Critical Coronavirus Information for Real Estate Investors

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Taylor   0:02  

What's going on guys? This is the passive wealth strategy for busy professionals podcast. I'm your host Taylor and today our guest is Dana Dunford. we're talking about the Coronavirus and real estate investing and really what we can do to work with our tenants to minimize the impact on our properties. 

Dana started and runs the company hem lane is a property management software company. They're really changing the game when it comes to remotely managing your real estate and remotely managing your tenants' properties. It's great stuff. She's got an awesome story, but we don't really get into the story of her starting her company all the venture capital money on this episode. You have to catch that later today. We're talking about Coronavirus and its impact on you and your properties. 

Then it has a lot of inside data, actual data on what tenants are paying the bills and which tenants are not And really that breaks down what it's looking like and really what it's going to look like for the next couple of months. that these are tough times, we really need to take this advice from her on how to work with our tenants to get money coming in, keep money coming in and keep our properties is a great interview. 

I loved talking to Dana, it was a great time. For those of you who are new to the show. I'm your host Taylor load. I'm a real estate investor and real estate syndicator. I buy multifamily real estate with passive investors and share the return. I love talking about real estate investing, and we need to stay on top of these current events. Dana has the data. Dana has the data. I like that. Thank you for tuning in. Once again. Here we go with Dana Dunford from Hamlin. Dana, thank you for joining us today.

Dana Dunford  1:46  

Great. Thanks so much for having me. Taylor,

Taylor   1:48  

great to talk with you. For those out there who don't know about you. Could you tell us about your background, your experience and what you do in the property management industry?

Dana Dunford  1:57  

Yes, my background actually was not in real estate at all and got into real estate by accident. I started in technology out in Silicon Valley. One of my first jobs out of school with Apple, I'm doing new product introductions. At that point we had been launching, we were launching the iPad as well as other products. Through that it led me to a mast company, and that was actually quite a few employees from apple wood over there. 

 so that's how I got into home technology. My family started with some real estate investments, my brother in law in Denver, that was what got me into the real estate investing worlds, particularly the management of how do you purchase a property somewhere where you don't live and use technology to manage it through a platform. That really was the impetus of starting hemline, property management. what we believe is the best investments are not in your backyard. Joe Like stocks you can pick up and purchase a property anywhere. 

then we help real estate investors manage those properties from afar. really focused on those who own properties between four rental units up to 100, although we have seen over the past five years that those portfolios continue to grow as we grow.

Taylor   3:25  

Nice, nice. , building those, building those clients up so they grow their portfolios and you get to grow with them. That's fantastic. we want to talk a bit today about the Coronavirus pandemic and how property managers and real estate investors need to handle these interactions with our tenants because these are tough times you know, many of our tenants might not be able to pay rent. for us as investors, we need the rent to pay the mortgage and all the expenses, things like that. That's stressful. It's difficult to manage our communications and our own mindsets. You know, how should we handle that? So we don't mess things up for ourselves.

Dana Dunford  4:09  

Yes. for those of you who have property managers, if your property manager has not sent a notification about how they're handling COVID-19, you should probably reach out to them and see, obviously, how they handled it in the past two to three months. so that's number one. But assuming that that has been shared, the biggest thing for you as a real estate investor is to understand what the impact is to your particular investment, because it's going to be different for everyone. The most important thing is that communication with the tenants has an open line about what is happening to them, so that it can be put into your forecast. 

Then the other thing that I would say about that is don't forget That the US does have something that a lot of countries don't. Which is the government really coming in to help? And so that is why at every single micro level of speaking with each tenant understanding, have they signed up for unemployment? How long are they in that? You know, how long do they expect until they get another job, all of that is really important to be factored into it. then that can help change your projections. then the final thing I would say about that is Don't forget your tenants are your customers. 

I do think that a lot of times and the word slumlord comes to mind that people forget that. But when you go through a tough time with your tenants and you are upfront and helping them through the financial planning situation associated with that, whether it's deferring rent payments, potentially waiving late fees, all of that will actually transpire into much more loyalty with you. Once we get Out of the economic downturn, so just something to keep in mind.

Taylor   6:04  

Yeah, I think you're absolutely right that our tenants are our customers. I see people posting stuff on these, like Facebook real estate groups that are just hostile messages to their tenants. hey maybe the tenants have been a problem in the past. I don't know what the history is. 

But that's really if you think about our experiences as customers of any other business, or if I was in that 10 inch shoes how much reason how much incentive Are you really giving me to go out of my way to pay is this this rent when I know, you can't, you cannot evict me for maybe two to three more months. Who knows what this timeline looks like, depending on the market. you know, I've got you a bit over a barrel right now, if you're coming at me with knives out. What's my reason to play ball?

Dana Dunford  6:54  

Exactly. It's a lot of education. Your tenants are reading the news that everyone else does. No evictions, evictions are off the plate and thinking, Oh, I'll never get evicted. there's some communication there when they say, I can't pay due to COVID-19 from that perspective, and the response should be, most times you shouldn't have emotion in your responses, but in these cases it should be. 

I'm so sorry to hear that we are here to work with you through this as part of the process. You know, please make sure you have the documentation handy associated with you losing your job hours, reduced whatever their documentation is for it, because they might even second guess Ooh, Do I really have a claim for this but you treating them like a customer and also educating them along the way will really have your professionalism come out and show through the through the this uncertain time?

Taylor   7:52  

Yeah, yeah, that's, that's rough and you know, this as property owners at this point it's kind of too late to prepare for these situations. The preparation should have been done months ago. But you know, for rewinding the clock and thinking about this how, how should we prepare for this type of a pandemic situation or a major cash flow disruption? I mean, what are your thoughts on ways that we can protect ourselves proactively, while not destroying our return by putting everything into reserves?

Dana Dunford  8:30  

And yeah, great, great question. I think from that perspective, it's any financial planning, you should always have a certain amount of cash for a rainy day fund, right? over 50% of Americans live paycheck to paycheck, but you should not be one of those Americans. While you may leverage some certain aspects of your investments, you should always have a rainy day fund. What that fund looks like is probably double And what your actions are based on what your rainy day fund looks like, are probably different.

 In other words, if you only have a three month rainy day fund, you might have to sell investments at a loss or something like that to be able to make up for that if you're taking a little bit more of a risk profile. From my perspective, I always say I need a year of cash or sub something liquid that I can take out immediately, for myself to be able to run it with the same style of living that I want to etc. 

Every single investor, it's gonna be different for you and what your reserves are and how you pull money out of certain investments will be different for everyone. But I do think it's a good time for people to think about and take a step back and say, What is my financial planning? What does that look like and how should I be changing the allocation of what I own assets Wise.

Taylor   10:01  

Yeah, I've heard people make the case or I've seen people make the case on various personal finance financial independence planning type of forum saying, you don't really need a six month reserve or whatever in cash, you just hold it and you know, securities and whatever just sell when you need to, and I'm just thinking, I don't want to take a 30 to 40% haircut on these more liquid assets I could just hold cash for that money and forego some potential return just to back up the downside, as far as impacts on your clients, properties and things that you've seen in the market. 

You know, what have you seen so far, and just for context of it, we're recording this in early April, I'm gonna jostle some things around so that you know, this episode goes out this month in April, whereas normally it'd be probably a couple months from now just based on recording schedule, so that we are getting this question. In a timely manner. Anyway, to go back to the question, how is this pandemic actually impacting things like collections and performance of these properties in your portfolios?

Dana Dunford  11:12  

Yeah, great question Taylor. We ran all of the numbers associated with rent collection. The best way to look at it is for on time payments historically, so tenants who always historically paid on time, every single month, what percentage of those tenants still always pay on time. what we found out of over 5 million of rental payments within any given month, we found that on average, less than 1% would always default to the next month. out of all the tenants who paid on time, fewer than 1% of them would default the following month. April was different than any other month. In April, we suddenly saw That number jump up from less than 1% to 5%. 

In other words, 5% of tenants who historically had a great record of paying on time defaulted this month. We also took that information and divided it into different segments, different regions, different rental rates to really understand what was happening with that. there were actually two trends. We saw a parent one that was across the board, whether you had rent or under $1,000 a month, between 1000 to 2.5 thousand over 2.5 thousand in monthly rent. Everyone was somehow impacted where the numbers did go up the defaults. However, the ones that had the greatest impact were two different categories. 

One was those with under $1,000 in monthly rent, so any rental that was under $1,000, we thought default rates Go up, more so than the other categories. But interestingly, it also was anyone with over rental amounts over $5,000 a month, so their monthly rent was over 5000 a month. when we drill down into that even further, what we found was in those situations, it was houses that had multiple tenants who were all jointly responsible. think of like a five bedroom with five different tenants. It was usually just one of them defaulting. But then the entire group would default where historically they all were able to pay on time, you didn't see that happen anymore. now what we do expect we did pull some other numbers, even though it's early in April, we did pull some additional numbers, and we saw that in March, may we expect it to be even worse, the default rates on it from like February to May, and the reason for that is we did see comments of 10 insane. I have my jobs. until March 20, I have my job until March 25, I'll be able to pay April rent, I won't be able to pay my rent. 

Now one of the things we don't understand with that, or we're still trying to figure out here in April, is what percentage of those who are losing their jobs? How quickly can they get their unemployment benefits? And what do those look like? Because a lot of these unemployment packages are $4,000 a month with $1,000 in monthly rent, they should be fine to pay that. really understanding the uncertainty of how quickly can they get those benefits and what do those benefits look like? That will actually really dictate how many Lux may in June

Taylor   14:39  

Okay, okay. how that is absolutely one of my fears and concerns for properties I own as you know, what's Morrow sorry, what's Megan look like as April looked good for us. But yeah, May is still a big question mark as we talk now. How does the stimulus package kind of factor into. I mean, we're talking crystal ball here, right? None of these things are really the balls not rolling, the checks haven't been written or any of that yet, but how does that factor into your expectations for what's going to happen in the market, particularly at the lower end of the dollar per month spectrum?

Dana Dunford  15:18  

Yeah. I think overall with the package, it's there. One of the fortunate things that the US has, that a lot of other countries do not have is a stimulus package, to be able to help business owners to help Liam Ward's mortgages, right, anything like that for you to be able to defer those payments, not have foreclosures, etc. The question is, how quickly can they auction it? I mean, for example, the small business loans, it's been an absolute nightmare. 

Everyone on their banks' bank websites are crashing because no one can handle all of the demand. No one could get their applications in Then there's an uncertainty of when they're even going to get the funds. I think while it will be figured out, the question is timing on that, how long that takes? And I do think the question with the stimulus package is, it's going to have to have to be re addressed of, hey, these funds are going to dry out. What does it look like? And how long do we have these unemployment benefits, and when do things reopen? And so all of that is, is still there's still a lot of uncertainty there.

Taylor   16:31  

Yeah, a lot of big question marks on this. I mean, we don't we don't know what's going to happen. I mean, we're talking on April 8 here and these things haven't been passed. it is just the amount of time that logic dictates that it would take for you if they passed something tomorrow to just figure out the logistics of getting the money out to the right people, say just the 1200 dollar check. That's got to take a couple weeks, right. 

They can't do it in a day. No way that's too much to ask. what's it gonna mean? And 1200 bucks is not a lot of money, and it's not gonna last that long. if we're talking, what are things looking like moving into June and then July and so on. you know, are these small businesses where a lot of people work going to be able to recover quickly? I mean, we don't know what the next, like next couple months end up looking like?

Dana Dunford  17:28  

Exactly, yep. it's still to be determined. you should be pretty conservative from a cash perspective that if you do need to sell things at a loss or breakeven to be able to fund the next couple of months, I would be a little bit conservative from that perspective.

Taylor   17:46  

Yeah, yeah. I'm thinking about that. That myself at this point, and yeah, I mean, most I think most tell me if this is your experience, but most people that I know my business partners and I we a couple weeks ago, stopped Maintenance that was not emergency type of scenarios just to keep cash on hand and make sure we're really being conservative with what we've got in the bank, just in case things get bad.

Dana Dunford  18:13  

Yeah, absolutely. for tenants, it's also for their safety you can say, if we're not doing a lot of this maintenance. It's actually because we do not want interactions of service professionals with you. that coupled with being able to save that cash in case people default on it's a very good idea.

Taylor   18:32  

Yeah, yeah, absolutely. Well, craziness, crazy times right now, we're gonna take a quick break for our sponsor. All right, Dana. I've got three questions. I asked every guest on the show. Are you ready? I'm ready. All right. First one, what is the best investment you've ever made other than in your education?

Dana Dunford  18:53  

Okay, education is definitely first. What I would say is it's probably heavily the property management platform. The reason I actually say that it sounds like a cop out answer. The reason I say that is I actually when I invested in it and started the company, I got out of business school with zero dollars in my bank account, just having spent two years full time in Boston and business school and went through and was took far longer to build than ever, but now we're actually seeing all of our hard work and the whole concept of virtual property management being able to manage your properties from your home suddenly starting to transpire in that sense, that would definitely be the best investment

Taylor   19:39  

nice Well it's a good sign that your current business is your best investment especially while we're not all of us, but most people are quarantined at home and can't leave the house. It's a great time to be able to manage your properties from home. I like that. On the other side of the best investment coin, we have the word investment. What is the worst investment

Dana Dunford  20:03  

Have you ever made one? Worst investment would be on the stock side. I can think of one in particular, which is Facebook. I was in college, undergrad, and I heard Facebook was IPO being called by a broker from Morgan Stanley, back before Robin Hood. You know, you could do all this stuff yourself and said I want to get into Facebook. 

Of course, as everyone here knows, Facebook tanked its IPO. I think I lost $5,000 and for a broke college student and losing that you're like, Wait a second, and then we were going into obviously the 2008 crash when I graduated as well. so all of that combined, I was definitely, definitely the worst investment was on the stock side.

Taylor   20:48  

Wow. All right. Well, I think if you'd held on to it, if you allow maybe a decade, you'd be up but it's hard to take that initial loss. My favorite question here. At the end of the show is what is the most important lesson that you've learned in business and investing?

Dana Dunford  21:07  

Yeah, so I heard this from one of my professors in business school who said, don't run out of cash. He said it every single day. actually, now we're investing in running a company, it could not be more true of the amount of stress you have when you're worried about payroll, being able to invest in growth. If you don't have cash, you're not making the right decisions mentally, it is a terrible position to be in. Always make sure you have enough cash. 

if you're worried you don't figure out a way to get more cash very quickly. Because you will lose your mind. There's too much anxiety there and you're not running your business. How do you show?

Taylor   21:50  

Wow, I think that is great advice, a great lesson. I think that's a big mistake that a lot of small businesses make is maybe they take on some big liability That there they they don't realize that Alright, well, it's it's net 30 payments and I'm not gonna get paid for 30 days but then something might happen I might not get paid for another 60 days and they've they've run out of cash and have to take short term loans that get expensive and I think that's, that's great advice.

  I like it. I like it. Well Dana, thank you for everything today Coronavirus is absolutely. You know, obviously on everyone's mind, I hope everybody's staying safe and hopefully staying profitable. if folks want to learn more about handling more about you. Where can they find you? Where can they get in

Dana Dunford  22:33  

touch?

Dana Dunford  22:34  

Yeah, yes, please reach out. It's www.hemlane.com. You can also reach out to me by email for the fastest response. It's [email protected].

Taylor   22:54  

Nice, Dana. calm. Great. Well, thanks. Once again. If you know, this is on everybody. Mind and we all know, it's gonna end eventually, it's all gonna be okay in a couple years at least worst case scenario. Hopefully we all know, learn some, some tough, but important lessons out of this and I appreciate your time today for everybody. 

Thank you for tuning in. If you're enjoying the show, please leave us a rating and review on Apple podcasts a very big help helps other people learn about the show. If you know anyone who could use a little bit more passive wealth in their lives, please share the show with them and bring them into the tribe. Thanks for tuning in. Once again, I hope you have a great day and a great rest of your week. We'll talk to you on the next one. Bye

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