Latest / Real Investor Radio Podcast / Ep 90 | Risk Management, Multifamily, Policies, & Financial Freedom with Anna Kelley REI Mom

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Ep 90 | Risk Management, Multifamily, Policies, & Financial Freedom with Anna Kelley REI Mom · Real Investor Radio Podcast

• Craig Fuhr (00:14) Hey, welcome back everyone to the real investor radio podcast. Got a great, great show today. Can't wait to have this guest on Jack. Joined again, obviously by Jack BeVier. Jack, good to see you, sir. Jack BeVier (00:25) Yep, good morning sir, good morning, how are you doing? Craig Fuhr (00:27) exciting times indeed. Just noticed yesterday that I think inflation has fallen to a four year low. Not too great for the five year treasury in terms of investors these days, Jack. Over the last few days, we've seen a sure and certain uptick in the five year. think we are just over 4 % yesterday. We like to try to keep it under through in the threes. know, to get the phones ringing. But the phones are still ringing off the hook at Dominion. So, you know, obviously, people are out there doing loans and deals. So what's your take Jack on what we've seen over the past few weeks with the economy, unemployment numbers. And then obviously, Anna, you know what, Jack, let's just jump in. Let's let's just, let's just dispense with all the happy talk. And I just want to, I'm just so excited to have our guest on today, Anna Kelly. also known as REIMOM. Anna, it's so great to have you to the show. So just by way of a brief introduction, I don't know, Anna, if we've ever met in person. Anna Kelley - ReiMom (01:27) We did. You spoke at an event in Harrisburg, I think, for Judah Hoover on lending and on notes. I had not, it was probably, I don't know, 07, 08, 09, somewhere like that. And I had not been exposed really to the world of note investing. I mean, I have a background in institutional investments and did rentals and flips, but. Craig Fuhr (01:36) That was a long time ago. Yeah. Anna Kelley - ReiMom (01:53) I didn't know anybody that was buying notes, so I remember your presentation. Craig Fuhr (01:57) Well, I don't as much as I'd like to take credit for that. Seriously, I don't know that I was ever a node investor. So maybe you might have me mixed up with someone else. Anna Kelley - ReiMom (02:07) Maybe it was just on loans, but I know I met you in person. I think twice. I think at two different events. Maybe one with Zach Weist as well. Craig Fuhr (02:11) So. Yeah, there was an event where when I was working with Dominion back in like 2015-16 and Jack and Fred were expanding the lending business, I was able to, Jack and I, Jack actually put together a brilliant presentation that I was able to go out and then present to the York RIA up there with Zach Weiss and Judah. Remember that, Jack? ⁓ Anna Kelley - ReiMom (02:25) Yes. Jack BeVier (02:38) Yeah, yeah, yeah, the great guys. Craig Fuhr (02:40) It was a great presentation by the way, where we really broke it down by like zip code by zip code, what was hot in New York Metro area. And I think people were really dug it. But, so I apologize. I have the worst memory ever in the history of memories. Anna Kelley - ReiMom (02:52) Well, me too, apparently, but I do remember meeting you twice at those events, but I'm sorry I forgot the presentation. Craig Fuhr (02:58) Well, let me just let me just briefly give folks an idea of who Anna Kelly is. So Anna is a absolute powerhouse real estate investor, author and speaker who went from not a silver spoon in her mouth. She grew up in Section 8 housing, and she's now built a multimillion dollar real estate portfolio and manages to have freedom jack, which is something that I find so elusive with most investors, you know, we all get into this business for the freedom yet so sort of So if you find that and have that lifestyle as well. So after successfully working a career with high net worth clients in the financial sector and it discovered that real estate, especially multifamily investments offered a ultimate trifecta of stable cashflow, equity growth and asset preservation. She's got over 20 years of investing experience and now owns and manages more than 2000 units and has $52 million of assets under management. I hope that's all correct. Maybe I missed a few there. So Anna, welcome to the show. It's just such a pleasure to have you on. Anna Kelley - ReiMom (04:03) Thank you so much. everything was great. Great job with the bio. My highest asset center management last year was 400 million. So a little bit more than since last time. we've sold quite a few as well. So right now we've got about four large, several hundred unit properties, not quite 2,000 doors at this point with what we've sold, but still pretty close to that. So it's been a fun ride. Craig Fuhr (04:11) Fuck. So Jack and I speak to, don't know if, you know, I'm sure you don't sit around, you know, listening to all the podcast episodes before you go on a podcast, but what's been remarkable for real investor radio is that, you know, with Jack's contacts in the industry over the last 20 some years, we've had on just an absolute, you know, cavalcade of really top notch investors on the show. And, and, you know, we obviously welcome you to that group, but tell us like, how do you go? How do you start in the business, going from your upbringing to working with high net worth individuals and then getting into real estate yourself? How does that all happen and when did it start happening for you? Anna Kelley - ReiMom (05:11) So feel free to stop me. I'll try to be brief. It's been, you know, I'm 50. It's been a long journey, but you know, I did grow up, like you said, in section eight housing. My mom was a battered woman and she, you know, had multiple kids, had to work two jobs to support us. And she became actually a leasing agent and then a property management manager in a section eight apartment complex. We actually lived in a nice part of town. We were like the projects of the nice part of town. So I wasn't in severe poverty, Craig Fuhr (05:13) no, no, we've got time. Anna Kelley - ReiMom (05:40) but we were on food stamps and WIC, you know, and my mom worked two jobs. And so I went to school with people who had money and I was, you know, the poorest kid pretty much in school. And I just remember my mom not being able to leave and not being able to work one job to support us. And I had that mindset from a very young age, like I want a different life. I see this life that looked attractive. And of course, in a kid's mind, you think if I just have an education and a degree and money, I'll be okay. And of course there's more to it than that, but it put me on a path of like, I gotta figure out how to make money and how to not make poor choices with things like drugs and alcohol that I had been exposed to in our family. And so I just was very driven and determined to figure out how to be the best at whatever I did so that I could live a different life. And that really is what I think is the secret to my success. is just that determination and mindset that if I want something different, I have to do something different than everybody else that I see. And so, you know, I was driven, determined, graduated high school early, graduated college early while working full time. And I had a full time job pretty much the whole time I was in in college. So when I did graduate, a roommate of mine actually went to work for Bank of America. in their private banking department. And she told their boss about me. They had just started their private banking department. So they were hiring us to train us to be financial advisors. And that's the very first time I learned anything about money other than basic budgeting and what I had learned with my management degree. So went into private banking and I realized, you know, I'm in my young twenties. This is in the late nineties, I think 97, 98. Craig Fuhr (07:15) Right. Anna Kelley - ReiMom (07:26) And I was telling very wealthy people what to do with their money. You know, here's our products. And it was all retail stocks, bonds, mutual funds, insurance policies, private placement insurance. And as I was sitting there, one of the things I noticed is a lot of my wealthy clients had real estate. And in fact, I had one conversation I'll never forget with an older gentleman. And we told him what he could make in a CD in our bank. And it was close to 8%. I don't remember the exact number, but this was pretty good compared to what we have today. Craig Fuhr (07:55) Good times. Anna Kelley - ReiMom (07:55) And he laughed at me and he said, sweetie, I make way more than that in my real estate investments. And I was like, huh, I haven't learned anything about real estate investments, but I saw this pattern that most of my wealthy clients, and they were the top 10 % of our banking clients in terms of wealth to get into the private bank, they had real estate. So that put just this idea in my head that wealthy people have real estate. So fast forward a few years and I got married and I was like, you know, I was making good money and I didn't want to rent. Rent, was throwing away very expensive rent in Houston, Texas and I had friends that were buying condos and I thought, okay, I'll buy a condo and at least live below my means for a while. And so I always had that mindset, live below your means while you work to expand your means. I think that's the other kind of key. And so I bought a condo and you know, had the luxury of having a low rent payment. Then I bought a house speculative in an up and coming area, thinking it was going to go way up in value in a couple of years and it did. And then I decided I had a baby and he's now almost 22. So in 2003, when I had a three month old, I had watched tons of HGTV. And at this point I had left Bank of America, gone to AIG where I worked in the high net worth and affluent markets group. And so we created private placement wrapped life insurance policies, basically infinite banking, where we let wealthy people choose what investments that were private placements they wanted to go to, and then we let it grow tax free. So again, we're working with family offices and very wealthy brokers, banks, insurance companies, and I made a really good income, but I had a baby and all I wanted was to be home with that kid. I'm like, the money didn't matter anymore. And I didn't have a way to be home because my husband had just graduated with six-figure school loans and he made about a third of what I did. And so I'm like, I can't be home. While I was on bed rest, Craig, I watched all the first shows of Flip This House. And so I'm like, this looks so easy. I can do this. So at three months old, when my son was three months old, we went out and got a traditional mortgage, because I didn't know any better, bought a house and decided to flip it. And we made a lot of mistakes, but. Craig Fuhr (09:54) Right. Jack BeVier (09:55) Thank Craig Fuhr (09:59) Yeah. Anna Kelley - ReiMom (10:11) We lost about $10,000 in a year of our life trying to do it with no network, no knowledge, but it was a good learning experience. My husband said, we are never doing that again. And I was like, yeah, we can, you know, we'll do better next time. So fast forward, I moved to Pennsylvania, which is where I am now, where we met, for my husband to start his own chiropractic business. He was done, you know, with college 2007, moved to Pennsylvania. Craig Fuhr (10:14) Nice. Anna Kelley - ReiMom (10:38) And I, my job at AIG, they let me try work from home and they gave me three months. We'll see how it works. I was their first work from home employee ever back then. Started my husband's business $700,000 in business startup debt in 2007. Cause we were told the economy's great. It's just going to keep getting better. You know, no end in sight and everyone, including everybody, the wealth managers, everyone at AIG thought that was the case. Started the business, but I was smart enough to say, thank God. let's not lease a space, let's buy a space because all these old towns in Pennsylvania have businesses on the ground level and apartments on top. So I bought a building, my husband leased it from me, that's just the way the financing worked out best at the time, the way we did it. And it had four apartments and four garages. So we had the rental income coming in and I'm like, okay, if I lose my job, at least the lease is covered, the mortgage payments covered by the tenants. And then we moved into a four unit because I'm like, we can't, we sold a big house and like, can't afford the house. I might lose my job, bought a four unit and I had two babies at that, at that point. And it was going amazing. I was like, okay, rental incomes really great. It's keeping our cost of living down kind of that same live below your means mindset while we work to get ahead. And it was also that my husband's business would be the thing that took off and I'd be able to be home. And a year into it, the great financial crisis happened. I worked at AIG. ⁓ I had bought it, I was closing on another four unit and the bank pulled my loan the day of closing because I worked for AIG, real estate was crashing. My husband had $700,000 in business debt. And on the final sign off, Wells Fargo pulled my loan. And it was at that moment, Craig, that I realized in early 09, my bank, my job is not secure. Even though I worked for one of the most, you know, largest companies in the world at AIG. Jack BeVier (12:05) Mmm. Anna Kelley - ReiMom (12:31) My husband's business was starting to fail because people were popping pills instead of seeing a chiropractor because they couldn't afford to come in. My 401k lost more than two thirds of my value never to come back again because I was heavily in financial stocks and AIG. And I realized the only thing going well was my tenants were still paying rent. And that was my aha moment that changed the course from dabbling in real estate as a nice thing to help us live below our means to saying Craig Fuhr (12:49) Yeah, for those who... Jack BeVier (12:52) Mm-hmm. Anna Kelley - ReiMom (12:59) This is the path to freedom. I control it. I don't have to worry about, you know, corporates at AIG making bad decisions or people not being able to afford discretionary income. Rental income and providing housing is a fundamental need and it's the way I'm going to create wealth. Craig Fuhr (13:17) And I think it's so refreshing to talk to people who have been investing, you know, through throughout the the GFC. And, you know, it's so I don't think we've spoken to a person yet that was literally working for the company that was at the heart of it. Yeah. wow, what a trajectory, man. And so at what point Anna Kelley - ReiMom (13:32) Yeah. Yeah. Craig Fuhr (13:38) At some point you must have realized, hey, you know what, this real estate thing actually pays more than like the chiropractic thing. You know, I'm sure your husband's business wasn't exactly going gangbusters during that period. And so, you know, at what point did it just dawn on you that this was the thing? Anna Kelley - ReiMom (13:54) You know, it kind of took a little bit. Initially, you the week that the GFC happened, I mean it was a long time coming. You know they backdated the recession 18 months, but at the time you know early 2009 is when layman fell and AIG was going under. I mean when everything kind of came to a head we had already been basically in a recession, but we were so blindsided. Jack BeVier (14:02) Yeah. Craig Fuhr (14:03) Yeah. Anna Kelley - ReiMom (14:16) I just remember being in my little apartment unit in our four unit and just crying and praying and thinking, man, I've worked so hard to like pay off my husband's school debt, doing the Dave Ramsey, keeping a good credit score, making good investments. And it just always falling apart. And I just remember thinking, what am I going to do? And just praying like, God, give me wisdom. You know, found a bank to go ahead and do that other four unit property. got at least financing and I thought, okay, at least we'll have enough with these three rental properties that each had, you know, four units plus to cover our expenses. And I found out that week, Craig, I was pregnant with baby number three. And I was like, how am I gonna afford diapers when I lose my job? know, AIG was saying like, get ready to find a job. We're gonna sell these divisions, you're probably gonna be laid off. And they kept saying that for many, many years. So at first it wasn't like, aha, Craig Fuhr (14:57) You Anna Kelley - ReiMom (15:12) I'm gonna be able to do it. was, know real estate works, but how can I get financing? And at the time, Craig, y'all will appreciate this as DSCR lenders and hard money lenders, I didn't know such a thing existed. I worked with wealthy clients that didn't need that. And so I didn't have a network and I didn't have anyone telling me, you really can buy real estate without any of your own money. You can find private lenders, you can work with partners. And so it was a slow trudging to figure out. Craig Fuhr (15:23) Well, it didn't. Anna Kelley - ReiMom (15:40) all these properties are on sale. And I knew they were sitting on the market, lots of multi-units in Pennsylvania, like three and four unit buildings, which is where I really created our wealth initially, was just buying a three unit, a four unit, a four unit here and there. But I didn't know how to get the financing. And I was a really bad financial risk on paper. you know, she works for a company that's going under and lots of debt and wants to buy real estate. So it took me a lot. Craig Fuhr (16:03) not only that, but like it's it's you you weren't really even telling a great story from an experiential standpoint at that point either, you know, like it's not like you had 10 deals under your belt, you know, Anna Kelley - ReiMom (16:10) No, no, I had had a few properties. Yeah, exactly. And so I just couldn't get the financing and even a hard money lender turned me down, you know, and I was like, I can't do this. But I just was like, I've got to figure it out. And I went to the very first meetup group in Harrisburg. And they were talking about seller financing. And I was like, no seller is going to give me a loan if a bank won't give me a loan. Like I didn't believe it. But I thought, what do I have to lose? So A guy stood up at the end of the meeting and said, hey, I'm selling a three unit down the street from where I am. And I went up and I was like, okay, he's an old guy, maybe he'll do it. And I said, would you be interested in seller financing? I've got some properties, I work for AIG, da da da da. He's like, sure. And he showed up with the contract. I love seller financing. That was the moment that I realized, okay, I can buy properties without money. And I bought his four unit. Craig Fuhr (16:56) Right. Anna Kelley - ReiMom (17:03) He told his friend, I bought his four unit. He told his friend and I bought his four unit all within a few months. And that was that when I've got the third one in like a three or four month period, that's when I went, I can do this. This is my path. So it took probably a year from, you know, the day that lay Lehman Brothers fell before I said, there is an alternative way. I don't need banks and real estate. can buy real estate without my own money. Craig Fuhr (17:16) Yeah. Anna Kelley - ReiMom (17:30) From that point on, every penny that I made, I put into renovating units, making them nicer, forcing appreciation. And then once I had enough equity, I went back to banks and said, I've been able to do this. I've got all this equity. Will you give me a second mortgage on these properties? And I found a local bank to say yes. And that's when I started to really scale and just continue to basically burr apartment buildings. Craig Fuhr (17:57) Yeah, you were the original burr-er. Anna Kelley - ReiMom (17:57) ⁓ We also did single family houses as well. You know, so I'd make money from a flip and use it as a down payment on another four unit property. Craig Fuhr (18:05) Yeah. Jack. Jack BeVier (18:08) Well, what's your perspective on, you know, folks that I started in the business in 2007. And, you know, just saw that whole mess, you know, transpire. It was crazy. And it was, you know, what it was one of the biggest recession, right? I it was the great recession. And I feel like there's a, you know, folks that there's a difference between folks that have who started around that time and went through that folks that started way before that. Anna Kelley - ReiMom (18:23) Yes. Mm-hmm. Jack BeVier (18:35) and have actually seen multiple recessions. And then folks who started from 2012 after and like never, never experienced have never experienced that kind of like despair, right? Like that actually changes human behavior. Like we haven't seen that in 13 years, 14 years. It's like it becoming a really long time, right? And like, I think people have just at this point forgotten what Anna Kelley - ReiMom (18:37) Yes. Mm-hmm. Yeah. Jack BeVier (18:59) it feels like when that level of, you know, distress or, know, to actually like feel that fear. What do you, what's your take on? What's your take on, you know, is it going to happen again? Was that just like an anomaly that will, you know, that they'll be talking about in the history books, but we're never going to quite feel that again. And the market's just fundamentally more stable on a going forward basis. I don't know. Like what's your, what's your perspective having lived through that and seeing how people have changed their behavior since then. Anna Kelley - ReiMom (19:05) Yeah. Yeah. Yeah, so such a great question and so many things are going through my mind. You know, I think first, It is true. People kind of have a recency bias. And when you look at human behavior and what people think about, it pretty much goes back to, the next 10 years is going to look like the last 10 years. And so if you haven't lived through something that makes you go, you know what, there's a lot of things that I don't know and that are outside of my control that really could change the economy. And they don't hedge. They don't do a good job at risk mitigation. when you're in when all you've experienced is a really long expansion period. And after the GFC, we you know, where we hit the bottom economies go in cycles. And so you've got a recession and you have a recovery for two to three years and then you have an expansion and our expansion after the GFC. I mean, it took about 10 years for markets to get back to where they were before. And then we had a year of like crazy growth asset bubble. Everything's amazing. And then COVID. And so I think the closest thing to the GFC was kind of the COVID shock for everybody, but especially in multifamily, because I did move from small multi units to then retiring from AIG in 2019 to then really syndicating really large apartment buildings. And so I went through that kind of fear in 2020, post COVID when I had large apartment buildings and suddenly people didn't have to pay rent, but yet I had to pay a mortgage on, you tens of millions of dollars. And so I went through that fear just like I did in 2009. I went through it again in 2020 and then things got better. And so a lot in there, but essentially those newer investors I find tend to think things are just amazing. Just like the news said, things are great in 2007 and 2008 and early 2009. And then it seemed like suddenly. Craig Fuhr (21:16) yeah. Anna Kelley - ReiMom (21:21) because we weren't watching the economy. And what I find is most people don't really watch the economy. They look at mainstream media to tell them, hey, things are great. The stock market's back up. Don't bet against America. I'm a lot more conservative than that because I have lived through the GFC and I have lived through the COVID era. And I'm living through commercial real estate's GFC today, the first time in my lifetime, you know, since the late 70s, early 80s and commercial real estate and the banking crisis of the 80s. And so, I've lived through that enough that I'm much more conservative and I've learned to become a student of the economy because the reason I was blindsided Jack in 2009 is because I was listening just to mainstream news and financial advisors who had their head in the sand only dealing with wealthy people, not seeing what was happening to the majority of the population underneath. You can talk about credit default swaps and mortgage backed securities, but really people were struggling. to make their mortgage payments. And so I learned I have to become a student of the economy. And because I watched the economy so closely, now not just to preserve the wealth that I've created, but because I have coaching students, I have investors, I know most of them just think things are gonna be great. I'm like the voice almost, I'm not a bear, I've been accused of being a bear, but the voice that says, listen, I've lived through something like this before. I see a lot of the same kind of warning signs and you have to be really conservative when you're at a major shift in the economy. And so we've gone from expansion to clearly we're in a contraction. We could argue whether we're in a recession or not. I would say that we are and that there's further to fall before we have a recovery and an expansion period. I... I think that people who've been through things like we have in the GFC are much more conservative and we're maybe a little more fearful. But what I think is important to understand is you can still make a lot of money thinking that the economy is going to soften, being prepared for what might come that's worse. And that's where I'm in a different place now than I was before and encourage people to say, you must become a student of the economy. You better not be getting your you know, making your decisions like I did, going into $700,000 of debt at a time when the economy's brittle, you gotta hedge your bets. You gotta say, let me protect what I have today. So I'm in preservation mode today. And then after I protect what I have, then and only then can I take money to invest in growth and invest in appreciation. Most people don't preserve or protect anything because they haven't lived through those things. They just think I'm just gonna go all in. whether it's the stock market, whether it's Bitcoin, whether it's flipping houses, whether it's multifamily. And I think they're taking too much risk today because they don't understand where we are in the economy. Jack BeVier (24:13) I was gonna, well, I'm curious to hear what your perspective is that more about your perspective on where we are in terms from a cyclicality perspective. I, or from a cyclicality point of view, I was gonna play devil's advocate and say, you know, do you think we've seen the end of cycles? It's been, you know, 15 year up run in residential real estate, there's still supply constraint, we still have a growing population. And there's so much more information now, right information like Anna Kelley - ReiMom (24:18) Thank Jack BeVier (24:41) you know, people who saw the mortgage backed securities crisis coming were the ones who were like digging in and like looking at reading the data that nobody else was bothering to read, but with so much more information and you know, existing right now and so many more people interconnected, like do we have enough warning signs that the market can adjust fast enough that we'll never see something that severe again, you know, because that was a huge imbalance, right? Like you had to get way out of whack. Anna Kelley - ReiMom (24:50) Sure. Yeah, that's a great question as well. Jack BeVier (25:09) to have that kind of cyclicality like might we must just be in a more stable. It's weird to say that whether it's state the world stable right now, but you know, you're getting one driving out from a cycles perspective. Anna Kelley - ReiMom (25:09) Yes. Yeah. Yeah. I do. Yeah. And I've asked myself this question as well. And I think it's a really, really important question. know, a lot of people tend to say it's different this time. Right. And in many ways, it is different this time. But in many ways, these cycles repeat. And I don't think we're at the end of cycles. What I think we are is the government and I'm going to use a word and then I'm going to contradict myself. The government has gotten better. OK. Air quotes at. preventing the high highs and the low lows because they're more quick to react to stabilize things before they get too bad. The problem with that is it kind of kicks the can down the road. if you look at, for example, when SBB started to fail, we had Signature Bank, we had a couple of banks that were starting to fail. That could have been a major financial crisis, that one big issue. But the Fed and the Treasury came in. and they put in place a bank tarp type program. So we're gonna save the banks, we're gonna let you borrow for free, we're gonna get you out of it. And so they will come up with new tools just like they did after 2009 to as quickly as they can mitigate the risk. The way that they do that though, one is obviously cutting rates drastically. if we had a big, if this recession got really bad, they would drastically cut rates despite the inflation risk, right? they would pump money into the system to save the system. And so they've gotten more reactive, more quickly to save the system and creating new tools out of thin air. We used to think, hey, they can't do this because it's not in the regulations. Now the government will do what they can. The question is, there's always an expense to that. So is the government debt so high now that they cannot, if we have a big crisis, really get us out of it very quickly because it would put so much pressure like it is today on the government having to pay interest on all the new debt they create to get us out of the system. So I think the cycles will continue. But there's a very bifurcated economy. Number one, there are bigger wealth gaps than what we've ever seen. So the wealthy are still keeping the economy so-called stable, but the vast majority of the population over 70 % is living check to check, debt constrained, and consumers are pulling back. So I think that that is going to create more of a stagflation type environment where you've got inflation risk at the same time as really low growth that makes things more flat than to your point having a high high, a low low, a high high, a low low. I think it's going to kind of stagnate for a long time. I think there could be still banking crisis if the, you know, if we have wars and we have inflation that comes back at the same time as recession, it's really difficult for governments to get you out of that historically. So that would be more of my concern than we have a big depression because I think the government's going to do it what they can to keep you from having that big of a crash again. Jack BeVier (28:16) So are you a hard assets kind of investor then? Anna Kelley - ReiMom (28:20) 100%. Yeah, I'm not a speculative investor. I have very little in the stock market. I have a lot of gold, a lot of silver, a lot of real estate. And that's where the majority of my wealth is. I invest in things that have fundamental value, not the things that I hope might have fundamental value. Granted, I dabble, I have a little in the stock market. I have a little in cryptocurrency, but it's like an extremely small, probably less than 1 % of my wealth. Everything is in hard assets where they have historical fundamental value and I think always will. Jack BeVier (28:56) Can we talk about your, your multifamily syndication experience? The time that you got into that is a been a very interesting roller coaster, I would say. ⁓ Like you were, you you said you started in lose larger deals in 18. Craig Fuhr (29:00) Yeah, that was Anna Kelley - ReiMom (29:05) Yes. 18, yes. Jack BeVier (29:13) So what's that experience been like? mean, the, you had, you know, obviously big rent growth at when COVID hit super low interest rates. Um, were you doing deals 18, 19, 20, 20, 20, 22, like throughout that period of time, or were you getting in and at, what were the, what were the vintages of the deals that you've been involved in? Anna Kelley - ReiMom (29:31) So in 2018, I knew I was about to retire from AIG. Believe it or not, I never lost my job because the division I was in, we worked in very complicated investments in Bermuda, offshore, et cetera, and nobody could buy us. They couldn't get past the regulations needed. So thankfully I kept my job all that time and I basically just worked 80 hours a week, worked full time at AIG, ran my husband's business and built our real estate portfolio. So I finally was getting ready to retire and I was like, I need one more thing. I want $100,000 in the bank, not just the multimillion dollar portfolio, but I need $100,000 because I didn't have cash. Everything I made went into the next one. And I thought I want to do my first joint venture before I leave. I want to do an apartment building, a bigger one. Like I had 100 units in 2018. I had 100 units that my husband and I had bought. So it took us, you know, almost 10 years to build that portfolio after the GFC. But we finally got there. And then I said, want to, yes, yep, absolutely. And some single family homes as well, but mostly four unit buildings. so had the hundred units and I'm like, I want to do a hundred unit apartment building and I want to do it with a couple of local partners. And so I found a property off market. was like, God just kind of dropped it from the sky and in Pennsylvania. Yeah. In the Hershey, Pennsylvania area. Craig Fuhr (30:29) And was it mostly like the three and four unit? Sure, sure. Also in PA. Anna Kelley - ReiMom (30:53) And it came to me off market. It was like a fluke run in with somebody that had, know, hey, you have apartments. I'm looking to sell an apartment. Can I see it first? Can I see it tomorrow? You know, and I got a deal under contract and then I had to figure out, oh no, how do I find the several million dollars that I need to take it down? So I reached out to a couple of investors and two people and we did a joint venture. was a 73 unit apartment building or a 76 unit apartment building. Craig Fuhr (31:09) Always, always good. Anna Kelley - ReiMom (31:21) And I was, you know, over the moon. I'm like, okay, I can do this. I was going to syndicate it, but I was able to do it as a joint venture. Then I had another property come to me. It was a 31 unit, reached out to the same investor and he's like, yep, I want to be your only investor. So I ended up doing five joint venture apartments, totaling a little over 240, about 240 units before I then was like, okay, now I'm going to go syndicate out of state. Cause I wanted some diversification. Cause at the end of, in 2019, I was seeing recessionary conditions again. Like this tells you how long things can go, right? We had a manufacturing recession. We had a market meltdown. And then the Fed lowered rates and got us out of it before COVID hit. But I was getting nervous in 2019. Like, I think the expansion period's coming to an end. So I wanted to diversify and not have everything I owned in Pennsylvania. I'm from Texas and I decided to go look in the South. And I had a large two property pack come to the market in Marietta, Georgia, just outside of Atlanta, and went and decided to syndicate it. And the nice thing was I had been in private placement investing for so many years that I was used to private placements. I did SEC audits at AIG after the GFC. And so like I knew about... the rules on syndicating, not raising money for other people, right? Doing your own deals. I knew how to talk to investors. The investor piece was, I thought this is gonna be the easy piece. And I was able to raise several million dollars, you know, really, really quickly, thankfully. ⁓ Craig Fuhr (32:43) Yeah. Was that going back to sort of past clients or like? Anna Kelley - ReiMom (32:54) No, no, I just Jack BeVier (32:54) Not for the New Deal. Anna Kelley - ReiMom (32:55) started marketing on social media. Like, hey, this is where the economy is. This is what you're looking for as investors. You either want growth or appreciation or preservation. These are growth deals. This is how they work. know, great risk adjusted returns. So I just started talking to people just like I would talk to my investors and I was able to syndicate the deal. So we got two deals in Atlanta, super excited. Things were going great. We bought them at the end of 2019 and then COVID hit. And then it was like, Craig Fuhr (32:58) Got this deal. Anna Kelley - ReiMom (33:24) my gosh, I mean, I was starting to regret scaling. You know, it's the idea that bigger is better. And everyone says, you've got to scale all the time. And so I'm challenging myself. Like, I got to think bigger. I've got to scale. I've got to not be so risk averse because of, you know, I made good money being conservative, but I definitely took risk. But I felt like when when our tenants were told they didn't have to pay rent and businesses were being shut down. and we still had to pay our mortgage payment, I thought I am in way over my head. How do I save these deals? Save my investors? Be good to my tenants? Like be a good person and figure this out. And so it was like my feet to the fire. I was scared to death, but things kind of stabilized. Thankfully Atlanta was a conservative market and people were allowed to keep working and they were able, you we were able to help get them, get them assistance and those types of things. But I had another deal come to me and it was also in the Atlanta market and I was like, okay, I'm going to go ahead and do it. I think we're going to be okay. We had a lot of reserves and so that helped us and I learned to hold a lot more cash than what I used to hold and that made me conservative enough that I'm going to keep doing deals. The market's going well. Property values are skyrocketing. Rents are going up, but I need to have a lot more cash reserves. So I was very conservative in the deals that I did buy. making sure they really had a value add component. And thankfully, the lesson that I learned that served me well through all of this craziness was I learned not to do variable rate debt on properties where you're in a cycle where you don't know if things are going to go up or down. I didn't want to chance values coming down and having bridge loans. So I did Fanny Freddy fixed loans on those big properties that were 10 year loans. And so that helped us. not have some of the challenges of the market falling. But for a few years, like everyone, I made a lot of really good decisions. So I don't want to not give myself credit for that. But with that said, rising tide lifts all ships. And when the market's going crazy, you can make a lot of mistakes and still sell your property for a whole lot more money. And so thankfully, we were able to exit those properties and make our investors really good, you know, over 20 to 30 % annualized returns. on those deals. And so we did really, really well. Then you come into 2022 ish, right? And I had a deal that we bought in Raleigh, North Carolina. We bought a couple in Houston, Texas. Again, we got great loans. All but one had fixed rate debt. And so we're not in this situation like so many commercial investors on most of our properties where we have to sell because we've got good loans that are long-term. Craig Fuhr (36:05) All Anna Kelley - ReiMom (36:06) But values for those that aren't in commercial have fallen on paper about 30 to 40 % just because the treasury rates went up to fight inflation. And therefore the risk adjusted rate of return that investors demand for properties has gone up significantly, meaning the values have come down. So, so many in commercial have failed because they couldn't refinance out of their debt while the value on paper was significantly less at the same time that you've got a lot of supply. You've got increased expenses. I've been able, we have some deals and they're hard. I mean, they're hard, hard, hard to stay afloat, to keep the NOI high, even with fixed rate debt. So it's been a challenge. I've seen the highs of the market and I've seen the lows of the market. We have one property that we did variable, but with rate cap insurance. No one told us, this rate cap that's costing you 30 grand could be a million dollars when you renew it in three years. And that's exactly what we've experienced with one of our properties. The only one with a rate cap, you you have a million dollar hit and the bank starts us growing $80,000 a month from your cashflow that you're trying to pay investors. It's hard to overcome that. So thank God we're overcoming it, but we can't sell, you know, right now because the market is down. so Jack BeVier (37:13) Yowza. Yeah. Anna Kelley - ReiMom (37:22) It's a challenge and I've learned that bigger isn't always better at times that economic shifts are happening. Jack BeVier (37:29) So is it just like, stay the course, the lenders are letting you exist, right? Like not calling maturity defaults and as long as you can make the payment or, you know, or even if it was short, like you don't think, you know, not feeling the pressure that they're like forcing sales. And is it just like, Hey, we're just going to ride this thing out and time is going to heal all real estate wounds. Anna Kelley - ReiMom (37:37) Yeah. You know, I'm not naive enough to think that the market's gonna save us and time is gonna be on our side. know, these, because they're short-term loans, you know, again, I have one that is variable with the rate cap. That rate cap keeps coming up for renewal. So until rates start coming down, the next rate cap could cost us $600,000. You know, we don't know, but. So time is against you if you've got a rate cap or you've got a variable rate loan or you've got a loan that, you know, as you guys know, being in the loan business, most loans, if they're not with an agency like Fannie Freddie, you might get a five-year rate lock. So there's a lot of people that bought, you know, in 2020 to 2022 that that five-year rate lock is coming up. So even if you have a 10 or 20 year loan, your mortgage payment is going to double. And so, you know, are other properties that have 10 year loans. We're like, we're just holding them longer. Like we just have to hold them until the market, hopefully rates fall. We get out of, you know, deep recession. The best thing for us, honestly, is a recession is declared. The Fed does what the Fed does. They drastically cut rates. And at that moment we refi and then we make sure we have a good prepay penalty. And then we try to sell when cap rates adjust, you know, with the market, which usually takes about a year. So Jack BeVier (39:05) going be fine. Anna Kelley - ReiMom (39:14) That's the hope there. But the property where we have a rate cap renewing, it could require us to have a capital call or our investors have to pay in. And we have to show that the thank God the asset is a class A market, really high end quality tenants. They're paying rent. We've been able to increase rents to go along with the increases in insurance and taxes and all of that. So we just have to hold for longer. You know, the mantra was survive to 25. Now I'm like, pray to heaven, we make it to 2027. know? Yeah, yeah, exactly. So it's a challenge. know, it's what's really ironic, Jack and Craig is that, you know, I went from like these three and four unit properties, they were great. They made me the money, my single family homes, but like big multifamily is what's going to do it. And even though I understand a lot about the economy and I understand like when things are booming, Craig Fuhr (39:45) Bumper sticker coming. Anna Kelley - ReiMom (40:11) inflation will happen. And if the government pumps money, it's going to be inflationary. And so that was, I knew that which helped me to not do bridge debt. But what I didn't realize is that we would actually experience you talk about these highs and lows, like we'd actually experience a prolonged period of time where interest rates stayed high for as long as they have and that that could make commercial real estate values fall 30 to 40%. That hadn't happened since I was a little girl. And so I hadn't really studied the 70s significantly. I had gone back and looked at, okay, what happens when interest rates go up? Yes, real estate crashed back then. Yes, banks failed. But I didn't really start thinking that was a possibility until after 2022 when we bought our last really big multifamily property. And so I was... I was shocked that my big stuff went down in value and all my little single family houses and four units skyrocketed in value. And it just shows you how big economic shifts can make big changes in your portfolio. And now I thank God I still have all my little bitty properties. Cause that's what we live on that cashflow syndications are not a cashflow game. You know, they sell you in all the marketing courses that you're going to make all this cash and it's going to create freedom. Well, it's all. It's all made on the back end. You make a little on the front end. You have to wait till you sell it to make money. So I'm thankful for all the small properties that I own that are really what gives me that freedom that we talked about where I truly have time and financial freedom because of the small stuff. Craig Fuhr (41:47) I can tell Jack has got a million questions right now. Jack BeVier (41:50) Yeah, it's just a just an observation. Like, it's funny, like when when we started when I started, like 2007 2008, the the thing that I kind of fell in love the idea that I fell in love with was that we were buying these houses at like, eight and a half caps in the shadow of this apartment building that was trading at a seven cap at the time. And I'm like, dude, like for for a little bit of elbow grease, you get paid 150 basis points of unlevered yield. Like that sounds like a really great deal. Fast forward to today. Yeah, it's been a up and down and up and down. But the multifamily is at a seven cap, you know, just happened just so happens the multifamily is still at a seven cap. But now that house is trading at that same house is trading at a five and a half cap. And that was never, you know, it's that would be the the optionality the the highest and best use for for, know, for a family has all been like priced in and then some. So it's been like just a huge swing from when you like Anna Kelley - ReiMom (42:39) Yeah. Mm-hmm. Jack BeVier (42:45) you know, difference between single family and multifamily, which you would think they would be equivalent, you know, they should be roughly equivalent, there should be maybe a little bit of a premium for for scattered site, because of the optionality aspect to it. But it's the same people if it's the same, you know, it's the same same 10 credit quality in the same location. Yeah. Anna Kelley - ReiMom (42:53) Yeah. Yeah, it all comes down to debt. know, it all comes down to people don't realize how much debt financing impacts returns and values. You know, they just think supply and demand of single family houses or supply and demand, you know, for multifamily, like we're under supplied. So that should mean our values go way up, right? It should means our rents always go up. But in a market where I can lock in, I mean, I have a bunch of houses like below 3%. I have said, I do vacation rentals too. So I've got like vacation rentals with 30 year mortgages on them that are sub 4%, like I'll never sell, right? So I've got all these, you've got the great debt. We're on multifamily, at best you get 10 years. But the challenge with multifamily is most people don't buy them to buy and hold. They buy them to flip them, especially in an expanding market. And so they're a value add game. The reason you see apartments that still have a hundred units left to renovate is because you want to get you want to renovate enough to get your value and then you want to leave meat on the bone for the next investor to come and value add their deal. So because you're doing value add like multifamily unless you're a big REIT or insurance company that wants to buy a brand new apartment building and make five percent return on their money so they can get their investors three. You're if you're like us and you're trying to grow wealth and you're we're small compared to these big REITs. We want value add. And so when you value add, you can't really do agency loans on a lot of them if you're gonna sell them in two to three years, because the prepay penalties are so bad that you tend to go bridge debt. And so it's really that bridge debt, the fact that your loan is coming due much faster that created that big disparity in the cap rates, because it just, your values are dependent on the rate in which the new buyer can get debt. And if they can't get low rate debt, They can't make the returns they need above the treasury and therefore the value of your property is lower even when the supply demand dynamics are exactly the same as what they are for houses. So the debt makes the difference in commercial versus residential for sure. Jack BeVier (45:08) You seeing any opportunities in the wake of all this or is everyone just gonna slog along for the next three, four years? Anna Kelley - ReiMom (45:15) for sure, you know, what's interesting. And again, I look at myself as an investor, not as a multifamily investor. Like because I come from the retail world, every time I've ever looked at an investment, it's been, what's the risk free rate of return in a treasury? And then what's the risk adjusted return for a different kind of investment, whether that be an industrial, whether it be, you know, multifamily, whether it be an ATM investment, whatever it is. So I'm always looking at in today's market, Where's the best risk adjusted return that I can find? The risk is substantial still for multifamily. My multifamily friends are gonna kill me, right? They think I'm being too conservative. Because my last big multifamily I bought in December of 2022, okay? We're developing some deals. We moved into development, a whole nother story maybe for another podcast. Right at the time when we were like 5%, 80 % LTV. Craig Fuhr (46:06) I was gonna ask. Anna Kelley - ReiMom (46:13) 500 unit apartment building, and then suddenly the lenders go, sorry, we're pencils down because commercial real estate's crashing. We'll give you 50 % LTV and your rate's nine. Well, the deals don't make sense anymore, right? So went into development, paused most of the development. We still have one deal we're doing, 40 year fixed HUD financing. So we're still working on that. But I went back, I didn't say, I thought I'll never do single family again. I'll never do these small multi units again. I bought a few more vacation rentals in areas that I knew were way undervalued because there's a lot of distress in the second home vacation rental market. That's also opportunity for me. I bought a single family house and I put private financing on it, interest only to make it cash flow. And it's behind a medical center in Hershey so I can do midterm, short term, lots of different hold strategies and exit strategies. So where I see the most opportunity honestly right now is in single family houses. that are in distressed markets. Now, you have to have a good risk tolerance in order to run in when it looks like the sky's falling. So for example, I have two oceanfront properties in Florida. My insurance has skyrocketed as everyone else is in Florida. Florida now has more homes on the market than ever. I think it's like a 400 % increase in homes on the market and they're not selling. Why? Because you can't get insurance or the insurance is crazy high. So if you have a stomach that can say, I'm going to invest for the long term, I think it's dangerous to flip there unless you know the market really, really, really well. And you shouldn't flip in any market unless you know the market really well or your partners do, right? But if you have the wherewithal to say, I'm going to think long term and where are my motivated sellers? That's the other piece of the equation is if you can't get a good deal on the basis, you shouldn't buy it, in my opinion. Because I don't think in this type of market you can bank on appreciation when there's a potential that the market has further to fall, that the US economy could go into recession, that real estate could fall further as people get more desperate and can't make their insurance payment, for example, in Florida. So I'm going, where are the motivated sellers? They're in vacation rentals, they're in second homes, they're in the South where everything went crazy. Now the expenses are so high for both taxes and insurance that you can't make a lot of things cashflow even with low interest rate debt, which is why people are still selling properties with low debt. So I think that the best opportunity is where you can get a really good basis and you can buy it for less than it's worth. The people that are motivated today are those vacation rentals, those markets and commercial real estate. The issue with commercial real estate is that my lending options are much more restrictive and still variable and risky when I don't know where rates are going to be. So if you're going to buy a commercial real estate asset, let's say apartment buildings, Jack, you've got a lot of people that I know are still there, they're doing deals and they're buying it at a 20 % discount to what it was, you know, before it felt 30 or 40%. So they're still buying it probably at a price that's too high. They're still buying it at a five to six cap. because sellers can't sell it for less because they got to pay off their mortgage. So they're buying. Jack BeVier (49:17) Yeah, that's the that's a big difference between the multifamily and the single family is that houses haven't gone down really like multifamily have because cap rates went from five to seven, but houses just stayed, you know, and actually ticked up a little bit. So like, there's a real disparity now between those two markets. Anna Kelley - ReiMom (49:23) Right. Yeah. Yeah. Exactly. Huge. And so, you know, if you can go in and buy a multi unit that still has a value add component, but it's actually cash flowing with the debt you put on it, that could be a big opportunity that if interest rates go back anywhere to lower than they are today, you know, let's say interest rates fall a percent, your cap rate after about a year might go down a percent. So you're going to have some value add there. The question is, and the reason I haven't bought more deals, even though I'm looking every single day for multifamily deals I'm evaluating to today as a matter of fact, is the cap rate at which they're being sold, at which the seller can even sell it instead of just giving it back to the bank. Do not let me cash flow unless I'm at about 60 % LTV. I don't wanna be that low because then I have to raise 40 % from my investors. My cost of my capital when you... Jack BeVier (50:08) Get out. Yeah. Anna Kelley - ReiMom (50:23) consider your investors need 15 to 20 % on their money is much, much higher than that, you five or 6 % I can get on the loan on a risk adjusted basis. I'm not even making 5 % of my money. I might as well tell my investors, put your money in a treasury and not take the risk of trying to guess where cap rates are going to be, guess where interest rates are going to be, and then deal with the fact that insurance has gone up, you know, 100, 200 % in most markets, taxes are still going to go up. So I just don't feel like right now I have the cash. If I were a REIT, I'd go buy. And REITs are trading brand new apartment buildings. Yeah, they pay cash. Jack BeVier (50:58) Yeah, low, yeah, the folks who have lower yield, lower levered yield thresholds, but like, you can't find a deal that prints a high teens equity return when you have to put 40 points of equity down. Like that's just the deals aren't that good. Anna Kelley - ReiMom (51:07) No. Absolutely, absolutely. Plus, you know, reserves, you gotta have good reserves. And so, you know, if I can't get agency debt on the property and make it cashflow, to me, it's not worth it. Would it be in the future? Yes, but I'm kind of, and this is a really important part of this conversation, I think too, just kind of putting on my old advisory hat. Every investor has to ask yourself the fundamental question, what's my number one financial goal for the next five to 10 years? Really five, but let's say 10. Mine used to be I needed more income. So I flipped a bunch of houses and bought a bunch of rentals. Then it was I want more equity growth. Now my needs are met. So because I had the hundred units that I lived on, I was able to go syndicate and wait on a lot of the payments for the back end. could do growth and I could hold. Now I've built so much that I want to protect and preserve. I, you know, in full disclosure, I'm in preservation mode, number one, because I think there's more risk that either we have high inflation which raises cap rates even further, makes values fall in commercial even further. Or we might have recession, which might make me have higher delinquencies, not be able to raise rents enough to cover the increase in my insurance, like that's the big one. And so for me, I have to get a really good return today for me to take the risk to invest for more growth. And right now in commercial, I can't find cashflow, but every investor is different. Right. And so there's going to be investors that are going, man, this is a great deal that's paying me, you know, 6 % cash on cash. And in five years, we think we're to make millions. I'm just not there. It's not where I am on my investor continuum. So I'm just being really patient and not buying anything that's not giving me a really great return for the risk I have to take to own it. Jack BeVier (52:58) You getting bored? Craig Fuhr (52:58) Ha Anna Kelley - ReiMom (52:59) ⁓ gosh, I feel like this is a, that's a loaded question. You know, I have been very uncomfortable. being slow. You know, I worked 80 hours a week, literally 70 to 80 for over a decade to grow wealth. But I've realized in the last since 2023, two and a half years now almost that I have exactly what I wanted when we started, which was freedom. know, Craig, I think you started that in the beginning, you know, we, we hustle, hustle, hustle, and we keep thinking we have to grow, grow, grow. And I have young kids at home. My oldest just graduated college, the next one's just graduated high school a year ago, and I have two more small kids at home. They're 14 and 16. And I realized, I did all of this so that I could be home with my kids. And I have the freedom to be able to do it. But there's part of me, one, that fears I could lose it all, right? Because there's so much outside of my control. There's another part of me that says, if I'm not giving my best and giving back and using my talents and my skills that I'm missing the boat, right? Because we're not here on earth, I don't think, to just sit back and enjoy wealth. Like we're here to give back and be a blessing with it. And so there's been part of me that has struggled for the last two and a half years to go, if I'm not doing deals, what am I doing? And so I've learned to be very more comfortable with being in a season that's slow. enjoying that time with my kids. You know, and I was pretty good about stopping work after 3 30 when they get home, even through all the syndications and everything I was doing. But how much energy you have left at the end of the day for your family when you're under so much financial stress through the commercial GFC, if you will, for me, you know, you get really tired and you get stressed. And so I've enjoyed a slower pace. And now I thank God that I created the financial freedom to allow me to get through this period and to be comfortable being a little less busy. I mean, I'm still managing our properties for our investors, so I'm still busy there. But I don't like that I'm not finding the kind of deals that I want that give me the returns. I don't like it and I never will. I'm always going to be an investor. I'm always going to look for great opportunities. But right now, I'm just getting comfortable with like I built the freedom, I have it. And I'm finally like letting myself really enjoy the downtime, traveling with my kids, know, taking big trips, sleeping in, not working out till nine, not talking to people till nine. I love the freedom and I'm finally getting comfortable that that's okay. You know, it's what we work for. So why don't we let ourselves enjoy it and reminding myself I don't have anything left to prove to myself or to others. Like I don't have to do more deals. I'm not going to do a deal that's not good and if it takes another year or two then it'll take another year or two. Craig Fuhr (55:56) Jack, do you, you know, I find the stories obviously similar in many ways. Do you ever have a fear of losing at all? heard, does that ever run through you? You manage a lot. Jack BeVier (56:08) We've we've yeah, we've, we've built, we've de levered, we've delivered the company a lot over the course of past like six years. so like where we were six years ago. Yeah. but the, but I felt much more comfortable about the operating environment then. So like the leverage level didn't scare me as much because what we were doing with it felt less, you know, well, the environment around us felt more stable. The past five years have been, you know, just so tumultuous that we have Anna Kelley - ReiMom (56:28) Yes. Jack BeVier (56:35) proactively delevered the company and built up a lot more equity so that our investors, we knew our friends and family were going to be safe and we were comfortable that we would always be, we would be the last guy that our banks would ever want to foreclose on. Like they'll be dealing with everybody else first. That was kind of, that's kind of been the operating, the thesis that we've been getting ourselves comfortable with that like, Hey, if this all goes to shit, they're going to have a huge mess to deal with. And we'll be the last ones that they deal with. Cause we're going to look better than everybody else. from a credit profile perspective and that'll be our safety. know, ⁓ they won't mess with us. Anna Kelley - ReiMom (57:07) Yeah. I feel the same way. I've done the same thing where before I was like, I would never put less than an 80 % loan on anything. I'm going to borrow as much as I possibly can, ⁓ you know, at really low rates because it's in quality properties. And then, then after what, you know, happened, like with COVID, I'm like, man, I got to start holding reserves. So I'm so uncomfortable that I have so much cash making hardly anything compared to before. Jack BeVier (57:15) Mm-hmm. Mm-hmm. Anna Kelley - ReiMom (57:31) but I sleep like a baby at night knowing I've got a lot of equity. I've got fixed rate debt on most of my stuff and it gives me less fear that I'm gonna lose it all. But there's still that little piece in the back of my mind that's like, you who knows what's coming. So you control what you control, right? And then you just deleverage, you know, gives you a lot of opportunity and, you know, versus having a lot. Jack BeVier (57:48) Yeah. ⁓ The as much as we like, you know, I don't know, we're talking about it even at the time that like in this, I'm talking about like 2022, 2023, we still kept doing deals during that vintage and we're cleaning up and the hit rate of that, you know, the 2022, 2023 deals sucked. Like as a vintage, that was a bad year for deploying money. Um, like, and we're working a bunch of stuff out right now. And that's what's keeping us busy is doing our 2022, 2023 workouts. that's wish I wish I'd just gone golfing, you know, like, um, but you know, Hey, that's, that's something to get up for in the morning too. You know, a loss aversion is a powerful motivator also. Anna Kelley - ReiMom (58:23) yeah. Yeah. Yeah. Mm-hmm. Yes. And that takes time, know, going back to the time, it's not like I'm not working. I mean, it's a lot of work to just manage well what you have and to and to be on the forefront of like, OK, I'm to have to refi this one. Like I have a bunch of loans coming due. I had two this year and I have a bunch next year. They're not due, but the rates reset. So it's like, great. Am I getting ahead of like raising the rents where I can, cutting the expenses where I can? getting ready for my mortgage payment to go up, shopping loans, you know, so all of that actually takes a lot of time as well. Jack BeVier (59:07) We started for the first time ever, we started actually just paying stuff off. We were like, I'm coming up on a rate reset. You know, it was a 10 year loan 10 years ago. I'm going to have to refi it. The rate today, you we did a 10 year fixed back in the day, fortunately, and the rate reset. Like we're like, you know what? You know, it's going to be seven something. Screw it. We've only got like 15%, you know, 20 % LTV left of debt on that thing because it's gone up so much. Fuck it. Pay it off. You know, like Anna Kelley - ReiMom (59:13) Yeah. Yeah. Jack BeVier (59:34) and just investing cash at 7 % to just delever the whole environment. It's not sexy, but Anna Kelley - ReiMom (59:39) I have a question for y'all. Can I ask you a question? Okay, I'm gonna, Craig knows this, but years ago, I applied for a loan with Dominion. was for a flip. It was a hard money loan. First loan I've ever been denied for, other than the bank that pulled my loan during the GFC. And you know what it was, I was so upset. We're still friends. You're still on my lender list, right? Craig Fuhr (59:41) Yeah, we love that. Jack BeVier (59:58) really? You Anna Kelley - ReiMom (1:00:08) But I was so upset because Craig told me about Dominion when I met you. And I was like, OK. And I found a house that I wanted to flip. And I had all this equity, like multi-million dollar portfolio. I don't remember how many rentals I had at the point, maybe 70 or something like that. I had good credit. I'm like, man, I've lived through the GFC. I still have an 800 plus credit score. Had good income. Craig Fuhr (1:00:08) I mean, you're on the show. Anna Kelley - ReiMom (1:00:30) And I was denied because the underwriter said, I don't have enough cash reserves. And I was like, it's a hard money lender. They're lending to newbies who have no money and no credit, but they were upset that I didn't have cash reserves. And at that point, I'm like, why would I have that? Like the percentage that y'all wanted at the time, I'm like, why would I ever hold that when I can make 20 % of my money? It's ridiculous. Now that we've gone through, you know, COVID, I have a lot of cash. So I'm sure I'd qualify for your mortgage today, but. Jack BeVier (1:00:48) Mm-hmm. Anna Kelley - ReiMom (1:00:59) Given what you've been through and what we just talked about and deleveraging things, I'm curious in this environment, when you have investors who have a lot of debt, but they've got significant wealth, what kind of cash reserves are you as a private, as a hard money lender, as a DSCR lender? Like what kind of reserves make you comfortable for investors? Is it a percentage of their portfolio today? Are you looking at that again where you didn't used to? Like Fannie Freddie, they used to... make you have 10 % liquid compared 10 % of the loan amount. Now they're getting tighter on that. So they want to see a lot more reserves when they're doing loans. They've cut their LTV that they're lending. They've raised their DSCR and they're requiring reserves. So I'm just curious how y'all are looking at that in terms of this environment and the reserve requirements you have for investors. Jack BeVier (1:01:30) Mm-hmm. Yeah. Yes, the DSCR loans, kind of the market is six months of reserves there, which is not much to say, right? Like it's very, very low. So that's that's like, you know, that's easy. On the RTL loan side, the hard money side, we've always been sensitive about operating capital. And it was it used to be way above market, right? Like at the time you probably applied, that was the first time you ever heard that nobody was asking that question. And Anna Kelley - ReiMom (1:01:56) Yeah. Yeah. No. Jack BeVier (1:02:14) We know we've lost a bunch of business for it because but you know, because it was an above market ask. But from our perspective, the only defaults we've had have been cashflow defaults have been people running too fast because deals were easier to find. And so they got they get themselves over their skis operationally, not only operationally from a flipping perspective, managing projects, but also just from a cash flow management perspective. And now in 2021, we looked silly. Anna Kelley - ReiMom (1:02:34) Yeah. Right. Jack BeVier (1:02:43) because everything was just selling so fast. You could get a refi so easy. Everyone's like, dude, no one's got cashflow issues. Money is flying around everywhere. So like, this is just like an above market, you know, in retrospect, it's like, well, it wasn't necessary for that period of time for this period of time, but we've just stuck to it the whole way through. We've been like, no, like, well, I mean, and the math is pretty easy. It's just the down payment plus closing costs. plus 20 % of the rehab amount because we're reimbursing for work performed. So we want to see like, Hey, you can, you know, I don't want to do 50 draws on a hundred, you know, on an $80,000 rehab. like you better have 16 grand of operating capital to get the project started. And then 12 months of payments because it's an, it's an non-income producing asset. But then probably the thing that probably the thing that was on top of it was, and also, and also a year, probably 10 % a year payments on all the other private debt that you've got outstanding. That's income producing. Yeah. Anna Kelley - ReiMom (1:03:35) Yes, that's what it was. It was like all my other payments. Why don't you have them? And you know, large multifamily are like industry standards as you hold three months of expenses for reserves. So we have that, you know, for everything, but we certainly will never have six months expenses and reserves on, you know, million dollar plus annual income. ⁓ So, yeah, so that was kind of. Yeah. Jack BeVier (1:03:55) Yeah, yeah, we've we've we've run more conservative on that perspective, frankly, because like, my goal is not to deploy $5 billion. My goal is to keep my money deployed in the most attractive risk adjusted return, right? Dominion financial services would in 2018, Dominion financial services would not have lent to Dominion properties, we did not qualify, right? Like the way that I wear my equity hat is not the way that I wear my debt hat. They are completely different business models, right? They're different perspectives. So Anna Kelley - ReiMom (1:04:05) right. Bye. Yeah. Right. Yes. And as a lender, it's super smart. mean, that's how you de-risk, know, the correct question of how do you sleep at night? Like if you're lending on really great properties with people who have the wherewithal to survive, you know, bad economic times. I mean, that's the smart thing for a lender. It's just for the equity. It's like, ugh. Jack BeVier (1:04:39) Yeah, yeah. So yeah, from a debt, you know, from the debt, from the lending company perspective, from a risk adjusted return, you know, my goal is to lend to the safest people on the best projects. That doesn't necessarily mean the best flippers, the highest volume flippers. I'm you know, I want to make sure it's the flippers that are like the lowest risk profile. And I was not the lowest risk profile flipper. So you know, where we are, we are not the lowest risk file flipper. But that's a different business model, right? That's a different that's that's an equity perspective. Anna Kelley - ReiMom (1:04:47) Yeah. Yeah. Yeah. Right? Jack BeVier (1:05:08) so anyway, that's probably that's why, yeah. But then today, but then today I'm today, I'm feeling really good about it though, about, about that, having that as like part of our credit culture. And that's what my book looks like because the liquidity events have gotten a lot harder to come by, right? The houses are selling much slower. Payments are stacking up. Projects are stacking up. The DSCR refi is still available, but Craig Fuhr (1:05:11) That was a great answer. Anna Kelley - ReiMom (1:05:18) Yeah. Yeah. Jack BeVier (1:05:32) you know, with seven, with a seven handle on it as not a five handle on it. So like you might get your hard costs back, but if you're buying in really nice areas, you also might have some money stuck in that refi. So liquidity is just, you know, the, environment's just sucking liquidity out of everybody, you know? And so I don't want to experience, you know, a big spike in, in payment defaults because the liquidity environment is a lot tighter than it used to be. And I agree with your perspective that, and I don't see it really like, I don't see any like, Anna Kelley - ReiMom (1:05:43) Right? right? right? Jack BeVier (1:06:01) reason why it's going to get a whole lot better in the next year. So let's just us. Anna Kelley - ReiMom (1:06:04) Right? Right? Craig Fuhr (1:06:06) Hope that answered the question. Anna Kelley - ReiMom (1:06:07) It did. It did. Yeah. No, and I think these kind of conversations are so important because every deal has a different risk profile to both the lender and to the borrower. And I think when economies are booming, generally speaking, credit's looser. And obviously, when the economy starts to struggle, lenders start getting tighter. And I've seen tightening lending conditions significantly, both residential and commercial in the last year or so. But I think, you know, usually it's not till you have a recession that credit really tightens. So I think if we have the recession, if it's anywhere near, you know, fast and suddenly or deep, think banks, and I'm sure you guys as well, would start to get even tighter. just for the risk that's there. So I'm kind of looking as a buyer, the first thing that I look at when I look at the deal is can I qualify for the loan? What's the LTV? What's the DSCR? And then that makes me toss most deals before I even have to get too deep into the underwriting. But I think that's gonna get even harder if the economy continues to soften. Jack BeVier (1:07:14) Yeah, we've always like leveraged the being in the lending business as just, you know, just getting the perspective that we get to watch lots of other people do deals. And we're just like, you know, we're kind of like on the side, like seeing if they make their payments and we see what they sell for. And, know, I can get a sense of whether they're making money or not, or if their days on market is increasing or people are, you know, uptick in payment defaults and in across markets. And so that's been a very valuable perspective for us. And then adding the DSCR loan is also really nice too, because my view is that we had those big decreases in pricing, in asset pricing, when you have liquidity dry up. the amazing deals from 2009, 2010 were not because, not just, you it wasn't because like, hey, we have all this excess housing, that was a driver, but it was that you couldn't get a loan on it. That's what made the asset. Anna Kelley - ReiMom (1:08:06) Right. Jack BeVier (1:08:07) price fall. So like, I'm much more interested in, you know, if capital starts stops, sorry, capital stops flowing to a particular segment, the asset deals are going to be there a year later, right? So far, we haven't seen we've seen like modest adjustments to DSCR underwriting, but not really big ones yet, like getting tighter on appraisals, or getting more, you know, more scrutiny on appraisals. exception requests of getting harder. Anna Kelley - ReiMom (1:08:19) Yeah. Jack BeVier (1:08:33) to come by to get yeses to, but it hasn't been like wholesale changes in guidelines, parentheses yet. But that's kind of like the thing I'm most interested in is seeing if the DSCR purchasers change their perspective on that product because that will roll downhill into, you know, main street asset values. Anna Kelley - ReiMom (1:08:38) Yeah, right. Yeah, for sure. Craig Fuhr (1:08:56) So, and I know we only have you for a few more minutes and thank you again for your time, but I would be remiss if I didn't at least ask you, you know, we obviously have a new administration, a lot of glass being broken around DC right now, you know, a lot of historic announcements even over the last week or so. What are you excited about over the next four years as, you know, the Trump administration tries to, you know, sort of you know, reposition the our economy, our place in the world in terms of our economy, you know, our economic sovereignty. What excites you as an investor over the next four years? Anna Kelley - ReiMom (1:09:40) Yeah, that's another really good question. You know, four years is a short period of time. You know, I'm excited that at least in this administration, whether you like him or not, and I try to be really apolitical, I like a lot of things he's doing. I don't like a lot of things. I don't like the way he's doing a lot of things, right? And what I'm excited about is that Craig Fuhr (1:09:46) Yeah, it is. Anna Kelley - ReiMom (1:10:04) I believe the level of US debt is so unsustainable that it is the biggest risk to our financial system in the United States. I've done a lot of research and read a lot by Ray Dalio, who talks about rises and falls of countries and big debt cycles and how countries fail if we get too much debt. And it really opened my eyes at how Craig Fuhr (1:10:22) Jack and I are both fans. Anna Kelley - ReiMom (1:10:28) fragile the US is and the US economy is unless the government can come together in a bipartisan way in a very partisan world and figure out how to get the debt down. And so I'm excited that whether you like him or don't, he does have what appears to be a very good plan to at least flatten the curve and to get us to a more sustainable government debt. And so things like Doge, when countries get to a place where they have too much debt and they just can't bring in enough tax income to pay for it and that debt continues to grow, if you have a more inflationary environment, the interest on that debt becomes so unsustainable. And we're really close to that being the case already with it outpacing Medicare, social security and defense spending. And so I'm excited that, Craig Fuhr (1:11:16) That's right. Anna Kelley - ReiMom (1:11:18) they're putting into place some of Ray Dalio's principles. Scott Besson, who I really like, our Treasury Secretary, has worked with Ray Dalio, is my understanding. And their plan, their 333 plan, is let's get the growth of the debt to be no more than 3 % per year. Let's produce oil, I forget exactly how many, maybe 3 billion more barrels or something like that. And let's cut our expenses significantly. Because when countries have the level of debt we have, They basically only have a couple of options and it's only while you have the world reserve currency that you can do it. So we've got to do it fairly quickly as there's threats to other countries trying to pull away from the US as the world reserve currency. You cut expenses drastically, you cut programs, it's austerity. So Doge is basically saying, we've got to cut government bloat, we've got to cut expenses and we've got to cut it by a lot. So that's a good thing if they can implement it well. The second piece is they can raise tax revenue. So there's some arguments over whether you should cut or raise. The tax cuts being permanent is not necessarily stimulatory, but it keeps things from getting worse. It just keeps people from not having a huge raise in taxes. Historically, when you cut the corporate tax revenue, you usually make it up in productivity. And so they're trying to stimulate growth. That's the other piece. they can cut, if they can... Raise tax is in some way and stimulate growth and you can get out of the debt. So we're trying to stimulate growth, build back better in a Republican way, right? Bring back on shoring, bring back manufacturing to get some growth stimulus. I'm excited about that. It might take 10 years of government spending to get it there, but after, you know, after a few years, I think there's a big potential for growth in America again, which is really good. if they can cut taxes and it be stimulatory, that can then raise tax revenue down the road. But if we're not excited about those things happening, the alternative is governments then allow more inflation without telling the people they're allowing more inflation. And so the alternative is more inflation, higher interest rates, drag on growth, and you end up either in a depression or a hyperinflation spiral. So I'm excited that they've put in the tools in place to say, let's stop this train, let's reverse course some of that tax revenues tariffs. I'm not sure where I stand on the tariffs yet at this point, it's very complex and more complex than I understand. But I think I'm excited about the potential that we turn things around and that we really have almost like a fourth turning. I don't know if you followed, you know, ⁓ Craig Fuhr (1:13:56) Sure, absolutely. Anna Kelley - ReiMom (1:13:56) Michael Howell and the guys that talk about fourth turning, but every time something is destroyed, America and the world comes into a new generation that finds better solutions, that gives us better opportunities that we never saw. There's a lot of pain until that happens. And anytime you have major disruption and major, you know, about face in government and in the economy, there's a lot of pain, but eventually you've got to have hope that we pull it out and that we're we're in a much better place in the future. So I'm trying to temper my pessimism about where I think the economy is gonna be in the next couple of years with the optimism for the future that if we don't have hope and we don't look for where those opportunities are, then we'll just sit in despair. And I'm not the kind of person that's gonna say doom and gloom, it's all despair. It's like, okay, where's their pain and where can I find opportunity in it? And then where can I look for positivity in the future and start investing now in those things that I think are going to do really well in the economy so that in the future I reap the rewards of making good decisions based on hope today. Craig Fuhr (1:15:01) Well, I can't wait to see your thoughts on that on Facebook over the coming months. Jack, what do you think of that? Jack BeVier (1:15:07) No, yeah, I have a similar perspective in terms of like, feel like I'm investing like a pessimist, right? Like I'm a hard assets investor also because I'm like, because of, I don't trust these people and, and if they inflate their way out of this problem, which is like, you know, there's many, many, many examples of, of humans doing that in the past. ⁓ You know, hard assets is where I want to be, but I hope we don't, you know, but I hope I'm wrong, you know, like invest like a pessimist, you know, vote like a dreamer. Anna Kelley - ReiMom (1:15:17) Yeah. Okay. Yep. Yeah. Yeah, Jack BeVier (1:15:35) Drip vote like an optimist. Anna Kelley - ReiMom (1:15:35) yeah. And the great thing about hard assets is they do well in both times of inflation and in times of recession. And again, different asset classes are going to have different hits based on interest rates, but people need housing and gold will always be tradeable, right? At least unless we have a major shift. And so I think if you invest in those things that have intrinsic value, you're not just investing like a pessimist. It's like it's an optimist as well, because it does well in good times and in bad. Craig Fuhr (1:16:04) And if people want to get in touch, where can they find you? Anna Kelley - ReiMom (1:16:07) Great, you can find me on social media at Anna Kelly REIMOM. And if you're interested in real estate and wealth consulting or coaching, you can find me on my website, anakellyinvesting.com. Craig Fuhr (1:16:18) So again, such a pleasure to have you on. You are a wealth of experience and knowledge. Jack, if you haven't had a chance to check out some of her epic posts, I mean, it's just, you know, these are not like, hey, let me give you, let me give you some random thoughts. These are, you know, well thought out, well researched and really thorough. And so just, you know, thank you so much for your time. love to have you on again sometime in the future as as our economic times continue to unfold, especially in the multifamily sector. It's been great to have you and really appreciate it. we're going to turn the mics off now. Of course, we'll turn the mics off now. And hang on, don't don't leave just yet. Folks, I hope you enjoyed this great episode or possibly even two. I don't know how we're going to cut it up. But that was real investor radio for today with Jack Bavarian, Craig Fure. Anna Kelley - ReiMom (1:16:50) Thank you. Thank you so much for having me. Jack BeVier (1:16:54) I'm doing it. Craig Fuhr (1:17:08) Thanks for joining us.