Dana Dunford is the CEO and co-founder of Hemlane, a technology-enabled property management platform. Through real estate she became a strong advocate of purchasing properties anywhere, as the best investments are not typically in your backyard. Dana helps real estate investors set up the most intelligent process to manage rentals from a distance, while connecting them with local, licensed professionals.
Russia’s attack on Ukraine has taken financial markets by surprise and its consequences are already having a severe impact upon energy, transport and logistics, stocks and assets. To help you stay understand the situation, Dana will talk us through in today’s episode how likely the war in Ukraine is going to impact and affect our economy locally in the States as well as the real estate investment market.
Episode Links:
https://resources.hemlane.com/author/dana-dunford/
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Transcript
Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.
Michael:
Hey everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum, and today I'm joined by Dana Dunford, CEO and co-founder of hemline property management and today Dana and I are talking about a pretty heavy and serious topic and that's the war in Ukraine, and how it's likely going to impact and affect our economy locally here in the States as well as the real estate investment market. So let's get into it.
Dana Dunford, welcome back to the pod, so happy to have you on. Thanks for taking the time.
Dana:
Yeah, thanks for having me back on. It's been a while.
Michael:
I know it's been too long and in between our last recording, and now you gotten some series a funding, right?
Dana:
We did, we did. We announced it in January and now we're on the property management side, ready to ready to rock and roll and provides more innovation there.
Michael:
Oh, congratulations. That is super exciting. So today, I was hoping that we could talk about kind of a more serious topic, a bit of a heavy topic and that's how the war in Ukraine is likely to affect our economy here locally in the States and this is a sensitive subject, a heavy subject, there's some incredible atrocities going on right now over there. So want to be sensitive to that. But very curious to get your thoughts around what we here at home can be doing on the economy site to kind of help weather through this storm.
Dana:
Yeah, definitely. Um, so so just to begin with, I think, with the conflict that's happening in Ukraine, I take it back the strategist, tragedy, and think about, again, two to three years ago, also with COVID, right, basically major event that was global, that everyone was watching. And on the real estate side, we got through it, we got through it together, and we got through it also with our tenants, and with communication. So at the end, I want to really talk about that of like, next steps, actions you can do as a current landlord, and what you should be doing immediately, what you should be doing during your lease renewals, and how to handle what is happening today in the news and in the economy. But a lot of questions that I do get is, you know, from the real estate investor perspective, hey, how is this on the rental side going to affect be here at home as well. And so from there, I think the first thing to talk about is essentially the economy. I'm not a politician. So politics stay 100% away from I will really talk about about rentals themselves. There'll be some things I want to talk about in here, such as short term rentals and development. That's not my expertise. So I think we'll just touch on that. I'm really on long term rentals, and talking about what we're seeing in the economy, and then where we're going from there.
Um, so I think that like, probably first place to start is at a high level, um, you know, affecting properties here in the US. What are we expecting? Um, obviously, there, it depends on your property depends on the type of property you have the rental property you have, as well as the types of tenants you have in your property. And so we'll go over that.
Um, the other thing about it is location. So I think from that perspective, Michael, let's just face it, like people are asking, is the recession imminent? What's going on with the economy? And how does this conflict impacted? I think, at a high level, when you look at it, definitely will help prolong inflation, may speed up some of the concerns that people have had about recession, but from the rental industry, and what you and I think about every day, as owners of investments of rental properties. For us, we're actually here to assist. You saw this in other recessions, such as a Great Depression, when you saw that people were losing their homes, foreclosures, there was no development, I think 95% of development was caught, right of new homes and there was a huge surge in rental properties and or demand for rental properties, I should say.
And so it's the same thing here for landlords to consider of hey, there, if there is a recession, and this conflict does kind of spoil it to happen a little bit faster, or prolongs inflation or anything like that, you as a real estate investor can help by providing a roof over people's heads here in the US, because you have that property and you have that decision to make of renting the home versus keeping it vacant or anything like that. And so I'd say at a high level there, there is benefits to owning rental properties and helping spur the economy from that perspective.
Now, I think let's talk about geography, as well as that like a good another place to start.
Michael:
Yeah.
Dana:
I've learned from that perspective on the rental side and just to also primary residences, people always say what are the most three most important things in real estate and purchasing and it's location, location, location, they say, right.
Michael:
So it's four things.
Dana:
Is that is that for location, location, location?
Michael:
Location, location, location, and then purchasing, right?
Dana:
Oh, and then purchasing? Yeah, and actually purchasing it, there you go and so from the location perspective, we are overseas where we're, there's one big ocean of the seven seas, that is between the US, the continental US, and the conflict and so I do think Europe is going to be, Europe real estate will be much more impacted than US real estate and so you have that at play there. I also think, with the location of your property and the type of property you have, understanding the tenants that are in your property is something that's super important here with this conflict and the reason I say that is because I wanted to go into inflation and talk about inflation here and from that perspective, with inflation, what you do see is that inflation is expected to be prolonged 8% of gas and oil right comes from Russia and so we're looking at prices going up here in California I don't know, if you've looked at gas prices, but I think I saw $7 when I was down in San Diego last weekend.
Michael:
Yeah, diesel is like seven bucks, pretty no unleaded is around six and change most places.
Dana:
Unheard of yeah and so from a location perspective, also your property, the type of property you have in the location. renters who are more cost burdened by that price of gas and oil and just travel and transport to their jobs will be much more greatly impacted than those were up an increase of, you know, seven to 11%, whatever it is, with the inflation doesn't touch too much of those. The consumer goods and stuff that's just part of their of their of their daily life. So I think that would be one thing I would say on the on the location side to think about is not only geography and looking at the big picture, the map, but also where your properties are and who your tenants are.
Michael:
Dana that makes perfect sense. I think for those folks who are looking kind of towards the future about future purchases based on location and what type of tenant class they would be looking for. But what would you say is important for folks to keep in mind? Or maybe go out and do if they have an existing portfolio? Is there anything that they could do you know, proactively as opposed to reactive?
Dana:
Yeah, absolutely. Um, so I think from that perspective, it's talking to your tenants, right. So it's the very first thing to do and, um, I'll give some parallels also on the COVID side, but going out and talking to your tenants of, hey, we know there's inflation out there and we, we understand that there are other things in the news that are affecting this inflation even more so that we didn't anticipate back in December. And now that we're in 2022, how are you doing from that perspective, you know, from a perspective of, you know, income to rent ratio should be three to one. So you should have three times the income to the amount that your monthly rent is, but are other things in their lives affecting that where are they suddenly it needs to be higher than three, or they're finding that their salaries not increasing as much as the rental rates?
So certain things like that, to just be mindful of to talk to your tenants and from a bank account perspective, are they seen any of their savings deplete they're where they really are living paycheck to paycheck if they didn't before? Or if they are today, living paycheck to paycheck, which many renters are or they find finding that cost burden becoming easy and greater with the inflation rates, rising care, which is more of like general from an economic perspective, something to be mindful of.
Michael:
Yeah, I think that's a good point and I think that real estate, rental real estate in particular is kind of one of those interesting businesses in that there often maybe isn't a lot of interfacing between owner and client or owner and tenant. And that's just not the case in some of the businesses. If someone goes to retail store, they're going to be interacting with employees of the store and get feedback there on the spot. But in real estate, we often don't get that feedback until it's too late, or those lines of communication aren't open. So I love that you you're talking about just going and having a conversation with folks kind of taking the pulse, finding what their needs are and looking to see if they can't be met to be mutually beneficial.
Dana:
Yeah, it's KYC, right. Know your customer, I call it KYT, know your tenants and being there for them we actually saw here at Hamline, we saw it really, really helpful in COVID, where landlords reached out to their tenants and just said, hey, listen, there, right now there's a pandemic, how are you doing? How are things going with your job, you know, if you are going to lose your job, or you are affected by COVID, please reach out to me and then if a tenant does reach out, it's like, oh, well, because they think they're going to lose their job, they're in the restaurant industry or anything like that. It's like, okay, well, if that's the case, then let's go ahead and talk about early termination with no fee, or whatever it may be to help the situation.
I think that kind of know your, know your tenant is super important in any in any situation like this, and taking a proactive approach and the reason I say that is there's a lot of misinformation out there about how things are handled. We saw it in the news during COVID, where it was like eviction bans, no tenant can get evicted, right. It is headline news. But it was really only if you were affected by COVID and there was like five boxes, would that eviction a plane ban apply? So by knowing your tenant and reaching out to them and telling them, hey, listen, if you're affected, reach out to me, then you're actually in the know more so, you have more information there and you're having a conversation, rather than making assumptions of how the other person will handle the situation.
Michael:
Yeah, that makes total sense and from a from an implementation standpoint, I mean, if someone has a portfolio of 20, single family rentals, they're all with a professional manager, is it reasonable for the owner to reach out to that manager and say, hey, go, you know, go chat with these folks? Or is this a time that is kind of unprecedented in our history and so those owners really need to be picking up the phone themselves and having those types of conversations?
Dana:
Well, I think definitely, in that case, if you have a property manager, you should reach out to your property manager about it, right. So from that perspective, definitely, um, the other thing I would say with it is, the biggest time to do it, is during your renewal, right, so when you have an annual renewal, and this is actually a strategy that I wish more landlords, smaller real estate investors would implement, where they really understand during that renewal time, that this is a time to rescreen the tenants and understand are they especially during these unprecedented times? Are they going to be able to afford another year? And is it going to be very passive income to me? And what I mean by that is, for example, if you're expecting to increase your rental rates by let's just say 4%, which actually, by the way, is standard, they saw year over year, that our rental rates increased by 4%, this was in 2021.
Michael:
Okay.
Dana:
Then understanding with your tenants are will or is their income increasing by subsequent 4%? And if not, then are they going to be more cost burdened? And is that going to be a concern for you in should you make it month to month rather than any annual contract because of not? And so really understanding from that perspective on what it is what's really interesting is that when you looked at the data, so this is January of 2022. The government actually reported out that businesses had said they were increasing salaries 3.9% for the year, right annual reviews on average for all the data they could get and the reason they had noted that 3.9%, which was the highest they had seen since 2008. The reason they had said was one inflation and two the other reason was new hires, because we've seen kind of we've seen a lot of more jobs transition that we've ever seen before.
In November in December, we saw a lot of jobs turnover and so from that perspective 3.9%, then when you looked at the rental rate increase from all the data that they could get was that 3.7% year over year reported in February and so when you look at it, it actually looks like tenant salaries went up equally or close, almost equal to what rental rates went up by and then John Burns had mentioned the same thing and his reporting of the economy, to back that up that he had basically seen something very similar, and his numbers and analysis that he pulled, that really, this whole cost burden by rent increases actually didn't happen, or we haven't seen that happen today, because you're also seeing that salaries are increasing as well, by the same amount. Now, if you are that landlord, who says, well, I looked at Wall Street Journal, and I saw rental rates go up eight per I saw inflation is that close to 8%. So I'm going to increase my rental rates by 8%. Now, your tenant tenants may be cost burdened, if they weren't part of that for 3.9%, or 3.7%. Yeah, or they only had that they didn't have their salaries increased by 8%. Um, so something to be mindful of and the only way you're going to know that is by having a conversation with your tenant, so know your tenant, or asking them to reapply to the property. I've actually seen real estate investors do that quite successfully and property managers do it successfully, where they say, can you please go and fill out your income again, run your background and credit check again, making sure that there isn't this cost burden year over year that you didn't see in the initial year?
Michael:
That's really interesting. I mean, it's almost like playing offense and defense, you know, at the renewal, there's there are things that can be done. It's not just a, are they gonna renew or aren't they? It's, well, no, they need to earn that right to be able to stay in the property. That's really interesting concept.
Dana:
Yeah and most and most real estate investors want any annual lease, right? They want it on a summer turnover, or any time where demand is highest in their market and industry. But what you end up seeing nowadays, and this this was with COVID, now this is with the economy shifting, right the economy, they everyone is saying that it's shifting, it's changing this year, and the conflict in Ukraine is also playing a role in that and so then now, suddenly, people are saying, oh, maybe I should do a month to month and we didn't see that.
Five years ago, that was not a conversation that I would ever have with a real estate investor, everyone was like, I always do 12 months leases, and that's it. Unless the local regulations require a month to month, San Francisco does. Um, but unless they require that I'm doing an annual, and now the conversation has shifted, where suddenly it's changing and real estate investors are having that conversation with their tenants and saying you could go month to month, or you could go to month to month at this rate, which is much higher rate. Or you could get locked into an annual contract at this rate, which is a lower rate, or much more aligned with maybe their salary increase year over year that they had, which you would hope that your tenants received if that's what the nation, the nation is reporting, you would hope that they had a slight increase as well.
Michael:
Yeah, that makes total sense and then I want to take a step back something you said previously, and understand and fully appreciate that you're not an economist. I'm right there with you, I'm also not an economist, but I'm curious to get kind of your personal opinion and thoughts around. But you were saying that rents on average moved up about 4% 3.9% average salary increase was at about 3.7%. But those people looking at Wall Street hearing those reports heard of inflation at 7-8% and so if they're kind of in that camp, thinking, hey, I need to keep up with inflation because my cost of goods and services went up 8% I got when I go to Home Depot to get the materials to make the repairs. Those are up 70%, so I got to raise my rents here. I mean, we're how do we not end up in this in this kind of ratcheting up where everyone is, you know, I gotta raise my rents keep up with inflation, but inflation is outpacing my cost of goods and services and now so you know what I mean?
Dana:
Yeah, no, I definitely. I think actually, from that perspective away, a real estate investor should think about it is on their, on their tenants, right. If your tenant moves out, by all means, move it up 8%, bring it up 8%.
But every smart property manager and real estate investor knows that when they do a renewal, they're not going to raise it exactly the market rate. You're going to put it under market rate slightly to incentivize them to stay there because turnover costs are a lot can be a lot, you lose one month's rent a lot of times in vacancy, or paying a leasing agent and so all of that cost of doing business and being in the industry of property management already takes effect and so from that perspective, that's where you have to know your customer because if your tenant says, if you can see that their salaries increased by 8%, then yeah, maybe you have some more wiggle room there or maybe you do want to go month to month with them and raise it a bit more because the market is hot, and you can get that demand.
But having a conversation, understanding where they are and what they can pay, and then understanding should we go month to month? Should we do annual with them or should we not renew the lease because we are going to be increasing it or letting them know we're increasing it but our qualification is still three to one for income to rent ratio by having that conversation with the tenant, everyone is aligned and you don't get into a situation where it's month four and the tenant is suddenly saying, Michael, can I pay with a credit card? Now I can't I don't have enough in my bank account and you're saying shoot, I just signed a 12 month lease with this tenant. This is this, this is not good for them. It's not good for me. It's not good for anyone involved.
Michael:
Right, right. Yeah, that makes total sense. That makes total sense. Well, Dana, I was wondering if we could shift gears here a little bit and I'm curious if you have any insight into how big of an investment, maybe Russians play inside the US market, because it's now been announced that there's going to be an energy ban on all imported Russian energy business accounts have been frozen. I know, for folks in Russia. So do you know, is that likely to affect things here locally?
Dana:
Yeah, good question at a high level, just absolutely no, they are such a small portion of the real estate market, and also of the rental market. So if you look at the market today, right for foreign investors, right, it's less than less than 2% of existing home sales are foreign investors and then Russians of that are point 8%, like not even 1% point 8% and usually, when you see it, it's much more affluent, they're buying properties in Florida on a private islands, or in New York on the most expensive street, they're not buying rental properties and so when you look at it, it's point 8% of the sale of homes to foreign investors and so overall, if you do the calculation, I think it comes out to like point oh, one 4% of the rental market of like homes, total homes, value of homes, but total homes are owned by Russians and so from that perspective, it's just small, like if you think I'm if I mean, we're real estate investors, we think about the person who owns a rental property down the street from us. It's most likely not, it's most likely not Russian money from that perspective, yeah.
Michael:
Okay, okay makes sense. All right, Dana, let's talk about a fairly hot topic and that's short term rentals, something we've been talking a lot about here on the podcast, something that we roofstock just recently launched our marketplace to accommodate short term rental. So curious to get your thoughts on how the war in Ukraine is going to be affecting short term rental, the short term rental market here locally.
Dana:
Yeah. So I'm in the long term space, and definitely found during, if we take the last global event, which was COVID, being in the long term space actually was much more beneficial during most of the time than short term, especially at the beginning. Here, I believe it's the same thing, where short term will be more impacted than long term rentals and here's why:
Everyone needs a roof over their head. So when you think about consumers ability to spend money on they will be able to spend a lot more on goods and services when you don't have huge inflation. But now that we have inflation, it's expected to be amplified with the with what's happening with Russia, Russia, and gas and oil prices and from that perspective, what is the first thing you're going to cut? It's travel, it's your personal travel, you're not going to cut the roof over your head, but you are going to cut travel. So anything that takes a flight to get to anything that takes a car to get to or train, anything like that is going to be reconsidered or just scrapped from someone's budget. And so from that perspective, short term will be more effective than the long term space. How much you know, is still to be determined. I think, you know, for from a consumer perspective, it takes always a while for this to play out of people canceling trips or reconsidering traps, but I definitely think that it will play a role.
Michael:
Okay, interesting. Do you have any plans to get into the short term space on the personally?
Dana:
Personally, no. The Airbnb space on my end is a much more active investment and it's considered a hotel to me and so from that perspective, I think of long term rentals as like a completely different industry than the short term space and the short term space. If a tenant says their lightbulbs out at midnight, I think if I own a hotel, I'm going to be like, great, let me come and fix your lightbulb right now at midnight for you and you I want to treat an Airbnb the same way, right.
So it's much more active on the property management side from that perspective. Typically, when you're on the long term side, you do see that your cash flow from that perspective might be slightly less than an Airbnb, depending on where you are, it will, it could be less you get greater returns from an Airbnb. But on the management side, it is more passive because if a tenant says my lightbulbs out, less, it's a 25 foot ceiling and still not an emergency, you're not going to send someone out the tenant is going to replace that themselves. And so I find it's a how you handle it as is different because it's a hotel versus a home and it's a different type of process end to end. Yeah.
Michael:
Okay, Dana. Well, this has been, you know, super informative and helpful. Curious to get final thoughts, actionable takeaways that we haven't covered yet things that folks can go out and do today?
Dana:
Yeah, I think from that perspective, there's a couple of things. We spoke one about, do we see a recession coming up right, and one thing I would say from that perspective is, you know, an informed fade recently said, most likely not in 2022, potentially, in 2023 and, you know, I can't predict the future. But what I would say is, don't lie, no, don't live in fear and we know that while the economy is shifting and changing on even if there is a recession, which is obviously something that no one wants, rentals are a relatively safe investment from that perspective, you know, purchasing a single family property on Roofstock, to hedge that inflation, and then going through a and having tenants in the property and a surge in demand because people are holding back from purchasing homes because of a recession.
You know, that's not a bad situation for a real estate investor to think about, where should I put my capital, you're thinking of putting in the stock market, or in real estate. So I think one of the biggest things that I would say, as final thoughts is like, definitely make sure you aren't living in fear and it's a great time, from that perspective to invest in real estate, even with the inflation going up, that you can help hedge that by having properties that appreciate and then also, from that perspective, make sure that you are always talking to your tenants and that would be the other thing you live in fear because of the unknown. But the moment that you can reduce the number of unknowns that you have, like, I know, Michaels, my tenant, and he just got a 10% raise in salary. That means I suddenly don't have an unknown and when I'm thinking about, hey, I've seen inflation, I need to hedge against your point, Michael, these additional costs from repairs, and supplies at Home Depot that I'm picking up on, you have some information that helps you eliminate and reduce having any fear or anxiety. I think anxiety is the biggest thing that I see with investments when you when you have some unknowns and so really know your tenant, KYT, and then also make sure that you're out there and making strong investment decisions and I definitely think real estate is that.
Michael:
Love it, love it. Well at 10% I'm gonna have to have a conversation with my boss because that would be that'd be pretty nice. But no, that makes that makes a ton of sense Dana, it makes a ton of sense and I love that you're talking about things you can do proactively not just reactively to the situation that we've we find ourselves in. So thank you so much for sharing and always such a pleasure to see you. I'm sure we'll do something again soon.
Dana:
Great. Thanks so much for having me.
Michael:
You got it, take care.
Alright, everyone and that was our episode, a big thank you to Dana for coming on the show and talking about difficult and heavy topic. So we hope you liked the episode, we hope you found it useful and valuable. As always, if you liked the episode, feel free to leave us a rating or review whatever it is that you get your podcasts and we are looking forward to seeing you on the next one.
Happy investing…
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