All Forum Posts by: Steve Potash

@Andrey Y. I'm in the process of building a new 28 unit apt building.  Tenants are moving into the building in 2 weeks, so I'm a bit swamped, but I quickly looked at my expenses for the past 2 years.  My expenses compared to my gross rental income ranged between 17.5 - 22.5%.  I didn't include debt service, management fee (since I self manage) or a salary for myself in my expense numbers, but I did include my actual expenses with self management (phone, computer, etc).  I'm at 100% occupancy, but I reduced my income by a 4% vacancy rate.   My new building is already 100% pre-leased and will probably run closer to the 22.5% expense ratio because property taxes on a new building will be more plus we're required to have a monitored fire alarm system.   I don't have all of the costs for the new building, but it will end up being close to the cost of buying and renovating a property on a per unit basis.  Hope this helps...

Hi Christine, 

For me, what makes a great landlord - I try to treat my tenants how I would like to be treated if I was a tenant and I take great pride in my properties.  All of my properties are either brand new or completely renovated in the last 3 years and have stainless steel appliances, granite, wood floors, brand name faucets and everything is color coordinated and matches.  Plus, I'm in the best locations.  Before someone moves in, I do an extensive walkthrough as if it was a custom house and have everything fixed, no matter how small, and have it professionally cleaned before they move in to minimize repairs during their tenancy.  I give them my cell phone to call if there are any issues and I always return their call that day and try to get any issues fixed asap.  Whenever there are issues, I try and be as fair as possible.  I'm always looking for deals that can save my tenants money... for example, a special on cable/internet.   I also ask them on a regular basis if there are any problems with the apt or if they have suggestions on how I can improve my apts or service.  I normally have zero vacancies.   Self called Gurus and books might disagree with my approach, but to be honest, I have more hands on experience than the majority of them and the only reason they're coaching or writing is because they're not profitable being landlords and need to subsidize their income.  As for my tenants,  I can screen a tenant in one minute over the phone and I'm completely upfront with what I expect from them... no parties, to pay their rent on time, to take care of my property and not to disturb other tenants.   I usually have less damage than the majority of my competitors.   You're below average or even average tenant will take advantage of you, but your better quality tenants usually won't.  Sometimes if I'm on the fence regarding renting to a tenant, I'll drive by where they currently live... if they're living in a run down place or if there's garbage, etc outside, that's an indication of how they live and will treat your property.  Another technique is looking at their car... if it's full of junk inside or on it's last legs, odds are there will be problems.  Hope this helps.

You'll also want to look at your lease... each college town usually has a standard term that everyone uses.. they are normally either 9 or 12 month leases, but could also be 10 or 11.  So you need to take into account the other "down" summer months in your vacancy numbers.  Also, depending on the demand of your student rental (if it's extremely close to campus, newer, etc), you might have the same turn rates as non-student housing... but if it's just an average student rental, Mike is correct that you'll probably have a higher turn rate and possibly higher repair/cleaning costs. 

Most landlords never really think of it through the tenants perspective.  Tenants think of landlords as extremely wealthy individuals that have tons of properties.  When the tenant receives the rent increase, if they were a good tenant, they think, wow, I've been an awesome tenant, paid rent on time, never caused any problems and in return this GREEDY landlord has to nickel and dime me and raise my rent $20-$30 per month because he doesn't have enough money already.   Don't fool yourselves.... these tenants are calling other places once they get your rent increase.   I get a lot of tenants this way and I tell them upfront... I won't raise your rent if your a good tenant.   And it's not business as usual to raise rents every year and if you think the tenants are buying that speech, you're wrong.   Just like when you receive an increase year after year with your insurance, lawn care, phone bill, etc and they tell you it's "just business"... do you say ok and continue to pay it, or do you shop around and switch because you're irritated at them for constantly raising their rates? 

I've been a landlord for 24 years and I'm still in business without having to constantly raise rents on my good tenants.  I have A LOT of tenants, they all know my name and I normally get 1-2 referrals a week from these good tenants.   The bottom line is that I'm giving up $20-$30 per month in rent during a renewal of lease, but in return, I'm keeping better tenants, plus my marketing/advertising costs are less due to the referrals, my vacancy costs (lost rent when trying to find a new tenant, which could be 1-2 month of no rental income) are less, my turnover costs when tenants move out (painting, cleaning, advertising, showing of apts, utility bills) are less .... so when you factor in everything, I actually net more money per unit than a landlord that raises their rent on their good tenants....if you want to be a good landlord, figure out ways to differentiate yourself, just don't follow the pack because everyone else does it.  

I've rented to over 1,000 tenants, and I tell all of them the same thing when they're signing the lease... If you're a good tenant, I'll never raise the rent no matter how long you rent from me.   If you can get a good tenant that pays on time and takes care of your place.. for me, that's worth more than getting 2-3% more from an average or below average tenant.  Plus, good tenants usually have friends that are also good tenants and I get a lot of tenants through word of mouth.  I might be making a little less on rent, but I'm saving a lot more on repairs/damages and vacancy/re-renting costs.  Once a tenant moves out, I'll increase the rent to market rent for the next tenant.

I'm open for a meetup, but since I'm in Frostburg, I'd probably be missing some of the meetings since it almost a 1 1/2 hour drive.

Hi Dominic,

Listen to several of the podcasts.  The 1st thing that I'd suggest to do is narrow down the area of real estate that you want to focus on because flips, multifamily and wholesaling are completely different and you'll be spinning your wheels if you try and focus on all 3.  If you want to invest in multifamily, start slow, with either a single family or duplex/triplex/quad.  You will have mistakes, we all do, so it's better to have the mistakes on a smaller property vs a 20+ unit multifamily property.

Hi Grant,

For your short term strategy, I'd suggest your 1st purchase be a student rental that's already renting to students vs converting a house to a student rental.  Student Rentals is a unique business and with no student rental experience, it's going to be very hard for you to determine how to convert it the most effectively and to be completely honest, reading even 1,000 books won't help you.  You need to get your feet wet first to understand the ins and outs....or partner with someone that has student rental experience or get a mentor.    There are a lot of 10 - 20 year old strategies that people still use today that are no where as profitable as newer strategies, so you'll be throwing away money on items that are not relevant....that being said, there is money to be made with properly converting student rentals, so you're on the right track.... just don't want you to get ahead of yourself.

I've never done a JV, but I've owned student rentals for 20+ years plus also have built them. I'm assuming the 10 or 20% is based on the net rental income. Have you calculated the net income, because without that, you don't know your projected income from the deal to determine if it's worthwhile. Also, there are a lot of questions that you'd want answered... I'll suggest a few..

- who will be managing the student rentals.. you'll need someone that understands them since they are different than a normal rental.  Also, who will be doing the maintenance on them.

- does the developer or architect know how to design student rentals.. students have different priorities vs a normal renter, so the design/floorplan needs to be tailored to them.

- what happens if the appraisal isn't high enough to refi - are you alright with keeping the loan full recourse and that might hinder you from doing future deals

- you mentioned that he's contributing the land.  How are you determining the value, because when you sell the apts, I'm assuming he wants the land contribution back.

- who's in charge.. if there are 2 of you and you disagree on something...how is it resolved.  With student rentals, there will be several decisions that will need to be made.. both during construction and once they're rentals.  For example... you have a vacant apt and almost every student has found a place for next year.  You have a group of students... that might be partiers.. do you take them with the chance of your property being destroyed.. or wait and maybe end up with a vacant apt.  

Student rentals can be very profitable and new construction is always a plus.  You just need to make sure someone understands how to design and manage them...plus it's best to figure out everything ahead of time... because if it fails... you're on the hook.

If you're knowledgeable with student rentals, you can normally make more money than a standard rental.  But there are huge differences, so you want to make sure you completely understand them before investing.  New construction is a plus, because everyone likes new.  The closer you are to campus, the more marketable it is.  A 1 to 1 parity between bedrooms and baths is a plus.   Personally, I don't like having the electric in my name... because students are not conservative.   Some college towns have 12 month leases others have 9 month leases, so I'm not sure what yours is... plus you didn't mention how much you're putting down, so it's hard to tell if that's a decent cash flow number.    I've been investing in student rentals for 24 years.   If I was going to invest in a new town, it would take me approximately 1 month to learn everything about that specific market before I feel comfortable investing.  I'm just mentioning this incase you are new, so that you take the time to learn about student rentals and the specific needs of the students in your specific town, because I've seen where there might be several properties all with the same numbers and within a few blocks of each other, but only one is a good investment....but someone new to student rentals wouldn't realize which one is the good investment.