How We Are Changing Our Marketing Strategy Going Into the New Year

Speaker 1: [0:01] Welcome to the collecting keys Friday focus.

Dan Austin: [0:05] Welcome back to another episode of the collecting keys Friday focus, and we're coming at you just a couple days before the Christmas holiday, and I'm in the giving spirit. So today, I'm going to gift you a free Friday focus with me, Dan Austin, aka investor man Dan, as your host. And I hope you enjoy this just as much as, like, all the, little trinkets and things your mom would put in your stocking so that you knew Santa loved you more than other kids in the neighborhood. And I'm talking like, I don't know what your mom did, but, like, at the bottom of my stocking, there's always gonna be, like, two big oranges. And I don't know if those are just, fillers or if that's a Christmas thing. My mom's kinda weird. So let me know if that's a Christmas thing. I don't know. Anyways, I haven't thought about that in a long time. Well, let's jump right into it. And today, I want to actually answer a question that I answered last week while I was being interviewed on a different podcast. The host had asked me, what are you doing in your business to adjust your marketing strategy so that you can continue to buy properties while the market is shifting, while we're kind of in these uncertain times? And I started answering the question by telling the host that that's somewhat of a loaded question for us, because regardless of what was happening in the market, Mike and I were already planning a shift in our marketing strategy. And what I mean by that is looking at what's going on in the market, of course, is going to inform decisions we make. But for in this case, we decided, you know, earlier this year that we were going to start switching our marketing in our local market where we do buy and holds to look solely at multifamily properties.

Dan Austin: [1:40] And what what I mean by that, the definition of that would be a duplex all the way up to, think we've kind of like pegged it around like 40 units. So that far below, like the institutional investor level, we're hoping to get some mom and pop investors in there, hoping to get some sophisticated investors in there that, you know, are ready to sell, but, you know, staying far below the radar and things that we know we can take down and easily bring into our portfolio. And the reason why we did that is not because we have some magical information or not because the market we think there's nothing to buy in the single family range because there absolutely is and there's a lot of it. We're still marketing for single families across the country in various markets, but in our home market where we personally own, multifamily is what we what we decided to go with. Although I do think even though this isn't the decision the reason why we made this decision, I do think probably in the latter half of next year, there will start being more opportunity maybe into 2024, more opportunity to start acquiring multifamily properties at a discount. And I think that because the last several years, there's been quite a few, what I would call wannabe syndicators that were buying these forty, fifty, 60 unit apartment complexes in the Midwest, and they were using their grandma's money or basically anybody who would give them money to buy these things. I just don't think those those syndicators are resilient enough to get through the rocky times that they're gonna have, and and that's because when they're buying these properties, you tend to have variable interest rates. And as a hedge against that, the lenders typically make you buy a rate ceiling. So it's an expense that you have to buy so your rates can't go above a certain ceiling. But those rate ceilings, they have an expiration date.

Dan Austin: [3:18] And the idea being is that either you don't believe rates are gonna go above that ceiling or that you would exit or sell the property before or shortly after that ceiling block is up. Well, that's not gonna happen for most people because those apartment buildings are gonna be worth less than they were when they bought them, And those ceilings are gonna open up and the rates are gonna stay high. And essentially, they're not gonna really cover their debt servicing or their profits are, you know, they're gonna they're it's gonna take all of their revenue to cover that debt servicing. If they have major issues, it's gonna you know, they're not gonna have any any money to make major repairs or anything like that. And I just think that they're probably gonna walk away. I don't think they're sophisticated enough. I don't think they care enough. I think it was easy come easy go. And so I do think it's not gonna be like a a flood in the market, but I think if you're looking for them, you're gonna start finding more of those. Either banks are gonna take them over or they're gonna them. Again, let's go back on track here. Was a side note. That is not why we made that decision. Although, know, it's kind of a nice data point anyhow. We looked at our portfolio and, you know, two things that we care about.

Dan Austin: [4:16] One is cash flow, and one is equity position in our properties or things that, you know, increase your net worth. When we first started out, we needed to burr every property. It had to be a perfect burr because we did not have a lot of money. We didn't have just endless amounts of cash. And as you if you know anything in real estate, it's asset intensive. It's money intensive. And we needed cash flow because we were trying to take away or the need of a w two job. We're trying to recover as much cash flow as we could from our properties so that we could replace our w two. Like that that was like our goal. Right? But as we've as we've progressed, as as we've wholesaled properties, as we flip properties, as we've added great properties in our portfolio, we've gained a pretty strong footing, financial footing, and we've gained a pretty strong view of what we wanted in this. And to us, that equity position that tends to come with multifamily is more important right now in the immediate. And to explain that, think about it this way. I'll give you an example. We have a single family home that cash flows $800 a month, and we have about a $150,000 in equity in that property bought a couple years ago.

Dan Austin: [5:24] It's a great little property. Nothing wrong with it. We love it. We also bought an eight unit about a year ago that I think it cash flows right now, like 1,400 ish dollars a month, maybe $1,600 a month after all set asides. It has right now about 300 to $350,000 in equity or not. So, obviously, a bigger property, more equity. The cash flow isn't just, you know, strikingly higher. You know, it's double, but it's nothing major. But we also have some upside in that equity because we can increase the net operating income of that property. If you're not familiar with that, anything above a four unit, so five units and above, those are valued based on capitalization rates and net operating income. Net operating income is if you think about it, you start at the top, you have your your gross rents, and you have all of your expenses like utilities, you have maintenance, you have property management, marketing, all that stuff in there. And at the bottom of that is your net operating income. It does not include debt servicing. Debt servicing comes out after that. So if your net operating income is 5,000, you have to pay the bank 2,000. Your profit to you is 3,000. However, it has a net operating income of 5,000. Okay? So you can increase that by increasing your rents, which we have the opportunity to do on this eight unit, and you can decrease your expenses, which we have an opportunity to decrease our expenses. So both ways, we're growing the top line and shrinking the expenses, making our bottom line grow our net operating income, and then we can take the market capitalization rate, whatever the market's saying is a cap rate, and divide that net operating income by that number, that percentage five, six, 7%.

Dan Austin: [6:56] And that's how we get our value. So taking that into account, the upside in the NOI means we have probably about another $100 in equity. So say $450,000 in equity in this. So 450,000 equity versus 150, it took us the exact same amount of time and money to find that deal, takes us essentially the same amount of time to manage them. So for us where we want to head, that equity is so much more important to us. The cash flow is still there, still important. The other thing that we're looking at is do we does everything have to be a perfect BRRRR? When we first started, like I just mentioned, it had to be a perfect BRRRR because we would run out of money so quickly, and you need to recycle that money. And when you're burning properties, until you get to a large enough scale, you're kind of always just tying up your money so you can only, you know, bur a handful of properties a year. If you're looking at it, needing all your money out so you can go buy another one and do it again. Right? So for us, looking at it, we decided, you know, maybe we don't always have to have a perfect BRRRR because there were some properties that if we didn't buy, they weren't perfect BRRRRs when we bought them. If we didn't buy them, we would have missed out on hundreds and hundreds of thousands of dollars of equity. And so for us, it kind of was like moment of, hey, perfect BRRR isn't necessarily a must have. Now we all grew up under this BRRR model, right?

Dan Austin: [8:10] You know, I've started, I think I think I learned about the BRRR probably in like 2013, 2014 for bought my first BRRR in 2016. So I've been doing it a while. And a lot of our listeners have been doing it, you know, probably ten years. And so that model has kind of just been ingrained in all of us. But it doesn't have to be that way. When you start out again, it is important because you you're probably asset limited, you know, somewhat, and you don't want to park a bunch of money in properties. But as things go down the road, two, three years down the road, you start seeing the value of your property going up, you start seeing the opportunity to refinance at different times and pull more money out, there's just so much more opportunity as you grow your skill sets, that, you know, being a one trick pony that bird that that, you know, right away buy it, and six months later, all your money's back out, and it's renting and cash flowing like that. That's not necessarily the model Mike and I are out for anymore. I think it's important to recognize that for where you're at in your strategy as well, that maybe it doesn't have to be a perfect burr, and it might adjust how you start buying things and how you start paying attention. Now all that to be said, it's a lot easier to scale a portfolio in in multifamily than it is single family if you are not always having a perfect BERT, and that is because multifamily, you just can get more with one acquisition, right?

Dan Austin: [9:29] Single family, you're having to do multiple acquisitions to equal that one likely that one acquisition of multifamily. So again, Mike and I want scale, we want to, we want to scale a little bit faster than the average person. And so we are shifting a lot of not all of our marketing, but a lot of our our marketing focus on things that we actually want to buy. Now that being said, we wouldn't have been here if we weren't marketing for single family homes for the last few years, and wholesaling and flipping and taking down single family BRRRRs. We had to do all of that to get to where we're at now, and I wouldn't change that one bit. I think we learned a ton about the industry, and we've done a lot of things, not everything under the sun, but we've done a lot of different things and how to learn and adapt to get to where we're at now. And so super thankful for that period of time in our investing career. But now for us, it's time to start scaling up equity positions and properties at a little bit faster rate, and adding that incremental cash flow every single month to our portfolio. So that's what we're focused on. That's what we're looking at. Again, that's for us, that's looking back at our portfolios performance in reference to where we want to go, that might be totally different for you, you might just be stepping in this game and you're like, need to build that strong cash base. So then absolutely, you need to start wholesaling, maybe start sprinkling in some flips there. That's how you get that strong cash base. Then once you find a really great opportunity for a buy and hold, you buy it and you keep it, and you just start doing that over and over again until you get enough cash position to make a switch. Maybe for you, the switch is going be triple net properties, maybe the switch for you is going to be office buildings, I don't know.

Dan Austin: [11:03] Ours right now and then for the next twelve months is going to be focused on these small to mid sized multi families. But again, that's going to be up to you in what you want to do. But I'd be happy to talk through that with you. I know Mike would be as well. So feel free to hit me up on Instagram, investor man Dan, and let's let's chat. Let's do some masterminding on that for you. Other than that, if you want to learn more about what we're doing from the off market real estate standpoint, go to the collectingkeyspodcast.com/free, and you can get the free five step guide to do what we're doing. Other than that, I hope you all enjoy your Christmas holiday, and I will talk to you next week.

Speaker 1: [11:41] Thanks for listening to this collecting keys Friday focus. Be sure to subscribe wherever you listen to your podcasts.