Real estate is a key part of wealth building in America, and we get asked about it all the time so we know you’ve been looking into it.
But real estate can become a major headache for busy physicians if you aren’t buying it right.
That’s why today’s show will be about how to make sure you are buying into real estate that won’t wreck your lifestyle while building your wealth.
Our guest is Gregg Cohen, JWB Co-Founder.
His company has redefined what investors can expect when investing in cash-flowing rental properties over the last 16 years (so much so, they’ve been made the front page of the WSJ twice!!)
He joined the show for a lively discussion where you’ll walk away understanding:
– why the average real estate investor is buying real estate in a way that limits their upside and creates lifestyle problems
– how to understand the upsides (and downsides) of the various types of real estate investments in a way that actually makes sense
– what I think of real estate investments and how to fit them into your plan that most real estate guys don’t understand
– and more!
If you’re someone who’s looking for a concrete path toward financial freedom but isn’t sure where to start – we think you’ll find our Q&A session with JWB Co-Founder Gregg Cohen extremely valuable.
Links:
JWB’s Contact Number: (904) 677-6777
JWB’s Email Address: info@jwbcompanies.com
Not Your Average Investor Show
Contact Finance for Physicians
Full Episode Transcript:
Daniel: Welcome to the podcast.
Gregg Cohen: Thank you so much for having me, Daniel.
Daniel: Yeah, I’m excited about our conversation. We’re gonna be talking about I think a really popular topic. I think it’s for good reason, today. I know like a lot of you guys listening have had some stressors in your professional life and the system of medicine has got all kinds of problems. And it’s causing a lot of burnout.
And naturally you guys we’re here and you guys are looking for some alternative solutions, whether that’s like a career adjustment or alternative streams of income or like retiring early. And real estate is kind of in the camp of those potential solutions that a lot of people are bringing up.
And I think it can be a fantastic solution. But I think what also, we’re seeing a lot of physicians going in with like not the best expectations and inevitably they’re getting into situations where they’re not seeing the best outcomes. Obviously that’s not something we want to see.
So, I’m really optimistic about real estate seal as like a solid alternative or solution to kind of help with some of this stuff. And I think education is really important and setting really solid expectations is super important. So that’s one of the big reasons I brought in my buddy Gregg today, to help us breach this big topic. So Gregg, you ready to jump in to talk in some real
Gregg Cohen: estate?
Ah, I couldn’t be more excited. Thank you so much for having me. This is gonna be
Daniel: great.
Yeah. So Gregg has all kinds of really cool stuff he’s done in real estate. I’m gonna hit like 1/10th of all the things that you’ve done. You started your company, was it 2006?
That’s right. JWB and You all have had some pretty solid, big growth over the years. You’ve gotten a lot of awards on it. Like Inc 500 type fast. I saw you had Gator company growth too. We’re both Florida Gator grads.
That’s
Gregg Cohen: fantastic. I knew this was gonna be fantastic opportunity right here.
Go
Daniel: gators.
Go Gators. Yeah. So, anyway, you all have seen a lot of big growth. I know today you all are have to the point where you’re serving 1,300 clients and you got what? Like 3,000 properties that you’ve dealt, done deals on and you’ve done a lot of new constructions and you all have over a hundred employees and you’ve gotten best places to work, which I love that award.
I think that’s a huge for like culture building that sort of thing kind of on the other side of the coin. And then I think it’s important too that you all are very focused on service and you all have done a lot of like over 5,000 hours of service. And you’ve raised a bunch for nonprofit organizations and you’ve even built four homes donated to local veterans.
So I love the company that you’re building and the services that you all are providing. And Gregg has also, on top of all that, he’s agreed to come on here and be kind of in the hot seat with some, like, financial planners and physicians. And I think that’s really cool too because I think a lot of people are kind of shady about their real estate businesses.
So Gregg has done a good job doing it the other way. So you ready to get rocking, Gregg?
Let’s go, my friend.
Did I miss anything that’s really important about you? I know you got a lot of stuff going on, but like professionally in JWB, did I miss anything? Like some of the things you’re proud of or that you all have accomplished?
Gregg Cohen: Oh, you know, I mean, I’m glad you hit on the best places to work because, I think the old way of doing real estate is antiquated and it misses out on the best parts of the investment. And I think what’s really lacking when it comes to investing, especially for physicians, is that it needs to be a great experience investing in real estate.
And at the core of a great experience, you have to have a world-class team. And in order to have a world class team, you need to have a world class culture. So we spend a lot of our time being intentional on who we hire and the culture that we build. And I think that is the biggest reason that the experience of owning and building a portfolio of rental properties can be something that is enjoyable.
It doesn’t have to be that terrible experience that actually keeps people away from this asset class. So, it’s something that we’re really proud of and I think that’s the secret sauce to JWB.
Daniel: Yeah. That’s awesome. Yeah, we’re big fans of that. And so, you know, real estate is a big, huge topic and we can take that a lot of different directions, but I thought it would be good to start just kind of like with a bigger picture conversation on like, when we say real estate, like investing in real estate, maybe we can start to define what that actually means or like what are the broad categories of ways to invest in real estate.
Because, you know, I think that’s probably a good thing to kind of get out there and clarify, like when we say invest in real estate, what do we actually mean?
Gregg Cohen: Yeah, I mean there’s a number of different ways that you can invest in real estate. You can be on the more, call it speculative side, which is flipping houses.
So that means finding undervalued properties and then renovating, or even building new homes and then planning on selling those homes to an owner occupant, somebody who’s gonna live in the home. That’s more on the speculative side, because that’s all about the short term. And then there’s long-term investment strategies and there’s a number of them.
You know, the one that we espouse is single family rental properties in a growing market. We’re located in Jacksonville, Florida, and that’s the market that we serve. And and there’s other ways that you can benefit from long-term hold real estate. There’s apartments, there’s multi-families which are kind of in between single family and apartments.
There’s commercial real estate, there’s even vacation rentals now. . So there’s a number of different ways that you can do it and vehicles that you can invest in these types of holdings.
Daniel: Right. Because you can just, you can go, I could go buy some vacation properties just straight up outright myself, where, you know, I am buying them and doing the whole deal a hundred percent.
On the other end of the spectrum, I think probably most people listening own REITs, whether you realize it or not. Like, for instance, Vanguard, most people probably own Vanguard Total stock market somewhere odds are in their 401K or something like that. And I think the Vanguard total stock market has like 2% or 3% of it is actually real estate.
And so that’s like on the complete other end of the spectrum. Technically you probably own like a little, little tiny slice of, a little pie of a maybe a single family home and a apartment complex or vacation home or whatever the real estate and Vanguard is just buying it all.
You know, you probably own a little slice of that there. So there’s all these variations of ways to own it. And I think we’re gonna talk about a lot of those but syndications and outsourcing it all and or doing to the other extreme of doing it all yourself, right?
That’s right.
Yeah. So I don’t think that there is necessarily a right or wrong way to do it. There are just different approaches. And hopefully we can kind of clarify a little bit about that. And we’re gonna focus on kinda leaning towards the direct ownership side of the coin. You know, so when we say direct ownership, we’re talking like you, like I said, you’re buying the property and owning it and whether it’s a single family property or a vacation rental or something like that.
So, this has been something that has really kind of always on my mind. Like I’m just super curious about it. So we’re in this unique perspective as like financial planners to be able to see people’s money. A lot of people’s money kind of behind the scenes.
And we do a little bit of like collective assessment and what we see, whether it’s people we worked with or just people we talked with about their money. There’s a pretty large percentage of people that own like 1 or 2 at the most rental properties. I’m in that group . There’s a ton of people that have owned one property, at least 1 or 2 properties, whether they still own them or not, and then they just stop and they never own anymore.
And there’s just so many of those people. But on the other end, there are a few small percentage, very small percentage though, of people that own a bunch and just crush it and do really well. So I’m so curious, like, why are there so many people that are like getting into real estate?
My observation is that they’re getting into real estate and they’re failing. That was my experience, and it was not, I mean, I can share those experiences if you all want, but I got into it and it didn’t work for me. And so that’s my suspicion and that’s what I see with people. A lot of the problem is that they’re failing or it’s not productive.
But I’m curious of your thoughts on like, what is going on here? Like, why are there so many people doing this?
Gregg Cohen: Yeah, I think that’s a great question. And there’s a lot of data out there and a lot of qualitative and quantitative sources out there that say that people are really interested in owning real estate and building a portfolio of rental properties.
There was a recent Gallup Poll that asked Americans what was the best long term investment? And hands down, real estate was the number one choice over stocks, bonds. But then that same poll asked those same Americans, what do you have in your portfolio, in your investment portfolio? And real estate was not the number one option.
It was not the second, the third or the fourth option. It was the fifth most popular choice. But behind bonds, which only 5% of Americans said that bonds were the best investment. So I think it just illustrates your point, which is that many people see an opportunity in real estate. Some people get courageous and dabble into it, but there’s something that’s missing that is not helping them stick to it.
And it’s a shame if you ask me the number one reason that they have a poor experience, and as we talked about earlier the experience as a result of the team that is supporting the investment. So many investors spend an inordinate amount of time on due diligence on their property.
They spend all this time. Maybe even driving around getting to know the neighborhood and then they run financial models on the property and they do all this due diligence and they spend zero or very little time doing their due diligence on the most important part of the equation, which is actually the property manager.
The property manager, and the management team in general is the greatest correlation. Their strength is the greatest correlation to your strength of your investment and your experience. And you know, most people buy a rental property and then just do a Google search and say, “Oh geez, I can find any other property manager out there to do this. It’s a commodity. I’ll just plug somebody in.”
And unfortunately, I think that’s why most people learn the hard way that you know, this can be a bad experience if you don’t have a team that truly supports and makes this a full service experience for
Daniel: you.
Yeah, I can share some examples that ties into my experience.
I owned one property and probably owned it for, I don’t know, six years, seven years. And it actually, like from a numbers like analysis standpoint, it was a home run, like the rate of return. I do numbers, I’m a geek, so I look at the numbers and it was killing it from a return standpoint. But the number one reason I got rid of it was I was gonna get divorced.
Yeah, exactly. And the reason was because I was managing it myself. And so I’ll give you an example, a couple of examples. One was I got a call in the middle of the night that there was water leaking. and I had to run over there cause I’m like, water is no good. Right? And I get in there and there’s water running like hardcore down out of the ceiling.
I walk straight in the basement, it’s coming straight down in the ceiling and first of all, I realized that this is probably a hoarder that lives there. Yeah. First thing. And I’m like, “Crap.”
And then I see the water and I’m like, “Ooh, that’s not good.”
So I go upstairs and sure enough it’s like right under the toilet and she must have been like mad flushing it.
Did you know there was a plunger right there? Like literally it was a plunge solution. And so that was one. We have multiple examples of things like that. We had trouble getting people to come fix it cause we would be like, “We need a door fixed.”
And the people we talked to, like, “That’s it? Like, I’m not going over there for just that.” And they would just not show up, not show up. so the pain in the butt factor, basically was what drove us out of it. We realized it was a lot more time and it was a lot more headache. And I think the math kind of made sense, but it was just not a great. And I think a lot of people don’t think about that.
I think there’s a lot of people pushing the advantages of real estate. Like the gurus out there that are saying, you know, own direct real estate and you’re gonna own rental properties, you’re gonna become rich. Which can happen for sure. But there are a lot of downsides to it. And that’s one of the things I know we’ll talk about it a little bit in a minute, I think that makes your all’s company unique is that you kind of help with a lot of that headache management, we’ll call it.
Yeah.
Gregg Cohen: Which is huge.
To win in rental properties, you need to be in the game for a full market cycle. Right. Just like we talk about in the stock market, you win by being in the game for a long time and over time you’re gonna do quite well. Well, it’s the same thing in rental properties. You have to be in the game for a long time and then you do have a great risk adjusted return potential.
But that thing about it is if you don’t have a great support team, no matter what, even if you are earning a decent or a good return on investment in the short run, you’re never gonna make it to the long run. If you are dealing with issues like you had to deal
Daniel: with Daniel, right?
I did not make it to the long run.
You are not
Gregg Cohen: gonna make it to the long run. In the long run in real estate and rental properties is so beautiful, but so few people actually make it there. Because they just simply don’t set themselves up for success with a team that is vertically integrated, that has everything under one roof, that doesn’t create an opportunity to play the blame game or to point the finger.
It’s a lot of the things that we look for in other parts of our lives to make sure we set ourselves up for success are the same things we should look be looking for a team coming to support our rental property portfolio. For whatever reason, we don’t take that extra mile of doing the due diligence to find that team.
And I think many people unfortunately, have a bad experience because of it. .
Daniel: Yeah. So, I think the advantages I want to talk about like pros, cons on direct ownership. And we’ve already started to talk about them. But I think there are a lot of advantages. I think the advantages are more widely known.
You know, like it’s a pretty good investment and I think people see that. And your Gallup Poll example kind of illustrates that. I think most people like see the advantages of real estate and people realize it’s a potential solid investment and there are quite a bit of tax benefits that could come into play.
And it’s a way to diversify potentially. And the returns loan paper, the numbers look really solid and those sorts of things. Before we go into like the disadvantages, are there any like really big advantages that you think are not as widely known that we should point out?
Gregg Cohen: Yeah. You know, there’s five profit centers in real estate in rental properties specifically that are incredible. One additional factor is that in real estate, in rental properties, you can use debt. You can take out leverage, and you can do it in a risk mitigated fashion where you’re not speculating.
You know, the debt pays for itself every single month. So when you have five profit centers and you’re able to use smart debt, you can maximize these profit centers in ways that other asset classes cannot, simply because they don’t have access to the smart debt.
Daniel: Leverage debt. Right? That is a good example that I didn’t hit
Gregg Cohen: on.
Yeah. And those five profit centers are net rental income, which many people know as cash flow. Cash flow is always important. It’s nice to have an asset that pays for itself every single month that you have here in rental properties because of the rental income that you earn. Then you’ve got tax savings and you do have some really incredible tax savings that rental properties afford.
And these aren’t special tax savings that you get by being a certain profession or experience or a real estate professional. Everybody is able to take these types of deductions on rental properties and you just simply don’t get those in most other asset classes. Then there’s principle pay down.
So this is something that many people don’t think about, but you know, while you’re able to take out smart debt, and if you buy a rental property over time, you’re not actually the one who’s paying off that loan to the bank. Your resident is actually the person who’s paying your loan off to the bank for you.
It’s another kind of hidden profit center in rental properties, but you know, I’ve owned them for over 17 years now. And so as you start to hold onto these things for a long time, you start to look at your loan balances and it’s a beautiful thing when they are a lot lower today than what they were when you started and your resident paid those off for you.
The fourth one would be home price appreciation, which gets a lot of headlines, but I think it’s largely misunderstood and maybe we’ll talk a little bit about that. And then the fifth one is inflation hedging and inflation profiting. I just think so important in today’s economy, in today’s investing space to have an asset that has built in hedges against inflation.
Because your rents and your home prices tend to go up as inflation goes up over time. And when you combine the fact that you’re able to take out smart debt, you’re out able to actually profit from inflation, in regards to paying back that loan with less valuable dollars over time, which is just a sneaky but super powerful concept and strategy that rental property investors get to take advantage of.
Daniel: it is a pretty solid place to have well in an especially high inflation, because there’s just, it’s gonna all go up with, I mean, you raise rents and appreciation happens typically with inflation. So it’s kind of like doing its thing even though despite inflation, whereas other stuff tends to have hits.
And we got a question that came up. It kind of ties into this person is sharing it looks like anonymous attendee, so anonymous. I’m gonna answer your question or Gregg’s probably gonna answer this. So I got an REO that I had as a rental property. I’m not sure what an REO is. You’ll probably know. And it was good for cash flow for 11 months of the year, and one year someone stayed for two, but I lost the gains on the cash flow moments. The moment someone moved out, came out maybe two to three per percent return. When all was said and done, why wouldn’t I just put the money in a 4% bond?
Gregg Cohen: Oh, that’s great question. Thanks so much. So, an REO stands for real estate owned. That means that this individual bought the property from a bank, so a bank had foreclosed on that property previously, and then they sell their property at a discount. The market and then this investor was able to acquire that property at a discount.
And it sounds like they ha have had a rocky road when it comes to occupancy in the in the rental property. You know, let’s talk about this. Because this is kind of a worst case scenario.
Well,
Daniel: first of all, the answer to the question is you would put it in a 4% bond if it’s only getting 2%.
I mean, that part makes sense.
Yeah.
Gregg Cohen: If all you were getting were 2% to 3% returns, then a bond would be a great play at 4%. And especially because it’s a lot easier and you don’t have to have the risk of having Daniel’s experience there with mad flushing going on with the toilet and the upstairs there.
Yeah.
Daniel: not worth 3% .
Gregg Cohen: Let me kind of connect the dots on a couple of things here. So, this person is talking about just one profit center. So this person earned 2% to 3% returns just from net rental income, but that’s not the full picture of what this person earned.
This person earned tax savings. This person earned principle pay down. I’m assuming that they had a loan in place to purchase the property. This person certainly earned home price appreciation, which has been very substantial. And this person also benefited from a hedge against inflation and actually inflation profiting again, if they use leverage.
So that 2% to 3% returns, there’s times when you only earn 2% to 3% returns from the net rental. When you still would be earning a lot more than 4% overall, and it still would make sense to own this rental property compared to a bond.
Daniel: So yeah, it’s a short, it sounds like that’s a very, we’re talking about a pretty short period of time, which in the investing world in general. It’s like, short periods of time are not great indicators of like long-term results.
And, you know, it’s not a short-term
Gregg Cohen: play, is it?
It should not be a short-term play. This is not a move for somebody who wants to buy a rental property today and then sell it in a year.
Daniel: I mean, and I guess unless you’re doing like flips and that’s the intent, but..
Yeah.
Gregg Cohen: And that’s just a different risk profile and a different reward profile and you know, it’s a completely different type of asset to invest in. But I think in the passive investment game, that’s where we start to compare ourselves to bonds. That’s where we start to compare ourselves to stocks and then other types of vehicles. So I think a lot of what we talk about on our show is helping people understand all five profit centers.
Because, there’s a very big difference between just looking at only based on the cash flow model and then making a decision based on that compared to putting into bonds versus all five profit centers, which many times create the risk mitigation that bonds provide, you know, the conservative nature and capital preservation.
A lot of that is promoted when you’re able to buy rental properties and when you look at all five profit centers, but you know, bonds just don’t provide upside. And you know, rental properties absolutely.
Bonds are
Daniel: boring. Generally speaking which can be good. I mean, that’s a risk thing too.
So maybe we can circle back to the risk aspect because that’s a completely different beast. But I think expectations are important to think about going in. My issue was, my numbers were great. Like if you looked at the numbers, they were solid. And if you heard I was selling, you’d be like, what are you doing?
But the hassle factor was worth like 7,000%. I mean, I could have been earning a ton, like 400% return on investment and it was, I’m like, my marriage is more important than earning whatever they’re gonna, it’s gonna pay. And I kind of realized that. I think that’s a big hurdle is like these, direct ownership can come with a lot of additional risks and headaches like we’ve said, and that’s the thing that’s unique about your company.
Andrew asks a question about this particularly like he’s asking about, or comment on turnkey real estate and SFR build rent specifically which sounds like you know what that is. Yeah. This is a particularly attractive option for a busy surgeon considering starting out in a buy and hold real estate investing option.
Yes. So that gets us right into like what is turnkey real estate and that’s JWB’s thing, right?
Yeah,
Gregg Cohen: absolutely. So there’s just a big difference between the old way of investing in rental properties in a new and different way. And the old way involved you having an idea that you wanted to buy a rental property or build a portfolio of rental properties and you having to go and find your real estate agent to help you and spending six to nine months finding properties and putting offers in on properties and negotiating and eventually maybe closing on that property and all of the hassle to eventually get there, only to then find a contractor. Because many times the properties need work to put into great rental shapes.
So then you had to go through and your real estate agent didn’t help you with that. But now you’re managing a construction project which who wants to do that especially a surgeon like Andrew, I’m sure. That’s not high on his priority list.
And then you did that and hopefully you got the property done on time and on budget, which almost never happens.
Ask me how I know after doing this for over 5,000 properties here in Jacksonville. It’s a challenge. Then you go and you try and find a property manager and hopefully that property manager was thinking the same thing you were thinking as far as rents that should be collected on the home.
But guess what? They weren’t there day one with you when you bought the property. And what many people don’t know is that property managers are financially incentivized to actually have short-term leases and to charge below market rent. And so unfortunately..
Why is that?
Well, you gotta follow the money. And I know this, again, we’re vertically integrated here at JWB, so that means that we have property management in-house. And so I know our books and I also know the books of standalone property management companies. In the past two years, we’ve purchased four standalone property management companies as well.
So I get to see their books. And our books look very different than their books. I’ll tell you why. A standalone, property management company earns between 25% to 50% of their total revenue from tenant placement fees. And you know what a tenant placement fee is?
Yeah. Like turnover .
Yeah. When there’s a turnover, that’s the fee that the property manager earns for putting a new resonant in your home.
Daniel, in your experience owning rental property was a turnover, one of the most expensive and worst parts of the experience for you.
No, not really. Not at all.
Daniel: No, it wasn’t? That was,
I mean, the tenant themselves in managing it.
Gregg Cohen: Well, let me, this is because you manage it yourself, right? Correct. You didn’t have a property, correct.
I’m
Daniel: not a good example of this.
Gregg Cohen: Forgot about that. Well, if you had it managed by somebody else, then you would have a tenant placement fee to pay when that new resident comes into play. And it is something, a turnover costs the average owner between $6,000 to $7,000 every time there’s a turnover.
And that comes in the form of tenant placement fees, which go to the property management company, lost rent, and then repairs that you need to put into the home. So going back to the idea of following the money, though. Most property managers have a significant part of their revenue coming in, in the form of tenant placement fee.
And so what that’s saying is that if residents stayed forever for them, they would lose out on a significant chunk of their revenue. And so at the core of it, that’s why you see property managers typically only sign one year leases. It is hard to find residents who want to sign up for two in three year leases, but even if property managers did that, then they would be cutting a significant portion, 25% to 50% of their revenue would take a significant hit because they would only get these tenant placement fees every three years or every four years instead of every one to two. So, and then as far as it being them being financially incentivized to rented below market rent. And maybe you can relate to this.
You know, when you rented out to your homes, did you rent them out a little bit below market or did you rent it out just for market?
I
Daniel: was a little bit below market, I think.
A little bit below market. How come?
Just to make it competitive and easy.
Make it easy.
More of applications and I could kind of be a little more selective and fine. Yeah, so I was mostly looking for the person I was unsuccessful at who I picked, but..
Gregg Cohen: Well if you relate that, if you put your property manager hat on and you’re running a business, that equates to less resources required.
It’s easier to rent the home to convince you as an owner that you should rent it out below market rent. My job as a property management company would be a lot easier if I can do that, because I can rent them a lot quicker, takes less ban hours for me to produce rentals. I have to spend less in marketing for you in order to do that.
But at the end of the day, that’s just robbing you of some of your return on
Daniel: investment.
If you were doing it, I’d be like, let’s charge the highest possible rate, you know?
Gregg Cohen: Exactly. You wanna find a property manager who’s here to deliver the best returns on investment, not just keep your house rented. But property managers that try to convince you to rent it out below market rent, they’re trying to keep your house rented, but they’re not delivering the best return on investment.
Daniel: Yeah, that makes sense. Turnkey is interesting because it is designed to remove a lot of these headaches. And I think, I also believe that real estate, especially direct ownership, is a lot about just getting your hands dirty and jumping in to some extent. And like a lot of people get it’s such an easy analysis paralysis type thing and physicians are very analytical and want to do things correctly.
And it’s difficult to do real estate perfectly on the front end. Things that you can do that help reduce that friction of making decisions can be helpful. Lori great to see you here. Lori has a great question. She is in the Charleston area, Charleston, South Carolina, which is a fantastic area.
Absolutely.
And so she’s been looking at potentially getting into real estate in that area, and she’s asking Mike, what are your thoughts on investing with the higher interest rate climate? And given that home prices are also still pretty high, it’s been making it difficult for them to kind of feel confident in the decision, in the fact that the interest are high end home prices have stayed high.
Do you recommend looking at another market or waiting it out or buying and just hoping to refinance at a later date?
Gregg Cohen: Yeah, so I think we’re all a little bit burned on this interest rate environment that we’re in today versus where it was. Even just a year ago, I mean, this has really been, this is the fastest that interest rates have risen in the last 40 years, which was the last time we had to battle this inflation problem.
So I certainly can relate to you, Lori, on that. But you know, the question that I keep asking everybody is where are you putting your money right now that makes you sleep well at night? You know, it’s challenging times in the traditional asset classes. And in rental properties, all rental properties have done over especially, you know, over the 17 years that I’ve been investing in rental properties and especially over the last few years as we’ve had to deal with a pandemic and eviction moratoriums and things of that nature, especially on the rent side, all single family rental properties have done is continued to perform consistently.
Many people are unaware but single family rents across the US have never decreased. They have never gone down. That was even through the great recession. But this has been an incredibly consistent asset class. And to kind of go back to any what you were talking about earlier and we were discussing, you know, if you are in this asset class to buy and hold, right. And you have rents that are consistently performing, you have an opportunity here to create consistency with upside in rental properties.
You know, so I think this is a wonderful time to be rushing to an asset class that has built instability when it comes to rents coming in and over time on the appreciation play, if you’re investing for a full market cycle, home price appreciation rates tend to normalize. And what that means is you can look back over 40 years, you can see what the Charleston market has done on average for home price appreciation.
that’s your average market home price appreciation. If you hold on or 10 to 20 years over time, you’re gonna see that average play out or very close to it as well. So, I do think investing right now is a great opportunity. But I wanted to make sure, I’m super just humbled to be asked to be on your podcast, Daniel. And I know I’m in the realm of those who might not be familiar with investing in real estate.
I wanted just to share with everybody that I very much think that a diversified portfolio, stocks, bonds, real estate, what have you is a smart play. I’m not one of those real estate guys who thinks that it needs to be a hundred percent real estate. I wouldn’t advise that for the majority of my clients.
You know, it happens to be almost a hundred percent for me, but that’s because I’ve dedicated 17 years of my life to knowing this asset class through and through. But for typical investors, you know, I don’t think that it has to be a hundred percent. What I really feel passionate about though, is that I think real estate needs to have a seat at the table in the investment portfolio or average investors in our country.
I think for too long it’s just been something that’s been inaccessible and hard. And so for too long, folks have just largely been shut out of this asset class. So, I do think it’s a great time to think about this because, most Americans have a tremendous amount of their assets in stocks and bonds only, and there’s a lot of unknowns as far as what’s gonna happen over the next year, largely due to this inflation battle that we have
Daniel: there.
Yeah, I think Gregg’s a real estate guy. I’m a fan of real estate, but I am not real estate through and through for near as many years. So we definitely have different experiences with that. I am a fan of real estate for sure as well. And I think it, you know, done right can perform really well.
But I think that a lot of it is just your personal circumstances. And I know Lori particularly you have been considering this for a while and you’ve done, she’s done a lot of education and learning and that sort of thing and homework. And at the end of the day, it’s kind of like any other investing, like with your 401k.
You just like do it. And the best way to do it is to start doing it. And that’s the hardest part is to start doing it a lot of times. And so, I think real estate, you don’t wanna make an ignorant decision, but if you can just like do your first experiment on it, which is what I did.
I mean, I had my first experience and it was not good, but learn from your experience and I learned a ton from my experience. That’s a huge thing is just to kind of try it and see what it’s like and you’ll learn a ton and you can kind of evolve from there. I also think it’s important to kind of hit on the questions she mentioned about location.
Because, you know, she’s in Charleston and it would make sense. I don’t remember, Lori, if you’re looking at like short-term rentals or long-term rentals but maybe you can mention that in my comments, but what are your thoughts on the location is because I would gravitate, my property was like, it’s a mile from where I’m sitting right now, which kind of sound appealing, especially if I’m like, I’m gonna do it all myself. Then I can go run over there and plunge the toilet it myself.
But then it was like the downfall of me..
Which is
Gregg Cohen: the reason that you wanted to sell it, even though it was performing because you had to be the one to go out there and plunge the toilet because it was only a mile away.
You know, I think most investors I think get it flipped as far as their priority of making the decision.
Most investors focus so much on the property as number one. Then if they can ever look outside of just the property, then they may do a little bit of research on their market, which is good. But it typically doesn’t go any farther than that when they buy the property. And at some point they fill it in with a property manager or maybe they have a full-time job, but they thought that they’d be managing it themselves.
Like somebody I know over there, Daniel. And, you know, if this is built to be a passive investment for you, you should have a support team in place, you know, in order for it to, in order for you to stay in the game, right? So that can maximize all private profit centers. But I think if there’s anything that I could leave with this group, it would be to flip the priorities of how you’re making this decision.
I think number one needs to be the team. I think you need to do your due diligence on the team. And when you find a team that is worthy of your investment dollars and that you’re convinced can make this a great experience for you. Then you see where that team operates. So number one is the team. Number two is then you explore the market and you wanna find a market where you have the best risk adjust balance of all five profit centers, right?
We don’t wanna just get so heavy in just one profit center, like home price appreciation, that we don’t have the asset paying for itself on a monthly basis, which would be net rental income. So you’ve gotta find the right market, which has positive cash flow, but also has significant upsides. So think about those markets out there where population is growing, right?
That’s, of course, I’m a Jacksonville guy. That’s where our holdings are and where we advise our clients to invest. That’s Jacksonville, Florida not North Carolina. But there are other growth markets out there that can also provide positive cash flow. So, number two is the market. And then number three, if you do a great job finding the right vertically integrated provider who’s gonna make this a great experience for you and you chose the right market that they are investing in and that they would perform this service for you, then property selection is actually the easiest and most enjoyable part.
You know, for example, for our clients we go through an onboarding process of maybe a couple of weeks, two, three weeks of phone calls to get to understand the client. And then property selection is done over the phone. And it takes a phone call. And so when you find the right team and you know more about why it’s the right market, property selection is the easiest part of it.
So that’s, I would just love for everybody just to kind of internalize that. I think that would really help you if you’re looking to start to expand on a rental property portfolio.
Daniel: It’s I think this idea’s been drilled into me and I see it a lot, but it’s like, seems like the idea I regularly see is like, it’s all about the property selection.
Like the deal is done on the purchase. Like I’ve heard real estate people that have done really well be like, it’s all about that purchase. Like, you know, I made it when I made the decision to buy that one particular house. And that’s kind of where things went well or not well. My experience was not that like at all in my real estate. And I know a lot of the people we work with it’s not actually been that part of it.
And it seems like you would agree that’s not the big part of it. My experience has been it’s the headache component is the number one thing for professionals that have careers, like physicians that are working really hard and like you don’t have a lot of mental energy or space outside of your job to go plunge a toilet like I did.
And you have spouses and families and kids and stuff that it’s really important that you can, you know, you’re trying to do. And so I think that, I would agree in circumstances.
Now if you’re like trying to get out of medicine or you’re like, you have a lot of time on your hands and you can go in there and flip a property or depending on what kind of deal you want to do, like, I, I guess I could see it being like that the property is number one in the whole decision making process, but it seems like though that the real estate gus really push that idea.
Yeah,
Gregg Cohen: they do. And I think it’s more for the active space, the active real estate investment. I know you’ve gotta find an undervalued market
like the Flips
Daniel: property. Like
Gregg Cohen: the flip. Yeah, yeah. You know, but I, if I was trying to marry all these concepts together, I think, certainly is important to buy the right property.
but what doesn’t get talked about is what should be done before that. That should be the third step of the process, focusing on the property rather than the first and only step. You know, step one should be the team. Step two should be the market. Step three should be the right property. And again, if you’ve done one and two, you’re gonna choose the right property because that is important.
But, you know, too few people focus on beyond day one of ownership. How is this gonna be something that you’re going to enjoy, and last.
Daniel: Yeah. I think the timeline on a long-term rental should really be like 30 plus years. I mean, it should be a very long time horizon.
And it’s gonna work out really well. We tell people when they’re, you know, deciding to invest for their retirement, a lot of times they get frazzled with the current market. And so it’s like, well, you know, if it’s gonna be something we’re talking about 30 years from now, like it doesn’t matter that much like what the price is today.
It’s more important when you’re 30 years from now. So we have to be careful not to like, look at this short term slice of time and make that paralyzing us to make decisions to do it. You kind of have to just jump in sometimes. So I wanna talk about JWB a little more and how, you know, the uniqueness of your all’s process.
So you all do the deals, you get the real estate position and you help manage the properties. So you’re helping investors to kind of find deals and then you’re helping them make the purchase and then you’re helping them manage the property properties over time. Is that correct? That’s my description.
I’m I’m sure you can do a better job. No
Gregg Cohen: I think that’s really accurate. I’ll kind of specify a couple of things. So, . think about JWB as serving up a rental property on silver platter, or an investor, a physician, a busy professional. That’s really who we cater to. . So jwb long before we would ever sell a property to a client, has already purchased the land.
So we buy land. We’ve been stockpiling land for over a decade here in Jacksonville, so we have lots, we have over 3000 lots that we haven’t built out yet. And so we buy the lot at some point previously. We then build a house on that lot. This is all done before the investor ever invests. We buy the lot, we build a house or we renovate the home.
So we’re big believers in both renovations and new construction. We then filled the home with a resident who signs a long-term. Either a two or a three year lease. Those are the only leases that we do at jwb because that leads to long term stay. So we’ve done all of this before we ever show this house, before we ever present it to a client to add to their portfolio.
And at the same time, of course, we’re bringing clients on and going through the onboarding process. And you know, at that point when a client is you know, ready to invest, they’re able to look at a, a curated list of recommended properties that we own as JWB, we’re not brokering other people’s properties.
And then that client just simply gets to make a decision, okay, yes, I’ll add this property to the portfolio, get to add that property to the portfolio, and it’s done over the phone as I was mentioning. And the home is already rented. all of the numbers are, laid out for that investor and there’s a lot less variables that way.
And so at the same time, they are able to purchase that home. Property management is, is all in house here at jwb and we have a wonderful client service team that continues to work with the client to do both the property manage and also the asset management. You know, that’s not something that we typically talk about, but we’re here to drive the best risk adjusted return for you.
And typically clients will come on board and they’ll have goals that would dictate that they might need to own three properties or five properties or 10 properties over a, you know, a five or a 10 year window. And then we work with them to continue to add properties to the, to their portfolio and, you know, ultimately help them, you know, get to that financial goal that they have.
But clients typically never see their property. Just like clients who invest in a stock typically will know and never go and visit that company. , it’s the same thing in in rental properties for us, right? These clients live in 49 different states across the country and 13 different countries worldwide.
would not call themselves real estate investors if they, if you introduce them in a party. Many are entrepreneurs physicians busy professionals I mentioned and we’re able to be this way for them to diversify into real estate while having this all done for them by a really wonderful team.
Daniel: . So you’re selling the properties. If I’m an investor and I’m like, yeah, I want to Gregg, I wanna buy one property in the next year. And I’m like, you know, whatever, $30,000 down payment is my target, or some, something like that. you’re, helping them to select that property and the property gets sold at market values, right?
That’s right. So, market value gets sold and then you’re gonna manage the property for property management you know, you’re gonna serve as the property manager. Exactly. Plus some added on services. I assume You all charge like a property management fee as like, you know, that service.
I guess I’m curious, like, how do You all make money? How does the business make this thing work? Yeah. I’m
Gregg Cohen: so glad you asked that. So we make money in two, two ways. The first is on the sale of the property. So we are sourcing our land and building the homes or renovating the homes at a value that is less than market value.
So we just simply are selling the property to a client at market value just like they would per purchase on the market. Kinda
Daniel: like any builder.
Gregg Cohen: Yeah, exactly. Just like any builder, right? It’s market value. Typically people would buy it at market value, and we make the majority of our income from the spread between our cost basis and market value that we would sell to a client.
There’s no real estate commissions as well, because we’re the owner of the asset, we’re not brokering the deal, which is nice because the client saves money on that as well. So that’s the majority of our income for JWB. And then the second is our property management company. So we charge typical industry standard property management fees, but we, again, drive value in very different ways than your typical property manager.
The most visible way is that we focus on long-term resident stays versus short-term sign long-term leases, focus on renewals. So we make your typical property management fees, which would be. Roughly 10% of what the rents that are collected. We will make 10% of that, which is roughly industry standard there, and then we’ll make tenant placement fees as well equal to one month’s rent.
The difference between our tenant placement fees though is that clients are only getting them once every four and a half years on average of your average,
Daniel: your average tenant stays four and a half years.
Gregg Cohen: Exactly, exactly. And that’s the real differentiator if you want to have success
Daniel: in this asset class.
Do you know offhand what some of those property management companies you purchased, what their average tenants stay was, or,
Gregg Cohen: you know, that’s a really good question. I don’t have that right off the top of my head, but I just, I
Daniel: suspicious it was be shorter,
Gregg Cohen: but Yeah. I’ve heard one to two years as an average resident stay for most standalone property management companies.
Daniel: I got a question coming from. Matthew Isles. What’s up dude? He’s asking about is there an outreach side of your business model. I think what he’s asking is about do you know what that, what he means by that, Gregg? I’m not sure a hundred percent, no. Matthew, you want to give us a little more context there?
I think he might be asking about like, are you, helping to find properties for people? Gotcha.
Gregg Cohen: Potentially you know, so Well, I’ll just kind of inch that exactly. You said
Daniel: exact. That’s what he’s talking about. So it kind, it sounds like you all are ki kind of like doing that, but it’s a much earlier stage, like you’re creating them basically.
Gregg Cohen: Yeah. So you know we’re not your typical real estate brokerage that is going to help you go and source properties. You know, because we’ve got this system that’s working and we already own all of the properties. So it’s more of a relationship where, We’d love to sit down with you or have a phone call and understand what your goals are and what you’re looking for, what your expected return on investment is, and then we can match that up with our inventory and say, listen, you know, we operate in this small box and we do it really well for this small box.
If your goals and our small box of what we do align, then this can be a really great fit. If it doesn’t, then we’re gonna be able to let you know early and often that we might not be the best fit for you. You know, so as far as like outreach for finding other properties, that’s probably not the best fit for us, I would probably recommend a really great, you know, investment, property focused, real estate agent who might be able to find, you know, exactly what you’re looking.
Daniel: . Yeah. You all, it sounds like You all are more like full service and you know, it’s, it is very unique that you all are owning the land all the way. That’s very, very early stage. Owning the land and developing it and then getting it to the point of selling it and then managing the property. And Lexington, where I live in Lexing, Kentucky, it’s the real estate industry has a very unique, I think it’s, I guess it’s not so unique, but it’s the builders, my next door neighbors builder, and he talks about how there’s no more land really in Lexington.
Like there’s no places to build, or we’re running out of places to build. Yeah. And that seems to be, becoming a bigger issue. And, you all have kind of already sell for that, right?
Gregg Cohen: Yeah. You know, and we do it differently you know, across the, in, in many developed cities like, like Lexington I would imagine it’s hard to find land.
Jacksonville. We’re a little bit more. , prepared for that. Jacksonville is is a large city. By land mass, and we have a lot of undeveloped land. But, you know, our business model is not to go out there and compete with the builders who want to take down, you know, land to build a hundred unit subdivision.
Our niche and the niche that we’ve created for ourselves is to be an infill builder, which basically means taking those lots that are already in established neighborhoods. And there might be a lot that just was not built on for whatever reason or could be a, a home that was on that land that quite frankly needed to get knocked down because it was in such disrepair.
You know, we will do that and then we will have that one singular lot in the midst of a robust developed neighborhood that’s called an infill lot. And so, yeah that’s been our approach. We started building and doing this and building build to rent housing, which is, it’s now it’s a phenomenon.
Wall Street is backing it. And home builders are backing this concept of building homes and holding onto them much for the same reasons that we’re talking about here. But we started doing this in 2011, kind of stumbled onto it in 2013. They wrote about us in the Wall Street Journal as being a pioneer in the build to rent space.
So it’s been a part of our, the fabric of our company for, you know, over a decade now. And you know, build to rent might be new to some, but you know, it is something along with renovations. It really doesn’t matter to me new construction or renovation, but holding on to this asset long term is the way to win, no matter which way you slice it.
Daniel: Yeah, no, it’s a long term thing. I think especially if we’re talking about. Direct real estate and long-term rentals. It’s just not a, like, investing, most investing, it’s not a short play. It’s a long play. I’m curious if we can, as we get to wrapping up I’m curious about like, first steps, like, a lot of this, like we’ve talked about is paralysis analysis.
Like there’s a lot of wheel spinning that can happen. And I want to circle back to like, what can we do to take a step in the direction? I mean, maybe you’re not like buying real estate today. Maybe a lot of people hear this and they’re like I don’t even know that I would wanna do real estate in the first place.
But I would love it if we could finish out with talking about some like, action items. And I think the first one that we’ve already done is like, listening to this and l Gregg’s got a great podcast like educating yourself listening to Gregg’s podcast. Listen, learning about real estate, educating yourself is always a good first step.
Gregg Cohen: Yeah, I think it’s a great first step. Thanks for the heads up on our, show. It’s called The Not Your Average Investor Show. And we have a really wonderful community that comes together every Tuesday and Thursday. It’s 1230 Eastern, and we’ll have. You know, over a hundred investors that show up each and every week to be a part of the community.
And so, and that’s a live show, just like you’re doing. So it’s a lot of fun. So I certainly wouldn’t extend the invitation to anybody in your community. We would love to have you. It’s free, of course. And then we also have the podcast, which you can listen to on the go. You can just search for not your average investor show.
But, you know, I just think going back to those the order of operations for finding you know, and making that decision to invest in, in real estate starts with the team. So I think you’ll start to do your due diligence on the best teams out there. And there are a number of great podcasts be able to follow.
So I think starting there, understanding that team and then understanding which market you really will have the best risk adjusted return with. Is something that I would encourage as your, as your second step. I mean, you’d be surprised. There are so many investors that only make decisions based on.
I guess cash flow is the easiest one because that’s easy to calculate and lo and behold, I’ve seen it where they just leave hundreds of thousands of dollars on the table after holding on these assets for 10 years or 20 years simply because they were in a low growth or no growth market and they just didn’t get as much home price appreciation.
you know, the second step would be understanding what makes your market special, the market you’re considering, and knowing that it might not be in your backyard. That’s okay. Yeah. Those would be the first two places to spend some time in my opinion.
Daniel: I think that, the time component is also something I would throw out.
Like a lot of you probably, as I mentioned earlier, are already investing in real. Yeah. Whether it’s like a, you know, real estate investment or if it’s through the Vanguard total stock market. But that ha, that requires zero time. Like literally it’s a hundred percent like autopilot. So that’s like one, you know, extreme way to do it, but a lot of you all I know prefer a little, you know, I like the idea at least of a little bit more getting your hands dirty but maybe you don’t have all this time in the world.
So thinking about the time component and the whole decision making process about whether you, you know, go find property yourself and build your own team versus like talk to somebody like Gregg who can take a lot of that off your plate. I think a lot of us are busy, so, you know, I have a lean towards like, if I do this thing again, I am not doing it.
That is completely set in stone. So I would throw that into the mix as well. And if you work with us if you’re one of our ran financial planning clients, we can also kind of talk one-on-one with you guys about this and help with kind of the game plan and you know, Ultimately it’s about taking action and educating yourself and, you know, we wanna make good progress on this kind of thing.
So Gregg, I feel like there’s a million other things we can talk about with real estate. And there’s a million questions I didn’t get to, so, I love talking real estate. I’m, I’m really thankful for you coming on to talk about this. Hopefully we can circle back and kind of make this a topic we come back to, Because there’s a lot we didn’t get to, I don’t think.
Thanks. Thanks for coming on, man.
Gregg Cohen: Oh, hey, this has been an incredible opportunity. I’m right there with you. I feel like we’re just getting started on this conversation. , I’m super excited to, to have you in our community as well, and hopefully we can get you on our show. Because I just think this kind of, this combined effort of traditional asset classes done done better, which I know your clients are getting with you and your non-traditional assets, those having a seat at the table, I think that’s the way that we can really help Americans, you know, achieve better financial health and enjoy the process along the way.
So thanks again for the opportunity.
Daniel: Yep. Thanks Gregg.
