Host: Trey Stone
Co-Host: Joe Haberstroh
Joe Haberstroh’s Background
Joe and Trey have known each other for about a decade. Joe did some consulting work with Trey’s firm in which he helped investors connect with Trey to partner in some real estate deals. Joe has also done some real estate investing of his own.
Joe grew up in central Pennsylvania but he’s been living in the south for quite a while now. His first foray into real estate was in 1984. His dad found a house for his sister who was getting married but she didn't want it because it was too close to her in-laws. Joe thought it could be a good rental property and purchased it for $6,250. Three years later he sold the house for $15,000 and was “hooked” on real estate from that point. Today he owns six single family homes and has invested in multi family real estate over the years as well. Joe first heard about multi family real estate investing through one of Trey’s employees who did a radio show on the topic.
Differences in Single Family Investments vs Multi Family Real Estate Investments
Trey asked Joe to discuss some of the differences he’s noticed between single family investing and multi family investing. Joe gives this insight:
Trey elaborates that if you do a good enough job of renovating a multi family property at a reasonable cost and you buy it at a good price, you can often still have positive cash flow at a rent level that is only ¼ of a person’s income. This makes it a lot less likely that a resident will default and fail to pay rent which results in better positive cash flow. They keep the occupancies a bit higher at their multi family properties but initially, there’s typically a drop in occupancy- it gets worse before it gets better due to the renovations and upgrades. Joe recalls a property he bought with Trey- La Valencia - where it went to 0% occupancy prior to the renovations. They ended up renovating and filling up the apartments within the first 90-120 days. Even though it had to get worse before it got better, it did not take long to bring up the occupancy rate.
Trey also discusses the turn-around times from move out to the next move in. He says it’s a company policy that they try to have apartments turned within 11 days of move out for the next resident. This is much shorter than the industry standard. When he had single family houses, it could take him two months to turn it over after a move out. Joe agrees that it takes longer to turn around a single family home after a move out but he prioritizes it and gets it done as quickly as possible because he understands the importance of spending money to get it done quicker.
Even though Joe has been a successful single family investor, he prefers multi family investments because of all of these reasons above. Trey asks Joe to discuss some of the advantages and things he likes about single family investments. Joe says the longevity of his tenants is a positive. He’s had tenants for as long as 10 years. The average time is usually 2-3 years but some are in the 6-8 year range. He likes that he doesn’t have a ton of turnover.
Trey reflects on his early years in real estate investing and learning from his mentor. He didn't know some of the basic things like the urgency of renovating a newly acquired property. Now he has a team that comes in immediately to assess and upgrade a property as soon as it’s acquired. He asks Joe what were his rookie mistakes early on in his real estate career.
Joe says he made a lot of rookie mistakes but he always bought distressed properties so he knew a certain amount of work had to be done before he could bring in a resident. He knew it would have to be painted, carpet torn out, etc. and he took notes on the condition of the property. He has a similar list when an apartment turns over- he always repaints and replaces carpet. He knows that he has to line these things up in the order of the work that needs to be done to get everything fixed and updated efficiently so he can turn it over again. In the beginning of Joe’s career, he didn’t have his list of “go-to” repair workers. He would do the painting himself and then line up a carpenter and so forth and so on. He was not as efficient as he is now and has definitely implemented a better process over the years.
Value Play Adds
Trey elaborates on the importance of the upgrades. He says that people are very willing to pay extra rent each month for upgraded amenities. He says his residents are excited and they even share it on social media proudly for their families to see. People underestimate how hungry people are for a better life and the opportunity to be proud of where they live.
Joe agrees that it’s not difficult to rent out upgraded apartments at higher rents. He remembers the first deal he worked on with Trey and their ability to get it 95% rented within the first 120 days because of the upgrades. He thinks a lot of investors confuse price with value.
“Price is only an issue in the absence of value.” Quoting a manager from his past, Joe Haberstroh
Joe says any time he bought a house, he made sure his rent was priced at $100 more per month but he gave $200 worth of value. This ensured that his houses were always rented before the cheaper ones.
Trey reiterates that price and value are not the same thing. As an investor, if you’re worried about getting to a higher price it’s because you’re not recognizing the value you’ve added OR you’re not adding enough value to the property. The only deals Trey does are ones where he can upgrade them and give residents a nicer, safer place to call home. There is a massive shortage of affordable housing that has actually been well- maintained, upgraded, or renovated.
Advice to New Investors
Joe says there are a lot of “gurus” who have price rules for what you should pay for what you need to rehab but you have to look at your situation. He says there are so many deals that he lost for $1000, or $2000, or $5000 and looking at their values today makes you think “gosh, that was the dumbest thing I’ve done.” If you’re a long-term investor on the single family side, if you hold a property for 5-10 years it doesn’t really matter what you pay for it today. Obviously you don’t want to pay double for it but the point is to just get started. Don’t miss a deal over a small amount of money if you’re a long term investor. Unless you mismanage something and let it rot, it will be worth more in 10 years than it is today.