Year In Review - 2020
In Nov 2019, I walked into my boss’ office and handed in my notice to quit with a big smile. We made it! We reached our Financial Independence through real estate investing!
Then in March 2020, COVID-19 hit. All the goals that we set out to do at the time were in jeopardy. My husband and I were locked inside our small 2-bedroom house in Seattle with two young kids. We were going crazy, to say the least. This combined with adjustments to our FI life and schedule really made me hit a low point in my life.
As I endlessly blamed all this on COVID, one day I was contacted by an investor of mine looking for support and help. I realized I had more than most people - my network and my knowledge. Instead of allowing myself to be a victim to the pandemic, I decided to be a beacon of light to help others navigate this hard time.
I quickly put myself into action researching the best way to address certain challenges my investors and I had. I did what any entrepreneur would do, pivot, pivot and pivot again. With my network and my keen problem-solving abilities, I slowly dug myself out of the hole.
At present, I am grateful for the freedom that our FI has brought us. Now more than ever, I am thankful that we previously spent the time and effort to set ourselves up with multiple streams of passive income. Little did I know that, during a pandemic, this work would allow me the freedom from worrying about our income and instead focusing on finding the path forward.
Fast forward to now, I am on a five month vacation visiting numerous national parks and avoiding the grey Seattle winter. In that time, we have closed six apartment deals, started an education program to help people reach Financial Independence with multifamily investing, launched a new Short Term Rental/Airbnb business, hosted a national virtual conference with my dream speakers and spent time with our loved ones for extended periods. This is my FI dream coming true!
More than ever I feel the urgency and necessity for people to reach FI faster so they have the freedom to create and realize their own dreams.
I want to share my year in review in hopes that it will help you find your path to freedom and solve your challenges through apartment investing.
Full Cycle Projects
We have exited one project - Silver Oaks - that we were the main asset manager on with 45% IRR and 90% total return in 18 months in Phoenix. Phoenix continues to be a red hot market for us. The strategy of focusing on smaller assets (less than 100 units) and creating value via cash out refi or selling has proven to be effective. COVID has brought unprecedented low interest rates. This allows the real estate market to be red hot. With this in mind, we were able to quickly exit our project in Phoenix and still leave a lot of “meat on the bone” for the next investor. The lesson learned here is to cash in on profit at the right time.
New Acquisitions
We thank our investors and partners for the trust they have given us and by sticking with us through this tough year. We have acquired five projects despite COVID-19 and funded $22 Million total this year in the Dallas and Phoenix markets. These two markets are continuing to be the best areas to invest in the nation, in my opinion. So far all the projects that we have acquired after pandemic started are operating and distributing investor returns as expected. This is due to the fact that we focused on adjusting our acquisition criteria and our projections take COVID-19-related slow down into consideration.
We have underwritten at least 30 deals a month and many are not meeting our standards. That being said, we know these deals are trading in the market. Our focus is generating returns for our investors, not how many units we own. There are many deals that we have passed on including one we had best and final right around COVID-19 time. It might have been a great deal, but we decided it is not worth risking our investor’s hard earned money. Our biggest adjustment is our new projection criteria for all future investments:
We want to see a total income (including rent income and other incomes) increase of 0% in the first year of projection and no more than 3% increase in the second year. We have seen many 10% increases out there. In this market, we feel that tenants will not pay for improvements even if the property is under-rented.
We are sticking with at least 0.75% to 1.5% increase on exit cap rate from purchase cap rate. For example, if we bought a property for 5% cap rate, we must project at least a 5.75% to 6.5% exit cap rate. We understand that a 1% exit cap rate difference can make a huge impact to investor returns. That is a possible difference between projecting 80% total return in 5 years vs. 130% total returns to investors. If we were erroneously conservative, it just means we will enjoy a bonus.
We expect that a project must have cash flow in the first year with no increase from a value-add strategy. Value-add is fantastic. However, the current market is really soft on tenant demands for upgraded units. So we cannot rely solely on value addition to bring value. We have to focus on cash flow and operation efficiencies to ride past possible future down turns.
Asset Management
Aside from our new projects that we have acquired in post COVID-19 condition, we have existing projects that were under non-COVID assumptions. How are we doing on those? The ones that we are the main asset manager has been continuing distributions to our investors and sometimes exceeding expectations. We credit strong reserves and conservative projections for these results.
This year has been very challenging on multiple fronts in terms of asset management. It is a year truly testing our patience and creativity in terms of collection, vacancy and investor communication. We had to increase our support for a few of our partners on a few projects that had C class tenants. These had some challenges but have now turned around with positive trends. They are set up for great success in 2021.
We really appreciate these projects. We have learned so much on how to be a good asset manager working through these challenges. It is not always a walk in the park in this business. We learned several lessons that we want to share.
Communication is the key to help manage investor expectations and help them overcome anxiety.
We took ownership and stepped up on a few projects that our partners needed help with. We were not afraid to ask for control on behalf of our investors.
Leveraging the help given by the government and being creative and informed on what is out there to help us locally and at the federal level.
Putting ourselves in the tenants' shoes gave us the right amount of compassion yet remained firm in our collections.
Working with our property managers frequently to adjust our strategies for leasing.
Not afraid to hold off renovations and pivot our business plan to yield the highest ROI on improvements to be made. For example, instead of full renovation, we halted that and opted for washer and dryer addition or water saving programs.
Find ways to optimize expenses, such as owning our own property management company or making our property management company a partner.
Giving Back - EZ FI University
It has been a passion of mine to teach financial literacy and help others to reach financial freedom faster. This was a five-year dream when I set my goal in the beginning of 2020. COVID-19 accelerated this for me.
When COVID first happened, I had to cancel all my meetups and in-person conferences. This actually helped me learn how efficient I can be in leveraging online resources without having to travel. I was able to hop on back-to-back calls with investors and partners without wasting my time traveling.
I was also fed up with misinformation or high-level hand waving webinars out there regarding to COVID-19 helps and policy changes that may impact a business or individual dramatically. So I started a mini-series of webinars inviting people in my inner circle to give others in-depth and professional advice.
One thing led to another and I just asked myself, “Why wait?” We launched EZ FI University Beta membership program to help us collect user feedback and build a community with like-minded individuals to hold each accountable on our journey to FI. We provided coaching, support and expert circles for our members to help them overcome fear, the unknown and give them proper education and resources to set up their investment vehicle to optimize for their FI journey.
It is a lot of work. Whenever a student texts me and tells me how we have helped them achieve a milestone, that is a moment of gratification for me. All the work is worth it in that moment.
We have goals set for ourselves in 2021 to help at least 100 families shorten their FI journey to five years or less.
The lesson learned here is to pivot with your environment. When your environment provides a challenge, there are usually disruptive opportunities along with it. Being able to take action and adjust your business plans will help you grow exponentially.
Fun
In 2020, we were supposed to travel to Portugal and Taiwan, each for three months. However, COVID-19 put a stop to that. We looked into road trips with a van or RV. After a lot of research and even making a webinar about this , we decided that a road trip in our regular car and using Airbnb for housing was the way to go. With a bit of a late start, we have now been on the road for about 2.5 months, starting in Phoenix, visiting various national parks and now staying in Cabos, Mexico.
We are planning to continue this type of travel until March. We somehow do not miss the grey winter in Seattle. This is actually a great way for us to social distance from others yet not go crazy locked up in one place. We stay in houses vs. high density apartments or hotels and stay in nature and outdoors most of the time. While we are on our trip, we also try to conduct business by trying new ideas for our next parallel business ventures.
The lesson learned here was that instead of saying “I cannot.” start asking “How can I?”
Hiring
2020 has been a growth year for me in terms of moving from a solo entrepreneur to hiring the people I need. It is definitely trial and error for me. This has been the longest struggle I’ve had. I would say after working with a business coach and implementing a system, I finally started to get the hang of it.
I am to say thank you to my bookkeeper/personal assistant and my marketing team. This is the magic that allowed me to go on extended family staycations. I focused on what was important to me as a former employee when I hired my team. I wanted to enable people to work whenever and wherever they wanted. I wanted to enable them to pursue their freedom. I am happy to report that none of our team members are location-bound. This itself is super rewarding for me knowing that I am helping them achieve their dreams.
The lesson learned here is to continuously try to improve by leveraging others’ superpowers and get out of the way of yourself. Sometimes it takes a mentor to help you get there. It definitely beats pounding your head against the wall.
Personal and Family
We have connected with many new and old friends this year through Zoom. When COVID-19 hit, I reached out to some of my investors individually. We reconnected. This resulted in deeper friendships and better relationships which I think brings unique value to my investors and students. This leads to many more relationships and opportunities.
I want to say thank you to all of you here!
COVID-19 put a damper on visiting family and friends. However, we will be making our way to our relatives across the country on our extended trip. We look forward to spending more time with our loved ones. It is times like these we are grateful for the financial freedom we have so that we are not location or time bound.
The lesson learned here is that no virus can stop human interaction. Take the best of it and build it deeper. What I realized this year is that building strong and deep relationships with investors, partners, employees, friends and family are the basics of any success. This is definitely something I want to double down on next year. If you are one of my investors and we have not yet reconnected in 2020, I want to talk with you and help you with any of your questions.
Relationships
Where do I start on this one? We have started being guest speakers for people’s podcasts and started our own - 10,000 Roads to Financial Independence. We get to interview and ask many successful entrepreneurs about their mindset, habits and stories. I’ve learned so much on each episode of the podcast. I have also made many connections with folks through our podcast. Many business relationships, mentorships and personal relationships were born out of that. I am hoping these will be helpful for someone who is finding courage to go solo or reach their financial freedom.
When you start listening to other people’s stories and forget about your own vanity, you start to grow exponentially.
Passive Investor Ed Conference
I’m compelled to put this under the relationship category. This is a bonus goal that happened in 2020. When you associate with the right people, they amplify and push you to new heights. I want to make a shout out to my partners for this conference. About two years ago, I made a goal for myself after seeing Ken McElroy on stage at my friend’s conference - I am going to interview and host Ken in a conference of my own. This year, the magic happened. My partners in crime pushed me to co-host our first ever Passive Investor Ed Conference. As such, I was able to invite, host and interview Ken for our Keynote session. The tremendous amount of value he and every one of our speakers brought to the conference made this a phenomenal experience for my investors and myself. We look forward to continuing this in 2021 to help more people discover the wonder of passive real estate investing.
I am just so overwhelmed with people’s support. I have butterflies in my stomach thinking about how much impact we have made to people’s lives.
It has been a fantastic year. In some areas, we have exceeded what we set out to do. In other areas, we have pivoted and made lemonade when life handed us a truck-full of lemons. At EZ FI University, we are proud of all our students. We finished our goal setting workshops and are looking forward to another fantastic year helping people change the trajectory of their life.
We wish you all a Happy New Year! May the new year bring you purpose and life-changing progress!