In this episode, we have the pleasure of hosting Gabriel Craft, a seasoned real estate investor, who shares invaluable insights into the complex and hands-on nature of property management and the strategies to overcome challenges in the Texas real estate market. From the importance of effective leadership in property management to navigating the changing landscape of insurance pricing and property taxes, Gabriel provides practical advice for investors looking to thrive in the current market conditions. Join us as we explore the opportunities and potential pitfalls in real estate investing and gain valuable knowledge from Gabriel's experiences and expertise.
- 08:51 Asset poorly managed, committed to improving community.
- 10:01 Balancing time between family, business, and purpose.
- 13:34 Learning in business is ongoing and collaborative.
- 16:27 Learning from others, asking questions is crucial.
- 20:22 Insurers raise prices, adjust coverage, affect customers.
- 23:39 Experienced people understand the cycles of investing.
- 28:55 Property management challenges making real estate risky.
- 32:51 Learning from mistakes, striving to improve leadership.
- 33:43 Clearly communicate expectations to one designated leader.
- 37:43 Treating people well is financially beneficial.
- 40:37 Advice for experienced investors in current market.
- 46:25 Challenges with recent deals due to surprises.
- 47:43 5 critical steps to succeed in investment.
- 50:38 Act now, seize opportunities, stay committed.
Episode Table of Contents
- Challenges and Strategies in Third-Party Property Management
- Generating Wealth for the Purpose of Doing Good
- The Growth Potential of the Texas Real Estate Market
- Insights on Insurance Pricing and Taxes in Texas Real Estate
Challenges and Strategies in Third-Party Property Management
Finding and Retaining Quality Third-Party Property Management
Gabriel emphasizes the major risk point for investors is finding a way to better control property management. He notes that even the best third-party property managers feel like a C or C- in terms of service level compared to having alignment between ownership and property management. This alignment can only be achieved through a partnership or creating your own property management company. Gabriel suggests the property management space in Texas specifically has struggled lately, with issues scaling, retaining staff, and new companies trying to capitalize on demand but struggling with the difficulties of the work.
Effective Communication and Respect
Darin adds that the ownership group needs to narrow down and prioritize improvement requests for the property management company. Trying to tackle too many initiatives at once can overwhelm and confuse the on-site staff. Gabriel notes asset managers should stay at the executive level in interactions, working with leadership and clearly conveying priorities, not getting into the weeds of directing individual staff members. He emphasizes showing respect and care for on-site staff doing difficult work and building relationships, as this can directly impact business results. Little gestures like bringing staff treats make a difference.
Marketing Strategies: "It actually has a business impact to do cool little things for your on-site team and recognize the valuable people that they are." — Gabriel Craft
Generating Wealth for the Purpose of Doing Good
Gabriel’s Perspective on Generating Wealth to Do Good
Gabriel discusses the concept that generating wealth through business can be used for good causes and helping people. He challenges the notion that you either have to make money or do good, emphasizing that creating value through business is doing good. As an example, Gabriel shares how his company is taking over a poorly managed 195-unit asset with the goal of improving the community and residents' lives, beyond just making profits.
Understanding the Cycle of Real Estate Investments: "If you're looking at buying assets, it's a stellar time." — Gabriel Craft
Transitioning From Corporate Jobs to Real Estate Investing
Gabriel talks about his experience working high-demand corporate jobs at companies like PricewaterhouseCoopers and Salesforce. Although he loved the work, it took a major toll on his personal life, requiring extensive travel while trying to also be present as a husband and new father. This led Gabriel to transition to commercial real estate investing for the lifestyle it provided. He saw friends building better lifestyles through real estate and wanted the same focus on family time.
The Growth Potential of the Texas Real Estate Market
Gabriel's Perspective on the Texas Real Estate Market
Gabriel is very bullish on the Texas real estate market, especially the Dallas metroplex, over the next 3-5 years. He cites the area's continual job and population growth making it an attractive destination for corporations to relocate to. Gabriel also notes the abundance of available and affordable land surrounding Dallas that enables further geographic expansion of residential and commercial development. In his view, this economic vibrancy will minimize the depth of any future recessions in Texas compared to other parts of the country.
He shares from firsthand experience how overcoming fear and taking risks enabled him to make a big difference in his life and business. Gabriel is seeing significant real estate investment opportunities arising in Texas due to distress from operators who overpaid during the peak markets of 2020-2021. He believes now is the optimal time for new investors to enter the Texas market before cap rates compress again in a few years.
Issues with Management in Texas Real Estate
However, Gabriel cautions that finding and retaining strong property management teams continues to pose challenges for Texas real estate operators and investors. He suggests establishing aligned incentives, such as performance bonuses or property ownership stakes, as the most effective methods to inspire property managers to maximize performance. Clear communication, prioritizing improvement initiatives, and thoughtful relationship building are other tactics Gabriel utilizes to get the best from either third-party or internally-managed properties.
The Challenges of Third Party Property Management: "You've gotta find a way to control property management better than most." — Gabriel Craft
Insights on Insurance Pricing and Taxes in Texas Real Estate
Insurance Pricing Changes
Gabriel discusses that insurance pricing seems to have peaked in Texas after several years of double-digit increases. In particular, he notes that clients who switched to State Farm have seen decreases around 5-7% this year. He attributes this to new insurance companies entering the market after seeing the previously high margins, increased competition bringing rates down.
Gabriel also points out the cyclic nature of insurance pricing related to major weather events and subsequent claims. Now that there have been fewer major storms in Texas despite the high premiums charged, insurers are adjusting to be profitable while still competitive. For example, most policies now have a 4% wind/hail deductible instead of 2%. He recommends still budgeting conservatively for insurance given the ups and downs observed over past cycles. But the trends suggest possible stabilization going forward after the peak in 2023.
In terms of property taxes, Gabriel explains that values rose so much in Texas that the state brought in $40 billion more than required. So they are now tapering assessment rates to relieve this surplus.
With property values declining from their peak, he expects the 2023 tax year to be the peak for property investors in Texas. Though some coastal regions may still see occasional spikes, the major metro areas seem to be stabilized. So both uncontrolled expenses—insurance and taxes—appear to be peaking or peaked. This could provide expense upside if budgets were padded conservatively.
Avoiding Big Swings and Losses in Texas Real Estate
Gabriel advises avoiding aggressive underwriting without proper knowledge of ensuring floating rate debt, which has caused big swings and people losing money. He encourages learning best practices to mitigate risk. Gabriel encourages passive investors to learn to identify good market opportunities, dissect deals with experienced individuals, and establish investment criteria aligned with their goals. He advises being bold when others are fearful to take advantage of current market conditions. Staying committed to continuous learning and taking action is also critical.