Property Management (and more) with Enrique Jevons
– Yakima valley real estate
– Pellego – Valuation website for real estate investors
– Our podcast with Gideon Sylvan of Pellego (seattleinvestorsclub.com/12)
– Enrique’s Website: https://www.jevonsproperties.com/
– Property Management App (hundreds of units): Appfolio
– Lower Priced Property Management App (10-100 units): Buildium
– Free Property Management App (1-10 units): Cozy
– Rentometer – You have to enter what you’re renting the property for manually.
– Invitation Homes
Banks that Enrique uses
* Banner Bank – Residential and Portfolio
* US Bank – Commercial
* Gesa Bank
* Solarity Credit Union – Only lends in Central Washington
* Homestreet Bank
* Wells Fargo – HELOC
Questions that we used for show
Enrique Jevons – Jevons Property Mgt, Pellego Prop Mgt Ower, Designated broker at pellego
1. Tell us about your background, how you got started in RE investing and which came first prop mgt or investing for your own account?
2. How are you involved with Pellego?
3. You are also a RE broker, do you use your license for personal investing purposes also?
4. How many units do you currently own and manage?
5. What part of real estate do you enjoy the most?
6. What are your short term and long term goals?
7. Are you involved with AirBnB at all? How ? Do you recommend landlords use this biz model?
8. What is Appfolio property manager? How do you use if for yourself and clients?
9. What is the best technology or app you use in 1) personal investment biz and 2) property management for others biz?
10. What do you think about out of state RE investing? Do it or not…or when?
11. Should investors buy for cash flow or appreciation / I saw on your blog..let’s discuss your thoughts
12. Do you use seller financing in your personal deals?
13. What is the ‘Hot” topic in rental real estate right now?
14. What do you think #1 way for landlords to increase bottom line?
15. What do you do different than traditional property mgt companies? Use tech?
16. What are your hobbies outside of RE?
Read the full transcript of the show below (coming soon)
Joe Bauer: Welcome to the Seattle Investors Club Podcast where we talk about the nuts and bolts of real estate investing. My name is Joe Bauer and I’m here with my cohost Julie Clark. Julie, how are you doing today?
Julie Clark: Hey you guys, what’s up? Hey are you doing?
Joe Bauer: Yeah, yeah, finally … Well I guess, this podcast I actually get to interact so people-
Julie Clark: That’s right.
Joe Bauer: … probably remember our last podcast and I didn’t get to speak at all.
Julie Clark: That’s right. We are doing double duty today on recording our podcast because we are just so excited to have the two guests we’ve had on our podcasts today, we couldn’t wait. We wanted to get them all in on the same day.
Julie Clark: Joe, as we’ve been joking, is out in a sweat lodge somewhere or hanging off a cliff in South Dakota and earlier today shoved his whatever connection line into his shoe. I don’t know what’s going on with you today Joe, but I’m glad to have you back.
Joe Bauer: Yeah, thanks.
Julie Clark: Where are you at?
Joe Bauer: I am in Custer, South Dakota outside of Wind Cave National Park, which I have not been in yet so maybe next podcast I will have been there and could tell you guys about it. Don’t know what it’s like yet, sounds like it’s going to be spectacular though and I heard that there’s some fossils that we get to go see. We’ll see what else.
Julie Clark: Awesome. Well I think most of you guys know this, and I think our guest today Enrique Jevons also is an outdoor lover, outdoor enthusiast.
Enrique Jevons: I am at that. Yeah.
Julie Clark: He is. Maybe we’ll get to hear a little bit about that. But Joe, for all of you and I don’t know if you know Enrique, but Joe is on a year long, or who knows how long, trip and adventure across the U.S. in his tricked out awesome van.
Enrique Jevons: I have seen that, yeah.
Julie Clark: Yeah.
Enrique Jevons: Very cool.
Julie Clark: The Vantastic Life. I’m leading the kitchen island bar life, that’s where I’m hanging out in my kitchen in the island. I do have a beautiful view here, but Joe is leading the Vantastic Life scooting around the country to all the national parks. So we all want to-
Enrique Jevons: Very nice, I’m actually hoping to do just that. I’m practicing a bit. I do go to a bunch of different places and my wife and I are actually talking about how perhaps moving to either England, Italy, for the summer for three months when our kids are out of school and working remotely, so we’ll see.
Julie Clark: Ohh.
Joe Bauer: Yeah.
Julie Clark: Ohh, that sounds awesome. Well we have Enrique talking right now Joe. Why don’t we introduce Enrique Jevons to everybody today. I think a lot of you listening know Enrique. He’s kind of one of the staples around town when it comes to real estate and property.
Julie Clark: Enrique, do I have it right, you are the owner of Jevons Property Management?
Enrique Jevons: Mm-hmm (affirmative).
Julie Clark: You’re the managing broker at Pellego, is that correct?
Enrique Jevons: Yeah. I’m the designated broker for two different real estate firms, and actually, well three companies, for Yakima Valley Real Estate. I have six licensees at the moment under Yakima Valley Real Estate and they’re doing traditional sales. Then for Jevons Property Management. We have right now over 650 properties that we manage there. Then also for I met up with Gideon who owns Pellego, so Pellego being a valuation software, a valuation website, and he’s the software engineer. I become then the designated broker for Pellego in order for Pellego to be able to conduct real estate transactions.
Julie Clark: Awesome.
Enrique Jevons: So then [crosstalk 00:04:12].
Julie Clark: We know Gideon. We’ve actually had Gideon at Pellego on the podcast. Haven’t we Joe?
Joe Bauer: Yes, absolutely we have.
Julie Clark: Maybe we’ll hook up since you’re involved with Pellego maybe we’ll also Pellego down in the show notes when had Gideon on.
Julie Clark: Pellego is a very cool platform for investors, like a research and data analysis platform as well as a brokerage. Is that a fair description of Pellego?
Enrique Jevons: Yeah, yeah exactly. It’s very similar to Zillow except that it’s geared towards investors.
Julie Clark: Awesome.
Enrique Jevons: It’s a free site and you can go and check out properties, evaluate them, run comps, it’s got all sorts of calculators on there. It’s a very helpful tool.
Julie Clark: Now Pellego has a property management division, is that accurate?
Enrique Jevons: Mm-hmm (affirmative), yep.
Julie Clark: And that is you, you are running the show.
Enrique Jevons: That’s me, exactly. Yep, yep.
Julie Clark: Excellent. Enrique, you are touching upon all the things investor-wise, investment-wise. You got a good setup that you have going on about there in your world.
Julie Clark: I’ll let Joe kick it off and ask you question we ask everybody from the beginning. Joe, what do we got?
Joe Bauer: Well Enrique, if you’ve listened to this podcast before we really like to dig in to how people were brought up and what their background so that everyone can understand that either we’re all the same, or we’re all different, and like to figure out who you were are. If you could give us your background, and how you got into real estate, and all of the fun stuff in between I’d love to hear that.
Enrique Jevons: Yeah, sure. Real quick, born at raised well at Stanford Hospital, Palo Alto, California, so Stanford. Then I went to San Francisco State, graduated there. Went into the hotel industry and I was actually in the hotel industry for pretty much all my career up until 10 years ago with both Hyatt Hotels and Marriott. I did also in between those two companies, I worked for Stanford University for nine years as a facility’s manager for graduate housing. So it was very similar to what I’m doing now, except that instead of tenants we had graduate students. They would all move in and then we would get places ready for them, move them out, inspect the units, and get the units all ready for summer conferences, those usually one week stays. Between that, my hotel career, which is essentially very similar too, you got guests that are coming and going on a daily basis instead of an annual basis like apartments, but it all has a lot of similarities together. I was working my whole career.
Enrique Jevons: I worked my way up to I was a General Manager for the last three of Marriott Hotel. It was during that time that I thought, “This is awesome. I made it to the top. I’ve reached my goal.” That was my goal of becoming a general manager in the hotel industry. Then I started listening to [inaudible 00:07:28] and realized that, “Oh crap, I didn’t want to be an employee. I’m still an employee. I’m still making a paycheck.” One of the things that really was killing it was that weekly as I’m signing the checks that accounting produced that some of those checks were to the owner. I was, “Oh man, it’s the owner who’s making the money here, not me.” So I decided I want to become the owner and I would have very much enjoyed to have purchased a hotel, but that’s just a bit much too capital intensive for me, so I did the next best thing which is to invest in apartments. Since the apartments were too expensive in Palo Alto, California, we have family in Yakima, Washington, my wife’s family. We’d come and visit every year and so every year one of the topics of conversation was real estate.
Enrique Jevons: As a result, we decided we can actually buy a bunch of apartments in Yakima. We can also build a brand new beautiful home compared to this home we were living in in Palo Alto. Even though it was a nice home it was 45 years old and $1 million. As expensive as that might sound, it actually doesn’t buy you a whole lot. It doesn’t buy you very much in the Bay Area so we were able to cash out. We had one other rental, we cashed that out too. Moved to Yakima and it too off, went really well.
Enrique Jevons: Then three years ago, in 2015, we moved to Sammamish, well it was originally Issaquah, so a lot of people know me as living in Issaquah but it got annexed by Sammamish, so we’re not living in Sammamish.
Julie Clark: I love that story because you know what’s crazy is I’m a real estate broker, you’re a real estate broker, I can’t tell you how many people right now are talking about getting the hell out of Seattle, moving somewhere, even Tacoma, actually, moving to Tacoma, where they can have a better lifestyle and get bigger bang for their buck. Look at Joe, he took off into his van. We can’t all do that, right? Especially with kids and things like that, or maybe you can. I didn’t know that. I actually thought you were from Yakima and just grew your empire because you were Mr. Yakima.
Enrique Jevons: Yeah, yeah.
Julie Clark: I love it. [crosstalk 00:09:59] You and I are actually neighbors because I’m from Alameda, California.
Enrique Jevons: Oh very nice, awesome.
Julie Clark: Well I don’t think we knew that about each other. We know each other, right-
Enrique Jevons: Yeah, yeah.
Julie Clark: But we don’t know each other that well. I was born and raised in Alameda, California, which is San Francisco Bay Area, around that area. Just even when my parents retired, and moved up here, and sold their house, which was a nice house, but the difference of what they could buy up here versus what they had down there is just amazing. I commend you. I have a lot of respect for you and for anybody that actually will … Change is scary, right?
Enrique Jevons: It is scary, yeah.
Julie Clark: I am cashing out of my Northern California lifestyle, and hotel industry, and all that life, and moving to Yakima. What a great decision that was for you, right?
Enrique Jevons: It worked out extremely well, yeah. It was a huge change for us.
Julie Clark: How scared were you? Were you scared as shit to do that or what?
Enrique Jevons: It was a funny thing, yes it was scary, when I actually pulled the trigger than yeah I was kind of hyperventilating as I actually resigned, and jumped in my car, and took off, and jumped on a plane, all in the same day because the unfortunate thing was I couldn’t let on to the hotel that I was going to be leaving, even though I prepared everything in advance and had it all set up for them, and did afterwards talk to them many times to make sure everything was going well. But I couldn’t let on to the mortgage companies that I was getting go of that income. I needed to have that W-2 income for the loans that I was obtaining on these-
Julie Clark: For the rentals.
Enrique Jevons: … investment properties. Yeah, yeah.
Julie Clark: That is so interesting what you’re talking about. We both know Albert Buoy, right?
Enrique Jevons: Yeah, mm-hmm (affirmative).
Julie Clark: We’ve had Albert on the podcast and that is such a hot topic. I love hanging out with Albert. I know you are of the same mindset investors get in this mindset of what am I going to write off? I got to write off everything. I got to lower my taxable income, whatever. I’m like, “Oh really? Are you guys thinking far enough ahead that you might want to borrow some money? Please, you guys are missing the boat on that.” I don’t know if everybody understands what we’re talking to, but you just hit on a hot topic for me about protecting your income so you can borrow, right?
Enrique Jevons: Exactly, yeah. You definitely need to do that. You need to make sure that you kind of overlap industries. Let’s say you’re a software engineer and you want to start getting into real estate, the banks look at your last two years and the banks want to know that what you’re getting into is something that you’re experienced with. So you want to make sure you have a couple of years essentially of overlap, doing real estate for a couple years at the same [inaudible 00:13:04] software engineers so that when you do decide to leave your job as an engineer that you can claim, “No, look, I’ve already got documented income proof that I’ve been in real estate industry for a couple years,” so that when you go to get these loans the bank is going to be much more trusting of you, that you know what you’re doing because you’ve done it for a couple years now.
Julie Clark: This is I think such an important topic. I’m talking to Albert, I’d like to get you on Enrique. This is the great thing about our podcast. We’re here to talk to you about what you’re doing and property management, but your mindset matches mine, and matches some of the hand selected people that I feel like we need to change the conversation on everybody talks about wholesaling, or flipping houses, or whatever. But I am really getting focused in on understanding how to be an investor by understanding your debt position first and how to borrow money, and that you can do buy and holds from the start if you know about creative financing, you understand your borrowing position, you understand how to move towards the faster lanes or better lanes for you to move into as a borrower, borrower. That’s a part of the conversation that nobody I think is focusing on. I’m going to invite you on to my debt team I’m going to call it.
Enrique Jevons: Yeah, that sounds good, yeah.
Julie Clark: You up for that?
Enrique Jevons: Absolutely, yeah.
Julie Clark: We’re going to do something about that here in Seattle as a group. I’d love to connect with you offline more about that so we can get a little dog and pony show going about that and talking about it more to help all our investor friends. We’ll jump back into the topic of today.
Julie Clark: I love it that you had the cojones to make that move. I think because you had some family and some properties there before you made that move, had your toe in the water, it probably made it a little more comfortable. Is that accurate?
Enrique Jevons: It did, yeah, yeah. That was part of the reason in moving specifically to Yakima as opposed to anywhere else was there was a little bit of a comfort zone there with it. But it is something that, yes, as you mentioned talking about people moving to Tacoma and stuff, is that people definitely need to broaden their horizons and realize that you don’t always have to live where you’ve always lived. You don’t have to always do what you’ve always done, that you can start getting into the surrounding areas where housing is more affordable, where the investments are more affordable. Then hopefully do what we’re going to do which is my wife and family, our kids and I, have been taking a lot of one week trips, so we’ll work remotely from different parts of the country while we play around. Next week I’ll be in California for a week. So [crosstalk 00:16:08] I’ll still be working, but I’m vacation working type of thing.
Julie Clark: That’s awesome. I appreciate that.
Julie Clark: Let me just keep rolling on here. We know that you’re a smart guy making smart decisions for yourself and your family. Now we understand how you ended up in Yakima. Now you’re back on this side of the mountains, what made you decide, before we get into the nitty gritty of all the other real estate questions, what made you decide to move back over to this side of the mountains, when you got it going [crosstalk 00:16:41] so good?
Enrique Jevons: One of things in moving to Yakima is then after being there for a while we realized that, both my wife and I having been born and raised in the Bay Area there, is that culturally it was very different to go from suburbs to rural area with three kids. We wanted more for the kids. My wife was very active in the community, in the Bay Area, and there was just not as much available to do in a rural area. For that reason, we decided we wanted to stay within the state of Washington being of course I’m licensed for the state of Washington. Sammammish ended up being a great spot where we’re able to jump on Highway 90. I can be back in Yakima to go check on the office there, to check on properties there within a couple hours. It’s just a two hour drive over there. Yet, at the same time, I can jump on 90, get into Seattle, check up on properties we’ve got there [crosstalk 00:17:46].
Julie Clark: And it’s just a two hour drive there, right?
Enrique Jevons: About the same, exactly.
Julie Clark: Right, god.
Enrique Jevons: Yeah, yeah, because of traffic. Fortunately, no traffic going to Yakima so that’s a nice thing. I never have to worry about that.
Julie Clark: Well that’s awesome. Welcome back to the west side I’ll call it here.
Julie Clark: You’re a real estate broker obviously as well as do you use that for your property management business and for your role that you play there also with Pellego? Do you use your real estate license in your personal and investing business, because how many units … You own a shit ton of real estate yourself at this point, right?
Enrique Jevons: Right. In addition to the 650 some that we got going on in Yakima right, some I own, some I manage, got 125 going right now in King County, Pierce County. Of what I personally own right now we’re at 68. We were over 100 at one point, well technically, actually we were over 200 at one point, but that was a mobile home court of 125 units that you can talk about separately a side deal that we had for a year. Then we were at about 112 units for a very long time, but 54 were in partnership with 2 other people on an apartment complex. Then they refinanced, paid me out of that one there, so now I’m down to just the units that I personally own. These 68 properties are ones that I personally own, no other investors or partnerships on.
Julie Clark: Is that 68 properties or 68 units [crosstalk 00:19:36]?
Enrique Jevons: Units, units, yeah.
Julie Clark: Units, okay.
Enrique Jevons: They range from single family homes to 13 units. 13 units is the largest apartment building I have and I have several 8 unit apartment buildings. I only have a few single families, most everything I have is multi-family-
Julie Clark: Nice.
Enrique Jevons: 98% is multi-family.
Julie Clark: Why do you choose that?
Enrique Jevons: For me the more doors under one roof is just more economical, so the greater return. I will seek out and buy as many doors as I can get under one roof. [crosstalk 00:20:13].
Julie Clark: Is that because of the way you’re set up and your property management stuff or would you recommend that for just even anybody who’s trying to jump in the rental game?
Enrique Jevons: The advantages are that they typically cash flow better. However, disadvantage is that they take longer to sell. If you buy and hold like myself, my goal is with all the remaining units I’ve got right now, to hold them forever, never sell them, and just keep accumulating more and more. For that reason, I’m not worried about the fact that if I would want to sell any of them that they would take longer to sell. Single family homes they’re easier to sell because of the fact then you get more people to be able to sell to, if not only do you have investors that you can sell to like predominantly have owner-occupied individuals who are looking for homes for themselves. Those will go faster, but single family homes are hard to get to cash flow.
Enrique Jevons: I do use essentially the bird method whenever I’m buying those and even the apartment buildings too. I’m always refinancing because I’m always raising the rents, but especially on the single family homes. The only single family homes that I purchased have to be screaming deals. They have to be essentially ones that I can come in, fix up, and then I just flip them to myself, although Tarl and other flippers they say that no it’s not really flipping, but it feels like flipping.
Julie Clark: I hear you.
Enrique Jevons: I’m doing all the same things they do.
Julie Clark: You call it whatever you want brother, as long as it’s working for you, that’s what I say.
Enrique Jevons: Yeah, but I’m flipping it to myself and the bank is my buyer, expect that I get to keep the property.
Julie Clark: Do you have a rule of thumb on when you’re refinancing like that your goal of refinancing, are you doing cash out refis when you do that, is that your goal-
Enrique Jevons: Yep.
Julie Clark: … to get more cash out?
Enrique Jevons: Yeah. I do cash out refis always. I try and get as much cash back as the bank will allow. All of mine have at least minimum of either 20%, mostly on the residential. The one for units the banks typically want you to have 20% equity, so we’ll leave that in there. The commercial loans typically they want to see 25% equity, so I’ll leave that much in there. But oftentimes, no, I can get all my cash out.
Julie Clark: When you say commercial you’re talking just more than four units, you mean like-
Enrique Jevons: Five plus, yeah.
Julie Clark: You don’t mean like an office building, you’re talking about the-
Enrique Jevons: Yeah.
Julie Clark: … fact that a loan changes from a residential loan to a commercial loan once you cross over four units.
Enrique Jevons: Correct.
Julie Clark: Yes. You’re at 75-80% loan to value on your properties.
Enrique Jevons: Yep.
Julie Clark: Do you wait to refinance? Do you have a threshold or a strategy like you won’t refinance unless you can pull out at least $10,000, or something’s got to make it worth it. You know what I mean?
Enrique Jevons: Yeah.
Julie Clark: You’re not going to refinance … You must have some thresholds, what are those?
Enrique Jevons: I do. Essentially what I do is I do look for banks that will allow refinancing without a seasoning period. There are some banks, many [inaudible 00:23:27], that will require, for example, a one year seasoning period. What that means is they just want to see you own the property for a year or they will consider a cash out refinance. But, there are a lot of other banks that don’t have that requirement. I don’t have any private money loans or hard money loans, everything that I have is long-term bank loans or seller financed. I do have a bunch of seller financed properties, even 30 year sell financed properties.
Julie Clark: I was going to ask you about that. How much of your portfolio have you purchased with seller financing? Do you find that is still a way you can get deals? Of course you can, but has there been any slow down or has it always been the same and you just have to ask?
Enrique Jevons: For me, it’s always been the same, just have to ask. About 10% of my portfolio is seller financed currently. As a matter of fact, today I’m in talks with two different folks. I’ll tell you their situations. One is, the woman is about 85 years old. She’s owned these properties forever and it’s five units, five single family homes on one parcel. We’ve been managing them since her husband passed away a few years ago. She is, well actually it’s really her son is saying, “Hey, these things are just too much for her. We want to provide her with even more passive of an income. Would you consider buying or selling them for us?” Of course, jump in, “Yeah, I’ll buy them. Since she wants passive outcome how about we do a life estate with then seller financed?” It looks like we’re coming to terms on and so I’m going to purchase that.
Julie Clark: Is that on this side of the mountains or on the east side?
Enrique Jevons: That one’s another Yakima one. As a matter of fact, everything I buy I still buy in Yakima, even though I come across good deals in Tacoma that are comparable. The biggest difference is that for me is that because I’ve got full-time inspectors, I’ve got a full-time general contractor, full-time handy man that are working for me in the Yakima area, I can jump on things a lot faster.
Enrique Jevons: The second person I’m working with is a retired individual. He’s had this duplex for years. He’s been self-managing for years and he says he wants to travel. He doesn’t want to have to think about or worry about the duplex. He initially started talking to me about property management and then he said sometimes he’s not going to be reachable, but he doesn’t want stuff being done. I said, “Well how about I just buy it from you then?” He said, “Yeah, but I don’t want capital gains.” “Oh, I got the solution for you.” Then let’s seller finance and you don’t have to worry about capital gains. So those folks are still out there.
Julie Clark: Speaking of that though, do you help anybody or do you get involved in 1031s at all?
Enrique Jevons: I’ve represented clients who have done 1031 exchanges. They just take longer. It’s just more paperwork. I keep having to ask for extensions because the title companies and paperwork just kind of drags on with those, but it’s still a purchase just like any other purchase.
Julie Clark: Right. [crosstalk 00:26:57]. Awesome. You do selling financing when you can, as everybody should spend their time learning about seller financing, because even if you’re a new investor, if you learn about marketing to even get deals and talk to sellers, learn how to talk to sellers, and you learn about creative real estate and seller financing you can compete with anybody if you understand.
Enrique Jevons: Yeah, definitely. I think people just assume that all sellers want to cash out and that’s not the case, especially for older folks. They don’t necessarily want to cash out. For them, having a steady, fixed income is much more important, that gives them a sense of security.
Julie Clark: What kind of terms do you offer them?
Enrique Jevons: Well because I’m able to get bank financing quite easily, just because of my debt to income ratio, and credit, and all that sort of thing, I always play that card against them and I said, “I’m happy to pay it or I can pay you the same terms I would pay the bank.” I’ll still get terms at 4% or 5% because I show him, “I can get this from the bank, so if you want to match it, awesome.” That’s been working out well. So as a result-
Julie Clark: Right, so they’re chasing you, right? They’re chasing you instead of you chasing them, right?
Enrique Jevons: That’s always important too. Never fall in love with a property and always be willing to walk away from a deal. Just because a deal comes across your lap doesn’t mean it’s going to be the last one ever. There’s always going to be another deal.
Julie Clark: Do you run into thresholds on the borrowing? Isn’t it like 10, or what are the rules there? [crosstalk 00:28:42]?
Enrique Jevons: Yeah, yeah. Currently, the limit that the feds have is 10 residential loans, so residential meaning 1 to 4 units so that banks can only lend you up to 10 loans. That’s across all banks [crosstalk 00:29:04].
Julie Clark: And that’s residential, one to four.
Enrique Jevons: Residential, yeah. That means those residential loans that those banks buy are conforming loans, so they conform to HUD standards. Those are loans then that the bank can in turn sell. So they’re only able to sell conforming loans.
Enrique Jevons: The other types of loans that banks will do are the in-house or portfolio loans. For those loans there are no rules. A bank can offer you as many portfolio loans, you can have a many portfolio loans as you like. People should not get hung up thinking, “Oh my gosh, I can only have 10 mortgages.” That’s only partially true, it just means you can only have 10 conforming residential loans. Beyond that [crosstalk 00:29:59].
Julie Clark: What’s the risk then? There’s some extra risk with portfolio loans, but real estate is a risk/reward gain, but what are the risks with a portfolio loan that you don’t have with a conforming loan?
Enrique Jevons: Portfolio loan and also commercial loans for five plus units, the differences with those is the bank makes up the rules, which is good and bad because then you can negotiate much more, you can come to terms that are going to suite both folks. Typically, those loans run one point higher on average than a residential loan. Typically those loans have a balloon payment. They might be due, most common I run into is 10 years, but sometimes depending on the bank, it will be 5 years. But you can negotiate that. What that means is that the loan at maturity can-
Julie Clark: Would have to be refinanced.
Enrique Jevons: … either refinance it, sell the property, or pay it off. Most of the time it’s going to be a refinance. But, if you’re paying the mortgage every month then they’re going to be happy to refinance, so it just means then typically the refinance is going to occur at whatever the market rates are at that time. That is the risk to some people who are hesitant about adjustable rate loans, they think, no, I want to have a 30 year loan and I don’t want to have a balloon payment. For me personally, I don’t worry about that because of the fact that I’ve never carried any of my loans to term, meaning 30 years, or some commercial loans are amortized over 25 years but I’ve never carried one that long and I never plan to because I’m always going to be adding value to the property. I’m always going to be upping the rents because income properties, the valuation of those income properties is based more on the income that the property produces, so the rents that are coming in versus like single family homes, which is entirely based on comps of the area. Every time I raise the rents on my property I have raised the value of my properties. For me, every five years is about what I do. In my plan going forward I will refinance every five years my properties because typically I’ve added a tremendous amount of value by then.
Julie Clark: Right, so it just works into the program fine anyways, right?
Enrique Jevons: Exactly. Even though let’s say five years from now rates are up, if rates go up that means the economy is doing better. If the economy is doing better that means that housing rents are going to be higher. The fact that rates go up that’s fine with me because my rents are going to be going up. Hopefully, even at a [inaudible 00:33:13] at a greater pace than interest rates.
Julie Clark: Exactly. Love it, so good. Such good info that anybody can get involved in this. Then the formula, in case we have borrowers out there that don’t have extra borrowing power, obviously one option is to try and pursue deals with seller financing. Do you use the calculation of gross rents times 75% less PITI or whatever is what you’re going for? How do you evaluate-
Enrique Jevons: Yes, but I’ll give you an even easier … because sometimes with all the different formula … There’s so many calculators out there, which is wonderful. Bigger Pockets has an excellent rental property calculator. Pellego has an excellent rental property calculator. You can go to these sites, and certainly there are many others that you can check out. But, I’ll give you an easy one. One is that I look for a property, so I think it’s kind of back to flipping almost, I look for a property that’s going to be let’s say the property is $100,000 to purchase. It needs no more than $50,000 in improvements, but will then achieve for me a $200,000 after repair value. So if properties in the area are let’s say $600,000, then you just make sure that you times it out that way so that if you’re going to put … For example, let’s say you buy at $600,000, no more than $300,000, I can’t imagine you’re going to put in that much, and that would then get you an after repair value of $900,000. I use that kind of formula to-
Julie Clark: On your first [crosstalk 00:35:11].
Enrique Jevons: … correctly there with enlarging numbers. If I buy for $500, no more than $250, sorry, of repairs to get at a million dollar after repair value. That is huge money. Anytime you can get close to those percentages it’s going to make up for a good deal for you.
Julie Clark: Another way to say it is if you spend half, 50% of your purchase price on your improvements, then you should be able to double your purchase price in value.
Enrique Jevons: Your original price, yes, exactly.
Julie Clark: Is that kind of what we’re trying to say here?
Enrique Jevons: Yeah, yeah, exactly. If you can stay close to those numbers that’s going to be a really good deal for you. Then because you’re going in for let’s say a $200,000, you get a $200,000 after repair value, so then the bank lends 75% of that. Now you’ve got all your cash is all covered. Now you can take all your cash and go do it all over again [crosstalk 00:36:17].
Julie Clark: You could calculate it both ways, right?
Enrique Jevons: Mm-hmm (affirmative).
Julie Clark: You could use your method and then you could benchmark it with the other method, which is, again, I’ll repeat, which is gross rents times 75% minus principle interest, taxes, and insurance. That needs to be a positive number that’s left over or a zero to not have to use your personal borrowing capacity to qualify for that loan. Is that [crosstalk 00:36:47]?
Enrique Jevons: You want to get as close to zero. Sometimes I leave a trailing little bit. I might have $3,000 of a cash left in a deal, really an insignificant amount. You want to get at least to zero, if at all possible. Anything that’s positive that’s great, if you’re able to get more money on the deal than you actually put in, all the better. If you could actually just break even, get zero, then that means you can take that same cash, do the exact same deal over, and over, and over again indefinitely [crosstalk 00:37:20] and you’re leaving behind a trail of 20%-25% equity in all these properties. Then pretty soon you have-
Julie Clark: And having somebody pay down your mortgage.
Enrique Jevons: Yeah, it’s all being covered, all being paid. Now your net worth just keeps going up, and up, and up. As your net worth keeps going up, and up, and up then your borrowing power, of course, keeps going up. Pretty soon now you’ve got enough positive cash flow that you could just have somebody else manage the properties for you and you’re done, you can retire.
Julie Clark: Now this leads me to a good question transition, what do you think about investors buying for obviously cash flow or appreciation? Is there a point where somebody should be buying for appreciation if they have enough cashflow from all their other investments or are you like, “Nah, that’s not me?”
Enrique Jevons: No, definitely. If you have enough cashflow currently let’s say from your current job, whatever it is that you do, then yes, you can just look at appreciation. Now, appreciation is much more speculative, it’s like buying a stock. Let’s say you buy Apple stock, you’re buying it because you’re speculating on the fact that okay historically this stock has gone up and so over a sufficient amount of time it should continue to historically go up. It is a speculative bet appreciation, so you do need to take that into consideration. But if you don’t need the cash now then what that does is that’s building up wealth for you and so it will get you to the point where you can retire even faster because you can get to the point where you can just live essentially off of that passive income. There are a lot of folks that if you’re making enough cash now there’s no point in making more immediate cash, you can differ that cash because then you’re not paying taxes on it and just focus on creating wealth.
Julie Clark: Right, that’s a problem, right? The more money you make, ordinary income, the more money you’re paying in taxes. I’ve owned enough property in my 20 plus year history to know … Like personally right now, I’m lopsided because over the last 10 years I’ve owned a lot of partnership on a lot of big apartment buildings, like 200 unit apartment buildings, where I might own 10%-15% or more percent. We’ve sold those over the last few years and made a ton of money, that’s a whole other problem if you’re not exchanging things like that. Oh and now I find that I’m lopsided right now because I focused on getting some of my ordinary income built up so I could have my borrowing capacity intact.
Enrique Jevons: Yeah well that’s also one of the beauties about rental income is that rental income is taxed at a lower rate.
Julie Clark: Right.
Enrique Jevons: So that’s going to go on a Schedule E, which is taxed at a much lower rate than either self-employment on a Schedule C or, of course, what’s taxed the highest is the W-2H. That’s one of the difficulties of flipping, of course, is that you’re getting huge lump sums of money which are taxed at [crosstalk 00:40:55] capital gains tax, short-term gains tax, which is a lot more expensive than long-term gains, rental income.
Julie Clark: Well no, flipping is taxed at ordinary income.
Enrique Jevons: Ordinary income, excuse me. Yep, ordinary, yeah.
Julie Clark: Which is double worse[crosstalk 00:41:13]. It’s like the worst. I think that’s why people start out flipping because that’s kind of how the gurus and real estate educators teach everybody how to easily get started to make a quick buck, they think, even though they don’t realize how hard it is. Then soon enough they realize like holy shit, what’s the point if I’m having to pay through the nose in taxes? I should be keeping these properties that I’m flipping.
Julie Clark: I am trying to change the conversation in the education path. I think people are educated about things in the wrong order and I am building a gang, which I’d like you to join-
Enrique Jevons: Yeah, sounds good.
Julie Clark: … that is going to help change that conversation. If you guys are listening, stick with me because I’m building a gang of smarty pants selecting people that I know understand the conversation that I’m trying to have. I need to be talked to myself. We all need to learn … I could talk to you Enrique all day long.
Enrique Jevons: That’s why I go to all the meet ups is because I’m constantly learning. To think that I know it all, no, no.
Julie Clark: No, right?
Enrique Jevons: I’m always super excited. As a matter of fact, when I moved here three years ago and started attending all these meetings over here where people are doing all sorts of things, there’s notes, and flipping, and investing in larger buildings, syndications, there’s all these different avenues of ways to make money in real estate, which were very exciting for me. I’m a very conservative person and so I just fall back on each time what I know and enjoy, which is the rental property business. I, of course, am always promoting that. But there’s plenty of people also that are killing it [inaudible 00:43:16] and I really enjoyed those people at the meet ups because I learned so much from them.
Julie Clark: On all that, don’t you think everybody needs to understanding their borrowing capacity as a fundamental start? You know what I mean?
Enrique Jevons: Yes, yes. I always keep encouraging people is go talk to a banker, go talk to hard money lenders, go talk to private money lenders and find out what is their criteria, and then you can set a goal. You can realize that, oh you know what, it might take me one year, maybe it takes me three years to get to the point where a bank is going to be willing to lend to me at these great rates [crosstalk 00:43:56].
Julie Clark: And what am I going to do in the meantime to move myself into that lane? That’s the conversation.
Enrique Jevons: Because your goal it gives you a path that you can move forward with-
Julie Clark: Right.
Enrique Jevons: … because you have no idea-
Julie Clark: They have no idea [crosstalk 00:44:09] right now. I think a lot of people have no idea, they’re like I’m going to go wholesale, I’m going to flip houses, but they don’t understand that after doing that for a little while they’re going to want to move and grow past that. What I’m saying is we need to teach them from the beginning how to identify, how to get on that path because I think the focus is on the wrong focus.
Enrique Jevons: Yes, yes, you definitely want to talk to people who are truly experts in that particular field, people who are doing that specific thing for a while. If you want to go into wholesaling, don’t talk to a flipper and find out all the reasons why the flipper didn’t go into wholesaling. No, go talk to the wholesaler who’s actually doing it really well and who has a very good track history. See if that’s something you really want to get into, maybe it is. There are different passions for different people. There’s plenty of people out there who hate landlording. The last thing they want to do on earth is talk to a tenant, and actually, for me I’ve kind of burnt out on talking to tenants, but that’s okay I’ve got staff who can do that for me now. [crosstalk 00:45:24].
Julie Clark: How do you use your real estate license outside of what’s required for your [crosstalk 00:45:31]?
Enrique Jevons: Well the crazy thing is it wasn’t that I really wanted to get a real estate license, it’s that I was required to because you could have 6,000 units of your own and not need a licensed [crosstalk 00:45:43].
Julie Clark: Not need one, but why would you not want to have one I guess if you’re in-
Enrique Jevons: You probably would.
Julie Clark: … the real estate business to take advantage of being able to buy at a discount, I’ll say. You pay yourself if it’s listed. If you’re doing off-market stuff then of course that’s a better deal and a better way to buy, but even … I look at a real estate license as a discount and as an insurance card.
Enrique Jevons: Exactly, yeah.
Julie Clark: It’s a discount card when I want to buy, it’s an insurance card for me when I sell. If there’s some trouble then I can save myself a lot of money by selling [crosstalk 00:46:17].
Enrique Jevons: There’s definitely no reason to not get one. I initially got it because to manage properties. If you want to collect rent from your next door neighbor while they go on vacation you need a real estate license because you are holding their money, their funds, and that’s what triggers the Department of Licensing if you are taking money for another owner, so you need that.
Enrique Jevons: But, it’s so much cheaper to get a good education with real estate by going through the whole licensing classes and programs. So you take 90 hours of real estate courses, which can be done online, there are great online websites that do give you course credit towards your real estate license. It’s very inexpensive. Then take the test, again, it’s not very expensive at all. We’re only talking $100s, we’re not talking-
Julie Clark: You’re preaching to the choir here.
Enrique Jevons: … $1000s.
Julie Clark: I think if it’s crazy, if you want to be in the real estate business full-time, you’re so excited about it, yet you don’t want to have the number one tool that gets you access to inventory, gets you discounts. We can talk about that until we’re dead in the face-
Enrique Jevons: Yeah.
Julie Clark: … but I’ll save that for another day.
Julie Clark: Let me ask you, what do you think about out-of-state investing, which seems to be this huge topic. I can’t tell you in the last year almost how laughable and comical it is how many people all of a sudden want to be buy and hold investors. They just like flip a switch, “Oh now I’m going to be a buy and hold investor. Now I’m going to start investing out of state.” That can be good, but I don’t know. I’ve always found it questionable because I’m probably too conservative and a control freak. What’s your take?
Enrique Jevons: That’s kind of where I’m at too. I get that question asked all the time. It has been a hot topic as of the last couple years it seems. A lot of it is certainly, I think … Websites like Bigger Pockets and such, you get a whole lot of people talking about different parts of the country and it definitely is very good to invest in other areas where you can make a much better return on your money.
Enrique Jevons: However, for me personally, again, it’s kind of back to why do I keep mine in Yakima? Well, it’s because I have my system set up, I have my staff there, I have an office there, I have a general contractor who works full-time, I have handymen. These are all people that I know and trust that have worked for me for years, so I know that, first of all, I can jump on deals real fast because as soon as I catch wind of something I can call my inspector and he’s going to be there within the hour or two and he can go inspect the property.
Julie Clark: But I realize that’s you because you have it dialed, right?
Enrique Jevons: Right.
Julie Clark: But I know people want your advice in general just because you’re the man if somebody’s not you, if they’re just [crosstalk 00:49:22]. They’re not you, and they don’t have a crew, and they have to hire property management, or whatever, are you a believer that investing out of state can work?
Enrique Jevons: Mm-hmm (affirmative), yes. So if-
Julie Clark: What would be looking for? Obviously you’re looking for great criteria, but is it that you’d have to go there and hardcore interview property managers or what do you think would be something that would be a safe way, or what’s important, other than the numbers on the deal, we all know that, what else would be important?
Enrique Jevons: Essentially what you’re doing is you’re hiring people who are out of state. What you need to do, it’s very similar to like hiring an employee. If you’re working in a company right now where you have to hire employees my take on it is you got to do the exact same thing. You want to make sure the real estate agent, the property manager, the contractor, in that location is somebody that you can trust and not only trust, but you’re going to have to make sure to follow up on them. Otherwise, if you don’t, you take your eyes off of the steering wheel, they may be very well intentioned, but all of a sudden they’re just going a whole different direction than what you had envisioned.
Enrique Jevons: In my opinion, it does require flying out to that location, becoming familiar with the area. You can research it from afar and so that’s fine. It’s just important, in my opinion, to research it from afar, to make sure that you’re working with people that are not you, that they’re very well established and have a good reputation, that you do get referrals, that these are people that are trusted individuals and start with [crosstalk 00:51:18].
Julie Clark: How about unannounced visits, don’t tell them you’re coming [crosstalk 00:51:22] and be like, “Well I’m here today.”
Enrique Jevons: Yeah, all your visits should be unannounced and-
Julie Clark: That’s a tip for you guys, announced visits. How about having something in your property management contract about penalizing or getting out of your contract if they [inaudible 00:51:35] or something?
Enrique Jevons: Any contract, any agreement there is no specific standard. Any contract you can write anything in, whether it’s a general contractor [crosstalk 00:51:50].
Julie Clark: Are property management contracts month to month or are they annual?
Enrique Jevons: Well we do ours to start with annually and then go month to month. I would say that’s what most property management companies do, although, if somebody really is unhappy we would of course let them out within that first year. For us, because there’s so much work upfront, we want to have somebody hire us, place a tenant, we get everything going great, and then they say, “This is awesome,” then decide, “Oh, I’ll take it over from here.” Well now we’ve spent all this money upfront and haven’t been able to recoup our costs yet. That’s why it’s important of us as a management company to make sure we start off with at least a year. After that then we’re fine with it continuing month to month. The-
Julie Clark: What’s AppFolio, is that something … I know you’re a technology guy and that makes you unique in the property management scene, you [inaudible 00:52:47] with a lot of technology, and VAs, and stuff, how do you benefit from AppFolio or if somebody … Now we all know that Enrique and his property management company are available for you guys if you guys have rentals that you have right now. Would that be through Pellego or would that be through your own company? How does that work?
Enrique Jevons: Well we’re operating currently at Jevons Property Management within Yakima County and then anywhere else in the state under Pellego Property Management.
Julie Clark: Okay, got it.
Enrique Jevons: Honestly, it’s the same staff. It’s just two different names on the front end, that’s it.
Enrique Jevons: Yes, technology is wonderful to use because it is such a relatively low cost, so anything that you’re doing within real estate I highly recommend using technology to your best advantage. That goes also for, and I’ll get back to AppFolio and such, but that goes for if you want to buy stuff that’s out of state is make sure that you’re working with a property manager who is very technology enabled and that is that this person who’s comfortable with, for example, using Dropbox, using Google Drive, to be going out there, inspecting the property, dropping photos into either one of those drives. [crosstalk 00:54:08].
Julie Clark: Digital communication.
Enrique Jevons: Exactly, because that’s how you’re going to check in. Of course, yes, you can annually go out there yourself. But in addition, you don’t want to let too much time pass by. You just occasionally ask the property manager, say, “Hey can you run by my property and shoot some photos for me. I want to see how it’s doing right now.” That’s something that’s easier to do, an easy way to check up and [crosstalk 00:54:31].
Julie Clark: What are your favorite apps that you-
Enrique Jevons: What I’m using, as you mentioned, is AppFolio. AppFolio is a property management software solution. It is software that we use to manage all the properties. Because of the fact it has an accounting component, it has a maintenance component, it has the applications built to track the tenants, the ability to track every single conversation with the tenants, so all of our texts and emails, everything is done through AppFolio so it’s all recorded [crosstalk 00:55:09].
Julie Clark: Is it something that you’d only want to use if you had a certain size portfolio or can the person that owns five rental houses use it?
Enrique Jevons: The thing of it is, it is the premium software out there. It’s the most expensive. It’s the most robust, but it’s almost the most expensive property management software out there. It starts with 200 units, so if you less than 200 units you can still sign on with AppFolio but they will charge you that 200 unit minimum. So it does become [crosstalk 00:55:41].
Julie Clark: Do you have a starter version of something that’s like AppFolio but not AppFolio?
Enrique Jevons: Yep.
Julie Clark: Like in Joe’s world, my partner Joe’s world, Joe is still here, he’s just hanging off a cliff guys while he’s listening.
Joe Bauer: Yo Yo.
Julie Clark: You have Infusion Soft, right Joe?
Joe Bauer: Mm-hmm (affirmative).
Julie Clark: Infusion Soft is the robust, more expensive version of what Infusion Soft is used for might not be appropriate for everybody to use it because it’s … What do you have in property management that you might recommend to the smaller time landlord?
Joe Bauer: Sure, Buildium is another one that’s out there. So Buildium, you can check them out. They’re geared a little bit more towards the smaller, but still has a fair amount of units and so it’s a little bit more of an affordable starter platform. There is also a free, so if you’ve just got one unit this is what Grace uses. Grace is taking care of all of the rentals that they’re starting to accumulate, Grace Yarber and Tarl. That is … Now I’m drawing a blank on the name. It will come back to me in a moment.
Julie Clark: Well don’t worry about it, it will come to you when we’re talking about something else.
Joe Bauer: It’s a [crosstalk 00:57:05].
Julie Clark: I’m going to side note to Joe and say see this is why we should have affiliate links like to Buildium and things like this on what Mitch was talking about. You know what I mean Joe?
Enrique Jevons: Cozy.co. So they’re-
Julie Clark: Oh Cozy, yeah.
Enrique Jevons: Cozy.co. Cozy.co, that’s a free site. The way they make their money is off of the tenant screening. They charge the tenants for that.
Julie Clark: Right, people are using that for screening. I’ve heard a lot about that. I’ve actually gotten some deals sent to me with Cozy.co stuff on there.
Enrique Jevons: Yeah, good.
Julie Clark: So Buildium, Cozy.co.
Enrique Jevons: Yeah small company out of San Francisco. It’s a very simple thing, but it’s a great starter for if you’ve got like 1 to 10 units, over 10 you’re going to grow out of what they have to offer. If you’ve got 1 to 10 units that’s where I highly recommend you start is a free service like Cozy.co.
Julie Clark: Then maybe move into Buildium until you’re a baller like Enrique.
Enrique Jevons: Until you get a couple 100 and then yeah.
Julie Clark: When you’re looking for rental comps, Enrique, I know obviously in Yakima you probably know off the top of your head what something’s going to rent for [crosstalk 00:58:23].
Enrique Jevons: Yeah, that’s also part of it. You could just give me an address and [crosstalk 00:58:26].
Julie Clark: What would you use over here for Tacoma or whatever? What would you use to comp out rentals?
Enrique Jevons: Certainly Pellego is a great, free valuation website. There’s-
Julie Clark: Let me ask you though, does Pellego have rental comps? I mean Pellego is a valuation tool for properties on calculating whether it’s a good deal or not.
Enrique Jevons: Right.
Julie Clark: But can you run rent comps off of Pellego?
Enrique Jevons: It does have a rental calculator, but honestly there is no great site out there for the valuation [crosstalk 00:59:07]-
Julie Clark: Not like Rentometer?
Enrique Jevons: … rental properties? Yeah, okay, let’s talk about a few of the big ones. Rentometer, the way that Rentometer works is that it asks you for the property that you’re interested, you have to tell it what-
Julie Clark: How many bedrooms.
Enrique Jevons: … that property is renting for or being advertised. That’s how Rentometer aggregates all of its data is that every individual puts in what they’re renting that property for and then it figures it out. However, the problem with that is then that data becomes very antiquated very fast because maybe somebody put in what it was renting for 2-3 years ago and it hasn’t been updated sense, so you’ve got old rents in there.
Julie Clark: Does Rentometer not sweep like Zillow or anything like that for rental numbers and addresses?
Enrique Jevons: The same place with Zillow is that Zillow will pick up everything that’s available for rent that’s essentially posted online, and there’s a lot of other [crosstalk 01:00:15]. But the difficult is that it’s only grabbing what the rents are being advertised. For example, you get somebody that is advertising a place for rent for $1100 a month and then they rent it out. But you don’t know what they actually rented it out for, it’s just that was the advertised price. Then, if you hold onto a property, as many people do for years and years, the tenant doesn’t move out, well the tenant’s rent may have been increased every year, but Zillow, Rentometer, Apartments.com, none of these sites are going to know that because there is no reporting feature when people give a rent increase to their tenants. The only reporting feature is when they advertise for rents. So that’s [crosstalk 01:01:08].
Julie Clark: You know what I’ve been looking sometimes at, just because I used to do a fair amount of business with these guys and they own a lot of properties, I’d go to the Invitation Homes website and I’d see what they’re offering for rent wherever it is I’m looking for a rental and see what their current asking rents are, because they have so many properties. That’s one part. Where would you go? If you weren’t in Yakima what would you look at?
Enrique Jevons: Zillow is still going to be a very good site to take a look at what stuff is renting for, so you can take a look at Zillow. Honestly-
Julie Clark: Are you looking at what’s actually for rent or are you looking at the zestimate on Zillow for that rental?
Enrique Jevons: You can look at both. The zestimate is going to be kind of a trailing figure, being that if the market is moving up in rents then those numbers are typically going to be lagging behind because it’s just going based on what historically people have been advertising it for. The same then goes when the market starts going down, those rents are going to be artificially high because it’s-
Julie Clark: It’s a lag, it’s a trailing.
Enrique Jevons: There’s a lag to it.
Julie Clark: Good answer.
Enrique Jevons: Now, what we do is AppFolio, one of the beauty’s of using their software is AppFolio has actual numbers of what is really everything that’s being rented for from AppFolio clients. Because it’s the leader in the industry, as far as property management software goes, what we are able to do is put in an address and it will tell us what all the comps are, meaning, all the similar places for rent of AppFolio users of which there are a ton of AppFolio users. What’s nice about that, that’s not advertised price, that’s actual [crosstalk 01:03:04] real-time today rents.
Julie Clark: You guys at Pellego, and maybe you already do this, you guys should [crosstalk 01:03:11].
Enrique Jevons: … the data, yeah we haven’t figured out a way. Unfortunately, AppFolio is a closed API for those in the software industry.
Julie Clark: No, but your team literally could plug it in, right?
Enrique Jevons: Yeah you can manually plug it in. [crosstalk 01:03:26] You can manually take numbers and plug them in [crosstalk 01:03:27].
Julie Clark: If somebody’s a client of Pellego’s property management, which is Enrique’s property management, you will get the benefit of if you’re searching for new deals or you have an off-market deal and you’re probably going to let Enrique’s team manage it maybe or something, you have the benefit of using his AppFolio login, I guess I would say, they’ll do it for you, of comping that property you’re looking at buying is that a fair-
Enrique Jevons: Yeah, we’ll do it for them and we’ll comp it. That is the funny thing too because I get owners that call me all the time and, “How much does my place rent for?” I can just very quick, I just look up in our database and I’ll tell them, “This is what I think.” “Oh no, no, no, you got to see it, you got to see it.” Well no I don’t. The data doesn’t lie. Yes, maybe if you’re is a little bit cleaner, a little bit nicer, great, it’s going to sway the difference by $100 or so, but really-
Julie Clark: Are you able to run reports then off that like where you can see trends-
Enrique Jevons: Yep.
Julie Clark: … in rent or any sort of reporting-
Enrique Jevons: Yep.
Julie Clark: … data stats?
Enrique Jevons: Mm-hmm (affirmative), yep.
Julie Clark: Dang guys. Just for that reason alone, if you are a buy and hold investor and you’re doing … Right there by itself, we all love Enrique and we all love Pellego, and that’s like a reason why you’d want to be involved just as it is.
Enrique Jevons: Yeah.
Julie Clark: Enrique, do you think right here, forecasting forward into 2019 are rents going up, or down, or even or what?
Enrique Jevons: Rents are coming down right at the moment here for the state of Washington. So-
Julie Clark: Why is that?
Enrique Jevons: Couple of reasons, one is that the supply is finally catching up. Developers always lag because it takes time to get permits, and it takes time for developers to gain their-
Julie Clark: So all their units are coming online now, right?
Enrique Jevons: … confidence and security. There’s a ton of units coming online.
Julie Clark: And we have an absorption issue.
Enrique Jevons: Exactly, so that’s the thing is that you’ve got a couple of different factors. One is that as far as hiring goes, we went through a huge hiring spurt especially with Amazon, but certainly with others, so you get this huge hiring spurt with the supply not having caught up just yet. Now the hiring is kind of starting to taper off a little bit. There’s still hiring, they’re just not quite at the same pace that they were. Now you got 1000s of units that are coming online everyone, and so, as a result, yes it’s an absorption issue.
Enrique Jevons: Over the next year or so it’s going to take a while to absorb all these new units that are coming online. Rents are going to start to taper, well, they already have tapered off and we are starting [crosstalk 01:06:35].
Julie Clark: When we say “taper off” are we talking like 10%, 20%, 5%?
Enrique Jevons: Right now we’re just talking very minimal downward trends of less than 5%. What I’ve seen historically from being in the business is that the swings in rentals are not as great as the swings in sales. Whereas I’m starting, for example, to see on the MLS a lot of people [crosstalk 01:07:09] backing off of their sales prices, they’re actually starting to have some price decreases.
Julie Clark: Heck yeah, yep.
Enrique Jevons: What I see is that for sales stuff it goes up at a faster pace and it comes down at a much faster pace too than rentals. Rentals, they don’t increase quite as fast, they don’t decrease quite as fast has certainly been my experience, even though you can adjust it immediately. A lot of people what they’ll do is they’ll do concessions instead in order to try to keep the rent up they’ll do a concessions, whether they will-
Julie Clark: Well if you drop your rent instead of doing a concession it immediately impacts the value of your property on a commercial-sized loan property, right?
Enrique Jevons: Yeah.
Julie Clark: Because your NOI dictates your borrowing power-
Enrique Jevons: Exactly.
Julie Clark: … and if you cut your rents [crosstalk 01:08:05].
Enrique Jevons: Yeah, so the last thing you want to do, right, is cut your rent. There are other things you can do, concession-wise, everything from you offer lower move in costs, a lower security deposit, or you tell them, “I will repaint the place,” or, “I’ll put in new carpet.” “I’ll put in a ceiling fan.” “I’ll put in air conditioning.” There are a lot of other things you can do besides dropping the rent, and that’s what I always recommend.
Julie Clark: Let me ask you, this absorption issue that we have, which means that there’s too many new apartment buildings coming online that are competing and they’re having to be more conservative or give away things that renters are looking like, “Oh if I can get in that brand new building I’ll get in there.” I know it impacts other multi-family properties, but does it impact single-family or is that a different person, a different tenant who wants to be in a single family rental home versus an apartment?
Enrique Jevons: Yeah there still is an effet. For example, with most of these units that are coming online we’re talking about a lot of large high rise buildings. You see all the cranes in Seattle, for example, a lot of these high rise buildings that are coming online and that’s how you get the 1000s of units that are coming online. They still have an effect because what happens is those people got to come from somewhere. Granted, maybe those smaller but higher end units downtown they’re going to attract a younger clientele that likes that type of building better, but that younger clientele had to have come from somewhere. They might have come from the suburbs. Maybe they were living previously in Bellevue, for example, and now something’s opened up that they like in downtown Seattle, they move. They might have previously been in a single family home in Bellevue. So now that single family home in Bellevue opens up, okay so maybe somebody from Issaquah now moves into that one, but now then the values in Issaquah drop [crosstalk 01:10:21] as a result. It is this domino effect that does happen. So, yes, single family homes [crosstalk 01:10:28].
Julie Clark: You’re saying as people have an opportunity to get closer in town to these urban village locations, especially all of these younger people, maybe they were off renting houses out in the ‘burbs somewhere with their friends, now they’re like, “Oh my god, guys, we can move into the city and get a swanky, brand new apartment.”
Enrique Jevons: Yeah.
Julie Clark: So we move out of our rental house. Right, so the trickle down [crosstalk 01:10:55].
Enrique Jevons: It does, so there is a trickle down effect, absolutely.
Julie Clark: The thing is, is they’re signing a year lease, so that’s a year’s impact.
Enrique Jevons: It is, and so that’s where … yes. That’s where an apartment building is going to be much more likely to offer concessions. It’s going to be much better for them to offer, for example, the first months’ free rent because that does not devalue the property any. They’re able to get somebody in and at that higher rate they can show that to the bank what the rents are. So [crosstalk 01:11:26].
Julie Clark: Right, I hope you guys are listening. For anybody that owns rental properties that are … How many units, even a duplex is that counted off … is a duplex loan, Enrique, because it’s considered a single family loan, is that calculated off comps or off NOI on just a duplex?
Enrique Jevons: It depends on the bank, on the lender. For example, credit unions will oftentimes base all non-owner occupied properties as essentially the same as commercial loans. So they will-
Julie Clark: Which is what we want. Which is-
Enrique Jevons: Yeah, because it is and it’s not, so it depends because it might be a little bit higher interest rate, so they will consider even a single family home that’s not owner-occupied they’ll put a higher interest rate on it because their people if they’re starting to bankrupt out they’re going to let go of all income properties first and protect their own primary residence. The primary residence is always the safest for the bank. They might charge you a little higher interest rate, however, they’ll value the property based on the rents. Typically, you can get a loan sometimes a little bit easier because they base lending you the money based less on your debt to income ratio, which is what is a primary importance in buying a primary residence for yourself, and they base it more on how much money that the property generates. It-
Julie Clark: Let me ask you though, is there a balance … Let’s say you own in the one to four unit category, so technically it can be considered single family, right, not commercial-
Enrique Jevons: Yep.
Julie Clark: … because we’re four or under. Now, people would like to have a residential loan because the interest rate is maybe a point lower. But what you need to-
Enrique Jevons: As long as you qualify. As long as your debt to income ratio is still within that bank’s standard. A lot of times it’s like at 40 some percent debt to income ratio, but each bank is a little bit different, so that’s why it’s always important to have these conversations with [crosstalk 01:13:50].
Julie Clark: But is the downside of that though Enrique, is that if they’re only valuing it off other single family comps or other comps you might have limited market-
Enrique Jevons: Exactly.
Julie Clark: … value, which your loan is going to be 75% of that, versus maybe you have to pay a point higher but you’re valued off your rental income, which might calculate to a higher value.
Enrique Jevons: Yep [crosstalk 01:14:16] higher valuation, which means they’re going to lend you more money and it will be a little easier to borrow.
Julie Clark: So you want to look at both.
Enrique Jevons: You definitely do, yes. You definitely want to look at both so it’s always best to have … If you’re looking at a one to four unit that you are shopping around. You’re going to talk to various banks and you’re going to say, “Here it is. What are your terms?” You go to the other bank, “Okay, here it is. What are your terms?” You will find that there is a big difference between banks and banks also … For example, with my properties I’ve got four different banks that I can consistently use all the time, but I’ll send the deals to all four just because I borrowed from one bank one time doesn’t mean this next time they’re going to have the best rate, even though late time they did because banks also go back and forth. They can only lend out that is a certainly percentage of-
Julie Clark: Their assets.
Enrique Jevons: … their assets, of the money that they have. So sometimes they’re offering incentives for people to open up savings and checking accounts with them. Sometimes they’re offering incentives to get loans and that’s because they’ve got this seesaw going back and forth, just like anybody else, of sometimes they’re flush with cash and sometimes they’re not, they’re tapped out.
Julie Clark: Do the banks know, they can’t see that you’re shopping them. They might know because they know you-
Enrique Jevons: Oh I tell them. I tell them. They know who-
Julie Clark: Is-
Enrique Jevons: … because all of them have my portfolio so they all know who I’m borrowing from. I’ve also told them what the terms are, this is what terms I’m getting from this bank, because they will compete. Sometimes they just say, “Oh, no for what we’ve got available right now this is our best and final offer.” Sometimes they’re like, “Oh we’d love to pick up that loan from you. We’ll match that rate. We’ll do that.”
Julie Clark: I don’t know if you want to share this or if it’s okay-
Enrique Jevons: Oh sure.
Julie Clark: … but if you don’t want to, then don’t do it, but who are your favorite banks or portfolio lenders, because those are two different categories?
Enrique Jevons: My favorite banks, the ones that I’m using the most of, I still have some loans with other random banks, but the ones I use the most are Banner Bank. I used them especially when they were just the state of Washington, now they’ve grown a little bit, they’ve acquired some other banks and so they’re now in Idaho and Oregon, so they’re starting to get a little bit bigger. But I’ve always liked them.
Enrique Jevons: Another one that’s doing really well for me lately has been U.S. Bank. U.S. Bank has given me some great commercial terms. So I’m using them for …. Oh, Banner, for me it’s best would be residential loans and portfolio loans. U.S. Bank has done best for me with commercial.
Enrique Jevons: Also, GESA Bank. GESA, nobody’s ever heard of because they only have like I don’t know five branches that are based out of the Tri Cities. They’re brand new, they have no idea what they’re doing so it’s a little bit frustrating.
Julie Clark: What’s GESA? How do you spell it?
Enrique Jevons: GESA is G-E-S-A, it’s an acronym for something. The poor guy, it’s like pulling teeth to get information out of the banker I was using, but the rates were really good so I’ve been using them a couple of times even though my wife kept telling me, “Don’t use them again. Don’t use them again.” He’s so frustrating to work with, but the rates are good.
Enrique Jevons: That was one that has worked out well. Then the other for me has been Solarity Credit Union. Solarity Credit Union, again, that’s a credit union out of Yakima. Again, the drawback is the closest branch they’ve got is like Ellensburg, so they just only have central Washington. But they also only lend in central Washington, which means that there’s not a whole lot of … It’s easier sometimes to borrow money from them because of the fact that they don’t have a whole lot of investors in that area.
Julie Clark: How about if you were going to to do a refinance of your personal residence? Do you have a favorite bank that you would go to on that?
Enrique Jevons: For me, personal residence had to do with Banner, so that worked out well. But I’ve heard wonderful stories about Boeing Employee Credit Union, so BECU. I definitely am open to giving them a try because I’ve heard wonderful things about them. Also, I’ve heard great things about Home Straight doing personal residence loans. I would say find a bank that’s in your area, or where you want to buy. If you’re buying then in Michigan, don’t get a Washington bank, go get a Michigan bank.
Enrique Jevons: Start working with the smaller banks. I find that they’re just much more accommodating. They are much more open to smaller loans when you’re working with. I’ve had accounts with both Chase and Wells Fargo, and actually, I still do, but Chase, Wells Fargo, Bank of America, they only want stuff that’s $5 million plus, anything less than that to them is chump change, in my experience. And [crosstalk 01:19:52].
Julie Clark: How about with HELOC? A lot of investors might use a HELOC to get started with some of their equity needs and things like that? Would you go to these same banks for the HELOCs?
Enrique Jevons: Yeah. I’ve got a HELOC with Wells Fargo, with Banner Bank, and an unsecured line of credit with GESA, and an unsecured line of credit with Solarity. The secured ones, the HELOCs, offer better rates than the unsecured ones. Although, GESA, I’ve got an unsecured line of credit, a really nice one at only 6.5%. That’s ones at $60,000 that I’ve got with them. Hey, $60,000 that I can use as a checkbook only at 6.5%, that sure does beat a hard money loan or even private loan.
Julie Clark: Heck yeah.
Enrique Jevons: Then I-
Julie Clark: Does it affect your borrowing capacity if you’ve got a line of credit or a HELOC out that has a $0 balance on it?
Enrique Jevons: If it’s a $0 balance that’s a good thing because then that means that you’re using a smaller percentage of your borrowing capacity and that’s important.
Julie Clark: They won’t count when they look at your borrowing capacity, they won’t count that you have that available to you?
Enrique Jevons: Yes. Some banks will certainly count that and that’s where commercial loans start to play in a little bit better because commercial loans don’t worry about that because that’s on your personal side typically. Although, I have both [inaudible 01:21:27] lines of credit on my personal and lines of credit on my business side. All very good questions for bankers and why you want to make sure you establish a very good relationship with a banker because every bank, honestly, is different on what [crosstalk 01:21:39] emphasis on.
Julie Clark: I want to say that I can talk to Enrique forever. I know we all need to get going on here today. It’s obviously very clear to everybody who’s listening, and I will listen to this over, and over, and over again myself, that Enrique is just super experienced, a wealth of information. He’s up to date on all the technology. He has all the insight and access that you might want in regards to rental information, banking information, Pellego is super cool as a platform for evaluating your real estate deals and deals that are listed on the MLS. Does Pellego pool any for sale by owner stuff who know how Redfin has that on there?
Enrique Jevons: If they put it in, yes, but for the most part, it’s MLS listings at the moment.
Julie Clark: But Pellego is free, you just have to sign up?
Enrique Jevons: It’s free yep. It’s a free site. There’s no reason not to, then you can go check out all the sites to get a good comprehensive valuation. Make sure you connect, of course, with a real estate agent so that you’re getting a portal into the MLS. You can still check with Zillow, and Redfin, and Pellego to see what each player says because [crosstalk 01:23:09] the truth is somewhere in there.
Julie Clark: Yeah, well Pellego, everybody needs to check out Pellego if they haven’t done so because it is a very useful … It’s like a cheat sheet guys. You want to check it out.
Julie Clark: Enrique, how can people reach you? There might be people out there that are interested in property management consulting and in general, what services would be your main service that you’re offering? Would that be the property management side?
Enrique Jevons: Yep, on the property management and also buying and selling. If you’re interested in buying multi-family of course I have access to the MLS, but because I’m managing properties for over 175 different owners, there are a bunch of them that they’re just getting older and so they’re happy to sell. They don’t want to go through the hassle of listing it on the market, so essentially, a pocket listing. I’ve got a bunch of pocket listings because these are people that [crosstalk 01:24:14] and they’re happy to sell them.
Julie Clark: I have an exchange need right now for Tacoma. I need to get into Tacoma, exchanging out of the Seattle area. Do you guys have some properties in Tacoma that I can talk to you about offline here?
Enrique Jevons: Fourplexes if you’re interested in fourplexes.
Julie Clark: Yeah.
Enrique Jevons: Yeah.
Julie Clark: Okay, well I’ll hit you up outside of this.
Enrique Jevons: Yeah.
Julie Clark: That works, that works.
Julie Clark: What would be the best way for people to contact you regarding rental property management or interest in picking [crosstalk 01:24:47]. Guys, don’t contact Enrique just to see what he’s got. [crosstalk 01:24:53] he needs serious and ready to buy. Come on, let’s be honest and let’s be cool here okay? People [inaudible 01:24:59] crazy things.
Enrique Jevons: Yeah.
Julie Clark: We love you guys, but please your brains and your professionalism when we are saying that there’s secret sauce and ninja information. You don’t just go gather it up. Only make that happen and don’t waste anybody’s time unless you’re really going to go buy something, right?
Enrique Jevons: Yeah, yeah, that’s very true, yeah.
Julie Clark: Right.
Enrique Jevons: Email is great for me. If you want to reach me at [email protected], so E-N-R-I-Q-U-E, my first name, @jevonsproperties.com is my email address, so J-E-V-O-N-S P-R-O-P-E-R-T-I-E-S. If you forget, all you got to do, I’m the only Enrique Jevons out there in the world that I know of, if you just do a Google search you will find me. You can also find me on Bigger Pockets and other places as well.
Julie Clark: Well awesome. I look forward to getting you in my gang of some new stuff that I want to talk about if you’re up for that.
Enrique Jevons: Yeah, well I think it’s important for everybody. Everybody should have their group of people that they can get together with and throw ideas back and forth.
Julie Clark: Yeah and then we’re going to share it. I’m saying we’re going to get all these smart people that I’m hand selecting together and then we’re going to share it with our tribe.
Enrique Jevons: Sweet, yeah.
Julie Clark: Our tribe is anybody who’s listening, wherever you’re located. This stuff that we’re talking about applies to everyone everyone. It doesn’t just apply to Seattle, and Tacoma, and Yakima, this, what we’re talking about, applies everywhere. So spread the word on what we’re doing over here at Seattle Investors Club to your friends and family across whoever wants to learn about how to do things better or insider information, let’s all share with each other. People like to do business and help out other people that they know and like, and we love you all, so let’s do it.
Julie Clark: Joe, hit us up with the details.
Joe Bauer: Yeah, yeah, yeah, good to hear from you guys, great stuff today. Everybody can get ahold of the show notes by going to seattleinvestorsclub.com/46. I’ve put all of the links that you guys have been mentioning today in the show notes, so if you’d like to get a comprehensive list of everything there, including the banks, and Pellego, and all that fun stuff just head over to seattleinvestorsclub.com/46.
Joe Bauer: If you wouldn’t mind, we love reviews on iTunes. That helps us to get our show out there to more people. Head over to seattleinvestorsclub.com/itunes and just know that every five star review that we get helps us a ton.
Julie Clark: Hit us up. Right on. Excellent.
Joe Bauer: Excellent.
Julie Clark: Well thanks Enrique, this was-
Enrique Jevons: Hey, thank you guys. I really appreciate it.
Julie Clark: Spectacular. I am excited to borrow money and buy properties and all that stuff. Just talking about it makes it seem almost less complicated. It doesn’t have to be that complicated guys, especially if you have team mates and people you can call. We’re here for you and that’s all I got. Over and out and we’ll see you next time.
Joe Bauer: See you guys later.
Enrique Jevons: Thanks, take care. Bye.