In this episode of Anderson Business Advisors, Toby Mathis speaks with Aaron Adams, CEO of Alpine Capital Solutions. Aaron has been a full-time real estate investor since leaving his job teaching high school Spanish in the early 2000s. He has purchased thousands of properties in California, Indiana, Missouri, Texas, Florida, Idaho, Nevada, North Carolina, and Illinois. His focus is on single-family homes in blue collar and middle-class neighborhoods.
In this episode, you’ll hear why this environment is NOT like the crash of 2008, and in fact, even though this country is short 4 million homes, there are fantastic short-term rental and other opportunities for anyone interested in getting into real estate investment. From mobile homes to accessory dwelling units (ADUs), this country is in desperate need of affordable housing, and Aaron believes that the Airbnb/short-term rental space is where it’s at for investors right now.
- From high school Spanish teacher to flipping homes in Riverside County CA
- Cap rate explained- net income on a property after all expenses
- Inventory is about 4 million short on homes right now – the environment is terrible for new builders
- The “Silver Tsunami” – will those 55 and older be selling? Millenials and younger don’t want the boomer-style McMansion homes- they want metro area, tiny home styles
- ADUs, short-term rentals, and the homelessness crisis
- The Fed, interest rates, and “core inflation”
- This is NOT the same situation as the crash of 2008
- Get educated about real estate investing with Alpine and Infinity
Full Episode Transcript:
Toby: Hey, guys. This is Toby Mathis. You’re listening to the Anderson podcast. I’ve got a really good guest today, somebody I work with quite a lot, actually. Aaron Adams. I just want to say first off, hey, Aaron. Welcome.... Read Full Transcript
Aaron: Thank you. Good to be here.
Toby: We’re going to, like a laser beam, just go straight into the market conditions and basically what’s working. That’s the most important thing for most people. It’s like, hey, that’s great that you’re talking about the market. Whether it’s overheating, whether it’s crashing, whatever it’s doing, but what actually works right now. We’re going to zero in on that.
But before we do, I got to tell you a little bit about Aaron, because I worked with Aaron for years. In the same circles, we worked together in a project called Infinity Investing. Aaron, what do you got? Over 3000 properties that you guys manage now?
Aaron: Yeah, we do. Everything from trailer parks to single family homes, apartment complexes, you name it. If it pays rent, we’re collecting it.
Toby: Aaron’s group is Alpine Capital solutions. Aaron’s group goes out and buys the properties, wholesales the properties, does the stuff that you should actually be doing. We’ll show you how to learn. You can actually walk side by side with them, you can just be using them as a resource, or you can be doing your own thing. It’s a free world.
What we’re going to do is talk about what’s working for us and what Aaron says is working for him. I could share what’s working for me, but really, it’s just going to be about Aaron today and his group, because they’re a larger real estate firm.
With that, Aaron, I’m just going to ask you real simple, what got you into real estate? Five minutes or less, what was the journey that brought you here? And then we’ll dive right into the current market conditions.
Aaron: Twenty-two years ago, I was teaching and coaching in Southern California. I had a very entrepreneurial father. I don’t know, he’s probably a little bit disappointed that I went the non-business route. But once you have entrepreneurship in your head—and those of you listening know that this is the case in business ownership—you can’t shake that.
While I loved my W-2 job as a high school teacher in California and I just love coaching high school kids, I wanted extra money. I wanted more, so I found myself getting an executive MBA nights and weekends. Then I started reading books and attending real estate seminars on the weekends.
The first year while teaching I made an additional $50,000 on top of my salary from one flip that I did. The second year, I flipped a couple of properties and made it almost triple that. By the fourth year of teaching, I made over $400,000 buying and selling properties in Riverside County. I went to the principal and said, the only thing I can do next year is coach, I can’t justify the classroom teaching anymore. That started a journey of real estate. Now, the fact that I was a high school Spanish teacher was huge, because I was able to really capitalize on labor and construction and build a crew using that language.
Toby: You speak Spanish sometimes when you’re doing real estate, right?
Aaron: Yeah, big time. I did cap valuations. Those of you that are familiar with cap rate, I literally watched California zoom up in price from 2000–2004. In fact, Riverside County was the hottest market in America. I was buying properties in 2000 for 12 cap. Those same properties were selling for five cap in 2004. I realized if I was going to be a cap rate–focused investor, I needed to look at other markets.
My dad was originally from the Midwest. January 2005, I started Alpine Property Management Indianapolis, and that to this day is our biggest market. We have over 1500 doors under management. We have Airbnbs, apartments, RV parks, modular home developments. It’s a huge operation.
When the market crashed in 2008, all of a sudden, I started getting calls from Singaporeans, Chinese, and Japanese investors, saying, we want US properties and we want US dollars. Cap rate became good everywhere again. In 2009, you could buy 12 cap rentals in Vegas that had sold new construction in 2006.
We set up Alpine Property Managements in Vegas, Orlando, Dallas, Kansas City, initially to sell rentals to international investors who wanted us to manage them for them on the back end. When Wall Street got in the game in 2012, they became another big client for us as they’ve bought up 5% of the single family homes in America.
We have a pretty pretty good mix now of clients that Toby and I work with, our clients that want cash flow property, that want turnkey investing. We sell a lot of properties to them. Then we still have some Wall Street guys that we sell to and some international investors. We’ve cut off the spigot to them because we literally can’t get enough inventory. I could sell 150 properties a month if I had them, but we’re in a seller’s market and it’s tough to get inventory.
Toby: Now, you mentioned a couple of things, and I’m going to put a tip on one of these things. You keep mentioning cap rate. To somebody who’s not familiar with real estate, how would you explain? A lot of people are used to what the realtor would tell them. Hey, the house down the street sold for $200 a foot, so your house is worth X. What do investors use and what is cap rate?
Aaron: If I was looking at buying a house for $100,000 without a mortgage, because you don’t calculate debt in the cap rate, 12 months from now, after paying for taxes, management, insurance, maintenance, and vacancy, maybe the house brings in $1000 a month. My gross return would be 12%. But after I pay for those expenses, I’ll probably only have $7000 or $8000 in my bank account.
The capitalization just means the rent money coming in. If I buy a house that’s an eight cap, then after those five expenses, I can reasonably expect a $100,000 investment to have $8000 sitting in my business account for that house. And then we would say that’s capitalized at a rate of 8% or it’s an eight cap. That’s the way that they say it.
Toby: So it’s the net income on a property after all the expenses.
Aaron: That’s exactly what it is.
Toby: Let’s jump into what’s going on now. Unless you’re living under a rock, you realize that people are talking about a crashing real estate market. You have a lot of this, ‘It’s going to crash. It’s going to be like 2008. Oh, my God. It’s twice as expensive to buy the median home now because the interest rates have all jumped up.’ All that stuff, what is real? What is fake? What are you guys doing about it?
Aaron: We’ve seen 97 of the nation’s 100 largest markets have some pullback in that highest end. San Jose has seen the sharpest decline in home prices at 13% followed by San Francisco. We call those markets nonlinear. If you look back at housing prices in San Francisco, it’s extremely a nonlinear market. Absolutely, over the last 150 years, it goes like this. You’ll have a five-year period where homes double in price and then they go down by 50%.
Southeast and Midwest, we’re seeing a modest decline. The Midwest has been very resilient. That’s one of the reasons why we’re so heavily focused on the Midwest. We have Alpines in Kansas City, Indianapolis, even in the Midwest, South in North Carolina, because they’ve been very resilient. The economics behind this are really what’s been overbuilt and where did builders really get greedy on those custom homes in those upper middle class housing divisions.
We’re definitely seeing some pullback with interest rates going up. But it’s really a function of the fact that when you buy a house, you have to qualify with your credit. You have to have the down payment, but you have to have a debt to income ratio that qualifies. Meaning, they look at how much a mortgage is going to be, and then they tell you how much you can qualify for.
For a lot of people with interest rates going from 2.8% for the 30-year fixed a year ago to now 7%, they don’t qualify for 800,000 anymore. They qualify for 725. That’s hurting builders. Those guys are getting screwed right now.
The fundamentals behind it is we’re short four million or so housing units in this country. We’ve been underbuilding the market since the last crash for the last 14 years. Prices may soften at the top end, but that starter home, that blue collar segment is as robust as it ever was.
Toby: You just hit on a few things there. You just said we’re underbuilt by about 4 million units in the United States. What is the number that we need to be building on an annual basis to keep up with population growth and properties that fall off? There are properties that have to be demoed that are no longer habitable. What’s that number?
Aaron: When you look back to 1980, it’s really been the same number. We need to build 1.7 million new housing units every year just to keep up. You have population growth, you have birth rate, and now our Gen-Zs and our millennials are starting to think about buying homes. And then you have functional obsolescence and homes that get torn down and go away.
What’s interesting, even in 2021 with the low interest rates, there were 1.7 million housing permits pulled, but we didn’t even finish it. That’s the closest that we’ve come since 2007, which is the last time we built that number.
Toby: I’m looking at it right now. I’m looking at the new housing starts annual rate. That’s the housing starts, right? In 2021, it was 1.637. In 2022, it’s 1.6. But before that, it was 1.3, 1.2, 1.1. We went below a million in 2014 and 2013. 2012 was in the toilet. It was 600,000–500,000.
2007 was the last year where we’re at 1.7. We’re actually keeping up with it. The only reason I’m bringing that up is because I’m looking at the numbers going, wow. How do we get 4 million units behind? Well, this is how you do it. You make the environment so nasty for new builders that they don’t want to do it or they can’t keep up.
Aaron: That’s really what it’s been. Just this weekend, we had our summit out in Indianapolis. We host a live event for investors. Somebody raised their hand, they said, well, what about the silver tsunami? What about the fact that a third of the housing market is owned by 55 and olders? What if they all sell?
I’m like, well, as a landlord, as an investor, I would love that because then somebody’s going to need to have rentals. We don’t have that. We don’t have anything close to that. I’d love to develop 55 and older parks for them. So yeah. Maybe in a vacuum if you look at that, that would plug that gap.
What you forget is to look in the Sunbelt. We have all these 57 and older communities. Millennials, Gen-Z, and Gen-X don’t want to live in the same housing that their boomer parents are wanting to live in. They don’t like the McMansions. They’re more focused towards metro and minimization, or popular trends with them and tiny home spaces.
I’m like, it’s not really realistic in the first place. It’s not really an argument in the second place because, to answer your question, yes, it would fill the void, but that yes would assume that they want those houses, and that yes would assume the boomers are going to do anything like that. I just don’t see that happening.
If that yes would occur, it brings up a great point. Whenever there’s money in motion in the real estate market—and there’s always been money in the motion—you may need to change the ladle that you dip in the river to pull your share of it out. But there’s always an opportunity to make money, because money in motion creates opportunities for you to insert yourself and pull your share away from that.
Toby: Where are you inserting yourself right now? What are the opportunities that you’re taking advantage of in the real estate market, you and your investors?
Aaron: We’ve been crushing it in manufactured housing, mobile home parks, modular homes, those factory-built rectangles, where they build one half and then they ship them out on trailers. It doesn’t matter if it’s a trailer, manufactured home, or a modular home on a permanent foundation. We’ve been buying land and putting them on lots and selling them. We’ve been buying old parks and filling them with new ones. We’ve been flipping trailers and existing parks.
It’s a massive opportunity that for years you had city councilors, like we want to get rid of the trailer parks in our community. Not anymore. They’re open arms. We need affordable housing, because the segment of the formula in our short that’s really just annihilated is affordable housing. That’s where we’re getting killed.
Toby: You can’t build a property and make it profitable if you’re getting $700 a month and rent on it. Or even worse, figure that some of these folks are to be not housing-burdened. You’re talking about $400 or $500 a month is what they can afford. There’s no contractor out there that can build and make that pencil. You’re coming up with 3D homes, manufactured homes. You’re trying to drive the price of building because it skyrocketed, especially during the pandemic.
You’re trying to find inexpensive housing ways to come up with it. California is now going to allow ADUs all over the place. I talked to a guy who’s putting 10 ADUs on a lot. I’m just like, what are the average rents? He was like, oh, $2000–$2500. There’s no affordable housing.
Again, you and I couldn’t just build something there. California is a whole other world. It’s like a different planet sometimes. Just to cover the basics of housing without having mass homelessness, it’s nasty. What other ways? You have manufactured homes, so it is one. What else are you guys doing?
Aaron: You mentioned ADUs. I would lump ADUs also with short-term rentals. Short-term rentals are phenomenal. In fact, right now, I was just reading on airdna.co, which is a great website for short-term rentals. We’re at 20% over the occupancy that we saw pre-Covid in 2019. To me, watching us go to all my Airbnb sat empty in 2020, and maybe 15%–20% in 2021, to be 100% back plus, short-term rentals are just on fire.
The people that wrote out the Covid and that downturn with short-term rentals, now they have very little competition because it’s so expensive to get back again. In Indianapolis downtown, in 2018, you could buy a really cool house near the convention center for $150,000 and get $2500 a month on Airbnb. That same house now is $350,000, and you’re still only looking at $2500 a month. It just doesn’t pencil as well. You have people that have left the space, but there’s that much more demand for it.
Short-term rentals are insane. Accessory dwelling units are becoming huge. A lot of different states and cities are watching how that’s going. In California, for example, we need to consider changing zoning and eliminating single family designation neighborhoods, and let everybody put a trailer or a tiny home in their backyard and rent it out. That’s a massive trend that fits both short-term rentals, and manufactured, mobile, and housing, because both of those coexist in that same space.
Toby: Absolutely. Now you’re letting people actually fix the problem instead of putting the handcuffs on them and keep them from being able to do it. What else? We have manufactured, you have the Airbnbs. Is there anything else that you guys are doing right now that seems to be working? And then I’m going to ask you for your predictions on this housing market just to get your crystal ball out.
Aaron: Right now, the only good deals that you can find are off-market. We used to send out letters. Some of you probably received a letter. Hey, I want to buy your house. And then maybe you’ve received postcards. Over the last 24 months, texting has become huge.
We’ve been sending out 15,000 text messages a day. Hey, I’m interested in buying your property. The reason we’re doing that is because we’ve been getting over 100 properties a month across all of our markets at Charlotte, Kansas City, Indianapolis, Idaho. Some of those deals, we divert towards our monthly live events where investors can buy property from us. I would say 40% of them, we immediately assign that contract.
Just to give you an example, I got a house in Indianapolis under contract for $180,000 last month. If I would have kept it as a rental, it would have been like a five cap. Now we only sell six, seven, and eight caps to our clients, so that wasn’t gonna work, but I knew a Wall Street fund that’s buying it at four cap.
Somebody said to me, why would Wall Street buy four cap? When they borrow money at 1.7% APR a year, if you buy a house for $400,000, you only have to pay the lender $1700 and you’re bringing in $4000 net, there’s still nice cashflow there. Plus, there’s a very good chance Indianapolis is going to go up 5%–10% over the next 12 months. That’s why Wall Street is still buying homes.
Wholesaling, a lot of times, we consider this a downgrade strategy, but we love it because there are just so many international and institutional investors that want single family homes and want multifamily and trailer parks in a way that we’ve never seen before. That’s another really good strategy. Because we’re in a climate, there are no good deals that come on the market.
Toby: You got to go pound the pavement and then anybody that’s willing to do that. Can they learn that stuff from you, by the way?
Aaron: Yeah, we actually teach. At Infinity, we teach how to get into mobile homes and manufactured space. Every month, we’ve had investors coming onto our operation here in Idaho to put eyes on the operation and get trained on that. We have investors who are helping and set up those text campaigns and use a customer relationship management software or CRM to do that.
Then we let investors come out to our big Airbnb operation in Indianapolis and learn how the right way to be a super host is, what you should spend and not spend on. When they throw up on your couch, how do you go after them using Airbnb?
There’s a learning curve to making the money, but there’s just so much opportunity. In 22 years in this game, I’ve never been as excited about the prospects of being a landlord and making money with the strategies that we’re using on the active side.
Toby: People who think that the affordability crisis means the market is going to just completely topple, this is going to be a learning lesson of what it means to have a massive chunk of the population become renters again and why you want to not be on that. You could be a renter, but you still want to be a landlord. You can be renting your main house and be a landlord and other things, but you definitely want to be a landlord.
All right, what’s going to happen to the real estate market? Get out your crystal ball. Is the Fed going to break everything? Are the interest rates going to continue to skyrocket toward 18%? What do you think is going to happen?
Aaron: I definitely think that whenever the Fed speaks, I keep an eye on the Fed. The Fed is frustrated that inflation hasn’t slowed as much as they hoped. Going into the fourth quarter of 22, everything points to increased rates. I think we could easily see 8% or 9% APRs before this thing falls.
What I love is I was just literally reading this morning, that they call it core inflation. They take fuel out and they take food out. The core number for that inflation is rent. Rents have gone up. That just makes me laugh, because, yeah, there are some markets like California, Nevada, and Florida, that are relatively unaffordable. There are just so many affordable markets where you can buy six-, seven-, eight-, nine-cap deals. As long as that stays the case, then as an investor, I don’t worry about it.
It’s like I don’t really worry about who the president is because Republican or Democrat, nobody really wants to hurt housing. They have different ways they want to help it. As an investor, I have to understand that, but I don’t get swept up in left and right politics as a business owner, because there’s always massive opportunity.
It’s like I have this tool belt with 20 different strategies. For example, I could see tax sales and foreclosure sales coming back with a vengeance. We just added a tax lien class to our infinity portal, because that’s a strategy I haven’t used for five or six years.
Now, all the free money and all the moratoriums are falling away. We’ve had a false foreclosure rate for about three years now. I can see a huge little wave going into 23, where tax sales, foreclosure sales become good. I don’t see it as digging out of this affordability, this lack of homes anytime soon, unless cities, states, and Washington make some big changes with lending and with what they’ll allow from a zoning standpoint. But we’re very well-positioned with manufactured and mobile to whatever they decide to move in and capitalize in that space.
I think your clients and my clients have really been the frontline benefit because 99.9% of my money comes from rent that I collect on my rentals and from deals that I buy and sell actively. When you’re a real estate first company like we are, then at any given time, we’re like, hey, here’s what the hot strategies are and here’s what we see coming up. When that changes, not only will we let you know, but we’ll show you how we’re making money in it.
Toby: Is this the downturn? I’m sure you hear the same thing I do. You get people comparing it to 2008. Does one look like the other? Is this something that’s going to repeat history? Are we in something different here?
Aaron: It’s different because we had subprime mortgages, where you had a bunch of liar loans. People had borrowed money they had no business borrowing, that they couldn’t afford to borrow, and that they shouldn’t have been given that money in the first place. When you could borrow $200,000 with 600 credit, that’s a problem. It’s just a recipe for disaster.
That doesn’t exist. We were overbuilt for the last crash. We’re underbuilt this time around. The biggest thing is that international investors and Wall Street investors were not the buying force in any way, shape, or form for the previous 100 years.
If markets start to soften, those guys already know how to go to auction. They will be at the auction buying the deals. That becomes like a prop that will hold markets up. I loved 2009. 2009 was the first year I made a million dollars as a real estate investor in one year.
Toby: It’s a lot of pain to turn up on people, though. That’s a lot of pain to start cranking on folks.
Aaron: Yeah, I just don’t see that.
Toby: I look at it myself, too. I know you and I look at some of the similar data points, but you got an average of about $200,000 of equity. I think it went up to 220 before the interest rates got jacked up. Let’s just say at 5%–10% adjustment, you’re still at $200,000 of equity on average that people have in our property. This isn’t where they’re upside down on their home. I just don’t see that.
Aaron: What’s great is now they can’t grab the money. These cash out refis have been a plague for the last 10 years. These high interest rates are making people go, maybe I’m not going to do a cash out refi.
Toby: It’s funny. It’s like if you have a lower interest rate loan, you don’t want to sell your house now.
Aaron: No. And that, again, subject to is going to be red hot. That’s another strategy we teach.
Toby: That’s going to be interesting. I don’t want to get into all the stuff that we did when everything went nuts, but if you have a good, low-interest loan, all of a sudden it becomes a selling point if somebody can actually take it over, and there are ways to do that.
Any parting words? Any words of wisdom? Anything that you’re going to say like, hey, check my video out from a year ago? A year from now, you’re going to be really proud that you […].
Aaron: We had some clients at our summit last weekend that had come to Indianapolis eight years ago. They bought 10 cap properties from me for $60,000. Everyone in the room was like, oh, now everything’s like $100,000 and it’s like seven cap. I said, right.
In 10 years from now, we’re going to be saying, eight years from now, we’re going to be like, oh, we used to be able to get a house here in Minneapolis for $100,000 at seven cap? Now those houses are six cap and $200,000. It’s the whole best time to plant a tree.
Every month, I meet people that are like, man, I wish I would have met you eight years ago. I’m like, right, but you’re here now, now’s the time to take action. Don’t have regrets about diversifying into real estate, adding more rentals, and potentially learning a strategy that can be a side gig for you.
We had six doctors at our summit. Of course, they were there for passive cash flow properties. But I would say five of the six went away saying, I’m going to dabble in this. I do have more time than I thought. On Saturdays, I’m going to do mobile home or I’m going to do an Airbnb, because there are tax benefits and other reasons that they wanted to get into it.
The big thing is to move forward on your education. Take action. You know that you’re interested in it for a reason, because eight years can happen really quick.
Toby: Absolutely. Now, if somebody wants to get a hold of you, Aaron, how do they get a hold of Aaron Adams out there on the Internet?
Aaron: email@example.com. You can email me or you can go to Alpine Capital Solutions, alpinecs.com. My email’s on there, my cell phone’s on there. Ping me. I’d love to hear from you.
Toby and I host a Saturday free get started in real estate investing training. We’d love to have you join us there as well. You can go to infinityinvesting.com and just get a free Zoom link. Actually, we record those too. I’m excited next year because I’m going to be flying down to Vegas, which I love Vegas. Toby and I are going to record those together in the studio. That’s going to be cool, man.
Toby: Yeah, we like it. We like investors. We like helping investors. More importantly, it helps you do the things that you care about. In fact, we’ll leave with this, Aaron. You’ve been very, very successful as a real estate investor, but what’s your favorite thing to be doing?
Aaron: Coaching. I play volleyball. I got a match tonight. Toby taught me how to set up a nonprofit. My eldest son went off to college and I’m like, what am I going to do because I don’t want him to work more? Now I’m like, hey, I’m 49, it’s time to start giving back. I literally have put $2 million in this 501(c)(3) that Anderson set up for me.
My wife says that we’re now a YMCA, because I’ve built a commercial pool, and I’m building a three-gym facility and I’m coaching. It’s so great to have money to pay it forward and use sports. That’s why I got into high school teaching. Now 22 years later, I’m having visions of building a $5 million community center and putting the name of the nonprofit on there.
That’s what this is really about. Real estate and the money are the black and white lines that make your picture, and then the color that you fill it in with is your give back. Toby and I, that’s one thing that we have in common. We’re both so passionate about our nonprofits and that charitable-giving component.
I believe in tithing. I think everyone should tithe either to a faith-based institution or a nonprofit. I’m more stressed today about this volleyball match that we had to clinch the league title tonight than I am about any of my deals right now.
Toby: You took a team that wasn’t very good, right? You have a pretty young team, and you took them right to the championship, right?
Aaron: I have three sophomores. They were zero and eight last year, zero wins and eight losses in league. We’re eight and one going into our last match tonight. They’re fifth in the state of Idaho and we have a legitimate shot to win the state with three sophomores. I haven’t been having so much fun.
Toby: That’s what it’s all about, guys. You got to go do the investing stuff so you can go goof off.
Aaron: That’s right. Yeah, that’s what it is.
Toby: […] volleyball.
Aaron: Yeah, you just need the money to fund your passion, your buzz, and your give back. I meet Anderson clients all the time. They don’t want money for them, they’re good. They want money for someone or some cause that they want to fund and pay for and pay it forward. That’s a really cool thing.
Toby: Making money is cool, but making a difference is even better. We’ll leave it at that. Thanks, Aaron, for coming on. I really enjoyed having you.
Aaron: Always a pleasure to chat.