Brett:

I'm excited about our next guest. He's originally from Brazil, and he's in North Carolina these days, and he's a specialist in all things Section 8 Investing in real estate, and he's acquired over 400 rental properties in North Carolina, South Carolina, Tennessee and Ohio, and he spent over nine years acquiring these properties through the Section 8 Program, and he secured over $25 Million in commercial and creative and creative financing deals, and he's built an efficient property management team to aggressively scale this portfolio. He's a coach, and he's a real estate expert, please welcome to the show with me, Tom Cruz. Tom, how are you doing?

Tom:

Good, man. Thank you for having me on the show.

Brett:

For our listeners get to know you for the first time. Would you give us a little bit more about your story and your current focus?

Tom:

I'm originally from Rio de Janeiro in Brazil, I grew up in North Carolina, and I went to the University of North Carolina at Wilmington, graduated I started real estate by doing wholesaling. Got into wholesaling pretty early on use that to generate essentially capital to be able to start buying condos and eventually getting into single-family rentals on Section 8.

Brett:

Fantastic and take us back to the days earlier maybe in high school days. I believe we've all been given certain gifts or people's strengths and superpowers, and I believe these gifts should be given to us to be a blessing and help to others. I'm curious, what are those one or two gifts that you believe you were given? How does that help you help and bless people today?

Tom:

I would say, I definitely got kind of the entrepreneurial bug from my parents, the stubbornness, the persistence, and also the creativity, which is required to be able to make it work, and I carry that on through, building the portfolio, I just never took no for an answer, never looked at any problem that couldn't be overcome, didn't have enough money, that's fine. figure out another way around it. Lenders didn't want to work with it. No problem. Let's find another lender. It didn't appraise tenant issues, property managers issues, there's always a million issues that come up when you're dealing with real estate, and you have to quickly become a problem solver, or you will not last very long.

Brett:

Absolutely love that, and by the way, learn more about Tom Cruz at Section8Formula.com at Section8Formula.com. Let's dive right into the show, which is Section 8 real estate and how to acquire that. What's the number one secret Tom when it comes to acquiring and building wealth with Section 8, housing and financing anything else that you're doing there?

Tom:

The big thing is gonna be finding the right units. For me, it's all about finding the right markets, I really like Ohio, Indiana, South Carolina, North Carolina and Tennessee, throughout the southeast, there's a ton of properties that you can buy $700,000, and really, it's an arbitrage between the fair market rent, that's actually able to pay, and then also, the lower mortgage and debt service costs that you'll have on these on these assets. I mean, I'm buying $60,000 units, putting 20% down financing, 40 grand, and having a $3,000 mortgage and Section 8 paying $1,200 a month all day on that on a three or four bedroom in these areas. That's the first step is just identifying markets and properties, and then everything of a secondary thing. Financing just comes with it. Once you show banks these, crazy DSCR’s (Debt Service Coverage Ratio) and guaranteed rental income. They also like the affordable housing credits that come with loaning against this type of collateral. All that plays into it.

Brett:

What's the biggest challenge with Section 8 housing and maybe dispel some myths some people might have about it?

Tom:

The biggest challenge is inspections. That's the only thing that's different than a standard rental is you don't have Section 8, they come and inspect every year, and you have to make sure you stay on top of that because if you fail the inspections and you fail it again on the RE inspection, they stopped paying you. Um, that's really the only downside to it. But and then the common myths are the usual ones where you know, Section 8 tenants will destroy units. It's not the case if you have a tenant that is regular and you have a tenant that's on Section 8, it's a payment method, that's really the only difference if you screen both tenants and they both are, quality people with decent credit scores and no criminal backgrounds and no evictions and good level references. It doesn't really matter what program they're on.

Brett:

Got it and do you find that it's when your screening process what have you improved over the years to make sure that you are finding good tenants?

Tom:

We go really in-depth. I mean, we're talking a victory We're checking background with checking credit, we also have on my property managers go to the tenants existing place that they're renting and check to see how they're living currently. They'll go and check their exterior, make sure that you know, it's not overgrown lawn, trash and abandoned cars in the front, and then they'll do a home visit and go inside and make sure that dogs aren't destroying it, and there are no holes and all the walls so it's pretty in-depth as far as how we screen tennis reception.

Brett:

I think that's really smart. I think that's like the next area of thoughtfulness right to say, hey, we're gonna go spend some time with you. It's like, if you were to hire somebody on your team or bring in, any kind of relationship, which is essentially what's happening is a business relationship, you would spend some time with them when their current state, and so I think that's really wise to actually go to their place of residence, and I'd imagine there's not a lot of pushback, or if there were a lot of pushback, then that probably means it's a red flag.

Tom:

Occasionally, it's definitely off the wall, and they're always like, why don't you look at my house? And I was like because it's gonna tell us what or how you're gonna treat our house? And they're like, well, I guess that makes sense. It's not like a surprise visit. I mean, schedule it with them. But there are certain things that you can't hide, I mean, smells you can't hide, flooring and drywall and get fixed overnight, there's a lot of smoking, if it's in the air, it's gonna be in the air. You can tell a lot about just going into those units.

Brett:

So smart, and I think it's overlooked. Honestly, I've been in the multifamily real estate game and development game since I was a child, and in brokerage and owning and, and I've never thought of doing it that way. It's always you come in to or the property we have and see if it's a good fit for you. But how about we go to where your property you're living now and make sure you're a good fit? For us? It's common sense. But I feel like it's overlooked. Tom. Who gave you that idea? And what part of the process? Do you do that in the very beginning? Or of course, you probably want to just waste some time, which is the credit score? Are you running the credit score, and the eviction and the background checks you spending the money on? Are they paying for that? What part of the process is the visit? Is it towards the end in the middle of the beginning?

Tom:

It's definitely towards the end, as far as they have to go through all the screenings, there's no point in going through all that and then coming to find out that, um, to have three evictions on the record, we're not ever going to go bothered to do it. We do our full suite of checking, and then afterwards, we'll go and check that.

Brett:

How often are you guys like, this is gonna be a great tenant. I mean, you have probably done some of these now, but then you actually do the visit, you're like, oh my gosh, like run the other way, like, give me that percentage-wise there.

Tom:

It's very small, I would say less than 10%. Because if they're quality tenant, if the landlord gives a good reference, if their employer gets a good reference, if their credit is, well and decent, and there are no evictions. The probability is actually really low. It's we rarely get surprised by things like that.

Brett:

What if they're like at a state and they're like, I'm moving to North Carolina from California or New York. And you don't have steed you just send someone there, like with FaceTime video, like real-time, what are you doing there? I'm

Tom:

I have a property manager. Don't look at the unit.

Brett:

Like if they live in New York, you're gonna have?

Tom:

No, it's very rare that happens. Section 8 tenants, for the most part, are staying in state and city and they are coming from out of state or they're transferring a voucher, then we just do additional screening just to, get a good sense, or what we've had them do send us pictures of their current place.

Brett:

Since it says in pictures, that's smart, too. Very cool. All right. Thanks for going on a little bit of a tangent. I thought that was really interesting the way anyway, we've done that and how did you set that up? You've been able to scale right through Section 8, I think, maybe partly because you focused on like a laser. And then you built that up, and now you moved into helping others do the same. So take us through that process when you start to become a coach to help others build their wealth for Section 8.

Tom:

I've been on Tik Tok and Instagram for the last couple of years, and a big thing that keeps coming up is how do I get started? How do I buy my first property, and eventually, I just kind of put together a whole course on it and explained it step by step, how to find the best markets is going to cash flow, how to find the best properties, how to find the right financial products, how to screen tenants, how to manage tenants, and then how to you know, retain tenants for long term. That was just a natural progression, and then, a lot of its very niche, and there are not that many people that have done it at scale or this fast. It makes things a lot more interesting. Because everyone's talking about Airbnb, everyone's like my wholesaling, everyone's talking about bur, all of which require quite a bit of money on the front end. Here, you're buying $60,000 units, with 15% down, you can get away with buying a unit for 10 to $12,000, which makes it a lot more realistic for a lot more people, and it's guaranteed, in 2020, we had our best year ever during the global pandemic, because we had no turnover via guaranteed rents, and all of our banks were paid. It worked out really well.

Brett:

It makes perfect sense. Let's walk through an example right now on the average deal, because if he touched on some of these specs, but you're saying the average property is going to cost $60,000. There's an average downpayment of $10,000. Is it fair to hear that right? Or give me kind of?

Tom:

10,000 wouldn't be pretty, if you don't like a seller finance deal and they would allow that but there are some private lenders that will do 15% down on 60 grand you're gonna be around 9 to 10k.

Brett:

Then are you typically doing value add improving these properties? Are you typically buying in Turkey and then just managing and what's the feel for that or the percentage of that.

Tom:

I'm not doing a ton of work on them because tenants stay in there long term. I mean, we have tenants, I've been there for 678 years, so we're just getting ready to pass inspection cosmetically. But outside of that, we're not really handling too much past that it's, we're getting instructional, ready, clean, and then making sure everything works and appliances before we go too much further.

Brett:

Got it, and what's the average rent on a deal like that, if you bought it for 60,000, let's say you put $10,000 down and average mortgage average rent, and then the average cash flow after expenses,

Tom:

I would say you're looking at it depending on the area, for example, in North Carolina Wilmington. Right now a three-bedroom is going for 1550 per month, I'm in New Hanover County, and you're buying them for right now 90 to 110. It's a little bit more than you would in Akron, Ohio, for example. With 90k, you're putting the 10th grand down at that point in financing 72,000 You're probably going to be sitting around five 600 bucks a month in principal interest taxes and insurance. You can figure 1% of the purchase price with property tax, and then about similar for insurance here with one unhealth differ again. In that case, you're going to be with management maintenance vacancies, you'll probably be in 750 800. At 1500 Rent 1550 rent on a three-bedroom, there's still quite a bit of margin there, and I’m really targeting $600 a month in that cash flow per unit.