The 4 Keys to Perfect Property Management & Live in Flipping as an Army Man w/ Adam Widder

Ashley Kehr:
This is Real Estate Rookie episode 157.

Adam Widder:
These are people, these are their lives, these are their homes, so be proactive in communication when things are going wrong. When you’re fixing things, let them know, and let them know what’s going on. They want to hear from you. You might not think it, but they are going to appreciate more communication than less communication.

Ashley Kehr:
My name is Ashley Kehr, and I am joined by Tony Robinson.

Tony Robinson:
And welcome to the Real Estate Rookie Podcast, where every single week, two times a week, we give you the interviews, the stories, and just the real life of happenings of real estate investors, making it happen doing their thing, so you can get started as a real estate investor.

Ashley Kehr:
Yes. We love all of our rookies and every single week, we love having different guests on the show. And today, we have another awesome guest for you guys, Adam. Tony, tell us a little bit about Adam.

Tony Robinson:
Adam’s got a really cool back story. He’s got a military background, parlay that into a career in property management. And he’s done a lot of live-in flips and house hacking. So we get a wide range of information from Adam, but he really breaks down at one point in the interview his four keys to successful property management. So make sure you guys are listening for that throughout the episode.

Ashley Kehr:
Yeah. This is a really great episode, whether you’re going to self-manage or you’re going to hire a property manager. And listen to the end because we have a new segment for you guys, the Rookie Exam, and you can find out if Adam passed the exam or not. So, let’s bring Adam onto the show.

Tony Robinson:
Adam, welcome to the Real Estate Rookie Podcast, brother. Super excited to have you here, man. Why don’t we dig into your story, tell the listeners a little bit about who you are and how you got started in real estate investing?

Adam Widder:
Yeah, thanks so much. It’s an honor and very humbling to be here. Very excited, very thankful for what BiggerPockets is. I would say I graduated in college, did ROTC, was in the army, was stationed down in Fort Riley, Kansas and had the benefit of actually being with a couple of my ROTC classmates. And one of those guys was an investor, his dad owned a bunch of rental units up where we went to school in Wisconsin. And he started buying property down in Manhattan and then I saw, and I was like, “What are you doing with this stuff, man?” He’s like, “Oh yeah, I’ve got some duplexes and stuff.” And I was like, “And stuff?” And he’s like, “Yeah, man, you should just go buy a duplex down by Manhattan, down by K-State, rent it out to students and live in one side.”
I was like, “Okay.” And so then I did this deep dive, found BiggerPockets, learned about it. We didn’t find anything that cash flowed, but what we did find was a live-in flip. So that was our gateway drug into real estate. Did the live-in flip, made a solid profit on the house hack. And I got that idea from Mindy Jensen because she said she did it. So we made a profit there. When we sold that, we moved back up to Minnesota where my wife’s family was, took those profits, bought a triplex, did the whole house hacking thing, lived in that for a year. Did that again on a duplex in the same neighborhood. And that’s where we are today with those two properties. And then we have a BRRRR under contract as of yesterday. So that’s where we’re at in our investor holdings.

Ashley Kehr:
That’s awesome. Congratulations.

Adam Widder:
Thanks.

Ashley Kehr:
And what was the timeframe from that when you started learning, researching till today?

Adam Widder:
I think we probably researched about a year, maybe less and then found an agent, started doing properties and my dad was pretty handy. So I was like, “Well, this is a good way to learn.” I love the live-in flip for first time investors because you get to learn how to fix a property, how it works, how HVAC works, how plumbing works, how to install stuff, how to paint faucets, fix a drip.

Ashley Kehr:
Let’s go through a live-in flip real quick. So when you are looking for a live-in flip, what kind of property should a rookie be looking for? How long should they live there? What are some different kinds of tips and advice you can give for someone who wants to start out house hacking?

Tony Robinson:
And Adam, can you also add what exactly is a live-in flip? How is that different from a regular flip.

Adam Widder:
A live-in flip is where you’re living in a property that needs some renovation to force appreciation. So it’s a form of house hacking because in the end, you’re going to realize your gain when you sell it. So we were looking for something that we could force appreciation to bring to market, something that was under the market value in the neighborhood. So in our circumstance, this is Kansas pricing in to 2017, so keep this in mind. We bought it for like 138, It was a three, two ranch rambler, no basement, one car garage, like 1,500 square feet. So it basically looked like the ’80s, there was three layers of carpeting. The guy had lived there 20 years.
The mechanicals were fine, the roof was fine, the siding was fine. It was very much like lipstick type of things, easy to learn, easy to YouTube, easy to DIY. So we did that. And then the optimal holding period is two years, you can recycle your money. And it’s two years because then you’re not going to pay any gains on the gains that you earn. So if you sell it early, the IRS is going to treat it like you’re flipping it and they’ll tax you on your capital gains. If you sell it after those two years, then you don’t get taxed. So that’s the optimal timeline.

Ashley Kehr:
That is such a huge advantage, especially if you’re in a high cost of living area and you are making a huge profit because houses are half a million to $2 million. I have a friend that has done that and he has made like half a million dollars on a house tax free because it was his primary residence, held it for two years, fixed it up, added a ton of value to it and then sold it for such a large profit. So doing that, that’s a great example, and I’m glad you brought that up, is the tax advantage too of holding it those two years and not paying any other taxes. Where else can you go and make a large sum of money, even if it’s 50,000, 100,000 and not pay taxes on it legally?

Tony Robinson:
That’s a good caveat, legally. I like that part because there’s probably a lot of ways you can make a ton of money and not pay taxes there. Adam, before we keep going, brother, can you just give us an overview of where your portfolios at today? So I know you got this first live-in flip back in 2017, but what’s the portfolio look like today?

Adam Widder:
Yep. We sold that one. So today we have five units that we own, a triplex, a duplex, and then we’re under contract on a BRRRR with Fannie Mae. So that’ll be really interesting.

Tony Robinson:
Got you. So you get this first live-in flip and you get the BRRRR. So that’s back in 2017, walk us through how you start to progress and be build your portfolio from there?

Adam Widder:
Yeah. We lived there for 13 months, so we weren’t able to realize the full two years of benefits, but sold that, moved up here-

Tony Robinson:
Let me ask, so you sold that for 13 months. Did you have any thoughts on maybe waiting for that full 24 months, that two-year period or what pushed you into selling at 13 months?

Adam Widder:
I was like, “We’re going to move to Minnesota.” It wouldn’t have profited if I rented it out, the numbers wouldn’t have made any sense. So it was just a math problem really. I was like, “Well, I could have a tenant in here, but do I want a problem eight hours away when I’m trying to start a new life, get a new job. My wife’s trying to get a new job. We’re going to live at home with our parents? No, I already realize by the numbers I’m going to make like $36,000. This isn’t worth my time.” So I sold it.

Ashley Kehr:
And two, you still wouldn’t have gotten the benefit of the tax free gain because you have to live there for two out of the last five years. So if you had a tenant in there, you eventually would’ve had to come back and finish out those well two years eventually. Okay. Interesting. So you then decide to move, are you house hacking now one of the properties that you have, or you just have a separate primary residence that’s not included in your portfolio now?

Adam Widder:
Yep. So we house hacked the first triplex founded on market, lived there for a year, bought that one in my wife’s name with 5% down conventional loan, satisfied 12-month rule. We were super aggressive on our savings. And then we bought a duplex in the same neighborhood and that’s what we’re living in now. And we’re on the end of our 12-month timeline. So I’ve got the itch, I’ve got the buying itch out there, we’re shopping and seeing what we can find. So yeah, that’s it for today and that’s where we’re going.

Ashley Kehr:
Okay. So let’s talk about the financing of all these properties. So the first one you did 5% down in your wife’s name. So did you do an FHA loan or was it conventional loan with 5%?

Adam Widder:
Yeah, I did a 5% conventional loan in my wife’s name on the triplex and a 5% loan in my name on the duplex. And I’m a realtor with KW now and I’ve recommend that to all our clients, because those 5% loans they come and go. Sometimes they’re offered, sometimes they’re not offered. The FHA is always going to be there. If you can afford the 5% loan, it’s a superior loan to the FHA. So jump in there, get it while it’s there. And there’s certain requirements for it, but if you meet those requirements, definitely go for it.

Tony Robinson:
Can you elaborate, Adam, on why you feel the 5% conventional loan is better than an FHA because in FHA you can go down a three and a half percent. So what in your experience has made the conventional better option?

Adam Widder:
Because it’s another low down payment option loan that may or may not always be there. We know albeit the government doing something weird, the three and a half FHA loan is always going to be there most likely. But the 5% doesn’t. So if you can grab it while it’s available, go get it. And if you can afford the 5% do it. And then the PMI automatically drops off, whereas FHA, you’re going to have to refi at some point in period of time once you hit the 22% in equity, then you’re going to have to do a refi to get out of that and recycle it. So unless you force appreciation or do a 203(k) loan, you’re going to have to wait probably a decade, eight years for that PMI to fall off.

Tony Robinson:
Got you. Good point. And the PMI is something that a lot of investors I think get caught up on as well, but I think that also comes down to a mathematical equation as well. It’s like if you have to go from three and a half percent to 10% or 20% down to get rid of that PMI, maybe it doesn’t make sense. But like you said, if you’re going from three and a half to 5%, maybe that makes a little bit more sense to get rid of that PMI on a monthly basis.

Adam Widder:
Yeah. And then a competitive market like now, if I can tell the buyer’s agent, “Hey, I got pre-qualified conventional buyers,” and I just say, “Oh, it’s 5%.” They’re not going to care where it sounds a lot better because the seller’s going to be like, “Okay, they’re FHA. They’re probably not as well qualified.” And they’ll defer to picking the conventional loan over the FHA loan usually.

Ashley Kehr:
Adam, what about the property management on these properties? Are you guys self-managing? Do you have a property manager?

Adam Widder:
Yeah, we self-manage. I enjoy the property management and I had that as a career for two years. When I left active duty, that was my career. I jumped into commercial property management and that’s where I learned the nuts and bolt about how to operate a property, how these large scale commercial properties operate. And so it’s just a great learning atmosphere to jump into real estate on the side as we are building our own portfolio to really understand like this is a business in and of itself. A lot of times people get so excited about, “Oh, I need this much cash, I need this much door to set myself free for getting out of this job.”
And then they get the property under contract, they buy it, they close, and then all of a sudden, oh they got to get a tenant. There’s a tenant issue, they got to collect rent. How does the money flow from the tenant to your bank account, to the mortgage? How does insurance work? How does renter’s insurance work? You’ve all these things that all of a sudden come up to you that you forgot about when you’re trying to get focus on, “I need this much cash flow per month.” Now, you have all these little problems to deal with. So in my mind, it’s just best to treat like a business. And there’s really four keys to proper management that we can dive into.

Tony Robinson:
Yeah. Let’s dive in. I’d love to hear those.

Ashley Kehr:
Yeah, let’s go into it.

Adam Widder:
Number one, just treat it like a business. And that just means processes, processes, processes. Businesses today aren’t successful if they’re just running their stuff from the phone. So I’m going to run through an example of an easy process just for marketing your property because that’s arguably probably the most important step of property management. If you can have a good tenant and they’re easy to work with, that’s probably going to streamline a lot of issues down the road.

Ashley Kehr:
Adam, real quick. Before you go into that example, can you just explain real quick why it’s important to treat it as a business, even though you own the property in your personal name, don’t have an LLC or a business entity even set up.

Adam Widder:
Chances are you’re going to buy more than one property. I haven’t heard of a lot of investors who stop at one or two. So you could end up with one, two, three, 500 or in Brandon Turner’s case, millions of units and stuff. So eventually, it’s just going to make sense to bring management in-house. I know a lot of investors and clients who have 20 units and it’s one of those things, well, I can manage 20 by myself or I can hire it out to a property manager. And at that rate, it’s like, is it really worth it or can I handle the five to 10%, whatever your area pays in property management?
So it’s best just to start right away when you have one unit, practice, practice, practice and then it’ll streamline yourself in those processes over time when you have 10, 20, maybe 50 units, and then you can consider either, should I build this as a company or should I hire it out? And then you have better expertise when you do want to hire it out or you do want to hire somebody that take that over for you, then you have the expertise and you can ask better questions in my opinion.

Ashley Kehr:
What is number two on that list?

Adam Widder:
Yeah. So treat it like a business, have processes. Number two, the lease is your guiding principle. So know that the lease should cover most issues, so are tenants moving out early? I just had this happen to me and she said, “Hey Adam, we ended up buying a house,” and I was bummed because she didn’t work with me, “But we bought a house down the road, I didn’t think this was going to happen, I’m going to end my lease.” And I was like, “Okay.” I stalled, one of my tips says, “Hey, I’ll get back to you on that. Let me check with some things and let’s chat about that.” Went back, looked at the lease. Sure enough, the lease said if the tenant vacates early, they have a two-month fee. If they want to get out, landlord has a duty to re-rent, but they don’t have to, but they should basically as Minnesota law.
So I told her that, “Hey, I’m going to put this up for rent, I’m going to put up on Zillow, Apartments.com, Facebook, and we’ll put it up for rent. We don’t have a duty. When we find somebody, then we’ll end your lease.” And that’s how it works. So we just abide by the lease and it’s your governing principle. Same thing with pets, that should be covered in there. What the tenant takes care of, what the landlord takes care of. So like a light bulb, that should probably be explain. You don’t want to be getting calls from your tenant, “Hey, my light bulb’s out.” “Well, hey man, that’s in the lease.”
Just reference the lease, be professional, be courteous, “Hey, that’s your job.” You don’t want to have to keep running over there for these little things. Third point, everything is negotiable, and that’s in real estate in general. I think you’ll find when you put your properties out on the market, on Zillow, on Facebook, you’ll get a lot of requests and people will be interested and they’ll send you stuff like, “Hey, can I do this? Can I do that?” And it basically comes down to make sure it fits within your numbers if you’re going to give up something for them. So if they’re going to say, “Hey, can I have three dogs?”
And they’re like big dogs and you think they might tear up your house, you’re like, “Sure, you can have three dogs, but it’s going to cost you X in fees.” Or an easy one here in Minnesota where we live is snow. Usually the landlord handles that, but a lot of people will give a monthly discount, so you say, “Hey, the rent is 1,500, but we’re going to give you a $50 per month discount to take care of snow and lawn.” That’s negotiable. Some tenants, I’ll offer that too because it’s easier if the tenant take care of it for me instead of me having to hire it out. And usually, it’s actually cheaper than me finding a snow company.
So I’ll just offer and be like, “Hey, do you have any interest in taking care of the snow and lawn? There’s a lawn mower in the garage, there’s a shovel or I’ll happily buy you a snowblower too.” And then lastly be proactive in communication and remember that those tenants are paying your mortgage. And one book that’s really cool, I can’t remember the title, but it’s about raving fans. And you want those tenants, those customers, those customers, you want to treat them with respect. And I think that gets lost a lot of the time. And the company that I worked for really took pride in this of being a boutique management firm of really just exemplary service, like, “These are your tenants, there should be a respect. They should be a firm boundary between respectful, nice abiding by the lease, but at the same time being respectful of their property and what they need.”
This is your house. You’re providing housing. If you don’t want to be respectful and be a slum Lord, then you probably shouldn’t be in property management owning rentals. These are people, these are their lives, these are their homes, so be proactive in communication when things are going wrong, when you’re fixing things, let them know what’s going on, and let them know what’s going on. They want to hear from you. You might not think it, but they are going to appreciate more communication than less communication. Now, those are my four steps.

Ashley Kehr:
That last one, that’s great advice there, the communication because I’ve noticed sometimes with different property management companies that if they can’t fix the issue, as long as you are right away or in a timely manner, if they stay in communication with that tenant and continuously update them, and even Tony, I’m sure this is probably true with short-term rentals too, it’s just staying in contact with the person and communicating to them, letting them know where the progress is at, what’s happening. So that’s great advice there. And then with the leases too, BiggerPockets, if you are a Pro member, you can go to biggerpockets.com and you actually get access to leases that are provided to you guys by attorneys in your state.
So if you’re a Pro member, you guys can check that out and then go through and add things that are specific to your property. So if you are going to allow pets, put a clause in there about exactly what the fees are, if there are any additional fees, what the rules are, cleaning up after your dog outside, things like that. Just try and think of any scenario of what could happen and put that into the lease. I don’t think that there’s really a lease that may have too much information. What do you think Adam, is there such a thing as having too long of a lease?

Adam Widder:
When I was working in the property management field, I worked alongside the multifamily people and the multi-family property managers, and they used a lease from, I believe NAA National Association of Apartments maybe. And it’s like a 30-page document because it’s got all this legal stuff in there for these big companies. So if most tenants are going through these big apartment complexes and seeing that, and you only have like maybe a 13-page highlight the important things, make sure they sign and underwrite and acknowledge and initial the important things and you should be okay. But no, I don’t think there’s a limit, but they’ll see it, they’ll sign it, they’ll go through it. They’ll ask questions if they’re like, “I have to pick up all my poop for my dog? “Yes, please.”

Tony Robinson:
Adam, a lot of our listeners are obviously newer real estate investors and when they think about managing a property on their own, it’s just too much, it’s overwhelming. The idea of doing that isn’t in their wheelhouse yet. So a lot of them will look to property management companies to handle that part of the business for them. So say that I’m a rookie investor, Adam, what should I be looking for in a property manager to ensure I have a smooth and successful relationship with that person?

Adam Widder:
You’re going to want to know how they’re going to be paid. So be upfront about that and what fees they’re going to charge, because if you’re underwriting and doing your analysis of the property and maybe you’re allocating at eight or 5% and they come in at 10%, well that could hurt your cash flow. Or if they’re charging unnecessary fees, like if they’re charging a fee for every time they’re coming out to the property, well, isn’t that your job to be the property management ? That might be a red flag for me. Leasing fees are pretty common, if your tenant falls, a lease changeover, they get half first month rent. So know what their fee structure is. That would be my first question.
What’s their response plan? So if there’s a fire, if there’s carbon monoxide going off, what’s their response plan looks like? What kind of maintenance is included in the fee? A lot of times they might include like filter changes, they might include city ordinance fees, where if the city is charging you a fee for having rental property, they might include that, or they might include the inspection. Yeah, I think those would be my first questions.

Tony Robinson:
Now, what about actually finding a good property management company? How does your company find new owners to bring into their portfolio of properties?

Adam Widder:
We probably weren’t the best example because we were dealing with large REITs and corporations and insurance companies, but networking, I’m in a lot of local landlord groups. And when somebody comes in there and asks, you’ll see a slew of the same people said, “Go and join a Facebook group or join BiggerPockets.” And go in your area, put up a blog post and be, “Hey, who are the property managers that you’ve seen?” And I guarantee there’s property managers on BiggerPockets. Those would be who I would want to partner with because they probably have more of the investor mindset too, of like, “Oh if this guy’s trying to do this for cashflow, how can we work together?” And have them have that partnership mindset instead of that, I’m working for you for a service fee-based mindset.

Ashley Kehr:
One thing I would add to that too is make sure that when you have those conversations with the property manager when you are interviewing them that you take notes of what they’re saying yes to or no to, and what their responses are. And then when you have your property management agreement, that those things are in there, such as what is the timeline for a turnover? What is that process like? Ask a lot about their processes and systems too. What happens when somebody calls for maintenance? Is the live person answering? Do they have to go online and how quickly is maintenance is taken care of? Because those were things that I didn’t know to ask in the beginning and those were things that I didn’t get into writing.
And now it’s like looking back like, “Hey, I don’t think we were supposed to be charged that fee when we had our initial conversation,” but that’s two years ago now.

Adam Widder:
Yeah. Getting it in writing, I think, is super key because then you can reference it, like you’re saying, “Oh, you’re charging me a 10% add-on fee for this HVAC company to come on. I don’t see that. Can we talk about that?” Yeah. That’s a great point. Get it into writing.

Tony Robinson:
So just going along with the property management piece, because I know that’s, again, something that a lot of rookies will need to figure out, what kind of interaction should or Rookie expect between them and their property management company. Like, are you guys talking daily, weekly, quarterly, annually? What kind of cadence is there between an owner and a property manager?

Adam Widder:
You can totally set that up front and tell them, “Hey, I don’t want to be bothered.” Give them guidelines. Actually, that reminds me of the military, my company commander when we would go to our long training things in JRTC in the desert and down in Louisville and the Swamps, if crap hit the fan, these were the criteria where he would want to know if I’m sleeping or I’m out of commission, wake me up, if X, Y, and Z happen, I want to know. So set those guidelines with your property manager and be like, “Hey, if the property’s on fire, I want to know. If a tenant leaves a lease early, I want to know. If I have a big capital expense over X dollars, I want to know.”
“So if the faucet breaks, great, replace the faucet, just make sure it looks modern and fits this decor. If it’s something over $200, just let me know and let’s talk about it.” But generally I think you’re going to at least want to know monthly, they should be at least sending you a report on how much you’re making that month in profit. And then you should be getting at least an annual report too, for your taxes. Everything aside from that is basically negotiable on what your comfort level is. And I would start in the beginning, I would say more communication is better, and then it can taper from there as you develop rapport and trust.

Ashley Kehr:
Yeah, that’s a great point. And just going through those owners reports that you get every month too, is going through and looking at what you’re being charged for, what kind of repairs were done to the property, and then seeing who has paid rent or not. My property management company, they’ll send me an email, a separate email with a list of people who didn’t pay him full or didn’t pay it all. And they’ll add some notes as to, “We’ve sent a message to this tenant, or we sent them a notice to pay or else start the eviction process,” things like that too. But I totally agree on setting that expectation up front as to how much you want to be involved and what that communication is.
One thing I would point out that I didn’t do was I was flooded with emails from the property management company, if I would’ve set up from one thing, I probably would’ve eliminated half of them. If it’s in the lease, go with what the lease says. I’m not going to go against the lease. So one example was a tenant wanted to, or he had a dog, but it wasn’t living with him, it was living with his girlfriend or something and they wanted to bring it. And he cried to the property manager that the dog would have to go to the pound or the SPCA or something if I did not allow the dog.
And the property manager came to me and said, “Would you allow the dog in this situation?” And I said, “No, the lease states no dogs.” And it wasn’t my problem, the lease was the bad guy and the property manager should have just went to the lease and told the tenant, “The lease says, I’m sorry, no dogs,” and left me out of it.

Adam Widder:
Yeah. I like that too, because I think as an owner, manager, you’re going to develop relationships with these tenants, and when they come to you with a hard situation, you can always blame it on the lease, but at the end of the day, they’re going to know you’re the owner, property manager making the decision. So you just have to be able to live with that decision at night. But the property manager, you can just be like, what Ashley said, be hard, “No. No, no. Tell them no.” And then it comes from the property manager, not from you.

Ashley Kehr:
Yeah, exactly. And I don’t want people to think that I want dodge into the phone, but there are other people that… this tenant put himself in that own situation, I guess he knew the lease when he signed it. But I think you pay property manager to enforce the lease. And so make sure that your property manager is doing that and you don’t have to, especially when you have a lot of properties that are maybe in small towns or the towns that you live in, you don’t want people to think that you as the landlord, the owner of the property are the bad guy too, I think, that you want to keep a good reputation in the town and stuff like that.

Tony Robinson:
Yeah. I also think that being a property manager can be a thankless job at times. So I’m definitely not envious, Adam, of the work you’ve had to do because you have, the owners that think that you’re not doing a good enough job. Then you have the tenants that think that you’re doing too good of a job and making their life difficult. So it’s definitely a difficult balance to strike there.

Ashley Kehr:
I 100% agree with that. From being a property manager to going to outsourcing it. Awesome.

Adam Widder:
That was one of the reasons why I left or stopped doing property management, because I came from the military where you re in uniform in the airport, literally, like everybody says, “Thank you for your service,” which is super nice. You go to being a property manager, nobody says, “Hey Adam, thanks for cleaning up the poop in the bathroom on the floor. We really appreciate that.” That doesn’t happen. They just expect you to take care of things.

Tony Robinson:
Yeah. We’ve toyed around with the idea of starting a short-term rental property management company, because we feel that there are a lot of companies out there that just aren’t doing a good job, that are overcharging. But just the idea of being in that seat, I think gives me anxiety. And I’ve already lost all my hair so I don’t know if I have any, I got to keep at least a beard. I can’t lose that too.

Adam Widder:
My partner and I went through this decision making model as well. We’re realtors, we specialize in the investment property, two to 30 unit sales. And a lot of times we get a lot of people that are like, “Hey, do you manage properties?” And the amount of business that we’ve thrown away, we’re probably at least 50 to 75 units where we’re like, “Nope, we’re not property manager. We strictly handle the sales.” And it’s in the back of your head, like, Should I be doing that?” And then at the end of the day, we’re like, “I think let’s just niche down and specialize in what we’re doing instead of taking on too much.”

Ashley Kehr:
Yeah. You’re responsible to a lot of people as a property manager and it becomes very different than managing your own properties too. It was funny, if you guys aren’t watching on YouTube, Adam was like sighing and ripping his hair out when Tony was talking about starting his own short-term rental management company, and I could feel Adam’s pain.

Adam Widder:
Well, there’s a story there, it’s a true story. I literally walked in, I managed this in St. Paul in a good area and the building had 91 apartment units and 20 commercial doors. One morning, I walk in there, I’m doing my round. And literally, all the bathrooms are back up here. All the bathrooms are locked and coded because we didn’t want random people coming. We would get people coming into the building, take a nap in the bathroom, but take the nap like all night, homeless. And so we needed to stop that because it was like a class A building. And I come in, I’m doing my rounds and I literally walk downstairs to the bathroom and there’s literally just a soiled wall poop.
I don’t even know where they got the paper from, just not great at all situation going on. Somebody clearly had to go to the bathroom, unfortunately, they’re locked, so they just did it right there. And nobody knows about that, that’s a tenant, but they would’ve known about it if they walk in. But that’s the thankless things that property managers do you’re not really going to know about because they’re doing their job.

Tony Robinson:
I think the only way I would break into that space is if I had like a really solid integrator to really run that entire business for me. and I could just be like the guy that understands a short-term rental space, but doesn’t have to deal with any of the day to day management. So

Ashley Kehr:
You guys heard it here first, Tony’s hiring.

Tony Robinson:
Yeah. If you’re that person, reach out to me, maybe we’ll build something big together.

Adam Widder:
But that’s real though because I think Cody Sanchez talks about boring businesses. Property management is very much a boring business. It is strictly process baked, is repeatable. Once you do something, you can continue to do it and teach that to somebody else. So in Tony’s case, he can maybe have 20 short-term rentals and he’s got all the processes outlined and now he can hire it out and, “Hey, here’s the processes, take over. I’m going to keep adding units onto this.” And that’s where it can become a real business. If you move yourself from the day to day, that was our vision in the back of our head, it was like, “All right, maybe we have to suck it up on, get up to 75 units under management, and then we can hire somebody to handle the majority of the work and we can concentrate on sales and sales of the property management business.”
But it’s a really solid business to go, nothing’s going to disrupt it. So there is an opportunity there for the right people.

Tony Robinson:
Well, Adam, I want to talk a little bit more, go in-depth on one of your deals here. So we want to do our rookie deal review. Do you have a specific property in mind that we can talk about?

Adam Widder:
I do.

Tony Robinson:
All right. Awesome, brother. So we’re going to start just some rapid fire questions to set the tables for the listeners and we’ll get into the nitty-gritty. So what markets is this specific property in?

Adam Widder:
It was in St. Paul, Minneapolis.

Tony Robinson:
Got you. All right. And then what was the property type?

Adam Widder:
It was a triplex.

Tony Robinson:
And what did you purchase this property for?

Adam Widder:
Shortcut here, we didn’t purchase it, but we were under contract for 640 with some seller concessions.

Tony Robinson:
Interesting. This might be the first Rookie reviewer who was like a deal gone bad. That’ll be interesting. And sorry, just going back to the property type, you said it was a triplex, what was each unit? Do you recall? Like two, ones, one, ones?

Adam Widder:
Yeah. It was three, two, ones, stacked on top of each other, separately metered a like 19, 10-ish triplex and a legal one coded, purposely built triplex like a good property, not this hodgepodge thing.

Tony Robinson:
Okay. Well, I guess let’s get into it because this one’s a little bit different. So I guess give us the backstory and how you found this property and what led to you not actually closing on it.

Adam Widder:
Yeah. I’m searching for a triplex for my wife and I to own and occupy, we have a nine-month old, so we have pretty good criteria. We’re looking for a place where we can have three bedrooms, an extra bathroom would be nice, but good size. So I basically, if they’re not on the MLS, because these properties don’t come on the MLS very often, we have a specific area we’re looking for for my wife’s commute to her work and then where my son’s daycare is. So we’ve got the area down, we know what size we need, it doesn’t matter what the finishes look like because I’ll fix it. And it obviously needs to make money once we move out.
So I’ve been doing a bit of, in my business we do plenty of lead generation for my own business, so I came across one, I was like, “Hey, this might work for us.” So I ended up calling the owner, just left him a voicemail, I said, “Hey, my name’s Adam. My wife and I, we are looking for a triplex to own and occupy in this area. This property fits that description. We’re pre-approved VA buyers. Crazy question, have you thought about selling it? I’d be interested in doing an own and occupy.” Just left him that voicemail and was like, “All right, well, whatever.”
They end up calling me back and he’s like, “Hey, actually, we are thinking of selling. You want to see it?” And I was like, “Yeah, let’s just set up a tour. It’s an easy step to take and let’s go check this out.” Went and checked it out, and it was a beautiful property, it’s really nice. And I was like, well, I knew in the back of my head, what it was worth. And I was like, “Well, let’s fits our bill. I’m not going to cheap out on him.” And I was like, “Well, what are you looking for? “And he’s like, “Well, last year because of COVID and everything, we had it appraised and it appraised at 635.” And I was like, “That’s pretty much where I was thinking it would land based on the comps in the area.”
And I was like, “All right, well it’s been a year, I’ll give you 640, give you an extra five, because it’s been a year, that’s fair.” He’s like, “Sure, let’s do it.” Put in a purchase agreement, we got it under contract, did the inspection, had the inspection. This is why you always inspect. And we looked at one of the boilers was from 1968, water heater was old and then plumbing. The sewer line out to the city sewer was cracked on the top. And so I got some expenses on all those and knew it would cost about $12,000 to repair all that. So I’ll just pay “Hey, there’s X, Y, Z here that needs repairs. These are capital things, can you do a 12K seller credit?” And he immediately said, “Yes.”
And that’s when the red flag went off in my head, I was like, “Huh, I wonder if I’m too high on the purchase price.” And he immediately agreed to the 12K concession and that’s when things started in the back of my mind, I was like, “Hmm, maybe I need to re-look at the numbers.” And so I looked at the numbers again and our plan for this property was to own and occupy the first floor, have a regular renter on the second floor at market rate who was already rented long term. And then do Airbnb on the top. And the Airbnb numbers, we were going to do a month long Airbnb because that gets you the best rates. It’s about double the rates in the area.
And that would make our cash flow on that property to be roughly around 1,200 bucks a month with the Airbnb. What I wasn’t looking at and what I forgot to do was check, “Hey, if Airbnb doesn’t work, what’s the rate going to be?” And that dumbed it down to $400 in cash flow, which I tried to look for 250 a month per door in cash. And so obviously, it’s a few hundred dollars short. So knowing that I was like, “Okay, I’m still in the deal. Thinking long term, thinking about the inflation, is this still a bad deal? No, it’s an okay deal. If we do it, it will be fine.”” But this isn’t anything fantastic, Airbnb will make it great, but it’s not like good.
And that’s where it went bad, literally after I figured that out, my lender calls and he is like, “Hey Adam, sorry, man. I’ve been sweating this phone call. I’ve been working all day. I’m so sorry, but you guys got to cancel on this.” And I was like, “Well, what’s going on? What happened?” He’s like, “Well, the VA’s pretty strict, you just left your W2 and we’re looking at your rental properties and you need to show this income to get you to qualify for this purchase price. It doesn’t add up, the underwriter can’t make it work. So I’m sorry, we just can’t do it.” So we had to cancel on it.
We ended up getting our earnest money back because of the financing contingency and the seller was fine with it. I have no hard feelings toward the lender. We refer business back and forth, he’s an exceptional lender. So I had no qualms about it. And at the end of the day, I was like, “Well, it was a good property, it wasn’t great, but we can probably find another deal just like it in the next few months, not the end of the world.” So that’s how that one ended.

Ashley Kehr:
Adam, if you could summarize two or three takeaways from this deal for our Rookie listeners, what would be the advice that you would give?

Adam Widder:
Underwrite your property and be super conservative, start there and then be aggressive where you think you’re going to make it. So how does the property cash flow today on under current circumstances? And then how’s the property going to cash flow with you operating it under what your rents are and how you’re going to operate the property? And I forgot to do that because I was getting rosy colored glasses because it was a great unit for us to live in, it was in the perfect area for us. So I was just getting little buyer going on, which I shouldn’t. As a realtor, I should know that.
Second, key points, you don’t have to look on the MLS for deals, go make stuff happen. Everybody says off markets is where it’s at, so go where it’s at. Go for it, go look for off market opportunities. Those would be my two key takeaways.

Ashley Kehr:
Thank you, Adam. Thank you for sharing that story with us too. It’s not often we get to hear about a deal gone wrong.

Adam Widder:
It happens.

Ashley Kehr:
And actually, did it even go wrong? That was an opportunity cost to you, is to looking into that deal and learning off of it, and making that decision not to move forward. I’m going to take us to our Rookie Request Line. You guys can leave us a voicemail 1-8885-ROOKIE, and we may play your question on the show for our guest to answer.

Janetta:
Hey guys, this is Janetta from Richmond, Virginia. My question is, I am new to real estate investing, I have not purchased say property yet, but I am looking. And I met with someone who is a contractor who offered to be the project manager and said he would charge 10,000 upfront to secure him, and then 10% on the back end of my net profit. So I wanted to ask, do you really need a manager to manage your contractors or subcontractors? And if so, what is the pricing? Is this pricing extremely expensive or is it better to just do it myself and learn as I go? Thanks.

Adam Widder:
Do you need a project manager? I guess it depends on your expertise. I would say no, you don’t on if it’s less than four units, unless you’re doing a gut renovation, you probably don’t. I hear a lot of red flags there immediately. I think 10K upfront, what is that for? Is that just a fee? Is that to get you going? I would prefer to do, “Hey you do X, Y, Z and work, we’ll do weekly payments on the work done and invoicing, and then a 10% fee on the profits interesting too.” Let’s just say what I would prefer to give you, just bill it or bid it, bid the job so that your profits built into what the work that you’re doing, not the profit that I’m taking home. If that was the case, flippers and rehabers would be paying 10% to all their contractors, and that would cut into the flippers and rehabers project.
I’ve only heard of putting money down, up front on large scale projects. One example was when I was managing commercial properties, we had $100,000 HVAC that we were replacing, it was a huge HVAC for large office building, so they asked, “Hey, can you front $50,000 for us purchasing the actual equipment because the equipment cost like $70,000.” So we agreed to that. It was in writing. We got an invoice from the company doing the work from the manufacturer of the HVAC equipment to show that it was on order and we could track it through.
So a lot of red flags there. I think I would start out maybe managing the project yourself and see how it goes or network and find somebody within your network that’s done it before and ask them for help.

Ashley Kehr:
Or even finding a general contractor who acts as a project manager, but is still doing some of the work too. And then sub out the things he doesn’t do, maybe a better route than just going for somebody that’s a project manager, kind of the same as you Adam, I’ve only really heard of project managers work large scale properties for new development or big commercial properties too. So I would definitely question that and look around and maybe even partner with somebody who’s not going to take any money upfront and then you’re just going to share some of the profit from it and you both benefit.

Adam Widder:
Definitely get three bids too. That was one of the things we always did, was, “All right, if any amount of work over X dollars, I’m going to get three bids.” So if it’s a rewiring the first floor of a unit, I’m going to bring in three electricians and whoever seems like they have the best knowledge of the scope and best pricing is probably going to win.

Tony Robinson:
Adam, I want to our newest segment of the Real Estate Rookie Podcast, which we’re calling Our Rookie Exam, and we want to ask the same questions to all of our guests moving forward, the questions might change, but you’ll get the gist of it. So are you ready for the exam?

Adam Widder:
Let’s do it.

Tony Robinson:
All right. So question number one, what’s one actionable thing rookie should do after listening to this episode?

Adam Widder:
Start building processes and outlining what you do for managing your properties. Just write them out.

Tony Robinson:
All right. Question number two, what is one tool, software app or system that you use in your business?

Adam Widder:
I would use Apartments.com is where I manage my rental properties through. So all my tenants are on there, the rent is collected through there and it auto deposits into my bank account. It tracks my expenses and it makes an income and expense report at the end of the year. It tracks it monthly, and I could put maintenance requests in there, and it’s free for a landlord up to certain units.

Tony Robinson:
All right. And last question, where do you plan on being, or where do you see yourself five years from now?

Adam Widder:
In five years from now, our goal is to have, I could see us having 50 units under ownership through partnerships or ourselves, owning a laundry mat or like Ashley, maybe a liquor store, and then doing, I think, five to seven flips per year as well. And then we manage all that together as our different businesses.

Ashley Kehr:
Going for those cash cow businesses.

Adam Widder:
Yeah.

Tony Robinson:
Well, Adam, I think you passed the exam, brother. Ashley, what do you think, we give Adam an A on those?

Ashley Kehr:
Yes. Yes. That was awesome. Thank you.

Tony Robinson:
Awesome, brother. Well, I want to take us on to our next segment, which is the Rookie Rockstar, and today’s rockstar comes from the Real Estate Rookie Facebook group. Again, we’re 40 plus thousand members strong there. So if you want to join the most active, the most engaging place for new real estate investors, join the Real Estate Rookie Facebook group. But again, today’s rookie rockstar is Alex W. And Alex says, “It finally happened, I closed on my first house hack back in April and I’m over the moon. Last April, I really accelerated educating myself on multiple streams of income and stumbled upon the Real Estate Rookie Podcast and Your First Real Estate Investment Podcast.” Shout out to my old podcast, “And then BiggerPockets in general.”
“And after listening to over 350 plus hours of podcast, I was finally able to reach my financial independence number quicker than anticipated and provide a beautiful home for renters.” So Alex, big congratulations for your success there.

Ashley Kehr:
Congratulations Alex. That’s awesome. Well, Adam, thank you so much for coming on the show today. Can you let everyone know where they can find out some more information about you and where they can reach out to you?

Adam Widder:
Yeah, for sure. Absolutely. You can connect with me on Instagram @widdthekid. You can follow along my YouTube channel. We talk about the Minneapolis St. Paul market, and we talk about investing in real estate. And then if anybody is a veteran and they’re going through their transition and you just want to hop on the phone and chat, would love to help you out.

Ashley Kehr:
Adam, thank you very much for sharing all of your knowledge. Thank you for your service in the military, and thank you for your service as a property manager. You’re very much appreciated.

Adam Widder:
Thank you. This was fun guys.

Ashley Kehr:
I’m Ashley @wealthfromrentals, and he’s Tony @tonyjrobinson on Instagram. And before we go, let’s check out something at biggerpockets.com that is meant for you guys as rookies.