I'm a pretty avid rudder. And recently, my foot had been bothering me for running so much.Then, my friends at Altra Running sent me a pair of shoes to try.I got the Experience Flow, which is a road running shoe.
And I can't tell you how surprised I am with how comfortable these shoes are.My foot pain is gone, and running has never been more enjoyable.The thing with Altra is that every pair has a roomy toe box, and I could immediately tell the difference.
My feet aren't crammed in or squished.They're super comfortable.
Altra also makes their shoes zero to low drop, which basically means your heel isn't elevated off the ground like some other shoes, which is great for enhanced balance and keeping your feet in a more natural position.
It's all-day comfort that you really do need to feel to believe. And right now, you can try a pair risk-free with a free 30-day trial.So, try them out, and if they're not for you, send them back for a full refund.
Just head over to ultrarunning.com and find your new favorite pair of shoes today.That's A-L-T-R-A running.com.Stay out there with Ultra.
Ryan Reynolds here from Mint Mobile.With the price of just about everything going up during inflation, we thought we'd bring our prices down.So to help us, we brought in a reverse auctioneer, which is apparently a thing.
Mint Mobile Unlimited Premium Wireless.How do they get 30, 30, they get 30, they get 20, 20, 20, they get 20, 20, they get 15, 15, 15, 15, just 15 bucks a month?
So, give it a try at mintmobile.com slash switch.
$45 upfront payment equivalent to $15 per month.New customers on first three month plan only.Taxes and fees extra.Speeds lower above 40 gigabytes each detail.
Quick disclaimer, the views and opinions expressed in this podcast are provided for informational purposes only and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.
For more information, go to bestevershow.com.
As long as you're not being a fool and you're looking at that cost per unit, it's a good time to buy and I would not try to time the bottom of the market.
Welcome to the Best Ever CRE Show, the world's longest running daily commercial real estate podcast.
If you want real stories behind the good, the bad, and the worst ever deals, plus insights into what really goes on in the commercial real estate investing, you're in the right place.
Our hosts interview commercial real estate experts every day to uncover secrets and strategies you can use to become a better, more informed investor.This is the Best Ever CRE Show.
Best ever listeners, welcome to the best ever CRE podcast.I'm your host, Joe Cornwall.And today I'm joined by Haley John.Haley is a co founder and managing partner of RH Capital.They focus on the Houston MSA with large multifamily.
She has done over 2000 units as an LP and they're currently holding over 1100 units as a GP total value of 75 million assets under management.First time on the show.So Haley, welcome.How are you today?
I'm awesome.Thank you for the invite.Pleasure to be here, Joe.
Well, we appreciate your time and joining us today.So since it's your first time, let's start with your background.Where are you from and then how did you get into real estate?
Woo background.So I was actually a clinical dietitian in the hospital and I don't know if you know what that means, but it's like tube feedings and venous feedings and they make squat for money.But I was married to a husband who had a strong income.
Unfortunately he got sick. And he battled leukemia on and off for three years and unfortunately passed away.We built a big life, big expenses, and we weren't married for very long.So we met with the attorney because he was sick.
And I said, I only want X number of dollars in the will because I want all that to go to your kids.I just need enough for a down payment for a house so I can move to a new city.That's it.And I was kind of naive at the time.
I didn't realize that X number of dollars was actually only four months of our expenses.
So it was a big moment if I'm allowed to say that, um, where I actually created an Excel spreadsheet of pros and cons to keep my master's degree job, go into real estate, which requires no degree, like as a sales agent, like a realtor, scared to death, did it my first year in, I made three times the amount as a dietitian.
So that got me into real estate.Then I was like, well, I want to do commercial investments one day.So why don't I just be like a commercial broker? So I started doing that and then I found out about the tax benefits and met a new man, got married.
Once I found out about the tax benefits of multifamily investing, I realized that instead of working 40 hours a week and making X number of dollars, I can work the same number of hours and the amount we would save in taxes would be double.
So that was a huge aha moment where I just hung up the broker hat and said, let's do this.And I dived right in.Okay.
So what year did you get your broker's license?
Yeah, gotcha.And that was in Texas, I assume?
Got it.Okay.And then what year did you go into investing full time?2019.Okay, got it.Okay, so walk me through your first investment or couple investments.What did that look like?
Well, I started with a couple of flips before I got into multifamily.But I imagine you're talking more about multifamily, right?
Yeah, your commercial real estate deal.
Perfect.So our first deal we acquired, it was just over 16 million.It was me plus two other partners.And that was back in 2021.We started in 2019.And then 2020 was COVID.
So everything froze, lenders froze, not a lot happened, because we didn't know what that was.Like, is that recession or is it not?It was a weird time.So 2021, we closed.And we actually just refied that property.But we brought 5 million to the deal.
with me plus two or three other partners.It's 155 units, class B, straight down the fairway.All the deals that we do are just like that in Houston where we live, class B. They're both 97 to 100% occupied.It's a portfolio of two.
They're performing well.And we just last week did a cash out refi, which in today's market is a huge win for us.So it's something we're really proud of.And I was actually looking at the numbers.We increased the NLI on that property from
today to 12 months ago by 25%.
Wow, that's great.Well, congrats on that.So okay, let me back up a little bit.So you did your first large multifamily in 2021 16 million purchase.How do you get the confidence to jump into a deal that large as your first large multifamily?
Tell us a little bit about your pre multifamily experience.And then what gave you the confidence to jump into a large deal like that?
Honestly, I think it was the brokers encouragement.Really, we were about 300k off and I would I'm such a stickler like type A OCD.I don't know what it is, but it makes me really good at asset management.
My husband doesn't like it, but it makes it really good in the business.But I was no deal 300 K difference.Can't get there.And the broker's like, look, I promise you it's going to come back and kind of talked me into it.And I was like, all right.
I increased it by 300 K. I did it, took a shot at tequila and that was it.I was so nervous.I was a wreck.
Gotcha.And not even so much my question, not so much even confidence in that particular deal.
I just mean, in general, we have a lot of our best ever listeners who maybe they've done small multifamily, or maybe they've done some flips, as you mentioned, but they're at a precipice of taking that next big step in real estate investing.
So from a mindset perspective, like what made you feel confident about taking down a deal that size as your first really large investment?
Oh yeah, that one's easy.Getting a mentor, seeing someone else do it makes it so easy.Like, oh, well now that I've seen it in front of me, I can totally go do that.
Okay.Gosh.And then you said you had a partnership on that one from the GP side.It sounds, it sounds like.
Yeah.Yeah.So I was actually a part of Brad Sumrock and I joined that back in 2019.I joined his mastermind, which back then it was actually very small, like 40 people or so very intimate setting.
And actually all of those partners today, they are my friends.I found them all from that mastermind. Half of them actually live in Houston with us.So that's really what made everything happen.
Number one thing is finding a mentor, seeing how it happens, being able to see it out in front of you, and then finding the right people to connect with, knowing how to build that team, which again, I didn't know how to do that until I found a mentor.
I didn't know that you need to think about your strengths and weaknesses, your net worth, your liquidity. your boots on the ground experience, and then couple those with the missing points to complement your strengths and weaknesses.
So finding a mentor is definitely the number one thing.
Gotcha.Okay, so that makes more sense.So you joined this mentorship, you were getting that firsthand exposure to these types of deals and experiences.
And then you're also able to partner with people in your mentorship group, or mastermind group, that it sounds like probably had that experience background that you were able to utilize as you went into your first deal with them as a partner.
Got it.Okay.That makes a lot of sense.Okay, so first deal in 2021.I think it was over 1000 or 1100 units today that you're a part of as a GP.Is that correct?
Yeah.And then we pass the invest as well.And just over 3000 units.
Okay, so to me, that's an interesting dynamic.And I've spoke to a lot of investors who are both LP and GPS and different deals.How do you go about sorting out that dynamic?Because I'm only active in my deals, I don't have any passive investment.
So walk me through your mindset of how you make that decision?Is it allocation of certain amounts of funds every year?What's your process for that?
Number one, who I invest with is based on relationship.I don't actually care about the deal.I don't care what city it's in.It's more about who do I trust.
And then figuring out do we invest passably or not is really more about our tax burden that we're looking at.So our goal is to not pay taxes legally, and we haven't done that in several years.But sometimes we can't find a deal that gets us excited.
We don't want to jump into a deal and not have good returns.So we'd rather do no deal for a long period of time.I think that's what makes us most unique.
So if we're sitting with some tax burden, we'll find other people to invest with before the end of the year.
So it sounds like you have a good problem, then the sense of you and your husband's collective income is too high, you have to find ways to invest this money, obviously, in a strategic and tax advantaged way.
So maybe there's delays between finding your next active deal, and you have excess income, you need to deploy it potentially as a passive investor.
Yeah, it's a beautiful problem to have, you're right.We don't have to jump into a deal just to put food on the table, not at all.
Gotcha.Sounds like my problem is I need to increase my income so I have so much money that I can't find a deal to put it in and I have to put in someone else's deal.That's what I'm missing in that puzzle there.
Well, I think we're in the right market for it, so bring it on.I think it's going to happen.
Yeah, that's a great point there. Okay, so let's go through your good deal, bad deal.I know we talked a little bit about it before the conversation.Why don't we start with a negative deal?
Do you have one in mind that maybe you lost money on or didn't go to plan or you had a lot of painful lessons?
The first one that comes to mind is a deal that I had an emotional connection to.I've always heard don't let emotions get in the way, but you really don't know what that means until it happens.
So it was one of my first deals that I was underwriting and getting really close to acquiring on my own. So I guess I have like an emotional connection to it.
And later on, some friends of mine, also in the same area where we do deals, where this asset is, they actually got the deal under contract two or three years later. And I thought, oh, small world.I've already looked at the deal.
I know I like the deal.I know it passes my test.So I didn't really investigate it much.I just jumped in.And I think I should have not done that.Looking back, the sub market over there really shifted since COVID and we didn't know.
Is this Houston area as well?
Yeah.So I was looking at 2019, early 2020, but post COVID over by the airport, things really shifted over there.
So I didn't really do the due diligence that I should have, I think, if I'm being fully honest, because I had an emotional attachment to that asset.
Now, had this already sold?So this was a new sale this time around?Was that the case?
Yeah, we were looking at buying the deal back before COVID hit.And they decided not to sell it.
I think they might have like, OK, so it didn't sell, then you were the second buyer in this process.
Yeah, another co-sponsor or lead sponsor acquired it, got it under contract.And then I came on and gave them some capital.
All right, so what is the deal?
About 200 or so units in the Houston area, class B. It's basically all the stuff we like, but the median household income is a little bit too low for our taste.
And I think if I were underwriting that today, I would not do the deal based on the market because that market has shifted.That income has dropped.The economic drivers in that area of Houston are just not as exciting as it used to be.
Okay.And now were you an LP on this deal or a GP?
I am a co-GP on that deal.
So when you were underwriting this deal the second time, were you really active in that underwriting process or were you more relying on the fact that you had kind of already underwritten it a couple of years earlier?
I did look at their underwriting, but I did not scrutinize the geographic area like I would for a brand new acquisition because I knew that I already liked the area.But also you don't know that a market will change like that.
There's no way to really know that. But I do think if I were to underwrite it again today, I would have made a different decision.
Yeah, that makes sense.Okay.So what year did you close on that?
That was at the end of 2021, 2021.Okay.
You said it was over 200 units.You remember what the value was at the time you purchased?
I don't remember.I'm not the asset manager on that one, so I don't have all the data right fresh in front of me.
But basically it's an income problem.The occupancy has drifted down for a long time. It's been hit by two storms in the past one year.So there's a lot of vacant units that need a lot of heavy remodel.
Expenses are actually super lean and they're rocking it in that department, but it's definitely an income problem on it.
Okay.Got it.And sounds like you're still holding that today.So what is your business plan from here forward?
Build up that NOI, sell it as the market improves.We're fortunate enough to be fixed at 3.25% interest rate.So that's the saving grace. And it allows for that drop in occupancy without totally nailing us.
So yeah, just hold it, wait for the market to improve.And we're still cash positive, so we're not in the same kind of bind that a lot of owners are in right now, especially with the variable rate loans.
So you just keep holding it, make that NOI grow, which you know is tied to value, wait for the markets to improve, wait for cap rates to improve, and sell it.
Got it.And do you think it's worth more or less today than when you purchased it?
Most of our deals are worth less.If you, well, cap rate, cap rate is higher today than it was when we acquired it.So most deals are not valued the same.They're valued less.
Unless you've been able to grow the NOI significantly enough to cover the difference.
And what is your estimation on the hold time from here forward?So you could either refinance or sell?
Three or four years.We still have three or four years left on the loan.So we've got some runway.
Got it.Makes sense.Okay.Let's shift to a more positive note.What about your favorite deal, your best deal or another one you want to break down for us?
Favorite deal is probably my first one, which the one I spoke of earlier, even though we bought it and kind of what you would call it the peak of the market.
Cause it was 2021 to me, the peak of the market is really the first quarter of 2022, but 2021 is pretty close.Even though we bought it, we still bought it on a good basis.
We only forecast a 2% year-over-year rent growth, but we had this rebound after COVID that we didn't know was going to happen in 2021, where rents were growing 16%.
So there's a lot of cool stuff that happened while we've owned it, even though the market shifted.It just seems like knock on wood, everything has run so well.And like I said, over the last 12 months, we've grown NOI by 25%.
We just did a cash out refi in a really tough market, which I'm really proud of.We can hold it for another two or three years. And maybe it's also special just cause it's my first, you know?
Yeah.It's funny you mentioned that emotional tie to property.
And obviously as investors, we always speak on not getting emotionally tied, but I'll say for me personally, my emotional attachment to properties are, I have three kids and for each kid, I bought a small multifamily that we put on a 15 year note.
So there'll be paid off once they're graduating high school and definitely have emotional attachment to those.Make sure those maintenance are really well taken care of.I picture my kid,
Being 18, taking over that property and obviously getting the cash out of it or whatever they choose to do with it to pay for education or whatever.Those I definitely get that emotional attachment to.
And I think our first deal, as you mentioned, it's hard to break that connection once that means so much to you.
Yeah.One child is for one property.Do they have to go plant flowers in the front yard?
My oldest is seven, so she's just now starting to wrap her head around what it is I do in my business and things like that.
But yes, as they get older and they're able to take on some responsibilities, yeah, that's definitely going to be a part of the process of they're going to understand this is their baby.
They're going to utilize this to pay for whatever their adult plans are and have some ownership of that.
I love that.I think you're on the right track.That's great.
Yeah.Well, thank you.Okay.So we've talked about your deals.We've talked about good deals, bad deals.We were recording this the day after election day, 2024.
And obviously I don't want to bring politics into the best ever CRE, but now knowing it looks like former president Trump will be reelected, given the potential implications on real estate on the economy, what are your gut reaction?
First thoughts on what we could maybe see going into 2025 with the real estate market?
Man, that's a tough one.I heard that Best Ever podcast, they like to put you on the hot seat a little bit.And I should have known the day after election it was coming.
Yeah.This wasn't any notes from the producer.This was all me.So yeah, I'm putting you on the hot spot.
Well, I do think we're going to see interest rates drop some.When I ask certain lenders, they think Trump's tied to a higher interest rate.So it's kind of a mixed bag.My gut's telling me rates are going to drop.
I still think if you look at real estate being on a cycle, commercial real estate, each asset is in a different spot on that cycle. Multifamily and office went down the cycle first before industrial and retail.
We're at the bottom 10%, so I think buying now or buying in the next 12 months, I think you're solid.You're somewhere in the bottom 10% of the cycle, so it's going to be good.
And interest rates, I do feel like they're going to go down, but of course I don't have that famous crystal ball.
Yeah, we'd all be a lot wealthier if we did.Right.So I think that's a really good high level view to look at it.My biggest question mark, and this was kind of my biggest question mark going into the election in general, is what are
the tax plan is going to look like.Obviously they both talked a lot of game, again, without getting political.Most of the time they don't follow through with whatever their talking points are, but are there going to be any tax plan?
Are we going to see some sort of renewal of the 2017 tax laws?
To me, that's the thing I'm focused on because I don't think the election in general is going to have a massive drastic impact on the real estate market as a whole, at least in the short term.
Obviously, you can kind of see early market reactions to it.But I think the Fed plan and less now, obviously, the Fed chair in positions are totally upheaved. that could have a drastic impact on what the Fed does.
But I think the Fed's plan was in place prior to this election, and we're starting to see the early movements of that.But as far as the tax law, I think is where we're going to probably see the biggest impacts on real estate.
I sure hope so, because it was a lot of fun.Because that was our money to invest, the money that would go to the IRS.And now a lot of those tax cuts are gone.So we have not been able to grow our business.We have not been able to acquire properties.
When we do that, we employ a lot of people. So we have not been able to employ people inside of RH Capital Partners and also people on the properties.So we're excited to see if something happens with the tax benefits.
We're excited to put people to work and put more jobs out there.And every dollar our investors invest, if they get bonus depreciation, they get that $1 back.
97 cents to every dollar on average is what people get in depreciation, assuming they qualify for bonus depreciation.That's a huge benefit on your taxes.So we're excited.
Yeah, it could be a big opportunity for investors if that happens.Alright, so shifting gears a little bit.Aside from all the things we've already talked about today, what are some of your biggest challenges you're facing as we near the end of 2024?
biggest challenges are the things we can't control.And that might be a little boring to talk about because we can't control it.There's not like a special sauce for it.So of course, taxes and insurance.That's one of the most unpredictable things.
So we've just been trying to find very clever ways of focusing on what we can control.One example, and this might be really great for listeners to implement in their own project management or property management business, we have an interesting idea.
It hasn't fully kicked off yet, but it's finalized and it's approved.We have 252 units in a really great sub-market of Houston, and there is a build-to-rent community.I forget how many homes.
It's a ton of homes, but there's no leasing office for a build-to-rent community. So what we've been able to do is the same property management company is gonna work with that build-to-rent community.
And we're like, hey, no worries, less than two miles away, we have a leasing office with all of our staff here, you could just borrow some of those staff for the build-to-rent community.
So we're only using half of a person inside the office and then half of a maintenance staff, but it's saving us on payroll 30%.That it's gonna help the BTR community and it's gonna help us.
Thinking about clever ways to control expenses is really what we're focusing on to balance the uncontrollable, like the taxes and insurance.
Okay, so a lot of the guests that we have on the podcast, especially this year, have talked about those uncontrollable issues.
As you mentioned, taxes, insurance, things that we didn't really plan on a couple years ago when we were doing underwriting on these deals that we're all working through today.
So having gone through two, maybe three years of some of this volatility and issues we didn't predict,
Knowing what we know now, in hindsight going forward, how can we underwrite deals and insulate ourselves in a way to protect us from, while yes, they are unknown, but the possible unforeseeable issues that could come up?
Have you changed your model of underwriting for that at all?
We used to estimate 2% year-over-year increase for expenses.I think standard moving forward, other than taxes and insurance, is 3%. But the expenses today per door are so much higher than they used to be.
But you know that when you're underwriting a deal, you get to see what the expenses are.So instead of maybe $4,500 a door, now you're looking at $7,200 a door.We're seeing this nationally, not just in my area.
So when you're going in, you're going in at such a higher expense per door.I think that alone is some protection rather than not being able to account for a surprise 23% increase in taxes per year and a 40, 50% increase in insurance.
You're going and knowing some of that.And I think that a lot of people buying deals are gonna be a lot smarter.I think back in the day for many years, nothing went wrong.
You could not know anything about asset management and do a stellar job and deliver on your returns.And now you have to actually know what you're doing.So I think when people underwrite,
they are going to plan for things to go wrong, more so than ever before.And I think they're also going to look more heavily at that reversion cap rate, or what is that cap rate whenever we go to sell the property?
Because when the cap rate's always been low, it's so easy to say, oh, it's just going to go up 50 bps.Well, is it?You don't really know.
So now that we've seen this volatility, I think going in, you're going to have some of those expenses already built in.You're going to plan for a more conservative reversion cap rate.
when you exit, and you're probably going to do fixed rate loans if you had experience outside of that.It just helps you sleep at night.
There is a time for variable rate loans, but at the same time, I'll take a risk with my money all day, but managing other people's money is a very different feeling, a very different level of stress.
Fixed rate, longer term holds, I think we're going to start seeing more of that, especially now that
It's in a good time of the market where we're, like I said before, in that bottom 10% of the cycle, man, the longer you hold it, the better it's going to be.
That's great advice.Okay.So wrapping up today, my last couple of questions.We are now, as I mentioned, end of 2024.How are you planning to finish out this year and focus on 2025?And do you have actionable advice for our best ever listeners?
I've already set my goals for 2025, so that would be my advice for listeners.Go ahead and think about what that year looks like and create that one big goal.
I have an Excel spreadsheet of what my one big goal is, what are the priorities to help me achieve it, and then what do I need to do each month.And each month is a tab on a spreadsheet.
And I meet with that constantly to make sure I'm on the right track and not going down the wrong rabbit hole.But we're also underwriting deals.We haven't stopped.The whole last two and a half years, we could have gone on vacation.And in hindsight,
We should have just gone on vacation.But we never stopped underwriting deals, because once the market shifted, I wanted to be one of the first to know.I wanted to see it real time, what's really happening with those cap rates.
So we're still underwriting deals, and I feel very confident that we're going to have a new deal in the next three months.So I would also give advice to not wait for the exact bottom of the market, because that's a fool's game.No one really knows.
Just like they were saying we were at the peak of the market three years before it started to fall. So if you didn't invest on those three years, you missed out, you know?So don't wait for the exact bottom.
And my gut feeling is that, again, we're in the bottom 10% of that cycle.So we're already seeing 20% reductions on pricing.
So getting in now, as long as you're not being a fool with the loan assumption, sometimes that's very attractive, but it's a trap because that cost per unit is really high.
As long as you're not being a fool and you're looking at that cost per unit, it's a good time to buy.And I would not try to time the bottom of the market.
Yeah, that's great advice.It's funny you mentioned that.I really kind of started paying attention in 2015, started educating myself on real estate.
And I remember my first few networking events I went to, people who were buying in 2015 who had started buying in 2009, 10, 11, right at the very pit of the market.I'm in Southwest Ohio, but at the very pit of the market.
They were like, the prices today are ridiculous.It's deals don't make any sense.I can't believe values are this expensive.
What people are asking for a lot of this was single and small multifamily, but just that contrast of like 2015 to 2009 and 10 people thought we were at the top of the market.And obviously we had another seven, eight year whole run on value.
So it's funny, but it's also a great advice.Don't try to time the bottom.Don't try to time the top buy deals when they make sense.
Yeah, something else to keep in mind back in 2021, for every one seller, you would have 25 buyers with pretty significant good offers 25.So your odds of winning were pretty low.
And of course, earnest money was really high, everything was really high, because you had to break through those 25 other offers.Today, you might have five that you're competing with.So the longer you wait, the more competition you're gonna have.
Great advice.Okay, where can our best ever listeners connect with you and find out more about your business?
Easiest way is LinkedIn.Haley John, H-A-L-E-Y, last name John, J-O-H-N, on LinkedIn.Happy to connect.
Very good.We will link to that in our show notes.Haley, thank you so much for your time.Thank you for all of your advice and telling us your story.We appreciate it.
Best ever listeners, if you enjoyed today's episode, be sure to leave us a five star review and share this with someone who could value from it.Make sure you're following and subscribe to the podcast so you don't miss any.Thank you for listening.
Sign in
