Mat Simmons is the owner of SIMM Capital, which invests in value-add multifamily and affordable housing single-family properties. In this episode, Mat dives into the world of affordable housing and Section 8 tenants. He shares why it’s not the best asset class for new investors, how he gets properties cash flowing in four weeks or less, and some of the myths surrounding Section 8 tenants that he wishes more investors knew.
Mat Simmons | Real Estate Background
- Owner of SIMM Capital
- Portfolio:
- 3,808 doors
- Based in: Pittsburgh, PA
- Say hi to him at:
- Greatest Lesson: Do extensive property walkthroughs (even if you waive the inspection) prior to closing on a deal versus after.
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TRANSCRIPT
Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed, and I'm here today with Mat Simmons. Mat is joining us from Pittsburgh, Pennsylvania. He's the owner of Simm Capital. They do value-add multifamily. They also do affordable housing single family investing. Current portfolio consists of just over 3800 doors. Mat, can you tell us a little bit more about your background, and what you're currently focused on?
Mat Simmons: Yeah, I'm pumped to be here. Thanks for having me on. I'll get into what we're focused on right now, and my background; I'll give you a little overview. I started in real estate in 2006. I sold a previous business that I had owned and just started investing my own money into real estate at that time. Built my own portfolio over the years, leading up to about 2013, 2014. That's when I started Simm Capital and we kind of went all-in on real estate from that point moving forward.
Our focus primarily right now, with the multifamily sector dried up or at a halt right now just due to interest rates and valuations is really on our affordable housing division, where we're buying single family homes in key markets across the country, for affordable housing specifically to put into the Section 8 program.
Slocomb Reed: That's interesting. You're not just doing it in your backyard then in Pittsburgh.
Mat Simmons: In fact, almost all of our holdings are not in Pennsylvania. The majority of our holdings that we have for our affordable housing is Ohio, Michigan, Tennessee and Alabama, are multifamily. We own no multifamily in Pennsylvania at all. That's all North Carolina, South Carolina, Georgia, Florida, Texas, Tennessee and Kentucky.
Slocomb Reed: Gotcha. I ask the elevator pitch; not really a pitch, but the elevator summary for Section 8 investing. Assuming you're not talking about larger apartment complexes that are exclusively Section 8 - that's a very different product - when you're looking at going Section 8 with your smaller multifamily and your single families, I often say that there are two major factors you need to consider. The first is how do Section 8 rents compared to market rents? So can you actually get more rent if you go Section 8 than if you don't? And that's not metro-specific as much as it is neighborhood or block-specific; who's going to pay more, Section 8 or the market?
The other thing you have to focus on is the voucher vendor, meaning whoever is authorized to distribute HUD housing choice vouchers, and make those rent payments on behalf of tenants in your metro area, and what's your working relationship with that voucher vendor is going to look like.
That said, Mat, I have significantly less experience dealing with voucher vendors in Section 8, and all of mine is in Cincinnati, Ohio. Is that a fair summary of what you need to be thinking about when you're looking at investing with Section 8? And the follow-up question will be are those the key metrics you're looking at when determining what markets to go into, or is there something else?
Mat Simmons: Those are definitely important things that we focus on. The way we look at markets when we're moving into new markets is we have a really small Buy Box for our properties for that portfolio; our buy boxes really $85,000 to $105,000, has to be a three bedroom or more, has to be move-in ready condition. We prefer something has been recently renovated or updated, so that we don't have to go in and do anything to that property. Because for us, it's really important to get cash-flowing really quickly, typically within 30 days, for our investors' returns purposes.
Now, what we do then is we look at where we can buy properties that fit that buy box, and then we look at the published fair market rent data from the housing authority to see what they're paying for three-bedroom, four-bedroom and more. And our threshold is the fair market rents need to be a minimum $1,300 for a three-bedroom, in the areas that we're looking to buy those properties in.
And then we look at what the housing authority is. How big is the housing authority there, how many employees do they have... We actually call them and ask them "What's your backlog right now? How quickly you guys turning applications? How quickly are you guys scheduling inspections?" Because again, it goes back to us being able to get cash-flowing as quickly as possible.
And you actually touched on something in regards to the actual housing authority voucher vendors... Let's take Cleveland, for example. Cleveland actually has two different voucher vendors, they have CMHA, and then they have Parma. Parma is an absolute nightmare to work with. Their inspection process is much more rigorous. They only have one inspector, he's not friendly at all, he's a pain to work with... And they also take forever. CMHA, on the other hand, they have multiple different inspectors that we work with, we know them all, we know a ton of the representatives at the office, because our portfolio there is so big. So it's just really easy to work with them, they pay really well, and the inspector, a lot of times, if we miss something simple like an outlet cover or a GFCI, he'll just fix it and send me a picture, "You're approved." So it makes things a lot easier to get to that approval process and cash-flowing because of it.
Slocomb Reed: Mat, it's almost like competition in the marketplace motivates those voucher vendors, or at least one of them, to be better-performing for their clients, landlords.
Mat Simmons: 100%.
Slocomb Reed: Imagine that. Alright, I'll get off my soapbox now, that's sufficient. Can I ask, do you have any of your portfolio in Cincinnati, Ohio?
Mat Simmons: We do not. We've looked actually at moving into Cincinnati, but we can't get anything in our buy box in that market. They pay well for HUD.
Slocomb Reed: Properties [unintelligible 00:06:25.21] are too high.
Mat Simmons: Yeah. HUD pays good, but the property prices are above what our buy box is.
Slocomb Reed: Gotcha. I was going to ask closer if you had looked into our CMHA here, and what you thought and how it compares.
Mat Simmons: Yeah, unfortunately we haven't, just because again, the property values - we can't get what we need in that market price point-wise, so we just haven't even gotten that far.
Slocomb Reed: Gotcha. Well, in Greater Cincinnati we have one voucher vendor... Hence my snarkiness about competition in the marketplace.
Mat Simmons: Yup. When they have a monopoly, it's kind of hard to get them to really get up and do anything, or work for not only your tenants, but the landlords as well. And for me, we've run into that in a couple other markets. Memphis, Tennessee is one, where the Housing Authority - they like to nitpick, and then they kick the can down the road. In fact, we just had an inspection few weeks ago; that was our second inspection on the property, and the inspector found something new to flag, that they didn't find on the first inspection. So they just keep kicking the can down the road, but then you only have the opportunity to do three inspections. But then they keep finding new things every single time.
So the nuances can definitely get a little irritating and frustrating... But a lot of that can go away the larger you build your portfolio and the more you work with us voucher holders. Although some I swear they actually work against us and against the tenants. And we're trying to put more properties into the program to provide more homes for voucher holders that you guys have approved and have, but you're working against us every step of the way.
Slocomb Reed: There is a very similar sentiment in Cincinnati. Again, the reason why I brought up competition in the marketplace - I often imagine what it would be like if there were another authorized voucher vendor, and there were some competition... Because the Cincinnati Metro Housing Authority will tell you absolutely that there is not enough inventory for their voucher holders in Cincinnati. And that that stems from landlords' unwillingness to work with the voucher vendor.
It feels like there's a cycle in Cincinnati; every four or five years, whether it's a new executive director or not at the voucher vendor, someone says "Okay, we need more inventory, we need to be better to landlords. We're going to answer our hotline, we're going to do better, we're going to work harder to make sure that we're easier for landlords to work with." And then it falls off. You come into a point in the cycle where the voucher vendor's behavior returns to the behavior of a behemoth in a space where there's no competition. They really don't have to innovate, they don't have to work hard, they don't have to create efficiencies for themselves, because there's no competition. And then they realize there's drastically low inventory available for their voucher holders, and they decide that they need to get out there until landlords are going to be easier to work, and the cycle and the cycle repeats itself. Has that been your experience in other markets?
Mat Simmons: In some markets, yeah. CMHA was that way for a little bit of time, in Cleveland. They weren't bad to start with. They were fairly good, and they communicated really well... But there was definitely some lag or some people dropping the ball on things. I don't know exactly what's happened, but like I said, they weren't bad to begin with, but over the last three months or so, it's like night and day, even from what they were to what they are now. And I don't know if they hired more people or what they're doing, but they're way more efficient, applications are turned around in two weeks, inspections are scheduled within three weeks, and we're cash-flowing within four weeks on pretty much every property that we're buying in Cleveland. We just closed on five more there, and we already had tenants, all the apps are in, and within a couple of weeks we had inspections scheduled already.
So I definitely see that in some markets. And then we also have some of our other markets, like your Cincinnati market; there's just zero urgency, there's really just zero care at all. They're basically just there to push paper and have a job, more than actually helping people out.
Slocomb Reed: I want to transition the conversation, but one last question here thinking about our listeners who have considered affordable housing investing... Give us some advice, because you're operating in several affordable markets where you can hit your buy box, 85k to 105k. Not necessarily turnkey, but already stabilized. When we are calling voucher vendors, in our metro or in other metros, how can we tell when we're doing our due diligence whether or not they're going to be easy to work with to help these tenants?
Mat Simmons: There's a couple pieces of advice I can give on that, and then I can probably even elaborate a little bit more on this asset class in general with some things to look at. Because it's not an easy asset class to actually start investing into. I actually recommend not going into affordable housing if you're just starting to invest in the real estate. But if it is, it can be an extremely lucrative asset class, if you are familiar with or experienced with real estate investing to move into... Because going back to your previous question or statement, most Section 8 rent amounts, fair market rents are more than what the market rate you're gonna get from a regular market rate tenant. But that comes with its nuances and its challenges.
So for us, when we're calling housing authorities, the biggest question that we ask is, "What's your lead time on new move-in tenants?" That's what we want to know. Because a lot of these people - we were looking to move into another new market, but there was a 60 to 90-day lead time on new applications. You just can't wait 60 to 90 days to start cash-flowing on a property. So we always ask what their lead time is, we ask what their backlog is, we ask how many employees actually work there in general, and then we also ask how many inspectors they have that they use. Because the inspector itself is a big part of getting approval -- getting your property on a schedule to be inspected, and then getting approval. And if they only have one inspector doing that whole market or that whole county, it's gonna take a very long time to get your property actually even inspected, much less if you fail and have to have a re-inspection done as well. Sometimes that can take another 2, 3, 4 weeks before they can get back out there. And again, that's just costing you more money in the long-run.
So for us, it's really important that they have a good number of staff, their backlog isn't more than - typically, three to four weeks we're okay with on new applications going in. But if it's a lot more than that, or if their staff is really small, we typically will move on.
Slocomb Reed: Mat, I'm an apartment operator here in Cincinnati. Piece of advice for our listeners - if you do have Section 8 tenants, and they're going through the inspection process or the annual re-inspection, I highly recommend, if possible, be there for the inspection. Even better than being there yourself, have your handy person there for the inspection... The reason being I can't tell you the number of times, Mat, and Best Ever listeners, that because I had my handyman there present for the inspection, the little things the inspector found that they wanted to fail us for, my handyman fixed while the inspector was in the apartment, so that the inspector wouldn't fail us for something like needing to tighten down a toilet, something like that. Just turn those bolts right now, everything is fine, and we pass inspections because the handyman was there with the inspector when they were walking the apartment.
And yeah, to Mat's point, keep in mind as well, that inspector is a human person, and chances are they're overworked and they're burned out, but can't afford to lose their salary, or whatever. Treat them like a real person, with feelings, a person that Maters. That can take you a long way as well.
Mat Simmons: A hundred percent. It's so vitally important. So the way we go about it - when we put property on a contract, we actually send our contractor through with a Section 8 checklist to see what needs to be fixed, what needs to be updated, what needs to be changed, or what caused the inspection to fail... So that the day that we close on that property, our contractor and handyman are in there, fixing those things already, so it's done and ready to be inspected. And then every single inspection that we do, our handyman or contractor is there, waiting for the inspector when they show up, doing the walkthrough with them, and if any of those small items pop up, he is immediately fixing them, so that the inspector doesn't have to worry about coming back out to that property. And it really helps us pass 90% of the time on the first inspection. And the inspector appreciates it too, because they don't want to have to come back out and do re-inspections all the time.
Slocomb Reed: You're making their job easier.
Mat Simmons: Yeah, absolutely, 100%. And that's why I said, I don't recommend a new investor going into Section 8 affordable housing if they're just starting to invest in the real estate, because all of these things are just on top of everything else as an investor you have to pay attention to and do when it comes to real estate. So get your feet wet in regular real estate investing, and then you can move into this asset class, because there's a lot more to learn with Section 8, and a lot more to pay attention to with Section 8 than a lot of other asset classes.
Break: [00:15:46.11]
Slocomb Reed: This has been a very helpful conversation. I know this is going to add value to a lot of our listeners, Mat. I do want to transition, take our heat off of the voucher vendors... I have a response to what I'm going to say as well, but I want to hear yours, and our listeners do as well. When I first got into real estate, my first ever house hack, I inherited a Section 8 tenant, and had a positive experience with her, for the record.
Mat Simmons: Lucky you.
Slocomb Reed: Yeah. Well, that's kind of what I want to get to. There's a phrase that I heard over and over from the homies of real estate investing in Cincinnati when I first got in, when I would ask about Section 8... And they would always say that Section 8 is guaranteed rent, guaranteed dirty. Meaning that you know that you have the rent coming in because it's coming from the Department of Housing and Urban Development, but you also know that you're going to get a dirty tenant, who doesn't care about the space, because they're not paying the rent themselves. They're not going to feel any sense of responsibility for their home, because they're not the ones paying the rent; you're going to have to spend more money when they move out to get the place renovated so that it can get re-rented, and that needs to be part of your calculus... Your rent is coming, you don't have to worry about that, but you will end up spending more money on maintenance, repairs and renovations. Mat, what's your take on that?
Mat Simmons: Yes and no. Yes, in a lot of cases, and there's a caveat to that. You mentioned about inheriting a tenant in Section 8. For us, we do not buy any properties that have tenants in them already, because we can't do our due diligence on that tenant the way that we normally would to eliminate the dirty, as you said, type of tenants. So the way that we place our tenants in these properties is the same exact way that we placed tenants in any of our class B, B+ multifamily, or even C multifamily properties. We do the exact same background check, we do the exact same criminal check, credit check, income check, reference check etc. and we eliminate 90% of the applications on every property because they don't pass that due diligence check. And by doing that you are getting, I guess, for lack of a better phrase, the cream of the crop of this asset class as tenants, most of the time. And that helps to eliminate them beating up the property, then treating it like crap, and just not treating it like their own property.
Now, the other thing that we do - and this helps have skin in the game - we require every single tenant in Section 8 to do a full one-month rent security deposit, and it has to come from them. So that way they have skin in the game, and they know if they put holes in the wall, if they tear doors off, whatever it is, that they're not getting their security deposit back. That's going to have to go to fixing that stuff. And when the reinspection comes around, and their lease is up, we're not going to renew it either if we have to go in there and put a bunch of money in that property for it to pass on the yearly reinspection.
So those things combined help to eliminate a lot of that tenants damage that can come with this asset class. Now, you're still going to have some tenants that squeak through that they don't care about the security deposit, and they're just going to beat the property up... But for the most part, it helps to eliminate a lot of that, and remove that from the equation.
Slocomb Reed: Very helpful advice, Mat. Thank you. I don't want it to go unsaid specifically that when you are working with a voucher vendor, and taking Section 8 tenants, that you get to have your own complete application and vetting process for selecting your tenants. It's not like one is chosen at random for you by the vendor; you get to have your own process, make sure that you're getting for yourself a quality tenant, and then you and that quality tenant go to the voucher vendor to set up the HAP contract and all the other paperwork involved.
In my experience with that, that guaranteed rent, guaranteed dirty sentiment is wrong. I am only aware within my real estate investor friend groups of one tenant who treated their home really disrespectfully while they had a voucher... And all of my experiences with Section 8 tenants personally have been positive, with the tenant; my experience with the tenants themselves has been positive, in large part because if the tenant does not keep up their end of the bargain, they're at risk of losing their voucher. And once you lose a voucher, you can never get another one.
Mat Simmons: Exactly.
Slocomb Reed: So imagine a listener of the Best Ever podcast - if you had $1,000 a month guaranteed source of income and all you had to do was be a good tenant to keep it, you'd be pretty incentivized to be a good tenant. And that $1,000 a month could be $1,300 or $1,500 a month in a lot of the places that Mat is talking about, where your ability to get that money from the federal government is tied to you being a good tenant, keeping your place relatively clean, not causing issues for your neighbors, not getting into negative circumstances with your landlord or your voucher vendor... These people are highly motivated to be good tenants, and my experience has been that they communicate well, they keep their places relatively clean, they don't cause issues for their neighbors because of how motivated they are to keep that voucher.
Mat Simmons: Yeah, you're 100%. In fact, there's been some properties that we have purchased that have been a little hard, for one reason or another, to actually get a tenant in the voucher program to want that property... So we ended up putting it on the market to go market rate with it. Our tenants in Section 8 with the voucher are far better tenants than our market rate tenants in these properties, because of what you're talking about. They don't want to lose their voucher. It's guaranteed. It's guaranteed housing for them, it's guaranteed money for them for that housing, and it's guaranteed roof over the head; they can't afford the risk to lose that. So they communicate really well, they pay their portion most of the time on time, without any issues, they're thankful if something breaks and you send out your contractor handyman to fix it quickly, they're extremely grateful and thankful for that... And that makes them want to take care of their property.
So the stigma that this asset class that Section 8 has - in my opinion, just like you said, it's completely wrong. But again, that goes with people judging the demographic that's utilizing this program a lot, without actually knowing anything about the asset class, operating a Section 8 portfolio, or owning properties that are in the program, or having to deal with any of the tenants or housing authorities.
Slocomb Reed: Very valuable information here, Mat. Thank you. I hope that one of the things coming from this episode is that more of our listeners will consider working with Section 8 tenants, and also understand where the power dynamics are in those relationships, and understand how important it is to vet the voucher vendor, as well as the tenant.
Mat Simmons: Absolutely. You have to do both. It's key if you want to be successful in this space.
Slocomb Reed: Mat, are you ready for the Best Ever Lightning Round?
Mat Simmons: Let's go.
Slocomb Reed: What is the Best Ever book you recently read?
Mat Simmons: Oh, it was recommended to me by Rod Khleif, if you know who Rod is. He's a big multifamily space operator.
Slocomb Reed: I do, yeah.
Mat Simmons: Because I was on his podcast. He recommended it to me -- I'm drawing a blank on the name, I wish I could remember... But I literally just finished it probably three or four weeks ago. But unfortunately, I can't remember the name of it. So I can't even give you the title. But I can send it to you, and you can comment on it some other time.
Slocomb Reed: What is the book about?
Mat Simmons: It was like about 10 different ways to really look at how to basically level up all aspects of your business, that most people don't think about. And it wasn't real estate-specific, it was just business in general. But it really gets you thinking outside of the box, and looking at -- being able to take that 30,000 foot look at your business and really looking at areas that you haven't thought about approaching or looking or changing because you're so kind of in the trenches all the time.
Slocomb Reed: We'll be sure to get a link to that book in the shownotes, Mat. What is your Best Ever way to give back?
Mat Simmons: For me, military is huge. I come from a military family, my grandparents, my ex-wife, her brother is in the military, and I have a lot of friends that are veterans. So for me, any way that I can give back when it comes to veterans, whether it's helping to get homeless veterans off the streets and into housing.... We're working on creating a 501(C)3 nonprofit that is going to be doing just that, creating group housing for homeless vets...
I just actually donated a car, I had a 2008 Range Rover Sport that I had sitting in my garage, that wasn't doing anything, because I have a couple other cars - I actually donated that two Wheels for Veterans, just this week, actually. So for me, military is huge, giving back to veterans, thanking them for their service, and anything that I can do to help is where my focus is that for giving back.
Slocomb Reed: That's awesome. Mat, since this episode is focused on your affordable housing investing - specific to your affordable housing investing, what is the biggest mistake you've made and the Best Ever lesson that resulted from it?
Mat Simmons: I think the biggest mistake I made is not doing a good enough walkthrough with a contractor on a property prior to purchasing it. Originally we would just send agents to do the walkthroughs, and then have a contractor go in after we bought the property already. We quickly learned after a couple of disasters, or I quickly learned after a couple of disaster homes that that was not the way to do it. We always waive inspections; we never actually send out an actual inspector to do a home inspection. But we always send our contractors out to do a thorough walkthrough on the property, with the checklist. So do that before you close on the property, instead of after... Because like I said, we had a couple of absolute nightmares where we did it after we bought the property, and we had to put 20 grand into foundation issues, and sewer line issues, and all kinds of stuff. The sewer line and the underlying infrastructure is something really, really important to pay attention to with this asset class, because in some of these markets like Detroit, the underlying infrastructure is so old with the sewer lines, water lines, gas lines etc. that it can quickly bite you in the butt after you've bought that property.
Slocomb Reed: I was gonna say, especially in the Midwest, we deal with a lot of that Cincinnati. On that note, Mat, what is your Best Ever advice?
Mat Simmons: Just get started. Really, when it comes to real estate, just get started. I think so many people will find themselves - and we hear it all the time, and it's kind of cliche, but analysis paralysis, right? They're so scared because it can be an expensive investment, or it can be expensive to get started, and they try to learn everything that they possibly can... But really, just take the action; you're gonna make mistakes, you're gonna learn from them... Find someone to help mentor you or walk you through it that's done it before, but really, my best advice is you just got to get started. You just have to take that first step. And then it's easy after that.
Slocomb Reed: Last question, where can people get in touch with you?
Mat Simmons: Great question. So you can find me on Instagram, @realMatSimmons. Remember, my first name is only spelled with one t, just so everyone knows. Also find me right on our website, if you go to SimmCapital.com. Phone number email, everything is right there; you can reach out to us right at the office. Those are probably the two best ways to get a hold of me.
Slocomb Reed: Those links are in the show notes. Mat, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this episode, please do subscribe to our show, leave us a five-star review, and share this episode with a friend you know we can add value to through our conversation today about Section 8 investing. Thank you, and have a Best Ever day.
Mat Simmons: Slocomb, thanks for having me on, man. I was pumped to be here.
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