Tom Cruz is originally from Brazil, and he’s in North Carolina these days. Tom has 9 years of experience acquiring […]

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Tom Cruz is originally from Brazil, and he’s in North Carolina these days. Tom has 9 years of experience acquiring properties optimized for the Section 8 program, secured over $25,000,000 in commercial & creative financing, built highly efficient property management teams, and aggressively scaled his Section 8 portfolio in less than a decade, and he’s built an efficient property management team to aggressively scale this portfolio. Tom Cruz acquired over 400 rental properties in North Carolina, South Carolina, Tennessee and Ohio.

 

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Section 8 Real Estate with Tom Cruz

 

Brett:

I’m excited about our next guest. He’s originally from Brazil, and he’s in North Carolina these days, and he’s a specialist in all things Section 8 Investing in real estate, and he’s acquired over 400 rental properties in North Carolina, South Carolina, Tennessee and Ohio, and he spent over nine years acquiring these properties through the Section 8 Program, and he secured over $25 Million in commercial and creative and creative financing deals, and he’s built an efficient property management team to aggressively scale this portfolio. He’s a coach, and he’s a real estate expert, please welcome to the show with me, Tom Cruz. Tom, how are you doing? 

Tom:

Good, man. Thank you for having me on the show.

Brett:

For our listeners get to know you for the first time. Would you give us a little bit more about your story and your current focus?

Tom:

I’m originally from Rio de Janeiro in Brazil, I grew up in North Carolina, and I went to the University of North Carolina at Wilmington, graduated I started real estate by doing wholesaling. Got into wholesaling pretty early on use that to generate essentially capital to be able to start buying condos and eventually getting into single-family rentals on Section 8.

Brett:

Fantastic and take us back to the days earlier maybe in high school days. I believe we’ve all been given certain gifts or people’s strengths and superpowers, and I believe these gifts should be given to us to be a blessing and help to others. I’m curious, what are those one or two gifts that you believe you were given? How does that help you help and bless people today?

Tom:

I would say, I definitely got kind of the entrepreneurial bug from my parents, the stubbornness, the persistence, and also the creativity, which is required to be able to make it work, and I carry that on through, building the portfolio, I just never took no for an answer, never looked at any problem that couldn’t be overcome, didn’t have enough money, that’s fine. figure out another way around it. Lenders didn’t want to work with it. No problem. Let’s find another lender. It didn’t appraise tenant issues, property managers issues, there’s always a million issues that come up when you’re dealing with real estate, and you have to quickly become a problem solver, or you will not last very long.

Brett:

Absolutely love that, and by the way, learn more about Tom Cruz at Section8Formula.com at Section8Formula.com. Let’s dive right into the show, which is Section 8 real estate and how to acquire that. What’s the number one secret Tom when it comes to acquiring and building wealth with Section 8, housing and financing anything else that you’re doing there?

Tom:

The big thing is gonna be finding the right units. For me, it’s all about finding the right markets, I really like Ohio, Indiana, South Carolina, North Carolina and Tennessee, throughout the southeast, there’s a ton of properties that you can buy $700,000, and really, it’s an arbitrage between the fair market rent, that’s actually able to pay, and then also, the lower mortgage and debt service costs that you’ll have on these on these assets. I mean, I’m buying $60,000 units, putting 20% down financing, 40 grand, and having a $3,000 mortgage and Section 8 paying $1,200 a month all day on that on a three or four bedroom in these areas. That’s the first step is just identifying markets and properties, and then everything of a secondary thing. Financing just comes with it. Once you show banks these, crazy DSCR’s (Debt Service Coverage Ratio) and guaranteed rental income. They also like the affordable housing credits that come with loaning against this type of collateral. All that plays into it.

Brett:

What’s the biggest challenge with Section 8 housing and maybe dispel some myths some people might have about it?

Tom:

The biggest challenge is inspections. That’s the only thing that’s different than a standard rental is you don’t have Section 8, they come and inspect every year, and you have to make sure you stay on top of that because if you fail the inspections and you fail it again on the RE inspection, they stopped paying you. Um, that’s really the only downside to it. But and then the common myths are the usual ones where you know, Section 8 tenants will destroy units. It’s not the case if you have a tenant that is regular and you have a tenant that’s on Section 8, it’s a payment method, that’s really the only difference if you screen both tenants and they both are, quality people with decent credit scores and no criminal backgrounds and no evictions and good level references. It doesn’t really matter what program they’re on.

Brett:

Got it and do you find that it’s when your screening process what have you improved over the years to make sure that you are finding good tenants?

Tom:

We go really in-depth. I mean, we’re talking a victory We’re checking background with checking credit, we also have on my property managers go to the tenants existing place that they’re renting and check to see how they’re living currently. They’ll go and check their exterior, make sure that you know, it’s not overgrown lawn, trash and abandoned cars in the front, and then they’ll do a home visit and go inside and make sure that dogs aren’t destroying it, and there are no holes and all the walls so it’s pretty in-depth as far as how we screen tennis reception.

Brett:

I think that’s really smart. I think that’s like the next area of thoughtfulness right to say, hey, we’re gonna go spend some time with you. It’s like, if you were to hire somebody on your team or bring in, any kind of relationship, which is essentially what’s happening is a business relationship, you would spend some time with them when their current state, and so I think that’s really wise to actually go to their place of residence, and I’d imagine there’s not a lot of pushback, or if there were a lot of pushback, then that probably means it’s a red flag.

Tom:

Occasionally, it’s definitely off the wall, and they’re always like, why don’t you look at my house? And I was like because it’s gonna tell us what or how you’re gonna treat our house? And they’re like, well, I guess that makes sense. It’s not like a surprise visit. I mean, schedule it with them. But there are certain things that you can’t hide, I mean, smells you can’t hide, flooring and drywall and get fixed overnight, there’s a lot of smoking, if it’s in the air, it’s gonna be in the air. You can tell a lot about just going into those units.

Brett:

So smart, and I think it’s overlooked. Honestly, I’ve been in the multifamily real estate game and development game since I was a child, and in brokerage and owning and, and I’ve never thought of doing it that way. It’s always you come in to or the property we have and see if it’s a good fit for you. But how about we go to where your property you’re living now and make sure you’re a good fit? For us? It’s common sense. But I feel like it’s overlooked. Tom. Who gave you that idea? And what part of the process? Do you do that in the very beginning? Or of course, you probably want to just waste some time, which is the credit score? Are you running the credit score, and the eviction and the background checks you spending the money on? Are they paying for that? What part of the process is the visit? Is it towards the end in the middle of the beginning?

Tom:

It’s definitely towards the end, as far as they have to go through all the screenings, there’s no point in going through all that and then coming to find out that, um, to have three evictions on the record, we’re not ever going to go bothered to do it. We do our full suite of checking, and then afterwards, we’ll go and check that.

Brett:

How often are you guys like, this is gonna be a great tenant. I mean, you have probably done some of these now, but then you actually do the visit, you’re like, oh my gosh, like run the other way, like, give me that percentage-wise there.

Tom:

It’s very small, I would say less than 10%. Because if they’re quality tenant, if the landlord gives a good reference, if their employer gets a good reference, if their credit is, well and decent, and there are no evictions. The probability is actually really low. It’s we rarely get surprised by things like that.

Brett:

What if they’re like at a state and they’re like, I’m moving to North Carolina from California or New York. And you don’t have steed you just send someone there, like with FaceTime video, like real-time, what are you doing there? I’m

Tom:

I have a property manager. Don’t look at the unit.

Brett:

Like if they live in New York, you’re gonna have?

Tom:

No, it’s very rare that happens. Section 8 tenants, for the most part, are staying in state and city and they are coming from out of state or they’re transferring a voucher, then we just do additional screening just to, get a good sense, or what we’ve had them do send us pictures of their current place.

Brett:

Since it says in pictures, that’s smart, too. Very cool. All right. Thanks for going on a little bit of a tangent. I thought that was really interesting the way anyway, we’ve done that and how did you set that up? You’ve been able to scale right through Section 8, I think, maybe partly because you focused on like a laser. And then you built that up, and now you moved into helping others do the same. So take us through that process when you start to become a coach to help others build their wealth for Section 8.

 

Section 8 Real Estate with Tom Cruz

Section 8 Real Estate: “There’s always a million issues that come up when you’re dealing with real estate, and you have to quickly become a problem solver, or you will not last very long.” – Tom Cruz

 

Tom:

I’ve been on Tik Tok and Instagram for the last couple of years, and a big thing that keeps coming up is how do I get started? How do I buy my first property, and eventually, I just kind of put together a whole course on it and explained it step by step, how to find the best markets is going to cash flow, how to find the best properties, how to find the right financial products, how to screen tenants, how to manage tenants, and then how to you know, retain tenants for long term. That was just a natural progression, and then, a lot of its very niche, and there are not that many people that have done it at scale or this fast. It makes things a lot more interesting. Because everyone’s talking about Airbnb, everyone’s like my wholesaling, everyone’s talking about bur, all of which require quite a bit of money on the front end. Here, you’re buying $60,000 units, with 15% down, you can get away with buying a unit for 10 to $12,000, which makes it a lot more realistic for a lot more people, and it’s guaranteed, in 2020, we had our best year ever during the global pandemic, because we had no turnover via guaranteed rents, and all of our banks were paid. It worked out really well.

Brett:

It makes perfect sense. Let’s walk through an example right now on the average deal, because if he touched on some of these specs, but you’re saying the average property is going to cost $60,000. There’s an average downpayment of $10,000. Is it fair to hear that right? Or give me kind of?

Tom:

10,000 wouldn’t be pretty, if you don’t like a seller finance deal and they would allow that but there are some private lenders that will do 15% down on 60 grand you’re gonna be around 9 to 10k.

Brett:

Then are you typically doing value add improving these properties? Are you typically buying in Turkey and then just managing and what’s the feel for that or the percentage of that.

Tom:

I’m not doing a ton of work on them because tenants stay in there long term. I mean, we have tenants, I’ve been there for 678 years, so we’re just getting ready to pass inspection cosmetically. But outside of that, we’re not really handling too much past that it’s, we’re getting instructional, ready, clean, and then making sure everything works and appliances before we go too much further.

Brett:

Got it, and what’s the average rent on a deal like that, if you bought it for 60,000, let’s say you put $10,000 down and average mortgage average rent, and then the average cash flow after expenses,

Tom:

I would say you’re looking at it depending on the area, for example, in North Carolina Wilmington. Right now a three-bedroom is going for 1550 per month, I’m in New Hanover County, and you’re buying them for right now 90 to 110. It’s a little bit more than you would in Akron, Ohio, for example. With 90k, you’re putting the 10th grand down at that point in financing 72,000 You’re probably going to be sitting around five 600 bucks a month in principal interest taxes and insurance. You can figure 1% of the purchase price with property tax, and then about similar for insurance here with one unhealth differ again. In that case, you’re going to be with management maintenance vacancies, you’ll probably be in 750 800. At 1500 Rent 1550 rent on a three-bedroom, there’s still quite a bit of margin there, and I’m really targeting $600 a month in that cash flow per unit.

Brett:

Got it? So 600 Target cash flow after all the expenses including the Insurance.

Tom:

Around 55 to 50% cash on cash return.

Brett:

Then now I think the biggest question is property management. And click collecting the rents and maybe the biggest thing that maybe focus on so you mentioned that a little bit but these different marketplaces in different states. How are you building and scaling your property management to make sure that you’re collecting the rents on time and doing the things that the properties aren’t falling apart?

Tom:

I hire a full-time property manager, I don’t need property management companies. It’s good if you’re starting because it’s only 10% or 12%, and it makes sense when you’re dealing with those levels scale, but if I’m getting into a new market, out of state or out of the city, then I’m trying to buy at least 10 to 15 units where it makes sense for me to hire a full-time property manager, three, four grand per month, full-time salaried w two employees, and then they can normally handle between 75 and 90 units by themselves.

Brett:

You figure those numbers down to the T2. It’s 75 to 100 units themselves, and you only want to go into a market that you’re gonna be buying 10 to 15, to help to scale it. And their full-time property manager where their focus is just on on on your assets, and then what’s the best way to hire and find that person? Like, where are you finding the property managers?

Tom:

Entry-level, the more green the better, and not just teach them. I mean, it’s not rocket science. It’s mostly just organization and communication if you can do that, and you can find someone that’s articulate, and that’s empathetic, and can understand their plight, if there’s an issue. That’s the biggest thing because I’ve tried hiring, these 30-year veteran property managers, and they have their way to things and it’s just not, we have our own policies, and it’s very strict and we keep it up.

Brett:

That makes sense. That’s really cool. It’s good information. By the way Section8Formula.com, a Section8Formula.com. We’re going to shift to this part of the show where we talk about Capital Gains Tax, and it may or may not be as big for some of these deals, perhaps these are longer-term holds and just cash flow, which typically means you may be just refinancing and, and therefore, there’s no capital gains tax event, and you’re just buying the deals, and so that is a great strategy. In fact, if you never sell and you ever only ever hold it, don’t take on too much leverage on a deal, and you’re able to refinance and redeploy. Is that been kind of your strategy so far? 

Tom:

I do sell but I’m doing 1031s and just buying more units. I mean, that’s really the only time I’m selling occasionally I’ll sell if I just get a crazy offer, and there’s nothing really else out there. Especially if the game was so high, I’ll just eat it or there’s also a ton of depreciation. I mean, there’s a lot of expenses that come with the property so I can offset a lot of these gains, and another way.

Brett:

Smart yet using the depreciation maybe do you do any accelerated depreciation or is it not cost-prohibitive? Because your deals are so small? Are you doing any of that Co-Seg?

Tom:

We did a Co-Seg, and I’m not buying one or two units anymore. When I’m buying these units, it’s normally a minimum of 10 to 15 unit deals. I just bought 100 units in Jacksonville, North Carolina a couple of weeks ago. For the most part, it does add up and it has compounded. We do I need to talk to my account about that. But we did do Co-Seg and some of them we have some Airbnbs that especially it makes sense to do a Co-Seg analysis on it. But for the most part, I think it just accelerated depreciation.

Brett:

Got it perfect. I was so sorry about that. 100 units. Fast forward, that would be a great one, because you can really start scaling. Are you focusing mostly on bigger deals these days versus the smaller ones? So is that is a great focus or not?

Tom:

Yeah. 

Brett:

Then when you go to sell that. What’s the plan would be to 1031 exchange that into bigger deals, just keep rolling that, at a certain point, certain clients get to the point where they want to sell high and buy low, but 1031 can be a little bit of a challenge. Have you seen that with that 45 Day one at any frustrations or challenges with 1031?

Tom:

I have, and I’ve had scenarios where I just dropped 1031 all that all together with that 45 Day identification 180-day clothes because I mean, you’re selling high, you have to buy high. And it is frustrating, especially when there are all these other rules that come with it. There are times where I’ve just, said forget it, just give me the cash. I’ll figure it out my accountant later, and we’ll, come up with expenses and get the charities I mean, there’s always things you can do to reduce that, that AGI so it’s kind of.

Brett:

It’s very good, and by the way, if folks are wondering if there’s an alternative to that, it’s called a Deferred Sales Trust, we can now save a failed 1031 Exchange. It’s not a Delaware Statutory Trust, and it gives you an opportunity to sell high and buy low when it makes sense for you to go to CapitalGainsTaxSolutions.com. That being said, are you ready for the lightning round, Tom?

Tom:

Sure.

Brett:

All right, knowing what you know now if you go back to your 20 or 25-year-old self with the one golden nugget, make sure to tell yourself to do.

Tom:

Just get started by that first unit do not do analysis paralysis. I deal with coaching all the time, and people get so stuck in doing this hardcore analysis on a $60,000 unit. It’s very, almost impossible to lose money in a $60,000 unit. Just buy it, do your due diligence, obviously. But don’t, don’t sit defer because after you buy the first unit, it becomes addicting, as the investor will tell you you’re like, that’s the case. That’s what I would say is start as soon as possible and just make it happen.

 

Section 8 Real Estate with Tom CruzBrett:

Second question. What’s the number one book you recommend or gifted the most in the past year?

Tom:

I really like The Millionaire Fastlane by MJ DeMarco, it’s not a really big popular book, like all the Robert Kiyosaki books, but I’m a huge fan of it. It’s mostly a mindset book really helps with explaining the differences in finding your path and then being able to really execute on it. I highly recommend it.

 

Brett:

Part of the Rich Dad Poor Dad lightning round strategy question. What’s the one thing that you try to practice when it comes to building your business or your real estate as pertains to Robert Kiyosaki his book.

Tom:

Just the assets and liability thing. I mean, that’s always something I’ve always struggled with is I’ve always wanted all the fast cars and the boats and all the rapidly depreciating liabilities. Keeping that in check, having enough assets to be able to pay for the fun, toys is something that I practice religiously because of those books.

Brett:

Second, the last question, what are you most curious about right now?

Tom:

I’m most curious about how to get to 1000 units. I obviously am buying 100 150 at a time, and I find that most interests from hedge funds and institutional buyers are at 1000 Plus units. I’m just trying to I’m most curious on either finding other people’s money or self-funding until I can get to those 1000 units, but is finding inventory, creative ways of finding off-market properties to continue buying at scale.

Brett:

What about creative ways to raise capital, like when you partner with people, I mean, they might be the IRA thing, it might be the 401k thing or just capital from credit investors like have you ever thought about other ways to raise besides that more traditional ways. 

Tom:

I’ve never really wanted to get into syndication or really do anything when I’m raising a ton of capital from a ton of investors and is dealing it just like a whole nother business, and I really didn’t want to do that. I have everything streamlined right now with property management and just doing it myself and not having to, have accountability to investors and go through all that headache. I understand it’s the fastest way of doing it. I know I right now, just from my, following I could probably raise $5 million in the next 24 hours to go by, 15 $20 million property. But, I don’t want that stress in my life.

Brett:

That makes sense. You don’t need to see the extra headaches right for partners. If you could just do it yourself. Last question. After all your success helping the people you’ve helped build the real estate portfolio you have, how do you stay centered in your values? And how do you stay encouraged charged to reach new heights?

Tom:

That’s a great question. I would definitely I mean, I hate bling, being cliche, but it’s really true as far as the whole gratitude thing. Being able to just not take things for granted and really understand that like, everything that I have now was something that I’ve wanted, for the last 10 or 15 years and now that I have it like I’m just constantly thinking about the future and to stay centered, I’m just like trying to stay in the present before just like keeping what I could get in the future in mind. I think that’s the biggest thing is just try to stay in the present, try to kind of enjoy the ride and go from there.

Brett:

Fantastic, thank you for being on the show, Tom. I want to thank you for having that entrepreneurial spirit having the persistence and the stubbornness and the creativity to make deals work for yourself and to build your team and help people who need housing. That’s at the end of the day, I think that’s one of the biggest crisis in America, if not, number one is affordable housing, to be able to provide that management and that own those properties and be able to rent them to people is huge, and so I don’t want to overlook that. For our listeners who want to get in touch with you, could you remind him one last time was the best place for him to find you?

Tom:

You guys can follow me on TikTok. It’s @tcruzncand then if you guys want to email me just Tom@TomCruz.com TOM  CRUZ, and then also Section 8 Formula if you want to book a call with me or my team and we can discuss section a coaching course and also coaching program and we walk you through the entire process we have to find your first section at the unit we help you get set up with private lenders. We also help you find a tenant so it’s all included in that course program.

Brett:

Thanks, Tom so much for being on the show and also want to thank our listeners for listening to the episode of the Capital Gains Tax Solutions Podcast also stream on eXpertCRESecrets.com where we believe most high net worth individuals and those who helped them they struggled clarifying their Capital Gains Tax Deferral Options. Not having a clear plan is the enemy of using a proven tax procedure such as the Deferred Sales Trust and or buying some Section 8 housing with someone like Tom Cruz for the best ways to grow your wealth. Also Deferred Sales Trust to defer capital gains taxes on cryptocurrency businesses real estate, save a failed 1031 Exchange. Don’t get caught in that 45-day window 180 without a clear plan to backup just in case it fails. I can go to capital gains taxes.com To learn more about that, and we also have our Free Mastermind every Friday at 10 am Pacific Standard Time 1 pm Eastern we can learn all things about the Deferred Sales Trust. We have clients on there, we have CPAs, Financial Advisors, my business partners and folks just like yourself, learning about the Deferred Sales Trust for the first time and wanting to figure out a way to see if it’s a good fit for you and your business plan. Again go to CapitalGainsTaxSolutions.com to register for that. Thanks, everyone for listening and we look forward to talking to you soon.

 

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About Tom Cruz

 

Section 8 Real Estate with Tom CruzTom Cruz is originally from Brazil, and he’s in North Carolina these days. Tom has 9 years of experience acquiring properties optimized for the Section 8 program, secured over $25,000,000 in commercial & creative financing, built highly efficient property management teams, and aggressively scaled his Section 8 portfolio in less than a decade.

He’s built an efficient property management team to aggressively scale this portfolio. Tom Cruz acquired over 400 rental properties in North Carolina, South Carolina, Tennessee and Ohio.

 

 

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