I am a new landlord, so now what?

Question

I am a new landlord of a 6 unit building in Philadelphia. What are some ways to grow in real estate aside from reducing expenses and increasing rents (e.g., buy other properties)? I prefer the monthly income over the longer term appreciation approach. It would be great if both approaches worked in the long haul. My idea is to save enough to buy a second income property. Currently, I am self managing the property as I see little to no value in having a property manager "run" the building.

Zack Thiesen · Answer

@Waldo Kohl It sounds like you're wanting to find out how to scale your business and buy more buildings/units, correct? And you are interested more in cash flow and not counting on appreciation? One of the faster ways - if you've not seen it mentioned around this site - is the BRRRR method. If done right - and people can certainly make it sound easier than it is - you can buy a new building every 3-6 months or so. Again, I don't want to bore you with the details of it in case you've already seen it mentioned, but just putting it out there as a strategy that has the potential to fast-track people.

Waldo Kohl · Answer

@Jane S. I don't think your advice is very good.

Bjorn Ahlblad · Answer

@Waldo Kohl Congrats on doing it! As long as you possess the knowledge to self manage and/or are able to acquire the skills managing your own properties is great. Even if you hire a PM as you scale up it pays to know what is going on. All the best!

Kenny Dahill · Answer

Congrats @Waldo Kohl. There are several options for you. What's most important is the fact you started! Kudos.1031 Tax Exchange: Since you have a commercial building, you can take advantage of CapRates! Raise those rents, lower the expenses and that will have a direct effect on your building valuation. Once you've increased your valuation and stabilized income, you can always sell the asset tax-free and use your capital gains to buy a large complex. That is how people start with a 6-unit and end with a 60-unit.Add Income Streams: Look for opportunities on your asset to add income streams. i.e. laundry mat, garage fees, etc.Commercial Loan: Once you've saved enough money for property #2, consider a commercial loan that will cover both assets. This could allow you to use the equity from Property #1 and save your cash.Setup Team: Kudos for self-managing. You should be able to handle the 6-units. Have a team assembled for when you need assistance. A handyman for fixes. Cleaning crew for tenant turnovers. If you need help leasing, a realtor.

Waldo Kohl · Answer

Hi Zack, The building is near Temple University. I am fully occupied with leases expiring at the end of the school year. Three of the six tenants are staying. I have apartments listed on Temple's off-campus housing website. At some point I will want to rehab apartments. I come to the building once a week and try building rapport with the students. I fix some of their problems and I have been fixing issues in the common areas. I believe this has helped me retain half of the rentals for the succeeding year because the students have had very bad experiences with property managers in the area. It appears the goal of property managers is to shuffle renters between units every year because they charge me a full month's rent for every new tenant. Additionally, they charge me a half months rent for any tenant who wants to renew their lease for the following year. This is in addition to the 10% commission they are charging. Perhaps, property managers are good for longer term rentals but they are just horrible in my situation. Like I have mentioned in my earlier comments, I prefer to be hands on and so do the tenants. When I lived in the same building as the tenants it was a bit much as far privacy is concerned, for all parties. This situation is a bit better. It is easier to rent to students than working adults since expectations tend to be lowered and they tend to be more polite. That's from my years of experience. It appears you are developer. Please PM, f you would like.

Zack Hawkins · Answer

Is this in University City or closer to Temple? Have you added any value to the existing property through rehab, or is it still the same leases as when you acquired it? When do the current leases end?

Waldo Kohl · Answer

Thank you for all of your responses. I have been investigating further. I am not looking to buy anything now. I just want to make sure I am following a sound strategy that puts ahead of the game now instead of behind. Like many building in Philly my building needs TLC while I am trying to find new students for the Fall of 2020.

Marvin Meng · Answer

Waldo K First off, congratulations on taking the plunge and especially for jumping in to the deep end of the pool with 6 units! Only you can decide whether or not to manage yourself. I've been in the business 15 years and am still on the fence on that one (but still self-managing... for now). I aggree with Zack Thiesen about the BRRRR strategy. David Greene's book applies mainly to single-family but there are definitely strategies that apply to you too. Also you're on BP, which is huge. You'll see lots of ideas about increasing revenue (Kenny Dahill's suggestions). Since you own more than 4 units it's a commercial property so increases in expenses/decreases in expenses will drive its value up. This will allow you to refi and plays nicely into the BRRRR method. You're not going to find a short, easy answer to your question via the forums but keep reading and listening to the podcasts. If you've got 6 units that are cash-flowing, it's only going to get better!

Jane S. · Answer

yah they like to teach. what happens in summer when students travel or leave? if they leave for the summer you have a golden opportunity to adjust rents and do some upgrades. i hope you are getting good cash flow. inform them soon that the rents in august when they come back will be a certain % higher due to upgrades and its first come first served. if they are not paying rent over the summer take a nonrefundable deposit to hold their unit and dont do upgrades, just upgrade the empty ones & put a sign out "brand new ...." whatever. It's almost impossible to raise rent on an unexpired lease unless you can work out a fee for a pet ...seems like you are in a hurry. I would get every number relative to your 6x in perfect coordination with reality before acquiring another one and poll the tenants to see how much more they will pay before walking.

Waldo Kohl · Answer

@Dennis M. ... but that is why I am asking in the first place.