Tom Cruz 0:00
That’s one another huge advantage of the section eight program is with a regular tenant, you have no recourse they break a lease you have to sue them or a victim with Section Eight you just go to their housing counselor let them know how they broke the lease and one email or phone call from them. It puts the fear of God in them they don’t want to lose the housing assistance for life.
Unknown Speaker 0:15
Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant we are here to learn from the experts.
J Darrin Gross 0:35
Welcome to Commercial real Estate Pro Networks CRE PN Radio. Thanks for joining us. My name is J Darrin gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.
Today my guest is Tom Cruz. Tom is a 33 year old real estate investor based in Wilmington, North Carolina. After graduating from UNC W. Tom started wholesaling real estate and then graduated to find single small multifamily properties. And in just a minute, we’re going to speak with Tom about Section Eight real estate investing.
But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help us out. You can like, share and subscribe. And as always, we encourage you to leave a comment, we’d love to hear from our listeners. Also, if you’d like to see how handsome Our guests are, be sure to check out our YouTube channel. You can find us on YouTube at Commercial Real Estate Pro Network. And while you’re there, please subscribe. With that, I want to welcome my guest, Tom, welcome to CRE PN Radio.
Tom Cruz 1:57
Appreciate you having me on.
J Darrin Gross 1:59
Well, I’m grateful for you to be here and looking forward to our talk. Yeah, before we get started, if you could take just a minute and share with listeners a little bit more about your background.
Tom Cruz 2:09
Sure, yeah, my name is Tom Cruise. I’m originally from Rio de Janeiro, Brazil. I grew up in North Carolina and started investing when I graduated from college, University of North Carolina in Wilmington. And I started with wholesaling real estate, buying property or putting properties under contract and then flipping them to investors that wanted to flip the properties or you know, rent them out long term. And that’s how I essentially got my start and started building down payments for what would move into single family and also small multifamily real estate investments for the long term. I’ve always wanted to do buy and hold always wanted the whole, you know, passive income aspect. And I just knew that, you know, doing wholesaling or doing flips or doing air b&b is wasn’t the way so I got into then I accidentally fell into section eight.
J Darrin Gross 2:58
So your portfolio. Now how many units do you currently have?
Tom Cruz 3:03
Yeah, I’m right under 400, single family and small multifamily. When I say small multifamily, I mean duplexes, triplexes, and quads anything less than four units. I don’t do any apartment complexes or large scale multifamily. It just not very conducive for Section eight or HUD. So I focus mostly on single families in the same zip code. And I have most of my holdings are in North Carolina. And then I also am buying in Ohio, Tennessee and South Carolina.
J Darrin Gross 3:29
Got it. Well that’s quite impressive. How many years? Have you been investing?
Tom Cruz 3:34
A little over eight years. So I started when I was a couple years after I graduated from college. So I was 24 is when I really started wholesaling quickly, and then just over the last eight, nine years really scaled up from there.
J Darrin Gross 3:49
That’s awesome. Well, thank you. Well, let’s talk about this. The section eight is a term that I think most everybody’s heard of correct. But I would doubt that everybody knows exactly what it is or how it works, right? If you could start with just kind of defining what it is and kind of get into how it works. Sure.
Tom Cruz 4:14
In a nutshell, Section Eight is a federal program, the US government will pay the rent directly to the landlord for economically disadvantaged people that are pretty much at the poverty line or below. So if you get a rent, for example, at $1,400 a month for your unit, Section Eight will pay up to 100% of it. In some instances, if the tenant has you know, a part time job or full time job, then they might have a portion of the rent as well, they might pay two or 300 bucks out of that 1400 But for the most part, they pay the lion’s share of the rent. They stay for a much longer period. That’s what I really like about Section Eight is there’s almost no turnover with it. So yeah, that’s that’s essentially what the program is
J Darrin Gross 4:54
Got it. And how did you get attracted to it?
Tom Cruz 4:57
Yeah, so like I mentioned before I fell into it accident, I was buying more middle of the road, you know B C class properties 170 $180,000 properties. And I just found that it just sucked up too much downpayment money. So I started going, you know, sub $100,000. And I found a unit, my first unit that I got into with Section Eight, it was 55 grand, they had a tenant in there at $1,350 per month on a three bedroom unit. And I was like, Man, this return is insane. So I went checked it out, I met the tenants walk through the property, everything looked normal, up until this point already had dozens of units. So I kind of knew what to look for. And then the day after closing, I get a call from the seller. And he’s like, Hey, man, we need to switch over to Section Eight direct deposits. And I was like, What do you mean? It’s like, well, it’s essentially a property that you just bought. And of course, that was never disclosed to me, you know, when I bought the property, so he’s like, how did you think I was getting 1350 and rent on a $55,000 unit? I was like, Okay, well, that makes sense. Now. So that’s kind of where the light bulb moment hit. I mean, I had a little bit of a panic figure inspections, figuring out, you know, direct deposits, figuring out how things work with with the program, but it’s really just a payment method, you know, regular pennant tenants pay with a credit card or money order every month, and Section Eight pays with. With government funds, that’s really the only difference outside of that you have annual inspections. I mean, that’s pretty much an hour every year. So it’s not, it’s not that difficult thing where most people mess up on is getting the tenant and putting that tenant in the property. And that’s resection A gets all the misconceptions and kind of the bad rap is at that point.
J Darrin Gross 6:31
Yeah, lets the let’s talk a little bit about that. I mean, you mentioned that the the rent gets paid, it’s instead of coming from the tenant, it’s coming from. Is it the federal government? Or is it a local authority, like a housing authority that receives the funds?
Tom Cruz 6:45
J Darrin Gross 6:45
the Federal that? Yeah.
Tom Cruz 6:47
So it’s the program is funded. Federally, but you’re right. It’s it the actual payments physically come from the local housing authority on a county level? That’s correct.
J Darrin Gross 6:57
Okay. And then the inspections, like you said, They’re annually and they, they, somebody schedules a time and goes through and make certain that everything’s what’s safe, is that pretty much?
Tom Cruz 7:06
Yeah, I call it the three S’s is safe, sanitary, and structural, they come Sure, make sure there’s no debris, or there’s no massive, you know, foundation issues, and there’s no roof issues. And then, as far as inside, make sure everything works, appliances, work, utilities are on. And then there’s more nuances to it. For example, if there’s a crack tile, even if it might be a hairline fracture, they would consider it a tripping risk, they might make you replace that one tile. So it’s just just a matter of experiencing going through it to understand what they look for. But once you pass it, you just, you know, kind of sail on through it for the next year. And we also have two inspections of our own. So we always are proactive to make sure that we’re gonna pass that inspection when it comes up.
J Darrin Gross 7:50
Yeah, I was gonna say I’ve had a little bit of experience with Section Eight, where my tenants was a section eight and, and I always felt like that inspection that was performed by the Housing Authority was kind of like an enforcer for the, for the tenant, because they, you know, they the tenants value having that section eight, that’s, that’s, you know, what’s paying for their housing, and not wanting to lose that, right? Have you found that to be most mostly the case? Or have you found otherwise?
Tom Cruz 8:21
No I mean it’s both. So when another huge advantage of the section eight program is with a regular tenant, you have no recourse, they break a lease, you have to sue them or a victim with Section Eight, you just go to their housing counselor, let them know how they broke the lease, and one email or phone call from them, I put the fear of God in them, they don’t want to lose the housing assistance for life. And if they lose it, it really is for life. I mean, it’s based on your social security number, they put it in their system, and you get removed from the program. I’ve seen tenants lose their vouchers forever. So the inspections yes, they’re there as much for the tenant as they are for us. It just to make sure that especially you know, nine times out of 10 There’s kids involved in the property, they want to make sure there’s no lead base paint or asbestos or anything that’s gonna be a hazard. So but for the most part, once you get a good relationship with that inspector, and you understand what they’re looking for in the tenant, everybody knows that inspections coming. It’s not some surprise thing. So we’re always prepared and you know, it’s over 95% of time on annual inspections. We’re passing them.
J Darrin Gross 9:13
Got it. In you know, you talked a little bit about the tenants the way they qualify at or below the poverty line as far as income goes. Is there not a an allowance based on number of children and did not kind of ramp up if you have three kids? It’s more than one kid? Kind of?
Tom Cruz 9:36
Yes, they do have a formula they have it’s a very convoluted formula. They don’t make it public but they tell you what goes into it. A big part of it is number of dependents so kids and then the other part is disability status, you know, they’re disabled or retired military because the VA Veterans Affair program goes also through the section eight program safe housing guidelines and everything. So we’ve had, you know, veterans that are on Section eight now They still have the same section inspections. So it’s based on that it’s also based on their income, you know, if they are on 100% disability with, that’s the only income they get, then section, it’s gonna be paying a much higher percentage of their portion because they don’t have enough to pay it on their own right. And then you have utilities gets thrown into that. If they have, for example, I’ve seen, you know, to people like a couple both full time jobs and making 3100, you know, $3,000, as a couple, they’re under the poverty line. But for Section Eight, they still make enough where they would be paying a big portion of the rent, right? So on a $1,400 rent, they might pay 500 bucks, and Section Eight will pay 900. So that it every tenant is different. You can have the same house and five tenants internet five separate numbers every single time from them.
J Darrin Gross 10:44
Right. As far as setting the rent, how does the rent Get set, because I, at least what I thought I heard you to say was that the amount that they’re going to qualify for an assistance is going to vary based on their own particular.
Tom Cruz 10:58
Correct. So the way that we do that is we look out, it’s all published. So you can just Google FMR, HUD on Google, and it’s going to show you exactly based on the county or the zip code, what they’re paying in that area. So we look at that number, and we just generally go between 10 and 15%. Above it, that’s what we advertise the run out. So if it’s at 1200 bucks, we’re putting it up there for 1300 1350. And then we’ll just negotiate down from there, because the Housing Authority, they will waive it, that number that you see on that FMR HUD site is not set in stone, if you have a tenant that’s been looking for housing for three months, and they’re desperate, and they can’t find it, and they have three kids, and they’re homeless. And you know, they’re they’re essentially putting pressure on the housing authority we found where they’ll just say, hey, look, you know, we can do 1300 foot, you know, we can do 1250, you go on the HUD website, it’s listed at 1200. So there are circumstances where they will pay above that, but the thing is, on a $50,000.03 bedroom house in Akron, Ohio, you know, that rent might be 700 bucks. But if you go to section eight that rents 1100 all day long. So that’s the big advantage is that arbitrage between the low purchase price and the high rent, where section eight really, you know, has an advantage there?
J Darrin Gross 12:06
Yeah, I guess, again, based on the need of the tenant is how that that
Tom Cruz 12:10
it is in that’s also actually a question that is part of it. So so in the event that there they don’t qualify for as high of rent, you have a chance to back out of that point, you know, we declined tenants all the time, hey, look, we were at 1400 rent, the publish FMR is 1300. You know, we’ll come down to 1300. And they’ll say, hey, look, sorry, they make too much money, or, you know, they don’t have enough dependents or whatever the reason, we can only approve 1100. Okay, no problem, we’ll just go to the next tenant. And that’s their huge advantage, you can call any housing authority in the country right now, say that you want to get on the section eight waiting list, they’re gonna tell you, you know, 234 years, depending on where you are. So there’s a huge list of tenants. And it just it’s never ending?
J Darrin Gross 12:50
Well, let’s talk about that real quick. The demand. So the demand for housing is infinite. Yeah, you know, the, how does a landlord get plugged into the system so that they’re recognized? Yeah, opportunity.
Tom Cruz 13:08
Yeah, it’s simply a matter of calling the housing authority in the area that you’re investing in and telling them that you want to be a section eight landlord, they have a forum, you send them a voided check of where you want the rent to be sent to, and then they approve you normally, two to three day process. And then from that point on, once you have a property that’s ready for inspection, you send it over to them, they put it in their system, depending on the county, I mean, as far as how they notify the tenants, like locally, in Wilmington, they literally just have a bulletin board in the office, they add an add the address, and then people go in there, they see it, they have my or my property managers phone number, and they’ll call them but I have some counties like in Tennessee, and they have a straight up MailChimp list. I mean, they have an email list where every week they’ll send out you know, all new properties that are that are online. So it depends on on where you are, how, how advanced or backwards they are.
J Darrin Gross 13:57
And the caliber of tenants you’ve mentioned, obviously veterans, you know, people basically below the poverty line, but it sounds like a lot of the people that you’ve identified are primarily working poor, I guess what I would say based on they have jobs, but they’re just they’re not able to meet the guidelines. Yeah, whatever the housing needs are in the in the community. Do you find that most of the tenants are? I mean, do you have or have you had any issues with tenants? I mean, I have always been kind of curious. My experience, my personal experience was great. I mean, these people stayed until their kids graduated from you know, and in the rent increases were were always at or above market, based on on their need. But I’m kind of curious, you know, when I talk to people that haven’t had an experience about Section Eight, a lot of them have kind of uh huh, you know, yeah, but that I don’t know if I want to do that. Have you can you kind of describe your kind of range of experience? Or is it all? Yeah,
Tom Cruz 15:04
and this is the number one reason why we’re just crushing it so hard with Section Eight is because of this misconception, right people before even accepting it have all these you know notions in their head as to how it works. So with Section Eight, the tenant is like any other tenant it until you screen a tenant, you don’t know how good they are, right? So doesn’t matter if they’re paying with Section Eight federal funds, or if they’re paying, you know, out of pocket. So we screen them the same way we check their background, we check their eviction, we check their credit, we check income verification, we check landlord verification. And we also go as far as having our property manager go to where they’re currently living and seeing how they’re living there. So the risk that we have on each tenant is virtually zero, I mean, outside, the only time we ever have a problem is if we place a tenant, and then they get a new boyfriend, or they get a new partner, or we get you know, a business partner that’s out living with whatever the reason, um, it’s when there’s out it kind of is unknown variables that come in. But that can happen with any tenant. So that’s where the program gets as bad rap, because I talked to literally hundreds of investors every month through my coaching program, and just through people that are just wanting, you know, on social media, and what happens is this, they hear that the rent is guaranteed, so the tenant comes to them, they waive, you know, $1,500 cash in their face for a deposit. And they’re like, Well, I’m already going to get my rent every month. So let me just let them in, let’s sign a lease. And then two months later, you know, they turn the house into a trap house or something drugs out of it, the cops are there every day, and they’re like, Oh, I hate section eight. If you don’t screen the tenants, it doesn’t matter what program they’re on what subsidy they’re on, if they’re regular or not, you’re going to have problems, you know, it just you’re you’re, you’re playing Russian roulette at that point with with your 100,000 or $200,000 asset. So that’s how we’re able to stabilize and really scale, you know, my portfolio was making sure the tenants are all really high quality. And yes, you might have to go through 567 tenants before you get there. But it doesn’t matter. I mean, the the number, if I put a listing right now on Section Eight, locally, I’ll have I would say, by the end of the week, on Friday, at least 25 calls. And then we just have a process, you know, we send them a link, they fill out an application, and then it’s all automated from there, they even even the decline email will be automated if we decided to climb them. So it’s just a matter of finding quality tenants just like you have, like you’ve seen with yours. Every year, the rent increase gets automatically applied once you request it. That gets direct deposited, you have like you said, you know, annual inspections that are known, you just go by there, make sure that everything is good. And then it just keep going.
J Darrin Gross 17:33
Oh, what do you find? Is the average length of stay? Is it longer and longer than normal market? Or?
Tom Cruz 17:43
Oh, yeah, so the way that we do it, um, we found that most of these tenants stay for so long that we don’t even do annual leases anymore. We do five year leases, and tenant sign at no problem. So we’re signing three five year leases on pretty much all of our tenants now with Section eight. And they’re staying. I mean, like I said, I’ve been doing this for eight years on Section eight for six years, and I still have tenants from my original properties that are still there. The only reason I see them leaving is a if they die, especially the elderly ones. That’s one option. And two is if they get older and they move away from to be closer to family. Occasionally, you’ll get an incarceration you know, especially if you have other people that come into the house like I mentioned before, and then even in Section Eight, they will still continue to pay for like three months depending on their situation until it you know, I think that’s waiting trial or that three formerly something has to formally happened before they cut their their that’d be convicted. So that could take months. So we’ve had tenants waiting trial haven’t been convicted, empty house in Section A continues to pay. So that’s all part of it.
J Darrin Gross 18:45
Right. Now, and even with that, I would assume that if you do have a vacancy, and you’re known landlord with the housing authority, yeah, a call to them can republish your unit. Oh, yeah. Yeah. So on, you know, basically the kind of the pros and cons we just talked about, I mean, you have the, the kind of guaranteed rent quality of tenant equal to or as, you know, equal to a market rate tenant long you screen them properly. Exactly. Sounds like you mentioned a five year lease, which I’m guessing any landlord to be excited to have do you build an increases into that
Tom Cruz 19:30
we have built in 5% increases, and that’s just a high increase that we put in there. Normally, it’s 234 percent, but we’re reserved the right to increase it 5% And to the tenant, it doesn’t matter because the Housing Authority is normally going to pick up that difference. So if the rent increases $100, their increase might happen. 1520 bucks might be 20% of that overall increase. So it’s never enough to really rock the boat with the tenant. So you know, we’re able to do that consistently without any issues.
J Darrin Gross 20:00
But what about do you face any issues with lenders or insurance companies when you are focusing on Section Eight rentals,
Tom Cruz 20:12
Fair Housing Act, they can’t have any discrimination based on the type of tenant you put in there. But anything, no lenders love it. I’ve gotten preferred terms when I’ve told them that it’s going to be affordable housing and low income section eight tenants, because they get credits from, you know, I think it’s on the federal level, you know, if they have regulators in there, they have a certain amount of percentage of
J Darrin Gross 20:32
Yeah, LIHTC, low income housing tax credit. Yeah,
Tom Cruz 20:35
Exactly. They get those for being able to borrow up against those types of assets. So they very much like those, when we’re doing that, and they know the rents guaranteed, so the risk becomes that much lower, you know, as me as a borrower on the insurance side, they don’t even know I mean, when I call my insurance agent at a new property, she doesn’t ask, Hey, is there going to be a subsidized tenant or not? It’s gonna be cool. How big is the house? How old is the house? You know, what are the updates on it? So now on, there’s no downside from vendors or any third parties about Section Eight?
J Darrin Gross 21:05
Yeah. On the insurance side of things, I just know that on some of the like, more apartment type policies and stuff, there’s usually a question of the tenants or they are market rate tenants or their, you know, low income or whatever. And it’s not like, it’s I think it’s more of just a screening thing. And it could be and I’ve not pressed the question, but I’m just wondering if the concern is a concentration of, you know, if you have one or two, or, you know, Section Eight spread out throughout a building, it’s probably considered a lesser risk. And if the whole building is
Tom Cruz 21:45
J Darrin Gross 21:45
Tom Cruz 21:46
Yeah, if you go into homogenized communities like that, where it’s 100%, section 8, and you know, then you have like these HUD buildings, where it’s, you know, essentially the projects where everyone is on the same Assistance Program. I’m sure there’s some, some questions about that, because I can see there being because just the wear and tear people are home all day long if they’re on assistance, and it just causes more risk in the property.
J Darrin Gross 22:05
Right, right. And, you know, speaking of which, you finding properties. You mentioned this one that you bought for 55, that rented for 1300. Is there any particular things you look for when looking to acquire a property that makes it a better section eight, potential rental or not?
Tom Cruz 22:29
Yeah, I mean, I have a pretty set criteria, I’m looking, you know, for three bedrooms, two baths under 1000 square feet. Normally, under 100, grand, I mean, anything under 100 grand that’s moving ready is going to cash flow, it’s impossible not to almost any county in the in the country, the rents are going to be too, too high, especially on three bedroom units for to not cashflow. And then you don’t have many expenses, especially if there’s a new roof, new HVAC, new water heater, I mean, you’re going to be good for at least 10 years, before you really have to worry about anything. So then it just comes down to tenant selection.
J Darrin Gross 23:04
So let me ask you this. And I don’t remember the specifics. But I remember having some sort of, of there was a, I don’t feel a wrinkle, but there was just some sort of condition. If I’m a current landlord, and I have a property and I have a tenant that is historically irregularly late, or there’s always a story of blah, blah, blah. Is that an option for me to encourage them to seek out section eight? And, you know, clearly, this isn’t working for you, you know, you, you need some help and paying your rent? Why don’t you go, you know, check out section 8, and see if they can help you, see if you qualify.
Tom Cruz 23:45
You can but the problem is the waiting list, they’re gonna be waiting years before to the point where you’re not gonna want to tolerate you know, it’s not this is this is a situation where you can be like, Hey, Tom, go call Housing Authority, get some free rent, and come back and see me it’s a whole process. I mean, you have to prove that you’ve been trying to get a job, you have to prove that you follow the law that you have to provide tax returns to provide everything in order to be considered for assistance. And then you have to wait, you know, for people to get off the program or for people to have available slots for it. So it’s as as great as that would be to say, hey, just go to this office, call this number, and then you’ll get free housing. It’s not that easy.
J Darrin Gross 24:22
No, I remember that. And it seems silly to even ask a question that I’m thinking about just based on what we talked about just the demand being so much and the pool of funds is not infinite. It’s the demand for the funds and the demands for housing. That’s, that’s, you know, infinite.
Tom Cruz 24:40
J Darrin Gross 24:41
And, you know, that’s, that’s just a continuum, or it just continues to be an issue. On I was gonna ask you about a you’d mentioned fair housing, right. So if there’s a a tenant that has A voucher, and they come and they see my, my property that’s for rent. And, you know, they they apply, there’s, there’s no way for me to refuse them as it if I’m if I have a if I have a unit for rent and they qualify in every way except that they’re their section 8, can I say no section 8 and my, my
Tom Cruz 25:25
You can that you can’t legally say no, you can discriminate based on the voucher type and there’s even some legislation now they’re wanting where it makes it even more difficult or could be illegal. But um, as far as we always advertise it, I always put vouchers accepted, and you know, they’re gonna get priority, we’re going to look at those applications first, right, because that’s our portfolio is comprised majority of subsidized properties. But um, but no, you can decline or accept based on on any reason as far as, as long as you’re screening everybody equally. You know what I mean? So as far as you’re holding the same standards for background checks, for as long as there’s an equal opportunity for everyone to get housing, then you’ll be fine. But as far as advertising and marketing it, I’m pretty sure you can’t discriminate based on how they’re paying.
J Darrin Gross 26:16
Yeah. Nice thing about it seems like there are those I see some sort of a, an ad that, you know, he says, I mean, people either say they do or they don’t, right. Yeah, I guess. And if they if they uniformly don’t get I guess I wouldn’t be discriminated. We just don’t that’s just not something we work with here. Yeah. So I get that. So you got 400 units. Now, what’s your, what’s your game plan for the next eight years are you looking to,
Tom Cruz 26:46
I’m trying to get to 1000 units. And then either because what I’m finding is I spoken to institutional buyers and hedge funds and REITs that would be interested in buying in most of them are between 500 and 1000 units is really what they what they want to see. So my my end goal is, you know, by the time of 40, the next seven years, pick up another five or 600 units, and either just sell out and sell the whole portfolio, most of my units are in opportunity zones. So by that point, most of my unit, most of these capital gains are going to evaporate. So I’ll tell them already by you know, by 10 years from that point, that’s the kind of the tipping point. So yeah, I mean, that’s that’s kind of the goal right now.
J Darrin Gross 27:24
And as far as a financing, do you find there is a journey, you mentioned that lenders are excited to have you is there any different requirements for down payments, or
Tom Cruz 27:34
now the same as a rental house, single family investment property, you’re gonna get between 85% 80% loan to value depending on the bank that you’re working with. I work with private lenders as well, I use a lot of other people’s money, you know, I’ll partner with people, they’ll bring half a million dollars, I’ll do the management of it, I’ll you know, I’ll do the financing, they bring the cash, there’s a lot of different creative ways that I’ve done in order to get units under my name. And then inevitably, two or three years later, after I stabilize a portfolio with Section Eight, I’ll do a cash out refinance by all my partners. And then I’ll keep the unit tell myself that’s how I ended up with foreign units by my I have no partners and I solely own 400. Is that’s because I’m always cashing them out. And, and they’ll either come back in, you know, at a later time and do more or, you know, they’ll reinvest and other assets.
J Darrin Gross 28:23
Got it? And are you as far as like, you’re lending? Are you doing? Man? I’m assuming it 400 units, you’ve got some sort of an entity, you’re not just Yeah.
Tom Cruz 28:35
Yeah, no, I’m buying under multiple LLC is okay, I’m not doing like one per LLC, that just gets so ridiculous. But I’ll do anywhere from 50 to 100 per LLC. And then if I have a new partnership, then it’s a new LLC. So I have, you know, scattered hierarchies of these LLCs. And it also depends, like, if I’m buying out of state, I’m using a property management company, right. So I don’t need to set up the property management LLC, just a holding LLC. So it totally varies, what I’m doing, who I’m doing it with, with how I set it up legally.
J Darrin Gross 29:04
Do you have a management company then that you control that manages all these are
Tom Cruz 29:09
locally? I do I have four full time managers here, majority of my holdings, I say over 300 units are in one zip code in Wilmington, North Carolina, and I have four full time managers dealing with those. And then the other 100 actually be a bit more than that right now. Are like I said, between three different states and I have property management companies for the most part on those.
J Darrin Gross 29:28
You see you have outside property management or do you manage them?
Tom Cruz 29:32
Yeah, yeah. Outside property management, if it’s out of state for the most part.
J Darrin Gross 29:37
Yeah, but your 300 Local you manage yourself and do your management copper.
Tom Cruz 29:42
Yeah, my management company with those with those full time managers.
J Darrin Gross 29:47
Got it. Well, that’s that’s definitely an impressive track record so far, and and, you know, an aggressive goal and I, you know, I don’t see anybody wouldn’t get there based on Sunday, it is
Tom Cruz 30:02
a constraint of inventory. That’s really the biggest, you know, thing holding you back, I mean, I would easily be able to get, you know, 40 or 50 units per month, if they were as consistently available as they were in 17 1819. Right now, it’s all post COVID. Everybody wants $100,000 for their shack. So it’s, that’s, that’s the biggest hold back right now.
J Darrin Gross 30:27
I get it, I get it. Well, hey, Tom, if we could, I’d like to shift gears here for a second. Sure. As I mentioned you before we started by day, I’m an insurance broker. Okay, and I work with my clients to assess risk, determine what to do with risk. And there’s a couple of strategies we typically, you know, look at, we first looked at see as a way to avoid the risk. If that’s not an option, we’ll see if we can minimize the risk. And when that’s not an option, as well, then we look see if we could transfer the risk. And that’s what an insurance policy is. And I like to ask my guests, if they can look at their own situation could be their clients, investors, tenants, you know, the section eight program, however you want to frame the question, but if you can identify what you consider to be the biggest risk, and for clarification, while I’m an insurance broker, I’m not necessarily looking for an insurance related answer. Okay. And so if you’re willing, I’d like to ask you, Tom Cruz,
Tom Cruz 31:34
J Darrin Gross 31:35
What is the BIGGEST RISK?
Tom Cruz 31:38
I would say the biggest risk in not even section eight housing, but just investment house air rental properties is going to be the tenant selection, because if you think about it, buying the property is very low risk, you can always refinance it, you can always sell it, you can always rent it, you’ll always have that demand there, especially if you’re buying affordable housing under 100. Grand right. But with a tenant, depending on where you’re buying, the risk can be can be huge. I mean, if you’re buying in the Northeast, and you put a wrong tenant in there, you could be waiting months to get the tenant out. Obviously, if you’re buying in North Carolina, in the southeast, it’s a lot more landlord friendly laws. So we can get a tenant out for 150 bucks in three weeks, and they’re out by the sheriff. So and also you have the tenant the the damages from the tenant. So if you don’t screen the tenant properly, or if you’re lazy on that part, me, it could cost you 1000s of dollars, a lot of which, you know, you’re gonna be out of pocket for because your security deposit won’t handle it, Section Eight is surely not going to come in and handle the damage that a tenant calls independently. So I would say the biggest risk in rental properties is putting the wrong tenant in your asset. Um, and the best way to mitigate that, like I said, is through screening.
J Darrin Gross 32:49
No, I think that holds true for any landlord. Yeah, you know, screening is definitely a small price, or small investment. Oh, yeah, certain it. You have a good relationship in a good, or at least you start off on the right foot. So they have a new significant other or something like that, but that’s good. Hey, Tom, where can listeners go if they would like to learn more or connect with you?
Tom Cruz 33:14
Yeah, and I appreciate it. I’m pretty big on Instagram and Tiktok. Both of my usernames are the same. It’s T Cruz NC. T as in Tom Cruz, CRUZ. And then N C, like North Carolina. And then if you guys can also find me at section eight formula.com section the number eight formula.com. I have a 15 minute intro video explaining section eight in more depth. You can also book a call with me or somebody on my team to learn more. I have a $5,000 coaching program and course that explains how to buy properties, how to finance the properties, how to screen tenants, pretty much everything we talked about, but a lot more in depth. I provide checklists that provide documents everything you would need. And we also do monthly coaching as part of that. You have access to me to ask any specific questions to your situation.
J Darrin Gross 34:02
Great. Well, Tom, I can’t say thanks enough for taking the time to talk today. I’ve enjoyed it and learned a lot. I hope we can do it again soon.
Tom Cruz 34:12
Yeah, thanks for having me on. And looking forward to again.
J Darrin Gross 34:16
Alright. For our listeners. If you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow. That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks. CRE PN Radio.
Unknown Speaker 34:35
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