Why Multifamily - All the Reasons to be All in Now with Arleen Garza

0:01Boom! Shake the room, Fire Nation. JLD here and welcome to Entrepreneurs on Fire. are brought to you by the HubSpot Podcast Network, the audio destination for business professionals with great shows like Online Marketing Made Easy. Today, we'll be breaking down why multifamily, all the reasons to be all in now. To drop these value bombs, I are brought to Jacob and Arlene Garza into EO Fire Studios. Jacob and Arlene are a Texan power duo in multifamily real estate, distinguishing themselves with a people-centric focus. They founded Reap, managing 22 properties valued at$690 million with an in-house management approach prioritizing tenant care.

0:42And today at Foundation, we'll talk about multifamily real estate and why it's a prime choice for generating steady cashflow. We'll talk about tax benefits. We'll also talk about property management services and also how multifamilies exhibit resilience during economic downturns and so much more. And a big thank you for sponsoring today's episode goes to Jacob and Arlene and our sponsors. Business Made Simple, hosted by Donald Miller, is brought to you by the HubSpot Podcast Network, the audio destination for business professionals. Business Made Simple takes the mystery out of growing your business.

1:14Join my friend, Donald Miller, each week as he shares value bombs on topics like the secret to making better marketing decisions. Listen to Business Made Simple wherever you get your podcasts. Wherever and whatever you're selling, Shopify's got you covered with their all-in-one e-commerce platform. Sign up for a$1 per month trial period at shopify.com slash onfire, all lowercase. Go to shopify.com slash onfire now to take your business to new heights, no matter what stage you're in. Arlene, say what's up to Fire Nation and share something that you believe about becoming successful that most people disagree with?

1:59Hi, everyone. I'm fired up for everyone today to talk about investing in multifamily. And there is one thing I want to share about, I guess, something that others may disagree with me on about being successful, and that is that you ruin your kids. I've heard that so many times of other business owners that have asked, how do you keep your kids focused? How do you keep them down to earth as they see your success grow? And it's definitely a concerted effort, but we started early with them and showing them the value of hard work and the value of money. And today, both of the kids work with us in our business.

2:47So I would call that a success that I am very proud of. Well, I love hearing that success and that advice as well, having my first child coming into the world in just seven weeks. So it's good to know you can do it the right way. It is possible, Fire Nation. And as I shared in the intro, we're talking about why multifamily, all the reasons to be all in now. Now, Arlene, you believe that multifamily real estate is a prime choice for generating steady cash flow. And I can tell you, Fire Nation, my listeners, can appreciate steady cash flow. So tell us why you believe this. For one, we've been doing this now 11 years.

3:29So we've had quite a while to prove the concept. But for us, we've seen the steady cash flow in many ways. But one of the main reasons is that you have cash flow coming in from multiple rental units, as opposed to single family, where you have one renter paying your mortgage, your taxes, your insurance, all of your expenses. With multifamily, it's a cumulative effect. Since there are multiple units within one complex and multiple renters paying all of those expenses for you and leaving you that cash flow at the end that you can enjoy. So that's one of the reasons. Economies of scale. Obviously, when you have more units in one property, your operational costs are lower, therefore leaving you more cash flow at the end to benefit from.

4:22Stable demand, I think multifamily, we have seen more demand than there is supply, which is the position you want to be in any business. And in fact, nationwide, we are undersupplied by over 4 million units. So there are 4 million renters that are looking for a place to live. So you want to be in that position. and rent appreciation, you know, as opposed to commercial buildings where your leases are three, five, seven years in length. With multifamily, there are nine to 12 months in length. So every nine to 12 months, you have an opportunity for rent increases. And therefore, every time you increase the rent, the value of your property has the potential to go up.

5:08And I think the other thing is resilience and economic downturns. As I said, we've been doing this 11 years. In fact, we started right after 2008 financial crisis. And over the time we've been in this industry, it has historically demonstrated resilience, for example, during COVID. We saw people that didn't want to move. Our income grew by over 10 % in our occupancy during this time because people valued having a roof over their head. So, you know, and I think these are all great reasons why we like multifamily for the cash flow because it has been a steady stream of cash flow over this time. Now, you did talk a little bit about diversification benefits that do mitigate those risks compared with just single unit properties.

6:04there's also some factors that contribute to an increased demand for multifamily properties. And you did throw that number out, which is a big number. I know it can really excite people because supplying demand is such a huge thing when it comes to investing in a profitable way. So let's dive deeper into this increased demand for multifamily properties. What is contributing to this? You have demand in all areas. During COVID, people stayed put after we saw some flight to suburban areas. But I think what we're seeing, again, is a demand in the urban areas also rising. And I think a lot of it is, you know, population is growing.

6:45We invest in areas with high job growth and high population growth. But we also are looking for the areas that people are drawn to. And in most cities, they're drawn to, one, employment opportunities, cultural attractions, and amenities. So that has also driven the demand, especially in urban centers for multifamily properties. As I said, job opportunities being the best, we invest in the Texas Triangle, where the cities have seen a wide range of job opportunities in various industries. So that attracts a diverse workforce. And as people come into a market, most people rent first. They want to check out the area.

7:29They want to see where it is that they want to live long term. And a lot of working professionals are looking for convenience. Limited space. For example, in urban areas, you often have a limited availability of land. And so the scarcity of space makes multifamily properties an efficient use of that. And again, within that multifamily community, you have a fitness center, You have a swimming pool. You have the amenities like a dog park that people are so attracted to. And I think the other thing is, is this changing demographics. Now we have growth of smaller households, right? So where it used to be two, three, four kids, now we have a much smaller household and young professionals delaying home ownership.

8:20So all of that has contributed to increased demand for rental housing. Fire Nation, these are all really awesome opportunities for you to say, you know what, this is a way that I can go to be diversified in my income streams, have that steady cash flow. And then, you know, also I'm seeing that there is this demand as Arlene's sharing. So I'm going into a market that has that working for me as well. But at the end of the day, Arlene, I know one thing that Fire Nation does think about are the taxes and tax benefits that can come with multifamily real estate? Because there are some tax benefits, there are some incentives that a lot of people are not aware of when it comes to this type of investing.

9:04So can you share some of those now? Happy to do that. It's one of the great reasons we love it. In fact, we have legally not paid taxes in eight years, and it's because of investing in multifamily. So one of the main ways that we benefit from investing in multifamily is depreciation. So as owners and investors, we can take advantage of a property depreciating. So everything except the land is depreciating. And the tax laws now allow us to take a big chunk of that in the first year. And so, for example, over the last four years, we have been able to share over$40 million in tax benefits or tax opportunities for our investors to reduce their income and reduce their tax dollars that they send to Uncle Sam.

9:57Now, in addition to this depreciation, we have a mortgage on the property. So, all the interest we pay on that mortgage is deductible. And so, that's another way to reduce taxes overall from investing in multifamily. Operating expenses or various operating expenses, maintenance, repairs, utilities, et cetera, that can be written off. Capital improvements. On average, we improve properties to the tune of a million and a half to two million dollars. So, every bit of the cost of those capital improvements can be depreciated or expensed over time. So, that's additional tax deductions. Of course, everyone's probably heard of Section 31 Exchange.

10:37So, investors can defer their capital gains by using a 1031 Exchange. It's difficult with a syndicated multifamily property, but that is still an option that exists out there. And in addition, tax credits for energy efficient improvements. And then pass-through entities. So if you set up an investment in multifamily through a pass-through entity like an LLC or a partnership, you may be eligible for the pass-through deduction. So overall, many, many ways to reduce your taxes, and it is a great benefit to investing in multifamily. Fire Nation, I know you're taking a lot of notes as Arlene keeps dropping value bomb after value bomb, amazing reason after amazing reason about why multifamily could be a good opportunity for you now or in the near term future.

11:28And we have a lot of really cool things around this topic to talk about when we get back from thanking our sponsors. Are you ready to close 2023 out strong by surpassing your revenue targets? Q4 is the time to make it happen. But in order to do that, you need the right tools to help you fill your pipeline, nurture prospects, and close deals. Lucky for you, there's the new HubSpot Sales Hub. With HubSpot's Sales Hub, you're able to supercharge your sales process so you can find, track, and close deals all in one powerful, easy-to-use platform. Imagine having your data, tools, and team all in one place.

12:02Picture being able to prospect smarter with the new prospecting workspace, which makes connecting with customers easier than ever, looking to create more content to fuel your sales process. HubSpot's AI assistant can help. As you can tell, Sales Hub is great alone, but it's even better when united by HubSpot's smart CRM. Leads don't slip through the cracks. Data is connected across marketing, sales, and operations, and teams can better measure their impact on the bottom line. Stop sticking to the same old strategies and start closing more deals with HubSpot's Sales Hub. Make the switch to HubSpot Sales Hub at HubSpot.com slash sales.

12:36I love the holidays, especially time spent with family celebrating everything we're grateful for. One thing I'm grateful for, my health. But I know anything can happen, and that's why life insurance and planning ahead for my family's future is important. Luckily, Policy Genius helps you compare your options from top companies, and their team of licensed experts are on hand to help talk you through it. With PolicyGenius, you can find life insurance policies that start at just$292 per year for$1 million of coverage. Some options offer same-day approval and avoid unnecessary medical exams. PolicyGenius also makes it super easy to compare life insurance quotes from America's top insurers in just a few clicks.

13:15Plus, they work for you, not the insurance companies, so you can trust their guidance. No wonder they have thousands of five-star reviews on Google and Trustpilot. Your family deserves peace of mind. a life insurance policy through PolicyGenius can give it to them. Head to policygenius.com or click the link in the description to get your free life insurance quotes and see how much you could save. That's policygenius.com. When I launched my first physical product in 2016, I dove in knowing very little about e-commerce. Thankfully, I had a great partner to help me every step of the way, Shopify.

13:48Shopify is the global commerce platform that helps you sell at every stage of your business. From launching an online store all the way to your 1 ,000 orders milestone, Shopify is there to help. Whether you're selling shower heads or Santa hats, Shopify helps you sell whenever and whatever. Plus, Shopify gives you the internet's best converting checkout, 36 % better on average compared to other leading commerce platforms. And now you can sell even more with less effort thanks to Shopify Magic, your AI-powered all-star. Shopify powers 10 % of all e-commerce in the U.S. And with their award-winning 24-7 support, they've always got your back.

14:22Sign up for a$1 per month trial period at shopify.com slash onfire, all lowercase. Go to shopify.com slash onfire now to take your business to new heights no matter what stage you're in. Shopify.com slash onfire. Arlene, we're back and I'm going to be honest with you. A lot of my listeners, Fire Nation, they are very busy people. Like right now, a lot of them are listening as they drive into work for a 40 to 60 hour a week job that they have. a lot of them are sneaking in a quick run before or after work, maybe at lunchtime, listening to this podcast episode or doing one of any number of things.

15:00And they're consuming this content, but they're busy. They're multitasking. So let's talk about how property management services can actually simplify the investment process. So we don't have to feel like even with our busy lives, we have to tackle all of this all on our own. I think that's a great thing to talk about because we find that our investors love that they are truly passive. We take care of everything for them and professional property management services can significantly simplify the investment process and help investors. So unlike a single family home, the investor is responsible for all the maintenance and upkeep and that call for that repair always comes when you're having Thanksgiving dinner.

15:48So our investors love the fact that we take care of that for them. In fact, we have our own in-house property management company, and primarily because it allows us to have control over what happens. So what does a property management company do for the investor and for the property? Well, tenant acquisition and screening. So we are experienced in marketing vacant units, screening the tenant to make sure that we have a tenant who can afford the rent and we do background checks. We are very specific on that because we manage our own and our team is like family. So we want to make sure that they're in the best situation and best environment possible.

16:31So that's why we are very, very careful on our tenant screening. Lease administration. So we negotiate the leases. The beauty of multifamily, as I mentioned, is leases renew often, nine to 12 months. So we are handling all of that. We are taking care of the rental agreement, making sure that that is all fair and legally compliant. And we handle those lease renewals. So 90 days before a lease is coming up to renew, we notify the tenant and we engage them in a conversation. Now for us, we know our tenants well. So our conversation started way before that. But that 90 day point is when we are really starting to get serious about the lease renewal.

17:14Rent collection, that's the big one. We collect the rent from the tenants. We enforce lease terms, et cetera. And another big one is expense management. So there are a lot of expense-related property expenses, maintenance, repairs, insurance, property taxes. So we take care of every bit of that. We are negotiating year-round. And because we have a great-sized portfolio, we're able to negotiate better pricing on all of this. And that has helped really generate higher income or higher cash flow for our investors. Maintenance and repairs. That's the next one that we should touch on. As I said, if you're managing a single-family home, you're the one responsible for that.

18:02Well, in our case, we have 150 employees who are on site taking care of any emergency repairs or any preventative maintenance, which is also important, making sure that we're checking the air conditioning units in the off season so that they're ready to go during the high demand season. Tenant relations is another big one. We strongly believe that happy employees mean happy residents. and at the beginning of our relationship with any of our team members, they understand the importance of the tenant. That is the person that's going to pay the rent and therefore put money in our pocket. So if they're happy, then we believe our investors will also be happy.

18:49And legal and compliance issues, I won't go into a lot of that. Market analysis and rent adjustments. Every week, our properties are submitting data on what's happening with rents in the area so that we can monitor and modify our rent pricing. And reporting. Every month, we're sending financial reports to our investors about everything that happened at the property, any capital improvement project updates, any tenant events that we hold. like we will be doing some things for the kids with Halloween coming up and some fun activities like that. And so really for us, it's taking it off the plate of our investors.

19:33And we carry that on the REAP residential team, making sure that we are taking care of the property and we control what happens at the property every single day. Fire Nation, there's a lot of awesome reasons to invest in multifamily properties, and Arlene's gone into a ton of them. But one amazing result that you've seen, Arlene, through investing in multifamily is you've been able to have a positive impact in your tenants' living conditions, and you've been able to contribute to creating thriving communities in and around your investments. And I know for Fire Nation, a lot of them love that idea, love the concept of really having a positive impact on the lives of those people who are part of this investment.

20:20I mean, they are humans. So talk about that. Maybe give us an example or two. Sure. Well, you know, for us, that is, I think, the happiest part of what we do is being able to improve communities and improve our residents' living situation. So improved housing quality is a big one. We make property renovations. When we take over a property day one, we start upgrading the units, adding granite, new appliances, things that are going to make the home of our tenants so much nicer. We work on things like lighting, making sure that the property is well lit. We start with the gates. If it's a community that is gated, we put in a system that allows them not to have to stop at the gate, but to be able to enter the gate through their phone app.

21:12So those are the sorts of things we do for housing quality. Amenities. Amenities are big. People will pick where they live based on the amenities at that property. Fitness centers, community spaces. We have co-working spaces now that more people are working from home. Laundry facilities if the units don't have their own washer and dryer. And the big one is dog parks. A recent study showed that women in particular will pick where they live based on the amenities for their pets. And so dog parks have been installed at every single property that we own. And we also donate to the SPCA and other pet-friendly organizations to also create a better feel at the communities or in the cities where we invest.

22:04Tenant engagement, we are planning a budgeting program for all our properties. In today's world, managing your finances is key. And so we're going to be doing things like that, showing them how they can boost their credit scores. And so taking care of the financial end of a tenant's life is something we also like to do. And I think the big one is maintenance and repairs. There's a number one reason people will leave a property and that if they're not getting good service, just like we may not return to a restaurant if we got horrible service. It's the same for multifamily. So we are prompt and efficient and we track it.

22:49We know every day how many work orders are outstanding, how many are waiting on a part or what is the status of it. And we track that purposely to make sure that our service levels are the highest and best that they can be. What we know is that community building is also important. We might do wreath making at Christmas. We, as I mentioned, we'll do treats for the kids during Halloween. We might do a spring fling in the springtime to get tenants out. We've even done things like community garage sales so residents can get rid of some of the things they're not using and a little money along the way.

23:33So those are the sorts of things that we do along with partnering with local organizations. We have a team in Houston who has adopted a senior home and so they go on a weekly basis and provide treats for them and play bingo with them. And so they're building community one person at a time. So if you ask me what my favorite thing is about this industry, it is that. It is building better communities, being part of communities where we can enhance people's living situations. I love that. And Fire Nation, I know a lot of you are already coming up with ideas about things that you could do with your tenants and your communities to make an impact and to make it thrive.

24:15Now, Arlene, we talked about a lot of awesome stuff. I want you to do two things right now. Give Fire Nation, our listeners, one key takeaway from our entire conversation, just one concise, tight, key takeaway that you want to make sure that we get from our conversation today. And then give us the best way that we can connect with you, your business, any call to action you have for our listeners right now. I think my biggest piece of advice is to take action. educate yourself on multifamily investing. For example, on our website, reapequity.com, we have blogs, podcasts, white papers, a lot of information.

24:54In fact, we have a guide for investing in multifamily. And I will say, educate yourself and check out the group that you invest with because they're the ones that are going to be making sure that your money is successful. So do your homework and, but don't be afraid to take action. I think so many of us think you have to have millions of dollars to invest in multifamily and that's not the case. 25, 50, 75 ,000 and you can invest some of your IRA money. Also that may be sitting there not earning you very much. So explore the options with multifamily. And if you would like more education, reach out to us as reapequity.com.

25:35That's R-E-E-P equity.com. And we're happy to take a phone call and tell you all about what we do and how we have done a great job, I believe, in having happy investors. Fire Nation, you're the average. Of the five people you spend the most time with, you've been hanging out with AG and JLD today, so keep up that heat. And for links to everything we talked about, visit eofire.com. Just type Arlene in the search bar. The show notes page will pop up with all those links. Arlene, thank you for sharing your truth, your knowledge, your value with Fire Nation today. For that, we salute you and we'll catch you on the flip side.

26:15Thank you. It's been awesome being with you at Fire Nation. Have a great day. Hey, Fire Nation, a huge thank you to our sponsors and Arlene for sponsoring today's episode and to Fire Nation. Successful entrepreneurs accomplish big goals. That's why I created the Freedom Journal to guide you in accomplishing your number one goal in 100 days, and we're talking step-by-step. Visit thefreedomjournal.com. I'll catch you there or on the flip side. Business Made Simple, hosted by Donald Miller, is brought to you by the HubSpot Podcast Network, the audio destination for business professionals. Business Made Simple takes the mystery out of growing your business.

26:50Join my friend, Donald Miller, each week as he shares value bombs on topics like the secret to making better marketing decisions. Listen to Business Made Simple wherever you get your podcasts. Shopify helps you turn browsers into buyers with the internet's best converting checkouts. Sign up for a$1 per month trial period at shopify.com slash onfire, all lowercase. Go to shopify.com slash onfire now to take your business to new heights no matter what stage you're in.