All Forum Posts by: Bao Nguyen

It's part of my rental policy: household income must be at least 3 times the rental rate.  But most of my homes are renting around $1k/month or less.

Should this rule apply to high end homes that rent for $3k/month or more?   For example:

Scenario A: $900/mo rental, prospect's household income is $2700.  This prospect would qualify based on income alone.  $1800 gap between rent and income.

Scenario B: $2500 higher-end rental, prospect's household income is $6k.  Doesn't meet the 3x income/rental multiplier.  $3500 gap between rent and income.  I would imagine despite not meeting the 3x multiplier, renter B is still better off than renter A because end of the day, he/she still has more income after rent.

Let's make the example really extreme: $10k/month rental, prospect makes $20k/month.  I can't imagine turning down such a prospect - but based on the 3x rule, $20k/month is not enough.

High end rental investors - please let me know what your thoughts and experiences are with this.

 Thanks Don.  Imagine if the 50 United States operated as 50 separate countries, without synergy and collective support? Each state would have build its own military, its own currency, its own FBI, CIA, white house staff..redundancy and waste!  Or imagine the reverse, where do you think South America or Europe would be if both of those continents were 1 united country each, like the US?  

@Tim Puffer That's the idea Tim. But this "REI group" would be more than just business networking - there are actual services provided for the members, and there is a real operation and business process that the group would follow for each real estate task.

@Manolo D. You're exactly correct Manolo: it's impossible to manage 500 SFH by yourself, and that's exactly why I posted this topic. The "$8/hr employee" is just a figure of speech, the idea is that this employee is not expensive relative to the big picture. $8/hr in Michigan may be the equivalent of $15/hr where you are in LA.

Apart from the locating and purchasing properties, I don't believe any real estate tasks are difficult: they are just time consuming.  Many corporations have proven the assembly line concept.  For example, Ford Motor Company: they build cars that are much nicer than any single super-duper-expert guru mechanical engineer could ever build.  I'm sure when Ford just started business in the early 1900, Henry Ford himself could build the entire Model A better than any of the assembly line works combined.  Not true today - and that's because each of those "$8/hr workers" have gotten that much better at their specific tasks.  

This strategy has also been proven in the commercial real estate world: apartment complex management.  

Only SFH investors are still in the dark ages, and it's because we can't unite, believing we can do it all better alone than if we had a group, a formal process, and structure.

@Christopher Brainard Good points, and I agree.  But even with hands-on investors would benefit from this coop/system.  Case in point: Cross-selling.  Let me paint you a common scenario that all buy-and-hold investors experience:

When a prospective tenant calls me about a property that I've already rented out, they usually ask me if I have other properties in the area, similar properties, etc.  And most of the time, I tell them no because I run a tight operation and never have more than 1 or 2 vacant units.  However, by saying no, I sound like a 1 or 2 property investor.  I wish I had a list of all my local investor's available units so I can say "yes, I have 20 other SFHs available...what exactly are you looking for?".  

Furthermore Chris, with this type of "coop", no investor is forced to give up any part of the business process that they don't want to manage 100%.  The service is there, if the investor choose to take advantage, if not, do it the old fashion way and do everything yourself.  :-)

I'm going to have a meeting with the local investors in the Lansing area to discuss about forming an entity that can perform any task in the real estate business cycle - a non-profit company.  My goal is to outsource all my menial tasks so I can focus on buying and setting the rent/sale prices.

Please private message me your email if you would like to be involved in this meeting. For out of town folks, we can do a Skype conference or Google Hangout session for you to participate.

I don't know about everyone else, but I got into real estate to be an investor: to buy/sell/rent. 

I don't want to burn my Saturdays running around unlocking doors for prospective buyers/tenants or meeting up with contractors to pay them or sitting in front of the computer on a Sunday night to make sure I get the craigslist ads posted, and then turn my phone volume on max loud to make sure I don't miss any calls about my properties. 

I don't want to spend time looking for good and honest contractors, and then burn more of my time to manage them and the job. I'm basically paying people to take up my time to watch them - it's such an absurd concept, but every investor does this, AND think it's normal and logical!

As a single-family-home investor, I find myself doing all the tasks from beginning to end on the real estate business-cycle:

1) Looking for the good deals/analyzing leads

2) The purchase

3) Rehab

4) Look for good contractors, buying materials, managing contractors/jobs

5) utility turn on/off

6) Advertising on Craig's List/Zillow/etc for rent/sale

7) Answering calls/email responses to my ads, unlocking doors and showing properties

8) creating/printing lease agreements, collecting rent, etc...

That's a lot of tasks to go from getting the house to getting cash in your pockets - and that's not even all the tasks! I got into real estate thinking it's a passive income stream - was I ever wrong! I bought myself a job. I really don't want another job, but I've got it now.

Specialization:

Why don't SFH investors learn from Henry Ford with the assembly line concept? Instead of each investor building the car from start to finish, why don't investors actually team up, specialize in some tasks, and train $8/hr hires to do the other mundane tasks?

Whatever tasks you do in the real estate business cycle, if you think you're good, imagine how good you'd be if that's all you did all the time? Imagine if that person is available for hire at $8/hr - split between your group of investors, it come out to $0.10/hr cost to you personally.  Is your time worth $0.10/hr?  

Synergy:

In my area, I know that if all the local SFH investors pooled their resources, we'd have over 500 SFH homes in Lansing, East Lansing, Holt, Grand Ledge, Haslett, Dewitt, Mason, Okemos and surrounding areas! We'd be the biggest land owner second only to the government! Anyone and everyone who's interested in lease with option to purchase, land contracts, or any other creative financing strategies would go to this group's combined website before the MLS and Craigslist!

Not to mention some investors are also licensed Realtors, public notaries, licensed builders, licensed plumbers, etc. If everyone teamed up to form a single group/entity, that group would have nearly every certification and license required by any law to do anything real estate related. Break down each task to be as simple as possible, and hire an $8/hr person to do it: answering calls and emails using a specific template made by investors, unlocking doors, printing contract templates with correct addresses/dates/names, craigslist posting...etc

If such a group existed in Lansing, MI, I sure would be willing to pay a few bucks/month for this service so I can free up my time to do what I really like to do: finding the good deals and making the purchase, and then setting the selling/rent price, and collecting the proceeds!

Why don't investors take advantage of synergy? Why do we all operate like there are no other investors doing what we do?  

If you're interested in freeing up more of your time from doing mundane real estate tasks, get in touch with me to start such an entity in the Lansing, MI area - I have some ideas.

 For some reason I thought the felonies were was 2 and 4 years ago.  But upon a review of the criminal reports, they were actually from 6 and 9 years ago.  Which did make me re-think about the candidate since he was 18 - 21yrs of age during those felonies.

@Jim Zatko Thanks for your input.  I agree with you, believe once someone's been evicted, they are less afraid/concerned about being evicted again.   

@Stephen E. I agree with you.  As far as finances are concerned, an eviction is worse in my mind than a felony for having possession of cocaine.  

Thanks everyone else for your inputs. This particular property is in a B- neighborhood. I particularly like the C/B class neighborhoods - rents are not far from class A neighborhoods, taxes are about 1/2 of A neighborhoods, and my all-in cost to acquire properties is about 20% of A neighborhoods. As far as buy and hold goes, my COC ROI in C/B neighborhoods can be triple or quadruple of what my A neighborhoods yield.

Having said that, I do have to be real careful on who I rent to. 

Update on what I did: I decided to go with the couple where the husband has a drug possession felony.  The felonies were 6 and 9 years ago, when the husband was 18 and 21 yrs old, respectively.  To compensate for my higher risks, I increased the rent by $200/mo.  To encourage the couple to be good citizens, I also offered to return the $200/mo surcharge in the form of a $2400 rent credit towards a lease renewal if during the entire time of the 12 month lease they are never late in paying rent and no record of police visits to the house.  

I do like to give people the benefit of the doubt and a chance to live in a nice property (our properties are among the nicest in C and B neighborhoods).  Although I won't hesitate to enforce every detail on the lease agreement and evict if warranted.  The couple realizes that they probably won't be able to rent again (at least not a well-kept property) if they add an eviction to their shaky past.  I also hope, and believe, that the husband has become more responsible since age 21.  

Revive this post in 12 months for an update to see if I made the right decision to give this young couple another chance.  :-)

Experienced landlords and property managers, I need your advice and opinions.  

If you had to prospect tenants to pick from, which would you pick?

Applicant 1: has an eviction from 2 years ago, with a writeoff of nearly $3k from the apartment he was evicted from.    Everyone evict has a sob story, and this one is no exception, but bottom line is there's still an eviction on his record.

Applicant 2: couple who's husband has 2 felonies from 2 and 4 years ago, both for cocaine possession.

Both are equal in other areas (income, rental histories, mediocre credit).

Would a vacant unit be better in this situation?

Look forward to your experiences with renting to felons and evicts.