Latest / Own More Doors / #49 Win Big in 2025: Why 5+ Unit Buildings Are the Smartest Move Right Now

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#49 Win Big in 2025: Why 5+ Unit Buildings Are the Smartest Move Right Now · Own More Doors

0:00
SPEAKER_00: What's up, everyone?
0:01
SPEAKER_00: Juan Weezar here with another Own More Doors podcast.
0:05
SPEAKER_00: I'm here with Cody Charnell, one of the brokers in the office.
0:09
SPEAKER_00: And we're going to be giving you guys a mid-year review.
0:11
SPEAKER_00: It's now June 25th, and we are rocking and rolling, Cody.
0:16
SPEAKER_00: This has been an exciting year for us here specifically at Sage Real Estate.
0:20
SPEAKER_00: And here's something I want people to know.
0:22
SPEAKER_00: You know, we have a lot of commercial broker friends, and their narrative is like, man, this is this is the toughest it's been.
0:28
SPEAKER_00: It's been really slow.
0:30
SPEAKER_00: And for some reason, Cody, we're not experiencing the slowdown that everyone seems to be experiencing.
0:36
SPEAKER_00: What do you contribute that to?
0:39
SPEAKER_01: I think it's just an overall understanding of what's going on in the market.
0:43
SPEAKER_01: It it is a scary time for a lot of people, but it is a very exciting time if you're able to recognize the opportunities.
0:52
SPEAKER_01: So I think helping people understand what opportunities are out there is really what's helping us continue the momentum right now.
0:59
SPEAKER_00: You know, in in the world of commercial real estate, there's there's this perception that, hey, I'm a commercial broker and I only do large units and five units and above, or eight to twenty, or or or even bigger, depending on what size, because there's different levels to real estate brokerage and kind of the focus that people do.
1:16
SPEAKER_00: I think one thing at Sage Real Estate where we've um positioned ourselves nicely to protect ourselves from this downturn is that um we never try to be like, well, we're too, we're too big for the small stuff.
1:31
SPEAKER_00: And so let me give you an example.
1:32
SPEAKER_00: I mean, obviously, we, you know, we we specialize in the fourplex market.
1:36
SPEAKER_00: I mean, we do have a 16 and an 18 unit building that we're gonna be talking about today that that's about to come on market.
1:42
SPEAKER_00: We're super excited about it.
1:43
SPEAKER_00: And so we do larger stuff as well.
1:45
SPEAKER_00: But I I think because we help a lot of clients with the duplex, the triplex, the fourplex properties, um, we've been able to still continue with really good transactions through the through the years.
1:57
SPEAKER_00: And we're not experiencing kind of the um the negative effects of what other brokers are experiencing.
2:02
SPEAKER_00: And I think just because we've been a little more fluid and not just like really rigid on like, well, I'm only gonna focus in on the bigger clients.
2:09
SPEAKER_00: And and we're very knowledgeable on the smaller stuff, but we're knowledgeable on the bigger stuff as well.
2:13
SPEAKER_00: And I think that that's why you and I are having our best years ever.
2:18
SPEAKER_00: And a lot of the agents in our office are probably gonna repeat the same, which which I understand when I talk to other agents, that's not the narrative that they're giving me.
2:26
SPEAKER_01: Yeah.
2:26
SPEAKER_01: Yeah, it's it's really interesting to see what what's going on, and I'm excited to see what the rest of this year brings.
2:35
SPEAKER_00: Cody, let's talk about kind of the major issues right now.
2:41
SPEAKER_00: You know, if you tell people, hey, I'm a multifamily broker, they're gonna say, oh boy, rent control, oh boy, uh soft story retrofits, oh boy, you can't evict a tenant, oh boy, relocation cost, man, and insurance is through the roof.
2:56
SPEAKER_00: I mean, there's there's a lot of things going on.
2:58
SPEAKER_01: Yeah, so there's there's tons of negative news out there.
3:01
SPEAKER_01: Um, I mean, we've all seen the the news segments where, you know, the reporting on squatters who were staying in people's units, you can't get them out.
3:09
SPEAKER_01: Um, we're seeing, you know, price declines, and this is worrying for a lot of people.
3:15
SPEAKER_01: I think one of the biggest issues right now that um our clients are facing is interest rates.
3:21
SPEAKER_01: So if you're not familiar with how financing works on apartment buildings, once you get to five units or greater, those loans are only fixed for a certain period of time.
3:31
SPEAKER_01: And if you got a loan, you know, in 2020 when interest rates were really low and that that interest rate's only fixed for five years, that means this year you're gonna lose that 3% interest rate and it's gonna jump up to what it is today, which is 6% plus.
3:46
SPEAKER_01: So that's a you're basically doubling your mortgage payment.
3:50
SPEAKER_01: And, you know, that that puts people in hot water because the lenders for five plus unit buildings, they force you to put enough money down so that your building's cash flowing, right?
4:02
SPEAKER_01: And if you bought when prices are high, were high in 2020 through 2022 with a really low interest rate, and now your interest rate is doubling, your building might not cash flow anymore, which which puts you in a tough spot.
4:16
SPEAKER_01: You either have to refinance and put money in, or potentially sell at today's lower prices.
4:24
SPEAKER_01: So um, yeah, I guess what what are your thoughts on that?
4:29
SPEAKER_00: Um, so so what's happening right now, and and I want to be very clear with anyone listening to this, when when Cody's saying that prices have fallen, this is very specific to the five plus market.
4:40
SPEAKER_00: Real estate, you know, sometimes people like to just put it under all one umbrella, but I mean, it's it you need to be very specific on hey, is it the fourplex market, the triplex, the duplex, the single family home market?
4:52
SPEAKER_00: I mean, and don't even get me started with the commercial, because then we're looking about office, medical office, industrial.
4:58
SPEAKER_00: I mean, it goes on and on, retail, commercial space.
5:01
SPEAKER_00: And so we're not even gonna go there today, but just specifically speaking, on multifamily, uh, Cody and I have been seeing tremendous opportunities with the five plus market.
5:12
SPEAKER_00: So I know you asked, what do I think about it?
5:14
SPEAKER_00: Well, um all I could say about this is that right now we we have increased inventory.
5:25
SPEAKER_00: I think in Long Beach specifically, we have about 90 something five units and higher.
5:31
SPEAKER_00: Okay.
5:32
SPEAKER_00: And they've been sitting on the market a long time.
5:34
SPEAKER_00: Okay, so what what we call days on market is long, you're seeing a lot of price reductions and you're seeing the cap rate go up.
5:41
SPEAKER_00: Cody, what do I think about it?
5:42
SPEAKER_00: This puts a smile on my face.
5:44
SPEAKER_00: This is terrific.
5:46
SPEAKER_00: Now, for the people who who got in uh between 2020 and 2022, I get it, they're not smiling, but this is the way it works.
5:54
SPEAKER_00: There's gonna be ups and downs, and there's gonna be uh, and I hate to say it because someone's not gonna want to hear it, there's gonna be winners and losers.
6:00
SPEAKER_00: And in this case, if you're buying today, congratulations, you're a winner.
6:04
SPEAKER_00: And so let me give you one example, Cody.
6:06
SPEAKER_00: So um, you and I talk a lot about the market, and and um just over simple conversation, and and and folks, we're gonna try to bring those conversations to you here so you could see exactly what we're seeing.
6:20
SPEAKER_00: But we were seeing a very unique thing.
6:23
SPEAKER_00: So typically, when you when you have a property, so just kind of follow me.
6:29
SPEAKER_00: So I own a triplex that I've owned since 2005, okay.
6:33
SPEAKER_00: And it's not in the best part of town, but I've had it, it's cash flowing, we got a great interest rate.
6:38
SPEAKER_00: Um, it's been fine, it's been a great investment for us, okay?
6:41
SPEAKER_00: We bought it at a really good price, maybe$315,000, and now it's worth maybe$800,000.
6:46
SPEAKER_00: Okay.
6:47
SPEAKER_00: And we've paid it down, and it the property's fine.
6:51
SPEAKER_00: But what we saw was very rarely do you get to sell certain types of assets at the top of the market.
6:59
SPEAKER_00: So in this case, the way that we that you and I looked at it, we thought if you have a single family home that's a rental, a condo or anything up to four units, the market's gonna like reward you and and pay you top dollar for that right now in today's market.
7:15
SPEAKER_00: So normally, Cody, the problem is when you sell at the top of the market, you have to buy at the top of the market.
7:22
SPEAKER_00: That that is normally the case until now.
7:26
SPEAKER_00: Right.
7:26
SPEAKER_00: And that's why we're excited because you get to sell.
7:29
SPEAKER_00: So I mean, listen, if someone doesn't have a smaller asset, that's a rental.
7:33
SPEAKER_00: I understand.
7:34
SPEAKER_00: You know, you didn't get in the game at the time that that you probably should have.
7:39
SPEAKER_00: You know, you know, you you at some point you have to take the risk.
7:42
SPEAKER_00: I know a lot of times it's just easier to say to overanalyze the deal and say, uh, it's not the time, but then it's never the time, right?
7:49
SPEAKER_00: Luckily, I was naive enough in 2005 to buy the triplex, not really knowing everything, but uh I was fortunate it went up and and and I was and I was lucky.
7:59
SPEAKER_00: So we decided to to list that property and it sold for 805,000.
8:07
SPEAKER_00: And with with the money that was left, then I got to go do a 1031.
8:12
SPEAKER_00: So in this situation, I got to sell at the top, and I believe I'm buying at the bottom.
8:16
SPEAKER_00: And so, Cody, so I'm gonna go from three units to eight units.
8:20
SPEAKER_00: I'm gonna go from call it the west side of Long Beach to the east side of Long Beach.
8:24
SPEAKER_00: I'm gonna be right off of Redondo, eight units, newer construction on the building.
8:29
SPEAKER_00: Uh, the curve appeal, and I know curve appeal is not everything to everybody, but listen, I want to have a, I want to, I want to take my kids by the building, say, hey, mom and dad owned this and and and we're proud to have owned it, right?
8:41
SPEAKER_00: And and have them look at it like that's a nice looking building.
8:44
SPEAKER_00: The income is significantly higher, so that's a plus.
8:47
SPEAKER_00: Uh, the cap rate is higher.
8:49
SPEAKER_00: Um, I'm I'm buying the new asset for a lower price per square foot than I sold the triplex.
8:55
SPEAKER_00: The cap rate's better, the gross rent multiplier is lower.
8:58
SPEAKER_00: Everything is better about it.
9:01
SPEAKER_00: So it's kind of a no-brainer, Cody.
9:04
SPEAKER_01: Yeah.
9:05
SPEAKER_01: Yeah, you you mentioned a lot of great stuff there.
9:07
SPEAKER_01: And I would just want to unpack a few things for people.
9:10
SPEAKER_01: So, why are you able to sell a one-to-four unit building at the top and buy a five plus unit building at the bottom?
9:18
SPEAKER_01: And I think the main reason is it comes down to the debt, right?
9:21
SPEAKER_01: People who own one to four unit buildings typically get 30-year fixed loans.
9:26
SPEAKER_01: So those people, even if they bought, you know, in 2020, 2021, 2022, their loans fixed, you know, until it's paid off, basically.
9:36
SPEAKER_01: And they have really low interest rates.
9:38
SPEAKER_01: In the five plus unit market, that's not the case.
9:40
SPEAKER_01: So those owners, when their loan adjusts, they're in trouble.
9:44
SPEAKER_01: Whereas the four four unit, three unit, duplex owners, they're they're fine, right?
9:48
SPEAKER_01: So there's not a need to sell necessarily in the two to four unit space.
9:54
SPEAKER_01: And so prices have stayed relatively high, right?
9:56
SPEAKER_01: So I think that's that's the main reason for this discrepancy.
10:00
SPEAKER_01: And I think you're right.
10:01
SPEAKER_01: It's a great opportunity to do a 1031 exchange and get into a bigger building when you can buy at a big discount.
10:07
SPEAKER_01: Uh, so one other thing that you mentioned is you you sold an older triplex and bought a newer building, which I think is a big benefit right now because of insurance, right?
10:16
SPEAKER_01: We're seeing it's becoming increasingly difficult to insure buildings.
10:21
SPEAKER_01: And, you know, the older buildings are are even tougher, right?
10:26
SPEAKER_01: And most insurance carriers don't want to insure those.
10:29
SPEAKER_01: So you just have maybe one or two carriers around here that I know of that are willing to touch those.
10:34
SPEAKER_01: So by getting into a a newer building, you're also getting more insurance options, potentially better rates.
10:41
SPEAKER_01: Um, and actually, on your your particular eight unit that you're buying, you were also able to negotiate electric panel upgrades, which is a big deal.
10:50
SPEAKER_00: Yeah, and and I got to thank Cody on this one.
10:52
SPEAKER_00: So um, Cody was working with uh with a buyer, and they identified this specific building, the one that I have in escrow now, and they opened escrow and and Cody negotiated for another buyer um that the seller upgrade all the panels before closing escrow.
11:09
SPEAKER_00: Now, the reason why this is important is anyone who's in the world of real estate or who owns units, right now you're getting hit or you've already been hit, you've already been hit with a cancellation of insurance or your premium is gonna go up.
11:23
SPEAKER_00: And let me give you guys an example.
11:24
SPEAKER_00: Let's just say from an eight-unit building, like let's just say that you were like before all this, you were maybe paying uh 3,200, 3,500 for like an eight-unit building.
11:34
SPEAKER_00: Now that's gonna jump up to 9,000.
11:37
SPEAKER_00: It is massive increase.
11:39
SPEAKER_00: And on top of that, they're gonna say, change out the roof uh and also change out the pan, the electrical panels, which is which is expensive.
11:46
SPEAKER_00: And and we'll get into pricing on that too.
11:48
SPEAKER_00: But um what was cool was since Cody had an escrow, Cody negotiated it.
11:54
SPEAKER_00: And and I had told Cody, man, I really like that building, but I wasn't ready yet.
11:57
SPEAKER_00: My my triplex hadn't closed yet, so I wasn't in a position to submit on it.
12:01
SPEAKER_00: So it wasn't like Cody took it away from me or anything, but he put in an escrow, he negotiated it.
12:06
SPEAKER_00: Then he's like, Juan, the buyer's gonna back out for whatever reason.
12:10
SPEAKER_00: And that allowed me to slide in.
12:13
SPEAKER_00: And obviously the seller didn't care because you know they were gonna replace one buyer with another buyer.
12:18
SPEAKER_00: And so it worked out good.
12:19
SPEAKER_00: So so I appreciate you handling that that portion.
12:22
SPEAKER_00: And the it has been upgraded and we're weeks away from closing.
12:26
SPEAKER_00: And luckily, on that, on this one here, because the panels got upgraded, it dropped my insurance premium, uh, which is a benefit.
12:34
SPEAKER_00: So, so that means my income is better.
12:36
SPEAKER_00: I'm gonna net more money from it now.
12:39
SPEAKER_00: And so I'm I'm pretty excited.
12:41
SPEAKER_00: And Cody, I'm really excited about this process.
12:43
SPEAKER_00: I've been asked in the month of June, I must have spoken at three or four different events, different types of events, realtor events, escrow events.
12:50
SPEAKER_00: And I I'm telling people, this is where millionaires are made.
12:55
SPEAKER_00: And listen, I I know it's not all about money, and I know people don't always want to hear it, but I all I'm saying is you don't have to use this, but use what I'm telling you.
13:05
SPEAKER_00: There's opportunity in the five plus market.
13:07
SPEAKER_00: Now, what's the catch?
13:08
SPEAKER_00: What's the catch?
13:09
SPEAKER_00: The catch is you need a bigger down payment.
13:14
SPEAKER_00: So on uh for the most part, someone's gonna say, Well, how much do you need?
13:19
SPEAKER_00: Well, it depends on the building and how much income it's bringing in.
13:22
SPEAKER_00: But for the most part, you're gonna need like 400,000 or more, and the more the better, right?
13:29
SPEAKER_00: Because the eight-unit building, in order for us to buy that, we needed 600,000.
13:34
SPEAKER_00: And and so when you compare that, well, I only have 200,000, then then my advice, Cody, and I don't know what your advice is, but my advice is what do you have anyone that you want to partner with or that you would consider partnering with?
13:49
SPEAKER_00: Because I've always looked at it as I'd rather own 25 or 33 percent of something than 100% of nothing.
13:57
SPEAKER_00: And yeah, do I want you to buy your fourplex?
14:00
SPEAKER_00: Of course.
14:00
SPEAKER_00: Can you?
14:01
SPEAKER_00: You sure can.
14:02
SPEAKER_00: But sometimes people come to us and they say, What's the best deal out there?
14:07
SPEAKER_00: And I'm like, Oh, oh, let me put you in the line with the best deal.
14:11
SPEAKER_00: Because now we're gonna look at five plus, but the five plus, what's the catch?
14:15
SPEAKER_00: The catch is five years from now, the loan is most likely gonna come due.
14:19
SPEAKER_00: So get ready for that.
14:20
SPEAKER_00: But I would imagine if I ask you and anybody else, where are interest rates five years from now?
14:26
SPEAKER_00: Where are they from?
14:27
SPEAKER_00: I mean, what would you say, Cody?
14:31
SPEAKER_01: I it's it's hard to predict.
14:33
SPEAKER_01: We can't predict it.
14:34
SPEAKER_01: I would say they're at least the same, like flat or better, but likely better.
14:40
SPEAKER_00: I'm I'm I'm more of an optimist.
14:42
SPEAKER_00: I'm gonna say they're gonna be way better.
14:44
SPEAKER_00: Uh, so I I think that right now is the time to control the price.
14:50
SPEAKER_00: You could control the price right now.
14:53
SPEAKER_00: Because right now, I'll tell you in the five plus market, it is a buyer's market.
14:58
SPEAKER_00: You could negotiate, you could lower the price.
15:01
SPEAKER_00: Why?
15:02
SPEAKER_00: There's not a lot of competition out there.
15:04
SPEAKER_00: Now, you might say, well, if someone's losing, why would I get in?
15:09
SPEAKER_00: How would you answer that, Cody?
15:10
SPEAKER_00: Okay, so if if the people five years ago who bought, and they're in some cases, in fact, we'll get into that next.
15:17
SPEAKER_00: Something that you came, you told me this.
15:19
SPEAKER_00: You said, Juan, did you know that 17% of the properties on the market are selling for less than five years ago?
15:27
SPEAKER_00: That's insane.
15:29
SPEAKER_00: Yeah.
15:29
SPEAKER_00: That's insane.
15:30
SPEAKER_00: I mean, is that not a great opportunity to enter the market?
15:33
SPEAKER_00: Absolutely.
15:34
SPEAKER_00: Why don't you talk about that?
15:35
SPEAKER_01: Yeah.
15:36
SPEAKER_01: So at the end of March, I went through all of the list, all of the five plus listings that were active, right?
15:42
SPEAKER_01: And I went back and looked like what did these buildings sell for previously?
15:46
SPEAKER_01: Um, you know, a lot of the listings had listed major upgrades that the sellers had done.
15:51
SPEAKER_01: And I was able to identify all of these properties where you know they bought it, bought at a high price, they spent all of this money on the building, and now they were selling for less than they had into it.
16:02
SPEAKER_01: So it the market dictates the price, right?
16:06
SPEAKER_01: Just because you spend all this money on the building, you can't always charge the price you want.
16:11
SPEAKER_01: And these people have loans coming due in a lot of cases, and they're really being forced to sell or put even more money in to pay down their loan, and a lot of them are choosing to get out, right?
16:21
SPEAKER_01: So it's a huge opportunity.
16:23
SPEAKER_01: You know, you could buy a really nice building like you're buying at a discounted price, hold on to it.
16:28
SPEAKER_01: And I think, you know, markets go up and down.
16:30
SPEAKER_01: And I think right now, or at a down point, uh, if you hold on to it, I think you're going to be rewarded.
16:36
SPEAKER_01: Let me give people some stats.
16:38
SPEAKER_00: Um, some of you might know these stats, some of you may this might you may not know these.
16:43
SPEAKER_00: Okay, but this is very specific to Long Beach.
16:44
SPEAKER_00: Now, if someone's listening to us and says, hey, uh, can you do that for my city?
16:48
SPEAKER_00: Now, if it's in Southern California, yes.
16:50
SPEAKER_00: If it's out of the area, we'll probably have to refer you.
16:53
SPEAKER_00: Because we're not trying to be uh everywhere.
16:57
SPEAKER_00: We're trying to be really, really focused in our market.
17:00
SPEAKER_00: And so I'm gonna give you guys some stats in the five plus market.
17:02
SPEAKER_00: If I go back 12 months, the average cap rate, this is the average cap rate in Long Beach is 5.8.
17:10
SPEAKER_00: So if I'm a buyer and I could get something that's better than average, I'm probably winning.
17:16
SPEAKER_00: Now, could you take, could you take a cap rate that's lower?
17:22
SPEAKER_00: You can.
17:24
SPEAKER_00: When would you?
17:25
SPEAKER_00: When location's a premium, when the property is what we call a trophy property, and um, and all the renovations have been done and the rents are really high.
17:34
SPEAKER_00: At that moment, as a as a real estate professional, I'm gonna say, hey, you don't have to do a year's worth of work of buying off the tenants to move out, pulling permits, dealing with contractors.
17:46
SPEAKER_00: And right now, everything's so expensive, I wouldn't want to deal with contractors.
17:50
SPEAKER_00: Yeah.
17:51
SPEAKER_00: Cody, we currently have, okay, so so the stat was this 5.8 is the average.
17:56
SPEAKER_00: Okay.
17:57
SPEAKER_00: That's just the average.
17:58
SPEAKER_00: The um I believe the average price per door was 230,000.
18:05
SPEAKER_00: And so that's another way investors like if you look at a 10-unit building and and uh, you know, on average they're selling for 230,000.
18:12
SPEAKER_00: And in its heyday, this was over 300,000.
18:14
SPEAKER_00: Okay, so we've seen this significant drop down.
18:17
SPEAKER_00: And the cap rates, the cap rates, oh no, sorry, the gross rent multiplier, it's around 11.
18:22
SPEAKER_00: And so these are just some basic Long Beach stats.
18:27
SPEAKER_00: Well, I call them basic, but people can't uh uh shoot these off the top of their head.
18:31
SPEAKER_00: You and I can because we follow the market so dang close, right?
18:35
SPEAKER_00: We currently have a 16 and an 18 unit building on on First Street that are coming off market.
18:41
SPEAKER_00: It's 1221, 1237 East First.
18:43
SPEAKER_00: We have a 16 uh unit and an 18 unit, and these were taken down to the studs.
18:50
SPEAKER_00: Talk to us about those uh those properties.
18:54
SPEAKER_00: Um, we had them on the market a while ago, and we we just did price reductions on each one.
18:59
SPEAKER_00: Um, I think one was 750,000 price reduction, the other one's 790,000.
19:04
SPEAKER_00: I mean, these are massive price reductions, and a lot of it is aligning with what Cody's saying.
19:09
SPEAKER_00: Loans have come due, uh sellers have to refinance at a higher rate.
19:14
SPEAKER_00: It's starting to uh it's it's the pressure cooker.
19:17
SPEAKER_00: So maybe they were cash flowing before, maybe not now.
19:20
SPEAKER_00: I don't know the specifics on this one.
19:22
SPEAKER_00: All I know is that we have the listing and we're gonna be moving forward with it.
19:25
SPEAKER_00: Let's talk a little bit about this building and how it compares to the market.
19:28
SPEAKER_00: And who would this be good for?
19:31
SPEAKER_01: I think this is great for somebody who wants a really nice building in a great location and they're gonna hold on to it long term.
19:38
SPEAKER_01: I mean, these guys spent 1.1 million on one of the buildings doing upgrades.
19:44
SPEAKER_01: That's like an unheard of amount of upgrades.
19:46
SPEAKER_01: So basically, I mean, they did so much that these buildings could qualify as new construction.
19:54
SPEAKER_01: So I think you know, if you want a building that's gonna be easy, has all new plumbing, all new electric, new roofs, like everything's brand new.
20:03
SPEAKER_01: Um, this is gonna be one that you want to take a look at.
20:06
SPEAKER_01: Um, also, you know, Trump's big beautiful bill.
20:10
SPEAKER_01: If it passes, we're recording this on the 25th.
20:13
SPEAKER_01: Um, they're hoping to have that bill passed by the fourth.
20:16
SPEAKER_01: We'll see if it does or not, but that would bring back bonus depreciation.
20:19
SPEAKER_01: So that could be a big, you know, if you're buying a building like that and you can do cost egg, do bonus depreciation, that could be a huge tax saving for somebody.
20:27
SPEAKER_01: So that could be another reason why you might want to look at something like that.
20:30
SPEAKER_00: Yeah.
20:30
SPEAKER_00: So um, if anyone's listening and and you're looking for larger units, maybe you're in a 1031.
20:38
SPEAKER_00: Um, not not everything that you buy has to be value add.
20:44
SPEAKER_00: Value add means that you're buying somewhat of a distressed property and it needs tons of work.
20:50
SPEAKER_00: And I, you know, I tell because um Cody and I go back and forth on deals, and he'll show me a deal, and I show him a deal, and I'm like, and he uh Cody likes the value add deals.
20:58
SPEAKER_00: And he's like, I really like this one.
20:59
SPEAKER_00: I'm like, Cody, but if you if you buy that one, you're gonna have to spend so much of your time getting it to the next uh to the next finish line.
21:07
SPEAKER_00: I'm like, I I don't have the time.
21:09
SPEAKER_00: I I'd rather keep being a broker, I'd rather continue value uh creating content and value to our listeners and to our viewers.
21:16
SPEAKER_00: And not everyone is a value add buyer, and and there are these trophy um pride of ownership buyers, and and that's who we need for this uh for 1221 and 1237 East First Street.
21:29
SPEAKER_00: Those those are again currently off-market.
21:31
SPEAKER_00: If anyone's listening and says, you know, I'd be interested in looking at those, we would love to send you the offering memorandum.
21:36
SPEAKER_00: So Cody, so let's talk about rents because you know, we've we've been seeing some patterns and we've been hearing things from from our clients, from property managers.
21:47
SPEAKER_00: Um, and this will be specific to Long Beach, um, but I think that it's going to be representative of all of Southern California, I would imagine.
21:55
SPEAKER_00: What are you seeing when it comes to rents?
21:58
SPEAKER_00: Yeah, so rents have soft.
22:00
SPEAKER_01: And you know, it's different depending on which neighborhood you're in.
22:05
SPEAKER_01: But we've we've had complaints from our clients like, oh man, it's so much harder today to rent for what I was getting during the pandemic.
22:12
SPEAKER_01: And during the pandemic, you know, um housing shortage, right?
22:16
SPEAKER_01: So there's a limited number of units.
22:19
SPEAKER_01: Um, people were also getting big stimulus checks.
22:22
SPEAKER_01: Um, there was some rent forgiveness type stuff going on.
22:24
SPEAKER_01: So I think there was just more money flowing at that time, and so people were were able and willing to pay higher rents.
22:31
SPEAKER_01: Um, you know, one of my clients, he was able to rent out his three-bed units in the 908.13 zip code, which is kind of a rough, rougher part of Long Beach, or I guess more workforce housing part of Long Beach for$27.95, no problem during the pandemic.
22:48
SPEAKER_01: Now he's closer to$25.95 for those units.
22:51
SPEAKER_01: So$200 a month hit for those.
22:54
SPEAKER_01: Yeah.
22:54
SPEAKER_01: Um, and we're seeing that kind of across the board, um, a little bit more extreme in some situations.
23:00
SPEAKER_01: I think that neighborhood, um, the bigger units were hit particularly hard because Section 8 is also willing to pay less, right?
23:08
SPEAKER_01: They've gotten really strict about the condition of the units, and they're also, you know, just strict on how much they can offer because I think on the back end their budget is under siege or under fire.
23:22
SPEAKER_01: Like uh, we'll see what happens.
23:24
SPEAKER_01: I don't know if anything has officially happened to cut that budget, but it's been threatened.
23:28
SPEAKER_01: So I think they're just a little worried about it.
23:30
SPEAKER_01: So um, yeah, I guess what are you seeing?
23:34
SPEAKER_00: Um, so the same.
23:35
SPEAKER_00: My clients are saying even personally, so we have a duplex, nice part of town, uh, you know, Bluff Park Historic District, and we had a vacancy, and we used to get um like 3,900.
23:50
SPEAKER_00: And I know that sounds like a lot, but this is too, you know, it's it's it's where everyone wants to be.
23:54
SPEAKER_00: It's it's two blocks from the beach, uh, you know, from the bike path on the water.
23:59
SPEAKER_00: So it's it's a really nice area.
24:01
SPEAKER_00: And in the past, the last five years, we could always consistently get our rents.
24:06
SPEAKER_00: Tenants would come and go, and then this time we couldn't get 3,900.
24:10
SPEAKER_00: We had to go down to 3750.
24:12
SPEAKER_00: And to some people, that may not be a big jump, a couple hundred dollars, but if you're an if you're an investor, a couple hundred dollars a month over a year at a gross rent multiplier, it takes a hit on your value.
24:25
SPEAKER_00: And so other other folks that I'm talking to, there's there's less applicants coming in.
24:33
SPEAKER_00: And it's not like there's 20 to choose from.
24:35
SPEAKER_00: Now you might have five.
24:37
SPEAKER_00: But you know what you said, a couple hundred dollars off of what your best price was, that's what I'm seeing.
24:44
SPEAKER_00: Now, this is only in the case where the units are super nice and you were at market, or maybe the market was pushed a little too high, but there is a little bit of settling down.
24:54
SPEAKER_00: Now, granted, if you just had an average unit and and you weren't pushing the price on a one bedroom, you might still get it.
25:02
SPEAKER_00: You might still get a little more.
25:03
SPEAKER_00: It just depends.
25:03
SPEAKER_00: But I'm just saying, like on the on the assets that were highly improved and and you knew there wasn't a lot of properties like it because you spent more money on making them super nice.
25:14
SPEAKER_00: Expect to get a lower rent next time and and and don't try to match it.
25:19
SPEAKER_00: And so how this ties into when you and I are working with with our our buyers right now and we're looking at properties.
25:28
SPEAKER_00: Um, so we're showing them properties, and these other brokers are saying, hey, yeah, but look at the rents.
25:34
SPEAKER_00: You and I are saying we may not be able to get those rents.
25:37
SPEAKER_00: And they're gonna say, Yeah, but we have leases and rent roles.
25:39
SPEAKER_00: I'm gonna say, yes, I understand.
25:41
SPEAKER_00: But once they move out, I may not replicate that.
25:44
SPEAKER_00: And I want folks to know that because some other brokers will say, Oh, yeah, here, here are the rents, they're market, but you could go higher.
25:51
SPEAKER_00: That may not be the case.
25:52
SPEAKER_00: And that might be salesmanship.
25:54
SPEAKER_00: And we're gonna put a stop to that at that moment, saying, Hey, we're gonna, you know, we're gonna use the word underwrite.
25:59
SPEAKER_00: We're gonna use all that means is we're gonna use different rents than what you're telling me, Mr.
26:03
SPEAKER_00: Broker, because I don't agree with the rents that you're giving me because I know what's really happening.
26:08
SPEAKER_00: Because Cody, here's the biggest problem in our industry, I think from a real estate brokerage perspective, and I know you and I don't apply to this.
26:16
SPEAKER_00: We are investors first, brokers second.
26:19
SPEAKER_00: So we're we're out there.
26:21
SPEAKER_00: You just recently bought a four-unit building.
26:24
SPEAKER_00: It's it's you've been renovating the units, improving it, uh, getting the rents to market, but really improving the assets so that so it's somewhat of a pride and joy for for you and the family.
26:34
SPEAKER_00: And and it's in a great, awesome location.
26:36
SPEAKER_00: And so you're in the middle of it.
26:39
SPEAKER_00: You're an investor, you know what's really happening at the rental markets.
26:42
SPEAKER_00: When you have a vacancy, you're the one leasing it.
26:44
SPEAKER_00: When I have a vacancy, I'm the one leasing it.
26:47
SPEAKER_00: So I get to meet the tenants, I get to see how many.
26:50
SPEAKER_00: And a lot of people who sell don't know that part.
26:53
SPEAKER_00: They know the sales portion of it, but they don't know that part.
26:57
SPEAKER_00: And so we, you and I are like very careful when we're guiding a buyer into a building to say, hey, the rents are low and and they could go higher, or the rents are high and they're probably going to go lower.
27:10
SPEAKER_00: And in some cases, that might kill the deal, but we're okay with it because at least our we know, we have the peace of mind that, hey, we kind of let them know.
27:18
SPEAKER_00: And oftentimes what we do is we'll say, Here are the rents that's being collected.
27:22
SPEAKER_00: We think it's it's it's it's too high for these reasons.
27:26
SPEAKER_00: We we recommend we use these new rents and kind of go from there.
27:30
SPEAKER_00: And I think that that's providing value for for our clients.
27:33
SPEAKER_00: And I think that that's why as a company, we've continued to have great transactions throughout a time that's really slow for everybody else.
27:40
SPEAKER_01: Yeah, no, I agree.
27:42
SPEAKER_01: Um it you you want to be conservative on the front end, you want to buy right so you're not in trouble later on.
27:48
SPEAKER_01: And you know, you can't always foresee what's gonna happen in in the market, but do everything you can today to protect yourself and be conservative and make sure you can hold on long term because the wealth in real estate is really made long term.
28:02
SPEAKER_00: Yeah.
28:02
SPEAKER_00: Um, Cody, so let's talk about um, you know, there's a lot of inventory, there's a lot of options, and and every day we check and we see so like um on our listing platform, what we call the MLS, or whether you go on Coast R or LoopNet, we see red arrows down.
28:20
SPEAKER_00: And so the red arrow arrows down for us, uh it's exciting um when it's not our listing, and it's exciting because we see prices coming down.
28:28
SPEAKER_00: And so some of these deals are already exciting to begin with, and then they're not moving, and then they come down even further, making the deal even more attractive.
28:36
SPEAKER_00: Right.
28:36
SPEAKER_00: Um, what's your recommendation when it comes to pricing and what you're seeing?
28:40
SPEAKER_01: Yeah, no, and this is really important.
28:42
SPEAKER_01: So I'm glad that you brought this up.
28:44
SPEAKER_01: So it is a buyer's market, which means there are more sellers than there are buyers.
28:52
SPEAKER_01: So if you're a seller, you have to compete for this limited pool of buyers.
28:56
SPEAKER_01: And the biggest thing you can do to attract buyers is be competitive on price.
29:01
SPEAKER_01: Okay.
29:02
SPEAKER_01: So a lot of people are in a position where they're trying to break even or trying to limit their losses, so they push the price as high as they feel like they can.
29:12
SPEAKER_01: And when you do that, sometimes it forces your building to sit on the market.
29:17
SPEAKER_01: The market continues to decline beneath you, and then you're chasing the market down.
29:23
SPEAKER_01: So, my big recommendation if you're in a position where you have to sell a building right now, you have a loan coming due, is to be very disciplined, realize that the market is not moving in your favor.
29:34
SPEAKER_01: You need to basically skate to where the puck is going and price aggressively now so that you're not chasing it down.
29:41
SPEAKER_01: Um, I guess what do what are you saying to clients when you're pricing buildings?
29:47
SPEAKER_00: I say what's our what's our time frame?
29:51
SPEAKER_00: Uh okay.
29:53
SPEAKER_00: Because here's here's what I hear.
29:55
SPEAKER_00: And I'm just gonna switch really quick to like a four-plex owner.
29:58
SPEAKER_00: So the fourplex owner is gonna tell me this Juan, it's cash flowing, yeah, my loan's not coming due.
30:04
SPEAKER_00: I'm not in a pressure cooker, there's no timeline.
30:08
SPEAKER_00: Uh, if we get our price, we get our price.
30:10
SPEAKER_00: If we don't, I'll just keep it.
30:11
SPEAKER_00: All right.
30:11
SPEAKER_00: That's that's what the fourplex owner could tell me.
30:14
SPEAKER_00: Sure.
30:14
SPEAKER_00: That is not what a five plus owner could tell me.
30:18
SPEAKER_00: And so my question is what's our timeline?
30:21
SPEAKER_00: And if they have you know uh eight months to a year, okay, then we could play around with the price.
30:26
SPEAKER_00: But if someone says we got to get this sold, then I'm like, okay, let's look at the market and let's look at our competition.
30:33
SPEAKER_00: And, you know, Mr.
30:36
SPEAKER_00: and Mrs.
30:37
SPEAKER_00: Sellers or dear sellers, let's look at your cap rate, your price per door, your gross rent multiplier.
30:45
SPEAKER_00: Let's look at these things and compare it to the market.
30:49
SPEAKER_00: Because if the market is giving me something better, aren't they gonna buy something better?
30:54
SPEAKER_00: Yes.
30:55
SPEAKER_00: So we need to be like if if your timeline is small, then here's the thing.
30:59
SPEAKER_00: You know, when Cody said that we're competing for the buyers, there are buyers out there.
31:03
SPEAKER_00: So it's not like there's no buyers.
31:04
SPEAKER_00: Yeah, the buyers are smart.
31:06
SPEAKER_00: And if the buyers are aligned with a broker who knows what they're doing, they're looking for the very best stuff, and the very best stuff will move quickly.
31:13
SPEAKER_00: And so if you need something to move quickly, then we need to be performing better than the market.
31:19
SPEAKER_00: So if if if something's at at a six cap and you're equivalent to it, you need to be better than a six cap.
31:25
SPEAKER_00: And what does that do?
31:26
SPEAKER_00: Rising six cap lowers your price.
31:29
SPEAKER_00: That's just the way it's gonna be.
31:30
SPEAKER_00: One thing that I've seen you do, Cody, and I really like um a lot of the buildings, how you mentioned earlier, have have electrical panels that are over 30 years old and the insurances um will not insure it.
31:46
SPEAKER_00: Or if they do, it's gonna become an issue.
31:48
SPEAKER_00: And what you're advising your people is because a lot of times an owner is gonna just uh, you know, uh, for for for lack of a better word, is that they're gonna kick that down, uh, that can down the curve.
31:58
SPEAKER_00: You're suggesting don't do that.
32:00
SPEAKER_00: Right.
32:01
SPEAKER_00: Tell us why, because it because then I know you've tied it into I know here's how it works.
32:07
SPEAKER_00: When someone owns a building, and let's just use a 10-unit building uh, for example.
32:11
SPEAKER_00: So let's just say you have a 10-unit building and it's worth less now than it was five years ago.
32:16
SPEAKER_00: Five years ago, you're like, oh my gosh, it's worth so much.
32:19
SPEAKER_00: What if it goes up even higher?
32:20
SPEAKER_00: And then that was us just being greedy, okay?
32:23
SPEAKER_00: And now it's worth less, and now you're upset.
32:25
SPEAKER_00: And now we're saying, you know, that building that is maybe uh, you know, a certain percentage lower than last time, you know, 15% less than what it was worth.
32:36
SPEAKER_00: We want you to spend money on upgrading the electrical panels.
32:40
SPEAKER_01: Why is that important?
32:42
SPEAKER_01: So there's certain manufacturers of electric panels, um, Zinco, Zinsco Federal Pacific's ad block that insurance companies won't touch.
32:53
SPEAKER_01: And if your building has one of those electric panels, the buyer during escrow is not going to be able to get insurance, which basically puts a whole stop on the deal, right?
33:05
SPEAKER_01: So to streamline things to make sure we get it done and can close, uh, I'm recommending people upgrade these panels because it's going to be a negotiating point during escrow no matter what.
33:17
SPEAKER_01: And even if you know the building doesn't sell, you decide to hold on to it or whatever the case is, when your insurance renews, they're going to ask you if you have any of those specific types of panels.
33:27
SPEAKER_01: They're going to go out and inspect your building and look at your electric panels, and they're going to require them to be upgraded anyway.
33:35
SPEAKER_01: So I think it's better to just get ahead of the problem and make sure that you know you're not holding things up and causing problems during a you know a time critical process.
33:44
SPEAKER_00: Talk about the the impact on the debt coverage ratio and and how and how it it could create a problem just from a lending perspective.
33:52
SPEAKER_01: So yeah, when you're talking about loans for five unit and up buildings, the the loan is based on something called a debt coverage ratio.
34:02
SPEAKER_01: So the the lender says, okay, your building makes this much in net income, we're gonna lend you this much in loan proceeds.
34:11
SPEAKER_01: So basically, they want to see that your building is making a dollar and 20 cents of net income for every one dollar of mortgage payment.
34:18
SPEAKER_01: So they're they're forcing you to put enough down to cash flow.
34:21
SPEAKER_01: And so the insurance can affect your net income, right?
34:25
SPEAKER_01: It's one of your expenses.
34:26
SPEAKER_01: So if you can get a lower insurance premium for the buyer coming in, that allows them to get a higher loan so they can put less money down.
34:35
SPEAKER_01: So so it does, it does affect, you know, the saleability and you know, the buyer's cash flow and everything else.
34:42
SPEAKER_00: Yeah.
34:42
SPEAKER_00: And I think sometimes sellers make the mistake of like, well, I'll just give a credit.
34:46
SPEAKER_00: But there's more to it.
34:47
SPEAKER_00: There's there's there's more to it, you know.
34:49
SPEAKER_00: I mean, it the financing is impacted.
34:52
SPEAKER_00: It just it's gonna slow everything down.
34:54
SPEAKER_00: And so I think if you're if you're an owner in this area and you and you have a five plus and either the interest rate just went up and it completely deplete depleted your cash flow, or you're fed up.
35:07
SPEAKER_00: I mean, listen, a lot of people that we work with will say the same things.
35:10
SPEAKER_00: Hey, I'm fed, I'm done with California and it's not landlord-friendly.
35:14
SPEAKER_00: And there's a lot of these things that we hear, okay?
35:16
SPEAKER_00: And um, and we understand that.
35:18
SPEAKER_00: And it it's it gets to a certain point where someone has made enough enough wealth where now they're gonna step away and and and decide to sell, you know, and Cody, at some point you and I are gonna be older and we're gonna be saying the same thing or something along those lines, right?
35:33
SPEAKER_00: But for now, we're still in growth mode and we know that in order for us to grow, in order for us to provide uh passive income and a nest egg and all these things that we want to do for our families, it's taking the risks now.
35:47
SPEAKER_00: If you're an owner and you're listening to this and you have a building, uh I reach out to Cody and I, send us a message, an email or text us and say, Hey, come look at our building.
35:58
SPEAKER_00: We're not gonna push you to sell, but let us walk through, like we know what to look for now.
36:02
SPEAKER_00: Because we know how insurance is gonna look at it.
36:05
SPEAKER_00: We know how a buyer is gonna look at it, how an investor is gonna look at it, we know how um the appraiser is gonna look at it.
36:10
SPEAKER_00: So there's a lot of people, how the lender's gonna look at it.
36:12
SPEAKER_00: There's a lot of things we need to discuss.
36:15
SPEAKER_00: Um, and sometimes if you haven't done a rent increase, we might recommend we do a rent increase.
36:20
SPEAKER_00: And not every case, but in some cases, it just depends.
36:22
SPEAKER_00: Okay.
36:23
SPEAKER_00: So there's a lot of things that are gonna impact the marketability, the pricing of your property, the positioning.
36:29
SPEAKER_00: And since we know the market well, positioning is the one thing that we're gonna specialize in.
36:34
SPEAKER_00: Well, and marketing.
36:36
SPEAKER_00: I mean, that's that's really our specialty because we're out there doing things that other brokers uh quite frankly won't do.
36:43
SPEAKER_00: Um, Cody, how would you like to wrap up uh today's call?
36:46
SPEAKER_00: And I'll I'll give you the final, I'll give you the final word.
36:50
SPEAKER_01: Yeah, good question.
36:51
SPEAKER_01: I I would agree with what you said.
36:53
SPEAKER_01: I think, you know, if you have been thinking about getting into real estate investing or you are already an investor, this is the time to really take inventory of what's going on, see what moves you can make right now, because this is one of those opportunities which comes along, you know, not very frequently, but this is where you can make really big money.
37:14
SPEAKER_01: So um reach out to us.
37:16
SPEAKER_01: We'd love to talk with you, give you our opinion on you know what moves you could make and start planning for those things.
37:23
SPEAKER_01: So yeah, we're we're happy to help.
37:26
SPEAKER_01: We're doing this all the time for our clients.
37:28
SPEAKER_00: So let me summarize this.
37:30
SPEAKER_00: What we're seeing is a building that sold five years ago now, in most cases, is bringing in more income.
37:38
SPEAKER_00: Um, it probably has hundreds of thousands of dollars of upgrades that it did not originally have that you don't have to do.
37:45
SPEAKER_00: So, someone someone raised the income for you.
37:47
SPEAKER_00: In some cases, they built the ADU for you, and in some cases they did all the improvements or some, and you get to buy it for less than they did.
37:57
SPEAKER_00: If that sounds like a time to enter the market, then I want you guys to reach out to us immediately because that this is why, you know, a lot of times people will ask Cody and I, is this is this a good time to buy?
38:08
SPEAKER_00: Cody, this year you you've already purchased units.
38:12
SPEAKER_00: Um, I'm gonna be closing on an eight-unit building.
38:15
SPEAKER_00: I just closed on a laundromat.
38:16
SPEAKER_00: I'll do a podcast on that later.
38:18
SPEAKER_00: But if you think this is a scary time, Cody and I are are in this.
38:24
SPEAKER_00: We're the boots on the ground.
38:26
SPEAKER_00: And what are we doing?
38:27
SPEAKER_00: We're investing right now because we believe there's opportunity.
38:31
SPEAKER_00: And so whether you agree or disagree, make sure to comment, make sure to follow, and share this with someone that you think should partner with you so that you could have enough down payment to buy something.
38:43
SPEAKER_00: Thank you so much for tuning in.
38:45
SPEAKER_00: Until next time.
38:46
SPEAKER_00: Thanks, Wal.