All Forum Posts by: Darwin Crawford

@Jeff G. - thank you for the kind words!  It's my hope at some point to write more articles for the new crew, hopefully they can learn and profit from all our mistakes!

Thank you everyone for the feedback, hopefully it made someone's day a little easier.  

@Nolan M. - thank you, I hope it was at least a little helpful!

@Thomas S. - I agree completely, however there is a point in the game (for me it was buying commercial property) where the lenders require it (25% down).  Also putting more down on a property that already cash-flows well gives a bit of "safety margin" which can be a lifesaver early in your investing adventure.  

@Nathan Gesner - yes, sorry it was a little long, thank you for reading it all!

Hi there BP!

the following is something I feel needs to be written to kind of get a lot of things on the table.  First off, a couple of disclosures:  

1) I am NOT a millionaire in real estate.  I'm just a hard-working dude with a small-to-midsize-ish portfolio that has had a lot of experience around the business, and wanted to share.  That being said, it is growing.  

2) Some of the things you might read here are a) not PC b) might offend you and c) might cause you to take a 2nd look at what you are doing.  I also have a bit of a potty-mouth.  You've been warned.  

3) I work full-time at a real estate investment firm, am NOT a licensed realtor, don't really care to be one, and spend a lot of time dealing with unreasonable people.  I also have very limited tolerance for "sweating the small s**t"

4) your activities here on BP, as well as your REI are completely voluntary. That includes reading this post... ;)

Now that we have that out of the way, I can tell you that I actually really, really enjoy the landlording business, but it took me some time to get there.  Its been up/down/sideways and whatever else you can think of, but at this point, while I have not reached Zen, I'm getting there.  Why am I writing this?  Easy - this place helped me a lot, and I'm giving back.  Its been a god-awful couple months for me personally full of heartache and loss, and I need some positive vibrations in my life.  

First off - Landlording, if done incorrectly, or cheaply, or any one of 354,622 ways that it can be done wrong, is going to be a gigantic pain in your ***.  It will also be a pain in the *** to your family, your dog/cat/weasel/horse, your spouse, your co-workers, and your wallet, as well as possibly contributing to my early onset case of male pattern baldness.  Lesson learned.  

However, with some thought, some know how, some support from your friends on BP and the use of more than 15% of your brain, its a lovely way to make a living.  

In a nutshell, you are deciding to get in business for yourself, using some basic leverage, and attempting to better your life.  Mazel-Tov!  That being said, where people tend to run into trouble (myself included) is when their business plan wouldn't hold up to a wet slap from a tired 5 year old.  

Your rentals are a PRODUCT that you introduce to a MARKET and need to SELL them.  This sounds simple but its not.  We all bring some kind of unique skill to this business, and YOU have to decide what YOURS is.  I was fortunate enough to learn a LOT about construction, and then TAUGHT myself a lot about finance, and I still screw it up sometimes.  Such is life.  

The bricks, sticks, wires, pipes and machines WILL BREAK.  If you take the usual moronic approach of buying the cheapest mass-produced imported garbage from your local Big Box, and then slapping it together, and think it will last, then you WILL spend a lot of nights/weekends fixing that same garbage.  Your tenants WILL tear stuff up.  They WILL try every last stupid trick in the book to get one over on you, pay late, get something for nothing.  Plan on it, or you will lose sleep.  

If you want to own something that will pay you for 20-30 years, act like it.  The professionals in this business know maintenance about as well as Warren Buffet makes money, or Jenna Jameson does what she does........listen - you're going to have problems as a landlord.  Just decide what kind of problems you want to have, and take it from there!

In other words, your mindset on this starting out will greatly affect how it goes for you.  If you think you can buy a jalopy car and get into trucking....well....give it a try and let me know how it goes.  

THE BASICS:

 - Sales - this is easy.  Think about it - all of humanity wants a nice place to live.  This was the reason we first got into caves from trees, made fire, wore skins of animals, and fought wars.  How is this practical?  Use what knowledge you have to provide a better product at a price that is competitive, in a market where demand out-strips supply.  Make sense?  If you live in a small town like where I grew up, and every rental is a beige, roach-infested glory hole, then make yours nicer!  Duh.  If you live in a city like where I do now, make your rental look better than the 35,000 other basic boxes run by DGAF staff, and guess what?  You will have basically zero vacancy and TONS of qualified applicants!  Say Whaaaaaat?  

An ancillary benefit of this is that when you have a nicer product than the competition, your customers (tenants..catching on yet?) will COMPETE for your product and once they have it will WANT to stay, and take care of it.  It also makes increasing the rent stupidly easy.  Hell, I've been offered rent increases by tenants!

 - Maintenance - Dude. $h*t breaks.  Deal with it.  The general rule of thumb is this - if it might break, its going to break.  The logical second step to this is that when $h*t breaks, its going to annoy you.  Especially if you aren't planning on it.  Here in the desert, AC units only break at 8pm on Friday when I'm out to eat with the wonderful woman I am lucky to share my life with, and its 110 degrees.  While I don't have personal experience, I'd guess the same goes for heaters in cold places when its 30 below.  Now, call me crazy, but I would rather spend a little more money, in a predictable and responsible manner, than have stupid maintenance calls.  On the rare occasion when I find myself in one of those blue or orange hellscapes known as "Big Box Stores" and I see some newbie trying to fix a drain with cheap imported goods made with child labor, my soul dies a little inside.  Get to know your professional suppliers with higher-quality, preferably DOMESTICALLY MADE goods, and know that yes, you are going to spend a little more, and you are going to have less $h*t break.  Planned expenses are like anything else - better the devil you know than the devil you don't.  

 - Property Management - Ok, in case you haven't gotten the memo, it is 2017, and we landed MEN on the MOON before I was born.  If you are still waiting for checks in the mail.....well, good luck.  I've traveled a LOT of this country, and a parts of many others, and if a dude in rural Guatemala has a smart phone, then you have no excuse for not running your business with technology, leveraging it to your advantage, and taking yourself out of the equation as a barrier.  Collect rent online or not at all, use some kind of background/credit service, require auto-pay, and hey, guess what?  If you truly have a nice spot to live, and people want to live there (remember the sales thing?), no one will give a rat's hindquarter about doing any of those things, and you can just go relax!  How cool is that?  Another nice benefit of this is that if your tenants feel like they are getting a good deal, and you haven't made the mistake of renting to a pile of muppets, they are far less likely (but not immune to) pulling moves.  When they do pull a move (not IF, WHEN), there is 1 rule for it - no mercy.  Well, another rule is that judges tend to like people who are really organized.  So 2 rules.  

 - Location - this one is big.  As in a mission critical item.  I personally dislike the following: cold climates, annoyingly tenant-friendly laws, long eviction periods, onerous city governments, shrinking populations, and generally anything over a 20 minute drive from my house.  Yeah, I get it, you are different, and your life is a beautiful and unique snowflake.  (actually, news flash - its not, but thats another post).  So, this one is up to you, there is enough info on this forum to keep a meth-head busy for 9 weeks on that topic.  So have a couple espressos and go nuts.  However, this part will affect your sales.  

- Money - you will need it. I personally think anyone who doesn't put down 10% or more is gambling, but you probably think I'm an idiot, doubly so if you are still reading this...Jeez. Practically speaking, here is how that goes: cash buyers will kick your a$$ on most deals, so be prepared, properties cash-flow better with 25% down, either spend it upfront in repairs/upgrades (good ones, not crap) or be prepared to bleed it out on maintenance, and (this one is important) if your property maintenance schedule/budget (you don't have one? you're an idiot!!) would put a 7 year old full of skittles to sleep, then you're doing it right. Learn IRR, learn CoC, learn what CapEx and R&M budgets are. Remember, you're a professional, so act like it. Do you think the rich guys got there by just guessing? If you do think that, well, I've got some arizona oceanfront I'll sell you for one hell of a bargain. PM for details.

 - Tenants - they are your customers.  Keep them happy, be firm but fair, and don't be a patsy or they will flat run your *** over.   Allow dogs and cats if you want, but charge lots of money for them, and never forget that YOU are in charge.  People tend to want to do business with people they like.  Nothing gets someone's attention like smacking them in the wallet.  Implement what I call a "Zero Bull$h*t Tolerance", and tell people that upfront in the nicest way possible.  If you get a bad vibe, run like hell.  Responsible pet owners will gladly pay much more money for a nice place to live.  Credit Scores aren't everything, but higher FICO's mean they have more to lose.  Get better at negotiation.  Work out more, I got a lot less flak from everyone once I hit 190lbs of piss and vinegar.  Lets me be nicer too!  

 - Bankers - Mark Twain said it best - they are the type that will loan you an umbrella and ask for it back the second it starts to rain.  Plan accordingly.  They never get things done on time, its always delayed, and always costs more than expected.  Don't get annoyed by it, adjust your expectations.  Yes, you need to have money, liquidity, good credit, and savings.  Why?  Because when a lot of amateurs got into this game without a plan, they about ended the world as we know it.  (Ok fine, some cocaine-addled lunatic smart guys and a mountain of derivative debt helped, but still).  Again, remember the professional thing?  You want to be treated like an adult?  Me too, but keep in mind that money is a powerful tool, and no one wants to hand a 5 year old something that he can hurt himself with.....sodas obviously notwithstanding.  

Anyway, I'll shut up for now, as the espresso is wearing off, and life beckons.  Comments, good and bad are welcome, but please don't ask me silly micro-managed questions, keeping the 30,000 foot view of this game is critical, and a skill that needs to be cultivated. 

Happy Landlording!

@Melissa Kelley - to answer your original question, yes you can charge for your labor in certain states.  I am not familiar with Indiana, and this is not legal advice.  It must be documented, with professional receipts, as you are a landlord, and should run a professional operation.  

For what seems to be your other question, which is "what do I do when the tenant painted and it looks like garbage" is also simple - that is property damage, and needs to be rectified at the given market rate.  

While I don't know what that will cost in Indiana, let me be clear on how I would approach it: 

Painting, as a trade, is typically cheap.  Here in Arizona, it is usually much cheaper to hire someone who does this every day, than waste your time going to the store, buying paint, getting filthy in the process, and then cleaning it all up.   You, as an investor and a landlord, have better things to do with your time.  

This is why you take security deposits - to cover this kind of issue.  Your job as the landlord is Documentation, Supervision and Execution.  Hire it done professionally, document it within an inch of your life (before and after photos emailed to the tenant and yourself with time/date stamps), and deduct from the security deposit.  All in accordance with state law.  

Having been through more than a few evictions, and to court a few times, I can assure you that the legal system favors those who are organized.  Almost more than those who have large amounts of money.  

Then move on with your day.  

Also - I'd like to be clear - I spent 15 years in the trades before getting into this game.  I'm not above getting dirty, and I do all my own electrical and most of my HVAC work, as well as welding and roofing.  However, this is a minor issue, and should be treated as such.  Pay for it with the tenants money and move on. 

@Nicholas Weckstein - I would imagine so, although the "easiest" loans to close are the 60 month rate locks, and they either balloon or get refinanced on month 61.  Anything longer just gets more expensive.  

After 18 months of ownership, there is one private lender I know who will do fixed 20 YR money on some commercial, I was quoted 6.99% on it with a point or two in there.  

If you can make those terms work, I'd get a contract on the building and then go to Velocity Mortage or Silver Hill Funding, as they also do "lite doc" loans on commercial if you can make the 7.5-8.5% interest rate work, and DSCR is 1.25 (might be 1.3, so double check that) or better.

Again, I'm not affiliated with any of these companies, but simply sharing my experience.  I'd also ask the 3 geographically closest small local banks to the property, as we all know, real estate is local and banking tends to follow that same path.  

It sounds like you have slightly better personal financials than most, albeit somewhat leveraged, but with a track record, I don't see it slowing you down a whole lot.  

@Mary Ann Wells Fargo will give you one for free with a business account, and it doesn't show up on your credit report.  

I was handed $15k in credit card limits without a word of asking.  Initial deposit of around $50k, but has gone as low as $5k and they haven't said a word.  

I monitor my credit very closely, and it hasn't shown up with any of the big 3, and its been over 2 years.  

@Nicholas Weckstein - You are ambitious, but possibly not wrong.  

Here is what I have found in my first foray into commercial:

- 75% LTV or LTC in the 1st 12 months of ownership, class C is 65-70%, and each lender has their own definition of "Class C", but build date will be important. Typically if a property is pre-1980 built, its going to be class C unless it has had all major mechanicals replaced. Roof included.

 - 30 year schedules are tough to find, 20-25 year can get done all day long.

 - 7 year rates are available but you'll pay probably 500-850bps higher for them.  ditto on 10-year locks. 

- They do look at DTI's, not as hard as residential, but DSCR will get you about 75% of the way there, the rest is up to you.

 - the rural thing is real, and after shopping around what felt like the entire internet, I got the best deal from a small local bank...go figure.  

@Shane Paeper - keep your commute short, live as close to old town as you can, keep in mind that even though AZ is a very landlord friendly state, its usually a pretty equitable process.  I have quite a few friends who work/ed at Vanguard, and they enjoyed it a lot. 

As someone who owns rentals and rents my primary, I'd say the second most important thing behind liking where you live is how comfortable you are with the landlord.  I got into this business a few years ago and am continually amazed by how bad most people are at their jobs.  Slow to return your calls?  Run away, because the first time something breaks it gets even slower.  Sloppy with appointments or cavalier with your credit report?  Keep looking.  

In certain parts of town the Class A space (apartments) are somewhat overbuilt and there are concessions starting to appear.  Don't believe the leasing agents at the desk that tell you "they are almost full"....its BS and you CAN negotiate some.  

In other sectors, the rental market is pretty competitive.  I got a smoking deal on my primary as a rental, but I came in hot with a whole credibility package, credit report, cashier's check, letter from my current landlord, and I knew the listing agent's boss through work....present yourself as a great tenant and you'll do fine.  

Oh, and welcome!  Scottsdale is a wonderful place to live.  

@Corwyn Oliver - rentometer.com is what I use, had very good luck across lots of markets.  No direct experience with East Texas though, but their database is nationwide.