In this episode of The Same Day Podcast, host Yoni Schmidt sits down with Ryan Blackstone, Team Lead and Owner of Blackstone & Company, to talk about real estate investment strategies. They discuss leveraging creative financing solutions, understanding market trends, and mitigating risks to build a resilient real estate portfolio. Ryan also provides invaluable insights into maximizing returns through strategic property acquisitions.
Real Estate Investment Strategies: Leveraging Creative Financing and Market Trends
Ryan Blackstone is the Team Lead and Owner of Blackstone & Company, a real estate firm based in Northwest Arkansas. With a bachelor’s degree in finance and a minor in business management, Ryan entered the real estate industry as an investor in 2013 and became an agent in 2014. His expertise lies in guiding his team and clients through the complexities of real estate investments, focusing on single-family and boutique properties. Responsible for hiring, training, and coaching his team, Ryan ensures that each transaction is conducted smoothly while helping both clients and team members understand and leverage financial strategies to build wealth.
Here’s a glimpse of what you’ll learn:
- Ryan Blackstone shares the origin story of Blackstone & Company
- How Ryan helps an investor analyze and find suitable deals
- Common metrics ignored by investors in Northwest Arkansas
- Four metrics to compare real estate investment to the stock market
- Why principal reduction should be considered when evaluating real estate investments
- Benefits of refinancing or taking a line of credit to access equity in real estate
- What mistakes do new real estate investors make?
- The importance of building a strong team
- Creative financing solutions for real estate investors
- Potential for profit in real estate investing despite market fluctuations
- Creative problem-solving for off-market deals in Northwest Arkansas
In this episode…
In the dynamic world of real estate investment, strategies can make all the difference between success and missed opportunities. With market trends constantly shifting and financing options evolving, how can investors stay ahead of the curve? Are there creative approaches that offer a competitive edge in today’s landscape?
According to Ryan Blackstone, a seasoned real estate professional with a track record of success, understanding the nuances of financing and market trends is essential for investors. He emphasizes the importance of recognizing the interplay between cash flow, equity, and risk tolerance. By leveraging creative financing solutions like “subject to” deals and owner financing, investors can navigate market challenges and capitalize on emerging opportunities.
Resources mentioned in this episode:
- Yoni Schmidt on LinkedIn
- Mat Zalk on LinkedIn
- Walter Bowser on LinkedIn
- Keyrenter Property Management
- Keyrenter Property Management in Tulsa | Oklahoma City | Arkansas
- Keyrenter Property Management email address: [email protected]
- “How To Compete in the Banking Industry: Relationship-Based and Customer-Centric Service” with Jared Goldfarb on The Same Day Podcast
- “1031 Exchanges: Fast-Tracking Your Real Estate Investment Portfolio” with Marissa LoCascio on The Same Day Podcast
- “From Sale to Closing: Fine-Tuning the Home-Building Process” with Noah Bleicher on The Same Day Podcast
- Ryan Blackstone on LinkedIn
- Blackstone & Company
- Jarred Blackstone on LinkedIn
Sponsor for this episode…
Keyrenter Property Management:
This episode is brought to you by Keyrenter Property Management.
Keyrenter Property Management is a full-service property management company that helps clients buy, renovate, and operate real estate assets.
The team helps clients build wealth while taking the headache out of property management.
That’s why, no matter what rental you have — single-family homes, condos, townhomes, or apartments — they can give you the management solutions you need.
To learn more about their services, go to https://keyrenterpmc.com/ or send them an email at [email protected].
Episode Transcript
Intro 0:05
Welcome to The Same Day Podcast where we discuss driving incremental business growth and other topics related to real estate, property management and entrepreneurship. Now to the show at hand.
Yoni Schmidt 0:16
Hello. Yoni Schmidt here, hosting today’s episode of The Same Day Podcast where I connect with top business and real estate leaders. Past guests include Marissa LoCascio from 1031 CORP. Jared Goldfarb, VP of commercial lending at BancFirst, and Noah Bleicher, Director of Operations at Capital Homes. Today’s episode is brought to you by Keyrenter Property Management. At Keyrenter Property Management. We are a full service property management company helping our clients buy, renovate and operate real estate assets. We help our clients build wealth while taking the headache out of property management. That’s why no matter what rental you have, single family home condos, townhomes apartments, we have the management solutions for you, go to keyrenterpmc.com or email us at [email protected]. Welcome to today’s episode where we are delighted to host Ryan Blackstone, the visionary team leader and Problem Solver behind Blackstone and Company real estate based in the thriving market of Northwest Arkansas, which we love. With a deep seated passion for finance and an impressive track record. In real estate investing since 2003. Ryan has established himself as a leading figure in the industry. His expertise spans guiding both his team and clients through the intricate world of real estate investments, ensuring every transaction is as smooth as possible. Armed with a bachelor’s degree in finance and a minor in Business Management, Ryan’s approach to real estate is both methodical and innovative, that he’s dedicated to helping others unlock their potential to build wealth and make significant impact in the world. Today, Ryan joins us to share his invaluable insights on analyzing investment opportunities in single family and boutique real estate, where whether you are a seasoned investor or just starting Ryan’s expertise will illuminate the path to success in residential real estate properties. Emphasizing the crucial aspects of principal reduction, which we’ll talk about later, depreciation some tax advantages and other useful avenues. Join us as we delve into the world of real estate investments with Ryan Blackstone a true wealth of knowledge and inspiration in the field. Ryan, welcome and thank you for being here. How are you?
Ryan Blackstone 0:16
Man, Yoni thank you? Thanks for all the words, love it. It’s Pi Day. You got to eat some. Some pizza to man.
Yoni Schmidt 2:37
It is Pie day. Yeah, I just realized that. Well, thanks for reminding me.
Ryan Blackstone 2:43
Yeah. Cheap pie here. You gotta have some good good gigs over there too.
Yoni Schmidt 2:49
So yeah, we’re I’m in Tulsa. You’re in Springdale, I’m guessing.
Ryan Blackstone 2:53
Yeah. Fairville. Yeah, is where I live. But yeah, Springdale is our office. Yeah. So yeah.
Yoni Schmidt 3:00
Beautiful. Well, Ryan, let’s jump right in. Can you share a little bit about the genesis story of Blackstone and Company real estate and what inspired you and your twin brother Jared, also known as the spare parts to start the venture in Northwest Arkansas? Jared doesn’t like that joke when I say that, I guess.
Ryan Blackstone 3:22
We’ll see when he watches. Oh, no. Yeah. So the genesis was really, ultimately I I lived in Europe for three years, knew I wanted to do international business, came back, started learning. At the University of Arkansas. I was raised here since I was two and in Northwest Arkansas. And so through that, I wanted to start businesses. And I knew real estate investing was the fastest way to earn millions to hopefully get a passive income goal to then go start other businesses and other countries. And so the Genesis began doing investing and screwing it up and then getting my license to learn the law to not only be above reproach, but to at least know the minimum standard, which is the law. So that was the genesis. It’s, it’s created to a point where now we’ve got 10 agents versus and employees, and we’re doing good amount of cells and good amount of investments. Six out of the eight agents on my team are investors, which for me defines as they own or have flipped a property that is outside of their personal residence. And so I love it. I love it. I love seeing the life changes in the agents and in the clients that we have. So yeah, that’s really it.
Yoni Schmidt 5:00
I’m really interesting that you’re very, you know, let’s call it intentional with the agents that you bring into the office and the agents that you want. We’re working at Blackstone and company real estate in in Northwest Arkansas, and wherever you expand into, right that they have this experience, because you know better than all that, you know, it takes a lot of time to learn these things, you’re sometimes running very fast, there are a lot of moving parts. And the sometimes people have that baptism by fire, you know, scenario, which it sounds like, you may have had that at the beginning. And, you know, we’d love to learn a little bit about, you know, what happened there and how other people can learn from you know, your experience and what you’ve gone through. You know, with a background in finance and business management, I know that you look at deals all day long, I look at deals all day long. We’re both using different types of types of tools we’re using, you know, you have your own mega spreadsheet that you’ve put together, I guess that I’m you know, very impressed with and I love seeing your your reports, and you’ve even shared one with me. And I use another tool like, you know, risk cover to analyze these opportunities. Tell us a little bit about your background and finance. How do you approach underwriting an opportunity, helping an investor understand if this is something that is a suitable investment?
Ryan Blackstone 6:32
Well, you only I think that’s why you and I get along because we speak numbers. You guys do great. And so when I talk about ROI, ROP, whatever, you guys know what’s going on? And we’re like, oh, yeah, that’s a better way to think about it. So yeah, my degree finance management, and then. So I love the finance, I love the numbers. I actually started out in accounting, but moved into finance, because like accounting was like, looking at the past, and how did we do and I’m, I’m just like, hey, where are we going is nine, by natural sense. And that’s really what finance is. And so taking into real estate, especially with investors, what I do love, I’m gonna say this, investors are typically logical or the, the, the true investors are logical, and they’ll be precise and where the numbers are, and what you know, we can get creative and figure out different ways to make the numbers work. I say that to say there’s still emotions, because it’s still humans. But I think I think what I love is the numbers don’t lie in the numbers just speak the truth. Through that, and so we, I’m not as sophisticated as you guys, that key renter, you guys got the whole website that really would help out any agent, any investor to really analyze a deal. We still use a Google spreadsheet, but I love building them out. It’s like, my hobby. You know, people are like, Oh, do you go golf? I’m like, No, I’m but I’m free sheets. Let me tell you. That, yeah, so Jerry got me a cup that, that had this. So but, um, so So yeah, we we, we kind of built out some spreadsheets for deal analysis of any kind. It was mainly out of two, two rounds. One is to teach and educate as well as share, like you and I, we are underwriting oftentimes, some newer investors or younger investors don’t even know how to underwrite. So my team, one of our primary go goals is to help give that trust and that support, and that confidence that they need in that deal analysis and underwriting to say, yeah, yeah, this is a good dear deal, you should go forward. Here’s all the reasons why. It’s all spelled out into the numbers. So it helps to, like take the emotions out even for myself to be like, like, like, Hey, I’m running this deal. And then like, I get this thought of, Oh, what if the world crashes, and now I’m losing money on this deal, right? And it’s like, the probability of that is so low. Let’s actually analyze this and look at this. And then we can take out those emotions and say, Is it a deal? Because it doesn’t meet our metrics? Yes or no, you know, so.
Yoni Schmidt 9:45
Yeah. And so when you’re analyzing deals, you know, one of the first things to do with a client who’s looking at investing in real estate is to just understand their goals, right? Because every client has a unique set of goals one has the goal of, you know, I’m looking to supplement my income. So I’m looking for the cash flow. One is saying, you know, I don’t need the income because I have a high paying w two job or some w two pay job that, you know, I can support myself and the real estate just needs to sustain itself. Maybe if I’m a high earner, I can fund it a little bit every month, but this is for the long term. And, you know, each of those may come may result in, you know, underwriting different opportunities to help us understand, I guess, once you’ve set your goal, right, we’re looking at a deal. And today, it’s difficult to make things cash flow, right, we’re Pot Pie Day on 2024. Interest rates are you know, if you get preferential rates today, you’re probably at 7%. Seven to 8%. Call it, you know, anything else is probably eight or 9%. Is that what you’re seeing in the market?
Ryan Blackstone 10:58
Yeah, yeah. For a long term, short term, you’re here to get 12 to 18%? On the the loans.
Yoni Schmidt 11:06
Yeah. Yeah. So in those instances, right, where someone’s saying, Okay, this is a long term play for me, and I’m really interested in finding a good opportunity that’s going to continue to appreciate at a good rate. Right, what are the what are common things or, or metrics, financial indicators that people ignore? What are common things that people should, you know, point their finger tune and say, this is a good indicator for me to, you know, buy, walk away from this deal, try to renegotiate the price, whatever that may look like. Right?
Ryan Blackstone 11:42
Yeah, yeah, that’s great. So what what I have loved in Northwest Arkansas, for the longest time is things would cashflow and you could buy a 1% deal. But then a time where it was like, no, these aren’t cash flowing, or they’re not hitting the 1% roll or whatnot. And so, some people were saying like, Okay, well, I’m just gonna throw it in the s&p 500, or something like that. And I was like, wait a minute, you’re actually still losing, you’re not making as great of a return as you could in real estate, if you do buy this property, even though it may not cash flow. And so throughout any deal, right, there’s kind of like four metrics in which real estate works out and like actually brings you more money. And overall brings you more net worth, obviously, what we just talked about, which was cashflow, like how much money in excess Am I getting from income coming in and expenses going out? Right? But then there is your debt paid down, or principal pay down or principal reduction, whatever you want to call it, it’s just the amount that is going towards that principal payment? Because most most people are doing loans, right? I mean, they may buy it all in cash, and that’s their prerogative. But most people are doing that principle pay down, then there is your appreciation over time. So how much is that asset actually going up in value? And then the which, which is a hedge against inflation? Brian, we’ve seen that that specifically through COVID, right. And then the last is just your tax benefits, right? tax deductions. So we’re almost any expense in real estate can be reduced in taxes, your interest rate can be, you’re actually decreasing your tax load by the overall value in which you purchased the property. Right. So whereas that’s contrary to like just throwing money into a money market, stock market account, right, where you can be double taxed on stuff. And so you got to take those factors into account. And so what we started doing was, we I mean, we still look at, you know, individually, what’s our cash flow, but then we’re starting to look at Hey, what’s your overall returns so that they can you can look at with all four factors, compare it to the stock market and say, which is a better investment right? And still, you can be very conservative and how much you think it’s going to appreciate you can even reduce your your tax load, like saying, Hey, I’m, I’m a 20, aggregated 27% tax bracket, but you know, maybe that won’t be forever. So let’s drop it down and still, okay. Is it a better return in other places, and so that That’s kind of like what we’ve seen and what we transition to. Now, there is a step forward from that, because we’re looking at just what we were talking about is, hey, you know, your investor defines what their buy boxes, which is like, hey, if any investment fits this parameters on good to buy, right? And then we take it into looking at just one individual deal and say, Does it meet that Buy Box? And how does it relate to other opportunities I might have, right. But you could take it a step forward. And instead of just saying, What is my return on investment, you could say, overall, in the years to come, what is my return on equity? And so like, for us, we really, like I’m, it’s like, coming to my head, right. But like, like, we really like to, I like to help people secure their life within their like, maybe even, it’s just their single family house, right? They’re their generational renters. And then now we’re moving them into like, buying their own of their own home. And that’s still a net positive benefit over the life of Right. Or it could be just taking someone’s portfolio and making it greater or even taking someone who’s like, right now, there’s a teacher, and I’m like, Hey, your equity position is 60% into this house, what is AQ an extra 500 a month, but also secure that know that if you buy this property, it will be paid off in 30 years, and your retirement just has shifted to being possible? Right. So that is return on equity. And that’s, that’s what we’re also looking into more and more, as we analyze deals for our investors, and saying, Hey, let’s, let’s zoom out to not only the justice, one investment, but zoom out on your overall portfolio, your overall net worth, right.
Yoni Schmidt 17:10
So that’s what we’re Yeah. Yeah, I mean, that equity piece is so important, right? It’s, you know, it’s really what that establishes in defines your net worth. Right? We talked about this on the on the front end before we started recording, but your net worth is really your your assets minus your liabilities. So when we’re looking at opportunities, right, many people, many investors, oftentimes, you know, they look at the cash on cash return, and they say, you know, this is suitable, this isn’t suitable. A lot of, you know, a lot of investors are also familiar with the cap rate, right capitalization rate, which is a commonly used metric in real estate to determine whether or not it’s a good suitable investment opportunity. But many people forget that your cap rate only matters for your first year, whereas your cash on cash return is really something that is throughout the life of the loan, and, or the investment and your return on equity is also, you know, throughout the life of the of the of the loan, right? Because you, you, you would really drop to like 0%, if you’re buying this out cash, right on your return on equity, right, you have full equity in this property. And so there is no return on the equity, but it’s the appreciation, and it’s the cash flow. For those investors who you know, are looking to invest, right, oftentimes, they forget about the principal reduction, right. And then I’ve seen this happen twice with your, with your analysis, and with the Tyler Bennett group out of Utah, who, you know, they are involved with the Kris Krohn consortium fund that, you know, buys a lot of real estate and it’s a big name in the world of real estate. And we’re grateful to be managing many of those properties in the Tulsa, Oklahoma City and northwest Arkansas markets. But you and then both, take that principal reduction, and you bring it back into the investment to, you know, show a true, a true return for your internal rate of return. Right to understand, and what does this truly look like? Can you talk to us a little bit about that? Why is it so important to never forget about the principal reduction? And, you know, consider it when you’re thinking about your goals in real estate, whether it’s, you know, I need to cashflow or this is a long term play and, you know, 30 years from now, I’m going to enjoy the fruits of this labor of my labor that that brought me to purchasing this property.
Ryan Blackstone 19:54
Right, right. Love it. Thank you. Yeah. So I look at as as First off to two vehicles, you must have to really be successful, you need a vehicle that makes you high amount of capital. So that could be a high paying job that could be flipping properties, it could be wholesaling properties, Hotelling properties, whatever it is, right? You need a high capital earner thing. And then once you make that capital and in excess of what your burn rate or expenses are, where can I throw that into it to make that passive income. And the one thing that honestly really hurts on real estate relative to the stock market is our liquidity and our ability to compound, right. So, so in real estate, you know, you’ll get those cash flows and cash flows are great, really, cash on cash return is only counting for that first year in that cash, cash flow, you know, I actually, it’s two different things, words, cash flow is literally the amount of money coming in, right, which will and will always go up, right, your cash on cash return should and will always kind of go up as well. But your return on equity actually goes down over the life of owning the property, because now you have more capital stored up in one deal. And even though you’re even though your cash flows are going up, your equity is actually going up at a more significant amount, right. And so, your, your that that disparity actually means your return on equity goes goes down. And so how do we though, then, take that, which is me, Park, I mean, you can even be in a market with no appreciation, right? And still your equity is growing based off of your, your principle paid out. Right? Right. So it is very important to then figure out how to access that equity to then go make more money, right. So, in the stock market is super easy, you just click a button that says reinvest and buying more stocks. It can make more money, right? Make your cash make more cash. And so when you don’t, when you only look at cash on cash return in you’re not counting in over the life period, because real estate should never be looked at, in a one year perspective, right.
Yoni Schmidt 22:57
You’ll probably lose if you look at it that way.
Ryan Blackstone 23:00
Yeah, you’re losing every day, right?
Yoni Schmidt 23:02
Every day.
Ryan Blackstone 23:02
Yeah, yeah. Yeah. But but you see that all the successful people are they own real estate, but often times, they’re always working the deal. And my personal love is is you go and refinance. So when you refinance, though your cash on cash is going to go down, right? In that particular deal. But what if you take the equity or you refinance, or you take a line of credit out of that property? So now you have access liquidity with that equity, and then you go buy another property? Or heck, throw it in the stock market? If you’re like, you know, you want to dive you’re bullish?
Yoni Schmidt 23:49
Yeah. Yeah. If you’re bullish. I mean, you wrote in those in the stock market, it’s tax free money, right? You’re you’ve already paid the taxes on the income on that money. I guess it’s not really income, but you paid the money on that, that taxes on that equity. Right. And it’s tax free when you pull it out. I guess the other option is if you’re, if you’re dead, certain on wanting to redeploy into real estate, and then you could leverage the temporary one exchange, IRS code and just redeploy it into a lifetime asset. Right. So and so people often forget about the principal reduction, it’s, you know, you mentioned this earlier, it’s a forced form of savings. I like that term. It’s something that, you know, we definitely need to take into consideration when we’re investing in real estate because ultimately, you know, the idea is to access that capital through vehicles, like, you know, refinance, you know, refinance loan products, or, you know, 1031 exchanges. I guess tell us a little bit about what would you advise As a new investor, who’s coming into the market and evaluating, you know, their first real estate investment deal, you know, what are common mistakes that you see? And how can we help them avoid that?
Ryan Blackstone 25:12
Yeah. Great question. To be honest, the biggest mistake is fear of failure and never getting into it or taking action, right? You’re, you’re never going to know the full steps, you’re never going to know the analyzing it perfectly. You’re not going to be the expert and the perfect. Now that’s where you lean on your team, you lean on your property manager, Hey, can I rent it for this? You lean on the real estate agent? How much will this be worth? After I renovate? Right? How much is it worth now? Right? You lean on your contractor? How much does it cost to do this work? Right? And so you do have to gain that trust. So if I, if I were to say anything, it’s like, man, get the right team in your corner, trust them, and pull the trigger. And you know what? It’s also okay. If you fell and bought the wrong deal, what’s not okay, is never investing. Right?
Yoni Schmidt 26:18
And that analysis paralysis, just like cripples people in, you know, they’re unable to, you know, pull the trigger.
Ryan Blackstone 26:26
Yeah, I heard a other good quote, or something I can’t remember quiet. So I’m gonna botch it up. But basically, it was saying that the truths that you actually believe, are at the level of your success, right? So the better you understand the truths that you’re believing of yourself, or of your environment, will dictate how successful you are, right? And so you think, like, Hey, I gotta get it, right. I need to know it perfectly. I can’t trust anyone, I’m gonna get screwed. Well, it’s gonna, that’s what’s gonna happen, right? And so if we’re just looking at this, this one finite thing, right? It’s like, okay, like I, I, if I were to be honest, right? When I started investing, people would say, I was a failure. And, and it was like, I joined a course, I barely broke even right? I had a couple people steal deals from me. It was not good. But I learned on time, and that was invaluable. And I learned truths about myself, of like, who, oh, I can stand up, oh, I had a good contract, how they can’t steal from me, you know, and all this kind of stuff. And so if I were a new investor, going back to your question, because I love bunny trails, but if I were a new investor, you know, one of the common sayings right now is like, you know, if you’re going to fail, just fail fast, keep moving forward, learn from it. It’s not about this one deal. It’s about the lifetime securing your life and legacy overall, right? Because that’s the only way there’s never an easy button. Right. Right. Unless you’re really into Bitcoin.
Yoni Schmidt 28:28
I mean, just unless you bought Bitcoin in the year 2000. There is a fast and easy button, you can just cash out at a site it was at so many banks last night. One Bitcoin was like 75 grand?
Ryan Blackstone 28:46
Yeah, we were waiting for it to push past 60,000? I think so. Yeah.
Yoni Schmidt 28:54
It’s interesting to see, you know, the Bitcoin rally, and then, you know, it’s, it’ll be interesting to see, you know, how this continues, or it doesn’t, but with respect to real estate, yeah, I think the good thing is that it tends to be very forgiving over the long term. So even if you failed when you bought your first transaction, right, hold on to it, weather the storm, and write and make your payments. And, you know, you’ll come out on the other end a lot better, even if it requires some sacrifices in your life. So you don’t take that one vacation and you you know, make your rental payments, right. Which which should always be the course of action and the decision that you take, if you know the two are in the balance of which one should I go for. But over the long term, real estate is very forgiving. And we know that things are cheap in the rearview mirror, right when we when we look backwards, right? That contract that you had, which was a good contract, right, you’re kicking yourself sideways. And you’re saying I should have bought that. And I had an eight Plex in Tulsa that I have the same experience with. And, you know, I’m glad I’m not 60 or 70, kicking myself sideways, because I hear that’s how you break a hip. But the folks, I should have bought it. And I didn’t, I didn’t pull the trigger in 2016, to buy an eight Plex for $150,000. In today’s world where this Plex, probably probably is worth, you know, six $700,000. You know, it, it was something that you know, you can you can only learn from that’s it and just know that next time, you won’t skip out on the opportunity to go after something.
Ryan Blackstone 30:48
Yeah, but I love that you say that you, you say and that’s really important. Real estate is forgiving, right? So, yes, cash flow in cash on cash is important. We want to make sure we can make those payments, right. But every person I hear their regret wasn’t the property they purchased that the one they did it, you know, that’s just because over time, it always does well.
Yoni Schmidt 31:19
So right, as long as you can tell me? Yeah, I mean, it’s forgiving. You see it in the pro forma too, right? You don’t really see it when you’re tracking your debt service coverage ratio, and your return profiles and all the financial indicators. You see it in the pro forma? Let me ask you something about a little creative financing solutions for those who, you know, for them, cash flow is a little bit more important nowadays. And they’re saying I want to continue to invest, you know, and nothing really makes sense. Right? What are your thoughts? And I’ve been toying around with this, and I have maybe five conversations lined up for starting tomorrow into next week with lenders who are friends of mine, and, you know, mentors and people that I trust and respect in the industry. But what are your thoughts? And what’s your sentiment on putting an acquisition of an investment property on a 12 month period of interest only payments, on a 20 year amortization schedule, and inflating your cash on cash return for the first year, in certain instances, you may need to come in, you know, 25 30% 35%, depending on the purchase price, and what you can negotiate with the seller, but, you know, you’re inflated on the first year, and then you have to be in it with enough equity. So we’re, you know, year two comes around your your debt service coverage ratio doesn’t drop below 1.2. Right? Because a lender won’t, you know, go for that. But, you know, it’s a little bit riskier. It’s you’re not paying off the property for the first year. And you still own it, though, right? And that’s what is challenging right now, is the acquisition piece of it? Is that in your mind a solution.
Ryan Blackstone 33:10
To a solution to a cash flowing.
Yoni Schmidt 33:15
To investors who want to continue to buy and find it difficult because of the fact that properties are not cash flowing?
Ryan Blackstone 33:23
Ah, that’s great, because over time, they will start cash flowing, because now we’re looking at a longer period of time. Yeah, I mean, I liked that. It all depends on someone’s risk level. But the big thing about that is, I would say, in my personal opinion, you know, I’m funny enough, I’m, I’m not really risk tolerant. Right? Yeah. So when you you’re telling me that I’m like, Oh, that is very creative. If like, I want to build my safety net. In fact, we have an investor who bought a deal. And they’re renovating it on a construct, they bought it with a construction loan and they’re renovating it and that that renovation and construction loan is interest only payments for a year right and so instead of refinancing right away, you know, a hold that period for a whole year it took them only two months to do the construction, get a renter in there and him and I were just talking about hey, just let that be your safety net. If you want build up that reserve that way you can hold it actually in year two, you know, even if you were negative you could then start chipping away at that savings. You know, to see that it will cashflow later that is a risky move. But I mean for me it would it be a risky move to do that. And then like I know I’m breaking even I renovated everything I’m No one breaking even cash flow wise and I have a reserve if something else were to go wrong, and I don’t know about it right? And so it seems not not to say, it can’t ever happen, right. But typically, when you’re in a deal like that, you’re going to have some kind of equity, because either you value added, or you brought a down payment or whatever, but to see the market drop below that amount, where you’re going to actually eat the, like, the worst case scenario is you have to sell. Right, right, And to see that you would sell and lose money, especially for holding a property for a year or two years, it is kind of hard for me to see that, especially when you do it in a shrewd, wise manner.
Yoni Schmidt 35:56
So yeah, so, you know, that’s interesting that you say that, because my, my conventional, you know, thought has always been like, you can never buy a property and hold on to it for two years, and then sell it, or one year, and then sell it. And I guess it really just depends on your purchase price. From my perspective, it was always well, you know, whatever I’m buying, that’s it, I’m gonna keep right, because of a bunch of different reasons, the depreciation aspect of the sale that you have to recapture on your taxes. Um, you know, the the capital gains, whatever it is, right. My thought has been, you know, I buy something, I keep it. That’s also you know, what I was planning for my own retirement in the future. And it really depends on how you buy it, right? If you buy something, so under market value, and you hold it on for two years, you hold it for three years, and you’re renovating it, and you’re forcing appreciation and adding value into it. Sure, you would, you could, you know, make a good margin on it. Interesting, interesting stuff. Tell us, what else are you seeing, I guess, in the market in Northwest Arkansas activity levels, inventory levels? Where are we with? With your market?
Ryan Blackstone 37:25
Yeah, it’s, it’s going good. Last year, we increased appreciated by 9%. Wow, where other in the country where others are either zero, or maybe a little low. Maybe even just a little bit hot one 9% is, I mean, we still run conservatively and say our appreciation levels are 3%. Just to like, keep up with inflation. And like, even though inflation has been everywhere. So 9% is amazing, right? And then we have seen the volume dropped by a third, based off of how much has been sold during the years of COVID. And honestly, I would say it’s like, the error of cheap debt. Right?
Yoni Schmidt 38:19
Yeah. Those good old days?
Ryan Blackstone 38:23
Yeah, yeah. The good old days, two years ago.
Yoni Schmidt 38:28
But maybe maybe two more years sooner?
Ryan Blackstone 38:30
Yeah, honestly, you’re right, you’re 100%. Right. So expensive. It couldn’t be cheap. Two years from now, you know.
Yoni Schmidt 38:38
I mean, when you look at the data about inflation that just came out, right, we’re seeing that it’s actually higher than what was anticipated. And so, you know, the Fed is gonna have to start pulling some levers and making something move. So maybe towards the end of this year in 2024, no one has the crystal ball. But, you know, maybe towards the end of this year, we’ll see some rate cuts, and that will do a few things. Right, the ripple effect from a rate cut will, you know, have effects on the market? Like, what price increases? Right. You know, I guess the price increases, combined with the rate cut could potentially mean that people have more access to, you know, buying homes, but not necessarily. And it really just depends, right? And also how much equity are they putting it down? Right? Yeah. People module opt in by 5%, right, with 5% down payment. Don’t expect those properties in a year or two to cash flow. When you say I’m going to become a real estate investor, and, you know, rent this out.
Ryan Blackstone 39:49
Yeah. What we’re seeing a lot with our investors and specifically for off market deals is we are seeing really Good creative stuff coming in, where like, like, for example, technically there is a way like a contract for D to do a sub two for any kind of deal. The ways I love because again, I say I’m I’m more risk adverse is I love FHA and VA. In fact, my wife and I are looking to buy a new personal house for ourselves. And the way we target for our direct Mellors for letters, and then we’re gonna cold call is, specifically FHA or VA loans that when we knew the rates were just ridiculously low, like, we looked at one that was a 2.25%. Year one in first monthly payment, you’re paying more to principal payment pay down than you are the actual interest.
Yoni Schmidt 40:50
Wow. So you’re targeting them for subject to?
Ryan Blackstone 40:54
Yes, yes, specifically for subject to, and we’re seeing that happen a lot more, we’re seeing owner finance happen a lot more where where a lot of older people are ready to retire. And they don’t want to get hit with that huge tax bill. And they would rather see a monthly amount come in. And so they’re willing to sell and owner finance a deal. And you may not win on overall sell price, but you’re waiting on that debt, right and not having to come out of pocket for that. And then we are also seeing a difference in in the mindset mindset shift for overall sellers. What we’re seeing is Now mind you, I feel like it’s just going back to 2019, for the most part, except for what we just talked about, which was the creative finance, because that was still so cheap back in 2019. So so but I am seeing a lot more death, divorce, depression, all these these negative situations that are causing people to want more conveniency that overran rice, right. And so a war like, it’s actually been kind of crazy, there’s to two factors we keep finding. One is grandparents who bought properties, to allow their grandkids or their kids to live in to help them out. They destroyed it. And then it’s like, okay, wow, we’re coming in. And they’re like, I just want to get rid of it. I just their emotions are so tied up. And like I tried to help support family. And the second thing is solar panels. We just see so many people get the solar panels. And now they’re like $40,000 on top of their, their, their their actual mortgage debt. And they’re struggling right now. And so we’re like, Man, this is crazy.
Yoni Schmidt 43:15
Like, we show owners of homes that have solar panels, they essentially financed their solar panels. And now they’re in a place where it may not be worth it, because they’re not contributing to the grid or the cost offsetting wasn’t the cost benefit was not, you know, where they needed to be?
Ryan Blackstone 43:36
Right, right. Because what happens? Well, one is, you know, you got your solar panels is $40,000 debt, right? And then really, you should upgrade to a battery pack because most people work like a nine to five, right? And so they’re they’re charging back to the grid, or giving back to the grid, and they’re getting maybe like 16 cents per kilowatt or whatever. I don’t know, don’t quote me on this, right. But their demand when they need to use it is 56 cents per kilowatt. Right. And so it doesn’t equate unless you have that extra 1000s of dollars for that battery pack. So that you’re using your active solar before you use grid energy, right. And so then the second piece is there. It’s not a one for one you buy $40,000 of solar doesn’t mean your property just appreciated by $40,000. So they’re listing them and they’re not selling them just because you can’t you can’t just tack on another 40k You know, right. It’s not a bathroom or kitchen. Yeah, exactly. Exactly. Yeah. It’s a cool. Yeah, yeah. It’s just interesting to see like when you’re looking for off market deals, you’re starting seeing these patterns come in And it’s like, okay, how do we creatively help them solve the problem here? And that’s what we’re seeing a lot. So, love it.
Yoni Schmidt 45:09
Okay, Ryan, thank you, I guess, you know, I want to be conscious of our time here. So, you know, I know we want to end here, you know, without going too much over. But this was really inspiring and very eye opening educational and I love seeing what you guys are doing in Northwest Arkansas. I was just at your office last week, was it? Yeah, yeah. On Friday. Can’t wait to see it done. Yeah. So you know, off the top. Yeah, I’ll pop in on you guys. Soon. But thank you. Thanks, again, so much. Really appreciate it. And if anyone needs to reach out to Ryan, how would they do that? They would know you.
Ryan Blackstone 45:54
Best way is go to our website, blackstonecompany.com. You can go to to About and all our our contact cards are going to be there. You can also reach us in any social media platform pretty much so. But hey Yoni, thank you so much for letting me be a part of this. And I always appreciate the value you guys bring in to all investors and hopefully new investors to come in as well.
Yoni Schmidt 46:21
So many, many new investors hopefully. Yeah. Thank you so much. Yeah, appreciate you.
Outro 46:31
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