Five Reasons Why Investors Are Successful in Vallejo
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With it’s close proximity to San Francisco and a diverse and dynamic market, Vallejo presents investors with unique opportunities for success. Today our guest is Doug Brien. Doug is CEO of Mynd Property Management and he is here to give us his top five reasons investors have found success in Vallejo’s unique real estate market.Alex Osenenko: Boys and girls. Welcome to another episode of digging deeper into Vallejo real estate and figuring out if it's a good market for you. My name is Alex, I'm with Mynd Property Management. My guest today is Doug Brien. Doug, how are you?Doug Brien: I'm doing great, Alex. How are you?Alex Osenenko: Awesome, awesome. So Doug will help us unpack this complicated subject. Specifically, his background will be really helpful for this particular reason—he was the CEO and founder of a company called Waypoint which purchased over 750 homes in the Vallejo area. So, he knows a thing or two. Doug is currently CEO of Mynd, so very excited to have him on. Our topic today is: the five reasons why investors will be, can be or should be successful in Vallejo.Doug Brien: Yes. I love this question, Alex, because I'm a big believer in leveraging other people's experience. And so, I'm always talking to other investors and trying to figure out what went right—what did you do that worked, what did you do that didn't work—and leveraging that experience to help make my investment more successful. So, as you said, we have a lot of experience buying and managing, selling everything in Vallejo. And I spent a few moments and went through what I think are the top five things that an investor needs to do right to be successful in Vallejo and this is very specific to Vallejo.So, first of all, Vallejo is a very block-by-block type of city. You can't just say a certain place like downtown is good or bad. It depends on what block () and, in some cases, it depends on which house or which corner on that block. All it takes is one tough neighbor with pit bulls in the yard and a couple of beat-up trucks on the lawn and, you know what? That makes leasing up your property tough even though the neighborhood might be pretty good.So, you really have to know the neighborhoods and know what you're getting yourself into and, if you don't really know these neighborhoods, I recommend you drive by the location that you're looking at different times of the day. I think evening is the best time. Everybody's home and you get to really see the character of the neighborhood. But going by after school is also interesting because sometimes you see there's a bus stop in the neighborhood on the block behind you and there's this path between two buildings or houses with a flood of kids walking through there every single day. If you live there that might not be a super desirable thing. So there's all kinds of nuances to a location that can show up in the afternoon and I think you want to see it in the morning too—how many people are going to work and at what times. That tells you about a neighborhood. Spending time visiting at different times of day is a really important part of getting the location right. So number one: you have got to get the right location.Number two. A lot of the inventory in Vallejo is older. You have properties that were built in the early 1900s. And then a lot of other stuff in the 40s, 50s, and 60s. It's a relatively vintage housing stock. And so what that means is you have really got to know what you're getting yourself into—what are some of the characteristics of a house that was built in a certain area? Sometimes people think the early 1900s is really old. And that's true; it's really old. But they used to have really, really good construction pre-1960 with real two-by-fours. But, then you have galvanized plumbing a lot of time which can be corroded and can be expensive. So, I think really understanding the building that you're buying. Has it been renovated? What are the challenges with construction in that era? Galvanized pipes would be one to highlight and just making sure that you, A: understand it and, B: have a plan to renovate it so that you have an asset that's not going to cause too many problems for your residents and cause you excessive turnover or make it harder to rent. So really understanding the building and how to renovate it, that would be number two.The other one is picking the right rent. Again, it goes back to the block-to-block nature of the land. Rents can really vary. Just because one end of the block is getting higher rents doesn't mean that you're going to where you are. That's going to have an impact, obviously, on your return. Returns are super sensitive to rent. But it's also going to impact your vacancy. If you're going out with too high of a rent because someone around the block has it, but there's something about your specific location that is inferior, you could have extended vacancy.I think, to me, the biggest red flag on having too high of rent is—and this is specific to Vallejo—sometimes you will find folks that are not very qualified for your property who are willing to pay the extremely high rent. So you’re thinking victory because you're getting this high rent, but really it's not because, the reason that person is willing to pay your rent is, no one else will accept them because of their tenant history. Maybe they’ve had a bunch of evictions or really bad credit. You're maybe not looking at that as carefully, you're just looking at, “hey, I got a lease at this rent.” That appears to be a victory, but then they move in and, all of a sudden, they can't pay and evicting can be very challenging. So I think that really making sure that you nail your rent is important.This is one that I think, regardless of the market, is something that, at this point in the cycle, you need to be really aware of. Back when we were buying all our homes at Waypoint, it was just the bottom of the market and starting to get into an upswing and we had a little bit more wiggle room because real estate typically goes in cycles. No one knows absolutely what the bottom is and where the top is, but I know that we've been in a very, very long expansion. And so it just makes me nervous in terms of buying right now. And I think that’s something that you want to be aware of. I think it's always a good time to buy in the Bay Area if you're buying the right location, but I think—and this is point number four—have the right time horizon. I think it's quite risky to go in and buy something right now and think “I'm going to make this great return and I’m going to sell it in one, two or three years. The market may have a downturn in the next couple of years. We don't know. With every day that passes without that happening, it's more likely to happen.Again, I don't know when it's going to happen. But I want to lock in some long-term financing and be prepared to hold this thing through a cycle. So, seven, eight years—that’s kind of time horizon I would go into buying something in Vallejo at this stage in the market. Again, that's not necessarily unique to Vallejo.Alex Osenenko: Provided, Doug, that people are watching this in 2019, because we could be there forever. It could be 2025, 2050 right now.Doug Brien: This is going to be a timeless piece. It's going to be so well-watched and we’ll live on forever. So, yes, this is 2019. If we’re at the bottom of the next cycle, forget everything I’m saying.Alex Osenenko: But timing. I guess the wisdom here is understanding the horizon and the timing.Doug Brien: That's right. Understanding where you are in the market and, in general, longer hold periods reduce risk.Number five is getting the upfront renovation right. So it was related to number two. The building type. If you're buying a building that is run down, you're going to end up putting money into it one way or another because someone's going to move in there and they're going to want everything to work. And so, if you play with the math and you are aware of the importance of resident experience—I am a big believer in really figuring out what's going on with your building—just get it right upfront. Because so there are two reasons for this. Do the renovation upfront. Get the asset in working and solid condition day one.Two reasons. One is: you can include that upfront renovation in your basis or the denominator when you're calculating your cap rate and it makes for a better return. The other thing that it does is you're going to be more likely to get a higher rent, a better resident and they're going to have less issues. This means they're going to bother you or your property manager less. You're going to have less ongoing repairs and maintenance. And because they are more likely to like the house, they're going to be more likely to want to renew and even pay a higher rent.And you know this is somebody's home. We're in this business—we’re in the shelter business. And I think giving people solid homes that work well is a really important part of our responsibilities as landlords.Alex Osenenko: Well, this was really good. I was really timing this to be a four or five minute, little quick interview. This one got deeper and, I think, rightfully so. So just for those viewers who have not had a pen, like me, in their hand while Doug was talking about the five reasons, one: knowing the neighborhood block-by-block in Vallejo is very important. In fact, one side of the block can be different. Two: Understand the type of house, when when it was made and potential issue. Three: Setting the right rent is key Number four will be: time your investment based on the cycle you are in. And, five, get the up-front renovations right.This was a lot of wisdom there, Doug. So thanks a lot for taking the time. Those of you who are still with us go to Mynd.co, M-Y-N-D dot CO. Search for Vallejo real estate. And again, Doug and I will do a number of episodes on this topic so you can get educated on this. Doug, thank you for your time.Doug Brien: Thank you, Alex.Alex Osenenko: And thanks for watching.Knowledge is key when investing in the city of Vallejo. With such a dynamic, block-to-block market, having a real understanding of the specific neighborhood or block before investing in a property is a must. This means knowing the house, as well. Knowing when, and with what materials, it was built can save you money on renovations and mitigate costly repairs, in the long run.Setting the right rent is key to saving money, as well. Buying a property at the right time and for the right price with an understanding of exactly what price such a property can be rented for will position any investor for success. This is particularly true in such a dynamic market as Vallejo.
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