Episode Transcript:  

 Hey guys, I am recording today actually from one of my favorite places to be, which is my garden. And thankfully it's been thriving all summer, but one challenge has definitely remained intact the entire time, and that is weeds. And it actually got me to thinking that essentially a real estate portfolio is a lot like a garden.

They can grow beautifully, but weeds. Or risks can creep in and really destroy everything that you've worked so hard to build. So I thought today we talk about how to identify those weeds and remove them to ensure that you have a bountiful harvest. Hey guys, my name is Jeanette Friedrich. I'm the director of investor relations here at Blue Lake Capital, and today we are gonna be weed killers.

We're gonna talk about the five types of weeds that you wanna watch out for in your portfolio or garden. So weed number one is being over leveraged now, cheap debt. Sounds great. 'cause it sounds like you're gonna get really big returns, but the reality is that when rates take a turn, or cash flow starts to dip, people can find themself in an over leverage position very quickly.

The reality is that is a re truth that a lot of multifamily operators are trying to work through right now, and there are ways that you can mitigate that risk. So first of all, you wanna make sure that there's strong cash reserves. Second of all, the best thing you can do is have fixed rate debt. But if you have variable rate debt, it's critical to make sure that you have a rate cap in place to ensure that it cannot snowball above what is a reasonable amount.

And lastly, you wanna make sure that you stress test every deal so you know where those break even marks are, and you do everything that you can to stay away from them.

Now the second weed is a concentration risk. So if you only plant one crop, then you have a very fragile garden. Same concept applies to real estate. If you only own properties in one market or with one operator or one asset class, then you have your risk very concentrated in that fixture. So the way that you can remove that wheat essentially is to make sure that you are diversifying across markets.

Across asset classes and even across operators to make sure that you are not overly concentrated in any particular area. Now, the third weed that we're gonna identify today is neglecting asset management. So just like if you neglect your garden and weeds go crazy, the same thing can happen when somebody neglects asset management.

It's very important to make sure that you're not ignoring property management reports, resident experience, or expense creep because it can really damage NOI, which ultimately will impact the total value of the asset that you're trying to eventually take to market and sell for profit. So the best way to remove these risk is to regularly review reporting, pay attention to key metrics that are really important, like leasing velocity, rent, trade outs, and retention.

And make sure that you stay proactive with property managers. Enter in constant communication with them, ensuring that they are also bought in to doing a great job on the properties that they serve.

All right. Now, weed number four is essentially chasing shiny objects. It's like planting random things that just don't belong in your soil. And what I mean by this is when people jump into investments that they have zero experience with because it's the hottest new trend. So for example, crypto or reeds or short term rentals, without any type of strategy or experience behind that.

The way to remove that risk or that weed is to stay disciplined in your investment thesis and just continue to execute what you have already developed experience and expertise in. Now, last but not least, weed number five is ignoring tax strategy. It's like planting a garden without fertilizer. Yes, your plant may actually grow and even maybe produce a little bit, but it could have been a lot more abundant had it actually had the right fertilizers in place.

The same is true when it comes to tax strategies. If you have investments, but you're not leveraging cost segregation or bonus depreciation, or intentional strategic exit planning, for example, like getting into a 10 31 exchange, then you can leave a lot of money on the table that the IRS will be more than happy to pick up.

Okay, so the best way to remove that weed is to make sure that you are proactively planning and leaning on tax professionals to execute all of your investment strategies. So I hope you guys can relate to this and find it, found it to be helpful. In the meantime, be bold, be extraordinary, and I will see you on the next episode.