Host- Trey Stone
Co-Host- Wayne McCann
Wayne started buying real estate at a very young age. Wayne’s father was a salesman and his stepfather worked at a manufacturing plant. He didn’t have any background in real estate as far as his parents. He bought a residential lot, sold it to buy a few acres, sold it to buy 10 acres, then 20 acres, then something bigger all as part of his retirement plan.
He got involved in real estate clubs and became more interested in real estate investing from being exposed to it there. He bought a few rent houses that worked out really well. He met Trey and began his journey investing in apartments without any knowledge of multi-family investing. At about the same time, Wayne was taking care of his elderly father who was living in a nursing home. He invested some of his father’s money in apartment buildings because he couldn't make any money in the bank and the stock market was too risky. Wayne was able to pay for his father’s nursing home care between his social security and his income from the apartments.
Land seems like it’s a simple type of investment because there are no tenants. In reality, that’s not always the case. A friend and colleague of Trey’s, Ronnie Matthews, shared that his land investments have been incredibly profitable but it’s something that doesn’t serve new investors well because it’s the kind of thing where there’s no income coming in to cover the property taxes. If you borrow any money against it, then there’s mortgage payments as well. If you invest in land, you really need to know if that land is going to appreciate and you have to be willing to be in it for a long period of time to make higher returns, sometimes 10-15 years or longer. You’ll need other forms of income during that time because it costs you to own it. On the other hand, if you can afford to do those things then it can be one of the most profitable things to invest in. Trey points out the irony that Wayne McCann actually started out with this type of investing.
Wayne explained that he did make good money off of the land investments but when he got into rental houses he wondered why he hadn’t done that type of investing sooner. Wayne prefers income-producing investments rather than land investments. At 70 years old, Wayne enjoys being a passive investor.
Trey compares real estate investing to investing in the stock market. He comments that he dislikes it because the values of the stocks are based purely on whims and what’s in the news cycle, etc. It’s too volatile. Trey feels safer in real estate because it’s tangible. You can never reach a point where an apartment complex has zero value. Wayne agrees and explained that in 2000, he lost a lot of money in the stock market and since then has preferred to invest in real estate. In a property, you can see the real estate and know it’s still there- it won’t go to zero.
Current Economic Climate with Covid-19
Trey suspects that the market won’t go as low as it did in 2008. He says we have some economic pressure that will be relieved once there is a vaccine. Looking at the death rates in the 1-2% range and the improvement in treatments, Trey feels that it’s still tragic but it won’t be much different than some of the other contagious diseases out there once a vaccine comes along and we see continued improvement in the mortality rates.
Industry experts expect to see a drop but multi-family is still considered to be the “darling” of the commercial real estate world because people are still living in apartments and paying rent. Other asset classes have been really struggling- for example, retail, restaurants, even office products because of the work-from-home landscape. Trey suspects that multi-family values could even increase to higher values than what they were before Covid-19 pretty quickly once we begin recovery. He believes it will be a tight window to invest in the properties that are being forced onto the market because of the economic downturn. It will require quick action to invest before the values bounce back up.
Wayne enjoys making a passive income knowing that if something comes up he can donate money for relief like in the instance of Hurricane Laura. Trey says that to him it seems that people who invest for longer periods of time do it for a higher purpose. For Wayne, it’s spending time with his grandchildren and supporting causes he cares about.
Trey says, “Those things anchor us and make us more consistent in trying to accomplish things as an investor even at a point where we have enough money that we could live off of that money and not do anything else, then we wouldn’t be able to help other people we care about and that’s part of what drives us to continue seeking those opportunities.”
Trey believes that those who keep investing across decades are in the long run very successful because you learn as you go along and you get better at it.
Wayne & Trey’s Success Story
Wayne & Trey have had successful deals over the years. One of them was unique because there was a partner in the deal that sold it to them who also was in the deal that bought it from them. It’s interesting how at each phase, the investors improved it for the next, adding value over time. Wayne & Trey had a 60-70% return on the deal. They improved the quality of life for the residents by doing some basics to fix it up but also elevating the amenities on the property. They also reduced crime by installing a lot of lighting. Their goal was to make their family-oriented community feel safe and a better place to live. In doing so, they were able to charge more money.
Tax Laws & Real Estate Investing
What’s amazing about real estate is the resale value and rent value goes up as you improve it but as far as taxes are concerned, the value goes down. The IRS says that the value of real estate depreciates over time, even though you’re “adding value” to your investment properties by making improvements. As an investor, you have to follow the tax code and declare depreciation which actually shelters your income while owning the property.
Because of the depreciation tax code, most of the time all of the income that you’re earning as an investor in these deals is fully sheltered by that share of depreciation. Typically during the holding period you’re not paying any taxes on that money that comes in from cash flow.
Advice from Wayne McCann who has invested in different property types:
They need to find the right person to invest with. Make sure they know what they’re doing in terms of management and financing. It’s a good time to buy. You always should buy when everyone else wants to sell.