02 Sep Ep. 19: Investor/REALTOR® Alicia Sierra
In this episode, Adam talks to investor/realtor Alicia Sierra about knowing what kinds of properties to send investors and the future of city living in St. Louis.
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1:02 The Hermann London company picnic is coming up
1:11 Adam did the Realtor City Tour in the Tower Grove East and Compton Heights area
1:30 Adam is excited about finishing the Hermann London audit by the Missouri Real Estate Commission
1:45 Adam introduces investor and realtor, Alicia Sierra
2:20-How does Alicia keep all of her deals straight
2:57 How did Alicia fall into a real estate career
4:24 What are the changes Alicia is seeing in the investment market
8:15 What was it like getting into the business right as the market crashed
8:49 What kind of properties are her investors buying and what is their formula
9:36 What is gross rent
10:28 What is cap rate
12:13 It is important for realtors to know what an investor wants and how they like to invest
12:51 Is one particular investing formula more successful
13:33 Are investors who only buy near colleges or in low income areas more successful
14:25 Alicia is also an investor. What kind of investor is she
14:53 What is a turn-key rental property
16:03 Why would an investor want a low risk/low profit turn-key rental
17:15 Are turn-key homes found on the open market
19:10 What are the properties that Alicia finds to be the most difficult on the market
20:45 If you have a home listed, is it better to do a price drop or to update the fixtures
22:42 Alicia studies trends to figure out what will make a house sell
24:06 What affect will IKEA have on St. Louis
26:35 National Association of Realtors put up an infographic predicting the future of city living by 2050
28:35 Urban environments, micro apartments, communal living, and green spaces
31:28 What should an investor consider before calling a realtor
34:00 What if an investor wants to invest with their mortgage
35:27 Who lives under Alicia’s roof
36:29 When is Alicia at her best
36:53 What is Alicia’s favorite blog or podcast 38:22 What is Alicia’s guilty pleasure
39:35 Who is Alicia’s mentor and how has she thanked them
Adam-Welcome everybody to The Hermann London Real Group St. Louis Realtor Podcast live from the rooftop of The Hermann London Real Estate Group in beautiful downtown Maplewood, Missouri. I’m Adam Kruse and we’ve got our producer here, Joey Vosevich. I’m excited because we have a very special guest in the studio. Alicia Sierra is a realtor extraordinaire to the stars and clients worldwide. We are going to jump right into our interview but I want to give a couple quick updates. We’ve got our Hermann London company picnic coming up soon. I did the realtor city tour today. We toured a bunch of properties in the Tower Grove East and Compton Heights area. We went through about 10 different houses. There are so many interesting properties. I was actually surprised that there were houses in the $400,000 area. Also, I just cracked open a beer because the Hermann London Property Management Team was just audited by the Missouri Real Estate Commission and we just finished that. I’m going to jump right in because Alicia is a very very busy woman and I don’t want to take up too much of her time. How are you today, Alicia?
Alicia-On my way out, actually. I’m doing well, thank you.
Adam-I’m excited to have you here because we’ve never interviewed a realtor that works so closely with so many different investors and closes so many deals. You are closing a lot of deals. How do you keep it all straight?
Alicia-Assistants help with the paperwork.
Adam-I am always encouraging agents to get assistants and I don’t think they are listening to me. Do you believe in having assistants?
Alicia-Yes. I think that delegation in all areas is good. It makes a lot more sense for me to find the next investor than to be dotting the last ‘i’.
Adam-You are very successful. Were you born into a real estate family?
Alicia-I was born into a family that left some great real estate in Havana for some better real estate in the U.S.. I’m going to completely give away my age. I’ve been catfishing the heck out of you guys thus far. It all started with insomnia and some cheesey late night Carlton Sheets infomercials. As far as selling investment property in St. Louis, I’m about 9 years into that gig.
Adam-You are a realtor and an investor and you rehab and flip. Tell me some of the changes you are seeing in the market.
Alicia-My impression of the market is from watching the inventory everyday as opposed to looking at a graph. I started at the beginning of the crash and it was a feeding frenzy on the countless foreclosures. It was hard to track all the properties everyday. The number of foreclosures seems to have dropped off dramatically. However, at the same time, only cash buyers could play that game because all the financing opportunities went away. Now it seems inversely related. The foreclosures have dropped off but there are more buyers at the same time.
Adam-Does that make it harder for you because most of your clients are cash buyers?
Alicia-It does make it harder even though cash buyers can offer quicker closings. The great thing about real estate is that the market is always changing. Inventory will change but it won’t come from the high number of foreclosures.
Adam-I’m not seeing a change in the number of deals you are doing.
Alicia-The volume is lower for me than it was at the peak 4-6 years ago, however you just have to diversify the type of deals you are going to do. I wasn’t doing so many listings of renovated properties but I’ve been doing more. I think the inventory is going to come from baby boomers downsizing, moving, or estates and older people that have been in homes for a long time. There were also a lot of dealers buying those low priced homes, fixing them, and selling them and many of them made bad deals and now they want to get rid of them. I’ve been seeing more private properties being sold for a loss because it was managed poorly or the tenant damaged it.
Adam-And they don’t want to poor money into it and they have a bad taste in their mouth for some reason so now you can buy it?
Alicia-Yes. The sources for inventory is shifting.
Adam-I also got into the game as the market was crashing and a lot of realtor got out of the business because they thought their wasn’t money in it.
Alicia-The retail people did suffer but you have to adapt to the market.
Adam-Are your investors buying specific types of properties? What is the formula you are seeing?
Alicia-I see buyers in different camps. The most successful investors choose a certain plan of action and focus on it. There is a camp that buys purely for cashflow and they will use a simply formula like the gross rent has to be 3 times the total investment of the property.
Adam-What is gross rent?
Alicia-If the house cost $30,000, they are trying to hit somewhere between 2 and half and 3 times that. A rent rate of $800 or $900 a month. That is an extreme example. That might be a 2 family in south or north city. That is a quick simple measurement. Others are more precise. They put in all the real numbers like maintenance costs, taxes, insurance, and calculate the cap rate. A cap rate is your total investment in a property divided by your total annual net income. You take your total income for the year and subtract out a percentage for vacancy. Conservative people will say 1 month year. You subtract maintenance costs. In high cash flow properties you should anticipate higher maintenance around 20 percent. Also subtract real costs for property taxes, insurance, and utilities,
Adam-Cap rate ignores mortgage rate?
Alicia-That’s a cash on cash calculation. If you are mortgaging part of it, your cash investment is going to come out higher. You are going to take out your payment if that’s the case. A prepared investor will have already chosen a calculation that they’re comfortable with. The higher the cashflow, the lower the potential appreciation of the property because they are in more economically depressed areas of the city.
Adam-It is important for realtors to understand the methods an investor may use. The realtor should be able to ask specific questions about their formula.
Alicia-They should also know what information to provide to help the investor evaluate a property. Some clients like to do their own research and some will want last year’s property tax rate.
Adam-Have you seen investors that only buy within that formula?
Alicia-The most successful investors have a game plan and specific parameters and they want to see something that will reasonably fit in those parameters. It’s my job to bring them properties either off or on the MLS that are potential opportunities.
Adam-I used to go to a lot of networking events and meet with a lot of investors and I would be sitting at a table with 15 investors and they all had their models and formula. One of them only bought near colleges, one bought multi-families, and one bought only single families in lower income areas. I guess none of them are necessarily wrong or right. It’s just about what works for them.
Alicia-I measure success by if their own game plan is working out. One of beautiful things about real estate is that there are countless ways to grow wealth. It’s like a multi-dimensional game of Monopoly.
Adam-Does being an investor yourself and having a pulse on the make it make it harder to decide what kind to be?
Alicia-Currently I’m the kind of investor that takes advantage of opportunities that present themselves. Right now I am flipping turn-key rental property, which means they are sold in complete rent ready condition and maybe tenant placement. They are lower risk and lower profit spread renovation projects that are easier to identify than retail flips. There are a lot of investors competing for retail flips that are also competing against owner-occupants because as a result of the crash we have grownups who are accustomed to terms like Fannie May and HUD foreclosure.
Adam-You said some of these deals are lower risk and lower profit but you take on a lot of the the risks and what ifs. You deal with all of the inspections but you are going to get profit from what you are doing because the buyer will be more confident that it will be in good condition.
Alicia-They are smaller homes with smaller rooms. You are not covering as much ground. Something that is mid-century is a lot less risk than a 100 year old brick stock buildings.
Adam-Are they lower price too?
Adam-If a buyer is looking between $80,000 and $140,000 and they see your house that has been rehabbed, do they still need convincing to buy it?
Alicia-These homes are not on the open market. With a turn key rental, you already have a buyer waiting for that product which is why it is reduced risk and profit. Some of the bread and butter St. Louis neighborhoods around Christy Park with a $80,000-$100,000 retail home doesn’t take as long to finish and it doesn’t require as nice of fixtures so if the market shifted and the house didn’t sell, you don’t have as much invested. You could rent the home until the market shifted back. If I do enter into retail, I prefer those lower end projects. I know plenty people who do well in higher end projects by including historic tax credits. There’s also plenty of investors who like to work really hard to find great deals and sell them in their current fixer-upper condition, and we call them wholesalers.
Adam-I love wholesaling.
Alicia-I’m similar in that I am taking a property in its current condition from one owner to the next owner who is going to take on the rehab because the current seller doesn’t have the time or the funds to renovate the property and sell it at a retail full price. The properties I find to be the most difficult sales on the market are the ones that aren’t technically distressed condition but they are not modernized. If you’ve ever watched House Hunters on HGTV, someone would be complaining that there wasn’t granite and steel. There are like the land of misfit listings because it is like your mom or dad’s house because it is nice and clean with awesome systems, but they don’t understand what is wrong with the chanson prints wallpaper.
Adam-I went through a few today. I was walking through these houses and the listing agent couldn’t understand why they weren’t selling. Maybe it’s because I am a millennial but I couldn’t get my head around it. I guess they just need to lower the price.
Alicia-I call them purgatory houses. They are in limbo. Millennials usually want to move in, fill the fridge, and call it a day. They don’t really want to take on more than a Pinterest project. It’s either that or they are looking for the equity and it’s got to be worth it for the trouble.