Today, my guest is Jeff McKee. Jeff is a real estate syndicator. He's a limited partner in 1500 doors. He's also a general partner on 10 properties with over 2500 doors, and 200 million assets under management. And in just a minute, we're gonna speak with Jeff about multifamily apartment investing.
I'd like to ask you, Jeff McKee. What is the biggest risk?
Yeah, I mean, I would say, you know, from like a property casualty, some of the areas that we invest in are on the Gulf Coast, you know, whether we're invested in Corpus Christi, Jacksonville, Florida, you know, all these places. And so, you know, we do you review and have great insurance on our properties. And so it's in case there's, you know, fire flood, you know, that kind of of a damage, which, you know, it happens occasionally, in these communities. And then you also need the business continuity insurance in terms of, if we displace guests, maybe to a hotel or another community while their unit is getting repaired, maybe there was a flood or there was fire, we also need the business continuity, to make sure any rents that we would have lost that were covered on that. So yeah, we're basically, you know, well insured. And so that's something that, you know, we're very cognizant of, of in terms of, you know, where are we with, you know, FEMA flood map, you know, where are we, with this, and in terms of any hazards that we got on the property. So that's probably the first one. And then lately, you know, in a rising interest rate, the second area of risk, and we're trying to mitigate is trying to put a rate lock, so trying to lock in the rate before it keeps creeping up on us. And so then that would, would be another one, basically, we're fortunate in the US to have a lot of fixed rate long term debt. So we're just very careful of the adjustable rate mortgages, the arm products out there, because, you know, they could, you know, creep up over time. And so when we're putting a lot of debt on these properties, you know, 3040 $50 million loan, or trying to look at the rate law, and be able to manage that. And sometimes, you know, we pay a bit extra to get that type of insurance, the rate lock cap, so we try and put a cap on any interest rate, that we're locking in long term debt. And so those would be two areas, you know, kind of the property casualty and business continuity. And then the second area in rising interest rates, having a rate cap and paying for a lock and, and underwriting that expense. To give you some assurances of your debt payment won't escalate much over time.
J Darrin Gross
I'd like to ask you, Chris Prefontaine, what is the biggest risk?
Probably gonna throw a different twist at this fire, especially coming from the insurance side of things. Look, the market my opinion, the market is going to keep changing. It has for decades, I've been out for three decades, it will continue to change. So people get all caught up with the media and all it's going to change. And the risk is that the risk is not there. The risk is you not knowing how to navigate. As it changes, you call it the storm. And when you know how to navigate when the market changes. You're not You're not at risk, because you're not a bob and weave, you're not a pivot, you know how to structure the deal after the deal. And you know how to be keyword adaptable. That's it. It's not the strongest, it's not that smart. It's the most adaptable. And then how do you do that? How do you mitigate that that risk? How do you get in that mode? My opinion, you find someone that's been through at least two or three storms to use your word, and then you lean on them? Constantly. There were two times in my career, I didn't have that person 1994 ish in 2008. And the only times I had a headache. So every other time in life, I've had a mentor that I could call up and go, Hey, Darren, what do you think about this? What would you do here? I'm a little a little perplexed. That mitigates your risk, and that lets you be more adaptable.
Today, my guest is Erik Oliver. Erik is the regional manager for cost segregation authority. In just a minute, we're going to speak with Eric about cost segregation, what it is, how it works, and the benefits for real estate investors.
J Darrin Gross
If you're willing, I'd like to ask you, Erik Oliver, what is the biggest risk?
Yeah, you know, for me, as you know, I didn't have any investment properties when I started doing cost segregation. And so by working with clients all the time, and seeing the value of owning real estate, I've started to get into real estate myself. And I think the biggest risk for me is, I went back and forth, do I need a property management group? Do I not? Do I manage these myself, you know, I actually live by my investment properties, I can don't step over what is the saying don't step over $1 to save a penny, you know what I mean? Let the experts do it. There's a reason that they're property management experts, there's a reason that your CPA should be filing your taxes, and you shouldn't be doing it yourself unless you know what you're doing. And so I think, the biggest risk for me that I've had to learn just that let the experts do it. And I see it all the time in my industry, where people do their own taxes. You know, I've seen people who make, you know, in the millions of dollars and have very sophisticated tax returns, and they're doing their own taxes on TurboTax. Because they don't want to pay a wealth advisor or a CPA who has the experience. And I'm like, what you're gonna pay that qualified CPA who understands real estate to do your taxes, you're gonna get back tenfold in the amount of deductions. And you know, the left the reduction in your tax liability. And so I think, if I can just share one thing, and that is surround yourself, you can't be an expert in everything, right? And so know where your faults are, and be humble enough to say, I'm not a tax expert, or I'm not a property management expert. I'll tell you just a quick story. I learned that the hard way. My very first investment property was actually when I lived in Virginia, I moved out of Virginia, I moved to New York. And I said, I don't want to sell my house. I'm going to just rent it in Virginia. And I'm going to do it myself. So I put an ad out there I met with some potential tenants, I found some they seem like the nicest people in the world. I didn't know I should do a background check. I didn't know that I should run their credit. There's my first gig, right? So Micah, they're nice. They sat down, they talked to my kids, we had a great conversation. They rent I rent the house to him, I moved to New York. And I never hear from him again, right? They paid their rent, the first two months. Great on time was perfect. But then the people that kicked them out of their old place started garnishing their paychecks. And that's when they stopped paying my rent. And had I done a background check. This all would have showed up but I didn't want to pay the 10% management fee. I'm like, I want that for me. And so surround yourself with I didn't know what I was doing. I thought I did but I didn't. And I should have been humble enough to say, Erik, you don't know what you're doing. And so humble yourself and say, what are you good at? And you'd be the expert in that. But we can't be experts in anything and in everything. And so surround yourself with people who are good property managers, good lenders, good CPAs good attorneys, good insurance agents, right? And let them be the experts and take their advice and be okay paying for that expertise, because you're going to come out ahead in the long run.
Today, my guest is Lauren Coville, Lauren is a CPA and the Vice President of Finance at Occupier. Occupier is a lease management software solution, empowering real estate teams, finance professionals and tenant rep brokers to collaborate on the entire lease lifecycle, and maintain compliance with lease accounting standards. And in just a minute, we're gonna speak with Lauren about how new lease accounting standards are impacting organizations and their care processes.
J Darrin Gross
I'd like to ask you, Lauren Covell, what is the BIGGEST RISK?
The biggest risk in my mind is understating the level of effort required to maintain compliance with ASC 842, a lot of people are just rushing to get implemented under a 842. But really, in my mind, it's a race to the start, that where the going gets tough is maintaining that compliance. And if you don't have those processes established, or if you're not leveraging software, you know, you're going to open yourself up to a lot of risk. And so without, if you can, maybe give the standard a little bit more credit, then you can think about, okay, where do I need to improve my processes? What people do I need, what resources do I need in order to maintain compliance with ASC 842. Because what got you to comply with the old standard is not going to get you where you need to be, as we talked about, there's massive risk in manual error, even if you are certain that everything is accurate, there could be a fat finger, that will be a formula reference error, there are so many things that can go wrong in these massive XML files. And then you have the risk of not interpreting ASC 842 correctly, that if you don't have the technical expertise in house, that's also going to be a pretty big risk. And I think, you know, of course, when you think about the insurance policies, you're never going to absolutely move that risk to someone else besides the finance team or transfer it right. But there are ways that you can mitigate that. And I think the biggest way that you can mitigate is start thinking through your processes. And whether or not you should be leveraging software to help you from a capacity standpoint, really helps you like leaps, make leaps and bounds in your transition to 842. And also, obviously, make sure that you're compliant with everything.
Today, my guest is Omni Casey. Omni has been a real estate investor, broker and coach for nearly 20 years. He invest in small to mid size multifamily, cash flowing real estate from Virginia to Hawaii. And in just a minute, we're going to speak with him now about investing in cash flowing small to mid size multifamily properties.
I'd like to ask you Omni Casey, what is the biggest risk?
That is a great question. I think there's a lot of little things you can point to you mentioned environment and and you know what's going on in the world. You know how that might affect your individual acid at the time or your strategy at the time, but my answer is probably a little bit more abroad, you know, because what I've found over the years, no matter who's in office, right, no matter what's going on in the world, you can be successful in what I do in real estate investing, and you just got to be willing to change your strategy, when you understand what's happening there. So I think the biggest risk is really not understanding the rules to whatever game you're playing. So understanding the rules is so important. And some people don't even understand the game, so maybe not understanding the game. And then, like what I'm doing, you could actually choose to play a different game, right? There's, there's a very common game out there, I'm like, Well, if I can get good at my own game, no one was actually in my space playing the game that I'm playing. So I don't have a lot of competition. So it's actually much easier for me, because I created the own rules to my game. Once this picks up, then maybe I gotta go figure out how to create a new game. And so when you're looking at some constants that we think are constants, and maybe they change, how does that affect vote, for example, um, a lot of talk about inflation, right, we're north of 7%, and who knows where it's gonna go. And, but that's a rule, that's a rule in the game. And if, you know, I use the analogy of gravity quite often, like if gravity changed today, like if the like, if, for whatever reason, gravity was at 50%, and people like borderlines started to float away, we would have to change the rules to how we live our day, right, we'd probably have to wear heavier clothing and you know, not jump around, or whatever the case may be. But we'd have to adapt and get used to it. And so 7% 8% 10% Inflation is crazy. But as long as we're adapting, and we know what to do, we have to invest differently, like my investment decision today is different than it was five years ago, based on inflation. Same thing with insurance. Well, same thing with interest rates, if the interest rates continue to rise, alright, that changes my strategy, my strategy is drastically different. But understanding that all they are just rules to the game, I gotta shift what I'm doing. So it's really a self analysis of what your goals aren't what you're doing, and understanding that everything that's going on around you are just rules to a game, if you understand them, you can use it to your advantage.