All Forum Posts by: Satyam Mistry

@Porsha Fross I still use LVP, but have switched to products from LL Flooring. I look for something that is around 6mm in thickness and has a wear layer of around 20 mil.

🏠 (Part 3) Lessons I have learned from owning & managing residential & commercial properties:

• There is not much you can do with some one time costs, but focus on recurring expenses & how you can either eliminate them perhaps through a one time large expenditure or reduce them.
  
  
• Pay invoices early. This gesture gives you greater credibility with your contractors & service providers. Just as we notice when renters pay early the same effect can be applied to others. This can also give you faster service in times of need.
  
  
• This is a For Profit business & every revenue stream should have profit attached to it. Take advantage of the market we are in right now as it will not last forever.
  
  
• Different people are playing different games than you. There are many different strategies, partnership structures, & exposures. A short term investor will have different metrics than a long term investor & comparing the two is not meaningful to either party.
  
  
• Unit count is fun to talk about & can give an idea of the sophistication level of another investor, but getting caught up in comparing them has little to no value. Other metrics I have found to be more meaningful are revenue, gross profit, & equity.
  
  
• Understand the importance of time when evaluating performance. It can take a few years before truly being able to see how a property performed.
  
  
• Pay yourself to replace yourself. Allocate or at least consider your fee for management or work you are doing within your businesses. This does not mean you need to draw the funds to you, but attach a dollar value to your contribution.
  
  
• Don’t get interest rate greedy. Passing on a historically good rate to get a great rate is like trying to time the market on when to buy…
  
  
• When evaluating a tenant application pay attention to the promptness & thoroughness of their replies. This has helped me to make a decision when the application may have an area of concern. The communication the tenant provides can show their commitment & responsibility.
  
  
• Consider the labor intensity it will take to run a particular property. The financial underwriting does not always take into consideration the time value of managing the asset. Managing 20 single family homes is a different process than managing a 20 unit C class property. Both can be great investments, but they will have different challenges.
  
  
• Don’t get too high or too low, expect that stuff is going to go wrong even when you are having some good months in a row.

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Would love to hear lessons and tips others have learned!

☎️ 💵 🔨 Sharing a post on management style as there is much discussion about passive versus active income as well as the different approaches on handling property management.

A helpful way to look at management of your property can be separated into 3 tiers:

1st Tier - This approach consists of doing everything related to your property yourself including showings, leases, & maintenance requests. Time can be stretched thin on this approach as it is difficult to scale when you are also collecting rent in person, doing snow removal, & taking all maintenance requests. This approach would require some basic handyman knowledge & may save money out of pocket, but the opportunity cost of time may be lost. This can be thought of as the old school style that many landlords utilized before the availability of all the tools today.

2nd Tier - This approach combines elements of both passive & active approaches & has become possible in more recent years with all the advances in technology that make it easier to manage properties such as online listings, rent collection, smart phones, property software for accounting, etc. You can handle the majority of requests through your phone & utilize 3rd party contractors for items such as lawn care, plumbing, HVAC, & general maintenance. A tenant can inform you of a particular issue which you can then inform the appropriate contractor of & have them coordinate with the tenant directly. In this approach you can still control certain items that are important to you such as listing & showing the property to potential applicants, doing the leases, & handling all communication during tenancy.

3rd Tier - This approach relies on a much more passive role when it comes to management as you are hiring a 3rd party company. In this case it is crucial to have weekly, monthly, or quarterly reviews with your management company depending on the size of the property & the strategy being used. This comes at a cost, but can be efficient for those that are not full time real estate investors or do not have the interest in managing properties in any form.

A critical point to note is that the type of property that you are targeting can also determine the labor intensiveness of management. Inverting this equation & thinking about what type of tenant you would like to attract will allow you to position the property to appeal to those applicants & help in determining the type of management that may work best for you.

Also when choosing to self manage any commercial properties such as those that are 5 units & above I would strongly recommend including a management fee such as 10% as part of your cost as your commercial lender as well as a prospective buyer will assess the property this way. If this fee is omitted in your cost you are potentially decreasing the value of your own property & your returns will be lower than originally assessed in your underwriting.

Congrats on saving up $30k that is a great accomplishment. I would say that a BRRRR is a great way to get into a property at any point as long as the property can support the refinance. Remember even if you have $5-10k left into the deal that is not a bad thing as it is still less than if you had done the traditional 20-25% down payment. Generally the rule is you want to purchase the property at 70% ARV minus rehab costs which has become very difficult to find in this market. Doing some off market marketing and cold calling is a good way to hunt for deals and I would suggest that you try this as it has the greatest likelihood of bring a BRRRR type of deal for you. Just don't get discouraged as it may take some time. A HML is certainly an option, but just make sure the deal can support the expense of a HML and remember these types of loans are short term loans usually for 3-6 months. You should start shopping lenders and getting approvals for who you would plan to refinance the property with after stabilizing it. Another option you may consider is applying for an FHA or first home buyer loan as this is also your first primary home purchase. You may qualify for a very low downpayment such as 5% or less. This is considered house hacking and you would not need to refinance in this case since you would already have very low cash in the property and great terms for interest rate and amortization over 30 years.

🏠 (Part 2) Lessons I have learned from owning & managing residential & commercial properties over the last 5 years in the Omaha, Nebraska market:

• We often start with & focus on the interest rate when shopping lenders, but other terms can be more important than a small difference in the rate such as length of the loan, amortization period, origination fees, & prepayment penalties. These are all items that can be negotiated with your lender!

• Having a lender that does not get offended if you shop around to get the best terms for your investment is important. You want to create a strong & trusting relationship with your lending contact, but occasionally looking at different options should not be discouraged. You can improve terms by having lenders match or compete on certain items.

• Loan origination fees can vary from bank to bank. Shop around & note this amount as it can be a difference of thousands of dollars. Some lenders do fixed amounts for their origination fee & others do a percentage of the loan.

• The power of leverage on even a smaller portfolio can be powerful. On a commercial loan you can look at doing a combined loan on multiple properties & potentially get a lower rate & a new balloon period which can help lock historically lower interest rates for longer periods of time. Important to ensure no prepayment penalty exists if refinancing.

• Experimenting with leases that are both shorter & longer than the standard 12 month length. If commanding top of market rent a longer lease term such as 18 months can lock in more guaranteed income & reduce turnover costs. If considering a shorter length term such as 6 months you can charge a premium above market rate. You can also offer a month to month at a premium on a renewal at the end of an existing lease.

• Ending leases between March to July can make re renting a property easier due to the weather & more people looking for homes at that time of the year. Staggering different properties to end at different months within this range helps to ensure you don’t have all your vacancies occur at the same time as well. Utilizing a shorter or longer lease to accommodate this can be beneficial.
• New lease preparation & lease renewal fees help compensate for your time or cover subscriptions for electronic signatures. Utilizing electronic signature software is a huge help when signing new leases or doing renewals.

• Ensure the strength of your lease will hold up for collection purposes. You don’t need a 20 page lease, but ensure that however long it is that it will hold up for eviction & collection purposes if ever required.

• Utilizing tenant tip letters 1-2 times a year can be helpful reminders for things such as winter preventative maintenance or general care. Physically mailing these letters that include visual imagery can resonate better than being lost in email inboxes.

• Having a folder of saved templates for common forms such as leases, renewals, rent increases, inherited tenants, move in/move out reports, lead paint disclosures, etc. help expedite preparing these as they are usually the same few forms that are continually repeated.

• Protest property taxes yearly. Nebraska is among the highest property tax states in the country. You can protest your property taxes yourself or have an appointed officer during the protest period that does not cost you anything. It is well worth taking a shot and seeing if you can capture any savings on one of the largest operating expenses.

• Your reputation with tenants, contractors, service providers, and other investors have a tremendous impact on helping your success. They give you referrals, prioritize your service calls, & expedite requests where time is essential. You can start building these relationships from your first property on.

• Experimenting with different scenarios & options is a great way to learn what works. You can do these trials with lease structures, materials & finishes used for a rehab, trying different service providers, etc. Like any business you're continually looking for opportunities to improve your operations.

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Would love to hear lessons and tips others have learned!

@Dave Spooner Absolutely, the potential of decreased turnover from having a more desirable up to date property can also have a large impact on consistent cash flow!

Like most investors I believe cash flow is a critical component of an investment. However I think that the cash flow numbers on paper can at times look so attractive that we forget about the fundamentals of the property and clientele that will be living there. 

Cash flow is critical, but not always at the cost of collections and quality. We can get too focused on the potential cash flow without considering the consistency of collections, the wear and tear of the property, the turnover, and the headaches related to operating. 

If we have a unit that can generate close to market value rent, but is not updated or a place we would want to live in ourselves then we have to consider the quality of resident that will live there. Perhaps to update the unit will require thousands of dollars out of pocket and it will take a few years to recover that investment from the higher rent value created. Instead of only looking at the ROI on that investment we can also consider the following:

• Time taken to rent the property
• Attracting a higher quality resident
• Consistently collecting rent on time
• Larger pool of interested applicants
• Durability of finishes

The time taken to rent the property is easy to overlook as we can focus on finding that one qualified applicant that will rent the unit as is rather than appealing to a wide pool of qualified applicants. The longer a property sits on market the more it is costing both in expenses and lost rent. 

I consider a higher quality resident to be one that is excited to live in such an attractive unit, is financially stable, has an excellent payment history, has pride of ownership, and is honest. 

This ties into the saying that it is better to wait for a qualified applicant rather than fill the unit with anyone who is interested that has the deposit and first month's rent. If our unit is sitting on market for too long with not much interest from qualified applicants we can look not just at the price, but also the finishes and appeal of the property itself. 

I like to look at properties not solely from the cash flow and return on investment, but also from the collection and quality standpoint. When thousands of dollars are going into updating a cosmetically older unit those upgrades should also last for many years and be easier to maintain through turnover as you are thinking not just about what looks nice, but what will hold up well over the years.

I'm interested to hear others thoughts, comments, & questions.

@Ryan O'Hara I would first introduce yourself with a letter informing them of the new management if they have not already been introduced to you. I would then follow up either with a letter, phone call, or conversation that you want to keep them as a tenant of the property, but there will be some upcoming changes. You will need to inform and educate them of where the current market rents are at. They have been far below market rents and may not even be aware of this so educating them is important. You can then offer meeting in the middle and that this rental amount will start effective 30 to 60 days out. This gives them some time for the adjustment as well as a minimum 30 day notice is usually required for a month to month tenant for any changes to the lease. If they accept this then sign a new lease with them. Also ask if there are any repairs or non functional items within their unit and if they are urgent fix them to give them confidence in your management style. Items that are not in good order such as an appliance or a faucet will likely need to be addressed even if a new tenant occupies. Remember that if the tenant moves out of the property you will likely be spending thousands of dollars on cosmetic updates to be able to capture the higher market rents so it may be a worthwhile option to meet on this middle ground value for rent and keep them on a month to month so you can get a sense of the quality of tenant they are.

📝 Below are specific systems & processes I have used for managing my long term rental portfolio in the Omaha, Nebraska market:

• Zillow & Apartments.com to list properties for rent & receive applications
• Pre screening prospects with a few baseline questions before scheduling showings to weed out non qualified parties & tire kickers
• Apartments.com (previously Cozy) for management platform, receiving rental payments, & accounting
• Inputting expenses for each property each month
• Separate bank account for holding tenant deposits
• Escrowing insurance & property taxes in monthly payment
• Lockbox to allow contractors access during rehab
• HVAC maintenance contract for service twice a year
• Gutter cleaning company scheduled once a year
• Leave on agreements with utility companies for all properties
• Automatic late fees applied after rent due date
• Informing tenants to email all non emergency repair requests & include images if possible
• Contacting contractor about a needed repair & having them get in touch with the tenant directly for scheduling
• Paying contractors promptly and thanking them for their good service
• Mailing 2 tenant tip letters a year incorporating visuals for various items such as winter preventative maintenance, what not to flush down the toilet, reminder to clean lint trap from dryer, etc.
• Continuous punch lists to be aware of for non emergency related items that can be addressed at turnover
• Informing tenants 30-45 days before their lease expires about upcoming renewal status
• Google Sheets for managing portfolio with separate tabs tracking purchases, loan information, equity, rent roll, cash flow, & insurance policy details

What are some other resources you have used for your portfolio?

@Ben Leybovich Hello Ben, when you say that the cap rate is irrelevant to you is this because if you see great upside on the NOI not currently being captured than you focus more on what your opportunity is and how fast you could get to those desired returns rather than the going in cap rate? Thank you for your input.