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We’re welcoming MaryAnn Hoffman and Andrew Dougill back on The Property Management Show. They are the couple behind Hoffman Realty in Tampa, Florida, and they were with us on a previous podcast, where they discussed how they got started in the property management industry as a husband and wife team.
One of the things they said during that discussion was how scary it was to have all their eggs in one basket during the Great Recession of 2007 to 2009. We asked them to come back and talk about how they managed that crisis and how it affected their business, especially since there’s talk of another real estate crisis looming.
Business Lesson: Learn to Be Prepared
MaryAnn says she has learned to be prepared. She recommends having some extra money in the bank because it will be tough for a while. During any recession, you’ll be white-knuckled and wondering what’s going to happen next, but always remember that the market comes back.
Last summer was wonderful in the Tampa rental market. They were renting houses easily and the rents were going up. Now, the market is adjusting. Prices are coming back down. You have to be prepared for that, and you have to remember that when things are really good – they’re not always going to stay really good. And, when they’re really bad – they’re not always going to stay really bad. Nothing lasts forever.
Andrew remembers that in 2005, they began working with an older couple who had about a dozen rental properties to be managed. Everyone could see, at that point, that the real estate market was potentially going to tank. Everyone wondered when it would happen, and as Andrew was talking with this couple, he asked for some advice since they had been through three real estate recessions in their lives.
They told him that it would be scary, but that he’d get through it and the market would recover. When it did recover, they said, it would recover better and grow even more than before. They advised him to be prepared and to know his financials.
So, Andrew and MaryAnn took a hard look at their financials. They are real estate investors, too, and they had their own rental properties to evaluate. They decided that they’d probably be fine if the recession did arrive, but they might struggle a bit if rents dropped.
They made the decision to sell three rental properties so they’d have enough cash on hand to keep their business alive. It may be what saved them.
In 2008, rents dropped 10 percent. They dropped again in 2009 and in 2010.
Andrew reminds us that the great thing about getting loans for real estate is the leverage that provides. They increase your yields when things are going well. Cash on cash returns are better with a loan. But, when things go bad, you find yourself with negative leverage, and that can sink you quickly.
The number one lesson, then, is to have enough cash on hand so you can make it through the worst of the recession.
Making Recession-Proof Business Moves: Deciding which Properties to Sell
One of the properties they sold was actually their dream home. It was a gorgeous house they had just finished remodeling, and the idea had been to move into it themselves. But, knowing what was potentially coming, they sold it instead. This made them a lot of money and helped them get through the economic downturn. They had to give up a dream home, but they kept their business running and they paid their staff. And, they built another dream home after the recession.
The experience of MaryAnn and Andrew is interesting because the negative leverage and dropping rents weren’t just their own concern – it was a concern of their property management customers.
These investors began giving up on their homes. So, they lost some property management business but they were able to make some short sales for those clients. A lot of accidental landlords began to come through the doors of Hoffman Realty. They could not sell their properties for the amount of money they had invested. The logical alternative was to rent until the market improved.
The diversity of the business at Hoffman Realty – having a real estate sales division and a property management division – as well as the surplus of cash from a few key sales helped them stay afloat during some very difficult times.
Educating Property Management Clients on Market Shifts
As early as 2005, Andrew and MaryAnn started talking with their clients about the market dropping. This wasn’t just something they had to prepare for. It was also something they had to prepare their clients to manage.
When you own a property management company, you have to see yourself as an advisor to your owners.
Let them know what’s happening.
Even now, Hoffman Realty is telling their owners to be careful using comps from last summer. They’re not accurate anymore. Those owners who are listening are doing fine, but they also lost two management contracts over this message. The summer was a different market, and MaryAnn says she’s committed to being honest. If there are owners who don’t want to hear what she’s saying about where rents are right now, she releases them and wishes them well.
You want to provide your owners with the best information you have. You do not want to waste your time arguing with customers who do not value your expertise.
Worries Around a Potential Recession
There’s less worry for Andrew and MaryAnn this time around. They know the market comes back.
They’re also in a stronger financial position with their own investments. They aren’t heavily leveraged anymore, and they understand the cycle of real estate. Investors have a lot of debt when they get started. Then, tenants help pay down the mortgage and before you know it, you’re debt-free.
The Hoffman Realty customers who aren’t in such a strong position are what worry Andrew and MaryAnn. Some of them are completely unaware. Some of them are making aggressive moves right now, despite the advice they’re providing.
They would not have done anything differently the last time, even knowing what they know now.
Neighbors called to complain about the dream house they sold in 2005, because they didn’t believe the price was high enough and it was messing up their comps. This did not bother Andrew and MaryAnn. They knew what was coming, and they didn’t want their property to languish on the market.
Trusting your gut can sometimes feel like an emotional, knee-jerk response. But, if it’s a gut instinct based on what you’re seeing in the market, you’re probably on the right track.
Protecting and Growing Your Property Management Business
While discussing what types of things can be done to protect yourself against the coming shift and potential recession, Andrew and MaryAnn remind everyone to invest in real estate when you can.
They believe Realtors should always invest in real estate. It gives you a good option because if something happens, you can always sell that real estate. Use those properties you own for retirement or for worst case scenarios or a rainy day. They encourage their team to invest in real estate. Several of their staff continue to buy properties. Some will buy and hold and others will buy and flip. MaryAnn uses the analogy of “Are You a Rancher or a Farmer?” Farmers will buy the properties and keep them working. Ranchers will buy the properties, improve them, and then sell for a profit.
Is now the time to grow your property management business, given the warning signs that maybe the market will shift?
For Hoffman Realty, Andrew says the expectation is that they may lose some real estate business during this potential recession, but they’ll grow the property management side of the company by another 25 percent in 2023. That’s just being on cruise control for MaryAnn, who is happy with where the business is right now.
They have a business plan and a marketing plan, which they review regularly. MaryAnn is an excellent sales person who manages to bring in new business easily, so they’re not planning to change anything too drastically. Their plan is to continue allowing the real estate business and the property management business to work together and keep them successful.
The expert entrepreneurial advice from Andrew and MaryAnn is this:
- Don’t worry too much.
- Have a plan.
- Invest in real estate.
There’s a lot of bad news that comes with a real estate recession. One of the good things is that there will be deals coming up. All of that expensive real estate will soon become less expensive. If you can put some money aside, you’ll get a deal when the bargains show up.
If you have any questions about our chat with MaryAnn and Andrew of Hoffman Realty, please contact us at Fourandhalf via the form below.