Updated: Jul 11, 2020
The Passive Cash Flow Podcast will go LIVE to discuss the Mid Year NJ Market Update. 2020 has been a crazy year but the real estate market has actually fared quite well. Peoples Capital Group co owner, Aaron Fragnito, will discuss the current market climate in the Northern NJ market for single family and multifamily real estate. Topics include:
- Rent collections during the pandemic
- Selling fix n flips during the pandemic
- How the market has changed in just the last 6 months
- Outlook for the remained of 2020
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Peoples Capital Group has been helping passive investors build wealth in NJ real estate for 10 years. Visit www.PeoplesCapitalGroup.com to find out if you qualify to start earning passive income and pay less taxes via investing in real estate. IRA's and 401K's are accepted.
Aaron Fragnito: All right, ladies, and gentlemen. Good morning. We're going to get started here. We're going live here for the first time with the Passive Cash Flow Podcast. I'm your host, Aaron Fragnito, co-owner of Peoples Capital Group. We focused on buying apartment buildings in New Jersey, hopefully, some of our listeners here have been following us on YouTube and getting our free content there. No, we don't sell books or CDs. We don't do the boot camps. We just really focus on buying New Jersey apartment buildings, working with passive investors, small investors, big investors, and we've been doing this about 10 years.
We're going to talk today, about 15 minutes, about the pulse of the market. The New Jersey market really is here because a lot of our listeners are local, New Jersey, New York and that's one of the things they like about us. We're actually buying buildings in New Jersey, in Newark or Jersey City or Paterson. We love what's going on in Paterson right now. We see a lot of activity there.
I'm going to talk today briefly about just what we're experiencing as small business owners, flipping houses, buying apartment buildings here in New Jersey, rent collections. A lot of landlords, a lot of real estate entrepreneurs are struggling right now. There's a lot of things going on, obviously with the pandemic, economic woes, riots in the streets. There's lots of things happening at this time that makes the economy unsettled. I'm going to talk about that a little bit, but I'm going to get down to the meat and potatoes as well, as far as how we're actually doing well with collections and getting bidding wars on our properties now. Let's break into it here.
About four months ago, three months ago here, it's now July. This all started in March and we were chugging along nicely as an economy, as business owners, as real estate investors and no one really saw this coming, of course. It's called a black swan event. It was certainly very, very scary. It's still is a little scary, but we've gotten more used to what's going on right now and there are a lot of mixed messages but for the most part, it looks like a lot of businesses are getting back to work. A lot of things are starting to boom. The job numbers yesterday were phenomenal.
All right, just to go over, if you try not to watch the news as I try to get a limited amount of news these days, you really have to. Too much news drives you crazy. Just to go over the job performance number is incredible for June here. 2.9 million jobs added in June. Wall Street Journal was forecasting a gain anywhere from 1.9 to 7.2. I just want to stop right there for a second. The economist, Wall Street Journal, they were forecasting a job gain of 1.9 to 7.2. That's an unusually wide range and it just really underscores how uncertain we all are with this economy and difficulty in measuring what's coming next with this pandemic.
Obviously there are states that are starting to get hotspots again, where the virus is growing. There's other states that are doing quite well with it. I think actually New Jersey here, we're doing decently with the recovery here, with the pandemic compared to some other states. You can chalk that up, I suppose, to the-- I'm not personally a big fan of him, our governor there, but at the end of the day, I think the lockdown did have a good effect, but as a small business owner, I also I'm very weary of the government telling us we cannot run our business day-to-day. It's anti-constitutional, but that's a different podcast, perhaps.
Anyway, what I found really interesting about this job's report was the uncertainty of it and the range of forecasting. Wall Street Journal, 1.9 to 7.2? I love The Wall Street Journal. They're usually very accurate and they try their best to give you good moderate information, which is hard to find these days in the newsroom. This range though, 1.9 to 7.2, they had no idea. The forecasters, the smartest guys in the room had no idea the job report was going to be and it was good. It was above what they projected, but what that tells us is it's the uncertainty that's holding us down. It's the uncertainty of where we're going tomorrow. That is why I think a lot of-- Where we think we're struggling, but actually we're getting back on the horse here.
We're doing quite well overall as an economy. That's also, let's talk about Peoples Capital Group. How's Peoples Capital Group doing here in New Jersey? We are focusing on building our brand here. We're focusing on actually acquiring good properties in good locations. We're really bullish on Paterson right now. We actually purchased an 11-unit in downtown Paterson just two weeks ago. This is a great building with the-- Rent's about 26% below market value. Really a lot of value add in the property.
Definitely looking forward to repositioning the building, getting the rents up to market value, finding out more ways to make income on this property. We've already in just the last two weeks, five of the tenants were not paying rent when we bought the building, now everyone's paying rent. We were able to renegotiate leases, get all the tenants on board, and also work with any tenants that were having trouble there. Some tips for collections during these times were around 90% collections on our buildings. Some of our buildings that are 100%, somewhere around 85%, and by the way, we buy at a good price.
As long as we're at 72%, about 73% collections, we cover our costs on our buildings. That's really a testament to buying for the right price, keeping management costs low. I don't know if you ever heard of this guy Grant Cardone. He buys high-end Florida real estate. Oops, I shouldn't have said his name out loud. I'm going to get a letter. Basically, he's in a spot, I think in a lot of other of these "gurus" out there where they buy these Class A buildings because they look good, they're sexy. They're really attractive. They're fun to visit. They have pools and big, tall, fancy things on them.
That's great, but that's actually a lot more show than value. You can make money with Class A real estate. I'm not saying you can't, but we really prefer mismanaged Class B and Class C apartment buildings. The reason for that is because we can run them at 70% collections and still be doing okay. We still cover our costs. Obviously it's not the goal. We're around 90% collections through this time, but this just a testament of buying-- Make your money when you buy, don't overpay for the building. When you are managing it, manage it to a T and that's why we developed our own management company because we found that a lot of other management companies really weren't making the cut.
Even some big reputable companies would over-promise and under-deliver. We developed our own management company about five years and it's made all the difference. Tenants that cannot pay rent, what we do, is we give them all the government resources to get assistance there and nonprofits. You'd be amazed how much assistance there is out there for tenants to pay their rent. Especially right now, there's nonprofits, there's government assistance, there's state assistance, there's county assistance, there's all types of groups that are willing to help out your tenants. It's in your best interest to really connect your tenants with those groups and with those opportunities to make sure in these tough times, they're able to pay rent and work with you on collections.
Here we are with also flipping houses. Let me talk about this for a second. A lot of our listeners are house-flippers, which is great. What we focus on here is flipping properties, again, made in low priced real estate in New Jersey. We find that you get your best ROI for properties that are middle-priced and low-priced here. We have a nice flip going in Netcong right now, just hit the market. A lot of activity on that. We also sell properties, multi-family properties that don't really meet our criteria. Maybe they're too small or they don't work with the numbers or they're in an area we're not interested in purchasing in. That basically is how we're able to move these properties well because we're putting them out at the right price.
We have a bidding war on a seven-unit right now. We've about four or five offers on it. What we're finding is interesting. Buyers are bidding, but they're not necessarily eager to put down a deposit, [chuckles] which is required and they're not necessarily eager to either close. It's very interesting right now. It's like buyers are throwing mud on the wall, they're bidding and bidding and bidding, but then when it comes down to, "Hey, you got to sign the-- Put up the deposit, go out of attorney review, close the deal," we tend to run into challenges there.
Buyers are still a little hesitant to make those moves refining, but we are getting a lot of activity. We're getting a lot of showings. We're getting multiple bids on properties. This was not the case in March, April, and the first half of May. I would say around May 15th something happened, maybe a good headline came out. We started to flatten that curve. I think that was really it. We flattened the curve around the middle of May and that indicated to everyone we can go back out and run our economy again. The generally everyone's-- Sounds to me that confidence coming back. If you look at the confidence numbers, in the market it's there, there is a lot of confidence in the market right now.
The other thing we're focusing on is banking relationships right now. They're important. We have good relationships with our banks. We are able to really keep our loan commitments locked in. We have a larger acquisition working on right now and we needed to push it off for a bit because of everything going on. We didn't want to purchase it with everything happening right now. We wanted to purchase it towards the end of summer here.
To do that, we had to extend our loan commitment, and to do that you have to have a really good relationship with your bank. We make sure we have those relationships, and that allows us to keep buying properties and keep getting those mortgages through these tough times, where if you're just starting a relationship with a bank right now that might be tough. Again, that's something that's really proved to be an amazing resource during these tough times and it's small local banks.
I'm not talking Wells Fargo, Chase, I'm talking small local banks, credit unions. We work a lot with financial resources, Federal Credit Union. We work a lot with-- What is this? Spring Bank there. We work different Provident Banks, Valley National. Smaller local banks and credit unions are really the way to go if you're trying to get those relationships going and close on loans during tough times.
Overall, we are finding that the market is coming back. We are collecting rent stronger. We are getting bidding wars on properties. We are getting extensions on loan commitments which indicates the banks are confident with the market. The banks obviously play a big role in the market. The banks aren't lending like when they hit the brakes in March and April, that's what caused this market slow down a little bit. When the banks don't lends, like in 2008, it basically everything comes to a halt right? Because in the end of the day the real estate in most of the world is moved by banks' money and operators like us are putting together the equity, take the down payment, the operating cost, but the majority of the funds actually comes from the bank. The reason we get those funds is because of our relationship with the banks.
Right now, we are really doing quite well with that, and I think the uncertainty in the economy. Like I was saying, when we started this podcast, is the biggest issue. Again, the forecast for the jobs was wide, Wall Street Journal said 1.9 to 7.2 which just right there underlies that "Hey listen, it's the uncertainty. It's that we don't know what's coming tomorrow and listen guys, we never knew what was coming tomorrow and you won't know what's coming tomorrow ever. That's part of living life, that's part of running a business right, that's part of the thrill of the world and life."
It's really interesting when the economy drops like this, we always think and me too, "When's it going to come back? Is it going to come back?" It's a crazy thought because, yes of course it's going to come back. [chuckles] I love the people that say, "If the economy completely falls out and the world ends, buy gold." I never understood that, if there's complete anarchy, you really don't need gold, you want gun and gasoline in my opinion, but [chuckles] and real estate.
Right now, we're coming back to life. It's not the end of the world, it looks like we're doing okay. I know the restaurant industry is going to have a lot of challenges and that is not good for commercial real estate leasing, but listen, there's a reason we didn't get into storefronts and commercial real estate in that case because that's been a soft area for years now. The retail industry and the office industry is just really getting hit hard with all the changes.
I think you always have to be smart what you're investing in, and sometimes when these economic turmoils happen, it gets rid of the people who weren't investing smart or maybe the people who weren't top of their game. Right now, what we're doing is really doubling down on multi-family investments, we're focusing on just finding great discounted properties. We're continuing to acquire the properties we had under contract prior to the pandemic, renegotiating price successfully, then moving into a closing, and that's basically what we're focusing on right now.
The flipping industry is a little slow, we're going to hit the brakes there. I'm buying new flips, although we are looking, but we're very picky on the price. We do feel residential real estate values may drop a little bit at some point, it's hard to say. Rent is strong right now. Leasing is strong, we have a vacant unit, we have a line out the door, social distancing, of course, to lease our units which is great, and that's really a testament to our marketing, our management. Also, just buying in a highly densely populated area, where people are coming from the boroughs and coming from Manhattan to get out of the city and get into more residential living, more suburban living.
We've seen that trend for years, we've recognized that trend for years and that trend now is just skyrocketed because who wants to live in Manhattan with all this going on? Also, with the fact that people are commuting into work, two days a week or so, things are changing. If you don't need a community to work five days a week, living an hour from the city, it's not that bad. My father commuted an hour in and an hour out his whole life for 30 years. That's how that generation did it.
My generation, I guess we don't like commuting into the city as much. We complain more about, that's for sure, but I think we're working from home more and that's allowing us to live further from the city and that is why we focus on North Jersey, mid-level apartment buildings, decent buildings with decent amenities, not the fancy stuff in the city, but nice middle-of-the-road, well-managed properties that cash flow build equity and allow our investors to get tax write-offs as well.
If you want to learn more about how you can qualify to team up with us on a next investment and start making some passive income yourself, then you'd want to go to peoplescapitalgroup.com, where you can fill out an application form. See if you qualify. We work with sophisticated and accredited investors. If you're not sure what that is, go to our website and fill out an application and we'll get back to you. We'll let you know if you qualify and we'll have a conversation then, me and you, as well to initiate the relationship, and then you can review our private offerings if you're qualified.
My name is Aaron Fragnito, this is the Passive Cash Flow Podcast. We tried something new today, going live. Hopefully, you enjoyed it. We'll also have this out on a number of podcast platforms and you can check out our other 30 plus podcasts. We have about 60 videos on YouTube. We're going to come out with more and I do this every week with the Passive Cash Flow Podcast.
We have an awesome guest next week and that's going to be Friday at 9:00 AM. We have Kelsey who is a mortgage broker, she's going to come on talk about self-motivation. She's crushing it with her team as a mortgage broker, she's got a great team. We're going to talk about self-motivation, setting goals, and running a small business in this time as well. That's next week 9:00 AM, we'll have a guest on, but that's it for now my friends. Check out peoplescapitalgroup.com, learn more about how you can qualify to invest with us, and check out our YouTube as well. You have a good day.