SMARTERLANDLORDING

ADVICE FROM EXPERIENCE

Getting Started

Tall Grass Can Lead To Tall Dollars

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Spring has sprung here in Memphis.  Everything is green again, especially the grass.  After sitting dormant all winter, lawnmowers and weed eaters can be heard everywhere, well almost everywhere.  Some properties became vacant this winter, and now that the grass is green, growing and tall again, we can easily see that.

Why were they left vacant?  Who knows?  Why do I care?  Because I do know that a vacant property can lead to a potential deal and that tall grass is often a sign of a vacant property.  So it makes sense to take note of properties with tall grass, as there could be dollars hiding in those weeds.  Just today I went to look at a property that popped up on the MLS and while driving to and from that property I counted and wrote down the addresses of five others to check out.  All because it is spring and the grass is now growing.

This technique, called driving for dollars, is one of my favorites for finding properties.  Even with all of the technology that exists today (I use that too), physically looking around still gets results.  It’s cheap too!  All it takes is driving around an area you wish to farm and looking for signs that a property is in distress such as tall, uncut grass.  If you see signs of distress, make a note to yourself and check the property ownership details later.  It may be worth sending the owner a letter and that letter may just turn into your next real estate project.

I like to drive around areas close to where I live.  But you do not have too and you do not even have to be specifically driving around for dollars.  For example, I found one property just because I was going back and forth to the grocery store.  I found another because it was down the street from one of my other properties.  And, as I said above, I found five to check out just by going to look at another listed property.

So open your eyes as your run your errands.  Look for the tall grass and other signs of distress.  It may just net you a nice deal.

Found any great properties driving for dollars?  What do you look for when driving around?  Please share with your comments.

Podcast – Investing In Multi-Family Properties with me, Kevin Perk

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I recently did a podcast with Curt Davis over at Investor Talk Radio on investing in multi-family properties. In the podcast Curt and I discuss several aspects of investing in multi-family properties, including how to get started, financing them, the risks and rewards and much, much more. Give it a listen here.

The Lies Holding Us Back

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One of the toughest things for a new investor is just getting started. One of the toughest things for an experienced investor is growing their business and trying new ways of doing things. It can be so hard to pull that trigger and acquire your first deal or go down a new path.

Interesting thing is, our brains may actually be holding us back. It seems that our brains like to tell us little lies to discourage us. It wants to keep us safe and on the tried and true path.

Which of the 14 little lies in this article have you used to prevent you from buying that first deal or from expanding your business?

I know several that have entered my mind from time to time. And because of this it can be very hard to get off the path that you know. But if you want to succeed, at anything, often times you must leave the path you are on.

That is why I think the advice at the end of this article is so important. To be successful, you have to learn to recognize these lies and understand how to deal with them. You have to learn that being scared to get off the path you are on is OK. It is natural, but holding you back.

Top 5 Posts of 2015

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Here are the top 5 Smarterlandlording posts for 2015 as determined by the number of clicks.

5 – Tenant Selection Criteria – What To Use

4 – Do Not Disturb (The Tenants)

3 – When Tenants Overstay Their Lease

2 – Hiring Contractors on Craigslist

And drum roll please……..

1 – The One Clause Every Lease in Tennessee Should Have

Thanks for reading in 2015. Looking forward to a great 2016.

A Quick Guide For The New Landlord

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If you are thinking about buying your first rental property, or perhaps you have somehow ended up with a property and have become a landlord by default, there are a few things you should do to ensure your transition to landlord goes as smooth as possible. Here is a quick guide of 8 essential steps every new landlord should take.

  1. Develop a Solid Lease – Don’t just buy a generic form from Office Depot of cobble one together from the internet. Pay a lawyer to get one together. There are many differing laws out there. A lawyer will likely only cost you a couple of hundred bucks. It is well worth the expense as one misplaced word or one wrong clause may end up costing you days of your time and hundreds more of your hard earned dollars.
  2. Develop Your Tenant Selection Criteria – What type of qualifications does a potential tenant need to have to rent your property? Do they need a job, a decent credit score, a clean criminal record? Will you allow pets or smoking? You need to decide now what those criteria are and WRITE THEM DOWN in case you are ever asked for them. And never base those criteria on the seven federally protected classes which are race, color, national origin, gender, familial status, age and religion.
  3. Develop A Way To Screen Tenants – Tenant screening is perhaps the most important thing a landlord can do. There are professional tenants out there just looking to fleece a novice landlord. Protect yourself by running credit and criminal background checks. There are many screening services out there, choose one that runs both credit and national criminal background check.
  4. Determine The Amount of Rent – How much are you going to charge? How will you determine that? This website may be able to help you. Another possibility is to look for properties similar to yours that are for rent and make some phone calls acting as a prospective tenant.
  5. Determine The Security Deposit – How much of a security deposit will you require? The amount can often vary by local custom and law. Ask around to other landlords or the attorney who crafted your lease what is common in your part of the world.
  6. What Are Your House Rules? – Do you allow grills? Who cuts the grass? What about the playing of music? Such things need to be WRITTEN DOWN and made part of your rental agreement with your tenant.
  7. Figure Out The Best Method Of Advertising – Different areas rely on different methods of advertising their rentals. Some areas still widely use signs because that is how the tenant base finds the property. Other areas are more dependent on internet advertising such as craigslist. Whatever you determine, make your signs and ads look as professional as possible.   You can eliminate a lot of headaches by simply having a professionally made for rent sign or advertisement.
  8. Treat Everyone In A Professional Manner – Landlording is a business, treat it as such. Your relationship with your tenants should be professional and business like. A little respect and courtesy can go a long way in this business.

So there you have it. Follow these 8 tips and you should be well on your way to a successful landlording venture, no matter what your reason is for getting into it.

 

It’s Easy To Incorporate (At Least In Tennessee)

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I recently decided to incorporate a new business venture, so I formed a new limited liability company (LLC).  I have written before on whether or not you should incorporate.  Generally, I feel that incorporating is beneficial only after your landlording business grows and increases in complexity.  That said, I wanted to share with you my recent experience in setting up an LLC here in Tennessee.

It has been over ten years since I last formed an LLC.  As I recall at that time there was a lot of paperwork to be filled out, checks to be written and mail to be sent.  The whole process took weeks before everything was finalized.

This is not so anymore.  The internet has made the incorporation process here in Tennessee very easy and very quick.  You can almost do it all right from your laptop.  If you want to form an LLC in Tennessee, here is what you need to do.

First, get a binder and a three-hole punch so you can neatly organize all of the papers for your LLC.

Second, go to the Tennessee Secretary of State’s website and fill out the online form to start a new LLC.  Fill in your company’s name, address, registered agent and a few other questions and pay the filing fee.  Your Articles of Organization will automatically be ready to print and download.  Be sure to print and download a copy of those Articles of Incorporation, they are important.   Also be sure to print out your filing receipt as you will need that later.  Put these in your binder. You are now good to go as far as the Tennessee Secretary of State is concerned. 

Third, go to the IRS website to obtain an Employer Identification Number (EIN).  This number is used much like a social security number and will be the identifying number used when opening your bank account, filing 1099’s and your income taxes.  Complete the questionnaire and print out your new EIN and associated paperwork.   Place the EIN paperwork in your binder.  You are now all set as far as the IRS is concerned.

In less than an hour, you have completed what used to take several days if not weeks.  But there is one more formal step.

You must record your Articles of Organization at your local register’s office in the county where the LLC’s primary address is located.  This means that you physically need to take the Articles of Incorporation and the receipt you printed from the Secretary of State’s website to the Register of Deed’s office.  For example, I am in Shelby County, TN so I recorded mine in the Shelby County Register of Deeds Office.  Driving to and from the Register’s Office and recording the document took less than an hour and cost only $10 (bring cash).  You should get a printout of the book and page number where the document is recorded.  Place that in your binder as well.

Once these three steps are complete, you are ready to go in the eyes of Federal, State and Local jurisdictions.  Easy.

There are of course other documents that will also go in your binder.  You will need an operating agreement along with minutes from shareholders and officers.  I suggest consulting with an attorney on those but they are generally not too difficult to set up.

I hope other states make it as easy to set up a corporation as Tennessee does.  You folks from other states, let me know with your comments.

How Nextdoor.com Can Benefit You

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I’m a millennial. Naturally, I’m registered on at least 6 different social media sites—all for different reasons. Each social media site provides a unique platform. Facebook keeps me connected to family and friends. LinkedIn provides me with professional visibility, and Pinterest keeps track of products that appeal to me.

So, which social media platform is best suited for the real estate investor? Nextdoor.com

Nextdoor is a social media site that connects people within specific neighborhoods. In order to register on Nextdoor, you have to first verify your address to proving your residency in the neighborhood. You must use your real name.

The site allows for neighbors to exchange information about block parties and community clean-ups. Neighbors can buy and sell items between each other, and they can report break-ins and burglaries instantly. Good neighbors make good neighborhoods. I enjoy the camaraderie that this site provides.

While, those are my personal reasons for using Nextdoor, it has benefited me greatly as a new investor as well.

 

Example #1:

I marketed a vacant unit in the area on Nextdoor. Within 24 hours, I had an application submitted based on a neighbor referral. No multiple showings; no craigslist chaos. The applicant is now a wonderful tenant. I would rent to her a million times over.

 

Example #2:

I posted an inquiry about a property, stating that I was a real estate investor. Within minutes, I began receiving messages from other real estate investors in the area. These investors provided me valuable information about the property. Plus, I am now connected to other well established investors who farm in my area. This pool of investors are my competition—as well as potential mentors.

 

Example #3:

I was working in a unit when I discovered that I needed a reciprocating saw. I’m a new investor. I have yet to purchase a ladder, let alone a reciprocating saw. So, I posted on Nextdoor asking if anyone would lend me or rent me their saw. Within 30 minutes, a neighbor was at my doorstep, saw in hand. If that’s not neighborly love, I don’t know what is!

 

Example #4:

Many of my neighbors know of me, even if we haven’t met yet. They know which properties I own, and they appreciate my investment in the area. This neighborhood-wide recognition will undoubtedly add to my credibility as an investor. Recently, the neighborhood association newsletter editor asked me to participate in an interview, which I happily obliged. Companies are told to market their brand. As investors, we have to take advantage of opportunities that allow us to market ourselves!

 

I encourage all new investors to consider unlikely resources, like Nextdoor, when developing your RE portfolio. I also encourage me tenants to register on Nextdoor as well. If my tenants are grounded in the community, surely they won’t want to move. At least, I hope not.

The Biggest Obstacle to New Investors – It’s Not What You Think

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I spent 2 years researching real estate and speaking with investors before I jumped in. I saved vigorously because I was convinced that capital would be the biggest challenge to my real estate goals. While capital is still a challenge, I’m not sure that I would call it my biggest challenge.

The biggest challenge to part-time investing is working full-time.

Luckily, I have a job that gives me almost constant access to the internet—not to mention an incredibly flexible schedule. However, those perks come with the understanding that I will most likely be working more than 40 hours a week.

It feels like I’m working all day, every day. It’s a good thing that I really enjoy real estate investing! I can see how new investors could become burnt-out fast. My philosophy at the moment is to maintain the bare minimum of work/life balance that is needed to keep me moving forward. I’m motivated at the thought of a having a more satisfying work/life balance in the future. Fingers crossed that this all pays off!

So, for all of the newer investors out there who have yet to realize your dreams of quitting your day-job and achieving financial independence, this post is for you. These are a few of the things I do to help me get  through a day of work and real estate.

1. Organize Yourself. I use lists for every part of my life and I include ever minute task that needs to be accomplished. If possible, use a list aggregating app, like Out of Milk, so that you aren’t making multiple trips to the store or a rental property.

2. Prioritize Tasks. Decide at least the day before which tasks warrant priority for the day. Are they work-related are real-estate related? Maybe it’s a church commitment that demands your time. Either way, schedule it in and get it done first! If you spend time checking emails and sorting files, you could very well waste the time you had to devote to important obligations.

3. Learn to Say No. I’m no good at this one, but at some point you have to start turning down outside requests. Hopefully you won’t have to turn down a killer deal! Weigh the reward for each request that is asked of you and then make sure you’re able to politely decline if doing so would detract from other high-reward action items. Staying focused on high-reward action items will keep you motivated and energized!

4. Maximize Your Commute. If you are spending all of your time working, your family may begin to worry. Use your commute to and from work to touch base with close family and friends. Even short conversations can boost your energy. I also recommend using your commute to listen to podcasts and audio books about real estate. It will educate you and inspire you to keep going.

5. Schedule Housework. I don’t know about you, but if my house is a mess, my anxiety level is through the roof. If I don’t set aside a specific time to clean house and prep meals, then I will never get around to it. This is an important component for me—one that I intend to devote more attention to in 2014.

6. Blend Work and Play. Any time you can knock out two things at once is a major win. I seriously hate painting. However, I’ve found that inviting friends to paint with me (with promises of wine, beer and pizza breaks) can take the edge off. This way I feel like I have a smidgen of a social life and the daunting task of painting all by my lonesome is lessened.

To new or experienced investors, please comment with recommendations that have helped you. This is a very real struggle for some of us. Sometimes a small suggestion can make all of the difference! These tips sure have.

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.