Updated: 4 days ago
Connect with Chris at smartrealestatecoach.com
Chris Prefontaine Best selling novel, The New Rules of Real Estate Investing, on Amazon
Popular Real Estate Coach Chris Prefontaine explains how he restructured his real estate investment company from the real estate crash in 2008 and came out even stronger. Aaron and Chris talk about adapting their business through the current pandemic and how to survive the tough times as a fast learning business owner. Listen in to learn about seller financing, entrepreneurship, pivoting your business based on the market and how Chris works with new investors to help them build wealth in Real Estate.
Chris Prefontaine is a 3-time best-selling author of Real Estate on Your Terms, The New Rules of Real Estate Investing, and Moneeka Sawyer's Real Estate Investing for Women. He's also the Founder and CEO of SmartRealEstateCoach.com and host of the Smart Real Estate Coach Podcast.
Chris has been in real estate for almost 30 years. His experience ranges from constructing new homes in the '90s and owning a Realty Executive Franchise to running his own investments (commercial & residential) and coaching clients throughout North America.
Today, Chris runs his own buying and selling businesses with his family team, which purchases 2-5 properties monthly, so they're in the trenches every single week. They also help their Associates and students do the exact same thing all across North America, working together on another 10-15 properties every month.
Having been through several real estate cycles, Chris understands the challenges of this business and helps students navigate the constantly changing real estate waters.
The Passive Cash Flow Podcast is for beginner or experienced investors. Subscribe today to learn how you can diversify out of the stock market, own a part of an apartment building & start earning Passive Cash Flow!
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.
Chris Prefontaine: Sometimes that gap never gets filled, I have clients calling, saying, "Yes, but I spent this much, this much and this much. I haven't ever done a deal," which boggles my mind. How do we bridge that? We do the deals with them. We get in the trenches. We're calling buyers and sellers with them. We're doing deals with them, the students, so they can learn interactively on the fly. It's the best way to learn.
Aaron Fragnito: All right, ladies and gentlemen, welcome back to the Passive Cash Flow Podcast. I'm your host, Aaron Fragnito. We have an amazing guest here today, oh, Chris, I'm not going to try too hard on your last name. I'm just going to go with Chris. Go ahead, Chris. What do you do?
Chris: It's Chris Prefontaine, you're good buddy. We're a family company in Rhode Island. It's myself, my son in law and my son and a great team surrounding us. I've been at this, 30 years now. I can age myself with that statement but that's how long I've been at it.
I've been through cycles. Since the crash of '08, we have been buying here and when I say here, Connecticut and Massachusetts. Then we go on partner and mentor and do deals in the trenches with students all over North America. Those are two different things we do right now.
Aaron: Very cool wow. You've been doing this for over 20 years you said?
Chris: 1991, I started my man.
Aaron: Oh, man, the 90s. Oh, I missed the 90s. Man, I was watching Nickelodeon during the 90s.
Chris: I bet.
Aaron: Yes, I was just figuring out the world. There was Slime, I remember there was What Do You Do? Oh, man that was when TV was good. Oh, boy.
Chris: [unintelligible 00:01:40]
Aaron: Yes, right. That's when life was simple. Okay, what was real estate investing like back in the 90s?
Chris: '90s was fine. '90s I did everything from building homes to brokerage. I was a realtor back then, sold 100 homes a year. I was always operating at a higher pace but all that led to the crash because I was doing my own investments.
I sold my company to Coldwell Banker in 2000, my brokerage. From 2000 to '08, I was doing my own deals, unfortunately, the conventional way. 20% down signing on bank loans, things like that. I learned the hard way in '08 when things went sideways if I was to ever going to get back in the market, what are the rules?
How am I going to play? That's what reinvented us, re-engineered us. It sucked then; you couldn't have told me that it was good but that's why we re-engineered everything we're doing today.
Aaron: Oh, absolutely. When things are working, when things are going easy-peasy, you're not going to challenge yourself, you're not going to pivot your business or make changes. As a small business owner in the last eight months, I've made more changes to my life, in my business than I think we ever have before in the last eight years of running our business.
Just incredible time series, if you're not pivoting, if you're not growing with it, then you're possibly not going to make it as a small business owner. You learned from the crash there and you were buying properties, the good old-fashioned way and putting 20% down. Did you find that you were over-leveraged when the crash came? Or what was the issue then at that point?
Chris: Yes, certainly, because we were riding that train. When you think it's an ATM as long as I was in the biz you get caught up in it, you think this ATM's going to keep selling? No. When property values got cut, oh, gosh, from 1/3 to 2/3. Dominion Development that was selling like hotcakes at 170, 175, a section of the building, sold two of them like nothing.
It was like a light switch was thrown in February of '08 and those you couldn't sell it for $50,000. That was a province in the city. $50,000 so you're talking about a big change there. If you're on those notes personally, and you did that conventionally, you're not too happy right about then. That was me in about 22 properties.
Aaron: Wow, that's tough. Did you have to give some back to the bank or something like that, or you figured out a solution?
Chris: We actually did a number of things. It was a four-year part-time job, almost full time. It was bank workouts, yes, some gave them back, keep some, rent them out, sell them later. They're done now but that took about four years, from February of '08 to February of '12, almost to the date, almost to the month.
That's how long that mess took to clean up. Again, the lessons learned I mean, you don't learn you just alluded to it. You don't learn when things are going up, that's a shitty teacher. You learn when headaches happen.
Aaron: Absolutely. I see some of these businesses too, now that are failing. Some restaurants that I had been to in the past or things like that, it's funny and they didn't adapt, they didn't change properly. They didn't do take-out. They didn't put the net up and do the outdoor seating. I remember I've been to some establishments too, before the pandemic and they weren't particularly great restaurants either particularly well run and some of those are what you see, the doors closing.
I've seen this pandemic is a way of separating poorly run businesses, or maybe just mismanaged businesses to the ones that are well managed and can make those changes and make those adaptive business in their strategies to survive in these difficult times. You see here with the recession there, the huge real estate recession of 2008. You've adapted, you survived and now you're a real estate coach, is that correct?
Chris: Yes, and you used two key words if I can just go back to that, I love what you just said. You said two things that are really cool one was pivot; it was a huge word of mine. Then the second one was you said, adapt. The adapting people say, "Well, okay, cool. How do you learn how to do that?" People wouldn't know how to adapt; you get people that have experience. Yes, we do coach, but we do it a little different Aaron.
I think there's just a mess of people out there teaching as you probably would agree and you got this gap, I call it, from someone sees a course or takes a course or goes to a seminar, and then does a deal. Sometimes that gap never gets filled. I have clients calling saying, "Yes, but I spent this much, this much and this much, I haven't ever done a deal," which boggles my mind.
How do we bridge that? We do the deals with them. We get in the trenches; we're calling buyers and sellers with them. We're doing deals with them, the students, so they can learn interactively on the fly. It's the best way to learn.
Aaron: Oh, yes, absolutely. I can't even count on two hands, how many people I've come across that have said, "Well, I had money to invest in real estate, then I went to a boot camp and gave them $40,000. I don't have any more money now to invest in real estate. By the way, how does the refinance work?" It's just amazing that really there is such a gap. There's so many talking heads out there in the education space, there's so many gurus and a lot of them are overpriced, and a lot of them are going to sell you books and CDs that you can buy on eBay for about $10.
Chris: And not see them.
Aaron: [laughs] Not seeing. Exactly, that's the mastery coach so it's interesting, but I think you're onto something here with actually helping people, holding their hands through deals, because every deal is unique in its own way.
Every market's different too. I've seen a lot of people trying to teach very specific market techniques, in markets that are completely different and don't understand you have to use different techniques for different markets but that's good. You have to hold their hand, get them through the deal, once you close a few of them, it does get a little easier, of course, right?
Chris: Yes, that was for life to that point. Another good point you make, because once you learn it, you don't need us in your life. We have what's called capping out. If you do so many deals with us and then they cap out and then they're off and running. A lot of like to hang out and they love the community because it's family oriented, but they don't have to do any revenue sharing or anything with us. They're off and running.
Aaron: Very cool. Very good. I like the way you bridge that gap. That's great. All right let's go back to the future here. You were riding high in the 2000s and you got hit with reality in 2008. We made a little modest, like we all were and then I actually entered the business around that time and boy, that was a tough time to learn real estate or was it the best time to enter real estate? I'm still not sure. [laughs]
Chris: Probably a good situation, my son Nick joined me in '08 actually similar to your entry probably knows a lot of good lessons there that he'll probably never forgot.
Aaron: Yes, absolutely. I just wish I had more capital to buy real estate in 2010. [laughs] Instead, I was broke and started but that's always a good time to learn the hustle, learn how to find deals, learn from other people doing deals, which is very interesting. I learned from their mistakes as well. You were able to start to grow out now. What did you change about your investment strategy then after the crash?
Chris: I was a little spent, I almost didn't get back in quite frankly. I was doing some speaking around the country, actually around the world for a different industry, and noticed okay, if I was to do this, again, I had stuff left over but if I was to go out aggressively again, what would be the rules so to speak?
It was no bank loans that I had assigned personally on. It was no borrowing, frankly, period, we buy everything on terms subject to owner financing, and lease purchase. At any one time, I'll give you a snapshot today. Any one time we control $70 or $80 million with ourselves and our students and we are not on and never will be on one single solitary loan.
That makes me sleep better than it did '08 to '12 when I was on every single loan, and when things change, they come knocking on my door. It's just one of the many rules so we just don't do it anymore.
Aaron: Yes, I agree. The personal guarantee is definitely a high-risk maneuver. We do it to get good terms on the loan, we do because we have too on any loans that are below $2 million or other types of debt. Ultimately, our goal is to get to such a large amount of personally guaranteed debt that we can have one large institution essentially take out the debt and move it to a non-personal guaranteed loan over time. That is our goal, but that's a good strategy. To not pg debt, to work out owner financing is hugely important for our listeners that aren't familiar with owner financing. Go ahead, Chris what is owner financing?
Chris: Well, there's different niches within that niche. I'll tell you what we focus on within the owner financing niche we focus on free and clear Aaron. We're dealing with sellers that have
Chris: no mortgage. They have time, they're interested in price but they don't care about the term and then we structure 97%, almost all of them on principal-only payments over time. I just hung up with one of my students who did a 10-year owner financing deal, principal-only paydown. You start doing the math on that compared to amortized mortgage, it's crazy and that helps you be recession-resistant. That helps you buffer and it helps you hammer down principal. For us, we buy a property, you're the seller, you're going to hold the paper, there's no banks, I'm paying you every month but I'm paying you in most of those deals principal-only every single month.
Aaron: I like that. You pay down the principal over time. That's nice. At a 10-year amortization, that's a quick paydown really, in real estate.
Chris: Actually, let me clarify, we don't take 20, 10, 5, like this building I'm in now, it's my office building. It's a 20-year deal that we did do principal-only and then we amortized it because that's what he wanted. We both did a quasi-variable deal there but most of our residential deals that we're doing with our students and ourself are not amortized over that. They're just going to be a four or 10 or 20 and then a balloon. You have principal paydown and whatever's left at the end.
Aaron: Sure, absolutely. The idea is to sell the property or refinance or what would be the exit strategy ultimately?
Chris: There are exceptions right as we build a portfolio but when we want to exit, we exit on rent-to-own. We're going to bring in a buyer that need time. During COVID that is rampant. There are buyers, especially in the jumbo loan category that can't go out and get the same loan, if they can even get it. They need time either to save more for reserves which is happening a lot or to improve credit which is happening right now. Rates are great, I get it but they push the bar up so a lot of people can't get to them.
Aaron: We've been able to get around a lot of those additional cash requirements or not as attractive rates or terms, just in general with the COVID by having good relationships with banks. It's gotten harder, we've had to shop around a little more. We've had to pull out of the bag a few more relationships and tricks of the trade to keep our terms decent. Overall, we've had really good relationships with banks and that's allowed us to continue to buy more and get decent, good quality, low debt. I haven't had the experience you had with 2008 there, but I'm of the opinion that real estate took a big hit in 2008. It was a real estate collapse, it's real estate recession. Markets go up and down, real estate of course, will go up and down but I don't think, we're going to see a third or a two-thirds drop like we did in 2008 even with everything going on right now. What does your crystal ball tell you?
Chris: I agree with you but the billionaires don't know. You and I, we agree on this but we don't know and no one knows. I was being coached at the beginning of the year by Jack Robbins, Tony Robbins's son and he said to me in one of my calls, "My dad was hanging out with Ray Dalio and they said, even they don't know where it's going." Nobody knows. I wish I did. If you and I knew, we would be on the beach somewhere for good, right.
Aaron: [laughs] Exactly. What is see is people still need a roof over their head. There' not enough real estate, at least in the markets I'm dabbling in, in New Jersey and New England. There's no good inventory. We flip a house, we renovate it the right way, put it on the market for a decent price, we have six or seven offers. It's interesting right now. We have a vacant unit come up, it gets leased in a couple of weeks, even with all the COVID restrictions for open houses and stuff. As long as you don't price yourself out of the market, you make your money when you buy. You work in higher demand markets with decent population centers. I feel real estate holds its demands. I feel like we're also weary of that bubble again. Everyone's screaming bubble since 2016, since we've been really out of the red and into the black with real estate values. As soon as they start to grow above where they were before, everyone's screaming, "Bubble, bubble, bubble." I feel like the assets had a lot of room to catch up to what they had lost. I'm still buying real estate. I'm buying a two-family for $285,000 right now. The guy paid $250,000 for it 10 years ago put probably $25,000- $30,000 into it. I'm thinking to myself, "Am I getting a great deal or is the market--?" It's hard to understand. When I'm buying real estate for what it was going for 10 years ago, it's hard to think you can go wrong with that unless real estate--
Chris: I love what you said earlier that everybody's screaming bubble. Good because that causes panic and then that means opportunity. Unfortunately for the people that are following media and panicking, I would suggest just don't watch the media. Just go by your own pulse, go by real estate podcast, go by real estate experience, don't go by the media because it's going to drive you crazy.
Aaron: The media is just made to scare you. The media is no longer an information source that's here to help us. They're here to get you to click on whatever they're offering you that day. It's either red or blue or somewhere in the middle. It's all there to scare you and make you click some more and get their numbers up. It's a shame that we don't really have a media anymore. We don't really have journalists anymore. I remember back in the '90s, we did have what appeared to be journalists, what appeared to be media. I know we're getting off topic here but I think, that is playing a role in just how divided we've got as a country. Also, how divided the media is and how it's no longer a place of trustworthy information. It's clickbait as they call it. I think that does lead to a lot of misunderstood investment strategies, a lot of mistakes in investing. A lot of people that read something on the internet and sell all their stocks, sell all their real estate or vice versa, go invest in a risky strategy. People need to be careful with that. We always say if it's on CNBC then it's too late to invest in that city. Everyone already knows about it. What's your strategy then going forward into 2021 here? What's your investment strategy?
Chris: The terms was build as we talked about at the beginning of your show, to weather the storms. That's why I did it. Having done that several times and gone through this, not just the storms but the market cycles. It doesn't matter what happens. If it keeps booming great. If it goes flat, great. If it drops, great. We'll just pivot between the sub to the lease-purchase and the owner financing. That's all. By far is one of the better strategies to thrive if you're an active, in-the-trenches investor like that, no question. We keep doing what we're doing, just pivot as we go.
Aaron: I really actually welcome foreclosures starting up again, I welcome the eviction courts opening again. We need these things in place because there has to be a line in the sand. We can't just give free housing to everyone. The foreclosures have to happen so the sellers feel the motivation and put their house on the market. That allows more inventory to be on the market so investors can start to buy those houses, fix them up and sell them to people who can afford them. Same with the eviction court, we have to have a tool as a landlord to be able to remove someone from your property, who isn't following the terms of the lease or isn't paying the rent. Once that tool is back in our pocket, although it's something we try to avoid, every step of the way, without that ultimate threat, it is hard to manage your collections on properties. Although, we're doing very well with it these days. Have you found that collections have remained strong through this time or have you had trouble with that?
Chris: Here's a distinction, as you were saying there, I'm thinking through them, I'm glad you asked because when I say we deal with rent-to-own, we are putting buyers in homes that because of COVID and pre-COVID, need time. That's different than a renter mentality. Out of 50 some of our properties, we have two that were headaches because directly related to COVID, lost job literally. They're not playing an act through it. We're dealing with buyers, they want to keep things current, they want to improve, they want to get on the track to get a mortgage. They can't mess that up. There's a big difference there from rental property to rent-to-own and you can balance both those if you want to balance your portfolio but they're both cool but the ones that the buyers aren't going to just skate on you because COVID's happening and they want to have a wall behind it. I'm not saying people aren't affected by it. We had two that were drastically affected by it. They had to leave, I get it but there's other people that are using the system as you said.
Aaron: Absolutely, we even had some tenants that actually got COVID because in New Jersey it was pretty rampant. We work with all of our tenants. We had tenants that lost their job, we had tenants that obviously had financial difficulty but we were able to keep around 90% collections, even though we're usually on 98 or so, just a little over 90% collections. We try to work with all our tenants, payments plans, putting them in touch with all the non-profit and government resources to help them pay their rent at this time. By guiding them to these resources, it really works out not only in the tenant's favor but also in the landlord's favor, to be able to collect that rent and cover your costs and keep your business running.
Chris: Be proactive, I guess, is the lesson there.
Aaron: Be proactive, communicate with your tenants, treat your tenants with respect first and a happy tenant will equal a happy investor. That's what we find over here. That's one of our mottos. I should probably write that on the wall. What do you think?
Chris: I'm right behind you there.
Aaron: [laughs] Absolutely. All right, Chris, we're getting towards the end of our podcast here. How can people reach out to you and learn more about what you do?
Chris: Just go to smartrealestatecoach.com. If you mind listening to me babble for another half hour, there's a free webinar there. We can also, Aaron, if you want give a book, it won't be the hard copy but the Amazon bestseller, we can give an electronic link, if you want me to do that.
Aaron: Absolutely, shoot me that link after the show, I'll put it in the show notes. It will be on YouTube and all the podcast platforms. We will be sure to send some traffic there and anyone who's listening can click that link there and check out Chris's book which is very exciting. I have to take a look myself there and of course, my name is Aaron Fragnito, I'm co-owner of Peoples Capital Group and the host here of the Passive Cashflow Podcast. You can learn more about Peoples Capital Group at peoplescapitalgroup.com and how we work with passive investors to buy apartment buildings and short-term rentals and how they get the benefits of owning real estate without having the headaches of managing it day-to-day and that's what we do here at Peoples Capital Group. Chris, one more time, how can people find you?
Chris: Sure, smartrealestatecoach.com, it's simple.
Aaron: Excellent. All right, thank you for listening, enjoy your day