Coronavirus Crash? Dos and Don’ts from Recession Veterans Joe Asamoah and Steve Rozenberg

Ashley:
This is Real Estate Rookie show number three.

Steve:
When actually I’ve seen the most wealth created, I’ve seen more millionaires and more wealth created during the economic downturn of 2008 timeframe than I have ever. And a lot of people don’t talk about that, they talk about all the losers that lost money. They don’t talk about people that actually took action and actually capitalized on it by being smart and educated to being ready to move. So yeah.

Ashley:
I’m Ashley Kher and I’m here with Felipe Mejia who is out in Daytona beach, is that correct?

Felipe:
Yeah, that’s right. I’m out here in Florida. Me and my wife decided to just come out here and take a break. Man, there’s just so much going on in the world and I had to recently did two properties at the same time, something I typically don’t do. And I’ve just been real stressed and my wife was like, let’s just get out. Let’s try and get away from everything. Let’s try to really take a breath, if you will, to kind of get our thoughts together. So yeah, we’re out here in Daytona enjoying a little sun. What about you Ashley? How are you doing?

Ashley:
I love the beach view behind you. It’s just beautiful for anyone watching, it’s actually just a red curtain.

Felipe:
Hey you, first of all, look, I had to do this show because I thought it was really important what we’re doing today. Right? So really excited. But yeah, I’m in my mother-in-law’s like little storage shed or whatever, but actually how’s everything going? How’s everything going up north?

Ashley:
Good. School is canceled for my son. He is really excited, but his teacher’s been great. We’re actually going to do learning through a Facebook group, so he’ll be able to interact with his classmates on there and his teacher and [inaudible 00:01:42] going to be a little homeschooling, it’s canceled until the end of April.

Felipe:
Yeah, absolutely. And speaking of Facebook groups, I just want to give a big shout out to our Rookie Real Estate Facebook group. We have almost a thousand followers on there and we’re really like … Like we said earlier, we really want to build a community of rookies and kind of gather together to make sure that we can get through everything upturns and downturns together. So shout out to that. Definitely go in and leave comments, questions if you have anything that you want to talk about.

Felipe:
And speaking of, typically this show, we do real estate rookie interviews where they have one or two deals or a couple. That way we can kind of connect with each other, but today we actually decided to bring in two professionals, two giants, if you will, who have been through together, I think they’ve been through like 30 or 40 years of experience of going through ups and downs and different ways to do real estate and business. Today we have Joe Asamoah and Steve Rozenberg. One I think is Ashley’s mentor directly.

Ashley:
Yes, I tricked Steve into mentoring me. So he’s been mentoring me for a couple of weeks and I’m happy to have him and Joe on the show today because what we’re doing is we’re having them break it down for us how should we prepare, plan, if there is going to be a downturn. And they give really great advice not only on your real estate investments, if you should get into the market or your personal finances, how to handle that. They give a really great tip at the end.

Felipe:
Yeah, I agree. Steve and Joe both give great nuggets. They’re professionals in this field. Like I said, they’re not rookies. They’re professionals who’ve been through downturns, upturns, they tell you how to strategize for it, how to collectively have your debt in one place or your cash reserves. They go into the questions that I think as rookies, we all want to know, which is how do I properly prepare for what may or may not come. Right? And I think preparation is very important and both Joe and Steve talk about mindset. They talk about money, they talk about planning. I could go on and on and on. The podcast is really going to be amazing.

Ashley:
Yeah. For Felipe and myself, we haven’t gone through a downturn in the market either as real estate investors, so we found a ton of value in this episode. We hope that you guys do, so let’s bring them on. Welcome Steve and Joe to the Real Estate Rookie podcast, we are very excited to have you guys today and talk about some recession planning.

Steve:
Thanks for having us Ashley. Appreciate it.

Joe:
Thanks Ashley. Thanks guys, I really appreciate, it’s an honor to be here.

Felipe:
No, thank you so much guys for coming out and talking to us. Just some really important topics that are going on right now and we kind of want to just clear the air for people who have kind of been through a situation like this and educate some of us newbie rookie guys who are just trying to walk through this and figure this all out. If you guys wouldn’t mind introducing yourselves real quick, let’s start with Steve, who you are, what you do if you don’t mind their brother. And then we’ll skip over to Joe.

Steve:
Sure, so Steve Rozenberg, I live in Houston, Texas. I owned a property management company. We were at about a thousand properties all over Texas, recently sold that to a larger company, Mynd Property Management, which is in about 16 regions and close to about 10,000 properties, so I work with them now as the VP of investor education. I’ve owned houses, apartments, single family flips, wholesales, you name it.

Steve:
The way that I got into real estate actually was a prior disaster, which was 911 and that’s actually what got me into the whole real estate world. Since then, I’ve done a lot of pivots, I guess you could say in this industry by having a lot of disasters, whether it was the SARS, the oil, the 2008 recession, hurricane Harvey, hurricane Ike, you name it, and I probably weathered it either as a owner of a management company or as an investor of my own assets. Fortunately or unfortunately, disasters, I’m pretty familiar with it.

Felipe:
Man, it sounds like you’ve definitely been through some things. Wow, Joe.

Joe:
Okay, well I’ll see if I top that one. Okay, I got to give it a shot Steve. My name is Joe Asamoah, people call me doctor Joe. Here, based in the Washington DC area and I’ve been investing in real estate for about 32 years now and I’ve been through four real estate cycles and essentially first house I bought, which was in ’87, it was a complete disaster. Everything that could’ve gone wrong went wrong. I had the tenants from hell. Every scenario that you hate to experience, I went through it. So with that said and done, I somehow weathered that storm and bought another one, I did a house hacking back. That was before the house hack term became known, but I did a house. I bought that house, rented part of its spaces out, kept saving money, bought another one, bought another one and just kept on going until 2003 where my income from my rental properties equaled what I made for my job. So I was able to leave that job and essentially be in real estate full-time since then.

Joe:
So I kind of focused primarily on the buy and hold, the subset being the borough strategy. And so I buy houses, fix them up, rent them out and refinancing, just keep going. So that’s what I do. I love this business. I think the first … Talk about cycles, the first cycle I went through was the early 90s. I went through that one. Then there was another one in the mid 90s, there was another one around 2001, the .com boom bust and then there obviously, there was the 2007, 2008, 2009, downturn. So I’ve been through four of those cycles. I got a pretty good idea how they play out, how they shake out, what works, what doesn’t work. And fortunately I’ve been able to survive all those things and hopefully I’ll be able to share some of my experiences with the audience today.

Ashley:
I think it’s safe to say that you both have seen a lot of people go broke and a lot of people get rich from this. Is that correct?

Joe:
Exactly.

Steve:
Yeah, I’ve noticed that in the cycles that I’ve been, and as Joe could probably attest, there’s a lot of mini cycles that you see as well that probably don’t get as much, they may be micro in your city or something, but being a contrarian investor, meaning going in when other people are running away and finding those opportunities, if you’re educated and you know what you’re doing and what your focus is, that’s actually when wealth is accelerated and that is actually having the education and being ready to move when it’s time to move is when actually I’ve seen the most wealth created. I’ve seen more millionaires and more wealth created during the economic downturn of 2008 timeframe than I have ever. And a lot of people don’t talk about that, they talk about all the losers that lost money. They don’t talk about the people that actually took action and actually capitalized on it by being smart and educated and being ready to move. So yeah.

Felipe:
Well, let me chime in there, Steve. I mean, that’s an interesting conversation, an interesting topic because I feel like a lot of our listeners are going to want you to elaborate on that. As in what does it look like, one, to be a smart investor and what do you look for in the markets to take advantage of? Obviously I’m not talking about taking advantage of people but taking advantage of the situation. So what does that look like for you, Steve, and then Joe, if you don’t mind chiming and after that, what does that look like for you as well?

Steve:
Well, my experience in all of this in real estate and understand, real estate it’s not my first love. It’s not the first thing I ever wanted to do. Being an airline pilot was and 911 changed that. But what I’ve learned about flying planes and being a pilot is that you always have to have your focus and you got to have your end goal. And no matter what happens during the duration of a flight, whether it’s emergency or whatever, you still have to fly the plane and you’ve got to get to your end destination. And a lot of people lose sight of that because they get all of the emotional fear, 70% of what goes through our brain is negative. So they let that negative self talk derail them from their goal, a lot of times because their why is not strong enough. So they start listening to other people, they start kind of agreeing all of a sudden mentally with what other people are saying, whether it’s the news or whatever and they start derailing their path thinking maybe this isn’t the right path that I’m on.

Steve:
And the people that are successful are the ones that know where they’re going. They know their financial goal and destination, whether it’s in amount of cashflow or asset controller, whatever that is. And what happens is those are the ones that stay true to their course. Now they may pivot if you’re in a buying market that’s flipping, you may have to do a buy and hold or vice versa. But knowing where you’re going and having the education, like just all myself, I know how to flip properties and how to wholesale properties. I know how to rehab them, I know how to set up structures to have hundreds of thousands of properties under scale. I know how to do all those things, so all those things are in my arsenal as long as it’s like in my toolbox, right? So as long as I’m going on my path, when something happens, I just look into my toolbox because I have the education, I go, you know what? I’m going to pick up that tool now because it’s no longer a hammer, it’s now a saw and now I have to start cutting.

Steve:
So my point is, is if you’re a new investor and you’re getting involved in this world, what you need to think about is how do I continue to stay on the path and not let fear and anxiety creep into my head and just know that, as Joe can attest, I’m sure these are cycles that they’re going to come and they’re going to go. And no matter what we say, no matter what we do, we cannot control the outside environment. All we can do is control where we’re going and the path that we’re on. It’s like a river running behind your house. You can’t stop that water, you may redirect it but you can never stop the flow of the water. It’s going to keep flowing and the economies and things like this, like Joe has been through and you guys and everyone else watching, you are going to go through times that you’re going to question and you’re going to have that self doubt creeping in.

Steve:
As long as you’re focused on what you’re doing and you have the proverbial eye on the prize and you know where you’re going, it’s data, the numbers dictate and if you looked at the numbers right now and if you looked at real estate prices coming down and people not able to sell, that’s data that would be telling me maybe it’s time to start buying. Like maybe it just did a pivot and it’s time to start going in because the data is telling me information. And again, I’ll just go back to flying. When you’re flying in the airplane and you’re in bad weather, your instruments are what’s telling you, it’s not what I think I’m doing or my body thinks I’m going to turn, the instruments are telling me I’m going straight. I’ve got to trust the instruments no matter what is going on in my head. Joe, do you agree with that or is that?

Joe:
Yeah, I agree. I agree. Totally. Let me add to that. I’m not the first one to go through cycles. Steve’s not the first one to go through cycles, I’m not going to be the last person to go through cycles. One of the biggest suggestions and tips I would give to somebody starting is, you need to find out in your market successful real estate investors who are doing the strategy that you are doing, who weathered that cycle or cycles prior. What did they do that differentiated them from all the others? How comes they were successful while others went bankrupt? What did they do? What systems do they have in place? What kind of relationships do they have? What kind of metrics were they measuring? I mean, these are seasoned people and I’m not just talking about investors who are investing at that time because there were lots of them. You want to find those successful ones. Okay?

Joe:
And there’s not many, but there are out there, whether it be a successful real estate agent, whether it be a successful wholesaler, a successful rehabber, a successful buy and hold investor, they’re out there in your market. You need to seek those people out and find out from them what did they do that the others did not do. To track these people down, incentivize them to help you. Okay? And you learn from their experiences and therefore you’ll be able to be successful, because when the market changes, you really find out who knows what they’re doing and who doesn’t. Because it’s easy to make money when the tide is rising, so you need to seek those people out, work with them, and hopefully you can ride out the storm a lot more efficiently.

Ashley:
That seems to be a common mistake that people make is they only focus on the horror stories, the fails and not go to the successful people who made it through because that’s what’s emphasized in the media. The news is how people lost homes, how real estate investing failed and your point and so on is that you should seek out the people who made it through these cycles and get advice from them. And just like Steve said, stay on your own path and stay on your why and go for that outcome. I want to touch base on the coronavirus right now. We don’t know what will happen, but we could be leading into another cycle and I want to talk about what you guys are doing to prepare for this because that is a very common question for myself, Felipe and other investors out there is what should we do to prepare ourselves if real estate is going to crash, if the stock market continues to crash, what are you guys doing to prepare yourself for that?

Steve:
Well, I can tell you personally what, some of the things that I, again, I take a lot of my knowledge and history from my career being an airline pilot and one of the things that we’re taught that’s ingrained in our heads from Boeing and from other people is that when you have a disaster, when you have an emergency going on, the first thing you do is take a breath and just sit down and just calm down. That’s number one. Number two, you have to-

Felipe:
Calm down.

Steve:
Yeah, you just got to calm down. I mean, because-

Felipe:
I love that, that’s so simple.

Steve:
… There’s so much life going on and there’s drama, you use an engine on takeoff, which is the most critical time when you’re flying a large, any kind of plane really. The first thing you do is just take a breath and you fly the plane, okay? You don’t pay attention to what anything is telling you, you fly the plane. The same thing I would say relates here. The first thing you got to do is you got to assess the situation and take a breath and step back for a second, because this isn’t going to be instantaneous. One thing that Joe had mentioned earlier that I would just like to say is that you can learn a lot by looking to see what happened with people that did fail and if you do that you can learn what not to do if you look at it from a lesson point of view.

Steve:
When an accident happens, whether it’s a car accident or a plane accident or anything, there are 13 things that attribute statistically to that accident. So there’s 13 things that happen now let’s say a plane crashing. Yeah, it hitting the hill was the accident, right? The coronavirus and all these people going bankrupt and losing everything is the result, but there’s things that lead up to that crash that caused that to happen. And the same thing, like I said, you were asking how to prepare. It’s not one big thing, it’s a bunch of little things that I think you have to do. Meaning you’ve got to make sure that your cash reserves are correct. Number one, I would say you’ve got to make sure that you are looking, like Wayne Gretzky, you’re not looking where the puck is, you’re looking to where the puck is going.

Steve:
Where is this going and what is the result that’s going to happen of this. Am I looking to expand my portfolio and am I looking to make a move as a result of this? Or am I looking to hunker down and do what I need to do to save what I have? Your cash reserves and your thought process, who you hang around with, those things will tell you that. So what I’m doing right now is this is so, it’s like a brand new sprained ankle. It’s so fresh you have to assess the damages before you can start making a move. I think people that are jumping in and making a move without a plan right now, they could be contributing to the disaster. And you see a lot of people talking and all, it’s like Joe had mentioned the .com, I remember getting in a taxi cab in New York in 2000 and this taxi cab driver was giving me stock advice and I’m thinking this is probably a bad sign right?

Felipe:
Exactly.

Steve:
Now, you hear about this coronavirus and everyone’s an expert. Everyone is a biologist, everyone is telling you all the problems. In hurricane Harvey, everybody became a power grid expert. Everyone was telling you when the grids were coming on. So you really got to filter through that noise and you got to ask yourself, okay, what is going on and what do I want as a result of this situation?

Felipe:
Let me chime in here real quick. I keep hearing the same thing from you guys in that this isn’t an emotional thing. Steve said, step back and take a breath. Joe earlier was talking a little bit about systems and it seems like nothing out of either one of you have said has had anything to do with emotion. So I love that because I want our listeners to hone in that these two professionals have said nothing about making decisions on emotion or selling on emotion or buying on emotion. Both of them have said that you need to analyze what’s going on. Structure yourself before you jump in.

Joe:
Let me just quickly wrap up on the previous question that you had about what am I doing now?

Felipe:
Oh, yes.

Joe:
I do a lot of buy and holds and as a buy and hold, you take a longterm view. You don’t get really too caught up in the what’s happening today, what’s happening tomorrow because I’m taking a five, 10, 15, 20 year view of all things. And cycles, especially in certain markets tend to appreciate, real estate obviously tends to appreciate more than others in different markets. So the idea is that yes, you go through some short term blips, but the overall trend is up. So what I do and what I’m doing to answer your question specifically is whenever I buy a house, I make sure that I have multiple exit strategies. Okay? So I have a plan A and plan B. So that way if plan a doesn’t work, I can always pivot to plan B.

Joe:
And the problem with a lot of people had in the past is that all they had was a plan A. So if they’re buying a house to flip the numbers didn’t support a buy and hold, or if they’re doing a buy and hold the numbers didn’t support a flip just in case you have to sell it. And so they’re kind of locked into one strategy. And when the market shifts, then you don’t really have a whole lot of options available.

Ashley:
So your numbers do both. You like to have your property be able to do both?

Joe:
Exactly. It has to support at least two strategies, exit strategies. Otherwise, I’m not buying it.

Felipe:
I love that. I’ve never heard of … That’s amazing, I’ve never done that.

Joe:
Because you’re setting yourself up because when the market shifts, everything changes. I think I cited an example during the last BiggerPockets interview I had, which was, I used to live in a house … We went through a downturn in Washington DC in the mid 90s, for example and it was hard to sell a house. And so people who couldn’t sell, they had really two choices, they can either reduce the price, but because they bought high when the market was strong, they couldn’t reduce it enough in order to make a profit. So if they had to reduce their price, they made a loss. Okay? And those people who didn’t want to make a loss, they had to rent. Okay? So now the regular buy and hold guys are now competing with flippers who otherwise couldn’t sell their properties.

Joe:
They had a better quality product. They had all the bells and whistles that, for instance, a new renovation would have. So if you had an average product, you’re now competing with a higher end product with somebody who under normal circumstance that you would never compete against. So all of a sudden … Well, I mean the point is that the market shifts, the competition shifts, expectations change and it’s just a whole nother world. That’s where I’m getting, going back to the whole thing, there were people out here who’ve been through this and they can share with you their experiences through that time, which are, how do you find these people? They’re out there. I mean, you may have to do a little bit of research, you can go to Real Estate Investor Associations, usually there’s people in there who’ve been around for a long time.

Joe:
Another creative way is do some research in your local market for articles, publications whereby some names come out, okay? Or if you do your research, if you go to organization where it’s sort of people who’ve been around for a while tend to congregate. You can find these people who have been around for a little while, who’ve been through these cycles before and it just takes a little bit more research because most people enter a market when the market is going well. Okay? And they tend to exit when the market turns, that there are a few people out there who tends to ride out these storms for multiple cycles, it just takes a bit more research to actually locate these people. But they’re out there and it’s definitely worth the time to explore and to research and find these people because that’s a gold goldmine of information which they can share with you, which will allow you to kind of ride this storm a lot more efficiently.

Ashley:
This seems to be a common theme on the episodes we’ve done so far and the people we’ve interviewed is go to meetups, go to real estate meetups and network and meet those professionals or meet people who can recommend those professionals to you. And you also, you can go to biggerpockets.com/events if you want to find a meetup in your area too. There’s a lot posted every day. Yeah, I really liked the advice on how to find a professional Joe.

Felipe:
It’s really easy to say, hey guys, just get in the right mindset and make sure that you’re not selling or buying, make sure that you’re structuring what’s going on. But I know that our listeners always ask for a little bit more than that. So what would you tell our listeners, Steve, as to how to get in the right mindset to where, like the example you said, the puck is where it’s going, so how do I get in that mindset versus oh my gosh, I have to sell everything because we’re tanking? I mean, what do you think?

Steve:
Well, first of all, I think again, you’ve got to look at the facts and the facts are just out of the gate when the economy goes bad and people, as sad as it is, when people lose their houses, what happens to them? They don’t dissolve and turn into sugar and melt away, they become renters. So if your strategy is not buy and hold, maybe that’s the time that you look and say, you know what? Maybe this is going to become a buy and hold because there’s more renters in the market. And I’m sure Joe can say the same, when I was in 2008 and the economy tanked, my rents went up. I actually had a higher profit margin because there was more renters in the market that needed a place to rent. Now, I was in the lower to middle of the road. You’re on the higher end of rentals, then obviously you may be affected, but people either upside or they downside. And so it just depends on where you are and what your strategy is.

Steve:
So to me, people don’t think about that because they’re running off of the emotions of what everyone’s telling them that the economy’s bad. But if you looked at the logic and the logic says, wait a second, these people lose their houses. Hmm, what happens to them now? Well, they become renters. Huh, I wonder whose house they’re going to rent? Hmm, I’ve got a flip, I can’t flip it, maybe I should make a renter out of this property. And maybe it’s a short term, maybe it’s a one year, two year play, and then I can change again. So again, that’s staying on the path of your direction of your goal, but it’s also knowing when to pivot and being smart enough to look at everything around you and not having that tunnel vision.

Steve:
You had mentioned about the mindset, that’s a pretty deep cavernous conversation, but I think the biggest challenge a lot of people that have that get into this is they don’t sharpen that mental as ax before they swing it. Meaning, they don’t take the time to educate themselves to understand that they are running a business, that business is profit, loss, there’s laws, there’s regulations. There’s a lot of things to understand and if you started running it like a business, there’s nowhere in a business that says a couple things. There’s nowhere that says that you’re going to run it off of emotions, right? There’s no emotional gas that’s going to help that, number one. Number two, there’s nothing that says that you’re going to do it all yourself. You’re going to make all the decisions yourself, you’re going to do everything on your own. That is not a business, that’s a job. Now there’s nothing wrong with a job, but understand that when you are getting into this and you’re trying to scale, probably like most people are, you’re running a business, businesses run on the backbone of systems, policies, procedures and structure.

Felipe:
Will you say those three again, I want to make sure our listeners don’t lose that.

Steve:
It’s policies, it’s procedures and it’s structure.

Felipe:
Thank you.

Steve:
And when you are running your business that is the definition and the, we’ll call it the spinal cord of your business. And so again, that is not where emotions come into play, this is where you have to start thinking like the owner of a business.

Joe:
And the other thing I’d like to add to what Steve was saying about, I do buy and hold. So buy and hold, yes, when the market goes down, there are more renters out there, but the success to buy and hold is to minimize turnover, which is to have zero people leaving once they’re in your house. Okay? Because every time somebody leaves the house is vacant, you got to clean it up again. You’ve got to advertise again. You got to do all that kind of stuff, so all that cashflow that you otherwise would have made gets wiped out, okay? And therefore you make no money and I don’t care what anybody says, if you can’t manage that turnover and vacancy expenses, you make no money. Okay? So the key is not so much, well, I’m just going to rent my house, no, you’ve got to have certain things in place to be able to attract the kind of people who are going to stay in your house.

Joe:
You’ve got to attract the kind of people that are going to pay the rent, attract the kind of people that are pleasant to deal with, attract the people that can stay a long time. Okay? Because when the market is in a state of turmoil, it’s just ebbs and flow. People are going in and people are going out, people’s financial situation is very sort of fluid. And yes, you’ve got a renter, but three months from now they could lose their job, which means that you don’t have any income coming in, which means that you may have to evict these people, and now you have to go through that whole cycle again. So focus on minimizing turnover, focus on customer satisfaction. Co-focus on making sure that your tenants are happy so they don’t leave and therefore the cashflow that you make stays in your pocket.

Joe:
So it’s not just as simple as, well, I’ll just rent my house. Okay? It’s a lot more [inaudible 00:26:59] than that. That’s what I found anyway. And to be able to ride out this storm for three, four or five years, to when the market turns out, because buy and hold is an excellent strategy if you’re in turmoil, but it’s not as simple as, well, okay, I’ve just got a house which I couldn’t flip and therefore let me rent it. Okay? Because … Yeah, and I’m sure Steve can tell you a tenant from hell, which I’m sure he’s seen many of them.

Felipe:
Oh God, if you guys are watching this video, you got to see Steve’s face.

Steve:
[crosstalk 00:27:28].

Felipe:
It is right there, abundant tenants in his head in a second.

Joe:
Exactly. A tenant from hell is not a pretty sight, I don’t care what anybody says, okay? About the duties of buy and hold, all it takes is one tenant from hell. Or you can say, I’m done with this thing. I don’t care what Steve says, I don’t care what Joe says, I’m out.

Steve:
I think just kind of commenting on that, and again this goes back to what I said earlier, I’ve been educated enough in all of these and I think what’s important, and Joe, you said it very eloquently and I’ll just reiterate, having a buy and hold is a business. Having a flip is a business. These are all separate businesses that you have to treat them as businesses. So if you all of a sudden say, hey, I can’t flip this, I think I’m going to go ahead and rent it. I would say, what’s the business model? What’s the org chart? What are the policies? What are the procedures? You don’t just jump in and do it because that’s when people fail. And I know because I was one of those people that had 30, 40 houses that I had no idea what I was doing. And so you’ve got to have the education and that’s why I’m a big proponent of, really educating yourself before you start doing stuff.

Steve:
As entrepreneurs, the biggest reason we fail is not because we’re not working hard, it’s because we don’t have the plan and we don’t think things out correctly and we just ready, shoot, aim, and then we go, huh, that house didn’t work, let me fit it into another strategy because you didn’t really think about … Like to me, the property you buy is the tactic. First you’ve got to have the goal, then you got to have the strategy, then the tactic, the actual asset is the last piece of the puzzle. Most people never even think of creating that business structure, the exit.

Steve:
Joe said he’s got two exit strategies if he needs them. That’s part of his business model. So for me, I could sit there and say, well, I’m going to flip and okay, if this doesn’t flip, I’ve got the education to pull out the manual and says, okay, now this is a buy and hold, what’s the strategy for this? And start working it through. You don’t just start doing it haphazardly because as Joe said, that’s when you get the bad resident in, or whatever horror stories happen.

Joe:
Yeah. The thing is, I would add to that and say I see things a little differently. Okay? In the sense that the asset is the property, but the real asset is the tenants. Okay? I know it’s kind of intuitive here. I mean, in this market where we are, a great example, we’re in the Washington DC area, so it’s a high price market, so houses five, 600, 700,000 is not a big deal. They’re all over the place. Okay? So you are entrusting somebody, okay? To protect your five, six, $700,000 asset. Okay? That person can destroy your asset very easily or they can really make that asset go from 500 to seven to 800 to $1 million if they stay a long time and take care of it. Okay?

Joe:
So I see the tenant and nurturing that … Well, first of all, making sure you find the right tenant and then nurturing that relationship such that they protect your asset, nurturing that relationship such that they pay the rent, nurturing the relationship whereby you create a win-win scenario where it’s in their interest to take care of your interest. Okay? So it’s both, the real property asset is important, but I think a lot of buy and hold investors don’t realize the importance of the asset being the tenant and protecting and nurturing that relationship so they can protect your real asset.

Felipe:
That’s interesting Joe.

Ashley:
I think that’s a great point. A lot of people like to look at the tenant like a bank looks at you, like you’re nobody to them. But you’re right, customer service.

Joe:
Exactly. If I don’t see you, if I don’t hear from you, I’m fine, what I want is money. Okay?

Ashley:
Yeah.

Felipe:
It’s interesting Joe says that though, because I think I might be a little bit on the other fence with my 40 plus tenants. I’ve never met a tenant that cares for my property as much as I do. I don’t care how much I sugar them, I don’t care how much I see them, buy them whatever. I’ve never had a tenant take care of my property as much as I do, so I treat even my tenants as a business. I’m going to have to change my mindset then Joe, and I’m going to have to learn because I’ve, like I said, I mean that’s just me. I’m going to have to learn from Joe, I’ve got to read his book.

Joe:
Yeah. Well, no, I mean see the screening is the key. Okay?

Felipe:
Say that again.

Joe:
Because in most markets it’s easy to get someone in your house, it’s a lot more difficult to get them out once they’re in. And so how thorough you screen and what type of tenant you’re looking for because there are terrorists out there. I mean, I don’t want to go through that whole discussion, but I mean I have five, 10, 15, 20 year tenants.

Felipe:
Can I get some of those?

Joe:
My longest tenant is 23 years.

Felipe:
Let me get some of those.

Joe:
My longest tenant is 23 years, on a 15 year mortgage, okay? Think about that one. This tenant is literally paying for this house and they are happy to be there. Okay? They are eternally grateful that I gave them the opportunity to live in this house.

Felipe:
I love that.

Joe:
That is not an accident, that’s what Steve says. It’s a system, it’s a business and realizing, okay, if it’s a business and then the people that provide you income are your customers. Okay? I.e. your tenants, the people that you don’t want to see.

Felipe:
I mean, Joe like if you got a book I need to read yours and Steve’s at the same, the mistakes, the book on mistakes definitely. And then how to keep a tenant 20 years.

Ashley:
Of course, that’s been a common theme in this discussion so far is okay, looking at the failures and don’t be afraid because other people have failed and that means you’re not going to jump into it, but learn from them and take those lessons. And I want to talk about too, a couple of things that you both kind of mentioned was that maybe a good strategy for a new investor that wants to get started out, even though we might be headed into another downturn, is that maybe you find a buy and hold, maybe it’s affordable housing and maybe it’s not right next to new development where these flippers might not be able to sell these properties, so that could be something you could look into. But I want to go on to a couple questions we have from listeners who actually have sent us in voicemails. We call this the rookie requests line, I mean anyone listening that wants to call in and leave a message, the number is 1-888-5-ROOKIE and you can call in and leave a question and we might play it on an episode.

Shana Ludlow:
Hello, Ashley and Felipe. My name is Shana Ludlow from Tampa, Florida. On the way into work this morning, I listened to the BiggerPockets podcast episode 250. In it Grant Cardone talks about the importance of having adequate reserves to weather unexpected events. To your guests, as an investor, how much focus do you give on cash reserves versus lines of credit to help prepare for the future of market correction? Thank you.

Joe:
Yeah, I mean what happens in a downmarket is essentially credit markets tighten. It’s harder to get loans. If you do have credit lines, sometimes the bank rein them in, [inaudible 00:34:45] or close them out. Okay? Credit is just more difficult to get. So in preparation for that, yes, you want to have cash reserves, you want to be able to start paying down some debts if you can. You want to even have strategies whereby you can save money. For example, the, what do you call that thing? The house hack strategy and whereby you can kind of reduce your expenses so you can have some cash reserves. That’s number one. If you’ve got equity in properties, now is the time to sort of apply for lines of credit and have them available. Okay? Such that when the market does turn, you have access to cash and you’re able to take advantage of opportunities that exist, which other people cannot because they don’t have the resources available.

Ashley:
Joe, do you want to mention real quick what the difference between a line of credit and mortgages and why people should go for a line of credit instead of increasing their mortgage?

Felipe:
Good question.

Joe:
Yeah, good one. So the idea is that you buy a house at a level, let’s say $100,000, okay? And then over time that asset increased in value, let’s say to what? 150,000, okay? So that’s $50,000 worth of equity that is in that house sitting there doing nothing for the most part. So as an investor who foresees the market turning or changing and while the market is still pretty decent in your area, you can apply for a line of credit. You can go to a bank and you can tap into that equity, the $50,000 equity as available. So you don’t actually get a new mortgage per se, you get like almost like a credit card, access to cash based on the equity in the house. Okay? If you don’t use it, it doesn’t cost you anything. So it’s just sitting there like a credit card, you have a credit limit.

Joe:
As long as you don’t use your credit card, you don’t pay interest on the money. It’s when you use that credit card, that’s when you pay interest on that money, that’s what we call a line of credit. Similar to a credit card, whereas a new loan or a second or refinance, you’re getting a brand new loan based on the value of the house. I strongly recommend lines of credit because it’s there sitting there available when opportunities arise as opposed to getting a new loan, having money. And we know what happens when you have money sitting around with no good place to go.

Felipe:
I’m going to use it.

Ashley:
And you’re already paying interest on it.

Joe:
Yeah. The next thing you know you don’t know where it went, its disappeared. You got nice clothes, you got nice cars, and so on. So as long as you’re disciplined, that’s the key thing. I think us savvy investors we are disciplined because we’re looking at the bigger picture and therefore I strongly recommend lines of credit and also having savings available for the opportunities that will exist in the new environment.

Glenn:
Hi, my name is Glenn from New York. Assuming this trend gamut goes on for a while, I’ve heard that they’re States in some countries that are suspending rents. So if that’s the case, how will you be handling your rents with your tenants and how will it affect you in the long run? Thanks.

Steve:
Well it’s not a rumor, it’s true that they’re actually foregoing eviction proceedings. Some of them, the courts are actually just shutting down and other ones they’re putting moratoriums on there. But this kind of dovetails into what the last question was and what Joe was talking about is everybody, you always hear in good times that everybody is so proud of the fact of how they’re leveraged and how they’ve gotten a deal that’s 100% no money out of pocket. One of the things I think is important for people to understand is the people that are doing deals with no money down and nothing out of pocket, the successful ones are the people that don’t, they have the money, they’re just not using their money. So the difference is a lot of people that are getting into this, they don’t have the money to get involved into it, so they’re looking for a no money need down deal.

Steve:
I think that is a huge mistake because they’re setting themselves up for disaster when times like this happen because they don’t have the proper reserves. I can personally tell you when I had about, I think it was about 35 rental houses and put the wrong tenants in, right? We had a 30% eviction rate, our average tenant stayed eight months because they would leave and when they left they would take a lot of parting gifts with them, like wiring, electrical and all that kind of stuff. And so what I learned at that time, which they don’t talk about in the books and they don’t talk about the no money down, is that if you don’t have the money to replace that stuff, you’ve just put yourself in a very, very bad position.

Felipe:
So you’re saying have the money, use other people’s money, but if need be, you have that reserve to get you through a situation.

Steve:
Absolutely.

Ashley:
And that would be part of your business plan.

Steve:
Exactly. So a lot of people are like, oh, I don’t know what I’m going to do. I can’t go two months without rent. To me it’s like, okay, well that is not a sound business plan and you probably need to rethink your business model. You may have to lose some properties and cut out some cancer of your portfolio because you can’t sustain it because you made a bad decision as CEO of your business. And so what you have to do is, this is like I said, just because you can do a deal no money down, doesn’t mean that you do it because that’s your only option. That is just part of the tools in your toolbox. And those sleepless nights like I had when you’re trying to figure out how you’re going to pay all these mortgages is not a very good feeling that I wouldn’t wish upon anyone. You’ve got to set yourself up for the what if, and worst case scenario.

Steve:
Like the guy from New York said, man, what if this goes three months? Well, personally I’m fine if that happens with my portfolio because I preplanned it. And so that’s what’s so important about, I keep saying like you’ve got to sharpen that mental ax. You really got to think this through in best case scenario, because that’s what we all do, right? We always think, what’s the best thing that will happen? I’m going to make tons of cashflow. Tenants are going to stay like Joe for 40 plus years, right? That’s not the outline, Joe’s is a [inaudible 00:40:53] when it comes to tenants.

Felipe:
Joe’s just got it down to a [inaudible 00:40:56].

Steve:
Yeah, which is awesome. And Joe’s a perfect example of people you learn from. So you sit there and go, man, I can’t get tenants to stay past a year, let me see what Joe’s doing. Let me …

Felipe:
Exactly.

Steve:
And just kind of going back to this is all about setting yourself up correctly or what if best case scenario, but also what if worst case scenario and can I sustain it?

Joe:
I got to say something which many people may not agree with, but I’ll say it anyway. And that is people should consider the Section 8 program. The reason why I say that is that once you figure it out and it’s not that difficult to figure out, most of your income, most of your rent is pretty much guaranteed. Okay? So let’s say the rent is $2,000, let’s say, and the tenants portion is $500. And therefore the housing authorities portion is the Delta, which is $1,500. So as long as that tenant is in your home, you’re getting $1,500 a month regardless. And the tenants portion of the rent is based on their income. So if their income goes down, because for example, they lose their jobs. Okay? Then that $500 that they pay may get reduced from 500 to 200 which means that the housing authorities portion may go from 1500 to 1800 to plug the Delta.

Joe:
It can be a very recession resistant strategy. Then the key obviously is making sure you get the right tenant who’s going to take care of your house, pay your rent, be pleasant to deal with and stay a long time. But again, that all stuff is a business as Steve keeps on saying, is true. There’s a business model where you can attract these folks who will take care of your house and you can have a situation whereby your income is coming in regardless, and that’s the beauty of the Section 8 program versus the market renters whereby if someone loses their job, then unfortunately you may not get your rent and if you have a moratorium like they have in New York, you may not get your rent for 90 days at the minimum. I’m sure … Are they going to have a moratorium on city bank requesting the mortgage payments or is it just the tenants?

Felipe:
What do you think?

Ashley:
It’s distant.

Felipe:
What do you think Joe? That’s a good one.

Steve:
Joe, can I just ask something though in regards to what you’re saying? Because I think this is very, very important that people expected that maybe thinking about Section 8 because I did Section 8 for a long time, housing authority, a lot of times, and I’d like to hear your thoughts. A lot of times when people go down the path of Section 8 it’s their last resort. They’re going, I can’t get this rented, I’m going to go Section 8, they still never build up their reserves. So when all of a sudden the government says, hey, it’s going to be three months till we get you, we’ll back pay you, but it’s going to be a couple of months for us to get you the money or you don’t pass inspection. All of a sudden they’re going, I don’t have any money to hold this three months.

Steve:
Well, I think that, again, I think Section 8 is great, but you’ve got to have it in your business plan and I think you’ll agree to have the reserves set up before so that if it does happen, you go, okay, I can weather six months of no money, I’m going to get it back. It’s going to come to me, but we all know the government is not the fastest at processing depending on the County and stuff. Do you agree? I mean, it works but you’ve got to be set correctly.

Joe:
Yes, yes. In a sense that, that is true. You’re dealing with a bureaucracy which kind of moves at a glacial pace, but that’s where, again, the business. So the businesses that you develop relationships with people down at the housing authority. Whereby, if you’re in a situation like that, then you can have people on the inside then you can kind of push things through.

Ashley:
Joe, if someone decides this is the path they want to go down, how would someone start to be a Section 8 landlord?

Joe:
Well, there’s no such thing as a Section 8 landlord.

Ashley:
I mean, how do they …

Felipe:
Wow, ouch. Boom.

Steve:
It’s a landlord.

Ashley:
Okay, yeah.

Felipe:
Joe, you are a landlord in my book and you are a giant.

Steve:
You’re turning red as Felipe’s sheets behind him.

Felipe:
Thanks Steve.

Ashley:
Okay, So how do you find Section 8 tenants if you want to start renting to them?

Joe:
So first of all, you have a house. Okay? And I first of all start off in making sure I have a nice house, quality house. Okay? Because I’m trying to attract a quality voucher holder or quality tenants. So you start off with a product, have a decent product and a decent area. That’s number one. Number two is once that product is ready, you then advertise. And what I do, at least the housing authorities in this area and most other areas, they tend to have a websites or lists where they advise or recommend that their voucher holders go to, to see what’s out there. So you advertise your product in that list. Okay, does that makes sense? On the website, where they recommend their voucher tenants go to. So you make sure you advertise there. And on my adverts, describe the house and somewhere in the advert I say Section 8, welcome. Section 8, welcome. Okay?

Joe:
And because a lot of landlords are not welcoming our Section 8 voucher holders and they’ll come up with all kinds of excuses not to accept them, but I say welcome. And as a result of that, you tend to have a lot of applications. The last house I had, I had I think 12 applications for this one house. The one before that I had 20 applications for this one house. So you can get a lot of people who are looking for quality housing, quality areas. And as a result of that, because you have a lot of applications, you can be very, very thorough on your selection criteria. Okay? You can be really, really thorough on your screening such that you can weed out the ones that’s going to give you a hard time. You’re going to weed out the ones who are going to give you hell.

Joe:
You got to weed out the ones that’s going to make your life misery, but you’ll attract those people who are looking for an opportunity, a once in a lifetime opportunity to live in a nice house, in a nice area and rent from a great landlord and it’s a win-win for them because they’re in a great house in a gray area. It’s a win-win for me or you as a landlord because you have a pleasant tenant who’s living in a nice house, going to take care of the house, they’re going to pay the rent and so on. Again, that’s essentially what I do to attract these tenants who have vouchers. Once you select that person, then that kicks off the process in terms of paperwork to the housing authority and so on.

Felipe:
I definitely understand that. Great advice guys, and real quick, this question’s actually for both of you guys. It seems like during these times people take a hard look at their personal finances, where they’re going to spend, where they’re not going to spend, any tips on managing money other than not just real estate debt, but just in personal finances. Do you have any advice on that? Steve, I’ll let you take the reins and then Joe, if you don’t mind chiming in.

Steve:
Yeah, I think that the challenge with a lot of these things is when disasters happen or these perceived disasters I’ll say happen is we start doing these self checks and we don’t look at them until this happens. And so I think that’s the problem. It’s kind of like you don’t realize you’re fat until you step on the scale on December 31st and go, man, I didn’t hit my goal. Well, if you did it every week and you checked and did your, whether it was your finances and you wanted to find out how your finances were doing or you wanted to find out how you were eating and you wanted to find out, anything that was going on, if you did it constantly and it’s not a matter of these huge pivots. It’s a matter of small corrections. It’s like the compound effect.

Steve:
You just do small things and small corrections and if you do that you’ll be much more successful. So I think that it’s not something that you should do right now, I think it’s something that you should do on a continual basis and always be monitoring to make sure that you’re going towards your goal and you got to make sure that, again, I just say eye on the prize and if you’re not, it’s kind of shame on you and you should start doing this. Sometimes this is the wake up call. Like if you have a friend that has a heart attack, now all of a sudden you’re going to the doctor and you’re doing this and you’re doing that. Well, shouldn’t you be doing that every day anyways and be monitoring and eating healthy?

Ashley:
Steve, it’s like people who look at their W2 or their tax return and say, where did all that money go?

Steve:
Exactly.

Ashley:
And then they just let another year pass and the same thing next year.

Steve:
Yeah, exactly.

Ashley:
Joe, I would love to hear your tips you have.

Joe:
I would look at your expenses, which areas are the biggest expenses that you have, which typically go into housing and transportation, are the biggest ones. And see if you can somehow reduce those, because you want to have cash reserves available. You want to be able to make sure that in the event of a downturn you’re able to survive, so track your expenses. Obviously there’s things that you can do to increase income and look into those things. It could be a side hustle, it could be invest in more properties and things like that.

Joe:
But also, I think the important thing is to invest some time in your education. Okay? Education in a sense that being ready, being prepared, being in a position such that you can actually take advantage of opportunities which they will occur in the next coming a few months or whatever. Also, you probably need to … The other thing is that when the market does change, it is more difficult to get access to financing. So now is the time to prepare yourself to be in a good position to becoming bankable, which is things like looking at your credit, making sure that you understand what the financial people are looking for in terms of mortgages and making sure that you’re in a good position such that you can actually get the financing that you need.

Steve:
When you need money, that’s when people won’t give it to you. When you don’t need the money, that’s when you should be getting it and getting prepared for it. So this is the time before it gets worse or whatever, this is when you start taking stock. And again, the day to plant a tree is yesterday, the day you start shoring up your credit and you start getting things taken care of is today, and this is the time that you need to start looking at everything and saying, okay, like Joe said, how do I start cutting expenses? How do I start looking more attractable to banks? Right? And you start thinking of these things now so that you can be prepared so you get the lines of credit so that you’re ready to go, so that when you do see a deal that crosses your path, you’re able to execute.

Steve:
You don’t say, man, maybe now I should talk to a mortgage broker. See if I can get a loan and see if I can get the deal, that’s probably too late. Or the banks won’t loan to you. So the day you start, you’ve got to do a personal check. You’ve got to check it and see, okay, how are my finances? What kind of health, do a health check on yourself, on your finances. Am I in … Does anybody at the bank want to date me or are they going to loan me any money? If the answer is no, it’s like okay, how do I become the person that will get money and how do I get credit so that I am ready to take action?

Steve:
Because I’m sure Joe will attest, and a lot of people I know they have access to a lot of money. They don’t necessarily use it, but they’re ready to use it when a deal comes. Because right now, being what’s called a contrarian investor, when everyone’s running away, you’re running in because you have the finances and you have the education, like Joe said, and you’re ready to take action based on all the data. This is the time, but you’ve got to … This is part of a piece of the puzzle that you’ve got to be prepared for.

Ashley:
Yeah, that’s great, Steve.

Felipe:
Absolutely. So Steve, Joe, real quick, any books or articles or other types of resources that you recommend for rookies who want to know more about how to do well during an investment cycle or during whatever cycle we’re running into? I mean, what advice would you give to our rookies to how to start educating themselves in regards to that? You can plug in your own books too.

Ashley:
Steve I think, I’m just going to say this-

Felipe:
I’m looking forward to Steve’s [inaudible 00:52:34] his book, because I want to pick that up next.

Steve:
Okay.

Ashley:
That’s how Steve and I met, was I read his book and I messaged him.

Felipe:
What is it Steve?

Steve:
Well, this is my book. This is if you want it, it’s called, Building an Empire: failing our way to millions. To me, this is a book on learning how to make mistakes, but also how to scale and understand how to use leverage of systems, whether it’s other people, virtual assistants, whatever it is. And it’s kind of my story of how I went through and how 911, a disaster is what actually propelled me into real estate. And that’s kind of my story.

Felipe:
Great answer. Joe.

Joe:
I think the book which I would recommend, a really good one, a really, really good one. It’s called Recession Proof Real Estate Investing: How to Survive and Thrive During Any Phase of the Economic Cycle, that’s written by Jay Scott and who’s a BiggerPockets host. It’s a very, very good book. Talks about in quite a bit of details about each of the phases of the market cycle, what are the strategies that work, how you can position yourself for success and leverage many of the experiences that other people have had. So that’s a book that is published by BiggerPockets and I’ve read it a couple of times and that’s a really good one. The other one is probably, I’m sure other people have read that which is the Millionaire Real Estate Investor. That’s a good one as well. So, I haven’t read your book yet, Steve, so I’m sure that’s going to be on my list as well.

Steve:
There’s your copy.

Ashley:
Jay Scott from the book you mentioned, he will actually be on tomorrow’s podcast with David and Brandon, talking about the coronavirus and the real estate market. So that’s the BiggerPockets Real Estate podcasts and Scott Trench will also be on there if anyone wants to tune in tomorrow. But thank you guys very much for coming on the show today. I wrote a couple of notes that I just want to summarize things for everyone. It’s don’t let fear deter you. It’s okay to be afraid, but don’t let that stop you from becoming a real estate investor and don’t over leverage. It’s possible to do deals with no money down, but make sure you still have money in reserves because things will come up even if it’s not a recession, it could be your roof blows off or I know Steve has experienced hurricane and then have a plan in place.

Ashley:
This is a business, treat it like a business. And Felipe and I have talked about partnerships on here and how when you structure a partnership, you want to have everything in place, the now, the what if and the exit strategy. Treat your business like that too. If something happens, what are you going to do about it and how will you react to that situation and then focus on your strategy. Don’t deter off because of what the media says or something you read online from another investor. Focus on your strategy and take the facts and statistics into consideration. And then the last thing was just educate yourself from the success and failures of others. Just take those as learning experiences. I think it was Joe that said, don’t reinvent the wheel. Like learn from what other people have done. So I just want to thank you guys so much, it has been very valuable talking with you guys and I hope our listeners get a lot of value from it and I’m sure that they will.

Steve:
My pleasure.

Joe:
Thank you.

Ashley:
Can you guys let us know real quick too where people can find out more about you and if they can reach out to you, where would they find you?

Steve:
They can find me on Instagram, it’s a Rozenberg Steve, so it’s R-O-Z-E-N-B-E-R-G Steve. They can also go to Facebook. They can find me there and I’ve got a website, steverozenberg.com. So if they want to find me, if they want to talk about management, they can go to myne.co, M-Y-N-D.co, we’re in about 16 regions, so if they want to talk about that and have strategies to further escalate their portfolios, happy to just have a conversation and give them my thoughts as to what’s best for them, whether it’s in an area or not. It’s good to bounce ideas off with someone who’s done it.

Joe:
You can reach me a couple of ways. One is my website is Joe, J-O-E, Asamoah, A-S-A-M-O-A-H.com, joeasamoah.com. That’s one way. The other way is that you can shoot me a message there. You can reach me by, I have Instagram, Dr. Joe Asamoah, D-R. Joe Asamoah. A also on Facebook, Dr. Joe Asamoah, D-R. Joe Asamoah and I’ve also written a few articles on BiggerPockets. I do host what we call a wealth Wednesday, Facebook, Instagram live that you can check me out there, every Wednesday, 7:00 PM Eastern time. I usually do a little live stream, so I look forward to anyone can check that out. And if you’re in the DC area let me know, I’ll definitely like to connect with you guys and if I can be of assistance with anybody, just, I’m more than happy to do so.

Felipe:
Gentlemen, thank you so much for coming out.

Ashley:
Thank you guys very much.

Felipe:
We really appreciate it, man. Thank you guys.

Steve:
Thanks guys.