If you are unable to view this presentation, you can view a pdf here
Dear prized Victory customer,
Critical announcement – During our consistent market research, we heard of a property manager who’s customer had their owner portal hacked, and the bank account was changed. This is an option from your owner portal. To avoid that risk you should immediately institute two-factor authentication. If you struggle with technology you may find more success deleting any stored password, creating a strong password, and only logging in from a very secure computer. Since you’d presumably catch this issue after the first time, it’s not a huge risk unless you own a lot of homes. Hacking is a significantly growing risk. A lot of insurance policies can cover that risk.
We are beginning the process of forming a Real Estate Investment Limited Partnership (RELP). It’ll be a great way to take advantage of our expertise in rental investment selection / management to invest in local real estate without nearly as much stress and risk as direct purchases. There are also low minimum investments, no credit, time, or experience necessary, and limited liability. If you’re interested please touch base with June (June at VictoryRealEstateInc.com) and she’ll collect contact details that we’ll use to roll out information as we finalize the plan. Our timeline to launch is anytime between fall 2020 and the end of 2021.
We began this update in January and a lot has changed since then. We’ll begin by discussing the Covid19 issue. We believe it’s naive to think this won’t have a major effect on the economy and affect a lot of people and issues. However, as far as we can tell the housing market is likely to fair pretty well through that. There will be pockets of issues with tenants who experience long term temporary unemployment, sickness, etc, but for most of our properties it should be minimal. The lower the rental rate (relative to size) the more likely these types of issues will affect you. We’ll address these issues on a case by case basis, but contrary to our past approach of having near-zero tolerance for nonpayment, it’ll most likely make financial and ethical sense to give suffering people who show initiative a solid chance to get back on their feet in light of something like this. Few will want to view homes during the height of this problem, so demand will be slim for a while.
“Things to consider… Do we have your tax id on file? Has your address changed in 2017? Do you plan to report the income in someone’s or some company name we aren’t using currently?”
The system we use is called Matterport, and their studies show that homes with their scans sell 24% faster than average. Since the rental market is naturally more superficial, we believe it’s even higher for our industry. Assuming our average home rents for about $1300 * 24% = $312 in saved vacancy, less risk etc. These are very expensive for us, and we’re providing them to existing customers at no cost. Again in 2019 we relentlessly pressed forward with costly improvements to directly help our customers. These improvements not only reduce vacancy, they increase rents, limit liability (vacant houses are risky), and also prepare us for a situation like we’re facing today with major uncharted challenges. We already have an efficient showing scheduler, options for self showings that naturally limit contact and lead to much faster rentals, online payments and maintenance reporting, a standard system of cloud computing for staff and customer benefit, and the tested ability to easily work 100% remotely.
Our experience with major hurricanes has prepared us very well. We also instituted new procedures for this unique problem. Internally we have 3 stages of varying degrees, but let’s focus on those you may come into contact with. For any obvious outbreaks in our immediate area we’ll move to mobile-only, and it’ll probably be for some time. Given the lessons of past pandemics, we feel it’s best to be very early to isolate, rather than hoping for the best. We also feel it’s much safer to decentralize our staff so that a single person can’t bring down an entire office at once. This method was extremely helpful after hurricane Florence when our Charlotte and Raleigh locations provided critical support to a relatively hard hit Wilmington. As soon as we begin to see cases in our area, or sooner if there doesn’t appear to be testing, you may find that we’ll require hands be sanitized before entry, or we may handle business out front. We’re not providing public restrooms, stepping up our no cash policy, and cutting down on inspections for the time being, especially since we completed many in December and January. Any staff showing concerning symptoms will be sent home for several days. Other than that we hope and expect to only have minor disruptions.
The majority of challenges will probably be secondary effects such as rising unemployment overall. These could surely be significant, however we have always maintained that US rental housing is one of the safest investments on earth, and even now that appears to still be the case. The biggest risk we face is mass unemployment. If this issue spreads from mostly affecting those who deal directly with the public, to widespread layoffs across industries, that is always tough on housing and rentals. Even still, I doubt we’ll see the hit to housing that we saw in 2008.
“as landlords, make sure you always keep an eye on the national unemployment rate. If that trends higher, your cash flow risk increases”
There is simply a mountain of cash in the system and if I were going to pick a long term winner in a scary environment real estate is the place to go. Also the plummeting yields across the globe lower interest rates for buyers dramatically (albeit very slowly). Since most buyers focus on their monthly payment, not their net worth, falling interest rates are the same as falling prices as they can get much more home for the money. In effect, central banks are shouldering what should probably be major price reductions on global real estate. Their actions have unintended consequences though and one risk that is probably not too far in the distance is major government controls over the rental market. Once central banks literally quadruple down on intervention in light of Covid19, you’d assume we’ll see more of the asset and rental price inflation of the past decade. That’ll lead to a worsening inequality problem, and renters who simply cannot keep up. The complaint will likely be less that the government is intervening since it’ll largely be necessary to preserve our own values, but rather how did we get to that point.
One article we passed around today did raise concern. Millennials have long been known to be frugal, except when it comes to rent. No one is more responsible for the major rental increases of the past 10 years than this generation. When it comes to their home, no one pays up like they do except the very wealthy. This generation is by far the majority of the rental market, especially for our relatively high-end homes. This article highlighted that they are cutting back spending fast and furiously in light of this pandemic threat. Watch that issue in other places as well, their habits are powerful. In our case it’ll probably be short term, but could be significant during that time.
If the current stock market crash is contained to mostly stocks, it shouldn’t affect housing much at all. If anything it may push investors to housing. Again, the risk is a spread to unemployment.
All of these risks mean you absolutely must prepare for payment lapses that appear quickly, and will probably average at least 2 months. Prepare immediately. The nature of an outbreak like this is that you don’t expect or see much, until it explodes. Please do not underestimate the risks this poses to your cash flow. Prepare now, and prepare aggressively. A neat lesson on how surprising exponential growth can be is found here. Almost all scientists agree that there are cases lurking that we have no idea of. That would mean an explosion in cases is all but inevitable. https://t.co/lTnpxNc8th?amp=1
“Again in 2019 your property management company through your support, donated a large amount of money to charity! We donated almost $4000 to mostly local charities“
Hopefully 2019 was a great one for you, and that we were able to contribute by achieving our main goal of maximizing your income while minimizing headaches.
In this update we don’t have many critically important updates, but our company has undergone a ton of changes that you really want to be aware of in order to make the most of our service. We also discuss one big addition that we made this year, in extremely high tech 3D virtual tours and the huge benefits they offer you.
Again in 2019 your property management company through your support, donated a large amount of money to charity! We donated almost $4000 to mostly local charities. This year we gave to our local ASPCA, Cape Fear Literacy Council, Tripswithpets.com adoption events, Habitat for Humanity, Cape Fear Hospice, Ocean Cure, as well as Beagle and Horse Rescue programs
2019 was a truly surreal year for us. We bought an office 10 minutes from downtown Charlotte and will be done with renovations and moving to this central location in a couple of weeks. Expanding to that metro started strong, and we expect continued growth now that we’re centrally located and can serve a larger area efficiently. We’ve decided against expanding to Fayetteville due to the job market, and likely shrinking of the military as technology replaces people. Instead, we’ve decided to expand to Greensboro and Winston Salem this year, and could not be more excited. We hope to close on a new office in Winston Salem as early as this month, and Greensboro won’t be far behind. These added locations will give us more opportunities to roll out costly perks such as 3D scans since we can spread those costs more efficiently.
We went on a hiring binge early last year, and doubled our staff count by the end of the year. That means we also had to ramp up the number of contractors we have available, accountants, marketing to keep the new staff busy, and just about everything else we do as well. Many of you probably noticed, but all in all we felt that we were able to undergo all these monumental changes with minimal disruption to our customers. We will spend 2020 building out these changes and improving, rather than significantly hiring. After the election, we hope to have a host of powerful new policies in place to hit the ground running when the dust settles, however from here on no customer is likely to see a year with as much change as 2019.
One thing we learned without a doubt is that for whatever reason with our business, new hires either leave in the first 3 months (a bunch do) or never. Armed with that knowledge we’re going to make subtle changes, especially with future hires. First, while not always a luxury we can take advantage of, we’re going to try to keep new hires in a support role for the first few months. That should reduce account manager changes dramatically. We’re going to test something of an assistant and/or buddy system, in the hopes that will minimize disruptions during major hiring periods, or as more experienced account managers get promoted and move on. It’ll also help when someone is out of the office. If we have success we’ll formally roll out some type of flexible plan and let you know the details. Either way with our office managers taking on more of an oversight role, they’ll serve as a backstop for the staff who are more prone to work alone.
In our last update we announced that we had rolled out a major employee benefits package that would surely help us to retain our best staff, and since that time we’ve only lost one person who was working then, and they simply returned to their hometown in TX. Because of the amazing results we’ve seen from those changes, we’ve made a couple more for 2020. We’ve always given 14 days of paid time off, and this year we’ll add 14 work from home days. Since we are often on the road to relatively far-flung locations, and many of our staff live in these locations, flexibility will not only add to their happiness but likely make us even more effective. We expect this will create another one of those win-win-win’s (customers, company, employee) we are always looking out for.
We’ve made some big changes to our staff roles this year. As noted many of our staff have been here for quite a while, and our recent expansion has allowed them to elevate to greater responsibilities. Alisha Robbins is taking over as general manager and will be the primary person handling major new initiatives, general oversight, and major problems. We have an office manager in place for all of our locations and they’ll serve as local oversight and the first stop for complaints and problems. They’ll oversee the day to day operations at the office, and another major task for them will be to ensure we’re delivering great customer service.
You can find detailed contact information for all of our staff using this link. Over the coming months we’ll add additional information such as an organization chart, lists of duties, and other information you may find helpful regarding our internal structure.
We’re preparing for a recession this year. Whether we have one or not is anyone’s guess. However with nearly 97% of CFO’s in America preparing for one, we think it would be prudent to do the same. This means we’ll be more conservative than in the past regarding collecting repair costs before work is authorized, repairs and upgrades that we recommend, and nearly every decision we make for that matter. If you expect more than a basic turnover, it would be a good idea to authorize us to hold the last month’s rent for repairs. This will avoid delays from sending payment later.
Another major aspect of conservative management will be preparing for the effect a recession would have on the severely cash strapped renters of America. We touched on this in our last update, and things are not much better. Most still own few assets, meaning they haven’t enjoyed much prosperity from the current expansion, have insane amounts of student debt, and have watched most of their critical expenses explode (healthcare, housing, and education). So far energy and (unhealthy) food have mostly been kept in check, and let’s hope it continues.
“the median American rent payment rose 61% in real terms between 1960 and 2016 while the median renter’s income grew by 5%” https://www.economist.com/special-report/2020/01/16/how-housing-became-the-worlds-biggest-asset-class
The critical point here is that risk for the next 12 months is obviously higher than usual, and we’d be remiss not to factor that into our tenant approval decisions. When you have very tough credit standards, so much so that most of our tenants could easily buy a house if they wanted, it’s difficult to net very high rents. Great tenants have great finances for a reason, and it’s because they’re smart with their money and rarely overpay. In a hot sales market with falling interest rates, it’s difficult to find great tenants who need to rent. That of course means a reduced supply of leads, and we all know that means less demand. We’ve weathered this storm well for years, and expect we’ll continue, but even a subtle shift to stricter standards may put a bit of pressure on the rates that we can charge. Trust us, conservative management is a phenomenal trade-off the vast majority of the time, and a lifesaver when it comes to avoiding truly brutal outcomes.
“the median American rent payment rose 61% in real terms between 1960 and 2016 while the median renter’s income grew by 5%”
We’ve long espoused how critical it is for our owners to keep at least two months of rent in escrow, and 2020 will demand that more than ever. If we hit a major recession, even many solid tenants will stop paying, break leases, and create major unforeseen challenges. Prepare now.
Repair expenses are still extreme from a historical perspective. Things do seem to be leveling out at the moment, but all the same challenges we highlighted last year still apply. Most tariffs are still in place, and it’s still very difficult to compete for contractor talent with behemoths who don’t have to make money or run efficiently.
Finally, our hottest new product is the new Matterport 3D scans. You use this similar to how you use Google Street View (Victory Virtual Viewing)
We’ll provide these free of charge to existing customers, but due to privacy reasons can’t scan until the home is vacant (unless owner-occupied), fixed up and cleaned. These scans are unforgiving, scan nearly every inch of the property, and we’ve found owners are taking better steps to get their homes ready as a result. A great unintended outcome for sure. We feel these scans will be a huge benefit to our owners because it makes viewing your rental in nearly lifelike detail as easy as picking up the phone. Matterport who processes these scans says their sales listings sell 24% faster, and we think this is probably even higher for the simpler rental market. This equates to a massive increase in yearly income for our customers.
Looking ahead as to what to expect for 2020, in our established locations you shouldn’t see much change. Most likely we’ll keep hiring to a minimum, and focus on polishing our new methods and staff. We haven’t identified any major new initiatives we’ll undertake this year in terms of services and features that might dramatically change how we manage your home, but we will be rolling out these great new 3D scans as fast as we can. We expect a very tough and challenging year for 2020, but we’re excited and prepared to see what lies ahead