SMARTERLANDLORDING

ADVICE FROM EXPERIENCE

Jenna

Looking At Properties? Take These Tools

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You’ve read the books.

You’ve found the blogs

You’ve networked with investors.

You’re ready to jump in!

There are a few things that you absolutely have to have before purchasing an investment property. These tools will be a resource to you as you analyze potential deals. Keep them in your car because you never know which corner opportunity happens to be hiding behind.

  1. Camera (or phone with a camera and flash). As you look through properties, keep them organized by first taking a picture of the address. Then, make sure to take pictures of each potential repair. This approach will be invaluable. You could look at a hundred properties before you find the right one.
  2. Hammer. When looking at properties, there are going to be some areas you don’t want to touch. Maybe you want to check out the siding or wood strength/malleability. Maybe you smell a dead animal in the walls. A hammer is a good tool to bring along, and also a tool you’ll use again and again.
  3. Tape measure. A tape measure can also serve as a level. If think the floor is sloped, pull out the tape measure and find out. I have 4 tape measures…
  4. Flashlight. I looked at plenty of properties that didn’t have electricity. It also helps when you want to check out those small crawl spaces and underneath sinks. I recommend picking one that you can also wear on your head. Since I do a good deal of rehab after working hours, having a hands-free flashlight is a gem.

It should go without saying that the internet will be one of your best resources as well. Make sure you are searching through the brick and mortar—as well and combing through the paper trail of each property.

 

Kevin—have I left anything out?

Tools of the Trade – For Real Estate Beginners

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It felt like I was preparing for the first day of school. Do you remember getting excited about shopping for school supplies? I would map out everything I needed, and I would carefully plan out how to best organize them to prepare for a whole new year of challenges.

I re-experienced this excitement after closing on our first house/investment property. The first thing I did was run to the store with a list of tools and supplies that I was sure that I would need. I went home, unpacked them, and organized them perfectly.

I was ready to rehab.

Upon reflection, I could have been smarter. Some of the things I bought were surprisingly useful, like our step stool. I never anticipated using it as much as I do. Other items were just a plain waste of money. So, what tools do you need to begin the path of real estate investing? This post should help.

  • Cordless drill, socket/bit set
  • Wonder bar
  • Crescent wrench
  • Ladder
  • Utility knife
  • Channel locks
  • Putty knife: one wide, one narrow
  • Wire Strippers
  • Electrical tester
  • Dolly
  • Step stool
  • Tool box/bucket
  • Extension cord

Of course, this list is assuming that you have already purchased the bare necessities while you were searching for the perfect property.

There are quite a few other tools that I purchased during my rehab, but I’m not sure how soon every beginner will need them: drain wrench, basin wrench, and dremel tool. When I asked Kevin whether or not this list was exhaustive; he said that his reciprocating saw has been his best investment.

I can say, with complete confidence, that any expensive tools that you can borrow is money well saved. The costs of these items add up quick, and so do your materials.

 

Are you an experienced investor?

If so, which item has been most valuable to you?

Have I left anything off?

Demolitions: Don’t Pay Money; Make Money

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Every successful business person knows to solicit multiple bids from contractors. (Need help finding good contractors?) You do this to find the market price of services and to feel out the knowledge and competency of your potential help.

I’m no fool. I did the same thing with my triplex once I had a comprehensive repair list. The various estimates for my carport demolition surprised me though. They ranged from $1,000-2,500.

 

PSHH!

(if you don’t know what that means, please consultant urbandictionary)

 

We decided to complete the carport demolition ourselves, and it was one of the best decisions we’ve made so far. Granted, the demolition was spread out over several weeknights, and a contractor could have had the job finished in a day. We were perfectly ok with the delay though. The carport demolition wasn’t preventing us from renting out any units.

The best part: instead of paying a contractor over a thousand dollars, we ended up coming out ahead!

The first thing we did was throw a crowbar party! Four of my macho friends came out and competed to see who could take down the most boards as fast as possible. In retrospect, I could have charged a dollar a sledgehammer hit since they were all so amped to be the first one to take down a support beam.

Don’t believe me? Check this guy out 

After the wood was stacked, I posted an ad on craigslist for reclaimed wood. I offered it for free, and I had quite a few craftsmen come out and take a load off of my hands. This saved me from hauling debris and paying dumping fees.

The roof of the carport was made of corrugated aluminum. I also posted this on craigslist asking for people to make offers on the 26 sheets that I had. One person made an offer of $4 a sheet, if it was trailer-ready when he got there. I responded with a lower offer of $3 a sheet—with the understanding that he would be responsible for disassembling the aluminum. I also threw in an offer for free reclaimed wood, should he be interested.

Within 24 hours of him accepting my offer, the debris was gone and I was $78 richer!

 

Pros:

  • I saved money
  • I made money
  • I helped prevent debris from going into a landfill
  • I helped others find affordable materials for their projects

Cons:

  • It took longer than if I had hired a contractor
  • I had to coordinate many moving parts

 

Would I do it again? I saved money. I made money, and I had fun. You bet I would!

Hiring Contractors on Craigslist

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Kevin recently posted an interesting article about How to Find Good Contractors. I have to agree with him; networking with other landlords is the best way to find good contractors. Sometimes, these contractors think like investors. This can be helpful if you’re new to the game, like me.

We have already established that contracting cheap is not worth it for serious repairs: electrical, gas or plumbing.

My triplex needs a lot of miscellaneous work though. I need to repair the trim on doors, replace a cellar door, craft kitchen floor boards, and replace random pieces of exterior wood. This is in addition to the debris remaining from our carport demolition.

These repairs don’t require a lot of skill, but they do require time. So, it’s time for me to find some hired help. Where does a frugal, novice landlord turn?

Craigslist.

Looking for contractors on Craigslist can be efficient and cost-effective. Many people make their entire living off of Craigslist. I guarantee that you can find someone willing to do the work for the price you’re willing to pay. It’s not all flowers and sunshine though. There are just as many dishonest and unqualified people out there trying to make a dime. Here are a few rules to follow when using Craigslist to hire contractors.

  1. Do not post your phone number, email address or property address on your Craigslist post. You’re trying to save time by hiring help. Don’t waste it away answering questions to no avail.
  2. Itemize each repair requested in your post. Post pictures to reference repairs if you can. Transparency allows people to offer honest bids for the work.
  3. Sign a name to your post, but only a first name. You don’t want them to be able to look your property up if they know it’s vacant, right? *Ladies, I don’t sign my name. I use my boyfriend, Eric’s. It makes me feel less vulnerable, and Eric will most likely be on-site directing them anyway.
  4. Do not provide any information beyond what is needed. This is especially important when you’re issuing multiple posts. People who work off of Craigslist can easily piece together your information based on your signature or pictures. I posted once that I had recently purchased a truck. Someone responding to an unrelated post mentioned it. Watch out.
  5. Provide people with specific instructions to follow when responding to your post. Ask that they itemize their bid for each repair requested. At a minimum, I ask that people respond with their first and last name, phone number, whether or not I can text them, and their itemized bids. If they don’t follow directions when responding, rule them out!
  6. Call your Craigslist respondents. Ask them questions like what vehicle they drive and what tools they plan on bringing to the job. You may want to tell them you’ll call them back after speaking with the other potentials. Be discerning.
  7. If they don’t arrive at the agreed upon time, cancel and start over again. Craigslist is less dependable than Kevin’s recommendations, but it can be worth it. I get better deals when people blind bid for the work.
  8. After the work has been completed, pay the agreed upon price. Only pay your contractor for the work that has been finished. If you ask your respondents to itemize their bids, this step will be easy.

I rank my respondents based on their email professionalism and bid amounts. Good indicators are people who sell themselves a bit, people who respond with a business name and people who respond with a picture of their truck, trailer or tools. As Kevin said though, follow your gut. Be guarded with your personal information and property until you have developed a working relationship.

I will concede that buying, selling, and hiring help off of Craigslist takes time and patience. I’m a beginning investor though; all I have is time and patience.

I’m building a Rolodex from the ground up.

 

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When Is Cheap Worth It?

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I delved into real estate investing because I thought it would save me from the misery of living paycheck-to-paycheck. I’m 2 months into my rehab and I’ve found that not much has changed yet. I’m rehabbing paycheck-to-paycheck. When I’m shopping for tools and supplies, it’s no surprise that I reach for cheap. I look for deals and I do the work myself.

Not everyone shares my sentiments concerning frugality. I bought a Husky crescent wrench and was advised to buy better tools. My plumber strongly recommended that I install a new, double-basin sink. My partner and I disagreed when I insisted on using a combination of old and new shoe molding. This isn’t how I imagined my investor persona!

I justify my frugality by telling myself that I can replace it all during my next vacancy. I need to get my second unit cash-flowing so that I can better fund repairs. I ask myself if my tenants will know the difference. This is when I turned to Kevin. I emailed him, “when is cheap NOT worth it?” This is his response:

  • When it involves gas.
  • When it involves electric.
  • When it wastes your time. You have to understand the value of your time. You may need to pay a plumber for a service call, but they will get it done right and quick. You may be able to do it, but it will take you four times as long to do it. You will have to make three trips to Home Depot to finish it.
  • Appliances! Just buy a new “used” one rather than trying to replace parts. Unless it is incredibly simple to fix, it is just not worth it. The part will cost almost as much as the replacement appliance. You will most likely order or receive the wrong part. Beware, many parts look the same but have slight differences. Trust me on this.
  • Is it really cheaper for you to do it? Don’t try to save money if it is costing you potential rent. Take a rehab for example: You do it all yourself and it takes two months. You could have had it rented at a rate of $625 per month. A contractor could have had the job done in 2 weeks for $1500. Did you really save any money?

I appreciate Kevin’s emphasis on avoiding repairs with safety implications: gas and electricity. I was considering teaching myself how to repair appliances, but I think I’ve axed the idea. For the time being though, it makes financial sense for me to most of these repairs myself. Sometimes cheap is worth it, and sometimes it’s not.

Save

  • We used the cheapest vinyl tile at Home Depot and the kitchen floor looks great. You don’t even notice the mismatched shoe molding.
  • We shopped for used cabinets. We bought unfinished cabinets and painted them. The cabinets look great.

Spend

  •  We bought the cheapest paint brushes we could find, and it was a horrible decision. The hairs fall out and get stuck in the paint. Don’t do it!
  • We paid full price for a window air conditioning unit. I never will again. I later came across two used ac units, which were three times better for a third of the price.

 

While I advocate for frugality, please don’t cut corners by sacrificing quality installation. Tenants and buyers will notice. I firmly believe going cheap should be our current strategy. We rehabbed the entire kitchen of unit 1 for less than $1,000. It looks so much better than before. I look forward to seeing it look even better than now.

Do you have any advice? When is cheap worth it and when is it not?

Breaking Rule #1

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I used to have a best friend whom I knew from the day I was born. We hit every milestone together—and so did our parents.  When we were both looking for a place to rent at the same time, it seemed like a no-brainer. Who else would make a better roommate than my best friend?!

It was quite possibly the worst mistake I have ever made. Within a month, our friendship was damaged. She didn’t like my cat. I didn’t like her make-up mess. We bickered, we fought, and we never recovered.

So, when I read all of the real estate blogs (including this one) about NEVER renting to family or friends, it resonated with me. I knew there was truth behind the warning, and I swore that I wouldn’t do it.

All of that changed when I jumped neck-deep into a triplex rehab. Suddenly, I found myself reevaluating my options—reweighing the pros and cons.

If I rented to a friend, then I could do the work while renting out the unit. I could start building cash flow to help fund repairs. The logic was persuasive.

In the end, we decided to rent to our friend at a discounted rate for one year, which still equals more than if we had held it vacant an additional month. He agreed to paint himself and to allow us free access to his property whenever we needed to fix something. Given that his unit needs the most work, this felt like a decent deal. I conceded; we signed a lease.

It’s now been over a month since we signed the lease, and I have to say, it’s not that bad.

PROS:
The tenant helped with the carport demolition
I have a tenant that I know, like and trust
I’m collecting rents earlier than expected
I don’t have to paint

CONS:
I have to work around stuff: furniture, appliances, dishes, etc.
I feel imposing, especially since he works 3rd shift
It seems like I always have friends over now
I’m more distracted when working

So far, the pros greatly outweigh the cons. We discovered a massive leak in the kitchen wall shortly after signing the lease, which meant that our tenant received brand new cabinets, sink and faucet. We were happy to have him as a tenant throughout the kitchen rehab, which proved to be messy and time consuming. It would have been an awful inconvenience for a new tenant. Plus, he’s happy to have a new kitchen.

I would do things a little differently though, like be more specific!

For example, I told my tenant that I would purchase the materials if he painted. That seemed fair. However, I failed to mention that I had envisioned white paint in all rooms. So, when he brought me the color swatches that he had picked up from Lowe’s, I felt compelled to go with his plan. Had he been an average tenant, I would have responded with a heartless “Sorry but I failed to mention…” Since he was a friend (and had been so great throughout the kitchen debacle), I coughed up the extra cash for the colors he wanted. I’m always looking for the silver lining though. Our tenant friend feels almost as much invested in our rehab as we do.

That has to be good news, right?

Has anyone else ever cautiously rented to friends or family? I would love to hear your thoughts, especially since my grandparents are getting older and inquiring about a one-bedroom.

Preparing to Buy Your First Property

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If you’re like me, you turn to the internet to answer all of your questions. Every time I’m ready for a new challenge, I begin by typing, “How to…,” in the Google search bar.

So, I’ve created a few posts that combine strategies that have helped me to prepare for the big purchase. Following these strategies can increase your savings, reduce your expenses, and move towards your goal of home ownership.

First and foremost, define your goal
Do you want to buy a single family house or a multifamily house? Will you live there? If so, how long do you intend to live there? Will this be a rental property? Do you plan on selling it in the future? Answering these questions will narrow down your search criteria.

Next, decide on your price range
I’m a huge proponent of living below your means. Reduce your expenses to live a more moderate lifestyle. My advice would be to set the top of your price range below what you can afford. Make sure your price range is based on a well thought out budget and a consistent spending record.

Get your finances in order
Pull your credit and review that information. You are allowed to request a free copy of your credit every year from each of the three reporting agencies (find that link here). Is everything correct? 1 in 4 people have a mistake on their credit report. Having open disputes on your credit report could prevent you from qualifying for an FHA loan. So, take care of this early.

Get smart
You should be able to have an intelligent conversation with your lender about your options. Don’t let others make decisions for you. This is your purchase, isn’t it?
Which product best suits you: FHA, FHA 203k, Conventional, or Homepath?
Learn the lingo: GFE, Warranty Deed, Closing Costs, Owner-occupant, Per Diem Interest, FRM and ARM

Save and Source
Stick to a savings plan that is consistent and can be tracked. It’s not enough to stick money under your mattress. You have to be able to show where the funds came from and where they went, for at least 3 months. This is to ensure you’re not opening new debt to fund your down payment or closing costs.

Find a Knowledgeable Real Estate Agent
Everyone I have worked with was based on a referral, and I must say, I have worked with some amazing professionals. If your real estate agent is knowledgeable and experienced, he/she can connect you with other knowledgeable and experienced professionals like lenders and title companies. They can advise you of real estate trends or bidding strategies. I chose an agent who was also an investor. So I gained a good bit of insight on buy and hold deals, flipping houses, and the benefits to gaining your real estate license.  You can often find such an agent at your local REIA meetings.

Have FUN
Searching for a home is a fun experience! Don’t let the research or the pressure stress you out. Don’t get emotionally attached to the property either. The best real estate purchases are made when the buyer has a clear mind and is not in a hurry. I lost out of many bids that I wished I had won, but I ended up with a great purchase that I love. I’m sure you will too.

How to Reduce Your Expenses

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How often do you hear, “I’m broke,” from people who have reasonable jobs, wear good clothes, and drive amazing cars? It drives me crazy. When having one of these discussions, I learned that the complainer and his 4-person family ate out 5 nights a week!

When you save for deliberate purchases, you’re happier about where your money is going. Learning how to save and how to reduce your expenses are two fundamental skills that lead to financial security and freedom. Here are a few things that helped me drastically reduce my budget.

1. Make a Budget
Question everything on your budget. How can you reduce your utility consumption? Do you really need a home phone and a cell phone? When saving to buy a house, I whittled every expense down as far as possible. I haven’t had cable in years because I’m happy watching television off of the internet. Internet wasn’t an expense I was willing to relinquish. You can find endless lists online if you’re short on ideas. Here are a few other ways I reduced my expenses.

  • Plan out your breakfasts, lunches, and dinners for each day until the next pay day. Then, make a grocery list with only the ingredients you need.
  • Abandon name brands and shop at discount grocers like Aldi for higher savings.
  • Turn off all lights when you leave a room, and use natural sunlight to your benefit.
  • Pay your bills with gift cards that you purchase a Kroger. Kroger awards 2x extra fuel points when you buy gift cards. It’s inconvenient, but you could save a dollar per gallon of gas!

2. Pay Your Bills on Time
If you haven’t been doing this, you’re not ready to buy a house. Build a lifestyle of responsible spending before jumping into large purchases like real estate. Not only will this help your credit, it will save you hundreds of dollars in late fees and charges—which could be deposited into savings!

3. Look at Your Debt
Look closely at the kind of debt that you have. Are you just making minimum payments? If so, paying down on debt could save you more money in the future. It will also free up your Credit Debt Ratio, which will help you qualify for a house.

Question your interest rates too. I spent almost an hour on the phone with my credit card company being transferred around until I had successfully gotten a lower interest rate. If someone tells you no, respond with, “OK, I understand that you may not be able to say yes. Can you transfer me to someone who can?” It doesn’t hurt to ask.

4. Negotiate Everything
I just learned this one recently, and now I can’t stop. You would be surprised how much you can haggle. It doesn’t hurt to try. In the last 6 months, I’ve successfully negotiated the cost of CD’s at the store, car repairs at the dealership, oil changes at Jiffy Lube, and service costs at Verizon Wireless. It doesn’t hurt to ask.

What expense reducing strategies have the biggest impact on your budget?

How I Got On the Real Estate Path

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When I speak with high school kids about getting a part-time job, I give them all the same advice: find a job waiting tables.

The restaurant industry is like a career boot camp. The skills needed to wait tables are integral to every field and transferable to any dream. Restaurant servers have to be experts at customer service, relationship building, time management, multitasking, delegating, and so much more.

That’s where my story starts.

I was 17 years old waiting tables with a fire in my belly and the motivation to GET OUT. I had built a great client base of recurring customers. One of the best tips that I ever received came in the form of a book—given to me by a married couple who owned their own business. The book was Rich Dad Poor Dad by Robert Kiyosaki.

Let me be honest; I hated that book.

I read it in a day expecting to eventually get past the endless parables, metaphors and imagery. I wanted direction. I wanted a to-do list. I wanted someone to tell me what to do, when to do it and how! So, I threw the book to the side, but the seed had been planted.

A few years later, my mother’s home fell into foreclosure. I couldn’t help but remember Kiyosaki’s lesson of homeownership being a liability not an asset (unless it creates cash flow).

I attempted to buy my first home at 21, knowing that my mortgage would be cheaper than my rent. My income from waiting tables, coupled with fresh student loan debt, didn’t help my chances. The loan fell through right before I was set to close.

So, I waited until I had job that could be directly deposited. I saved, and I studied.

I found a neat little house to rent well within my budget. When I met with my landlord to sign the lease, I took the opportunity to ask him a slew of questions. He was kind enough to answer them and provide a couple of book recommendations.

I started checking books out of the library. I took my landlord out to lunch. I attended Real Estate Investor Association meetings. I went to seminars and deals tours. I found co-workers with rental properties. I signed up for alerts from all of the appropriate websites, and here I am.

All of these experiences, and so many more, coalesced to carve out a path for me in real estate. Don’t get me wrong, I did my share of digging and paving.

But the path is there if you want to find it.

How to Save Money for Future Investing

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Training yourself to build a consistent savings will eliminate so much stress and uncertainty in life. You will be adequately prepared to deal with unpredictable expenses and you will be positioned to make serious real estate investments in your future.

So, why do we make excuses?

I’ve copied down a few of the tactics and tricks that helped me develop consistent savings. Savings coupled with reducing your expenses are the keys to financial flexibility.  I’ll discuss reducing expenses next time.

1. Increase the Inconvenience
Using the same bank for your checking and savings accounts is too convenient! It makes it too easy to borrow from your savings. That’s why I tell everyone to open their savings account at a different institution than their checking account. To INCREASE the inconvenience, I opened my savings account at a credit union whose hours of operation mirrored my own office hours. What are the chances of you leaving work just to borrow a few dollars from your savings? I don’t think so. You don’t need to buy those shoes anyway.

2. Payroll Deduction
If you have the option, have your savings come directly out of your paycheck and into your savings account. If you don’t ever see it, you won’t ever miss it. This worked so well for me that I continued to increase my payroll deduction every time I got a pay increase.

3. Know Where Your Money Goes
This may sound like a no-brainer, but seriously, know where you spend your money. Make a budget of necessary spending as well as monthly luxuries. After analyzing my spending, I realized I was eating out way too much. If you earn $10 an hour, and those shoes cost $70, think about it. Are those shoes worth a full day’s work?

4. Spend it all on Pay Day
Pay all of your bills the day you get paid. If you aren’t afforded the option of payroll deduction for your savings, then pay into your savings like it’s a bill. After all of your bills are paid, portion out what is needed for groceries, gas and reasonable “rewards” for budgeting responsibly. If there is a larger than expected balance remaining, then put most of it in your savings. If you wait to pay your bills, you will nickel and dime your savings away before you ever see it.

There will be surprises; there will be set backs. Don’t get discouraged. Everyone is different, and you should develop your own savings strategies based on how well you know yourself. For instance, I never allowed myself a “reward” for responsible spending. I saved it all. If I had just experienced a sizable set back to my savings though, I would find justification for treating myself. Yes, it made an even bigger dent to my pot of savings, but it kept me on track.

Which is more important?