Real Investor Radio Podcast

Craig (00:00)
Hey, welcome back to Real Investor Radio. It's Craig Feuer again with Jack BeVier. Jack, good to see you. Well, pull back the curtain for you guys a little bit. We were geeking out with AI prior to hitting the press record button here. Jack, so much, so much going on right now with the AI, with what I'm building, with what the company is building. And I'm going to give a sneak preview, Jack. I'm going to let the cat out of the bag, as they say.

Jack BeVier (00:04)
Yes sir, yes sir.

Craig (00:26)
and let folks know that we're getting ready to start an AI podcast, yet to be named. And we're going to be doing it, you, me, and a gentleman by the name of Dave Moses, who you and I know. That starts on Thursday. Can't wait to release that to folks. What do you got to say about it,

Jack BeVier (00:41)
Yeah, I'm super excited about it. We've been talking more and more about AI on this podcast, but want to, you know, it feels like we want to, there's enough content there and it's enough of a thing that like certain people are interested into it. Others are just, you know, not so much, but we'd wanted to be able to like go real deep into exactly how we're creating the tools that we are and, um, and what we're creating, what we think the use cases are, what's the best bang for the buck in terms of how we're seeing investing in that side of the business.

And so it just felt like it deserved its own line of content. And I'm fortunate to know David Moses from the Real Investor Roundtable Mastermind that we host three times a year. And David's David's a extremely entrepreneurial guy running a couple of different businesses based out of Detroit. And every time I go to R.A.R., my favorite thing the past year and a half has been

seeing what he's built and he's just he's in there he's the CEO of the company and he's the guy he's the guy who's just rolled his sleeves up and he's figuring stuff out and he's built some like incredibly cool tools just has no no respect for the box whatsoever so he's like he's doing stuff just based off of you know the nature of the tool he's connecting dots and building systems or building tools within his system that are actually like

for the purpose of doing real work, not toys to play with. He's doing it to really operationalize things. And I think that he has moved his company forward more than pretty much anyone that I've met. So I'm really excited to have David's perspective on AI. ⁓

Craig (02:18)
It's that, it's that which excites me the most, Jack, the perspective issue. I think that when you take an architect and when you take a super crazy business mind like yourself with all of the reps and all of the experience, and then you put it with like a creative mind like mine, where I'm always thinking about the customer experience and like sort of what, the customer sees when you put all those things together, man, I don't, I don't really see.

a limit at this point at what can be built, not only what can be built, but what can be built quickly, Jack. You and I were just going through a few ideas that I generated literally over the weekend that I think you would agree are kind of mind blowing that could be done in a matter of a night. You know, just me sitting down riffing with my open claw, with my rocky. And I just, really excited.

I love you and I had a chance to sit down in my office a couple of days ago and we talked about some of the use cases that you were thinking about that frankly I would have never thought about. You know, it's just not. But. But I think it's that collaboration that sort of going back and forth that where an idea only it becomes exponentially better really, really fast. Jack, you go from sort of Rev one to Rev done in a night or a week or two weeks in.

on something that may have taken a whole team of people two years in the past. And so that's going to be the AI podcast. Can't wait for you guys ⁓ to join in with us on that and really hopefully start a conversation with folks that are out there using the tools, Jack. We've got a whole working on a really cool website that will be able to give folks some of the resources that I'm looking at. And you'll put in yours as well.

Jack BeVier (03:37)
Mm-hmm.

Craig (04:00)
be a great sort of ⁓ three days a week we come out with this great newsletter that folks can have access to. So really excited to share all that starting on Thursday. But let's get back to today, Jack. Let's get back to real estate. The 21st Century Road to Housing Act, This appears to be the only bill in the last 10 to 15 years where there appears to be

Massive bipartisan support and so high level This road to housing act road stands for reducing optical obstacles and achieving development and it is a bipartisan bill that I think was sponsored originally by Rick Scott and Senator Warren their co-sponsoring and You know, so Jack maybe you could talk to this ⁓

What are your thoughts? Where'd you want to go with this one?

Jack BeVier (04:51)
Yeah, yeah. So this is basically the bill that came out of Trump made that EO, that executive order that he wants to ban institutional owners from buying single family houses, right? Single family homes are for communities, not for corporations. And so he put an EO out that didn't have a whole lot of teeth to it, in my opinion. And we've talked about that. Yeah, it was, you know, it was a signal, you know, more philosophical than practical.

Craig (05:10)
It was an idea.

Jack BeVier (05:16)
But he wanted to, but he wanted legislation. So he's been pushing for legislation to this effect. And so the ⁓ Senate bill that came out of that is this road to housing act. And it sets the definition of institutional owner at 350 houses. We talked a little bit about this last week on the podcast. yeah, no, it hadn't come out yet.

Um, right. Yeah. It hadn't come out yet. So yeah. So where we landed was, yeah, where we landed was a 350 unit definition of institutional owner. And so anybody who has through any entities that own 350 houses or more are capital I institutional and institutional owners can only do business with other institutional owners, uh, as it relates to single family houses. So if you own, if you've got 350 or more,

You can sell your portfolio to somebody else who owns more than 350 properties. So there's still liquidity in the market for, you know, for portfolios to get moved around and capital, large capital markets, transactions to happen. Um, that was a, you know, an important feature to keep it constitutional, I guess. Um, the other major point or kind of a couple of major features of it are that

It bans institutional investors from buying any single family houses, except they can do build to rent projects and they can buy houses that need at least 15 % of the purchase price in work. Right. yeah.

Craig (06:47)
Can I stop you there, Jack?

So they can do build to rent projects. Does that mean that if a company is vertically integrated and they have a build to rent sort of division, they can use that division to do build to rent? Or can Blackstone go to ⁓ some, know, Lenar and go buy a community of houses?

Jack BeVier (07:07)
Yeah.

That they can, they can go buy a community of houses. So it still allows the bill to rent industry to exist. And it allows rehabs to exist. Like institutional investors can buy houses, fix them up and then rent them out. As long as the house needs at least 15 % of the purchase price and work. And there's also this definition in there that it wasn't that the house wasn't to code or had some structural issue. like, I'm wondering if like,

did you pull a permit ends up being the threshold. ⁓

Craig (07:38)
But let

me hold on. So but if I'm already at my 350 threshold I can't go out and do some build to rent project where I'm going to buy another 150 houses. OK. So I don't see any difference. I see no difference in this.

Jack BeVier (07:49)
No you can't, you can't. You can do a build-a-writer project and then can do...

I'm getting there. I'm getting there. Except that you have to that if you buy a to rent projects and you do rehab projects, you have to sell those houses seven years later. So you can do them, but you have to sell them seven years later. I think the philosophically they're trying to keep the number of units that is aggregating in the institutional category down. So like you can still do your bill to rent stuff. You can still do your fix your.

your buy, fix up and rent projects, but you have to have a seven year exit period.

Craig (08:25)
And in that particular exit, Jack, are you saying that they have to then sell on the open market or they get to sell those also to other institutional investors?

Jack BeVier (08:35)
Now they have to sell those to homeowners on the MLS, or they have to sell them on the MLS, presumably making them available for homeowners. ⁓

Craig (08:43)
All right. Next question.

then, so then, so then what's what what's my incentive Jack is my incentive just that like I'm going to go buy these houses. I'm going to own and operate them for seven years and hopefully the market will be better in seven years that I get my appreciation. And but like but your thesis all along Jack is that is that if I if I'm a if I'm a portfolio guy.

Jack BeVier (08:59)
get you ready in the mean

Craig (09:06)
and I'm buying properties, it's probably 10 years before the thing starts even really making sense from a resale standpoint, right?

Jack BeVier (09:13)
Yeah. And so the industry is giving a lot of pushback to those resale to that resale requirement. The the build to rent industry, the Maryland builders or the not Maryland, the builders industry associations, John Burns Consulting. They're all coming out and saying basically that this is a this is a supply constraint that that that that resale requirement is a is a deal killer is is, you know, kills the intent of creating affordable housing and ⁓

So the industry is pushing back real hard against it. Who's going to like win between those two? I'm not sure. think it might be a fair fight. So like the industry is pushing back super hard. But like you said, it was like a pretty bipartisan. It's got pretty wide bipartisan support. Trump wants it, right? This is like a democratic bill that Trump told the world that he wants to see. So I don't know. I don't know how to handicap how this thing is going to play out.

Craig (10:04)
Let's break

it down for the guy, for the average listener, Jack, the guy that's got 10 to 50 units and he's trying to scale to 75. Like, you know, how does this affect him?

Jack BeVier (10:14)
Yeah.

Yeah. So I think that's who it screws. And I don't think that it was the intent, but it is the effect. If you've got 50 units to 350 units and you get tired someday and you want to get out, who are you going to get out to? Because you're, as an institutional owner, the guy who owns 350 or more houses,

who is of a size that could buy a 50 unit portfolio, a hundred unit portfolio, he's not allowed to transact with you. So the portfolio exit for everybody who owns less than 350 just got taken off the table, just got killed. So you're gonna have to sell individually to homeowners or individually to other investors or to smaller packages to other investors. But your exit strategy timeframe is gonna be longer.

Right? Like the single shot portfolio sale, I'm out of here, I'm going to Florida is going to be off the table. Six months right now as written six months after the bill is written is the effective date. So you'll have a six month window. So if you have 75 houses and you're getting tired, you'll have a six month window after this thing gets signed. If it passes as it's written currently to get out. Otherwise, when you do decide to get out, you'll have to get out in little packages or one at a time.

So I think that that is the unintended consequence that is of the most effect.

Craig (11:35)
What are you thinking, Jack? You're obviously now categorized as an institutional investor with Dominion Properties. mean, what are your thoughts? What are you and Fred talking about right now?

Jack BeVier (11:44)
Yeah, sure. We will probably just keep buying and just decide that we're going to sell, you know, whatever we buy, you know, between now and seven years from now that we have to sell a chunk of it seven plus years from now. Like if it's sold as is, I don't think it like I'm not getting out of the market. I think it makes the business less attractive for those that aren't institutional and aren't in the long term because, you know, I think not everybody wants 350 houses, you know, like 350. That's a lot of houses.

Craig (11:48)
You

Jack BeVier (12:12)
get tired, you know, well before that. And also you have plenty. You have plenty well before that. So I think that that's the person who gets, know, whose, whose life is negatively affected and the prospect of right. When you say you got 30 right now, the prospect of growing 30 to a hundred just became a lot less attractive because now you just have a bunch more work to do to get out, you know? So like there's no like inflection point as to like

you know, if I get to that level, you know, just, just at the level where the unit economics of bringing property and management in house, right? Probably about 350 houses. That's where they cut you off, you know? So like, it's, it's not great for like the mid sized operator. It's the worst. think it's the worst for the mid sized operator, unfortunately. So we'll, we'll, we'll continue to, I think we'll probably continue to.

Craig (12:59)
⁓ I was just trying...

Jack BeVier (13:04)
We'll continue business as usual because like getting cap gains on the sale of the property seven years from now and you get some principal reduction over that period of time. You hope that seven years is long enough that you see some appreciation over that period as well. ⁓

Craig (13:21)
You know,

I'll say that this is not an insignificant ⁓ issue that is passing very quickly through DC right now. The House actually passed their version of the Bill Jack 390 to 9. I mean, seriously, when is the last time that anyone could say that there was this level of both Houses of having such incredible bipartisan support? I can't think of one issue.

that has ignited, has brought both houses together in such a way, not never. And so to think that this is going to go away, not gonna go away. It's probably going to have a lot ⁓ of pimples and a lot of pus and a lot of that stuff that affects the wrong people, just as you were just saying, that like the crap's gonna roll downhill, it's gonna hit the wrong guys, and it's gonna create a lot of ⁓ headaches until they get it right with amendments, but.

Jack BeVier (13:51)
Yeah, yeah.

Craig (14:12)
I'm anxious to see how fast this gets through, especially in an election year.

Jack BeVier (14:16)
Yeah, there's a number of other like other clauses in there. They're just, I think, less material. Like they're all designed to increase the supply of housing, just, you know, decreasing restrictions and encouraging ADUs and stuff like that. But I think that the, the seven year, the seven year disposition requirement is the most controversial part of

Craig (14:37)
Yeah, so we'll keep an eye on that. Something for everyone to keep an eye on, especially if you're out there crowing rentals. I guess we'll end it right there, Jack, and we'll see you all on the next one.