In the video Jack shares his experience in real estate investing and the importance of long-term strategies. He mentioned that real estate is not always a quick way to make money, but rather a steady business that requires patience. He shared examples of lease renewals where they were able to secure significant rent increases, resulting in higher yields and increased property values. He also, emphasizes the power of inflation and compounding in real estate investments:
Hey, first of all, if you like what I have to say, like the YouTube or TikTok or whatever you’re seeing this, subscribe, the subscribe button, and you’ll be notified more. I always forget to tell people. And leave your comments, we answer them. You know, I wanted to make this video because oftentimes in real estate investing, it’s sold or the rub is, or the sort of it, it’s pitched as, ‘Oh, it’s sexy, it’s exciting, get rich quick.’ You know, I read on Twitter, ‘Oh, how I made millions here, I made millions there, on all of this stuff, all of this stuff.’ And it’s really built, I think unfairly, as a way to make a lot of money very quickly. And you can. Believe me, you can. We’ve done a lot of deals; we’ve made absolute home runs very quickly. But oftentimes, it’s a slow business and it’s a steady business, and it’s a business of getting rich over time in a reliable way.
You know, coincidentally, over the past couple months, we’ve signed, as the landlord on properties we own (remember, we’re a lender but we also buy properties), we’ve signed, I think it’s about a half dozen lease renewals. I just want to talk to you a little bit about them. And this is really directed toward real estate investors. So, these were properties that either we bought a long time ago, a lot of them more than 10 years, there were a lot of tenants in there at very low rates, rental rates. The market’s going up, but we had to live with the leases, or in a couple of the cases, we put tenants in there in the depths of the global recession, and we have to put them in at low rents. But what’s happened now is, over the past, as I say, I’m gonna say three to six months, we’ve had probably a half dozen of these where we’ve gotten, believe it or not, I think about five and a half million dollars in rent increases over the term of the leases. Not one tenant, it’s been about a half tenants.
So, what started out as tenants that were paying low rents, and the yields were acceptable and okay to my investors and us because we waited and waited and waited, when the leases came up, we were able to get huge rent increases. They were huge rent increases compared to what the tenants were paying, but their market rents. No tenant is going to pay you above market rent. So, I guess my point is, I could sit here and I could say, ‘Oh my god, I’m the best thing since sliced bread. We got, you know, millions and millions of dollars of rent increases, which is going to flow to us and our investors, which is the truth.’ I could also say that the tenants are paying market rent, and it was under-rented for many years, which is the truth. But really, the truth sometimes is blurred. The bottom line is, in real estate, the message I want to give to you is that in real estate, sometimes it’s not get rich quick. Sometimes it’s get rich steady and get rich over periods of time. And the power of inflation and the power of compounding is a wonderful thing that works on the landlord’s side. In these cases and with every one of these leases, there were all sorts of different stories. We usually don’t have this much in such a short period of time. They were all different stories where we were able to dramatically increase the rents, which self- understood increases the NOI, which self-understood increases the value of the real estate. But the tenants still are paying market rent. It just market rent went up higher than the leases. They were all long-term leases. You know, giving an example, one of them was, I don’t want to go into too many details, but it was a U.S government agency that the tenant was there since 1964. The rent they were paying was five dollars a foot, okay? And the fair market rent, and by the way, that’s been with increases, the fair market rent now is about 30 bucks a foot. So, you can imagine the increase on that and so on and so forth. You get the point. There have been huge increases. My point is, I don’t know what my point is. No, I’m joking. My point is, sometimes as a real estate investor, you can’t always look at today and you can’t always look at, ‘Oh, what’s the rent increase tomorrow or the next day or the next day at it?’ Here, within my family, we’ve tried to take a very patient long-term approach, which has voted well for our investors. That over time, you’re going to get market increases, which are going to increase your returns dramatically.
So sometimes you have to make a lower yielding investment today to have a hugely high yielding investment in the future. So real estate isn’t always so simple. It’s not so simple, ‘Oh, I’m going to raise rents, I’m going to do this, I’m going to do that.’ There’s a lot of stuff that gets in the way, a lot of stuff. But again, in this particular case, we delivered a home run over a series of properties to a lot of investors because we’ve been patient and they’ve been patient. They believed in us, and they believed in the properties, and this happens day to day.
You know, we talk a lot about our mortgage business, and that’s our main business here, that is. But a side business, and probably equally profitable and probably larger, is we buy, and we own commercial real estate. Could be flex building, shopping centers, multi-family, you name it, we’re involved with it. And we take a very long-term approach.
You know, we’re looking at a deal now, give you another example. The rents are, give or take, 5 dollars a foot, nothing, nothing. The guy’s giving it away. We think the market rents are $15 to $18 a foot. The owners own this property for, I think, 20 years. He just doesn’t care. We’re negotiating a purchase and sale agreement. Hopefully, it’ll happen, and hopefully, we’ll close the deal. But we know it’s going to take us time to convert these rents, but we have embedded profit when we convert the rent. So that’s the type of deal we looked at.
So anyway, I’m a little bit rambling, I apologize. I’m a little bit excited about these new leases. We did a fanta… I don’t mean to toot our own horn. I’d love to say we did a fantastic job, and I was about to. But really, the economy has done a fantastic job. So that’s the scoop. If you have any questions, let me know. I love real estate; I love talking about it. I’ll talk to anyone, anytime about it. Take care and have a great day. And don’t forget to subscribe to the channel.
Category: Education
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