Mar 7, 2022
How do investing in heat pumps and working with refugees increase the value of your properties?
Dave Holman and his team at Holman Homes have created several case studies that other investors can learn from.
He will talk about in more detail the benefits of heat pumps and they can actually increase the net operating income of your properties, the reasons they’ve chosen to work with refugees, and some strategies applicable for both general and limited partners.
[00:01 - 04:59] Opening Segment
- Dave Holman spend a few years in Bolivia before investing in US real estate
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- Here’s his origin story
- The most important aspect of running a business according to Dave
[05:00 - 10:00] Zero Fossil Fuel Buildings
- You can invest in real estate in your hometown
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- Here’s Dave’s reminder for you
- Dave gives a sneak peek about this zero-fossil fuel building they’re investing in
- What to know about tax credits according to Dave
[10:01 - 17:57] Working with Refugees
- The relation of deflation and technology increase and the reason it matters
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- Listen to Dave
- Dave doesn’t plan to sell his buildings anytime soon
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- Here’s his strategy instead
- Why they’re working with refugees for their properties
- How heat pumps increase the NOI of your real estate investments
[17:58 - 20:37] Closing Segment
- A tool or resource you can’t live without
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- Genius Scan
- A real estate mistake you want our listeners to avoid
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- Don’t get involved in a project you’re unqualified to unless you have the right people around you
- Get experience first
- Your way to make the world a better place
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- Making communities better by providing opportunities to refugees
- Reach out to Dave
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- See links below
- Final words
Tweetable Quotes
“...if you have local knowledge of what buildings and what areas in those local markets are good, you can invest in your hometown, you don't have to throw your money halfway across the country.” - Dave Holman
“1031 [Exchanges], to me, might be one of the worst distractions for real estate investors because it makes you give up your properties.” - Dave Holman
“Don't try to bite off more
than you can chew or do a project that you're just wildly
unqualified for unless you have a team around you that are all
experts in doing this kind of project.” - Dave Holman
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Email dave@holmanhomes.com to connect with Dave or follow him on LinkedIn. Do you want to invest in residential and commercial properties that benefit residents, investors, and the planet? Check out Holman Homes now
- Do you own a property in Maine? Visit Katahdin Property Management for quality property management services.
Connect with me:
I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
Like, subscribe, and leave us a review on Apple Podcasts, Spotify, Google Podcasts, or whatever platform you listen on. Thank you for tuning in!
Email me → sam@brickeninvestmentgroup.com
Want to read the full show notes of the episode? Check it out below:
Dave Holman 00:00
We want to keep our money productive, you know, in other areas, either reinvesting and other real estate is down payments, you know stocks, crypto other assets to diversify that, you know, can get some of that trapped equity out of your real estate because I was at a point like one point I had 98% of my net worth in real estate, all in like one or two towns and I was like, that's probably not what a financial adviser would recommend. Maybe I want to get that down to 80 or 90 or something and you know, it's a give and take.
Intro 00:37
Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we will teach you how to scale your real estate investing business into something big.
Sam Wilson 00:40
Dave Holman believes in doing well, by doing good. With over a decade of experience, Dave is a triple threat. He's a commercial broker, a syndicator investor, and a co-owner of Katahdin Property Management. Dave, welcome to the show.
Dave Holman 00:51
Thanks for having me, Sam. Appreciate it.
Sam Wilson 00:53
Hey, man, the pleasure’s mind. same three questions. I asked every guest who come on the show in 90 seconds or less. Can you tell me? Where did you start? Where are you now? And how did you get there?
Dave Holman 01:00
Maine and Maine are the first two answers. That's easy. How do I get there part though? It's been circuitous. So you know, I grew up here a little bit north of Portland, left for college in Minnesota where I got turned on to green building and architecture, things like that. spent the next four years down in Bolivia, like everyone does. I started a chain of camping stores and bookstores with my then-girlfriend now-wife, you know who's Bolivian, we came back to the US and ‘09, went to business school, got my MBA, worked in nonprofits for quite a while, but started real estate investing for profit on the side. And I've now switched over to doing real estate full time, both as a property manager for my own properties, syndicator, you know, doing kind of two to $12 million deals right now. And as a broker helping other people buy and sell their properties here in Maine.
Sam Wilson 01:47
Wow. That's fantastic. That's a lot of moving parts and want to hear a little bit what was the camping store in Bolivia? What was…
Dave Holman 01:53
Yeah, it's called the Spinning Llama Bookstore and Outfitter, our father, we left it to our father-in-law, retired military guy from Bolivia. And he loved doing that kind of stuff. And it was an adventure. You know, we were selling, you know, maps and books and bikes to locals and tourists. And it was a great experience. And I tell people, in some ways, it's the most free economy to have a business in a developing country. And in other ways, it's the most restricted, because there's all these laws and their cumbersome bureaucracy and everything, but everyone just ignores it. And it's completely free commerce for a lot of the time. And the bigger you get, the more the laws you follow. And it gets, you know, harder as you move forward. So we were just a small little business there.
Sam Wilson 02:34
Wow. Yeah, that's really, really intriguing. Very interesting. I love that. And then you guys came back to the States. Where were you in Bolivia? Let me ask that.
Dave Holman 02:40
Well, Cochabamba is where the city where my wife's from, it's a really beautiful climate, you know, kind of like San Francisco, nice temperature flowers year round. But we had stores in La Paz, not a place that I really love. It's super high altitude, very cold, dangerous, very sloped and slippery, and it's interesting. And then we had a store in Copacabana, which is on a huge lake highest altitude navigable lake in the world. And that was a really fun place a lot of tourists travel coming through there.
Sam Wilson 03:12
Gotcha, man, that's really intriguing. So you took your wife from beautiful, sunny around climate and convinced her to move to Brunswick, Maine and do real estate, you must be a heck of a salesman, I love it. Let's jump into you know what you guys are doing right now. I mean, you've got some really interesting projects going on, we got to talk about some of them ahead of time, but really give me an idea I kind of the scope, and you know, some of the stuff you're working on now that that's really interesting. You know, I think there's a value and just kind of talking through some of the projects you're working on right now.
Dave Holman 03:42
Absolutely. My biggest piece, the most important thing to me is the team that I work with, and building that up around me because you know, all those different activities you listed in the beginning, I'm not doing any of those alone, I'm getting back up and help, you know, they make me look good. But I always try to be the dumbest person in the room in our staff meetings and hire people that are really great. And, you know, we try to be super flexible in our, you know, hours and our work schedules and the ways that we do things. And we've been able to recruit, you know, really talented, skilled people who don't want a 40-hour a week job, you know, they might want 23 hours this week, 17. Next, you know, 36 the next and it just depends on their family and their schedule. And that works great for us to get high talent. And so building that team is kind of my number one focus. And with that team, you know, we're managing about 172 units, which is a little bit deceptive, because you know, about a third of those are commercial and so some are very large, you know, so income-wise, that would be like having, you know, maybe 400 residential units or 500 or something because we've got law firms and restaurants and different commercial assets that we're managing and owning, and then as a syndicator on six different projects, you know, with a group of family friend investors kind of ever-expanding. So anyone out there can hit me up after this get to know me and work together if you're interested. We're just focusing in the area that I know best, you know, which is Southern Maine, you know, areas like Portland, the mid-Coast region around Brunswick, which is a very hot market. It's one of these tertiary markets that most people have never heard of. They're out there all over the country. So, you know, for everyone that's just kind of jumping on the bandwagon of like, oh, we all got to invest in Florida. Oh, wait, now the hot spots, Austin? Oh, wait, it's Ohio. You know, it's every state has good markets. And, you know, if you have local knowledge of what buildings and what areas in those local markets are good, you can invest in your hometown, you don't have to throw your money halfway across the country. But you can do that, too. That's the beauty of real estate, you can do so many different things. So those are, you know, some of the things we're working on a new development project, which I've never done before. So that's really exciting. And luckily, my best friend from college has done 15 of them before. So we got the dummy with the genius. And we'll balance each other out. But I'm the local boots on the ground. He's based in Minneapolis, Minnesota has built over 3,000 units up there. So we're working together on a 57 unit new construction project. In Brunswick, that'll be really interesting, it's going to be zero fossil fuel building, using all heat pump technology, it's going to have instead of a gas generator, battery backup. And we're going to get paid for that, in a sense by the electric company. There's some really neat things called Demand Response Technology, you know, where we're able to be a battery for the grid. Basically, when you get big enough batteries in your building, you can serve the power company, and they'll pay you to modulate your demand and flow of power. So that's an exciting kind of new tech piece that we're incorporating. And we're trying to make it all work. But it's a jigsaw puzzle, you know, construction costs in the east coast up here are about 30% higher than the Midwest, and they're high in the Midwest. So it's a challenging nut to crack. But rents are also rising very quickly. So we're trying to balance those factors.
Sam Wilson 06:48
That's really, really intriguing. Especially, you know, the electric backup, I mean, how do you even go about figuring that out? Like, where do you start with that, Hey, call the electric…
Dave Holman 06:59
Gotta know a guy, he got a guy for that or gal. So yeah, a friend of mine is an engineer who does a lot of renewable energy stuff he used to work for GE has been with different startups has his own startup called amply. He's kind of guiding us, you know, and how to incorporate this technology, what companies, you know, can provide it. So we're definitely not doing a DIY approach. You know, there are entities and groups out there that are working, you know, with multifamily operators, commercial operators on these technologies. And that's how we're going to partner basically, to do it.
Sam Wilson 07:31
Right. What's the 57-unit build? Like, what is the product?
Dave Holman 07:35
Yep, it's going to be four storeys high, about a 12,000 square-foot footprint. So an elevator, it's going to have a roof deck, a mix of studios, one and two bedrooms. So we'll have a mix of price points for people. It's in a kind of business park, in Brunswick, where there's been a lot of job growth. So pretty high demand, you know, it's for what we call workforce housing. So people earning, you know, right around that median income, which in this area is, you know, like 50 to 70,000 a year. And it should be, you know, a much-needed resource. Because right now, you know, you go on Craigslist, and there are sometimes you know, for towns of 20 30,000 people, there can be literally nothing for rent, or nothing for sale, because the supply is that tight.
Sam Wilson 08:14
Wow, that's intriguing. So you're going four storeys high, putting your electric, you know, system backups on it. That's absolutely intriguing. Talk to us about the tax credit sides of that. I'm sure you guys have researched that. And I want to the reason I'm asking you all these questions because you said earlier, that team is the number one focus. And so far, I've heard everything you say as well, I've coordinated with this person or I coordinate with that person. You said you don't want to be the smartest guy in the room. So tax credits, who have you worked with on that front? And what sort of programs are out there for this type of project?
Dave Holman 08:42
Yeah, that's a great question, and there's not a lot of tax credit incentives for what we're doing, at least on a federal level, you know, federally there's incentives for solar and even some Evie charging infrastructure. And we're going to do that. So we're getting, we're applying for I shouldn't say we're getting we're applying for a grant from an entity called Efficiency Maine, which uses the carbon pricing in New England area, they get their money basically from power companies and large polluters that have to pay to pollute, then they get to, you know, funnel it back out to things that are clean. So we'll hopefully get a grant for eight electric chargers, we're gonna add more on top of that, and basically every single parking spot in the underground parking of this building, we're gonna wire to have a charger in it someday, because it's crystal clear that in 20 years, someone driving a gas car is like today, someone driving, you know, the old model T, you know, antique truck, it's not going to be a thing in 20 or 30 years from now, and we're trying to build a building. It'll be around for 500 years. So we want it to be flexible for the future. I mean, obviously, and 500 years if we're not all in jets and spacecraft, we failed, but, you know, we'll take it step by step incrementally.
Sam Wilson 09:50
Right man, that's really, really intriguing. Talk to us about where you see long-term rates going and what you guys are doing strategically right now on the refinance front.
Dave Holman 10:00
Yeah, great question. I love listening to macroeconomic podcasts, listen to economists, prognosticate. And I swear right now, Sam, there are brilliant arguments for inflation and deflation, there are fantastic arguments for rate rises and rate falls, right? My guess is that rates in the medium to long run are going to be falling in, in the short run, slightly rising. And so I say in the short run slightly rising because we got an inflation problem, the Feds gonna try to tackle that they're gonna probably make a couple of rate hikes before they completely realize they've broken the stock market and all their rich friends are gonna cry about it, and they're gonna stop. It's my jaded, cynical interpretation. You know, some people are planning on seven or eight rate hikes right now, I'd be amazed if they got away with more than three. And I think that's sort of market consensus as well. But in the long run, look at Europe, look at Japan, look at a lot of Asia, all of them have negative rates, you know, they are desperately trying to generate inflation. And they've been unsuccessful up until just recently when you turn on the fiscal spigots and you're giving stimulus programs, that is successful in generating some level of inflation. But globalization, the primary driver of deflation has been severely disrupted by COVID-19. As those disruptions get ironed out, supply chains get reconnected resources, get back online, I really think that fundamental narrative of deflation and technology increase is going to continue.
Sam Wilson 11:22
That's interesting. So you guys though, are locking in rates right now, which is really interesting, if you think that rates in the long term are going to go down.
Dave Holman 11:31
Yeah, so we're locking in now, because I think, you know, we have maybe a one to three-year rising rate environment, let's call it and then you know, we're locking in mostly five-year fixes. We're doing one seven right now because the rate is as good as the five. But I started out in an environment where I thought rates were going to rise a lot, and I wanted all 10-year fixes. But these are relatively small properties. It's not the end of the world, if we have to lock in higher rates five years down the line, the incremental savings we get in the meantime is pretty significant. There's 30 or 40 basis point difference, sometimes between the five and 10-year rate, and that matters, especially if you might end up in 10 years in a lower rate environment than you're in now.
Sam Wilson 12:09
Right? Yeah, absolutely. And the reason you're doing that is…
Dave Holman 12:13
Well, we've gotten our loan to value ratios, our LTVs, down, you know, from the 80, or even 90%, if we're using construction loans, etc. When we purchase, you know, within a year or two under good management, you can get that down to 60, even 50, 40%. Because you've increased the cash flow, the NOI of your building, you've increased the profits by controlling expenses and increasing rents basically, appropriately. And so you know, when your LTV is down around 40, or 50%, you've got a lot of money trapped in that building, that's twiddling its thumbs doing nothing, you know, really productive for you. And you can pull it out tax-free with a refinance. And to me, that is 1,000 times better than selling your building. Sure, I've never sold anything, I don't plan to sell anything. Because to me, it's a shiny object, you know, that 1031, to me, might be one of the worst distractions for real estate investors because it makes you give up your properties. And look, anyone who sold three years ago, is looking now it's like, oh, wait, my property's worth double what I got for it, if I just hung out for 36 months, you know, I'd have double the wealth. And so we follow a buy-and-hold long-term management stabilization, you know, refinance every five to 10-year kind of strategy. And so far, that's been working really well.
Sam Wilson 13:26
That's really, really interesting, what is the loan to value that you will typically take these properties back up to?
Dave Holman 13:31
75 to 80, it depends on what the bank is comfortable with, however, what we do is use some of those refinance proceeds to put a big fat sleep-at-night cushion, you know, in the checking account of each property. So, you know, we might have, let's say, 10 grand a unit just kind of socked away for the rainy day when we need it. So even though our cash flow has diminished, we're able to handle the bumps in the road that come along. And, you know, we have larger reserves that are not in the properties that we can loan to the properties, you know, as needed. But in general, you know, we want to keep our money productive, you know, in other areas, either reinvesting in other real estate is down payments, you know, stocks, crypto other assets, to diversify that, you know, can get some of that trapped equity out of your real estate because I was at a point, like one point I had 98% of my net worth in real estate, all in like one or two towns, and I was like, that's probably not what a financial adviser would recommend. Maybe I want to get that down to 80 or 90 or something. And, you know, it's a give and take.
Sam Wilson 14:31
Mm hmm. Yeah, absolutely. That's really, really intriguing. And it's and I'm always curious what, you know because people got trapped in 2008 taking too much money, you know, they reified the heck out of their properties all the way up until the bubble pop, and they're like, oh, no, now I got way too much leverage against this property.
Dave Holman 14:46
Right. And there were two risk factors there. One is working with a bank you don't know or trust, and only one bank. So we work with a diversity of banks, and they're all local. And there are people that you know, I know them. I might know some of their kids and families. You know, we're on a first-name basis with the banker. If you go to Wells Fargo, Bank of America, if you're not 100 million, you're nothing to them. I mean, they will foreclose on you in a heartbeat. Oh, sorry, Sam, your LTV got below the, you know, covenant in the mortgage, you didn't read the fine print, sorry, we're taking your property, even though you're making the payments. And that happened in ‘08, you know, banks took properties that were making their loan payments, and that happens in financial crises. So I think it's really key to work with banks that you're on the same page with and you have that conversation in advance and say, hey, if our value goes down below the purchase price, but we're still making loan payments, are you cool? Are we cool? You know, what do our covenants or documents say about that? That's really one of those finer points to think about. But in the financial crisis, there were a lot of people that were just their mortgage was sold and resold and packaged and repackaged, and they were way out, you know, in that paper trail, and you know, it doesn't matter to a bank or a financial institution to foreclose on someone that is just a tiny fraction of their portfolio. And they're like, oh, we need some liquidity. Let's start, you know, squeezing people. Right, you know, you either need to pay the difference or you were gonna foreclose, and that is unfortunate.
Sam Wilson 16:04
Wow, that's absolutely wild. Thanks for taking the time to explain that to us. One last question here before jumping to the Final Four. Tell me about heat pumps and refugees.
Dave Holman 16:13
Yeah, so we work a lot with refugees, immigrants, asylum seekers to this country, they're in homeless shelters, or right now, we've worked with a lot of Afghans on military bases, trying to find units for them to live in, you know, those people and particularly served our country, you know, from theirs, we want to give them a place to live. And we're not doing it as a charity venture, we're getting paid, you know, by government programs by local governments. And then pretty quickly, a lot of times, when these people get green cards, they're the hardest workers, you'll find, you know, they were earning $1 an hour in their country, if they can get 10 or 20 here, they've got two or three jobs right away. So that's been really rewarding, you know, on an emotional level, to just be able to physically create the American Dream for people, partner with them on that. And then heat pumps that is a great technology, especially in an area that has an extreme heating or cooling need. Those are just better than the old fossil fuel systems that we have in Maine, you know, Maine, we have the most oil-heat as a percentage in the country. It's dirty, it's expensive, it breaks, it's terrible. And it doesn't have any AC capability, or dehumidifying, or air filtering, and all the benefits that heat pumps bring. Plus, the landlord is often paying those systems, if it's centralized in a multi-unit building. I inherit a lot of buildings where I'm paying 6, 7, 10 grand a year for heat, if you put in a heat pump to each unit, it's on their own electric meter, that tenant if they want to 80 degrees in the winter, and their windows open, great, they can pay for it, it's on them. So that, you know dramatically increases your NOI in a lot of cases, because there was a lot of inefficiency being generated by these centralized heating systems that are old dinosaurs, and then when you know, oil goes up to $100 a barrel, you know, you're screwed, whereas if you're relying on the electric grid, that is a very big baseload of power, it's rarely going to have major price spikes, you know, and that kind of thing. And you can actually generate your own electricity with solar if you want to go an extra step beyond that.
Sam Wilson 17:58
That's really, really intriguing. I love it. Dave, thanks for taking the time to come on today. This was loads of fun. Let's jump here in the Final Four questions. What is one tool or resource you find you can't live without?
Dave Holman 18:08
Well, my phone but more specifically, I'll give you guys an app, you know, that I think is great. It's called Genius Scan. And for all the mail, the paper documents that come in, click of a button, you get a really crystal clear, you know, cropped image, color, or black and white from that piece of paper, eliminate shadows, you can PDF it you can put it in Google Drive, Dropbox, you know, anywhere you want. Great little app, you know, for just a mobile scanner, that's as good as any flat deck bed scanner around.
Sam Wilson 18:37
That is awesome. Yes, I love that technology, the ability to skip the scanner is really, really helpful. That's awesome. Question number two, what is one mistake you can help our listeners avoid and how would you avoid it
Dave Holman 18:49
In the skiing areas, we say don't get out over your skis, which means don't try to bite off more than you can chew or do a project that you're just wildly unqualified for unless you have a team around you that are all experts in doing this kind of project. But I would encourage people to you know, kind of in when you're starting out kind of live within your means, get some experience under your belt, get a property or two, take a year or two, to kind of learn things before you start getting ambitious and going for bigger deals.
Sam Wilson 19:17
Right? Love that when it comes to investing in the world. What's one thing you're doing right now to make the world a better place?
Dave Holman 19:22
Well, we mentioned refugees, we mentioned heat pumps, you know, we're striving hard to you know, make our communities better. We're engaging a lot with local organizations as well. So an example I'll give, we're gonna paint a mural on the side of one of our buildings where the paints kind of flaking off its brick on the side street, and we're gonna make this huge 90-foot-long, 30-foot-high mural for the town to enjoy there.
Sam Wilson 19:43
That's cool. I love stuff like that, David, if our listeners want to get in touch with you or learn more about you, what is the best way to do that?
Dave Holman 19:49
Yeah, they should just give me a shout: 2075175700. It's my personal cell phone. Nobody ever calls so you should try it. We got a website at Holmanhomes.com. Our property management group as well, Katahdin Property Management, if you own property in Maine. Happy to help.
Sam Wilson 20:05
Awesome, and we'll make sure we put links to those in the show notes as well. Dave, thank you so much for your time. I do appreciate it.
Dave Holman 20:11
Thank you. Thanks for having me. Take care.
Sam Wilson 20:12
Hey, thanks for listening to the How to Scale Commercial Real Estate Podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen, if you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners, as well as rank higher on those directories. So I appreciate you listening. Thanks so much and hope to catch you on the next episode.