In the first part of the show, Jason Hartman briefly talks about technology and how it’s only as smart as the input it receives. He also shares an article from Business Insider about millennials growing up, increasing the US birth rate. Afterward, he interviews the Co-Founder of RentFax, Shane Sauer. RentFax is a company that pairs real estate industry knowledge with technology tools to help investors analyze their income property investment risk. Shane shares the sources of the information they use to calculate their property scores. They also remind real estate investors to educate themselves and aggregate data before buying.
Announcer 0:01
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
Announcer 0:13
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on now. here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:03
Welcome listeners. It’s an amazing time to be alive. And this is your host, Jason Hartman. It is most definitely an amazing time to be alive with all of the problems in the world. There’s a lot of incredible stuff going on out there at the very same time. One of them is the millennial generation that we’ve talked about so much Generation Y and we’re going to be talking soon about Generation Z, because they will be coming into the housing market. They’re up next their at bat, just right around the corner here. They are on the What do they call it? The practice mound? No, I don’t know. My Little League days were a long time ago, folks, and I really don’t keep up with spectator sports. So anyway, whatever. You know, they’re in the not the dugout, but they’re right there. You know, warming up, whatever. Oh, okay, Jason, let’s just not show your ignorance here and let’s get on with what you do know. And that is the millennial generation. I looked at an article a couple of days ago and it talked about the millennials are here. Well, no, not the millennials. Actually. The millennials, children are here. And they need babysitters. Yes, this is a Business Insider article, and it just says folks, Millennials are growing up. And as millennials grew up, they begin to do things their parents did, for example, have kids in 2014, the US birth rate increase for the first time since 2007. Now remember, that is not the population rate. It’s the birth rate.
Okay, so that’s different. There’s been a massive amount of immigration since then. So this is these are two different things. So don’t panic if you’re saying, well, Jason, I thought the population was increasing faster, and that’s why we needed to provide more rental housing and housing demand was going up and that was behind the map. So the increases we’ve seen in prices and rents I was talking to I was I actually had dinner with one of our clients last night, he was talking about a couple of his Phoenix properties, and how one doubled in value, since the low in one almost tripled. Can you believe that? Yes, it’s an amazing time to be a real estate investor, the most historically proven asset class in world history. So, back to the article. So the millennials, recently became the largest generation in the US overtaking the baby boomers. And I’ve told you about that many times before. Remember, baby boomers, that demographic? Well, they call it a demographic cohort. It’s about 76 million people. Of course, there is some difference of opinion on this depending on who you talk to. They cut these birth rates off at different years and the demographers don’t completely agree on this stuff. No big deal though. It’s close enough for government work as they say 76 million baby boomers. That was the largest ever, but the millennials are 80 million slightly larger than the baby boomers by about 4 million people. And they are now starting to have kids.
Now, granted, they didn’t do it as quickly as the baby boomers did. Gen X, my generation is sort of I don’t know what to make of Gen X. It’s like this really small demographic cohort, only about 46 million people. And you might ask, well, who is ahead of the baby boomers, you know, those more elderly, more senior folks ahead of the baby boomers, what are they called? Well, they are called the matures. I know that’s kind of hard to say, but that’s what demographers call them. And those are the people that some call the greatest generation. And they basically they did a lot of the hard work so we didn’t have to they made a lot of the sacrifice. That’s my my grandparents generation, may they rest in peace. They’re not all resting in peace. Many of them are still alive, not mine. So we look at these different demographic cohorts and the millennial generation. Now starting to have kids, of course not doing it as quickly or as early as prior generations. They are, like I said, delaying family formation and waiting to marry waiting to have kids. So that keeps them in the rental market longer, doesn’t it? Because they usually don’t feel a bunch of pressure to go and buy that house with a white picket fence, that sort of stereotypical house that very few people actually live in.
But it’s talked about, it’s called the American dream. Well, I think the American Dream should really be being a great real estate investor, rather than being a homeowner because a home is a liability. It is not an asset, but owning income producing Real Estate, that’s an asset. So get lots of that you can rent your house have more flexibility there, but whatever you want to do. The point is this article is really about the labor market. And it says that the millennial generation needs babysitters. And so, you see this cohort coming into its own now. And in anemic job market, massive student loan debt. Some of them are starting to have some kids, you know, it’s about time. I think people have said that to me before too. It is about time I say to myself, gotta find the right bride first. So I don’t know. You know, your host gets a little punchy here on Sunday afternoon. So this is talking about how non farm farm payrolls grew by 287,000. The most since October of 2015, and 107,000 more than expected, but be careful before you read too much into that because that’s all manipul lated like crazy. We’ve talked many times about discouraged workers about how they don’t count those people in the unemployment rate. And the more important metric which is known as the labor participation rate, that is far more accurate than what you will hear quoted when we look at employment numbers. And we hear about them in the news and read about them in the in the mainstream media or otherwise known as the lamestream Media. So some some different things here. But always look at the labor participation rate. It’s a much better metric, in my opinion, and listen to the episode I did with john Williams of shadow stats, and by the way, I thought we were going to talk about buy downs today, but we’re not because I think I really covered that on episode number 693.
Oh, sorry, I don’t even think I mentioned the episode number, Episode Number 698. Today 698. So if you go back five episodes if you happen to miss that One you want to know about buy downs, which are a fantastic tool for financing your investment properties? Listen to episode number 693. The guest on that episode is john our lot. But the intro portion I go in detail about buying down your mortgage and, and analyzing whether or not that’s worth it and doing the math there. So check out Episode 693 for that, but today our guests will be Shane Sauer. He’s with rent facts, talking about finding stable rental neighborhoods. And I want to give you a word of caution as you listen to this episode. Because here’s the thing. This is a great tool, but it’s like any tool. It’s not perfect and it’s not the Holy Grail. It would be like saying, well, let’s do a show about Zillow or Trulia or realtor.com, or any one of these websites out there that provides valuation Information market information, etc, etc. Look, folks, these are simply tools they are not the Holy Grail. Take everything with a grain of salt. Because a computer and an algorithm can only do so much when you’re analyzing things. The most powerful analysis of all is still and it won’t always be as AI artificial intelligence comes into its own. I may well change what I say about this in five or 10 years. Absolutely. When we’re at episode number 3291. I don’t know what episode will be at then.
But anyway, we’ll have more episodes them and AI will be incredibly powerful. As you all know, Watson, the IBM computer won the game of Jeopardy, which is you got to be pretty smart to win Jeopardy, of course it can beat any chess champion. Now that’s really no big deal anymore. And it’s an amazing time to be alive, but This stuff does not tell you everything. And so here’s the deal. Shane did a free analysis on two rental properties that I just purchased in Memphis. And you know, by looking at the report, they didn’t look so great, but he helped me drill down onto them in a little more detail. And he said, these are great properties. And I thought they were great properties too, because I did not see this report. And so you got to use some judgment with this stuff, folks. It’s not the be all end all. But it is something it’s a tool, use it as a tool. A tool is not everything. You know, it’s like that old saying, and this is an important old saying, Stephen Covey used to talk about it, but he didn’t create the saying, came before him. And it is this, you’re ready. The map is not the territory. The map is not the territory. So the map is good. It’s a tool. maps are great, hey, where would we be without cartography without maps? maps used to say that the world was flat. And then and they even drew dragons at the edge of the world because that’s what they thought you would run into as Christopher Columbus sailed the ocean blue in 1492. And the map is not the territory, the map tells you a lot, but it doesn’t tell you everything.
So I think the most powerful tool we have in our arsenal, is aggregating data from our clients, and aggregating data from our ground troops. The people actually in the markets on a daily basis, a lot of those are the property managers, but they’re also the local market specialists. These are very, very powerful tools. But we want to use additional tools like the one we’re going to talk about today as a helpful tool, but just remember, the map is not the territory. That’s a great thing to remember, in so many parts of life, isn’t it very powerful concept. Okay, so let’s get to it. Let’s get to our guests. Check out Hartman education for some great educational resources that a lot of you have taken advantage of. That’s our newest website with some great tools, great educational products there for you. And we’ve got an event coming up.
And on the next episode, we’re going to talk about that in detail early September, in Phoenix, Arizona. Yeah, right here. You’re gonna want to come to that because this is a totally new event, where we’re going to use software another tool to help us manage our real estate portfolio to help us evaluate properties and whether or not we should buy them working on combine that with some very practical pragmatic, kind of quick start oriented stuff for investors, and that will be in Phoenix. That’s going to be a two day event, not a property tour, but an educational event in early September. And of course, that will be posted very soon at Jason Hartman calm we don’t even have a name for this event yet. We wanted to do a different type of event. Last year, as you may recall, we launched jQ Jason Hartman University, where we really go into deal analysis, we go into using math to analyze properties where we have attendees, students do the math themselves by hand, you know, with just a regular old calculator, not special software. And that’s been a fantastic, very powerful course a lot of you have attended that. And a lot of you have given us some great feedback and great testimonials about that. But we’re going to add one more type of event, and this is going to be in September, so you won’t want to miss it. Look out for more information on that. But Mark your calendars for the second weekend of September. And before that we’re going to have a venture Alliance trip the first weekend of September, which is actually Labor Day weekend, a long weekend. So if you’ve been interested in venture Alliance, check out venture Alliance mastermind comm for more info there. Talk to your investment counselors about that. And we’ll be glad to fill you in. All right, let’s get to our guest and talk about finding good stable rental neighborhoods.
It’s my pleasure to welcome Shane sour to the show. He is one of the cofounders of a company that is doing some innovative stuff or have actually has been doing some innovative stuff in the residential rental space for the last decade, called rent facts. And we’re going to find out more about how to pick a good area in which to invest for long term buy and hold rentals. Shane, welcome. How are you?
Shane Sauer 14:42
I’m doing good. How about yourself, Jason?
Jason Hartman 14:44
Good. It’s good to have you on the show. Where are you located?
Shane Sauer 14:47
We are located out of Kansas City. Fantastic.
Jason Hartman 14:49
Well, tell us a little bit about rent facts. I mean, what what does it do? We’ve all heard of Carfax with all of their advertising and you know, that’ll give you some reports on on the car. You’re buying I guess rent packs does the same thing. And in the real estate market, right,
Shane Sauer 15:03
you know that the best example or metaphor I could probably give is like a credit score for you a borrower, let’s, let’s say good old the FICO score, that the credit score is going to tell a lender or whatever the likelihood that you’re going to repay a debt. So a lot of what rent facts is doing is it’s giving scores to rental properties in their ability to generate income. So rent facts generates a score from zero to 100. And from that score, it’s a quick glance away investor or lender can, can look and see the income stability from a rental property.
Jason Hartman 15:48
Okay, fantastic. So the stability and what areas of information does it provide? Let’s let’s just dive down into all the different types of reports. I guess first of all, that’s a good question. How Any reports Do you offer.
Shane Sauer 16:01
So there’s really about four different reports. And there’s the first report is what we call the Risk Report. And that is an acronym for rental income stability. And so that’s the first report. Then we have the rent report, which much as it sounds, provides a detailed estimate of the anticipated rent for the property. And we have a vacancy report, and then we can roll all those reports up into packages as well. We have an income package that kind of gives all that information in one single kind of pulls all those reports together.
Jason Hartman 16:35
Okay, great. So let’s drill down on that a little bit. Say for example, a rental price report where you want to know the projected rent you might get on the property. Some investors out there are using different tools for this, like rent range and so forth. And you know, they’re only somewhat accurate they’re certainly not, they’re not everything right. How do you come up with rental prices? When every house is so individual?
Shane Sauer 17:02
Yeah, that’s a great question. And it is definitely a very difficult thing to accomplish from a technology perspective, because just as you know, and I know that, that season you’re trying to run in versus the condition of the property at the time of rental all those factors can play into ultimately what a property will rent for. But what we’ve done is we’ve put our best foot forward of trying to really nail down and tailor that rent to the subject property. And we’ve done it in a way that’s very transparent to the user. So, Jason, I don’t know if you’ve ever seen an appraisal report, but they use what’s called the
Jason Hartman 17:42
only a million times okay?
Shane Sauer 17:45
So, if when you’re going through that they have what they call a sales comparable grid, and that’s where the appraisers picking similar properties and making adjustments up and down as compared to the subject property. We’ve used that exact same approach for rental properties. And so not only can the user of the report, see what comps we’ve selected, but then they can see what we felt was inferior or superior, and how we adjusted the subject property up and down.
Jason Hartman 18:15
Okay, so I’m glad you said that. And let me just maybe we’re going to cover this, but let me just chime in for a moment. So the differences though, that many times that local appraiser has actually seen some of those other comps, when they’re valuing the house, sometimes they haven’t. They’re certainly reading, hopefully reading the remarks in the MLS and or driving by the property. Now, again, none of this will tell you everything, but they are additional clues in that valuation, right. How does software do that, though, see, this isn’t a person doing it like the appraiser and of course, it would be too expensive and onerous for a simple rental report to go out and have an appraiser do all that, of course, I understand that and so to our listeners, but I don’t go Is software getting it making adjustments for these types of things?
Shane Sauer 19:03
Well, it’s getting better and better. And let me let me give you two examples of that. So the weight spent, as you suggested, when we started earlier that we’ve spent about a decade working on this information. And one thing that we have done is that we know that comps that reside in the same neighborhood as the subject property have a higher likelihood of sharing similar attributes, age configurations, and everything else. And so one area that we’ve excelled in where others haven’t is, we don’t necessarily drive a comp, how good a comp is by how close it is to the subject. But we drive comps on how similar the neighborhoods are to each other. And that’s really a unique approach in the marketplace. So, you know, get a great example is there are certain towns that you can go to blocks in one day. reaction and the dynamics of that neighborhood change completely,
Jason Hartman 20:04
you know, that has always amazed me not as a real estate person, but just as a person in general, how micro these neighborhoods are, it really is amazing how hyper localized the world of real estate, isn’t it?
Shane Sauer 20:20
Yeah, it is. And so what we’ve decided to do is just because you’ve only gone to blocks, if that that neighborhood, the demographics and data behind that neighborhood are significantly different than where the subject property is located, we can see that through data, and we de emphasize that comp. And so when we make adjustments, we’re not counting on that comp as hard. So that’s a way that, you know, we’ve been able to use data and technology to produce, you know, a better estimated rent. And then as far as you know, looking at it, curb appeal and everything else, you know, thanks to Google these days, you know, our our reports and our web website. You know, we use a lot of Google’s tools and so, you know, you can drop and just look at these other comps on the map and drop your, your guy in there and get a good Street View and just see from a curb appeal of, does the house look similar? Is it a two storey versus ranch? Or, or this, that and the other. So, there are some ways that we’re trying to use technology to help people make better decisions. But as you said before, you know, setting our brand is is really, you can get pretty darn close to technology. But in the end, it’s probably just takes a real estate professional to ultimately just nail that down.
Jason Hartman 21:35
You know, again, people need to realize these are all tools. They’re they’re not the end all and be all they’re they’re just a tool. They’re a clue, and it drives some real estate people nuts that Zillow even exists, right? But you know, it’s look, we didn’t have anything before in that space. And so now we have something and you’ve just got to understand, it’s not the gospel, take everything with a grain of salt. The technology is not perfect, and neither are the human beings for that matter. So it’s all just a clue. But okay, so this is just an incredibly complex algorithm that that must be able to do all those things, right?
Shane Sauer 22:16
Yeah, it took a lot of help and a lot of time to, you know, put the product together and put it out there. And but you really hit the nail on the head with what you just said that, you know, we have the humility, you know, as founders of rent facts to really just tell people that we’ve provided a great tool, it should be used appropriately. And so we we never discount local knowledge and local real estate professionals but a lot of what occurs in today’s world is very fast paced. There’s a lot of opportunity coming at us. And so, if you have tools that you can open up your funnel, if you will, and digest more and get to better decisions quicker Then those are valuable tools. And I think that’s a lot of what rent facts set out to do is to help people make better decisions quicker, not necessarily the final decision or the end decision. But let’s make good decisions quickly.
Jason Hartman 23:14
Right. Okay. I don’t want to belabor that point. But just I want the listeners to hear how does it compare similar neighborhoods, say, for example, you’re in Memphis or Atlanta or any of the markets in which we like to invest. Indianapolis, for example, you know, there’s Cincinnati, you’re in that market, and it doesn’t take the closest comp for rent. It takes the more similar neighborhood you sat, right? Correct. How does it do that? How do you know what neighborhoods are similar? I mean, you can’t get that from Google streetview. I suppose you could get it. I mean, because that’s just too much of an impression a human would have to make, although AI is upon us, right? But But do you do it by taking Okay, here’s the median income in that neighborhood What is it? Is it by zip code? It can be as it goes to bed as TB. So you know it is zip plus four, do you take the school scores the crime? Do you aggregate all of that data? Tell us
Shane Sauer 24:13
a little bit about that. You got it. I should have just, you know, turn the mic over to you. But you know, again,
Jason Hartman 24:18
I’m just guessing you’re the expert.
Shane Sauer 24:20
Well, here’s what we did is the first thing is we realized is that we know a lot about real estate, but by no means are we experts in the what’s called geospatial data segment. And so we went out and partnered with the nation’s leading company in geospatial data, and these are folks PhDs and a lot of them that just study data associated with the geographic location. So what we did over the course of you know, the last 10 years and constant development is we know now know, the data points that most heavily influence the stability rental income. So we we now through our partnership with this company are harvesting and aggregating all that data. And then we’re refining it through our algorithms to simplify it down to a number. So just as you said, schools, crime, income, I mean, the list goes on and on, all the way down from vacancies, appreciation rates. In total, we are using just a little bit over 100 different data points that get filtered down into what we would say 15 key components that then ultimately end up in one score. So a lot of lot of data crunching but but done through partnership with that company, and then our background and all our contacts in the real estate field.
Jason Hartman 25:51
So let me ask you a question. There’s this thing in the world of real estate investment, and I’ll just call it for maybe lack of a better term for 30 thousand dollar house phenomenon, maybe you’re familiar with what I’m about to say. And we never got into that market, my real estate investment company, we always liked the class C plus b A properties especially, because on paper, those C and D type properties, they look great. But yeah, just can’t collect the damn rent often enough, you know, and I mean, I mean, look, if you’re gonna be a very active manager, if you got, you know, a gun in a holster on your hip, I’m sorry about this being a little sarcastic for entertainment value, but not completely, not as my ex girlfriend used to say. There’s a little bit of truth in every joke, right? And if you’re really in engaged active manager, and that makes in that’s a specialty of yours, these lower end properties. I’ve seen many people do very well with it. Okay, so I’m not saying it’s a no, no, I’m just saying For most investors that want to have a more passive type of investment, and nothing’s completely passive, that the the B and A and the B type properties just work better in real life. And you mentioned that word rental stability. So I wanted to see what your impression is that and, you know, maybe that not just talking about your software, but maybe it leads to some advice for our investor listeners.
Shane Sauer 27:24
Yeah, well, number one, I feel like we should hire you on as a spokesperson for our company. Because, again, you’re you’re really making this easy for me. So let me maybe just take you back to the very first day when the concept of Rent Fax was born. So myself, I’ve been an investor and currently lender in this segment for, you know, a long time I’ll just say that and then my other co founder has been a property manager for edging up on 30 years. And let me tell you why. We wanted to create create this what really drove this is that we got tired of seeing good people, investors getting making bad decisions, because they didn’t know any better. And when I say bad decisions, I’m referring to that C class property that looked awesome on paper. And they bought it and they sunk their life savings into it. And it ended up being a disaster. And it was so sad and sickening in a way that it motivated us to say, look, this doesn’t have to happen anymore. This it there’s enough data, there’s enough information out there this weekend, prevent this and create a tool to help people make these better decisions. And that’s how Brent fax was started. So where it’s gotten today is from this single score that I this risk or we can take if I had five minutes with investor and said tell me about your investment lifestyle, as sometimes I refer to that way, too, you work a full time job, you don’t want to be hassled with tenant calls, you know, it’s truly as passive as possible, or are you really looking for the deal you you’re willing to own or manage yourself, you don’t mind you know, knocking on the door yourself for rent this and that, getting an idea of the investment lifestyle, then from that we can identify a risk or range that is appropriate for that. It’s funny that you mentioned that chain, because one of the things that we find ourselves doing over and over at my company is matching the investors personality. Interestingly, and maybe this is a whole nother business that like psychology of investing angle, you know, match matchmaking, and we call ourselves investment matchmakers and investment therapists
Jason Hartman 29:51
to some extent, because we match them with the type of property that you know, we kind of just can sense their personality What they’re willing to tolerate and what they’re not, you know, when you’ve got that real sort of do it yourselfer investor that’s kind of involved and doesn’t mind rolling up their sleeves. And I don’t mean doing actual work, but I mean, just sort of engaging in the process, then, you know, they can do that type of property more. But if they want just, you know, kick back and get the mailbox money and maybe occasionally deal with an issue here or there. It’s a different type of property in a different market, isn’t it?
Shane Sauer 30:26
It is, it is completely and that’s that what you’re doing for, for your clients and your audience is is really a gift. Because real estate investing is there’s just so much more to it that I think most people understand and to have a good experience with it. And I’m not talking about making money. Of course, we all want to make money. It’s an investment and that’s what it’s out to do. But there’s making money and just having it being painful to go along with it. And so what you’re doing is great. Because you’re aligning both, here’s how not only you’re gonna make money, but how you can enjoy what you’re doing as well.
Jason Hartman 31:06
Well, you know, I came up with a new little phrase, I coined it, maybe someone else said it too, but I never heard it before I, I swear it’s original. And I did a deal a few months ago. And I thought, you know, that deal. I did make some money.
Shane Sauer 31:21
But then that took,
Jason Hartman 31:23
I was engaged in that it was a pain. And I you know, instead of saying ROI return on investment, my new thing is return on involvement, like, how much do I need to be involved to make this money right to make that return? And if the return on involvement is too high, then I got to look at the opportunity cost. If I spent that time in my business, would I make more? And a lot of times the answer is painfully Yes. You know, the investment wasn’t necessarily the best return on involvement. So I encourage investors to think about ROI also his return on involvement.
Shane Sauer 31:58
Yep. Well, you and I think Same that the term we use here is we caught effort to earn, how much for? How much effort Do I need to put in to earn that money? And
Jason Hartman 32:08
so the E to E ratio? Yeah.
Shane Sauer 32:11
Same exact same thing you’re talking about, of return on involvement or effort to earn. You know, you and I are thinking exactly the same.
Jason Hartman 32:20
So did we make that point? Because I want to make sure we get to more of what people should analyze when looking for a property. I don’t know if we’re ready to leave that though. Are we are we want to say more about it?
Shane Sauer 32:31
I think we kind of, you know, a good way to sum it up is is, you know, you need to have good alignment of how your willingness to engage or your involvement or your effort that’s going to go into the investment as it relates to the location of the rental property. It’s that that simple,
Jason Hartman 32:48
I think that is very, very good advice. Okay, so we’re talking about we started off talking about rental comps and then went into rental stability and so you Is your thesis that the more you get more rental stability in the A and B type neighborhoods? I think we agree on that.
Shane Sauer 33:08
Yes. That is correct.
Jason Hartman 33:10
Okay. All right. Okay. So beyond that, let’s talk about like vacancy rates. How do you how do you calculate a project that
Shane Sauer 33:19
Yeah, so what that we’ve really challenged the industry on what’s called a vacancy rate. And now I’m not I’m gonna try to be as concise as possible. But what we’ve studied and spent a lot of time looking at is tenancy duration, meaning how long are tenants in the neighborhood staying there? Because what we’ve found through the years of working a lot of real results are from the pro forma is that tendency duration is a huge driver of you obtaining what you think you’re going to make on that rental property. So if you’re, if you’re suffering a vacancy at frequencies much more than you thought, it it’s what I call the proform. Killer. And so we focused when we looked at vacancy, we put our focus on how long our tenant staying in there, versus what the industry has kind of adopted as just how many vacant units are in that neighborhood as a percentage. And so we’ve, we’ve deviated from that and just really studied neighborhoods that tenants move in love it stay there. And so you get a tenant, you know, on some of some of our records were showing tendencies lasting over seven, eight years, which is just a dream come true if you’re the owner that property because you have a nice steady revenue stream coming in to support that investment.
Jason Hartman 34:42
Okay, so I want to I want to give a word of caution to our listeners, though. Feel free to argue with me on this if you want Shane,
Shane Sauer 34:49
but I tell
Jason Hartman 34:50
you, if your vacancy rate is too low, your rent is too cheap. Okay. Instead of saying, I want to target I want to have occupancy See 100% of the time, an investor should say in my opinion that I want to target a vacancy rate of, say 6%. So I want to have a 94% occupancy now on our performance, we put 8% per year as the vacancy, that’s what we put in our performance as a as a mandate. One month per year is that basic rule. Now, you might have a tenant state two years, and then you might have two months of vacancy but averaged one month, per year. So I would just say that because I think the problem you could have and this is where you need more than data you need to think and, and tease out the data a little bit where you could have problems like this is in these really nice higher end neighborhoods, where owners have a lot of equity because they’ve owned the houses for a long time. And that usually leads them to not be very pushy on the rents and the rent to value ratios of course, are way out of sync and higher priced markets. And it reminds me of When I lived in Newport Beach, California, there are these neighborhoods in, say, an area like Corona Del Mar this great little beach community where these tenants stay a long time. But the reason they stay a long time is because they’ve got such a fantastic deal. You know, I wouldn’t move either. If, if I was running a million dollar house for 20 $600 a month, right? That’s a great deal. So that’s the one part where I would just caution people a little bit to not only look at the data, do you agree with him?
Shane Sauer 36:30
Yeah, I do. And, and I put that in the bucket, I have a bucket I called good problems to have. So if, as an investor you’re you’re trying to gauge of how long I want to keep my tenant versus how much I raise their rent that’s, that goes in the bucket of good problems. What what we’re really what’s concerning to us is is the other side of the spectrum and that’s, you know, a C class property or something where you work that pro forma anticipating you have an expectation In a vacancy, but you’re losing a tenant every nine months. And not only on top of that, when they’re moving out, there’s damage, you gotta, you got to make repairs, you got to increase marketing appeal, you got to put the new tenant in, and you start the cycle over. And what we just saw is there were certain areas, despite, you know, the best screening possible and, and good management and everything else, just the collective pool of tenants that wanted to live in that neighborhood. You just couldn’t have a high expectation of the overall performance from those tenants. So it wasn’t management driven. It wasn’t anything but demographic location driven. It was. It was a neighborhood that was you know, you just couldn’t win and, and those were, that’s really was kind of the forefront of our brain when we looked at vacancy of how do we identify those areas where it’s just the nature of the beast, if you will, or tenants are just moving in and out and in and out. And it’s just very hurtful to the investment. So,
Jason Hartman 38:03
yeah, that that really that really diminishes your performance. Of course, you know, I would be curious, Shane, does your system parse out section eight, government assisted rentals and analyze? I would love to see data, although I bet you’d get accused of over it’s unfair, it’s not politically correct or you’re racist. You know, all this absolute stupidity you hear coming out of people sometimes, nowadays. You know, I would, I would love to look at data of section eight tenants versus non section eight tenants. Because interestingly, you know, and think of just human motivation when you’re on the dole, and you’re getting something for free, or you know, when the government’s paying for part or all of your rent, those people are kind of stable to some extent. They’re, they’re not that bad. It’s just a different business. You know, and I know people that love section eight and people that hate it, so they’re There’s very little middle ground I find on the section eight type tenants. But you know just kind of curious as to what your thoughts are on that
Shane Sauer 39:07
Well number one our system no it we don’t distinguish that that information or data so so that’s on the system side but personally speaking, you know, I have a pretty long history and awareness of sectioning renters and management, managing and owning those properties. And so I would agree with you it’s a very polarized group of people have either people love them or people hate them. And, and I maybe I am that guy that falls in the middle and at the end of the day, the section eight program and it’s a voucher, but I still found that it was the tenant. And there was section eight tenants that we just had a great relationship with and it worked well and we’ve we had section eight tenants that it wasn’t and it did work good and so I could see why it swings both ways of information. Me, I would just always encourage an investor of like, like, section eight is in a one big bucket. It’s there’s, there’s families and people within that bucket. And so all your your standard screening and everything you would do for an open market tenant you need to do for section eight tenants.
Jason Hartman 40:17
Everything is an individual base. It’s no question about that every every person is an individual, no question. But I would just it would just be really interesting to see real data on marketplaces divided up that way. That’d be fascinating. It’s not going to happen. So that’s okay. Okay, so vacancy rates, what else do you want us to know about vacancy rates?
Shane Sauer 40:40
You know, and that’s it. I mean, I could go on and on, but I think hopefully, you an audience to kind of get an idea of what we went out to do. And that that was been more time looking at tenancy durations than, than anything else. And so, from that information, I think investors can you know, really understand if that That’s going to be a problem and make adjustments on their pro forma accordingly before they buy the property. How else can we use the tool?
Jason Hartman 41:07
What else can you tell us?
Shane Sauer 41:08
Well, so so we got we started with risk that and that’s that rental income stability index we talked about. So that that’s, that’s the first and number one score, I always advise people to pull, it kind of tells you the neighborhood you’re working in. Then after that, we talked about rents and that’s a good, you know, top line revenue number to work from, then you can plug in your vacancy. Then after that it gets pretty localized because we do in our pro forma package. We offer suggestions on property management costs, property taxes and stuff like that. But, you know, at that point, I think if you’ve got a good data driven information for the risk associated with the location, the potential revenue, how the vacancy looks, you’re probably ready to put it into your own home cooked spreadsheet. Or whatever you want plug in what your property manager charges and and everything else and you’re often run into have a much more accurate and reliable pro forma to make any investment decisions off of.
Jason Hartman 42:13
Yeah, good, good information. Any just general advice you want to share with investors from your experience over all these years?
Shane Sauer 42:21
Yeah, you know, I, I’m gonna go back to something you said and that is that there is no silver bullet in this industry. And, and so I would encourage investors to just aggregate as much information talk to as many folks as you can, you can never know too much about the investments you’re making. And so and if you don’t have the time and resources to do that, then you need to understand that and seek professionals and be willing to pay for those services as well. So I just, you know, I just see the biggest mistakes or when people move in now. in haste, but because they’re uneducated, so, so, so get, get educated up or, you know, Get Schooled up, if you will before you make those decisions,
Jason Hartman 43:10
or get someone who is educated. Who’s your advocate who’s on your side. Exactly. Yeah. The only thing I want to say about that is absolutely education is super important. But there is a flip side to it. There are the people who are the educated derelicts who just learn all their life and never do. That’s, you know, nothing happens until you actually do something.
Shane Sauer 43:28
analysis paralysis.
Jason Hartman 43:30
Yeah, the, the analysis paralysis problem is a significant one with with some, how much do all these different reports and resources cost that you offer?
Shane Sauer 43:42
Yeah, so we it’s a lot of it depends on volume and the amount of data you want. So it can be as cheap as a couple bucks and goes up to you know, some of our more complete packages are still under $20 for all that information, but you know, it all varies on how much data you’re looking for and how frequently you want to see the data. So but I always tell people, it’s a couple bucks to maybe up to 20. But as compared to the investment you’re making, it’s really negligible
Jason Hartman 44:12
in the habit for literally every address in America. I mean, I can plug in a property in Detroit, God forbid, I bet the rental stability wouldn’t be very good.
Shane Sauer 44:23
Or Atlanta or California, right? I mean, anywhere. That’s right, all 50 states everywhere. When we built the system, we did our very best to make sure that anything that got plugged in that we’re going to, you know, try to be able to provide information on that location. As you can imagine, some spots get a lot harder than others, but it is a nationwide all 50 states any location, you’ll be able to pull risk rents vacancy.
Jason Hartman 44:50
Well, that’s interesting. You said that because that’s what I was gonna ask you is the data just as good in every area is at the same or in some areas is it Can you rely on the data more than you can on others? I mean, I would assume some areas are just slim on data and you don’t have a lot to, to pull from. Right.
Shane Sauer 45:10
Again, it varies on what data on the risk index, you know, we use pretty broad resources that dig pretty deep and where there were quote unquote, holes, we found good ways to make good patches for that. So that works pretty good there. But as you can imagine, brands, you know, you get into certain areas where just rent comparables, you have to get further and further away from the subject and the quality kind of diminishes. So again, it’s like anything, no silver bullet, you know, the report, just because the report says, you know, we think it’ll rent for 950 doesn’t mean you should be looking at the detail of the report say, Yeah, but these comps are, you know, two miles away three miles away and so it’s, it’s we wanted to arm people with the best available information, but be transparent enough that they can you know, use their own head and supplement where needed. Absolutely good stuff. So the website is just read FX calm, right? It’s actually www rent facts pro calm. Oh yes,
Jason Hartman 46:10
we got the pro in there. Good, good stuff. Well, Shane, thank you so much for joining us and telling us about this data and sharing some good tips and advice with her investors.
Shane Sauer 46:19
Hey, you made it easy for me, Jason, I appreciate it.
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