Tenant and Toilets...What are the 2 things in your rental business that can cause you the biggest headaches...you guessed it: Tenants and Toilets...or Maintenance. We call them the 3 T's of Rentals. Tenants Toilets and Taxes. All three are unavoidable problem causers but you can mitigate the problems of 2 of them and we discuss our strategy for dealing with Tenants and Toilets in this episode. Listen in as Mike and Dave continue their talk on the BRRRR strategy and discuss Renting.
Mike: Alright guys, welcome back to the Discount Property Investor podcast, your host Mike Slane joined by co-host--.
David: David Dodge, how you guys doing today?
Mike: I'm doing great David, how about yourself?
David: I'm doing great, man, I'm awesome.
Mike: Good good.
David: I'm excited. Today's episode is about tenants and toilets.
Mike: Tenants and toilets.
David: My two favorite things.
Mike: What has that got to do with wholesaling you are going to ask yourself. Well here's the thing.
David: Has a lot to do with wholesaling actually.
Mike: It does, we are in our deep dive here on the BRRRR method, or the BRRRR strategy. We are in the second R, no-- buy, rehab, rent, we are in the rent section.
David: The second R of the BRRRR strategy. You are missing and R up here too, buddy.
Mike: Yeah I know it's fine.
Mike: It's the repeat, it's no big deal. So we are in the second R which is the rent stage, and we are talking about renting out our properties. Our normal focus is on wholesaling--.
David: It circles back, let's talk a little bit about the BRRRR strategy, guys, what is the BRRRR strategy? Buy, renovate, rent out, refinance, repeat is an aggressive rental portfolio-- acquisition strategy basically, okay? We have done--.
Mike: Why is it aggressive though? Explain that real quick. It's important, and it's one of the reasons why we like it.
David: Yeah, it;s an aggressive strategy. We are going to tie this back to wholesaling a sec, but essentially it's an aggressive strategy because we are taking a relatively small amount of money, let's say a couple of hundred thousand, okay? That we are using to buy four , five, six, seven properties at a time; renovate those properties, rent them out, then go to the bank and refinance with a loan, that essentially pays back all the initial investment, and sometimes even a little bit more, so we can take that same money and keep flipping it over and over again. So as little as maybe $300'000, we are going to buy 150 houses over the next two years, with about 300 grand, maybe a little more here, little more there, little less there, but doesn't matter.
Mike: Little less when you think about it. Here-- quickly and you start accumulating the rental, start accumulating rental income. So that's why it is always less in my opinion--.
David: It speeds up.
Mike: Exactly, if you do it properly--.
David: It grows at an exponential rate.
Mike: Love it. Again, tying it back into wholesaling, Dave, I will let you finish that--.
David: So how does the BRRRR strategy have anything to do with wholesaling? Well you always want to buy your rental properties at a discount. The best way to do buy a property at a discount regardless of your exit strategy is to get it directly from the seller. The cool thing about wholesaling is we keep the best ones for our self. Hence, we use the BRRRR strategy, or we will rehab those. Then what we don't like we will wholesale off. So wholesale to us is a profit center, it's a money maker. But it is also a job. Which to me, there has to be a means to an end to it. My means to an end is, hey let's do marketing, get a bunch of direct communication with our motivated sellers, then we can cherry pick the discounter properties that we get that we like and keep the, and do what we want with them, then we will wholesale the different. We have an exit on junk that we don't want. So learn how to get good by going direct to the seller. We actually built a course on that didn't we? What's the link?
Mike: I believe it's called the freewholesalecourse.com.
David: That's right.
Mike: Freewholesalecourse.com, guys. If you haven't checked it out we encourage you to do that pretty much every episode because we are that proud of it.
David: We've had almost 5000 people take the course, we have had a lot of positive feedback. So we are happy to give back and share some of the things that we've learned.
Again, today we are talking about tenants and toilets. So this is part of an episode series that we are doing on the BRRRR strategy.
Mike: So why tenants and toilets? One of my favorite sayings about rental properties, like the old landlords saying, tenants toilets and taxes. The three T's, man. The three T's of rentals, tenants toilets, and taxes, they are all a pain in my backside. That is why I like to call it tenants and toilets, because taxes are unavailable you have to pay them. Yes, you can appeal the assessed value and try to get a lower tax rate, but you are going to have to pay those taxes, or eventually the government is going to come and take that property.
So tenants and toilets; these are two things you can control in your rental portfolio more than many of the others. The tenants you can control via tenant screening, and selecting your tenants. The toilets or the maintenance you can control via the quality of your rehab, and the people that you chose to do your rehabs for you, and to do your repairs for you. So that's why we dive into tenants and toilets, because those are two things you can control in your rental portfolio.
David: How do you control your tenants and toilets? Well one you can screen good tenants.
Mike: That's right
David: Toilets really refers to all things maintenance. You can do good renovations on the get go and not half ass those projects. You can also use techniques we refer to as tenant proofing. Meaning you use certain types of materials that will last longer and be more durable. So that's some of the things we are going to talk about in this episode.
Mike: Great. It's going to be good, choc full of tips. In the last episode we talked about some of these things, and we are going to talk about a few of them again here. One is how do you select your tenants? How do you screen your tenants? First off you get your rental property finished, finished our rehab, we have got it through our occupancy inspection here in St Louis, and you are going to start advertising the property for sale on sites like Zillow, you are--.
David: Facebook market place.
Mike: Facebook market place.
Mike: Craigslist, Cosy.co, you can put it up there as well.
Mike: What was the other one you mentioned, Dave, My house-- something, My cash-- house--.
Mike: Wow I was really throwing you off. Man I was way off.
David: That's right.
Mike: Again, you can use sites like that to advertise your property, to do some light tenant screening, those services-- all three of those provide tenant screening, where they go on and apply through them. You can run criminal background checks, credit reports, kind of gives you and up and down on most of them.
David: They make it really easy. Some of these services actually give you a thumbs up or a thumbs down which is great, because if you are not good at analyzing numbers and they give you a scare of-- 13.20, well where does the scale start? Where does it end? Just tell me if it's a good tenant or not, and they make it real easy for you.
Mike: Hugely helpful. What else are we going to talk about with screening our tenants? So showing properties. I mentioned it in the last one. I like to set up a showing day, so once I advertise my property, people call in and they say, hey when can I see it? I like to set up three or four people on the same day. I like to go over there, I bring a flyers and I say, hey here is when we can meet, if you can meet then great, if not-- we will have to meet the next time, I have three other people in line. So again, it is pretty important to get everybody in there, because it creates-- as Dave mentioned before--.
David: A sense of urgency, guys, that you want to--.
Mike: That this property is in demand.
David: Keep it quick.
Mike: Again it is a freshly rehabbed house, which again tenants don't always get to move into. You think of somebody who is renting, often times-- they can't buy a house, they can't buy a new house. So a freshly rehabbed house is pretty cool. You can charge a little bit more rent. But it is a desirable product that hopefully you are putting out there for your tenants. Again, you want to create that urgency, get them out there.
So screening the tenants. When you meet them though, that's your first chance--.
David: Look in their cars. I love that one, that's my favorite-- look in their car. Usually somebody's car is kind of a good way to peak into their life. Think of it this way guys; most people's living rooms look like their cars. So if if there is just shit and trash everywhere, then that is how your house is going to look like if they move in. First thing I always do is look in their car.
Mike: I love it, man. That's a great idea. I wish I had known that or thought of that when I was dating my current wife. She loves stuff everywhere. I like the simplistic empty everything-- nothing on the shelf, nothing on the wall, just boring.
David: Look in the car, that's the best way to-- I have literally taken people's applications-- before they have even gone I had basically rejected them from-- properties just because of the trashiness and lack of respect they had for their own possessions, let alone my possessions.
Mike: That's cool, because people take better care of their stuff than they will someone elses. That is just human nature in general. Look at the car, I have not heard that one before and I really like it, Dave, thank you for that tip.
David: You're welcome, man, look in their car. Next is, ask them if they own a vacuum machine, that's a tip I've gotten from a buddy that owns a bunch of properties,150 plus properties. Ask if they own their own vacuum machine. Simple question you wouldn't think to ask that. But if they don't own a vacuum machine, imagine how the floors are going to look after 30 days, let alone 60 or 90 days, man.
Mike: I'm going to digress here a little bit, and that's a really good pointer. But, you call it vacuum machine, not vacuum cleaner?
David: Whatever. Could be anything. I own three or four different types of vacuums. Small ones--.
Mike: Vacuum machine? I like that.
David: Ask if they have some sort of vacuum, that's it.
Mike: I like vacuum machine, I am going to say that from now on.
David: Again if they don't have one, look at the big picture here, guys. If they don't own a vacuum that means one of two things; one, they are hiring somebody to come and clean their house which is probably not happening, or two they are not cleaning their house. That's okay to know, but you don't want to encourage that behavior in your rental property. So just ask if they own it. Another thing we don't do but I would love to start doing down the road, and again this friend who has a ton of properties does-- they sign all their leases in the current residence, or the current place that the tenant is staying. They almost require it unless it is almost impossible. Basically why they do that is-- again, they want to come into your home for a minute to see how you are treating it, how you are respecting it. If they go out there to sign a lease and there is stuff everywhere, and the carpet is torn up; right then and there they might decide this isn't a good fit. That is a more advanced strategy I would think, is signing the lease in the current residence, because that is a hard thing to scale. However, that also creates better tenants that stay longer. If they invite you into their home, you're building rapport--.
Mike: I feel like most tenants that didn't have a clean or a decent looking house currently would probably say I'm not interested. I think--.
David: I'm not interested having you out to my house on a lease--. You defeat yourself there. You select yourself out, you screen yourself out.
Mike: That's interesting.
David: Too much coffee, man.
Mike: Both of us, we are all jacked up today. We are all jacked up like Spider Monkeys. Going to come at you like a Spider Monkey, I'm all jacked up--.
David: That's a good point though, guys. Look in their cars, ask them if they own vacuum cleaners or vacuum machines, we love the vacuum machines. Advanced strategy there would be to tell them that you are happy to sign a lease with them. However you would like to see current living conditions. So if they are okay with you coming to their property any time in the next few days for ten minutes to sign the lease at their kitchen table, they can have the property. They are going to opt out of that, and that's helping you if they are mistreating their property. If they are not that's even better. If they say, great I would love for you to come and meet my dog, I'm cool with dogs but there is going to be a deposit. You work through those things, but those are some good tips there.
Mike: Yeah those are awesome, man.
David: That's some of the things we do in screening the tenants-- before the application or during the application. But there is also screening the tenant on the application. What are some of the things we are looking for on an application that may not mean they are a good tenant? Well, if they have a lot of previous addresses, and they didn't stay in those addresses for a full year or several years. If they are bouncing around-- well for one I don't want a tenant who I know is going to move out in 12 months, 50% of them are. But if I can get a tenant to stay two or three or I've had tenants stay for five years in certain properties, then you don't have to deal with the turn over and typically less maintenance too, because they are not moving in and out and tearing things up. Things you want to look for in an application would be low number of previous addresses and long terms on those. You also want to look for evictions, have they had any evictions. You want to see what their credit looks like. Do they have good credit, is it mediocre, is it bad? Those are decisions you want to make or look at on making your decisions if they are going to be a tenant. Last but not least check the criminal. I personally don't care if they have DWI's, or weed charges or whatever it might be. But if they have a prior rape on there or something along those lines, the neighbors are not going to be very happy with that, and I might own houses in that neighborhood even. So at that point you are like, eh maybe not a good fit. So just want to look at the criminal history, want to look at the credit. Again look at all those things. One thing I would highly recommend which-- I've done in the past, I can say this with full truth and honesty, I have done this every time I have dealt with the tenant, I have called the references, and or previous landlords. It is probably not that hard for a tenant to give you a bullshit reference, but I would try to ask questions that people wouldn't typically ask, just to make sure those were things that made sense. For example, if it was a high school friend or a college friend, I would say, how long have you know that person? Have you ever let this person sleep over at your house? Or stay the week or the weekend? How did that experience go? Usually I will make it funny and start laughing with them you know? Then they will start telling you, yeah he's super clean and a neat freak. Great, that's what I'm looking to hear, versus, he stole my sweater--.
Mike: He passed out on my couch.
David: Probably not going to put this application at the top of my stack. I am not saying that doesn't work for me, but if I have better opportunities I'm not going to look elsewhere.
Mike: Perfect, man.
David: Don't forget to screen the applications, screen the person, lot's of ways to do that. There are tons of tips out there--.
Mike: One of my things is-- people always freeze up when you say you're going to run a credit check and criminal background. I always say, listen-- I tell them kind of what Dave said, I don't really care about--.
David: I have DWI and weed charges on my record--.
Mike: I don't say that, but I say I am not looking for an angel, I just don't want violent crimes, and I am not looking for perfect credit, I am just looking for somebody that can pay the rent.
David: I'm guilty, I did go to college. So with that being said, some of these things you find on there, maybe they had a bankruptcy 12 years ago. It's probably no even going to show up for one. But two, things happen to people in their lives, and new chapters open and old chapters close. I am not necessarily looking for things to pick them out, but I am looking for what I like to call red flags. I think that's a better way to word it. Things happen to people and that's okay. Our goal is to provide sound quality housing at a good price for a profit, alright? We are not doing this for free, but at the same time we do care about our tenant, because if we care about our tenant, they then care about our property, and they care about wanting to remain a tenants. So there is a lot of things that go into that you have to consider, absolutely.
Mike: Yeah, no, very well said. Definitely keep your tenants happy, keep your properties up-- it's a win win relationship hopefully going forward.
David: Let's jump forward, guys, this is a tenants and toilets talk, right? Talking about advertising your properties, talked a little bit about showing those properties, you want to screen the person, you want to screen the application so that comes under screening the tenants and the properties and what not.
Next is managing those tenants. Let's say you get all the way to the point you give somebody an application, they fill it out, they pay the fee to run all the credit and everything else, you decide it's a great deal. You may or may not go to their house and sign a lease, but the lease is signed, you have collected your security deposit, and your first month's rent. Then, at that point you give them access to the property, you have to set some expectations. Mike tell us a little bit about what you do next after you sign a lease and give them the keys.
Mike: Absolutely. So I used to have-- it was called a tenant guide line. So I had-- it was a whole thing and it was basically rules of conduct. You have to have quiet hours after a certain time because I don't want the cops called.
David: Keep it simple. I usually provide them with a sheet with the utilities, names and numbers, then like you said-- best practices or guidelines you know? We are not okay with you having a party at 4am. However if you want to have a BBQ at 4pm that's all good. We are not telling you that you can't live your life, but you need to follow certain guidelines.
Mike: A lot of that you want to have at the time of the lease signing, you want to go over this with them and the expectations. You also want to provide them with your contact info; how to get a hold of you, or who do they contact when there is a problem with the property at 2am. If it's an emergency yeah call. If it's not urgent, wait till the next day.
David: That's a good point too, because if the pipes are broken and they are going full throttle and it's 3am we want you to call. Right then and there.
Mike: Call me, call a decent plumber if you have to.
David: Absolutely. Managing the tenants, you just want to set some expectations. In our-- companion course that we are going to be launching soon, companion to these episodes-- of the BRRRR strategy, we are going to be providing some sample material on-- keeping it simple though. Here is the utility companies, here is the copy of the lease, here is my contact information, and here is just some best practice slash guide lines, that is what I would recommend.
Mike: What I also would say is you are establishing a relationship with these people. You have met them at the property, now you have more of a working relationship. At this point they are moving into the property, and in a couple of days, maybe a week or two I would call out, I would be more proactive and say, how's it going? Is there anything with the property that needs to be addressed? This is another thing I would say, I would tell them at moving, please make a list of any issues you have with the property--.
David: Don't forget to take pictures before you let them move in. If you are going to sign the lease there with them, take pictures that day. I didn't mean to interrupt you but this is really important though. Or while you are showing the property, take a bunch of pictures. I took a 150 pictures of a property I am wanting to buy just this morning. I may not even buy it. Just take a lot of pictures, all the angles, every little thing and just throw it in a Google Doc, or a Google Drive, or Drop Box, you can use free software's and free apps, just do it. The reason is-- take more, take a lot more, the more the better. The reason is when the tenant moves out and you put together a list of all those repairs, you can look at your photos to say, hey was this already kind of broken or screwed up prior? Or was this the fault of the tenant? The reason is, is A, if you ever have to go to court for any reasons, you have evidence and proof. Two, you can justify sending somebody a bill for $800-1500-2000 for the repairs if you have the before and after photos. It's impossible to prove it you can't do that. But if you can prove it-- not only is it good to have a check list for walking through the property upon leasing, and them existing the property, but also add to that photos, that's my point.
Mike: That's a really good.
David: I wanted to get that in.
Mike: We just skipped over that because I just assumed with the marketing of it you have your pictures.
David: That's right you can use them for multiple things. That's a really good point too, Mike.
Mike: So what I was talking about though-- once they move in, there are going to be issues with the property. A newly rehabbed property I would say one in three or four of them, there are a couple of things our guys missed. Maybe a plumbing pipe is loose or leaks a little bit, or the washing machine wasn't hooked up right, or the AC tube is leaking or whatever. Just tell them to make a list and we will get somebody out there to take care of any issues with the property. That way again you are getting ahead of the maintenance. You are telling them you want them to be happy with the property, and you are a landlord that wants to maintain that property. So again, these are all things you want to set the expectation that it's going to happen.
The other thing on managing tenants and this is something I personally have not done-- after a few years I turned over my properties to a manager, but it is set up annual inspections. An annual inspection--.
David: Even if they move out or not you're saying?
Mike: Yeah some people do it more frequently, I think once a year getting inside the property is plenty-- to evaluate the property and say we are checking for maintenance issues that need to be addressed etc. You don't want to leave a tenant for 5-10-15 years if they are a hoarder, or are doing things that are destroying your property. You just don't know what's going on in there if you're not in there. So have your property manager or do it yourself one a year, you want to get out there and meet your tenants and see in the property. Again, as a landlord you have that right, you put that in the lease that you have the ability to do that. Again sometimes you need to give them 24 hours writen notice I think is what it is, a post it notice. Again, you want to make sure you are managing your tenants, managing your properties, keeping them up. We also like to do a drive by of the exteriors, make sure the outside--.
David: We probably do that once a month. Once we grow it's going to be tough, but there is three of us, plus our guys doing maintenance, whenever they go out to do maintenance, have them take a couple of pictures, and teach your maintenance guy how to use Google photo, it's so simple, it's free, it's in the Cloud, they can send you a link and we will throw that in our CRM and date it. That way after you have the property for ten years, you may have 10, 15, 20 different times when you went there and took photos. So we are always taking photos of these properties, didn't mean to interrupt.
Mike: No, that's good-- good for a lot of reasons too. If you get audited you can say, hey listen I was at the property on this day--.
David: Here is my photo to prove it.
Mike: A lot of good reasons to do that. So let's talk about-- we talked about managing tenants. So now we will talk a little bit about collecting rent. The old fashioned way of collecting rent obviously-- your landlord came knocking and was asking for cash. Another way is checks, people writing checks for their rent. Well that is a little bit old school, and not everyone is doing that anymore. The easier way is what I would say-- using an online service like Cosy.co, or Zillow rental manager, or-- Dave you are going to have to say it again for me.
David: My Smart Move.
Mike: My Smart Move. You can set up the tenants in a little portal and they can pay their rent every month online. It pulls directly from their account and deposits directly in yours. Saves everybody a little bit of headache. You can all see it, there is a log of it, there is no checks lost in the mail. So that's our preferred way. We are actually working on making it required for all our tenants to do ACH direct deposits, and that's something we are working with our property manager to push all the tenants to do that, just because collecting rent can be an issue if you don't have a system in place. So we want to make sure they pay the rent.
On collecting rent, we touched on this in the last episode, we will touch on it again because I think it's super important. If for whatever reason a tenant is behind on rent after the second or third day, you want to call them. Say, hey I notice we didn't get your rent yet, what's going on? You want to know if that rent isn't coming in, and you want to know when you can expect it. With that said, on the tenth day you let them know that you have to start filing the eviction process because they didn't pay their rent, period. There is almost no exceptions to that. We literally file on anyone who does not pay the rent by the tenth, not exceptions. We have to collect the money. This is pretty important.
Next up, Dave, let's talk about problem tenants. We get this one-- we can probably talk about for quite some time.
David: Yeah, that's okay.
Mike: So how do you deal with problem tenants? This is-- it's really situational depending on what's going on.
David: At this point, we have a property manager doing it for us, and that's what we recommend you do so you don't have to deal with it. Again, we like to deal with the property. We have them deal with the people. If you are in the stage where you are managing on your own, we've been there, I'm still dealing with a couple of tenants, no big deal. But some tenants are going to be easier than others. Some are going to be a huge pain in the ass, some you are going to have to kick out, okay? Don't want this to be a surprise when the tenant quits paying you to have to kick them out, it's going to happen. The more properties you have and the longer you have been doing it, the higher chance that you are going to have to do this and more frequently, okay? Dealing with tenants, again these are people but this is also a business. So you have to be careful that you are doing this properly, but you also have to make sure they know this is a business to you. So Mike you said earlier, you need to be kind of objective, you need to be stern with these people in certain areas, but at the same time, they are human beings so you want to treat them with respect. So I like to handle all my tenant issues just kind of one at a time, what's the problem? How can I help you? Let's solve it together. That's the mindset I usually have, or I will ask the tenant if they have a solution. Often times the tenant's solution is a cheaper, quicker, instant solution than I might suggest, right? It might cost less to put a piece of ply wood over a broken window for three months, then do something that I was going to do-- the tenant may have suggested that, you know what I'm saying? Sometimes I say, hey thanks for letting me know what's going on, let's address this together, do you have any suggestions? See what they do, otherwise you can run with it. You just want to make sure that you keep the integrity of their household, their safety in mind, right? If they have a broken door or a broken window, that is probably a bit more high priority than a sink that is dripping, right? So you want to prioritize those things. You also want to let your tenants know there will be a fee or a cost associated with maintenance, okay? You are happy to come over and fix those things, but you want to set the precedent from the beginning, and or the expectations that it's not okay for them to call you every day with every little thing; the door's rubbing, the carpet has got nails poking through it, the doorknob is loose. Okay well that's fine, these are simple problems that we can address one by one, however there is a cost associated with me coming out, okay? That's one of the ways I like to do it. Some property managers don't necessarily charge the tenant, but they are going to charge the owner of the property to deal with those things. I like to set it up in the beginning to let them know that there will be a charge. Again, it is not a big charge, maybe 30 bucks. But think of it this way; if something that they can fix for 30 bucks on their own, is pretty easy to do, don't you think they are just wanting to go do that and not real with have somebody walk through their property at a certain time of day they have to be aware of? What it does is it eliminates the little knick knack stuff from them calling and bothering you with. You tell them, if I come out and there is a real reason, maybe I won't even charge you a service call. But if I am coming out for some petty little BS item, I am charging.
Mike: Exactly, I think there is a clear line-- there is a difference between a hole in the roof or the AC going on or whatever versus-- like Dave mentioned--.
David: Blinds that are not going up all the way.
Mike: A tree that is blowing in the wind and scratches the window. That is on you.
David: Screens are broken-- certain things are not a big deal, but if there is water leaking, if the house is on fire call us, okay? We need to know about this ASAP. So there are certain things-- dealing with tenants is one off kind of thing. But again, these are people, you want to work with them. There is a happy medium between pushing these tenants away and not wanting to work with them, and working with them and keeping them for a long time. I would rather spend a little bit money keeping somebody happy, that I could keep in the property for three, four or maybe five years. That money that I'm spending is actually less in the big scheme of things than the opportunity cost, or the vacancy, and the repairs that I have to do for a new tenant, then pay a property manager to lease it, I have vacancies. There is a lot of things that go into play there.
Mike: The one thing I will add on to that is your problem tenants-- once you get up to a certain number, even if you are just unlucky and you screened a tenant while but they still end up being someone who calls once a month for a maintenance issue, and it's a big deal each time, and they require you to come out and fix stuff, fire your tenant. At the end of their lease, don't let them come back. It's as simple as that.
David: I'm not renewing your lease. A lot of leases have 30 day outs on the-- lease side, I can give you 30 days notice to vacate the property. Maybe that's something to consider if you are in certain areas where that may be required.
Mike: That's why we go with one year leases quite a bit. I think our property manager only does one year leases for that reason.
David: However we do offer price breaks sometimes for the two years. I love doing that. Let's say the property rents for 875, I will usually throw it out when I am doing a showing or a leasing appointment with them to say, hey I know this might not matter to you, but if you wanted to do a two year lease versus a one, it's only 825. I will literally take like $50 off a month. So what's $50 times 12 months, Mike? 600 bucks? So I am basically going to reduce my rent over the course of a year by 600 bucks. However, one month vacancy I would lose 875 anyways, or 825 or whatever, and I would have to fix that place back up. So often we will do a 50 or even as much as a $100 discount if it is 12-1500 rental property a month to say, we are going to throw this out there. I will be honest, 25% of the time people will say, hey I don't really feel like moving after a year anyway. So you're telling me if I sign a two year with you I can pay you less money? It's almost like they won that thing. Yeah let's do it, want to sign a four year? I will give you $100 off.
Mike: That's another strategy as well. Again, there is different ways to do it. No one of them is right or wrong, it's whatever makes sense for you and your business.
David: I love it man.
Mike: Maintenance, let's talk about-- I think we talked about that a little bit. What else do you think?
David: How do you handle maintenance? Typically you are going to get a phone call, you may get an e-mail, it depends if you are using a property management software. It is either going to come into you or go to your property manager. Then what are you going to do? Well in our case we have people that we are already working with, contractors, general contractors, sub contractors that we will send out to help us do those maintenance items, then we will will pay those people directly, then we may or may not bill back the tenant. If you are dealing with a property management company, they will probably have their own maintenance people. One thing I do want to talk about really quickly while we are on this topic is-- just because you hire a property manager, doesn't mean you are not managing anymore, okay? Maintenance is the main thing I think personally that needs to be looked at and managed when dealing with a property manager, because maintenance is a profit center for a lot of property managers. So the typical rate that we are familiar with, and it could be very different in lots of parts of the country is 8-12%, call it 10% as a good average of what a property manager is going to charge you a month. Well, this is something most people-- probably haven't heard before, but of a property manager's business income, typically only about 50% of it comes from the actual management fee. The rest of it comes from the mark up of their services. So maintenance, they are going to mark up the materials and the labor. So if they send somebody out to do a $100 repair; they are probably going to bill you $300. So again, that is a profit center, so you want to make sure you are doing the maintenance yourself, or you are working with somebody you trust. However, if you have hired this or subbed this out to manager-- that's okay, but make sure you stay on top of them and you manage those expenses, because a couple of bad maintenance things can throw off your cash flow for the entire year.
Mike: That's a really good tip. A lot of people don't realize that, that property managers do charge. We are lucky enough that we have one that doesn't and we do our own maintenance.
David: We have a hybrid model with ours. We pay 8%, which is on the low side. However, we do give him leasing. We don't do that our self, we outsource that to another person, he does that too. So he gets 75% of the first month's rent, again another profit center, but that's time, I don't want to deal with that, I want him to deal with the property. He makes 75% of the first month's rent. Any maintenance he gets-- included in his 8%, he just is the communicator. He sends it over to us and we work with the subs, that's how our business operates. Yours might be different, you just have to figure out what works best for you. But we like to deal with the property, and we like him to deal with the people.
Mike: Yep, that's a great way to say it. There is going to be maintenance on your properties--.
David: Even if you have just rehabbed it, I loved that. It's so true.
Mike: It happens. Tenants--.
David: It happens ten out of ten times. Is that fair to say?
Mike: Just about. St Louis Summers man-- so many AC service calls, it's just not fun to hear, hey we are replacing another system. Again, if those systems are super old when you buy the property, you may want to go ahead and rehab that or replace that--.
David: Fix that glitch in advance.
Mike: Exactly. It's not fun for you, it's not fun for the tenant.
David: Let's talk about some of the maintenance things you are seeing, Mike. You are handling a lot of this in our business. You have seen a ton of them come through. On average, what have you seen? Is it leaky faucets? Is it doors are not closing?
Mike: Yes and yes.
David: All that type of stuff. Let's run through just a couple of things that you should basically be expecting.
Mike: Your service calls are going to be seasonal as well. I know that sounds weird but they are. A few months ago we were dealing with multiple calls of leaking basements.
David: That was in the Spring in the rainy season.
Mike: Spring. Raining constantly. So why do you get so many leaky basements? Two reasons, either gutters are clogged, or there is a drainage issue on the property itself with the-- slope of the land, or just-- the gutters are clogged or they are not being directed--diverted away from the foundation. Again, that is one that is pretty frequent. The other one I was just talking about is air conditioners. Here in St Louis, temperatures fluctuate wildly, and all of sudden people have their AC on the same day. We get hammered with air conditioner service requests in a short period of time. It really depends whether the tenant decides to kick that AC on, and how cold they like it, but eventually those AC's go out and they need to be replaced or serviced. So we have had a ton of those.
David: What else are we looking at? Pull them up. Look at some of the recent ones. I am actually curious; we are going to learn this together, guys.
Mike: Got 78 total in the past since we set this up here.
David: Four months probably five months old. We do have 40 plus properties in here too, so there is a lot.
Mike: Think about that; 78 service calls. So we have it set up so we can see-- so I look at this one property, I can look at my property on Elma-- what the heck? There is just one service call, but if I go back to the property here, so we use Podio for everything, and we track everything. I can see that Dave only had one service call on this property.
David: What was it for?
Mike: This one is-- go back-- an HVAC.
Mike: Like I said, that is just one of the things that happens. Here, I can look at all the ones that are resolved here, we can sort them by date then just pop through them. If we scroll down here--. So this one was the stair was loose.
David: It could be anything, guys. This one is a leaky fridge, next one we have is-- another fridge goes out, next one we have is-- a garage door is not working.
Mike: Garage door was off the tracks-- that tenant is actually-- I know this if I look at this property, I can see that this person puts in service requests pretty frequently. I've got eight service requests for this property in--.
David: Look, three or four of them are basically declines because--.
Mike: They were the same service request, and that was a leaky basement.
David: There is only so much you can do.
Mike: There is only so much you can do, and we can only get a guy out there so fast.
David: Sorry I can't do anything for you right now.
Mike: There is just a lot of of different things. You have to be compassionate with the tenants because they are living there, they want to live in a nice home. Sure, but then here is another one, this one is a HVAC-- what else we got? A plumber, this one the city turned off the water, or they were not getting enough pressure, and it was the city doing repair work. So again there-- we are just going to hear about it.
David: You're going to hear about it. You have to kind of have some tough skin in this business, because sometimes tenants are going to give you lip on the phone, they are going to have an attitude with you, especially if you are dealing with 40-80-100 properties, and you can't drop what you're doing and get out there. There might be a 24-48 hour period that you say, yeah it's on the top of our list, we are going to get there when we can, but we might have pressing matters. You just have to be cautious to let people know, hey I appreciate you calling, trust me this is a priority for me, just like it is for you, that;s why you're calling. As soon as we can get to it we're going to get to it. People are going to come off and they are going to be rude, they are going to say that they are paying 1200-1400 bucks a month to live here, my shower is dripping, you know? Well that is one small problem we are going to work on and get that fixed, but you also have 1400 square feet of space that you are paying us for too. You kind of have to brush these things off sometimes.
Mike: Again, you want to be sympathetic. Heat going out in the Winter, AC going out in the Summer.
David: There has been times when I have [00:41:37.14 - inaudible] rent, most people wouldn't do that. But I actually care about people. Or if it's freezing cold in the Winter and the furnace goes out, guess what? I can't get my HVAC out for three days, I have paid for people's hotel rooms. Again, we are going to do what it takes to make them happy with us. But at the same time also limiting the amount of expense that we have to incur to find that happy medium to where we have a good tenant landlord relationship, that's what I was looking for.
Mike: Love it. So this one here, Dave, we will do one last one to re-emphasize the point I was talking about earlier. This one, the tenant is saying, is there any way we can get 220 vault plug for my electric drier? So this is going back to a tenant move in, I want a list.
David: Yeah, give it to me before you move in, because then it is going to be cheaper, more efficient, quicker, all of the above if they are not there. If they are there, now I have to co-ordinate with them and contractor, there is no longer a lock box.
Mike: Again, I don't mind that either though. I think after a month of living there, they kind of know what is different to them. When people move they kind of want the same things they had before.
Mike: Oh this doesn't work the same way--. There is something--.
David: So what are you going to do? I don't even know anything about this. They are asking for a 220 vault for a drier, then they want us to put up some lattice around a deck to make it look prettier? Or keep critters out?
Mike: We just did it.
David: Cool we just said, hey-- again that goes into us building the landlord tenant relationship.
Mike: Right, we want the tenant to be happy--. Honestly, this was one of our in-house guys, so nothing.
David: Maybe 50-100 bucks?
Mike: Opportunity costs, so he could have been working on other projects, that's about it, so 100 bucks.
David: But yeah absolutely. Now that tenant is like, wow they went out of their way to install an electrical line to plug in a drier so I can be clean, they care about me, right? And we went out of our way to do the lattice, just saying, it's not a big deal. But we have done what we needed to do to strengthen our relationship, so on the second or the third of the month, we haven't received their rent yet, and we have a property manager call, or that could be you to say, hey I am not trying to bother you, but haven't received your rent yet. They are going to be eager to be like, you scratched my back, let me get it to you today. That is really what you want to create, a good relationship between the tenant and the landlord for, so you can get your rent on time, and you can keep that place occupied.
Mike: Alright, I think we have talked enough today about tenants and toilets.
David: One of my favorite episodes.
Mike: Guys, if you are just starting in real estate investing, thank you for joining us and be sure to check us out on the freewholesalecourse.com.
David: Thanks guys, until next time.