Book Review: Secrets of a Millionaire Landlord

I recently read “Secrets of a Millionaire Landlord” by Robert Shemin. He also wrote “Secrets of a Millionaire Real Estate Investor”.

I have mixed feelings about this book. There are parts of the book that I agreed with, and other parts of the book I found myself feeling aghast at -- and emotions in between the two.

In the introduction, he talks about using real estate for retirement. Specifically, in other “jobs”, you work for many years and at the end of your employment, you get a nice retirement gift -- maybe a gold watch, a pen, or some other token of appreciation. How about with real estate, you have a bunch of paid-off (hopefully) properties that are giving you cash flow every month? I like that idea! In my case, I decided to invest in real estate because I wanted the cash flow now -- not in 20 years. So I actually own some of my properties free and clear already, and enough cash flow comes in that I can live off of that.

So, chapter by chapter, here is my analysis of the book. (By the end of this analysis, I’m sure you’ll feel like you read the book. So if you actually want to read the book, then you may want to stop here.)

Chapter 1

For those who have never gotten into landlording or are thinking about it, I feel the author gives a good description of why you would want to be a landlord -- what are the positives, but also what are the negatives. I agree strongly with the statement “Many landlords run their rental properties like a bad hobby -- with neither a business plan nor policies and procedures (or, if they have them, they never follow them).” I was nodding my head at this statement because where I invest, it feels like that’s who a sector of my competition is. Don’t get me wrong -- that’s a good thing for me, because it makes me and my properties look all the more better.

The author also gives a step by step overview of renting as well as maintenance and repairs. He talks about buying “right” -- meaning, buy below the property’s value. There’s a saying on Bigger Pockets about “making money when you buy” and this section describes it.

I also heartily agreed with the author’s statement about calculating “true” cash flow -- which is not just rent less the mortgage payment. You need to build in a healthy reserve for vacancy and repairs. If you have no money left over, then when an emergency comes up (and this is “when” not “if”) you don’t want to be hurting or wind up losing the property.

Chapter 2

In here, the author goes into the various types of properties there are to invest in. He stacks in them in a pyramid from Single Room Occupancies (i.e. boarding houses) to Luxury Homes. The book came out in 2002 and he speaks about spending $30,000 to get a house for $400 a month. I had to laugh at this one. Who would rent a whole house out for only $400 a month? Nowadays you’re looking at least $600 a month and that would be for a very small house. However, monthly rent is very market dependent.

The author actually recommends low-end houses and duplexes as his best bet. “Low to moderate income housing” is what he calls it. The reasons he gives are that he can always rent these units and that you can always sell them. He cites the real estate recession of the 80s and says that low to moderate income housing still sold well.

The only thing that I disagree with is his statement that “single family homes have a lower cash flow than other properties” and “you have to spend much more money to purchase one house”. If you get a good deal, a single family house can get you more rent, more cash flow, and cost less than a duplex or multi-family (per door).

Chapter 3

The author describes what “ready to rent” means and I agree that it’s not just a place that functionally works. It also means caring about the aesthetics, and should attract quality tenants. I’ve definitely seen properties where the basics worked -- electricity functioned, there was heat, and there are walls and ceilings. But I think a good landlord should take it further than that -- be willing to live in the places that you rent out. If they’re not even good enough for you to live there, just imagine what kind of tenant you will attract!

Then comes something I do not agree with -- giving different rent amounts for different applicants. What? The author describes how he asks his applicants what their budget is and sets the rent based on that. First of all, how are you supposed to remember how much you told the rent was to applicant 1 versus applicant 2? Secondly, what if applicant 1’s budget was $500 and they were white, yet applicant 2 said they could afford $525 so you quoted them that, and that applicant was Hispanic? If applicant 2 found out you were quoting a lower rent to someone who was white, you could be hit with a lawsuit so fast your head would spin. So don’t follow his advice -- treat everyone equally to be sure you comply with Fair Housing Laws.

Then comes the nickel and diming -- whatever something costs, charge the tenant at least double. So the “base rent” is $425/month, but if you want mini-blinds, it’s an extra $10/month, and if you want pest-control, it’s an extra $20/month, etc. I mean, come on -- it will get applicants in the door by seeing the base rent, but do you really have to charge for every little thing? The only thing I can see that would be worthwhile is appliances -- sometimes people have their own and sometimes they don’t necessarily need a washer/dryer -- they use the laundromat.

Chapter 4

The author lays out his policies on repairs. The most interesting section in the chapter is about his money back guarantee on repairs. If he doesn’t get something fixed within 3 business days, he starts giving the tenant money for every day it doesn’t get fixed.

The other recommendations in the chapter are very good business practices. For example, check out your contractors before you hire them. Make sure that they don’t have a line of lawsuits from other frustrated owners on their record before you hire them. Also, don’t pay for a job until it’s completed. Sometimes people will put down a deposit, but some contractors you hire, especially for short jobs, won’t require payment on the job until it’s 100% complete. I like that policy because I need to make sure that the job is done and also done in a quality fashion.

Chapter 5

I loved the first paragraph in this chapter -- “Two-thirds of all landlords, when they screen their tenants, simply look at them and think ‘She looks nice, and she was really polite -- I will rent her a place.’” This seems to be true -- then you get those bad tenants that wind up trashing your place and leaving in the middle of the night.

So the author advises to do all the smart things -- asking questions, criminal background check, verifying income, talking with landlords. Also be sure not to violate Fair Housing Laws (funny he talks about that here but doesn’t think about the scenario I mentioned in chapter 3) by having written screening criteria.

Screening is the #1 important job to do before letting tenants into your units! Sometimes you hear about those “tenant horror stories” and they are usually caused by bad screening.

Chapter 6

This chapter is all about moving tenants in. The author advises you to treat your tenants like “customers”. This is one way to look at it. But it’s also important to ensure that you do all the proper paperwork according to your state’s laws, and some paperwork that will protect you. Take pictures of your units upon move-in. Go through a move-in checklist with the tenant. Make sure that the unit is in good repair when the tenant moves in.

Also I do strongly agree with the author’s stance on “be friendly, but not friends” with your tenants. You don’t want to be their friends. It’s easier for a tenant to lay on excuses when they are your friends versus when you are in a business relationship.

Another point of disagreement -- the author indicates that he will do 2-year or even 5-year leases. Legally, I have seen discussion about tenants gaining some type of “equity” in the property with longer leases, and even the last attorney I spoke to who is well-versed in landlord/tenant law told me that he favors month-to-month rental agreements over leases. It’s much easier to get a tenant out that way.

Chapter 7

How to get your tenants to pay rent on time, every month? The author uses a technique that has been discussed on Bigger Pockets -- giving the tenant a discount if they pay before the first of the month.

Keep track of the rent you receive, so you always know at a glance what rent is in and what you’re still waiting for. I do give grace periods, so I don’t always receive my rents all on the same day. Every so often I have people that pay early, some pay on the due date, and most pay within the grace period. Then every so often I have a tenant pay late. So my rents can sometimes be trickling in within a 7 day period. I have a Google Sheet that allows me to track each unit, the date that they paid, and what month its for. I also highlight the cell in green if they pay early, and put the text in red if they’re late. If someone were to ever call me to ask about that tenant, then I could tell them quite easily all about their payment history.

Argh! The author also says to tell the tenants that you are just the “property manager” instead of telling the truth that you are the owner. I have ranted on this topic in the past, so I won’t go on about it now.

Chapter 8

The author talks about maintenance and repairs in this chapter. Repairs can eat a landlord alive if they are not taken care of. A 5-minute fix now can turn into a $500 repair if left untreated. However, the author advocates a “no-fault maintenance plan” which means that the tenants take care of repairs themselves for a rent discount. No, no, no! Since when are most tenants good repair people? Do they have contracting licenses?

What if a tenant thinks, “well, instead of paying the money to fix it, I’ll just let it go. I can live with that sink dripping. I’ll just put a bucket under the sink”. Then they go on vacation for a week, the bucket overflows, and suddenly the bottom of the kitchen cabinet gets rotted out or mold develops and you have a much bigger problem. Or, the tenant “fixes” it but they don’t know what they are doing and they wind up causing a much bigger problem that you don’t find out about until much later.

Chapter 9

Okay so now this chapter I agree with the main premise that vacancies cost time and money. Vacancies are something that can sink a landlord. When your unit is vacant you’re losing money every single day plus you run the risk of someone vandalizing the property or squatting.

The author advises a “retention” program to keep the good tenants such as some small prize or incentive for staying a long time. If you’re a good landlord, you can get referrals for other tenants who are looking for places. This is 100% true -- when I have a new rental available, I tell my existing tenants about it and ask them if they know of anyone who is looking for a place.

He says that if tenants want to leave, the most important reason is to find out “why”. I see that it’s usually that people get antsy and want to find out what else is out there. People are always looking for a deal. However, if you keep a quality rental at a slightly below market price, your tenants won’t be able to find something that’s less expensive for the same or higher quality. So they will stay, and that’s what you want.

The author doesn’t recommend month to month leases. He said that the only advantage of it is that you can raise the rent every month. That’s actually not true. In the city where I live, you can actually legally get rid of a month to month tenant easier than a tenant with a lease.

Chapter 10

Ah, evictions. This is one area I don’t have expertise in because I’ve never had to evict anyone in my 3.5 years of landlording. The author recommends using an attorney to make sure you have all the steps down, and I would recommend that too. It’s important to read up on the eviction laws in your area to make sure you’re doing things the correct way. If you don’t do the steps in the proper order, your eviction can get cancelled and you have to start over.

But then he goes on to talk about “tricks” landlords use to get tenants out such as sending over a motorcycle gang to intimidate the tenant, turn off utilities, or remove the front door. Don’t follow this advice! You could be sued for harassment or trying to perform a “self-help eviction”. I don’t know why the author even mentioned these suggestions in his book. I think that was a bad idea.

Chapter 11

This chapter talks about rent-to-own. I’m personally not a fan of that strategy. The author lauds its merits in that you can get more for the sale of the house, and that tenants now have a pride of ownership that they do not have otherwise. Personally, I don’t like this strategy because research I’ve read is that rent-to-own strategies make money for the landlord but > 90% of them do not complete and so the tenant is out of money. I don’t want to take advantage of anyone.

Chapter 12

Insurance is covered in this topic and its definitely an important thing for a landlord to be aware of. The author mentions both “management insurance” and “legal insurance” which I had not heard of. So these were interesting topics to learn more about.

Make sure you have a will! If you are a real estate investor, even if you’re only 25 years old, you never know what can happen. You can be perfectly healthy and through the actions of others have your life taken from you. It’s a grim topic and people don’t want to think about it, but it can be extremely crucial.

Appendix A

This chapter focuses on finding good deals and the ways the author finds properties. I actually like his number 1 suggestion - bad landlords and management companies. Take a look at the open houses out there. When you have tenants applying for your rentals and call landlords for referrals, did you ever think of just asking them if they’re thinking of selling their building? Some landlords may be older and have this thought in the back of their mind, but don’t vocalize it voluntarily. The worst they can say is “no”.

Appendices B - D

The remainder of the book is for forms. Now, things like welcome letters are nothing overly special, however there are samples of forms that need to be legal if you’re going to use them in court, such as a lease. Never rely on forms from a book like this, for 2 reasons:

1. They may be outdated. This book was written in 2002, for example and the forms are now 14 years old.
2. They not be legal for your state. Laws are changing and simply copying leases from an outdated book may literally wind up in your case being thrown out in court.

Overall, I would give the book a B grade. It did have a lot of useful information and I found some suggestions helpful, but I also disagreed with several things.