just say a lot of lessons were learned and now everybody’s walked away, you know, more or less from that situation. I was actually interacting with your Realtor this morning about that particular property and it seems like the path out is clear at this point and so I’m really happy that we walked through this together and that and I think even that one’s gonna be a success when it’s all said and done. So I’m excited about that.
Chris: I certainly hope that that is the case, you know, like I said, we’ve definitely struggled with that one but, you know, we were able to work through a couple of others that, you know, like said we were able to get eviction funds from the city to help, you know, keep tenants in in their homes while still getting us paid, you know, we had other people that we were able to work out deals where they left that the home without getting marks on their record and we were able to get the house back, and then we had other situations where we were able, once the courts reopened, to go through the process of filing for eviction. So we kind of ran the gamut of all the different options from keeping people in to taking funds from the city to, you know, obviously, eventually having to evict certain people. So, we certainly had to run the full gamut there and you guys helped us with that.
Aaron: Well, thanks. You know I think you just made probably the best point of the entire conversation today, which is that you have to look at all of your options. The solution for a non-performing property due to a non-paying tenant prior to COVID was eviction. There was one solution for the investor and for 17 years leading up to late 2019, early 2020, we and everyone in the United States, that was their solution. This tenant has to go, they have to be evicted, we showed up to court, we showed the ledger to the judge, the judge says, yes, I can see that the tenant has not paid their rent. We received possession of the property, possibly a judgment, and within 10 days from that court date, we removed the tenant from the property. Enterprise Property Management’s part of that, as a more compassionate person, and hopefully, the listener has been able to hear that Chris is also a very compassionate person. He is as concerned for his residence as we are and he did everything that he could to keep them in the property. Balancing that compassion with your profit goals and your motivation for investing in real estate, which is to make money. People don’t get into real estate to lose money, they get into real estate to make it! Chris and I worked together and we researched options and took advantage of several different options in order to retain tenants, keep them in their properties, if that was at all possible, and then if it wasn’t possible, did what the law would allow us to do, which is to get the property back. That’s a great point. Chris, I’d like to close us out, if you don’t mind, with one question. Looking back at your involvement, especially with those 13 or so properties that you’ve sold, and then you’ve already told us that you’re going to hold on to those cash flowing properties that most of which are paid off, which is super exciting. That’s every investor’s goal is to have paid off properties that are cash flowing, because it frees you to make all kinds of other decisions as to what to do with those properties and how you want your future to look, and we can talk hopefully in a future episode about your plans to use those properties as your own bank. Lend to yourself to acquire more real estate or do other investments. So anyway, here’s my last question for you. Is there anything you would have done differently looking back at the last, well, at your entire real estate investment experience like what would you do differently had you been able to see where you are now, back then?
Chris: Yeah, that’s a really good question and, you know, part of it, probably goes back to how far back do you want to go, right? There are certainly, you know, looking back on it now, there are certain properties, and it’s property types, it’s areas, it’s locations, it’s submarkets. It’s that sort of thing that, you know, if I could wave a magic wand and go back 5, 6, 7 years, you know, I probably wouldn’t buy those properties and that’s, you know, they’re kind of personal decisions that we made and, inevitably when you are investing in real estate, you’re gonna hit some that are gonna be just home runs, knock it out of the park, and then you’re gonna have others that for whatever reason, you made a bad choice on the house and it turned out to be, you had to put a lot of capital into it, it was a high turnover area, you couldn’t get a quality tenant, and just whatever the reason or the rationale would be, right? There’s always gonna be some of those. So there’s some of that, right? If I can go back that much further and change that, I would. But if we go back and we look at you know, our path over the last 18 months and say, alright as we really went about the process of recycling our capital, would I do a whole lot differently? You know? I really don’t don’t think so. I think we’ve done a good job of trying to strike while the iron’s hot, you know, we’ve had multiple properties that we’ve been able to put up for sale and you know, because of the capital that’s out there, they’ve got into bidding wars and the prices have gone up even further than what we thought was a high selling price. We’ve had some other ones that have sat on the market for a while and we’ve had to continue to drop the price until we got it to a point that, you know, the buyers are willing to take that. I think we’ve seen some super good highs and seen some lows that have been, you know, maybe not as productive as we thought they would be, but still better than where we thought it was 3 or 4 years ago. As far as the big picture – would we do stuff differently? I don’t think so. You know, if you want to start nitpicking, I think on the one we talk about where, you know, we kind of had 1 out of 30 that didn’t go well, are there things that we could have done differently? I think so. But you know, you’re really getting into the minutiae of the day to day operation. So, I don’t think there’s a large overall change I would make.
Aaron: Well, I would say the same back to you. I think that getting involved with your partnership has been one of the more interesting and rewarding relationships that we’ve picked up at Enterprise and I’m not at all surprised that the very high level of strategy that you had to employ in order to make sure that your end goals were accomplished, that strategy required that you and I maintained a daily conversation. My profession has only been 20 years long. I can absolutely tell you and you already know this, because I’ve told you in previous phone conversations, but there’s no way that I would have been able to help provide the outcome for you and for Round Oak without your daily investment in conversation with me. It would have been absolutely impossible and looking back, I personally, professionally, feel quite positive about the last 18 months. I feel like the reward has been the experience of working with you to see your success in all of this and so, thank you. Thank you for that. I’m grateful to you.
Chris: Yeah. I appreciate that. That’s good to hear and, you know, we certainly appreciated the help of EPM.
Aaron: Yeah, absolutely. So so Chris I know you’ve got to go, but hopefully you’ll come back later and we can talk about, in very general terms of course, the next stage of your strategy to either acquire more real estate, or even just touch base with you and find out how is owning paid off property benefiting you and your partners and where are you going next? Like, how is owning that real estate assisting you in your future? So again, thanks for coming on Chris and looking forward to even a brighter future.
Chris: Yeah, Aaron. Thank you very much, I appreciate you having me on and look forward to talking again in the future.
Aaron: Alright, thanks so much.
Real Estate Investing Podcast.