Eddie Lorin has twenty years of experience in real estate investing and developing. With a unique approach to investing that focuses more on the tenant rather than the cash flow of the deal, Eddie has successfully been able to invest in real estate and purchase over 15,000 units in more than seventy real estate transactions.
In this episode of Multifamily Real Estate Investments with Don and Eden, Don and Eddie are going to discuss opportunity zones and a different approach of multifamily investing called impact investing. This type of investing is putting the focus on the tenant instead of the profit and the profit usually follows as the tenants tend to stay in the community. Therefore, there are fewer turnovers which are the biggest single expense we could have. Eddie will also discuss shelter and affordable housing development.
Highlights:
- Eddie’s Beginnings in Real Estate
- Impact Investing
- Opportunity Zones
- Putting the Focus on the Tenant
- Current Projects and Future Outlook
How to Connect with Eddie
W: StrategicRealtyHoldings.com
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TRANSCRIPTION
Hey guys. This is Eden and in today’s episode, Don will interview Eddie Lorin. Eddie has 20 years of experience in real estate investing and developing – Don and Eddie are going to discuss opportunity zones and a different approach of multifamily investing called impact investing. This type of investing is putting the focus on the tenant instead of the profit and the profit usually follows as the tenant tends to stay in the community. Therefore, they are fewer turnovers which are the biggest single expense we could have. Eddie will also speak shelter and affordable housing development so I hope you guys enjoy the show.
Welcome to the Real Estate Investing Podcast with Don and Eden where we cover all aspects of real estate investing with special attention to multi-family apartment buildings and off-market strategies.
Hey Eddie, how are you doing? Welcome to the show.
Pleasure. Nice to be here.
Thank you for participating. So how about you start by telling our viewers and listeners a little bit about yourself and who you are what you’ve done in your career in real estate.
Well, I’ve been in the apartment business for over 25 years and I’ve done over 40,000 units of working for others and working for myself. I specialize in the lower end more low-income housing development and purchasing and rehabbing existing properties and then doing it for a long time. We try to give people a clean safe affordable place to live. Treat them with respect and dignity they stay, they pay and they refer their friends. That’s it. Very simple business. We do the right thing all the time over and over again consistently.
Yes, I know that you are an impact investor and also the name of your company. So tell us more about where you’re based, where you’re doing business, where are you’ve acquired properties and developing properties?
We are based in Southern California in the San Fernando Valley. We’re building four projects here locally. And we also have a funding opportunity zones that we’re funding others across the nation to build their opportunity zone workforce housing. We define workforce housing as people making between 80 and 120 percent of area median income. That’s what they can afford to pay. And we only have rents that are tagged to that structure.
I see. So, I know opportunity zones are a pretty new subject. And a lot of people are very curious about it. I know it offers a lot of tax benefits. So, what could you tell us about Opportunity Zones? Briefly provide your input on that.
There are three basic benefits. One is the deferral of taxes. It’s basically 1031 on steroids. So, if you have gains in Apple stock or you sell a business it’s not just a 1031 exchange anymore; you can sell the stock, sell interests in LLCs, you can exchange you any capital gain into opportunity zone investments. What’s the benefit? Let’s say you sell and you have one main dollar gain. That’s let’s say in round numbers federally it’s 20 percent or 200 grand. That two hundred grand can be deferred until 2026. As you put it into an opportunity zone fund that purchases into one of eighty-seven hundred census tracts across the United States that are low-income census tracts designated by each governor across the country. So the first benefit again is a deferral of taxes. You don’t pay that 200 grand until 2026.
The second benefit is that two hundred grand is going to be less if you purchase into an opportunity zone before now. So within seven years 2026, you get a 15 percent discount off of that tax base. So, in essence, you are paying one hundred seven thousand dollars in taxes so you got a free loan from the government for one hundred seventy thousand with that discount of 30 grand. So that’s the number two but the really most important thing is if you hold that new investment into an opportunity zone that’s invested in these eighty-seven hundred census tracts across the country hold it for 10 years and let’s say that million dollars become worth four million dollars that three million dollar gain is tax free.
Wow. That’s amazing and very interesting. So how is that changing the apartment building business? And in general, the investing business in the United States as far as you see it.
Well it hasn’t yet because this Treasury has been very slow to come out with final regulations is just now getting going it’s almost two years since the top tax act. Jobs Act of 2017 passed. So, the frustration for all of us who are on these panels and trying to get things going. We had a second set of regulations come out now we’re waiting for a third set. So that’s a challenge to get things moving. And the problem is that it was written by two senators that it was a bipartisan law which is a good thing, but it wasn’t very heavy on details. And as a result, the accountants and lawyers and they’re all wondering. How do we fill in the gaps of these uncertainties and so, we’re almost there?
But it has not changed things much. To answer your question yes. But it will.
Ok. That’s great. So, tell us more about what you’re doing in the apartment building business, so I know you’re focusing on C properties and B properties you’re investing more in the quality of life of the tenants. So, tell us more about that business model and how is it different from other real estate investors.
Well, it’s all about who’s paying your bills. The tenant pays your bills. And if you don’t have a happy tenant, they’re not going to stay for their friends. So that’s the basic tenet of what we do. We try to give everyone value and value can come and giving people amenities, even though they’re in a little less expensive environment. And that’s very simple we give her. It’s like a fake Gucci bag. He likes to have a feeling of that Gucci bag. But it may not be real, but it still makes him feel good. And so we give people well-appointed interiors, beautiful paint jobs, the resort-style pools, State of the art fitness centers, social areas to thrive in. And we just give people that nice sense of community because you can smell it when you walk into the leasing office that just it feels good feels like home. It’s very simple, but very few people care about the resident. And that’s the problem. Yes, people care about maximizing cash flow.
Yes, I agree because I’ve been interviewing a lot of investors and it’s typically about money not about the resident. So how about you tell us about a deal that was structured this way. So, what are the changes that you’ve made it improve the quality of life for the tenant? So, give us an example that details so you can understand more about what it is exactly what you’re trying.
We bought a high rise in Maryland called Waterford tower. We got sniped by the county because they wanted to buy it out from under us and we said hey, wait why would you want to buy it out from under us. This thing’s neglected it needs TLC. Why don’t we work together so we got a loan structured by the county in exchange for putting affordability which we would have put on anyway based on 70 and 80 percent of area median income residents?
So, we’ve spent three million dollars in the process of renovating all the interiors, all the common areas. And this place was neglected and it was very sad how this major institution allowed this property to get in such disarray. So, we closed on it, we’re cleaning it up. Residents are happy were 96 percent leased and we’re renting to people that only make a certain level of income. Not all of it.
It’s a mixed-income property so half the property is fully market rate and the other is based on income restrictions so people can live together and work together as long as there’s a common sense of community. And that said, its very simple, it’s not rocket science.
So how many units is that property in Maryland? One hundred and forty-five. I see. And when you’re saying that there are income restrictions what are the income restrictions 70 percent and 80 percent of area median income, let’s say area median income is one hundred thousand dollars. Seventy percent and is seventy thousand dollars. Rents are going to be capped at 30 percent of that 70 percent because no one should pay more than 30 percent for rent in a year. So, 30 percent times – I have a calculator in front of me.
Quickly, but I’m 70 that’s the twenty-one thousand. Okay. So that’s the max we can charge for rent.
I see. And so when you’re improving the property how do you make sure you’re not over improving the property as you’re investing in C class buildings and you typically people always say you don’t want to over-improve the property because you might be losing money.
Well, you can do it right the first time we could limp along and pay later the bottom line is you have to buy it right. And if you buy a right and you have the right comps and you give people the value they’ll give you the rent and it’s there’s no right answer It depends on the deal and you’ve got to be smart about how you buy if you overpay. That’s the real problem.
Yeah. So, what are your plans for the future as far as the apartment building investing because I know right now the market is a little bit? It’s hot. So, it’s very difficult to come across a good deal that you could get for a good price. And so how do you prevent yourself from overpaying in today’s market?
We’re building new. That’s one of my focuses. There’s such a need for product and these opportunity zones are one of the greatest things that have happened to our generation. And when they start getting moving I think that’s the greatest opportunity. No pun intended to build new if you’re buying a five cap or four cap, you can build to a five and a half or six and you have a brand new product. And as long as it works between 80 and 120 percent of area median income we’re not building luxury. We’re building value-driven apartments and that’s where I think the opportunities are because we have a shortage of seven million units today and it’s only getting worse. The problem with housing. And we’ve got to figure out creative ways to buy land, to restructure, to build decent safe clean affordable housing. Because if you’re buying an old product. I added that that low of a return and it’s tight. There’s not much juice.
Yes, I agree and I also think it’s safer when you’re focusing on that kind of income with your residents it’s safer because you’re more immune to a recession because people would always need these kinds of apartments affordable housing. So that’s great. And I think you’re doing a terrific job. So how could other people connect with you in case they want to know more about your projects.
Just reach out on my website which is StrategicRealtyHoldings.com That’s the best way to find us. My email is elorin@strategicrh.com.
Wonderful. So, I want to thank you for participating in the show today. Really. Gave us some beautiful insights. Thank you very much. Good to talk to you.
Thanks for listening to the real estate investing podcast with Don and Eden. Stay tuned for more episodes. Till next time.
