Joe started off selling industrial equipment before going into real estate investing. In two short years, he grew his real estate portfolio to eleven units doing very well and now he is dealing with the novel coronavirus. Five of Joe’s eleven units are AirBnB’s, and in this unique epidemic, he is projected to lose a major part of his revenue if the coronavirus continues through the summer. Joe shares how he is preparing to survive this epidemic as a real estate investor.
Joe Prillaman Real Estate Background:
Best Ever Tweet:
“We try to find out what we can reduce right now and any additional revenue streams we can find” – Joe Prillaman
Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m Theo Hicks, today’s host, and today we’ll be speaking with Joe Prillaman. Joe, how are you doing today?
Joe Prillaman: Just living the dream, Theo. Doing well.
Theo Hicks: It’s good to hear. A little bit about Joe – he has two years of real estate investing experience, currently has 11 units, five Airbnbs and six single-family homes. From Carolina Beach, North Carolina. His website is anchoredinvesting.com.
Joe has agreed to talk to us today a little bit about what he is doing to combat the current Coronavirus, and we’re also gonna talk about things that he did in preparation, so that hopefully he’s not as impacted as negatively as others who are not as prepared for a crisis such as this.
Before we get into that, Joe, do you mind telling us a little bit more about your background, and then we can get into what you’re doing today?
Joe Prillaman: Absolutely. I really cut my teeth in real estate investing in Fayetteville, North Carolina, doing the whole Buy Rehab Rent Refinance Repeat (BRRRR) model, but I originally got started — I used to sell industrial equipment across the South-East, and a lot of windshield time… I cover 11 states; probably 90% of my travel was in the car.
So two years before I’d ever purchased my first house, my sister’s fiancée introduced me to a podcast called The Bigger Pockets Podcast. I got to just hear about real estate, and I just got the bug for it.
Over the next two years I listened to as much as I could, and just through consistency and networking — I really got tons of information thrown at me, but I was able to jump in and start buying Fayetteville. Since that time, we’ve got five properties there, all done through the BRRRR model. Four of them were purchased off the MLS, one of them was off-market, and the deals really just started to dry up at that time. This was the start of 2019. I just couldn’t find anything that made sense anymore.
So again, through networking and whatnot, we were just able to find a whole new niche in Airbnb, and my wife and I did a house-hack in Carolina Beach, and since then we’re up to five Airbnb units, and just rockin’ and rollin’, living the dream.
Theo Hicks: Perfect. So you’ve got the five in Fayetteville – those are just BRRRR rentals, single-family home rentals, and then you’ve got five in Carolina Beach that are Airbnb, right?
Joe Prillaman: Yes. And then we have our original — so we originally bought a single-family home in Wilmington, which we’ve since turned into a long-term rental as well. So that’s the six long-terms, and all five Airbnbs.
Theo Hicks: Perfect. So let’s start with the Airbnbs. I would imagine that since they’re shorter-term rentals, it’s not a beach, so I’m assuming a lot of the people who rent those are people that are going on vacation to the beach… And now with the Coronavirus happening, not many people are even allowed to leave their homes. So maybe tell us how those properties are impacted first, and then we can talk about some of the things that you are doing or have done in order to minimize a negative effect of the Coronavirus on those properties.
Joe Prillaman: Absolutely. The Coronavirus has definitely thrown a pretty major wrench in our operations. As of literally yesterday, Carolina Beach came out and they have banished Airbnb short-term vacation rentals from the island. Everything that’s less than a 90-day rental term – you’re just simply not allowed to have them at all… Hotels, motels, everything is shut down on the island. So that’s a pretty major reduction in what we’re able to do, and it’s really been crisis mode ever since the Coronavirus came out.
I’d say about 90% of our bookings come from Charlotte, Raleigh, Durham, really the North Carolina area, and travel has completely stopped. Not necessarily because of anything that we’ve done, but obviously the Coronavirus has just shut the whole world down.
Theo Hicks: So we were talking a little bit earlier, before we started, about some creative ideas that you’ve been floating around for those properties… So what are some ideas, whether they’re working or not, that you’ve come up with, for using those properties? Because again, maybe those ideas won’t work in North Carolina, but they might work somewhere else. Also, these might be ideas that once the Coronavirus is over, it might trigger something in someone else’s mind for a new way to use a single-family home. So what are some of the things you were thinking about once you realized that “Hey, we can’t use these Airbnbs anymore”?
Joe Prillaman: Initially, we hit the ground running with “Okay, is it possible to get long-term tenants in here?” but then also “How long is the Coronavirus actually gonna last?” So we immediately switched to “Okay, if we can’t put long-term tenants in here, because if this does pass”, we’re gonna lose a huge amount of revenue in the summer, which is our peak season… It’s a very seasonal market. We make the majority of our revenue from April until about October. So we’re like “Yeah, we don’t wanna put a long-term tenant in”, so immediately we started calling the hospitals, we started calling anyone that would be negatively affected by Coronavirus, to see if “Okay, can we use our rentals as quarantine units, or would it be possible to store people in it?” People that wanna self-quarantine… Really anything we can to generate income on these properties while they’re sitting vacant.
A lot of things that we did as well was we went through all of our processes, all of our systems to see where is money being spent. We canceled all our subscriptions, anything that is going out every month, we just tried to find out what we could reduce right now, and any additional revenue streams that we could find.
We’ve explored using some of our units as, if people are still getting photography done, as staging units, so that people can have family photos, but still be far away from each other… Just a lot of different ideas on “Okay, how can we utilize the asset that we still have, that we still have to pay for, in a time when we’re not allowed to use it for what it’s intended?”
And really, it comes down to sound investing – having adequate cash reserves for rainy days, because this is gonna pass, too. Coronavirus is gonna go away and we’re gonna have another great season, but it’s having sound investing throughout your entire process of “You’re buying for cashflow, you’re securing long-term low-interest debt, you’ve got adequate cash reserves.” That’s all Joe Fairless’ 3 Immutable Laws of Real Estate Investing. All of those type sound investment strategies play out whenever you have something that comes up that you couldn’t expect. And no one could have predicted that this would shut down my entire business right as soon as the most profitable time of the year started.
Theo Hicks: Yeah, I was gonna say, those three things sounded familiar. Joe’s 3 Immutable Laws of Real Estate Investing. So for the cash reserves, when you’re underwriting these Airbnb deals, it sounds like the majority of the income begins in April and then ends in October… So you’re just entering that now. So it sounds like you have adequate cash reserves in general, just to cover those months when you’re not bringing in money… But what specifically is your cash reserve? Is it a monthly thing, is it an upfront thing, a combination of both?
Joe Prillaman: A little combination of both. The original thought process behind the whole thing was we wanna have six months of if we don’t have any income coming in, that we can pay the bills. And that would be more than an adequate amount of time to figure out what we needed to do.
For our long-term rentals we’ve got a similar type fund, but our goal was to have about $20,000 per five units for our long-term. And for our short-term, we were like “Okay, well what would it take to cover all the mortgages, to cover everything and to keep the ship running for six months?” And that’s really what we established from the beginning, of what we needed, and now we’re really thankful that we actually did that.
Theo Hicks: So do you get three months upfront and then you save per month? When you’re initially underwriting the deal, when you say you wanna get six months of bills covered, what does that actually look like? Is it three months upfront and then every month you save up until you have six months, or [unintelligible [00:09:12].22] you stop? Specifically, how does that work after you buy a property?
Joe Prillaman: Okay, so for us, I was still selling industrial equipment up until January of 2020. So we have been taking all of our income from our properties and from our long-term rentals as well and rolling those back into — kind of feeding the machine, trying to generate a snowball effect, so that we can continue to buy more rentals… And I’ve been living off of my W-2 income.
So for us, with our Airbnbs, what we would do is every time we made money on them, instead of immediately investing everything back we would take a big portion of it and put it into the emergency fund, until that emergency fund had built up to six months of adequate cash reserves. Then we would take that money and reinvest it into other properties, or just use it to make our systems better.
Theo Hicks: Just so listeners understand how important and how powerful having a reserve fund is, maybe walk us through what you would be doing right now if you didn’t have that reserve fund.
Joe Prillaman: Oh, man… Well, I am the crazy guy who’s been living on the beach for free; that’s kind of how my friends know me. But I might be the crazy guy living under the bridge for free. My whole process was I wanted to build up enough passive income and then enough “active” income, because I think Airbnb is definitely active income; it’s more work, it’s more like a job… So I was trying to build myself out into another job.
I went and got my broker’s license, and the whole plan was I wanted to shift into full-time real estate about now. And without those adequate funds like my industrial sales repping job, it’s gone. I’m not doing that anymore. So now this is really going to be – it was planned to be – the only source of income. So not having those six months of backing, I could have been in a really bad situation.
But thankfully, we built those up. I got my broker’s license, we’re gonna go out and figure out how to bring in other revenue streams and really hone in on the sales side… But if we didn’t have something like that right now in a Coronavirus situation, you could really be up a creek without a paddle.
Theo Hicks: Oh yeah, seriously. Right now everyone who talked about having reserves and had their reserves are looking like absolute geniuses. Before I got into the question, there was one thing I was thinking about -this is just me coming up with weird ideas… I was looking out my window and I saw into my neighbor’s office, and how obviously is working from home right now… And the office is set up for one person, but there’s two people in there; it just kind of looked really awkward and uncomfortable…
So I was wondering if anyone out there, any short-term rental people – if it’s even allowed – could rent out their house or rooms in their house as makeshift offices for people, so they’re not stuck at home… If they have to be on phone calls all day, they’re not hiding out in the bathroom with the water running, so they can’t hear the kids screaming in the background… So just an idea; I’m not sure exactly how that would work, or if it’s even legal, based off of the self-quarantining and stay-at-home [unintelligible [00:12:09].05] and whatnot… But just an idea that someone could possibly run with and… Give me credit for.
Joe Prillaman: [laughs] That’s the stuff, you’ve got to be creative in a market like this. When you have volatility, you have uncertainty, you’ve gotta go out of your way to make it happen. And the great part about doing real estate is it’s all about solving problems and helping people. It’s all about the people here. That is gonna carry past this minor dip in the craziness. Because it’s gonna get hard, and it’s all about solving those problems and coming out the other side, and helping other people do it.
I’m a huge proponent of helping other people get into real estate, but they’ve gotta understand that the reason we’re so conservative on our numbers, the reason that we’re all about making emergency funds important is for situations like this. And sure, this one’s a lot worse than anything that we ever expected, but that’s why we’re so conservative with our numbers.
Theo Hicks: Oh yeah, absolutely. Alright, Joe, what is your best real estate investing advice ever? And I think based off of our conversation I know the answer to this… But if you wanna repeat it again, you can; of you can come up with something else.
Joe Prillaman: Yeah, have adequate cash reserves… But I’d also say that probably the best advice is consistency, in my opinion. Being consistent. Go out and meet as many people as you can. You reputation will always proceed you in this business. And tell everyone you know what you’re doing. It’s all about being consistent, and that includes being consistent with your emergency funds. Make sure you have them.
Theo Hicks: Alright, Joe, are you ready for the Best Ever Lightning Round?
Joe Prillaman: Let’s do this!
Theo Hicks: Okay. First, a quick word from our sponsor.
Theo Hicks: Alrighty, Joe, what is the best ever book you’ve recently read?
Joe Prillaman: Ego is the enemy, I’d say, by Ryan Holiday. Great book.
Theo Hicks: Yeah. I actually read that one about a year, a year-and-a-half ago. If your business were to collapse today, what would you do next?
Joe Prillaman: I would start a podcast in a niche type sales.
Theo Hicks: Besides your first deal and your last deal, what is the best ever deal you’ve done?
Joe Prillaman: First deal and the last deal, the best ever deal… Okay. So the best ever deal I did was an off-market single-family home in Fayetteville. It was a 4-bedroom/2-bath home down the street from one of the properties I own. I cold-called the owner out of the blue, she told me she had been wanting to sell it and couldn’t sell it, and two weeks later we had a great property under contract and closed. I ended up paying 61k for it. She was tickled pink, happy as can be to sell it, and it appraised for 97k.
Theo Hicks: What is the best ever way you like to give back?
Joe Prillaman: I’m really big on teaching other people how to do this. We host a meetup here in Wilmington, which is right outside of Carolina Beach, and since we’ve started (my wife and I) doing the house-hack, two more of our really great friends moved in Carolina Beach, doing the same thing. Hopefully they have adequate cash reserves right now… Also, we love giving back to our local church and volunteering.
Theo Hicks: And then lastly, what is the best ever place to reach you?
Joe Prillaman: Best place to reach me is through email at joe.prillaman [at] anchoredinvesting.com. Or find me on Bigger Pockets.
Theo Hicks: Alright, Joe, I really appreciate you coming on the show today to talk to us about your response to the Coronavirus. I think this is going to be obviously very topical right now, but I think what you’re doing is something that can be applied to – or should be applied to – everyone’s real estate investing business from now until whenever real estate investing (if ever) goes away… And that is to have adequate cash reserves.
You talked about how for your short-term Airbnb type rentals the goals is to have six months of bills covered, and then for your longer-term you wanna have 20k for every five doors, so 4k per door.
You talked about how you created this emergency fund, which is to take the income from all of your properties, and rather than reinvesting that back into the properties or paying yourself, taking a large portion of that and apply it to this emergency fund until you’ve reached your six months or 20k per door. You mentioned that you were living off of your W-2 income, and once you hit that number, you left that job.
You also mentioned that because you were doing the short-term rentals Airbnb in Carolina Beach, just yesterday (March 24th, 2020) they basically banished anything that has a lease of under 90 days… So obviously that affects your short-term rentals. You talked about how the first thought that you had was to get longer-term tenants, but since we are entering the most profitable months for Airbnbs (now through October), you decided that that’s probably not the best approach, because if it does go away in the next few months, then you’re gonna be losing out on all that summer money.
So the next thing you did was try to figure out how to generate revenue from these units. You called hospitals to see if they need to use rentals as quarantine units, you are marketing them as self-quarantine for people to generate income… And then you also explored using the units as staging units, or for family photos. Then you also mentioned on the other end the expense, and you went through all of your processes and systems to see where money is going out and see what you can get rid of, and one example you gave was canceling all of your subscriptions.
Then you gave your best ever advice, which was 1) to be consistent, meet as many people as you can, tell everyone you know what you are doing, and then be consistent with your cash reserves, which was your other best ever advice for this Covid response, as well as just general real estate investing fundamentals.
Again, I really appreciate you coming on today and talking about your journey, and – since you’ve got those reserves, I know it’s gonna work out for you. Others out there, hopefully you’ve got those cash reserves as well. Stay safe, have a best ever day, and we will talk to you tomorrow.