SMARTERLANDLORDING

ADVICE FROM EXPERIENCE

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Getting Over the Fear

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It’s Halloween, a time for all things that instill fear and scare us.  The thought of real estate investing for some causes fear.  They are fearful that they will loose a lot of money.  They fear that tenants will destroy their property and contractors will rip them off.  They are fearful that they do not have the right skills.  “Why would anyone ever invest in real estate?” they think, “It is just too scary.”

To tell the truth, I was scared of real estate at one time.  Heck if you are not a little scared about dropping tens of thousands of dollars into a project for the first time then there is something wrong with you.  But I got over the fear.  How?  I did it through education and action.

Fear generally arises from the unknown.  Knowledge therefore erases fear.  The way to gain knowledge is through education.  I spent a lot of time on my real estate education in the early years.  I like to tell folks it was like going to graduate school.  Here is what I did.

  • I turned off the TV.
  • I went to the library and read almost every book they had on real estate.  You can’t beat free and they had a lot of great resources for beginners.
  • I subscribed to and read local and national business journals.  If I was going to be a business person, I needed to begin thinking like one and I needed to know what was going on in my local market.
  • I joined my local REIA group and went to every event I could.  I met folks, made new friends and networked.
  • I read blogs, like Smarter Landlording and biggerpockets.
  • I bought several real estate courses and other books.  They were expensive, but I considered them an investment and they have paid off many times now over the years.
  • I built a team of people that could help me achieve my goals.  These included a realtor, an attorney, other investors, a CPA, etc.  I had folks on my speed dial that I could call whenever I had a problem or situation arise.

Sound like a lot doesn’t it?  Well, it was and it ultimately took several years, but that was the easy part.  The second part, the action, was harder.

Overcoming fear and putting knowledge into action is one stumbling block that many cannot get over.   All I can say here is just do it!  You have to take that first step.  Once you do the second one becomes easier and the third one even easier.  Before you know it, you have taken 10 steps forward and are well on your way.

Yes, you are going to mess up at times.  Yes, you are going to fail at times.  Yes, you will have to take a step back every once in a while.  But the smarter investor learns from their mistakes.  They know failure is part of the process and keeps moving forward.  Remember that every step back can be met with two steps forward which will still keep you going in the right direction.

Don’t want to take a huge step?  Then how about starting small?  You don’t need to buy that 20 unit apartment building right off the bat.  But how about getting a house in your own neighborhood as a rental property?  Or perhaps you could get a duplex and live in one side and rent out the other?  Don’t even want to start that big?  Wholesale a property to another investor for a few thousand dollars.

These are small steps that will help you learn along the way and give you the confidence to do bigger deals later on.  These small steps will lead to bigger steps and with each step that fear will get smaller and smaller.

So enjoy your Halloween.  Eat some candy.  Then get over the fear by learning and doing!

It’s Not As Easy As They Thought

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Being a landlord is no walk in the park.  Yes,  there are many benefits which I have touted here, however, it is not as easy as it first appears.  Looks like the big boys may be about to find this out.

“Most rental houses in the U.S. are owned by individuals, or small, local businesses. Culpepper’s landlord is part of a new breed: a Wall Street-backed investment company with billions of dollars at its disposal. Over the past two years, Colony American and its two biggest competitors, Invitation Homes and American Homes 4 Rent, have spent more than $12 billion buying and renovating at least 75,000 homes in order to rent them out.

This new incursion by hedge funds and private equity groups into the American single-family home rental market is unprecedented, and is proving disastrous for many of the tens of thousands of families who are moving into these newly converted rental homes. In recent weeks, HuffPost spoke with more than a dozen current tenants, along with former employees who recently left the real estate companies. Though it’s not uncommon for tenants to complain about their landlords, many who had rented before described their current experience as the worst they’ve ever had.”

Read the rest here.

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?

Growing the Positive Cashflow Money Tree

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Positive cashflow is the key to becoming a successful, smarter landlord.  Without positive cashflow, your time as a landlord is limited. Smarter landlords are always looking for ways to grow the cashflow money tree.

Here is how you can grow yours.

Reducing Your Expenses – There are all kinds of expenses associated with rental properties including utilities, maintenance, and upkeep.  The trick is to save while not skimping on necessary maintenance.  Some tricks include using the same brands and materials in all of your rentals.  Use the same paint, faucets, tiles, etc.  This should cut down on repair costs and the time to do it (remember your time is important too).  Use energy efficient lighting and install low flow water devices to save on utility costs.

Increasing Your Revenue – Sure you can raise rents every year but that may increase turnover.  There are other ways to raise revenue.  Put in coin laundry.  Put in a soda machine.  Rent out the basement to your contractor for storage.  Build some storage space cages in the attic and rent them out to your tenants.  Include cable or satellite dish service as part of your rental package.  Get creative to get those revenues up.

Managing Your Tenants – Tenant turnover is a cashflow killer.  Tenants move either because of a life change or because they feel they are not getting good service.  For those that have to move, ensure you have policies and procedures in place to get your property back as rent ready as possible.  For those that simply want to move, you may need to look at your customer service skills.  Are you responding to their requests adequately?  Are you fixing things that need to be fixed?  The longer tenants stay, the better it is for your bottom line.

Managing Your Property – You have to actively manage your properties or manage your property manager.  You can’t just collect the rent and forget it.  Otherwise little problems can get swept under the rug or become bigger, more expensive problems in a short matter of time.

Fixing it Right the First Time! – Don’t cheap it out because you will just be fixing it again in no time.  Do you really want to pay to fix the same thing two or three times?  Spend a little more upfront on better materials and quality contractors to do the job.

Positive cashflow is the key to being a successful landlord.  But generating positive cashflow is not just about collecting rents.  Sure, that is the biggest part of it, but there are many other facets as well.  Use these tips to fine tune your business and improve your cashflow.

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?

Working With Contractors: How to Pay Them

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Having a good contractor that you can trust and rely on makes any real estate investor’s job easier.  It is a big comfort to know that you have someone you can depend on to do the job, big or small, right the first time.

I have already written about how you should go about finding good contractors.  In this post I want to talk a bit about another just as important aspect, and that is how you should pay your contractors.

Let me start off by telling you the last thing you want to do.  That is to pay them up front in full.  Anyone worth their weight in salt is not going to ask for full payment up front.  If they do it is a huge RED FLAG.  Run away and start the process to find another contractor.

Smarter landlords want to pay as little upfront as is possible.  Actually, it is best if you can pay nothing upfront and the balance of the bill upon completion.  On small jobs, say less than $500 to $1,000 that may actually work.  But it does not always work so well with larger jobs.  The contractor is likely going to need some money to get supplies.

Until I get to know a contractor, and even later on, I like to give as little as possible upfront.  See if they will agree to 10% or 20% of the quoted job price (you got a quote right?).  As you work with the contractor more and more and as the relationship builds, you can increase this a little, but I never go over 1/3 of the price on big jobs.

So how does the remainder get paid?  The best way is to pay it upon completion of the job and for smaller and midsize jobs that can work.  Major jobs though are often going to require draws so the contractor can pay his crews and purchase more materials.

Usually there will be three or four draws totaling a 1/4 or a 1/3 of the total job price.  These draws are often paid at agreed upon steps as work gets completed.  For example, you might permit a draw once all drywall is hung, sanded and primed.  Or, you might allow a draw once a kitchen floor is tiled and cabinets are installed.  It is up to you and the contractor to work these details out in your contract (you are using a contract right?).

The last draw should be upon completion of the job.  This is your last chance to go through the property and make sure everything was done up to your standards.  Walk through the property, make a punchlist of items needing to be fixed or completed.  Once that list is completed, pay your contractor.

Here are some other smarter tips.

  • Always use a contract.  Specify in that contract who gets paid, how much, when, how and upon completion of what specific work.
  • Pay your contractors promptly and in full according to your contract.  Don not jerk them around.  They have done the work, so pay them promptly.
  • Consider giving them a bonus if they do a great job, that is on budget and finished early.  After all time is money to you and them and you should reward them for finishing quickly.
  • Be fair and respectful.  Kind words and understanding can go a long way.  Remember you are trying to build business relationships here.  You want to use these contractors again if they do a good job.  Treat them right so they will answer the phone the next time you call.
  • Sometimes no matter what things go south.  If they do, cut your ties quickly and move on.  Don’t hold a grudge, just move on and find someone else.

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!

Every Landlord’s Nightmare!

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The following story describes every landlord’s nightmare.  You have to read it to believe it.

Smarter Landlords screen their tenants and verify everything they say.  Save yourself the time, aggravation, frustration and money, screen your tenants or risk something similar happening to you.

 

 

By Barry Carter/Star-Ledger

He looks like an attorney in his crisp gray suit, white shirt and red patterned tie.

Not only does he dress the part, Mark Newton knows the law. In fact, an exhaustive Star-Ledger review of his court filings shows that for at least 19 years he has made Superior, chancery, federal and municipal courtrooms his virtual offices, representing himself in hundreds of court battles — though he has no license to practice law.

His specialty? Avoiding eviction. And he is relentlessly effective.

Read  the rest of the article here.

 

H/T to Josh at Biggerpockets.com

The One Clause You Must Use When Buying a Property

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You never know when a potential deal will come along.  I have literally gotten a property under contract less than an hour after talking with the owner.  That is why I always have a copy of a purchase contract on hand.  Because you really don’t ever know, so be a smarter landlord and be prepared.

I like to keep my purchase contract short and sweet.  It gets right to the point describing the property, how much I will pay and when I will close.  I do not like to put a bunch of other contingencies or clauses in there.  They tend to muddle things up and if you really want the property and intend to close, they are not necessary.

There is however one clause that is absolutely necessary.  I will not sign a purchase contract without it, and neither should you.

Here it is:

“Seller warrants that seller has good, clear and marketable title subject only to property taxes and any easement and or/restrictions of record.”

If you cannot get a “good, clear and marketable title” to a property, then do not purchase it.  If there are so called, “clouds” on the title, then move on down the road to the next deal

Clouds on a title can do all sorts of things.  They can hinder your ability to get bank financing.  Clouds can prevent you from getting title insurance (something you want) and they can leave you exposed to a law suit (something you do not want).

All sorts of things can cloud a title.  The property could have been sold at a tax sale.  A foreclosure may have been done improperly.  A property may not have gone through the proper probate process or may have IRS or contractors liens attached to it.

So how do you find out about these clouds?

You pay to have a title search done.  A title search generally ranges in price somewhere between $250 and $500.  Do it!  Do it every time you are going to purchase a property.  It is money well spent.  Don’t think so?  Imagine purchasing a property only to find out later that the person that sold it to you was not the rightful heir and had no authority to sell it.  Can you say lawsuit?  How much will that cost you?

So use this clause in your purchase contract.  Use it every time.  Get a title search done, every time.   Avoid those clouds on the front end, don’t let them develop into a storm.

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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