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Why Workforce Housing Is One of the Best Multifamily Investing Strategies Right Now | Jason Yarusi

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Show Summary

In this episode, Jason Yarusi shares his journey from structural moving business to successful multifamily investor across seven states. Discover key strategies for scaling, managing risk, and addressing the housing crisis through workforce housing investments.

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    Jason Yarusi (00:00)
    they don’t want to sell because if they sell, then they’re going to be able to

    potentially move into another home that’s half the size at almost twice the cost. So that puts this big barrier here where people stay renters and stay renters for longer. And so it drives this part where although you’ve seen ⁓ some drawback in renters still a need for rents and still demand for rents and it still increases your yearly rent.

    Michelle Kesil (01:55)
    Hey everybody, welcome to the Real Estate Pros podcast. I’m your host, Michelle Kesil. Today I’m joined by someone I’m looking forward to chatting with, Jason Yarusi, who’s the managing partner of Yarusi Holdings, working on multifamily investing across seven states in the Southeastern United States. So excited to have you here today, Jason.

    Jason Yarusi (02:20)
    Michelle, excited to be here. Thank you for having me.

    Michelle Kesil (02:23)
    course. So let’s dive in. First off, for those who are not familiar with you and your work yet, can you share what your main focus is these days?

    Jason Yarusi (02:32)
    Sure, so we invest in multifamily properties down here in the southeast, predominantly here in middle Tennessee. I’m born and raised in New Jersey, moved down to just south of Nashville back in 2020. ⁓ We have been in multifamily acquisitions back since 2015.

    ⁓ Predominantly, we are here in Tennessee, but we also have properties in six other states that surround Tennessee. We do property management for about a third of our property that we run out of our office, and then we use third-party management for some of the other larger assets out of state.

    Michelle Kesil (03:10)
    Awesome. And what got you initially started in the real estate industry?

    Jason Yarusi (03:17)
    So.

    I was living in New York City. had owned bars and restaurants and a brewery at a time. ⁓ Ended up moving back to New Jersey where I was from ⁓ right after Hurricane Sandy happened. That storm basically decimated the East Coast and my father has, he’s retired now but had a business that was strictly ⁓ focused on structural raising and moving. So he would take buildings that were compromised for many reasons, storm related being this reason, ⁓ and move them or raise them to get them out of the

    and to make them compliant for FEMA. So when that storm happened, his business went from a couple calls ⁓ a month to a thousand a day overnight. And so my now wife and myself and my little brother who was working for me ⁓ in that space moved out to New Jersey to help dad really take on ⁓ all of the new load of work. We did that for a few years before transitioning into, we’ll say something easier if that’s the case, that line of work is very rigorous and very demanding. So we started moving into

    into various forms of real estate from flipping to wholesaling back in 2012 and 2013, 14, before branching off into multifamily into that 2015, 2016 mark. We just saw the action, the activity, the active side of all of the flipping, the wholesaling, everything we were doing with our life was in that active environment. So we were looking for something that we could actively manage without the day-to-day work of actually having to do the grunt work. It came upon multifamily invest

    the model.

    made sense everything from just the ability to get the cash flow right from the property as it produces to everything from the natural appreciation if you’re in the right market to the forced appreciation that you can produce based on your strategic improvements to the property to having a depreciation and tax advantage benefits that can come with ⁓ the right multifamily assets. So we dove all in and started to ⁓ learn the space, just understand the space, pick the market.

    in New Jersey, we decided on Louisville

    Kentucky, ⁓ brought a 94 unit ⁓ there a little over 10 years ago. That was our first large acquisition. ⁓ That was a nice property, really good stepping stone for us. ⁓ The business plan worked very well. We were able to improve that asset and over the course of about 28 months ⁓ had a very nice exit for investors. But that was our first linchpin. Then we ⁓ followed that by buying another 400 units in that market that we followed the same business plan with before.

    exiting on those properties. think the last one we exited was in 2020, ⁓ all while we started moving into some other markets.

    Michelle Kesil (06:46)
    Yeah, that’s awesome. And so what do you feel have been some of the main keys that made the biggest difference in allowing your business to be able to grow and run successfully?

    Jason Yarusi (07:00)
    Hiring has always been a big piece for us. In the beginning, we were doing this very much on our own. So it was my wife and myself who were quote unquote running the business day in and day out. And that was a part where the growth was capped by each of us, right? Because there’s a lot of different hats to wear into the space. And at certain point, you become the one who can accelerate the growth, but also the one can hold back the growth. So as we started to bring on team, they could help us really push forward the projects in a successful manner.

    really helped us grow. And so today I think between the three businesses we have maybe 20, 24, 25 employees who work for us that have helped us really continue to grow each and every day.

    Michelle Kesil (07:47)
    Yeah, amazing. And how did you get to that place of being able to scale on such a big level? Were there certain strategies that were supportive in that implementation?

    Jason Yarusi (08:02)
    The scale piece ⁓ was just setting up the right business plan or pivoting as we needed to. So that first project, we went in with a certain business plan. We were not doing anything that was dramatically a heavy lift. I came from a heavy construction world where every project was intensive. So we were looking for things that had some layer of intensity, but most of that was targeted at the interior, ⁓ not so much on the exterior, let alone being simple things like ⁓ roofs or changing windows, but nothing to a structural capacity.

    Michelle Kesil (08:09)
    Okay.

    Jason Yarusi (08:32)
    and flood zones, no properties with foundation issues. We were looking for properties that you could change up the exterior based on cosmetics and then the interior based on layout and ⁓ new implementation of a certain renovation plan and then changing the marketing, the landscaping, potentially redoing the parking lot and then making those upgrades to the team, the marketing. And so we use that plan, we refine that plan and we still basically use that plan today, right? We buy properties that are not performing based on what we anticipate the market can warrant.

    then we’d look at the different levels that we can bring to push the income while moderating the expenses, while putting in a right team to be able to handle this growth in a property. And we’ve done that day in and day out across each of the properties.

    Michelle Kesil (09:18)
    Yeah, amazing. And so what type of strategies have been like the most supportive in being able to grow? Like, is there any sort of advice that you could maybe share for those that are earlier on in their investing career?

    Jason Yarusi (09:36)
    So you can look at two sides, right? You can look at your income. Now, income. ⁓

    there’s a certain part where you have to know your comps, right? You have to know exactly what the comp is. And many times, both from say you’re flipping to if you are just doing rentals is that you’re using what you want to be the best comp, right? It’s the one that’s driving the highest rent, but it’s not actually a true comp for you, right? So maybe that property has a pool or has amenities or it was a new construction, right?

    And that’s truly not going to be a comp or they have a layout that’s not going to form into your layout, right? So maybe the layout for the two bedrooms is much better than your layout, which is more of

    or

    railroad styles. You have to make sure you’re actually using true comps so you can know your rents. But you can also get lost in not ⁓ adding on ⁓ the right additional income. So maybe you’re missing a facility fee, a pest fee, a trash fee, ⁓ a water fee, right? Or using those right fees and that second layer of income can be really beneficial to bolster your bottom line, ⁓ bottom line return when all is said and done. And then on the same side is the expenses, looking at your expenses, making sure that ⁓

    The expenses are moderated based on what they should be for the market. And that could be everything that is there ⁓ are your utilities ⁓ out of whack, right? Is there something that we’re missing that you’re very heavy on your electric or you’re very heavy in your water where you have to look at which driving that that cost or run and then your contracts, right? Your pest contract, your trash contract, ⁓ your cable contract, we have those. Are those contracts in line and are the re-incurring contracts each and every year ⁓ matching or are you taking on some obsessive or

    cost increase from one year to the next that you need to go back and negotiate. Because if you look at that both sides then you’re pushing your income up while moderating your expenses.

    Michelle Kesil (11:59)
    Yeah, absolutely. That’s important for people to note as they want to grow and expand. And so what are you most focused on solving or scaling to next?

    Jason Yarusi (12:15)
    So.

    You know, we’re constantly solving for a return, right? So we’re looking for yield. And when we look at the properties we’re bringing on, we’re looking for anywhere between 35 to 45 % coming from the cash flow of the property. That’s the built-in year-in-year cash flow with the 50 to 60 % being a fourth appreciation or profit at the end when we sell that. So we look for projects that meet those dynamics and make sure our business plan aligns. It’s a market we believe in.

    that our stressors, right, both from a risk analysis can be met on both sides, and that we don’t have anything that could warrant ⁓ some black swan, or least that we feel on in the market we’re into.

    Michelle Kesil (13:03)
    Yeah, absolutely. And I know you mentioned when we chatted a little bit before the call that you’re focusing a lot on workforce housing. Can you expand into that?

    Jason Yarusi (13:15)
    So our layer of housing is typically built somewhere between the 1980s to 2010s, right? Where you have the affordability crisis here where for the 16 million homes we need, we’re gonna have about 11 million built this decade. And so that leaves us at a delta here where there’s also a supply constraint, right? So in some markets, ⁓ there’s more supply than demand, but in most markets, there’s more demand than supply. Now this goes in pluses and minuses, right? ⁓

    Basically, when all the money came out with COVID and then interest rates dropped, you had a lot of building, right? So you saw a year or two where you actually had more supply than demand, but now that’s retreated and we still need now housing. The other side of that is that people who do want to go out and buy a house, they’ve gone from rates in the three and four percents into the six, seven and eight percents. So they can’t afford a house and especially can’t afford the house ⁓ that they want to buy. And couple that with the people who did refinance at that time when interest rates were

    they don’t want to sell because if they sell, then they’re going to be able to

    potentially move into another home that’s half the size at almost twice the cost. So that puts this big barrier here where people stay renters and stay renters for longer. And so it drives this part where although you’ve seen ⁓ some drawback in renters still a need for rents and still demand for rents and it still increases your yearly rent.

    we’re constantly focused on housing that meets the everyday person, everybody who’s working in the factory, who’s a school teacher, who ⁓ is working in medical.

    that that’s our everyday employer who is going to be someone who will rent at our apartments. And usually from a point of turnover, you might see, on the better part, 45 or 50 % of units turnover in a year. But because of this constraint, we’ve actually seen that dip pretty dramatically down to about 35 to 40 % turnover year on year.

    Michelle Kesil (15:51)
    Yeah, absolutely. And how, as an investor, do you kind of see a solution for these types of situations?

    Jason Yarusi (16:02)
    So.

    I mean, the solution, of course, is to build more housing, but then we need to have the places that we need more housing to allow it to be built in a timely manner, right? Because most of the time, the cities and the urban areas where we need more housing is the hardest and the most restrictive for us to build. So when that happens here, then they’re forced with going through a number of different layers to be able to build the housing. It becomes more expensive, which of course makes this more costly for someone to buy this in the back end. So at this point, it helps

    and the multifamily level, although we can’t get the housing out of the ground because it helps us with our renter pool.

    It’s just to have a streamlined permitting process with a predicated idea of what we need into the markets in terms of their urban development. That would be the solution forward. But that’s each and every market because there’s not an overall government infrastructure across the US that puts us in place. So the areas like ⁓ LA or Chicago or Miami, where you need this housing, is some of the most difficult to get the housing out of the ground.

    Michelle Kesil (17:08)
    Yeah, absolutely. And how is this creating new opportunities in the markets that you are currently serving?

    Jason Yarusi (17:18)
    It keeps the reminder pool strong, right? So it keeps us to a point where we know we have a supply for our units, right? Because ideally we’re competing against new construction that when it does get built. ⁓

    If and when it gets built, it’s going to be more costly, right? So they have to offer ⁓ higher, more aggressive ⁓ rent levels, which only a certain number of people can get approved for. So we’re meeting that mid-tier investor here where we’re able to offer an in-place asset, right? We’re buying this at a discount to what the replacement cost would be. So we’re able to offer ⁓ more affordable rent levels, which can keep our properties, one, ⁓ full, but also a high supply of new ⁓ renters that come down the line when we do have opportunity

    rentals.

    Michelle Kesil (18:05)
    Yeah, absolutely. And what do you kind of forecast for where the market is heading to?

    Jason Yarusi (18:14)
    I mean, there’s want and need, right? I would hope that we continue to get ⁓ some rent relief, or I’m sorry, some rate relief. ⁓ We’ve seen some, we anticipate more this year, but then, you on the other side of it, ⁓ the treasuries aren’t always aligned to what happens with the Fed, and with things like ⁓ the war in Iran and other parts right now, you’re seeing treasuries bump up again. So ideally, you know, we want to be in an environment where…

    we won’t have stagflation and we won’t have this point where there’s different levels pushing the Fed away from ⁓ reducing rates. Because that again ⁓ is one of the few levers that can be very impactful on all forms of real estate, but multifamily real estate, right? Because ⁓ price and rate are an inverse relationship.

    Michelle Kesil (19:04)
    Yeah, absolutely. What is one of the biggest challenges that you’ve overcome on your investing career that now you can see the bigger picture less in hindsight?

    Jason Yarusi (19:18)
    You’re you have two parts, right? So you have the the project but then you have the financing the financing is both in debt and equity ⁓ We made good decisions not to take on ⁓ any bridge that are floating debt over the term, right? So that’s good, but it’s always ⁓ Forecasting right? Nobody would have predicted that we had would have you know double-digit rate increases over a Short span of time. And so when that happens, it creates a whole different environment out there

    And so it changes up your business plan, your focus, your timeline, your execution. So you just have to understand that you have your worst case, your best case, and your moderate case or your base case, and that you do need to perform and operate at all levels. ⁓ Also, you have to look at different varying timelines. We did not and usually do not underwrite to a refinance where we have to have some inherent value created to be able to accomplish the mission, ⁓ which has been good.

    Looking at that, I saw a lot of people with trouble because they banked on ⁓ short-term floating rates to be able to refinance and then rates exploded on them and it changed it up. They’re a whole business plan.

    Michelle Kesil (20:29)
    Yeah, absolutely. There’s always those things that happen for bigger pivots.

    And so what is kind of your strategy for lead generation and finding the best properties for investing?

    Jason Yarusi (20:48)
    So.

    The brokers are always your best case. Trading relationships are brokers. They are doing the groundwork each and every day. that, of course, having brokers that you know, that know you, that you’ve performed with in the past or that you can relation with so they can understand exactly what you’re looking for, first and foremost, the best case. Beyond that, if you’re in a market and you can operate in that market and you like that market, you can do everything from select mailing to just even going and door knocking as random as the scenes.

    of those small multifamily are managed by the owner themselves.

    Michelle Kesil (21:24)
    Yeah, absolutely. Well, thank you for sharing all of that. That is super helpful. And before we begin to wrap up here, if someone wants to reach out, connect, learn more about everything that you’re up to, where can people find you and connect and reach you?

    Jason Yarusi (21:43)
    Sure. Well, Michelle, thank you for having me. ⁓ You can find more about my company at yarusiholdings.com. That’s Y-A-R-U-S-I holdings.com or email me at [email protected].

    Michelle Kesil (21:58)
    Perfect. Well, I really appreciate your time, your story, and your perspective. Thank you so much for being here.

    Jason Yarusi (22:05)
    Thank you for having me.

    Michelle Kesil (22:07)
    And for those that are tuning into the show, if you got value, make sure you’ve subscribed. We’ve got more conversations with operators like Jason who are building real businesses. And we will see you all on our next episode.

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