Taking a C Property to an A Property - Episode 4
Carl Moore:
Hi, welcome to Meaningful Capitalism. I'm Carl Moore, and I'm here with Brant Greathouse.
Brant Greathouse:
Hey, guys.
Carl Moore:
Today, we want to talk about taking a C property and bringing it to an A property. This is something that is obviously close to our heart as that's kind of our MO and that's our model is to take these properties, spend some time and some energy and some effort to really increase the value that they have. What's your favorite part about it?
Brant Greathouse:
Well, I really enjoy being able to find property that's under performing, mismanaged, or has been neglected for whatever reason and being able to add a lot of value and it's more than just adding value to your investment, while that's a big deal and there's a lot of upside in the types of properties that we buy. It's also changing people's life, where they live. I mean, think about how much time you spend in your home and how much time you spend with your family. And it's changing where they live. It's changing their environment into a cleaner, more safe family friendly type of a place to live. They can be proud of it again.
Carl Moore:
Right, right. I remember there was a young lady who told us she was going to have Thanksgiving dinner at her house for the first time ever. And it was because she felt like she could be proud of where she lived. Before when we didn't own the property, she only could invite her people that had four by four off-road trucks to be able to get to her home 30 feet down the road. But now with paved roads, it was like not really a lot changed as far as the look of the homes that were in the community. It was the aesthetics of the asset itself. And,
Brant Greathouse:
The wonder of paved roads. It's amazing.
Carl Moore:
It transforms it so much. Doesn't it?
Brant Greathouse:
Yeah.
Carl Moore:
So what would you say are the visual things that distinguish a C property from an A property?
Brant Greathouse:
I think some of the things that you look at first is, roads, driveways, the age of the homes that are parked there. I think also another thing that distinguishes A from a C class property is occupancy. If you're driving through a community where it's only half occupied, it's really, it's kind of weird. It's like why, if this is such a great place to live, where's everybody at? So a high level of occupancy and people's yards need to be cleaned up. There's no token mobile home park couches in the front yard and 10 broken down cars in the driveway. So people's yards need to be clean. People need to show a little bit of pride of ownership. And you can tell that when you're driving through a community, where that has that versus the ones that don't. So I would also say there's a management office, an office where it's a designated place that people can go to that looks clean, that has office hours posted, things like theses. These are little indicators that this thing is being professionally run, operated and managed well.
Carl Moore:
Yeah, absolutely.
Brant Greathouse:
So specifically, when you're talking about the roads, you want to see gutters and you want to see curb and gutter, curb and gutter is a big deal that kind of gives the finishing touch. When you have a paved road that just the edges sort of fall off into the grass over time I mean, when their first paved, looks clean, looks crisp and that's good, but over time, that's going to turn into the grass, and the dirt, and the weeds, and stuff is going to start growing into it. And when you have curb and gutter, you're able to keep that edge nice and clean with grass trimmed, edged and everything like that. So you actually feel like you're driving through a neighborhood, a regular neighborhood, as opposed to somebody just randomly put a road here.
Carl Moore:
Yeah. What about financing options when it comes to a C versus an A property?
Brant Greathouse:
That's a great questions. So you're obviously going to be able to get significantly better financing with an A class or even a B class property. And you're going to be able to attract institutional financing like Fannie Mae, Freddie Mac, CMBS. These type of financing institutions are going to be able to give you better rates of interests. They're going to be able to give longer term amortizations. And generally speaking, you're going to have to come out of pocket less cash, and all of them are going to be non-recourse loans. You're not going to be attracting a non-recourse lender with a C class property.
Brant Greathouse:
So when you're buying a C class property, it's important to realize that your initial financing is not going to be as favorable. So when you're putting it into your modeling as your kind of evaluating the asset, you want to make sure that the numbers are going to work for long term as you're adding value and taking it from a C to an A. Why don't you go ahead and tell us a little bit about some of the properties that we've done, where we've taken it from a C or sometimes I would give it an F.
Carl Moore:
Failure rating.
Brant Greathouse:
And we've raised the standards there.
Carl Moore:
Yeah. One of the properties that we did in Houston is some of my favorite. And I think it's very easy to talk about just physical changes we make to the property, but there's almost like an emotional change that happens within the property,
Brant Greathouse:
Yeah.
Carl Moore:
As you're taking it up through these classes. For example, one of these ladies came in and she bought a home from us. And one of our properties in Houston, and I heard about this from our manager that when she told her mother where she had just bought her home, her mom said, no, we lived there when you were a little girl. Why would you go back to a place like that? And she said, mom, this isn't where we lived when we were little. And the mom obviously remembered the address. And because of that, she said, mom, you got to come look at it. And I heard when the mom pulled on property that she began crying because she didn't know a place could be that drastically changed.
Brant Greathouse:
Yeah.
Carl Moore:
And that's incredible because the mom didn't know the residents and probably half the homes were the exact same age as when she moved out,
Brant Greathouse:
Yeah.
Carl Moore:
With her daughter when she was younger, but the daughter didn't even recognize she was moving back into a place she'd grown up as a child.
Brant Greathouse:
Yeah.
Carl Moore:
Which really tells you physically, aesthetically pleasing place can really transform even a childhood memory, which is baffling to me. And that same manager who told me that story, I remember her crying when they had finished. That property had two main roads. They go in and out and they had finished one half and they had started working on the other half and she called me. And she said, Mr. Moore, and I said, Cindy, are you okay? And she just, you could hear the tears coming out of her eyes. And she said, I didn't know, it could be this nice.
Brant Greathouse:
Yeah.
Carl Moore:
And that's the part that I love the most. It's great to change an asset, but it's totally different to change the quality of people's lives.
Brant Greathouse:
Yeah. It's phenomenal. And with that property in particular, I remember that it had a horrible reputation in the community. It was known for prostitution, drugs, all sorts of things. And after we purchased that property, things started to change because we set into place some boundaries and some rules and those people, they didn't like that very much.
Carl Moore:
No, but everybody else, how many thank yous did we get when we walked the property eight, 10 months in?
Brant Greathouse:
Tons. Tons of them. I mean, people were just very grateful. And I remember that specifically, but as we just simply enforced the rules that are good, common practice rules, like keep your yard clean, pay on time, these things. And at the beginning, they were sort of like pushing against us to see, are we really going to do anything about enforcing these rules? And of course you have to, but once you did those people started just moving it out.
Carl Moore:
That's right.
Brant Greathouse:
I mean, we really didn't have to kick out almost any of them.
Carl Moore:
Yeah.
Brant Greathouse:
Because they didn't like following the rules. And so they wanted to go somewhere where somebody didn't care and they could just keep doing what their own thing was. And by doing that, the right kind of clientele started coming and being more attracted to it. Right about then we put in the roads, which you didn't have to have a four by four just to drive down the road anymore.
Carl Moore:
It truly opens up the amount of people that can move in.
Brant Greathouse:
Yeah, exactly, exactly. And we did a whole bunch of other aesthetic things, simple things like an inexpensive entrance. And we did other things to make sure that people's porches were looking nice and things like that. But I want to tell you a couple of things about what happens to an investment when you come in with an attitude of how can we serve these people better? How can we truly make their lives more valuable? I mean, these are our customers. These are our residents. And our whole goal is to provide a quality product. So we bought that property at a million six and today it has a value that's easily about six million, 6.1 million, just because we made those improvements. We got the right kind of people in. It's a stabilized community and it's a place where people want to live. It went from 69% occupancy all the way up to now, I believe it's at 98%.
Carl Moore:
98, right?
Brant Greathouse:
Yeah. 98% occupied. So, and all we did was professionally manage and operate a community, make it where somebody's willing to invite their family over for Thanksgiving.
Carl Moore:
That's it. That's it. Yeah. I want to tell one more story about that. So I remember we had done almost everything that we were going to do, and I was walking the street and I try to really walk around incognito. If somebody asked me if I'm the owner, I just tell them, oh, I'm just with the manager company. It really just helps them keep from trying to get my phone number, thinking they have a buddy, buddy and can go around the manager. And so this one guy, he saw right through it. He said, Hey, come here. And so I walked over and he went inside and he grabbed two beers and he brought one out to me and he said, have a seat on my porch. He said, I want to have a conversation with the person that has radically transformed my family's life.
Brant Greathouse:
Wow. That's so good.
Carl Moore:
And it was so awesome. It was so awesome to just sit there on his porch and just enjoy life the way he enjoyed it. I remember the squeak of the trampoline as his kids were jumping on the trampoline that he was supposed to get rid of. I didn't say anything. I just let it be. But it's great to really hear and see.
Brant Greathouse:
Leave that to the manager.
Carl Moore:
That's right. Hey, get rid of that. It's squeaking. But anyway, yeah.
Brant Greathouse:
It's beautiful. We've done that with property after property, after property, and the comments are the same. Another lady said I hung Christmas lights for the first. I've been here for 15 years.
Carl Moore:
There it is.
Brant Greathouse:
And then story after story like that and it's beautiful. But truly what we do is we're building wealth, we're creating an investment that is performing at a high level. And because of what we're doing and what we're bringing to the table is life changing. So,
Carl Moore:
Life changing.
Brant Greathouse:
As we're doing this podcast, Meaningful Capitalism, we're going to be able to talk about different topics, like what to do with wealth as you build and grow. But then also when you're investing in something that produces a return, how could that aspect be meaningful as well?
Carl Moore:
Absolutely. Absolutely. Well, there's our podcast for today. How to take a C property to an A property and what that kind of looks like along the way.
Brant Greathouse:
Yeah.
Carl Moore:
All right.
Brant Greathouse:
Check it out.
