Doubling My Doors

[Arnie Guida]

Well. almost, I have a 4 family and a single, so that's 5, and I'm going to 9.

I've just bought another 4 family. A small step for many here, but a big step for me, I am a little anxious...I've got a small "team", ie, a good handyman, good painter, good furnace man and landscape guy. I do the simple things but hire out the big stuff.

Nice place, short sale. All brick, big units, all 3 br's, all individual central air, 4 1/2 concrete block garage. Wouldn't mind living there myself.

I am 56, retired, and while I'm far from rich, I'm comfortable, so the prospect of dealing with more tenants wasn't an easy decision, but what the hey, let's see how it goes. To the disdain of many here, I'm a "gentleman" landlord...forgoing maximum rents for long term tenants and the benefits that entails...I'm on a first name basis with all of my tenants.

My friend with many more properties calls me crazy for not maxing out the rents, but I see how much more work it is for him, with people coming and going.

My Father always told me, "People tell me how much rent I should be charging, but I see "For Rent" signs in front of their buildings, and my building is always full."

[Joel Owens]

Most of my clients that are older with amassed wealth are risk adverse. Once you learn what it takes to build it you don't want to do something stupid to lose it going after a crazy yield.

"My friend with many more properties calls me crazy for not maxing out the rents, but I see how much more work it is for him, with people coming and going."

My thoughts are I am not in the maximize rents camp. Most markets across the United States are not in a rent market where demand is outpacing supply. In those areas yes you can keep strongly increasing rents and pushing the market to see where it goes. In stable markets with modest growth of 2 to 3 % a year you want to be in the middle of the market.

So if rents for a 2 bed are 450 to 550 a month you want to be around 500 and have a decent product. What puts more profit in your pocket long term is not pushing rents. Each time you have to rehab a property it costs money.

A big percentage of tenants you want what we call in the business the "loyalty factor". So if you have 50 tenants at a complex and 35 to 40 have been there years and years that is pretty good tenant seasoning and stability.

Of course even 100% properties will have some turnover as people die, relocate to nursing homes, get married and need a bigger place, job relocation, etc. So you will always have some turnover. The key is to be middle market rents. If you charge top market as your buildings and units get older tenants will move to brand new places or fully rehabbed. The mentality will shift to " This landlord is charging me really high rent and they don't fix anything and the place is old looking.Let's move somewhere else !"

If you keep the place taken care but it is older tenants will want to stay as they see the rent even with increases each year as a good deal in the marketplace. Not the cheapest but a fair rent to pay. Most of the larger apartment owners I know who have owned for decades do not push top market rents. When you accumulate wealth you want stability and not headaches and turnover.

I believe except in some micro markets that this approach works best. It's just like a business in that it is much cheaper to keep an existing customer happy then to go out and find a new customer each time. Apartments are the same with a lot of costs (lost rent, re-tenanting a place credits, re-conditioning to re-rent, etc.).