Hello my friends. Welcome to another episode of Ask Marco on the Passive Real Estate Investing show. I hope you’re all doing great. I can’t believe it. October 31st is around the corner. Yes, Halloween is around the corner, and that means we are 10 months into the year with only two left, and 2023 will be another year behind us. It’s amazing how fast time goes by and it just seems like as the days go by and as the weeks go by and as the years go by, time seems to go by faster and faster. And we all know that’s not the case. Time is fixed for all of us. It goes by at the same rate and same pace.
It’s just a perception of how fast time actually goes by. But in either case I hope you are having a great year and enjoying yourself and having a fruitful, successful investment portfolio under your belt, and you continue to build on that, and we’re here to help you in any way we can.
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So, you know, just a quick snapshot about the you know, the national stats, if you will. And I’ll go into more detail about this in a future episode actually just around the corner. But you know, when you look at how things have progressed this year with rocketing mortgage rates and a bit of a cooling in most markets around the country, in some cases, more than a bit of a cooling, you know, we’re still up year over year. If you look at current stats right now, and again, I don’t like talking about real estate at a national level because I don’t want to generalize real estate as being one national housing market because it, that doesn’t exist.
All real estate is local and even hyperlocal, but you know, it’s a metric. It’s just like a thermometer. It’s an indices. You just look at things holistically, but then you break it down into granular components and that’s how you actually should be looking at real estate. But again, just putting your finger on the pulse of things, existing home sales nationally speaking is up a little bit. It’s about three and a half to 4% year over year at this point in time being October, which is not bad. I mean, it’s, it’s not great, but it’s certainly not bad. Employment has been relatively strong, it’s come down, but it’s still about 2.1% year over year as far as employment growth. New home supplies are still lagging even though they’re up over 7% year over year. What’s interesting is that we’re still under 1 million permits being pulled so far this year when, you know, from listening to this podcast that we need closer to about 1.5 million to 1.7 million permits per year to provide enough housing inventory to keep up with the demand for housing.
So that means it’s tight if you’re a buyer or a homeowner looking for a, a place to live. But if you’re an investor, the other side of the coin is the silver lining, and that is that the limited supply and the strong demand is actually pushing prices and rents up for you. So it’s good if you’re a landlord. So if you’re on the equity train and you’re in real estate, it’s doing very well for you. But at the same time, if you’re still looking for more inventory, it’s a bit of a challenge because you’re having to kind of fight that. Which leads to my next point. You know, the months of supply out there in terms of the resale market is still historically speaking and relatively speaking, very low. It’s only about three and a half month’s worth of supply out there, meaning that if we didn’t build one more new home today, we would only have about three month’s worth of inventory to keep up with the demand that we have.
So we would be out of inventory in three months, not a good thing. But overall, you know, many markets around the country have cooled off but are still overpriced. And again, you know, it’s a relative term, but it is overpriced from historical standards. So if you look at markets and, you know, take a look at their historical price trend and how much they have appreciated or depreciated, you’re gonna see that about half of the markets out there are overpriced to historical standards and they are overpriced by roughly speaking 40%. So does that mean it’s a bad thing? No. Markets will catch up to that. Will prices come down? Possibly they will soften in some places, but you just gotta keep an eye on things like this and we can certainly help you with this. So you just gotta talk to my team about it. And lastly, you know, rents, what are rents doing?
Well, rents have been strong for years and they keep going up. Right now we’re at about 4% year over year in terms of price growth in the rental pool, single family home rental values. So rents are still increasing, not as much as they used to be. They used to be closer to 8% in terms of price appreciation, but right now rents are appreciating at about a 4% year over year. So that means they’ve slowed down and cooled off from earlier this year and from last year, but it’s still appreciating and it’s you know, keeping up with inflation, not quite, but it’s up there. So overall that’s you know, what real estate is doing at a national level in terms of stats and whatnot. Now with that, let me grab a few questions that have come in from our loyal listeners. I’m gonna grab maybe three, four, maybe five.
And I intended this episode to be an Ask Marco episode, but it’s gonna be kind of a cross between five minutes, seven minutes of market stats. Just a quick overview and then grabbing some questions here. So let me begin with a very basic one, and Richard writes in and says, where do I begin? <Laugh>? And literally his emails short and sweet and it was actually hilarious to read. So for those of you listening, you might get a kick out of his question, but he said, where do I begin? Maybe start with canine housing and move to actual human-like housing. Is there a market for blanket or box forts? Well, Richard, everybody starts in the same place, and that is basically on square one at the beginning. And so having said that, I basically look at four or five things for anybody and everybody who’s just getting started and asking the question, well, where do I begin?
Or how do I begin? So here’s what I suggest in general terms, because I don’t know what your level of education is and what resources you have access to right now, but this is gonna apply to everybody at different points in their investing career and to different degrees. So the first thing I, I wanna put on my list is this education. Why? Because, you know, it’s the old saying, the more you know, the more you grow and the more you learn, the more you earn. Well, it’s very true because think about this statement, and I, and I lead with this all the time in my presentations when I’m talking to people on stage, I ask people to finish the sentence, ignorance is blank. Most people say ignorance is bliss. And that may be true at times, but the reality is, is ignorance is expensive. You don’t know what you don’t know, and what you don’t know is costing you time, money, and opportunity.
So the more you educate yourself and learn, the deeper your knowledge level and intelligence in the area of finance and investing, the further you will go, the faster you will get there, the more successful you will be. So never stop learning, because the more you can invest in your mind, what’s between your ears, the better you will do in everything you do, especially when it comes to money and investing. So education is not expensive, it’s relatively cheap. You can listen to podcasts for free. You can buy books that range from $0 to 10 or $20 and they’re chockfull of information and great knowledge and useful ideas that you can put into place. There is a lot of free content online. Many websites publish content weekly, even daily about money and finance and investing and all that good stuff. So there’s no excuse for anybody not to educate themselves.
But that really is one of the most important things and it’s really the starting point because if you don’t have the right knowledge or mindset, you’re not gonna get very far. Why do you think after about 500 episodes or so on this show, I mean it’s over 400, somewhere in the four 50 range. Why do you think I’ve had guests on like Jim Quick, you know, memory expert and various other people to talk about your mindset and your attitude and and whatnot? It’s because there’s so much to be said about having the right mindset and the right knowledge and the right attitude in order to be a successful investor and, and achieve success relatively quickly. Second, after education would be capital. Obviously you need capital to invest, not necessarily always. If you have partners and they’re bringing the cash or the capital to the table, then you become the sweat partner, the sweat equity partner, the person who’s doing the research, finding the deals, putting in the time and just doing all the legwork.
But if you are solo, then you will need capital, capital in the form of investible capital. And with real estate, that means down payment capital. So if you’re looking to invest in a hundred thousand dollars home and you need 20% down, that’s $20,000. Add a few thousand dollars on top of that for closing costs and maybe a few thousand dollars on top of that as just a buffer, some operating capital and, and some reserves. So you need 20,000, $25,000, maybe 50,000. If you have it, great. If you have a lot of it, great, you’re gonna fast track how fast you accumulate or build a real estate portfolio. If you don’t have enough of it, well then you gotta figure out how can you make more, earn more and get more income as quickly as possible. Does that mean working overtime? If you’re in sales, does it mean, you know, closing more sales?
If you are an entrepreneur, does it mean increasing your profit margins or improving your marketing to generate more leads and therefore more revenue and more profit? If you have AW two job, does it mean that you find yourself a side hustle, a small business to start to build and grow or turn a hobby into a, an actual business where you can generate income? There could be all kinds of opportunities there. Maybe you’re a contractor of some kind, you work on a 10 99 basis and it just means bringing in more gigs or more jobs. But you, you need to find a way to increase how much income or inflow, how much capital you have because you’re gonna need that to invest. If you don’t have money to invest, you’re not gonna get very far. The third thing is gonna be credit. So these are what I call the two C’s.
There’s capital and credit. If you’ve got the capital, great. But if you’re the one qualifying for financing, meaning mortgage financing or any kind of leverage, you’re gonna need credit. And this is where you should be working on improving your credit score and your credit profile all the time. You want the highest possible credit scores so you get the best kind of financing and the lowest types of rates. If you don’t have good credit or have credit at all, that’s essentially the same thing as having bad credit, but you need good credit. If you don’t have good credit, you need to be working on that. And of course there’s a lot of information out there on how you can do that and how to build credit and improve your existing credit. So that’s something you should be working on. Ideally, your goal should be to have credit scores that are over seven 20 or seven 40.
That’s kind of the sweet spot where you get the best rates and the strongest ability to qualify. Of course, you don’t want any bad things on your credit report like bankruptcies or 60 and 90 day late payments on various credit cards or other mortgage payments ’cause that would be very damaging to your credit. So so far we’ve got education capital and credit. The fourth item I would say, as far as you know how to begin, where to begin would be your team. You have to have the right team, the people who are gonna help you find the deals, underwrite and research those deals with you, finance those deals, provide you legal advice, tax advice. This is your team that you build around you. We have all those people available for you. So that could be a very quick fast track just by working with my team here.
And there’s no cost for that. So Nora Capital and Nora Real Estate Investments provides, you know, no fee and no cost services to help you invest and build your wealth and your cashflow. But team is so important, whether you do it with us, whether you do it on your own or with a partner, you have to have the right people to support you and help you find the deals, finance those deals, manage those deals, have the right investment strategies and tax strategies in place. All that stuff is not difficult. It goes back to point number one, education again, you know, as you learn about this and the more you know, the more you’re gonna be able to work your team and be able to speak the same language and accelerate your success. And then the fifth thing you know, to your question, Richard, of you know where to begin.
It’s basically taking action. ’cause Once you’ve educated yourself and you will continue to do that forever, and you have capital and credit and a team built around you, now it’s a matter of pulling the trigger and taking action because you can be the most educated person when it comes to finance or investing, but until you actually take the action needed to do that first deal or that next deal or that next investment, whatever it may be, you’re not gonna get any further ahead because you’re gonna stay stuck where you are. So as simple as that sounds, believe it or not, we talk to a lot of people who love to learn and love to talk about investing, but never take action and do something with it. So Richard, to summarize, educate yourself, build up your investible capital, improve your credit score as strong as you can, make it, build the right team and take action.
I think with that you’ve covered 90% or more of what you’re going to need in order to move forward and be successful. So I hope that helps. And of course if you need a little more guidance, my team’s here to help you. All right, next question from Kim. How do I decide whether to evict somebody or not? Well, Kim, that’s a darn good question and there are so many, it depends questions around that, that all I can do is give you some general guidance. So, but again, you know, nothing here is legal or financial advice or specific advice. This is just general information and entertainment. Call it edutainment. So how do you know whether or not to evict? Well, there’s a lot of considerations here, but when you decide whether or not to evict a tenant, it can be a serious and a serious decision.
And there’s a serious legal process. ’cause It’s a regulated process. So you should not consider this lightly. You need to consider this carefully, and I’m assuming you’re managing the property yourself right now, but even if you have a property manager, of course, you know, you might be the one making the final decision, but your property management company will be making these decisions for you. But if you’re self managing, then obviously you’re putting yourself, you know, in the seat of making these decisions. So the decision to evict should be based on many valid reasons and you have to follow the laws and regulations within your jurisdiction. So here’s some basic steps to consider when you’re making this decision. First and foremost, you have to review your lease agreement. You have to start by reviewing what is in the lease that you have with your tenant because that lease may specify certain circumstances under which you can terminate the tenancy.
And certain circumstances where you can’t, there may be delays or maybe not at all. So you know, the notice that you’re required to give to a tenant is usually spelled out in that lease agreement as well as how you deal with lease violations. Second, you need to understand the legal grounds for the eviction in question because different jurisdictions have very specific rules and regulations regarding evictions and common legal grounds for this, for evictions include nonpayment for rent. I mean, that’s probably the most common one, but there’s also lease violations such as damaging the property or conducting illegal activities on the property. And then of course, last but not least, you know, there’s the expiration of the lease term. You know, if it’s a 12 month or 24 month lease and it expires at that point, the tenant has to move out. It’s not necessarily an eviction per se, but they do need to vacate the property.
But if they don’t and the lease has expired and you did not renew it and there’s no language in your lease to continue on a month to month basis, then essentially you do need to serve some sort of paper or notice to evict the property. But you have to ensure that you have valid legal reasons for the eviction. Thirdly, you want to document your lease violations. It’s very crucial to document any lease violations or issues you have with your tenant because this documentation is gonna come up later on and be important if there is any litigation. But documentation can include photos and videos, communication records of any kind, including texts, and of course any relevant correspondence on paper or email. But these records will be important if there’s ever a legal dispute. So keep that in mind. Also, you want to communicate with your tenant, you know, before proceeding with an eviction, consider open communication with your tenant.
There’s nothing better than actually having a civil rational adult-like conversation that eliminates emotion in order to get to a bottom line or, or a compromise or an agreement. So try to resolve any issues with your tenants as amicably as you can, and you want to have everything in writing at some point, even if it starts off as a verbal communication, ultimately get what you’re talking about in writing. And, you know, many times, I mean, often tenants may not be aware that lease violations are there, you know, they might be unknowingly doing something but willing to rectify it. So this is why communication is so powerful. It’s almost always the starting point to solving any kind of problem. But ultimately, if you need to provide a notice or communicate something in writing because it’s now a legal requirement or it’s something that you need to document, you want to serve proper notice because if communication doesn’t lead to a resolution, you should serve the tenant with a written eviction notice that actually complies with the local laws and regulations in your area.
Don’t overlook this thing. So that notice should specify the reason for the eviction and the period within which the tenant needs to remedy that violation or vacate the property. And then of course, you’re gonna have to wait for that notice period to expire because the tenant should be given a reasonable amount of time to respond and rectify the situation. The length of the notice period can vary depending on the jurisdiction you live in especially in some states where, you know, things are are very strict in the sense that they’re favorable to the landlord, you, but there are other states where they’re very favorable towards the tenant. You just gotta know what state you live in. But the length of that notice period can vary depending on the jurisdiction and the reason for the eviction, of course, never overlook the option or need or necessity to consult with your attorney or getting legal advice from someone who is knowledgeable because if a tenant does not comply with the notice that you’ve served, or if the situation remains unsolved, you know, you’ve gotta consult with someone like an attorney or a legal expert that is knowledgeable in the landlord tenant laws within your state and even in your county.
They can guide you through the legal process and ensure that you follow all the legal requirements that are needed. But ultimately you may file for an eviction. So if all else fails and the tenant does not vacate the property or remedy the violation, you may need to finally initiate a formal eviction process through the court system in your jurisdiction, which means you essentially put ’em on notice and on the clock. So at that point you have to follow the court process and the courts will determine whether the eviction is justified and if so, they will issue an eviction order. And you should work with your law enforcement or your sheriff’s office to carry out the eviction according to the court’s order. Don’t go around this, you just wanna follow the letter of the law here. And then lastly, consider the consequences. You gotta keep in mind that an eviction can be a lengthy and costly process.
So this is why I emphasize communication being so important and it may have financial and legal implications for both you and the tenant. So you’ve gotta weigh the pros and cons carefully because eviction is a serious step and it’s important to ensure that you follow the legal procedures in your jurisdiction and then treat the tenant fairly throughout the process. In my opinion, it’s always best to avoid an eviction if you can. And this is why having good, clear communication with your tenant early on and as often as possible can solve and avoid so many problems. So, Kim, I hope that gives you some, you know, clarity, but yes, definitely, you know, consider the pros and cons and decide from there. Alright, so I’ve been going long. So one last question from Patsy regarding capital calls. And I actually, this, this question came in about a month or so ago, so I I’m a little slow in getting to this one, although I get a lot of questions at times.
They go in waves and I apologize if I don’t get to your question right away or sometimes at all. Sometimes I just reply via email. But Patsy writes in, she says, hi Marco. We have received several cash calls on our multifamily investments in the last few months. How do we determine if we should add more funds or just walk away and let the bank take the properties? Well, if you’re in a multifamily investments, probably a syndication and I don’t think you can just walk away. So unless I’m missing something here, I’m just gonna assume that you are part of a group investment, essentially what’s known as a syndication. So Patsy continues here in her email saying most of the properties appear to be functioning well, but the rapid interest rate rise has caused concerns. The major problem has been the high cost of interest rates and rate caps and the general partners.
There you go. The general partners believe the potential for selling the properties will be improved in the next two to three years as they expect interest rates to decline by 2025 or 26. They are asking for funds to get them through the next two to two and a half years, approximately 10% of the original investment. Most of these investments were made in 2021 and early 2022 as limited partners in syndications. Thankfully, we invested minimum amounts of 25,000 in most of these offerings. Any advice or thoughts would be appreciated. Okay, so Patsy, good to hear from you. By the way, I know we spoke long time ago. So you’ve invested in a multifamily syndication, you’re a limited partner along with other investors and because of rising mortgage rates, sounds like there’s a cash crunch and now the general partners are requesting all the investors, the limited partners to come up with approximately 10% of the original investment as a cash call.
And unfortunately, this is just the nature of the beast. You know, it’s, it’s all spelled out in, in the agreement that you reviewed and signed when you made this investment. A lot of syndications, especially with real estate where there are variables in terms of the costs and operating the property or properties, especially when there’s debt financing involved, have the right or reserve the right in that agreement to request additional capital from the partners if it’s needed. Sometimes that doesn’t exist, but in this case, obviously there’s been some sort of issue where there is a lack of liquidity and maybe no or no cashflow or negative cashflow because the debt services increased because the mortgage rates have gone up, which would tell me that they either had a variable rate mortgage or they had a term on that mortgage that reset the interest rate increasing the monthly mortgage payment because interest rates have gone up and now the syndication or this group investment has gone from a positive cashflow situation to a low or negative cashflow situation and now they’re in need of additional capital to carry them through for the next couple of years.
I would agree with their assessment that over the next two years or so that we’ll see mortgage rates come down. The expectation there is pretty high and I believe that to be the case too. But until then, until they’re in, in a situation where the rate has come down on the mortgage where they refinance into a lower rate, you might be stuck in a situation. Now you ask the question, can you just walk away? I don’t think you can walk away from this. I mean, if you do, I don’t know what the repercussions are. Again, this goes back to the agreement, but you might be walking away from your original investment and risk losing the 25,000. If you’re prepared for that, well then you know what your loss is going to be. It’s not a large sum of money, but at the same time it’s an investment.
Nonetheless. The other thing to be aware of is there might be language in that agreement that you just can’t walk away. I mean it would, it might put you into a legal situation where you walk away as an investor and risk losing your $25,000 investment and or you might still be on the hook, may be liable for whatever that amount is as a cash call. So just be careful because you might put yourself into a legal situation, a negative legal situation where you are still gonna be responsible. It’s part of your duty and responsibility as a partner in this investment to provide whatever that cash call is. Now, if you’re talking 10%, 10% of $25,000 as your original investment is only $2,500, I mean, that’s not that bad. Unless you have multiple investments of 25,000 across a whole bunch of different deals that you know you got involved in.
Well now you’re multiplying 2,500 times however many investments you’ve made. So anyway, take a look at your agreement and maybe call up the general partners and have a conversation with them about it just to see, you know, the severity and the length of time and what you can do. Maybe you can not provide the capital but defer any future distributions to you as cashflow from this investment from the syndication as if you had paid the 10%. What I mean by that is this, if they will agree to not having you put any capital up, they would just say, okay, well you still owe it, but we will pay that from future distributions, which may be a couple years down the road. That’s just a creative way of trying to negotiate a cash call or a capital call. They may not go for it, but it doesn’t hurt to ask.
So that’s just an idea for you. Alright, well I think that’s it for today. We’ve gone for 30 minutes or so here. I will cover the other questions I have here on another episode of Ask Marco. So that is it for today. If you have any questions about investing real estate finance, me personally, whatever it may be, let me know. Just send it over to me from our website@passiverealestateinvesting.com or just ask marco@passiverealestateinvesting.com. Remember to subscribe to the show. We love that you’re here. I appreciate you all. Thank you for listening and I will see you all on our next episode.
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