Posted on: November 18, 2020
WI 561 | Single-Family Housing

 

Today’s brilliant guest is convinced there is one real estate class you should be investing in right now. Curious to know what it is? Then you shouldn’t miss this episode!

This show’s guest is Dave Payerchin. Dave began his real estate career last 2005. In 2012, he joined forces with RJ Pepino, and they began buying real estate properties in and around Central Ohio.

Dave and RJ are the co-founders and current administrators of the CREAM (Columbus Real Estate and Money) Group. Together, they have purchased, renovated, and sold over 500 properties. They have also successfully raised over $20 million dollars from private properties and banks.

In this episode, you will not only find out the asset you should be investing in right now, you’ll also discover how you can successfully build your rental portfolio.

If you’d like to run a thriving business amidst the current situation, this is one episode you can’t afford to miss!

The #1 Real Estate Asset Class You Should Be Investing In RIGHT NOW With Dave Payerchin

Episode Transcription

This is what we got in store for you. I got a question. What do you think the number one real estate asset class is to invest in? That’s a big question. There are a lot of ways that we could be creating passive income and building our portfolio. Let me tell you what I got for you. I’ve got a guy that’s an expert single-family portfolio operator. That’s how he described himself. That’s pretty cool and sexy. I like it.

This is what you’re going to get by the end of this episode and why you want to read. We’re going to talk about this asset class and the top five reasons why you should be looking to invest here. Let’s rock and roll on this. I want you to welcome my guest, Dave Payerchin. What’s up? Welcome to the show. Are you ready to rock and roll?

I’m ready to rock and roll, Chris. Thank you so much for having me. Unfortunately, my partner in crime, Mr. RJ Pepino, my business partner could not join us because his lovely bride had their first child. We’re dedicating this episode to baby Leoni who’s still in the hospital. She’s a healthy baby girl.

That’s a big day. That’s exciting out there. You got a lot going on.

I’m excited about that and very excited to tell all of your readers why single-family affordable real estate, especially in the suburbs by far and wide, will crush any other real estate asset class out there. I’m ready to rock.

For those that don’t know you, give a quick intro on how long you have been in the game, where you are located and all that type of stuff.

A quick background is I’m a kid from Cleveland. Right after high school, I packed up my bags and was going to do construction. I went out and moved to Arizona. They were building houses. The year was 2000. I got a real estate and started wholesaling in 2005. I got crushed in real estate because I didn’t understand anything about finance in ‘07 and ‘08. What I did learn from that experience in the financial crisis of ‘08 was I wanted cashflow. I licked my wounds after that and hightailed it back to Ohio, which is in the Midwest as you know. It’s great for affordable housing.

That’s when I got started buying rentals in 2012. My business partner RJ and I have built a pretty sizeable portfolio here. We’re continuing to buy. We’re in multiple markets like Columbus, Cincinnati and Dayton, Ohio. We have been through it all honestly. From beginning to end and every facet of single-family affordable housing from the finance to construction, property management, acquisitions and everything you can imagine. We have seen it all. I’m excited to have this opportunity to share with you and all of your readers some of the things that we have found.

I want to do this like a countdown. Everyone does the five reasons. Why don’t we start at five and work down to one? Let’s have a little bit of fun with this. For the top five reasons, let’s start with number five. Number five is demand. What are you seeing here when it comes to this side of demand for these particular areas?

Every single person living in an apartment wants to live in a house.

We’re coming out of a global pandemic. More companies than ever before are allowing their employees to work from home as you know. Companies are finding themselves not only to be more profitable by getting rid of their office space and letting people work from home but they’re finding their staff to be more productive as well. People need space. It used to be a thing when a couple or family was shopping for a house wanted his and her sinks or his and her closets. People need his and her Zoom rooms.

I’m coming to you from home and my lovely bride is out in another room. I’m sure you’re at home as well. More people are working from home. We have a demand for space. Nobody wants to be in an apartment. We’re comparing single-family living to an apartment. Could you imagine being in an apartment? If you have kids, they got to homeschool their children. It’s mandated homeschooling. You got kids running around and you’re trying to get work done. People need space. The demand post-COVID is through the roof.

That’s the number one reason that is increasing the demand. Home starts and new builds are flying off the shelves. The real estate market is incredibly hot. There’s very little inventory out there in the single-family space for the simple reason that nobody wants to move. If you have a single-family house, you’re not moving into an apartment, God forbid. Every single person living in an apartment wants into a house especially if you’re working from home and homeschooling your children.

This is extremely logical. All of us whether we’re running teams and stuff like that or have friends that are working from home, that whole dynamic of space will either make or break that process. The smaller the space, the more likely it is that the structure is going to break down because there’s no room to work, live and teach your kids. The fact that this whole crisis has pushed people into needing bigger space because they’re going to be working from home makes complete sense. There has not been a time over the last X amount of time that you’re going to see this type of push for this type of product because of this.

We can even piggyback on what we’ve already stated. There are mandated curfews everywhere. More people are eating at home so you want a big kitchen and don’t want to be cooped up in an apartment kitchen. Since we’re forced to stay home, wouldn’t you rather have the space? The space is a big thing and the yard. You want a yard. My family and I have 2.5 acres here in Ohio and this has been the saving grace. We spend so much time at home. It’s nice to get out, walk around and get some nature on your property.

The people feel like they might not be vacationing as much either because of risk or saving on expenses. They at least want to feel that they’ve got room around where they live to enjoy that. Pool sales have gone way up. People are building pools because they’re like, “I’m going to do a little bit more staycation than the traditional vacation.”

Think about it. There’s Peloton the company. People are working out at home. That’s through the roof. Video game stocks and companies are making more money than ever before. The list goes on of stay-at-home types of businesses that are all thriving. That supports my thesis that the demand for single-family housing far outweighs any other real estate asset class.

We’re going to talk about residential living real estate. We don’t even need to get into retail real estate. That’s gone. We might as well level office real estate. We’re not even going to go down that path. The gist of our conversation will be comparing it to apartment living. Everybody is forced to stay at home and the stay-at-home businesses are thriving for all these reasons.

I want to take one step back. Will you define for us suburban? There are suburban areas and then rural areas where you’re getting even further out past the city limits. They’re a bit of the smaller and more country towns. I’m a Texas guy. We get calls from some of those areas. Are you latching rural in with suburban? Is there a distinct difference there?

WI 561 | Single-Family Housing

Single-Family Housing: The real estate market is incredibly hot. There’s very little inventory out there in the single-family space because nobody wants to move. People need their space.

 

The numbers speak for themselves. Both are blowing up. People want rural if they can get it but worst-case scenario, they will take suburban. I will tell you where people don’t want to be and that will get us to another point. Nobody wants to be downtown anywhere so people are moving out. Let me ask you this. You’re a Texas guy. That’s great. Think about people in the most inflated real estate market in our country, the Bay Area, California. For people who are working for these big tech companies, prices are way overinflated and through the roof. It’s so expensive to live there.

When your boss tells you that you don’t have to take a pay cut and get to work from home, you’re hightailing it out of California. Many people are fleeing California and going to places like Nevada where you could get big land. Over at New York City, people are vacating New York faster than anything. Nobody wants to be in these dense areas anymore. Rural, land sales, home starts and suburban home sales are blowing up. There’s no inventory on the market. If you have one, you’re not selling it. If you are selling it, it’s gone in one day. That’s the entire country.

I will tell you where else they’re coming. They’re coming to Tulum, Mexico. They refer to themselves as the digital nomads and have shown up on the doorstep of Tulum and they’re here. Let’s go to number four. The fourth reason to look at this is because of COVID directly. What are we seeing here concerning that?

The point that I’m making here is comparing single-family to apartment living. Think about it. In apartment living, you’re crawling all over each other. It is a legitimate fear. I don’t know what your sentiment is towards the virus but we have to respect everybody’s sentiment and what they feel about it. A lot of people are afraid of it. When you’re living in that fear, you don’t want to be close to people. Unfortunately, it’s how it is. It’s six feet social distancing and the whole deal. Could you imagine living in an apartment where your neighbors are crawling all over you? Not to mention you and everybody else is stuck at home the whole time. If you have fear of the virus, the last thing you want to be is close to your neighbors.

The term that comes to me for that is people walk around with a little bit of suspicion. I would imagine that suspicion is going to breed the fact that people want some further distance from each other psychologically that people have for safety.

It’s crazy. Don’t you notice the difference even when you’re walking down a hallway? I saw you out in Florida and we were in a nice event. Even strangers, people don’t want to be as close to each other as we used to.

Let’s go to number three. What’s happening in downtown metro areas that might not be happening in these rural suburban areas? What are we seeing here as a potential, another motivation or something that’s influencing people to head out more to the country?

2020 is an election year. It is the year 2020 and the month is October. It is a very crazy world out there. People are rioting and protesting. Crime is through the roof in most downtown areas. Where I live and many other dense urban downtown areas, protests and vandalism are happening everywhere. People are getting killed out there. I’m not for or against any of this stuff. I don’t even want to get into that but it’s happening. I’m not going down there. People are afraid.

Why would anyone want to live downtown in the first place? Let’s ask ourselves that. You want to be close to amenities and be within walking distance from parks and restaurants. The best restaurants and bars previously were in downtown areas. My family and I used to go downtown all the time. We won’t even go down there anymore. It’s like a war zone quite honestly. The crime is through the roof. People used to pay a premium to be downtown for those reasons, the amenities and walking distance. With the crime being so high, why would anyone pay a premium to live in a downtown area?

The demand for single-family housing far outweighs any other real estate asset class.

The crime is through the roof. You’re crawling all over. You don’t have the space. The amenities are gone. There are mandated curfews. These restaurants and stuff, a lot of them are going out of business, unfortunately. Crime is very much a factor. That’s why I throw the suburban in there. People would much rather be in the suburbs than in a downtown type of setting, unfortunately.

You had a subpoint there that is interesting. The further you go away from the city and more out to the country, the less regulation, everyone watching you type of piece where you can get out there and feel like you got some breathing room. Not everybody is eyeing you. I can imagine people are like, “Not do I just want to get away from people for safety but I want to get away from people so that whatever my belief system is around this, I can do my thing and not be bothered.” That’s another great point.

Let’s go down to number two. This is an interesting one. I’m married to a wife that loves animals, pets and dogs. I laugh, Dave. We live in Tulum and have a lot of what we call street dogs. She packs the back car with these little food packs. When we see a dog, we will pull over. She will get out, pour it out and feed them. I’m married to someone where pets and animals mean a lot. What are we seeing here with this dynamic to continue to influence people in their decision-making?

I have some very interesting statistics. Your readers could fact-check this because I was blown away. I saw something on Facebook one day, started researching and I’m like, “This is unbelievable.” First, I have a question. You’re in Tulum. I have been through Central America and spent a lot of time in Guatemala. The locals all have a little secret because there were wild dogs in many places. Does this work for the wild dogs on the streets of Tulum, Mexico? If you don’t want a dog to approach you, you bend over and act like you’re picking up a rock. Will it run away?

Isn’t that funny? It works all over the world. I highly encourage you and your readers to check this out. Here in America, we love our animals here. That’s not that way all over. I’m happy about the dogs there in Tulum. It’s so nice of your wife to pull over because I guarantee a lot of the locals are not doing that. When we’re forced to be home, unfortunately, it’s one of lonesome.

Statistically, in all the studies that they’re doing, alcohol and drug use are up and there’s a lot of stuff. People are stuck at home. The sentiment is lonely. The demand for pets is at a twenty-year high. Many humane societies and you can share this with your wife and I’m sure she’s going to be thrilled when she hears this, are sold out. They have no pets. People have embraced pets and that further reinforces that if you’ve got a pet, most apartment living situations won’t even let you have a pet.

You’re stuck. It’s like a prison. Apartment living is like a prison at this point. You’re paying a premium for amenities that you can’t go to. You’re not allowed to have a pet but people want pets. We have two dogs. It was great. We got our last puppy right before the pandemic came. We have been able to spend a ton of time with the dog and it has helped us pass the time. It is a loving and nurturing thing. Do you have pets, Chris?

We don’t. We just take care of all the animals of Tulum.

It’s interesting. You can check the demand for pets. Do you know who’s making a killing? We talked about all the various businesses that are monetarily boosted up from this whole COVID stuff. Dog breeders are charging double than what they used to. They’re still breeding. The dog prices have gone sky-high and humane societies are sold out. You don’t get that with apartment living. You want a pet and people want pets. The numbers speak for themselves.

WI 561 | Single-Family Housing

Single-Family Housing: Because of the pandemic, more and more people are working from home. So the demand for space is really high. Nobody wants to be in an apartment right now.

 

I haven’t connected the dots. It’s always interesting what has gone up and gone down. You hear something like, “I didn’t realize that COVID would have affected that positively or negatively.” I was at a little barbecue. There were three other couples there that we went to the barbecue and two of those couples had gotten new dogs. That was more than 50% of the three people there that as couples got dogs. Let’s come down to this number one reason why people are making a move out to the suburban areas and why, if you’re building your rental portfolio, you should be doing this. Let’s talk about cost. What’s happening there?

Check this out. I’m so excited to share this and we can get into this. This is going to provide a lot of value to your readers. The interest rates are artificially low. We have rock bottom ridiculously low-interest rates. The reason people say artificially low, what that means is low-interest rates should be a reward for having a surplus of money. We don’t have a surplus of money. Our country is printing money like crazy. It’s terrible. It’s bad for the economy in the long-term of what they’re doing.

Interest rates are insanely low. Banks are offering us money at 3.5%. We can buy these things. If you’re living in an apartment house, let’s stick to our comparison here and pay a premium for the amenities that you can’t go visit. You’re paying a premium, can’t have a pet, don’t have the space to move around and anything like that. The bank is willing to give you dirt-cheap money. If you’re buying an owner-occupant property, you can get 2.5% of primary residence money. It’s going lower.

Jay Powell from the Fed has already said that they’re not raising interest rates anytime soon. Your payment will be lower in most areas on a 2,500 or 3,000-square-foot home simply because the money is so cheap than your lease would be in an apartment where you don’t get any of the things that you would want. The money is so cheap. Every single real estate investor should be tied up and getting as much low-interest long-term money as you possibly can. It’s the ultimate trade.

Here’s a big reason why. They’re printing money like it’s going out of style. It’s crazy what’s going on. What is that going to cause? Inflation. Inflation is when the prices go up. Years from now, we’re going to have and they’re already over $5, $10 loaves of bread. That’s the analogy people say. You meet an old person and they say, “When I used to go to rock concerts, it’s only $10 for a ticket and then it’s $100. When I was young, a cheeseburger only cost a nickel and then it’s $1.” That’s inflation. Prices are going to go up.

If a bank is willing to give you long-term fixed low-cost money, you’ve got to think. Prices are going to continue to go up, especially on real estate. Your payment is not going to go up. The dollars that you are using to pay this bank back are going down in value while the asset that you own is going up in price. Years from now, your payment is fixed and the dollars are worth less than they are now.

You get to write off some of the interest as well. If you’re getting a 2.5% loan, factor in writing off the tax deductions and inflation. What’s the true net cost of that money? It’s 1% money. It’s ridiculous. People can afford everything that they want. They’re the space out of the crime and the whole thing. You can afford it and all the spaces simply because the money is so cheap.

If I look at your five points and anyone reading goes, “This is completely logical. I don’t have to break this down much further because we’re seeing it and experiencing it ourselves and with the social circles that we run in with friends and family.” A couple of underneath threads that I hear is what is driving this is fear. A couple of your points are fear-based decisions. We know that fear, as well as pain, are two things that motivate people to make a change or do something different.

A lot of people have made changes that they might not have because they have fears. Here in Tulum, how many people have wanted to come live in a foreign country like Tulum but haven’t? I asked them, “Why did you decide to do it?” “It’s because so many people have. It was the thing that got me off the fence. I had these fears of not doing it but the fear of what I’m experiencing in the US is different enough to overcome the fear of living in a foreign country.”

If you fear the virus, the last thing you want is to be close to your neighbors.

The second layer underneath I hear that you’re talking about is a necessity. For me to work from home, take care of an animal, provide a place for my kids to play and have a lifestyle from a comfortable home standpoint that we can enjoy is a necessity. Your points are driven by psychological things like fear and necessity that do drive decision-making for us as human beings. That’s a big observation there on your points.

The fiscal part of it is the long-term money. Have you ever seen interest rates as low as they are? Probably not. If we can lock that up for 30 years long, it’s the best long-term play all of us can do.

If you are reading as always and want to put a face with the name, go check us out on YouTube. Take a look at Dave and I kicking it here and him with his backward hat and cool background. We were talking about that. Go to Chris Arnold – Real Estate and subscribe over there. For those reading, do you have any potential practical structure on how you’re building your rental portfolio? I hear what you’re saying but I’m a little bit newer to the business. Dave, would you mind breaking down in basic format, how you’re building your rental portfolio in the sense of financing it and so forth?

What we do is raise private capital and use that private capital to buy off-market deals from motivated sellers as I assume a lot of your readers do. We will fix these properties up and do a glorified BRRRR, which is to do a refinance after the home is fixed up, acquired with private money and fixed up with private money. We will put permanent financing on our homes in the form of a bank.

We look for properties where the rent to value ratio continues to make sense. What that product looks like here in the Midwest and Ohio is we like properties valued on the low end, a $100,000 and on the highest end, right about $200,000 or $220,000. In our markets, $200,000 ARV house is going to rent for $2,000. A $220,000 house is still renting for $2,000. A $250,000 house is maybe $2,050. The rents stop, keeping up with the value right about $200 in our market. Below a $100,000 ARV, it tends to get a little bit more in Class C.

That’s where we got our start. We still own a lot of homes in the lower-end parts of Columbus. We have been able to re-build our business up. We don’t need to be in the lower parts. They’re great for cashflow but sometimes they’re more management-intensive. We want to be right in that bread and butter. We love homes that have a garage. Do you know what we love even more, Chris? It’s when the resident that we bring in fills the garage with all of their crap because that means they’re not going to move out anytime soon. No one wants to move.

We love pricing our rents very affordable. We’re not trying to gouge this person for every last dollar because we’re thinking long-term. We want to lock these people in there for a long time. We do have residents that have been with us for years and have no intentions of moving. For your readers, if you’re new to this, always go for the longevity of a rental rather than try to make as much money in one month as you possibly can. You got to think, every time a resident moves out, you got to turn the property and invest a couple of thousand dollars. Go for the long haul even if that means making your rent more affordable rather than trying to get as much as you possibly can.

If you’re reading and you’re like, “I love what Dave’s doing here. I want to get some more value and follow,” the great thing about Dave is he loves to come in and add value. I was talking to him about it and he’s like, “I produce a lot of great content no strings attached for free.” That lets us know he’s got the heart of a teacher. For those reading that go, “I like this guy. I want to learn more about the strategy. He’s onto a great play for me for 2021,” where do they follow you? Where do they go to?

Our brand is the CREAM. The CREAM stands for Cashflow, Real Estate And Money. If somebody wants to follow me, you can find me and my business partner RJ Pepino online. Our website is RiseWithTheCREAM.com. Chris, finish this phrase. The cream always goes where?

WI 561 | Single-Family Housing

Single-Family Housing: Prices are going to go up because of inflation. If a bank is willing to give you long-term fixed low-cost money, you’ve got to think prices are going to go up while your payment will not.

 

It rises to the top.

That’s what we’re doing.

It’s creative and I love the acronym that you’ve got in there as well. To the rest of you reading, as always, you teed this up for something that I’m super passionate about and that’s radio. Radio is the number one way to advertise to people in rural areas. I will tell you that the students in REI Radio will tell you, “I’m so used to doing deals in my local city. When I launched radio, it covers such a wide area that all of a sudden I’m getting calls in areas that are outside what I’m used to working.”

Dave is coming in here, flipping it and saying, “That’s an incredible thing.” If you’re looking at the opportunity that’s there, you’re looking at this as an ability to build a rental portfolio. We’re always talking about, “Here’s the strategy. How do I create traffic to fulfill that strategy?” Radio is a fantastic way to do it because that’s the thing that’s getting into the ears and in front of people that are outside of the city itself. As always, if you’re reading, go to WholesalingInc.com/reiradio. Book a call and see if your market is open.

We have students that are utilizing radio to fix and flip, wholesale hotels, build rental portfolios and on top of that, do creative financing. We all might have different exit strategies but the reality is we all need the same lead opportunity and that’s motivated sellers for whatever we want to do. Dave, thanks for coming in. I always like a fresh topic and perspective, something that’s going to get us thinking a little bit differently. You brought that. You’re exposing an opportunity and some of the upsides of what we have gone through. Thanks so much for coming on.

Thanks for having me.

To the rest of you, thank you so much as always for reading. Until next time. We will catch up soon when we add more value. I’ll talk to you later.

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About Chris Arnold

Chris Arnold is a 15 year Real Estate veteran who has closed over 2500 single family real estate transactions in the DFW metroplex. Chris is the founder of multiple companies that are managed by a US virtual team, which allows Chris to run his organizations while living in Tulum, Mexico full time. His passion for leaders has led to the creation of Multipliers brotherhood which serves the top 5% of real estate entrepreneurs out of the US. Most recently Chris has launched his REI Radio coaching program. This program is designed to teach real estate investors the marketing stream that everyone knows about but NO ONE is doing!

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