Will has been a real estate investor for the past 3 years and has a portfolio of 23 properties all focusing on long term rentals. Will shares how his long term rentals have been impacted by the coronavirus pandemic. He shares the different plans he has in place to collect rent from his tenants and to make sure he helps them out at the same time.
Will Fraser Real Estate Background:
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- A full-time real estate broker
- 3 years of real estate experience
- His portfolio consists of 23 properties, 4 he personally owns
- From Oklahoma City, OK
- Say hi to him at: will@craftsmanre.com
Best Ever Tweet:
“This gives me an opportunity to build a strong and unique relationship with some of my tenants that I wouldn’t have the ability to do otherwise.” – Will Fraser
TRANSCRIPTION
Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. My name is Theo Hicks, I’m the host today, and today we’ll be speaking with Will Fraser. Will, how are you doing today?
Will Fraser: Theo, I’m doing great, man. Enjoying life here, and glad to be on the show. Thanks for the opportunity.
Theo Hicks: Oh, absolutely, and thank you for joining us. Today, we are going to be talking about how the Coronavirus is impacting Will’s business. Before we get into that, let’s hear about Will’s background. He is a full-time real estate broker. He just hit three years of real estate experience.
His portfolio consists of 23 properties, four of which he personally owns. He is from Oklahoma City, Oklahoma, and you can say hi to him at Will@CraftsmanRE.com. Will, do you mind providing us with a little more information about your background and what you are focused on today?
Will Fraser: Yeah, absolutely, man. Well, I took a circuitous path to real estate, like all non-traditional real estate investors did. I studied biochemistry, and that launched into a job overseas, which after I got deported landed me in Oklahoma City. I worked with a startup that was selling things to real estate agents. I realized that most real estate agents, respectively speaking, would not know the difference between a small dark place and a hole in the ground. And what I saw was I’ve got some skills that might mesh well with real estate, so let’s give this a shot.
One of my early clients was a real estate investor. So I saw some of the deals that he was doing, and I was like “Man, that really doesn’t seem that hard.” And I started just kind of emulating what he was doing. Little by little, that grew into what I’m doing today. I’m a residential real estate agent that helps people buy and sell their personal homes. I help investors buy and sell investment homes, and then I also manage my own portfolio that I have… Some personally, like you said earlier, and some with partners.
Theo Hicks: You said you own four yourself, and then 23 – are those JVs?
Will Fraser: Yeah, what we did is we started out with a JV agreement, and then we started buying in an LLC that we jointly own. But the first batch of 15 properties were purchased with my business in a JV agreement. And then as that relationship grew, we were all going forward more confidently, and then we saw that “Hey, this is something we’d really like to scale together.”
Theo Hicks: Okay, and then are those single-family homes duplexes, triplexes…?
Will Fraser: There are two fourplexes, a triplex, about ten duplexes, and then the balance, our single-family.
Theo Hicks: Okay, and they’re all rentals.
Will Fraser: Yeah, that’s right.
Theo Hicks: Okay, perfect. And those are long-term, not short-term.
Will Fraser: Right. They’re all long-term. One of them – we leased it out to someone who’s Airbnb-ing it. We love getting to partner with other investors and creating win-wins. Somebody came to us and wanted to do an Airbnb in Oklahoma City, and we said “Hey, we’ve got a property that would actually work well for that.” So that’s one of them. So it’s kind of a mixture… It’s a long-term rental for us, but a short-term rental for our tenant.
Theo Hicks: Okay, perfect. So I guess the first question that I’ll lead with, with today being the first of the month that we’re recording this, is are you seeing any issues with rent collections from the Coronavirus on those long-term rentals?
Will Fraser: Definitely. And I think that there’s some of what we could have known is gonna come… Just what I would call the ostrich approach, of tenants burying their heads in the ground and pretending that there’s not a problem, and then you don’t see that rent come in on the first, you don’t see it coming on the second or third… So we’re already seeing some of that. But a lot of what I’ve been seeing that is surprising is tenants reaching out within the last three days to let me know that they’ve been furloughed, their hours have been cut, or they’re struggling… I’ve got a couple tenants that are in the oil and gas field right now, and they’re letting me know in advance “Hey, I’m paying my rent this month, but I just wanted to let you know I don’t know how long I can continue this.” I’ve been more encouraged by those than the people that I know are doing an ostrich right now.
But yeah, I think that everything we’re seeing right now is what we expected to see, but with a little more of the avoidance on the tenant side.
Theo Hicks: Okay. So for people who, as you mentioned, reached out, said that they’ve had some sort of financial hardship, they’re gonna pay rent this month, but they don’t know how long they can keep that up – do you have any plans on what you are going to do if it gets to the point where they can’t pay the full rent?
Will Fraser: Yeah, that’s a great question. What I’ve discussed is a few different things – one, if they want to pay by credit card, I will eat the credit card fees; so I’ll allow them to put it on a credit card. I don’t encourage that as a Band-Aid, but I do know that credit card companies are offering some forgiveness platforms… That, frankly speaking, they can do because of their size, and I can’t do, because of my size. So I will offer that.
Then another thing that I’m offering is the ability to pay incrementally, and then amortize the balance that’s not paid over the rest of their lease. So with a tenant of mine that’s in oil and gas, I know that if he can skip a month next month, it’s going to put him having more cash on hand to weather a storm… Because he’s looking at Covid-19 and the shutdown – that’s definitely impacting the total economy; and oil and gas is — I have literally just filled up for 99 cents a gallon. That is crazy.
Theo Hicks: Wow…
Will Fraser: Yeah, it was absurd. Like, can we store this stuff, and flip it? [laughs] No, we can’t. But for him, he and I both acknowledged that “Hey, if you can skip next month and I don’t hit you with a late fee, or even a potential eviction”, then he can hold that cash and be a little more resilient in the face of an impending however many months of down… But we can amortize what he didn’t pay over the remainder of his 15 months left on his lease. And he felt like that was a really gracious thing.
He has proven himself as a tenant that communicates honestly and stands by his word, so I wanna be understanding and do the same thing for him.
Theo Hicks: That was a good transition with another question I had… So you’ve got, let’s just say, ten tenants reach out to you and say that “I’ve been furloughed, my hours have been cut, I lost my job, and I’m not gonna be able to pay rent this month.” Do you just take that at face value, or do you ask for some sort of additional documentation to confirm that what they’re saying is true?
The reason why I ask is because I would imagine that with the [unintelligible [00:07:56].10] evictions, people might take advantage of that and just claim that they’ve lost their job when they really haven’t. I was wondering if you’re doing anything extra to confirm, like requiring a financial hardship letter, or anything like that.
Will Fraser: That’s a great question. At this point I’m not, other than just taking note of who their employer is, and then asking some other people… Because Oklahoma City, honestly, is not that big of a place. So if someone works at Dell and I hear that they’ve been furloughed, that’s pretty easy to confirm through the grapevine… So just taking note of that.
But at this point I’m not asking for any of those things, and the idea being with tenants that have already proven themselves to be valuable – I hesitate to say valuable or invaluable, but ones that showed the right kind of character and communication tendencies, I wanna come alongside them and extend a trust that should be reciprocated in the months and years to come.
So it’s an opportunity to grab a depth relationally that we’re not gonna get otherwise in a tenant/landlord relationship, that should be great for the years to come. So that’s my idea of extending that trust… But for sure, it’s gonna be manipulated, and I’ve already had tenants reaching out, saying “Hey, I heard you don’t have to pay your mortgage, so are you just trying to play it all close to the chest and get us to pay, even though you don’t have to pay?” Like, hey, that was the governor of New Jersey, and the last time I checked, he’s not the governor of Oklahoma.
But there’s a lot of misinformation out there. It gives us a good opportunity to kind of level up and just call a spade a spade. What I told that tenant is “The moment my mortgage is forgiven, I will pay that forward.” Because there’s a reason — if the government froze all principal, interest, taxes, insurance and repairs and maintenance, there’s a real reason. So it would be in keeping with that to say “Hey tenant, you don’t need to pay this month, because I don’t need to pay.”
But as it is, principal and interest are still due, taxes are still due, insurance is still due, and tenants are calling me more than ever to do repairs and maintenance, because they’re home more than ever. So explaining that to people, “Hey, do you see why all these things are still in play? Which is why we need to collect.” And then a secondary conversation is if for some reason you legitimately can’t pay and we’re prioritizing what we have to pay to make sense, then that’s real, too.
The oil and gas guy – he legitimately is having zero income right now. So yeah, I know no one’s calling you to come do whatever he does in the oil and gas, so that has a real effect… So I wanna live with him in an understanding way, but also communicate very real, so that they can understand the landlord’s side… Because I think a lot of times tenants live in this world as if being a tenant is somehow different than owning a house… Let me flesh that out a little bit. I had a tenant call and go berserk because they didn’t have hot water one night. And at the exact same time I didn’t have hot water at my house, because my hot water heater was out. It took my four days to get my own hot water heater replaced, yet the tenant’s expectation was that it was completely unacceptable for them to not have hot water for two hours. That’s not true if you own the house, so why on earth would you expect it to be true if you are a tenant in a house?
Anyway, so educating tenants on what reality is – we have an opportunity to do that now, that we don’t have day to day.
Theo Hicks: Yeah, and I think a lot of the things you said — I think one of the key advantages people who self-manage will have during this situation, than people who have a third-party company… They can’t have those conversations, because they don’t’ have a relationship with their residents. So I think a lot of the stuff you’re saying right now definitely applies to people who self-manage.
From other conversations I’ve had with people who self-manage – they’re saying that they’re having it much smoother (as smooth as it could possibly be, I guess) than third-parties.
I have a couple other questions… This is taking a different track, but you have partners on some of your deals – how did those conversations go? At what point did you guys realize that this was something that was gonna have an impact on your business? I’m just curious to see how those conversations went. I’m assuming — was everyone on the same page right away, did everyone come at the realization at the same time? Were there any budding heads? What’s it like being in partnerships during this situation?
Will Fraser: It was kind of an evolving situation, because they came to me as clients, typical real estate clients, looking to buy rental properties… And one of the things that I try to do with everyone is walk through a series of discovery questions, because there’s a lot of different investing philosophies. If you had two different people who say “I wanna invest in real estate”, but one of them means “I wanna make the big bucks in flipping” and the other means “I wanna buy properties that cash-flow and I wanna hold it for 27.5 years, and then keep swapping until we give our kids a huge gift” – that’s naturally gonna butt heads.
But a lot of people, when they hear about real estate investing and they really just get a hankering to get started, they come full of zeal, but not full of a lot of developed vision… So I try to walk everyone through the process of formulating — if you had a magic wand and you can wave it in ten years, in fifteen, in thirty years, what would be true of your real estate investments, and what role would you play in it?
As I started to do that with these guys, it just became evident that we were all looking at long-term wealth built through wise buy and hold investing. So I thought that was cool, that it had never occurred to us to partner until we started looking at specific deals… And what we’re seeing is the faster you can move on these deals, because the market has just been roaring in Oklahoma City, the better of a shot you have at actually taking it down.
So with them being out of town, with them being otherwise employed, and looking to deploy some of the capital that they generate into real estate… But me being a full-time real estate person, I was able to move a lot faster than they were, so we kept losing deals, because hey, there’s this gap.
So I had the idea – and I remember walking through one deal together, and the idea was “I can buy this and you can basically do hard money lending, or private money lending.” And option two was “You could buy this, and I broker it”, and then option three is “We buy this together.” And then they just kind of looked at me and were like “Huh. What would that one look like?” “I don’t know, let’s flesh it out.” So we just dove into the option of “We buy it together”, and we kicked around a bunch of ideas, and we saw that there was a synergy there that they were pleased with, and I was pleased with. So we tried it with one deal first, and then we grew that, and then it’s turned into — gosh, I think we said like 30 units off of that one.
Theo Hicks: Okay, thanks for sharing that. But now, more recently, you’ve had these partnerships, and you’re kind of going through a crisis… I’m just curious to see what those conversations are like. Are you guys having weekly calls to figure things out? Was there a couple people who didn’t think it was that big of a deal at first, while other people thought it was a big deal? Were there any issues at all? And if so, how did you get through them, or how are you getting through them?
Will Fraser: Yeah, we’re having about two calls a week – which partially is crisis and partially is we’re all sitting in a very different pace than we have, so we wanna take the opportunity to really lay the groundwork and communicate more… Because most of the time, the partners are all running at a million miles an hour in different directions.
But I think I was the one that was not taking it seriously at first, because I looked at it as “Hey, this is a coastal thing. We have very few cases in Oklahoma…” I don’t know if you noticed, but it’s not really a tourist destination, or an immigration hot spot… So typically, we’re not hit by the same things that affect New York and L.A.
So that kind of naivety was exposed by the partners, and we’re like “Hey, what are we gonna do when the tenants can’t pay?” I’m like, “Well, I don’t know that that’s gonna happen.” And our partnership – and I think this is in the nature of healthy partnerships, that really drives me to embrace them… Is when I was weak and short-sighted, my partners brought a seriousness that’s challenged me to step up and say “Okay, what are we going to do?” So we started diving deep into the numbers and saying “Okay, do we need to start having conversations with our lenders now?”, to say “Okay, when this happens and we can’t pay, what are we gonna do?” And we got to all get on solid ground with our approach…
And actually, things like that have given us an opportunity to go deeper in unifying our vision, which is going to continue to pay dividends… Because what we decided was “This presents us with an opportunity to grab credibility.” Because one of the things that we run into with the lending side is “Hey, you guys are relatively young and new, so we don’t know if we wanna continue to make [unintelligible [00:16:38].24] loans to you… So let’s weather it a little bit.”
So when you have something like this, where countless people who have been less disciplines are looking at it and they’re saying “Holy crap, we have no money here”, and they’re calling their banks, that creates a panic on the bank, and a stress on the bank. So when the bank calls us and says “Hey, are you gonna be able to make your payments?” and we do every time, on time, then we’re establishing credibility in the fox hole, like the war time, that is going to pay dividends in the peace time… But the partners and I, through these calls and through running stress tests and analyses, we’ve decided “Hey, we’ve got a lot that we can give up before we don’t pay the bank. Hey, we’re gonna give up personal profit.”
So we started going through that priority list of “How do we honor the commitments we’ve made, and establish credibility in this time, that’s gonna pay dividends in the peace time?” So I think it’s been a cool opportunity for that, and I’m thankful for my partners bringing the seriousness that I lacked, because it’s made us a lot more mature as an investing group.
Theo Hicks: Okay. Well, is there anything else that we haven’t talked about already, as it relates to the Coronavirus and your business, that you wanna mention before we sign off?
Will Fraser: I think the importance of communicating ahead of time. And I’m gonna say this as a reminder to myself. When we can see things coming, it does everyone better to communicate up front, as opposed to — I mean, when we ostrich and we stick our heads in the ground, and we’re like “Maybe it will go away”, the problems usually don’t go away without being resolved.
So let’s take these opportunities to have our partnership discussions, to have discussions with our vendors and our tenants, and our landlords if we’re tenants, and call a spade a spade, and talk about reality, and let’s wrestle through those hard things now… Because it’s gonna establish better rapport and better credibility.
Theo Hicks: Alright, Will, we really appreciate you taking the time to come on the show today, and extra-appreciative for you talking about how you are dealing with the Coronavirus right now… So just to kind of recap what we’ve talked about – we’ve talked about rent collections; you’ve got a mixture of 4, 3, 2-units, and then a single-family home that are long-term rentals. We’ve talked about how you’ve actually had tenants reaching out to you, letting you know that they’ve hit that financial hardship, that they’ll be able to pay rent this month, but weren’t totally sure how long they’d be able to pay rent… So a few plans you have in place is let them pay with their credit card, and eat that credit card fee, although that’s not something that you’re going to encourage. Then allow people to pay their rent incrementally, and then amortize that over the rest of their lease.
You also mentioned that if you live in a smaller areas, it’s much easier to confirm that someone’s telling you the truth. If someone mentions they worked at Dell, and claim that they’ve been laid off and you know that Dell are laying people off, then you’re able to confirm if they’re telling you the truth.
We also talked about how you approached your partnerships, and how you do two calls a week right now, and that you were proactively planning ahead of time, you and your partners, about what to do if your tenants cannot pay rent. You also mentioned something I thought was really wise, which was that this is a great opportunity to build credibility with your lender if you’re able to make your payments in full and on time. Once things start to come back to normal and you want to buy properties from people who maybe weren’t paying their mortgage payments on time, then you can get financing from your bank, because of all the credibility you’ve built up…
And then lastly, you talked about the importance of communicating ahead of time, as opposed to the ostrich approach that you mentioned, of sticking your head in the ground. That applies to the residents, as well as the investors, too.
Again, I really appreciate you coming on the show, Will. Best Ever listeners, as always, thank you for listening. Everyone stay safe, have a best ever day, and we will talk to you tomorrow.
Will Fraser: Thanks, Theo. Have a good one, man.
