How to lease during a pandemic

Join Ken as he speaks with Kelly Johnson, Vice President of marketing at MC Companies as she discusses what her and her team have done to confront that challenges of leasing apartment units during the restrictions caused by the recent health crisis.

Transcript:

(00:00):
Hey everybody. It’s Ken McElroy with MC companies and the real estate strategies and our podcasts. And I’m really excited to have today. Kelly Johnson, let’s pivot a little bit and talk about leasing. So one of the things that did not happen, or people did not move out for, you know, like 60 days some did, but you know, think about what’s happening, we’re on lockdown. So a lot of people just hunkered down in their places. Every state was a little bit different and we have properties in multiple States, but, you know, I was just blown away by the way, guys, I get these emails, I get emails from my onsite folks, you know, that you know, and there’s all these little internal contests that are going on and, and wins that we’re celebrating as individual properties of ours around the country are doing remarkable things. And so how did you pivot? Basically saying, okay, you know, I, how do we rent? How do we rent apartments?

(01:01):
Yeah.

(01:02):
People to do it. And now we don’t. So, you know, let’s talk through that.

(01:07):
Yeah. There were, there were a couple of different fronts that we wanted to address. And the first one was how do we rent virtually? So how can I take a customer’s phone call and rent an apartment to them without ever being face to face. And that was initial, that was in the first 72 hours. And so I did a training call. I got on the phone with all of our leasing teams and we worked through that together because it is a different process. And I did want them to understand everything that we’ve been telling you, not everything, but a lot of what we’ve been telling you to do in the past has to be shifted. So let’s, let’s, let’s just kinda throw that playbook away and figure out together what is going to be a good solution. I’m I like to craft really pretty things.

(01:56):
I want our websites to look good. I want any video that we produced to look good, and all of a sudden I had to open my mind and remember that it’s a time, it’s a time for solutions. It’s not a time for control. It’s not a time for trying to you know, clip anybody’s wings. We had to let people do what they needed to do, which means everybody in the field had to create videos on their own with their phones. They had to do video tours and do that for every single floor plan and do it immediately so that they could start to send those links out to our customer. Then the next thing we did was introduce a virtual tour using an iPad. So we got iPads for every single team and we had to research solutions. So FaceTime is great.

(02:47):
If two people have eye products, eye phones, and an iPad, if you don’t, we need a product that is going to work with everybody. It has to be agnostic. So I found this app Google duo and, you know, going to all these conferences online and you’re trying to absorb as much information as you can. And somebody says, Google duo, it’s agnostic. Boom, we’re going to use that. So they’re gonna have another meeting guys. This is horrible. And and figure out how to take that customer now with my iPad and take them through the apartment so that I’m still communicating with them virtually. And I can show them the view. I can show them where they would park. I can show them their closet space, their kitchen. I can, I can do a tour that way. So that was our very first solution.

(03:29):
And one of the great, I there’s so many great outcomes. I mean, this was a terrible experience. I know for a lot of people, but if we don’t look for those silver linings, we don’t look for those things that are really great. I think we missed opportunities. And so for me one, one of many would be the talent that we have out there. You know, some of our team members put these videos together and they sent them to me and I just, I was at all and I was so proud and, and thought, you know, this is really cool that these people who worked so hard for us and maybe are thousands of miles away, but yet now I’m fully connected because I got to see a skillset that I didn’t even know they had. And so that was our first, that was our first step out of hell. Basically was how do we create these videos? How do we teach people how to rent in that way? And so that was probably the first until things started to open up. That was our first step.

(04:24):
Yeah. That was just incredible. To me. Let’s talk a little bit about the the chat bots, because that was another big piece that you pioneered for our company. And it’s interesting. I got a, I got a tax from the company that, you know, I need you guys to wrap your head around this. We went from in person phone calls, you know, and, and recording them all, which of course we’re still doing, but they share with me in one month, Kelly, that we handled 4,000, 406 communications of which we converted 1,115 prospects to 450 appointments. So we had 450 appointments in one month through AI. And then, you know, I saw your numbers because we have meetings every Tuesday. You, you rented 93 apartments. Like I just, it just, I mean, I floored me when I saw that. I’m like, how did we rent 93 apartments in one week? You know, without people you know, it’s, it’s happening right now. And I think that’s what people want to know is like, how, how are we pulling this off?

(05:42):
I think that first of all, the software that we’re using or are using it’s called lease talks and they have, I’ve been partnering with Lee sock for about three years. So I, I use them in the, the position that I was in prior to coming to MC. And so I already knew that they were really solid company and we use them to grade our phone calls into root chord, all of our phone calls. And then in 2019, in the late part of 19, we rolled out their CRM customer relation management program. And what that does is it captures every single lead. So every phone call, every text, every email that we get from our website goes into that lead system. And I can’t tell you how many times. So, you know, we rolled this out to our organization and anytime you put new software out into, you know, the, the, your, your circle, there’s going to be some bumps and bruises.

(06:38):
Not everybody is all that excited about learning a new software and, and not everything works perfectly. So you’re always kind of working on this adoption. And it’s funny because when COVID hit overnight, everyone said, if it hadn’t been for that CRM, we’d be in a lot of trouble. Because what that CRM did was it captured, it made sure that we didn’t lose any leads, not a one, not a phone call that a text message, not an email, because they all got compiled into that CRM and what it made it, it made it possible for people to work remotely. So in certain cities where they were forced to have to split the teams, because we knew it was the safe thing to do. We were able to put somebody remotely working on that CRM. So we were still refuge to our customers, even if a leasing person was at home.

(07:29):
So they could still, you know, get all those leads. It also captures all of your residents. So any anybody touching the site is going to go into that CRM. So that was the first thing that really was like, illuminating, thank goodness we had it. And thank goodness people realize the value in that CRM. And then I got a call from lease Hawk when we were going through all of this. And I, you know, my hair is on fire. I don’t, I can’t even, you know, the, the list of things, but notepads everywhere. And my, you know, everybody was going through that and I got a call from them because they said, Hey, would you be willing to roll this H product? So it’s an AI product that answers all of your missed calls. So if, if the team isn’t able to get to a call, this AI product, ACE will answer the call and they can answer a lot of basically seeing questions.

(08:25):
It’s a product that they have been working on for awhile, but they they’ve kind of crossed over the bridge. And, and this product is really, really powerful now. And along with that AI answering service, they have a chat bot. So we were able to implement that chat bot right on our website. So now our customers are going to the website and right away, they have access to somebody who can answer questions 24 seven and book a virtual tour. So not only does the phone call have the ability and that’s their goal, they’re just like a salesperson funnel, funnel, funnel, funnel, funnel, let’s get a tour because that’s the ultimate outcome that you want from a sales call. So that was, you know, just like the stats you read off, you know, it was a lot of work to get that set up.

(09:13):
It’s not an easy thing to do. There are a lot of knits and gnats that go into getting that set up. But as soon as it goes live, you realize, okay, now we’re not going to miss anything. And I think that that led to us recovering so quickly, think of our doors, aren’t open yet. Our clubhouses aren’t open. We’re still you know, behaving the same way in terms of being in lockdown, kind of we’re open, but our doors aren’t. And for us to go back to pre COVID traffic numbers this quickly it just, it tells you something, you know, it tells you that the world is different. Our customer behavior is different. The resources that we’re using are different. And we need to pay close attention to that. We need to think about what part of this we’re going to take forward because it’s working. Yeah.

(10:02):
Congratulations. I know that you, you your entire team took a lot of stress and anxiety and fear out of our company because we were heading into this at the end of March, not knowing if we were going to click April rent, not know if we were going to collect may rent thinking that our occupancy and our leasing was done, you know, until the lockdown got lifted and all of those things were handled as, you know, a number of ways. And so for, for those of you you know, obviously one, you need a phenomenal team to, you need to embrace technology. And and, and you, and you, I think you’ve said this a bunch, you’ve got to keep an open mind because things are different, you know, maybe, maybe listen to your kids, you know, is there an easier way, is there a better way, right.

(10:58):
Yeah. Right. Absolutely. And, and don’t be afraid of it. I think that’s, you know, it was personally for me, because I have been doing this for a long time. And I have some pretty you know, certain thoughts about the way things should be, because I’ve just been doing it a long time and like problem, problem, cause solution problem, cost solution. And for me to be thrown into this environment you know, I’ve talked to a lot of my peers as I did. We all did through this entire experience. I called a lot of my marketing peers and fears that, that I’ve known all through my career. And I’m fascinated by how many of them are going to go right back to what they did before. I I’m, I, to me, that’s fascinating that you would take this opportunity, this gift to change and not embrace it. I, I know, I think it’s,

(11:54):
That’s interesting. That’s a, that’s an entire podcast. Do we move forward or do we go back to our old habits, right.

(12:06):
Yeah. I think that moving forward, if you think about it, and you think about the AI that we’ve leveraged and the other, the other applications that are out there, I’m just scratching. I’m doing a new demo every day. I’m talking to a new service provider every day, because I’m trying to figure out, you know, are they really a niche market? Do they have something that I can’t get somewhere else? Did they have something I can’t replicate for less money? Do they really solve as many problems as they think they solve and are these technologies overlapping each other? So you know, is there a one stop solution because I feel like we’re crazy not to, well crazy not to take this new customer behavior and let it be part of our future. You know, just from a purely from a staffing perspective, you know, do you really need four people in an office? If you can leverage some of this technology and maybe do, you know, central leasing centers, you know, as you know, we, we were early adopters in some of that. And I think we paused it because we didn’t have all of the right resources and, you know, we’ve, the industry has evolved. The technology has evolved, and now we’ve been given this opportunity to, to grab that Apple again and figure out, okay, what does 2021 look like? What does 2022 look like? And how can we get flicker in, in doing what we do.

(13:38):
Right, right. It’s well, all I can say is thank you and congratulations for a job. Well done. All right. We’ll see you soon.

(13:47):
Bye bye. Thank you. Bye.

Tenant Screening

A Vacant Unit is Better than the Wrong Tenant

I see this all of the time. Tenant’s not paying their landlords and the landlords having to jump through the hoops of evicting them. Normally, when I get into the conversation with people I find they needed to fill their vacant unit so they lowered their rental standards or they eliminated a credit check all together.

I say this all of the time and people continue to ignore me. I would rather have a unit sitting vacant than to move in an under qualified tenant. Who you move in is one of the most important components of being successful in this business. COVID19 is really showing this. Currently MC Companies is collecting 96% of our rent. Why is this? It is because we were selective in who we moved in. All of our tenants have good credit and no felonies. Most of them are determined to keep their credit in good standing and are working with us on the rent.

Sure there will always be risk, but you can mitigate the risk, and a lot of people don’t because they just want to get their units filled. Below are the six ways you should qualify your tenants before allowing them to rent from you.

 

  1. HEALTHY CREDIT HISTORY

Most landlords’ number one concern about new tenants is non-payment of rent. Many landlords use a rent payment to cover the rental property mortgage. If the tenant doesn’t pay rent on time or at all, this could leave the landlord paying the bill out of their pocket.

If an applicant has no significant warning signs such as apartment related collections, judgments on their credit report, or they have a high credit score, it generally shows they have a history of making payments on time and are likely to continue to do so in the future.

 

  1. CLEAN BACKGROUND CHECK

As a landlord, you should always have the safety of your neighborhood, yourself, and your rental property in mind. In this regard, it’s best to know whether a prospective tenant has any relevant criminal offenses on their record. An applicant with a clean criminal check could be a good indicator that you can trust them with your property and the neighborhood. You’ll want to be sure to perform a criminal check at both the state and national level that includes Most Wanted Databases and the National Sex Offender Public Registry.

 

  1. CLEAN EVICTION HISTORY

Needless to say, a tenant who has been evicted is not a tenant you want to rent to. Although a blank eviction check is a good indicator that the applicant has a positive rental history, you’ll still want to conduct a landlord reference check to make sure the prospective tenant’s behavior at prior residences was up to par because sometimes it takes evictions a few months to post onto a credit report.

 

  1. STABLE EMPLOYMENT HISTORY

To help increase the chances of being paid on time, you’ll want to look for stable employment history. A person who has held the same job for several years and does not have significant gaps in employment could demonstrate that they have a steady job and income. Not only is this a good sign that the tenant will likely pay rent on time, but there’s also a good chance they will renew their lease since they don’t have a history of changing jobs frequently.

 

  1. SUFFICIENT INCOME

While a credit report is an excellent measure of a prospective renter’s financial credit history, it is crucial to verify employment and income for assurance that the prospective tenant has means to pay the rent. A ratio of three times the income to rent is the industry standard, which typically shows that if any unforeseen expenses come up for the applicant, they are more likely to have enough money to pay their rent.

 

  1. POSITIVE LANDLORD REFERENCE CHECKS

A positive landlord reference goes hand-in-hand with your tenant screening reports. Reference checks should verify that the applicant was a good tenant who paid rent on time and left the unit in good condition.

Build wealth with your business real estate

To keep up with all of Ken’s latest activity be sure to sign up for his weekly newsletter at this link: https://kenmcelroy.com/podcast-listeners-newsletter-signup/

Join Ken and Michael Bailey as they discuss ways to use business real estate to its full advantage.

To learn more about Michael, visit his website at: https://www.impactdogcrates.com/

Transcript:

 

(00:01):
Welcome to the real estate strategies podcast. I’m Ken McElroy, and I’m here to give you creative ideas on how you can get started or continue your journey in real estate each week, we will bring you inspiring and informative conversations with successful people and their path to obtaining or investing in real estate. Enjoy the episode, everybody. It’s Ken

(00:25):
I’m here with my good buddy, Michael Bailey’s the owner of heater craft and impact crates. Hey Michael, how are you doing? So what we’re going to talk now about is, you know, how you can take a business and turn it into, you know, real estate acquisitions and kind of build wealth in other areas, you know, in more than just your business, what you’ve, what you’ve done very, very well. Michael, I’ve watched you slowly accumulate, you know, all this real estate. And so you have those assets kind of sitting over here, but before we get into that, once you give a little flavor and a little background about, you know, impact crates, cause it was really born out of the last recession we had in 2008. And as we roll into this next recession, I think a lot of people can get really depressed. They can real be real Philly bad about, you know, the loss of income, whatever that might be as an employee or employer, for example.

(01:18):
And you know, and then if, especially if you watch the news, right, right, right. So right. And so you fought hard through Oh eight. I wish I knew you then. We were good friends back then and I watched you do it. And you came up with this idea in a, in a business, a pet business that you were never in before, you know, essentially you reinvented yourself completely with the business that you had in place and your business is very different than it was in 2008, a hundred percent. I think. So the bottom line is that you know, we start out with heater craft years and years and years ago, we were in the Marine and automotive industry. So we sold to boat manufacturers like, you know like Mastercraft or sea Ray or any of those big guys. And we also sold the UTV industry in the RV industry.

(02:04):
So that’s, you know, Honda, Yamaha, but what happened in a way, it is obviously the recreational industry it’s called recreation. It, it got destroyed in that economy. People, if they’re going to cut there, if they don’t have money, they’re going to cut those areas for sure. It’ll happen again. And it’s going to happen again and it’s on its way at this point. Yeah. You said that you’re already seeing orders canceled. We’re always seeing orders canceling that business. So one thing I realized is that I needed diversifying to something that wasn’t so volatile or at least had a way more opportunity. Right? So number one, the Marine and automotive is very small. I mean, it’s, you know, what is there you know, hundred thousand boats or, or less built in a year that includes, you know, jet skis and things like that. So the market’s very, very small where the pet industry. So we got the pet industries, what we did. So we had, we had bought this company or partner with this company. We, and we we were in the gun case business and they came with a crate, right. So we got

(03:00):
This dog crate back in 2010, 11. Right.

(03:02):
So before you jumped right ahead, you know, here you are just got the heck beat out of you in Oh eight. And, but your mind is open and you’re like, how do I partner with this company while I’m not doing so well? Right. So talk a little bit about that. Cause that partnership was instrumental in where you are now.

(03:20):
I mean, we, we found an opportunity that was this company. They were wanting to get out of that business. And so we basically acquired them, you know, in so many ways and they got out of their business and we took over what they did. So

(03:33):
You have product lines and customer base, you know, that you had never,

(03:37):
That was what’s the interesting part about it is they were just, they had kind of gone through a transition where they had lost all their business. All they had was product lines. So they didn’t really have much of a customer base. And honestly the dog freight business can, wasn’t even developed to its full extent at that point.

(03:54):
So the here’s the thing, I find fascinating what you did and you got two businesses, yours and theirs, both just got hammered in Oh eight. Yup. Right. Yup. And you were like, okay, how do I, right. Yeah. They could have done that to you. Oh a hundred percent. But usually, right. So this is the point, like everybody’s getting pounded and about ready to get pounded, but you had the foresight and the vision to be able to go snap that up. And, and

(04:22):
I saw opportunity end of the day. I think that you know I’m a survivor personally. I’ve been, I was not going to give up or give in. So I think a lot of people give up too quickly. I don’t think they have to. And so I was going to fight for it. And so I saw opportunity in those that business and the dog Creek business. So we had already in place engineers and people like that that actually could develop products and make them better. So we went to work. So we, you know, we acquired the company, we got it, got it from him. And then we went to work, we started building sampling, dog crates, making them ourselves. And before you know it, we got a customer. And then before, you know, we got another customer. So again, I think it was something that we realized we could do. Cause we did it already. We made metal parts. We had metal fabrication equipment. So we started digging.

(05:11):
But here’s the thing, dog crates at the time there, most of them are cheap. Yeah. They’re plastic. They fall apart. I’ve bought a ton of these over the years, you came up with pay sickly, the rolls Royce of dog crates. And now like it was a massive market that was not served and people it’s. I mean, you lead the industry

(05:32):
Purdue now. I mean, I think we we have always, I’ve always personally seen value in quality, a good product that’ll last a long time. And I think that was just how I thought. So I wanted to build something that wasn’t a hundred dollars or $50. I wanted to build something that was between $502,000 today. And again, I don’t, it doesn’t take as many crates to get a lot of revenue if you think about it. Right. So if

(05:58):
I have to do 10 crates at a hundred dollars a piece, that’s a thousand bucks, but I’ve just so one, one to 10 ratio with a really good product and get, and get a customers that love it. It makes way more sense for me. It worked really well for me. Well, when you, okay, so I’ve had multiple dogs and multiple crates and usually there’s a lifespan on a crate. Yep. When you buy your crate, you, you know, it’s for life. It really is. I mean, that crate is incredible. I mean, you know, you know that it’s not, you’re going to have to buy something five, six years, seven years from now. Right? Exactly. I mean, our crates will last a lifetime, especially a dog’s lifetime or even more, even through a couple of generations of different dogs that you have in your family. I think that that’s what you did for the business and the industry.

(06:42):
You know, we brought them to our level of dog Creek without a doubt, without a doubt. So one of the cool parts was, you know, w we talk, I talk a lot with your son Hunter, but you know, kind of old school, new school. And we kind of did this on a video already with Hunter. If you guys have a watch that you need to watch that one because, Oh my gosh, he’s smart. And he’s very bright. I mean, and here’s the cool part, you know, obviously you’ve got the father son dynamic, you’ve got the family business dynamic, but you got a kid that’s 18 years old that you raised. And you’re like me, you know, we look at our kids, like they don’t know much. Right. I mean, that’s the truth. I think we do think that I do that. It’s not fair to them.

(07:25):
No, it’s not. I think, yeah, we do. We don’t live [inaudible] we don’t listen to our people. Exactly. I mean, I think it’s, it’s insane. I mean, I didn’t listen to my dad when I was at right. Me either. Yeah. I mean, I fought that battle and then we ended up being them. I do, but here’s the cool part. Then you let him come into the company I did at 18 and boy, what he’s done from a marketing sales. Hey, can I, what I can say about Hunter is he has been instrumental in growing our business and putting us where we are today. I can give him a lot of credit for that. I mean, I really can say that. I mean, it’s, it’s massive, right? I know business. I know. And again, it comes right down to me listening to the younger generation and, and not just we’re father, son deal, it’s listening young, Jewish generation, how they purchase, how they buy, how they think, what they do, what they’re looking for, those kinds of things. And it’s, it’s been massive. I mean, it’s, it’s been life changing for our business. It’s it’s you, your company has gone, the model has changed so dramatically, you know, you’ve gone from the old model of, you know, belly-to-belly sale to internet sales and direct. And so your margins are up and everything’s up and you kind of learned along the way. And I think a lot of businesses are stuck right here. Yeah. I think the old model of, for us was distribution the OEMs direct to the OEM’s, you know, the Costco

(08:56):
Selling to a reseller or whatever it might be. Even someone that was actually sewn on the internet, but they were, we were shipping it even for him. So we would have to, you know, build a product, everything like that. And we would, they would give us the order, we’d ship it to their customer and we’d have to give them, you know, 40% discount.

(09:13):
All they did is have the customer,

(09:15):
The customer. And we started realizing that, and this is where the younger generation came. Is that why don’t we do this ourselves? Why don’t we grow our own internet site? Right. And so again our, my theater generation let’s call it that. And again, I think it’s my son he’s been and done amazing, but that younger generation just does things differently.

(09:34):
Oh, a lot differently. I know he graduated in 2013. I think it was. Yeah. And then he came into your company and boy, what he’s done on the sales side has been incredible, but this is a real estate show. Right. So let’s talk about, okay. So we all know that the, you know, the ESBI model, the E employee self employed business investment model, we all know that you guys have locked. It, that you’ve watched the cashflow quadrant. What Michael’s done is go from S to B and now we’re going to the I, which is the investment part. So the business is now buying your real estate. Right.

(10:10):
I mean, if you think about it you gotta pay rent somewhere, right? Why not pay it to your own, your own yourself? So end of the day you pay, we pay rent to ourselves. That’s right,

(10:20):
Right. Yep. That’s right. And so, so what we’re seeing now, what, what was amazing is I’ve also watched you move from, you know, a small facility to a medium facility, and then just recently to a massive state of the art facility. That’s big, how many square feet is it?

(10:36):
About 60,000 square feet. Yeah. It’s pretty big. So, yeah.

(10:39):
Yeah. So I, you know, all paid by your business

(10:43):
A hundred percent. It’s not just paid. We make a profit,

(10:47):
Right? That’s the other thing there’s cashflow, cashflow positive.

(10:51):
You take, this is the model guys. The model is to start your business and then have that pay your rent essentially. But what we need to be doing here is you, your business is what your business. So heater craft has a business impact, craters, a business that business now leases from a building that you own, which is also an LLC or an individual purchase. So you purchase it here and then you lease it just like you would anybody else. Yep.

(11:19):
Yeah. It’s, it’s, it’s really, it’s, it’s not hard to do it truthfully. I mean, it’s really easy, honestly. And also I’ll add value to that. When a bank, or if you’re getting a loan for this building, the bank’s going to look at your business as well as your real estate. So it honestly, truthfully is easier because when you’re leasing to yourself, they know you’re not going to leave, get out of your lease. Right. So I understood that real quick in life that it’s, it’s, it’s a lot easier than you think it is. People might think it’s hard, but no, it’s actually easily.

(11:51):
You take the cash, your business is making and that’s your down payment. Then you go get a loan, you buy the building, you set it up. And then the business makes hopefully even more money. Right. And it pays itself off. So you’re, you’re paying rent to yourself. Here’s the other thing, huge tax benefits.

(12:09):
Oh, that’s right. It’s massive. Well, let’s talk about,

(12:12):
Let’s talk about, because we’ve talked about depreciation bonus depreciation, cost segregation, right? So you can accelerate the expenses in these buildings that you own and you can make even more money.

(12:24):
Yeah. It’s, it’s a, for example, this should, we’d bought the building dock in 2019, our first year depreciation or cost segregation. We did a whole whole deal on that and it will be, it, will we, again, we won’t paint taxes personally because of how we did that struggle.

(12:42):
Yeah. So the way it works, the way it works is let’s say you buy a, a, a building for 1,000,007, and the reason why well, let’s, let’s say it’s $2 million. You can depreciate that building over a period of years, it’s called an a non-operational expense and it can, it will offset your

(13:01):
Income. Right. Right. Well, yeah. Again, I think exactly. So for us, we have a holding company that has our, that we lease. Right. Right. The company releases from our holding company and again, cost segregation is a much rapid or a depreciation because there’s things that wear out faster in the building than other things. Right.

(13:22):
So what that means is Michael might have a machine in there that has a five-year life. Right. And so you can depreciate that machine for five years. Right.

(13:32):
Right. Or asphalt you know, there’s different, different years on different. Depreciations, it’s really interesting because I didn’t realize that things wear out faster than others. Right. But the steel buildings is only 39 years still, but steel part of it. But everything else around it is goes less and less and less. Yeah.

(13:48):
Yeah. So the buildings depreciate at 39 years, and then the things inside of it can be accelerated. Same with it, with a rental apartment, you know, the building itself in the park and the apartment building has 27 and a half years. But inside of it are appliances and stoves and, you know, things like that, that you can depreciate a quicker, right?

(14:08):
Again, asphalt’s one of them as like weird one, like an asphalt will ask, well, it does wear out after about 15 years, you need to start fixing it. And whatever electrical is, another

(14:17):
Electrical is another one. Yeah. And by the way, it’s not subjective. It’s not something you get to decide. The IRS has guidelines around this and the accountants tell you exactly what you can and can’t do. So it’s all perfectly legal. You do have to get a cost segregation study, which isn’t very much money, but they tell you exactly what you can and can’t do. And then you can take those amounts and offset your income.

(14:39):
Exactly. That’s actually the beauty of the beauty of is you offset your income. Right. So end of the day, I think that it’s it’s if you made a half a million dollars last year, personally, and you had a cost segregation of 30% on 2 million bucks a hundred. Yeah. You would, that’s so much money in taxes. She would say those are simple numbers,

(14:59):
But that’s the real truth. Right. So as you start to, so now there’s incentives even to do more real estate, right. Because as, as, as I’ve said before on the show here, the depreciation that we have on our apartment buildings offsets a lot of our income, if not most of the income and a lot of the properties that we own.

(15:19):
Yeah. Right. I mean, yeah, exactly. I mean,

(15:21):
So you can not pay taxes legally through depreciation. Yeah.

(15:27):
Obviously,

(15:28):
Great benefits. And there are plenty of others. Oh yeah. Right. Yeah. There are plenty of others as you own a business, you know, there are things that you can do legally,

(15:37):
Right, right. From a tax stamp. So, but bottom line, I mean, you’re a real estate, that’s your business. Our business really isn’t real estate truthfully. But what we’ve done is we’ve taken a manufacturing company where we build stuff and we’ve tried,

(15:49):
Turned it into real estate wealth. That’s right.

(15:52):
The company’s product lines, a sales pitch

(15:56):
For the lease that’s right. The rent. So let’s take a look at the buckets of assets that Michael has. He has his companies over here, which are only as good as somebody, what they’ll buy, but then you also have your real estate that pays for the company pays for that’s also over here. Right. So I’ve had friends that have actually sold their businesses. So let’s say you sold your business and I know it’s not for sale, but let’s say you did. You could actually lease it back to the people that buy it. Right.

(16:24):
Exactly. I mean, I mean, again, I don’t, I mean, I don’t tell you this and you know it, but end of the day, what, what’s better than someone else paying for your bills,

(16:33):
Right. Not me. So you sell your company, you go off and do whatever, but you still have the reoccurring revenue. So I have a friend that did this in the, you know, he had alcohol and drug rehab centers and he did a very good job and he was buying real estate and he was growing these businesses and he sold the company to a private equity group. And, but he didn’t sell any of the real estate. And so he did these longterm contracts. So the private equity group was paying him monthly. And so he could kind of figure out what he wanted to do next. Right. So he still had depreciation, he still owned the building. Right. Right. And you know, the only difference was, is he didn’t control the real estate or control the business, but he had sold that. So he cashed out in a big way. So, and this is how the rich get rich. Right. Right.

(17:23):
I mean, whatever. I mean, again, if you, if you bought a $5 million building and you, you know, it’s a, usually a 15 year loan say, and it was paid over, you know, 15 years and all of a sudden it’s paid for, by someone else. Right.

(17:37):
What else, what else can you do? And you got all the appreciation and you got the income and a lot of it’s tax free along the way. And so that’s the model guys. The model is to create a business and then have the business for the real estate. Right. Michael, it’s huge.

(17:51):
Yeah. I think it’s, it’s create a lot of family wealth for us

(17:55):
And will in the future and the legacy

(17:57):
In a legacy end of the day, is it, you know, it’ll pay for grandkids going to college and things like that, that know that we, we want to be part of it. Yeah,

(18:04):
Yeah. Right, right. Absolutely. And isn’t that what this is all about,

(18:09):
It really is about family. Right. And providing for your family and giving them opportunities.

(18:14):
I know, man. Well, I’m really proud of you and everything that you’ve done because I’ve watched you go from a massive, massive hit in Oh eight to, you know, basically reinventing yourself through a new product line to buying this state-of-the-art brand new building. And you know, and essentially just reinventing yourself in a short period of time in 10 years. Yeah.

(18:38):
No, it was one thing I would say though, even during the bad economy, one thing we were still doing, we were still, the company was still paying the rent. So that whole time we were still building wealth over that time, as bad as it was as hard as it was, we were still continuing to pay the rent we had to.

(18:54):
Right. And sometimes when you get hit on the income side, it’s nice to have that extra bucket of cash sitting there. When, you know, you have equity sitting in a building, it’s just an insurance policy that hopefully you never have to use, but it’s nice. Yeah.

(19:06):
It’s something that you can actually look back to and go, maybe that will help you save your business someday because you might have so much equity in this.

(19:13):
Yeah. Yeah. I got a buddy that owns a hundred houses in Wisconsin, you know, and you think, Oh my gosh, there’s a lot of work. And it’s true. He has a property management company that does it. I go, so Jeff, you know, what do you do for money? He goes, well, when I want something, I just sell one of the houses. You know, that’s what, that’s how he does it. That’s how he thinks. He’s like, you know, I got the renters paying them off, but you know, if I want to go do something and buy something, I just sell one of the houses. And I’m like, that’s a good strategy. You just got a hundred of them. It’s the same thing. Right,

(19:44):
Exactly. Right. So again, I think as you make money from your company, your product line, you can take that and reinvest it into real estate. I think real estate is a key to that. I think it’s all of us. It’s, it’s, it’s Stabler it’s more stable from an event,

(19:58):
Especially if you’re the tenant.

(20:00):
Exactly. I mean, yeah. I mean, exactly. I mean, it’s, it’s, it is more stable for us. That’s for sure. So cause it, it didn’t take the hit during the economy. It’s dark product line that took the hit

(20:11):
That’s right. It’s really something really. Yeah. There’s a few things, a few lessons here. One is the fact that you, you know, you reinvented yourself from 2000 and a lot of people are about ready to go through this right now. So don’t get discouraged to keep an open mind with these young guys, you know, open up your mind, a young gen X is your son really reinvented the, at least the sales and the marketing side of the business. And three figure out a way to, to, to roll all that into cash flowing real estate. Right. And, and, and be able to get this cash flow to you. Tax-Free through things like depreciation. Exactly. Right. I love it. Yeah. That’s all just

(20:48):
Blank off

(20:50):
What a great episode. I hope you learn something new from today’s guest for full show notes, check out Ken macra.com. If you enjoyed the episode, then jump on iTunes, subscribe and leave a five star review. Also, if you can check me out at Ken McElroy official on Instagram for daily real estate advice, see you next week.

Farm land as a real estate investment strategy…

Join Ken and Phil Hinrichs as they talk about how investors and others can use farmland as a viable real estate investment strategy. To learn more about Rich and his company be sure to visit his website at : http://hinrichstrading.com/

To keep up with all of Ken’s latest activity be sure to sign up for his weekly newsletter at this link: https://kenmcelroy.com/podcast-listeners-newsletter-signup/

 

Transcript

Ken McElroy (00:01): Welcome to the real estate strategies podcast. I’m Ken Mackleroy, and I’m here to give you creative ideas on how you can get started or continue your journey in real estate. Each week, we will bring you inspiring and informative conversations with successful people and their path to obtaining or investing in real estate. Enjoy the episode. Everybody is Ken McElroy here, and thanks again for watching. I’m here with my very good buddy, Phil Heinrich. KFL

Phil Hinrichs (00:31): Hey, nice to be here, Kenny. Thank you

Ken McElroy (00:33): Guys. This is really a treat for me because I’ve known Phil a long time, but as you guys know, we do a lot of real estate and we have a lot of people on the show that, you know, do self stores. They do office, they do retail, they do malls. They do single family. They do flips. They do all that, but very rarely do we have somebody who understands farmland and agriculture.

Phil Hinrichs (00:55): That is my buddy, Phil. Hey, good to be here. And good to get you on the farm too, Ken.

Ken McElroy (01:00): No, I know. So guys, this is really going to be amazing because a lot of times people don’t think about real estate if, um, you know, a farm, right. They, I mean, they know it is, but they don’t know how to produce from it.

Phil Hinrichs (01:13): Right. Well, right. You know, urban people think urban and, you know, farm people do definitely think farming. So, you know, there is the two animals out there and, and they’re just looking at different things. They

Ken McElroy (01:25): Are, they are, and that’s why I’m excited to get into that. So let’s um, let, so let’s talk about your company, Heinrich’s trading company HTC, you know, why don’t you give everybody kind of a flavor of how you started? Cause I know this is generation.

Phil Hinrichs (01:40): Yes it is. And, and thank you. Uh, it’s an honor to speak on behalf of Henrik’s trading company because, uh, I’m the fourth generation can and uh, everyone in the family has been involved in agriculture and also been involved in the processing. So you have a really direct relationship with the farmers. Uh, we were born in, uh, meaning HTC was born approximately about 23 years ago. And this was one thing that the Henrik’s family has always asked their, uh, siblings to, uh, move on and build your own. And so, uh, I found it very fascinating and uh, you know, Hey, you gotta walk slow, but it’s nice to have the leadership behind you.

Ken McElroy (02:25): Well, if you’ve got an impressive company, I know I’m, I might not get it right. But guys, he, you were way ahead like hummus, right? Chickpeas protein. It’s like F it’s ever everything right now. Like you, and you’ve been doing it for all these years, but it’s just kind of really come out of nowhere. Right.

Phil Hinrichs (02:45): Last 10 years, it’s been a real great launch. I mean, the millenniums just want something with non allergens and they want, you know, the health, uh, uh, kick the superfood, they’d call it right. You know, and, uh, chickpeas have really found their way. And as we talk about real estate today, you’ll notice that I focus a lot on acres and ground. That is protein driven.

Ken McElroy (03:08): Yeah. Yeah. So I think this is, you guys are going to really, really enjoy this because what, what you’re doing honestly is you’re, you’re, you’re basically feeding the market that’s coming

Phil Hinrichs (03:20): And right. Yeah. Well, exactly. I mean, our driver is the food chain and as we look at the food chain, we look at the, uh, the ground and, uh, man, I’m telling you what Kennedy has. We’re going to talk today. We’re going to go over seven different States. We’re going to talk about a generation of people. And by the way, you know, when you’re dealing with these farmers and you’re dealing with the land, you’re talking about people with generational stories that are greater than ours. So it’s, it’s a, it’s a really nice group.

Ken McElroy (03:51): Phenomenal. I’ve met a lot of them here in Idaho to homeboy, by the way, look at this. We’re here at quarterly in Idaho. It’s beautiful.

Phil Hinrichs (03:57): Well, I’m telling you what now that’s Aqua farming out there and I’m, I’m kinda catching an eye for it. Uh, TIS the season.

Ken McElroy (04:06): All right. So let’s jump right in. So how do you use farmland as real estate to generate profit? Like I generate profit from my apartment buildings. You know what I mean? You know what I do, you know? And, and that’s what everybody thinks of real estate that way they think of, you know, get some land, built, something on it, put some tenants in it and cashflow yours is very different. So how do you do that with farmland?

Phil Hinrichs (04:29): Well, farmland, well, let’s start with, you know, we have the three consumers, we have the small, medium and large consumer. And boy, when you start talking to large, you understand that market really well. But when you start getting down to the nuts and bolts of America, it’s the medium size farmer that really drives the bus. I mean, corporate America lives off the medium size farmer. So now you’re trying to find the right fit for that person.

Ken McElroy (04:58): There’s a medium sized farmers at acres.

Phil Hinrichs (05:00): Yeah. Thank you. Uh, when we talk acres, we’re going to talk a 2000 to 4,000 acres is what a medium sized farmer is to me. That’s big. Oh man. If you start thinking about it, it’s like a 3000 units of a, an apartment.

Ken McElroy (05:17): All right. Yeah. That’s fair. So small is under 2000

Phil Hinrichs (05:21): Medium is two to 4,000 and then big as big as 10 to 30,000. Okay.

Ken McElroy (05:26): Alrighty. Alright. So how do you generate profit from, you know, cause you know, like I said, you do chickpeas and protein and that’s been your niche guys, by the way, he does 1 million hundred pound bags a year, right? You gotta be one of the largest ones.

Phil Hinrichs (05:43): Well, we definitely have a responsibility globally and domestically and you know, some years it’s all about the crop and acres produce so many a yield. So at the end of the day, that is our goal that keeps our factories and keeps our families moving.

Ken McElroy (05:59): Okay. So let’s talk about how that’s done, like start at the very beginning and how do you produce profit out of it?

Phil Hinrichs (06:06): Farmland. Okay. So, uh, you know, we got to, first of all, it’s boots on the ground and number one, we’re going from the farm to the fork cave. And you know, you’ve heard that term a lot, but how it works when you’re looking for protein, meaning let’s just talk about chickpeas today. Use that as an example, when we’re out there looking for farm ground, uh, we’re looking for what would best benefit it? What’s the cost of this ground and we’re going to also look at the production ability and then the logistics of it. So I, I usually look at it in that synergy of, uh, how, when we’re out there shopping for farmers. Okay.

Ken McElroy (06:46): Yeah. So basically soup to nuts, right? Absolutely. You said farm to fork and then so you actually like, like me, like I have to find contractors and the banks and the financing and all that stuff. Yours is a little bit different, right. Where you go, um, straight to the farmer and a lot of cases. And in some cases you have your own. Yeah,

Phil Hinrichs (07:07): Exactly. I mean, we’re definitely farming ourselves, but most of the time we are establishing the grower. And so when the grower’s looking for the right land, uh, the value of it, so we understand our production costs and you know, number one, when you’re out there talking to people about selling them farm land or buying farmland, I mean they gotta make it pencil out. And so that is why we’re driving the bus with the protein part of it. So this is the gray area for me.

Ken McElroy (07:38): How do you know what, what pencils out? You know, because it’s, I mean, that’s like for me, you know, I know you’re in your lane, right. And you’re doing a great job, but you know, when you, I look at farmland, I’m like, all I see is, you know, wow. Like what do I do next? Right. Like, so what, what are some of the things that you provide as a landlord of the farm property for like some of your tenants?

Phil Hinrichs (08:02): Well, the very first thing we always do is we visit the farm. You know, we know our dirt and the next thing is then, you know what you can ask out of that grower, or you’re going to ask out of that land when you’ve invested into it. So we’re going to take the investment side, which is the really brick and mortar of looking at pharma. And number one, you’re going to look at where it’s located the value of the production, the quality of the land, meaning the zip flat, steep, moderate, uh, those types of things start taking in an account. And then when I really think about, uh, what the farmer can control, because at the end of the day, I’m talking about something that is way different than you I’m talking. I have to deal with mother nature. And that puts a value on the soil.

Ken McElroy (08:56): That’s like vacancy, right? It’s a lot of pressure. Yeah. Yeah. So, so you have to account for all of those things. So then you sit down with the farmer and you basically cut a deal cause there’s gotta be margin for you. Right.

Phil Hinrichs (09:09): Well, there’s definitely when we’re, when we’re talking about, uh, trading of, uh, and going out there and making a purchase, uh, you definitely know what your abilities are to grow. Now, when you’re out there selling it. Now you’re promoting the other side, uh, in nearby, we have a production facility for chickpeas, you know, you’re, uh, picking up this, uh, ground, let’s just say it’s 500 acres. Uh, you can get a chick pea contract to back that logistics to the facility or our close, uh, you know, your market. You can get a full contract on it. So all of a sudden you start giving, uh, the buyer, uh, of the land, uh, opportunity and security.

Ken McElroy (09:52): Oh cool. So you’re kind of putting all the pieces together, including the buy-side, what the contract.

Phil Hinrichs (09:58): Yeah. I will take the dirt and make a transaction. I will also take the farmers dirt and put him under contract clear to the end of the use of it.

Ken McElroy (10:10): So what’s cool is before you do the deal, you know exactly what you’re gonna make.

Phil Hinrichs (10:14): Well, you can definitely know your inputs and, and the, the factor that I’ll keep going back to is mother nature and yield potential. And, you know, we always talk about yield. You know, if we’re, if we’re even just taking a, a simple task of taking a bean, adding water and how it grows, that’s called yield. And so now we’re talking about a farmer going out there and that average yield is going to be, let’s just say a thousand pounds an acre and shoot, he’s pushing for 15. But if he only gets 500, we’ve got a little issue, you know, where it’s different in your business where rents stay fixed. So to ransom dirt, but not the production coming from.

Ken McElroy (11:00): Yeah. But a lot of it’s interesting in my business, you know, what you pay for the land, because for me, it’s simple, it’s land cost to build it rent, you know? So yours is not that much different, right. It’s contract cost the production and then the contract on the out, right?

Phil Hinrichs (11:18): Yeah. Let me, let me grab that because you talked about ranch and, you know, we have situations where you go out and it’s not an opportunity to purchase. It’s an opportunity to rent. So now you’re renting from a landlord and you’re the tendon and you’re going to gum in and you’re going to utilize that dirt for a project. And let’s just use chickpeas again as one. So that year I’m going to go out and rent 500 acres. I’m going to put chickpeas in, I’m going to contract them with HTC. And that’s how a tenant works. But a landlord, you know, has his fixed costs being cut.

Ken McElroy (11:59): What I love about that is just, just, it’s just a few pieces to put together. So how quickly do you see a deal or Nazi a deal? Like, you know what I mean? Like do, do, do you go out, look for land, just do that. Does it come to you? And I mean, how many acres do you guys have now?

Phil Hinrichs (12:14): Okay. So in our business, we’re a lot like you, we just say the question was, how many acres do I have? Well, our company always answers that a lot now without being, you know, to, to our audience today, you know, let’s just use round numbers. So let’s, let’s call it 50,000 acres that we’re managing. And in that, how do we keep managing that? Okay. That’s no different than maybe an apartment, but we’re managing it. So we have our work schools during the winter. They are production. Time will be spring when we’re going to plant it. We are in control of the seed. So we’re selling the whole program to the grower. And so our audience is out there capturing it. And it’s competitive. People do compete with us. Of course they do. And so with that being said, uh, we have to be very competitive. And in agriculture, you can’t do it all. So like anybody and yourself, we have a team.

Ken McElroy (13:21): Yeah, yeah, yeah. Yeah. In fact, in our case, in some spots, we actually have a, we actually outsource the management, even though I have the management company. You do what’s best for the

Phil Hinrichs (13:31): Yes, absolutely. I mean, you know, in our business, we’ll go from the dirt, which is the easy part. And then you go into the agronomist side, which is the chemical companies. We stay way out of that. You know, because if I was selling that, they’d probably call it snake oil. We’ve all heard that story. You can’t carry every damn book with you. And so then after that, you’ve got your implement people that are selling the equipment. Then you got your harvesters, your sprayers, your fixed wing airplanes. I mean, you have a lot of players involved, uh, going back to contracting, you know, some of our, um, relationships with farmers or, uh, acres is been well, 32 years with a company like Bush beam, you know, where you’ve got, you know, Hey, they come out. They the same farmers take care of the dirt, take care of the production. And it’s an ongoing growing cycle. Yeah. That’s a win, win. It’s a win win.

Ken McElroy (14:34): Honestly, that’s a win win. When you, when you get somebody like Bush bean, that’s buying your, that you’re buying your chickpeas. Uh, it has to be,

Phil Hinrichs (14:42): It is. And it’s, uh, you know, just like us, it’s a private family, which that’s what they thrive for. They stay out of the, uh, big conglomerates, even though they are very big, they always keep it grounded. And you know, that is the satisfying part about going to work here. Yeah.

Ken McElroy (15:01): I know. I, in fact, I know whatever time I talked to you, you’re like, these are really amazing families that you’re dealing with on these farms.

Phil Hinrichs (15:08): Lots of relationships. In fact, you know, I know when I was young, um, you know, I would step out of my boots a little bit and usually the wrong way. And you know, you’re my father. That was your leader would tell you that, Hey, uh, you know, you got to read your customer, you got to understand why we did what we did. And, uh, you know, what the credit to my father was. He took me with him. Yeah. That was really, yeah.

Ken McElroy (15:32): You watch that. That’s what my dad did. Yeah. You know, I mean, I would go with these clients and I would sit there and watch him and watch, watch how the relationship. It was honestly a relationship between my father and his and his client,

Phil Hinrichs (15:46): You know, and not to go really deep on family. But, you know, we have family involved in our company and we have family. That’s not, uh, I’m lucky enough that I get to work with my brother every day and we’re a year apart. And we are really in our golden days of just having fun. We still think we’re young and that’s what makes it really, uh, a lot of fun to laugh, but you know, our children, you know, there’s other options out there. And so we’re fortunate to have one young man stick, but on the other hand, uh, our other two children, uh, are very, our growers are very interested in them because it continues to be long generational family driven, community driven.

Ken McElroy (16:29): Right. So I know we’ve talked a little bit about, you know, irrigated land versus dry land. I honestly have no idea. I mean, I know what the difference is, but when you look at those two things, you know, I, you know, they gotta be very different and how are they different and how do you approach those differently?

Phil Hinrichs (16:48): Well, first of all, you know, you know, the audience might be very interested in just values. You know, I always was too. And so when we start talking about dry land, we can be in the market of a thousand dollars, an acre on dry land. Okay. We might be in Montana, somewhere out there, and there’s a lot of acres available out there like that. And then you can turn around and you can get right in our backyard, which is the Palouse country in the state of Washington and Idaho. And you can get right to $3,500 an acre. Now the question was dry land versus irrigate. So now we’re going to step right into the mud. And when you get into irrigation, first of all, you can grow a lot of crops. You can maybe grow 50 different crops and just, you know, typically are in a Sandy soil and you’re hydroponically, uh, for, uh, watering this product through irrigation. So you’re very competitive. Now that dirt can go as high as 15,000 acre, just for water, just for that land and dirt, you bet

Ken McElroy (17:52): Get dry land and bring your geisha to it, to value add, or how does that work?

Phil Hinrichs (17:57): Well, that’s one of the windows that you look at of, Hey, when you look at dry land, is there some water rights? Okay. And does it really fit it? Okay. Is mother nature rewarding this dry land without it? The next thing didn’t we talk about the characteristics of the ground flat, moderate or steep. So obviously if you go down the Paloose, this is one of the seventh winters. I mean, there’s no other place that this volcanic, uh, dirt, the way it blew and dusted, uh, that soil we’re at 40% slope. You couldn’t irrigate anything. You hardly stay on that ground, but then you can go down and your country down in Arizona, flat as a pancake, fully irrigated. They don’t want any rain, irrigators do not want rain. Oh, really cannot control the environment that way. So it’s all about controlling the environment, keeping disease free. So that’s why,

Ken McElroy (18:52): Yeah. Cause there’s a lot of ag in Arizona. People don’t realize that

Phil Hinrichs (18:55): How much? Yeah. One of our we’re based down in Arizona and it’s our organic area. Uh, you know, the only thing I wished that you could do for me is shut off that 110.

Ken McElroy (19:08): That’s why we’re in Idaho.

Phil Hinrichs (19:10): Right. But, uh, irrigated is very interesting. I mean, the, the buyers in the irrigation, uh, window of a farmland, they’re very diversified. They’re very competitive. Uh, they know the soil, they know that the, the, uh, it’s all about the water rights out there. Hmm. That’s interesting. Well, thank you.

Ken McElroy (19:32): Let’s talk a little bit about production versus processing. You know, a little confusing to me, you know, not to you obviously what’s the difference between a processing and production.

Phil Hinrichs (19:44): Okay. In my world, you know, every day and we go to work, we have, uh, three departments, we have a processing side that’s buying and selling, uh, the production that’s coming off the farms. And then we have the production that we’re having the agronomist side of our group. That’s out there looking for farmland, looking to sell, looking to purchase and looking the qualities of it. So, uh, there’s, those are two different sides. And they’re like, you know, uh, black and white, they do not stay on the same page. They don’t follow each other at all. The production side is how the grower, how the owner makes his money. And on the PR on the processing side is how we manipulate the product that comes in to fit the recipe for the buyers and the consumers.

Ken McElroy (20:38): Okay. If I asked you, did you have a good year or bad year? You know, how, how, how do you, how do you know, like what, what determines a good year, a bad year? Because I hear this all the time with farming, you know, you know, what are the variables?

Phil Hinrichs (20:50): Well, it’s supply and demand number one. And we happened to be in a market right now where the supply is a pretty good, but the demand is high. And you know, not very op not very many times in your lifetime, do you get to walk through a high demand? Okay. On, on something, you know, the wheat business, the barley business, you know, the corn and soybean, you know, it’s just daily bread, but you know, when you get into the protein business right now, there is demand. Now on the supply side, the farmers are moving around all the time. So, you know, we can oversupply the chain and all of a sudden, you know, you don’t have the people renting apartments and you’re doing, we don’t have the PR, we have too much production and not enough buyers. So there’s a sweet spot about that. But, you know, in a, a typical answer that the audience might be more interested. You know, the grower gets a good average yield that gets them a fair return. And the market’s receptive to it with a pricing that is people that can make money today in the protein business, there is money to be made. And what’s really good. There is botique to inventors, to people that are kicking it. And, you know, in this day and age that we’re going through right now, uh, we have good supply and we have great demand.

Ken McElroy (22:19): Well, I I’m just completely, you know, cause I’ve known you a long time. And, uh, you know, it’s funny when we first met, you know, hummus wasn’t as big as it was. I mean, this was going back quite a while and I’ve watched you go like this and protein. You were telling the story today about how they’re now coming up with milk.

Phil Hinrichs (22:40): Yep. They’re going to, we’re going to see a launch coming out, uh, that, uh, milk is the new, uh, garbanzo beans, garbanzo milk. Thank you. Chickpeas out of chickpeas. And what is, what’s really interesting about that, that the audience, I want them to lend an ear to, it’s a great mixer because it has no taste. So in the bakery business, adding the characteristic and it’s also, non-gluten non allergen.

Ken McElroy (23:06): Right? Well, that’s why, that’s why your business is flying right now. Cause everybody’s eating better paying attention to what they’re putting in their bodies, the hormones, you know, and the chemicals and you’re none of them.

Phil Hinrichs (23:16): No, we’re like back in the seventies, when apartments used to put in a swimming pool, that was the checkoff of why you’re sold out. Well, you know what, we’re bringing the protein to the farmer and that’s why we’re getting the phone calls. And you know what, there’s, there’s enough for everybody out there. We just happened to have our story. Okay. Uh, and, uh, it seems to be, uh, being answered to the ingredients people,

Ken McElroy (23:44): Well, let’s go back to this garbanzo milk because what you were saying earlier was that, um, coconut milk or almond milk it, they have a carrot

Phil Hinrichs (23:53): Or they carry a taste. They carry a taste. And these tastes, when you start baking with them, it carries right into the recipe. Okay. Where, when you add a chick pea milk, there’s no, it’s, it’s a carrier, not a flavor. So it’s answering the need for the milk. Okay. But it doesn’t have any taste, so you can add anything the Baker wants to use. And that could be as deep as, uh, you know, from baby food to adult food, to any type of ingredients that milk’s being used at.

Ken McElroy (24:29): And gluten-free, and all the other things absolutely free, which is a big deal. Right.

Phil Hinrichs (24:34): It’s big. In fact, you know what, you know, I won’t want to switch gears, but you know, animals have allergens and that really bugs them. Okay. And chickpeas and protein. We’re feeding the dogs and it’s one of our best customers too, out there because there’s over 2 billion dogs. Okay. And they never complain what a customer.

Ken McElroy (24:56): Yeah. They’re eating pure man. But what I really like about that, uh, that garbanzo milk is going to be massive.

Phil Hinrichs (25:04): It’s going to be either launching that right now. Uh, it’s being manufactured, uh, out of the country and there is a factory going in right now. That’s being put together. It isn’t a quiet deal at all. Uh, it’s going to be huge, you know, you know, anything in the chocolate bars, any of the sweets, you know, when you start talking Milky ways or whatever this is going in it. Oh,

Ken McElroy (25:27): For sure. It’s all going to move that way too. Right.

Phil Hinrichs (25:30): Pure you just, this is a slice of the pie, you know, that’s what you want to be a part of the slice of the pie. You can’t eat the whole pie and you know, that’s not where you want to be.

Ken McElroy (25:39): I know. Well, that’s for sure. So let’s talk about, you know, you’ve watched this chick pea business, this protein business go like this first with hummus. Well, probably other things that I’m not aware of, but, but you know, it’s got unlimited potential. You were talking today to me about the replacement of the egg, which is really interesting, again, going to plant based,

Phil Hinrichs (26:04): Right? Yeah. One of my new audiences that I’ve really enjoyed, uh, touching base with and actually learning about them because I had no clue was the vegans. Okay. And chick pea is definitely a vegan item. You know, they over Pakistan and India, it’s big consumers of it. And, uh, so when we start talking about, uh, uh, the difference between an egg, okay, a vegan really won’t eat an egg. Right. But if you turn around and you know, audience, this is very interest, take a can of beans, any can of beans and make sure they’re chickpeas please, but you take a can of beans and drain them. Okay. And that water is called Aqua fava. Okay. Which is water and beans. Okay. And you, you just, uh, rinse those beans and keep that water two tablespoons will replace one egg. And so if you’re ever short and egg out there, you know, you can go, just grab a can of beans. So

Ken McElroy (27:08): Very big. And do you know this already? Cause this is new information to me.

Phil Hinrichs (27:13): Well, I’m certainly can be a vegan, but you know, I’ve still got my issues. You know, I’m a big guy that likes to eat anything. So I find it very interesting. You can also, if you whip it, you’ll make Marangu. And if you add sugar, you’ll make whipped cream with the same product. Very interesting. Huh. Instead of an egg, that’s very fascinating. So

Ken McElroy (27:39): You see now as the future of, you know, protein, cause that’s essentially what you’re doing. Well, I just can’t believe how, you know, it’s, it’s a, you’re a 25 year overnight success.

Phil Hinrichs (27:51): Well, you know what, we wake up and we count on the, on the inventors. And so we spend a lot of tummy temp. We spend a lot of time with universities and we happen to sleep with Washington state university. That’s an egg school and their science food science department is always trying to extract or, you know, figure out what a protein will do. Well now we’ve the opportunity now is the new protein burger burger beyond burger. I mean, that’s the name people will remember, but as you go in there, it’s a vegan burger K and, and chickpeas is, is something that’s a really good carrier of protein. Okay. And when you start looking at PS 22% protein lentils, 20% protein chickpeas, 44% protein. Oh wow. And how does that compare to beef? I just don’t know. Well, if beef is compared a lot different ways, I mean, do you know it takes 1500 gallons of water to make a pound of beef.

Phil Hinrichs (28:59): I had no idea that a cow will drink and drink and drink. You know, it takes two gallons of water to make a garbanzo plant. So, you know, just in the, the focus of, you know, yeah. Is huge. When you start talking, you know, what’s it take to grow protein. Okay. And, uh, the other thing too is, is a cow. And I don’t want to beat up on cows cause I love steaks, but the shelf life is very narrow, you know, on a chick pea, it can be seven to 10 years. It just sitting in bags waiting to be dry. It’ll stay 8% moisture in it. If you take care of it and you don’t have to be over the top, you can take care of that protein for a long time. So it’s a good product to have in your pantry because you know, when you turn it into flour, Ooh, you know, bugs attack it very easily. Okay. It’s just a very, anytime you open it, you’re done. But on a, on a dry product, you can, uh, put it in a jar, wash it. You can see if there’s a bug in it, but they really won’t damage it. So there’s some shelf life there that’s really important too.

Ken McElroy (30:22): So what does the industry look like? You think over the next couple of years, you know, cause I know you’re very active. You’re going to all these conventions, there’s a lot of conventions and things that you would go in. And I know you’re very well read. Um, you know, this is scientific, what we’re talking about. I mean, you make it sound like casual farming, but it’s super scientific. So what do you, what do you see coming?

Phil Hinrichs (30:43): Well, I, I see a couple things. Um, I see the, uh, the Cracker business that has, uh, allergens, uh, going on it and gluten problems, uh, being switched over to proteins. Okay. I’m seeing that. I’m seeing, obviously we spoke about the pet food, really a big deal. Uh, we see that, uh, spreading out better, dry or wet, you know, that’s, uh, both very important if you have a cat or that the next part of it is flour. Flour is being roasted first and then turned into flour. And then right there, what happens is you can eat it raw. But if you just grind flour, you know, Hey, read your label folks because you can’t eat raw flour. Yeah. That is something that’ll get you into trouble. And so they’re, they’re changing the environment. Hey, the ConAgra is the ABMS of the world. I mean, those people are really the, the fire behind it.

Phil Hinrichs (31:46): I mean, they’re really out there trying to make the next step because those companies don’t farm. They buy, okay. So, you know, we drive, we ride on their bus that they drive. And so I see that. The other thing that I really like a lot is when you’re on the airplane, we get peanuts. Right? Well, that’s kind of a thing of the past now that we have a mass con, but with that being said, you know, there are people with allergens, for peanuts. There’s a lot of them and it’s really a downer. So roasted chickpeas, big deal. Okay. They’re roasting chickpeas. The next thing that was just sent to me was chocolate covered chickpeas roasted. Okay. So now we’re going to go out there and play with the M M and M world, you know, but we’re going to have something that’s a little more healthy. We’re going to go. And, and we have our melt chocolate that, you know, is, is healthy, but some people don’t need it, but it is a healthy product. So it’s on its way. The other thing is, is a lot of these power bars and you know, that you like to carry when you’re hiking and whatnot. Listen, there is a ton of protein in there.

Ken McElroy (33:03): You need protein. Absolutely.

Phil Hinrichs (33:06): You can survive on protein pretty much. It pretty much can. Yeah.

Ken McElroy (33:10): So this is great, but you know, wow, what a, what a spot you’re in. This is a, it’s got incredible potential.

Phil Hinrichs (33:17): It has a lot of potential, you know, that’s one, one part of the pie. The next one is, is how do you make it work? Right. And you know, you walk slow, you don’t try to do it all. And you try to follow the trend, what we want to be as a quality supplier with good yield coming from our growers, uh, with, with, uh, typical yearly production. So we have to, we got to stay out of the irrigated area because this crop does not like water is very arid and it also doesn’t like humidity. So when we’re out there shopping for dirt and looking for farms, we’re in non irrigated and we’re also in non, uh, humidity places. So once we get to the Missouri and no closer to the Mississippi, we’re done.

Ken McElroy (34:09): Okay. Wow. So what are you working on now? You got any big deals. Cause I know from time to time, we’ve talked about investment stuff. Yeah, yeah, yeah. So, so how does that all work?

Phil Hinrichs (34:20): We have a great opportunity coming up right now. We have a facility that is a state of the art number one, K all the food, sir, uh, safety, uh, things that you need lined up on it. You need your, uh, magnets, you need your color sorters, you need your, uh, non Allergan eye, uh, things. And this is, will be a chick pea facility. It’ll cover seven States, the production, uh it’s. It has drivers behind it right now, uh, that are very interesting. Meaning and users, meaning, you know, people that are consuming your product and it’s looking for a bigger home. Okay. It’s looking for a bigger home because it, what next is, you know, we don’t know. I mean, let’s just say, uh, it’s just like ethanol, you need lots of corn. You know, if we’re just talking, canning a protein, we don’t need so many. So we’re really looking at, uh, uh, quality processing facilities that we have. We’re going to, uh, be showing this, uh, item for sale coming up in the next six months. And, uh, it’s full of it’s full of consumers and it’s full and growers. And it’s really a turnkey operation that has taken about seven years to put together. And so we’re very excited about launching that. There’ll be more stories behind that. Um, and then

Ken McElroy (35:53): Wait, people can find that on the Heinrich’s trading company.

Phil Hinrichs (35:57): Yeah.

Ken McElroy (35:58): I’ll put that up on the, on the screen. So you guys can go to there and take a look at it.

Phil Hinrichs (36:03): Yeah. Well, you know, and the best way to look at it for any investor out there is we all have a nice video of the facilities. You can understand it because we’re going to expand our wings from Washington to Idaho, to Montana, to North Dakota, we are growing organically clear down to New Mexico. So, uh, we have a really diversified and that’s what you want because you know, when you starting to talk about, you know, the, uh, protein burgers and the chick pea milk, and you know, the things that, you know, we haven’t heard enough about dog food and all those things they’re coming, you gotta be ready to go. You do you have to have a facility for it takes time as well. I,

Ken McElroy (36:48): I mean, if people just follow hummus and you know, that was on a curve like this and everything else is going to be on a curve like that, and that garbanzo milk is going to be increasing.

Phil Hinrichs (36:58): It really should be a big deal. And, and you know, when you start talking to the usage of milk, I’m sure that the acres that we think we don’t need, all of a sudden, those are going to step back up and you know, what supply and demand will drive that be a very interesting story to watch.

Ken McElroy (37:19): We probably aren’t making the dairy farmers very happy. Well, you know,

Phil Hinrichs (37:24): You’re exactly right. You know, and that’s, I’ll tell you what, my hats off to the dairy farmers, because they do work hard and they, you know, to, to milk a cow three times a day,

Ken McElroy (37:35): Dude, you could do it once. Maybe

Phil Hinrichs (37:37): Boy, I could sure. Watch that’s for sure.

Ken McElroy (37:40): Oh, Beto. This is the greatest. Thank you buddy. I appreciate it. I appreciate the convo.

Phil Hinrichs (37:46): Good luck. I just like to shout out to you, Kenny, as I’ve watched your, uh, shows and listened to your cat POS podcasts. I mean, and I can just tell you right now, um, you know, I translated into agriculture folks, you know, you can take anybody’s message and translated into what works for you. And, uh, I want to thank you because, uh, when I turned you on, you know, I have, I have a hard time turning it off and I love listening to you on the radio. That makes one. All right. Hey, that’s how you get to two. You bet ya. Thank you.

Ken McElroy (38:23): What a great episode. I hope you learn something new from today’s guest for a full show notes. Check out Ken macra.com. If you enjoyed the episode, then jump on iTunes, subscribe and leave a five star review. Also, if you can check me out at Ken Mackleroy official on Instagram for daily real estate advice, see you next week.

A Key Factor to Digital Marketing that most Companies Miss

Join Ken as he talks with the father and son team of Michael and Hunter Bailey. They cover why it is important to have a generationally diverse team particularly when it comes to digital marketing for your business. Michael and Hunter compare and contrast the strengths and weaknesses that each brings to decision making for their business.

You can find out more about the business at their company website at this link: https://www.impactdogcrates.com/

 

Being a Real Estate Investor 101

Real Estate Investor 101

Many people see investing in real estate as a way to generate cash flow, build-up a nest egg and have tenants pay your mortgage for you. While that is a successful strategy for many people, there is a technique to it. It isn’t as easy as simply buying a property and renting it. Uneducated investing is how you get into trouble. There are certain principles you need to follow to help ensure a return and be a successful investor.

  1. Don’t Assume Rents will continue to climb.

I see a lot of green investors bank on the appreciation of rents over time. While that is something that can happen with a value add structure, it is not something you want to make a purchasing decision on. Rent growth at the top of a real estate cycle is a very risky play, because when a recession hits a lot of the time you will have vacancies and rent stagnation.

  1. Run Your Numbers

They key to any property is cashflow. The problem is a lot of investors simply look at the rental income vs the mortgage. They forget you also have to take into account property tax, insurance, utility bills, repairs and maintenance, property management fees and other regular expenses. While also including an allowance for vacancies and future capital expenses (roofs, new A/C, etc.).

After all of this, if the property still cash flows then it is something you should consider purchasing.

  1. Know Your Market

I love investing in markets I live in because you will never know a market better than the one you are in daily. Never go into an unknown real estate market by yourself, always have an experienced local team who thoroughly understands it. This point cannot be emphasized enough.

  1. Hire a Professional Management Company

So many investors try to save money by self managing. While this can be done, it is a lot of work and you have to stay on top of it. If you or the people you are investing with are planning on self managing make sure they are experienced and capable of taking this on.

  1. Understand Real Estate Cycles

This is a big one that gets overlooked by many investors. You have to understand how the market cycles. From Recovery, to Expansion, then hyper supply, and finally a recession. Things are more predictable than you think and there is a right time to buy in the cycle and a time to wait and hold. The only way you can know if it is a good time to buy is by understanding this cycle.

  1. Invest with a Reliable Real Estate Company

In the past seven years who could have failed in real estate? Each year everything appreciated and rents grew. You honestly had to try to fail, but now is very different. MC Companies has a proven track record both when the market is up and when it goes down. It is important that whoever you invest your money with has this kind of experience. The next few years there will be massive opportunity, but you need  a company that is experienced to navigate it for you, because there will also be massive room for error.

 

 

Being a Landlord 101

Being a landlord can be very rewarding, but in order to have a good experience you have to follow some basic rules to do it right and trust me you want to do it right.

  1. Remember it is a business.

    Your tenants are your clients, so while you always want to be friendly and professional you do not want to be their friend. You may have some difficult conversations coming up and a friendship will make them too comfortable and you uncomfortable having those discussions.
  1. Be Clear on Your Policies and Procedures

Who takes care of the landscape? Can they have pets? Do you care if they smoke in the unit? How many cars can they have? Can they park a work van on property? Who handles water, sewer, and trash? These are all policies and procedures that need to be addressed within the lease. Sometimes new landlords forget this and when it comes up later you can’t enforce what isn’t in the lease.

  1. If you put it in your lease agreement be ready to enforce it.

The lease agreement is a contract you both are bound to. You have to perform and enforce the contract. If you do not enforce it it could bite you later in front of a judge.

For example: Even though you were trying to be nice by not charging the late fee, the tenant can then argue they didn’t think they ever would be charged because you waived it the one time. Even though you were being nice, you broke the contract. Even if in their favor the contract was still broken.

So bottom line if you put it in the lease you have to enforce it.

  1. The security deposit.

The number one reason for lawsuits is security deposit issues. Make sure a tenant fills out a move in form with any damages that are there and you take pictures. Then when they move out walk with them and take pictures of any damage. You must have photos of the damage and a bill for the repair. This is what you will need if your tenant does take you to court. You have to get a tenants security deposit back within 30 days, so you have to move fast and have a handyman ready.

Also, make sure part of the deposit is non refundable to cover things like cleaning and if you have carpet then carpet cleaning.

You will want to bring in professional companies to clean at move out.

  1. Run a proper credit and background check

A lot of time new landlords just want to get someone moved in. They seem nice and honest, so you give them the benefit of the doubt. Never do this. You ALWAYS want to run a credit and background check. There are rental screening websites that do this for you. You then charge the potential tenant for the application fee. Never assume or give people the benefit of the doubt. I always say trust, but verify.

  1. Fix what is broken

If you want quality tenants you have to be a quality landlord. If something is broken then fix it quickly. By law, you have 10 days for major repairs. Have a handyman on call who can fix the problems as needed. Also do not let the tenant fix things on their own.

If you follow these simple tips you will be well on your way to being a successful landlord.