All Forum Posts by: Daniel A.

Hello Casey,

When determining how much money to put away each month toward CapEx/vac/repairs, you can take a simple approach or you can fill out an excel document with formulas. Erring toward a basic explanation, until home builders figure out a way to make appliances that never need maintenance and never need to be replaced, and figure out a way to make an indestructible house that will never have foundation issues, so on and so forth, you will always need to set aside money to handle such expenditures. General rules of thumb abound, but the last thing you want it to try and put an extra $30 bucks in your pocket a month by forgoing placing it in a designated account, then have a $3,000 plumbing bill come in thanks to some outdated pipes.

With appliances, lest an exception occur, you can generally estimate how long one will last. Say you expect your new microwave to last at least five, maybe seven years. (They generally last nine to ten years, but tenants will be using these appliances, not you.) Okay. You can't foresee microwave prices that far into the future, but right now, say $300 bucks. Seven years is eighty-four months. Three hundred divided by eighty-four is about $3.60. So, each month, for one rental unit, you should plan to save $3.60 so you can buy a new microwave in 7 years. Then you do that calculation for each CapEx appliance: range, fridge, microwave, water heater, dishwasher.

Then comes the unexpected CapEx expenditures. While inspections can reveal what you might need to worry about, unexpected instances occur. You can't possibly know, but you can prepare yourself ... financially.

If you're eager to pocket an extra couple bucks a month, then by all means, do so. But it's wise to keep that slush fund robust so your tenants don't have to wait for you to muster up the cash to pay for the A/C to be repaired. 

Depending on the way you have the property financed, you could always consider getting a line of equity on your property. That way, assuming you didn't save for such contingencies, you have immediate cash available. The thing about this route is that you will be paying interest on the payments. Even though it's a small amount comparatively speaking, it's still something to consider. 

I have spent a large part of my life shrouding myself in secrecy. I didn't want people knowing what I was up to or how I knew what I knew. Part of me feared that by letting someone know these things, they would see through me somehow and see that I was nothing special. Part of me even feared that if I told people what I was doing they would get ideas and be able to do it better. Everyone wants to feel special and I had figured that if I remained mysterious, then that would keep me interesting. What else does he know? How does he know these things?

The thing that I have learned about espousing a position of "information retention" is that you might be retaining the wrong information. You might be retaining a sliver of a concept, thinking you know all, when in reality there is so much more out there. There are so many differing perspectives, differing opinions, differing beliefs. It is once you start trying to understand someone else's beliefs and why they hold such positions that you start opening your mind to new ideas. 

Getting into the rental real estate business, I entered with a somewhat guarded position. I had read books, I had listened to podcasts, I had studied law. I felt that I had the answer to any possible situation. I felt that my way was the best way.

When my business partner would start telling contractors or friends about what we were doing, I felt a tinge of apprehension. He talked about how we were getting into real estate, looking to buy multifamily properties. About how much we were thinking on charging for rent, about the amenities we planned to offer. I wanted to tell him to cool it, I don't want this guy stepping on our turf. But time and again, I let him explain to others what it was that we were doing and what it was that we were planning  to do, and time and again, those people seemed to open up, talking about how they had rental properties or knew someone who had rental properties. These people started providing information and insight on things that I thought I knew enough about.

It came to me relatively quickly that telling others our ideas was not us providing closely guarded secrets. We already had a property, we already had a plan. They couldn't take that away from us. On the contrary, I have learned a wealth of information from simply talking about how I plan on putting a privacy fence around the backyard of each unit. Someone mentioned that I should probably get 811 out to map out the underground pipes. I hadn't thought about that. Someone recommended a few fencing companies and detailed different types of wood. And the slew of compliments, congratulations, and motivation from just about everyone was worth it in and of itself. 

From that point onward, I take a certain delight in telling people what it is that I am doing and even asking for their opinion. While I may think that installing a bar top is a great idea, what do other people think? Well, Daniel, you've gotta consider whether a disabled person will be occupying your unit. A standard bar top usually isn't ADA compliant.

The simple concept of telling others what you do, or are doing, should be a cornerstone of any business model. If you're in real estate and you tell people this, they're not going to tell you their friend Jack has a toy poodle, ran a marathon last week and is looking for a life insurance policy. They're going to dismiss that as irrelevant, instead offering information about how their wife's mother Susanne is looking to sell her house so she can move to the Palisades, but she hates  realtors because of a bad experience she had many years ago. 

Consider telling others what you do as free marketing. Word of mouth spreads and seeds become planted. Susanne might not be selling her house now, but when she does decide to do so, she's going to tell her friends and family. One of those people might just remember you and mention your name.

Consider telling others what you do as an investment, or as a means to save a couple bucks. You could hire a company to come out and diagnose and fix your fridge that isn't cooling, or you could start telling people about that dang fridge. Maybe someone says it's the compressor. They had the same problem. Hundred dollar fix if you do it yourself, an extra 200 for labor if you hire it out. I had this instance occur with a washing machine. Someone said the code the washer displayed meant it needed a new drain pump. $25 bucks on Amazon. I can't imagine how much it would have cost had I hired an appliance repairman to come out.

Time and again, telling anyone and everyone what I'm doing or am planning to do has yielded valuable information. People want to be helpful. They want to feel useful. They want to keep the conversation going. At most, you learn of something that you completely overlooked. At worst, they shrug and say "good luck."

Entertaining other peoples' ideas, opinions and positions can be hard for some. It's as if by listening to Guy A explain how he vets tenants is acknowledging that I may be wrong. If you want to succeed and prosper, you must be comfortable in knowing that you might be wrong. You must be able to be comfortable in the fact that there may be a better way to do what you are doing. But again, what is better for someone else may not be better for you. You must have the ability to distinguish what works for you and what doesn't. But how will you know if something else doesn't work for you if you don't take a moment to at least understand why someone else does it different?

Be comfortable, be confident, be courageous. Try a new way. Listen to a position contrary to yours. Try to understand why that way works for them. 

Get out there and tell someone that you are a real estate investor looking for properties to buy. Tell someone about a problem you're up against. Do this daily and you will find connections growing at an exponential rate.

Hello Rhett,

When it comes to seeking tenants, everyone has their opinions and their procedures. It is always annoying when you post an ad and instead of getting tenants, you get companies contacting you as a means of dredging up business for themselves. There is that part of me that says to entertain those inquiries and see what they have to offer and what their rates are. Just to have that information of file, you know? At some point down the road, if for whatever reason you decide to hire a PM company, then you'll have a good idea of who offers what. I don't know if this would work, but you might want to put a note on your Zillow ad (or any ad, for that matter) asking that PM companies not contact you about providing management services. Be nice in your wording, though. You don't want to scare away tenants because of a harsh beratement. 

But you didn't publish this post to ask about PM companies. So I shall provide some pointers accompanied with thoughts. For starters, despite some contrary opinions, I generally publish my listings in as many places as possible. Yes, I even post on Craigslist. How I go about pre-screening prospective tenants is straightforward. I post my Tenant Qualifying Criteria in the ad. This includes the specifics. At least X credit score. 3x Income. No evictions. Etc. Whenever anyone contacts me, I know that the qualifying criteria was on the ad. I don't assume they read it, though. Whenever a prospect reaches out to me, be it by email or by phone, I take a moment to go over the criteria with them before inviting them to tour the available unit and fill out an application. I let them know of the application fee of X amount and that we use that application fee to pay for the screening service, which provides information regarding all of the criteria. I then ask them if they feel comfortable with the criteria. 

By and large, I don't let tenants fill out applications online. And I always charge an application fee. If you don't, people are going to be filling them out, thinking or hoping that you aren't going to verify the information. After all, what have they to lose if there is no application fee? If they assent that the qualifying criteria is acceptable, what I do is ask them to come tour the unit. After they give it the thumbs up, that's when I pull out the Tenant Qualifying Criteria sheet and once again go over it with them. I then have them sign that Tenant Qualifying Criteria sheet. If they again agree that they meet or exceed the criteria and sign on the line, that is when I give them the application to fill out or direct them to the online portal where they can fill out the application.

I know that having three separate instances of going over the qualifying criteria may seem a bit excessive, but it is necessary if you wish to vet out a majority of the people with credit scores in the low 500s, multiple evictions, and some criminal history. If you do it multiple times, if you have the signed sheet, then those prospects cannot claim discrimination when their application is denied because they didn't tell you about that one eviction 4 years ago. They cannot claim that they didn't know. Most anyone who doesn't meet your qualifying criteria won't bother paying your application fee if they know they won't pass, so long as you are transparent about your criteria. You ensure they know by driving the point home.

Yes, that process is time consuming, but would you rather vet 10 applications, denying 9 of them because those 9 people didn't bother reading anything other than the rental price? Or would you prefer vetting 1 application that a screening yields positive results?

As to doing a make-ready (getting your house rentable), the key there is to just clean everything. And when I say everything, I mean everything. Pull out the fridge. Clean all sides, around the bottom, behind it. Clean inside the fridge, inside the microwave, inside the dishwasher. Make sure the garbage disposal is clean and working. Clean the floor. Wipe down the baseboards. Scrub the toilet. Scrub the sink. Get yourself an outlet tester and go around making sure all the electrical outlets work. Make sure all the lights work (interior and exterior). Make sure the smoke detectors work. If you have a garage, do you have a garage opener and does it work? Clean the carpets. Fill in any holes in the walls. You could also consider hiring a company to come do a top-to-bottom cleaning for a couple hundred bucks. Oh, and make sure all the appliances work, and especially the toilet and the shower. Make sure the shower doesn't pool water up.

Once your rental looks brand new, make sure that you get yourself a Move-In/Move-Out Inspection sheet. This is the form you give to your new tenant the day that he/she/they plan on moving in. I highly recommend that you do the walk-through with your new tenant, having them mark down any blemishes they see. Take photos if they point out anything. DO NOT skip having this sheet filled out. Last thing you want is your tenant moving out, claiming that the bowling ball-sized hole in the wall was there when they moved in and you having no tangible proof otherwise. 

I hope this gave you some guidance. One other thing you can do is Google "Apartments for rent in [your city]." See what the top results are and then figure out how to get your property listed with those services. 

Hello Dan,

As a fellow Dan, I felt inclined to reach out to say welcome to the world of REI. It sounds like you and your wife are working to educate yourselves and I commend you. Real estate investing is a never ending educational journey. If you have the drive, if you have a passion, then continuing your education is easy. It's fun, even.

I envy that you are in Colorado. I lived there many years ago in Fort Collins and absolutely love the state. Maybe one day I will make my return and see about getting some properties up there. But until that time, I just wanted to say hi, congratulate you on deciding to take the "wild ride of REI." We are in a great time where the dissemination of information is widespread and the solutions to any problems you encounter are a click away.

Make sure to keep the BiggerPockets community updated on what you're working on. We all want to toss in some motivation and we all want to see you succeed.

_______________

Hello Orvil,

The way I see it is that if you plan on getting the horse, then you're not putting the cart before the horse by any means. It's all in how you bring the components together once you have everything. You know that you're going to need these components at some point to enhance your business, and if you've got one or the other in front of you, jump on it.

And look at it like this: A website is a means of advertising yourself. If you craft a website that is simple, succinct, and to the point, then people will know who you are, what you do, and what you want. If they have what you want and want what you have (your business or your money for their product), then they'll have a way to reach out to you. In many ways I see the website and your professional image as the road upon which the horse and the cart travel. If you give yourself a professional image and conduct business in a professional manner, the road will be smoother.

Let me toss out an example of the importance of marketing yourself. I have a friend who has decided to breed and sell a certain breed of dogs. He has the dog but the breeding stage has not yet commenced. However, he has already posted information about it online and has already received multiple expressions of interest. He took the same route when he was working on a tiny rental property. He had multiple people lined up before it was even ready. I, on the other hand, usually like to have everything set in stone and ready to go before I start marketing, but I'll tell you this, my friend gets ten times the amount of interest in whatever it is that he's doing by doing his method. It's a motivator when you see that X amount of people are interested.

It seems like you are already on this track, but I'll toss out some ideas just for the fun of it. Get your website up and going. Get some business cards. But before you get the business cards, do yourself and your business a solid: get a professional email. Don't have a great business card with an @gmail.com ending. You will stand above others if you get the @[your business name].com. It exudes professionalism. You might even want to get some t-shirts with your logo. Maybe some nice polos. I am inclined to recommend getting some pens with your logo and number printed on them. I have seen a few people draw blanks on a company name only to pull out a pen and recite the information on it. But then to complicate things, I also want to recommend that you don't overdo it. If you're giving everyone you meet a pen, a business card, a magnet, and a bumper sticker while you're wearing a branded t-shirt and a branded hat, you're going to look a bit corny.

Hello Dan,

I can't say that I have experience in dealing with flipping a trailer home (manufactured home, to those who prefer such vernacular), but I felt inclined to toss out a position that my contractor espouses. While we were waiting for a metal shop to cart out some siding, he started telling me about a different job he was working on and explained that working on trailer homes is a lot harder than traditional brick and mortar. Apparently they err toward cheaper, more permanent construction methods. He said they usually glue the floor down, so it's a real pain to have to scrape it up. The siding is a pain. The flooring is a pain.

I was quite surprised as I half figured a trailer home would be easier, cheaper. And I am sure that some are constructed in such a manner as to accommodate renovations, but they have their ups and downs, I suppose.

I'm sorry. I wish I had some more worthwhile information to provide. I am sure, however, that there are plenty of capable contractors who are very good with such projects. (I will admit, the contractor I have at the moment is somewhat … lazy.) Don't let my response deter you from at least making some inquiries and getting some bids. I always recommend getting at least two, if not three separate contractors out to assess and give estimates. I also try to compensate them for their time. I feel bad having different companies spend their time out there for nothing, even though there is that potential to get the job.

Hello Mamadou,

I want to start by saying that you are making a great choice in considering house hacking with a multifamily property, and you have made a wise choice by reaching out to the BiggerPockets community for some guidance. While I am by no means "seasoned," I still thoroughly enjoy throwing out ideas in the hope that you (and anyone else reading this) will find something of use. A lot of this information bounces around in my head, so I find it somewhat therapeutic to write it down in a public forum. It also provides others a chance to correct my mistakes.

Me personally, I prefer house hacking in a multifamily setting because of the privacy it affords you while still generating income. Even if you obtain a property that doesn't give you a monthly cash flow, you still gain equity and you still save the difference were you to rent an apartment or get a mortgage on a house. I generally espouse the belief that if you are planning to live in the multifamily, you really can't go wrong, even if your tenants' rent doesn't fully cover the payments. If it's close enough, you always retain the ability to make a profit were you to decide at some point to get another property and then rent out the unit you plan to live in.

As to the down payment, it all depends on the lending route you choose. I also say that it depends on what you plan on doing with real estate. If the extent to which you plan on getting into the world of real estate is buying one multifamily property to live in, then really, you shouldn't concern yourself too much over the down payment. The larger the down payment you put down, the lesser your monthly payment will be. (Of course, if the purchase price is high, then putting down an extra ten to twenty thousand isn't going to bring that monthly payment down to an exciting degree.) But on the other hand, the larger the down payment, the less money in your pocket. If you have your sights set on buying up more properties and building a portfolio, then you want to consider some constructive financing options so you can keep as much hard cash on you as possible. The last thing you want is to see another property that meets your fancy, only to not have the cash to go for it because it's all tied up in one property. There is always the Opportunity Cost to take into mind. Then again, you really have to consider your options - which can be largely dictated by the lending institution's criteria.

Another thing to take into consideration is how you plan to manage the tenants. Are you going to take on the role of the landlord, or are you thinking about hiring a property management company? If you want to be a landlord, make sure you understand what that entails. You could always hire a property management company and then present yourself to the tenants as just another tenant. That way the tenants aren't bothering you with their problems and you might even get a little insight into the property that you otherwise wouldn't. But if you want to be a landlord, make sure your lease is solid. I personally downloaded a standard lease that was designed for my state and then I went through countless webpages outlining the "necessities" for a lease. I spent the better part of a week working out my lease and ensuring that it covers things that other landlords have dealt with. You know, making sure the lease has provisions outlining severability, noise, exterior banners, etc. I also have a House Rules Addendum which goes over things such as acceptable things to flush down a toilet. It also says in large bold letters near the top that 911 is who you call for emergencies like fire, police or medical matters. Not me. And then you've got the clause about how I'm not responsible if the TV goes out or if your power gets shut off (as tenants pay for their own power at my units).

Really, though, if you have a drive to take on the responsibilities of a landlord, that drive should propel you to be the best landlord that you can. I just want to stress the importance of making sure that your paperwork is in order, because tenants will press you and they will see how far you will let them go. You must be courteous but firm. Always enforce the rules uniformly unless you want to risk a discrimination claim. 

Having tenants, be it through house hacking or having investment properties, can be a very rewarding experience ... if you do it right. You stand to gain a lot of money, but you must also be aware of the risks if you want to cut corners. Think of having tenants and an investment property as driving a car through the city. So long as you follow the rules of the road, you'll be good. So long as your tenants follow the rules of the road, they'll be good. The thing to remember is that some tenants need to be taught what the rules of the road are. This can be done through a thorough explanation of the lease and its provisions (rather than either having them just sign it or letting them read over it on their own). If they didn't comprehend something and violate a rule down the road, you'll have to remind them of the rules by means of a written violation. Each subsequent violation should increase the verbiage to imply heightened severity. Even if you follow the rules and they follow the rules, sometimes an unexpected incident occurs. A deer jumps out in front of you - the sewer backs up; you get a flat - someone backs into the power pole; a rock cracks your windshield - some wind blows a large tree branch through a window. If you violate the rules of the road (the laws a landlord must know), you stand to get a ticket. And those tickets can come in the form of a lawsuit. 

Understand the laws and take steps to protect yourself so your investment works for you rather than against you.

I am sure my response isn't precisely what you had in mind, but I pride myself on providing a diverse array of information to any particular response. I feel like there are so many things that prospective landlords don't think about, and I want to help broaden the scope to the best of my ability.

I wish you the best of luck and I hope that you find a property that will bring a sense of pride to you. 

Hello Orvil,

If you want to find those deals, get out there and market yourself. Anyone can hop on Zillow and look at those spiced up pictures and decide the asking price is within a respectable range. But if you want to find those off market deals, there's one of two ways that will get you further along if you keep at it.

Way One: Tell everyone that you are a real estate investor. Plain and simple. Let your friends and family know. Let your neighbors know. Let the mailman know. Let them know that you are actively searching for properties in the X area. If you have a specific type of property (i.e., multifamily, single family, condo), tell them that that is what you are looking for. Someone you talk to might know someone who is just so happening to sell what it is that you're looking for. I would even go so far as to have some business cards printed up. It might seem a little pretentious, but how would anyone get in contact with you otherwise? It would also show that you're serious, and not just blabbing your mouth about wanting to get into real estate.

Way Two: Place ads. You ever hop on Craigslist and see listings saying "I buy any home!"? It might seem cheap and corny, and it is to a certain degree, but if you're gunning for deals, you don't want to let some prospects slide by. Place a respectable ad saying something to the effect of, "I'm looking to buy your house!" Plain and simple. Then craft up a description and see what happens.

I will also say how you go about marketing depends largely upon your business model. Are you looking to invest in turn-key? Or are you leaning toward flipping? Are you looking to keep the properties as rentals, or sell them off to other investors? If you're looking to buy turn-key, then trying the Craigslist route might not be your best option, whereas if you're looking for a beat up property that you can get cheap, Craigslist might do you well.

What I will say is this: Let the world know that you're a real estate investor. If someone knows you, if someone likes you, and hears that you're in the market for a property and their friend's grandma is looking to sell, they just might bring that deal to you before they hoof it to the realty office down the street. Some of the best offers come by word of mouth.

Keep pressing onward and reading up on how to find those properties. Hope I provided some level of guidance. The best of luck to you.

Hello,

While I likely won't provide you with much useful information, I will see what I can do. The main loan that requires you to actively reside in the residence is an FHA loan and so far as I can recall, it requires that you live in that residence for at least a year. It also requires that you move into that residence within 60 days of signing the agreement. What I would recommend is that you speak with a loan officer at your local bank and ask about the provisions. Even if it's just an educational journey, actually getting out and talking with loan officers gets you in the mindset of getting things done.

There are a lot of other provisions and restrictions, but there's that. As to other types of loans, it's really one of those processes that you should go and talk to the local loan officer and see what that particular bank offers. Get an idea, and then go to another bank and see what they have to offer. Diversify your knowledge. One bank may say that there isn't any likelihood that you'd get a loan with them, while the next bank will give you exorbitant interest rates, and the next one gives you everything you want and a scone. Don't settle after the first bank. Keep hunting down lenders. Do your homework, get proposals, understand where your credit stands (i.e., do you know what your credit score is?). 

There are plenty of loan options for investors who don't wish to reside in the rental, you just need to find the institutions that do such loans, and you also want to look into how they differ from other loans. Look into portfolio lenders. Look into mom-and-pop lenders. Local banks often don't have the high oversight and restrictions that nationwide institutions do. But they can be harder to gain that initial trust.

You're on the right path and I think that once you really delve into the realm of loans, once you get out and start talking to loan officers at various lending institutions, you'll quickly get a grasp on the vernacular and the concepts. You'll learn which loans will afford you the leniency that you desire and you'll learn which lending institutions are investor-friendly. 

Hey Zayan,

Really, when it comes down to making this decision, you should take into consideration what your long term goals are. Do you want this one property to be your sole investment? Or are you looking to obtain more properties? Are the terms of the loan you can get reasonable? 

Why I ask/mention these questions is that, by and large, the idea goes as follows: Use as little of your own cash as possible to make it go further. Say you have $100,000 of cash to use. If you have the option to get a loan with, say, 10,000 down, then you can get your palms on maybe ten properties. But on the other hand, if you get yourself a house and you pay cash, you can get your palms on one house. One source of income vs. ten. Of course, there is quite a lot more to it than that, but for the sake of simplicity, that's the idea. 

If you go with the loan method of finance, you have less of your own money into the deal. While that equates to less equity off the bat, many investors would prefer the approach of having ten properties building them equity (and optimistically padding their pockets each month as well) rather than having their cash tied up in one property while the cash slowly flows back in. And the loan method plays heavily into the concept of not using your own money to fund a business.

Hope this provides some base of understanding.