June 1, 2021
Last Updated
Twin brothers Alex and Will Severyn explain how they structure their rent to own contracts with their tenants…
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Show Transcription:
Speaker 1: (00:00)
Hey everybody. Welcome back to another episode of Rent Prep for landlords. I’m your host, Eric Worrall. And this is episode number 272 and we’ve got a lot going on in the office today. Uh, we have a couple of guests, actually three guests, so the guests of honor here are Alex and will Severin of offer advantage and Severin development. And they’re going to be talking to us about a whole slew of real estate investments that they have going on. And normally I would be, you know, completely stoked just having guests in. But today’s really unusual because if you guys follow on the Facebook group, our podcast editor from Serbia is in town as well. His name is Luka [inaudible]. Yeah, I knew I was going to ask you that, so I just gave him a Mike. Uh, but I’m going to let him, I [inaudible]
Speaker 2: (00:42)
kind of a run into the intro and kind of do your thing. I kind of stole most of it from you, but you know what, why don’t you just say hi. Tell us a little about where you’re from. Hello everybody. I’m a Luka, Georgia, which as Eric already told, I am a podcast editor for RentPrep for around the three years. I’m a Serbian guy living and working in Belgrade, uh, doing bunch of, uh, podcast editing and yeah, today’s is a really special day because I’m actually in the same office with Erick Recording podcasts that I was be previously just editing, you know, like way back home. So yeah, let’s prepare for the next episode right before this
Speaker 1: (01:22)
[inaudible] come to the rent prep for landlords podcast and now your host, Steven White and Eric Warren. All right guys, uh, we talked a little bit before we got on the podcast here. There’s a ton to talk about it. I think our audience is going to be really interested in this because just to give you guys a little bit more background here, uh, I was at a networking event. It’s called vistich in Buffalo. And uh, my brother’s a k you got to get to meet these guys here. They’re brothers, identical twins, 28 years old, just absolutely crushing it and real estate and not only the buffalo market, but you guys are in Rochester and Cleveland as well, right? Right. Yes sir. And you guys got your hands into a whole bunch of stuff. So what I’m going to do is I’m just going to say, Alex, I got your card here talking about offer advantage and we’ll, we’re talking about cyber and development. Uh, start me off with, cause I believe offer advantages where you guys started out at, um, Alex, I’ll start with you and we’ll kind of just toggle, uh, tell us about what offered advantages and how well, you know, what, why don’t we give our audience an idea? What does your portfolio look like right now? What are you guys doing right now? And then we can kind of go back to the beginning.
Speaker 3: (02:29)
Great. Yeah. So what offer advantages is we are a, a or a company that specializes in buying, renovating, and then renting a, a number of our properties between Buffalo, Rochester and Cleveland. Uh, we have a team right now of a, of eight representatives throughout those three locations that help us do this. Uh, and right now our investment portfolio is up to, I believe it’s up to 55 individual units, uh, that we’re managing underneath our current structure. Uh, and we actively buy and about, uh, I would say 10 to 12 houses a month still. Uh, cause the smaller houses we offer out for rent. The larger houses though we still do very active flips. Our background is in buying and renovating and flipping homes. Uh, to date we’ve done about 160, and uh, that, that’s always growing, uh, at a pretty alarming rate now with the team that we’ve been able to build over the three cities. So that’s what offered advantage has been focusing on.
Speaker 1: (03:26)
Okay. So offer advantage, you’re doing flips and then you’re also doing rent to own scenarios and then you guys also have sovereign development. How does that factor in a well?
Speaker 3: (03:35)
Correct. So when we started renovating properties, uh, we actually started acquiring a vacant property with existing homes and we always had an interest in building brand new homes. Uh, we had a background in construction. Uh, so when we had the opportunity to build the first Spec home, uh, we built a house in Lancaster. Uh, sir, you know, uh, the suburbs out here, um, built one house, sold three or four custom homes off of that. Uh, we have since developed probably 12 custom homes, uh, 21 lot patio, home subdivision. Uh, we build some income units and more recently, uh, what we’ve been doing is actually building single family homes for the offer advantage
Speaker 1: (04:16)
rent to own program. What I’m curious about, cause I’m sure our listeners, you know, we get a pretty wide range of people. So we get people like myself where you just got, you know, two units and you’re kind of putting her along. And then we’ve got people with thousands of units that are uh, you know, got apartment buildings. So you guys are at 28 years old, you’ve got this great portfolio, you’ve got this great system that’s building. Can you take me back to like the very first deal? Because what I’ve found with a lot of people, and when I hear from people who have a ton of units that are like the first deal a lot of times is the absolute hardest. And then now, once you’ve got your systems in place, you, it’s almost because you’re saying you’re buying two houses a week now. Right? So, take me back to the first deal.
Speaker 3: (04:54)
So the first deal actually was a, it was interesting. We were, Geez, how old were you? Maybe 20, 21 years old? Uh, definitely one of the hardest. Uh, we bought it off of, um, you know, this, this great family up in Amherst. Uh, they gave us an opportunity to purchase it, uh, bought a cash. We put about, well, we thought we were going to put $35,000 into it. We ended up putting about $45,000 into it and did all of the work ourselves. So we were flipping this house, uh, while we were still in college, still had work, study jobs. Uh, we were doing this kind of nights and weekends, uh, still got it done in about eight weeks, but it was a complete renovation, uh, and like will had mentioned regrew up in construction. So we did a lot of the work ourselves. Uh, the hardwood floor was a tile, the drywall, the paint, uh, and really fell in love with the process of it. Uh, we liked the, uh, one working for ourselves to, uh, the amount of work that we could put into one location. And then we actually sold that house, uh, really kind of at the opportune time. Uh, were fortunate enough that
Speaker 2: (05:58)
we believe we hit the buffalo real estate market at the right time while we were transitioning out of college, uh, the real estate market started to take off. So we sold that House Day one, uh, for more money than we thought we would have. And that’s when we kind of sat down and said, okay, you know what, this is something that we believe we could get good at. Uh, before we graduated, we did two more houses. And then on the day that we graduated, uh, we bought four houses that day. So we bought four houses. So you went to your graduation and like the paperwork is closing. Didn’t even care about the graduation. Yeah, we were rushing out of there, like those classic example of like, what’d you learn in college? And you’re like, ah, probably learned a lot more from that property than absolutely all our fears.
Speaker 2: (06:37)
So we went to school, we went to condition’s college for Entrepreneurship and in entrepreneurship you don’t apply for a job after you graduate. So our fear was, man, the day after graduation, we better have something to work on. And Luckily we had a number of properties. That’s what we want to work. And that’s what we designed our business around because I believe everybody is selfish in their own way. Right? People start talking and then you just think about how does this apply to me? Yeah. So I’m thinking about you guys in college and the maturity level that I was at at 20 years old, rich, anybody who knows me or was not very high. And then on top of that, I am trying to imagine if I worked with one of my brothers on a project like that. How did that go? Like at that age, working with each other?
Speaker 2: (07:18)
We’ve always worked together. Um, even prior to renovating houses, uh, we had our own landscaping company. We were doing home improvements for other people. Uh, so we credit a lot of our success to the fact that there are two of us. We do know what each other’s strengths are. Um, so I think honestly you put one spot. What are you, how do you guys, what your strengths and weaknesses and how did that compliment each other? Um, I’m probably more of the business finance and um, Alex is more of the marketing, uh, operations. Okay. I like to be in charge of sales. Um, you know, we enjoy selling, you know, our, I enjoy selling what it is we do today, uh, and you know, finding properties, acquiring properties. And then either selling or leasing those. That was really my forte will definitely has a, a lot more knowledge on the finances.
Speaker 2: (08:07)
I don’t get bogged down, but I can’t have stuff. [inaudible] finance construction and he’s really, you know, marketing and uh, and he likes the deal, you know, eyes. I find a piece of properties, I want this property and this guy can find it. So, yeah. One of the things that you guys were mentioning is the rent on, so you’re doing a few different ways there. You’re buying some and you’re also building, you said it was built on a build to rent. So is the term. Yeah. So I think that our audience would really like to know more about that and how the finances of that work and how the deals are working. Because obviously, you know, some of our clients or our landlords are losing their tenants because they really want to own, how’d he get involved with that? And then how does he structure? So that is really, I mean, honestly, that’s really how offer advantage has changed over the last five years and something
Speaker 3: (08:56)
we’re very excited for. So, uh, last year we sat down and thought that, okay, we’ve done a number of by flipping cells, uh, why don’t we start building our own portfolio? And what we realized was the assets that we control are single family homes. Uh, and when we looked at simply renting our single family homes, you know, we were experiencing a lot of things that you just mentioned that if we’re going to rent a house, uh, the, uh, the turnover could be high because people are looking to buy, they’re trying to buy a house. You know, oftentimes, especially in buffalo, it’s cows will say, our market’s not one where you have runners for 20 years. No, you don’t want to run for 20 years. Um, but we were seeing that if we were going to compete in that space, we needed to offer something additional. We needed a competitive advantage.
Speaker 3: (09:40)
Uh, and what that was in our mind was really, uh, a rent to own. Uh, we market it as the first step to home ownership where you can simply transition from a current rental to a single family home rental. And instead of what we offer, instead of just simply paying rent a s a certain percentage of your rent, every single month goes towards an eventual down payment. And there’s structure that, is it depend on the person and the property or how does that work? It depends on, it’s really, it’s actually just dependent on the rent. So 10% of your monthly rental payment will go towards a seller concession. When you’re ready to buy a, and in our lease we created this really cool custom lease that outlines, uh, what the rent is every year. Okay. Uh, years one through five, and then what the purchase price of that home would be today, next year, year three, year four, year five.
Speaker 3: (10:31)
Uh, so that people have an understanding of, okay, if you want to buy this house, what will it be? And then how do we as offer advantage help you get to that point? Uh, so we align our clients with a mortgage providers, local mortgage providers that we work with, credit building facilities if necessary. Uh, so that over time, while they’re saving for that house through our rent to own, they’re also building their credit and we try to convert them into homeowners. And that’s really the huge competitive advantage that we’ve seen in the single family space, uh, is that if you’re gonna run single family homes in order to compete with other single family home renters or landlords, uh, we wanted to provide an additional option, uh, for these people to buy the house. And we are incredibly excited with the response that we’ve gotten
Speaker 4: (11:15)
imagine. Cause like, I know that we’ve got, uh, people that are listening in and they’ve got headache tenants that are given, you know, treating the property like a rental. It’s gotta be completely different from the way these people are treated in your properties. So when we started, okay, we originally wanted to be the guys that were building apartment complexes. There’s a lot of economies of scale with building that many units and we were always, we were always concerned that we wouldn’t be able to scale it back down to the single family home based on the fact that managing multiple properties all over the suburbs could get costly by offering the option of purchase the home, what our tenants are actually electing doing as well as maintaining the property. And it’s kind of a neat trade off because they have the appreciation to gain our prices every year.
Speaker 4: (12:02)
One through five are set. They do appreciate 3% every year, but in buffalo and a lot of markets we’ve seen appreciation seven or 8% in a given year. So we like to coach people and say, hey look, you know, if you maintain the property well, if you want to do additional investments, a lot of people are at, in porches, they had decks, um, you know, maybe a fenced yard. They do invest in these properties. If you continue to do that and you do it well, you get to gain the value of that appreciation. So we actually turn our tenants into owners a little earlier. Um, and I think the mindset going into this is, oh no, it’s my house and that’s how we want them to feel. It’s your house. I mean, you guys are entering into an agreement to purchase this home, so take care of it. Um, and that’s really, really, I think what turned the corner for us is now these people, because it’s a single family home, a single family home itself just has a little bit more intrinsic value. They take care of it better. And now because we give them the option to buy it, they’re maintaining it for us.
Speaker 3: (13:00)
With the way that you guys structure the leases and the option to buy, is there like a target date in there that works best for them or is there a point like if they buy in the first year versus the seventh year, what works best for you guys? So really a really what works best for everybody. Uh, we’re seeing that if people by year two to three obviously works well for us, you know? Um, but for them it gives them enough time to build their credit. By that point, the amount of savings that they have is comparable to, you know, a good amount it on a down payment and they’ve already worked through and lived in that house for the last two years, so they’re very comfortable with it. Um, so we see that anywhere on a, a national transition between two to three years is best for both parties involved.
Speaker 3: (13:43)
Uh, but we’ll hold terms up to five years on renovations and then we’ll hold terms up to seven years on what we’re now offering a new construction. And we are incredibly happy with the relationship that we’ve built with our tenants. I’m sure a lot of your clientele is, you know, um, you know, familiar with that classic landlord tenants kind of, you know, relationship. We do not have that relationship with our clients. Our clients believe, I call them, you know, owners. I refer to them as buyers of the home. I do not call them my tenants. Uh, they believe that, you know, they are buying the home and by every facet of the word, we were trying to make sure that happens. My, so my tenants, my last name’s world, they call me warlord. Yeah. They’re also very good friends. So yeah. So that shows, yeah.
Speaker 3: (14:30)
But I mean we don’t have, we don’t have any animosity between ourselves and our attendants. Uh, it’s, they truly see this as an opportunity to get to homeownership faster. And because of that we are, I don’t want to say stealing tenants, but we really are, um, taking tenants out of other single family homes that they’re renting and a lot of apartment complex is because they can go from a monthly rate at one place to a new monthly rate in the single family home. But the single family homes is going to allow them to create some, some wealth to own that thing one day. And it’s not all at, let’s say going down the toilet.
Speaker 1: (15:03)
Yup. Yup. Yeah, yeah. I’m actually thinking of my own tenants right now who, um, they are, uh, looking at moving out soon. Uh, maybe not soon, but within the next year or so and uh, they want to buy. And I’m thinking of like something like this is that perfect kind of stepping stone if it works for your finances or what you’re trying to do, that you don’t have to take that big, you know, kind of jumping in the deep end, you can kind of walk into the shallow end of like home ownership kind of.
Speaker 3: (15:26)
And that’s what I think our demographic needs. I mean, we’re all young guys and, and here, but uh, you know, kind of handholding into home ownership I think is going to be important for our generation. We’re seeing that, uh, the main reason why this is working is because people are having a hard time getting over the hurdle of a down payment. So in order to go get approved one banking relationships, a lot of our demographic doesn’t have them, right? Millennials are not walking into banks that do not know loan officers, nor do they know what a 30 year am. War means as far as the mortgage. Um, so when we tell them that you can simply rent it and then we’ll help you transition into a home ownership, they almost need that helping hand, not only to save up for a down payment through our process, but then to also just simply understand what being a homeowner means.
Speaker 3: (16:13)
I think that that was kind of lost on our generation. And I think that with the rate at which our generation is renting, um, adding tons of monthly expenses, right? Netflix, Spotify, before you know it, you’re spending an extra two or $300 a month on things. They’re not April subscriptions or crazy things going to a subscription model. Well, so it was ours, you know, and that’s really what we’ve seen, uh, has helped us, uh, kind of develop our clientele. Uh, as these people, one cannot say for a down payment and they do not have banking relationships as other generations have established.
Speaker 1: (16:47)
How are you guys helping them build credit? Like what programs are you using for that?
Speaker 3: (16:50)
So we have, yes, we have a number of mortgage brokers that we work with and a lot of the banks and brokers, they have their own programs. Um, and essentially what it is, is it’s just, it’s brief consulting. You know, people are able to take a look at what they owe, how it’s structured, and it’s really just simple advice. Pay this one first, paid this one at this rate and this is how your credit will build over two years or you don’t get rid of this, let’s restructure this note and then we can start, you know, getting you back to a normal credit rate into years. It’s really more maintenance and repair. But a lot of people, they just don’t know which bills to pay first. And we also have some affiliate relationships, um, hunt real estate locally here in buffalo and Rochester. Uh, they were, they’ve always been huge advocates of the offer advantage program.
Speaker 3: (17:36)
We work with a number of their agents currently. Um, but we also push our clients to go through, uh, their first time home buyer program. Uh, which again is interesting. A lot of people believe that, you know, some of these first time home buyers are, you know, early or late twenties, early thirties. We’re seeing that a lot of our clientele is later thirties, early forties. And those people, you know, aren’t targeted for first time home buyer programs even though that’s what they need. So we do push a lot of our clients towards some of those programs offered at a hundred real estate as well.
Speaker 1: (18:05)
What are they, I’m getting as far as like, uh, by going through that program through hunter, they get in next some extra money towards the a down payment or how that works. There are grant programs at hunt allows them or helps them apply for [inaudible]?
Speaker 3: (18:17)
Um, it’s obviously it’s individual. Um, but um, yeah, there are a few different things that, that allow them to, uh, obviously add to their down payment. And then a lot of, I mean, if he’s looked into first time home buyer programs, a lot of them are forced savings accounts. So I know that the one locally, I believe it’s just the standard Erie County first time home buyer program. Um, they, it’s really just a forced savings account and it’s, uh, you know, they try to find ways in your budget to help you save towards a down payment. Um, so that’s really a lot of the legwork that goes into it.
Speaker 1: (18:51)
And I feel like when I was talking to you guys at that a networking event that you had mentioned something about the, you helped them a report, their rent payments to the credit bureaus to [inaudible].
Speaker 3: (18:58)
Yeah, so we, uh, we use, uh, transunion and Experian. Okay. Um, and they usually, cause that’s where we currently process a lot of our payments through and they, and they will report, um, you know, increases to their credit score. And then we also provide for any of our clients going for refinance. Um, and we’re not shy. We’ll go to the bank and help them apply. We’ll show them however many years of previous payments that they’ve always paid on time. Uh, we provide obviously the contract for the purchase and then explain, you know, who these people are and how they’ve worked with us for a number of years. So I kind of helped build a credit profile for them at the bank.
Speaker 1: (19:35)
Okay, very cool. So we’ve talked about a bunch of different stuff cause you guys gotta you’re in a bunch of different places with this. Take me through like, so we talked about your first deal. We talked about where you’re at now, how your program is structured. Um, how did you kind of build out your team because that’s something that comes up in a lot of podcasts. Like how did you end up going from being the guys that were doing the drywall and tile to the point that you are now?
Speaker 3: (19:57)
One of the hardest parts of building the team? So, I mean, I mentioned that, uh, after graduation, right, we purchase a number of homes, more homes than even the two of us could be on site at the same time. Uh, so you know, what’s the first thing you do? You call your best friend? Uh, we call our best friend, uh, his name’s Charles Munn Dulera. Uh, he actually was going for criminal justice and we thought, great, we need you to manage contractors. It’s a pretty easy stuff. It’s, uh, very much the same thing. Santa Fe. Um, so we called him and, uh, we, we moved into a small house, uh, worked out of that house. It was a three bedroom, one bath ranch. The conference table was in the living room and we lived, you know, 20 feet away. Um, it Kinda just grew our business out of that.
Speaker 3: (20:45)
From there, uh, out, had to grind it out. Uh, we built a good team of subcontractors that we eventually put on payroll. So while we were doing that, we were buying our onsite manpower a will done an excellent job of raising private money from local investors through our network at Canisius College. So we started pulling in private investors and more business mentors. And then I spent the majority of my time looking for real estate agents to help me find deals and then eventually now partner with them through our offer advantage program where they’re our representatives. So we all kind of took a different stance at bringing on a team. And then since then we’ve, uh, invested in an office that we owned in Lancaster. We did build out our back office staff. So we have account managers that help us with payables, uh, financial analysis, stuff like that. Um, that now, uh, we’re, you know, we’re in a good spot to uh, continue to expand, um, because of the back office support. But that was probably one of the hardest things that we had to do, especially being very young at the time, was convincing people to work with us and then work for us, um, in a very short period of time.
Speaker 2: (21:54)
Yeah. Did you find that working with subcontractors and then pulling them in was a good way to do it? Cause I’d imagine you’re not fully committing to them, but you get to see how they work and see who’s good and who isn’t. Absolutely. Yeah, it was the best test. Um, you know, we identified a few of the crews that were showing up on time. They took it more at the role. Um, and really bringing materials for the project, being on time, meaning our budgets. They understood what things cost. Uh, and those guys we picked up. Yeah. Those guys are doing call leader guys. I’d never called off the guys that were meeting their timeframes on the projects. Those are the guys that we have. Luca who’s just been sitting here awkwardly in between us for this whole conversation. That’s the same thing with him was right.
Speaker 2: (22:33)
I had used a couple podcasts years before him, editors, and then all of a sudden I get this guy who comes in and he’s just so consistent and like it frankly is like sometimes being like, hey, you didn’t do a podcast yet this week. What’s going on? I’m like, thanks Luca. You know? Yeah, I know. Those are the type of people we want to work with that are really reliable and dependable. And I mean, I hate saying this because it makes you sound like that old crotchety person would be like, it’s hard to find some times. Yeah, it is. It absolutely is. I mean, even on the, on the home building side, um, you know, we’ve been successful. We went out in the market and I started asking a lot of my sub contractors that were working on our projects. Um, you know, carpenters, drywall guys, you know, I said, who do you like working for of the other home builders around here, who are the project managers that you think are the best? And I got a list of names and I targeted one and you know, he’s been building houses, uh, with another company here locally for over 15 years. And I signed him this year. So now it’s, now we also had head hunting, has dental houses that it, and we need it. No one locally listens to this up. [inaudible]
Speaker 2: (23:35)
drop it in. Yeah, well I think they know that we did it, so I was okay. But that’s what you gotta do now. And we’re also finding too is even in our field, which is real, but also construction, there’s a diminishing number of people that are getting into construction. So as we look to develop the, you know, the build to rent part of our company as well, I think we’re going to start getting into, um, you know, less competition on that side only. Not only because we offer it out differently, but because there’s less and less people getting into the trades. Do you guys, um, do you guys know Jessie Cook? No. No. I don’t know. Okay. He’s actually been on the podcast before and I, he’s my age. I at 33 and a [inaudible] Olam and he’s done a lot of real estate. And he was telling me that’s one of the things that he struggles with is finding good contractors and especially in the market right now that it seems like they’re starting to be so, uh, pricing themselves out or just, uh, there’s so much work and there’s not enough supply kind of thing.
Speaker 2: (24:28)
And that’s really, it’s probably more the later how we’re, it’s so much work, uh, that the guys who are in it are starting to be able to name their price. Yeah. And that’s really what’s, you know, between a lack of housing supply, uh, and increase labor expenses. That’s really what’s driving prices on single family homes up. You know, and it’s, it’s breaching standard affordability. I mean, you know, we’re in the buffalo market, we’ve always been deemed as somewhat affordable. And given, you know, we’re not selling half a million dollar ranches like they do in California. Um, but the affordability, uh, in our opinion is all relative. It is all relative and it’s gonna be the next somewhat of the, you know, the crisis that we’re going to see, which is why we’ve revamped our entire systems to start offering our houses a different way so that there are so that they are more in a sense, affordable.
Speaker 2: (25:17)
So we’ve got about five minutes on the episode. What I’d like to do is kind of close up, um, if somebody’s listening to this and they’re like, they’re running into the typical issues that they run into as a landlord who’s got maybe like five, six rental units that tenants don’t see micro taking care of the properties as good as they might and they’re listening to this, uh, what you guys have done and they’re like, this could work in my market, I think. Where would you tell them to start? Like based on your experience, cause I mean, that’s invaluable. Having like essentially eight years that you’ve built into this. Uh, where would you tell them to start? Well, I think, I mean, I think part of the success, um, that we see here could be contributed to the fact that whether it’s a renovated property or obviously a new built home, the quality of our homes are for sale quality.
Speaker 2: (26:01)
We don’t finish a house to rent it. We finished a house to sell it. We just extend that sale over our lease option. So I think what’s most important, and I guess our first step at advice would be invested in the home as if you were to sell it. Because when you go out to offer what we offer, which is our rent to own, we are selling that house. So our quality is still top-notch. Uh, we just find the efficiencies, um, in extending the sale process through the rental. So that’s where we make up our margin. But I would say you have to invest in the properties if you’re going to sell it in order to offer what we offer. Yeah, I’m getting the sense that, you know, you hear that she like I’m pitching those like cheesy pictures you see on the, and it’s like shoot for the stars and if you wish you land on the moon, we’re like, you guys have that a little bit, cause you’re shooting to sell this property and you’re making a for sale quality property.
Speaker 2: (26:51)
But if you miss fire in that person can’t buy it and they have to leave after two years, you still have a great property too that you can either sell it or rent. So. Exactly. Yeah. And we’re offering products that we want people to be comfortable in longterm. You know, so, um, I, I think that’s a great point that will brought up. If you invest in the home, you’ll see the residual effects of the tenants, the tenant buyers that apply for that home. You know, they know that it’s a quality home. They’re going to be a quality person that is going to actively try to purchase it cause they’re not gonna want to let it go because we make them very nice. Um, you know, they become very good tenants for us. Is it too early in the process to kind of have numbers on what percentage of people are following through in purchasing?
Speaker 4: (27:33)
So we find it’s roughly around 60% that are purchasing within that first tier. Like we said, two to three years. Um, but it’s only been two or three years. So we’d like to see, you know, do we pick up a few more buyers year four or five? Um, I do believe what we’re going to find however, is that timeframe will get stretched. I think people lose. I mean, we all do it. I mean, you look up and it’s already been a year. I think what’s really going on is not their inability to purchase the home, but what we’re finding is a lot of people are so specialized in what they do. A lot of people are working a lot more than they used to. They’re not focusing on coming home and then trying to on top of that, refinance their home. So it’s not an affordability once they’re in it.
Speaker 4: (28:13)
I think it’s just a timing thing. Um, so I think as we continue to progress right now we’re experienced about 60%. Uh, but again, we’re still in the middle of a few terms. I think that would probably go up to about 75 to 80%. Um, and then that other remaining balance that doesn’t buy, I think it’s going to be individual to that to their situation. Not so much their inability to purchase it, but we also deal with a lot of people, um, in relocation because we operate in Cleveland, buffalo and Rochester, we even have clients that say, Hey, I’ll rent your house in buffalo for two years, but then I’m being transferred to Cleveland. So that wouldn’t equate to a sale, but they still become a client of ours in Cleveland. So that’s kind of cool too. We do kind of follow these people through transitions. But what’s also cool is if someone were to rent to own a renovated property, we actually value their credit so they can take the credit that they’ve been earning every month. And if they elect to move into a new built rent to own home, we honor that credit. So we actually want to move people not only through their first step to home ownership, but possibly even into their second who built home. Yeah. So it’s Kinda neat. We can offer both.
Speaker 2: (29:19)
That is really cool. Cause I guess, you know, for you guys it works out either way and it’s kind of a win-win. And then our clients can progress into that new phase. I mean really we don’t want to let go of our clients. We liked her clients. No, I know. Yeah. A lot of it, you know, as you’re familiar with clients here, we’ll buy a preexisting, you know, for sale home other than hope that one day they can build new or getting into a new house. So we allow them do that through our process
Speaker 3: (29:42)
because we offer both products.
Speaker 1: (29:43)
Yeah. Yeah. That’s a, it actually reminds me of a guest we had on the podcast a little bit where, uh, his name is Tim Shiner and what he do is he would get really expensive homes, like talking like $700,000 homes in Dallas and the number one school district in La. And you weren’t allowed to build apartment buildings there, so if you wanted to rent, he said what was happening was people were coming in from out of town and they’d want to rent in the best school district, but they don’t want to buy right away. His wife’s a real estate agent. So what he’d do is if they wanted to break their lease early, they could do that penalty free as long as they bought with his wife. So then they’re buying $2 million homes and they’re making a $60,000 commission and he’s like, I’m okay with losing rent.
Speaker 3: (30:22)
Yeah. Kind of similar in that. It’s like, yeah,
Speaker 1: (30:25)
you’re giving them these different options that they have a flexibility of maybe, you know what, they got that big raise at work and they’re like, you know, I wanna I want to actually, you know, get a new house now. Can you guys pass this credit forward?
Speaker 3: (30:36)
Exactly. And monetizing the amount of transitions that you know, our generation is gonna foresee, I think is going to be a wave in real estate development. I mean, if you’re only offering one product, you’re only gonna make one end of that transition. Whereas if you’re offering a variety of things where people can move forward and progress, I think that’s what people are going to have to do long term. Okay,
Speaker 1: (30:55)
cool. Uh, to finish off the episode, um, each of you, I want best lesson you’ve learned in the eight years that you’ve been in this. And then we’ll finish off just by if you have any kind of pitch or anything that you want to share about your business that helps you guys out by people knowing more about what you’re doing. So I’m kind of putting you on the spot. It’s usually by email somebody beforehand so they can be prepared. But, um, if you do, you have maybe a best lesson learned, whether it’s a hard lesson or just something that you kind of figured out over time or whatever it may be.
Speaker 3: (31:22)
So I would say that the best lesson that I learned and kind of the forefront to the offer advantage, uh, rent to own model a was, you know, we needed to start providing more value, uh, to our clients. And what I meant by that is when we were simply selling our homes, uh, when we started, you know, selling renovated homes was a value. Uh, they weren’t widely offered, but as people got into that space, as flipping houses became more popular with HGTV and things like that, more people started offering it and almost cheapening, you know, the model of flipping a house. So what I learned is that know really the forefront of this entire idea was it’s not enough just to offer the house anymore. You have to offer a path into the ownership of that house to a clientele that has been underserviced. And the amount of value that we’ve been able to provide through that service, uh, has really, uh, really resonated well with us to where it changed my entire perspective on not only what we currently do. Um, but like I said, the whole landlord tenant relationship that I never really wanted to get involved in. I kinda changed that relationship before we got involved in it. Um, and I think that was definitely one of the top things that we learned this year was in order to, uh, continue to grow
Speaker 2: (32:39)
and, um, provide value. Uh, we had to provide a new way of accessing what it is we were already selling. Yeah. And I don’t know if you mentioned it on the podcast, I know you mentioned it before we were talking, but you’re not really a landlord tenant relationship or landlord owner relationship. Exactly, exactly. Then we, and we appreciate that relationship. Our tenants love it. Uh, we, like I said, we call them tenant buyers, uh, and they’re excited that they know that they can buy that house from us and we’re excited that they want to buy it.
Speaker 4: (33:04)
All right. Yeah. Well, what would you say? Um, I guess the number one thing that, uh, that I guess I had learned and you know, I’ll use some construction terms, set a good foundation, um, in new construction. If your foundation is wrong, the whole house is never going to come together. And I think what we’ve been able to do is not only focus in on what we know, which is single family homes, uh, but we set a good foundation in doing so. I think the way that our, uh, tenant landlord agreement, like, you know, Alex had mentioned to set up, uh, with our leases, uh, with the way that we renovate or build quality products. Um, I think we do a good job of setting ourselves up for success right from the get go. Um, and I think our, our tenants are appreciating that. Uh, and I think that’s really what’s gonna help us expand.
Speaker 4: (33:49)
Yeah. So as far as like helping you guys out, if somebody’s listening to this and they’re just an investor or something like that too, is this something that you have investors that kind of, we did together? How does that work? So like Alex had mentioned earlier in the podcast, I had focused primarily once we graduated school and raising private capital. So now what we do is we build portfolios of our single family properties. Uh, and we do invest with an equity fund. So we created an equity fund. Investors do have the opportunity to invest with us to make a return on our single family homes. And then when they eventually sell, we split with our investors now. So it’s actually a very unique, uh, that actually, I shouldn’t say it’s unique, it’s similar to a rete real estate investment trust. We just do it on single family home portfolio
Speaker 2: (34:33)
with the intention of selling within three to five years. So that’s kind of cool. So do the investors get a little bit of return just because it’s automatically you’re getting the rent, but then you get the big return kind of when it’s selling?
Speaker 4: (34:44)
Exactly. So at 6% current, it’s a true 6%. We passed the depreciation of our homes onto our equity partners, uh, and then we are projected anywhere from 14 to 16% IRR on the sale of the property. Pretend like I knew what that meant. [inaudible] IRR was that internal rate of return. Okay. I’ve heard that before, so yeah. Yeah. Well
Speaker 2: (35:09)
that does it for this episode. Luca, you want to take us out? I’ll put you on the spot. That’s even, here you go. Okay, so guys, thank you for listening to another episode of front prep for landlords till another time. Have a good time. And Joe.