Let's Start Your Real Estate Journey
Aug. 9, 2024

Maximizing Property Investments in Today’s Real Estate Market

Maximizing property investments in today’s unpredictable market requires insider strategies that top investors use to turn undervalued properties into gold mines. In this episode, Brian Evans shares actionable advice on acquiring these properties, optimizing renovations, and managing risks, offering practical tips for both seasoned investors and beginners looking to thrive in an ever-changing landscape.

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The Texas Real Estate & Finance Podcast with Mike Mills
Maximizing Property Investments in Today’s Real Estate Market
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Business Investing Housing Market

Ready to unlock the secrets to maximizing property investments in today’s unpredictable real estate market? Discover insider strategies that top investors use to turn undervalued properties into gold mines. If you’re eager to learn how to navigate and thrive in this challenging landscape, this episode is a must-listen!

In this episode, we focus on Maximizing Property Investments in Today’s Real Estate Market with expert insights from Brian Evans. We dive into strategic property acquisitions, uncovering how to identify undervalued real estate opportunities and navigate the complexities of investment property financing. Brian shares actionable advice on managing rental properties, optimizing renovation efforts, and understanding the risks and rewards of various investment strategies. Whether you're a seasoned investor or just starting out, this episode offers practical tips and answers key questions on how to maximize your returns in an ever-changing market.

Key Takeaways

Identifying Undervalued Properties

Understanding how to spot undervalued real estate is crucial for maximizing property investments. Brian Evans emphasizes the importance of thorough market research and knowing what to look for, such as distressed properties, locations with growth potential, and areas with high rental demand. This approach allows investors to acquire properties below market value, setting the stage for profitable outcomes.

Strategic Property Acquisition Techniques

Acquiring the right property at the right price is a skill that requires both patience and precision. Brian discusses the importance of strategic acquisition, which includes analyzing after-repair value (ARV), understanding holding costs, and ensuring that the purchase price leaves room for a significant return on investment. This strategy helps investors avoid overpaying and ensures long-term profitability.

Financing Your Investments

One of the most critical aspects of property investment is securing the right financing. The episode covers various financing options, from conventional mortgages to hard money loans and DSCR loans. Brian shares tips on how to leverage these options effectively to minimize out-of-pocket expenses and maximize cash flow, which is essential for maintaining liquidity and expanding your investment portfolio.

Effective Property Management

Managing rental properties efficiently can significantly impact your bottom line. Brian provides insights into best practices for property management, including tenant selection, maintenance planning, and optimizing rental income. Effective management not only ensures a steady cash flow but also helps in maintaining and even increasing the property's value over time.

Navigating Market Challenges

The current real estate market presents unique challenges, such as high interest rates and fluctuating property values. Brian discusses how to navigate these challenges by focusing on long-term growth, staying informed about market trends, and being prepared to adapt strategies as needed. This proactive approach helps investors stay ahead of the curve and continue to maximize their property investments even in uncertain times.

Time-Stamped Summary

[00:00 - 03:00] Introduction

  • Mike Mills introduces the episode, addressing the challenges in the current real estate market, including low mortgage application rates and declining home sales. He introduces the episode's focus on "Maximizing Property Investments in Today’s Real Estate Market" and welcomes guest Brian Evans, highlighting his expertise in strategic property acquisitions.

 

[03:01 - 07:00] Market Overview and Opportunities

  • Mike provides a detailed overview of the real estate market, noting the rise in inventory levels, particularly in Texas, and discusses how these conditions create opportunities for those who can identify undervalued properties. He references Warren Buffett’s investment philosophy, setting the tone for the discussion.

 

[07:01 - 11:00] Identifying Investment Opportunities

  • Brian Evans begins by explaining how his team identifies undervalued properties, focusing on distressed situations and properties with deferred maintenance. He emphasizes the importance of market knowledge and strategic location choices, such as up-and-coming neighborhoods and areas benefiting from infrastructure developments.

 

[11:01 - 15:00] The Importance of Proper Underwriting

  • The conversation shifts to the importance of underwriting properties correctly. Brian discusses the need to understand after-repair value (ARV) and the potential pitfalls if investors fail to factor in all costs, such as holding and rehab expenses. This segment highlights the critical role of accurate financial projections in property investment.

 

[15:01 - 18:30] Financing Strategies for Property Investments

  • Brian outlines various financing options available to real estate investors, including hard money loans, bridge loans, and DSCR loans. He shares tips on how to leverage these financing methods effectively to minimize upfront costs while maximizing potential returns, and the importance of being financially prepared for unexpected market shifts.

 

[18:31 - 23:00] Managing and Renovating Properties

  • This segment covers best practices for managing and renovating investment properties. Brian offers advice on selecting reliable contractors, managing renovation budgets, and ensuring that properties are well-maintained to retain and increase their value. He also touches on common renovation mistakes and how to avoid them.

 

[23:01 - 27:00] Long-Term Investment Strategies and Challenges

  • Brian discusses the importance of long-term strategies in real estate, particularly in a volatile market. He talks about how to stay ahead by focusing on long-term growth, adapting strategies, and the importance of patience when it comes to real estate investments.

 

[27:01 - 32:00] Real Estate Market Dynamics

  • Mike and Brian explore the current dynamics of the real estate market, particularly the effects of high interest rates and how these are influencing buying and selling behaviors. They discuss the importance of timing in property acquisitions and how to navigate the market's cyclical nature.

 

[32:01 - 36:00] The Role of Market Trends in Investment Decisions

  • Brian explains how staying informed about market trends can help investors make better decisions. He talks about the significance of understanding local market conditions and how global economic factors can impact real estate investments. The discussion includes advice on how to adjust strategies based on these trends.

 

[36:01 - 40:00] Leveraging Equity in Property Investments

  • This section focuses on how to leverage equity in property investments to expand your portfolio. Brian shares examples of how investors can use existing property equity to finance new acquisitions and the benefits of this approach in building long-term wealth.

 

[40:01 - 44:00] Effective Property Management for Maximizing Returns

  • Brian dives deeper into property management strategies, emphasizing the importance of tenant selection, regular maintenance, and optimizing rental income. He also discusses how to handle unexpected challenges in property management and the impact of good management on property value.

 

[44:01 - 48:00] The Importance of Strategic Renovations

  • The conversation returns to renovations, with a focus on which upgrades provide the best return on investment. Brian offers insights on balancing cost and quality in renovations and how strategic improvements can significantly enhance property value and appeal to potential renters or buyers.

 

[48:01 - 52:00] Overcoming Market Challenges

  • Brian and Mike discuss the challenges currently facing real estate investors, such as rising interest rates and economic uncertainty. Brian shares strategies for overcoming these challenges, including the importance of flexibility in investment planning and the need to be prepared for market fluctuations.

 

[52:01 - 56:00] Building a Resilient Real Estate Portfolio

  • Brian outlines his approach to building a resilient real estate portfolio, focusing on diversification and strategic property selection. He emphasizes the importance of resilience in portfolio management, particularly in uncertain markets, and how to ensure consistent growth over time.

 

[56:01 - 60:00] Final Thoughts and Key Takeaways

  • The episode concludes with Brian summarizing the key points discussed, reinforcing the importance of strategic planning, market awareness, and careful management in maximizing property investments. Mike encourages listeners to apply these insights to their own real estate endeavors.

 

[60:01 - 65:00] Conclusion and Call to Action

  • Mike wraps up the episode by thanking Brian for his valuable insights and urging listeners to share the podcast with their networks. He also invites listeners to reach out with any questions and to consider how they can apply the strategies discussed to their own investment practices.

 

Guest Bio: Brian Evans

Brian Evans is a seasoned real estate investor and serial entrepreneur with a deep expertise in identifying and maximizing property investments. As the managing partner of Beva Homes and Qualis Investments, Brian has built a reputation for acquiring undervalued properties and transforming them into profitable ventures. His extensive experience spans across the real estate spectrum, including property acquisition, financing strategies, and effective management of rental properties. Beyond his professional achievements, Brian is also a dedicated Ironman competitor, showcasing his commitment to endurance and excellence both in business and personal pursuits. With over two decades of marriage and fatherhood, Brian brings a unique blend of professional insight and personal integrity to the world of real estate investment.

Resources Mentioned in This Episode

Rentometer

  • A valuable tool mentioned by Brian Evans for assessing rental prices in specific areas. Rentometer provides accurate and up-to-date rental data to help investors gauge potential rental income.
  • https://www.rentometer.com/

 

InvestorLift

  • Brian references InvestorLift, a platform that assists real estate investors in finding and acquiring off-market properties. It is particularly useful for sourcing undervalued properties and connecting with motivated sellers.
  • https://investorlift.com/

 

Qualis Roofing & Construction

  • Brian mentions his business, Qualis Roofing & Construction, which offers roofing and general construction services. This company emphasizes quality workmanship and is a key part of Brian’s real estate investment strategy.
  • https://www.qualisgc.com/

 

BEVA Homes

  • We are a family-owned and operated home buying company, driven by a passion for helping others.
  • https://bevahomes.com/

 

 

 

Transcript
Brian Evans
(0:00) Okay, we've identified the property, we've identified a homeowner that's interested in selling, and now it's buying it at the right price. (0:06) And I think a lot of people getting into real estate, certainly from a flip perspective or from a long-term hold perspective, are challenged at the math. (0:14) They see a deal, they're like, oh, that looks, you know, that passes the sniff test of a deal that's interesting, because maybe it's below the MLS price or the comps that a realtor may run in that neighborhood, for example.
 
(0:26) But there's a lot of other variables. (0:27) There's holding costs, there's takedown costs, there's the rehab costs. (0:31) And a lot of people they'll see a good deal, maybe for $20,000 under market, but they don't realize they need to probably be closer to $100,000 or $80,000 below the actual, what we call ARV or after-repair value.
 
(0:45) They need to be much lower than what they typically are.
Mike Mills
(0:55) Well, hello to all you house hustlers out there. (1:00) So did you know that mortgage applications are at the lowest level that we've seen in almost 30 years? (1:05) And the existing home sales volumes are dropping to levels that we have not seen since the great financial crisis.
 
(1:11) Because of this, existing inventory is almost back up to pre-pandemic levels in the United States, with Texas seeing its highest inventory levels in over a decade. (1:21) And despite mortgage rates coming down a little bit, they are still higher than we've seen almost at any time in the last 20 years. (1:27) Oh, and by the way, prices also remain at all time highs.
 
(1:31) So right now you're probably thinking, thanks, Mike, for all the bad news. (1:34) You're really pumping out sunshine and rainbows today. (1:37) But as the greatest investor of our time, Warren Buffett once said, be fearful when others are greedy and be greedy when others are fearful.
 
(1:44) Can't speak today. (1:46) And right now, everyone is terrified of real estate, which means that there is opportunity to be had if you know where to look. (1:54) And today, you have looked in the right place.
 
(1:56) Welcome to Texas Real Estate and Finance Podcast. (1:58) I'm your host, past his prime real estate rambler, Mike Mills, a North Texas mortgage banker with Geneva Financial. (2:05) I come to you each week with experts that I've vetted better than a vice presidential candidate auditioning for a billionaire's affection.
 
(2:12) And today is no exception. (2:14) We are all in real estate because we love it, but it's also how we pay the bills. (2:18) And right now with buyers hard to find, that means there's a golden opportunity for those who can spot those overlooked diamond in the rough properties.
 
(2:26) And as a real estate professional, you see houses every single day. (2:30) You know the good, the bad and the ugly. (2:32) So why not use that superpower to add a few extra Benjamins to your wallet?
 
(2:37) Well, today's episode is going to show you how. (2:40) Now, before we get started though, before we get started helping you find a new stream of income here, I want a little something in return. (2:48) So I don't do this for free.
 
(2:50) Well, I mean, I guess I kind of do, but you could help me turn this thing into something that is more than just a hobby. (2:55) I love doing it each week and I want to go deeper and bring you more and more great content each and every single week, but I need your help. (3:04) So please, please, please.
 
(3:05) If you find today's episode or the show at all, even just a little bit helpful or interesting or entertaining, share it with your network, tell a friend, call a coworker, heck knock on your neighbor's door and help us add one more listener to the family. (3:18) It would mean the world to me and allow me to keep coming to you each week with better and better episodes to help you find more ways to make more money in the real estate game that we all know and love. (3:27) This is what I aim to do.
 
(3:28) So spread the wealth if you would be so kind. (3:31) Oh, and by the way, if you know anyone looking to buy or refinance or just needing some insight on where housing and rates are headed for the rest of this year so they can make an educated buying decision, then send them my information and send them my way. (3:43) I'd love to help out any way I can and would be happy to have a one-on-one conversation with you or your clients to see how we can help you find the best deal on a home loan possible.
 
(3:52) I love podcasting, but mortgages pay the bills. (3:54) So give me a shout. (3:55) I'm happy to help.
 
(3:57) Okay. (3:57) So today's guest is a serial entrepreneur and all of his businesses align with his passion for identifying and leveraging undervalued properties to grow his real estate portfolio. (4:07) He's a managing partner with Qualys Investments and Viva Homes, a family owned and operated home buying company driven by a passion for helping others.
 
(4:15) He's made this his living. (4:17) He's made a living on identifying undervalued properties and turning them into dollars. (4:21) And today he's going to open up his playbook and show us the way.
 
(4:24) So please welcome to the podcast, Mr. Brian Evans. (4:27) Brian, how are we doing today, man?
Brian Evans
(4:29) Hey, thanks for having me, Mike. (4:31) Appreciate it.
Mike Mills
(4:31) You got it. (4:33) All right. (4:33) So let's get right into it.
 
(4:36) It seems like right now, everyone is just terrified of real estate. (4:41) Rates are high, home prices are high, and nobody's looking to buy anything right now. (4:45) So you guys, you and your partners have been doing this for a very long time.
 
(4:48) So right now, are you guys on the sidelines or are you actively getting in there looking for properties?
Brian Evans
(4:55) Actively out there looking for properties. (4:56) Of course, we're a lot more discriminant on what we're taking down. (5:01) It's a lot more difficult within this high interest rate environment that you mentioned.
 
(5:05) We're being a lot more careful about how we underwrite properties, trying to buy in areas, the right areas, and at the right price. (5:12) So yes, we're very much buyers in this market, but we're a lot more careful with our math. (5:17) I'll say that.
Mike Mills
(5:18) So why do you think or what would your advice to somebody be, you know, when you guys look at a market like this that's been shifting the way it has? (5:26) You know, we went from whatever it was, three years of just insanity. (5:30) When you're talking about home prices, you know, people having to pay $30,000, $40,000 over list price.
 
(5:36) You know, interest rates were incredibly low, so borrowing money was cheap. (5:39) But in order to get that asset, you had to spend a ton of money. (5:42) And now we switch to a market where rates are high, but are, you know, higher than they've been for quite some time.
 
(5:48) Home prices are high. (5:49) So as an investor, when you look at the dichotomy between those two markets, where do you look at opportunity and where do you find it? (5:56) You know, when you see everybody kind of disappearing from the hunt, and now you can get into it, why does that become appealing to you as an investor?
Brian Evans
(6:04) Yeah, I mean, I think the first part of your question and comment, the last three years, so kind of like before interest rates, before Powell started to kind of increase interest rates, which had all the downstream impacts, very liquid market. (6:18) And what we saw happening were people selling homes for top dollar, but also being able to afford another home to move into. (6:25) So you'd have, you know, whether it's a $300,000 home or a $200,000 home, they were still able to sell at a reasonable price and move into a reasonably priced property with a reasonable mortgage payment.
Mike Mills
(6:37) Right.
Brian Evans
(6:37) We saw that go out the window, what, a year and a half ago?
Mike Mills
(6:40) Yeah, between two basically, yeah.
Brian Evans
(6:42) Yeah, right. (6:43) And so it's a lot more difficult for folks to find that next house they're going to move into. (6:48) So the homes that we're looking for generally are in pretty poor condition.
 
(6:53) And we're looking for homes that have deferred maintenance, major defer maintenance. (6:57) The profile type is usually a homeowner that's looking to sell very quickly, so they don't have time to list it, or they don't want to do necessary repairs to list it so that it would even be available for a conventional type mortgage. (7:11) And so we're looking kind of for the deals.
 
(7:13) That's where we find the most value. (7:15) Don't get me wrong, we still find some of that on the MLS. (7:17) But we're looking for the homes that are stressed, that have major issues, or minor issues that just make them not very appealing to be on an open market like the MLS.
Mike Mills
(7:28) Do you feel like it's an accurate statement to say that, you know, whenever we're in a market like we are right now, where, you know, there are a lot of listings starting to pile up, and there are fewer and fewer buyers willing to purchase this lease, you know, I mean, we're moving into this all seasonal. (7:42) We're moving into the fall and the winter when, you know, you tend to see people moving less anyway. (7:47) We're in a presidential election year, which also puts an extra layer of people just not knowing where the market's headed overall, and not willing to make decisions, and then you add on rates and everything else.
 
(7:58) But when you look at that market and you go, okay, there seems to be an opportunity if you can find properties because no one else is buying. (8:07) So if you can get out there and find something that can make sense when you look at the metrics and the data and the math, then it would seem like there can't, even though prices are higher, you know, they're not going down. (8:18) I mean, you've been in real estate a long time, you know, they may come down some or plateau, but it's not like we're gonna lose 30% value.
 
(8:24) So they're just gonna keep going up. (8:25) It's just a matter of time. (8:27) So yeah, you see right now as an opportunistic market regardless of all those factors.
Brian Evans
(8:33) Yeah, because I think the core underlying problem still exists. (8:37) What makes these homes that are kind of more off markets, you have situations where the homeowner has no choice. (8:45) Sometimes they're behind on mortgage payments.
 
(8:47) Sometimes they've not paid their tax bill. (8:49) There's some sort of financial stress, generally speaking, on these types of homes. (8:53) And that's a large part of the market.
 
(8:55) I don't think people realize that roughly 20% in North Texas, there's all kinds of studies. (9:00) So this exact number will be disputed. (9:03) But there are some studies that say up to 20% of the single family residential homes are bought off market.
 
(9:08) And in large part, those are stressed homeowners that have no other choice but to exit their current home. (9:15) And whether they're going to move into an apartment or move into a smaller home where they have, you know, roughly the same mortgage rates or monthly payments, they've got to find an alternative. (9:27) And so we really serve that market directly.
 
(9:30) We always suggest, and I'm not a realtor, by the way, we have realtors on our team. (9:34) Sure. (9:34) But we always suggest first and foremost, that the homeowner goes through the MLS to sell the property, that's the most liquid market, you're gonna get the most eyeballs on a property that way.
 
(9:42) But the reality is, there's so many reasons homeowners don't do it. (9:44) Like I mentioned before, major deferred maintenance on the property where it wouldn't even be approved for a conventional mortgage. (9:54) They got dogs in the house, the domes where there's pitbulls, they're not going to have showings on a house like that.
 
(9:59) So there are a number of variables like that, that keep these homes off the market, that are prime opportunities for investors and can help also while they're doing that help a homeowner get out of a really challenging situation. (10:12) What we see happen a lot of times is if they don't go down this path, then maybe they move it to the MLS, it doesn't work on the MLS. (10:20) And then they find themselves losing the house altogether.
 
(10:23) And sometimes the corresponding equity they had built up in the first place. (10:27) So pretty challenging situation for what turns out to be a pretty large segment of the population, certainly in the Dallas Fort Worth area.
Mike Mills
(10:34) Yeah, well, and right now too, because (10:36) of all those challenges with the market in general, I think that anybody that is looking to (10:41) sell their home and under any circumstances, MLS or off market or whatever, they're doing that (10:45) because they have to, it's not because they want to now have to could be, I have to relocate to (10:50) California for a job or I have to find a new school district or I have to, you know, or I'm (10:55) going to foreclose if I don't pay my tax, there could be a lot of have twos, but nobody's just (10:59) listing their house for funsies to see what they could get for it right now. (11:02) Because like maybe they were a couple of years ago when the market was going bananas. (11:06) So that means if you're in a buying position, whether that be as a primary ownership or as an investor, you're very likely to get a decent deal.
 
(11:16) You know, speaking across the market, you're not getting $130,000 house like you could five years ago, but you're going to find, you know, some of these deals out there that could be had compared to the rest of the market because these people are in situations where, you know, they kind of need to sell. (11:29) So with that, when you guys are evaluating where these properties are. (11:35) So as an investor, how are you locating these places?
 
(11:38) I mean, if you're not going on MLS or, you know, there's stuff on MLS, but not as much. (11:43) So, or at least the deals aren't probably. (11:45) So where are you finding these?
 
(11:47) Where are your honey holes that you're locating these properties and finding these opportunities?
Brian Evans
(11:54) Yeah, for sure. (11:55) So I would say that back in the day we did find a lot on MLS. (11:59) It's a lot more scarce these days.
 
(12:01) So to your point, we are looking in other areas. (12:03) We do a fair amount of cold calls, just outbound phone calls to homeowners that may have taxes that are late. (12:10) Or we've just called into neighborhoods that we like the area.
 
(12:14) So for example, I'll tease one of our areas, East McKinney, that downtown area nearby is a fantastic long-term buy and hold type neighborhood for rentals. (12:28) And so we're kind of looking at up and coming areas. (12:31) So where they've built a new highway out, for example.
 
(12:34) So if you're in the Dallas-Forth area, Joshua area, they've built that new Chisholm Trail that's going all the way down. (12:40) It allows you, if you live in Burleson or Johnson, Joshua, to get up to downtown Fort Worth for work or whatever. (12:48) And so you're finding more people are moving along those highway routes.
 
(12:51) So we're trying to look at kind of prime areas, prime opportunities for growth. (12:57) Because obviously with growth and a developing local economy comes a higher price at the end of the, you know, however long the holding period is. (13:07) And for us, they're long-term holds.
 
(13:08) So we don't even have an exit in sight for most of our properties.
Mike Mills
(13:12) Right. (13:12) So you're finding, so you're kind of going to, you know, the tax rolls essentially, which is, this is all public data by the way. (13:19) You're going to that and you're identifying who is maybe behind some and then reaching out to those homeowners and saying, Hey, look, you know, we're here if you need us, if you need help figuring this out, we can help you get through this quickly.
 
(13:34) And then it's also targeted based on certain areas that you identify as either being somewhere where you could turn that house and flip it for more, or you could rent it out possibly and add it to your portfolio. (13:47) Is that kind of what you're doing?
Brian Evans
(13:48) Exactly. (13:49) Yeah, exactly right. (13:50) Yeah.
 
(13:51) And so then it's about, okay, we've identified the property, we've identified a homeowner that's interested in selling, and now it's buying it at the right price. (13:58) And I think a lot of people getting into real estate, certainly from a flip perspective or from a long-term hold perspective, are challenged at the math. (14:06) They see a deal, they're like, Oh, that looks, you know, that passes the sniff test of a deal that's interesting because maybe it's below the MOS price or the comps that a realtor may run in that neighborhood, for example.
 
(14:18) But there's a lot of other variables. (14:19) There's holding costs, there's takedown costs, there's the rehab costs. (14:23) And a lot of people kind of get, they'll see a good deal maybe for $20,000 under market, but they don't realize they need to probably be closer to $100,000 or $80,000 below the actual what we call ARV or after repair value.
 
(14:37) They need to be much lower than what they typically are. (14:40) And so it first comes with identifying it, whether it's their own cold callers, whether it's using systems like InvestorLift or buying it from another wholesaler, for example. (14:51) We'll scan a number of properties, look for a homeowner that has a pain or some immediacy to looking to exit the property and then underwrite it properly.
 
(15:01) And that's where I think a lot of people mess up is they don't underwrite it properly. (15:04) They don't give themselves some pads and cushions. (15:06) The old saying holds true in real estate too, that it's going to take twice as much money and twice as much time to make it profitable.
 
(15:13) Yes. (15:13) And a lot of folks don't factor those types of things in.
Mike Mills
(15:16) Yeah. (15:16) Especially when you're coming into it new, you've never done it before. (15:18) I mean, there's always going to be a learning curve.
 
(15:20) I want to get into the math of it, but real quick on the areas that you guys identify. (15:25) You mentioned something a minute ago about you are looking for areas that could be a high rental portion of the regions that you're looking in. (15:37) So these days, especially whether people realize it or not, homeownership rates are actually falling.
 
(15:43) And rental, even though right at this particular moment in time, rentals are starting to decline a little bit. (15:50) I saw an article today that said in Fort Worth rentals are down 10% or something like that. (15:55) But some of that has to do with a lot of things being overbuilt.
 
(15:58) I think there was a lot of, in the past couple of years, when you look at all of the syndicates and stuff that were building properties and flipping them and doing that kind of thing, there was a lot of money piling into multifamily, things being overbuilt. (16:12) And I think that we're probably going to go through a couple of years of rents being somewhat depressed and down because of the overbuilt, but they've also stopped building them. (16:22) So they're not going to continue past that and the market will plane out and rents will continue to go up.
 
(16:27) But as an investor, you want to try to find a place where you're going to be able to maintain a relatively high rental level. (16:35) So what are, you mentioned the highway thing, what are some other characteristics in areas that you're looking for specifically to try to identify, okay, we feel like this area or what resources do you use to find average rents, that kind of thing, to get an idea of a particular area to target.
Brian Evans
(16:51) Yeah, great question. (16:52) So we use rentameter.com to determine what the rents are. (16:58) It does a pretty good job of comping rents based off the profile of the home, the age of the home, the location of the home, number of bedrooms and bathrooms.
 
(17:06) So we're certainly factoring that into the math on the profitability or lack thereof for a property. (17:12) We're looking for durability of the property too. (17:15) So a wood siding home that's 30 years old seems reasonable, but what you have to realize is that siding is going to have to, even if it's hardy, that kind of mixed lumber and concrete siding, even that's going to fade.
 
(17:28) It's going to wear away with as much hail that we get here in this area. (17:31) That's going to wear. (17:32) And so we're looking for brick homes, slab foundations, generally speaking, three beds, two baths.
 
(17:40) So that profile tends to rent better than a four bedroom, one bath, for example. (17:45) And if it doesn't, but it's in a great area, and it checks all the other boxes, then it's just a factor of what would it cost to add a bathroom? (17:52) Is the house even built in a way that could accommodate another bathroom being added in?
 
(17:56) Because it's not all that expensive to add another bathroom so far, as long as the property can handle that. (18:05) Yeah, location is huge. (18:08) You get too far out of the Dallas Fort.
 
(18:10) When I have personally learned it, I had a rental, I've sold it probably six months ago, that was about an hour and a half north of me. (18:17) And I thought, that's no big deal. (18:18) I bought it at great value.
 
(18:19) This is a great, it was Van Alstyne, Texas, but this is going to be great. (18:23) I'll just buy and hold this thing, sit on it forever. (18:25) Bought it really, really well.
 
(18:27) However, it being an hour, hour and a half away from me, even though I've got management for the rental properties, it's still a pain to have to drive up there. (18:35) So I also learned about myself is that I don't want it to be so far out of the radius that I can't travel up there easily to check things out.
Mike Mills
(18:42) So you have a management or within your group, you have somebody that manages these specifically, but you still occasionally will go check them out and get a look at exactly. (18:51) Okay. (18:51) I mean, that makes sense.
 
(18:53) Your money's tied up out there so that everything's, you don't want to just put it on autopilot and walk away and not check it out. (19:01) Okay. (19:01) So you've identified the properties.
 
(19:04) Now you've got to look and see, okay, how do we make money on this thing? (19:06) So I want you to go back just a little bit before we get into the specifics of the math on that. (19:12) If you're looking at just (19:14) appreciation of value or if it's purely about rents and cashflow or whatever, but (19:19) after you kind of factor in your repair costs, whatever it is you're doing, but (19:23) I'd like if you have any particular stories of, anytime someone gets into real estate and they do (19:28) investing, they always have a couple of times where they're like this one time this happened (19:33) and I made sure I never did that again. (19:36) Everybody's got those.
 
(19:37) So you've got a couple of those where you really kind of learned your lesson on a few things because everybody wants to get into it. (19:42) It sounds great. (19:42) They watch HGTV and it looks awesome.
 
(19:44) But then once you get into it, you're like, oh crap, this was not supposed to happen. (19:48) I wasn't supposed to do that. (19:49) Like what's occurred to you in your career doing this stuff that's really stuck out to you?
Brian Evans
(19:55) The biggest challenges we've had are around labor and materials, the selection of those things. (20:03) So you can write out the perfect, but when you're underwriting the property, you buy it at the right after repair value, your maximum allowable through what we call it. (20:11) I've got a spreadsheet.
 
(20:12) I'm happy to share with anybody that reaches out to me. (20:15) But we're basically running all the calcs to say, what should we budget for repairs? (20:20) What do we think it's going to be worth after we do all those repairs?
 
(20:23) And we've had situations to where we bought like stick, glue on floor. (20:27) It was going to be a rental home. (20:28) We thought it was going to be fine.
 
(20:31) Smash cut to the Texas summer, the floor starts to kind of peel up and that's a combination of bad labor, bad materials. (20:39) And so we've got a number. (20:40) We've got too many of those stories to even count there.
 
(20:43) We've bought homes, underwritten them in the market shifts on us. (20:48) We had certainly when the interest rates were jumping by half a point, three quarters of a point, what seemed like month after month back in 22, we bought homes that looked like great deals. (21:00) And then the math became way more difficult to underwrite because interest rates were continuing to increase.
 
(21:05) And on a rental home, typically you're not making five, 800 bucks a month on them. (21:10) It's great for us anyway, to make 200, 250 bucks a month cashflow after all deals on them. (21:16) And when an interest rate jumps by half a point, three quarters of a point, that messes you up pretty quick.
 
(21:22) Yes. (21:23) Yes. (21:24) Fortunately, I think we're in a little bit more stable.
 
(21:26) I don't feel like we're going to go up much higher. (21:29) This is recorded in 2024. (21:30) We'll see.
 
(21:31) But it looks like we're kind of at the top end.
Mike Mills
(21:34) Yeah, I think so. (21:35) That's my opinion too. (21:37) I do feel like that rates are on their way down.
 
(21:39) I think everybody thought it was going to start on Monday when the market basically, well, here's what actually happened last week when we had jobs report that came out, when we had the Fed basically indicate that they were planning on cutting in September. (21:54) They didn't say that, but everybody's pretty much banking on that occurring. (21:59) On Thursday and Friday, we saw a big shift.
 
(22:01) There had been a steady week of the mortgage-backed securities going up and rates coming down because they work inversely of each other. (22:08) That had been trending. (22:10) Then Monday happened and the Dow lost a thousand points right off the gate.
 
(22:17) While everybody was paying attention to that, if you looked at mortgage-backed securities that day, we actually lost some value in that which is a little odd. (22:26) It had to do with this yen carry trade thing, which is complicated. (22:31) Essentially, we had lost some value in the bond market at that period too, along with the stock market, which is a little unusual.
 
(22:39) Then the last couple of days this week, we've actually seen the bond market decline. (22:43) It is today and it was yesterday. (22:46) Then the stock market is starting to jump back up again.
 
(22:48) But my personal opinion, because I read way more about this stuff than I should, is that if everybody's ever been familiar with what they call a dead cat bounce, you have periods in the market where things will fall and then they will go back up. (23:04) Everybody's like, oh, it's all good. (23:06) Then it'll fall again.
 
(23:07) Then it'll go back up. (23:08) You think, oh, it's just... (23:10) Really, ultimately, you're just trending your way down.
 
(23:13) It's not a straight shot. (23:15) There's a little bit of bouncing that goes up and down. (23:17) I do think that we are in a point where you're going to start to see rates come down.
 
(23:23) I think the rest of this year is going to be a little bumpy for a number of reasons. (23:29) You might see a bigger shift than we even realize right now, just because I think if we have something occur like happened on Monday with the whole Japanese raising their interest rates and the yen carry trade thing, a couple of events like that, maybe not that exact thing, but similar black swan events, whatever you want to call it, could cause a lot of dominoes to fall over. (23:50) It's good for interest rates, but not necessarily for the economy as a whole.
 
(23:55) We'll see.
Brian Evans
(23:56) It doesn't take much to panic the market, that's for sure. (23:59) Everyone's on pins and needles waiting for something to happen, good or bad, and when something scary happens, the market's overreacting or maybe properly reacting. (24:07) I don't know, but it's reacting.
Mike Mills
(24:11) I would argue that we've probably been propped up artificially for a while, even though in our world in real estate, it doesn't seem that way, but the rest of the economy, we've been told, is humming along. (24:26) It's a very simple thing, like look at GDP, right? (24:29) We were at a 2%, or I think they reported last quarter, we were at 2% GDP growth.
 
(24:35) Meanwhile, the government's spending at a 6% deficit, so you do those maths were actually negative. (24:43) If we weren't overspending and raising our national debt at levels we've never seen before, then I think we would actually be in the hole, but that's just where it is. (24:55) When you identify these properties and you're looking to, obviously you're not doing this for fun, it's not a hobby, you're trying to make some money.
 
(25:03) What are the things that you're focused on? (25:06) You talked about trying to clear 2 to 250 a month is a good for rentals. (25:11) Are you also factoring in appreciation?
 
(25:13) Do you look at that piece? (25:15) Is some of this just we're flipping these properties because we think we can make more selling it than we can holding it? (25:22) Where do you kind of land on where you guys decide, is it just a case by case basis?
 
(25:27) What direction do you try to go with those and where do you try to find the money?
Brian Evans
(25:31) Yeah, really all the things that you mentioned, if it was a home in East McKinney and it broke even, I'm in on it because the appreciation is over long term is going to be any other investment that I can make in the market. (25:42) On average, the rental portfolio outperforms the S&P by, for us and for our homes anyway, anywhere from 25 to 50% better than the S&P 500, which is a pretty good index to kind of benchmark what your growth looks like on it. (25:57) That is a factor to your point on appreciation of the property, rental income flow and the pay down of the loan.
 
(26:04) The sum of all those are what I'm counting as part of that 15 to 20% annual return that we make on the homes that we've got held. (26:13) Then it's just a factor of, okay, buying them right and making sure that we're doing the math properly there. (26:18) We're looking at ARV, which is your after repair value of the home.
 
(26:22) If you were to pick a like home or like homes in the neighborhood that already have been repaired, what are those homes selling for? (26:30) Typically, we want to buy a property, including the cost of rehab. (26:35) We want to buy it at about 75% of the after repair value.
 
(26:39) We do that for a number of reasons. (26:41) One, we want to have kind of money in the bank or equity in the property before we even get started. (26:45) In the event that the market does go down, we've got some buffer on the properties that we own and we're not buying them at the absolute peak, which means we have to be a lot more discriminated about how we purchase properties.
 
(26:58) We do pretty level, deep level of underwriting, establishing the rehab costs to come to those numbers. (27:04) But 75% is kind of the target, 75% of the after repair value, including the cost of rehab, because that's going to be a real cost. (27:13) For us, it averages anywhere from $25,000 to, well, we've got some that are on the extreme ends, but I would say for a normal $350,000 home, the rehab costs for us are going to be anywhere from $30,000 to $100,000.
 
(27:27) So we want to factor that into that 75% to make sure we're buying at value.
Mike Mills
(27:31) Right. (27:31) Is there a price point that you try to stay within or do you stretch sometimes even into higher valued homes? (27:38) Because obviously home prices have gone up dramatically, so this is all relative to where they were and where they are now, but you also have more and more, some of these higher end homes, people are still renting them out.
 
(27:51) Is there a sweet spot for you or do you move around a little bit on those different price points?
Brian Evans
(27:59) Yeah. (27:59) Our sweet spot is typically sub $400,000, not to say that we've not gone above it. (28:04) Typically, if it's above $400,000, we can make more cashflow by just doing a flip because there's going to be a higher number of folks that are willing to purchase a flipped home.
 
(28:16) We're just finding that liquidity in the lower end of the market is just not there for folks looking to buy properties. (28:22) We're just not going to maximize our value or opportunity by flipping a home. (28:27) Now, three years ago, absolutely we could.
 
(28:29) We did all the time to create cashflow. (28:32) Now those are much better holds for us, but anything above $400,000 can oftentimes depends on the durability of the neighborhood too and the home. (28:41) It's all about location for these.
 
(28:43) Flipping can be a great opportunity as well.
Mike Mills
(28:46) Do you guys, when it comes to funding these, we'll get into the financing a little bit too, but are you finding more these days that you... (28:56) Actually, let me back up. (28:57) Did you build a fund together?
 
(29:00) I mean, obviously you started with your own money, I'm sure, and then started adding investors as you go. (29:04) Is that the preferred route for you or do you like to leverage financing when you can? (29:09) How do you guys approach that piece when you're purchasing them?
Brian Evans
(29:12) Even with the funds, we leverage financing for just the property itself. (29:18) What I have found, if I'm buying at 75%, for example, which is ideal for financing reasons that we'll get into in a moment anyway, but I'm still coming out of pocket $20,000 to $25,000 for rehab costs before I get into the loan. (29:35) The fund that we have, it's not an open fund.
 
(29:38) We just have a single investor, a wealthy individual that wants to buy up a bunch of real estate. (29:42) We're partnering with him to do that. (29:44) That's the fund that we operate.
 
(29:46) In that case, we're basically... (29:48) He's investing $25,000 to $40,000 per property. (29:53) That gives us the necessary cashflow to do the proper rehab.
 
(29:56) When we go in to do rehabs, we knock them out. (29:58) We put granite countertops on. (30:01) We make these places that people want to live.
 
(30:04) We want to drive a better rate. (30:07) We want to drive better tenants. (30:08) By upgrading them and making them look very nice, that's how we maintain the home long-term.
Mike Mills
(30:13) I would guess you've probably identified over the years the main things that people... (30:17) Like you said, granite countertops, certain types of flooring. (30:21) There's five things that everybody looks for.
 
(30:23) We got to make sure those five things are dialed in or whatever the number is, but I'm you have a pretty good idea.
Brian Evans
(30:29) For us, it's the kitchen. (30:32) Husbands and wives love a great-looking kitchen. (30:35) Having stainless steel appliances and granite countertops, we almost always replace the flooring throughout the house.
 
(30:42) That's the first thing that tends to go, that and the paint on the walls. (30:46) We're always factoring that in. (30:47) The kitchen, we usually factor in about $25,000 for flooring and the walls is usually $10,000 to $15,000 depending on the size of the home.
 
(30:56) The master bathroom really matters too. (30:58) We usually do a great job on the master bathroom that can cost anywhere from $10,000 to $15,000. (31:03) We're just factoring all that in to say and not skimp that budget either.
 
(31:09) That's where people get themselves into trouble is they'll have some liquidity. (31:13) Personally, they'll think, okay, I can get this all done for under $30,000. (31:18) Comes in at $45,000.
 
(31:20) That's where your 75% helps you because you're still buying with enough margin to have some overages and not lose your pants in the meantime.
Mike Mills
(31:29) You're okay with looking at it going, okay, we're going to put whatever, $50,000 into this house, but because of that 25% gap that you have there, that is the piece where you're like, we're okay with it because of that. (31:43) We're not really necessarily going to take the $250 a month that we make on this property and try to figure out our breakeven because that's going to take a long time. (31:53) You're using your repair costs to factor in the value after you've done those repairs to make sure that that all works.
Brian Evans
(31:59) Exactly. (32:00) Yeah. (32:00) For a home, give an example.
 
(32:02) For a home that's $350,000, let's say, we usually want to have, call it $50,000, $60,000 of equity in the home right away. (32:15) Factor that in, factor in closing costs at 1%. (32:18) If you're buying these off markets, you're usually only paying the time and cost for it.
 
(32:22) Maybe a referral fee on the deal that you're buying, but pretty low closing costs. (32:28) Then you've got the rehab budgets. (32:30) You factor all those things in together and you want that number to be somewhere, again, in that 75% range.
 
(32:35) It just gives you a lot of comfort. (32:36) It makes financing a heck of a lot easier too. (32:39) Then you're walking in with equity.
 
(32:42) You've got a property that you've only put in $275,000 and you've got a $350,000 property. (32:48) Even if you had to go, you needed personal liquidity on it. (32:51) You could go out on the MLS.
 
(32:52) You could sell it, maybe not for top dollar, but for next to top dollar and still not lose money on that transaction.
Mike Mills
(32:58) Right. (33:00) I would imagine, you tell me, I'm guessing here, but with your QALYS business with construction, my assumption would be you're buying and flipping houses and at some point you're like, man, I'm paying these contractors a lot of money to do a lot of work. (33:15) What if I just started my own?
 
(33:18) Then I can have my own business and vertically integrate this thing or horizontal, I don't know which way they call it, but where you're making money a little bit in each or not making money, but you are absorbing costs in a business that help for tax purposes and whatnot. (33:36) I would imagine that's pretty helpful. (33:37) Yeah.
Brian Evans
(33:39) Indeed. (33:39) We've got 140 subcontractors that we sent 1099s to last year at QALYS. (33:45) We do 10 plus roofs a week that we install and then we do a lot of construction projects as well.
 
(33:52) I think that's another area where people miss is they go straight to labor in a lot of cases. (34:00) I'm not saying that's not a good route. (34:02) For some people it works perfect, but as a general contractor, we can oversee the project.
 
(34:06) Yes, there's margin packed into that so you can have a project manager, but if you've got a full-time day job and you know the vision for the rental home, but you don't have time to execute on that vision, getting a general contractor can be very helpful. (34:20) You're typically going to spend about 20% more for it, but if you've budgeted that into your numbers and it works out, well, that's a very easy thing to take off of your plates and de-risk the project quite a bit too. (34:31) We've got a horror story we've bought homes from flippers before or people that aspire to rent the home.
 
(34:38) It's where they got over their skis, they exceeded their budgets, they ran out of money, and then now they've got to short sell the property. (34:44) They've got no margin left over on it, and a lot of times most of what we hear is that they paid the subcontractor directly, the work was not performed, and they lost that $10,000, $15,000. (34:55) We hear that all the time.
Mike Mills
(34:57) You know, I've heard these stories before and there's a little, the game to it that I learned (35:03) over the last couple of years from multiple places is, and I don't know that the average (35:09) person that's looking to invest in properties would understand this, but what a lot of contractors (35:13) do and what a lot of laborers do, whatever you want to call them, individual folks that are (35:19) they take your money to pay for the job that they're currently working on to finish that job (35:27) and then have to find another job to get money to pay for your job.
 
(35:32) There's this continual thing of (35:35) operating from behind as far as from a capital point of view when you're, and again, you got to (35:40) realize a lot of these guys, and you know this obviously, but a lot of these guys are barely (35:46) making it, you know, just trying to, they're good at their job, they're good at plumbing, (35:50) they're good at electrical work, they're good at whatever, roofing, but they're not good at (35:54) managing money and running a business and being responsible and showing up on time and all those (35:58) other things. (35:59) So that puts you in a really difficult spot if you, you know, A, don't have (36:05) capital for yourself or don't have enough to vet or know what to look for when you're dealing with (36:09) someone and how to, you know, work with them specifically, especially if, you know, you're (36:13) trying to flip this house or do whatever you are with this real estate project and you're not (36:18) really into the construction side of it, you just know you need to hire someone to do it, (36:22) and then you have to learn who to find and what to look for. (36:25) So when you guys have gone through all this over the years, and you're looking for these contractors, and you know, you said, I used to know these 1099s. (36:32) I mean, I've been joking lately, but I've been telling my son who's about to be 15 that, you know, to not get into accounting or get into computer programming because I think AI is going to take all those jobs in the next 10 years.
 
(36:46) I'm like, you need to be an electrician. (36:48) You need to be an electrician, dude. (36:49) Go be an electrician.
 
(36:51) AI, computers need power. (36:53) You know, most people don't know how to use power. (36:55) And we've gone through enough situations where I'm sure people have done this before, also had this, you know, you try to find an electrician, a plumber, you know, anybody, general contractor, HVAC, people come out, they promise, they never call back, they don't follow through.
 
(37:10) You know, it's like, it's really simple. (37:12) Say you're going to show up, show up, quote the job, do it on time, and be honest about it. (37:18) But for whatever reason, that's a very difficult thing to do for a lot of people in the trade business.
Brian Evans
(37:24) It really is. (37:24) And there are so many of them. (37:26) It's a long tail of subcontractors out there.
 
(37:29) You know, you have the big boys that do a bunch of business that are well put together companies. (37:33) I'd like to think that that's what we are at Qualys. (37:35) We've been doing it for five years now and running millions and millions of revenue.
 
(37:39) But there is a long tail across really all the nation of laborers that are one man, three man shops, that don't have QuickBooks installed, they don't have invoicing systems. (37:51) And when they show up, for you to help paint your vision of what you want this house to look like, they're going to very confidently give you a number and they're going to ask for half upfront, and you may never see them again. (38:03) So having somebody you trust in it is the most one of the most crucial parts of the entire process for sure.
 
(38:10) Yes.
Mike Mills
(38:11) Well, I say this all the time, everything has a cost. (38:14) And you may find someone who you get two quotes, and one guy says it's going to be $5,000. (38:22) And the other guy says it's going to be $2,500.
 
(38:24) And you have to go, okay, why is there such a big difference here? (38:28) Now, there are occasions where people just overcharge, for sure that happens. (38:32) But there are also occasions where people undercharge.
 
(38:35) And there's a reason they're undercharging because they don't have other business. (38:39) And there's a reason they don't have other business because they haven't been able to maintain that business because of the poor quality or non follow up or whatever the case, whatever you want to call it. (38:48) So you always have to be careful of that.
 
(38:51) And sometimes paying a little bit more, you know, paying that 20% for the general contractor to manage the project or whatever, but paying a little bit more out of pocket will save you so much headache and time and it's so much out of the other side. (39:03) And, you know, you just have to be very careful and vet those people really, really well before you make those decisions.
Brian Evans
(39:11) Yeah, one thing I'd add there too, is a lot of times you'll see, they'll agree on the scope of work, the scope of effort, I want to put new cabinets in the kitchen, I want stainless steel appliances, well, there's even still a broad horizon costs for cabinetry and for stainless steel appliances. (39:25) So you can go with Viking appliances, or you can go with, you know, bottom of the barrel, Walmart appliances, for example. (39:32) And so just having good, clear alignment on what the material is going to be is a is a big deal as well.
 
(39:38) And a lot of these folks have good access to supplies when it comes to flooring or paint, they can get it for really low prices. (39:45) So I don't always take control of how they source the materials. (39:48) But we do come to an agreement on what the materials are going to be and what grade the materials are going to be too.
Mike Mills
(39:53) Yeah, and you've got that all lined out very clearly. (39:56) It's it's your scope of work is very detailed. (39:59) There's not a lot of room for ambiguity, right?
Brian Evans
(40:01) No, and then they're hungry for work too. (40:03) And I think a lot of people just kind of take it at face value that, well, I've got to prepay for this, I've got to well, what if you just told them no, we're not going to prepay for this, I'll pay for the materials, because those are real costs they're having to incur at the kickoff the project. (40:15) But let's get through a week, let's see the condition of the craftsmanship here.
 
(40:19) I want to make sure that our vision is aligning along the process. (40:22) So stair stepping and milestone payments is crucial as well. (40:25) And that's what a good GC will do not just qualis, but any any good general contractor will do that with you.
Mike Mills
(40:30) Yeah, yeah, the people that we've had experience with over the years have done good work for us, we really feel like you know, the they were very clear up front. (40:37) They a lot of times we did pay for the materials. (40:40) That was kind of how we did it.
 
(40:41) It was like because we've done a few little rehab projects and stuff, but, you know, paid for those materials to get them in. (40:46) So we can make sure that, you know, we knew what they were buying and how much and then what the labor was on top of that. (40:51) And then the other piece of this, which happens all the time in construction, when you're rehabbing projects, especially, you know, this is, things happen, things come up, things come up that are unexpected.
 
(41:01) And when, when someone says, Hey, we saw this, this is something we're gonna have to do, or we can do it this way. (41:08) You can say yes, of course, let's do that. (41:10) But then your next question should be, how much is that going to cost?
 
(41:14) Because if you don't ask that question, which I've experienced before, you will can very often be surprised when the bill shows up.
Brian Evans
(41:22) Yeah, and there's great software to help you track all this. (41:24) But you can also just use a Google sheet. (41:26) That's what I do for most of the projects is use a shareable Google sheets that they've got comment access to.
 
(41:32) And we know I know exactly where we're at in the milestone. (41:35) I know exactly how much more money, how much more time, just where we're at in the process. (41:40) And it gives me confidence that I'm not, you know, we've we've made a change to electrical, for example.
 
(41:46) Well, is that factored into it? (41:48) Where is that going to happen in the milestone? (41:50) And so much of that is done word of mouth, we see it done word of mouth all the time, that could work great for you nine times out of 10.
 
(41:57) But you know, if you're trying to limit risk and manage the variables that you can manage, documenting those things, applying them to the milestone in the Google sheet can be just a very simple columns in row spreadsheet showing we're going to accomplish these tasks by this date, and then I'm going to pay you this much money. (42:13) There's a decision point here, we need to add another column for this or that just documenting those things is critical. (42:19) They'll forget they're not going they don't have many of them, if you're working with laborers directly don't have an accounting system.
 
(42:25) So if you say no, I've already paid you $56,000, you know, year to date on this project, they'll say I only see $44,000. (42:32) That happens all the time. (42:33) And so just having an agreement on it was check number this, it was $14,000.
 
(42:38) And here are the services you perform for that. (42:40) Having that kind of level of detail is critical. (42:43) We've met a lot, we've messed that up a lot.
Mike Mills
(42:46) I'm glad you brought that up, actually, because that is something that I want your thoughts on too, because, you know, I'm a big believer in all things. (42:54) This isn't just for this, but you know, processes and systems are so critical to any kind of business that you run any project that you do any, just your life in general. (43:04) I mean, just to manage your day to day life.
 
(43:06) If you have a daily process that you go about and systems that you've put in place to kind of program yourself even to get to where you're trying to get to, it makes things so much more efficient, and you accomplish things so much quicker, and things don't fall off the radar and you maintain that. (43:23) So when you started out doing this, you know, it was this something that you were kind of already, was your personality as such that you were incredibly detailed, and you would go through and do this? (43:33) Or did you have to kind of learn this as you go?
 
(43:35) Like, how did you develop these systems and processes to get you to a place to where a lot of things, you know, you don't have to think about it at that point, right? (43:43) It's just here's how we do it. (43:44) Step one, step two, step three.
 
(43:46) Okay, yeah, we got to adjust. (43:47) And now we're going to add to this a little bit. (43:49) But everything seems from what you're telling me that you guys do is very, very process oriented.
 
(43:54) So how important do you think that is, especially in this type of business that you're doing?
Brian Evans
(44:00) It's probably one of the most common traits among other investors that I talked to is that they tend to be very, have high attention to details. (44:10) And I think the biggest, I think the biggest reason a lot of people don't get started at all is because that seems a bit overwhelming. (44:18) I know it was for me, I aspired to buy rental homes since I was little.
 
(44:22) And in my 20s, I swear I had more conversations than actions. (44:26) You know, to my detriment, I should have been buying more in my 20s than I had. (44:32) And I was, I was just stuck on pause, because I didn't know how to underwrite it properly.
 
(44:37) And, you know, obviously, there's cash flow, you need to have a buffer of cash flow to do any of these projects. (44:42) It's, it's always good, again, it's going to take twice as much time, twice as much money. (44:46) I didn't have a lot of that liquidity when I was young.
 
(44:49) And so that tends to be a big sticking point for a lot of people. (44:53) And you just got to get your hands dirty, you got to jump into one of them, it's going to cost a little bit more, that's okay, as long as you bought it, right. (44:59) It's okay.
 
(45:00) Even if you come up in your 10 grand over on budget, it's still you still have a great property for the long run, as long as you bought it in a great area. (45:08) And so yes, attention to those types of details. (45:11) I took time.
 
(45:14) I, you know, there was a time to where I was buying, I was buying, not necessarily formulaically buying, but I was buying at a good enough price in a market that was growing disproportionate to everything else. (45:25) And so I kind of walked into some profit, profit on some of these properties, but we're a lot more diligent now, knowing that, I don't know, is real estate going to grow? (45:34) It's always going to grow?
 
(45:35) Can it continue at the pace that it did in the 2000s? (45:38) Yeah. (45:39) Cause I can't count on that.
 
(45:40) I can't count on that cushion for as a buffer.
Mike Mills
(45:44) Yeah. (45:44) Yeah. (45:44) I mean, historically real estate's always gone up in value.
 
(45:46) I mean, I always tell people like the charts always like this, it just goes like this, you know, on the way up there are peaks and valleys, but really, I mean, there's not even that many valleys. (45:55) I, you know, it's, it's one of those things where, I mean, if we go back, I, my favorite example all the time, which is easy to parse out is you go back to 2008. (46:05) Okay.
 
(46:05) The, the great financial crisis was caused by real estate. (46:10) It was the reason, I know it was caused by bankers messing around with financing for real estate, but ultimately real estate was, you know, the reason why we w we had those events occur. (46:21) Right.
 
(46:21) And so because of that, or, or when that occurred values fell, I think at the time that, you know, 20 to 25%, okay. (46:31) That that's a, in certain parts of the country, California, Arizona, Florida, there were big fall-offs, right. (46:35) But you're still talking 20%, right.
 
(46:38) I mean, it's, it's not 50, it's not 75. (46:41) It's not like, you know, a Bitcoin going from 60,000 to 10,000, you know, in one day, right. (46:47) It's 20%.
 
(46:48) Okay. (46:49) And that was the biggest, or, you know, I don't can't go back to the 20. (46:52) So I don't, I don't have all the data from that, but in our lifetime, that was the biggest fall-off that we've seen in real estate, all caused by real estate.
 
(47:00) So that's expected. (47:01) And even in Texas, by the way, we only lost, I think like 10% of value across the board. (47:06) Right.
 
(47:06) So in that period of time from 2008 to now, most of those home prices have doubled, right. (47:12) So we not only did they come back, but they're worth exponentially more at greater levels of magnitude than they ever have been. (47:19) Now, we also went through the craziest time in real estate that we've ever seen with two, you know, 2021, 2022.
 
(47:25) So there's, there's yin and yang here a little bit, but is real estate going to fall off another 20 or 30%. (47:31) I don't see how that happens because we still don't have enough inventory. (47:35) Inventory is growing, but we're not at 10 months of inventory like we were back then.
 
(47:39) And, and they're not building at the same rate. (47:42) They've slowed that down quite a bit.
Brian Evans
(47:44) Yeah. (47:44) Especially in Texas, where you have such an inflow of new folks moving into town. (47:48) It's just, it's exacerbating what was already a problem.
Mike Mills
(47:52) Yeah. (47:52) Yeah. (47:52) So, I mean, it's, there's, it's like you said in the beginning, it's one of the best places that you can put money and, and, and not bank on a rate of return, but have a pretty good idea that your money's going to serve you well in that market.
 
(48:05) Over time, if you give anything enough time, especially in real estate, you're generally going to see a positive, a positive flow for that.
Brian Evans
(48:13) Yeah. (48:13) And that, that's what outweighed some of my earlier mistakes in purchasing. (48:17) And I wouldn't even call them a mistake because I'm up on them, but yeah, these days, those are the learning signs.
 
(48:23) Yeah. (48:23) And I got lucky buying at somewhat depressed market at that point. (48:26) So yes, having a lot of, yes, putting the diligence in buying right.
 
(48:31) Even if that means you have to wait six months to find the right property, take that time, but know what, know what your triggers are there. (48:37) When I, when I find a home that meets these types of criteria, I'm going to, I'm going to pull the trigger. (48:42) I'm going to getting that first one on your, on your belt.
 
(48:45) You're either going to decide that you love it or you hate it. (48:47) There's not a lot of in between and can be on it for a long run.
Mike Mills
(48:53) So let's talk a little bit about my favorite topic, which is financing. (48:57) So obviously you need money to do this type of thing. (49:00) We've talked about, you've got your private investor that can give you cash for the rehab.
 
(49:05) There's obviously hard money lending. (49:07) There are private banks, there are portfolios, there are mortgage banks. (49:12) What do you guys leverage all these?
 
(49:14) Is there one in particular that you like more than the other? (49:17) How do you determine what your best source of financing is? (49:20) Having equity in the property obviously plays a big role.
 
(49:22) So speak a little bit about that.
Brian Evans
(49:25) Absolutely. (49:25) So the first several homes that I bought just were through a conventional mortgage and I didn't know the difference by the way. (49:31) So I was just calling my local bank and financing it as a conventional mortgage.
 
(49:37) I was putting some money down in some cases because I was just kind of somewhat buying randomly through these first several properties. (49:45) And so I went conventional for it. (49:47) I didn't really even understand the number of other options that were out there.
 
(49:51) And so we use a number of vehicles today. (49:54) So we use hard money for expediency to take down a property and it's either hard money or a bridge loan that we're looking to. (50:01) And they'll typically lend anywhere from 60% to 80% of the after repair value of the property.
 
(50:09) And so we can usually get enough from that if we're buying right to take down the property and have some money for rehab as well.
Mike Mills
(50:17) Yeah, we have a bridge.
Brian Evans
(50:17) It's not always enough.
Mike Mills
(50:19) 65% or whatever is what they're generally looking for.
Brian Evans
(50:23) Perfect. (50:23) Yeah. (50:24) And those are great because again, if you're buying right, I'm getting into that loan with no money out of pocket.
 
(50:29) The only expense I have is to rehab the property, which is where that $20,000 to $40,000 out of pocket comes in. (50:37) So using that vehicle is usually quick approval. (50:41) I've already given them my finances.
 
(50:43) So they've got it queued up and ready to go. (50:46) And as you know, you can pull the trigger on that in just a few business days in a lot of cases and get ready to close. (50:52) So those are very easy.
 
(50:54) They're kind of using me as the backing of the loan. (50:58) My personal balance sheet is a backing on the loan plus the property too. (51:01) There's instant equity in the property that they're helping me finance.
 
(51:05) We usually carry it through that point. (51:09) So I don't want the rate to be so high. (51:11) So again, I'm being very diligent in the underwriting of it so that I can eventually convert that into a DSCR loan.
 
(51:18) And so that's just a debt service coverage ratio type loan that helps me for the listeners. (51:23) I know you know this way better than I might, but it allows the bank to then say, okay, you've got an asset that is producing income, is the production of income exceeding the monthly all in cost of the loan and taxes and insurance and everything. (51:40) And it generally speaking, if it beats it by five to 20%, that loan is very easy to get approved.
 
(51:45) And then I just convert that bridge loan or hard money loan into a DSCR loan past that. (51:51) Yes.
Mike Mills
(51:52) Yeah. (51:53) It makes it a little bit easier just because with the short, you know, if anybody doesn't realize what the short term money that rates are typically higher, but the good news is on a lot of those, you're kind of paying interest only if you choose to, you don't have to pay towards the principal often. (52:06) And they're, they don't last very long.
 
(52:07) They might be three, six, 12, you know, 12 months is a long time really for those most of the time. (52:11) So probably six months is your, is your longest that most of those run. (52:16) And then once you convert them over into those DSCRs, that's where the equity piece plays a big role because in most of these DSCRs, they do want to see that you have a fair amount of equity inside of that.
 
(52:26) And then as long as that, you know, rent coverage is taken care of, then yeah, you're, you're pretty much good to go. (52:32) And your personal financial situation doesn't really impact the decision. (52:37) Other than, I mean, generally banks are kind of check your credit, you know, just to make sure that you kind of responsible and can pay stuff.
 
(52:45) But sure. (52:45) But outside of that, they're not looking at tax returns and income because the property is ultimately what is deciding on whether or not you're going to have income generated off of that. (52:54) They do often say all the time, but it's a, it's a benefit if you've done it before.
 
(53:00) You know, many banks, because these types of loans, they're different from FHA, conventional VA, whatever, simply because these are portfolio loans, or these are loans that are held by individual banks. (53:11) They're not insured by a federal agency or anything like that. (53:14) And so the bank wants to feel confident.
 
(53:16) They can make their own decision based off of whatever information they have, but ultimately they would like you to have a little bit of experience doing this sometimes. (53:24) But then once you've established that relationship, then just like with hard money, you can move very fast because once a bank says, Hey, we know that you're good. (53:32) We've done this.
 
(53:33) And, and oh, by the way, a lot of times they'll be like, Hey, what else do you want? (53:35) We got this product. (53:36) We got this product because they like people that will pay the, pay the mortgage.
 
(53:41) So it gives you big benefits and you get those relationships that are really helpful.
Brian Evans
(53:46) Yeah. (53:46) And they're, they're approving them at a rate that there's already equity in the two. (53:51) So when it comes to the risk profile of the loan and the, the buyer defaults on the loan, like if I were to default on the loan, they they're not stuck carrying a bag of a 2% loan that, uh, you know, has no equity and liquidating that property, they're going to lose money.
 
(54:08) So they're, they're a bit more discriminated in how they approve it, uh, which is fine. (54:13) It's great. (54:13) Uh, it also tends to be a point or two higher, uh, the interest rate does.
 
(54:19) And so we have to factor that into the calculus as well. (54:22) So we're, again, we're using rent a meter to determine what the property could rent for in the respective area. (54:27) Uh, it does a great job.
 
(54:29) It's usually spot on and gives you a bit of a range of what's, uh, what's renting in the area. (54:34) And then we, uh, factor that in of what we can collect on rents. (54:38) Um, and then, um, you got to make sure that when you underwrite it, you're not, you know, in the best markets, you're not getting four and a half percent.
 
(54:46) You're getting probably closer to 6%, those types of loans. (54:49) So it all factors in.
Mike Mills
(54:51) Well, and I imagine something I just thought about too, is in this environment right now with higher rates, cause you're, you know, you're doing these, especially with the DSCRs, like, you know, an average rate right now today, I think it was like on the conventional loans, like 6.675 or something like that, maybe 6.8 today. (55:05) I'm not sure it's gone up a little bit, but, uh, you know, these DSCRs are going to be in the eights, maybe in the nines, you know, you're going to be paying at a higher level, but if you're financing and underwriting these, these loans or these properties at this eight, nine, 10% range, which you're have been doing for the last couple of years on anything that you've acquired, right. (55:24) And since, you know, (55:25) last 18 months, well, as rates start to come down, which they are, then now all of a sudden, (55:32) all this, this portfolio of however many properties you have, your cashflow is going to (55:36) significantly benefit over the next couple of years, because you underwrote them at such a (55:41) high level to start with that as the borrowing costs come down, as you refinance these loans (55:45) and get better terms on them, because often, you know, you can do arms, you can do short term, (55:49) you know, interest only stuff.
 
(55:50) There's a lot of things you can do with those. (55:52) Um, your, your actual, uh, expenditure for the borrowing costs is going to come down, which is going to add to your bottom line and improve your portfolio pretty dramatically over the next couple of years. (56:01) Yeah.
Brian Evans
(56:02) Absolutely. (56:03) I mean that, and then just appreciation of rent too. (56:06) And so what factor both of those in this, the models to say, okay, I'm, I'm paying down the loan.
 
(56:11) My rent is going to be able to increase over the next X number of years, uh, all in the appreciation of the property itself. (56:19) And so that kind of that confluence of events helps you kind of forecast out what type of returns you're going to see. (56:25) And they're not all going to be cash returns.
 
(56:26) They're going to be balance sheet returns, but over a 10 year period, 20 year period, as you're accumulating properties, it turns out to be a pretty big number. (56:33) And then you look up to your personal financial statement and you're like, okay, we've got a lot of equity here. (56:38) I can make a decision.
 
(56:39) I can liquidate a property and pay for college. (56:41) I could, uh, continue holding. (56:44) You could send the basket of, uh, properties.
 
(56:46) You can buy them in an LLC underneath these DSCR loans. (56:49) I could package up this LLC and sell it to an investor, for example, and, uh, kind of get some liquidation of that there.
Mike Mills
(56:56) Yeah. (56:56) Yeah. (56:57) Yeah.
 
(56:57) And, uh, it's, uh, it's, it's one of those things where, you know, when you, if you haven't done it before and you don't realize the equity piece of it and how much leverage that gives you, it's, it, it kind of, I've always used it. (57:12) Like I used the Jeff Bezos example of, um, you know, he goes out and, and, and buys a, you know, $20 million yacht or whatever, but he uses his stock that he owns in Amazon to get debt. (57:27) He borrows against his stock that he has an Amazon to pay for this said $20 million yacht that he pays cash for, then turns around and takes debt out against that as well to do other things.
 
(57:39) And then can write off that debt and not pay any taxes on it. (57:42) So it's like, there's this, this game, the shell game that you play. (57:47) I mean, it sounds really, well, that sounds terrible.
 
(57:49) I'm like, well, it sounds terrible, but they, that's how billionaires do it. (57:52) Like whether you like it or not, that's how it works. (57:55) That's how they don't pay taxes.
 
(57:58) That's how they have a ton of income or, you know, income. (58:00) They have cash, they have debt, but they don't pay taxes on it. (58:03) So it's, uh, you have to be careful.
 
(58:05) You have to have someone hold your hand through it. (58:07) This isn't something you go whole hog into and do all the way, but if you know how to play the game the right way and you do it enough for enough years, it can, it can pay dividends more than you realize.
Brian Evans
(58:17) Good example. (58:18) Good example of that. (58:19) Uh, I had a property, uh, still do have a property in Pantego, this little town in the Dallas fourth area.
 
(58:26) And I had a buddy asked me, well, how much do you make? (58:28) How much do you make a month off that property? (58:30) And I said, I make negative $200 a month in cashflow from that property.
 
(58:33) And it's like, why would you, why on earth would you lose $200 a month on a rental property? (58:38) It seems like the worst equation ever. (58:41) And I was like, no, actually I've bought the home for $140,000.
 
(58:44) I put 60,000 of rehab into it on the, just the, um, the principal that I'm paying down that the renter is paying down for me far exceeds that $200. (58:55) Not to mention the appreciation of the property over the last 10 years, I'm really making five, six, $700 a month off of it. (59:01) And so I look at that $200 Delta at negative.
 
(59:05) And I don't have many of these and do that. (59:06) It's not a like policy generally is like, I don't want to do that, but I look at it as a contribution to, uh, to like a 401k, for example, that $200 is going into the investment. (59:18) And then I'm building another six or $700 of equity on top of it shows sure money's going out the door, but I'm making way more on the backside.
Mike Mills
(59:25) Well, not including how many other homes have you been able to purchase or leverage off that property's equity and continue to invest in growth.
Brian Evans
(59:34) Exactly. (59:35) Yeah. (59:35) Yeah.
 
(59:37) It's your personal balance sheet. (59:39) If, if you're not, if you've not put together a personal balance sheet for anybody listening, it's, I highly recommend it. (59:44) You'll have to do a version of a personal balance sheet.
 
(59:47) If you get any sort of loan like this anyway, in most cases, they want to know what your assets are and your liabilities. (59:53) And so I keep a quarterly, uh, balance sheet for the family together, uh, that it's ready to go at any point.
Mike Mills
(1:00:00) Yeah. (1:00:01) Yep. (1:00:02) It's a, it's a fun thing.
 
(1:00:03) And if you really have passion for it, you can, uh, you know, you can make a good living out of it. (1:00:07) You just got to learn how to do it. (1:00:08) So, uh, before we go, um, I want you to tell everybody a little about, uh, Baba home or my saying, or how do I say it correctly?
Brian Evans
(1:00:15) That's fine. (1:00:16) It's fine, but it's better homes. (1:00:17) Yeah.
Mike Mills
(1:00:18) Baba home. (1:00:19) So tell me what you guys do. (1:00:20) And then also, if anybody's wanting to get into this, you know, give me a few, like, Hey, start here.
 
(1:00:26) This is what you need to do. (1:00:27) And we'll help you along the way.
Brian Evans
(1:00:29) Absolutely. (1:00:30) So first and foremost, there are a lot of people that poured into me. (1:00:34) I love pouring into other people.
 
(1:00:36) So just, if you've got questions on any of this stuff, just give me a holler, reach out. (1:00:39) You'll, you'll find my contact information, uh, in the podcast notes. (1:00:43) Uh, feel free to reach out to me at any time.
 
(1:00:45) Um, but Baba homes, what we do is really focus on making, uh, offers to as many homes as possible at the right prices. (1:00:54) And so while we may put a hundred offers out, we may pick up five or 10 properties from those 100 offers. (1:01:00) And so we're always kind of keeping an inventory of homes that we're, uh, both keeping and selling it's we try to kind of manage the cashflow portion of it to the cost of the rehab there.
 
(1:01:12) Uh, so we can be a source of deals for you. (1:01:14) There's also other great ways to find deals out there. (1:01:17) There are wholesalers that you can find deals from, but what I would encourage you to do today, if you're interested in building a rental portfolio is understand what your personal buy box is.
 
(1:01:28) You want to buy older homes. (1:01:29) You probably don't, you want to probably buy newer homes, meaning like 1985 or newer brick, you know, three, two or greater type homes in a certain price range. (1:01:40) Understand what it, what an ideal profile looks like for you.
 
(1:01:44) It's going to be different for everybody. (1:01:46) Uh, start, start looking, you know, even if you just pull up the MLS and say that home down the street that I thought would be a great rental home, run that through rent-a-meter and then run through what your debt service would be against that, uh, rent-a-meter number that it kicks out. (1:01:59) You'll probably very quickly see that.
 
(1:02:01) So I'm going to lose three, $400 a month off that property. (1:02:03) Like I said, it's very difficult to buy something at market prices and make money. (1:02:08) Back in the day, you could do it.
 
(1:02:09) If you had good credit, you could buy as many houses as you wanted and cashflow every single one of them. (1:02:13) You gotta be a lot more careful these days doing it. (1:02:15) So we can be a source for helping you find deals or even just advising you like, Hey, it's probably, you're probably buying this a little bit too high.
 
(1:02:22) And I don't mind doing that at all for anybody. (1:02:24) Uh, so, so Beva homes, uh, myself and Lisa man, uh, run that together. (1:02:28) And we've got a number of folks that work for us doing that business.
 
(1:02:32) And then, uh, Qualls roofing and construction is where I'm at, uh, from an office perspective. (1:02:35) Most of the time I were a five-year-old company. (1:02:38) We do, uh, like said, we do 10 plus roof installs, uh, a week across the Dallas, Fort Worth and Austin area.
 
(1:02:44) We do construction projects, interior, exterior type stuff. (1:02:47) Uh, you name it on the construction generator side. (1:02:50) Uh, we do it all at Qualls.
Mike Mills
(1:02:53) Oh yeah. (1:02:54) And by the way, the, the, the generator thing, um, I highly recommend. (1:02:58) Yeah.
 
(1:02:59) Yes. (1:03:00) Uh, there's, uh, just for more of the reasons that I want to say today, there's a lot of reasons to, uh, have a little bit of backup. (1:03:07) Um, should the, uh, power go out, whether you want to call it weather or other, um, I would recommend that Texas grid issues.
Brian Evans
(1:03:15) Yes. (1:03:15) Uh, yeah. (1:03:16) So I had a buddy, we put one in for him right away.
 
(1:03:19) In fact, he may have been our first and second, first or second install. (1:03:22) And he texted me over the weekend. (1:03:23) They just had a random outage in Keller, Texas.
 
(1:03:26) Yeah. (1:03:26) He texted me at like 10 o'clock on a Saturday night and said, Hey, thank you. (1:03:30) By the way, everything's operating.
 
(1:03:32) The internet's operating. (1:03:33) So, uh, yeah. (1:03:34) Uh, those, those have been selling like hotcakes.
 
(1:03:36) We sell about two of those generators a week right now.
Mike Mills
(1:03:39) Yeah. (1:03:39) Yeah. (1:03:40) Those things are moving.
 
(1:03:41) It's a, it's a good business to be in for sure. (1:03:42) So, well, Brian, uh, thank you so much for all your insight today. (1:03:46) Um, it was incredibly helpful.
 
(1:03:47) I think there's a, there's a ton of good information in here for anybody that, uh, you know, wants to start looking into this. (1:03:52) And like you said, if you have questions, if you want to find out more, you know, Brian's a great resource, reach out to him. (1:03:58) Um, you know, I'm sure he'd be happy to answer questions about it.
 
(1:04:01) And, and, you know, it's always, you don't have to reinvent the wheel on this stuff, reach out to people that have done it. (1:04:06) If you want to get into it, talk to someone who's been through it, they will help you through it. (1:04:11) Most people want to help.
 
(1:04:12) And you know, they'll, they'll, they'll have, uh, tricks and they'll have avenues that you can go and shortcuts that you can take that will help you learn. (1:04:20) If you just reach out, you don't have to figure it out on your own, reach out, find people that have been through it before and get help because it's there. (1:04:27) You can get to where you want to get much faster and, um, and you'll learn a ton along the way.
 
(1:04:32) So I highly recommend you, uh, reach out, reach out and call somebody.
Brian Evans
(1:04:36) Yeah, it's a very open community. (1:04:37) That's what I've loved most about it is there are a lot of investors that share a lot of information. (1:04:42) We share best practices all the time.
 
(1:04:44) So I love pouring into people because a lot of people poured into me.
Mike Mills
(1:04:47) Yep. (1:04:48) All right. (1:04:48) Well, everybody have a great weekend.
 
(1:04:50) Um, we will be back on Monday with another market updates. (1:04:54) Rates have gone up a little bit. (1:04:56) We'll see if we get a little bit of rebound.
 
(1:04:57) I don't know how it's going to go, but, uh, but hopefully, uh, you know, this chaos will settle down some. (1:05:01) So thanks for sticking around and we will see you guys next week.
Brian Evans Profile Photo

Brian Evans

Partner at Beva Homes, Qualis Investments

Brian Evans has been married to Autumn for 23 years, both were born and raised in Arlington. They have two kids, Jackson Evans, and Anna Evans. Jackson is at The University of Montana studying business. Anna is a senior at Grace Prep with a passion for art and cheer. Brian and his family attend Central Bible Church in Fort Worth, Texas.

Brian is a founder/owner at Qualis Investments which is a Construction, Roofing & Home Generator business in DFW & Austin. He is also an active real estate investor in the North Texas area and operates Beva Homes, a local DFW home buying company.