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Episode 97: Rent your Rentals!

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Show Notes

Rent your Rentals! The meat and potatoes of your rental portfolio.  This is one of the most important parts of building your rental portfolio.  If you don’t have rentals generating rental income via good tenants paying rent the whole thing can fall apart.  Rent your Rentals the right way!  Listen in as Mike and Dave continue their talk on the BRRRR strategy and discuss Renting.

To learn more about Wholesaling visit: https://www.FreeWholesaleCourse.com

Check out our Tool Kit to see David & Mike’s Secret Weapons:
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Mike: Hey guys, welcome back. This is the Discount Property Investor podcast. I am your host Mike Slane with co-host–.

David: David Dodge, how you guys doing?

Mike: I’m doing good, Dave, how about yourself?

David: I’m good, man. I’m great.

Mike: Awesome. So we frequently talk about wholesaling real estate. it is one of the things we are passionate about is teaching other people how to get started in real estate investing, because it has been such a powerful took in both our worlds. It has kind of changed the direction we’ve taken in our lives, and we get to do this full time. We get to hang out, play in real estate and help other people follow their vision, their life path to invest in real estate. One of the things we put together was a free course, completely free course called freewholesalecourse.com, you can check that out online. It is a totally free course that shows people how to get started in wholesaling. So what is wholesaling? Wholesaling is essentially buying a property at a great price, flipping it to somebody else for a good price without doing any work to it, possibly without closing it and funding it. You make the spread in the middle. So again, you can

a property, resell the property, don’t do any work, don’t bring any money closing and make a little spread in the middle. Game changer. This is also the way we recommend people get started in investing in real estate.

David: For several reasons, guys. One, you want to learn how to talk to people, walk through properties, and determine repairs, run appointments. In wholesaling there is no better way then to learn how to do all those things. With wholesaling you are dealing direct to the seller. You are getting the property from the source, you are not having to deal with middle men like agents and other wholesalers. However, those are great ways to acquire rentals. But being able to get straight to the source is going to give you the cheapest and most cost effective way to acquire properties.

Mike: Yeah it’s a great learning tool. Again, if you have never been in real estate, and your goal is to acquire rentals, that is a great goal. We are going to talk about rentals, that’s what this episode is going to be about is rentals. But if your goal is to acquire rentals, and you start looking at houses that need a lot of work, and you say I could probably fix that up for $5000, just out of the blue you are kind of guessing about it. Well then you say, well I am going to try and wholesale this house first, because I want to try and generate some cash first, then learn this real estate game. Well you bring in somebody else like Dave who is an experienced investor, and he rehabs properties to rent all the time. He walks in and says no way this is going to be $15,000, this electric panal has to be replaced, this stack has a crack in it. All sorts of things, or maybe it just costs more. Again, it’s a little bit low, if you are going to pay someone else, you are going to spend $15,000. So again, it is a tool in your belt, it helps you learn the process, it helps you learn your numbers. It is a great way to get started in real estate. So without further ado, let’s go ahead and talk about what we are talking about today, Dave, which is? The BRRRR strategy.

David: Oww we love the BRRRR strategy!

Mike: The BRRRR strategy, and today we are going to talk about rental properties.

David: That’s right.

Mike: The renting out of the property. That’s the whole topic. What does that entail? To me when I was kind of thinking, how do we cover rentals? It was just overwhelming. There are so many things you can talk about; from tenant screening to– any number of things that are going on with rentals. Rent collection to leases to– should I have a property manager? Should I manage it myself? Should I– any number of things. So first off, let’s talk about–.

David: Keep it simple, that’s the message I want to make, keep it simple. You have already talked about a lot about these little topics, and that’s what we are going to do today, we are going to break down a simple one. So this one is about what?

Mike: Rentals. In the BRRRR strategy, we have got a rental so we have to rent it out. So what do we do?

David: We have already located the property, we have already renovated the property, right? And now we’re on rent, just to clarify, okay, great. In this process, we need to make sure all the previous steps have been completed. Obviously, you are going to have to buy the property at this point. But what I really mean though is– has the renovation been completely completed? When I look at a renovation being completed, that means all your tools are out, everything has been cleaned and prepped. Is the property showable? In my opinion, you are not completed with your renovation until you can walk people through it, and they are not going to be looking at tools or dirty or dust. All that stuff needs to be done. So get completely through the renovation project, then you can focus on renting it. Don’t try to blur those lines. I think that’s very important.

Mike: Here is kind of a confusing point, or a point of contention for me anyways just mentally. In St Louis we have to get occupancy inspections in almost all of our municipalities. So an occupancy inspection means the city wants to come in and look around the property and make sure it is safe and up to code, whatever their codes are for the property. So to me is– okay I have got my property rehabbed, I got it cleaned out, then I have to pass occupancy inspection prior to getting an tenant in place. So where do you do that along that time line– which one is first? Should I have it cleaned first? Should I my property manager go there and try and rent it first? All that stuff.

David: No, clean it first.

Mike: I meant should I get it cleaned or have the occupancy inspection. So the truth of it is, do it all at once kind of. You are going–.

David: Time is of the essence I think Mike’s point. Ideally you want to clean it last before you show it, but the occupancy inspection needs to coe after the repairs. Those can overlap, but you want to make sure you get all these things done in a timely manner. If you stretch this process out to six or eight months, the BRRRR strategy is worthless.

Mike: It costs you money.

David: And it costs you money. You want to make it quick. I didn’t mean to interrupt but yeah, time is of the essence.

Mike: The way that I look at all our projects is– they are vacant. I consider that vacant property.

David: There’s insurance, there is taxes, utilities, a ton of cost.

Mike: Cost that you have to cover that a tenant is not covering. So any time you are rehabbing, the longer that takes the more it is going to cost you. So again–.

David: — not collecting rent on it when it’s empty too.

Mike: I consider that a real cost. So yeah, the point being– do those things kind of simultaneously, so once your rehab is nearing completion, make sure you are contacting the city, or whoever needs to do that inspection, you might not even have occupancy inspections, you can skip over this step, but make sure you get your ducks in a row and get those things set up. We get the occupancy inspection scheduled, and they almost always find something that needs to be repaired. Sometimes it’s minor, sometimes it’s major here in St Louis. So that can slow things down even more. So again, you absolutely need to get that going right away. When you are near that finish line though, you have brought in your cleaners, so you are bringing in an inspector to a clean house that you have just rehabbed. So again, hopefully they are going to take it easy on you, because you have a ncie property there which is huge. So the next step–.

David: Finish your renovation, we are going to recap, finish your renovation, get your occupancy inspection done. Clean the property, then you can start showing it. If you want to show it great, if you want to hire somebody to show it and do the leasing, that’s another option obviously. Then you just want to start collection applications. The idea here is that you want to make the property look very appealing, so a lot of people will want your product, and you will get a lot of applications, alright? I would rather turn a lot of people away than have to pick somebody I don’t want to rent to. So you mentioned screening, I think applications comes in– then screening.

Mike: Let’s talk about a couple of things on that. Let’s talk about where to advertise your property. You have to find a tenant, right? So how do you find a tenant? Well two ways. The easiest two ways for me are– one, put a sign in the yard. Super easy, when people are driving by in the sub division, people generally speaking that are moving are not moving– I meant tenants, are not moving across the country all the time. It usually somebody moving from one house to another, or not too far, they are in the same city. So people driving through the neighborhood are going to see that sign and call on it. Hugely powerful, hugely overlooked tool. This is another reason in our wholesale world we put ‘We buy houses’ signs in our rehab projects.

David: All of every project.

Mike: All of every project, exactly. So the second on is online and using free tools out there you can get your property running. It’s going to cost you nothing which is awesome. So Zillow, hugely powerful.

David: Hugely powerful.

Mike: That is in my opinion–.

David: Probably the most powerful for rentals, Zillow. But then you have the Facebook market place, you have local Facebook groups which could be an infinite number of them, because every market has different numbers, and there is– big groups and small groups. Craigslist you can use that to– advertise your rental property. What are we missing? Those are basically the big ones. Zillow is great because it syndicates.

Mike: You probably won’t need more than that honestly. If your property is priced appropriately, you should be able to get it rented on one of those sites, or through one of those methods. So what what do you set the rent at? We just talked about Zillow and Zillow again is very helpful. They have not only included rent estimates– sorry the property estimates, but they have included rent estimates on there as well. You can look for similar properties in that area to help you figure out how much you should be charging for rent. Another cool resource is called RentOMeter.com. That one does the exact same thing. You type in the property address, the bed and bath count, and it pops up what it estimates the rent should be in that area for a similar property.

David: Estimate, did you say that?

Mike: I did. So pretend you are a prospective tenant and look for a house to rent around yours.

David: Put yourself in someone else’s shoes.

Mike: See what the competition is charging, and see how your property stacks up. If you have a newly renovated property, and someone down the street has a very similar property, same property, because it is the same builder probably, or same construction type, and theirs is 10 or 20 years old, outdated and everything, and they are charging 1200, well you could probably charger 1400 for yours if you have a brand new stainless fridge, new kitchen cabinets, new flooring and it looks nice, new paint. Again, you can probably charge a little bit more for your property–.

David: Low power more, bro.

Mike: Yeah again, so you can probably charge a little bit more. So again, you have to determine the rent, then get it advertised out there. Then we are going to talk a little bit about tenant screening. So how do you do tenant screening, Dave? What did you do in your past?

David: Yeah so– now we have a property manager that does this for us, but I was using MySmartMove.com, I was also using Cozy.co, both of these platforms do it. Now Zillow does it too. So they do all these together, but they can collect your rent for you, you can download applications or use their application which then gets sent to you in the rental manager portals within each of these different things, again that’s Cozy, that’s Zillow, and another one is called MySmartMove, and I think they are through Trans-union or what not. I like them as well because you can pull credit as well as financials, or criminal histories as well as credit and financials through MySmartMove. I think Zillow and Cozy do it as well.

Mike: I use Cozy, Cozy is good at it.

David: It’s good at it. But what I liked about MySmartMove– again these other two probably still do it at this point, it’s been a long time since I’ve done it, but you can make the tenant pay the $35 for the application which covers the screening. So you don’t have any cost out of your own pocket other than maybe an hour or two of your time to review.

Mike: That’s what Cozy did for me too. So I actually–.

David: And it kind of keeps information– private, because you are only getting what you need, you are not getting all the other stuff. They pay for it which verifys that it is them– which creates agreements with you and them, it’s pretty neat.

Mike: So Cozy I really enjoyed using that, collected rent for you as well which is nice. Yeah so again it is very convenient when you use one of these services, super easy. You can collect rent payments online, so they can pay you online, they don’t actually have to send you a check. I think all three of those, and I’m sure that there are others out there that are very helpful for that. So anyways, for the tenant screening, you can use one of those online services. Again, I recommend using it.

David: Super easy, otherwise– if you already have rentals and you are wanting to buy more, you are scaling up to the point you need a property management software, a lot of those software’s will do those. So there are software’s that are localized software’s like on your own individual computer, and there is Cloud based software’s. Some of the big ones out there is [00:14:44.20 – inaudible], [00:14:46.27 – inaudible], we were using one called– Propertyware. There is probably a hundred of them out there. I think [00:14:56.10 – inaudible] probably have the biggest market share. But there is a bunch of services out there, they are basically going to be a monthly cost. Through those they should be able to do ACH rent collections, but also the tenant screening process on the front side. Collects the security deposits and application fees I guess what I was going for.

Mike: So those are probably if you are thinking of managing your own– on a much a larger scale. I think [00:15:26.22 – inaudible] both had approximate 100 door minimum.

David: Yeah one of them wanted to be triple that.

Mike: — before they wanted to take us on as a client. So again that is something in my opinion probably less likely. But there are other software’s out there like Dave said, that are local based on your system, and Cloud ones that will take you on with many fewer properties. But again, I think Cozy.co and we talked about My Rent– MySmartMove, yeah some of those are really good transitional.

David: I think I found MySmartMove three or four years ago by literally Googling ‘How do I do my own tenant screening?’ It was like, Trans union is number one, an affiliate site they owned, they were like start here, so easy I literally– it was like enter the name and e-mail address of tenant. Then it had my check a couple of boxes, then they got an e-mail. So I just got on the phone and said, hey check your e-mail. It was like– David Dodge’s company, is requesting you to be an applicant. Then you fill out the application, put in your credit card, boom 20 minutes later I had it all, it’s so easy to use.

Mike: That’s what I forgot– I lost my train of thought earlier– was talking about with Cozy, what I used to do when I would set up tenant screening. So I would always try and make more than one person come at the same time. I didn’t like to meet– when somebody called about the property, chat with them, I say well I am showing people Saturday at 10am, or whatever time it is.

David: Yeah, create a sense of urgency

Mike: I also don’t want to drive over there ten times.

David: Yeah, that too.

Mike: I only want to drive over there maybe once.

David: If you get ten people in there think of it this way; if two or three of those people are very interested, they are going to go home and fill out the application right then and there, versus wait a day or two and think about it when there are five other people that could be getting that place.

Mike: Exactly. What I was getting at was– when I was using Cozy, I would print off a little file with a picture of my property, a couple of details, then the URL link to their application. So the Cozy URL basically with my property’s extension or number behind it. So they would go out and fill Cozy’s application. Listen, you are not paying me, you are paying this third party side to run your credit and whatever. So I only want serious people to apply. I don’t want your money, I am not here to take your money. If you– whatever, have something in your past that is going to come up, let me know. I will let you know whether you should apply or not. Again, you have to abide by fair housing and all that stuff. It’s not a big deal so–. Just do that and you shouldn’t have any problems. Okay so that is tenant screening, how about tenant management and– I guess payments? What else did we want to talk about with tenants?

David: Rent collection, management maintenance.

Mike: Yeah, so rent collection– and leases.

David: Yeah so when you get through the application process, and either you or your property manager select somebody that would be a good fit– we get to lease them up, that’s a good point. So with leasing we typically won’t sign a lease unless they have first month’s rent, and their security deposit. Not one or the other, both. That is very important, because sometimes people will want to put down a security deposit, but they don’t want to move in for three weeks, well that’s lost rent. So we basically say all or none. And when you sign the lease, it starts right then and there. We will happily pro-rate days, but we won’t sign a lease and say it starts next Tuesday. If you sign the lease today you can move in today, otherwise it is available until the next best person comes along with funds. So we don’t play that with people, it’s– first month’s rent, a deposit at the time that you sign we will pro-rate and that’s it, period. So we make them do that, then we have a lease that we use that is very simple. It lays out some simple things; how long is the term? What is going to be the rate? Where and how they pay? Then of course there are lots of other things in there about their liability, our liability, our agreement– arbitration and so on and so forth. Those are going to be standard among all leases.

Some pro tips, in your lease, make it very clear that windows, while the property is being controlled by the tenant, the windows are basically their responsibility. If somebody comes by and throws a brick through that window, and it is not the tenant that broke it, then it’s their responsibility. Because what can happen is tenants can break windows in spite sometimes. So that stuff needs to be included in the lease, so windows definitely. Also maintenance calls. If the maintenance calls have a minimum sometimes of $50 charges, or $30 charges to prevent them calling you out when– it’s something stupid and minor. A light bulb, that’s find but we are going to charge you 30 bucks. We will pay for anything that’s broken or needs repaired while we are there and fix those items, but we are going to charge you to come out, we make that very clear. So those things will be in the lease. Every person can have a different lease. But we will probably provide one I can imagine with the book, an example one or something like that. We will put it in the course that we are going to be putting together which will be a companion course to a book we are writing on this topic.

Mike: So yeah anyways, we will put that in the show notes. I think right now with our property manager– we have migrated to like a board standard contract– lease agreement. So again–.

David: Our property manager is doing it for us at this point, we recommend if you are scaling, and you are truly using BRRRR, to outsource the property management of it, because BRRRR is all about rapid growth.

Mike: So let’s talk about when to do that.

David: Okay let’s do it.

Mike: In my opinion I would say you don’t need one until you probably have ten doors. I don’t think you need a property manager. I think you should try–.

David: Do it on your own, I think so too. Ten doors is a great breaking point.

Mike: There is a reason for that, one you are going to learn what the property manager has to deal with when dealing with tenants.

David: That’s a great point, Mike. That is a lesson you can’t learn without doing it. You are going to get calls in the middle of the night, you are going to have to go– do certain things.

Mike: You have to learn to be compassionate but also objective with people. A lot of tenants are professional tenants essentially, that know how to game the system and game their landlords, so they will use that against you. Again, any weakness in emotions, they will constantly have a sob story for you. You will hear a lot of sad stories. Again, a lot of it is true, and a lot of it is just life, and lot of it is BS. You have to just say, hey I understand that but I am not running a charity. You don’t say that, but you have to think that. This is not a charity this is a business, this is the way I am trying to provide for my family. I can’t afford to pay someone else’s rent. That is essentially what you’re doing if they don’t want to pay you, you are paying someone else’s rent. That’s not the business we’re in, we don’t play that.

David: Exactly.

Mike: One of the things I liked I learned from my property manager a long time ago is– if they don’t pay the rent, go down and file on them on the tenth. So again, they get one or two days grace period, there is no late fees, but then go down to the court house and file on them– start the eviction process after ten days. If they get the rent caught up prior to the day of the scheduled hearing, you can drop the case, no harm, no foul, they owe you the cost to file that, and put that in the lease as well. That is something he is very big on. It makes people realize you are serious about collecting your rent.

David: We file it on day ten or eleven. Even if they call us saying they are en route, because they are probably lying.

Mike: Again they could have sob story about a blown out tire. They were on their way–.

David: That’s typically what happens, that’s how it works. Yeah on the tenth of the eleventh we file it, and that costs them $289, so we just call it $300 and we bill it back to them, even if they pay the rent. We will happily close the file, but it’s their cost, and it’s in the lease, it is stated in there; we are not the type of people that it is okay to pay late rent to. Ten days is a good enough grace period, we don’t even start charging late fees till day five.

Mike: So why is it so important to collect your rent too? We are doing the BRRRR method, we are buying, we are rehabbing, we are renting, we are re-financing. So we have notes on these properties. These are not free, we can’t give this to someone.

David: Yeah, we’re paying rent to the bank, even though they are paying rent to us as a landlord. It’s called different things, we call it a mortgage, and they call it rent, but it’s the same thing. You are renting time.

Mike: Exactly.

David: That’s what it is. We are renting time from the bank, and they are renting time in our place that have opportunity cost to do something else with.

Mike: Exactly. So make sure you get your rent paid. I would say it is probably about ten properties, Dave? I think everyone is a little bit different, different tolerances?

David: You don’t even really need to consider a property manager until you get to about ten. However, there are some people that want nothing to do with the people side of the business and that’s okay. So if you try this and don’t like it, you can jump into a property manager if you have the right mind set that you are going to use BRRRR to rapidly grow. That would be my two cents. If you’re not, then you might want to reconsider that mindset. I personally like dealing with the property, and I like the property manager to deal with the people. The other day a buddy of mine asked me, how do I do it? How am I growing this fast? I said, I am a property guy, the property manager is a people guy. That’s exactly how it works. Even when the property manager has maintenance requests, he is dealing with those people, but he sends it over to out team and we deal with the property.

Mike: I like that, that’s a great analogy. Anything else on rentals do you think we should cover just broadly on the rental sense?

David: We did a good job talking about starting out, having the renovation complete, guys. Getting it clean, getting your occupancy inspections passed if applicable in your area. Next you want it to be friendly, right? So make sure the property shows well. If it needs blinds because it is blistering sun then put some blinds up. Clean your carpets, paint your walls, make it presentable, right? Then we talked about getting an application and showing the property, there are a couple of different solutions that we recommended. Next would be collecting those applications and actually screening those tenants. Rent collection, we talked a little bit combined with some of these previous topics. Zillow, rental manager, Cozy.co, some great solutions, or just go straight to a property management software, or your property manager will have their own software. Leases, there are State leases you can get from your local real estate agent or local board. We will provide a couple of examples within our course and book. Last but not least, when to hire. We think roughly around ten properties. Again, everybody is going to be a little different on that. Some grow at different paces, and that’s okay, that’s just our opinion. Last but not least would be know your numbers, guys. This whole model around the BRRRR strategy is about know your numbers. Mike, what does that even mean, know your numbers?

Mike: It means you have know them the whole way through the process.

David: Know all of your numbers

Mike: Exactly. Again, on your buy know that, know the rehab numbers, but also know the rent numbers. Again, you should know this buying a property, you should already have gone back and looked, or looked ahead rather at what you expect the rent to be. You also want to look forward and know how much the refinance is going to be, meaning what is your monthly payment going to be? Taxes and your insurance. What is that cash flow going to be at the end of the day. You have to know your numbers, super important, glad you brought that up and made a point to emphasize it.

David: In our next chapter we kind of skipped a little bit over the maintenance, we talked a little bit about management. We didn’t talk a whole lot about maintenance, because that’s really going to come later. Maintenance is basically is what you are going to have to do to keep the property up, and keep the tenant happy, and that happens later. So we are going to jump into that in our next chapter, or our next podcast, to talk a lot more about the maintenance aspect of it, because we kind of talked about it a little bit in this episode. But I think we did a good job– the next step of the BRRRR strategy. So again, this is our second R on the BRRRR strategy. The BRRRR strategy is buy, renovate, rent which we talked about today, refinance and repeat. So thanks for listening, guys, next episode we are going to talk more about tenants and toilets, can’t wait.

THanks for Listening

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