Updated: Jul 4, 2020
There are some benefits to investing out of state but Peoples Capital Group prefers to invest in state for a number of reasons. This episode will explain the pros and cons of each option through experiences that Aaron and Seth have had over the last 10 years of real estate investing. The Passive Cash Flow Podcast is for beginner or experienced investors. 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. -- https://www.facebook.com/peoplescapitalgroupnj/
Aaron Fregnito: All right ladies and gentlemen welcome back to the Passive Cashflow show, episode number 16 today. I'm your host Aaron Fregnito, owner of People's Capital Group, out of Berkeley Heights, New Jersey. We focus on buying apartment buildings here in New Jersey. We focus on our market in North Jersey, and today we're going to talk about investing instate versus out of state. I'm going to talk about the benefits of why we invest locally here. Why we don't go out of state, where a lot of syndicators preach going out of state and working with other management companies and other investors preach going out of state to get better deals. We're going to talk about the benefits of staying in-state, staying close to your home. Why I don't go out of state. Why I don't go chasing other markets and, listen, there's no one right or wrong answer, it's just our investment strategy, and that's we're going to talk about today. By the way, if you want to learn how you can get invested passively in some New Jersey apartment buildings, you can live anywhere in the country, but you can invest in this New Jersey Market and play off that New York City Market here in New Jersey by going to peoplescapitalgroup.com and putting your information in and if you qualify, you can invest passively in New Jersey apartment building with us, here at People's Capital Group. That's a great way to earn passive income and tax benefits, which all my other videos talk about. We're going to break into it today, why do we invest instate? This is about investing instate versus out of state. A lot of gurus out there tell you that you should be investing in the Carolinas or in Miami or Buffalo or Austin Texas, and these are great markets, and Dallas Fort Worth, these are great markets that have seen booms, and busts, and right now they're booming, and right now these are great markets to invest in. Atlanta, these are areas where the wage growth is strong our people are earning more in comparison to how much housing costs in the average market. Cincinnati, Ohio, that's a good example of these emerging markets. Columbus, Ohio, where the amount people are earning is not as much as the housing costs, like in San Francisco, where the housing is so expensive. In Manhattan, housing is so expensive. People are earning the max of what they need to earn to afford that. In these areas, these submarkets, these are areas where statistically it shows that the market's growing very quickly, and also the amount people earn hasn't caught up yet to housing costs, ideally or really vice versa. Housing costs haven't caught up to where people earn. In these markets, the argument from gurus is, well listen housing has room to grow. The cost of housing hasn't caught up to a third of the person's income in this area, so the cost of housing will grow and catch up to being around a third of the income of those individuals. Once the cost of housing is around a third of the individual income or the median income of that area, then the idea is, "Okay, housing costs have grown to where they max out at." Which is around a third or so of income in that area. These gurus use these statistics to say, "Well, these areas have room to grow in housing costs and rent costs." Because rent is low in comparison to what people earn in this area. Now, I get that and there's lots of other statistics you can use to analyze markets, and there are lots of gurus out there that you can pay lots of money to listen to them, and go to their boot camps, and they can tell you all about all the benefits of getting into these emerging markets. Dozens of statistics on why these markets are set to boom, and they're probably right. A lot of these markets are set to do quite well, and I know a lot of people that go into these emerging markets and they do well with them. I've seen other guys I know go into Kentucky and Louisiana, and they've done well with those markets and more power to them. However, I must give you words of wisdom here and some warning that if you're starting as an investor, as I see a lot of people do and they go out to these guru courses or whatever, and these gurus tell them, "Hey, go buy something in the Carolinas because the cost of housing there, and the rent, and it makes more sense financially in ROI and bada bing bada boom." They're right. You could probably get more real estate in some cities and get higher rent and because of that the numbers look better on paper and that's great, but the truth is if you're getting started in real estate, you should not be investing more than an hour from where you live. That's it, you need to be near your markets. You need to be near your real estate. I hired a management company one time, and they met tenants of the property. They would meet a tenant at the property in the morning, they collect the first month's rent. Security deposit and they'd lease out the unit to that tenant. They'd sign a lease and give them the keys, and they'd send them on their way and so you can come back or in a couple of days or whatever, you could move in a few days, we'll give you the keys then. Then they would meet a tenant at the same unit, lease out the same unit to another person, two hours later collect the rent, security deposit and do the same thing to someone else two hours later. They do to three or four people in a day. Collect the rent, security deposit for the same unit, and ran off with the money. That was the second management company I hired. I lived 90 minutes from the property. We caught onto it pretty quickly, and took them to court and won. They're not honest about it. They sent us falsified statements like that. We had to be on the scene to know what was going on. We had our boots on the ground. We had to be able to drive by our property. Even being 90 minutes away was quite a challenge. One of the reasons the management company got away with that, is because we were 90 minutes away. If we were 20 minutes away, we would have been even more on top of them. The other thing is we also hired a very professional large management company that is nationwide, and very reputable, and they completely over-promised and under-delivered. What we figured out from this, is that to really manage the properties yourself, to really do a good job, and to have your baby taking care of it the way you want your baby taken care of, then you need to do it yourself, or develop your own management company. Now it doesn't make sense to develop your own management company if you only have 10 doors or something like that or 10 units. You really need about 50 units for it to make any type of close to financial sense, to have your own management company. We've got about 75 units right now, and our management company still runs in a loss. It's a loss leader for us. It allows us to control our assets and make better cash flow from our assets, and it does charge a small management fee to our properties, but it's a discounted management fee. Our investors get better returns, and because of that the management company did not make a profit, unfortunately, runs at a loss. Because of that, management of real estate is very difficult, you really need a little over 200 units or so to have a profitable management company here. We'll get there one day, but the management company allows us to own the assets, control the assets, manage the assets ourselves. So by owning our own management company and managing our own real estate in-house, it gives us a whole other level of control over the assets so that we don't have to rely on third-party management companies to hopefully do their job right. We hired one big reputable company. They completely over-promised. They kept our buildings at 75% occupancy, and while they promised us over 95% occupancy. They're way off and we were just bleeding money, and then we fired them, and hired a small company hoping for different results, and ended up getting robbed. From that story, I just told. You really need to, if you're going to work with a management company, be on top of them every single day. Again they can lie to you. They can send you falsified statements. They could tell you one thing and do another or they could be a very big reputable company that maybe they're not going to lie and steal to you, but they're going to probably just put you on a sheet, and you're just one number on a sheet. A management company's job is to manage as many units in as little time as possible because if you put all your resources into one person or one customer and one building, you're not going to be able to manage all your other customers. A management company by nature is designed to put as little resources into each customer as possible so that you don't have to exhaust your resources on one or two customers. Unfortunately, they don't make much money. The only way for management companies to make good money is to have as little resources invested into each individual as possible, and that means they're really not going to take care of your property the way you need them to. A lot of these gurus out there are going into emerging markets, out of state, the Carolinas, Buffalo, Atlanta, Florida, Texas. I get it, there's a lot of markets out there that are looking good like that. I know Arizona had some boom going on there, and that's great, and a lot of these guys are getting in and getting out over a number of years, and they can do very well with that. I'm not knocking that model, but I got to say from my experience, owning real estate locally here, having the management company in-house, knowing my markets like the back of my hand. You can ask me, "Hey, do you want to buy a property on this street in Newark?" I'll say, "No, I know that street. I'm not going to invest there." You say, "Do you want to buy property on this street in Newark?" I'll say, "I'll give you a $10,000 deposit today, non-refundable, yes I want it." All right, there's areas that we're very bullish on. There's areas we stay away from. In addition to that, not only just being a local real estate investor and knowing the market like the back of my hand because I grew up here, I could drive around these markets, I'm in them, I go out to dinner in these markets, I know these markets, I live in these markets, I understand these markets, I am these markets, I grew up here. In addition to that, I know these ordinances, I know how rent control works in Paterson on as opposed to Passaic. I know in Paterson if you put in a section eight tenant, remove a cash-paying tenant, you can put the rent at whatever number you can get at that point. I know in Passaic rent control doesn't apply to tenants that moved in before 2013. There's still tons of little rules and regulations you have to know these rules I know in Newark, who to have to inspect your property to get it passed. I know in East Orange who to not have inspect your property to get it passed. You have to know who to deal with, these inspectors, these politicians the rules and regulations, rent control, taxes, local ordinances are so important to know your market. So by investing in local markets Seth and I know very very well, not only do we know them like the back of our hand but we know the rules and regulations and the local ordinances in these markets which change town by town. They're very difficult to stay on top of local ordinances and rent control but we know the little loopholes in the system, we know how these systems work and because of that we can make more profits through our real estate holdings in these markets by understanding how to works with the local rules. Also local contractors, permits, things like that knowing all those rules and regulations we have a lot of local boots on the ground, we have great contractors, great guys to help us with cleaning, plumbers, electricians handyman everyone down the spectrum. Landscaping, snow removal all that good stuff. We have our good contractors there we have our good people in place so when things go wrong we can quickly and effectively get them fixed for a good price and not get soaked. I own a couple of properties in Vermont because I like to go skiing. I'm a real estate investor. I figured I'll buy a couple of properties in Vermont and it's fun, my wife leases them on Airbnb and we have a little business together. I make a couple of thousand bucks a month a year on them and I get to go enjoy skiing there with my family whenever I want for free. I love to ski I used to be a ski instructor actually in colorado before I started this real estate syndication business 10 years ago, a cool little story there. I actually I'm a great skier I love to ski. I was a ski instructor at Steamboat Springs, Colorado. I had Olympic level ski training and a little more weight to move down the mountain now but I can still crush it on the black diamond. I go to Okemo all the time, I bought a couple of houses up there. It's a pain in the neck managing them. Yes, and I'm a real estate investor. I have my own management company that handles it. I have my wife that helps with Airbnb, we're superhosts and I make a little bit of money on the thing but last night at seven o'clock we ran out of oil because I thought my oil guy was filling the tanks but they weren't because I'm never there so I didn't know. Just a fine example of not being there, scrambling out seven o'clock at night to get oil luckily we actually had a good oil company that took care of us but it cost me like 200 extra dollars because I'm not there, because I don't know the markets, because I'm not used to oil tanks, because I'm not in the property, managing the property, near the property it's a furthered out distant thought. Now, I could have been a little better property manager. I could have been on that a little more but at the end of the day by being local to your properties being able to check up on your properties go to your properties, make sure your oil guy is showing up to put the oil in the tank just a little tidbit there and it can make a huge difference. By knowing your local markets, by knowing them like back your hand, having those resources knowing your local ordinances, it gives you such a competitive advantage to really crush it in your market. Now I don't buy anywhere in North Jersey. I buy in specific markets and specific blocks for specific reasons. I buy near the class A development, I buy near the cranes in the air. I'm not the cranes in the air, I buy around the cranes in the air. I buy in those areas because there's a ton of gentrification coming in the area, a ton of improvement in the home values and lots of changes happening in North Jersey cities right now as home values improve and cities improve. Right now we're seeing a lot of changes in north jersey and because of that, we're taking advantage of these increased real estate values by buying low and refinancing high buying in the right areas, making your money when you buy, managing this with a fine-tooth comb by knowing our local rules and regulation and having our boots on the ground and all these powers combined allow us to make better cash flow for our investors so that they can invest passively in an apartment building in New Jersey, earn passive cash flow checks every quarter get passive cash to a tax depreciation at the end of the year and then get a big lump sum upon the refinance every three to four years. It's so important we know we're doing if we're working with other people's money in these markets. I don't take other people's money and go out of state and hope a management company does their job right. That's not our model. There are people that do that and there are people that do that well, there's people that also don't do that well. You have to pick and choose who you're going to invest with. If you want to learn more about investing with New Jersey real estate and getting involved in a North Jersey apartment building go to peoplescapitalgroup.com put your information in we'll get in touch with you about an upcoming investment opportunity here. If you qualify, again, go to peoplescapitalgroup.com to qualify for an upcoming investment opportunity in North Jersey. We'll get in touch with you, we'll get you on the road to financial freedom here with Peoples Capital Group. I hope you learned a lot about this video here and investing instate versus out of state, you could see we invest in state for many reasons and we do not go out of state for a number of reasons as noted. Hope you have a good day, thank you.